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' O U T LO O K ISSUE https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis JA N U A R Y , 1977 ChecOKard Banking Centers Downtown Liberty low er Concourse PARTICIPATING STORES: inside this store for the convenience of participating banks' customers iiïgÉip ^ f „ .y A ' -a A A ^ f t -S::: B Ü Ö3 1 G D r :É Q 9275 N. May May Avenue & Britton Rd. 4 3 0 9 S . E. 15th Del City 2 036 N. E. 23rd Oklahom a City 115 E. Atkinson Plaza Midwest City 729 N. Moore City of Moore Shopping Center 2 4 0 7 N. Westminster Rd. Nicoma Park 2 500 N. May Oklahom a City 5116 N. Shartel Oklahom a City 4 4 1 7 N. W. 50th Springdale Shopping Center 9325 N. Pennsylvania The Village 4621 Windsor Mall Windsor Hills Shopping Center 4 2 7 3 N. W. 63 Plaza Mall Shopping Center 3025 S . E 44th Hartsdel Shopping Center ChecOKard I W ^ ^ I l if f îr n 'immillili PARTICIPATING BANKS: In fact, there’s a ChecOKard Banking Center inside 13 Anthony’s in the Oklahoma City area. A neighborhood ChecOKard Banking Center gives customers of participating ChecOKard banks more freedom to handle their everyday banking needs — The freedom to make □ Checking Account Deposits and Withdrawals □ Savings Account Deposits and Withdrawals all electronically with their ChecOKard. And, it can all be done in the evenings and on Sunday, when participating banks are closed. Participating ChecOKard banks and Anthony’s —working to- □ Transfers Between Checking and Savings □ Pay for Anthony’s Purchases gether to make banking and buying more convenient for our customers. If you want this kind of electronic banking conven ience for your customers too . . . contact the Correspondent Department LIBERTY T H E B A N K O F M ID -A M E R IC A American National Bank 1500 S. Midwest Blvd. Midwest City Choctaw State Bank 23rd & Harper Choctaw Citizens National Bank & Trust Co. N. W. 23rd & Classen Blvd. Oklahom a City Del State Bank 3000 Tower Drive Del City First National Bank 100 S. Broadway Moore Liberty National Bank & Trust Co. 100 Broadway Oklahom a City Medical Center State Bank 1300 Lottie Oklahoma City Park State Bank 2414 N. Westminster Road Nicoma Park Security Bank & Trust Co. 6914 S . E. 15 Midwest City Shepherd Mall State B an k 23rd & Villa Oklahom a City Southeast Plaza B an k 1300 S . E. 4 4 Oklahom a City Quail Creek Bank, N. A. 12201 N. May Oklahom a City Liberty National Bank & Trust Company/P. Q . Box 25848/Oklahoma City 73125/(405) 231-6164 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis t ) kôr'i sponda First NBC knows what it means. co r*re sp o n d (kôr'i spond') v.i. 1: for a per son, partnership, firm or corporation to carry on business transactions with another at a distance; esp: BANKING 2: to communicate by letter, telegram or telephone, and, esp. at First National Bank of Commerce, to com municate on a personal level. Our corre spondent banking officers understand all the services you require and anticipate all your needs. When you deal with us you know we know the meaning of correspondent. For in formation on First NBC’s correspondent banking programs contact Doug Lore at 1/800/462-9511, within Louisiana, or 1/800/ 535-9601, outside Louisiana. First National Bank of Commerce CORRESPONDENT BANKING DEPARTMENT 210 Baronne Street/New Orleans, Louisiana 70112/504-561-1473 Member FDIC MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 You re looking for extra profits. Our cash letter an alysis can uncover ’e m . It’s surprising how much potential profit is buried under slow paper. That’s why we’ve developed an effective action program to help you get things moving. Our program includes computerized cash letter analysis ... plus practical methods for improving proof operations and check collection. Start us digging for those profits—call 314-425-2404. We’re with you. M ERCnnTIIE BACK Central Group, Banking Dept. • Mercantile Trust Company N.A. • (314) 425-2404 • St. Louis, Mo. • Member F.D.I.C. 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 The Financial Magazine o f the M ississippi Valley & Southwest January Jan. 23-26: Bank Marketing Association Ad vertising Workshop, New Orleans, Fairmont Hotel. February Feb. 3-6: Assembly for Bank Directors, Mexi co City, El Camino Real. Feb. 6-9: ABA National Trust Conference, New Orleans, Fairmont-Roosevelt Hotel. Feb. 6-9: ABA I&PD Risk and Insurance Management in Banking Seminar, Tucson, Doubletree Inn. Feb. 6-9: Bank Marketing Association Com munity Bank CEO Seminar, Marco Island, Fla., Marco Beach Hotel. Feb. 6-18: ABA National Installment Credit School, Norman, Okla., University of Okla homa. Feb. 10-11: Robert Morris Associates Com mercial Loan Training Programs: Content and Methods Workshop, Atlanta, Peachtree Plaza. Feb. 13-15: ABA Bank Investments Confer ence, Atlanta, Peachtree Plaza Hotel. Feb. 14-16: ABA Bank Telecommunications Workshop, Atlanta, Omni International Hotel. Feb. 15-18: ABA Conference for Branch Ad ministrators, Atlanta, Fairmont Hotel. Feb. 16-18: Bank Administration Institute Dis trict Senior Management Program (a Con ference), Little Rock. Feb. 20-26: ABA Operations/Automation Div. Business of Banking School, Fort Worth, American Airlines Learning Center. Feb. 23-25: Bank Administration Institute Workshop Series, Mobile. Feb. 27-March 1: ABA National Credit Con ference, Chicago, Palmer House Hotel. Feb. 27-March 4: ABA National Personnel School, Denver, Marriott Hotel. Feb. 27-March 4: ABA Community Bank CEO Program, Santa Barbara, Calif., Santa Bar bara Biltmore. Feb. 28-March 3: Bank Administration In stitute EDP Audit Conference, Houston. Volume 7 3 , No. FEATURES 32 FORECAST FOR 1977 Five bankers assess outlook for new year 37 A LOOK AT 1977's ECONOMY To rise at steady but moderate rate 46 WHAT ABOUT BANK INVESTMENTS IN 1977? Where should they be concentrated? W. Liddon McPeters George L. Hacker 50 WHAT'S AHEAD IN AGRICULTURE? Higher income, but higher costs, too Debby Spruk Small 54 ASSOCIATION HEADS MAKE FORECAST They speak out on banking issues 60 NATIONAL ASSOCIATION OF BANK DIRECTORS What’s in store for this new group ? 64 GOV'T-GUARANTEED LOAN PROGRAMS And the secondary market James A. Webb Jr. Alton M. Bathrick DEPARTMENTS 6 THE BANKING SCENE 10 BANKING WORLD 13 PERSONNEL 17 COMMUNITY INVOLVEMENT 24 EFTS 28 NEWS ROUNDUP 18 OPERATIONS 22 SELLING/MARKETING 30 AGRICULTURAL NEWS STATE NEWS 79 INDIANA 79 KANSAS 79 KENTUCKY 78 ALABAMA 78 ARKANSAS 78 ILLINOIS 80 LOUISIANA 80 MISSISSIPPI 80 MISSOURI 82 TEXAS 82 NEW MEXICO 82 OKLAHOMA 82 TENNESSEE lll!lllll!lllllllllll!!ll!lllllll!lllll!lllllll!lllll!lllllll!ll!ll!llll!ll!lllllll!IIIIIIIIIIIIM Editors Ralph B. Cox Editor & Publisher Lawrence W. Colbert Assistant to the Publisher Rosemary McKelvey Managing Editor Jim Fabian Associate Editor Daniel H. Clark Assistant Editor Advertising Offices St. Louis, Mo., 408 Olive, 63102, Tel. 314/ 421-5445; Ralph B. Cox, Publisher; Mar garet Holz, Advertising Production Mgr. Milwaukee, Wis., 161 W. Wisconsin Ave., 53203, Tel. 414/276-3432; Torben Soren sen, Advertising Representative. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Donald C. Miller 40 WHAT'S AHEAD IN BANKING LEGISLATION? What important issues will Congress focus on? March March 2-4: ABA Advanced Construction Lend ing Workshop, Columbus, O., Ohio State University. March 2-4: Bank Administration Institute OnLine Operation/Small Bank Seminar, Dal las. March 6-8: Bank Administration Institute Di rectors Forum, Palm Springs, Calif. March 6-9: Robert Morris Associates Financial Statement Analysis Workshop, Kansas City, Crown Center. March 7: Bank Marketing Association Com munity Bank Seminar, Milwaukee, Marc Plaza Hotel. March 9: Bank Marketing Association Com munity Bank Seminar, Kansas City, Mar riott Hotel. March 13-16: Bank Administration Institute Bank Presidents Forum, Place Not An nounced. March 14-15: Robert Morris Associates Loan Quality Control Workshop, St. Louis, Breckenridge Pavilion. March 14-16: Independent Bankers Association of America Convention, Washington, D. C., Washington Hilton Hotel. March 15-19: Bank Marketing Association Essentials of Bank Marketing Course—Mid west Extension, Chicago, University of Chi cago. March 16-18: Bank Administration Institute Audit Management Seminar, New Orleans. March 20-23: ABA Trust Operations and Auto mation Workshop, Bal Harbour, Fla., Ameri cana Hotel. March 20-23: Bank Administration Institute Corporate - to - Corporate Electronic Funds Transfer System Conference, New York City. March 21-23: Bank Administration Institute Corporate-to-Corporate EFTS Conference, New York City. March 22-25: Bank Administration Institute Personnel Short Course, BAI Headquarters, Park Ridge, 111. March 24-25: Robert Morris Associates Inter national Lending: Techniques & Standards Workshop, Washington, D. C., Hyatt Re gency. March 27-30: Robert Morris Associates Credit Department Management Workshop, Kansas City, Crown Center. January, 1977 1 MID-CONTINENT BANKER is published 13 times annually (two issues in May) by Commerce Publishing Co. at 1201-05 Bluff, Fulton, Mo. 65251. Editorial, execu tive and business offices, 408 Olive, St. Louis, Mo. 63102. Printed by The Ovid Bell Press, Inc., Fulton, Mo. Second-class postage paid at Fulton, Mo. Subscription rates: Three years $21; two years $16; one year $10. Single copies, $1.50 each. Commerce Publications: American Agent & Broker, Club-Management, Decor, Life Insurance Selling, Mid-Continent Banker, Mid-Western Banker, The Bank Board Letter and Program. Donald H. Clark, chairman; Wesley H. Clark, president; Johnson Poor, executive vice president and secretary; Ralph B. Cox, first vice president and treasurer; Bernard A. Beggan, William M. Humberg, James T. Poor and Don J. Robertson, vice presidents; Lawrence W. Colbert, assistant vice presi dent. 5 The Banking Scene By Dr. Lewis E. Davids Hill Professor of Bank Management, University of Missouri, Columbia N O W s-lt's Later Than W e Think! OME YEARS AGO in New York City, I observed a soap-box orator at the corner of Wall and Broad streets —the heart of the financial district. The man was preaching hell fire and damna tion to an audience comprised mostly of bankers and stockbrokers, who the speaker obviously believed needed re demption. A placard that the speaker carried said, “It is later than you think.” More than once since then I have run those words through my mind in regard to the NOW (negotiable order of with drawal) account, because it is later than we think insofar as the competi tive situation is concerned! NOWs have been around for several years and they will not fade away, as many commercial bankers would wish. NOWs have evolved in a number of ways: Some thrifts offer them free, with no conditions; some provide them free, but with a minimum balance in an in terest-bearing passbook account; while others make a per-item charge for each NOW item written by a customer, or make a charge when a certain number of NOWs are used by a customer dur ing a month’s time. Some thrifts report NOW transactions through monthly or quarterly statements and some link the NOWs to a passbook posting, re taining the NOW item (although a photocopy of any item may be obtained by the depositor). I ’ve discussed NOWs with commer cial bankers, who generally view them in a hostile light. Bankers wish they could wake up to find that NOWs are just a nightmare; or, if not a nightmare, that legislation limiting their use could be passed at both state and national levels. It may be surprising, but while many mutual and S&L executives favor S NOWs, a surprising number have joined their commercial-banking broth ers in opposition to them. It’s disappointing to me, as an edu cator, that on both sides of the issue there appears to be more emotionalism than factual data. Further, some of the data that has been cited about NOWs appears to be contrary to other data given by either proponents or oppo nents of the issue. It is difficult to ascer tain whose data should be believed. The F ed eral H om e L oan Bank B oard " Bankers wish they could wake up to find that NOWs are just a nightmare; or, if not a nightmare, that legislation limiting their use could be passed at both state and local levels." Journal recently published the tables accompanying this article, which were prepared by George C. Campbell, vice president, Union Federal Savings, Pitts field, Mass. The tables show the $200million S&L with nine branches as hav ing approximately 50,000 savings ac counts, of which 6,362 are NOW ac counts. Union Federal’s management, according to the article, originally was reluctant to offer NOWs, due to con cern about costs involved, but manage ment presently feels that there is no question that the accounts have been successful. According to Mr. Campbell, the cost of NOW accounts is analyzed each quarter. Table 1 indicates that, as of last June 30, the S&L’s annual cost for its NOW accounts was $224,499, or 6.2% in terms of cost-of-money. This ratio was down slightly from the 6.4% posted in January, 1974. “It can readily be seen that, from an institutional point of view, 6% money " Hopefully, (bankers) will heed the words of J. Rex Duwe, im mediate past ABA president, that once the consumer gets used to the idea of 'free' accounts, it will not be easy to begin charging for them/ 1 6 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis is not high when compared with the cost of offering certificates,” Mr. Camp bell wrote. “Moreover, these accounts are, in more than 80% of the cases, new money, and their outstanding balances have continued to grow.” Table 2 gives a detailed breakdown of activity in the S&L’s “Right NOW” accounts. Before going into these ac counts, management envisioned the majority of depositors writing from 20 to 30 or more checks per account per month, but such has not proved to be the case. Overall, the monthly average ranges from a low of 3.8 in January, 1974, to a high of 6.4 in June, 1974. At the end of June, 1976, the per-account average was 5.9. Mr. Campbell feels this is not an unusually high volume when compared with the Boston Fed’s statistical report of 10.7 items per month for commercial banks in its area. “It is our experience that, of our ‘Right NOW’ accounts, only 457 hold ers wrote more than 21 checks per ac count in the month of June,” Mr. Campbell wrote. Proof that a NOW-account holder uses the account as a conveniencetransactions savings account can be seen at the bottom of Table 2, where 81.2% of the balances are in 25% of the accounts with balances greater than $500. These accounts are the ones that offset the low balance, high-activity account and make NOW accounts profitable, Mr. Campbell wrote. It is not difficult to conclude that, if NOW accounts were offered without the payment of at least 5% interest, the incentive for the customer to use them as savings accounts would be greatly diminished. A recent NOW account study in dicates that NOW accounts in New England held an $850 average balance, MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 pfiSP j;, A M Y IN THE TRANSIT DEMKTMENT. The Transit Department is working late again. United Missouri’s Transit Department works 24 hours a day —five days a week, and 18 hours a day on weekends. This enables us to give better service at lower costs. It’s why you should send the coupon for our Rapid Transit Item Profitability Schedule and other information. Or better yet, ask about our 30-day trial of guaranteed better service and better costs. You can phone collect. You have nothing to lose, and profits to gain. C orrespondent D epartm ent U n ited Missouri B an k of Kansas City, N .A . 10th & G rand, Kansas City, M o. 6 4 1 4 1 (8 1 6 ) 2 2 1 -6 8 0 0 □ Send me the Rapid Transit Profitability Schedule. □ I’m interested in your 30-day trial, too. Name__________,-------------------------------------------- ’ Address--------- ,-------------j--------------------------------City________________________________________ State----------------------------------------- Zip------------- - L_____________________________ ____________ J i t f UNITED M ISSO U RI RANK OF KANSAS CITY, N.A. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 while the typical checking account, paying no interest, held only a $250 average balance, Mr. Campbell wrote. It is because of the higher average bal ance in an interest-bearing NOW ac count that the operation is profitable. Conversely, the offering of a check ing account without the payment of in terest can result in a costly account, he continued. It is disheartening to ob serve segments of the S&L industry in dicating that NOW accounts are not desirable. “I suspect that one reason why commercial banks have never been able to make money on checking ac counts is because the consumer has no incentive to keep a comparatively high balance in a non-interest-bearing check ing account,” he said. Readers may wish to compare tables 1 and 2 with their own banks’ averages for transactions and balances, and to ponder whether their market and com petition might exhibit similar character istics. A recent paper on the subject shows that 95% of our nation’s 475 mutuals today have the authority to offer check ing accounts, NOWs, or both. Because of this, commercial bankers may con clude that NOWs have been putting increasing pressure on the effectiveness of Regulation Q. Hopefully, commercial bankers, mu tual savings bankers and S&L execu tives will heed the words of J. Rex Duwe, immediate past ABA president, who said that, once the consumer gets used to the idea of “free” accounts, it will not be easy to begin charging for them. He cautions against bankers say- Table 1.— Cost A nalysis of NOW Accounts Based on June 1976 Averages * Annualized cost Percent 37,700 d rafts at 0.23 per draft ...................... 37,700 d rafts per month tim es 2 cents per (for free d rafts) tim es 12 m onths F S L IC in su ran ce , rent, State e xcise, MICRO film , e tc............................................... ...... Interest on average balance annualized $ 10,620. .0030 9,048. .0025 10,000. 182,431. .0030 .0509 Subtotal ................................. 212,099. .0594 Cost of $200,000 checking balance at 6.2 * .......................................................................... 12,400. .0035 Total c o s t .............................. 224,499. .0629 m oney in v e s te d *W e assu m e 8% w h i l e in g s at c o u ld be c o m m e r c ia l b a n k s a p p ly at earn 1 .8 % . ing they can’t afford to price NOW ac counts— or any other kind of account— solely in reaction to competition. Only by knowing their costs can bankers really compete when they are faced with cut-rate pricing on a wide range of services, he said. It is sad that few bankers are ac quainted with the full spectrum of ser vice costs. Costs aren’t expressed by a single figure; there are unit costs, stan dard costs, average costs, functional costs and incremental costs, to name only a few. Sadly, fewer than 1,000 of the 5,800 Fed-member banks participate in the Fed’s free functional cost analysis. That basic study is a step in the right di rection, yet only about one in six Fedmember banks chooses to take the time and effort needed to cooperate and get a fix on functional costs. Using this as a crude approximation, I wonder if similar attitudes and proportions exist among the thrifts. If they do (and they probably do), then Mr. Duwe’s wise words are likely to have fallen on the ears of too high a proportion of bank ers and S&L executives who don’t know their costs. It is later than we think! Remember the pungent words of one of banking’s elder statesmen, Charles Agemian: “I don’t mind competing with a smart competitor. I do mind competing with a stupid one.” A smart competitor knows his costs. Table 2.— Activity in Right NOW Accounts Checks per account per month Period January 1974 ........................................................................................................... June 1974 ................................................................................................................. January 1975 ........................................................................................................... May 1975 December 1975 ....................................................................................................... March 1976 .............................................................................................................. June 1976 .................................................................................................................. Number of checks 2,298 8,007 19,206 25,062 28,750 37,237 37,700 Per account average 3.8 6.4 53 5.4 5.1 6.2 5.9 Check activity from May 30 through June 30, 1976 Total Number of accounts Percent of total accounts Number of checks per account 6,362 1,650 3,202 1,053 457 100.0 25.9 50.4 16.5 7.2 37,617 0 1-9 10-20 21+ NOW account composition by balances Size of account balances Less than $100 $100-499 ............... 500-999 .............. 1.000- 4.999 .......... 5.0009,999 ... $10,000 and over 8 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Number of accounts 1,903 2,117 637 593 79 28 Percent of total number 35.5 39.5 11.91 n i l i.5 r 0.5J 250 2 50 Total amount of balances $62,908.24 533,834.46 437,661.57 1,181,988.59 519,594.46 444,280.31 Percent of total balances 2.0 16.8 13.8) 37.21 812 16.3 f 8 1 2 13.9J Average balances $33.06 252.16 687.06 1,993.23 6,577.14 15,867.14 MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 N ow is the time to expand home improvement loan volume. Here are six reasons ICS | the w orld's leading in surer.of hom e im provem ent loans, believes current econom ic conditions provide an excellent climate to increase your HIL volum e and profits. Unlimited Marketing Opportunities. Every hom e ^ im pro vem ent loan provides the o ppo rtu n ity to ef fe ctive ly cross-sell all banking services. Th e hom e o w n e r is a ready-m ade and grow ing audience fo r prom otions that provide useful and innovative hom e m o dernization ideas. Since 1954, ICS has accum ulated a w ide variety of effective hom e im- 4 provem ent prom otions that are o ffered exclusively to our m ore than 1100 client banks. Stable Diversification. C o nsu m er H IL dem and conm tinues to grow and the tim ing is perfect fo r in 1 creased loan activity in this category. Loan volum e in other categories such as autos, boats and rec veh icle s is ad versely affected by possible energy shortages and inflatio n ary p rice increases. ... Increased home modernization activity. There # co u ld n 't be a better tim e to em p hasize hom e im provem ent loans. Because of inflatio n , people are m ore involved in do-it-yourself projects and are co nstantly aw are of needed im provem ents. Also high mortgage rates m ake H IL m ore feasible from an econ o m ic standpoint. 5 Higher yield. Y o u r profits are being squeezed by ^ spiraling costs and can be offset by a high yield hom e m odernization plan. An ICS program assures that yo u r gross inco m e w ill be higher than that re ceived from FH A auto and m o b ile hom e loans. Let us dem onstrate how an ICS insured program w ill provide a dramatic increase in profits on a p ri vately insured po rtfolio com p ared to FHA coverage. 6 100% Credit Protection. ICS insured hom e im^ provem ent loans e n jo y 10 0% cred it protection. And w e include every unpredictable default . . . such as layoffs, recessio n, strikes, b ankrup tcy and d ivo rce . O th e r loans, by co m p ariso n , put the entire burden of risk on yo u. 6 reasons w h y n o w is the tim e to expand yo u r hom e im pro vem ent loan vo lu m e. C all or w rite W illia m F. Schum ann, President, fo r personalized ideas applied to yo u r situation. As the w o rld 's largest hom e im pro ve m ent loan insurance service co m p any, our expertise w ill help you achieve yo u r profit goals. 2 3 Community Service. Th e hom e o w n e r is the "b ack^ b o n e " of the co m m u nity. There is no better w ay for your bank to make a constructive contribution to com m unity service than the active prom otion of program s fo r financin g the m aintenance and im provem ent of property! IN S U R E D C R E D IT M S E R V IC E S 1 307 N. M ichigan Avenue Chicago, Illino is 60601 312/263-2375 America's No. 1 insurer of home improvement loans. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 NEWS OF THE BANKING WORLD ADAMS BOYSEN • Thomas Bertram (Bert) Lance, president and CEO, National Bank of Georgia, Atlanta, will become director of the Office of Management and Bud get (OM B) in Washington, D. C., when Jimmy Carter becomes President January 20. Mr. Lance entered bank ing at the age of 20 in 1951, when he became a teller at Calhoun (Ga.) First National. He became its president and CEO 12 years later. In 1974, he was elected chairman, a post he continues to hold. On January 23, 1975, Mr. Lance was named president, National Bank of Georgia. He was commission er, Georgia Department of Transporta tion, 1971-73. • Eugene H. Adams, ABA president in 1972-73, retired December 1 as chairman, First National and First Na tional Bancorp., Inc., both of Denver. He continues to serve both organiza tions as vice chairman until January 13, his official retirement date. A past president, Colorado Bankers Associa tion, Mr. Adams entered banking in 1934. Theodore D. Brown will retain the First of Denver presidency and as sume Mr. Adams’ position as chairman of the bank and HC. LASATER BAKER eral Reserve banks. He went to the Kansas City Fed in 1941. When he re tires, he will leave the FRS as the dean of Reserve Bank first vice presidents. • James V. Baker has been pro moted from senior vice president to executive vice president, Fidelity Bank, Oklahoma City. He also has been made executive vice president, Fidelity Corp. of Oklahoma, Inc. Mr. Baker is a na tionally known speaker and has been an active bank consultant and written numerous articles on banking. He also is on the faculties of the ABA National Commercial Lending School, National Commercial Lending Graduate School, National Installment Credit School and National Investment School. Most re cently, he was appointed chairman of the ABA National Commercial Lend ing School’s board of regents. Mr. Baker joined Fidelity Bank in 1972, is a member of the executive committee and board and is responsible for the bank’s investment division, economic analysis and Fidelity Advisory Services. • Donald E. Lasater, chairman and CEO, Mercantile Trust, St. Louis, has been selected by the St. Louis Fed’s board as a member of the Federal Ad visory Council from the Eighth Fed District for 1977. • William McChesney Martin Jr., former Fed chairman, has been elected to the board of American Express In ternational Banking Corp., worldwide international banking subsidiary of American Express Co., New York. Mr. Martin has been a director of American Express since 1970. He is counselor to Riggs National, Washington, D. C., and served as Fed chairman from 1951 to 1970. • John T. Boysen will retire January 31 as first vice president and chief op erating officer, Kansas City Fed, after a Federal Reserve career of nearly 43 years. Mr. Boysen, who will be 65 this month, joined the Fed’s Board of Gov ernors in 1934 as an assistant examiner assigned to field examinations of Fed • Two Mid-Continent-area bankers have been elected directors of the In dependent Bankers Association of America and represent their respective states on the IBAA’s executive council. They are: Indiana— Elton H. Geshwiler, vice president, First Bank, Indi anapolis; and T en nessee—James R. Fitzhugh, president, Bank of Ripley. 10 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis LANCE Incumbent directors were reelected in five states, of which three are in the Mid-Continent area: Missouri— Harvey B. Young Jr., president, Bank of Kirksville; N ew M exico— Claude E. Leyendecker, president, Mimbres Valley Bank, Deming; and O klahom a—Robert L. McCormick Jr., president, Stillwater National. • Peter B. Smith has been elected senior vice president, Morgan Guaranty Trust, New York City. He heads the national banking group that includes the eastern and southern states. Mr. Smith previously was president, Bank Morgan Labouchere N. V., in Amster dam, in which Morgan Guaranty holds a 50% interest. • Bruce K. MacLaury, president of the Minneapolis Fed since mid-1971, will become president, the Brookings Institution, February 1. The institution is a public policy research group, head quartered in Washington, D. C. Mr. MacLaury was deputy under secretary of the Treasury for monetary affairs from 1969-71. • Common shares of First City Ban corp. of Texas, Houston, were traded December 1 for the first time on the New York Stock Exchange. The ticker symbol “F B T ” was assigned to the shares. J. A. Elkins Jr., the HC’s chair man, bought the first 100 shares— the first trade of the day on the stock ticker tape. He and Nat S. Rogers, HC presi dent, were welcomed on the floor by exchange officials. • Catherine Cleary, a former presi dent, National Association of BankWomen Inc., has been elected chair man, First Wisconsin Trust, Milwau kee. She was president and continues as CEO of the firm, which she joined in 1947. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 THE LOOK OF HIGH FINANCE WM traditional or contemporary, but it must have that feeling, that certain aura, that says the person who occupies this space is a professional. We understand that at Arrow Business Services. Our Design Department specializes in that look. We cater to it with 16,000 square feet of custom showroom. Furniture. Decor pieces and accessories. People and paper flow systems. Even supplies. And all of it is in active inventory in our 25,000 square feet of warehouse behind the showroom. We also understand some thing else at A rrow . . . even the look of HRRCM 4 high finance should be supplied at a BUSINESS SERVICES INC. reasonable cost. Call us, and let us take an affiliate of M e m p his B ank & Trust 3 0 5 0 M illb ran ch • M em phis, T en nessee 38116 a look at your needs. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis II MISSISSIPPI HAS AN ATTITUDE WORTH CATCHING! We believe in hard work for what we want, and we know how to work hard together. We think our attitude is one of the most important, most positive of our state’s many resources. We’ll bet you don’t know all the facts about the good things w e’re doing in Mississippi. Find out m ore from First National B ank... you’ll be interested in what you hear. Jackson, Mississippi Member rQIC 12 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 Banks Should Accelerate Development And Upward M obility of Women By AN N A FOSTER Vice President V alley National Bank Phoenix O ONE SEEM S sure why so many women have filled the labor mar ket in recent years. The main point, it seems to me, is not w hy women are now present in in creasingly more statistical quantities in banking and other private industries as well as government, but rather how they can best enrich their own lives and those of the organizations for which they work. When we begin viewing women as individuals first, perhaps the slow-starting revolution in attitude also will follow. My second point concerns creation of a banking environment that will foster development of better bankers, more satisfied customers and probably higher profits. N "Let's dispense with the ab senteeism argument immediate ly . . . U. S. Public Health Service surveys have shown no differ ence in absenteeism rates of men and women." The first step must be to make lowerlevel positions more meaningful. Typ ically, dead-end jobs with little oppor tunity to expand one’s horizons are not the answer to good banking or a low rate of job turnover, particularly in lower-level clerical positions. Not every woman wants to be a vice president or part of the senior-management team. There always will be ample room for Indians and chiefs. But every person, male and female, wants certain basic job satisfaction. A woman wants to know where and how what she does fits into the overall scheme of things. Whether secretary, teller or vice president, it is vitally im portant that the female in banking knows what she is contributing. Work ing in an isolated computer operation doesn’t do much to help this concept unless we continually supplement her job experiences with more education Mrs. Foster gave the talk on which this article is based at the Bank Administra tion Institute’s 52nd national convention. about banking generally . . . and ex actly what she does to help make the wheels of the overall machinery work. Encouragement of attendance in AIB courses at every level certainly is a start. But additionally, managers and supervisers with a broader view than their workers must make an all-out ef fort to communicate with women. Providing a broader spectrum may be enough for some in lower-level banking jobs, but there always will be women who soak in the information like a sponge and cry for more. For those women, we must have the in sight to provide continuing opportunity for educational and job expansion. If a woman becomes more knowledgeable than required by her job, the banking environment must be one that allows her to move into another area where she has room to continue that growth. This involvement concept probably is the most important to women. A teller who knows about commercial lending or investments is a great asset to herself and the bank, and she prob ably likes her job. We know from marketing research, for example, that no matter how so phisticated we become in banking transactions through electronic funds transfer systems, our customers still want person-to-person contact with someone who has the answers to their questions. Most tellers are women. They ought to have the answers. So should secretaries and key punch op erators. Perhaps, instead of bulldozing new employees through a two-day orienta tion period, we could set up internal banking courses for general banking concepts. If this were done after a woman has been on the job for a while, it would be possible for her to relate her job experiences directly to those general banking concepts she’s be ginning to understand. The second essential in creating a rewarding environment is salary satis faction. No doubt, that seems a basic concept to most, but it is surprisingly overlooked by many in middle- and upper-management positions. Women want to be paid for what they do— and they want to be paid fairly in com parison to their male counterparts. The banking industry still finds its way— loopholes, if you will—to elude this MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis legally, but it rarely fools the women on which this unspoken principle is in flicted. For example, higher rates of absen teeism and turnover among women often have been cited as reasons for their failure to advance as rapidly as men. They also have been cited as a justification for unequal opportunity, for paying women less than men and for refusing them access to higher-level positions. Let’s dispense with the absenteeism argument immediately. For the past several years, U. S. Public Health Ser vice surveys have shown no difference in absenteeism rates of men and wom en. It isn’t always possible to pay every one what they think they are worth. But it is possible to assure everyone that they are making an equitable sal ary in comparison with other employees doing the same or similar jobs. Running contests to sell services can help compensate for low-salaried posi tions, and, of course, fulfilling the promise of making more money for doing a job well satisfies many. I’ll devote my final thoughts on ac celerating the development and up ward mobility of women on advance ment opportunities. This, I think, also must include effective recruitment. "In a period of cultural tran sition as major as the one we are facing with changing sex roles, we are all in trouble . . . until we arrive at some consen sus on a new set of rules." Banking history has given it a male image, so ambitious girls in high school and college are unlikely to think about banking as a field in which they would be welcome. Conversely, bankers have, until recently, been unlikely to think about women as potential candidates for positions offering upward mobility. Now that banks have started to think about women for officer positions— some now recruit at women’s colleges — they, not surprisingly, find few wom en with the requisite training and in terests. It’s no secret with today’s research statistics that women can do almost any job put before them. They are doctors, professors, writers, bankers, lawyers, pole climbers, athletes, plumb ers, electricians and dozens of other things. Princeton’s Educational Testing Ser vice, which prepares the Admission Test for Graduate Study in Business, has found that the typical woman en tering graduate business school today is not much different from her male 13 counterpart: Both are ambitious, aggres When administrative support and teller which to work, as well as the proper sive, self-confident, independent and jobs were male, they used to provide training and opportunity for advance capable of making decisions. Both have avenues to advancement, but they were ment, are abundant for both men and the same graduate point average and different jobs. The teller job, since it women. test scores (M adem oiselle, Sept., 1974. became a predominantly female job, Women, after all, are nothing more “Executive Jobs: How You Can Land has been simplified and glamorized. To nor less than human beings and indi Them.” Nancy Axelrad Comer). change it back into an avenue for ad viduals first. The mystique and false E ducation magazine reported in 1974 vancement, the job would have to be assumptions that have so long sur that on the standard Law School Ad enriched and professionalized. rounded any area they occupy should mission Test, female candidates have In banking’s past, there was only be cast aside now to everyone’s bene outscored men consistently for the past one level of entry and a very small fit. several years. number of career paths. Now there are By freeing women to whatever ca But isn’t it interesting to note that many levels of entry and multiple pacity each is capable of, we build a of the 20 major corporations surveyed career paths. Women, however, were better and more productive world for left behind at the original entry points. by H arvard Business R eview in 1973, us all. For truly, the liberation of wom only 1% of the managers, officials and The new entry points have changed en is nothing more than the liberation professionals were women. A 1972 the nature of their jobs and put an ef of men and all of society as well. • • Fortune survey of 1,220 large corpora fective ceiling on their advancement. tions showed that the ratio of men to We can’t go back to the old structure Assemblies for Directors women on top board member and of to give women the opportunities they Beef Up Next Program ficer positions was 600 to one. were denied in the early part of the Due to the recent devaluation of the century. Nor can we live easily with Encouragingly, in the past few years, the inequities the old prejudices have Mexican peso, additions have been IBM has tripled its number of women scheduled to the program of the As managers; women (in 1974) were a bequeathed to the new structure. sembly for Bank Directors, to be held grand total of 4% of its managerial in Mexico City February 3-6. work force. More grim statistics: Al though 40% of the American work force Program a d d itio n s include daily is female, only 2% of workers making "A bank that starts adding breakfasts, a dinner and program at a over $25,000 a year are women, and men to its teller lines deserves well-known restaurant and additional less than 1.2% earn $15,000 or more a higher nondiscrimination score informal discussion sessions. compared to 16% of men (M adem oiselle, The Assembly program meets the Sept., 1974. “Executive Jobs: How You than one that adds a woman to standards specified in the new tax law its board/' Can Land Them.” Nancy Axelrad regarding deductions for foreign con Comer). ventions, according to Richard B. John Cynthia Fuchs Epstein, associate son, director. professor of sociology at Queens Col Information about the Assembly can In a period of cultural transition as be obtained by writing to Box 214, lege, told a Stanford University con major as the one we are facing with Southern Methodist University, Dallas ference on women in management in changing sex roles, we are all in trouble TX 75275. April, 1974, that “even where women are given higher-level administrative —women, men and organizations—un til we arrive at some consensus on a jobs, these are positions which are not new set of rules. on a track to management, but rather Edgar Savidge Dies The lesson to be learned from the are on ancillary routes. . . . Women transsexual shift in the teller job is that tend to get jobs which are actually and Edgar T. Sa symbolically less visible. Actually, be a switch from male to female does not vidge, former ABA represent progress in providing equal executive manager, cause they do not have contact with clients and with the market; symbol opportunity. Jobs tip just as neighbor died last month at hoods do, and it takes effort to stop ically, because the jobs they have are the age of 61 in them from doing so. not defined as crucial.” N ew Brunswick, The ideal is to have men and women Certainly, we see what Mrs. Ep N. J. coming in at every entry point in pro stein is talking about at work in bank H is career portions equal to their representation ing. If we are to continue to upgrade spanned 25 years in the labor force and from there to the quality of professional bankers we at the ABA. He have movement up dependent wholly joined the associa have, women finally must be admitted to the avenues leading to upper ranks on individual ability and interests. Un tion’s staff in 1946, in real estate, commercial lending, ag til men and women are in the same following military service in World career paths, movement up cannot de War II. In 1948, he was named secre riculture, top-level positions in trust and, finally, to executive board posi pend wholly on individual abilities and tary of the ABA agricultural commis interests. tions. sion; in 1967 he was appointed di A bank that starts adding men to its rector of the banking education com We must let high schools and col teller lines deserves a higher nondis mittee; and he took the executive man leges know early in the game that women are welcome in truly responsi crimination score than one that adds a ager post in 1969. woman to its board. Men as clerkble and productive positions in banking On his retirement from the ABA in if we are to attract the caliber of wom typists and secretaries earn even more 1971, he became business administrator points. en students who now seek professional of the city of New Brunswick, a posi fulfillment elsewhere. Our modern world is filled with tion he held until 1975. However, advancement opportunities causes and issues. All seem very im He was named a trustee of Rutgers do not occur only in upper echelons. portant to the people involved in them. University in 1965 and served as chair But I think it’s safe to say that the re man from 1974 to 1976. He was a What are the prospects of providing advancement opportunities for the 90% wards to be found in offering women member of the university’s board of of banking women now in clerical jobs? a creative and fair environment in governors at the time of his death. 