The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MID-CONTINENT BANKER INCORPORATING MID-WESTERN BANKER ÎN 0026-29ÓX) JANUARY, 1984 SOUTHERN EDITION What Does 1984 Hold for Banks? W hat Bank C EO s Foresee . . . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Page 6 SPECIAL REPORT: Is Interstate Banking Taking Shape? Page 5 0 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A small PLUS on the cards gives cash withdrawals to your customers... and a marketing advantage for you. S o on L ib e rty w ill o ffe r you the m o s t a d va n ce d b a n k c a rd p ro g ra m ever. O u r VISA® and M asterC ard™ are n o w pa rt of the n a tio n w id e PLU S SYSTEM ® n e tw o rk. T h at m e ans y o u r c u s to m e rs ca n use th e ir V IS A o r M a ste rC a rd w ith th e ir P ersonal Id e n tifica tio n N u m b e r [P IN ] fo r in sta n t cash at o v e r 2 ,0 0 0 ATM s a c ro s s the co untry. C ash w ith d ra w a ls are c h a rg e d a g a in st th e ir V IS A o r M a ste rC a rd a c c o u n ts like re g u la r cash tra n s a c tio n s and are s u b je c t to the te rm s of the c a rd h o ld e r a g re e m e n t and d is clo s u re . A n d so on, th ro u g h Liberty, you can o ffe r y o u r c u s to m e rs this u n p re c e d e n te d co n ve n ie n ce . As an in n o v a to r in the field of b a n k c a rd system s, L ib e rty is alw ays a d d in g a d va n ce d new fe a tu re s to its co m p e titive , c o m p re h e n s iv e V IS A and M a ste rC a rd p ro g ra m . A n d the P LU S S Y STEM n e tw o rk is ju s t o n e m o re a d va n ta g e w e o ffe r to yo u fo r y o u r cu s to m e rs . Show your customers the big difference a small PLUS can make. Call Luke Wigley at 405/231-6538 and ask about Liberty’s VISA and MasterCard program today. IPIus I System Middle America is moving ...Liberty is leading the way. LIBERTY THE BANK OF MID-AMERICA Liberty National Bank and Trust Company P.O. Box 25848 • Oklahoma City, OK 731 25 405/231-6538 • Member FDIC ®Owned by Plus System, Inc. YOURSURVIVAL MANUAL FORTHE 80S At last! A clearly-written, comprehensive guide through the maze of modern banking, written by leading consultant Bob Sellers. W hy have so m a n y b a n k s failed in re fo rm a tio n based up o n his extensive ex p e rie n ce an d o b se rv a tio n . c e n t tim e s , w h ile o th e rs c o n tin u e to I n Banking: The Age of Crisis and p ro s p e r? Opportunity, he ta lk s fra n k ly o f ta k e W h a t n e w strateg ie s an d to o ls are o v e rs , m e rg e rs , a c q u is itio n s , n e w m a n y b a n k e rs a lre a d y le a rn in g to use re g u la tio n s , tru s t d e su cc e s sfu lly? i ---------------------------1 p a r t m e n t s , c a p it a l B o b Sellers, fo u n Rush_________ copy(ies) of Banking: The adequacy, ca sh m a n de r of B anking C o n su l 1 Age of Crisis and Opportunity to: a g e m e n t . . . in fa c t, ta n ts o f A m e ric a , an d NAM E_______________________________________________ ju s t a b o u t every to p ic C h a irm a n of the B oard A D D R ESS___________________________________________ | a ffe c tin g th e t u r b u o f First S o u th e rn Trust C IT Y _________________________________________________ I le n t b a n k in g in d u s try C o m p a n y, has w ritte n today. m an y articles on b a n k I STA TE______________________________ Z IP ____________ If yo u have tim e to in g a n d h a s s p o k e n Enclosed is a check or money order for $27.95 per book, postpaid. re a d o n ly o n e b o o k b e fo r e b a n k in g a n d Mail to: B an king: The A g e o f C risis a n d O pp ortun ity th is year, m a k e it th is academ ic groups. Now, Dept. MC, PO. Box 1644 Washington, D.C. 20013 one. O rd e r y o u r c o p y in on e book, he’s c o m p ile d a w e a lth o f in - I________________________________________ I today. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 MID-CONTINENT BANKER Convention Calendar (Incorporating MID-WESTERN BANKER) Volume 80, No. 1 J a n u a r y , 1984 IN THIS ISSUE 6 WHAT DOES 1984 HOLD FOR BANKS And for the U nited States? 12 DEREGULATION CONSIDERED AN OPPORTUNITY By m ajority o f C E O s responding to survey 14 BANKING ENVIRONMENT LOOKS GOOD FOR 1984 Especially when com pared to 1983 21 MAJOR BANK LEGISLATION EXPECTED IN 1984 B ut details rem ain cloudy for now 35 STATE LEGISLATIVE SCENE: M ixed bag o f banking issues to com e up 42 BETTER BALANCE FOR ASSET/LIABILITY RATIOS Is essential for com m unity banks 46 FUNDS-MANAGEMENT STRATEGIES OUTLINED F o r financial institutions 48 INTEREST-RATE FUTURES ACCOUNTING: An explanation of F A S B ’s proposal 50 IS INTERSTATE BANKING TAKING SHAPE In proposed regional com pacts? 54 FOREIGN OWNERSHIPS OF U. S. BANKS F ears about such ow nership less pronounced MID-CONTINENT BANKER STAFF Ralph B. Cox, Publisher Lawrence W. Colbert, Vice President, Advertising Rosemary McKelvey, Editor Jim Fabian, Senior Editor John L. Cleveland, Assistant to the Publisher MID-CONTINENT BANKER Editorial/Advertising Offices St. Louis, Mo., 408 Olive, 63102. Tel. 314/4215445; Ralph B. Cox, Publisher; Marge Bottiaux, Advertising Production Mgr. Subscription rates: Three years $27; two years $20; one year $12. Single copies, $ 2 .5 0 each. Foreign subscriptions, 50% additional. MID-CONTINENT BANKER is published monthly by Commerce Publishing Co., 408 Olive St., St. Louis, Mo. 63102. Commerce Publications: American Agent & Bro ker, Club Management, Decor, Life Insurance Selling, Mid-Continent Banker and The Bank Board Letter. POSTMASTER: Send address changes to MID CONTINENT BANKER at 408 Olive S t., St. Louis, MO 63102. Officers: Donald H. Clark, chairman emeritus, Wesley H. Clark, president and chief executive officer; James T. Poor, executive vice president and secretary; Ralph B. Cox, first vice president and treasurer; Bernard A. Beggan, David A. Baetz, Lawrence W. Colbert and William M. Humberg, Printed by The Ovid Bell Press, Inc., Fulton, Mo. Second-class postage paid at St. Louis, Mo., and at additional mailing offices. 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis vice presidents. Jan. 31-Feb. 3: ABA Insurance & Protection National Conference, San Francisco, Hyatt Regency Hotel. Feb. 5-8: ABA National Trust Conference, San Francis co, San Francisco Hilton & Tower. Feb. 5-8: ABA Telecommunications and Financial N et works Workshop, San Francisco, Hyatt Regency San Francisco. Feb. 12-16: Bank Administration Institute Bank Au ditors Conference, New Orleans, Hyatt Regency New Orleans. Feb. 12-24: ABA National School of Retail Banking, Norman, Okla., University of Oklahoma. Feb. 14-17: ABA Bank Investment Conference, Atlan ta, Atlanta Hilton & Towers. Feb. 16-19: 56th Assembly for Bank Directors, Maui, Hawaii, Hyatt Regency. Feb. 26-29: ABA National Assembly for Community Bankers, Phoenix, Hyatt Regency Phoenix. Feb. 29-M ar. 2: ABA National Credit/Correspondent Banking C on feren ce, Phoenix, H yatt Regency Phoenix. M ar. 4-7: ABA Trust Operations and Automation Workshop, San Diego, Sheraton Harbor Island. M ar. 4-7: Bank Administration Institute Security Con ference & Exposition, Washington, D .C ., Sheraton Hotel. M ar. 11-13: ABA Corporate Commercial Marketing Conference, Denver, Fairmont Denver. M ar. 18-21: National Automated Clearinghouse Asso ciation 1984 NACHA Surepay Conference, New Orleans, Fairmont Hotel. Mar. 19-23: Bank Administration Institute Check Pro cessing Conference, Dallas, Amfac Hotel. M ar. 23-24: Equipm ent Lease Seminar, Nashville, Opryland Hotel. Mar. 25-29: Independent Bankers Association of Amer ica Annual Convention, New Orleans, New Orleans Marriott. M ar. 25-Apr. 5: ABA National Commercial Lending School, Norman, Okla., University of Oklahoma. M ar. 28-Apr. 1: Association of Reserve City Bankers 73rd Meeting, Boca Raton, F la., Boca Raton Hotel. Apr. 6-10: Louisiana Bankers Association Annual Con vention, New Orleans, Hilton Riverside & Towers. Apr. 8-1 0 : C onference of State Bank Supervisors Annual Convention Tarpon Springs, F la., Innisbrook. Apr. 8-11: ABA National Retail Banking Conference, New York, New York Hilton. Apr. 8-13: Robert Morris Associates Loan Mangement Seminar, Columbus, O ., Ohio State University. Apr. 12-15: 57th Assembly for Bank Directors, Hiltonhead, S.C ., the Hyatt on Hiltonhead at Palmette Dunes. Apr. 16-18: Ohio Bankers Association Annual Conven tion, Columbus, Hyatt Regency. Apr. 29-May 2: Bank Administration Institute Account ing and Finance Conference, New Orleans, Fair mont Hotel. May 2-4: Texas Bankers Association Annual Conven tion, Fort Worth, Hyatt Regency. May 6-8: Oklahoma Bankers Association Annual Con vention, Oklahoma City, Sheraton Century Hotel. May 6-9: ABA National Conference on Real Estate Finance, Chicago, Hyatt Regency Chicago. May 7-10: Annual Premium Incentive Show, New York City, New York Coliseum. May 9-11: Kansas Bankers Association Annual Conven tion, Overland Park, Regency Park Resort & Con vention Center. May 11-12: Equipm ent-Lease Seminar, Louisville, Hyatt Regency. May 12-16: Arkansas Bankers Association Annual Con vention, Hot Springs, Arlington Hotel. May 13-16: ABA National Operations and Automation Conference, Washington, D. C ., Washington Con vention Center. May 13-16: International Monetary Conference, Phil adelphia, Westin Bellevue. May 16-18: Alabama Bankers Association Annual Con vention, Calloway Gardens, Ga. May 16-19: Independent Bankers Association of Amer ica, Seminar/Workship on the One Bank Holding Company, San Antonio, Tex., Hotel St. Anthony. May 16-19: American Safe Deposit Association Nation al Education Conference, Dallas. May 17-20: Mississippi Bankers Association Annual Convention, Biloxi, Broadwater/Hilton Hotels. M ID-CONTINENT BA N K ER fo r Jan u ary , 1 9 8 4 BANK SERVICE: We can help your bond portfolio work in concert with your banking objectives, I By coordinating your bond portfolio with your banking objectives, you can improve your bank's overall position. That's the concept of BANK SERVICE, a service of L. F. Rothschild, Unterberg, Towbin, We have a unique approach toward a n a lyzing banking activities, and over 30 years of experience, We assign a team of experts to examine how your banking activities and bond portfolio work together We review your rate sen sitive assets and liabilities, your tax situation, your overall rate struc ture—everything that effects per formance, We probe the ways all these activities are contributing (or failing to contribute) to your bank's overall goals. Then we com e b ack to you with an objective, thirdparty recommendation, It demonstrates steps that can strike a chord between your banking o b jec tives and bond portfolio. For example, we might show you how to reduce your market exposure without d e creasing performance. Or how to gain some tax advantages through bond exchanges. We also offer two other Inno vative products that complement your BANK SERVICE analysis. Our Portfolio Managers System monitors your portfolio, does its accounting, values all holdings and more. Then there's a Fixed Income Computer Service which will introduce new tech niques to help immunize your portfolio from rate fluctuations. BANK SERVICE'S total orchestration of bond portfolios with banking activities has helped hundreds of banks around the country achieve their goals. Perhaps that's why the substantial majority of our business is repeat business. To learn howwe can be instru mental In improving your bank's position call Stephen H.Kovacs, Special Limited Partner, BANK SERVICE at (212) 425-3300, or write to 55 Water Street, New York, NY 10041. Because It's time your bond portfolio worked in concert with your banking activities. Ill L. E ROTHSCHILD, UNTERBERG, TOWBIN BANK SERVICE We help orchestrate banking success. MID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 Growth/Opportunity Potential Can Com e From Deregulation By John W . Barr III Chairman First Kentucky National Corp. Louisville a loan, “I just made a bad loan.” In some cycles of our economy, we will have more problem loans than at other times. What we must guard against is too many problem loans at one time. The only way to assure this circum stance is to abide by the time-proved HE TRANSITION in the economy tenets of sound lending. If in our zeal to expand assets, we from manufacturing to serviceforget to obtain adequate information producing industries will impact the Louisville and Kentucky economies significantly. Projections for 1984 are positive as income and employment continue to increase. Nevertheless, "The invisible w alls su rro u nd in g the near-term growth is expected to re banks of our country /- 4* JL main below average, not only because . . . are tu m b lin g — f of the past decline in the manufactur down, and it is for it e * ing base, but also because the coal in the best." — John 1111 % W. Barr III dustry, which has been supportive in past recoveries, is not expected to in crease measurably. Bank-Loan P roblem s. We seem to on our borrower, if we fail to require be besieged today with news about detailed balance sheets and earnings bank-loan problems. What must be re statements, if we fail to evaluate the membered is that the banking busi character and capacity of our borrow ness is a risk business. We always will er, if we allow incompetent or in have problem loans because humans adequate d ocu m en tation, we are make loans based on judgment, and asking for trouble and we will get it. the human mind has not yet devised a L et’s not be fooled by those who say way to make foolproof judgments. I that times have changed and we must don’t believe there is a banker in the change with them. When it comes to world who would announce, on closing sound lending, the basic principles T o have not changed and never will. D eregu lation . There is so much talk these days about deregulation that sometimes we forget that while we are being deregulated as far as price and product are concerned, we are being re-regulated. Stop and think about new regulations from the Fed, Comp troller, FD IC , Treasury, SEC , 1RS, OSHA, Justice, Social Security, D e partment of Labor and others. I sometimes think the only people who are happy about this situation are the lawyers. Just as I think a great deal of the re-regulation has a negative effect on earnings, I think the deregulation we are experiencing has the potential for growth and opportunity. At last we are being given some freedom to conduct our banks’ affairs in a free-market en vironment. This freedom is not with out trauma. For 50 years, we were the only industry I can think of that didn’t have to pay a market price for its inven tory (deposits). Now with freedom to pay market rates for our inventory, banks generally have adjusted their prices to reflect services rendered and the general public has accepted well this shift from the large-subsidizingthe-small to everyone paying a fair price for services received — and, in turn, receiving a fair price for use of their funds. One of the reasons financial institu tions have been able to adjust so well to this form of deregulation has been and Bank C EO s Look at Interest Rates, Deregulation, Problem Loans, Economy for Coming Year 6 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Financial planning/advice seen as popular new service . . . Capital spending will set the pace in 1984 in Wisconsin will continue to be their use of comput ers and technology. The wide range of deposit services offered by banks today not only would have been prohibitive ly costly, but physically impossible just a few decades ago. I think our industry has proved we can compete successful ly for funds in a free market and bring a respectable profit to the bottom line. If we are to continue this positive trend, we must be ever alert to new services the financial markets need and are willing to pay for. We must be innova tive and we must polish our selling skills if we are to compete successfully with our nonbank competition. New Services. The financial market place always has been willing to accept new services. Today is no exception. One service I believe banks will find profitable and desirable is one that will provide total or almost total financial planning and advice to that segment of the population in need of such plan ning and advice. Such service has been restricted in the past to only the very high-incom e individual. I believe there is a large group of people who need and will pay for a service that will provide them with individual cash management, investment advice and execution, tax planning (including shelters), retirem ent planning and credit availability. Such a service can be packaged by banks through use of computer technology and I believe sold effectively to a large segment of our customer base. L egislation . Only seven states do not permit either statewide multi bank holding com panies and/or statewide branching. Kentucky is one of these states. W hen the Kentucky Legislature meets this month, it will consider a bill allowing statewide multi-bank holding companies. The legislation has the backing of the Kentucky Bankers Asso ciation and most of the banking in terests in the state. The proposed leg islation will allow a bank holding com pany to acquire no more than three banks in any one calendar year, will limit any holding company to no more than 20% of state deposits and, after a two-year waiting period, will provide for bank acquisition across state lines on a reciprocal basis. If the legislation passes, it will en able the Kentucky banking industry to acquire size, geographic diversity and financial-services expertise that will be required if it is to compete in the financial-services marketplace of the future. I feel it is good legislation and that it will prevail. I further feel that, in all probability, legislation for inter- state banking will come from the several states and not from the national level. The invisible walls surrounding the banks of our country, originally built to protect the depositor, are tumbling down, and it is for the better. • • Economic Prospects for Bankers Favorable in 1984 — and 1985 Even if the nation undergoes the slowdown we suggest, our trade area will see strong growth throughout 1984. In the second year after past re cessions, capital spending usually has been the fastest-growing sector in the econom y. W e expect that capital YEAR AGO, the consensus view spending will set the pace in 1984, and on national economic trends in we note that it was already starting to do so in late 1983. Given how large 1983 was that a moderate recovery might occur. In F irst W isconsin s capital-goods production looms in the primary market territory — Wisconsin upper Midwest, our region will grow and contiguous states — the consensus as fast as or faster than the nation. If was that the regional recession would agricultural equipment and exports continue, even if business did improve were to rebound sharply, which does at the national level. Clearly, those not seem likely, the “rust bowl” cer who were in the consensus were undu tainly would shine brightly. For bankers, economic prospects in ly pessimistic. The nation experienced a vigorous and broad-based cyclical re 1984 — and probably 1985 — are quite bound in 1983, one in which Wiscon favorable. Loan problems tend to peak sin and its neighbors participated more a year after a recession ends. Since the last recession ended in November, and more as the year progressed. 1982, and since m ore and more businesses should recover this year "Bankers are prov and next, problems in the loan port ing themselves well folio also should diminish. Conse able to handle de quently, primary challenges facing reg ulatio n and to bankers may shift elsewhere in the bal compete with non ance sheet and income statement. banks, but caution Bankers are proving themselves well w ill be needed in d e a lin g w ith in able to handle deregulation and to terest r a t e s ." — compete with nonbanks, but caution John H. Hendee Jr. will be needed in dealing with interest rates. The economic slowdown we For 1984, the national and regional foresee should bring interest rates consensus is presently quite optimis down, but only temporarily and not by tic. We think that Federal Reserve much. Some bankers may be tempted policy since mid-1983 was restrictive to buy bonds during this period. Given enough that it will produce a signifi the federal-deficit problem and the cant slowdown in business growth in strengthening in private-sector credit early 1984. This could temporarily demands, interest rates seem destined generate recession fears. We believe, to rise over the next two years. Han however, that the Fed will ease its dling those higher rates and preparing policy vigorously and quickly enough for the next recession, whenever it to ensure that 1984 will be as good for comes, will require all the skills and business as the consensus anticipates. energy bankers can muster. • • 7 M ID-CONTINENT B A N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis By John H. Hendee Jr. President First W isconsin National Bank Milwaukee A CEO Outlook — Continued Deregulation to Bring New Focus O n Customer in Number of W ays cial services.” Every state probably will have its own particular pressure points. In Tennessee the push to re-regulate is taking the form of examination of cred By John Dulin of protecting the customer. It is ex it-life-insurance loss ratios and the de pected that not only will more banks sire of state officials to regulate bank President have to establish policies on this ques holding companies. First Tennessee Bank tion of delayed funds availability, but An ironic side of deregulation bank Memphis they also will have to disclose those ers need to be sensitive to is the outcry policies. from some activists such as Ralph Na D isclosure is cropping up else der that customers now are over S BANKERS, we tend to think of deregulation in limited terms. where. Information on foreign loans whelmed by too much choice. The and nonperforming assets are exam new complexity of the financial mar W e look at the ways deregulation allows us to engage in new kinds of ples. With the idea that freedom en ketplace has likely caused some uncer business, decide our rates and make tails responsibility, legislators are like tainty and questioning among custom our own decisions with all their at ly to expect other kinds of disclosure ers as to how they should invest their from bankers in the coming months. tendant risks and opportunities. funds. Mr. Nader claims the increas However, deregulation, like other Fears that deregulation adversely ing number of choices and the fast flow large social movements, does not flow affects small business and small com of information has created a new need: in only a single direction with some munities in addition to individual cus He foresees the growth of for-profit inherent, determining focus. There tomers have not yet been allayed. Just information brokers and rating ser are eddies, shoals and islands that recently, a member of the Federal Re vices to help customers make intelli must be negotiated. serve’s consumer advisory council gent choices among the various in One obvious crosscurrent involves called for a revision of the Community terest rates and products offered protection of the customer. As an in Reinvestment Act to counter what he nationwide. dustry, we have made good arguments sees as the ill effects of banking dereg These sorts of crosscurrents will for greater deregulation: fairness of ulation on small communities; a fi continue to develop as deregulation competition, increased efficiency, etc. nance specialist for the National Fed proceeds. The industry will see new What legislators now apparently want eration of Independent Business wrote kinds of regulation, both on the state to know is how continued deregulation a feature article for A m erican