14 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BA N K ER for Jan u ary , 1 9 7 7 How Mudi More is a Good Employee Worth? Maybe ju st the cost off an Employee Benefit Program through Scarborough Scarborough A sso cia te s knows and under stands the needs of banks and bank em ploy ees. Supported by 25 yea rs’ experience in em ployee benefits, we have develooed an Em ploy ee Benefit Program including: * 1. 2. 3. 4. 5. 6. 7. Major Medical (Hospitalization) Dental Care Long-term Salary Continuance (to age 65) Short-term Salary Continuance Life Insurance (to $100,000) Accidental Death (to $100,000) Cancer Protection \ Take a moment to com pare the benefits and rates ...ra te s which are based on the favorable claim experience of bank em ployees. Call co l lect (312) (346-6060) or write Jim Keye, Director of Group and A ssociation Benefit Programs. At no obligation, he will tailor an Em ployee Bene fit Program designed to satisfy you and your em ployees. * Some plans may not be av ailab le in New York A S S O C IA T E S IN C . n Street 222 N. Dearborn https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • Chicago, Illinois 60601 • Administered by Scarborough and Company the bank insurance people (312) 346-6060 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The firstTënnessee-wide banks With $2 billion in assets, First Tennessee is the biggest bank system between Atlanta and Dallas. First in size and first in correspondent capabilities. Both First Tennessee Bank N.A. Memphis (formerly First National Bank) and First Tennessee Bank N.A. Chattanooga have fully-staffed correspondent bank divisions. First Tennessee Banks. One new name for the first Tennessee-wide banks. ^Registered Service Mark owned and licensed by First Tennessee National Corporation. m sm W ëm $ m Community Commitment: Bank Appoints Officer To Help in C ity Planning For six years, Citizens State, Mil ford, 111., has backed a commitment to its community by having a community development officer on the bank’s staff. That post was filled just recently by William Adsit, who was reared in Mil ford and holds a master’s degree in public administration from East Texas State University, Commerce. He also has had experience with the Texas Re habilitation Commission and was an administrative assistant to the city man ager of Commerce. According to Citizens State, the ob jective of the community development officer post is to help Milford improve and realize its stated goals. This will involve working with the city; the vil lage administrator; the steering com mittee, which serves as a planning com mission; Jack Sheaffer, city planner, and all other interested persons and or ganizations. Mr. Sheaffer is a noted planner from Chicago and has been employed by Milford to help develop plans for business-district improve ments as well as to provide guidance in trying to realize community goals. By adding Mr. Adsit’s efforts to those of the other groups and persons working for a better Milford, Citizens State hopes that real progress will be made toward the city’s goals. C o m m u n ity In vo lvem en t and CEO of First National. “These programs, while highly informative, also rank among the highest quality of entertainment.” The programs were produced by the National Geographic Society, Washing ton, D. C., under a Gulf Oil Corp. grant. For Employees, Tenants: 'American Enterprise' Films Sponsored by Bank in Tulsa Employees of First National, Tulsa, and tenants of First National Tower are receiving in-depth looks at the country’s economic system through a film series entitled “American Enter prise.” The films trace the growth of the economy “from colonies to computers” in five 30-minute installments covering the topics of land, people, innovation, organization and government. The films are shown in the bank’s First Place Auditorium during lunch hours and after work on five separate days. The films were produced by the Phil lips Petroleum Co. as part of the firm’s marketing emphasis on free enterprise. Informative, Yet Entertaining: Nat'l Geographic Specials Sponsored on TV by Bank For the second consecutive year, First National in St. Louis is under writing the expenses of St. Louis’ edu cational TV station (Channel 9) in airing a series of eight National Geo graphic specials. The series began December 7, with the telecast of “Treasure,” the story of the dramatic search for the remains of a Spanish galleon that sank off the Florida Keys 350 years ago while car rying a fortune in gold and silver. Seven other programs are planned: January 18—“Voyage of the Hokule’a”; February 15—“The New Indians”; March 8—“The Volga”; March 29— “The Incredible Machine”; April 19— “This Britain: Heritage of the Sea”; May 17—“Search for the Great Apes” and June 14—“The Animals Nobody Loves.” “We are very pleased once again to bring this award-winning series to St. Louis viewers as a public service,” says Clarence C. Barksdale, chairman Six Historical Drawings: Bicentennial A rt Project Unveiled by Ark. Bank As the nation’s 200th year came to a close, National Bank of Commerce, Pine Bluff, Ark., announced a bicen tennial art project. President William H. Kennedy Jr. kicked it off by un- Helping the Needy: 250 Thanksgiving Treats Given by Bank Employees Williom H. Kennedy Jr. (r.), pres., Nat'l Bank of Commerce, Pine Bluff, Ark., presents draw ing of "Jefferson County Courthouse—April 27, 1976" to Jefferson County Judge Joe T. Henslee (c.). At I. is Arkansas artist Richard DeSpain, who did the pen-and-ink original. Courthouse, 136 years old, w as destroyed by fire April 28, 1976. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis veiling the first of six historical draw ings that will be included in the project collection. The first drawing— created by Arkansas artist Richard DeSpain— is called “Jefferson County Courthouse —April 27, 1976.” It depicts the 136year-old building as it appeared the day before it was destroyed by fire. “This drawing of our beloved Jef ferson County Courthouse is repre sentative of the historical content that we hope to offer the citizens of this area through the remainder of the com missioned program,” said Mr. Kennedy at the unveiling. “Plans to implement the art project were begun several months ago with historical research, scheduling and the commissioning of Mr. DeSpain. We are extremely happy about this first drawing and look for ward to publicly presenting the re maining drawings as they are created.” Mr. Kennedy presented the framed original drawing to County Judge Joe T. Henslee to be displayed by Jefferson County for three months. After that, the drawing will be retained by the bank as part of its permanent art col lection. In turn, NBC will give the county the first of a series of signed, limited-edition prints of the courthouse drawing. Remaining limited-edition prints will be presented to the National Archives, the governor’s office, the Arkansas His tory and Jefferson County Historical commissions, the Southeast Arkansas Arts & Sciences Center, the Pine Bluff Library, the National Bicentennial Commission and other selected organi zations and individuals. “To our knowledge,” said Mr. Ken nedy, “this is the only drawing of its kind of the courthouse. It is a beautiful representation of the architectural de sign of the structure. This creation not only has historical significance, but deep, sentimental value as well. It is a recreation of the courthouse as it looked the day before it burned and as we will always remember it.” For the fifth consecutive Thanks giving, City National, Detroit, and its 1,100 employees put together 250 holi day baskets of food to help less fortu nate families have special holidays. The bank purchased a turkey for each basket and employees provided canned goods and dry staples to complete each basket. Employees also coordinated as sembly and delivery of the baskets. Names of recipients were provided by social agencies. 17 Operations Complete Data Processing Service Provided by $160-M illion Bank W 1 1H E R E ’S A whole new world in banking today, and we intend to be leaders in it!” Those words would be predictable, coming from financial leaders in the nation’s money centers, but attribution to G. Thomas Andes, executive vice president, First National, Belleville, 111., might surprise some bankers through out the country. Why? First, First National is a relatively small bank of about $160,000,000 in assets. Second, the Belleville bank is located in a solidly conservative midwestern town of 44,000 where one might expect a reluctance to adjust to innovations in banking philosophy and services. But officers of Belleville’s First Na tional don’t thrive on the aged maxim that “what worked yesterday is good enough for today.” Instead, First National has emerged as a leader in modern banking prac tices, being the first commercial bank in the nation to process customer trans actions with the International Business Machines 3614 consumer transaction facility, a component of the IBM 3600 finance communication system. In August, 1975, First National in stalled three IBM 3614 self-service terminals at its banking sites—the main bank in downtown Belleville, a drivein facility several blocks from the main bank and a branch office at nearby Scott Air Force Base. Three employees of First Nat'l of Belleville's da ta processing dept, operate IBM 3270 informa tion display terminals. From left, women are Vicki Westerfield, Sunae Holtgrave and Virginia Kaemmerer. 18 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Eugene A. Busekrus of First Nat'l of Belleville's data processing dept, operates IBM 3704 com munications controller. Using their “Magna Carta” magnetic stripe identification cards at any of the three automated teller machines, cus tomers may make cash withdrawals from their checking or savings accounts, as well as a variety of other transactions. “We went into the automated bank ing facility system for several reasons,” Mr. Andes says. “Basically, we have the philosophy that we are a retail bank and that we cater to the consumer pub lic. We have a large base of 36,000 customers.” Emphasizing services, Mr. Andes ex plains, “W e’re interested in anything to improve our offerings to the customer. W e feel they are the new world in banking. Our background in data processing really has prepared us to provide them the new services at a rapid pace.” Data processing at First National in cludes a complete IBM customer in formation file system programmed on the bank’s IBM System/370 Model 135 computer. The IBM 3600 finance com munication system at the bank features the three IBM 3614s, an IBM 3601 fi nance communication controller, an IBM 3604 keyboard display terminal and one IBM 3610 document printer. Mr. Andes and other First National officers studied the ATM system care fully. Mr. Andes says, “Though we knew we wanted to go with the auto mated teller machine, we also knew we did not want to go with just a cash dispensing machine. It would have been just an advertising and marketing gim mick. With just a cash-dispensing sys tem, a bank serves only an elite 20% of its customer base. That did not meet our criteria. We wanted to serve all our customers, and that meant the au tomated teller machine had to have the means to be on-line to all the informa tion they might need to do their bank ing.” The move into electronic funds trans fer systems (E F T S ) is a vital move for any bank— and it can be expensive. Vice President Andes states, “A tre mendous number of bankers are not aware of changes, such as the electron ic funds transfer system, taking place, in the business; others have not ad mitted these changes are coming. But many of us say the changes are here now and we want to exploit them.” Mr. Andes continues, “Take some owner of a comfortable $20-million bank in central Illinois where every thing is going smoothly. If I come along and start talking about E F T S, the nat ural response deals with cost justifi cation. Well, you’re barking up the wrong tree when you try to cost justify the inevitable. We bankers have never tried to cost justify drive-in windows. We put them up because they obvious ly were needed, and the cost justifi cation came through increased busi ness.” Another banking concept undergoing great change across the nation has to do with customer service. In the past, personal contact was of extreme im portance; today, the focus is shifting to “convenience.” “Customers don’t fight traffic every Friday or Saturday night because they like us,” explains Mr. Andes. “They have a need. They want to cash a check or make a deposit. Banking is no big thing to the guy on the street who has a job.” “E F T S means convenience,” Mr. Andes says. “W e’re giving our customer 24-hour service with the ATM. Last Thanksgiving day (and the preceding night), we had 751 ATM transactions. That is meaningful convenience.” First National officers offer many ser vices through their automated teller machines, including customer deposits, transfer of funds between accounts and accepting payments with either a check or cash or from an account. Such ser vices give First National the honor of being the first bank in southern Illinois to offer such services. Being only 10 miles from St. Louis places First National in competition with Gateway banks. Most Belleville MID-CONTINENT BA N K ER for Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis residents work in St. Louis. Recogniz ing this competitive problem, the Belle ville bank decided in 1965 to enter the customer information world with the purchase of a computer. Prior to 1974, First National pro cessed for itself and two other banks. Now, the bank does data processing work for nine banks. Three of these banks previously dealt with larger St. Louis banks. “Bank sharing helps re duce cost factors,” says Mr. Andes. “If we can share our terminals, we increase revenues. And the name of the game is returning profits to our shareholders.” The IBM System 370 Model 135 computer has been a big help to First National’s Scott Air Force Base facility. “At our Air Base office,” Mr. Andes notes, “A military person’s pay check may be mailed directly to the bank for deposit. Prior to this service, which we couldn’t do without our computer, we had to get everyone in the bank to help deposit the 5,600 military checks. There were many errors. Now with the com puter, instead of bundles of checks, we get computer tapes. The computer au tomatically credits the account and types the deposit slip. Then we mail it to the customer. Few, if any, errors occur.” The bank’s data processing manager, Melvin F . Week, reemphasizes taking banking services to the customer. “If you’re providing the kinds of ser vices your customer deserves,” he says, “you have no fear of losing that cus tomer. I don’t believe people who have been banking at one institution want to change that rapidly, if they are getting the type of service they ought to be getting. W e thrive on competition and we’re ready for the large banks across the river in St. Louis if they decide to install automatic teller machines.” Mr. Week feels First National is a genuine leader in E F T S , saying, “Our last two banks signed up for processing with us because of our leading role in E F T S. One already has an IBM 3614 installed and has issued our Magna Carta card.” Any great change in banking services necessitates a strong marketing plan and Wayne Schlosser, director of mar keting for the bank, says, “I knew our greatest challenge would be getting people to accept the new service. Other bankers told me that customer educa tion was a primary concern, and I knew that our customer base here would be prone not to accept something new. They are very hesitant to accept inno vative things— except for Scott Air Force Base, where they were very eager.” Mr. Schlosser feels that having peo ple demonstrate the system at the bank’s three facilities was extremely important. “W e worked with each individual customer who was interested in seeing how the machine worked,” he says. “The demonstrators were trained and chosen because they had outgoing per sonalities and were friendly.” “Our printed instructional materials were kept very simple,” Mr. Schlosser adds. “W e had one instruction per page with photographic illustrations. When we add new ATM services, we go back and follow the same methods.” Mr. Schlosser expects 60% to 70% of the bank’s customers to use the ATMs eventually. In summarizing the future in bank ing, Mr. Schlosser says, “Our business will always need a friendly, personal attitude in dealing with our customers, but the friendly banker of tomorrow must provide other services than just dispensing money or receiving deposits across the counter.” And Belleville’s First National seems to be well into that future. * * EDITOR’S NOTE: Banks that want to set up programs similar to the one de scribed in the accompanying article can save themselves trouble by taking advan tage of First of Belleville’s offer of a com plete software package and marketing pro gram. The latter is available for a fe e by contacting G. Thomas Andes, executive vice president of the bank, located at 19 Public Square, Belleville, IL 62222. Ambrosiana: First Nat'l of Belleville's IBM 3614 consumer transaction facility—"Magna Carta"—enables customers, by using special magnetic-stripe identification card, to deposit to or withdraw from their checking and savings accounts, check balances in those accounts, transfer funds between accounts and make payments. Cus tomers may withdraw up to several hundred dollars from their accounts. Terminal is linked to IBM System/370 Model 135. 20 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Holiday A rt Exhibition Features Rare Treasures Sears Bank, Chicago, held a holidayseason exhibition of 102 art treasures usually seen only by select scholars. The fourth in a series of major exhi bitions at the bank, the selection was comprised of medieval and renaissance art from the University of Notre Dame’s Ambrosiana Collection. Included were works by da Vinci, Dürer and Michelangelo; illuminated manuscripts and art from the Middle Ages also appeared in the showing. The collection was obtained from the Ambrosiana Library— said to be the first public library of its time—which was created in 1609 from the collection of its founder, Cardinal Federico Borromeo, archbishop of Milan. The works in the Sears Bank show ing were microfilmed from books, and, because of that, their colors and con trasts haven’t faded from exposure to light. The exhibition was open to the public on weekdays during banking hours. Bank Tax M anagement Program Offered by Citibank N EW YORK—A program offering banks a broad range of services in the management of the bank tax function is described in a recently issued bro chure by Citibank. Thrust of the pro gram is determining how a specific bank administers taxes within the institution and the impact proper tax planning can have on profits. The program is managed by Citibank tax authorities who review financial statements, prior tax returns, annual re ports, 10-Ks, etc. A survey is made to determine the areas of greatest financial impact on a bank’s current tax position and to suggest what procedures should be modified to assure more adequate control. Clients of the program are usually banks with $200 million or more in assets. Arthur Norris Dies ST. LOUIS— Arthur C. Norris, 68, contributing editor, M id - C o n t in e n t B a n k e r , died of a heart attack Thanksgiving Day, November 25. Mr. Norris, on MCB’s staff about eight years, wrote articles for the magazine and wrote or edited sev eral books, including “How to Write Bank Publicity and Get It Pub lished,” “How to Plan, Organize and Conduct Bank Anniversaries, Formal Openings, Open Houses” and “How to Plan, Organize, Conduct an In centive Campaign.” During Mr. Norris’ long jour nalistic career, he worked for various newspapers, including the Chicago Tribune and the St. Louis Post-Dis patch. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 W e keep checks from feeling lost ret n rued,or rejected. Continental Bank’s check processing exception rate is consistently lower than Chicago and national bank averages. Our people never stop working to minimize annoying rejects, returns, and lost items. And they really do a job. Just take lost items for example. Continental’s lost item rate per 100,000 checks processed is only 13.. .while the national average is 29 * And this means our correspondents save money by spending a lot less time inquiring about problems. Join the Continental Correspondents who enjoy the advantages of our check processing service. Call John Tingleff at (312) 828-2191 to find out why it’s the best in the business. ^National figure is taken with permission from the 1975 Bank Administration Institute Survey of the Check Collection System. Continental Bank figure is as submitted to the Survey. CONTINENTAL BANK CONTINENTAL ILLINOIS CORPORATION MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2i New Orleans Site: Football Pro Judges Dolls Bank Marketing School To Hold Session in April The Graduate School of Bank Market ing will conduct its first session April 3-8 at the International Trade Mart in New Orleans. Director of the new school is Dr. Donald E. Vinson, associ ate professor of marketing, University of Southern California. Enrollment in the school is limited and is open to employees of retail banking institutions. The curriculum consists of two sessions, held a year apart. Between sessions, each banker will work on a marketing plan for his or her bank. The faculty will come from uni versities, business corporations, adver tising agencies and commercial banks. Bankers on the faculty include Peter G. Vajta, vice president and manager, marketing department, Crocker Na tional, and John J. Nachtrieb, vice president in charge of marketing for the California division, Bank of America. Both banks are headquartered in San Francisco. Paul Steen, vice president, Bank of New Orleans, and a director of Bank Marketing Association, serves as an ad visory director of the school. Information on the school can be ob tained by writing to Box 17390, Baton Rouge, LA 70893. Seeing Double in Ft. Wayne 1 mm -m i mm -j « n il Peoples Trust Bank, Fort Wayne, Ind.—with the help of paint and a brush—turned an unin spiring side w all of its building into an exact duplicate of the front exterior. The clock is there, as are the bank's columns, a cat in one window and a bald-headed man watering a plant in another. According to Wallace J. Fosnight, a.v.p., the "doodling" project has cre ated a lot of favorable comment. 22 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Bob Rowe, defense tackle, St. Louis Football Cardinals, w as judge at 27th annual doll dressing contest at Boatmen's National, St. Louis, last month. Dolls were purchased by bank and given to employees, who provided clothes. After being displayed in bank's lobby, dolls were donated to needy children as Christmas gifts. Service Still Counts: TV A ds Improve Image O f Banking, Report Says and awareness of ABA advertising. The first interviews resulted in 36% of the respondents favoring more government regulation of banks, but by May that figure had decreased to 27%. A Com municus spokesman attributes the de crease almost totally to the ABA ad vertising, since the decrease was 19% among those aware of the advertising and only 2% among others. In the August survey, 66% were found to favor continued private own ership of banks, a figure that decreased only 2% by the time of the second sur vey. However, the Communicus spokes man says, a breakdown showed a range from a 5% decline among those una ware of ABA advertising to an 8% in crease among those aware of two or more commercials. In the August survey, 62% agreed that banks “help us get many material things we would not have otherwise,” and in May, the percentage had risen to 65. The advertising offset a slight decline, the research firm spokesman says, because in this category there was a 3% decrease among those unaware of ABA advertising, an increase of 9% among those aware of one commercial and an increase of 5% among those aware of two or more commercials. For Newcomers: Television advertising by the Amer ican Bankers Association has improved public attitudes toward banks, accord ing to a report by Communicus, Inc., Los Angeles, a firm commissioned by the ABA Communications Council. According to the study, the TV ads produced changes in a number of pub lic attitudes during the nine-month period ending last May: improved im age of banks, increased support for private ownership of banks and in creased opposition to more government regulation of banks. In addition, an ABA spokesman says, the campaign offset negative changes that would have occurred without advertising. While the advertising campaign was “factual” and “low key,” the spokes man adds, the ABA advertising is “only an adjunct to the grassroots perform ance of America’s bankers” and that “banking’s good public image results primarily from day-to-day service rendered by thousands of individual bankers.” Communicus interviewed hundreds of adults in 15 cities throughout the nation in August, 1975, and again last May, correlating their attitude changes Bank Builds Business With ’Irresistible Boxes’ Jefferson Bank, Peoria, 111., has been employing an “irresistible box” as the focal point of its campaign to attract new residents and businesses as cus tomers. The brightly colored gift boxes, which are sealed in a transparent plas tic “skin,” are said by a bank spokes- "Newcomer Box" of Jefferson Bank, Peoria, III., is brightly colored box containing guides to entertainment, living costs, history and other features of Peoria. Used as gifts to new resi dents, business customers, the boxes have proved to be a successful promotional item and low-cost means of introducing bank to newcomers. MID-CONTINENT BA N K ER for Jan u ary , 1 9 7 7 man to be “virtually impossible not to open.” The boxes contain a map and street guide of Peoria, an insiders’ guide to Peoria (featuring information on arts, dining and a number of services avail able in the town) and printed materials delineating costs of living in Peoria, the town’s history and data on the local schools. A similar “newcomer box” was de signed for new business banking and trust customers. Besides the above ma terials, these boxes contain small pre miums such as tape measures or money clips. Has the program met with success? Yes, says the Jefferson Bank spokes man. Peoria is a town with 12 banks and seven S&Ls, and in the first four months of the “Newcomers” program, more than $1 million in mortgage ap plications was received by Jefferson Bank. The community’s business leader ship pledged its support of the concept because of its value as a public service, and in the program’s first week, a local medical center requested 23 of the boxes for physicians who were about to move to Peoria. By the end of the campaign’s third week, the boxes had been shipped to points throughout the U. S. and one had been airmailed to Caracas, Venezuela. The bank spokesman says the in stitution’s visibility in the business mar ket has been raised measurably, at a per-head cost of about $3.50. Jefferson Bank uses the boxes with success for “cold canvass” calls, allowing new-business personnel to concentrate on fol low-ups. “Besides being a viable form of pro motion for any of our bank services,” the Jefferson Bank spokesman adds, “the newcomer boxes, whose cover de sign is an ‘amplification’ of our logo and service mark, is attractive enough just to hang on a wall.” As a matter of fact, one of the boxes was displayed last June at the International Design Conference in Aspen, Colo.! Club Project: Bill Cone (I.), pres., NBC, Austin, Tex., pre sents $600 check to Steve Bessner, pres., Ander son High School Distributive Education Club, as payment for delivery of package account brochures to homes in bank's trade area. Faculty sponsor of club (r.) and other dub members register approval. to homes in the bank’s trade area at a cost considerably less than postage rates. From the first day of distribution, the bank received response. Some were in quiries and some were new accounts. During the first month following the promotion, 30% of all new accounts opened were NBCAdvantage accounts. During the second month after distri bution of the brochures, 67% of the new accounts were NBCAdvantage accounts. After the bank defined its trade terri tory, club members organized and dis tributed the brochures. Each brochure was contained in a plastic sleeve that could be hooked over a doorknob. While no effort was made to establish personal contact with residents, club members were prepared to answer questions about the brochures and did so on a few occasions. Wooden Nickels, Anyone? Late-1800s Festivities Mark Branch Opening What do you do to call attention to the opening of a new branch in a country store setting in a historic neighborhood? Hold a country fair in a big blue-and-white striped tent! But that’s not enough, according to officials at Liberty National, Louisville, the bank that recently opened its 37th branch, this one in nearby Anchorage. A jug band provided Bluegrass music High Schoolers Make $ Delivering Bank Ads National Bank of Commerce, Austin, Tex., came up with a unique idea that enabled it to conduct a community re lations program and promote bank ser vices at the same time. The bank utilized the Anderson High School Distributive Education Club to deliver brochures touting the bank’s NBCAdvantage package services plan. Club members delivered the brochures More Profits: Value of Christmas Clubs Is Indicated by Survey An increased marketing effort by a bank to generate Christmas club mem berships is likely to result in increases in other account relationships and greater profitability. Those were the findings of Christmas Club a Corp., Easton, Pa., in a nationwide study. Conducted by Unidex Corp., Bloom ington, Ind., and using a sampling of 2,051 adults in 34 scientifically selected locations across the country, the report showed that members of Christmas clubs are significantly more profitable to their financial institutions than are nonmembers. According to the survey findings, members of Christmas clubs are more likely to avail themselves of all other major banking services, passbook sav ings accounts, CDs, overdraft checking, installment loans and credit cards in particular. The study also showed that slightly more than 75% of Christmas club mem bers have used their primary institu tion more than six years, compared to only 61% of those not belonging to such clubs. Exterior of Liberty National of Louisville's Anchorage Branch recreates appearance of old country store. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis and those attending the Saturday after noon fair could watch puppet shows, a checkers tournament, take part in a ragtime piano sing-along, drink hot cider and eat roasted peanuts. For souvenirs, they could scoop up wooden nickels! Anyone opening a new checking or savings account at the branch with $100 or more was the recipient of a hardback pictorial history of Anchorage architecture published by the bank as a community service. Customers adding a like amount to an existing account were also eligible for copies of the limited-edition book. The branch occupies about 110 square feet in the Country Store in Anchorage. Decor is late 1800, and the building’s exterior is finished in rough-sawn red oak, set in a chevron pattern. A handwrought iron grille, with an arched teller’s window typical of the last cen tury, circles the top portion of the in terior installation. An antique safe with decorative decal ornamentation is among the special equipment. It is a hand-medown from one of Liberty’s other branches and hadn’t seen service for a number of years. 23 EFTS (Electronic Funds Transfer Systems) Bank Invites ATM Customers To Evening at Movies L O U ISV ILLE—Liberty National has invited all customers of its “Money Machine” ATMs to spend an evening at the movies. “Movie Money” coupons were of fered to any customer using one of 23 Docutel machines that the bank has in 20 area locations. The coupons were good for free admittance to a partici pating theater when the bearer was accompanied by an adult who paid the full admission price. issues in the consumer protection area —convenience, pricing of services, sys tem security and privacy. While competition is generally the best assurance of fair pricing, the paper notes that E F T may evolve in such a way that monopoly or arbitrary pricing may result; a development that would constitute a major regulatory issue for the states. Copies are available at $5 each from Glenn L. Allen Jr., director of super visory procedures, Conference of State Bank Supervisors, 1015 18th Street, N.W., Washington, DC 20036. ‘William Teller1 Introduces ATM Banking to Birmingham A young Clark Gable w as one of several movie heroes featured on "Movie Money" coupons of Liberty Nat'l, Louisville. Coupons were part of promotion by bank to increase customer use of "Money Machine" ATMs and to attract new banking customers. "Movie Money," which were free passes to participat ing theaters, were free to anyone using one of ATMs during promotion. “Movie Money” w as p ro m o te d through 30-second TV and radio spots, while newspaper ads in two Louisville dailies were scheduled periodically throughout the campaign. Supplement ing those were outdoor billboards and statement stuffers. The promotion was part of Liberty National’s “Liberty helps you do more with money” campaign, a long-term promotion whose purpose is to stim ulate use of the ATMs by existing cus tomers and to attract new banking cus tomers. A comprehensive marketing program was conducted in Birmingham, Ala., recently to acquaint residents with Wil liam Teller, a happy, red-haired car icature of a man representing the newly installed ATMs of First National. The bank installed 12 ATMs at branch locations early in November. The units are activated by plastic debit cards and customers can use them around the clock. Services that can be performed on the ATMs include cash withdrawals from checking and passbook savings, deposits, funds transfer, account bal ance verification and installment loan payments, including Christmas club and Master Charge. Most of the bank’s checking account customers received debit cards prior to EFT Public Policy Issues Discussed in CSBS Paper WASHINGTON, D. C.—A 38-page white paper entitled “E F T and State Regulation: Issues and Alternatives,” has been released by the Conference of State Bank Supervisors. Prepared for CSBS by Golembe As sociates, the paper seeks to identify public-policy issues related to E FT s that should be of concern to state reg ulators. It also suggests regulatory al ternatives. It identifies four E F T public-policy 24 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis the opening of the ATMs. Each card holder was asked to select a four-digit PIN number to be used to activate the units. Soon-to-be issued Master Charge cards will be compatible with the units and will be used for cash advances. The bank utilized TV, radio, bill boards, newspapers and magazines to promote the new service. To stimulate initial use of the machines, the bank issued to customers coupons redeem able for free hamburgers at a fast-food chain. Bank personnel were stationed at each machine during the first month of operation to aid customers unfa miliar with ATM operation. The ATM units were made by IBM and they permit customers withdrawing cash to designate the denominations of the bills to be dispensed. S W A C H A Names Director, Consolidates Two Offices A s Operations Phase Nears DALLAS— Bud Bowlin has been ap pointed executive director of the SouthWestern Automated Clearing House Association. The Houston and Dallas offices of the association were recently consolidated into one office, located here. Mr. Bowlin’s appointment will free current co-executive directors, Fred Redeker and Charles Metz, from the duties of directing the association. Mr. Redeker will continue as executive di rector of the Houston CHA and Mr. Metz will pursue his interest in cash, management services in the Dallas banking area. Prior to his appointment, Mr. Bowlin served as director of sales for Datotek, Inc., a Dallas-based manufacturer of communications security equipment. The consolidation of SWACHA’s two offices was in keeping with the as sociation’s plans to change from an or ganizational mode to an operational mode aimed at: • Increasing the volume of ACH transactions. • Expanding the membership with in the 11th Federal Reserve district. • Developing an understanding of SWACHA services on the part of mem ber banks, thereby enabling them to market ACH services effectively. • Furthering public acceptance of ACH activities and promoting ACH services. j n m r m s r naoomal bank o r oswvwncham Print ad introduced William Teller ATM service of First Nat'l, Birmingham, Ala., to public. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 WWzMi ■SSi mm mSm You make a good impression on new customers and save valuable time when you open the account quickly and efficiently. Harland helps in many v,Tays. jbrland offers a wide variety of beautiful and functional check styles to fit any need. §f These are exhibited in an exciting line of sales aids—quick openers—so your I customers can quickly select a style that will make their checking accoun| most enjoyable to use. il j V An easy-to-use order system gets the paperwork out of the wray promg^gg^ ^ jir ^¡gmd?:fast turn around time (usually 36 hours or less in the plant) assiuafe^gpf j '¡W your customers of checks when they need them. ¿ V . 4 .; If you like the idea of quick openings—and happy customers : —talk to your Harland Representative. js r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis "As a veteran in mortgage finance, it is clear to me that 1977 is shaping up as a year in which the secondary market will be vital to success and profitability of mortgage lenders." ¿V < —Charles Senmng Vice President, National Accounts and Secondary Market, MGIC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NORTH CENTRAL DIVISION WESTERN DIVISION MILWAUKEE Bill Melchior Acting Secondary Market Manager1 SOUTH CENTRAL Art Cavana Secondary Market Ma ATLANTA I Jeff Taylor Secondary Market Manager HOUSTON "We've more than doubled our secondary market staff to give you the best in local, personalized service/' liSPSilflPKfëBÈÊÈÊËËÊÈÈÈÈÈËÊÊÈÊÊÊÊÊË Now you can tie directly into the largest conventional secondary market faster and more easily than ever. All you need do is call your local MGIC Division office. mm North, East, South, or West, each Division office has its own Secondary Market Manager and staff. Their prime responsibility is to keep in touch with the entire country via daily communica tion with our expanded national staff of experts in Milwaukee. This means that in a matterof minutes one local phone call can set MGIC's national team in motion to provide you with the largest selection of offerings, rates, and buyers/sellers—from the nation's largest network. (Forward commitments are our specialty.) 3SÈ 'n o r t h ^ EAST "DIVISION! Bob Cundaker Secondary Market Manager I P H ILA D E L P H IA , ¡118 SOUTHEAST DIVISION ■r ' ' : ■ W H i M Ê Ê sB m m With liquidity high, and local lending rates dropping, MGIC recognizes the exceptional importance of the secondary market this year. In fact, we are calling it "the year of the secondary market"—going all out to help you in every way. No deal is too big and no deal is too small. Whether it's $100,000 or $100 million, MGIC is committed to provide you with the fastest, most productive, most personalized, and now the most localized service in the industry. So no matter if you're an old hand at secondary market or contemplating your first deal—there's more reason than ever to call your local MGIC Division Office now. You'll find there is no substitute for our service or for our experience. MGIC Because experience pays. • . W^ÈIËSÊÊÊÊËg Mortgage Guaranty Insurance Corporation, a Subsidiary of MGIC Investment Corp.. MGIC Plaza. Milwaukee. WI 53201 - https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis KEY M G IC H O M E O FFIC E S EC O N D A R Y M ARKET SPECIALISTS (L to R) Bill C a rp en ter, Tom LaM alfa, Bruce G ru bb a, Bob Tenges. Th ey are In d aily touch w ith y o u r local secondary m arket staff in each M G IC D ivisio n O ffic e . NEWS ROUNDUP News From Around the Nation Keogh Account Terms Improved The Fed and the FD IC have issued amendments to regulations to improve the terms under which banks may offer Keogh plan retirement accounts. The amendments extend to Keogh plan accounts the conditions established a year ago for IRAs. Under the amended regulations, member banks may pay all, or a part, of a Keogh plan time deposit prior to its maturity, without the usual penalty for early with drawal from a time deposit, when the depositor reaches the age of 59/2 or becomes disabled. Also, in the case of Keogh plan time deposits, it is no longer necessary to have on deposit a minimum of $1,000 in order to earn the 7/1% interest rate available for fouryear time deposits, or the 7/2% available for six-year de posits. According to the Fed, the first amendment allows avoidance of the loss of interest usually required when funds are withdrawn before a time deposit matures. As a result of the amendment, banks may distribute the full proceeds of a Keogh account in a single payment or in a series of annuity-like payments, without penalty, when the distribution is made in accordance with the Keogh plan agreement between the bank and the depositor. The second amendment permits payment of maximum interest on amounts smaller than $1,000 in recognition of the fact that some depositors may not have that much money with which to start an account. Reg B Revision Proposals Hit Revised proposals by the Fed for changes in its Regu lation B—intended to implement recent amendments to the Equal Credit Opportunity Act—were criticized by the ABA on the basis they may not help achieve the goal of equal credit opportunity. A key problem, according to the ABA, was congression al vagueness in the language of the amendments. The ABA advised the Fed to ask Congress publicly for clari fication of its intent. Three major questions about the proposals were raised that bankers believe will affect the effectiveness of the reg ulation: • Banks should not be required to monitor equal housing credit by making and retaining notations as to ap plicants’ racial and other characteristics. Rather, the Fed should evaluate the experiences of the FD IC and Comp troller in their pilot fair housing program before imple menting the proposed information collection system. If such data must be collected, the ABA said, it should be done on a sampling basis by the appropriate enforcement agency. • Language in the proposed regulation discussing an effects test of alleged discrimination should be eliminated, the ABA said. It added that, “since the courts will ulti 28 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis mately have to decide whether an effects test is appro priate . . . we believe that unless the Board is prepared to adopt very specific language . . . all discussion of ef fect tests should be deleted.” The alternative would be un needed litigation. • Business and agricultural credit should be exempted from the procedural and notice requirements of the pro posed regulation, though not from the prohibitions in the law, because business and farm credit decisions are more complicated than consumer credit-granting decisions. In business and farm credit, the ABA said, “the terms and conditions of a loan proposal (may) change many times with the objective of the bank being to make the loan if it is justified.” Contribution Amendment Proposed The acting Comptroller of the Currency has proposed that the ruling limiting charitable contributions of na tional banks be revised so that the amount of such con tributions will be related to a bank’s income before taxes, rather than to taxable income, as under the present ruling. Specifically, the amount of charitable contributions in any calendar half-year could not exceed 5% of the sum of income before income taxes and securities gains or losses and gross securities gains or losses registered during the preceding half-year. The amendment was proposed because the acting Comptroller thinks a bank with substantial income but with little or no taxable income should not be barred from making charitable contributions. A change to a dif ferent standard based on income before taxes would allow national banks with low taxable incomes to continue making charitable contributions and would simplify the process of computing the amount a bank could give to charity. S B A M aking A g Industry Loans The Small Business Administration is making loans to agriculture-oriented concerns because of a recent amend ment to the Small Business Act that enables the SBA to assist small businesses engaged in farming and related activities. The permitting legislation does not create any new SBA loan programs nor does it diminish the responsibility of the FmHA to meet the financial and other needs of farm ers. Loans of up to $350,000 and, in some cases, $500,000, will be available. To be eligible, annual gross sales cannot exceed $275,000. SBA’s lending authority will make loans available to sole proprietors, partnerships and corporations. Farmers who qualify can obtain loans to buy land, buildings, machinery, equipment and, in some cases, pro vide working capital. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 Our new address is simple to remember... "THE TALLEST BUILDING IN OKLAHOMA" Visit us on your next trip to Tulsa We want you to see what we be lieve to be the finest banking facility in the great Southwest. A banking fa cility d esig n ed and constructed to make bank ing easier for our custom ers, o u r e m p l o y e e s , and our friends like you. Bank of Oklahoma — now in our new home — the Bank of Oklahoma Tower. Truly a land mark in banking. BANK o r OKLAHOMA Bank of Oklahoma Tower P.O. Box 2300 Tulsa, Oklahoma 74192 New: (918) 588-6000 MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 29 Agricultural News Ice Sport: Agricultural Land Investment Fund Uptown Bank, Chicago, has “scored a goal” with many area residents through its sponsorship of ice-hockey teams comprised of local youngsters. For the past few years, the institu tion has sponsored a Rainbo Arena team, whose members range in age from 11 to 14 years, by helping defray the cost of the team members’ par ticipation. “Interest in hockey,” a bank spokesman says, “has received tremen dous impetus in all communities, since a primary goal of the American major leagues is to develop native hockey players.” Besides enjoyment of the sport by participants, the spokesman adds, quite a few spectators generally are on hand for the games and are enthusiastic about the speedy competition. Proposed by Continental Bank, Chicago LANS for a pooled agricultural land investment fund— said to be the first of its kind in the U. S.—were an nounced last month by Continental Il linois National and Merrill Lynch, Pierce, Fenner & Smith, Inc., Chicago. Continental Bank will serve as trust ee and investment adviser for the fund and Merrill Lynch will act as distribu tor, marketing the fund to corporate employee pension and profit-sharing plans. Establishment of the fund is contin gent on obtaining certain requested rul ings from the IRS, according to Con tinental. The proposed fund is designed to ac commodate a maximum total invest ment of $50 million. The bank said the fund’s investments would be made in geographically di versified working farms that produce a variety of crops. The investments will be monitored by the ag experts in the bank’s trust and investment services de partment. “Although the concept of a pooled agricultural land investment fund is new, farm management is a field in which Continental Bank has a record of experience and expertise,” said Charles R. Hall, executive vice presi dent and head of the bank’s trust de partment. One of the reasons for the increased interest in U. S. farm land is that it historically has experienced significant appreciation in value, according to Mr. Hall. He noted that a major contribut ing factor to this has been rising do mestic and international food demand and the growing prominence of the U. S. in the world’s ag markets. The two firms said the investment ve hicle should be of particular interest to employee benefit plans that are seek ing to diversify their investment port folios. * • 'Dimension 60': nocent persons can lose their money through confidence schemes, explained personal safety and gave home-security tips. Films on the respective topics were shown, and a question-and-answer session followed the talks. The seminar’s intermission featured a quartet from the Sweet Adelines sing ing organization, and refreshments and door prizes were given away at the end of the event. The HC’s Dimension 60 program was designed to benefit persons who are 60 or older with seminars and dis counts from participating area mer chants. Besides the age qualification, a Dimension 60 member must have a savings account or CD at one of the HC-affiliate banks. P Theft, Fraud A re Topics Examined During Seminar Three banks in St. Joseph, Mo.— First National, First Trust and First Stockyards— and Home Bank of Sa vannah, Mo., all members of First Mid west Bancorp., Inc., St. Joseph, have sponsored the second in a series of seminars for members of their Dimen sion 60 club for customers over 60. “How to Protect Yourself Against Theft and Fraudulent Schemes” was the topic of the seminar. Guest speak ers were members of local police de partments. They discussed ways in Bank Sponsors Hockey, 'Scores Goal' in Its Area Bank Sponsors Exchange Center This is the specially constructed foreign cur rency exchange center provided by Mercantile Bank, St. Louis, for the International Junior Chamber of Commerce convention, which w as held in St. Louis November 6-12. The center, which w as located at the convention site, provided foreign currency exchange services to several thousand foreign delegates to the Jaycees Congress. Accepted by the exchange center w as currency from many European, Central and South American, Asian and Afri can nations. In addition, the center cashed travelers checks. FARMERS GRAIN & LIVESTO CK HEDGING CORP. LOOKING FOR IM M EDIATE A C C U R A T E INFORMATION TO D EAL WITH TODA Y ’S WILDLY FLUCTUATIN G GRAIN & LIV ESTO C K M A R K E T ? OUR ONLY BUSINESS W R IT E O R C A L L FG L» 1200 35th St. West Des Moines. Iowa 50265 515 223-2200 30 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IS ADVICE Id MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 F o r the 10th Federal Reserve District, the global banking community begins in Kansas City, at Commerce. With a network of 450 international correspon dents, Commerce offers the largest and best equipped International Department in the area. This means that Commerce can perform any inter national banking service you may need, right here from the geographical heart of America. Our full-time foreign exchange trading staff will handle exchange of coins, currency, drafts, transfers and foreign exchange travelers checks in any amount. We can write letters of credit for your import cus tomers, and handle documentation on export letters of credit. Our foreign cash letter service can provide imme diate credit on foreign items. International Banking. It’s not foreign to us. Call your correspondent banker or the International Depart ment of Commerce Bank of Kansas City. ¡1 Commerce Bank £% •W T - A N4 of Kansas City 9th & M ain 234-2000 MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10th & W alnut M E M B E R F D IC 12th & Charlotte 31 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis O il Gas Price Increases Benefit Oklahoma Economy; Inflation Remains Problem By EUGENE SWEARINGEN Chairm an & CEO Bank of Oklahoma, Tulsa ULSA and eastern Oklahoma never felt the recession like the remainder of the United States. Energy is rela tively abundant and relatively low priced. Navigation of the Arkansas Riv er from Tulsa to New Orleans is hav ing a desirable impact on transporta tion rates and quality of transportation. Recreational facilities are readily avail able in eastern Oklahoma, and more people have leisure time. Thus, 1977 will be launched on a modest decline of business activity in 1976. Bank earnings for our area would have been up some 10%-15% over 1975 if it had not been for loan losses. Actual results that will be reported for 1976 for banks in our area will be widely different depending on their loan-loss experiences. Some banks will report zero earnings or even losses, but most banks will report earnings for 1976 of approximately what they were in 1975. Most of our banks feel that the larger loan losses are behind them, but the earnings picture for 1977 is going to depend on the improvement we experience in such areas as housing and agriculture, particularly cattle feeding. Assuming that the charge to operating expenses for loan losses de creases in 1977, most of our banks will report record earnings. Retail sales for the first nine months of 1976 were $851,000,000 as com pared to $728,000,000 for 1975. Mer chants are experiencing a strong Christ mas season. In the Tulsa SMSA, the labor force expanded by 7,000 persons in the past year with only 4,100 of them finding employment. This caused an increase in the unemployment rate from 6.3% to 7.2%. Average weekly hours worked in manufacturing increased slightly in 1976, and average weekly earnings in manufacturing increased 10%. Building permits were strong in 1976 compared to 1975. Number of commercial permits increased 48%, and T number of single family permits in creased 29%. Total value of all build ing permits increased 90%. Credit is readily available on reason able terms. Deposits in banks are up 7% over the previous year. Considerable money has been flow ing into savings and loan associations, and commercial banks are more willing to talk about home loans. Mortgage credit is available, and we anticipate that the terms will become more de sirable in 1977 from the borrower’s point of view. Automobile dealers in eastern Okla homa reported a record year for 1976 and believe that 1977 will be even bet ter. This economy has benefited tremen dously by the increase in oil and gas prices. If natural gas prices are dereg ulated, as is anticipated under Presi dent-Elect Jimmy Carter, there will be greater incentive for drilling in Okla homa. At the present time, we have the largest number of rigs actively drilling in Oklahoma that we have ever seen, and next year could be even brighter. The average businessman in Okla homa is optimistic and is willing to spend money to expand plant and ca pacity to meet future needs. Electronic fund transfers systems are expanding carefully and slowly. Fed eral Judge Allen E. Barrow rendered what is considered to be the most fav orable opinion yet regarding the opera tion of E F T S systems. (As a result of the Bank of Oklahoma suit, CBCTs were held not to be branches of state or national banks. The state of Oklahoma had claimed CBCTs were branches. In other states where similar suits have been filed, CBCTs were held to be branches, and, thereby, subject to branching provi sions of state and federal statutes. Be cause the Supreme Court has refused to review any lower court CBCT rul ing, the Bank of Oklahoma case is the MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 only one involving a national bank that has been successful in exempting CBCTs from federal branching law. It is significant that this case remains in full force and effect, as the appeal was dismissed by stipulation of all parties. — Editor.) The major problem now is how to expand economically. Tulsa banks are working together to develop a system that meets the needs of the customer, but also is efficient from the standpoint of operating costs. It seems probable at this time that the system will be such that any bank could tie into it rather than having several banks de- velop proprietory systems. Our trust department is optimistic regarding the prospect for upward movement in stock prices in 1977. We would not be surprised to see the Dow Jones Average reach 1,150 to 1,200 during 1977. We believe that the price earnings ratio on many stocks is near an historical low, and we anticipate at least a 10% increase in profits in 1977. The greatest fear of bankers in our section of the country is inflation. The Carter Administration will have to walk a narrow path to stimulate the econ omy, reduce unemployment an d hold down inflationary pressures. • • Loan Demand Up 1 0 -1 5 % , Interest Rates Variable, As Houston Continues Boom By BEN F. LOVE Chairman Texas Commerce Bank, Houston EXAS Commerce is indeed fortu nate to operate in the nation’s pre mier banking market. Over the last five years, the state of Texas, and in par ticular, the city of Houston, have ex perienced extraordinary rates of eco nomic growth. And, economic activity in Texas and Houston during 1977 should continue to outpace that of the United States. The primary reason for the inherent strength of the Texas economy is the broad-based and buoyant nature of its four major sectors: manufacturing, mineral production, construction and agriculture. The consistency of each sector’s growth has made Texas less vulnerable to cyclical swings which have affected bank profitability else where. The following projections by Texas Commerce’s Economics Division illus trate our expectations for a continuing dynamic Texas economy during 1977: T % Change 1977/1976 Industrial Production .............................. Value Added by Manufacture ............ Value of Mineral Production ................. Farm Receipts ............................................ Construction Contracts ............................. Personal Income ........................................ Bank Deposits ............................................ 7.6% 15.0% 9.0% 10.7% 17.3% 12.0% 10.5% Nowhere is economic vitality more evident than in Houston. By attaining the position of the oil and petrochem ical capital of the U. S., Houston con tinues to benefit from an influx of skilled labor and management person nel as well as from additions to its in dustrial capacity. The Texas Gulf Coast (from Beau mont to Corpus Christi) already has 46% of our nation’s basic petrochem ical capacity and announced expansion plans in 1977 should increase that per centage even more. Industrial production in Houston, which has far outstripped that of the U. S. in recent years, is expected to grow by 8.8% in 1977. While non-durable production led the way in 1976, durable goods—specifically non-electric machinery, lumber products and elec trical equipment and supplies—will provide the impetus for growth this year. Increasing industrial growth, in con junction with a rapidly growing popu lation, will require an even greater vol ume of construction in 1977. Houston should once again lead the nation in residential building starts with the 38,900 new units begun in 1976 possi bly being surpassed this year. Building permits are expected to rise by a whop ping 17% in response to the strong de mand for both office space and hous MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ing. Reflecting the area’s growth, nonagricultural employment will increase by approximately 6% while the unem ployment rate should remain substan tially below the national average. Addi tionally, effective buying income is pro jected to rise 11%, possibly exceeding $17 billion by year-end. Finally, retail sales are projected to be 14% above the level of 1976, enabling Houston to re main the retail trade center of the South and Southwest. Given the preceding economic sce narios for 1977, we expect overall loan demand to register a 10% to 15% in crease during 1977. Consumer lending should experience substantial growth despite intense com petition from non-banking financial in stitutions. In the corporate sector, the liquid position of many businesses com bined with the currently attractive non bank sources of funds (i.e. commercial paper, private placements) have damp ened loan demand in recent quarters. However, business credit demand in our market should be stimulated by the expected rise in capital expenditures. Specific industries which should ex perience stronger demands for credit are real estate and construction, pe troleum, chemical and oil field services. Additionally, the growth of Houston as a major international city is provid ing abundant trade and project financ ing opportunities in the international arena. The science (or art) of predicting interest rate trends is at best an ex tremely difficult task. Nevertheless, we are currently projecting downward in terest rate pressures to prevail through the first quarter with a slight upward movement beginning thereafter. As suming our projected loan growth and interest rate trends are correct, we are cautiously optimistic in regard to our market’s earnings outlook in 1977. Congressional action on pending banking legislation and the develop ment of E F T S are two issues which will continue to affect the banks in the Mississippi Valley and southwestern United States. My only suggestion to our legislators in Washington is to care fully study the impact that any regula tory change would have on the capital adequacy of our industry. For example, the elimination of the prohibition of paying interest on de mand deposits will increase our cost of funds, thereby causing a drain on cap ital. If that drain cannot be offset by increased service charges or higher in terest rates on loans, bank regulatory authorities will demand an infusion of capital which could be difficult to ob tain from investors. Equitable regula33 tory change is needed which increases competition without deteriorating the public’s trust of financial institutions. In regard to E F T S prospects, many barriers continue to exist to widespread usage of EFT-related services. The most important of these are a lack of consumer acceptance, the lack of uni form legislation and the unresolved question of profitability. Thus, the de velopment of the whole gambit of ser vices encompassed in the letters “E F T S ” will remain slow in our market during 1977. • • Loan Dem and Prime to Rise Deposit Rate to Be Lower O n Mem phis Economic Scene By EARL H. TRIPLETT President Memphis Bank & Trust with the post-world War II period, business, financial and political leaders wisely began a “Balance Agriculture With Industry” program in the multi-state trade area of which Memphis serves as the geo graphic and trade center. This program attracted many new industrial plants in the smaller towns surrounding Memphis and gave Mem phis itself a large distribution industry serving its now-balanced agricultural and industrial trade area. The economy of the Memphis trade area, while af fected by the 1974-1975 economic slowdown, did perform at a better level than did the United States as a whole. In 1976, there was improvement in our trade area’s economy in spite of a drastic reduction in agricultural pro duction—off approximately 30% due to drouth conditions in the area. As agri cultural production decreased, im proved prices for cotton and soybeans and increased industrial activity mini mized effects of the reduced farm crop on our trade area’s economy. The outlook for the Memphis trade area as a whole for 1977 should con tinue to reflect good economic growth brought about by diversification of in dustrial activity in the area, along with improved agricultural markets and prices. Continued sluggishness in the real estate and construction fields in Mem phis and the other larger towns in our trade area will continue to be the most adverse factor in our economic out look. While the business and economic cli mate is affected substantially by the ever-increasing role of government, in B e g in n in g 34 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis the absence of any substantially ad verse governmental actions, our trade area should reflect a prosperous 1977. Foreclosures and non-accruals of real estate loans have reduced Memphis trade area bank earnings for most large-city-based banks in the 19741976 period. Problems in the real es tate loan area and reduced loan de mand from the economic slowdown of business in general will continue to have adverse effects on the earnings of most large city banks in 1977. In creased consumer loan demand and a stable balanced economy in many of the smaller towns and cities in our trade area will give banks in these areas good earnings opportunities dur ing 1977. I expect 1977 bank earnings to improve as a whole in our trade area; however, soft loan demand and conditions of the real estate market will cause many banks’ earnings to be sub stantially below industry average. Bankers are now faced with some of the most critical problems since the 1929-1932 era. Demands for capital to finance the growth of banks and indus try cannot be met in today’s economic and political climate. Since our nation’s leading economists project continuing inflation in our national economy at a minimum of 6% per year, there’s no doubt that the traditional ratios of capital-to-deposits and capital-to-assets, which have been used by bank regu lators, cannot be maintained at present ly expected levels. Equity and debt markets cannot presently supply the capital to fund the growth of banks, leaving retention of earnings our only source of capital. As the U. S. Congress continues to enact legislation that requires an increased volume of nonproductive and high cost measures applying to banking and oth er business, the problem of providing capital to fund growth becomes more acute. Bankers must take the lead in the business community to inform the members of our congressional delega tion of the problems that have been and are being created by the multiplic ity of costly and nonproductive socalled consumer laws and regulations. As 1976 neared an end, interest rates returned to more traditional levels than forecast previously. Many banks and S&Ls were examining the rates paid on four- and six-year maturity CDs for possible downward adjustments. Since loan demand has slackened and the prime rate on loans has fallen to the 6% to 6 /2% level, the rates being paid on the long-term consumer CDs have been under pressure, and several banks and S&Ls have reduced rates on these long er-term CDs. The first half of 1977 will find finan cial institutions in our trade area more liquid than they have been in many years, and interest rates on loans will be more competitive, while rates being paid for savings and time deposits will experience some minor reduction. The second half of 1977 should re flect increased loan demand in agri cultural areas and for consumer prod ucts as well as increased usage of lines of credit to businesses to fund inven tory and receivables. We should see an increase in the prime lending rate from 1 % to 2 % above present levels during 1977. As most banks try to relate the fu ture of the electronic funds transfer system to their bank’s operation, one question continues to be foremost and unanswered—how w ill th e trem endous cost o f im plem enting the E F T system h e a b so rb ed by banks? Proponents of electronic teller machines and other electronic equipment now being in stalled by primarily large banks in the metropolitan areas are utilizing statis tics relative to number of transactions processed to justify utilization of the equipment, rather than cost/benefit comparisons. As the earnings for many banks continue to be under pressure, the cost/benefit question will become a larger and larger factor in E F T S de velopment. When the cost of educating bank customers to utilize the various E F T S devices is added to equipment and op erating costs, most banks will be forced to adopt a step-by-step approach in their entry into the E F T system be cause of these tremendous costs. I ex pect a considerable period of time to pass before the E F T system is opera tional to any degree within the bank- MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 ing system as a whole. The necessary change of laws and regulations and the tremendous costs involved will necessi tate a greater time interval for nation wide networks to be funded and made functional when compared to develop ments of other banking system innova tions, such as the credit card. The decade of the 1970s will be known as the period in which bankers became more involved in public affairs than ever before. As we bankers deal with the multitude of laws and govern ment regulations and witness the pow er struggle among regulatory agen cies vying for entry in the bank regu latory field, previously reserved for three federal bank regulatory agencies and state banking departments, it is clear that the only road to survival of the free-enterprise banking system is to be come involved in public affairs and to support and take an active role in the bank trade associations that represent your views. It also is very evident that bankers working together can be effective in the state legislatures and the U. S. Congress. Some of the proposals that we will have to support or oppose in 1977 are: • Replacing state bank branching laws with more liberal federal law. • More disclosure of previously confidential bank information. • Allocation of bank loan funds for “equal-credit” purposes. • Further consolidation of banks into a few statewide or nationwide sys tems. • Additional regulation of banks by nonbank federal regulatory agencies such as Federal Trade Commission, Se curities & Exchange Commission, La bor Department and Equal Employ ment Opportunity Commission. • Entry of savings banks, S&Ls and credit unions into traditional commer cial banking services fields. • Federal Reserve Board proposal to require all ban ks to keep uniform re serves on deposit with Federal Reserve banks. * * No Economic Turndown, No Tight M oney Problem Seen in Chicago Picture By ALLEN P. STULTS Chairman American National Bank, Chicago RTHODOX business-cycle theory suggests a causal relationship be tween the extent and duration of the recessionary phase of a business cycle and the shape and vigor of the subse quent recovery. If this theory is valid, the recovery from this point forward will be stronger and less sporadic than we have experienced thus far. Once past the initial resurgence of consumerdurable expenditures, no economic sec tor has contributed materially to recov ery momentum. The absence of consistent improve ment in either the capital or consumer sector has led to an extended and somewhat disturbing hesitation in the recovery. Diffusion indices and other leading indicators of cyclical change have turned weak and appear to re semble patterns of behavior usually ob served much later in a recovery. While these trends bear close watch O ing, we at American National do not expect an economic turndown in 1977. Instead, we believe the pace of expan sion will accelerate moderately as the year progresses, with both the con sumption and investment sectors par ticipating more vigorously than has been the case over recent months. Real disposable income, the touchstone of economic momentum, should increase steadily throughout the year, influ enced by moderately higher wage set tlements, a slight decline in unemploy ment and a reasonably stable inflation rate. Similarly, all primary elements of the capital sector (housing, inventories and plant outlays) should contribute to an accelerated rate of capital invest ment as 1977 progresses. While we do not expect capacity to become a seri ous problem during the year, utilization ratios will be moving higher and will stimulate the capital-expansion move MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ment. If monetary policy is adequately accommodative of private-sector de mands, 1977 should be a year of good (but not spectacular) growth in both corporate output and profit, and it’s likely that these descriptions will be true for the banking industry as well. Corporate capacity utilization contin ues to be adequate, while corporate liquidity remains at unusually high lev els. Nonetheless, the low point in loan demand should have been reached for this business cycle, and we expect that 1977 will witness a gradual improve ment in bank borrowings. The liquidity of the midwestern businessmen-owners of privately held corporations appears moderately below their larger national counterparts, and we expect a somewhat more rapid growth in loan demand from this source as 1977 progresses. Based on our own moderately favorable econom ic forecast, we do not anticipate any inadequacy of funds available for loan activity. Unless monetary and fiscal policy becomes hyper-stimulative, how ever, we would not expect more than a modest increase in either short- or long-term interest rates. Within our industry, E F T S has be come the conceptual forum for discus sions of changes in bank service. Cur rently, the term E F T S has become sy nonymous with the delivery of retailoriented (as contrasted to wholesale) banking services. Projecting the future for retail E F T S can best be done in the perspective of near-term and long-term prospects. For the near term, I do not believe the level of activity and energy currently being expended is justified. Emotion—reminiscent of the early days of credit cards, with the fear of being left at the starting post—has largely distorted management judg ment of this area. If anyone believed all that was immediately attributable to E F T S , one would be led to the con clusion that E F T S is the answer to ev ery ill (real and imagined) befalling the retail segments of the banking in dustry. Unfortunately, the fundamen tals of customer acceptance and profit ability have been lost sight of as a pru dent base for making the level of in vestment associated with large-scale E F T service. In the long term, however, I believe that E F T S will grow and extend the time-and-place convenience for deliv ering retail banking services. But I be lieve that this growth will come only at a pace that makes sense both to the ultimate user—the consumer—and to the financial institutions that must make significant capital investments to provide these services. Our bank, which is a major provider 35 of electronic data processing services to other financial institutions, is follow ing the strategy of maintaining a close surveillance on technical developments and of ensuring that our staff and equipment possess the most up-to-date capability. When we judge the timing to be correct, we will be in a position to provide the appropriate E F T S ser vices at a reasonable, yet economically justified, cost. Finally, one economic afterthought. My comments above were concerned principally with the near-term outlook and were quite optimistic. Unfortunate ly, I am less sanguine about our longerterm potential unless we learn from re cent world economic experience. Our rate of productivity growth has de clined in recent years, and no nation’s standard of living can expand more rapidly than permitted by this improve ment in aggregate productivity. We have pursued wealth redistribu tion more than we have pursued incen tives to produce more. W e have over regulated, over-stimulated and over relied on the concept that somehow, someway, wealth redistribution will re sult in wealth creation. Hopefully, we will learn in time from the mistakes of other nations and take the difficult ac tions necessary so that these trends will change. * • Interest Rate Increase, Attractive Labor Pool Enhance Dallas Economy By JAMES W. KEAY Chairm an & CEO Republic National Bank, Dallas HE SO U TH W EST continues to be one of the bright spots in the na tion’s economy. With a well-diversified economic base, the region has been able to accommodate dislocations caused by inflation and the energy problem more readily than most other areas of the country. The impact of the 1974-75 recession, which followed the oil embargo and double-digit inflation, was less severe in the principal business centers of the region. Rate of unemployment in the major labor markets remained below the national average. This performance attracted widespread attention in 1976 as the nation’s economy recovered from the low point of the year before. Indeed, the relative strength of the economies of the southern states gen erally impelled politicians and planners from the older sections in the northern tier of midwestern and eastern states to begin to band together with a view to narrowing the gap in regional growth rates. Although the economy in 1977 will be exposed to a considerable range of uncertainties, it’s reasonable to antici pate that the consensus forecast for moderate growth will be realized. Much will depend on the health of the economies of other nations, especially 36 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis those substantially affected by the en ergy-cost situation, since our own econ omy is linked closely to world trade and financial markets. A new administration in Washington will come into power. While it’s not likely that major new programs and policy shifts will be implemented quickly, an expressed concern that the business recovery thus far has been too sluggish may indeed trigger legislation to stimulate employment and produc tion. Public-service job creation and tax reduction currently appear to be lead ing candidates for possible legislation. Also, it is to be expected that pressure from the older cities, where unemploy ment remains especially troublesome, will be exerted on Congress and the new administration. While the Southwest will be affected by the unfolding of events on the na tional scene, it can be expected to con tinue in its relatively favorable posture. Energy-related industries are an impor tant part of its economic base. The worldwide search for new sources of energy will continue to call on the technological and other capabilities lo cated in the Houston area, as well as other subregions of the Gulf states. The labor situation remains attractive for the location of new and enlarged in dustrial installations, and domestic and international trade continues to expand with overall growth of the region. An increase in population resulting from net migration and natural demograph ics provides a relatively good climate for home and other construction. Nevertheless, we are cognizant of possible factors that could affect the outlook. Some of the cities of the Southwest are important participants in defense production, so that the pol icy of the new administration on the defense budget will be significant. The shape of energy policy also will have an impact on the economy of the Southwest in various ways. Texas is one of the most important agricultural states. Crop conditions, world commod ity markets and agricultural policy all will affect the degree of prosperity in Texas and other states in the region. W e view the outlook for banking in our trade area as both encouraging and challenging. Dallas is one of the coun try’s most important financial centers and thereby participates not only in lo cal and regional finance, but also in national and international markets. In 1976, the regional sector showed rela tive strength while the national market experienced weak demand for bank loans. We see this regional strength continuing in 1977 and are hopeful that the portion of our business gen erated outside the area will respond fa vorably to a further advance in the na tion’s economy. Accordingly, prospects for bank earnings are good. Of course, the trend of interest rates will be a sig nificant factor in the earnings outlook. With continued economic recovery and persistence of inflationary pressures, money rates would be expected to rise during the course of the year, with a consequent favorable impact on inter est spreads and earnings. The year will be a challenging one, not only from the viewpoint of the eco nomic outlook, but also the broad com petitive environment confronting banks. A long list of issues relating to the financial system—ranging from electronic fund transfers to functions and powers of financial institutions to the role of the central banking system —will be aired in Congress. The tides of change are flowing rapidly. It is not easy to predict what portion of the pro posals now pending will find their way into the legislative books in the coming year, but we can be sure that 1977 will be a busy year—one that will test the alertness of banks and bankers to the competitive nature of the environment in which they will be living for years to come. * * MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 Economy Will Rise at Steady But Moderate Rate in 1977 T H ER