B an ker and federal levels, justified in the will benefit their constituents. Ob not long ago on how small business can name of customer or investor protec viously, custom ers have benefited expect to suffer; and Fernand St Ger tion. If we are sensitive to the market from deregulation already through main, chairman, House Banking, F i place and the needs of ou r various con higher interest rates on their savings, nance and Urban Affairs Committee, stituents, we can take advantage of greater service convenience and more warned the banking industry of the these new opportunities, meet them opportunities for investm ent. The danger that “the middle classes will be head on, rather than feel we must fend question that needs to be answered left out of the brave new world of finanthem off. • • now is how continued deregulation will bring new benefits — not to bank ers — but to customers. A "An ironic side of de regulation bankers need to be sensitive to is the outcry from some activists . . . that customers now are overwhelmed by too much choice." — John Dulin This new focus on the customer probably will show up in a number of ways. In California and New York, laws quickly were passed last session to limit the amount of time banks could withhold access to depositors’ funds. A similar bill will be introduced in the Maryland legislature, and two bills have been introduced in Congress. In cluded in the bills and new laws are disclosure requirements, another way 8 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Improved Economy to Result In More Lending Opportunities By Dennis E. Evans Chairm an/CEO First Bank Minneapolis First Bank St. Paul interest rates should the economy show signs of slowing. We expect our regional economy to follow these more positive economic trends as well. The recovery will con tinue to have an important impact on OW that the national economy the cash flows, profitability and finan has a full year’s recovery under cial conditions of our corporate cus its belt, we re anticipating even better tomers. Businesses will be more en growth in 1984. To further encourage couraged to resume or increase their the national recovery, we believe the spending on equipment and plant im federal government’s fiscal and mone provements. This, in turn, will trans tary policies, particularly in this elec late into increased lending opportuni tion year, will be geared to maintain ties for banks. the growth. C oncurrently, a stronger U. S. We foresee no substantial spending economy will help spark an upturn in cuts or tax increases at the federal world trade, which should improve level. Beyond that, we expect that the credit conditions both at home and Federal Reserve will move to lower abroad. Also, an important by-product N M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 '1 r "A t th is p o in t, it appears the worst of the banking industry's domestic loanloss problems may be over." — Dennis E. Evans J il l llÊfe y C - ; . f§ w ËBËBÊËm & âw KÊm of the recovery is that it has amelio rated the widespread credit-repay ment problems of the past two years. At this point, it appears the worst of the banking industry’s domestic loanloss problems may be over. In addi tion, we continue to be encouraged by the slow, but steady, improvement in our region’s agricultural sector. As we look at the greater opportuni ties ahead due to deregulation, we also should expect this deregulation to bring even more competition to the financial-services marketplace. This competition will come from inside and outside the banking community. Non banking institutions such as savings and loans, insurance companies and business financial companies will view the economic upswing as an opportu nity to expand their businesses, which may be done at the expense of the banking industry. In addition, foreign banks, m otivated in part by the 'strength of the dollar, can be expected to have a greater presence in the U. S. market. W e view these trends as a definite opportunity for banks that have moved actively to position themselves as lowcost and high-value-added producers of banking services. Banks that have been able to reduce their costs and more effectively deliver products that meet the changing needs of customers stand the best chance of competing for funds and generating acceptable mar gins. The key to banking success is customer service. • • Innovative Strategic Planning To Be Needed in 1984 and uncertainty over both the eco nomic outlook and conditions in the financial markets will create difficul ties. In large part, this uncertainty re flects the pattern of economic activity in the past several years. It also, however, reflects concern about U. S. S THIS new year begins, banks fiscal and monetary policies and world are faced with many important wide international financial difficul ties. challenges and changes in their tradi tional businesses — low domestic loan demand, nonperforming loans here and overseas, further deregulation and "Economic activity serious com petition from nonbank should rise at about organizations, particularly in the retail a 3.5% -4% rate in market. the next se v e ra l Clearly a factor that deepened the years." — Roger E. loan difficulties and led to a decline in Anderson loan demand — with major impact on commercial banks — was the recent economic recession, which ended in the fourth quarter of 1982 and has been The net result is that economic followed by a year of expansion. The economic environment for the activity, while slowing from the re next several years will feature modest bound pace experienced in 1983, output growth, low inflation relative to should rise at about a 3.5%-4% rate in the past several years and more sub the next several years. The extended rise in economic activity and broader dued financial markets. Nonetheless, base of industrial participation should the pattern of growth will be uneven, By Roger E. Anderson Chairm an/CEO Continental Illinois Nat'l Bank & Trust Co. Chicago A mean a healthier business climate by the mid-1980s. Corporate profits in 1985 are expected to be more than 50% higher than at their low in 1982, thus allowing substantial improvement in corporate balance sheets. This would provide a significant opportunity for investm ent banks and commercial banks in the Midwest that service ma jor and middle-market businesses. The international econom ic en vironment is likely to improve over the next three years, compared to the pre vious three years. Economic activity in industrial countries outside the U. S. is expected to rebound in 1984 and then remain moderate. The major im petus for growth will come from con sumer spending and export sales. In terest rates overseas should be at their lowest in 1984, before beginning to rise as credit demands mount. Infla tion is not expected to be a major con cern as growth remains moderate, the weakening dollar lowers import costs, and downward wage flexibility b e comes more common. Meanwhile, the competitive envi ronment will continue to change rapid ly, offering additional challenges — and opportunities — for banks. Traditional lines of financial services and geographic jurisdictions that once separated banks from other institu tions have become difficult to discern. It is likely these lines will be obliter ated in 1984 as further deregulation of the financial-services industry b e comes a reality. Nonbank competitors have success fully encroached on many of banks’ tra ditional markets, and these nonbank companies have ranged from a major re ta ile r, insurance com panies to brokerage firms. In addition, com panies have moved beyond their tradi tional geographic markets by buying smaller banks and savings and loans across the country. The banking industry has been somewhat handcuffed in response to this competition, primarily because of state and federal regulations. But these restraints could be loosened if the proposed Financial Institutions Deregulation Act, or a version of this legislation now before Congress, is adopted. This act is one of several proposals b efore C ongress that attempt to correct inequities that exist among the different types of financial Recovery hasimproved the credit-repayment situation. . . Modest output growth, low inflation, subdued financial markets seen M ID-CONTINENT B A N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 institutions because of existing laws and regulations written in a different era. Its intent is to expand the list of financially related activities in which banks and thrifts can be active. In addition to proposals in the act, it has been suggested that security underwriting restraints be lifted and adequate provision made covering in terstate banking to delete any barriers to providing a range of financial ser vices. Also, concern has been voiced that even under the proposed law, reg ulators would retain substantial con trol of the banking industry. This might mean that nonbank entities that offer financial services and come under less stringent regulations could offer products and activities far more easily than banks. Naturally, there has been opposition to the act, and it is quite possible that a moratorium will be called for in 1984. It is difficult to project what the financial-services industry will look like in the Midwest and nationally within the next few years. Many ex- perts have predicted that the number of banks in the U. S. will be reduced from near 15,000 to around 9,000 as institutions retrench and merge to re main in existence and respond to fierce competition. It is clear that nonbanks will continue to press ahead with ex pansion and definitely pose a threat to the banks whose focus is predominant ly retail. There are many and complex issues facing the banking industry in the Mid west and throughout the nation as we start a new year. One thing banks — whether they be commercial, invest ment, merchant or retail institutions — can be certain of is that the financialservices industry will continue to change. Our industry is evolving and this will demand clear and innovative strategic planning in order to respond to challenges and take advantage of opportunities. Competition is here to stay, and this will be stimulating for the banking industry and beneficial for America’s businesses and consumers. Beginning of 1984 Looks Better Than Economy of Year Ago By James D. Berry Chairm an/CEO RepublicBank Corp. Dallas At the same time, monetary and fis cal policies will accommodate full re covery, despite growing concerns over the federal budget and trade deficits. The expansion will raise the rate of HE BEGINNING of 1984 looks a inflation a bit, but there is little pres lot better for the American econ ent danger of prices moving sharply omy than the economic signs we were upward. Inflation will continue to be facing a year ago. And Texas particular tempered by further increases in pro ly is benefiting from the economic ductivity and relatively mild wage turnaround that is spreading into all gains. areas of business activity in our nation. These economic trends will be par Christmas sales in the United States ticularly favorable for the Texas econ at year-end 1983 were the strongest in omy, which got off to a rocky start in five years, and this means businesses 1983 because of uncertainty over the will have to boost their production and OPEC oil-price cut. This year should employment in the months ahead to be quite different for Texas as its econ re-stock retail shelves. As a result, this omy steadily regains strength and investment in business inventories moves forward. should spearhead economic growth in The unemployment rate in Texas, the first half of 1984; and the revival in which peaked at 9% last M arch, business investment in new plant and dropped to 6.8% in November. The plant and equipment will carry the re jobless rate should continue to slide covery into 1985. and level off in the neighborhood of 6%. Thus, the traditional two-per centage-point spread between state "In su m m ary, the and national unemployment rates like economic recovery is ly will be re-established. strong and is begin Much of the current economic activ ning to broaden. The ity in Texas is due to increased output rate of inflation will increase a bit this in the cyclical industries. The sharp year, but not get out rise in residential construction a year of hand." — Jam es ago prompted increased production in D. Berry building materials and furniture. B e cause residential construction will T 10 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis show no further growth in 1984, pro duction in these industries will level off. But the slack is being taken up by expanding output in other consumerrelated industries. For example, food and apparel production is rising, and output in the electronics industry, which languished for three years, is in a strong recovery. Prospects for inven tory building in the months ahead will stimulate the paper industry of east Texas to supply a growing need for paperboard and packaging materials. Recovery by these industries will re sult in increased bank borrowings in 1984. The most significant aspect in the Texas economy today is the current recovery in oil-field activity. Renewed energy demand, decline in drilling costs and stable oil prices are contrib uting to the steady rise in number of active drilling rigs. The rig count is the most widely followed indicator of drill ing activity, and it is down about 40% from its all-time high two years ago, but it is higher than a year ago. It might surprise those who do not follow the oil and gas industry closely to know that 1983 was the third most active year in number of wells and footage drilled. And given the current trend, 1984 will be a better year than 1983 and take its place as the third most active year in those terms. RepublicBank Corp. is confident that oil and gas will continue to play a major role in the Texas economy and that is why we have established a major banking presence in the Midland/Permian Basin markets of the west Texas energy region. The recovery in drilling is particu larly important to the large oil-fieldequipment and supply industries. In Texas, more than half the jobs in these supplying industries were lost, com pared with a 12% drop in number of oil-field jobs. The rise in wells and footage drilled is reducing oil-fieldequipment inventories, particularly materials used in relatively shallow oil wells. It will take another year or so before current inventories needed to equip deeper gas wells can be drawn down and even longer before rig manufacturers see recovery. Nonethe less, oil-field equipment is beginning to recover slowly, and economies of such areas as Houston and Odessa will be much improved a year from now. There are two other factors I consid er important to the long-run vitality of the Texas economy. The first is the state’s population growth, which cur rently is increasing about 500,000 per sons a year. At this rate, Texas will (C ontinued on page 40) M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 WHEN you WANT TO (SET IT DONE, CALL A CORRESPONDENT WHO HAS BEEN THERE. And his knowledge is now channeled into providing services like fast, efficient transit operations, bond and investment services and bank stock loans. The same responsiveness he provided to his bank cus tomers is now offered to you. There are only a handful of correspondents who can say they’ve learned the needs of community banks firsthand. Ernie Yake is one of them. He successfully man aged Commerce Bank of Moberly. And before that, he headed a subur ban Kansas City bank on the Kansas side. So give Ernie a call at 234-2483. He knows how to get it done for you, because he’s already done it himself. Today, Ernie runs the Correspondent Depart ment at Commerce Bank of Kansas City. Ernie knows what bankers need. €*Commerce Bank f 'W T . NA of Kansas City MEMBER FDIC GETTING IT DONE M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11 Most CEOs Consider Deregulation An Opportunity, Survey Finds Majority SeeEarnings, Loan Volume Up in '84 C O M P R E H E N SIV E survey of established asset/liability-managebank CEOs at year-end 1983 re ment programs — 13%; deregulated veals the following views relating to CD rates — 11%. deregulation and its effects, the earn Some one-third of the respondents ings outlook, the interest-rate outlook said they plan no steps to take advan and key issues facing management de tage of the opportunities presented by cisions in 1984: deregulation. Others said they plan to • Three-quarters consider banking establish discount-brokerage services, deregulation as an opportunity. develop new products, be more • The predom inant new service aggressive in marketing bank services, since deregulation is discount broker adopt asset/liability planning pro age. grams, establish HCs, install or add • More than half the responding ATMs, join ATM networks, establish bankers will not significantly increase appraisal services and offer insurance the number of service fees in 1984. and leasing services. • Insurance products were cited as Question 3: Will you significantly in the service most banks want to have crease the number of service fees your authority to offer. bank charges customers during 1984? • More than three-quarters of the Fifty-five percent responded negative bankers view discount brokerage as a ly to this question. Many respondents service with limited profit potential stated they increased service fees in but useful for cross-selling. 1983. Of the 45% responding positive • More than half the respondents ly to the question, many said they predict earnings to be up in 1984. would perform detailed costing of • A significant majority predict loan accounts of all types; raise the mini volume will be up in 1984. mum savings balance for payment of • Almost 90% of the bankers voted in te re st; charge for low -balance for Ronald Reagan in 1980 and almost savings; in stitu te a non-custom er that percentage expect to vote for him check-cashing fee; make more use of again in 1984; yet only one-fifth feel commitment fees and fees for unse Mr. Reagan best represents the in cured lines of credit; establish incen terests of the banking industry among tive compensation for personnel to in the presidential candidates running in crease morale, efficiency and produc 1984. tiv ity; develop universal m oney• Factors most likely to affect man management programs; reduce costs agement decision-making in 1984 in and number of personnel; institute volve interest margins, loan demand custom er-profitability-analysis pro and deregulation. grams. Following is a specific breakdown of Question 4: Do you believe a bank survey questions and responses: should be permitted by law to have a Question 1: At this stage in the de- stock-brokerage business — 82% regulatory process, do you regard de favor; sell all kinds of insurance prod regulation as (a) primarily an oppor ucts — 89% favor; pay interest on de tunity — 76%; primarily a threat — mand deposits — 63% favor; and 11%; undecided — 13%. branch across state lines — 47% favor. Question 2: What have you already Question 5: How do you view dis done and what do you plan to do to take count-brokerage services? As a service advantage of opportunities deregula with significant profit potential — 8%; tion presents? as a service with limited profit poten Rankers already have done the fol tial but useful for cross selling — 76%; lowing: (in descending order of num as a nuisance product that competitive ber of times mentioned): established pressures have forced banks to offer — discount brokerage service — 24%; in 13%; and inappropriate for banks — novated with new products — 16%; 8 %. A 12 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Question 6: D uring 1984, bank earnings will be up — 58%; down — 39%; same — 21%. Those predicting earnings to rise said the increases would be in the 3% to 100% range. The percentage most-often mentioned was 10% . Question 7: During 1984, loan de mand will be up — 68% (from 5% to 30%); down — 26%; unchanged — 16%. Question 8: The high for the prime in 1984 will be 12% — 39% selected this figure; 11.5% — selected by 18% of the respondents; 13% — chosen by 11% of the bankers. The highest rate selected was 15%, the lowest 11%. Question 9: The low for the prime in 1984 will be 10% — selected by 48%; 10.5% and 8 .5% — each figure selected by 30% of the respondents. The lowest rate selected was 8.5%. Question 10: Did you vote for Presi dent Reagan in 1980? Yes — 89%. Question 11: Would you vote for President Reagan in 1984? Yes — 84%. Question 12: Which presidential candidate do you feel best represents the interests of the banking industry? Reagan — 21%; Glenn — 8%; none — 11% . Question 13: At the state level, what legislation are you monitoring that could have a substantial impact on banking? Various aspects of interstate banking/branching won hands down. Bank ers in several states were concerned about reciprocal-branching arrange ments that would permit branching across state lines among states or re gions enacting enabling legislation. A breakdown of the most pressing issues by state reveals the following: Alabama — Liberalized branching, including reciprocal arrangements. Arkansas — Changes in HC regula tions. Illinois — All aspects of interstate banking, including reciprocal, and in terstate ATM sharing. Indiana — State-wide branching, authority to establish multi-bank HCs and cross-county branching. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Kansas — Structure changes that would permit multi-bank HCs, ATM/ POS networks and changes in the rate structure for the Uniform Commercial Credit Code. Kentucky — State-wide banking, multi-bank HC authority and raising the usury ceiling. Louisiana — structure changes that could result in authority to establish multi-bank HCs, interstate reciprocity and state-wide branching. Minnesota — Expanded intrastate branching, added powers for state banks and thrifts, reciprocal branching on an interstate basis. Mississippi — Extending the usury ceiling and branch banking. Ohio — Reciprocity for interstate banking and a modification of the franchise tax. Oklahoma — Revision of m ulti bank HC law that went into effect last October and taxation. Tennessee — State-wide branch ing, interstate branching and retail loan rates. Texas — Bank-shares tax reform and branching. Wisconsin — Interstate banking, mortgage-foreclosure changes, addi tional powers for state banks to give equality with national banks. Bankers were asked if they agreed or disagreed with the following state ments: A. The new money-market accounts have been as successful as I hoped in attracting new business to my bank. Seventy-one percent agreed; 21% didn’t agree. B. Federal legislation that will have a significant impact on banking struc ture will be passed in 1984. Agree — 47%; disagree — 42%. C. Next November’s national elec tion will result in a reversal of the eco nomic policies initiated under the Reagan Administration. Agree— 13%; disagree — 76%. D. In the year ahead, I feel my bank will need a more sophisticated loan pricing method. Agree — 71%; dis agree — 24%. E . I feel my bank needs a more satis factory method of determining proper interest rates on all deregulated de mand and time accounts. Agree — 66%; disagree — 30%. F. The current recovery will con tinue all of the way into 1985. Agree — 87%; disagree — 3%. Selected bankers were asked what key issues would affect their manage ment decisions in 1984. • ‘ What happens to interest rates.’’ — Joh n R . M ontgom ery I I I , president, L akeside Bank, C hicago. • “Banking structure in deregula spread.” — W illiam H . Kennedy J r ., tion — in terms of how deregulation ch airm an , N ation al B an k o f C om changes our way of doing business. — m erce, Pine B luff, A rk. • “Continued bank deregulation; D en n is T . D orton , v ice p resid en t/ economic recovery and its effect on cashier, Citizens National, Paintsville, loan demand at the local level; and, By. • “The actions of Congress and the sophisticated costing, pricing and hedging techniques.” — R onald R. D ID C in continuing deregulation, particularly as it relates to payment of C arroll, president, Citizens Bank, J e f interest on demand accounts. Also, the ferson ville, Ind. • “Continuation of the economic re expansion of branching capability within our state.” — D avid M. G il covery, m ain ten an ce of earnings man, president, Fidelity Bank, Min growth in light of compressed margins, increased competition from all finan neapolis . • “Pricing of products; incentive cial intermediaries and state legislative compensation; development of a com changes in banking structure. ” — J o r plete money-management program for dan L . H ain es, ch a irm a n , F o u rth customers; use of new tools to develop National, W ichita. • “Deregulation, increased bank/ additional business (insurance, under writing of municipal securities, real th rift com petition and operating estate brokerage, etc.); expense con costs. ” — Ja c k O . W eatherford, chairtrol; developing increased productivi m an /C E O , M id-South B an k, M ur ty; better trained sales-oriented offic fr e e s b o r o , Tenn. Bankers participating in the survey ers making a lot of calls.” — G . C. Pittm an, ch airm an , V ictoria (T ex.) represent banks ranging in size from $40 million to $2.6 billion. Responses B ank. • “The national economy; the in were received from banks in 14 of the terest-rate level; and profit decline be 17 states served by M i d - C o n t i n e n t cause of a diminishing interest-rate B a n k e r . — Jim Fabian, senior editor. CEOs Sound Off About Issues ANK C EO s responding to the survey reported in the adjacent article were given an opportunity to “blow off steam” about bankrelated issues. Following are some responses: “I feel deregulation of the financial-services industry has created a climate of anxiety among small banks and has been poorly orchestrated by piecemeal legislation. I think the pressures come primarily from large financial conglomerates such as Citicorp, Merrill, Lynch and Prudential/Bache that wish to capture the public’s savings/investment dollars, particularly those now held in community financial institu tions.” “Regulators are really less understanding, less helpful and more unreasonable now than ever before in the history of banking. “The U. S. Congress is a mess; the FD IC is a mess; there’s a hodge podge of interstate confusion. ” “Re Senator Dole on standby withholding: I thought the ABA won, but, at a cost of $500,000, I find we lost.” “I wish banking were able to generate more banker interest in many areas. Too many bankers are willing to stay uninvolved. We need their support. Legislators don’t know what many bankers think. I wish my directors would be better able to see what banking must do in the future; i.e., offering insurance and real-estate services.” “W e’re headed toward a banking system with all the earmarks of the pre-depression era. Market discipline works when we talk about making widgits, selling shirts and maybe trading stock, but I’m convinced it has severe shortcomings as concerns the fiduciary responsibility of deposi tory institutions.” “Our only complaint with respect to the deregulation process has been the lack of adequate lead time in many of the mandated changes. We would like to see interest paid on reserves and a general relaxation of laws restricting the types of business in which a bank or bank HC can engage.” “If we don’t get rid of Donnie (Regan), we should get rid of Ronnie (Reagan)! There is no chance of lowering interest rates to borrowers with the present environment. Continued deficit financing will re-heat infla tion, raise rates and times will get a bit tough.” B MID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 13 The Banking Environment in 1984; Compared to 1983, It Looks Good! T TH IS conference in 1982, I By Roy E. Moor 1983. Instead of falling as they have said, “1983 appears to be an ex through most of this year, business Senior Vice President/ tremely tough year for the banking in borrowing demands will be rising Chief Economist dustry. Indeed, the year ahead may modestly. Offsetting these forces will First National Bank prove to be the most difficult period be increasing flows of foreign funds Chicago since World War I I .” into the United States and growth of As I review the forecasts that under household savings and business prof lay that conclusion, my feeling is that its. Economic conditions have been has been only 100 basis points, and a the above forecast was reasonably adequately discounted in current rates accurate. I suspect we all would agree similar trading range is likely to prevail and, therefore, constitute a neutral in throughout 1984. that 1983 has been a difficult year, if None of us should plan on significant fluence. not, in fact, the worst in the postwar The economy will continue to grow interest-rate declines this year. Our era. throughout the year. Moreover, the specific forecast calls for some slight In contrast, 1984 is going to look pattern of growth will closely resemble pretty good. Compared to other recov declines in rates in the spring, fol the second year of past business-cycle lowed by a rise later in 1984. The over ery years for the banking industry, it recoveries. That means that personal looks relativ ely bleak, how ever. all trading band probably still will be income will continue to rise as will con The refore, my assignm ent is to about 100 basis points or so wide, but sumer spending, but at slower paces attempt to strike a balance between may be notched down a bit from levels than in the last six months, when the positives and negatives that lie that prevailed last year. households were making up for pur Whenever a forecaster describes a ahead. chases deferred before and during the trading band for financial markets, he G e n e r a l B u sin e s s C o n d itio n s . recession. Most of the basic industries Rather than launching immediately implicitly is saying he sees a balance of in the Midwest that have experienced forces affecting those markets. And into the specifics of my banking out their own recessions during the last 18 look, I want to stress three factors in that exactly is what we expect for 1984. months will feel recovery. the general business environment that The federal deficit for 1984 will be But the third economic factor I want will affect all of us directly in banking around the level that prevailed in to mention, namely the continuing low in the next year. One of these factors is inflation rates, will have some the state of the financial markets in dampening effects. W e anticipate which we participate. Unlike 1981 and E d itor’s note: This article is an edited general inflation rates only slightly 1982, when short-term interest rates t r a n s c r ip t o f a r e p o r t p r e s e n t e d higher in 1984 than they were in 1983. were falling sharply, 1983 has seen re N ovem ber 21 by Mr. M oor at the 37th Just as in 1983, competitive conditions markable stability in rates. Within annual First National, C hicago, con and consumer resistance to price hikes short-range periods, they have been fe r e n c e o f ban k correspon den ts at the will hold business prices almost at last quite volatile, but the trading range C hicago M arriott H otel. year’s levels. Cost management again will be the name of the game in 1984. Such a con clusion is, of course, fully applicable not only to the banking industry itself, but also to the business viability of our customers. Assessing their viability can best be done by examining how well they manage costs. A Panel of experts at opening session of First Nat'l, Chicago, correspondent conference included (from I.): E. Neal Trogdon, s.v.p./head, national group; Edward M. Roob, s.v.p./v. ch., asset/liability committee; Roy E. Moor, s.v.p./chief economist, economics department; Gary P. Brinson, s.v.p./chief investment officer, investment management group; and Nicholas j . De Leonardis, v.p., money-management committee. 14 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Business-Loan D em and. Within this setting, we expect business borrowing from banks to rise in 1984 about 4.7% above the average level of loans in 1983. That is an almost unprecedented low rate of business-loan gain for a second-year recovery. That projected growth is not as bad as it initially appears, however. During most of 1983, business loans outstanding have been declining and only now are pick ing up. This trend should continue M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 throughout all of this year and, indeed, should accelerate later in the year. Many banks will experience much greater gains than the projected in crease implies. Business-loan demand tends to be concentrated among re gional and local banks more than among money-center banks. We all must be aware of forces re straining loan demand, however. In part, they are associated with the eco nomic forces I d escribed earlier. Businesses want to hold down their costs every way they can. Maintaining skinny inventories is one way of doing so. Another way is to restrain expan sion and amortization plans. From a banker s standpoint, we must accept that high interest rates hold down bor rowing demands. We also must recog nize that competition within our in dustry from other banks and other types of financial intermediaries (even foreign sources) is more acute than ever. Since I am attempting to present a balanced picture, we also should focus on the favorable aspects of this fore cast. We had a business-failure rate in 1983 higher than in any year since the great Depression. In 1984, we will be dealing with business borrowers who are survivors whose balance sheets and ability to service their loans is improv ing. That means that although our loss reserves may not be reduced in 1984, at least we don’t face the prospect of increasing them. Agribusiness Lending. It may come as a surprise that we expect loans to farmers to rise by perhaps 15% in 1984. The environment appears favor able for such an increase. Journalistic hype notwithstanding, the facts are that net farm cash receipts and net farm income have risen quite well in 1983. The general financial condition of farmers is not as bad as newspaper articles suggest. Total farm debt, both mortgages and others, currently con stitutes only about 20% of total assets owned by farmers who should be able to repay some of their existing loans in 1984. We also anticipate substantial acreage and production increases, especially for crops other than wheat. Demand for fertilizers, pesticides and farm machinery should be up in 1984 because of the increase in production we expect. Demand for these items declined in 1983. R eal-Estate L o a n s. Our overall fore cast is that real-estate loans will in crease about 5Vz% in 1984 over 1983 levels. But let me highlight the factors underlying our forecast that should en able you to make a more precise fore cast concerning your own outstand- "G en eral stability finally has arrived in deposit m ar kets after substantial adjustments brought on by dereg ulation. Through most of 1984, therefore, depositors are likely to change their holdings in a more balanced w ay under a better-understood set of conditions/' O th er Predictions for 1984 H ere is a sam pling o f oth er predictions f o r 1984 that First National, C hicago, experts in a variety o f field s presen ted at the 37th annual con feren ce o f ban k corresponden ts: • C onsum er-credit dem and should be excellent, particularly for auto loans, as banks try to find profitable outlets for new funds and consumers maintain strong purchasing patterns. The most significant new trend in consumer credit will be the home-equity or second-mortgage loan that has gained new respectability — M ichael S . K essler, vice president/ division head, First C ard Services, In c., a First National, Chicago, division b ased in New York C ity . • R etailers should experience good quarter-to-quarter gains in 1984, a year that should end with a strong, if not robust, Christmas-selling season, depending on how much personal income has climbed and the unemployment rate has dropped by that time. — Jon C G oetzke, vice president, retailing com panies division . • R eal-estate lending should provide bankers with excellent opportu nities, particularly if long-term interest rates decline sufficiently to release the torrent of pent-up demand for housing economists say exists. Demand among new families and first-time buyers should continue to be strong and multifamily and manufactured housing is gaining favor at the expense of the traditional single-family home. — Daniel A . Lupiani, senior vice president, real estate group. • B ond-m arket interest-rate activity will continue to be erractic due to domestic and international events. A slight ease in long-term rates is possible if real economic growth slows to the point that the Fed feels comfortable with such a development. — N icholas J . De Leonardis, vice president, fin an cial m arkets division. • F inancial-m arket rates should be marginally lower by year s end. Fed funds should flirt with breaking the 9% level, 180-day CDs the 9V4% level, and the long-bond rate should approach 11 VSo to 11%%. During the first six months of 1984, these rates should trend even lower, in a pattern similar in magnitude and variability to last year. — F. G erald Byrne, vice president, fin an cial m arkets division. • Tax-exempt dem and notes and com m ercial p a p er will continue to gain favor among tax-exempt borrowers as a means of financing long term capital needs at short-term rates. Such programs require banks to have standby credit to provide an alternate liquidity source should the investor redeem such notes prior to maturity. At the end of 1982, commercial banks had an estimated $10 billion in backup lines of credit to support such instruments that should generate at least $187 million in fee income over the life of the programs. The continuing popularity of these instruments is evident. — R obert G . D onnelley, vice president/ division head, health, education and m unicipalities division. • A sset-based financin g is an industry that has changed dramatically in composition and is approaching maturity. As in any maturing indus try, low-cost producers will be the successful participants, and centraliz ing operations and developing cost-efficient collateral-processing methods are the most likely means of cost containment. Leveraged-buyout activity is a case of too many bidders chasing too few situations and prices are being bid up unrealistically high. — Martin J . McKinley, vice president, asset-based fin an ce group. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 ings. We believe that for the nation as a whole and most local areas, new home construction, either single-family or multifamily, will be about the same as in the past year. About half of our proje c te d 5V2% in crease, th e refo re , com es from turnover of existing homes. Incidentally, we have seen a re newed interest in variable-rate mort gages among both home owners and lending institutions. In particular, some S&Ls in certain parts of the country are beginning to market these mortgages aggressively and set rates on them below those for comparable fixed-rate mortgages. We expect this trend to continue in 1984. "N one of us should plan on significant in tere st-ra te d e clines this year. O ur specific forecast calls for some slight declines in rates in the spring, follow ed by a rise later in 1984." Other than in residential loans, we anticipate virtually no changes in out standings for other types of real estate. Speculators will stay on the sidelines because real-estate prices are remain ing quite stable. Commercial and in dustrial real estate remains in excess supply in most areas of the country, and we do not expect perceptible in creases in financing demands for new projects in 1984. H ou sehold B orrow ing. Aside from mortgages, consumer-related loan de mand should continue to grow smartly throughout 1984. As I mentioned ear lier, growth in household purchasing in the last six or seven months has been, in part, recoupment of demands deferred from past periods. Neverthe less, we see consumer loans in the banking system rising about 9% yearover-year in 1984. By the way, part of this demand is to finance home remod eling and refurbishing. There is more good news here. D e spite the expected rise in consumer borrowing, household balance sheets should improve throughout next year. Total family income will be rising at least as rapidly as debt. Tax rates will remain stable and personal assets of all types will rise in value. D eposits. General stability finally has arrived in deposit markets after substantial adjustments brought on by deregulation. Through most of 1984, therefore, depositors are likely to change their holdings in a more bal 16 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis anced way under a better-understood set of conditions. F o r demand deposits, the only growth likely will be associated with increasing transaction demands, pri marily by businesses. Although busi ness activity will continue to grow, we expect increase in demand deposits throughout the banking system of only about .008% over 1983. By contrast, other checkable deposits that yield in terest will grow rapidly — by more than 18% — largely because of an in terest-sensitive population who will be saving an increasing portion of their income next year. Savings deposits in the traditional forms should decline in total volume throughout the system by about 2%, again reflecting interest awareness by consumers and the con tinuing advertising campaigns by financial institutions. Bank Costs. Here we come to one piece of bad news for banks. With in terest rates on deposits relatively stable and the greatest growth coming in deposits that carry high interest-rate costs, the overall money cost for banks will be rising in 1984. Another bit of bad news stems from our general interest-rate outlook that — along with acute bank competition for loans — implies that a widening of yield spreads is unlikely. These cost pressures mean each of us has to scruti nize our remaining costs and econo mize wherever possible. One area probably is the purchase of outside ser vices such as advertising and legal. Competition among providers of these types of services is at least as great as in the banking industry itself, so we face a buyers’ market. A bank’s major cost is, of course, labor. We predicted in 1982 that the increase in average hourly earnings for bank employers in 1983 would be only about 41/2%. On the basis of data avail able through August, the figure looks to be about 51/2%, already the lowest rate of gain in a decade — and it con tinues to slow. Our estimates are for increases close to 4Vz% for hourly earnings gains in banking in 1984. One change in costs all of us have been observing through the last sever al years has been a rapid movement in banking to new labor-saving technolo gies. We expect at least as fast a pace of conversion to new technology in 1984. This represents capital investment for all of us, but the payback in overall cost economies still seems justified. F ed era l R eserve Policy. My forecast concerning Federal Reserve policy can be summarized quickly: more of the same. What we have been seeing in the second half of 1983 is what we ex pect to see, with no significant changes throughout all of this year. Specifical ly, we do not anticipate any changes in Fed policies associated with the elec tion. Indeed, we believe it is unwise for anyone to assume that in this en vironment, politics will perceptibly affect the Fed. One reason is that the political consequences of any Fed ac tions today are more obscure than in any time in recent history. Another reason is that any overt actions by the Fed away from its self-proclaimed poli cies would lead to market reactions that could be the opposite of those the Fed hoped to stimulate. Conclusion. All in all, 1984 appears to be another difficult year. Neverthe less, the worst is behind us. The best I can say about 1984 is that our earnings prospects will be more influenced by our own management capabilities and less by external forces. That’s the good news! • • Mergers/Acquisitions To Be Seminar Subject In Memphis Jan. 27 The second annual bank mergers/ acquisitions seminar — to be spon sored by Memphis State University Fogelman College of Business and Economics — will be held January 27 at the Peabody Hotel, Memphis. Co sponsor is the university’s Office of Advancement and Continuing Educa tion, Division of Conferences/Seminars. Topics will include: “Introduction and Formation of Acquisition Team,” “Major Hurdles — Prerequisites to Developing an Acquisition Program,” “Anti-Takeover Strategies,” “Forma tion of Acquisition Strategy,” “Finan cial Analysis and Pricing,” “Structur ing Alternatives and Tax Considera tions,” “A Banker’s Perspective on Mergers and Acquisitions,” “Account ing Issues,” “Due-Diligence Inves tigation,” “Documentation,” “Regula tory Approval” and “New Develop ments.” Speakers will include a banker, L. Quincy M cPherson, president/ C EO , First Trust, Jackson, Miss., lawyers and representatives of Peat, M arwick, M itch ell and M organ, Keegan & Co. For information on the seminar, contact Glenn Medick, program coor dinator, at 901/454-2021. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 A prestigious educational program which broadens For an application call immediately 608-256-7021 or return management skills and offers new, specialized techniques the coupon below to the Registrar, Graduate School of Banking, to meet the challenges of a dynamic financial services 122 West Washington Avenue, Madison, Wisconsin, 53703. marketplace. Presented by the Central States Conference of Bankers Associa tions and the University of Wisconsin-Madison. PRACTICAL KNOWLEDGE THROUGH INNOVATIVE APPROACHES... The GSB curriculum is designed to provide a comprehensive understanding of the functional relationships, technology and management technigues of contemporary banking. Microcomputer technology is employed throughout the three-year program. THE OPPORTUNITY FOR AN EXCHANGE OF IDEAS... Students benefit immeasurably from living and studying with more than 1,400 other bankers who have varying experiences but who also share common needs and concerns. The campus setting allows students an opportunity for informal discussions with colleagues and faculty NATIONALLY PROMINENT FACULTY... Over 160 bankers, educators, government officials, and other professionals have been selected for their knowledge, experience and ability to be effective as teachers. Special evening seminars are held during the two-week session featuring distinguished individuals of national reputation in business, finance and government. BUILDING LEADERS NOWAND IN THE FUTURE... A recent survey shows that a high percentage of GSB graduates have attained senior officer positions within their banks. These graduates are highly motivated, well-prepared professionals, positioned to meet the challenges of the future. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis D Yes, please send a comprehensive brochure and application for the GSB Madison ’84 session to: Your name Title Bank Address City/State/Zip Phone number 17 Key Bank Strategies Outlined To Fight Nonbank Competition er. According to Mr. Motley, the float LTHOUGH nonbank competitors i are offering bank customers a ing-maturity concept works best on wide range of competitive financialthree- to five-year loans rather than products, banks can capitalize on their long-term mortgages. ownership of the financial-services Consumers in the study showed a market to prosper in the 1980s, a new decided preference for liquidity that banks also can use to their advantage, strategic-planning study indicates. The Financial Products Group, a di Mr. Motley said. In one section of the vision of Whittle, Raddon, Motley & survey, a majority of consumer respon Hanks, a bank consulting firm, pre dents indicated that it would take a sented results of the study this fall to 2%-5% higher rate to get them to move clients in eight U. S. cities, including money from a money-market-deposit Chicago, where the company is based. account to a one-year certificate. Mr. Motley said the study and other evi Law rence B iff M otley, president, dence suggests that consumers gener Financial Products Group, said the survey of 1,800 consumers showed ally prefer a 50-50 split betw een most people prefer to purchase their money they keep liquid and money they are prepared to invest for long financial services from banks. Because banks already have “brick and mortar” periods. in place and community identification, Banks can play on consumers’ desire in a sense, banks “own” the market and for liquidity to retain customers, Mr. that’s more important than owning the Motley said. Even when consumers product, Mr. Motley told a group of took their money out of banks in over 200 bankers at the M arriott droves to invest in instruments with O’Hare Hotel in Chicago. Banks have higher rates, they tended not to entire distribution in 60,000 places where ly close out their relationships with their customers can buy financial ser banks, he said. The strength of the vices, and it is more likely that most bank-customer relationship provides potential competitors from outside the banks that adopt appropriate market industry will attempt to use that ex ing strategies with an opportunity to isting system rather than duplicate it, do more than just protect their turf. he said. Many will be able to expand market Product innovation will be impor share, he said. tant for banks, however. Mr. Motley Banks that prosper under deregula said loans with fixed monthly pay tion will be those that understand their ments and floating maturities hold spe cial promise. Many of the 350 bankers who participated in the strategicplanning study described in Chicago already had successfully experimented with loans of this type, he said. Consumers dislike the uncertainty of variable-rate loans while bankers feel uncomfortable with fixed rates at a time when their money costs are vola tile. The fixed-m onthly-paym ent, floating-maturity loan reduces uncer tainty for both the borrower and the banker. If interest rates rise over the course of a 36-month loan, the loan’s Lawrence Biff Motley (I.), e.v.p., and Jack maturity might be extended to 39 or 40 W. Whittle, ch., Whittle, Raddon, Motley & months. Conversely, the loan could be Hanks, are shown at press luncheon fol lowing presentation of study results to C hi paid off sooner than scheduled if rates cago audience. Mr. Motley also is pres., fall. The borrower’s loan payment does Financial Products Group division of Whit not vary from month to month, howev- tle, Raddon. A 18 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis own cost structures and the differences between various market segments, the study indicated. Mr. Motley highlight ed some of the differences between the mass market and the affluent market that he divided into “high-balance” and “high-incom e” segments. The mass market represents the bulk of the population, but a disproportionately small segment of the deposit and loan markets. The high-balance market represents a higher percentage of total deposits available to banks, but highincom e consum ers rep resen t the largest market for loans and new prod ucts. As Mr. Motley explained the results of the study, high-balance consumers tend to be older retirees who are in terested in protecting the money they have accumulated during their lives and who tend to favor insured-deposit accounts. High-income consumers, on the other hand, will protect them selves by keeping a certain percentage of their money liquid, but also are less averse to risk. While Mr. Motley lauded the new emphasis banks are placing on appeal ing to affluent customers, he urged the bankers in his audience not to dupli cate Citicorp, of New York City’s now famous marketing ploy of announcing publicly that a minimum deposit was required to deal with a human teller. “Never say ‘no’ to a customer — price it,” he said. The telephone company is especial ly adept at this strategy, he said. When a customer calls to complain about a service charge, the phone company mollifies the consumer by showing him how he can save money by in creasing rather than decreasing his ties to the phone company. Charge all customers the same rate for equivalent service levels, Mr. Mot ley told his audience, but rebate potentially irritating service fees to high-volume customers. Banks will find it difficult to make profits on trans actions. Rather, banks will prosper by building profitable relationships with customers, he said. Mr. Motley cited evidence from the M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 study that indicates that few consum ers would be willing to pay higher fees for expert investm ent advice from their discount broker. While 40% of the consumers who participated in the study said that their local bank or sav ings institution offered a brokerage service, only 10% said they had used it. (Usage of discount-brokerage ser vices was 17% and 21%, respectively, for high-balance and high-income cus tomers.) Only 19% of survey respon dents said they would be willing to pay more for investment advice, and the study concludes that brokerage ser vices should be offered by banks pri marily as a relationship enhancement within the context of comprehensive “ affluent m arketing programs de signed to capture customers total rela tionships, rather than as a narrowly defined fee-income generator. Com plete financial relationships with high-balance customers can be built by providing account executives to work with them. Up-scale custom ers love “eyeball-to-eyeball” contact while the mass market and some highincome custom ers desire conveni ence, Mr. Motley said. Banks can meet both needs by substituting capi tal investment for labor where possible and upgrading the remaining labor, he said. He advocated a “hub-and-spoke distribution system wherein a central ly located bank maintains regional branches in commercial areas and in affluent neighborhoods while other sections of the community are served by ATMs. In appealing to the mass market, banks should offer “no-frills’ checking accounts and price incentives for ATM usage, he said. Mr. Motley also had the following observations about the future of bank ing: • A “regulatory hiatus” for 1984: “W e’re all going to go to the election party and take a rest,” he said. Unless Senator Jake Garn (R.,Utah) can get some type of consensus on what should be included in an “omnibus’ banking bill this spring, further banking dereg ulation probably will be postponed un til 1985, according to Mr. Motley. • Letting others innovate: Despite deregulation, some banks will be able to survive even if they do nothing, par ticularly those in smaller towns. Banks in small communities will be able to follow the IBM strategy of allowing others to innovate and then im plem enting what works, but that strategy will be less workable in larger communities. — John L. Cleveland, assistant to the publisher. Bankers Attending Chicago Seminar Describe Oct. 1 As 'Non-event' W O -TH IRD s of 100 bankers who participated in a survey at a Whit tle, Baddon, Motley & Hanks stra tegic-planning seminar at the Marriott O’Hare Hotel in Chicago described their customers’ reaction to the Octo ber 1 deregulation of deposit accounts as a “non-event.” Twenty-six percent of respondents in the survey said that few of their customers had taken advantage of new opportunities, while 8% said a major ity of their customers had. When asked to describe the effects of deregulation on their banks, 25% said there had been no effect; 26% said it had hurt profitability; 4% said it had encour aged them to channel funds out of their community”; 40% said it had enabled them to b e tte r satisfy custom ers’ needs, and 45% said they have had to market financial services more aggres sively. T Cooperative-Examination Program Begun by Comptroller and FDIC COOPERATIVE-examination program involving the FD IC and Office of the Comptroller of the Currency (OCC) began January 1. The program, which is for national banks, supplements former pro grams under which the two agencies shared information derived from bank examinations. Under the new program, the OCC will invite the FD IC to participate in examinations of 4- and 5-rated national banks and in selected ex aminations of other community banks. The sampling will be determined jointly by the OCC and FD IC at the beginning of each year, and the FD IC will receive scheduling information at least two months in ad vance. FDIC/OCC examiners-in-charge (EICs) will work together and par ticipate in management discussions, exit reviews and board meetings. The OCC will prepare the report of examination to be submitted to a bank, and the FD IC will generate a report for its internal use. The FD IC also will be invited to attend meetings in which OCC supervisory actions for national banks are determined. In addition, the FD IC will be invited to assist the OCC in a repre sentative sample of examinations of multinational and regional banks and in a similar sample of OCC overseas examinations. The FD IC has agreed to consult with appropriate state-bank super visors to arrange for OCC examiners to participate in examinations of state nonmember banks that have significant financial relations with national banks. According to Comptroller C. T. Conover and FD IC Chairman Wil liam Isaac, the program will meet both agencies’ needs for a high level of coordination, communication and cooperation in carrying out their complementary responsibilities. Mr. Conover also believes that inviting the FD IC to join his agency in examining banks in which it has a special interest should strengthen the overall supervisory process. Mr. Isaac says it will help his agency be more effective in carrying out its responsibilities as deposit insurer of the nation’s banks. A MID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The “hottest” deregulation issue in 1984 will be interest on commercial checking, according to 41% of the bankers in the survey. Expanded pow ers for bank holding companies was described as the hottest banking issue of 1984 by 48% of the respondents, additional disclosure requirements by 4% and interest-rate parity on savings money among all depository institu tions by 6%. Seventy-eight percent of respon dents said they expected that their bank would be under the same own ership in five years, and 21% said someone else probably would own them. The survey was taken at a semi nar during which the Financial Prod ucts Group division of Whittle, Raddon, Motley & Hanks presented re sults of a new strategic-m arketing study. • • 19 Remember - February 2 ,1 9 8 4 ATTENTION: Reserve Account Manager Effective February 2, 1 9 8 4 the Federal Reserve will implement new ‘Contemporaneous Reserve Requirements’ (CRR). In order to assist financial institutions in completing the required calculations, worksheets and forms— Executive Software company has made available the ‘CRR Accounting System’. This computer software program will run on your IBM PC or Apple computer. • You enter the data from your daily statement of condition and your computer does the worksheet calculations for you producing your Reserve Requirement Position and the forms FR 2900 and FR 2950. • Calculates the Computation Period Information for use in Maintenance Period reporting. • Assure Accuracy • Save Management Time and Labor Costs • Avoid Penalties This Program will efficiently produce the information you will send to Statistical Services. FR 2900 ‘CRR Accounting System’ Submit orders to: EXECUTIVE SOFTWARE CO. 2627 ‘0’ STREET LINCOLN, NE 68510 Name of Institution Street address_______________________ City___________________________ State_____________________ Zip R e p re se n tative ____________________________________________________ Please enclose $195.00 Check. Check one: □ Apple We guarantee you will be satisfied or return for refund. 20 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis □ IBM PC. MID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Major Banking Legislation Coming in 1984, But Details Are Cloudy LECTIO N S, elections, elections. That one word explains much of what will happen in the second session of the 98th Congress — and why things won’t happen. Washington veterans say upcoming elections always overhang the second session of a congress, but this time the overriding question has implications that go far beyond the norm. The grand prize this year is a White House wherein resides an incumbent President dedicated to changing the agenda for political debate in this country, a President who does not hesitate to take dramatic action when he believes he is justified in doing so. A more limited role for the federal government at home and a stronger U. S. presence and image abroad have been his two overriding goals. While it can be said he has not achieved all the details he set out to do in both areas, no one can doubt he has achieved the re defining of political debate to just those two general goals. They will dominate campaign rh etoric until November. His political opponents, the Demo crats, of course realized that this re definition would occur. In fact, as soon as the President was elected more than three years ago, they recognized their political future hung on their response to the Administration’s initiatives. Thus, for the last three years, they have focused their preparation for the approaching campaigns, both for the White House and for Congress, on a direct challenge to the President. However, liberal leaders of the party made two serious miscalculations in the process. One, they assumed the voters would be just as alienated by the President’s politics as they were and, as time passed, the electorate would grow an xious to turn the President out come November. Two, they assumed the President’s domestic policies would create this alien ation and would dominate the election campaigns. E By Phil Battey Their first assumption — that the vast majority of voters would by this time be driven to rage by the Presi dent’s domestic policies — has not been sustained. M oreover, recent trends in the economy are working to ward the President’s political advan tage, regardless of whether his policies prompted those trends. The simple fact is that, when Presi dent Ronald Reagan took office, infla tion threatened to eat the country alive. Today it is no longer perceived to be a great threat. The domestic rec ord the Democrats relied on to be the President’s greatest weakness at this time appears to be one of his greatest strengths. Furthermore, in accepting the po litical risk inherent in the U. S. mili tary operation in Grenada, the Presi dent changed the very nature of the Phil Battey is mgr., editorial department, American Bankers Assn., Washington, D. C. Major banking legislation will be forthcoming this year for several reasons: • Banks and other financial-service providers are a potent political force in their own right. • Banks operate in every state and every con gressional district in the country. Bankers are an important part of the constituency every candi date for Congress must please. If bankers demand the legislation hard enough, the politicians must listen to the demands. • Furthermore, as the elections approach, law makers will be under pressure to resolve the out standing technical questions before Congress as quickly as they can, so they can devote their time and effort to campaigning. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis upcoming Presidential and congres sional contests. Overnight, the question of the U. S. role in the world has become para mount over all other political ques tions the country faces. Will the U. S. role be based on strength or will it be governed by avoiding confrontation? In one bold stroke, the President brought to the surface the major prob lem that haunted the nation for more than a decade — the memory of the Viet-Nam War. Clearly, his purpose is to exorcise the ghost, but even if his attempt is unsuccessful, it is likely to narrow the division in the country caused by the war. By forcing the question, the Administration will force an answer from the electorate, lessening the un certainty that has been the characteris tic of national-security policy for years. In this regard, his political oppo nents fully recognized that the soaring of the President’s poll ratings after the Grenada operation indicated a public consensus may be forming around the position that a steady and reasoned U. S. military presence in the world 21 may be necessary for national in terests. Because of the political environ ment created by the Administration, the second session of the 98th Con gress promises to be dominated by the cosmic issues of the future course of American society and of war and peace. In such an environment, the sub stance of technical issues — such as new powers for banking organizations — will likely be pushed out of the pub lic’s eye by a battle of protagonists grappling with one another in raw poli tical terms over these cosmic issues. However, out of sight does not mean out of mind. The nature of the legisla- Senior Executive Banking School To Hold First Session Mar. 18-23 NEW senior executive banking the changing industrial base and de school, under sponsorship of the velopments in key industries, includ ABA and the University of South Flor ing agriculture, steel, automotive and ida (USF), Tampa, will hold its first energy. Labor-market trends also will session March 18-23 at the Saddle- be covered. brook Resort, just north of Tampa. The Additional segments will review the school’s major objective is to help changing relationship between gov bankers formulate strategies for suc ernment and business, recent regula cess in a rapidly changing and complex tory changes and forecasts, strategies market environment. for management, marketing and re Announcement about the school source allocation. was made during a national conference Dr. McPeters, who headed the ABA on financial deregulation sponsored by in 1975-76, also was president, Missis USF. sippi Bankers Association, in 1967-68. He was president/C EO , Secu rity Bank, Corinth, Miss., for many years until he and other family members sold the bank in 1980. He continues to serve on its board. He became the first holder of the Lykes Chair in Banking/Finance at USF in 1982. He was graduated magna cum laude from Vanderbilt Universi ty, Nashville, in 1943 and later re ceived A.M. and Ph.D . degrees in McPETERS HAYWOOD economics from Harvard University, According to form er banker Cambridge, Mass. In 1980, Dr. McPe W. Liddon McPeters, Lykes professor ters attended the London School of of banking/finance at the university, Economics and Political Science as re the school will become the fourth level search student in money/banking/inof education program s offered ternational economics. nationally by the ABA. Its director will Dr. Haywood is professor of finance, be Charles Haywood, former chair University of Kentucky, Lexington, man of Carter Golembe Associates, which he joined in 1965, and where he Washington, D. C. was dean, College of Business/EcoThe school will gather experts from nomics, until 1975. Previously, he was banking, business, government and director of economic research, Bank of academia to discuss subjects that will America, San Francisco, chairman, include the nation’s changing indus Carter Golembe Associates, Washing trial base, future needs of commercial/ ton, D. C., research economist, ABA, consumer-banking customers and new Washington, D. C., and on the facul relationships between business and ties of the University of Mississippi in government as they affect the finan University and Tulane University, cial-services industry. New Orleans. Currently, he is consul The first segment will focus on the tant to the ABA and several banks and consumer environment. Sessions will businesses. Dr. Haywood is consulting include analysis of demographic trends director of U SF ’s Banking/Finance In in the U. S. and abroad and developing stitute. trends in consumer behavior and atti A graduate of Berea (Ky.) College, tudes that suggest new financial prod he holds a master’s degree from Duke ucts and services. University, Durham, N. C ., and a The second segment will examine Ph. D. in economics from the Universi shifts in commercial-customer needs, ty of California at Berkeley. • • A 22 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis tive process dictates that issues must compete with one another for atten tion and action. The new powers package Senator Jake Garn (R.,Utah) has put together has been two years in the making. Furthermore, many of the issues it would resolve have been debated for decades. It is, thus, ripe for action. W hat it requires is a consensus among the constituents it would affect — and their active support — for ac tion to take place. When that support is forthcoming, Congress will turn its attention to the legislation, regardless of the political importance of the cos mic issues that define the campaign agenda. It is helpful here to remember that almost every important piece of banking legislation approved since the 1930s passed in an election year. However, politics surrounding the elections will, to a great extent, deter mine when action will take place on the legislation during the coming months and what the results of that action will be. In an election year, an otherwise nonpartisan proposal is likely to re ceive treatment in Congress not be cause of what it contains, but because one party or another is seeking to influ ence the outcome of a different matter. In other words, while major banking legislation will be forthcoming this year, when and in what form no one can say now. Vague outlines appear through the mist in our crystal balls, but the details remain cloudy. The legislation will be forthcoming for several reasons. • Banks and other financial-service providers are a potent political force in their own right. • Banks operate in every state and every congressional district in the country. Bankers are an important part of the constituency every candidate for Congress must please. If bankers de mand the legislation hard enough, the politicians must listen to the demands. • Fu rtherm ore, as the elections approach, lawmakers will be under pressure to resolve the outstanding technical questions before Congress as quickly as they can, so they can devote their time and effort to campaigning. For many months, the American Bankers Association has been commit ted to seeing that banking receives the new powers it needs. Congressional proponents for new powers legislation have spent those months searching for the political for mula that worked — to no avail. As the approaching elections transform the p olitical ch em istry of C ongress, however, the discovery of that formula grows more likely. • • M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 There cire banks. And there is Liberty. Today, Liberty is a whole new world o f correspondent services. New investment instruments and innovative Cash Management techniques for your customers. needs. Every day our corresponATM support. Loan participadent bankers prove it. There are tions. Efficient asset and liability banks. And there is Liberty, management. Financial expertise ^ . on every level to meet your specific fel Liberty National Bank » Member FDIC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Louisville, Kentucky Now your customers can bank at ATMs all over town or all over five states. BankMate, a regional network o f shared automatic teller machines, links together all the ATMs o f participating financial institutions. With it as one of your services, your customers will be able to transact banking business at any ATM in the entire BankMate system. You can join BankMate even if your bank doesn’t have its own ATMs. Your bank issues BankMate ATM cards that allow your customers access to all the ATMs in the net work—a network that will extend into the five states of Illinois, Iowa, Missouri, Kansas and Kentucky. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BankM ate gives your customers accessibility to their financial institutions in the places where they live and work, day in, day out. Local accessibility throughout the cities that cover a region o f neighboring Midwestern states. It’s this combination of regional and local access ibility that is truly the most useful. For more information how to “plug-in” your ATMs to the BankM ate network, contact Jack Regan at Monetary Transfer Sy stem , 220 So. Je ffe rs o n Ave., St.Louis, Missouri 63103 (314) 231-1155 A Regional Shared Automatic Teller Machine Network About Banks & Bankers Richard A. Manley assistant cashier/ branch manager and Timothy D. Riley assistant loan review officer. Mr. Steindorff joined the bank with 11 years of financial experience. Mr. Wicker formerly was with a mortgage ALABAMA company in Florida. Mr. Blackwell joined the bank 11 years ago, and Mr. Manley went there five years ago. Mr. Riley formerly was with the bank’s HC, First Alabama Bancshares, in its auditing department. Community Banks Expected to Thrive After Shakeout Between Now and 1990 THOMPSON MALLINI George Thomas Mallini has been promoted to senior vice president/ manager, Alabama corporate banking, southern region, Central Bank of the South, Birmingham. R. Waid Thomp son has been promoted to vice president/manager, correspondent loan de partment; Ernest R. Stewart has been named vice president, general bank com m ercial loan departm ent, and W. H. “Chip” Young Jr. has been named correspondent loan officer. Mr. Mallini joined the form er Central Bank of Birmingham in 1977 as assis tant manager, correspondent loan de partment. Immediately prior to Cen tral’s statewide merger in 1981, he was named vice president/manager, south ern corporate region, headquartered in Montgomery. Mr. Thompson has been with the bank since 1974 and, most recently, was manager of its corporate banking office in Huntsville. Mr. Stewart’s new post includes being in charge of the sm all-bu sinessdevelopment program. He formerly was with AmSouth Bank, Birmingham (formerly First National), where he was vice president/commercial loan officer. Mr. Young was with First Con tinental Bank, Del City, Okla., as vice president/commercial loans. First Alabama Bank, Montgomery, has elected Gilbert C. Steindorff III senior vice president/senior credit officer, Steven P. Wicker vice presi dent in charge of the commercial agri business loan division, Wayne Blackwell vice president/marketing officer, HE COMMUNITY bank of tomor banks will be community institutions row will be able to compete quite that will specialize in personalized, high-quality service. These banks will well with larger banks as well as with other nonbank competitors, said Carl need the expertise of their correspon E . Jones Jr ., chairman/president/ dent banks in enabling them to pro C EO , Merchants National, Mobile, vide these services. During a panel that discussed asset/ Ala., recently. Mr. Jones spoke to more than 200 liability committees, Clinton C. Berry bankers from throughout Alabama at Jr., senior vice president/senior trust the 37th annual bank forum sponsored officer, First Alabama, Montgomery, by First Alabama Bank, Montgomery, explained the composition of such committees and other panelists dis last month. Mr. Jon es said that studies of cussed the activities and objectives of changes expected to occur in banking the committees. Panelists included by 1990 indicate that competition for Robert E. Barnes Jr., vice president/ bank customers is intensifying, due to assistant com p troller; G ilb ert C. increasing custom er sophistication Steindorff III, senior vice president/ senior credit officer; and William C. about financial products. He said studies also indicate about a Youngstrom, investment officer, all one-third shakeout in the number of with First Alabama, Montgomery. Discussing problems with the profit banks in the U. S. before 1990 and that approximately 80% of the surviving motive, Adolph I. Weil J r ., chairman, T Carl E. Jones Jr. (2nd from r.), ch./pres., Merchants Nat'l, Mobile, Ala., w as principal speaker at recent correspondent conference sponsored by First Alabam a Bank, Montgom ery, represented by Wilbur B. Hufham (2nd from I.), pres./CEO. At I. is A. L. Johnson Jr., pres., Camden Nat'l, and at r. is Charles S. Snell, pres., Citizens Nat'l, Shawmut. ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 DigitizedMfor FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 Weil Bros.-Cotton and a First Alabama director, said that all private com panies, including banks, are in exist ence mainly to make money. “This breeds extremely keen competition and there is a constant search for ways to increase profit,” he added. “In banking as well as in industry, this can lead to quite foolish lapses.” He rec ommended that bankers follow some old watchwords or guidelines in oper ating their shops. Others participating on the program included Wilbur B. Hufham, president/CEO, and James S. Gaskell Jr., chairman, both with the host bank, and Frank A. Plummer, chairman, First Alabama Bancshares. • • ARKANSAS Michael E . Cissell has been elected president/CEO, FABCO Associates Finance, Inc., a merchant-banking affiliate of First Arkansas Bankstock Corp. (FABCO), Little Rock. Mr. Cis sell previously was an executive vice p resid en t, W orthen Bank, L ittle Rock, the HC’s lead bank. During his 11 years with the bank, Mr. Cissell has worked closely with more than 200 correspondent banks in Arkansas and surrounding states. The new firm, on receiv in g appropriate regulatory approval, will act as an agent in merg ers, acquisitions, capital infusions, venture-capital leveraged buy-outs, as well as in land/business/financialinstitution sales. It also will assist the parent company in production and allocation of credit and will serve as a consultant to other banks in capital assistance, asset/liability management and m anagem ent procurement/restructuring. Edward Hurley, chairman, Exchange Bank, and its parent HC, Exchange Bancshares, Inc., El Dorado, retired December 31 as an active officer of the bank. He and his family retain their stock ownership in the HC, and Mr. Hurley continues to be on the bank’s board. He plans to open offices in the Exchange Building and serve the bank as a consultant. He also plans to work Digitized for26 FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis in marketing/property-development programs. He entered banking in 1957 with W orthen Bank, L ittle Rock, joined Exchange Bank in 1960, be came president in 1971 and chairman in 1980. ILLINOIS B. Kenneth West has been elected chairman/CEO, Harris Trust and Har ris Bankcorp, Inc., Chicago. Elected president of both the bank and HC was Philip A. Delaney, who also continues as chief credit officer. Both elections took effect January 7. Mr. West suc ceeds Charles M. Bliss, who had been CEO since 1977. Last spring, he indi cated his plans to take early retire ment. He continues as a director of the WEST BLISS Charles L. Daily. Mr. Daily has been named chairman of the executive com mittee of the six-bank, $210-million HC. Mr. Watt most recently managed his own bank consulting firm, Watt & Associates, Inc., Springfield. Before that, he was president, Association for Modern Banking in Illinois (AMBI), which was headquartered in Springfield until being merged into the Illi nois Bankers Association a year ago. Rosalie Alicea has been promoted to manager, McClurg Court Facility, North Bank, Chicago. Miss Alicea, with North Bank since 1975, had been the facility’s assistant manager since 1981. CNB Bancorp., Inc., Decatur, and Corn Belt Bank, Bloomington, were scheduled to be merged December 30 with Midwest Financial Group, Inc., DELANEY WATT bank and HC. Mr. West had been president of the bank and HC since 1980 and on the two boards since 1979. Mr. Delaney has been a director since 1980, when he was elected executive vice president/chief credit officer. In other action, Kendrick D. Anderson has joined Harris Bank as vice president/head of the municipal research section, municipal bond department. He formerly was in Continental Bank of Chicago’s bond department. Peoria. The latter, which already in cluded banks in Peoria, Kankakee, Springfield and Champaign, antici pated having assets of more than $1.5 billion by year-end, when the two mergers were completed. CNB Ban corp owns Citizens National, Decatur. James B. Watt has been elected chair man/CEO, MidAmerica BancSystem, Inc., Fairview Heights, succeeding David Pratt, assistant cashier/director, First State, Morrisonville, has been selected for membership in the American Musical Ambassador Band. This highly selective concert band, composed of outstanding young musi cians from all over the U. S., will tour several European countries in July. Mr. Pratt, who will attend Western Illinois University, Macomb, in the fall, was named in the 17th edition of “Who’s Who Among American High School Students, 1982-83.” R. L. Herndon Promoted SP R IN G FIEL D — Ronald L. Herndon has been named chief ex aminer, Springfield commercial banking operations, with the Illinois commissioner of banks/trust com panies. Mr. Herndon, who has 18 years’ experience with the bank commis sioner’s office, had been a supervis ing examiner there since 1970. Most recently, he supervised the Jacksonville/Galesburg examination dis tricts. In addition, Mr. Herndon has eight years’ experience with banks in the Springfield market. Magna Group, Inc., Belleville, has announced proposed merger agree ments with First National, Smithton, and First National, Marissa. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 NEED DIRECTION IN ASSET/LIABILITY MANAGEMENT? FOLLOW SENDEROS PATH... MICRO-FRS'" ■■ Theres no shortage of choice when it comes to asset/liability software. The best path? Your microcomputer teamed with Senderos Micro-FRS (Financial Results Simulator) software. Sendero designed Micro-FRS to be simple enough that you can use it productively from day one—even if you've never used a microcomputer before. As the system guides you, your ability to analyze, plan and report quickly expands. Easy to follow, plain English "menus" take you directly to the task you want to perform. In minutes, you can examine your "what ifs" in rate scenarios and balance sheet strategies, with analysis of results that management can use and understand. To handle all this capability, Senderos banking profession als and software experts have designed M icro-FRS to fully exploit the capabilities of desk top microcomputers, rivaling the performance of similar mainframe systems. In fact, Micro-FRS evolved from a mainframe software package originally designed in 1977 by people now at Sendero. Sendero offers straight-for ward documentation you can read and understand; an effec tive customer support group; a system that's kept current to reflect your changing needs; consulting services; and a National User's Conference. For direction in asset/liabil ity management, follow the Sendero Path. 4815 N. 14th Place, Box MCB •Phoenix, AZ •85014 •Phone (602) 279-0401 CORPORATION Regional offices in Colorado Springs, Ft. Worth, and Minneapolis B A N K ER fo r Jan u ary , 1 9 8 4 Digitized M forID-CONTINENT FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Path To Success 27 Problem : How to maintain control and increase the value of your cash letters, even when they’re out of your hands. Solution: Use First Priority Clearing service. Then, you can choose which checks clear faster. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis V R https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis It’s really quite simple. The sooner you can clear large denomination checks, the sooner you can take advantage of investment opportunities. With our Priority Clearing service, that’s exactly what happens. You select which checks in your daily cash letter clear quickest, and First National CharterBank makes sure you get those funds fast. In fact, no one can provide faster availability. W hat’s more, all our cash letter services are competitively priced. With special pricing available on quantities of 100,000 items or more per month. If Priority Clearing is the kind of cash letter service your bank could use, contact the bank who pioneered it in the first place. Call Tom Papa or your ' Account Officer in the Correspondent Department of . Tom Papa First National CharterBank. ^ T ^ M a n a g Jf Where\bur Business Thrives. □ FIRST NATIONAL CharterBank* KANSAS CITY 10TH AND BALTIMORE □ KANSAS CITY, MO 64183 □ (816)221-2800 □ MEMBER FDIC Banker/Golfer Honored INDIANA Rhodes joined First National in 1956 as president and became chairman in 1979. Tom O. Vujovich joined Irwin Union Bank, Columbus, January 1 as assis tant vice president/marketing direc tor. He had been executive director, community development/housing au thority, for the city of Columbus since 1980. Robert E . Soderberg has been named assistant vice president, 1st Source Bank, South Bend. His responsibili ties include management of the bank’s brokerage/precious metals/investment/financial-planning services. Mr. Soderberg had been account executive at a national brokerage firm. Died: Felix M. McWhirter, 97, chair man emeritus, Peoples Bank, Indian apolis, in Phoenix November 18. In 1891, his father, Felix T. McWhirter, founded a private firm that was char tered as Peoples Deposit Bank in 1900. The younger Mr. McWhirter joined the bank at age 20 in 1906. When his father died in 1915, Felix M. McWhir ter became president. He headed the Indiana Bankers Association in 1934. HAINES LOWMAN Jordan L. Haines has been elected chairman, Fourth Financial Corp., Wichita, succeeding A. Dwight But ton. Frank A. Lowman, who was presi dent, Fourth National Bank, and ex ecutive vice president of the HC, suc ceeds Mr. Haines as HC president. Mr. Haines, chairman of the bank, had been HC president since 1971. Mr. Button, who had announced his inten tion to retire as HC chairman at its November board meeting, remains on the board. He is actively engaged in investments/financial consulting. Chris W. Lear has joined Hutchinson National as vice president, commercial loans. He formerly was executive vice p resid en t, N orthgate N ational, Hutchinson. 30 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Died: W. W. “Bill” Rouse, 78, chair man, First State, Norton. As a high school senior, he did janitor work in Farmers State, Norton, which later merged with First State. He became president of the latter bank in 1946. Mr. Rouse was active at the bank until last July, when he suffered a fall. Rick Bum gardner (c.), v.p., First N a tl, Wichita, achieved a golfer's dream last Au gust — a hole in one, his first. The event w as commemorated by LeFebure, Cedar Rapids, la., by giving Mr. Bumgardner a plaque. The presentation w as made in November in Mr. Bumgardner's office by Mylo D. Schultz (I.), LeFebure, v.p., sales/ marketing. Looking on is Dick Youngstrom, LeFebure regional mgr. Mr. Bumgardner aced the ninth hole at Wichita's Rolling Hills Country Club, using a Titleist golf ball presented to him by Bill Hiett, LeFebure sales engineer. Both the ball and tee were bronzed and mounted on the plaque given Mr. Bumgardner. Southwest National, Wichita, has be gun construction of a $280,000 build ing that will house its east facility, which will be located adjacent to Towne East Shopping Center. The red-brick structure, which will have the Williamsburg architectural theme of the three other Southwest National buildings, will have nearly 4 ,0 0 0 square feet of office space, three auto teller lanes and a drive-up automatic teller machine. There will be space for customer parking and future expan sion to accommodate two additional drive-through lanes and another driveup ATM. The interior also will follow colonial design and will have teller sta tions, complete safe-deposit facilities and offices for general bank business. Completion is scheduled for late sum mer. This is artist's sketch of Southwest Nat'l of Wichita's new east facility, which will be completed in late summer. Thomas R. Lee has been named senior vice president, Union State, Clay Cen ter. He form erly was p resid en t, Citizens State, El Dorado. R. W arren Rhodes has retired from First National, Lawrence, where he was chairman. A banker 34 years, Mr. KENTUCKY Liberty of Louisville Offers New MasterCard LO U ISV ILLE — Liberty National has announced it is the first bank in the state and one of a selected few financial institutions in the region to begin issuing the new fraud-proof, rede signed MasterCards. New, virtu ally fraud-proof M asterCard (foreground) is shown with old card. Liber ty Nat'l, Louisville, has started issuing new card. The new cards contain several security features that will make coun terfeiting and fraudulent use nearly impossible, according to Maria Gerwing, senior vice president of the bank’s credit-card operations. Liberty N ational’s card features these security measures: • A hologram in the lower righthand corner, resulting in a threedimensional MasterCard logo. One digit of the card-holder’s credit-card number is printed in the hologram. This number cannot be altered with out detection. The hologram is created by laser and, when tilted, changes col or and appears to float. • Fine-Line printing of the MasterCard name as background. This special printing makes counterfeiting through M ID-CONTINENT BA N K ER f o r J a n u a r y , 1 9 8 4 Introducing THE HEAVY-DUTY THE DRIVE-UP BANKING SYSTEM FOR IAL CUSTOMERS Now there’s a new Autoveyor. custom-designed to handle the large-volume and heavy-weight transactions from your important com m ercial customers! The Heavy-Duty Autoveyor handles up to 20 lbs., and your commercial clients never have to leave the comfort o f their cars, vans or trucks. Plus, you get the same dependable service bank operators across the country have come to expect from the Bavis Autoveyor II, its retail counterpart: • Smooth, conveyor operation - a simple system of friction belts transports transactions between teller and customer. • Low m aintenance - because the Heavy-Duty Autoveyor is conveyor-driven, you won’t have to contend with the problems that often cause monorail and wire rope systems to break down. • Energy- efficient - the Heavy-Duty Autoveyor operates on fractional horsepower motors which run only while the system is in use, for long-term energy savings. • Versatile - the Heavy-Duty Autoveyor can be installed as an overhead or downsend system. For more information, I please contact: I E. F. B A VIS S. A S S O C IA T E S IN C O R P O R A TE D 201 Grandin Road, (si^e/y-oso^ '0 45039 BAVIS M ID-CONTINENT B A N K ER fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Welcome your im portant business customers with the ease and convenience of the HeavyDuty Autoveyor Drive Up System. 31 silk-screening virtually impossible. • Ultraviolet-ink printing of the in terlocking MasterCard emblem cir cles. This type of ink glows under a black light, the type commonly used by financial institutions and merchants to detect counterfeit travelers checks. Liberty National is issuing the cards to all new applicants and to current card-holders as their old cards expire. By July 1, 1986, MasterCard Inter national will require all MasterCard and MasterCard II cards in circulation to bear the new design. Citizens Fid elity, Lou isv ille, has promoted the following to vice presi dents: Beverly Taylor, accounting; John Com bs, Larry Schooler and Randy Dobson, financial services; Jane Burks, metropolitan banking; and to assistant vice presidents, John Mc Donough and Steven Blevens. Ms. Taylor, Mr. Combs, Mr. Schooler and Ms. Burks were assistant vice pres idents; and Messrs. Dobson, McDon ough and Blevens were financial ser vices officers. ASSET/LIABILITY MANAGEMENT ANALYSIS Professional Computer Software for Financial Institutions. COMPARE Super Now Account Analysis Balance Sheet & Income Statement Forecasts Net Interest Margin & GAP Analysis Interest Rate Sensitivity Analysis Parent Company analysis-Debt Capacity, Dividends & Capital, Tax Loan Pricing Analysis Computer Generated Investment Plan Cost over $4000 Ours Theirs __YES __ YES __ Y E S __ y e s NO YES YES SOME __ YES __YES __YES __ NO NO NO NO YES PLANALYZER PACKAGE INCLUDES: Documentation and literature on VHS, Beta, or audio training cassette including formulas, user instructions and discussion of current asset/liability management. SYSTEM REQUIREMENTS: Apple II, Apple III, or IBM PC. W rite for information on other computers. VisiCalc (any version). Lotus 123 LIMITED OFFER Planalyzer............................$ 6 9 5 .0 0 Local Prime M odel. . . . $ 1 6 5 .0 0 Operation Analysis M o d e l.......... .............