E currently is much disap pointment in many quarters be cause of the recent slowdown in eco nomic activity. This weakness, how ever, is a reflection of the extraordinary events that businesses and households have experienced in the past several years of rapid in flation and the deepest recession since the 1930s. First, let me re view the causes of the recent slowing in business activ ity. I think it can be shown best by MILLER what has hap pened in industrial production. Total industrial production slowed in the See Chart on This Page summer months, actually declined in September and continued that decline in October. As you know, much of the decline could be attributed to the auto By DONALD C. MILLER Vice Chairm an And Treasurer Continental Illinois Corp. Chicago strike, although even in the absence of a strike the gain would have been mod est at best. A fundamental factor in the slowing over the past six months has been the leveling in nondurable-goods production, which had risen to new peaks in the year following the reces sion. Durable goods helped offset this slowing until the auto strike hit in both September and October. This impact will be reversed rather quickly now that the strike is ended and production Mr. Miller gave the talk on which this ar ticle is based at a meeting his firm spon sored for bank security analysts Novem ber 30. All charts used with this article were supplied by Continental Bank, Chi cago, which is a subsidiary of Continental Illinois Corp. is back on track. However, we don’t foresee a vigorous upturn occurring for several months. One of the main reasons for a slow ing in production has been the correc tion of a largely undesired rise in in ventories in relation to sales. This has been true particularly at the manufac turing level in recent months, although it also occurred at the retail level. As a result, orders have fallen off and pro duction has slowed. The main area where sales have slowed has been the retail sector. Retail See Chart on This Page sales even in current dollar terms have not shown much strength since early summer and, when deflated to constant dollars by the consumer price index (C P I), have been on a slightly declin ing trend. This recent trend was a dis appointment to businesses. There are a number of reasons why this slowdown in consumer spending has occurred. It can be summed up as ^ CONTINENTAL BANK @ CONTINENTAL BANK RETAIL SALES INDUSTRIAL PRODUCTION IND EX 1967*100 S E A S O N A LLY A D JU S TE D MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IN D EX 1 96 7 -10 0 BILLIO N S O F D O L L A R S S E A S O N A LLY A D JU S TE D BILLIO NS O F D O L L A R S 37 ^ C O N T IN E N T A L B A N K Z CONTINENTAL B SHORT TERM CREDIT DEMANDS OF NONFINANCIAL CORPORATIONS GROSS NATIONAL PRODUCT - $ 1 9 7 2 QUARTER TO QUARTER PERCENTAGE CHANGES AT ANNUAL RATES PERCENT CHANGE FROM YEAR END PERCENT l_ ll ili m j I E ST IM A T E S - , 111 — + 8 MIL _ COMMERCIAL PAPER — 1973 i 1975 i i T O T A L ^ m0"r ^ J,tk^' * __ i__ i__ 1___ i l i i 1976 a weakness in confidence, but also in come growth has shown smaller gains caused partly by numerous strikes as well as by a shorter workweek, which reduced real weekly spendable earn ings. It will be difficult for consumer spending to pick up without a stronger growth in employment and incomes. T here are three factors that w e fe e l will h elp build th e general strength o f th e econom y. These condition our out look: First, housing activity already has shown very solid gains, even though there was a slight drop-off in October from the extraordinarily high Septem ber rate. More important, we are see ing developing strength in apartment construction for the first time in more than three years. Second, w e expect business spending to b eco m e a source o f important strength. Capital spending already has begun to rise. So have appropriations and new orders for equipment, con firming further gains. There even is some sign of life in contract awards for nonresidential building, although it’s far from a significant recovery. As sales rise, there also should be some modest increase in inventory accumulation. Third, there has b een a n oticeable lag in fed eral spending, particularly in 1977 i l i i t 1 1___ L j __ 1___ 1 1 1975 procurement of defense weapons. A re versal has begun and should have an important influence on the economy. Moreover, there are major gains in fed eral grants-in-aid to state and local gov ernments for a variety of programs, and this will help stimulate spending. We feel that these factors will help re-exert a pickup in the economy. Our view is that real GNP will b eg in to rise at a m ore rapid rate in th e first quarter o f 1977. While there will be a gradual See Chart on This Page reduction in rate of growth in the sec ond half of 1977, the rise will be above a 4% annual rate. For 1977 as a whole, the growth rate would be about 5%, which we feel would be a reasonably strong gain for the third year of a re covery. As you know, we have had a marked decline in the rate of inflation, particu larly if we get rid of the monthly er ratic fluctuations. Over a six-month period, the CPI is rising at about a 6% rate. We feel that this will continue well into next year, given the outlook for food prices, and the large amounts of excess capacity in many manufactur ing industries provides encouraging @continentalbank @ CONTINENTAL BANK _ C & I LOANS _ 1 1 1 1 i i i i COMMERCIAL PAPER 1___ 1__ 1__ 1___ 1976 prospects for prices on nonfood com modities at the retail level. In short, we have an economy that we feel will be growing at a reasonably good rate in a relatively noninflationary environment, at least for the next year. Whether this rate of growth will be sufficient to reduce unemployment to the satisfaction of the Carter Adminis tration is questionable, without some stimulus such as a tax cut or increased federal spending. In this respect, our forecast for real growth may be some what low, although I don’t believe, based on what we now know, that fis cal actions will alter the picture sig nificantly before the end of 1977. Let me turn to a brief examination of what we think this means for the financial markets. Probably the biggest surprise we have had in our forecast this year has been the sustained declining trend in interest rates, especially short-term in terest rates. In fact, short rates today are lower than they were at the depth of the recession in early 1975, a highly unusual historical pattern. One still has difficulty learning why rates have See Chart on Page 39 PRIME AND D EALER EXTERNAL FINANCING NEEDS BILLIO N S O F D O L L A R S N O N F IN A N C IA L C O R P O R A T IO N S 38 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BILLIO N S O F D O L LA R S MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 CONTINENTAL BANK Y IE L D S ON CO R PO R A TE S E C U R IT IE S stayed down. One answer may be sim ply that they were too high as the re covery started, and that we have re acted to that as well as getting an ad justment to lower rates of inflation. The recent slowing in economic activity and the monetary authorities’ lack of need to be concerned about monetary ag gregates are other considerations. How ever, I believe the key answer to this historical aberration lies in short-term business credit demands. Short-term business credit demands, including both commercial bank loans and commercial paper outstanding, have remained weak this year after the ing needs so far have been met largely by long-term borrowing as well as by the selling of financial assets, we feel it will show up in a faster rate of short term borrowing, from commercial banks in particular. However, we do not, in our forecast, see anywhere near the type of loan de mand and growth that was seen in 1973 and 1974. Later on, however, as loan demand picks up, we see some upward pressure on money market rates which the Fed will allow to develop. While short-term rates currently are soft and will remain so for the next few months, we believe increased loan demand, accompanied See Chart on Page 38 See Chart on Page 38 sharp falloff last year. In part, this has reflected the record amounts of long term bonds issued by corporations to lengthen their maturity structures for the past year and a half. See Chart on Page 38 This chart compares business spend ing (defined to include both fixed in vestment and inventory accumulation) with internal cash flows of nonfinancial corporations. The shaded area repre sents the borrowing that business needs to finance spending. As you can see, a trend toward external financing that began in the mid-1960s ballooned to enormous proportions in 1973 and 1974 and was a prime cause of the ex tremely high loan demand at that time. In the first part of 1975, this switched around due to the combination of a sharp cut in spending and a strong re covery in profits; consequently, exter nal needs for financing fell sharply. Now we see another reversal in 1976, and we feel this new trend is likely to continue. As mentioned earlier, spend ing is expected to rise more rapidly, and internal cash flows are expected to slow their growth. While the financ by stronger economic growth, will eventually cause short-term rates to move up. In the long-term area, we do not see such a rise because the spread between short and long rates currently is so wide. W e do, however, see long rates rising somewhat from current levels. W e recognize the risk in making MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis percent forecasts such as this, and we will re main flexible in our planning in case the economic facts change. Neverthe less, we must assume what we consider to be the most likely case, and this is See Chart on This Page now our best judgment as to what eventually will develop. In summarizing our view, a vital element in our forecast is an economy that will be rising at a steady but rela tively moderate rate, one in which strong inflationary pressures will not reassert themselves. If this forecast is wrong, interest rates could rise sub stantially more. This would be of con cern to us, not so much because of the possible impact it would have on our net interest margin, but because of the impact it would have on our customers. Another round of boom-and-bust caused by inflation would cause a whole new set of problems. For this reason, we will be watching the econ omy carefully as it continues what we feel is a well-established and very satis factory recovery. • • u C O N T IN E N T A L B A N K SELEC T ED SHORT-TERM IN TEREST RATES 39 What Issues of Importance to Banks Will Come Before 95th Congress? and politics often progress hand in hand, each af fecting the other as the public interest is perceived by our citizenry. Certainly in 1977 legislative processes will be initiated which affect the economics of the business of banking. At the same time, major economic trends—whether they are good news or bad—may im pact on the legislative process and the politics behind it. With the uncertainties of our nation al elections behind us and the commit tee selection process underway for the new Congress, we can begin to look ahead and prepare for several issues we can be certain will be brought up during the 95th Congress. The first of these is so-called finan cial reform. This issue has been with us since the Hunt Commission issued its famous report, and Senator M cIn tyre, Representative Reuss and others have promised to resurrect it in the next session of Congress. The question of what form these proposals will take —piecemeal or comprehensive legisla tion, for example—remains unresolved. In a speech at a recent annual meet ing of one of the savings and loan as sociations, Senator McIntyre, chairman of the Senate’s Financial Institutions Subcommittee, told S&L officials to ■“decide for yourselves what will best serve the needs of your industry and the public as well. And if you can agree on a package, have it ready be fore Regulation Q extension time rolls around again.” Clearly, he is anticipat ing that the first congressional efforts to change our financial structure will come when legislation is introduced to extend the Interest Rate Control Act beyond March 1. The impending expiration of the In terest Rate Control Act undoubtedly will force Congress to address the problem of competitive inequalities among financial institutions. But it is E c o n o m ic s 40 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By W. LIDDON McPETERS President American Bankers Association important for us to remember that if the act does expire March 1, only thrift institutions would come out from under interest-rate controls on savings depos its. Banks still would be subject to Reg ulation Q ceilings. Several avenues of action to address this problem will be open to Congress. It could simply extend the act in its present form, which would mean that the quarter-point-interest-rate differen tial would continue to be part of the statute, instead of being left to the dis cretion of the regulatory agencies. Or Congress could extend the act, but re turn discretion over size of the differ ential to the regulators. Very likely, thrift institutions will be pressing for a larger differential as part of the extension of the Interest Rate Control Act. And the ABA will contin ue to work for removal of the differen tial on individual retirement accounts. We also will be working to eliminate the differential on savings deposits in states—like those in New England— where thrift institutions have thirdparty-payment powers, such as NOW accounts. The whole question of NOW ac counts also will certainly be a major is- Mr. McPeters, the ABA's 91st pres., is pres., Se curity Bank, Corinth, Miss. From 1973-75, he w as ch., ABA Centen nial Commission. sue in the next session of Congress. At the close of the last Congress, for ex ample, Senator McIntyre worked to de feat several bills in the Senate because they would have authorized NOW ac counts in New York and New Jersey. Senator McIntyre is a strong advocate of NOW accounts, but he opposed these particular bills because he be lieved that the piecemeal spread of NOWs would erode support for broad legislation, allowing them everywhere. He left no doubt that he intends to push for legislation authorizing nation wide NOW accounts early in the 95th Congress. Electronic fund transfers are certain to be a major issue in 1977. On Oc tober 4, the Supreme Court declined to review lower court rulings on cus tomer-bank communication terminals (C B C T s). That means banks have ex hausted every possibility in the courts to correct the inequitable treatment be tween banks and other financial insti tutions in the area of E FT S. These lower court rulings define CBCTs as branches and state that they are, therefore, subject to federal and state laws governing branches. The ABA does not agree. W e are convinced that CBCTs are merely a more con venient way of offering conventional bank services and that they do nothing that cannot now be done, albeit more slowly, by the U. S. Postal Service and the telephone. To give you an idea of how inequita ble the situation is, these lower court rulings put national banks at a signifi cant disadvantage in competing with others who are free to offer electronic banking services. Although the lower court rulings apply only to national banks, all commercial banks would be disadvantaged in states that do not elect to authorize CBCTs for banks. This is because banking’s competitors —including thrift institutions, credit MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 unions and even nonregulated competi tors such as American Express—will continue to operate CBCT-like facil ities without being subject to bank branching laws. Moreover, at least 15 states have en acted laws that specifically say CBCTs are not to be considered branches. That means that in those jurisdictions state banks—but not national banks—will be allowed to install CBCTs without regard to branching requirements. Na tional branching requirements still will apply to national banks. In the past several months, the ABA has testified before the National Com mission on Electronic Fund Transfers on this very question. Our position re mains unchanged: CBCTs are not branches, and therefore, the question of states’ rights simply does not enter into it. The issue is the definition of a branch, not whether states should have the right to determine whether or where banks can have branches. ABA policy on this question is unequivocal: Each state should continue to have the prerogative to determine whether and to what extent branches are permitted. As bankers, our only choice now is to seek a legislative remedy to the competitive disadvantages we find our selves facing in the E F T S area. One opportunity to get such a remedy will come in 1977, when the National E F T Commission will issue its preliminary findings and final recommendations. These very well may serve as the basis for some kind of E F T legislation. We also can expect legislation to grow out of recommendations made by the National Commission on the Rights of Privacy. And very shortly, the Gen eral Accounting Office is expected to complete its “study” of the effective ness of bank examination and regula tory procedures. It has become clear that the results of this study will stimu late more legislative proposals for “re form” of bank regulation in 1977. Finally, during the 95th Congress, we can expect Senator McIntyre to in troduce legislation that would change or supplant the McFadden Act. He al ready has issued a 520-odd-page “Com pendium of Issues Relating to Branch ing by Financial Institutions,” and on December 6-8 he held hearings on the McFadden Act in Chicago, Dallas and San Francisco. In the preface to his compendium, Senator McIntyre gave a clear indication of the direction his study of these issues is taking: “All in all, it is ludicrous that in 1976, the au thority of banks to branch in many jur isdictions is still based on laws and practices, not designed to promote competition, but based on the fact that existing institutions, however noncom "One of the many questions facing the banking industry as the 95th Congress begins its work is: how will it choose to proceed, with a delicate search for compromise or with an all-or-nothing at titude?" petitive they may be, will not be ad versely affected.” These are only some of the legisla tive issues certain to make their ap pearance in the next session of Con gress. And they clearly will affect the banking environment, not only in 1977 but for the rest of this century. It’s important, however, for us to re alize that legislative actions are not the only determinant of our banking en vironment. Our competitors’ actions are an equally important factor, and our competitors are not just sitting back and waiting for Congress to grant them new authority. To the contrary, they are actively expanding their pow ers to meet consumers’ financial needs. The most obvious example is in New England, where thrift institutions can offer interest-bearing check-like devices called negotiable orders of withdrawal (N O W ). Of course, banks there also are allowed to offer NOWs. But the im portant fact is that, in gaining this ad ditional power, the thrifts did not have to accept the same reserve require ments and tax responsibilities as banks. Nor has the interest-rate differential on savings deposits been removed. If the introduction of NOWs by thrifts has not severely hurt banks by draining de posits, this unfair competition certainly has not helped. Again, in New York, mutual savings banks and S&Ls can offer true check ing-account services. Under New York law, thrifts may not charge for this ser vice. That has increased the price com petition for those offering checking ac counts in the Empire State. In the first three months that thrifts were allowed to offer no-charge checking, over a quarter million checking accounts were opened in savings banks, with just un der $90 million received in deposits. In Illinois, S&Ls can offer non-inter est-bearing negotiable orders of with drawal. Similarly, in Wisconsin, one S&L applied for and received regula tory approval to offer non-interest-bear ing NOWs. The Wisconsin Bankers As sociation is fighting this in court. Moreover, federal S&Ls throughout the nation have been granted increased consumer lending authority, and the Federal Home Loan Bank Board has allowed thrifts to install remote service units, or CBCTs. This listing of ways that thrifts have made inroads into traditional bank ser MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis vices is far from complete. Other ex amples abound. For instance, some mu tual savings banks have been offering bank cards for several years. Perhaps the prime example is the Consumer Savings Bank of Worcester, Mass., which has been offering BankAmericard since June, 1974. Consumer Sav ings Bank gives the bank card customer some added incentives to do business with it. Whenever a customer opens a BankAmericard account, the savings bank also opens a quarterly statement account for the customer, if he or she doesn’t already have one. That account earns 5/i% computed daily. When the customer charges an item on the bank card, Consumer Savings Bank auto matically adds 1% of the purchase price to the customer’s savings account. In other words, the savings bank pays a 1% rebate on purchases with the card directly into the customer’s savings ac count. At present, the number of thrifts in volved in bank cards is small. But we can expect more and more competition on this front. Last May, National Bank Americard, Inc., opened its member ship to all financial institutions eligible for federal deposit or share insurance and that have legal powers to perform functions of membership. Meanwhile the board of Interbank Card Association, the Master Charge company, has proposed to expand its membership to S&Ls, credit unions, co operative banks and all other financial institutions meeting certain criteria. This proposal must be approved by two-thirds of Interbank’s members to become effective. Thus, the potential exists for increased competition in that area also. As if these encroachments by thrifts were not enough, the share draft has become a real competitive threat to banks. To the average customer, share drafts (issued by credit unions) look suspiciously like checks. In fact, to the customer a share draft is even better than a check because it pays interest. The ABA believes there is no provi sion or authority for the National Credit Union Administration (NCUA) to allow the issuance of these thirdparty-payment devices. For this reason, the ABA has taken the NCUA to court, seeking to put an end to the share-draft program. But unless and until we do, 41 credit unions will continue to offer these react to actions taken by others. We devices. In fact, about 300 federal ourselves must seize the initiative and credit unions have been authorized by put forth our own proposals for a bet NCUA to offer share draft accounts. ter banking environment. A level play There can be no question that thrift ing field on which all financial institu institutions— S&Ls, mutual savings tions compete under equal ground rules banks and credit unions— are gaining will be of limited value if we cannot many new powers. Their efforts to gain develop a good offense to go with our these powers already have radically al excellent defense. tered the environment in which we For example, in government rela bankers operate. And we can certainly tions, we must put forth our own pro expect those changes to continue. The posals for change in our financial struc question we now face is how we re ture—proposals designed to give bank spond to these inroads. customers the best possible financial The third factor influencing the service. And we must be ready to docu banking environment in 1977 is the ac ment the reasoning behind our pro tions of bankers themselves. The deci posals with facts about such things as sions we make in the coming year will costs of services to customers. The be at least as important as new legisla ABA has been at work for some time, tion and new inroads by our competi at the staff level and with member tors in shaping the banking environ committees, in preparation for issues ment throughout the rest of this cen we feel are certain to be raised during tury. the 95th Congress. In competing with thrift institutions Some of these decisions will be re sponses to actions taken by others. For example, on the legislative front, bank ers will continue to oppose poorly con ceived legislation that hinders our abil ity to offer competitive financial ser vices to the consuming public. And if our competitors gain the ability to offer T W OULD appear that this will be new bank-like services, bankers will a relatively quiet year for state continue to compete aggressively for banking legislation in the Mid-Conti the consumer’s dollar with every means nent area. at our disposal—more convenience, The primary legislative goal of the better service and fair pricing. Missouri Bankers Association is passage Unfortunately, in the 94th Congress of a pre-filed bill that would authorize some basically positive legislative pro banks to establish E F T systems. Man posals failed to achieve passage pri datory sharing is a requirement of the marily because they subsequently were proposed legislation. A detailed sum altered to bring about major, unneeded mary of the MBA-sponsored bill ap changes in the financial industry. peared in the November, 1976, issue. Where a legislative scalpel could have The Mississippi Bankers Association been used to achieve equitable reforms, plans to ask the state legislature to blunt instruments were used instead— adopt a revised Article 9 of the Uniproducing legislative disasters. rform Commercial Code that contains One of the many questions facing several amendments recommended by the banking industry as the 95th Con the commissioners on uniform state gress begins its work is: how will it law. The MBA will ask for an amend choose to proceed, with a delicate ment to the present statute that re search for compromise or with an all- quires the submission of call statements or-nothing attitude? Either approach to the state comptroller within 10 days works sometimes, but it would seem of the call. Bankers want 30 days in that the more productive path is often which to comply. that of compromise. The association will ask for a clari In any event, the likelihood is that fying statute on joint accounts that al the banking industry will be working lows minors and adults to have such with familiar names and faces in both accounts. The request would ask for the House and the Senate for the next specific authorization for the hypothe two years. And it is certain that many cation of an account by any one of the of the issues and proposals will be fa members of the joint account. miliar as well, though they may be pre The Indiana Bankers Association ex sented in new combinations and pack pects to support new tax legislation ages. What is unknown is whether dur that would tax banks and other finan ing the 95th Congress a way can be cial institutions on the basis of adjusted found to make the efforts of all parties gross income based on federal taxable to the legislative process productive income. Banks would also become sub and equitable through compromise. ject to the general business personal In addition, we as bankers must rec property tax for the first time. In the area of reserve requirements ognize that it is not enough simply to that can offer bank-like services, we must find new ways to attract custo mers—ways that are based not just on price but on innovative service and genuine concern for our customers’ fi nancial needs. W e cannot afford to be sucked into a quicksand, where we compete solely on the basis of price and price our services only on the basis of what our competitors are doing. That is the direction of ruin both for ourselves and our competitors, not to mention the customer who would sure ly suffer the most in the long run. In short, to be effective, our actions must be based on what is best for the customers and communities we serve. After all, that is the primary reason for our existence—to serve the financial needs and wants of the public. If we as an industry direct all our activities toward meeting those needs at a fair profit, we cannot fail to create a better banking environment in 1977. * * State Legislative Scene to Be Q uiet? I 42 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis for state-chartered banks, the IBA ex pects to work with the Department of Financial Institutions to develop legis lation to permit reserves to be invested in obligations of the federal govern ment. The IBA also will sponsor a bill to increase loan limits to officers and em ployees of banks from the present $5,000 to $10,000. The association will back a bill to enable banks to deposit securities into security depositories out side the state. Other legislative goals of the IBA include permitting the reciprocal for eign administration of trusts via an amendment to the probate code, more flexibility in setting cut-off hours for making book entries and authority for banks to make variable rate mortgages. The following issues may be pre sented during the 1977 Kansas legis lative session, according to Harold A. Stones of the Kansas Bankers Associa tion: • Authority for the state bank com missioner to charter a new state bank to replace one that has failed. • Inclusion of capital notes and debentures in the formula for owner ship of real estate, furniture and fix tures. • Services that can be offered in detached bank facilities. • Reexamination of the investment latitude for local public officials. • E F T legislation dealing with pri vacy, loss of float and compensation. • Additional powers for S&Ls and credit unions. • Access to customer bank records. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 As the newest m em ber of our correspondent banker team , ©ary R. Dobson is a m an on the move. . His job, a s V ice President of Correspondent Banking, is to help with your problems, an d if s :" ke^sierferltim to d o that if he y j l f i owsthem . He already knows h e knows ^J.^ fh d Ip co n td c f for sp ecialized : J B , ; -help. ' Wait for him to w h e e lo ry n , or for im m ediate help an d a d v ic e ... . ust ca ll Gary. He m # not b e /mg a n teajibur,$>tit he will certainly h a v e the w lieels of f ourth National la n k bdhthd him. B Tulsa, Oklahom a it llllllP ll! m i h CaMjiry. A Better Banker’s Banker, Excalibur ccxirtesyoflfftaioe Irriei A iA Tutea MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis p (918)587-9171 43 C&S clears the ai bankin V & V E N never m t f RISK i Wß . kcoULDNT FORTUNE5 0 , A CREDIT Im THE F Ä FORTUNE/ M l COLLECT/ Ü » ON . / THROUGHJ US m fr W E LL GO TO GREAT LENGTHS FO UR N W - L O A H S do ARE w n - FOR FOREIGN L to \S3a m ^ t r a n s a c t io n s - e a r t h 44 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 on correspondent Most bankers are quick to tell you they’re good at investment counseling. Or training programs. Or overseas transactions. But what if you’re only interested in data pro cessing? Or loan participations? Then choosing a correspondent bank can be both confusing and time consuming. But it doesn’t have to be; you can simply choose C&S. With the total resources of the C&S system to back up every service we offer, we’re highly skilled in them all: Agribanking—Agribusiness Auditing complete services Data Processing Consulting Facility Management or Time Sharing Bank Account Services Bank Informing System s—including audio/video 24-Hour Automated Tellers Franchise EFTS Trust Banking Computerized Record Keeping Investment Counseling Custody and Trading of Assets Trust Tax Service Personal Trust Services Corporate Trust Services Custodial Agent Escrow Agent Trustee and Administrator, Individual Pension Plan Trustee and Administrator, Individual Profit Sharing Plan Master Pension Plan Master Profit Sharing Plan Self-Employed Retirement Trusts Paying Agent and Registrar Registrar Safekeeping Keogh Trustee and Administrator Transfer Agent Trustee for Bond Issue Trustee for Purchase or Sale of Business Interests Personal Trusts Computer Systems Services Investments Government Securities Federal Agency Securities Municipals Federal Funds Commercial Paper Repurchase Agreements Treasury Tax and Loan Accounts Certificates of Deposit Money Desk Reviews Portfolio Analysis Services Operational Services Check Clearing Cash Letter Analysis Transportation Analysis Availability Studies Direct Sendings Federal Reserve Sendings Wire Transfer Cash Management Lockbox Services Concentration Account Service Disbursement Account Service Management Assistance Seminars and Training Programs Methods and Systems Analysis Planning, Cost Analysis and Control Reporting and Auditing Procedures International Complete Export and Import Financing Foreign Exchange Transactions Economic, Political, Trade Information Credit Loan Participations Direct Loans Capital Note Financing Term Financing Holding Company Lines of Credit Lines of Credit Credit Information Commercial Finance and Factoring Agricultural Financing Consumer Services Charge Card: C&S Card Mastercharge® Programs Sequential Statements Regardless of which service suits your needs, regardless of your bank’s size, you’ll find our attitude is professional, responsive, concerned. That’s why C&S is known as “the bankers’ bank” in the Southeast. And that’s why C&S should be working for you. You can get details on all our services by writing to: Correspondent Banking, C&S National Bank, 99 Annex, Atlanta, Georgia 30399. Or call (404)581-3805. Or in Georgia (800)282-5840, toll-free. Or outside Georgia (800)241-5832, toll-free. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 45 W here Should B an k Investments Be Concentrated in 1977? ANK STOCK FUNDAMENTALS continue neutral to slightly nega tive. Assets have grown, but at a less than exuberant rate; margins have im proved from the cyclical low point reached in 1975’s second half, but they are far from robust and continue par ticularly poor for those banks hold ing more than a small share of real estate-oriented as sets. There now is some further ques tion of additional margin erosion as bank pricing pol HACKER icies appear to be more competitive both in wholesale do mestic and international operations. Although commercial and industrial loan demand has been rising since Sep tember, we do not expect forceful busi ness loan demand before the second half of 1977. The argument that heav ier corporate tax payments due early in the year will cause bank borrowings to accelerate at that time is blunted by increasing evidence of a continued buildup in corporate liquidity. Further more, although we expect some bene fits to the economy from fiscal stimu lus in 1977, those benefits are likely to be of very short duration and will come at the expense of stronger capital spending in the private sector. The U. S. government will find the funds to finance its growing deficit this year, but only because the businessman is likely to remain tuned out for much of that time. We believe that the key to business borrowing rests with capital spending plans, an area where cutbacks rather than expansion have been the recent rule. The present BEDCO forecast for capital spending in 1977 calls for an approximate 6% increase over 1976 levels. Thus, while domestic businessloan volume will show some improve ment in 1977, say 7%-8% point to 46 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By GEORGE L. HACKER Senior Vice President Blyth Eastman Dillon & Co., Inc. New York City point, we expect that any substantial benefit to bank earnings will be de layed into 1978. Consequently, short term rates are likely to decline through early 1977 and only begin a slow climb in the second half of the new year, re ducing the possibility of significant earnings improvement resulting from widening margins. In fact, we continue to believe that the spread between the cost of money market funds and the prime rate will decline from the 150175-basis-point level, which has been seen almost continuously since the fourth quarter of 1974, to perhaps a 100-basis point spread as business-loan volume begins a slow ascent from cur rent levels. Foreign economic developments do not augur well for banks engaged heavily in foreign lending. Here’s a quick summary of the BEDCO view point: 1. Problems for Britain, France and Italy imply problems for their trading partners, including the E E C in general and West Germany and Japan in par ticular. 2. Recession abroad creates a less stable political and economic environ ment, and instability often leads to sur prise. 3. Present events in the world econ omy give the lie to claims that the in ternational system has responded very well to the aftermath of higher oil prices. On the contrary, higher oil prices have contributed to and perpet uated new forms of disequilibrium. Loans to many countries—whether LDCs (less-developed countries) or “better credits”— are suspect at this time, although the magnitude of po tential problems stemming from over seas activities by commercial banks is not clear at present. Citicorp has point ed out that, “Total LDC indebtedness to U. S. commercial banks is estimated at $50 billion, of which perhaps half is guaranteed by federal agencies and U. S. corporations. About 60% of the nonguaranteed bank debt is self-liqui dating trade financing with a maturity under one year. This leaves no more than $10 billion of non-guaranteed, long-term claims on LDCs by the en tire banking system. At year-end 1975, total exposure of non-guaranteed loans by the six largest U. S. banks to non oil LDCs represented about 5% of their combined assets. No single country had over 1.5%.” (As quoted in Citicorp N ew s Item s, November 23, 1976.) While these numbers tend to soothe, “fighting the tape” can be a fool’s game, especially if there are more at tractive, non-multinational alternative equity investments either within or out side the banking industry. W orkout o f P roblem Assets. The undergirdings of bank earnings expansion are business loan growth and margin improvement. We have suggested that both factors will produce only moder ate gains in the new year. What then of income improvement projected to result from the wearing-off of the unique and deep recession difficulties of 1974-75?* On the basis of economic develop ments in the past two months, the com fort index of bankers has been improv ing more slowly than originally expect ed. Moreover, while we suspect that reductions in the provision, and in the reserve itself in some cases, will occur in 1977, we must conclude that the sharp decreases envisioned by some analysts will, in fact, turn out to be quite moderate. Ironically, a number of those banks that avoided severe loan problems will have little room to ma neuver loan-loss provisions because their reserves never reached the ex treme levels of more troubled compa nies. W e continue to believe that non performing loans will not be a major earnings negative in 1977, but neither MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 Depend on the bank that other bankers depend on. T h e W hitney d o e s n ’t w ant you to feel let dow n w hen you think about co rre sp o n d e n t banking in the part of the South that w e know best. W e ’ve been holding up our end with o ther b a n k s all over the w orld s in c e 1883. P e rh a p s now w e ca n join with you to build a firm foundation of co rre sp o n d e n t banking for the future. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis NATIONAL BANK OF NEW ORLEANS I Reliability in banking since 1883 will substantial positives result from a sharp reduction in the size of these problem loans. This is because most of the troubled credits center in the in terim financing of real estate projects, which area has tended to recover much more slowly than the general economy. W e continue to note unhappy sur prises from a few banks in the area of real estate write-downs, indicating, we suspect, the discomfort of individual bank managements with real estate val ues. W e would suggest that more write-down surprises may be coming, particularly given our economic scenar io. Investm ent Conclusion. The year 1976 began with high expectations for earnings gains and upward multiple movements for bank stocks. By the middle of June, the BEDCO bank stock index was up 24.5%, and all seemed to be tracking well. However, as negative economic developments be came evident, as business loan volume continued to move downward and as short rates went lower, investor ex pectations dampened. The BEDCO Bank Index reached a 1976 high June 17. Since then, the group has declined 1.4% compared with a drop in the S&P 500 of 0.3%. In the same period, the Dow Jones In dustrial Average was down 4%. Most interestingly, in the past month the bank index was up 8.1%, more than double the gain in the broader-based averages. W e assume this strength is geared to the upward movement of commercial and industrial loan de mand. However, as discussed earlier, it may be preferable to await further domestic and foreign economic devel opments in the private and govern mental sectors before making a strong case for a cyclical improvement in the bank group. Consequently, within this context, we would concentrate bank invest ments on those companies with 1) a heavy domestic earnings base, particu larly of a consumer orientation, 2 ) a higher-than-average return on assets, and 3) good cost controls. • * S n p p p n nn Pi FOR THE RIGHT MAN Bank of New Orleans Assumes Deposits O f Closed International City Bank LL D EPO SITS of International City Bank, New Orleans, which was closed December 3, were taken over by Bank of New Orleans so that no ICB depositors were denied access to their funds. IC B was closed by Kenneth E. Pickering, Louisiana commissioner of financial institutions, and the FD IC was named receiver. The FD IC announced that it would advance approximately $113.5 million to facilitate the assumption of IC B’s deposit liabilities by the $334-milliondeposit BNO. The head office and eight branches of the failed bank opened De cember 6 as BNO offices, and all ICB depositors automatically became BNO depositors. BNO a c q u ir e d the closed bank through a special agreement approved by the FD IC , Mr. Pickering and the Fed. BNO President Lawrence A. Merrigan says that his bank is acquir ing only IC B ’s deposits and a relatively small volume of its installment loans. The agreement with the FD IC spe cifically excludes BNO’s assuming any of IC B ’s commercial loan portfolio, ac cording to Mr. Merrigan. BNO is con tinuing to service ICB installment loan customers. IC B BankAmericard and Master Charge customers may continue using their present cards, and merchants may continue depositing bank chargecard-sales drafts as in the past. After ICB was closed December 3, the FD IC followed its normal practice of asking several groups to submit bids A I m m W : . f.P.OR THE RIGHT JOB ■ Pf ... executive personnel ^ for banking, finance and related fields contact TOM CHENOWETH, ' j . j j manager P FINANCIAL? PLACEMENTS^' Î912 Baltimore, Kansas City, Mo. ||j? phone 816 421-7941 48 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis for an FDIC-assisted transaction. When no bids were submitted, the FD IC be gan day-long negotiations with two parties that expressed some interest, and a mutually acceptable contract be tween the F D IC and BNO finally was arranged. Approval of the transaction was received early Sunday morning, December 5. In addition to assuming approximately $160 million in deposits and other li abilities, BNO agreed to pay a purchase premium of $800,000. BNO will buy at market value IC B ’s holdings of U. S. government and other investment grade securities of approximately $34 million, its cash and due from banks and other assets, including the bulk of the con sumer loan portfolio of $4.5 million. The F D IC will purchase from New Orleans Bancshares, Inc., one-bank HC that owns BNO, a $7.5-million, 10-year capital note, payable in equal annual installments commencing at the end of the second year. Proceeds of the loan will be invested in equity capital of BNO to assist it in meeting immediately the substantial additional capital re quirements imposed on it because of its new deposit liabilities. The FD IC expects to recover a sub stantial portion of its outlay as pay ments are realized on assets not trans ferred to the assuming bank. In this respect, the F D IC notes that its claim would have priority on repayment over claims of any ICB subordinated note holders or shareholders. * * MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 “I’ve used every correspondent service First National offers. And after 35 years, success has proven the wisdom of it" The Farmers Bank of Clinton, Missouri is a true success story. A correspondent relationship with First National Bank of Kansas City has given it valuable extra time and expertise to concentrate on serving its growing community. Mr. and Mrs. Harry Finks, Jr., president and vice president, know that size determines a bank’s method of operation. Farmers Bank has the advantage •*, of a community where ea<j|j|sg client and his business neeaS^^™ are known intimately. But the community is not large enough to support a computer and specialists for just one bank’s daily needs.. Ten years ago, Harry Finks, 1 already established in full correspondent relationship with the First, was one of the first to take advantage of our computers and other related specialized services. For his demajjdderwsits, savings account^n^Smficates of deposit,. dài^ft^^m e|its from the First save ms people time and help insure accuracv. If your bank could benefit from assistance with overline loans, investments, transit collection, bonds, international services, trusts, cash manage ment and other financial services, call the professional staff of the First National Bank Correspondent Department. We take pride in the success of the Finks and the Farmers Bank of Clinton. Our correspondent banking tradition has been built on help like this. Why not put our strong tradition of excellente to work for your success. iijjS ¡¡SI 1i Harry Finks, «Ir. Mre,djan M n i Farmers Ban k jà William. 0;-'WÉ| Y x ir success is our tradition. First . National BanK rof KANSAS CITY. , MISSOURI An Affiliate of First National Charter Corporation MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Member FDIC Expected Gross Farm Income Boost To Be Absorbed by Higher Costs B ANKERS working with agricultural clients in 1976 saw a year char acterized by a strong export market, high cash receipts from farm market ings and stable net farm income. The USDA’s first projections indicate that conditions this year will be very simi lar to last year. However, a switch of economic strength from crops to live stock is expected in 1977. Actual production will depend on weather variability, but the USD A as sumed generally favorable conditions when it predicted another year of large crops, large livestock production and modest gains in total farm receipts. Most of this increase in gross income will be absorbed by rising production costs, leaving net income projected by the USD A in the $23- to $25-billion range—near last year’s level. (See Chart No. 1 on this page.) Doane econ omists’ estimates are at the bottom of that range or even slightly lower. Crops. All available land is expected to be planted again this year. Prices at planting time should encourage some switching from corn to soybeans and cotton. Doane estimates soybean acre age to be up five million acres from the 50 million planted acres in 1976, with a subsequent decline in corn acreage from last year’s 84 million acres. A slight decrease in wheat acreage is ex pected, with most of the decline in the eastern Com Belt. Chart No. 2 (page 52) gives Doane’s acreage estimates for major crops. The USD A expects another near rec ord export year and increased domestic demand to offset most of the adverse effects three large harvests in a row could have on prices. Slightly higher prices are projected for soybeans, cot ton, tobacco and some fruits and vege tables, but easing is expected in grain prices in 1977. Chart No. 3 (page 52) shows USDA estimates for 1977 yearly average prices. Farm legislation this year could 50 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By DEBBY SPRUK SMALL Doane Agricultural Service, Inc. St. Louis D ebby Small, a Kansan, is an as sociate editor on the staff of D oane’s Agricultural Report, a weekly pub lication emphasizing commodity out look and farm-management advice. She also is editor of the South Cen tral Edition of Doane’s Farming for Profit, a monthly newsletter distrib uted by banks to their farm custom ers. change the outlook for crop prices. At this time, only minimal price support is given by the government. Higher support prices, acreage restrictions or creation of a grain reserve could af fect prices. There’s a possibility that farm sales of grain could be a little slow early this year until farmers find out what the government policy is to ward loan levels. L ivestock. Outlook for the total live stock industry has the appearance of a balancing act. Increased supplies of pork and poultry will offset declining beef supplies from now until mid-year. Toward the end of the year, there should be a tapering off of total meat and poultry supplies, and livestock pro ducers on the whole will see improving prices. This year, you should begin to see a few more smiles on the faces of cat tlemen. Cattle numbers continue to de cline. The January 1st cattle inventory showed 121 million head— down from 128 million on January 1, 1976, and from 132 million head on January 1, 1975. This decline in the cattle popula tion is expected to cause an 8% fall-off in total cattle slaughter in 1977 from year-earlier. The USDA expects Choice steers to average $41 to $43 in the winter quar ter with a moderate gain in the spring. Reduced supplies of beef should sup port a yearly average price of $43 to $45 per hundredweight. Doane econo mists feel that average is readily at tainable. The expanding side of the livestock picture is not so rosy. Hog producers are still increasing production. December-February farrowings are expected Chart No. 1 FARM INCOM E COM PO NENTS MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 If you make the loan, w ell make the coupon N o m atter what you make loans for, flexibility is a key concern in your loan needs and repayment schedules. T h a t’s why we de- i signed a Computer Printed Loan i Coupon Program : to give you | the options you need in loan 1 flexibility and management. Our | coupons can include the custom- I ary features like regular payment 1 date and amount, late payment 1 d ate and a m o u n t, sch ed u led 1 loan balance after paym ent, a 1 full field M IC R printout and payment number in M IC R . But you can also opt for irregular I payment amounts, skip payment 1 schedules, current year charges 1 MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis on December and final payment stub, customer loan recap and separate late payment fees, and even cross-sell messages! Y o u pick and choose to match your requirements— and we’ll deliver. ? When you make a loan and need I a cou p on — ask you r D eluxe ¡Bw I representative. Little things m ake a big difference. C H E C K P R IN T ER S, I N C SALES HEADQUARTERS PO. BOX 33 99 ST. PAUL, MN. 55165 STRATEGICALLY LOCATED PLANTS FROM COAST TO COAST 51 by the USD A to be a tenth larger than a year earlier. By the middle of the year, expansion should have slowed due to poor price-feed ratios, and March-May farrowings are not expect ed to be above the same period in 1976. By fall, the first cutback in far rowings is possible. The USD A esti mates a $35- to $37-per-hundredweight yearly average for hogs. Broiler outlook for 1977 is similar to the hog forecast. Record production in 1976—9.1 billion pounds dressed weight—has depressed prices. Re duced profits should cause a cutback in production in the first half of 1977. By mid-year, output should not be above 1976 levels. Prices from January to June will average 20 to 40 below the 420 average for the first half of 1976. Last year, the dairy industry had the sharpest year-to-year gain in milk pro duction since 1953, leading to a total near 120 billion pounds. Production in 1977 is expected to increase another 1% to 2% and, even with heavy sales, the chance of surpluses is very good. Large supplies could cause prices re ceived by farmers for milk to average below last year’s $9.70 per hundred weight. This would be the first annual decline in milk prices since the 1950s. RESULTS? WE ARE SAVING BANKS 18% to 31% A YEAR IN OPERATING COSTS. . . THAT’S WHY OVER 200 BANKERS WILL RECOMMEND US. Chart No. 2 _ _ _ _______________________ ACREAGE OF PRINCIPAL CROPS__________________________ ______________ Doane Projections__________ Change % Crop________________ 1975___________ 1976___________ 1977________ from 1976 change 1,000 acres Corn Milo Soybeans Cotton Wheat Oats 77,902 18,275 54,577 9,493 75,095 17,386 79,230 18,321 55,500 14,000 77,500 17,769 84,092 18,398 50,225 11,800 80,239 17,559 -4,862 -77 +5,275 +2,200 -2,739 +210 -5.8 -0.4 + 10.5 + 18.6 -3.4 +1.2 Chart No. 3 Crop USDA PROJECTIONS FOR SUPPLIES, USE AND PRICES Domestic Ending Production Use Exports Stocks Million Bushels Season Av. Price $/bu. Corn 1974/75 1975/76 Estimated 1976/77 Projected 4,664 5,767 6,063 3,641 4,029 4,1004,400 1,149 1,700 1,5001,700 359 399 475675 3.03 2.55 2.202.60 1,796 2,134 2,127 690 729 760830 1,018 1,175 9501,150 430 664 8601,040 4.09 3.52 2.602.90 1,215 1,521 1,252 701 866 760820 421 560 510570 185 244 60110 6.64 5.00 6.507.50 Wheat 1974/75 1975/76 Estimated 1976/77 Projected Soybeans 1974/75 1975/76 Estimated 1976/77 Projected Legislation could change this situation, although last year Congress rejected the idea of increasing the milk-support level beyond 80% parity. Inputs. Key phrases to the input sit uation this year are increased produc tion capacity, moderate price increases and a projected net farm income for 1977 no larger than last year’s. Increased supplies could cause fer tilizer and feed costs to fall slightly, but this will be offset by increases in the cost of machinery, fuel, labor, in terest and taxes. The USD A projects that total production costs should in crease at about the same rate in 1977 as they did in 1976— about 5%. Shortages, which in the past have caused severe price increases, will not be a problem this year. Pesticide pro duction in 1976 went up 10% to 15% above a year earlier. Increased produc tion of farm machinery led to higher inventories of tractors, combines and hay balers. Fertilizer production was up last year, resulting in rather large inventory buildup at primary and in termediary production levels. The supply seems to be there; the tough forecast is for demand. A stable farm income no larger than last year’s and softening grain prices could cause some slowdown in demand, especially for farm machinery. Shifting acreage from corn to soybeans and cotton will reduce slightly the demand for nitro gen fertilizer. * * TEM P O R A R Y B A N K IN G For detailed case histories, call 214/ 241-9444 or write: FACILITIES hjb FO R SA LE O R LEASE Howard J. Blender Company 2695 Villa Creek Drive Suite 240 Dallas, Texas 75234 52 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis M P A S Y S T E M S 4 1 2 0 R IO B R A V O EL P A S O , T E X A S 7 9 0 0 2 (915) 5 4 2 -1 3 4 5 MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 Division Heads M ake Predictions At First Nat l, Chicago, Conference By JIM FABIAN, Associate Editor IVISION heads at First National, Chicago, presented outlooks at the bank’s 30th Conference of Bank Corre spondents last November. Among the forecasts were the following: GRAIN— Corn production will be up about 4% this year, to a level of 6.25 billion bushels. Returns of up to 90 bushels per acre are predicted, even though there will be a reduction in acreage planted. Prices are expected to average $2.50-$2.60 per bushel. Wheat farmers should receive $2.70$2.75 per bushel this year, down 20% from 1975. A 15%-20% increase in the production of soybeans is expected this year. Prices probably will go over the $7-per-bushel level by early spring, av eraging out to about $6.20 over the year. Renewed international interest in the establishment of government grain reserves is seen for 1977. R ETA ILIN G —The immediate fu ture will be difficult. But with attentive management, adequate controls and sound financing support, most retailers have an opportunity to improve the quality of their profits and build a stronger balance sheet so they can seize on future growth opportunities. CAPITAL GOODS—A moderately bullish outlook was predicted in this area. Accelerating growth and reason able price stability are expected to characterize the 1977 economy. Do mestic auto sales are expected to in D crease 8%, to 9.4 million cars. Steel shipments should increase 10%, to 100 million tons. Farm equipment is in a down cycle, with lackluster demand expected until mid-1977, resulting in decreased sales of 5%-10%. FINANCE COMPANIES—A grow ing number of finance companies and their bank lenders are looking closely at the question of bank line reliability. Companies will make greater demands on prospective bank lenders to demon strate an understanding and apprecia tion of the dynamics of the finance business. REA L E STA T E —Primary housing (single and multi-family), retail com mercial ventures and industrial proper ties show encouragement this year. Apartment construction is up, commer cial office space construction is down, as is recreational land development. ■ TH IR T EE N PERSONS have been named to vice president-level positions at First National, Chicago. Named vice presidents were: Paul L. Bolton, Joseph P. Clancy, James M. Hackett, Ward A. Highstone, Alvin A. Stortz, Gerald T. Cremers and William B. Colwell. Elected counsels in the executive de partment were: John A. Canning Jr., Frederick W. Damour, Sherman I. Goldberg, James B. Jurgens, Perry Moore and Stanley S. Stroup. This is no ordinary bank directory. 35* $45 $ standing order ^single issue AMERICAN Bank Directory 6364 Warren Drive Norcross, Ga. 30093 (404) 448-1011 ‘ Plus shipping and handling MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis What’s so special about the American Bank Directory? It’s the only desk-top national bank directory, so compact you can hold it in one hand. A BD ’s convenient thumb-indexed, two-volume format makes it easy to locate complete, essential facts and figures on every bank and multi-bank holding company in the nation. But that’s not all. The American Bank Directory is still America’s lowest-priced complete bank directory. That’s what’s so special. Call or write today to order The Extraordinary Bank Directory. There's no shortage of problems for the new year! Inflation, Loan Demand, Speculation Concerns of Robert M orris Associates By DAN W. MITCHELL* President Robert Morris Associates I ’L L BEGIN by saying that 1977 is going to be a better commercial loan year than 1976. That’s a good, clear cut, positive statement. And I honestly be lieve it. I intend to make it a reality in my bank, and I believe that all of you, with prudence and patience, can do the same. Right now you may be ho-humming me, but this is not m y viewpoint alone. I have many opportunities to speak candidly with a number of bankers from around the country. Bankers who, just like you and me, are painfully aware of the difficulties we had to con tend with last year, but who, at this very moment, are gathering around conference tables to chart a better and more profitable 1977. It’s a good thing that we learn by our mistakes. I ’m not saying that everything looks rosy. There are plenty of problems ahead that we’re going to have to meet —and beat. Some are holdovers from last year, and some will be brand new. I’m concerned over a number of things as we go into 1977. I ’m concerned about inflation. The * Mr. Mitchell is president, Old National Bank, Evansville, Ind. 54 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis new administration has spoken of the possibility of injecting fiscal stimuli to aid in the overall economic recovery. If this is done prematurely and frightens rather than instills confidence among consumers and business, we’re going to have problems. I’m concerned about loan demand. Where will it come from? I think it will come from investment in new plant and equipment, from increases in whole sale and retail activity, from energyrelated industries, housing and public utilities. To what degree it will be there, of course, depends on a great many factors, but I see no sharp de clines from present levels in the near future. I’m concerned about speculation. We must not relax our credit standards to rebuild loan portfolios. “Reaching” for poor credits surely will bring us grief. While we certainly want to participate vigorously in the economic recovery of the country, we’ll contribute little un less we adopt a moderate stance based on sound credit principles— and stay out of marginal deals. Patience probably is the single most important trait to exercise in the bank ing business today. Frankly, many of my associates are worried that impa tience with the rate of increase in loan demand and with the rate of economic recovery is going to produce actions by some bankers that could compound the problems they have faced over the last two years. I am not naive enough to deny the existence of fierce competition for business these days, but we must harness our impatience. It’s also a time to reflect on those po tential problem areas which include: loans based on price increases; con centration of dollars in single in dustries; “permanent revolvers”; im proper pricing; caps, bullets and other dangerous fireworks; and lending out side our normal trading areas. Lending to less-developed countries is seen by some as an area of increasing concern. The faltering strength of the world economy, accompanied by higher levels of inflation, changes in the rela tive purchasing power of currencies as well as an enormous buildup of inter national debt—much of it owed to pri vate commercial banks—presents a somewhat dangerous combination of risk elements for foreign lenders. Despite the slowdown in demand from industrial-country borrowers, how ever, it would appear that banks will continue to exercise cautious selectivity in choice of borrowers drawn from the ranks of the more mature developing countries as well as those regarded as higher-risk countries. In summary, I wish that I could be totally optimistic. But I ’m not and you shouldn’t be either. Most of us have made significant progress in strength ening our loan portfolios. Nevertheless, economic forecasts outline a slowly re covering economy, with the prime rate reaching 7% to 7%% by early summer. There should be a pickup in loan de mand during the year—quite likely starting fairly slowly, then accelerating MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 as the year progresses. Finally, to capitalize fully on what ever opportunities do develop, we must be ready. W e must make every effort to ensure that our staffs are well pre pared to analyze the present and long term financial strength of our customers and that our loan committee decisions are sound, justifiable and constructive— both to the bank and the borrower. I ’m making a commitment right now to make sure that we are ready, able and willing to take advantage of what ever opportunities arise in 1977. If you’ll join me, I have no doubt that we’ll have a pretty good year. • • Those W ho W ould Change Bank System Do Not Appreciate Its Past Performance By CHARLES O. MADDOX JR.* President Independent Bankers Association of America I T S NOT EASY to foresee the future of banking in the crystal ball, and it’s risky to forecast what will happen in 1977 under President Jimmy Carter, a basically unchanged Congress and the banking committees of the Senate and House. During 1976, we encountered—in both the Senate and House—concen trated efforts to change the basic struc ture of our financial institutions and their capabilities; a structure that ap pears to have served well for many years. Structure-change legislation seems to assume that all financial institutions would be more effective and competi tive if they were similar. I find this difficult to reconcile with history. We recall that specialized financial institu tions—such as S&Ls and credit unions —were specifically authorized because demands inherent on the commercial banking system didn’t allow it to pro vide housing loans and still maintain the liquidity necessary to cope with economic cycles that have evolved over the past 50 years. I believe we have learned during this half century that financial institu tions—legally structured by the Con gress and by experience—have func tioned well, both in serving the public with credit and services and in supply ing the housing our expanding popula tion has needed. Rather than attempt a complete re structuring, such as was proposed in the Financial Reform Act of 1976, some fine tuning might be called for, especial ly in the area of regulation. Our past history, with its notable bank failures, reveals that the Comptroller of the Cur rency and the F D IC delayed action and * Mr. Maddox is president, Peoples Bank, Winder, Ga. failed to cooperate in coping with prob lem banks to the extent that preventive action couldn’t be taken when neces sary. These agencies now appear to be acting early to force management to take corrective action before problems reach the crisis stage. In general, I believe commercial banks have performed well in meeting credit needs in recent years and reg ulatory bodies have been skillful in ar ranging transfers of deposits without losses to depositors. Although the NOW account experi ment continues in the northeastern states, bankers involved confide that the competitive demand to pay 4/2% to 5% on demand funds is resulting in a deterioration of capital structures. Either the deterioration will continue or the cost to the consumer will go up. How can we rationalize going down the same fateful road our fathers trav eled in the 1920s, when the same pro cedures led to higher and higher rates paid on demand funds to maintain de posit bases, with banks being forced to make increasingly marginal loans to pay the interest? Those who would move toward pay ment of interest on demand funds and claim this was not a major cause for bank failures in the 1930s disregard a lesson of history. Bankers testify that capital structure deterioration did occur then. In recent weeks, I was privileged to speak before bankers in Canada and England. In both countries, bankers ex pressed concern about growth of bu reaucratic government control and own ership of financial institutions. In Canada, the inability of rural and farming communities to control deposits and allocations of credit in their areas provoked debate about 10 or 12 banks controlling 95% of all deposits and whether it would be better for farm lands to be controlled and owned by state agencies. I was deeply disturbed to find that labor unions in England were discussing MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CAREY ALEXANDER the advisability of nationalizing all banks and declaring that national planning and control would serve bet ter than private ownership and direc tion. A look at Canada and England fore tells that politicians and bureaucrats would give far less consideration to 75 or 100 giant banks than they would the 14,000 banks we currently have in the U. S. We should ponder the plight of England, where an inept and inflexible government, dictated to by communistled labor unions, has brought the country to its knees. Our failure to recognize and profit by the experience of our neighbors is a strange thing to me. Why do we adopt policies that have proved to be bankrupt? Why do away with principles that have served this country well for 200 years? Another assault on the McFadden Act is due in the 95th Congress by those who believe the federal government is more capable than the governments of the states to decide what is best at the state level. Passage of the McFadden Act demonstrated the fallacy of this ar gument. Legislation enabling giant banks and HCs to dominate the financial sector of our country would send us down the same road England, Canada and France have traveled— the way of more gov ernment intervention and greater cost to all consumers and business firms. Check the rate structure for evi dence: The interest rate on savings in Canada varies from 10/2% to 12%, while rates charged borrowers range from 15% 55 to 18%. In Great Britain, interest on savings is between 12% and 15%. I asked an English bank officer about the rate to finance a new car. It was between 18% and 22%! Laws can be passed here to force payment of interest on demand deposits. This would run up the rate structure across the board. The borrower least able to pay would bear the brunt. If we yield to pressure to remove Regulation Q, we’ll be bidding up funds, a game that got us into trouble long ago. We tried this with the “wild card” legislation that allowed unrestrict ed bidding of funds over $100,000; and deposits flowed from banks like a river to the highest bidder. Banks are inher ently franchised institutions with con trolled rates. You can’t pay unlimited interest and control rate charges at the same time. Let’s take a look at our new Presi dent, Jimmy Carter. I don’t agree with some of my colleagues who expect he’ll be primarily concerned with boosting the economy, even at the risk of further inflation. Mr. Carter is basically a busi nessman. His performance as governor of Georgia indicates he will tackle bud- get problems responsibly. As a man of business, President Carter knows business must profit to survive. It’s not valid to believe he would lead Congress into spending pro grams without offsetting tax plans or cuts in other areas. I think his expe rience in small business enterprise will impel him to be sympathetic with the problems of independent banks and other businesses. Our economy—with its thousands of small firms and small banks— is better able to maintain a large, healthy, mid dle-class society than one dominated by a few giant industries and huge banks. However, I disagree strongly with Mr. Carter that the Federal Reserve Board chairman should have a term coterminus with the president. This would be another step in politicizing the Fed, making it merely a tool of the political party that happens to be in power, an agency to carry out the party’s monetary program. Our government includes a system of checks and balances. I believe the independent position of the Fed is ab solutely essential to maintain the in tegrity of this system. * • Progress Has Always Been Expensive, But Bankers M ust Be W illing to Innovate By GERARD V. CAREY* Chairman Bank Administration Institute HEN SO CIETY adapts new and better ways of doing things, some one has to pay the bill. David Warsh and Lawrence Minard pointed out in a recent article on inflation in the No vember 15, 1976, issue of F orb es that each time throughout history that a new sector of the economy has been de veloped, prices (inflation) have in creased. This is documented by historians who have identified three distinctive social revolutions—the commercial revolution of the Middle Ages, the capitalist revo lution of the 16th century and the in dustrial revolution of the 18th century. During each of these revolutions, ser vice to the general public increased through new and more efficient ways of doing things and this higher standard of living resulted in a higher cost of living. The banking industry can parallel its W * Mr. Carey is chairman and president, First Pennsylvania Bank, Philadelphia. 56 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis own history and development to that of society. W e have advanced from barter to coin and currency, to checks, to plastic and, now, to electronic fund transfers systems. With each advance has come an increase in the cost of banking operations, but also a more convenient and efficient way of banking for our customers. The barter system worked well in the small, rural society of the Middle Ages, just as checks have worked well up to now in an increasingly complex 20th century society. W e are faced, however, with an ever-increasing pa perwork load resulting from our present paper-based banking system. W e must develop and implement a more efficient way of handling financial transactions to keep pace with the rapid change and the needs of the world’s changing so cial system. It is estimated that 37 billion checks will be processed annually by the bank ing industry by 1980. In addition to the fact that the shear volume of paper work is bound to tax the system’s ca pacity, the cost of clearing checks (be tween 160 and 210 each), coupled with the cost of processing cash in the U. S., consumes almost 1% of America’s gross national product—more than $10 bil lion. While electronic fund transfers systems don’t promise to cut this cost, they do offer a means of slowing down the rate of cost increase. Bank Wire, SW IFT, giro and our nationwide ACH network are all part of this E F T S development. Since the ACH movement began in California in 1968, other similar groups have been formed across the country. The Na tional Automated Clearing House Asso ciation now has 28 regional ACH mem bers, 26 of which are operational. These ACHs currently are processing over three million transactions monthly and the advent of inter-regional transfers should increase the volume further. Bank Wire is a telegraphic network connecting more than 230 banks through which funds are transferred using correspondent bank accounts. Bank Wire II is being upgraded for expected operation this year. It will of fer computer-to-computer transactions nationally and will have the capability to handle batched transactions. On the international level, the So ciety for Worldwide Financial Tele communications (S W IF T ), which was formed in 1973, now has over 260 member-banks participating in 15 countries throughout Europe, Canada and the U. S. SW IFT will connect the automated systems of these banks and is a vital step in the progress of in ternational electronic fund transfers. Also on the international level, giro systems have been in operation in Europe for a number of years. A giro user uses the giro bill stub—which includes the corporation’s giro account to which funds are to be transferred— to authorize the transfer of funds from the user’s account to the corporation’s account. In the most advanced giro systems, transactions are processed electronically. New costs are associated with the implementation of these systems— equipment, personnel, procedures de velopment, etc. However, these costs are mandated by the level of service required of us by the changing needs of society. Change comes slowly but irrevocably and our industry must make its investment or society will be served by others. Properly designed, these systems will allow us to eliminate much paperwork and offer our custom ers a new and more convenient way of handling their personal financial trans actions at a minimum incremental cost. The response to direct deposit of social security checks has shown that, given the opportunity and sufficient in formation, consumers will change longestablished banking habits. The rapid acceptance and growing use of auto mated teller machines and point-ofsale systems also has demonstrated the MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 We made our mark in leasing Since 1974, C itizen s Fidelity Leasing C orp ora tion has negotiated over $10 m illion worth of equipm ent financing either directly to or in participation with m ore than 100 banks. Part of the reason for this success is the com m it m ent of Citizen s Fidelity tow ards serving the capital needs of its correspondents and their custom ers. Just as im portant, M ike M axw ell, president, and his staff are leasing profes sionals, experts at show ing the banks they w ork w ith how they and their custom ers can benefit from the financial and other advan tages leasing provides. C all them at (502) 581-2686. They can help you m ake your m ark, too. C itiz e n s! Fidelity Leasing Corporation m ÈÊËÊËM M Citizens Plaza—Louisville, Kentucky 40202 Come grow with us®. . . under the Sign of the Service Tree MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 57 willingness of bank customers to change their banking habits. The fast growth of the ACH move ment, along with the corresponding development of SW IFT and electronic giro systems, indicates that many banks and their customers have realized that electronic fund transfers are an efficient, cost-effective way to handle daily operations—whether in the fi nancial industry, the corporate world or the consumer area. These systems, however, will never reach their peak operating potential until more bankers commit themselves and their banks to participate in them. We must make the commitment and plan our systems and strategies now rather than waiting until we are forced into action by competing financial in stitutions. It has become increasingly evident in the last 10 years that the next revolu tion in the financial industry has ar rived. L et’s all make sure banking as sumes its proper leadership role! * • Consumer Bankers W ill Be Challenged By Consumerist Legislation, Regulations By MASON G. ALEXANDER* President Consumer Bankers Association T HIS YEAR promises to be challeng ing for everyone involved in con sumer banking. Challenges to be faced basically are three-fold: We must com ply with additional government regu lation and control; we must aggressive ly seek desirable loans to maintain our banks’ investment objectives; and in ternally, we must develop more ef ficient methods to reduce—or at least hold steady—our operating costs. Regardless of whether your man won or lost last November 2, I think we can all agree that we face four years of government that will be militantly pro consumer. Place yourself in the shoes of a legislator. Corporations do not vote and consumers do. There is nothing that can attract as much media coverage as a good dogand-pony show put on by a congres sional committee investigating the evils being perpetrated on the American public. When we oppose such investi gations, we are being negative; yet, as an industry or as individuals, we rarely move forward to advocate changes for the consumer’s benefit. I am not implying that the banking industry alone is negligent in this area, but our stance tends to make us con venient whipping boys for some of our legislators—those who do not under stand the way the American free-enter prise system functions. It is high time we fully face up to the role of the Federal Trade Com mission (F T C ) in the retail sector of the bank. W e no longer can ignore the FT C because it continues to write the rules under which we must do busi* Mr. Alexander is a senior vice president at Citizens ir Southern National, Colum bia, S. C. 58 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ness, and the Fed has almost no alter native but to issue regulations similar to those issued by the FTC . It is high time that all banking associations be gin to follow the F T C ’s actions and recognize the agency’s power for what it is. It is time local associations and individual bankers begin to testify be fore this body and attempt to influence its regulations. The major items we can expect to come to grips with this year in terms of new legislation and/ or regulation in clude serious restrictions on debt col lection, which theoretically would af fect only the professional debt collector and not us. However, it would be sim ple to slip banking under this act at a later date. We can expect the appearance of a major federal consumer credit act from Senator William Proxmire (D.,W is.) that would supercede state laws. W e can expect major action in the area of Truth in Lending, which, hope fully, will represent some simplification and a major inquiry into the rule of 78s. This may be bad news for many banks that have not yet converted to simple interest. In addition to these pieces of good news, the likelihood of a new con sumer agency and a new consumer czar coming into being is strong. It is still too early to tell what impact such a bureaucracy would have, but I sus pect it will be far-reaching. The fact that consumer bankers have been able to bring their banks into compliance with new state and federal legislation testifies to their resourceful ness and adaptability. I remember only too vividly when South Carolina came under the Uniform Commercial Credit Code and the Truth-in-Lending regula tion. Almost Herculean effort in study and training was required to bring our bank into compliance. Unfortunately, the rate of change to day has accelerated to such a point that the flow of new regulations and legislation is so rapid that we no longer can afford to devote the time and study to a single item that we once could. If we can’t pick up these things in mid stride with the same facility as a major leaguer handling a hot grounder, we’re going to be hopelessly over whelmed. W e all need to be concerned about the new examination procedures. The Comptroller of the Currency, the Fed and the FD IC will be going into our compliance efforts in great detail. We need to give this area serious study, for many items may well have been missed in our initial rush to comply. Regulation B in its amended form will provide the greatest challenge in the area of compliance— even more than did Regulation Z. I really am not certain how any bank will comply without credit scoring. The require ment to disclose the specific reason or reasons for declining a credit may well compromise a bank’s scoring system— which means the sacrificing of a sig nificant investment. As long as the market for good com mercial loans remains weak, it’s going to be important for the consumer sec tor to bring in as much new loan vol ume as possible. Those who will be most successful in developing lending opportunities will be those who are able to market unique services aimed at small, select segments of the popula tion. If we are going to be successful in meeting the challenges of the future, we must be able to attract some of the best personnel in the bank into the consumer-lending area. To do this and pay a fair salary in recognition of the greater degree of professionalism need ed, we must find ways to increase ef ficiency. It’s important that we examine inter nal operations, not with the attitude of fine tuning them, but with one of per forming radical surgery, if such is called for. Today, the willingness to accept things as they have always been is a sign that management is shirking its responsibility to find newer and more efficient procedures. Greater utilization of open-end credit and lines of credit will become increas ingly important to us. W e need to find more effective ways to collect our ac counts, and I am confident more will be heard of behavioral scoring, which detects borrowers who need collection action, and at what point and with what intensity the collection process begins. The merger of installment loan de partments and charge card operations should be considered. It may not be the solution in all banks, but it’s per- MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 forming satisfactorily in an increasing number of banks. I think of this as a time of challenge, a time when we must cooperate with one another, sharing our experiences, willing to exchange ideas, being suf ficiently open-minded to take an inter est in what our colleagues are doing. Others possibly have found better meth ods than we have, and it’s in our best interest to try to benefit from the ex periences of others. In the past, the consumer banker has been measured by his income and his losses. Today, this is changing—as it should. There will be greater em phasis on income, losses and operating expenses, with the new examination procedures bringing “compliance with regulation” vividly to the attention of management. • • Commercial Loan Workshops Scheduled for '77 by RMA Two loan workshops will be held in the Mid-Continent area by Robert Morris Associates in 1977. A loan quality control workshop, dealing with all phases of loan ad ministration, will be held March 14-15 at the Breckenridge Pavilion Hotel, St. Louis. Moderator of the workshop will be Jack R. Crigger, executive vice presi dent, American National, Chattanooga. A commercial loan training program workshop, designed to provide partici pants with information to prepare a loan officer training program for their banks, will be held September 8-9 at the Continental Plaza Hotel, Chicago. Moderator will be W. Thomas Maloan, senior vice president, Commerce Union Bank, Nashville. Further information about the work shops is available from Registrar Ce celia Small, Robert Morris Associates, 1432 Philadelphia National Bank Build ing, Philadelphia, PA 19107. DESIGNERS AND CONSULTANTS TO FINANCIAL INSTITUTIONS The Arts Benefit: Albuquerque Bank Cited For Cultural Contributions First National, Albuquerque, has re ceived the Albuquerque Chamber of Commerce cultural committee’s Busi ness Award for Outstanding Service to the Arts Community. The award was given to the bank on the basis of its donation of building space in First Plaza’s Galeria shopping center for various cultural organizations and events; First National’s direct con tribution of money and services to the arts; and the “inspirational value” of First Plaza’s architectural design. First National was chosen from a list of several nominees submitted by individuals and groups in the Albu querque arts community. W illiam L. Butcher Dies W e design the function first and then encase your operation in a building that reflects the Bank's commitment to the strength and progress of the com munity. William L. Butcher, 69, who retired in 1972 as president, Bank of New York Co., a statewide bank HC, died Novem ber 28. At the time of his death, he was a director of the HC and of Bank of New York, with which Coun ty Trust, White Plains, N. Y., was merged earlier last year. He was a for mer chairman of County Trust, which he joined in 1946 and served as presi dent, 1957-60. Previously, he had been vice president, Central Trust, Cincin nati. Mr. Butcher was on the faculty of the Stonier Graduate School of Banking, Rutgers University, New Brunswick, N. J., from 1949-58. MID-CONTINENT BA N K ER fo r Ja n u a ry , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11054 SO. MICHIGAN AVE. 8111-B NO. UNIVERSITY IBBC CHICAGO, ILL. 60628 PEORIA, ILL. 61614 PHONE: 312/568-1030 PHONE: 309/692-2625 SINGLE INTEREST INSURANCE for installm ent loans on: Autom obiles Trucks (2 ton or less) H ousehold G o o d s Farm M achin ery M otorcycles M o b ile Hom es R EC R EA T IO N A L V EH IC LES Snow m obiles Boats an d Motors Travel Trailers Motor Hom es PRO TECT T H I S ! LOANS A GAIN ST PH YSICA L DAM call or w rite: G.D. VAN WAGENE |Bank Bldg., Minn (612) 333-2261 59 Nat’l Association of Bank Directors Whatis What does it do? What are its future plans? S AN “inside” bank director and more particularly as chairman of a bank board, I have been increasingly concerned, among other things, about the proper method of keeping our di rectors abreast in these days of rapid change in respon sibilities, account ability and report ing procedures (both to our board and to the regu lators). I also have an uneasy feeling that our board and too many other WEBB bank boards cur rently are operating behind the times. The more progressive our bank board has sought to be, the more we’ve found to be done just to keep up. In this frame of mind, I leaped at the oppor tunity to serve as a founding director of the National Association of Bank Di rectors when the idea was discussed among several old friends who have worked together in close harmony within the ABA for the past several years. For example, I asked several banks in various asset sizes to describe to me the reporting done at monthly board meetings and what documents are placed in directors’ hands for direct, personal, eyeball review. In virtually every case, we decided together that the report fell into the category of in ad equ ate. If trouble comes, Heaven forbid, being personally liable for bank mismanagement would be bad enough for a director, but not to have taken reasonable and appropriate means to keep informed would be worse. I’m not looking for trouble, but if trouble comes, it seems incumbent on bank management to have made a great ef fort to keep its directorate properly in formed from the trouble-free times through the early warning stages right down to the bitter end. A 60 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By JAMES A. WEBB JR. President National Association Of Bank Directors Although we are still in the early days of organization and are just be ginning to be prepared to make our presence known and solicit member ships, the easiest method of explaining our purpose is, perhaps, a brief state ment of goals: W hat it is. The NABD is a nonprofit professional association of both “inside” and “outside” bank directors. W hat it does. The NABD will seek to inform, educate and represent bank directors so that they’re well informed and current in their duties, responsibil ities, liabilities and rights. Consumer groups and regulators appear to be subjecting banks—particularly, the ac tions and relationships of bank boards —to ever-increasing scrutiny and criti cism. This necessitates a new aware ness on the part of bank management and bank directors. H ow this will b e done. The NABD contemplates regional and national workshops to increase the understand ing of bank management and bank di- E D IT O R ’S N O TE : There are many bankers associations, but they were formed primarily for active career bankers. How ever, late last year, a new association was created for inside and outside bank di rectors. It’s headquartered in Washington, D. C., and its spokesman and president is James A. W ebb Jr., chairman, Nashville City Bank. Because the National Associa tion of Bank Directors (N A B D ) is new, and its targeted membership is different from most bankers associations, M id - C o n t i n e n t B a n k e r asked Mr. W ebb to write an article telling why it’s believed such a group is needed and how the NABD plans to achieve its objectives. rectors, provide a more complete un derstanding of the director function and facilitate an interchange of infor mation on issues that directly concern every bank director. The possibility is being researched of establishing a school for bank directors at one of the leading centers of continuing adult ed ucation for brief in-residence study on in-depth training in director responsi bilities. Finally, an Annual Bank Direc tor Conference is planned to give bank directors the advantage of hearing di rectly from the country’s leading spokesmen in banking, government and education on issues directly affecting banking. H ow to join. When an individual bank becomes a member of the NABD, its statutory and advisory board mem bers become entitled to all benefits and activities. Membership dues are nom inal and, of course, tax deductible ac cording to the following scale: Banks with total footings of: Annual D ues Under $10 million $10 through $49.99 million $50 through $99.99 million $100 through $499.99 million Over $500 million $100 $150 $200 $250 $500 In summary, an investment now of a few dollars and some time spent im proving board members’ understanding of all their functions, responsibilities and liabilities may well avoid later em barrassment for both inside and outside directors and make management look like the champion it ought to be. And, on the drawing board now, to kick off the real honest-to-goodness nuts and bolts of our coming to grips with our objectives, we have planned a one-day regional workshop for Friday, February 11, 1977, at Stouffer’s Riverfront Inn in St. Louis. This workshop will be di rected primarily to the region com posed of Missouri, Kansas, Nebraska, MID-CONTINENT BA N KER for Jan u ary , 1 9 7 7 Everything about the portfolio added up. But the earnings. A correspondent bank faced a big problem. Their million dollar portfolio wasn’t per forming. And with rising expenses and de creasing loan demands, it looked like they wouldn’t meet their income goals in the years to come. Faced with this dilemma, they came to a bank with a proven earnings record. First in Dallas. Where a team of Asset and Liability Management Specialists rolled up their sleeves. And got down to business. They started by looking long and hard at the bank. Where it was and where it was go ing. The debt structure, their customer pro file, and a dozen other factors. Then, after they knew the bank and the town, they used their market knowledge and the experience they had gained from manag ing their own portfolio to recommend changes. Like the wider spread between “agen cies” and “governments.” A strategy for ad vance refunding maturities. And active man agement of both assets and liabilities. The result was a higher earning portfolio. One that was better geared to market condi tions. And supported by continuous, up-todate management strategy. And all it took was good thinking. Based on 100 years of experience and a concern for the customer’s best interests. If that’s the kind of creative thinking your bank needs, call Charles Dunlap, Vice Presi dent of our Correspondent Division at 214744-8030. Because at First in Dallas, good banking starts with good thinking. First National Bank in Dallas Member F.D.Ijl».' Asubsidldry of ■■■ First International Bancshares.Inc. Branch offices in London, Paris, Singapore and Cayman Islands. Representative offices in Tokyo and Sao Paulo. MID-CONTINENT BA N KER for Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 61 Reilly Joins NABD WASHINGTON, D. C.—Peter A. Reilly will become executive vice president, Nat’l Association of Bank Directors, headquartered here, ef fective February 1. For the past two years, he has been executive vice president, Association for Mod ern Banking in Illinois (AMBI), headquartered in Springfield. Before going to AMBI, Mr. Reilly was director of the ABA’s commer cial lending division for eight years. During that time, he organized the ABA Commercial Lending School and ABA Graduate Commercial Lending School, both at the Univer sity of Oklahoma. Mr. Reilly also organized the ABA’s certified com mercial lender program. Illinois, Oklahoma, Iowa and Arkan sas. More regional workshops are in the works, but the only other firm date at this point is our Annual Director Con ference to be held in New Orleans, April 13-14-15, 1977. At this point in our development, however, we can’t guarantee anything except our interest in the banking pro fession and our desire to perform a genuine service to interested bank di rectors and interested bank manage ment. W e are confident that our con cern is proper; our cause is just, and our constituency is eager to join in an idea whose time has arrived. • * One-Day Directors Workshop Planned for February I I By New Directors Association ST. LOU IS—The newly organized National Association of Bank Directors will hold the first of a series of regional bank director-management workshops here February 11 at Stouffer’s River front Inn. Purpose of the workshop is to up grade director understanding in the areas of functions, responsibilities and liabilities. Topics to be taken up on the oneday program include: the director in this period of critical change and crisis, how to best serve a bank and represent it to the community, what a director re quires to make decisions, the new Con sumer Protection Act and compliance examination, what a director should know before he accepts a directorship and potential liabilities of directors. Bankers from the Mid-Continent area appearing on the program include James V. Baker, executive vice presi dent, Fidelity Bank, Oklahoma City; B. M. Lamberson, vice chairman, Com merce Bancshares, Kansas City; Paul 62 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis J. Pfeilsticker, vice president, Conti nental Bank, Chicago; Ray Sonnenberg, vice president, Edgemont Bank, East St. Louis, 111.; Ben A. Parnell Jr., chairman, Bank of Springfield, Mo.; and James Webb, chairman, Nashville City Bank. ■ F IR S T NATIONAL CHARTER CORP., Kansas City, and Farmers Trust, Lee’s Summit, have announced an agreement by which the latter will become the 19th member of the HC. Iowa Congressman Disagrees W ith Views of Rep. Reuss O n Savings, Proposed T a x Cut WASHINGTON, D. C.— A remark by Representative Henry Reuss (D., Wis.) on the CBS radio program, Cap itol Cloakroom, that citizens saving money wouldn’t help the economy led to a rebuttal from Iowa’s Third Dis trict Congressman Charles Grassley and, in turn, an answer to Mr. Grassley from Representative Reuss. The latter is chairman, House Banking and Currency Committee. The round-robin discussion began November 10, when— on the program —Representative Reuss responded as follows to a question concerning Pres ident-Elect Jimmy Carter’s proposed tax cut: “If it is determined that greater stim ulus is needed, then I very deeply feel that the way to go is not via a general tax cut, but via a specific job creating legislation—public-services jobs, in short. “I say that because if you do it, try to stimulate via a tax cut, a great deal of the money which you leave in the taxpayer’s pockets by the tax cut stays there. They save it rather than spend it, so it does no earthly good. “Secondly, what they do spend, they spend not on labor-intensive activities, which is the kind of job that you real ly want to make so you can hire lots of people, but they tend to spend it on capital-intensive activities and increas ingly today it might well be spent on some compact car or color television or a motorcycle made not in the United States but in Japan, so I am very dubi ous about the economic effect of a tax cut. If stimulus is indicated, I think we can do much better, cheaper, via direct job creation.” In response, Congressman Grassley said, “As chairman of the Banking Committee, Mr. Reuss surely should know that if people save their money in banks and savings and loan institu tions, that provides capital for housing construction and automobile loans, two areas hit hard by unemployment. It also frees more funds for investments by industry to expand and create new jobs. How can he say that it is not a stimulus to the economy?” The Iowan charged that Representa tive Reuss would prefer to have the federal government add to its deficit by creating a bigger bureaucracy and employing everyone. He pointed out that tax cuts during the Kennedy Ad ministration resulted in increased fi nancial activity and spurred the econ omy. “In fact,” added Mr. Grassley, “the Treasury gained $54 billion in revenue. Maybe Mr. Reuss should take another look at history.” When M id-C ontinent B anker asked Representative Reuss to elabo rate on his radio comment, he said, “Saving is great for the economy, but unbalancing the budget by more bil lions via a tax rebate, as Mr. Grassley apparently advocates, and then rejoic ing that the money will not be spent simply is getting things mixed up. Now is no time for fiscal irresponsibility.” In Louisville: Unveiling of A rt Gallery Features 5 1-Piece Show “Childhood Images,” a 51-piece show, was the premiere exhibition of the new art gallery of Liberty National, Louisville, at its Main Office. The showing was an interpretation of childhood in water color, oil, pastels, sculpture, textiles and leather, and 23 area artists were represented. The Liberty National Bank Gallery, as it is called, is open to the public on weekdays during banking hours. Economic Outlook Held Paul J. Markowski (I.), chief economist, Argus Research Corp., and consulting economist for First American National, Nashville, recently presented an economic outlook for 1977 to about 100 correspondents of First American. Others in photo are Kenneth L. Roberts (2nd from I.), president, First American; Beverly Douglas (2nd from r.), president, Middle Ten nessee Bank, Columbia; and Howell Smith (r.), president, Northern Bank, Clarksville. MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 M ixed Outlook for Union Efforts Seen HE OUTLOOK for possible spread in unionization of banks is mixed for 1977. There is considerable union ization activity involving banks, but much of it doesn’t amount to victory on the part of unions, according to John A. Sheridan, president, John Sher idan Associates. Mr. Sheridan gave his views at the recent 30th Conference of Bank Correspondents, sponsored by First National, Chicago. Only two large U. S. banks are unionized, Mr. Sheridan said. The question for 1977 and beyond is: Will unions concentrate on small banks rath er than large? Bankers facing the prospect of un ionization of their employees are tak ing heart in the fact that disputes can be kept from reaching the stage where an election to determine union affilia tion will take place. Recent unionization activity has con centrated on small- to medium-sized banks, Mr. Sheridan said. Various dis positions of such activity have oc curred, most of it being discouraging for organizers. Some campaigns go on T and on and get nowhere. Some cam paigns fade away after a bank makes concessions. Some union election vic tories turn sour when managements re sist implementation efforts. Union organizers promise employees job security, economic gains, spokes men to air grievances with manage ment and strength in numbers. Requests on the part of groups of employees to discuss wages and work ing conditions are an early warning sign that union activity is afoot, Mr. Sheridan said. When this happens, banks should act, not react. They should make sure wages and policies are fair, that jobs are period ically reviewed for upgrading, that ade quate employment records are kept, that discipline is firm, but fair, that un structured job interviews are part of bank policy, that there are adequate grievance procedures. Lastly, Mr. Sher idan said, management should know who the bank’s supervisors are, so these people can be instructed on employ ment policies. W RITTEN LOAN P O L IC Y Every Bank Should Have One! "The Bank Board And Loan Policy" Provides the Inform ation Needed to Formulate Y o u ’r e in th e c e n te r of e v e ry th in g w hen you s ta y S h erato n a W ritten Loan Policy or Update an Existing O n e ! A must for banks, this 40-page manual tells w hy all banks should have written loan policies and how they can formu late or update such policies to serve as guides for lending officers and to help protect the bank from making costly commitments. an d , a lso , th e fin est in KANSAS CITY, M ISSOURI The manual presents the loan policies of four well-managed banks and con tains a rating formula for secured and unsecured loans, conditional sales con tracts, all mortgages, government and municipal bonds and government agency securities. Topics spotlighted include: • Conditional Sales Contracts TELEPHONE (816) 842-6090 FOR RESERVATIONS • All Mortgages • Ì $ PromrSheraton Motor Inn SIXTH AND MAIN STREETS SHERATON HOTELS AND MOTOR INNS. WORLDWIDE Loans for Education Also included are sections on who should have lending authority, lending procedures, loan limits, credit depart ment responsibilities and loan examiner responsibilities. Can your bank afford to this manual? n • OTHER SHERATONS: • JOPLIN, MO. SHERATON-PROM MOTOR INN 3600 RANGELINE AT 1-44 AND U.S. 71 FREE (Missouri banks add Price: $4.25 4'/2% tax) ORDER TODAY! • WAYNESVILLE-FT. LEONARD WOOD, MO. SHERATON MOTOR INN 1-44 AND MO. 28, OFF 1-66 800-325-3535 MAKES IT HAPPEN IN MISSOURI, CALL 1-800-392-3500 MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis * „ _ _ be without (Sorry, no billed orders) The B A N K B O A R D Letter 408 O live St., Suite 505 St. Louis, M O 63102 63 Gov’t-Guaranteed Loan Program s And the Secondary M arket How the Combination Benefits Banks HE SECONDARY MARKET in government-guaranteed-loan pro grams is making strides toward becom ing an increasingly important factor in bank lending practices. Utilization of the U. S. government’s full faith and credit guarantee helps banks provide an answer to questions raised by the specter of tight money and high inter est rates which struck a blow at the na tion’s economy in 1974. The Small business Administration and Farmers Home Administration (the latter through its new building and industrial loan program) have cul tivated similar systems that allow banks and other participating lenders to sell the guaranteed portion of a loan to a secondary market investor. Investors are identified as pension funds, profitsharing funds, credit unions, insurance companies, bank trust departments, mutual funds and individuals. The lender thus will sell the guaran teed portion of the loan (normally 90%) into the secondary market, retain the non-guaranteed portion and derive ad ditional income through servicing the guaranteed portion. In essence, then, on a $500,000 SBA or FmHA government-guaranteed loan, 90%, or $450,000, would be sold in the secondary market, the lender would pass through to the new owner propor tionate principal and interest payments on a monthly basis, for a service fee, and would have only $50,000 on loan balance against his loan portfolio (in most states), with that 10% portion to be carried in normal fashion. Subsequent to 1974, bankers dis covered they could no longer reside comfortably in the status quo of tradi tional lending philosophies, since the cost of funds often outran loan yields. The need was strong for a positive margin from such sources as variable- 64 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By ALTON M. BATHRICK rate lending to sensitize loan portfolios against interest-rate fluctuations. Great ideas often are generated in periods of travail, and it’s no coinci dence that the government-guaranteed loan program developed its impetus in 1974, the year of the crunch. Small Business Administration loans, best known of the federally backed loan programs, were established in 1953. It took 21 years to hatch the idea of com bining the program with the secondary market. And the market today is in its fledgling stage. Only about 5% of gov ernment-guaranteed loans underwritten by the SBA in 1976 found their way into the secondary market. Obviously, the good word hasn’t fully spread throughout the banking indus try, but when it does we can expect it to develop as have GNMA modified pass-through securities during the 1970s. W e view the government-guar anteed loan market today as being sim ilar to the position Ginnie Maes were in during the late 1960s. Both the SBA and FmHA, the two principal guaranteeing agencies, are co operating eagerly to assist lenders in taking advantage of the unique and prudent leveraging position offered through government-guaranteed loans. The agencies have, importantly, re duced much of the red tape that for merly went into securing secondary market approval. Numerous lenders have indicated in terest in several other agencies, such as the Economic Development Admin istration and the Energy Research and Development Administration. These agencies may join the more than 100 government-guaranteed loan programs in existence, and many will qualify in time for resale to the secondary mar ket. There are numerous advantages for bank participation in the secondary market with government-guaranteed loans. W e’ve mentioned some of them in general. Here are details: 1. Effective yield on actual funds invested is very attractive. The lender earns original interest on the retained portion of the loan, plus the servicing fee from the guaranteed portion sold into the secondary market. EXAM PLE Alton M. Bathrick is mgr., government-guar anteed loan dept., Hibbard & O'Connor Gov ernment Securities, Inc., Houston. He's shown here at his desk. $100,000 10% FmHA 90% Guaranteed Loan with 1.50% servicing retained 10.000 at 10% $1,000 90.000 sold (w/1.50% servicing) 1,350 Total Income: 2,350 Total Yield: 23.50% (Yield could be lower if lender pays MID-CONTINENT BA N K ER fo r Jan u ary , 1 9 7 7 All three of these men head the Correspondent Bank Depart ment for one bank, Memphis Bank & Trust. As a team, they’ve given us management depth and ability in correspondent banking that’s simply unbeatable. T hey’re a crack unit. Any one of the three can give you all the correspondent services you need, with better than 8 0 years of combined experience and a full staff behind them. To name a few: Transit Operations, Credit Assistance, Investments, Bond Portfolio Analysis, Safekeeping, Trust Services, Data Process ing, Business R eferrals. . . in short, the whole ball of wax. T hey’ll even throw in some extras like expert insurance capability, guidance in the construc tion and design of bank facilities, furniture, d e c or . . . even supplies. Service fit for royalty. Lynn Hobson, Vice President Gus Morris, Vice President Jim Newman, Vice President Call toll-free and they’ll rush to your rescue. In Tennessee, 1-800-582-6277. In other states, 1-800-238-7477. THE THREE MB&TEERS Memphis Bank & Trust Correspondent Department MID-CONTINENT BANKER for January, 197 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 65 guarantee fee. This yield is calculated on actual dollars invested after sale of the guaranteed portion, in this case, $ 10, 000 .) 2. Use of the secondary market al lows the lender to recover 90% of his funds which, in turn, provides for greatly increased lending opportunities. In particular, smaller institutions can make more loans and service signifi cantly more customers. 3. Increased use of government guarantees combined with the second ary market is one of the most workable programs to make possible solid bene fits, not only to business and industry, but to communities the lender helps support. The lender acts as a conduit for new capital. 4. Many times, demand deposits maintained by the borrower of govern ment-guaranteed loans provides for a self-funding transaction. Yield calcula tions mentioned previously do not in clude investment of demand balances. Obviously, yields would be greater by calculating the monetary value of these balances. 5. The most important time to de velop a relationship between borrower and lender is when a business is small or new. As the business prospers, addi tional bank services will be needed, and balances are likely to increase. 6 . Capital is a major concern of to day’s banker. It has become customary to levy capital charges in the pricing of a new loan. Retention of a smaller portion of a loan reduces capital pres sures while increasing yields. 7. Liquidity is another attractive ad vantage when lenders utilize govern ment guarantees. The secondary mar ket remains active even in times of the most restrictive credit practices. 8 . The secondary market provides for improved management of interest differentials since loans sold in the mar ket should produce yields on the re maining portion that will reflect posi tive margins in all interest-rate environ ments. Proper use of variable-rate priv ileges should create loans that normal ly can be sold without a loss in any in terest rate environment. 9. Market independence probably is the most important advantage of this program. Reliance on marketing fullfaith and credit loans has resulted in more consistent loan placement than dependence on overline assistance for larger loans. Development of the secondary mar ket has been given high priority by both the SBA and FmHA. The pro gram has moved ahead, but not nearly as fast as it might if loan demand had stayed at 1974 levels. To maximize the advantages from this market, banks may find it advantageous to consider 66 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis " D ev elo p m en t o f th e s e c o n d ary m a r k e t h a s b e e n g iv en h igh priority b y b o th th e SBA a n d FmHA. The p r o g ra m h a s m o v e d a h e a d , bu t not n ea rly a s fa s t a s it m ig h t if lo a n d e m a n d h a d s ta y e d a t 1974 le v e ls ." committing to a new outlook toward government guarantees. Traditional misconceptions—such as excessive pa perwork, red tape, “minorities only” or the notion that guarantees are for mar ginal credits only— are being overcome. Government guarantees may be studied to determine which ones fit particular needs of the banker. Through an innovative process, the SBA has increased guarantees from $350,000 to $500,000, increased ma turities to 20 years, treats the farmer as a small businessman, provides con struction guarantees for builders and seasonal guarantees for the small busi nessman. The FmHA (B&I) loan program guarantees loans up to 30 years on land, building and permanent fixtures; up to 15 years on machinery and equipment and up to seven years for working capital. Bankers Assess Outlook A survey of bankers attending the 30th Conference of Bank Corre spondents sponsored by First Na tional, Chicago, in November, re vealed that bankers expect inflation to increase under the Carter Ad ministration. Nine out of 10 bankers responding said current monetary and fiscal policy should combat inflation rather than unemployment. The poll also indicated that most bankers expect the prime rate to be at 7%-7/2% by m id-1977. A majority said real growth would not exceed 5%. Two out of three expect business conditions by year-end 1977 to be about the same as at the time of the conference. In respect to their own banks, 90% said earnings will be about the same or higher during 1977. In the area of interest rates, the majority of bankers think long-term rates will be between 9%-10% by the end of 1977. The Dow-Jones Indus trial Index will be at or about the 1,000 mark and the unemployment rate will be about 7%. About 700 bankers participated in the poll. To make government guarantees work as a part of the lending policy of banks, a more aggressive attitude to ward becoming a term lender to small businessmen would be in order. Loan demand is down for major corpora tions, but many small businessmen are still locked out of the equity and debt markets. A major business weekly ob served recently that for companies be low the majors, finding or obtaining long-term funds is almost as difficult as it was in the worst days of 1973-74. The small businessman, the farmer and the entrepreneur are looking for stable, reasonably priced term credit. In fact, if bankers review their loans for the past 10 years, they may be sur prised how many renewable notes were in reality term loans made at short term rates. The small businessman feels more comfortable with term credit than with the instability of short-term cred it or renewable one-year notes. If a bank actively solicits term loans, it’s likely to find the borrower to be much less rate sensitive and probably less in clined to “shop” for a lower rate. Bankers may consider using the gov ernment guarantees to provide asset liquidity for bankable term credits where working balances are available. The Lubbock, Tex., SBA office, an ex cellent and innovative office, recently completed a five-year review of eight participating banks. These banks used the SBA as a tool to support bankable term credits. They also were able to develop average working balances of 18% on the original amount of each loan. Hibbard & O’Connor Government Securities, Inc., is an active participant in this market. Its service includes as sistance in preparation of documenta tion required to sell a loan, develop ment of strategies to use government guarantees, proper pricing of term loans and market techniques to identify bankable small businessmen. Commit ments can be arranged well into the fu ture to protect the lender. Finally, success of secondary market participation in the government-guar anteed loan program depends on its ac ceptance by banks across the nation. We believe this is simply a matter of time. When it occurs, we think it will cause a re-evaluation of existing lend ing policies. Bankers will develop more emphasis in long-range thinking than in the past. It will give partial relief to balance sheets and capital constraints. It will produce more demand deposits and in crease fee income, develop greater fu ture liquidity and improvement of mar gins. It is not a pipe dream. It’s here to day. * * MID-CONTINENT BANKER for January, 1977 Howdoestheenergycapital moveitsenergy? Helping it reach its destination is First City National Bank. Some thirty underground pipelines carry Texas Gulf Coast resources to major U.S. cities thousands of miles away. These pipelines move millions of gallons of oil, natural gas, petrochemicals and other liquid products. This area of Texas has become one of the nation’s most important oil and gas transmission centers — connecting the products of plants and refineries along the Houston Ship Channel with inland desti nations as far away as New York City. One-quarter of the nation’s major pipeline companies moving natural gas are found in Houston. Together these 14 companies operate more than 12 2 ,0 0 0 miles of natural gas pipeline. First City National Bank uses its financial strength to help move Texas Gulf Coast resources. This involvement has taught us even more about the energy field. And what we know is yours for the asking. We’re becoming involved with more and more industries every day. And we’re MID-CONTINENT BANKER for January, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis proving to correspondents that more ser vice is the result of more experience. Understanding business as well as bank ing has made us . . . A major financial strength behind Texas industry. 1 !I FIR ST C IIY NATIONAL BANK O F HOUSTON Â 67 Prepare NOW for Annual Meetings Booklets That Aid (!) Bank Management • How to Prepare for Kidnap/Extortion Threats. 4-page study, outlines security precautions to take at the bank and at home, sample “alert” system, action to take during and after threat. No. 114, 3 copies for $1. • So Your Husband Is a Bank Director. 2 pages. Outlines for the bank director’s wife the “sensitive” nature of her hus band’s directorship. Stresses the confiden tial nature of the banking business; dis courages bridge-table gossip! No. 115, 3 copies for $1. • A Code of Ethics. 4 pages. Sample policy statements by two banks, covering personal conduct of officers, inside and outside the bank. Example: sets criteria for conflict of interest, political activity, outside interests, trading in bank stock, gifts and entertainment that can be ac cepted by officers. No. 116, 3 copies $1. • Capital Adequacy. 4 pages. W hen does a bank have enough capital? Should a bank resist supervisory pressure to increase capital? Should a committee of board mem bers keep abreast of capital requirements for their bank? These and other questions discussed. No. 117, 3 copies for $1. • Specialist Directors. This four-page study highlights the need for bank boards to consider adding “specialists” to the board. Example: CPA’s, educators, en vironmentalists, minority group representa tives, even labor leaders. W hat should your bank do about this? This study offers suggestions. No. 119, 3 copies for $1. • The Bankers’ Handbook. Considered the most complete and definitive reference source covering current practices. It places the money knowledge of 90 of the country’s (2) Bank Directors (3) Bank Stockholders • Bank Stock Prices. How the price range of a bank’s stock should be de termined is discussed in this four-page study. The pros and cons of high and low stock prices are examined so direc tors can determine where to set the price of their bank’s stock. No. 134, 3 copies for $1. leading bankers at the fingertips of the banker or businessman, in a concise, ana lytical style. In it are the answers to most of your questions about banking—easy to use. 11 major sections— in 87 chapters. 1230 pages. No. 120, $30.00. o Bank Audits and Examinations. This study, written in non-technical language, is designed to be helpful (1) to an inde pendent accountant engaged to conduct an opinion audit, (2) to an internal bank auditor who wishes to make his work more effective and ( 3 ) to a ban k director who wishes to compare procedures followed by his bank with the modem methods out lined. No. 121, $32. • Organizing Jobs in Banking. A practical manual designed for bank officers and de partment managers to use as a guide in defining the duties and responsibilities of every position in the bank. It establishes position qualifications and job specifications and contains suggestions for training new personnel and employees transferring from one position to another. No. 122, $28. • W hat Every Bank D irector Should Know About Bank Counsel. A pithy dis cussion of the advantages and disadvan tages of a bank maintaining full-time coun sel, and whether that counsel should be an elected director. The counsel-director re lationship is also covered— a vital relation ship in these days of complicated legal maneuvering. No. 129, 3 copies for $1. • So Your W ife Is a Bank D irector. W ith an increase in the number of women di rectors, there is a need for the husbands of these directors to “learn the ropes.” T his study provides basic information for the spouse that is designed to enable him to assist his wife in the complicated busi ness of running a bank. No. 130, 3 copies for $1. • Management Policies for Commercial Banks. 2nd edition by Howard D. Crosse and George H. Hempel. Substantially re vised edition dealing with major policies of liability and asset management in banks. Includes examples of major policies and the relationship of policy makers and the issuing of policy. Examines lending prac tices, personnel, marketing management and portfolio management and capital structure. No. 131, $15.95. • M anagement Succession. 8-page study. This has been termed the number one problem in banking. Directors have the legal duty to staff their banks and this publication provides invaluable aids to as sist directors in this area. Includes a com prehensive checklist for management de velopment. No. 133, $1. • W hat Every Bank D irector Should Know About Public Relations. A veteran journalist and PR man describes what PR is and how a message can be relayed to the public: how the good works of your bank can be publicized. Includes an ex ample of a deposit-building program that worked; also describes how the bank’s personnel were “sold” on the program, thus insuring its effectiveness. No. 135, 3 copies for $1. • W hat Every D irector Should Know About Personnel Management. One im portant aspect: evaluation of employment policy . . . the director should understand this. Also, each bank should have a re cruitment policy and a general policy with respect to the role of fringe benefits. No. 139, 3 copies for $1. • Commercial Problem Loans. A study that makes a significant contribution to improving lending skills by filling a void in the loan department’s litera ture. The problem loan is identified in detail and a program of supervision is outlined. T he volume includes a 41page chapter on collecting problem loans and a case study of a fraud that brings all the points discussed into full play. Also included are a complete sample credit file and a hypothetical credit policy statement. Published in 1974. No. 137, $18. Order by Number Using Coupon on the Opposite Page 68 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BANKER for January, 1977 Be a Step Ahead of Bank Regulators! Examiners expect banks to have Written Loan Policies. Send TODAY for your copy of the revised and enlarged edition of The Bank Board and Loan Policy, a 40-page manual that discusses the reasons for a bank having a written loan policy. Included are current loan and credit policies of four well-managed banks that can aid your bank in establishing broad guidelines for its lending officers. A written loan policy can protect directors from lawsuits arising from failure to establish sound lending policies! Check Box No. 1 1 3 , $ 4 .2 5 per copy OTHER MANAGEMENT-DIRECTOR MANUALS • Bank Directors and Their Selection, Qualifications, Evaluation, Retirement. 24 pages. Answers key questions concerning director selection, retention and retire ment. Special section: the prospective di rector and how he should be expected to contribute to the bank’s success. No. 101, $2.85 per copy. • Bank Shareholders’ M eeting Manual. 60 pages, 8J£ x 11". Designed to aid directors of state-chartered banks, this book dis cusses conflict of interest, minority rights, fuller disclosure, voting of trust-held se curities, preparation of stock purchase and stock option plans, also capital notes and debentures. The manual also is helpful in updating annual shareholders’ meetings at a time when stockholders are becoming more in sistent on receiving meaningful information at annual meetings and in annual reports. No. 102, $7.75 each. • A Model Policy for the Bank’s Board of Directors. 24-pages, reviews typical organizational chart, duties and responsi bilities of managing officers and various standing committees, loan, investment and collection policies, and an outline of a suggested investment policy. No. 103, $2.85 per copy. board or management? No. 106, 3 copies for $1. • The Board of Directors and Effective Management. Harold Koontz, 256 pages. Critical look at directors’ role: functions and responsibilities, decision areas, control, relationship of success to more productive management. No. 107, $13.50 per copy. • Deferred Compensation Plan for D irec tors. Explanation of an important IR S Ruling that will allow your directors to collect directors fees after retirement, thus offering substantial tax savings. No. 108, 3 copies for $1. • A Business Development Policy. A plan for the small bank in setting up objectives and establishing responsibilities in the of ficer staff for getting new business, holding present business. No. 109, 3 copies for $1. • SA L E S: How Bank Directors Can Help. Detailed outline of a program that has developed more than $40 million in new business for a holding company chain in the Southeast. No. 110, 3 copies for $1. • Planning The Board Meeting. This 28page booklet provides some workable agendas, suggestions for advance planning and also lists type of reports a board should receive monthly and periodically. It emphasizes the need for informing the board as quickly and concisely as possible. An excellent supplement to plans your bank already has. No. I l l , $3.15 per copy. • Policy Statement for Equal Employ ment Opportunity. 4-page study, contains suggested Equal Opportunity Program aimed at preserving a bank’s eligibility to serve as federal depository. No. 112, 3 copies for $1. SEE OPPOSITE PAGE FOR OTHER TOPICS Please Send These Management Aids: • Annual Review for Officer Promotions. 4-page study, contains 12 point-by-point appraisals of officer performance and potentials. No. 104, 3 copies for $1. • Check List of Audit Procedures for Directors’ Examination. 23-part outline en compasses review of major audit cate gories. Special 4-page study. No. 105, 3 copies for $1. • Bank Board Policy and the Preroga tives of Operating Management. Special study focuses on utilization of skills and knowledge of “outside” directors; should llie board do more than merely set policy?; who should operate the bank—the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 101 copies 102 copies $ .... 116 . . . . copies $ .... 117 . . . . copies $ .... 119 . . . . copies $ .... 120 . . . . copies $ .... 121 . . . . copies $ .... $ .... 103 copies $ .... 104 copies $ .... 105 copies $ .... 122 . . . . copies $ .... 129 . . . . copies $ .... 130 . . . . copies $ .... 131 .... copies $ .... 133 . . . . copies $ .... 134 . . . . copies $ .... 106 copies $ .... 107 copies $ .... 108 109 copies copies $ .... $ .... I 10 copies $ .... 135 . . . . copies $ .... 111 copies $ .... 137 . . . . copies $ .... I 12 copies $ .... 139 . . . . copies $ .... Total $ .... 113 copies $ .... (In Missouri add 114 copies $ .... 4'/2% Tax) m Send Completed Coupon W ITH C H E C K to: Commerce Publishing Co ., 408 O live St., St. Louis, Mo. 63102, publishers of The BANK BOARD Letter, Mid-Continent Banker and Mid-Western Banker. Enclose check payable to The BANK BOARD Letter Name .................................................................. Bank or C o m p a n y ........................................... A d d re s s................................................................ $ .... Miinicipal Crediit Anailysis Amd P o rtfo lio Manage m ent S NEW YORK CITY has been re ceiving rave reviews for its locally staged, produced and directed drama “From the Precipice and Back,” most of us involved in municipal finance have used the occasion to draw several object lessions. First o f all, there is no free lunch regardless of how socially appealing the largesse may be, whether it’s la beled transfer payments, benevolent re tirement benefits, tuitionless higher ed ucation, ad naseum. While creative ac counting temporarily may obfuscate who owes whom how much, money borrowed from the investing public and used for whatever purpose is nevertheless money to be repaid by those who borrowed it. A second, and less equivocal object lesson, impinges on this exact point. There is a disconcerting lack of uni formity and standardization regarding a municipality’s financial reporting pro cedures. It’s often equally difficult for local taxpayers and bondholders alike to know the true state of financial af fairs vis-a-vis literally thousands of local governmental units. This situation presents a unique challenge to the port folio manager, who normally has little or no direct contact with the majority of those issues held in portfolio. Following the first act of New York City’s drama over two years ago, more attention has been devoted to municipal credit analysis than during the pre ceding 10 years. Since the Big Apple’s well-publicized problems have been properly accepted by most tax-exempt portfolio managers as a mandate to be come more credit conscious, it’s essen tial to establish a credit-oriented frame of reference. Relatively few portfolios are large enough to justify a full-time portfolio manager, let alone a full-time analyst to review those issues presently held as well as new issues. While there is a mushrooming body of information available, both on a fee basis and as a service, the portfolio manager cannot discharge fully his credit responsibility without developing a suitable frame of reference. Such a frame of reference will pro vide the necessary tools to read and comprehend a variety of available cred it reports and statistical data. In ad dition, these tools can be improved to provide a broader range of options on which to build a more sophisticated A 70 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By THOMAS S. HARDIN portfolio strategy, i.e., identifying im proving credits as candidates for pos sible upgrading, or deteriorating credits as candidates for possible downgrad ing. While the latter utilization of credit analysis in portfolio management isn’t for everyone, the former utilization—to develop a basic understanding of mu nicipal credit analysis—is essential for the portfolio manager to discharge his responsibilities to the investment com mittee and the board of directors. The following paragraphs are intend ed to enable the portfolio manager to establish such a frame of reference so that intelligent, independent judgments may be made regarding the risk-reward ratio of tax-supported bonds; the risk being the event of default and the re ward being the yield. The first step in developing this frame of reference is to view bond purchases as an extension of bank cred it, but to a more impersonal borrower, a municipality. Just as a commercial lending officer must follow well-defined analytic guidelines, the portfolio man ager should develop similar guidelines which extend well beyond the bond’s rating. In developing such guidelines, the ultimate question to be answered deals with the borrower’s, or munici pality’s, repayment ability. In addressing this issue properly, the following traditional evaluation cate gories should provide a broad outline for a credit-oriented frame of reference: 1. Economic factors. 2. Debt composition and magnitude. 3. Administrative and governmental factors. 4. Financial and cash flow analysis. 5. A general assessment of the mu nicipality’s present and future ecoTHOMAS S. HARDIN is nat'l sales mgr., municipal bond div., Harris Bank, Chicago. He is an a.v.p., joined Harris in 1975 and, before receiving his present post, w as in the underwriting and municipal credit sec tion of the bank's bond division. He for merly w as v.p., Loewi & Co., Milwaukee. Harris' municipal bond div. has representative offices in New York, San Francisco and St. Louis. nomic prospects and fiscal stability. While these five considerations will broadly define a suitable frame of ref erence, a more precise definition of each one will enable the portfolio man ager to make better informed, more au tonomous credit judgments. As this an alytic process sharpens the portfolio manager’s focus, an overall profile based on historical trends and patterns should be built. Many issues will be held in portfolio for five, even 20 years or longer. A municipality’s prospects can be evaluated most accurately by reviewing historical trends and extrap olating a judgment regarding future viability. As every portfolio manager realizes, the security for all general-obligation bonds is a tax levy on all taxable prop erty, which provides the fundamental source of revenue. Consequently, the first element, economic factors, in volves an analysis of: (a) total tax base; (b ) population; (c) distribution of the tax base between residential and commercial; (d) employment diversi fication and stability; (e) general signs of economic strength as evidenced by new building permits, etc.; (f) demo graphic factors, such as educational at tainment of the population, age and value of the housing stock, etc. When reviewing these economic factors, it’s essential to maintain a balanced per spective so that no single element be comes too significant, or too insignifi cant. The essential consideration in evalu ating economic factors is the diversifi cation and stability of the tax base and its ability to accommodate unexpected changes such as the loss of a large em ployer or a substantial taxpayer. Ide ally, the overall tax base should include both residential and commercial or in dustrial taxpayers. A concentration of residential may make an issuer vulner able to a decline in population, while an undue concentration of commercial or several dominant employers may ex pose an issuer to financial uncertainties caused by a general or industry-wide economic downturn. A general conserv ative approach is that no single tax payer should represent more than 10 % of the total tax base. Population should neither increase nor decrease too rap idly. Rapid growth demands obvious capital projects such as schools, sewers, etc., which can force undesirable debt MID-CONTINENT BANKER for January, 1977 accumulation. Conversely, a declining population, normally a telltale sign of a deteriorating credit, usually creates a proportionately greater economic bur den on the remaining population base. Occasionally, a population decline may be offset by an increase in the indus trial or commercial segment of the tax base. Other considerations such as issuance of new building permits, zoning, trans portation facilities, age and value of housing stock and an economic profile of the population such as wealth levels and educational attainment will sharp en your overall understanding of a municipality as a viable, revenue-gen erating enterprise. In evaluating var ious economic factors, you should apply a similar perspective, relating an in crease or decrease in each component to its impact on the overall trend or profile. To assess the second category, debt factors, the following items must be evaluated: (a) overall tax-supported debt and related repayment schedules; (b ) significant debt ratios; (c) relation ship between short- and long-term debt; and (d) interrelationships be tween debt and wealth levels. A very important consideration in assessing a municipal credit is the demonstrated pattern of debt management and cap ital expenditure programs relative to the income-producing ability of the tax base. Trends indicating any growth or shrinkage in the tax base should be considered in relation to the corollary movement of total bonded indebted ness. Since the tax base provides the revenue stream to pay debt service, a potential danger signal may occur when total tax-supported bonded in debtedness continues to increase at a more rapid rate than the tax base. Sound debt-management practices are an excellent means of controlling debt-service expenses to achieve a smooth expense factor in future bud gets. Ideally, the maturity schedule should be related to the useful life of the facility being built; a rule of thumb is that 5% of an issue should be amor tized per year, although this generaliza tion may have numerous valid excep tions. It’s important to determine if a too-rapid amortization schedule will impose an unnecessary burden on pres ent taxpayers or whether a too-slow amortization schedule will unnecessari ly restrict future capital projects as old or obsolete facilities are still being funded. In either event, the capital financing flexibility of an issuer may be unduly restricted, thus limiting its future fiscal prospects. Awareness of statutory debt limits is a vital element of debt management to confirm that sufficient future financing capacity exists relative to those needs implied by " A d m itted ly , a discussion o f ty p es o f m u n icip al d e b t can b e n ea rly a s excitin g a s w a tch in g p a in t dry, bu t it w ill p r o v id e th e p o r tfo lio m a n a g e r a v a lu a b le p e r s p e c tiv e fro m w h ich to u nder sta n d d e b t ratios the growth characteristics of the area. Since the ability to understand a municipality’s debt statement is funda mental to credit evaluation, a brief review of the types of municipal debt may be useful. There are four such categories: T he first is total gross or total direct debt, which represents that debt in curred by the issuer either in its own name, or through annexation of terri tory or consolidation with another gov ernmental unit, and all debt payable from ad valorem taxes, including in direct debt that’s directly tax support ed, such as lease-rental payments. T he secon d category is net direct debt, which is simply total direct debt less any cash and debt-service funds, or reserve funds, and less that debt which is serviced in the first instance, from earnings generated by a specific facility, but which is payable in the second instance from ad valorem taxes should revenues be inadequate to meet debt service. Beware of those debt statements that reveal excessive direct debt which purports to be self-support ing. Should the revenue-producing source prove to be inadequate, the municipality would be compelled to use its taxing power to provide un planned debt service, thereby possibly restricting future fiscal prospects. T he third category is total direct and overlapping debt. Overlapping debt is the proportionate share of the debts of local governmental units located wholly or in part within the limits of the issuer and which is tax supported. T he fourth category is net direct and overlapping debt, or that total tax-sup ported debt for which an issuer is re sponsible after deduction of cash, cash equivalents, debt-service funds and in direct debt which is tax supported and that historically has been self-support ing. Admittedly, a discussion of types of municipal debt can be nearly as excit ing as watching paint dry, but it will provide the portfolio manager a valu able perspective from which to under stand debt ratios. Debt ratios are an indispensable quick check to arrive at a common denominator among munici palities in order to make valid and meaningful comparisons. The four most commonly used debt ratios are total direct and overlapping debt per capita, debt to assessed value, debt to full mar ket value and debt per acre. Per-capita MID-CONTINENT BANKER for January, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis debt measures only the magnitude of debt, not its economic burden, since one unit of population anywhere does not represent a correspondingly equal unit of wealth, skill and tax-paying capacity. Normally, per-capita debt of less than $250 is considered excellent; from $250-$500 is very modest; from $500-$750 is easily supported; from $750-$1,000 is approaching the high side; and anything over $ 1,000 de mands considerably more analysis. A very high or very low per-capita debt isn’t necessarily bad or good; it de pends on what portion of the total tax base is dependent on individual real estate property taxes versus commercial or industrial taxpayers, particularly since a number of additional revenue sources may be available to a muni cipality such as a sales tax, income tax, franchise tax, etc. The second measure, debt to as sessed value, is of limited value be cause of the wide disparity among as sessing ratios throughout the country. A much more significant and useful ratio is overall net debt to true or fullmarket value. This measure reflects most accurately the ability of a tax base to produce an income stream, from which debt service flows. Gen erally, net overall debt to full value of less than 1 % is excellent; from 1 % to 2 /2% is very good; from 2%% to 5% is easily supported; from 5% to 10% may restrict fiscal flexibility; and a ratio in excess of 10 % is alarming, since histor ically one of every three cities whose net overall debt to full-value ratio ex ceeded 10% defaulted. The fourth ratio is debt per acre for so-called farm bonds, or “black dirt” bonds. A ratio of less than $20 debt per acre is consid ered excellent, while $21 to $40 debt per acre is quite good; however, since the value of the farm land is included in the full value of all taxable property, along with all other assessed property, debt to full value is still the most meaningful ratio. Thorough evaluation of an issuer’s in come statement also should include an examination of the relationship be tween long- and short-term debt. While there is no ideal long- to short-term debt ratio, it’s important that an is suer’s historical ratio has remained about constant. An increasing reliance on short-term debt may indicate a growing use of notes to cover bud getary or operating deficits. The rela- 71 tionship between total debt and per sonal or family income levels is referred to as debt burden and is a relatively new statistical measure of the popula tion’s ability to support public debt. For example, per-capita debt expressed as a per cent of mean or median family income should be about 3% to 5%; percapita debt expressed as a per cent of personal or individual income should be approximately 15%. Bear in mind that these ratios, like all ratios, are intended to provide a guide and are not absolute measures of an issuer’s fiscal integrity. Many unique situations can occur affecting the total mix of population, tax-base diversity, wealth levels, et al, which may distort individ ual ratios without necessarily adversely affecting overall creditworthiness. The third guideline, administrative and governmental factors, is somewhat more esoteric than the previous two guidelines. While it is virtually impos sible to quantify the quality of admin istrative and governmental factors, several aspects should be reviewed to develop an interface between govern mental effectiveness and the municipal ity’s anticipated financial prospects. The quality, professionalism and po litical philosophies are an important in dicator of the types of service which may be provided vis-a-vis the implied expenditure controls and cost burdens. Accounting and reporting procedures should be current; they should reflect accurately and adequately the sources and use of income received; it’s often interesting to notice any dependence on earnings from “enterprise funds,” such as a municipality-owned utility system. Another indicator of govern mental effectiveness is the thorough ness and accuracy of budgeting and capital planning, which should be re alistically related to projected income flow. Financial and cash flow analysis, the fourth evaluation category, should dis close overall operating data and finan cial management efficiency. Operating funds should be examined closely to detect broad trends leading to large accumulated surpluses or possible def icits; the quickest check is to examine the year-end cash position relative to its magnitude in previous years. Sources of revenue are important to assess, particularly any trends that im ply a growing dependence on federal or state aid. Growth in state and local spending has far outdistanced corre sponding growth in federal domestic expenditures. But while local govern ments are spending more, they are spending less of their own money. Be tween 1959 and 1972, city govern ments’ revenue quadrupled from $29.5 billion to more than $118 billion; but Disney World, Busch Gardens and the world’s finest beach walking! THE R ESO R T HOTEL . . . most luxurious resort on St. Pete Beach Only beautiful St. Pete Beach separates you and the Gulf of Mexico. 204 elegant guest rooms, some with kitchenettes and steam baths . . . lounge with entertainment . . . superb restaurant . . . poolside service . . . fishing, golf and tennis nearby.i L l . »« i For literature and rates, write: nüSnlrJw JriH ■ 57Q Breckenridge Hotel D is n e y w o rm , 0 Qu|f B!vdResort S t pete B e a c h F |a . 3 3706 a n d ohth ° ?r 6nS 1 • • • or Phone: <813) 360-1833 a llr a r lin n « NAME. ADDRESS, CITY/STATE/ZIP. 72 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis during this time, fiscal aid from other government units rose from 30% of total revenues to more than 40%. To offset the increase in state and federal aid, property taxes are less important as a source of revenue, dropping from nearly 49% of total revenue in 1959, to 37% in 1972, while the sale’s tax com ponent has remained relatively small and static. In fact, it has been esti mated that more than 60% of the growth in local government spending during the past five years has been fi nanced by state and federal aid. Per haps the portfolio manager needs to become more cognizant of the ad monition, “The Lord giveth, and the Lord taketh away.” An area of growing concern regard ing cash-flow analysis is that of un funded liabilities. As a result of sharply higher public employee wage settle ments, it’s increasingly important to explore the condition of an issuer’s pension fund, a prime culprit in un funded liabilities. To make up past un derfunding of pension obligations, it’s estimated to cost Los Angeles $1 bil lion, New York State $3 billion and Massachusetts, which has no funding at all, perhaps $8 billion. Unfunded liabilities can impose as real a demand on current and future revenues as debtservice requirements. In general, these cash-flow factors can jeopardize debt repayment: (a) chronically unbalanced budgets; (b) operating deficits; (c) an inflexible revenue system; (d) pledges of reve nues normally available for govern mental purposes to the support of lim ited liability bonds; (e) poorly con ceived and unmanageable repayment schedules. Conversely, these factors will strengthen debt repayment: (a) historically balanced budgets; (b) maintenance of comfortably large cash surpluses of working cash, in the gen eral fund; (c) diversified and stable revenue sources; (d) a well-conceived and manageable repayment schedule. Financial analysis also should ex amine revenue and expense source al ternatives to property taxes to deter mine overall fiscal flexibility. A nega tive variance of more than 10 % be tween projected and actual expenses and revenues may indicate either poor management or a deteriorating credit. Because of the large per cent of total revenue originating from property taxes, income-tax collections and de linquent tax-collection procedures ideally should result in a 98% or great er collection factor. At this point, the portfolio manager now is equipped to evaluate the fifth guideline by making a general assess ment of the municipality’s present and future economic prospects and fiscal viability. This obviously is the bottomline judgment based on an independent MID-CONTINENT BANKER for January, 1977 evaluation of the many individual com ponents within each evaluation cate gory. Each portfolio manager must re late his own value frame of reference to credit factors to arrive at a risk/ re ward ratio judgment. The risk is the event or likelihood of default, while the reward is the yield, or rate of re turn on the investment. The more so phisticated portfolio manager may em ploy advanced credit-analysis tech niques to identify so-called under valued situations, deteriorating credits, improving credits, etc. But for most retail portfolio managers, the five-step valuation process just presented should provide a sound frame of reference within which prudent investment de cisions can be made. • * TV Celebrity McMahon Stars in Bank Ads “Tonight” TV show announcer Ed McMahon is serving as spokesman for First National, Mobile, Ala., for a 12month period. The tall TV celebrity is appearing in a series of T V and radio commercials spotlighting auto loans, First Bank Club, midnight teller ser vice, home improvement loans, day-in/ day-out savings and the bank’s image. According to a bank spokesman, Mr. McMahon was contracted to enable the bank to make its commercials stand out over those of competing institutions, both locally and nationally. Mr. Mc Mahon is also being used to familiarize the viewing public with the bank’s re cently adopted corporate logo as a member of First Bancgroup—Alabama, Inc. Automated Teller System Standard Published by Underwriters Lab CHICAGO—Underwriters L a b o r a tories, Inc., has released the first edi tion of its standard for automated teller systems, UL 291. The requirements apply to the construction and security of equipment intended to automatically dispense currency when properly op erated by an authorized customer, and to provide some protection against un authorized removal of currency. The requirements cover products in tended for permanent connection to 600-volt or lower potential branch cir cuits and products intended for cord connection to 300-volt or lower poten tial branch circuits. Copies are available at $3.50 or for $9. The latter price includes a subscrip tion service to any revisions that may be issued. Order from Underwriters Laboratories, Inc., Publication Stock Department, 333 Pfingsten R o a d , Northbrook, IL 60062. Arts Council Receives Merc Film Presenting the historical film, "Missouri: Por trait of a People," to Stanley J. Goodman (r.), dir., May Co., and ch., Missouri Arts Coun cil, is James L. Rieger, pres., Mercantile Bank, Kansas City. The film, which traces the state's history through works of Missouri artists, sculptors, musicians and writers, w as spon sored by Mercantile Bancorp., St. Louis, parent HC for the bank, and w as produced under auspices of the Arts Council. MID-CONTINENT BANKER for January, 197 7 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 73 Bank of Oklahoma, Tulsa, Opens Tower Facility U BLIC TOURS and a series of grand opening parties have kept the calendar full for officers and per sonnel at Bank of Oklahoma for the past few weeks. The social functions have been held to acquaint Tulsans with the newly opened headquarters of the bank, located in what is said to be the state’s tallest building, the 667foot Bank of Oklahoma Tower, which is located in the nine-square-block Williams Center complex. The official opening of the new fa cility occurred last November 1, fol lowing a massive move made in late October. No formal dedication or elab orate opening festivities were held. Funds that would have paid for such an activity are being held in reserve to be used for a community service proj ect which is yet to be announced. The bank is the first occupant of the Williams Center, a downtown revitali zation project that will include a per forming arts center, hotel, restaurants, shops and a park. Construction of the Williams Plaza Hotel has begun. The $20-million building will be connected to the Tower and the bank through the retail mall area. Completion is expected in the summer of 1978. The bank occupies the lower 10 floors of the tower, which was designed by Minoru Yamasaki, who also de signed the World Trade Center in New York City. Main banking services are located on the third-floor plaza level, which is connected with a parklike green by a pedestrian bridge. A park ing garage is located beneath the green. Teller modules, instead of the oldstyle cages, look out onto an elevated P On th e C ov er: F ish -ey e len s v ie w o f B an k o f O k la h o m a 's 5 2-story to w e r, ta lles t bu ild in g in s ta te a n d n e w la n d m a r k in Tulsa. P hoto on this p a g e s h o w s to w e r fro m 2 V i-acre g r e e n w hich co v ers p a r k in g garage. 74 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis garden. Open spaces throughout the bank are done in warm earth tones and accented by 1,300 potted plants. A garden outside the north lobby con tains a dozen trees and blooming shrubs some 40 feet above street level. The seven bank floors above the three-floor podium level contain offices without doors and walls to enable the bank to achieve flexibility. “W e wanted to be able to change our minds,” said President Leonard J. Eaton Jr. “Mov able partitions separating work stations can be rearranged overnight. This gives us the flexibility we need as we expand as a regional financial institution.” Office partitions have fiberglass cores beneath thick fabric covers and con tain sound within each work area. Three-dimension interpretation of Bank of Oklahoma's logo stands at entrance to bank quarters. The stainless steel statue is made up of 50 pieces welded together after a series of molds were made using the "lost w ax" method. The work weighs half a ton. MID-CONTINENT BANKER for January, 1977 More than 1,200 people attended the opening celebration of Bank of Oklahoma in its new quarters last month. Among the guests were bankers, state legislators, attorneys and physicians. About 450 banks were represented at the dinner-dance. In left photo, bank officials greet guests. From left, they are Vice Chairman Marcus R. Tower, Mrs. Swearingen, Chairman Eugene Swearingen. Photo at right gives band stand view of party, held in bank's lobby. Since most lighting is built into the partitions, the ceiling is entirely acous tic. Noise is halted by carpet squares, drapes and abundant greenery. Office sounds are muffled by an unnoticeable whisper-tone called “white sound.” One of the bank’s most dramatic features is a spiral staircase connecting the eighth-floor corporate division with ninth floor executive offices. Recep tionists are stationed on each floor. The tower is scheduled for comple tion in March. Upper floors are oc cupied by the Williams Companies, owner of the building. Some services were retained in the lobby at Bank of Oklahoma’s former location, which is two blocks from the Tower at 320 South Boston. There is a motor bank at the old location, too. Another motor bank will be construct ed three blocks west of the tower later this year. Bank of Oklahoma was founded in 1910 as Exchange National. It occu pied its own building in 1917. This 1 2 story building was expanded in the 1920s to 2 2 stories and the bank’s name was changed to National Bank of Tulsa. In 1975, the present name was coined and work was begun on the present building. The 52-story tower was topped out a year ago. Exterior finish is of satin aluminum with bronze-colored, heat absorbing glass. White marble arches grace the podium level. Each tower floor mea sures two-thirds of an acre and the en tire tower contains 34 acres of floor space with more than 5,000 windows. The building is bordered by First, Sec ond and Main streets and Cincinnati Avenue. It occupies an area that was formerly populated by rundown build ings. * * Lobby of Bank of Oklahoma Tower picks up arches and contemporary flavor of exterior. Teller modules are at left. MID-CONTINENT BANKER for January, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Keynote speaker Kermit Hansen (I.), ch., U. S. Nat'l, Omaha, spoke on burden of consumer regulations affecting banks at recent Consumer Finance Conference of Missouri Bankers Asso ciation. At r. is Conf. Ch. Norman T. Williams, v.p., Commerce Bancshares, Kansas City. C. W ayne Cape (standing), v.p., American Nat'l, St. Joseph, took part in dealer financing profitability session at MBA conference. Seated at r. is William H. Vaughn, v.p., Mercantile Trust, St. Louis, who also spoke. Session had standing-room-only crowd. Bankers M ust Serve as Own Saviors, Says Speaker at Finance Conference By JIM FABIAN Associate Editor HO IS going to save the banker from over-regulation? Nobody but W the bankers themselves! This was the main point of the keynote speech made at the recent Missouri Bankers Associa tion 17th annual Consumer Finance Conference. The speaker was Kermit Hansen, chairman, U. S. National, Omaha. More than 300 bankers attend ed the day-and-a-half conference in Columbia, Mo. Mr. Hansen called attention to the new federal bank examination proce dure, which is designed to determine compliance with various consumer-or iented regulations that have been passed or decreed by Congress and reg ulators. He said bankers can expect the ex aminers to investigate bank compliance with Truth in Lending, Equal Credit Opportunity, the Fair Credit Reporting Act, the Fair Housing Act, Home Mort gage Loan disclosure regulations, the Real Estate Reporting Act, advertising regulations contained in regulations Q and Z, payment of interest on deposits as outlined in Regulation Q, plus rele vant state banking laws (especially usury statutes). In addition, he said, examiners will be asking about compliance with the Federal Trade Commission’s regulation overturning holder-in-due-course prac tices. He advised bankers to review their policies and procedures, whether they are written or not, to determine tech nical and monetary compliance with all regulations and laws. Banks must prove that they act in good faith and attempt to conform to the numerous regulations, he said. Examiners will ask about internal controls, about board policy on credit, about the status of internal training, about the extent of the transmittal of information within the bank. They will want to know who, besides the CEO, is responsible for the bank’s policies and actions and what procedures the bank has set up to resolve consumer com plaints. They will want to know the rea sons loan applications have been re jected and they will want to talk to the bank’s internal auditor and head teller Panelists at confer ence included (from I.) William A. Glassen, a.v.p., Com merce Bank, Moberly; Wade L. Nash, MBA staff attorney; Nor man T. Williams, conf. ch. (standing); Robert F. Walster, pres., Thornton Nat'l, Nevada; and Charles F. Leutkemeyer, v.p., Big Bend Bank, Web ster Groves. 76 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis — and their stories had better agree with those told by the CEO! Mr. Hansen spoke of the mounting costs compliance is generating, giving an illustration of one bank that spent more than 200 costly man hours gather ing information for examiners. He discussed his concerns about how best to protect citizens against excessive powers of the state and how best to protect the rights of any minorities (in cluding business firms). These con cerns, he said, are balanced with two trends of society—the ever-increasing rate of government expenditures and the lowering level of economic literacy that is perpetuating a lack of under standing of democracy because of the host of regulations that, although clothed with respectability, are a drag on the economy. He said bankers should develop pos itive plans of constructive resistance to overactive consumerists by getting to know members of the consumer groups in their areas. They should listen to consumerists and develop dialogues with them and offer to teach them the facts about banking. He also advised bankers to work within the MBA to organize a group or committee to probe the plans of state legislators and committees, convince them to treat all financial institutions equally and to avoid passage of bad bills. He recommended increased legisla tive liaison at the state level and offers to help eliminate costly and confusing legislation on the books. An offer to examine and recommend changes cov ering the entire bundle of state statutes affecting financial institutions could be extended to the legislature by bankers so that banking statutes could be mod ernized and made more efficient. He said bankers should let governing bodies know what regulations are cost ing bank customers in the form of higher interest rates. Better yet, he said, let bank customers know, so they will go to their legislators and tell them that they can’t afford the legislative protection they are getting. In conclusion, Mr. Hansen said bank ers should speak up for banking and realize that all bankers are in the same boat. They should establish a means of exchanging information regarding the problems and complexities of the industry. Ronald R. Tullos of the ABA’s gov ernmental relations division, shed light on the reasons behind the movement to over-legislate and regulate banks. He said the catalyst behind con sumer legislation is liberal Democratic congressmen and their staffs. Congress men, in order to get reelected every MID-CONTINENT BANKER for January, 1977 two years, must make it look as though they’re helping the little guy—the con sumer, he said. To court constituent approval, they are willing to use a sledgehammer to kill flies! In analyzing the national election, Mr. Tullos said the fact that one party is in control does not mean clear sailing for President-Elect Jimmy Carter. Southern congressmen consider Mr. Carter as being too liberal. They might take advantage of Mr. Carter’s break- in period and pass new legislation un favorable to the new President, he said. He added that membership on con gressional banking committees will be pretty stable, as only a few congress men on those committees were defeat ed in the recent election. However, he said, if the seniority system is further eroded, confusion could develop. Also, he said, if Senator John Tower (R., Tex.) moves to another committee, his replacement will be Senator Edward W. Brooke (R.,M ass.), who is not as favorably inclined to banking as is Sen ator Tower. Mr. Tullos said that possible legisla tion affecting banking that could be taken up in the new Congress could in clude the creation of a consumer credit agency, outlawing of the Rule of 78s, an investigation into credit card prac tices, a probe of credit life practices and the granting of services typical of banks to other financial institutions. * * Economy, Regulations, Planning Strategies Discussed at First Alabama Bank Forum ANKERS from throughout Ala bama gathered in Montgomery last month to hear what to expect from the economy, banking regulations and planning strategies for 1977. The occa sion was the 30th Annual Bank Forum sponsored by First Alabama Bancshares, the $ 1 .2 billion holding com pany. An economic outlook for 1977 was presented by Edward H. Boss Jr., vice president for economic research, Con tinental Illinois National, Chicago. Mr. Boss predicted a 5% increase in eco nomic activity in the coming year. He said the major growth will come from new housing construction, expenditures for new plant and equipment and in creased government spending. “While it is still too early to know the plans of the new administration,” he said, “it is felt that the inflation rate is likely to hold in the 5% to 6 % range which we have seen over the past several months.” Mr. Boss does not believe that farm products and processed food and feed prices will decline much further since they are now at extremely low levels relative to the cost of production. He forecast that retail food prices are like ly to rise 2% to 3% in 1977. Prices of B consumer services are likely to continue to be the most rapidly rising major sec tor of the consumer price index. Frank A. Plummer, chairman, First Alabama Bancshares, complimented state bankers on producing the sound est banking system in the Southeast. He further stated that Alabama bank ers should use this strong base to seize the initiative to develop local markets. He expressed concern that failure to meet the needs of local communities might accelerate the liberal movement to allocate credit on a federal level. Federal allocation of credit would pro duce dire results for both the national economy and local enterprise, accord ing to Mr. Plummer. Skillful management and planning by bankers was discussed by James S. Gaskell Jr., president, First Alabama Bank, Montgomery. “Because so many of a bank’s expenses are the results of banking laws and regulations, bankers have actual control over only a small area of their income and expenses,” Mr. Gaskell said. He predicted that the cost of money will continue to rise in 1977. “While the prime rate has dropped from 1 2 % to its current, level of about 7 /2%, I do not know of a single bank that has low LEFT: Pictured at First Alabama Bancshares Bank Forum are (from I.) Frank A. Plummer, chairman, host organization; A. G. Westbrook, pres., Commercial Bank, Demopolis; Harry I. Brown, ch. & pres., First Nat'l, Sylacauga. RIGHT: Forum speakers included Edward H. Boss Jr. (I.), https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ered interest rates on savings deposits below ceilings permitted by banking regulations. “Cost of people has risen for banks as well as other businesses,” Mr. Gas kell said. “In fact, a recent national sur vey shows the cost of employee bene fits has increased 23% in two years. With this background of sharply in creased costs, bankers are going to have to review the prices of their services and continue to seek ways to increase the efficiency of their staff and opera tions.” Paul E. Norris, senior vice president, First Alabama Bank, reminded the bankers of the new laws passed by Congress and new regulations issued by the Federal Reserve and Federal Trade Commission in 1976. “Bankers have little or no time to waste in study ing, understanding and meeting the re quirements of these new laws and reg ulations,” he said. “Already the en forcement agencies, reacting to the pressures and criticisms of the consumerist, have expanded their forces and have conducted thorough compliance examinations.” Mr. Norris said the un derstanding banker will welcome such examinations as an aid in avoiding or minimizing future litigation. • • v.p.. Continental Illinois Nat'l, Chicago, and James S. Gaskell Jr. (c.), pres., First Alabama Bank, Montgomery. At r. is Lynn H. Mosley, pres., First Alabama Bancshares. m U NEW S From the Mid-Continent Area Alabama Illinois ■ F IR ST NATIONAL, Decatur, has promoted Ronnie D. Dukes, manager, Austin Branch, to assistant vice presi dent. The following were made assist ant cashiers: Shirley Jones Rrothers, Ruth S. Bass, Douglas B. Fisher and Steven G. Percer. Donald P. Kyle was made assistant trust officer, and Maxine K. Ingram was named branch manager. m TW O CORRESPONDENT PRO MOTIONS were announced last month by Chicago’s American N a tio n a l. Michael J. Byrne was advanced to sec ond vice president, and Benson R. Culver was named corresponding bank ing officer. Mr. Byrne was a corre spondent banking officer. The bank also promoted Donald C. Fogel from sec ond vice president to vice president, bank operations. ■ W ILLIAM DAN P ITTS has been named vice president, Bank of Annis ton, which he joined last August. He previously spent 6/2 years in the Geor gia department of banking and finance. ■ W ILLIAM H. ROSS, corporate per sonnel officer, First Alabama Baneshares, Montgomery, has been appoint ed regional vice president and a mem ber of the national board of directors of the American Society for Personnel Administration. BYRNE CULVER ■ F IR S T NATIONAL, Chicago, has elected four senior vice presidents: Homer J. Holland, head of the admin istrative department; Richard L. Wood, in charge of that department’s opera tions division; James S. Brannen, cor porate banking/commercial depart ment; and Alex W. Hart, head of the BankAmericard division. Mr. Brannen heads the division responsible for cus tomers in the retail, consumer non durables and commercial finance busi ness. Arkansas ■ NATIONAL BANK OF COM M ERCE, Pine Bluff, has elected two new directors: Roger Boe, a Pine Bluff industrial contractor; and Robert D. Pugh, president of a diversified family farming operation in Portland, Ark. ■ F IR S T NATIONAL, Little Rock, has named Charles O. Stewart vice president and urban affairs officer and Bruce Thalheimer Jr. vice president and auditor. Allan Kimball and Steve Tullgren, loan officers, were made as sistant vice presidents. Mr. Stewart joined the bank in 1971 and formerly was assistant vice president. Mr. Thal heimer has been auditor since 1974. 78 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WATT ■ H O LLIS W. RADEMACHER, a senior vice president, Continental Bank, Chicago, has been named officerin-charge of the national divisions in the commercial banking services de partment. These divisions include Con tinental’s correspondent banking unit. Mr. Rademacher joined the bank in 1957 and became senior vice president last July. ■ F IR S T NATIONAL, Mobile, has purchased property facing Water, Dauphin and St. Francis streets and plans to use it to expand the down town office’s drive-up and night-depos itory services. The new facilities will be located in a building that will be erected of white marble stucco. ■ R O BERT S. GADDIS has been named vice president, national ac counts, Central Bancshares of the South, Montgomery. He was chairman and president, Central Bank of Mont gomery, and continues as chairman. A new president will be named in the near future. RADEMACHER ■ JAM ES B. W ATT has been named executive vice president, Asso ciation for Modern Banking in Illinois (A M BI), headquartered in Springfield. He comes from Essex County Bank, Lynn, Mass., where he was senior vice president in charge of the consumer banking division. Previously, Mr. Watt was senior vice president and secretary, Bank Marketing Association, Chicago, and also held posts at Beverly Ban corp., Chicago, and Marine Midland Corp., Buffalo, N. Y. a LYNDON D. COMSTOCK has joined O’Hare International, Chicago, as president and CEO. He succeeds S. P. Tomaso, who continues as a di rector. Mr. Comstock was president and CEO, Lake Shore Financial Corp., and its subsidiary, Hackley Union Na tional, Muskegon, Mich., the past 10 years. ■ U N ITED O F AM ERICA BANK, Chicago, has promoted four staff mem bers: Annegret Tietz, from assistant cashier to assistant vice president, and JoAnn Mickina, Mary Wiedrich and Victor Zezelic Jr., to assistant cashiers. HARROW SMITH COMPANY Union National Bank Bldg. 501/374-7555 Little Rock, Arkansas J. E. WOMELDORFF, Executive Vice President ■ F IR S T NATIONAL, Winnetka, has named Ruth Affeldt vice president and Steven J. Neudecker cashier and con troller. ■ HARRIS BANK, Chicago, has re ceived approval to open a facility in the Board of Trade Building. It will open in the second quarter of 1977. MID-CONTINENT BANKER for January, 1977 ■ F IR S T NATIONAL, Chicago, has announced creation of a new institu tions and professional division as part of the metropolitan group in its corpo rate banking/commercial department. Vice President Robert G. Donnelley heads the division. Vice President Rob ert H. Blanchard has been assigned to head the metropolitan group’s manu facturing division, and Vice President Raymond L. Rusnak Jr. is responsible for the metropolitan group’s retail and consumer division. Vice President James J. Carmody has been transferred from the metropolitan group’s retail and consumer division to group D, brokers division, in the corporate bank ing/commercial department. Vice Pres ident Walter E. Jenkins Jr. is being transferred from the metro group’s manufacturing division to the world wide loan administration and review division. Vice President Norman J. Kost now heads the latter division, succeed ing Senior Vice President Milton C. Haase, who will retire February 1. Vice President Thomas R. Rock has been made head of the control division’s cor porate accounting group, formerly headed by Mr. Kost. William E. Harris, staff officer, has taken over Mr. Rock’s duties in the control division’s profit planning group. ■ DAVID M. RANSFORD has been named an assistant vice president, com mercial loan department, division C, National Boulevard Bank, Chicago. He joined the bank in October, coming from another Chicago bank. Indiana ■ ST. JO SEPH VALLEY BANK has promoted Dean F. Davis, Thomas N. Ertel and Irvin L. Kloska to senior vice presidents from vice presidents. Mr. Davis is also president, St. Joseph Val ley Finance Corp. He joined the bank in 1972. Mr. Ertel has been with the bank since 1969 and Mr. Kloska since 1974. ■ LA FA YETTE NATIONAL has pro moted William B. Andrews from assist ant vice president to vice president and Harry A. Dunwoody and Terrill H. Timmons from operations officers to as sistant vice presidents. ■ R O BERT J. MATHIAS has been promoted to banking officer in Mercan tile Trust of St. Louis’ central group, with responsibilities in Indiana and Il linois. He joined the bank in 1974 as a member of the operations improve ment program and was assigned to the central group in 1975. MATHIAS ■ MARK E. BAILEY has been named manager, Park Fletcher Banking Cen ter, American Fletcher National, In dianapolis. He joined the bank in 1974 and was an assistant manager. Died. Herbert Morrison, 76, hon orary chairman, Elston Bank, Crawfordsville. He was a past president of the Indiana Bankers Association and the ABA executive council. He retired from the bank in 1975 after serving it for 55 years. Kansas ■ MERCHANTS NATIONAL, Tope ka, has appointed Edward B. Hart sen ior vice president and trust officer and elected Gary M. Thomas vice presi dent. Mr. Hart went to the bank from Commerce Union, Nashville, Tenn., where he was a senior vice president and trust officer. Mr. Thomas joined Merchants in 1975 and was an assistant cashier at the time of his election. ■ RONALD L. BALDW IN has been elected accounting officer at Fourth National, Wichita. He went to the bank from an accounting firm in Dallas. ■ LARRY VAN TUYL, president, Dennis Chevrolet Co., has been elected a director of First National, Olathe. He purchased the auto dealership in 1975. MID-CONTINENT BANKER for January, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Treasury Plaque Presented Bernard J. Ruysser (r.), president, Commercial National, Kansas City, presents special Depart ment of Treasury plaque to Harlan L. Potter, chairman, 1976 Johnson and Wyandotte County Savings Bond Campaign, in recognition of the accomplishments of the 1976 campaign. Mr. Ruysser is Wyandotte County Savings Bond chairman. ■ PH ILIP HAMM, president of First National, El Dorado, and Benton State, has been elected a director of the Kan sas City Fed. He began a three-year term January 1. Kentucky ■ FO R T KNOX NATIONAL has pro moted Mrs. Jane Smith to loan officer, Gale R. Johnson to credit card officer and Randel Ballard to data center of ficer. Mrs. Smith joined the bank in 1974, Mr. Johnson in 1975 and Mr. Ballard in 1970. ■ W ILLIAM E. W ILSON III has been appointed vice president and trust officer at First Security National, Lex ington. Previous service has been with First Kentucky Trust Co., Louisville, and First Wisconsin Trust Co., Mil waukee. He is a member of the faculty of the National Trust School at North western University, Evanston, 111. ■ GEORGE A COLLIN JR., vice president, Liberty National, Louisville, has been appointed chairman of the public relations committee of the Ken tucky Industrial Development Council. ■ MT. STER LIN G NATIONAL has promoted Bobby Ballard and Whitt 79 Criswell to vice presidents. Betty Hat field has been named assistant cashier, Evelyn Ensor is a trust operations offi cer and Terry Ensor has been named assistant trust officer. ■ AMERICAN NATIONAL, New port, has elected Robert J. Borchers and William J. Williams, both vice presidents, to its board. They joined the bank in 1955. M ississippi ■ E. B. ROBINSON JR. has been pro moted from senior vice president to ex ecutive vice president, Deposit Guaran ty National, Jackson. He joined the bank in 1967 and now heads the in vestment division. In other action, D e posit Guaranty named the following as sistant vice presidents: Paul A. Carrubba, Phillip O. McDade, Charles E. Mc Leod and E. Anthony Thomas. Louisiana BNO Opens Branch ROBINSON Lawrence A. Merrigan (r.), president. Bank of New Orleans, looks on as BNO Branch Man ager Michael LeBeau demonstrates 24-hour ATM —one of three such units—at opening of new Tulane-LaSalle Banking Center, located in the Charity Hospital Medical Complex. ■ CONTINENTAL BANK, Metairie, held groundbreaking ceremonies re cently for its Metairie Office. A tempo rary office is presently on the site on Severn Ave. The new office will in clude four drive-up lanes and automat ed 24-hour teller service. Total cost of the project is $800,000 and completion is expected by July. William A. Carpenter Dies William A. Carpenter, 51, pres., Whitney Nat'l, New Orleans, died at his home De cember 12. A 1947 graduate of the U. S. Military Academy at West Point, he joined the bank in 1955 after serving in the Army from 1947-53. He moved up through various departments and posts to v.p. in 1959. Mr. Carpenter w as named pres, and a director in 1969. He came from a Kentucky family of bankers and mer chants. 80 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ■ HANCOCK BANK, Gulfport, has promoted the following: from assistant vice presidents to vice presidents, Sal vador S. Domino, James R. Ginn and Rodney J. Sandoz; from assistant vice president and trust officer to vice pres ident and trust officer, Margie Johnson; from assistant vice president to vice president and savings manager, Imogene Stiedle; from trust officer to as sistant vice president and trust officer, Charles L. Eastland; from loan officer to assistant vice president, David L. Mills; from assistant cashier to assistant vice president, Connie L. Spiers; from training officer to assistant vice presi dent and training officer, E. Bonnie West; from assistant loan officer to loan officer, L. Clinton Necaise; and from correspondent banking representative to correspondent banking officer, Charles B. Blount. This is artist's sketch of what Main Office of First of Jackson will look like following comple tion next fall of remodeling project. will be located on the second floor, as will conference rooms and public areas. The second-floor renovations will be the most extensive and will include the ad dition of marble floors and columns, unique grooved oak paneling, carpeted floors and wall areas. Private offices will be provided for commercial loan officers. The basement will be remodeled to house the credit department, with vault and safekeeping services to remain there. Expanded facilities for handling armored-car shipments also are in cluded in the plans. Missouri ■ JOHN K. TRAVERS will join First National, St. Louis, January 12, as a vice president in the regional banking division. He previously was collector of revenue for the city of St. Louis. In other action, First National named James L. Nitsch manager, Chippewa Banking Center, and Steven L. Tyler manager, Stadium Drive-In Facility. First of Jackson's Main Office To Be Extensively Remodeled; Project to Cost $1.5 Million THOMPSON JACKSON— First National has an nounced plans to renovate the public areas of its Main Office, with comple tion set for next fall. The project, in cluding furnishings, will cost about $ 1/2 million, will include changes on the first floor and a complete renovation of the second floor and basement. Plans call for the first floor to house all major high-volume customer ser vices and installation of additional tell er windows and an escalator to run be tween the first and second floors. The commercial loan, mortgage loan and correspondent bank departments TRAVERS ■ BRYON G. THOMPSON has been promoted to vice chairman, United Missouri Bank of Kansas City. He is chairman, First National, Bethany, and a director of United Missouri banks of Kansas City and St. Joseph. He joined the United Missouri staff in 1956. ■ F IR S T NATIONAL, St. Peters, for mally opened its new headquarters building with a public open house De cember 17. As a tie-in with the Christ mas season, the bank had Santa Claus come to the bank, where he gave out candy canes, balloons and coupons MID-CONTINENT BANKER for January, 1977 Focal point of lobby of new home of First Nat'l, St. Peters, is large square check desk with sloping base. Oak is dominant wood, ac cented with colors of paprika and deep blue. good for a regular order of french fries at McDonald’s. The bank also dis played a $100,000 gold certificate from the U. S. Treasury Department. Those visiting the display received a “penny in a bottle” as a free gift. The new building, constructed of maroon-col ored brick and trimmed with man made stone fascia, has large solar bronze glass panels to provide an open, airy interior. Focal point of the lobby is a large square check desk with a sloping base, built around a planter holding a seven-foot ficus benjaminus tree. The structure contains 7,800 square feet of floor space, nearly triple the operating area of the old quarters. A special oversized drive-up lane has been designed to accommodate camp ers and vans. There’s also an automat ed teller machine, called BANK24. The remodeling program, which cost $1 million, was completed three weeks ahead of schedule. Planning, design and construction management was han dled by the Bunce Corp., St. Louis. First National belongs to First Union Bancorp., St. Louis-based bank HC. was vice president and head of the op erating department at the bank, has joined the parent company, Mercantile Bancorp., as vice president and opera tions consultant for all 28 affiliate banks. Mr. Bergmann, senior vice presi dent, has assumed responsibility for both the operating and data processing departments of the bank and reports directly to the executive vice president. Mr. Buxton, vice president, operating department, has succeeded Mr. Brady as department head. Mr. Lee, vice president, data processing department, has succeeded Mr. Bergmann as head of that department. ■ FARM ERS BANK, Antonia, has named Sandra E. Wallace cashier and assistant secretary. She has been with the bank 12 years. ■ JAM ES N. GEMIGNANI has been promoted to assistant vice president, marketing, at Missouri State, St. Louis. He joined the bank in 1972 and has been in the business development area and assistant operations officer. ■ M ERCAN TILE TRU ST, St. Louis, has promoted Leon G. Fox from vice president to senior vice president and has given new responsibilities to four executives—William A. Brady, Robert L. Bergmann, Charles H. Buxton II and John H. Lee. Mr. Fox continues to head the personnel department, a post he has held since 1965. He joined Mercantile in 1935. Mr. Brady, who FOX BUXTON Walter Moser, 61, a.v.p., regional bank ing div., First Nat'l, St. Louis, died sud denly December 8. He called on municipali ties and credit unions in Missouri, Kansas and Nebraska. Mr. Moser joined the bank in 1930, saw service in World War II and returned to the bank as a.c. He became a.v.p. in 1956. ■ R O BERT E. JOHNSON has joined Ameribanc, Inc., and its principal sub sidiary, American National, both of St. Joseph, in management capacities. Mr. Johnson has been named executive vice president of the HC and senior vice president of the bank. He had been ex ecutive vice president, Boatmen’s Union National, Springfield. BDC Interest Rate Drops The interest rate charged for busi ness loans provided by First Mis souri Development Finance Corp. (F M D F C ) was lowered from 7/1% to 6/2% Decem ber 1 . The rate is ad justed every six months and is based on the St. Louis prime rate. The corporation also bases its rate of interest paid to members on the St. Louis prime. Some 204 Mis souri banks are members of FM D F C . These banks provide a funding pool on a line-of-credit basis to be used by the corporation in assisting busi ness firms throughout the state. During 1976, First Missouri re ceived requests from Missouri busi ness firms for $25 million worth of financial assistance. Jerry Stegall, First Missouri ex ecutive vice president, says the cor poration is looking for good par ticipation loans. BRADY MID-CONTINENT BANKER for January, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Walter Moser Dies BERGMANN LEE BROWN JOHNSON ■ JAM ES E. BROWN, president, Mercantile Bancorp., Inc., St. Louis, has been named chairman of the Uni versity of Missouri-St. Louis Down town Advisory Board. The newly formed board, a group of 21 business, industry, government and labor lead ers, will advise the UM SL administra tion on types of courses and other edu cational activities to be offered in the downtown St. Louis area. According to UM SL Chancellor Arnold B. Grobman, Mr. Brown had been “extremely help ful in the planning that led to our de cision to bring university-level oppor tunities downtown for the first time.” Mercantile Trust, St. Louis, the HC’s lead bank, is serving as a temporary location for course offerings while UM SL officials look for a permanent site for second-semester classes. ■ COM M ERCE BANK, Kansas City, has named Thomas G. Papa Jr. assist ant vice president, metropolitan divi sion. He was vice president, Commerce Bank, St. Louis. The two banks’ HC, Commerce Bancshares, headquartered in Kansas City, has elected Joseph J. McGee Jr. to its board. He is president, Old American Insurance Co. 81 New Mexico ■ CAPITAL BANK, Sante Fe, has promoted Steve Lamoreux to vice presi dent and David D. Gurule to assistant vice president. They joined the bank in 1973 and 1975, respectively. ■ BOB WOOD has been named chair man of First National, Portales, suc ceeding R. L. Borden, who has re signed. Mr. Wood retains his title as president. Dick Hood was promoted from cashier to senior vice president; Bill Brown was elevated from assistant cashier to cashier; Joan Nuckols was raised from assistant vice president to vice president; Joyce Crowe went from assistant cashier to assistant vice presi dent; and Nancy Cares and Bettye Heckathorn were promoted from bank officers to assistant cashiers. ■ RICHARD EVANS has moved from executive vice president, Centinel Bank, Taos, to senior vice president, First National of Lea County, Hobbs. He has been in banking for 17 years and was employed at First National, Albuquerque, at one time. ■ J. M. N EW GENT, executive vice president, TG&Y Stores, has been elect ed a director of Stock Yards Bank, Ok lahoma City. ■ TE M PL E T. MOORE has joined Guaranty National, Tulsa, as chief fi nancial officer, vice president and cash ier, and Warren L. Bane has joined the bank as assistant vice president in the commercial loan department. ■ THOMAS F. DUNLAP, who is in the oil business, has been named a di rector of First National, Ardmore. Texas ■ JOHN R. BUNTEN, executive vice president, Republic National, Dallas, has been selected as the successor to retiring Executive Vice President Ray J. Pulley as senior credit officer. Mr. Bunten joined the bank in 1959 and has been manager of the United States department. Mr. Pulley has been with the bank since 1946 and has been on the executive committee since 1962. A new Republic AutoBank was opened recently on the periphery of the Dal las business district. The facility is de signed to enable people to do their banking on their way to and from work. ■ STEVEN J. STA U FFA CH ER has been named manager of the restruc tured operating group at First Tennes see National Corp., Memphis. As now comprised, the group includes the in formation systems, operations and properties management divisions and First Tennessee Data Services Corp. and First Tennessee’s five correspon dent data service centers. BUNTEN ■ DONALD E. W H ITE has been promoted to vice president at First Na tional, Grants. He joined the bank in 1971 and his new duties include man aging the installment loan department. ■ CHARLES E. McMAHEN has joined Southwest Bancshares, Houston, as executive vice president and chief operating officer, a director and mem ber of the executive committee. He was formerly executive vice president, Tex as Commerce Bank and Texas Com merce Bancshares. STAUFFACHER Oklahoma ■ F IR S T NATIONAL, Oklahoma City, has named Gary M. Gray execu tive vice president and head of real es tate-related activities for the bank, its affiliate, American Mortgage & Invest ment Co., and two wholly owned sub sidiaries of First Oklahoma Bancorp.— First Oklahoma Realty Investment Corp. and American-First Title & Trust Co. Coming from Gulf South Corp., Mr. Gray has had previous experience with Liberty National. Lynn R. McClenny was elected vice president of the bank. He is a member of the real estate division and joined the bank in 1975. First of Oklahoma’s total assets reached $1 billion on November 17, 1976. GRAY PULLEY ■ ANCORP BANCSHARES, Chatta nooga, has received Fed approval of its application to acquire Hamilton Bank of Johnson City for a reported $7 million. Ancorp is the parent company of American National, Chattanooga. ■ E D WARD has been promoted to assistant cashier at Hamilton Bank Johnson City. He joined the bank in 1973. TURNER ■ F IR S T AMERICAN NATIONAL, Nashville, has promoted George G. Payne III to assistant vice president and elected John W. Buchanan and Charles E. Holt data processing offi cers; Robert B. Cullen loan review of ficer; and Landon O. Hagy Jr., corre spondent banking officer. ■ COM M ERCIAL & IN DUSTRIAL BANK, Memphis, has named Jim Hai nan assistant vice president; John Shute and Larry L. Rice, real estate loan officers; and Gay Veazey, admin istrative officer. McMAHEN ■ TOM TURN ER, vice president, First National, Fort Worth, has been elected the 1977-78 chairman-elect and 1978-79 chairman of the Installment Credit Section of the Texas Bankers Association. He will also serve on the advisory board of the ABA Installment Lending Division during 1976-77. In other news, David T. (Buster) Averitt and Leon C. Maxwell have retired. They joined the bank in 1929 and 1930, respectively, and served as vice presidents. J 82 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BANKER for January, 1977 50-Year Friendship Observed • Index to Advertisers • American Bank Directory ................................ 53 Associates Commercial Corp............................ 19 Atlantic Envelope Co.......................................... 53 Bank Board Letter ................................ 63, 68-69 Bank of Oklahoma, Tulsa ................................ 29 Blender Co., Howard J ....................................... 52 Breckenridge Resort Hotel .............................. 72 > C&S National Bank, A tlanta...................... 44-45 Citizens Fidelity Bank & Tr. Co., Louisville . 57 Commerce Bank, Kansas C it y ........................ 31 Commercial National Bank, Kansas City, Kan................. 79 Continental Bank, Chicago .............................. 21 Athan G. Mertis (I.), vice president, Mercan tile Trust, St. Louis, presents Charles Pistor (c.), president, and Mason Mitchell, executive vice president, both of Republic National, Dallas, with plaque commemorating the 50year correspondent banking relationship be tween the two banks. ■ FRO ST NATIONAL, San Antonio, has promoted S. Bradford Sledge to vice president and Steven L. Aycock, Howard E. (Gene) Walton and Tex Corrigan to assistant vice presidents. Gary J. Harris and Genevieve Wise were elected credit administrative of ficers. Messrs. Sledge and Aycock are in the correspondent banking depart ment. A merger agreement has been executed between FrostBank Corp. and Cullen Bankers, Inc., Houston. The merger is expected to be consummated early in 1977. BANKERS A Sensible Risk Management Program In One Step- By-Step Practical DeLuxe Check Printers, Inc............................. 51 Farmers Grain & Livestock Hedging Corp. . Financial Placem ents....................................... First City National Bank, Houston ............... First National Bank, Dallas ............................ First National Bank, Jackson, Miss................ First National Bank, Kansas C it y ................... First National Bank, St. Louis ...................... First National Bank of Commerce, New Orleans . First Tennessee National Corp........................ Fourth National Bank, Tulsa .......................... 30 48 67 61 12 49 86 Reference Guide Now every commercial banker can understand, plan and monitor a sensible program of Risk Management. This new, concise manual helps you measure all the loss exposures you face...shows how to reduce needless and costly insurance gaps or overlaps...aids you in establishing a full-dimensional risk manage ment program, including loss funding, to conserve your bank assets and get more for your insurance and protection dollar. 3 16 43 Harland Co., John H........................................... 25 Harrow Smith Co................................................ 78 Hibbard, O’Connor & Weeks, Inc.................... 73 Illinois Bank Building Corp............................... 59 Insured Credit Services, Inc............................ 9 Liberty Nat’l Bank & Tr. Co., Oklahoma City 2 MGIC— Indemnity Corp................................. 26-27 MPA Systems ....................................................... 52 Memphis Bank & Trust Co........................ 11, 65 Mercantile Bank, St. Louis ............................ 4 Missouri Envelope Co......................................... 83 This unique manual - (which is by the sam e pu blisher o f the Risk and Insurance M anage ment Guide F or Savings Institutions) - takes you step-by-step through every area of Risk Management planning - in simple terms, with specific examples. You needn’t be an insur ance agent to understand it. Yet every section reveals new, proven ways to reduce your risks, losses and problems and is constantly kept up to date. National Stock Yards National Bank ........... 85 Prom Sheraton Hotel ....................................... 63 Risk Insurance Management Guide ............. 83 Scarborough & Co............................................... 15 United Missouri Bank, Kansas City ........... Van Wagenen Co., G. D.................. 7 THE RISK AND INSURANCE MANAGEMENT GUIDE 59 •Complete Loose-Leaf, Tab-Divided, Section Indexed •Ten issues of “ Risk Management News" •Guide Updates For The First Year Whitney National Bank .................................... 47 *1 0 0 .° ° PRESIDENT BANK DATA PROCESSING CORPORATION SLEDGE AYCOCK ■ DAVID M. VANCE, vice president, First National, Dallas, has been ad vanced to head the Americas group of the multinational banking division. He succeeds Oakley W. Cheney Jr., who has moved to First International Bank, Houston, as executive vice president. Mr. Vance, who joined the bank in 1974, continues as head of the Latin American department. The bank has opened a minibank at the Akard Street entrance to the First National Bank Building. It is the second satellite fa cility opened by the bank during 1976. ■ TH E F E D has approved a merger of Federated Capital Corp., Houston, into Mercantile Texas Corp., Dallas. Combination of the two HCs has re sulted in formation of the state’s fifth largest HC, according to a spokesman. Total assets now top $2.7 billion. Chicago suburban-area bank data processing corporation seeks chief executive officer. Must be a top administrator, a people manager. Data processing, marketing and banking ex perience helpful but not necessary. Degree required. Probable candidate should have CEO or executive vice president experience with a bank, data processing service bureau or a processive industrial company. For the individual selected total compensation will be most attractive. Send resume, including salary history, in confidence to Box 82-M, c/o MID-CONTINENT BANKER, 408 Olive, St. Louis, MO 63102. TRY US FOR YOUR NEXT ENVELOPE REQUIREMENT* MISSOURI ENVELOPE CO. 1 0 6 5 5 G A TEW A Y BLVD. ST. LOUIS, M O . 6 3 1 3 2 P hon e 3 1 4 / 9 9 4 - 1 3 0 0 *Ask for our new Plastic Sizer® Template — Free with your first inquiry. MID-CONTINENT BANKER for January, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis #m*. mm X HOW YOUR GUIDE STAYS UP-TO-DATE You will be automatically billed $50.00 annually for continuing service beyond the first year to keep your guide current. 10-DAY TRIAL OFFER Take 10 days to examine this vital manual at your leisure. If you are not satisfied, simply return the guide at no cost or obligation. \ Mid-Continent Banker I i 408 Olive St. St. Louis, Mo. 63102 I I I I I i I I I I I I I I I I I L Please send me The Risk and Insurance Management Guide for Bankers. The $100.00 initial price includes the first ten issues of “ Risk Management News" plus all revisions and additions to the Guide. I understand if I am not completely satisfied I may return the Guide within ten days and my money will be refunded. I | • | Please include appropriate sales tax. □ Check enclosed, please ship postage paid. □ Bill me and add $2.50 to cover postage and handling, □ Please send me further information. f I Name............................................................................................. ■ Title...................................................................... I I I Institution........................................................... Street.................................................................... I City............................... State.......................Zip. 83 Dean, chairman, Ralston Purina Co, His outlook for agriculture was predi cated on continued sales of ag products on the world market. He said that, from a supply stand point, the world food situation would appear to be in slightly better shape. Although there still are shortages, there are surpluses, too. And, in the short term, these are discouraging to pro ducers. The ag outlook for 1977 varies, he said, depending on one’s point of view. From the consumer’s viewpoint, 1977 should be a relatively good year. Food costs may increase from 3% to 4%, which will be at a lesser rate than inflation. From the crop farmer’s viewpoint, there is concern about demand. The farmer is geared to produce for both the domestic and foreign markets, yet in some commodities he sees current surplus as a price depressant. Mr. Dean predicted that the crop farmer’s net in Donald N. Brandin (r.), ch. & pres., Boatmen's come in 1977 will at least be equal to, Nat'l, St. Louis, greets O. O. McCracken, pres., and probably show a slight improve Civic Center Redevelopment Corp., St. Louis, at Boatmen's annual business forecast lunch ment over, that for 1976. eon, held recently. Livestock farmers sense a bottoming out of their red-ink situation and see improvement for the second half of strong enough to pull their commercial 1977. Although producers of pork and real estate and R E IT loans out of the poultry have fared better, he said, 1977 hole. While the number of troubled will not be a banner profit year for banks is small, he said, a couple are them. However, if next summer’s feed bound to fail in 1977 and “their fail grains crops come along well, the lot ure will sound like the whole industry of the pork and poultry producer should is in trouble.” improve in late 1977. He said a big question mark is the He said the dairy and egg people status of international loans, particu will have a fairly profitable economy larly if there is a substantial increase in 1977 with the usual seasonal ups in oil prices. and downs. “One thing we share in common,” Suppliers of farm equipment, feedhe continued^ “we seem to be sinking stuffs and animal health products will slowly in an alphabet soup. In addition see 1977 as a year where the best value to the bank regulators, the Federal Re for the money determines who does serve, the Comptroller of the Currency, well. the FD IC and state banking depart Mr. Dean predicted a strong long ments, we are being lusted after by the term future for the food and agricul Securities & Exchange Commission, the tural complex in both world and do Federal Trade Commission and, more mestic markets, provided it keeps its recently, an outfit called the Financial competitive edge. “1977 is going to Accounting Standards Board. hone that edge,” he said. For the short term, Mr. Brandin said, David C. Farrell, president, May the outlook is good, assuming continu Department Stores Co., predicted that ation of the business recovery. But the the retail industry sees some encourag longer term, he said depends on the ing economic signs. Inflation has moder Congress, which has already shown ated and savings are being accumu signs of dusting off some of the bank lated at a higher rate. He said if the ing bills that were defeated in the last Carter Administration presents the pub session. Among these are proposals to lic with a sense of optimism and stim bring the Fed under closer congres ulates the economy with a tax cut, the sional control, to permit payment of consuming public will begin to believe interest on demand deposits and to that things are getting better, which override state branching laws. could be translated into a 10% growth “Couple this with certain techno figure for retailers. • • logical developments, such as in the payments mechanism, and the larger term outlook for the banking industry is a challenging one, to say the least.” Among other speakers at the lunch eon meeting for 500 St. Louis-area business representatives, was R. Hal Businessmen Give Outlooks for Economy At Boatmen's 1977 Forecast Luncheon By JIM FABIAN Associate Editor T H ERE isn’t any clear highway to the future of the U. S. economy, said Donald N. Brandin, chairman and president, Boatmen’s N a t i o n a l , St. Louis, at the bank’s annual business forecast conference, held last Novem ber 30. “The economic recovery that we labeled a tentative thing a year ago,” he added, “continues to be tentative and businessmen who were uncom mitted and watching developments with caution a year ago continue to be cautious. “Most businessmen and economists anticipated increased economic activity in the second half of 1976. Instead, we have a pause. Some have blamed the Federal Reserve for failing to provide sufficient stimulus to the economy. Personally, I believe that the psycho logical reaction to the uncertainties of 1976 may have been a major factor.” Mr. Brandin said that PresidentElect Jimmy Carter holds the key to change. He said there are encouraging signs that Mr. Carter recognizes the importance of business-government co operation and that the result could be a period of sustained growth. He added that he thought some stimulus is necessary to create a more positive psychological atmosphere, even at the price of increased inflationary pressure down the road. “As far as the outlook for banking is concerned,” Mr. Brandin said, “as the nation goes, so will the banking in dustry.” An expanding economy will bring increased loan demand and higher in terest rates, both of which should in crease income, he said. Many of the larger banks that were seriously over extended two years ago are in better shape now. A relatively high level of earnings has permitted further substan tial charge-offs of problem loans, yet has afforded a reasonably satisfactory net income that has bolstered retained earnings. Equity and debt offerings have also helped to improve capital and liquidity positions, he said. Management has been strengthened in many cases, and there is an encouraging return to fun damentals. On the negative side, he said several sizable banks are still in trouble, largely because the recovery has not been 84 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BANKER for January, 1977 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis YI.P.? C e rta in ly . H e's a V e ry In vo lved P e rso n . He has to be. In a bankful of correspondent specialists, even the back-up men must become knowledgeable about your indi vidual problems and local par ticularities. As Dave Hyten holds a super visory sway over internal opera tions, he becomes very involved indeed with your correspondent matters. Very Important, too. So when you want to discuss a problem with Dave, you can reach him P.D.Q. at 618271-6633. "YO UR BA N K ER 'S B A N K " . . . J u s t a c r o s s th e r i v e r fro m S t. Lo THE NATIONAL STOCK YARDS NATIONAL BANK RABBIT TRANSIT. An advanced check-clearing system that can dramatically improve your availability of funds. Reserve Headquarters and International Airports in “Rabbit Transit.” It’s an Chicago and Kansas City. improved system devised by First National Bank in St. Louis Our computer is to expedite the clearing of cash totally dedicated. letters. It’s the latest Burroughs For you, it can mean two computer system with IPS and important things: better avail MICR technology. ability and bigger profits. It’s used exclusively by our Here’s how. transit operation. And delays do not occur because of con We’re right in the heart flicting priorities or competi of the nation. That’s more important than tion for computer time. Our Proof-of-Deposit you might realize. Our location in the heart of Middle America system computes float on each permits ideal transportation into item processed by endpoint and time of day. and out of St. Louis and pro Full-time specialized staff. vides a superior transportation network to all Federal Reserve This staff monitors out cities. going transit and keeps current In addition, St. Louis is a with any changes in transporta Federal Reserve city which tion scheduling. Volumes and enjoys a proven advantage in endpoints are monitored con mail times, and is less than one tinually so cash letters clear hour by air from Federal efficiently. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis With their up-to-the-minute knowledge, our specialized staff can also make a complete and objective analysis of your check clearing system after an appropriate test period. Then, they’ll present a written recom mendation of how it can be handled with increased speed and efficiency. Phone (314) 342-6222 for your own transit analysis. For a copy of our Avail ability Schedule, to arrange for an analysis of your check clearing system, or for more information about “Rabbit Transit,” phone us now. Or contact your Correspondent Banker at 510 Locust, St. Louis, Missouri 63101. First National Bank in St. Louis Member FD1C H I■■
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