$ 2 1 0 .0 0 Video Training System. . . $ 8 0 .0 0 Reg. 44-HfôÜCT Now only $495.00 To order, or for complete details, write: PLA N A LYZER , 5818 Lovers Lane, No N o .l04B , Dallas, Texas 75225. (214)352-8596. F in a n cia l 32 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S o ftw a re Leonard B. Marshall Jr. has returned to his posts of vice chairman, Liberty National Bank, and president, Liberty United Bancorp, Inc., both in Louis ville, after serving about eight months as commissioner of the Kentucky de partment of banking/securities and secretary, public protection/regulation cabinet. Mr. Marshall joined the former United Kentucky Bank, Louis ville, in 1968 and was its chairman/ president from 1972 until December, 1982, when it was merged with Liber ty National. He then was named the bank’s vice chairman and HC’s presi dent. LOUISIANA Livingston Bank, Denham Springs, has opened its new Walker Branch on Highway 447. It has a four-lane, monorail system for drive-up banking and a 24-h ou r autom ated te lle r machine. The branch’s grand opening featured refreshments, gifts and spe cial events. John L. Kjera has been named vice president/manager, dealer loan de partment, Fidelity National, Baton Rouge. Most recently, he was lease consultant/broker, Custom Lease Sys tems, Inc., Louisville, and, from 196082, was with Citizens Fidelity, Louis ville. Paul L. Lastrapes has been elected vice president/manager, marketing di vision, Great American Corp., Baton Rouge. He formerly was Louisiana m arketing d irector, T eleC h eck, a national check-guarantee firm. M ISSISSIPPI The Fed has approved the application of United Southern Corp., Clarksdale, to become a bank HC through acquisi tion of the successor by merger to United Southern Bank, Clarksdale. Died: George E. Estes Sr., 86, retired vice president/senior trust officer and active director, Hancock Bank, GulfM ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Knowing NewOrleans for over 100 years... The Whitney’s comprehen sive banking services are backed by more than a century of experi ence and expertise. Today, the Whitney offers you the capabilities of wire trans fer, transit check collection, credit information, computer service, coins and currency, government bonds, and international banking. For prompt, expert atten tion to your com plete corre spondent banking requirements, call the Whitney National Bank. Use these numbers for the Correspondent Banking Department. In Louisiana: 1-800-562-9016 In Mississippi: 1-800-535-9151 Nationwide: 504-586-7272 a NATIONAL BANK I OF NEW ORLEANS " A Great Bank for a Great City Member KD.I.C. M ID-CONTINENT B A N K ER fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S/l port. He entered banking in 1918 with Citizens Bank, Tunica, and moved in 1925 to Gulfport, where he worked first for First National, then joined Commercial Bank and, in 1931, went to Hancock Bank at Long Beach. MISSOURI County Tower Merger With Com m erce of KC Gets Approval Vote and Linn H. Bealke, vice chairman, County Bank, gave up the responsibil ity for commercial banking assumed by Mr. Noonan and took over trust/retail administration. Mr. Spinner, a St. Louis native, be gan his banking career in 1947 with First National (now Centerre Bank), St. Louis. He was named president/ chief executive officer of Tower Grove Bank in 1979 and became chairman in 1982. He became vice chairman of County Tower Corp. in late 1981, when Tower Grove Bank merged with County Bank. T h ree County Tow er d irectors elected to Com m erce Bancshares’ board were J. Gordon Forsyth, presi dent, Forsyth Caterville Coal; Ben Peck, chairman, Wohl Shoe Co.; and Earl E. Walker, president, Carr Lane Manufacturing Co. Following overwhelming approval of County Tower Corp.’s merger with Commerce Bancshares, Inc., Kansas City, by shareholders of the Claytonbased corporation, Frank N. Spinner was elected chairman/CEO, County Bank of St. Louis, by directors of that bank. Mr. Spinner continues as chairman/ New Mercantile Bank chief executive officer of County Bank Opens in Clayton; of Tower Grove, St. Louis, another Ernest Coe Is C EO former unit of County Tower Corp. He replaces Andrew Baur, whose resigna CLAYTON — Clayton Mercantile tion as County Bank chairman and National has opened in this county seat County Tower Corp. chairman be of St. Louis County as the 43rd Mer came effective January 3, the date the cantile bank in Missouri. Its parent is merger with Commerce Bancshares St. Louis-based Mercantile Bancorp. was scheduled for completion. The new bank is the major tenant of The end of 1983 also brought the Clayton Mercantile Centre, a new 15retirement of Merle M. Sanguinet,' a story office building on the north edge 48-year veteran of Missouri banking, of the city’s central business district. as chairman of County Tower Corp., The bank s interior construction was but Mr. Sanguinet continues to serve handled by Bank Building Corp., St. as advisory director of County Bank of Louis. St. Louis. Ernest A. Coe, the bank’s president/ In other changes related to the CEO, entered banking in 1968 with merger: Thomas M. Noonan, presi the former Metro Bancholding Corp., dent, County Bank, assumed the addi St. Louis (acquired recently by Boat tional position of chief operating officer men’s Bancshares, also of St. Louis). In New Clayton Mercantile Nat'l w as pro claimed "Clayton corporate citizen" on occasion of its recent opening. Participat ing in ceremony at which city's mayor, Richard T. Stith Jr., presented framed copy of proclamation to Ernest A. Coe, bank's pres./CEO, were (I. to r.): Jam es E. Brown, pres., Mercantile Bancorp, St. Louis; Robert F. Kist, consultant, Solon Gershman, Inc.; Mr. Coe; Mayor Stith; John J. Wuest, e.v.p., Mercantile Trust, St. Louis; and Daniel E. Richardson, pres., Shure Manufacturing Corp. Messrs. Kist, Wuest and Richardson are directors of new bank. 1975, he joined Pioneer Bank, Maple wood, as executive vice president. From 1979 until last July 1, Mr. Coe was president/CEO, Lewis & Clark M ercantile Bank, north St. Louis County. In July, he joined Clayton Mercantile National during its organi zational period. The new bank has drive-up banking for retail and business customers and Fingertip Banking, Mercantile’s ATM system. Three of the drive-up lanes primarily are for use by retail custom ers, and a fourth drive-up facility is equipped to handle bulky transactions such as commercial customers’ coin/ currency deposits. Fingertip Banking soon will be part of BankMate, an automated-teller net work that enables customers of any participating financial institution to withdraw funds from their accounts through other members’ ATMs. Teresa Spillane and Stephen P. Marsh have been elected assistant vice presi dents, County Bank of St. Louis, Clayton. Ms. Spillane has been with the bank since 1978 and Mr. Marsh since 1980. Mary Dremann has been promoted to manager, proof department, St. Johns Bank, St. Louis C ounty. Valorie Straube was made assistant manager, Woodson Road facility. Ms. Dremann join ed the bank in 1969 and Ms. Straube in 1980. Merle Sanguinet (c.), ch., County Tower Corp., Clayton, presides at festive shareholder meeting at which merger with Commerce Bancshares, Kansas City, w as approved. Other County Tower representatives are (from I.): Thomas Cummings, v. p./legal counsel; Martha Sheerin, v. p./secretary; Frank Spinner, ch./CEO, County Bank of Tower Grove, St. Louis; and Andrew N. Baur, ch./pres./CEO, County Bank of St. Louis, Clayton. With the merger, Mr. Spinner assumed Mr. Baui^s posts and Mr. Sanguinet stayed on as advisory director to County Bank, St. Louis. S /2 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Robert J. McCoy, executive vice pres ident, First National, Joplin, has been electged to the board of the Schools of Banking, Inc., Omaha. The organiza tion is sponsored by the Kansas/Missouri/Nebraska Bankers associations in cooperation with the University of M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 When you need help in a hurry, You need something most correspondent banks can’t give y o u . • • MEDIATE ACTION Sure, we know most other correspondent banks offer the same basic services we do . . . check clearing, overline loan help, safekeeping, investment assistance and all the rest. That's why our correspondent bankers have committed themselves to giving you something very few other correspondent banks can . . . Immediate Action. When you have a problem and need help in a hurry, our correspondent bankers are there with ability, dedication and over 60 years of correspondent banking experience to give you the help you need . . . fast! In today’s fast-paced business world, it’s not usual to find a correspondent bank that’ll give the kind of extra service that we do. But then, w e’re not the usual correspondent bank. FO R M O R E IN FO RM A TIO N Call our correspondent bankers . . . the guys who give you Immediate Action. Bob Heifer Vice President (618) 624-9269 Jim Montgomery Senior Vice President (618) 624-9297 Tom Blome Correspondent Bank Officer (618) 624-9277 FIRST NATIONAL BANK 19 Public Square • B e lle v ille , IL 62220 618/234-0020 M em ber FD IC M ID-CONTINENT B A N K ER fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis © Copyright, FN B, 1983 Affiliate of MAGNA GROUP INC. S/3 Nebraska and Nebraska Center for Continuing Education. Mr. McCoy has been on the commercial-lendingschool faculty of the banking schools since 1978. Centerre Bank, Branson, has two new directors, Larry D. Davison, owner/ operator, McDonald’s of Branson, and David E. Clemenson, owner/operator, Table Rock Realty and H & R Block Co. in Branson. Bank Answers Request For 3,000,000 Pennies For News Conference ST. LOUIS — An unusual request came into Centerre Bank here late last year — 3 .3 million pennies were needed for a news conference. Making the request were three local Interna tional Brotherhood of Electrical Work ers (IBEW ) unions. It seemed members of IB E W Locals 309, 649 and 1439, who are Union E le c tric (an e le c tr ic utility) em ployees, had made a $33,000 contribu tion to the firm’s Dollar More pro gram, which provides assistance to the needy to pay utility costs. The con tribution, negotiated in the collective bargaining contract settled between UE and the three unions, is the first of two payments and represents one pen ny per hour per worker that is with held voluntarily from paychecks of some 1,600 union members. The nine-plus tons of pennies were to be displayed at a news conference at which IB E W business managers and negotiating committee members pre sented their $33,000 contribution to the United Way of Greater St. Louis. This agency is coordinating distribu tion of Dollar More funds. More than 3,0 0 0 ,0 0 0 pennies, stacked about eight feet high, are in background as representatives of three local International Brotherhood of Electrical Workers (IBEW) unions present $33,000 check for Dollar More program to representative of United W ay of Greater St. Louis (I.), which is coor dinating agency for program. Pennies were amassed for check-presentation news conference by St. Louis' Centerre Bank. S/4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The pennies, packaged in 660 bags of $50 each, were received by Cen terre Bank from the St. Louis Fed in three shipments. All the pennies are new and came from the Denver Mint. Bank em ployees began working approximately three hours before the news conference to move the pennies from the currency department to the safe deposit department, where the news conference was held. Six fourwheel trucks were used to transport the pennies between the two depart ments. According to Kenneth Voigt, Centerre operations officer, currency/ express, it was possible to load about 1,000 pounds of the pennies, or 35 of the 28-pound bags, on each truck. “We certainly are accustomed to handling large volumes of money,” says Mr. Voigt, “but we’ve never been involved in a project quite like this one. The only difficulty we’ve encoun tered has been storage space, but even that has been minor and within just a few weeks that will be alleviated as we begin to use the pennies and return to our normal supply.” Mr. Voigt says the bank usually orders about $10,000 worth of pennies at one time, or enough to last about three weeks. Bank Mgt. Conference Set for Feb. 14-16 At Tan-Tar-A Resort The Missouri Bankers Association’s bank management conference Febru ary 14-16 will have “In Search of Ex cellence” as its theme. The conference will be held at Marriott’s Tan-Tar-A in Osage Beach at Lake of the Ozarks. Chairman of the MBA bank manage ment committee is James E. Smith, executive vice president, Union State, Clinton. A presentation of “The Secrets of Peak Performance” will keynote the meeting and will be conducted by Charles A. Garfield, president, Peak Performance Center, Berkeley, Calif., and a clinical professor, University of California at San Francisco Medical School. Other topics will include: “Theory Z: How American Business Can Meet the Japanese Challenge,” “Stress, the Hot Reactor,” “Time Management: Go for the Gold,” “Motivation” and “True Future Is Now.” In addition, there will be a panel discussion on the changing face of the financial-services industry, a banquet and sp e cia l-in tere st sessions on brokerage services, insurance, real estate and the secondary-mortgage market. W. H. Stephenson Retires JEFFERSO N CITY — William H. Stephenson has retired from the Missouri Bankers Association, which he joined in 1965 as assistant mana ger. He later was named administra tive assistant and administrative vice president. Before going to the MBA, Mr. Stephenson spent 14 years as sales manager at a Hannibal radio station, KHMO. He holds a B.S. degree in business administration from Cen tral Methodist College, Fayette. Glennon D. Hunn has been elected vice president, operations division, Boatm en’s National, St. Louis. He previously was with Metro Banchold ing Corp. as senior vice president of the HC and president of its datap rocessing subsidiary, D atabank Corp. M etro Bancholding was ac quired by Boatmen’s Bancshares last October 31. At Boatmen’s Bancshares, Thomas W. Pahl and Judith A. Zeilmann were elected assistant vice presi dents — Mr. Pahl in administration and Ms. Zeilmann in the controller’s department. Both were with Metro Bancholding Corp. New Bldg, for Clayton This is an artist's sketch of the future home of Boatmen's Bank of St. Louis County, Clayton, formerly Metro Bank/Clayton, and Boatmen's Trust, formerly Metro Trust. Boatmen's will occupy the first four floors orabout half the building. In recognition of the fact that the bank will be the principal tenant, the structure will be named Boat men's Bank Building. M ID-CONTINENT B A N K ER for Jan u ary , 1 9 8 4 Precision teamwork pays off. Where? Our customers know. T h e te a m w o rk th a t tu rn s a gre a t play b e g in s long b e fo re th e ball is ever th ro w n . It be g in s by c a re fu lly assem b ling in d ivid u a l ta le n ts —each w ith a ce rta in e x p e rtis e —and th e n w o rk in g th e m to p e rfo rm precisely. B a n kin g re q u ire s a ce rta in e x p e rtis e —th e kind o f e x p e rtise tha t C e n te rre ’s co rre sp o n d e n t bankers use e v e ry day in arra n g in g o v e rlin e assistance. W o rking w ith each custom er, C e n te rre ta ilo rs its le n d in g se rvice s to fit short-, m e d iu m - o r lo n g -te rm n e e d s —fo r business fin a n cin g o r ba nk sto ck fin a n cin g . E very le n d in g fu n c tio n is p e rfo rm e d precisely. P recision te a m w o rk is o n e reason w h y C e n te rre is am ong th e re g io n ’s m o st re spected c o rre s p o n d e n t banks. O u r cu sto m e rs kn o w w e can serve th e ir needs. W ork w ith u s —w e can se rve yours, as w ell. CENTERRE One Centerre Plaza St. Louis, MO 63101 314-554-7737 Member FDIC M ID-CONTINENT B A N K ER fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9th & Walnut Streets Kansas City, MO 64106 800-892-2472 John Peters M acC arthy has been elected president, Centerre Bancorp, St. Louis. He succeeds Richard F. Ford, who recently resigned. Mr. MacCarthy continues as president/ CEO, Centerre Trust, St. Louis, a member of C enterre Bancorp. He formerly was the bank HC’s vice chair man, a post that was eliminated with his election as president. He joined Centerre Trust in 1969 from the St. Louis law firm o f Bryan, Cave, McPheeters & McRoberts, in which he was a partner. He became president/chief operating officer in 1975 and CEO in 1979. MacCARTHY McGEE Richard E . McGee has been elected vice president, Mercantile Bancorp, Inc., St. Louis. He started at Mercan tile in 1977 as public relations officer, marketing/communications depart ment, and was named manager of the public relations division the following year. Before going to Mercantile, Mr. McGee was executive assistant to two St. Louis mayors. At Mercantile Bancorp’s lead bank, Mercantile Trust, St. Louis, Edward W. Sunder III and Hurshal B. Majors were elected vice presidents, and Wanda Sutton Chronister, Joseph M. Crenshaw and James W. Hill were named assistant vice presidents. Messrs. Sunder and Ma jors were assistant vice presidents, and Mr. Majors is manager, wire transfer department. Ms. Chronister was per sonal banking officer, and Mr. Cren shaw and Mr. Hill were banking offic ers. t United Missouri Bancshares, Kansas City, has moved its corporate offices from 1-435 and State Line to down town. Included in the move are the r H C’s president and the marketing, loan administration, operations and comptroller’s departments. The State Line Branch of United Missouri Bank, Kansas City, remains at the old loca tion. Anne M. Burge and Janis W. Pickard have been promoted to vice presi dents, First National CharterBank, Kansas City, and John M. “P ete” Buckley advanced to assistant vice S/6 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis president. Mrs. Burge was a trust offic er and Mrs. Pickard assistant trust officer. At the bank’s parent HC, CharterCorp, also in Kansas City, Todd Sutherland was named assistant vice president. He joined the HC last July from First National CharterBank. James R. James Jr. has been elected chairman and Richard C. Jensen president/CEO, Boatm en’s Bank of St. Louis County, Clayton, formerly M et ro Bank/Clayton. Robert J. Bennett was elected to the board. Mr. James formerly was chairman/CEO, Metro Bancholding Corp., which was ac quired in October by Boatmen’s Baneshares, St. Louis. Mr. Jensen also is president/CEO, Boatmen’s West Port Bank. Mr. Bennett is senior vice presi dent, planning/development, Boat men’s Bancshares. Commerce Bank, Kansas City, has elected these vice presidents: Price B. Blackwell, national banking, where he is assistant manager, and Ronald E. Snyder, trust division, where he has responsibilities for the trust real estate department. Joseph D. Hill Jr. was e lecte d assistant vice p resid en t, national banking, where he is commer cial lending officer. Robert W. Sears and John E. Davis have been promoted to executive vice presidents, United Missouri Bank, Kansas City. Elected senior vice presi dents were Pay Boyle and Sharlyn Ann Thompson. Thomas G. Atkins and Robert E. McFarland were made vice presidents, Mary Kay Horner assistant vice president and D. Hunt Barrett Jr. assistant cashier. New members of the bank staff are Teresa Patterson, vice president, business development, and Douglas M. Briggs, metropolitan busi ness developm ent. Ms. Patterson formerly was assistant vice president, international department, Employers Reinsurance Corp. Mr. Briggs was assistant vice president, CIT Commer cial Finance Co. NEW M EXICO Cleo M. Romero has succeeded Assis tant Vice President Don Gonzales as manager of the Pueblo Plaza Office of First National, Santa Fe. The branch is in Pojoaque. Ms. Romero has been with First National since 1974. Mr. Gonzales, with the bank 37 years, has retired. He had served as branch man ager since 1970. Fidelity National, Albuquerque, has been renamed Banquest National, re flecting the bank’s association with its parent firm, New Mexico Banquest Corp., headquartered in Santa Fe. Burce R. Beebe has been named vice president/com m ercial lend ing at American Bank of Commerce, Albu querque. He has had six years of bank ing experience in operations and com mercial lending. Joanie Lee has join ed F irst City Financial Corp., Albuquerque, as vice president/administrative officer. She is executive secretary to Reed H. Chittim, president of the HC. First City National, Albuquerque, has promoted E. F. “Buddy” Douglass Jr. and R. Edward Robertson to executive vice presidents and Harvey Lee Webb to senior vice president. Mr. Douglass now is manager of the downtown main office. He joined the bank in June, 1983. Mr. Robertson is in charge of real estate loans and is a charter em ployee of the bank. Mr. Webb is com mercial loan officer and joined the bank in 1982. Richard A. Walters has been elected president/CEO, First City National, Hobbs. He succeeds James Renfrow, who resigned to join another company. Mr. Walters previously was executive vice president and joined the bank in 1982. Michael W. Briggs has been elected president, First City National, Rio Rancho. He succeeds Stanley Lane, who left the bank to join another firm. Mr. Briggs formerly was senior vice president/lending officer at First City N ational, H obbs, and F irst City National, Albuquerque. OKLAHOMA New Heritage National Bank Opens in Southeast Edmond Heritage National opened its doors in late November in temporary quar ters in Eagle Crest Center, Edmond. The bank’s perm anent building is under construction across the street. John Mattingly is president/CEO, Cecil Capps is senior vice president and Kathy Dickerson is vice president/ cashier. Directors include Mo Anderson, realtor; Jerald W. Baldwin, CPA; John Bridwell, president, Ditch Witch of Oklahoma; Marty Johnson, hom e maker; Raymond L. Vaughn, attorney; and Phil Watson, state senator. Paul S. Woolsey, investment banker, is an advisory director. M ID-CONTINENT BA N K ER fo r Jan u ary , 1 9 8 4 M g s s fs fp » É É ia Ë s T O l M ^ .^ y p M A T'c TE,LLER MACHINES K A u c * O KLAH O M A, KANSAS AND MISSOURI https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7r [Tj Ti e COFFELT Bob Coffelt has been appointed sales engineer in the Oklahoma City region al office of LeFebure. The office serves much of northwestern Oklahoma. First National, Oklahoma City, has elected Robert L. Huffman senior vice president/banking services and Robert J. Passaro vice president/trust officer. Mr. Huffman comes from General Bancshares, St. Louis, and Mr. Pas saro form erly was with H ib ern ia National, New Orleans. BancOklahoma Corp., Tulsa, has re ceived Fed approval to acquire the in terests of Affiliated Bank Group in nine Oklahoma banks. The acquisition was made possible by Oklahoma’s “bank modernization bill” which took effect last October and permits multi-bank HCs and limited branching. The nine banks are Boulder, City, Mercantile and Southwest Tulsa Bank in Tulsa and Sand Springs State, Affiliated Bank of Sapulpa, F irst Bank, C larem ore, American Bank of Oklahoma, Pryor, and Affiliated Bank of Broken Arrow. TEN N ESSEE First Am erican Corporation Acquires Park National Park National, Knoxville, has been acquired by First American Corp., Nashville. The HC issued 2.5 million common shares to Park National’s shareholders, giving the transaction a value of approximately $50 million. Park National has merged with First American National, Knoxville, sub sidiary of First American Corp. Name of the merged institutions is First American National Bank of Knoxville. James F. Smith Jr., former chair man of Park National, is chairman/ CEO of the merged bank, and W il liams E. Arant Jr., Park National’s president, now is president of First American National. Jeff H. Dyer, pres ident of First American National prior to the merger, now is vice chairman. Third National, Nashville, has elected E. W. (Bud) Wendell to its board. He S/8 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis is president/CEO, Opryland USA. Promotions at the bank include Steel man Morss to first vice president/human resources, Lynn Bilbrey and David Estes to vice presidents/operations, Berney Ragan to vice president/ m etropolitan d epartm en t, Moore Rhett III to vice president/regional banking and Eddie Nichols to assistant vice president/investments. New offic ers include Douglas Harlan, assistant trust officer, and Allan Pinder, assis tant vice president/investment officer. TEXAS RepublicBank Houston Opens New Building More than 1,000 corporate leaders from across Texas attended the official opening of RepublicBank Center last month in Houston. The firm occupies more than 30% of the 56-story build ing, which opened for occupancy last October. The opening was part of a week-long celebration to dedicate the new head quarters of RepublicBank Houston. The Renaissance-style building was initiated in August, 1981. The building WENDELL features a 12-story banking hall clad in red granite and occupies an entire block in the downtown Houston area. The banking hall is separate from the tower and is connected by a 75foot high archway. Seventy-four leadcoated spires adorn the building, mak ing it unlike any other structure in the Two east T ennessee banks have area. changed their names to Third Nation RepublicBank Houston, formerly al, reflecting their affiliations with Houston National, had been located in Third National Corp., headquartered the Tenneco Building since 1964. It in Nashville. The banks are Bank of had its beginning in 1876, when it was Knoxville and Bank of Sevierville. No known as Fox & Wetterinack Bankers. changes are anticipated in senior man The name Houston National first agement and directors of the banks. appeared in 1889, when the bank was Third National, Nashville, has opened chartered by the Comptroller of the its 31st full-service bank, which is lo Currency. The bank was acquired by cated in Brentwood. Lattie Brown is Republic of Texas Corp., now Repub manager. She is a commercial officer. licBank Corp., in 1975 and changed its name to RepublicBank Houston in Union Planters National, Memphis, 1982. has promoted Louis Fonte, Kenneth R ep u b licB an k C en te r contains W. Patton, Luke Yancy III and Jake approximately 1.2 million square feet Farrell to senior vice presidents, Jack of office and retail space. The center’s L. Dodson, James K. Gilooly, Bob S. tower is divided into three segments Swords and David H. Taylor to vice by two major setbacks. presidents and Michael A. Dudley, Gary J. Gaggiani, Patrick J. McIntyre, Joe G. Moretz, Frank L. Nelson, W il liam T. Renfrew, John B. Simonetti and Deanne L. Troxel to assistant vice presidents. Murfreesboro Bank has changed its name to Mid-South Bank. The new name reflects the bank’s enlarged ser vice area and unites all the bank’s hold ings under a single banner, according to Jack O. Weatherford, chairman/ CEO. Last year the bank acquired Sm ith C ounty Bank and W arren County Bank. Volunteer Bank, Chattanooga, a new bank, opened last month. It is said to be the first independent bank to open in Chattanooga since the early 1970s. William F. Poliak is president/CEO and the bank opened with capital of $2.5 million. New RepublicBank Center rises 56 stories in dow ntow n Houston. R ep u b licB an k Houston adjoins tower at left and features 12-story banking hall. Grand opening of center w as held last month. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Brokerage service from the bank you already take stock in. You met us as Memphis Bank & Trust, and came to know us as the bank that offered you more correspondent services from a more experienced staff. Now we have a new name to reflect the whole area we serve, Midland Bank & Trust, and a new service to help you grow with us. nutch^se Y)tO ^YT r t n v e t ^ .et*a' attve ca a o t SVOcVtS’ L \cets, iV nê'N^ cusW \a^e 1 to ad et s ' tlsW etVe^ce^^ vo^ oî ^ w ‘ VJ L ^ t f L 0tectt°n MuVflft cu v terf t» a \\Y-Ves AiacV m iot V°u a^ i° s ^ í . e , u. d e ó ^ t s s ^ sa’ ^ e " : r* \ e c ° A^OtV• tv « » ' ^ f . & c ^ a V , a ^ /& « *** t ä t ig t ? • g g s g s * se c u té Take advantage of the Bankers Investment Exchange, from the same correspondent bank department you’ve always been able to take stock in. Give Lynn Hobson, Gus Morris, Jim Newman, Ron Ireland or Tom McKelroy a call,toll-free, at 1-800/238-7477. In Tennessee, 1-800/582-6277. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S/9 H Cs in Dallas, Houston, Announce Merger Approval Stockholders of Mercantile Texas Corp., Dallas, and Southwest Bancshares, Inc., Houston, have approved a proposed merger of the two HCs. The merger will form a financialservices organization with assets of nearly $19 billion. Total equity capital would exceed $1 billion. The merger remains subject to reg ulatory authority approval. Danny Conklin has been elected to the board of First National, Amarillo. He is chairman, Natural Gas Committee, Independent Petroleum Association of America. Housing Starts at Good Level; Boom Would Be Inflationary, Preston Martin Tells Press Fed Vice Chairman Preston Martin is pleased with the housing outlook for 1984, which predicts a 1.6-millionstart year. A boom in housing in 1984 would aggravate inflation, he added, because the housing industry isn’t Preston Martin (I.) v. ch., Fed Board of Gov geared at this time to reap the benefits ernors, was guest of St. Louis Fed Pres. normally associated with high-volume Theodore Roberts (r.) last month at meet ing of St. Louis Fed board. production, due to the recent reces sion. capital req u irem en ts for sm aller Mr. Martin was the guest of Theo banks, Mr. Martin said there’s no welldore Roberts, St. Louis Fed president, researched rationale for doing so at this last month. Mr. Martin met with time. Community bankers have been directors of the St. Louis Fed and, lat complaining to the Fed that the capi er, with members of the local press. tal-ratio gap is too great between com Jim Schott has been appointed sales He credited adjustable-rate mort specialist at the San Antonio regional gages for the improving housing pic munity and regional banks to enable office of LeFebure. The office serves ture, stating that they carry an average community banks to compete effec much of so u th -cen tral Texas and rate about 200 basis points lower than tively with regionals. Mr. Martin added that the Fed is expected to have selected accounts in metropolitan San rates for fixed-term mortgages. all the information it needs to make Antonio. Speaking to the issue of reducing any type of decision regarding bank regulation, but that is not the case in the area of capital-ratio requirements. When asked if he thought the Fed should retain its supervisory authority U.S. Treasury 14Us due 5-85 despite attempts of legislators and U.S. Treasury 143/ss due 5-85 other regulators to remove that au U.S. Treasury 14s due 6-85 thority, Mr. Martin said it would be U.S. Treasury 157/ss due 9-85 impossible for the Fed to operate U.S. Treasury 14'/ss due 12-85 effectively as the nation’s central bank U.S. Treasury 13 Vis due 2-86 if it didn t have the information about U.S. Treasury 14s due 3-86 member banks obtained through ex U.S. Treasury 133/4S due 5-86 aminations by Fed personnel. U.S. Treasury 14%s due 6-86 In the area of international lending, U.S. Treasury 13%s due 11-86 Mr. Martin said that postponing pay U.S. Treasury 16Us due 11-86 ments of interest on foreign-nation loans to avoid default is in the public U.S. Treasury 14s due 5-87 Let us show you how to retain capital gains interest. IM F programs are vital to U.S. Treasury 133/4S due 8-87 on these and other bonds without U. S. employment, he added. The U.S. Treasury 14s due 7-88 U. S. needs the products of foreign selling the security. U.S. Treasury 15 Vss due 10-88 nations and those products would not U.S. Treasury 14s /ss due 1-89 Call or write: Doug Pummill be available without loans from U. S. U.S. Treasury 143/ss due 4-89 Financial Institutions G roup banks. U.S. Treasury 14 Us due 7-89 He also suggested that U. S. lenders U.S. Treasury 14 Us due 5-91 could take minority ownership posi U.S. Treasury 147/ss due 8-91 tions in foreign enterprises unable to U.S. Treasury 14Us due 11-91 repay their debts. He said there was U.S. Treasury 14 Vss due 2-92 real potential in such an approach, U.S. Treasury 133/ts due 5-92 adding that “it’s important to try new 4100 Spring Valley Road Dallas, Texas 75234 U.S. Treasury 133/ss due 8-01 ideas.” D o you own these bonds? Or any other Treasury, Agency or Municipal Bonds with capital gains? (214) 386-2901 (800) 527-7034 Other services •Increase yields on existing portfolio without swaps •Guarantee future investment yields •Earn long-term rates without traditional risk •Other Asset/Liability Management Products and Services S/10 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis U.S. Treasury 153/4S due 11-01 U.S. Treasury 14Us due 2-02 U.S. Treasury 123/4S due 11-05 U.S. Treasury 13%s due 5-06 MID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 A TOTAL BANK FACILITY IN 90 DAYS “ULTRABANK” Chubb Systems Midwest will build the “ULTRABANK” from 980 to 5880 sq. ft. Custom designed for a permanent or temporary extended branch facility. T he “ULTRABANK” is complete from foundation to furnishings. “QUALITY NEVER BEFORE USED IN MODULAR CONCEPTS” CALL US FOR ANY OF YOUR BANK EQUIPMENT NEEDS • Drive-Up Systems • Vault Doors • Vault Equipment • Teller Units • Alarm and Cameras • Modular Buildings • Service • Or any related needs R EPR E S E NT IN G CHUBB Chubb Systems Midwest 8409 S.W. 8th Oklahoma City, OK 73128 M ID-CONTINENT BA N K ER fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (405) 787-9686 S /ll Taking part in Boatmen's Nat'l business forecast conference in St. Louis recently were (from I.) David S. Lewis, ch./CEO, G eneral Dynamics Corp.; W illiam H. T. Bush, Boatmen's pres.; Donald N. Brandin, Boatmen's ch./CEO; Zane E. Barnes, pres./ CEO, Southwestern Bell; John B. McKinney, pres./CEO, Laclede Steel Co.; Ellis L. Brown, ch./CEO, Petrolite Corp.; and John M. Bren nan, Boatmen's exec. com. ch. Business Leaders Predict Upbeat 1984 At Boatmen's National Conference OR TH E SECOND year in a row, at one end of the economic-analysis St. Louis businessmen attending spectrum . This group advocates the annual Business Forecast Conferstaying on the course no matter what, ence sponsored by Boatmen’s National without regard to political realities or heard optimistic predictions for the social consequences. “On a purely coming year. theoretical basis, I suspect they are Representatives of five major indus right, barring, as they put it, ‘external tries foresee the following for 1984: shocks,’ a proviso which in itself seems • Banking — Prospects for the in to be unrealistic in these times. On a dustry as a whole are favorable, except practical basis, I doubt the Fed could for the few banks that have specific survive such a rigid policy.” problems. Mr. Brandin sees economists b e • Steel — The new lean steel indus longing to the “David G. Farragut try will perform better than most peo School at the other end of the spec ple anticipate. In the case of smaller trum. Their motto is “Damn the torpemills, 1984 may prove to be a respect dos, full speed ahead.” This group able year. advocates big government and big • Defense — Prospects are quite spending and counts on inflation to good, but there will be substantive cover its sins, he said. “Somewhere in changes in where the increased de between is the consensus group that fense dollars will be spent. strives individually to develop an • Petroleum — Barring another ma approach that distinguishes it from the jor interruption of world oil supply, masses,” he added. the oil industry can look for steady but He admitted that business people modest production growth. expect more from economists than • Telecommunications — In gener they possibly can deliver and that al, this industry is an excellent place to there is no empirical evidence to sup be right now, but it’s too early to see port either end of the economic spec what the effects of the AT&T breakup trum. will have on the industry. Mr. Brandin said the fight to bring Donald N. Brandin, B oatm en ’s down inflation has been a notable suc chairman/CEO, chided economists in cess and he credits the Fed for playing his report. “Certainly the current a major role in the effort. The effort practitioners of the art, as a group, do came at some cost to the economy “but not appear to be serving us well, he at least the patient survived to see a said. “To suggest that there is ‘shoddi better day.” ness’ in current economic analysis He added that the Fed’s posture in might be presumptuous, but I would the future will be critical and he called not hesitate to say that the word on his guests to hope that the economic ‘opportunistic’ would blanket a large environm ent will afford them an segment of the field.’ opportunity to fuel reasonable growth He said that members of the “Marie without threatening the current stabil Antoinette School of Monetarism” are ity of interest rates and inflation. F S/12 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Brandin predicted bank earn ings for 1983 pretty accurately at the 1982 conference. At that time, he fore cast increases in earnings for larger commercial banks of 8% to 10% against a backdrop of an improving economy with the qualification that individual performance would vary widely re flecting the problems some banks would have with energy and interna tional loans. “The forecast is proving to be reasonably accurate although final fig ures on energy-loaded banks might re duce the percentage moderately,” he said. A leading bank-stock analyst is estimating earnings for the 158 banks in its index at just under 8% for the year, somewhat down from original projections, due to reduced earnings in some major banks in the index, prin cipally those in the Southwest. He said any punitive action against the banking industry because of loan losses on the international scene would be likely to induce another worldwide depression. Addressing bank deregulation, Mr. Brandin compared its course to that of a “drunken sailor on shore leave. ” He added that, although interest-rate ceil ings have been removed for the most part, service restrictions and barriers to interstate banking “still cover the industry like an aging patchwork quilt whose seams are popping daily.” He said Congress is clearly unwilling to tackle the special-interest lobbies that want to confine the activities of com mercial banks. Rather, the legislative body seems to be disposed to let the states deal with the interstate banking issue on a reciprocal basis. “The die is MID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 BEYOND SPEED AND ACCURACY. INTRODUCING THE TTÏLE SERVICE COMPANY THAT UNDERSTANDS PERSONAL SERVICE. Speed and accuracy. Essential requirem ents fo r lenders, brokers and businesses in need o f inform ation. A t N etw ork Title Service w e understand the value o f going beyond w h a t is required. O ur carefully-selected staff is m atched w ith the latest com puter technology to provide unparalleled responsiveness and reliability. W e com bine efficiency, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis experience and a keen awareness o f w h a t it takes to succeed — an ongoing co m m itm ent to personal, professional service. Our services include title research, UCC inform ation, lien searches, zoning addresses and real estate reports. All done quickly and personally. The next tim e you need service, give us a call. You w o n 't be disappointed. NETW ORK TITLE SERVICE, INC. 1201 South Main • One Main Place C-110 • Dallas, Texas 75250 • (214) 742-9313 419 South Main • Suite 211* San Antonio, Texas 78204 • (512) 271-3047 cast, however,” he added. “We are no longer asking if — only when.” Continuing on the topic of deregula tion, he said phasing out interest-rate controls has increased the average cost of funds for most banks and has had a severe impact on banks in depressed market areas, especially agriculture and heavy industry. Some regional banks, including Boatmen’s, have fared quite well de spite the economy and deregulation, he continued. “We are broadly diver sified and have been largely successful in compensating for higher money costs with operating efficiencies and volume increases achieved through improved market penetration.” . He predicted continuation of con solidation of banks within the frame work of present law and regulation. An improved economy should result in better earnings for most banks and especially regional institutions, he said. The im proved econom y h asn ’t helped the steel industry much, said John B. McKinney, president/CEO, Laclede Steel, one of the few steel makers surviving relatively well. The industry is operating at only 57% of capacity, and major mills still are shutting down facilities, he said. Some improvement has been noted in the automotive steel market, although down-sizing of autos has reduced total tonnage. Tubular, railroad car and barge manufacturing continue to be depressed. Steel prices have fallen as much as 30% and now are at the equivalent of 1980 levels. Third-world competition is affecting producers in the U. S., Europe and Japan, he added. Foreign steel continues to pour into the U. S. and the American Iron & Steel Institute is attempting to get leg islation through Congress to place quotas on imports at 15% of the U. S. market. The industry is responding to com petition by opening mini-mills that can com pete with foreign steel, Mr. McKinney said. These mills use scrap as a raw material and electric furnaces and continuous casting to produce steel at low cost. Another positive aspect is the ability of U. S. producers to trim costs substantially and thus re duce losses. “If we have an increase in shipments and some improvement in prices, I be lieve the new lean steel industry will perform better than most anticipate,” he said. Defense spending is on the rise, said D avid S. Lew is, chairm an/C EO , General Dynamics Corp. However, a large portion of this spending goes S/14 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis directly to the military establishment, not to the defense industry. Manufacturers involved with key defense programs will do well, he said, but firms holding contracts for lowpriority programs will not. He added that the national elections this year will have little or no effect on high-priority programs, although a Democratic administration probably would call for a modest reduction in defense outlays. “Certainly in total, prospects for the defense industry as a whole are quite good,” Mr. Lewis said. “But there will be some substantive changes in where the increased dollars are spent, not only with respect to programs, but with respect to the companies that will receive the contracts.” A 2.2% increase in U. S. oil demand is expected this year, bringing demand to 15.5 million barrels per day, said Ellis L. Brown, chairman, Petrolite Corp. This is good news after five con secutive years of declining demand. Despite declining oil consumption, the free world is continuing to con sume crude oil faster than it is able to find more supplies, he said. Proved reserves are dwindling and a slight de cline in U. S. production is seen for this year, coupled with an increase in imports. The U. S. oil industry has bottomed out and is on its way up again, Mr. Brown said, and domestic refineries are running at more than 70% of capac ity, up slightly over a year ago. “Assuming that the economy will Concerts Enliven Lunch Hour David Oberg, conductor and musical direc tor, Chamber Orchestra of Albuquerque, N. M., directs ensemble in opening number of a Lunch Box Theatre performance, spon sored by First Nat'l, Albuquerque. Bank hosted four noontime concerts on Wednes days in July as part of golden-anniversary celebration. Programs featured different musical groups performing old standards, jazz, show tunes, silent-movie music and light classical at bank's downtown First Plaza. continue to improve, the domestic oil industry should continue to show mod erate but steady growth in activity through 1984,” he said. The most indecisive report was given by Zane E. Barnes, president/ CEO, Southwestern Bell Telephone Co. He said the outlook for the tele com m unications industry can be summed up in two words — “it de pends.” However, he added, in general, the industry is “an excellent place to be right now. ” Variables affecting the fortunes of the telecommunications industry in clude how willing customers are to adopt new systems and services, how the economy performs and how sound management policies are. He said he feels good about South western Bell’s prospects. “W e’ve been on the leading edge in introducing new technologies into the network.” He added that major investments in the network are complete and a state-ofthe-art network is in place. Mr. Barnes predicted growth in us age of the network as the industry finds ways to better utilize its potential. There’s much room for better utiliza tion, since the average customer of Southwestern Bell uses its phone lines only 5% of the time. He said pricing structures are a make-or-break issue for the industry and that pricing is an emotional issue. Recent developments have resulted in a realignment of pricing structures that will result in services being priced according to their cost — something that had not been the case in the past for telephone service. There is a dan ger that Congress will legislate prices, which will have the effect of delaying arrival at a pricing structure that will benefit the industry as well as the cus tomer. “We will do everything in our power to hold down or optimize costs,” he said, “and not just because it’s our obligation to customers. . . . In a high ly competitive environment, we’d be crazy not to. “No one knows whether competi tion will deliver the benefits it prom ises. However, we are committed to making it work. W e’re committed to making the transition as smooth and easy as possible for customers. And we intend to be aggressive competitors ourselves.” Sounding much like a banker, Mr. Barnes said, “All we ask is that the pricing realities of a competitive mar ketplace be faced, and that we be allowed to play as equals.” — Jim F a bian, senior editor. M ID-CONTINENT B A N K ER for Jan u ary , 1 9 8 4 New O rleans banking trad itio n is a t w ork throu ghou t th e Gulf South. First National Bank of Commerce has a history of working closely with its correspondent banks through out the Gulf South for the benefit of their customers. Whether your needs involve multimillion-dollar syndicated loans, or loan participations on a smaller scale, First NBC has the experience to help. We’re here to help you with your check processing, wire transfers and Federal Funds transactions, too. If your money market needs go beyond routine Federal Funds transactions, we also specialize in the purchase and sale of various money market instruments and provide automated bond portfolio services to help you manage your bank’s investment securities. Years ago, our ancestors brought to you the most modem correspondent services of their time. Today, we have the same commitment to service, supported by modem banking methods and technology, because at First NBC, Correspondent Banking is more than just a line of business—it’s a tradition. First N BC 210 Baronne Street, P.O. Box 60279, New Orleans, Louisiana 70160 phase 1-800462-9511 in Louisiana or 1-800-535-9601 from Mississippi, Alabama, Arkansas, Oklahoma and East Texas Outside these areas, call 504-561-1371. Member FDIC M ID-CONTINENT BA N K E R fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S/15 Stabilizing M onetary Policy Advocated by Fed O fficial ONETARY policy that stabilizes prices and interest rates over a long period was advocated by St. Federal Reserve Rank President The odore H. Roberts at the Illinois Bank ers Association’s bank management conference in Chicago in November. “ Sin ce inflation prim arily is a monetary phenom enon, to assure stable prices over a long period, we must have a policy that supplies money to the economy at a rate that matches output growth,” said Mr. Roberts. “It must be one that will not be side tracked by desires to alleviate shortrun economic problems for short-run political expediency. ” Once one concedes that attempts to eliminate short-term economic diffi culties through monetary policy are futile, it is possible to conceive of a monetary policy that produces long term stability in inflation and interest rates, said Mr. Roberts. Ironically, bankers are among those who fre quently have sought government in tervention in monetary policy to stabil ize short-run variables, apparently in the b elief that no long-term costs accompany such a stance. Citing re cent economic history, he said results of such government intervention often have been opposite to what was in tended. Monetary policymakers must oper ate with “tunnel vision,” he added. They must be blind to the day-to-day, year-to-year, market-induced “wig gles” in inflation and interest rates. Recause of the high interest rates and inflation produced by a tight money supply, Mr. R oberts con tinued, depositors left banks for higher returns available in money-market mutual funds; portfolio market values declined; operating expenses rose, and banks were faced with increased com petition for funds. Bankers have tight ened their operations to counter such trends, he said, but everyone, includ ing bankers, would be better off with an assured lower level of inflation and interest rates. Illinois bankers also were provided with an economic outlook for 1984 by Robert T. Parry, executive vice president/chief economist, Security Pacific National, Los Angeles. Worldwide economic growth will alleviate some problems less-developed countries will have meeting their massive debt obligations during the next year, said M S/16 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Dr. Parry, who also is chairman of the ABA economic advisory council. But Louis he cautioned that the risks created by the debt crisis will be present for years and pose the largest single threat to the U. S. banking industry. Harry E. Cruncleton, president, Bank of Belleville, presided at the opening session of the IBA manage ment conference at which Mr. Roberts and Dr. Parry were featured. Ronald Barnes of Transitions, Inc., Phoenix, who gave bankers some tongue-incheek lessons in stress management, also was featured at the opening ses sion. The IB A ’s 1984 officers were announced at the conference. Charles C. W ilson, chairm an/CEO , F irst National of the Quad Cities, Rock Is land, was named president, replacing Donald R. Lovett, chairman/president, Dixon National, who will take Mr. Wilson’s 1983 post as treasurer for the next year. Other officers are: vice president — Kenneth Skopec, presi dent, Mid-City National, Chicago; and secretary — James Lund, chairman/ president, M atteson-Richton Bank, Matteson. A rticles of incorporation under which the old IBA merged last year with the old Association for Modern Banking in Illinois specify that during the first two years following the merg er, the association will have a lead ership that represents a balance be tween the two former associations. The new IBA says it represents 92% of banks in the state. New IBA board m em bers an nounced at the conference are: Region I — David E. Albertson, State National, Evanston; Kenneth Skopec, Mid-City National, Chicago; Herbert A. Dolowy, Lincoln National, Chicago; James B. Lund, MattesonRichton Bank, Matteson; and Charles E. Waterman, South Holland Trust. Region II — John A. Anderson, First National, Lake Forest; Kevin T. Reardon, First National, Joliet; W il liam C. Gooch J r ., York State, E lm h u rst; Alan M. M eyer, F irst National, Deerfield; and Thomas F. Bolger, McHenry State. Region III — Donald R. Lovett, Dixon National; Charles C. Wilson, First National of the Quad Cities, Rock Island; Jam es F. Forster, DeKalb Bank;T. R. McDowell, First National, Westville; and Howard E. Bell, First Theodore H. Roberts (l.)f pres., Federal Re serve Bank of St. Louis, is introduced by Harry E. Cruncleton (r.), pres., Bank of Belleville, at Illinois Bankers Association bank management conference. Robert T. Parry, e.v.p./chief economist, Security Pacific National, Los Angeles, and ch., ABA economic advisory council, makes point about economy and its effect on banking for Illinois Bankers Association members attending recent bank m anage ment conference. Donald W. N euenschw ander, ch., Med Center Bank, Houston, tells Illinois bankers how he turned small bank into aggressive marketing organization. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 WHY WOULD ONE OF THE LARGEST CORRESPONDENT BANKS IN KANSAS FINANCE EQUIPMENT FOR REFINING GASOLINE, Ig|| THEN NEVER TURN A VALVE? When a company approached a bank located in southeast Kansas for a loan to help them continue the manufacturing of gasoline refining equipment, that bank approached us. Working as their correspondent bank, we helped them provide working capital and expansion dollars for that company. For over 80 years, Commercial National Bank has been responding to the needs of correspond ent banks throughout Kansas and western Missouri, growing as they grow. Today, we offer practically M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis every service under the midwestern sun. From the largest and most efficient bank data processing center in eastern Kansas to overline participation, securities safekeeping, extensive investment ser vices, and professional expertise in special bank ing areas like . . . fueling a company with the COMMERCIAL NATIONAL resources for a refined BANK of Kansas City future. Correspond with us today. S/l 7 National, Rockford. Region IV — James C. Coultas, Elliott State, Jacksonville; John W. Luttrell, First National, Decatur; Sam Scott, Scott State, Bethany; James L. Winningham, State Bank, Arthur; and Warren Martin, Capitol Bank, Springfield. Region V — Thomas Andes, First National, Belleville; George M. Ryrie, F irst N ational, A lton; W alter E . Moehle, Old Exchange Bank, Okawville; Harlan Yates, Cisne State; and Gerald K. Feezor, Peoples Bank, Mar ion. Large-bank category — Jay K. Buck, Northern Trust, Chicago; W il lard Bunn III, Springfield Marine Bank; Martin Farmer, First National, Chicago; William D. Plechaty, Con tinental Illinois National, Chicago; and David L. W ebber, Harris Trust, Chi cago. At one of what were called “break o u t” sessions at the co n feren ce, Donald W. Neuenschwander, chair man, Med Center Bank, Houston, de scribed the unorthodox steps his bank has followed in cultivating the “highnet-worth m arket.” W hen he took over at the bank in 1974, Med Center had no marketing program nor cus tom er base, Mr. Neuenschwander said. In fact, “we barely had a bank,” he said. Providing ample incentives for maximum em ployee perform ance, marketing aggressively to the highbalance prospective customers who work in a medical complex near Med C enter and controlling transaction volume and related costs has worked wonders, Mr. Neuenschwander said. He urged those in his audience to find out what makes their banks different from competitors and to market the differences. Med Center’s parking lot appeared to be one of the few early differences the bank could crow about, but Mr. Neuenschwander and his staff success fully marketed it to an audience that liked the convenience the parking lot provided. In marketing to the affluent, Med Center bills itself as the bank for the “well-to-do and those who are doing well.” In another breakout session, Harold Faeth and Michael Vinitsky, Rohrer, Hibler, & Replogle, Inc., Chicago, warned of some of the human factors that too often can turn potentially good bank mergers sour. — John L. Cleve land, assistant to the publisher. CORPORATE NEW S Firm Has Its 'Day' South Dakota Governor W illiam J. Janklow, through executive proclamation, des ignated November 19 as "Daktronics Day" in the state. The proclamation coincided with the grand opening of the new 36,000square-foot manufacturing plant of Dak tronics, Inc., in Brookings, S. D. Despite a continual rain and snowfall, about 700 persons attended the grand opening, rib bon cutting and guided tours of the plant. Aelred Kurtenbach, pres, of Daktronics, cut the ribbon. Master of ceremonies w as Bud Weisser, sales rep. for the firm and im mediate past pres., Brookings Chamber of Commerce. Daktronics designs, manufac tures and distributes scoreboards, a n i mated-message centers and electronic leg islative-voting equipment. • Bank Building Corp. Myron A. Carpenter has been named senior vice president of this St. Louis-based firm. He joined it in 1972, having formerly been audit manager, Arthur Young & Co. Mr. Carpenter had been vice pres ident, finance, since 1981. • Brandt, Inc. Peter Siltumens has joined the coin-products division of this Watertown, Wis.-based firm. He was general manager, new-product • Associates Corp. of North America. This Dallas-based firm (The Associ ates) has named James J. Hoiby presi dent, Associates Development Ser vices Corp. This is a new operating group that will oversee consumerfinance acquisition/new-venture activ ities. Mr. Hoiby joined The Associates in 1951 and, since 1975, had been ex ecutive vice president, Associates Financial Services, Inc. (AFSI), con su m er-finance subsidiary of The Associates. • Associates Bancorp, Inc. Richard E. Pigman has joined this South Bend, lnd. -based firm as senior vice presi dent, information technical services. Most recently, he was responsible for implementation of a major national common-carrier network for Digital Equipment Corp., Maynard, Mass. Associates Bancorp provides computer services to all subsidiaries of Associates Corp. of North America, Dallas. . . . with 50 years of listening. 1 0 6 5 5 G A TEW A Y B LV D . S T . L O U IS , MO. 6 3 1 3 2 3 1 4 /9 9 4 -1 3 0 0 S/l 8 • Christmas Club a Corporation. Michael McNab has been promoted to vice president/general manager, Full Service Bank Productions, Inc., divi sion of this Easton, Pa.-based com pany. He had been systems product manager, Christmas Club a Corpora tion. Full Service Bank Productions, ln c. , provides marketing/operational services to banks through an affiliation with the ABA. Business Communications Service . . . M IS S O U R I EIVCOM, IIVC. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis development, PPS Manufacturing, Santa Clara, Calif. In other action at Brandt, Thomas A. Harrison has been named director, industry sales. He formerly was with Xerox Corp., Chica go, for 12 years. • Mosler. John Barry Smith has been promoted to manager, facilities plan ning department, of this Hamilton, O .-based firm. He now supervises planning services for financial institu tions and participates in consultations with prospective customers and their architects on site development/space planning. Mr. Smith, with Mosler since 1968, was an architectural spe cialist prior to his promotion. M ID-CONTINENT B A N K ER for Jan u ary , 1 9 8 4 Third National extends your loan power. When a good custom er needs a level of credit that exceeds your lending lim its, then you need credit overline service from Third National Bank. Credit overlines arranged through our Correspond ent Bank Departm ent give you expanded lending ca pabilities, and allow you to respond quickly to credit requests from your valued custom ers. response you can depend In fact, Third Nation on, because we under al’s Correspondent Bank services will extend your stand your banking needs. financial offerings through Call our Correspondent a broad range of services, Bank Department, and let’s talk about the including cash man 1 services we can pro agement, data pro THIRD vide for you, and cessing, investment NATIONAL your custom ers. management, trusts, BAN In Tennessee, leasing, and interna L dial toll free: 800/ tional banking. 342-8360. In neighboring Third National C orre spondent representatives states: 800/ 251-8516. give you the fast, accurate EXTENDED RESOURCES. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Member F.D.I.C. Community Banks Hit Lightest By Effects of Deregulation, Say BAI Survey, Panelists OST CHANGES predicted to be involved in mergers during the dec occur in the banking industry ade. due to deregulation in the decade of • Profits will decline, due primarily the 1980s will be felt by regional and to higher deposit costs, expenses money-center institutions. Commu associated with developing new prod nity banks — although not immune ucts and increased competiton. from change — will be relatively un • Banks that succeed in getting a leg scathed by developments occurring up on their competitors by developing prior to 1990. new services will find their advantage This is a summary of opinions ex will be short lived, due to the ability of pressed at last month’s video telecon competitors to quickly copy such ser ference broadcast to 40 cities by the vices. Bank Administration Institute. Ap • There will be a general miscon proximately 2,000 bankers were in ception of plans of competitors among attendance. bankers, which means many bankers Title of the teleconference was “Sur will be in for some surprises. vival in the ’80s: the S tra teg ic Panelists appearing on the telecon Choices.” Basis for the presentation ference program included a regulator was a detailed survey of key bankers and representatives of the banking and conducted by the BAI and Arthur thrift industries. Andersen & Co., CPA firm. Zeroing in on the fortunes of com Key findings of the survey include munity banks for the decade of the the following: ’80s, both those who presented the • Evolution, not revolution, is the survey results and panelists gave the expectation of surveyed bankers for impression that community banks will the decade. experience the lion’s share of profita • Major industry consolidation is bility decline during the decade. Aver seen, with the number of banks declin age decline is predicted to be about ing by almost one-third — to 9,600 by 10%, but community banks can expect 1990. a 15% decline. Capital needs of all • Significant merger activity will banks will increase about 10% annually occur. More than half of all banks will and capital will be hard to come by for M Bank-Earnings Decline Foreseen ANK EARNINGS will decline as a result of higher deposit costs, expenses associated with developing new, differentiated products and increased competition, according to the BAI/Arthur Andersen sur vey of bankers. By 1990, bank ROA is expected to drop from 1.13% to under 1.0% for small banks, from 0.92% to 0.86% for medium-sized banks and from 0.82% to 0.76% for large banks. Capital will grow at 10%. Internal sources will account for all but 14% of new bank capital through 1986. By 1990, external sources will in crease to 17%. Adequate capital generally will be available despite depressed earn ings during the late 1980s. Large banks will find new capital more readily available than will their medium-sized and smaller counterparts. Interest income in 1990 will continue to be the dominant source of bank income even after decreasing almost one-tenth to 87% of rev enues. Fee-based income will almost double, but will represent only 7% of total revenues. Interest on deposits and purchased funds will increase to about 73% of total expenses, up from 70%. The increase in interest expense and the corresponding drop in interest income will force banks toward more explicit pricing of other financial services. B S/20 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis many community banks. Community banks must concentrate on personal service in order to survive the next 10 years. Such service has been their hallmark for years, and there’s no substitute for it. In the regulation area, community banks will focus on pricing issues, while large banks will be more con cerned with structure issues. Small banks will find that changes they favor in regulatory practices will be difficult to achieve. Most oi the 37% decline predicted in the total number of banks in the U. S. by 1990 will occur among com munity banks. By 1990, the survey re veals, 3% of the nation’s banks will hold 65% of the industry’s assets. Acquisitions will not affect commu nity banks much, since many smaller institutions are not attractive to large banks as acquisition material. Also, nonbanks are not expected to make major inroads in acquiring banks, since a nonbank needs only one bank ac quisition to give it a foothold in the banking industry. In the technology area, competi tion, not consumer demand, will dic tate changes. Today, one-third of the nation’s banks use ATMs; by 1990, one-half are expected to have the machines in use. Panelists pointed out that they disagreed with the conclu sion that consumer demand will be subordinated to competition. They said self-serving has not always been in the best interests of banks or their cus tomers. Surveyed bankers predicted a lending-rate increase for the decade of about 1%, with home mortgages and installment loans sharing the honors for the highest growth rate. Banks are expected to hold steady on their mort gage-loan and in stallm en t loan volume, despite the fact that these areas are the most highly competitive. Bankers surveyed b eliev e the majority of the nation’s bankers are not prepared for deregulation. Only the strategic planners will survive. One of the major problems with planning is that most banks develop plans but don’t implement them. Management quality is in need of improvement. Better-qualified people are needed, along with better motiva tion. In the marketing area, a better understanding of banking products is needed that will result in better cus tomer service. Another need is to re vamp the distribution system in bank ing, bankers predicted, but the re vamp isn’t expected to result in re placement of branches, just an updat ing of them. Among the panelists, the most ar- M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 ticulate was FD IC Chairman William M. Isaac, who seldom missed an opportunity to assure bankers that his agency desires to see competition call the shots for the industry in the years ahead. He said risks and rewards are greatly accelerated by deregulation and he confidently predicted that most banks can meet the new challenges deregula tion is presenting to them. He admit ted that the bank-failure rate will be higher than it has been in the past, but qualified that by stating that the failure rate has been artificially low under reg ulation. He termed 45 failures a year as “not high” compared to the rate in other industries. Later in the program, he said he doesn’t want government regulations to dictate the market segments banks and thrifts must serve. He’s happy that deregulation is forcing bankers to make the same types of decisions other industry leaders have been making all along. He added that the banking in dustry is in the first stages of an evolu tionary process, thanks to deregula tion. Mr. Isaac admitted that any increase in number of banking services poses a regulatory challenge. There’s more risk associated with the freedom to compete. Yet, the risks don’t outweigh the benefits. He predicted that more disclosure will be needed and that some new services should be chan neled into subsidiaries. On the topic of banks getting more involved in the sale of insurance, Mr. Isaac said C ongress d efin itely is opposed because of the high risks associated with underwriting secu rities and insurance. However, he sees nothing risky about banks acting as brokers in securities, insurance and real estate. A portion of the teleconference was devoted to an interview with Senator Jake Garn (R. ,Utah), chairman, Senate Banking C om m ittee. The senator admitted that there’s no chance his banking bill will be adopted in its en tirety. In fact, he wants the proposals in the bill to be carefully considered over a period of time so that the bill will accurately reflect changes that the industry needs. His introduction of the bill is the start of a process that will develop into acceptable legislation. He admitted that he doesn’t know what the banking industry should “look like” in 1990. He sees his role as that of a catalyst for change. “There’s no such thing as a level playing field,” he added, but he sees his role as the individual to assure that the closest thing to a lev el playing field is achieved. He thinks banks should be permit ted to sell and underwrite municipal revenue bonds and mutual funds through subsidiaries, but he sees little hope for congressional authority to en able banks to be real estate and insur ance brokers. Senator Garn said there’s no way interstate banking will be authorized, but he, for one, favors regional bank ing pacts, such as the one fashioned by the New England states to permit mergers among those states. He ex pects Congress to put its stamp of approval on such pacts in the forth coming banking bill. He said he doesn’t favor a super reg ulatory agency, but decried the fact that 11 regulators were involved with the Butcher situation in Tennessee. He favors regulation by function — all banking functions regulated by one agency, even those performed by non banks. All firms offering the same ser vices should operate under the same set of rules, he said. The senator sees a great future for community banks. “They are strong and will continue to be strong,” he Bankers' Bank Gets Federal Charter HE first federally chartered bankers’ bank has received approval by the Comptroller of the Currency to begin operations. Louisiana Independent Bank, N. A. will provide correspondent ser vices to Louisiana banks from its office in Baton Rouge. The bank is capitalized at $2 million, with $3 million surplus. Seven Louisiana bankers will serve as directors. Previously, bankers’ banks have been chartered by states, but the Garn-St Germain Depository Institutions Act of 1982 authorized the Comptroller to charter such banks. Organizers of the new bank include Ray Aucoin, president, Vermilion Bank, Kaplan; Ronald M. Boudreaux, president, First National, Ope lousas; L. J. Folse, president, Terrebonne Bank, Houma; A. Henry Kinberger, president, Security First National, Alexandria; Lawrence A. Melsheimer, president, Iberville Trust, Plaquemine; George R. Pabst Jr., executive vice president/CEO, City Bank, New Iberia; and Charles A. Patout, chairman, Gulf Coast Bank, Abbeville. The new bank will assist respondents in developing and originating large, complex credits; improving documentation through suggested forms and policies; planning and marketing; and development of new services and products for respondents. Correspondent services expected to be offered during the first year by Louisiana Independent Bank include cash-letter remittances/clearings, wire transfers, currency/coin, sale/purchase of Fed funds, sale/ purchase and trading of securities, money-market/securities informa tion, securities safekeeping, computer-processed investment portfolio reports, overline participation loans/purchase and sale, bank-stock loans, off-site records storage and payroll services. Services expected to be offered during the bank’s second year include investment portfolio analysis/advice, policy/procedure guides, educational/training programs, loan-pool establishment, access to secondary markets for sale/purchase of loans and personnel assistance. T M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis said. The biggest cloud on the horizon covers m edium -sized banks and thrifts, he added. Both types of institu tions will be squeezed as deregula tion’s effects continue. He was asked what the impact of banking legislation in 1980 was. “The legislation recognized Congress’s con cern about the changes going on in the banking industry,” he replied. It was an important beginning to a process and it accomplished what it was sup posed to accomplish. As to the future of banking legislation, he said it’s possible there will be a major banking bill each year so that the industry doesn’t get as far behind the times as it did prior to the 1980 legislation. He cautioned bankers to realize that they are no longer being protected by regulations. Regulation was governing their decisions, but now they are free to make their own decisions. He advised bankers not to jump at every new technological innovation, but to make progress a steady series of im provements, so the transition will be smooth, not jumpy. — Jim Fabian, senior editor. S/21 Asset/Liability Management Critical Concern to CEOs l i a b i l i t y /m a n a g e ment topped the list of bank CEOs’ most critical concerns, accord ing to a November survey of the 2,140 CEOs of all U. S. commercial banks with assets of more than $100 million. The survey was conducted by Egon Zehnder International, an executivesearch firm, with offices in Atlanta, New York City and Chicago, as well as in M exico C ity, South A m erica, Europe, the Far East and Australia. Ranking in order behind asset/liability management were these critical concerns: deregulation, business de velopment, competitive environment and strategic planning. Although strategic planning ranked only fifth among the 21 concerns named by all bank CEOs, it was the first choice of banks with more than $5 billion in assets. These banks control 44% of all U. S. commercial-bank assets, says Egon Zehnder. Bank CEOs surveyed control 83% of all U. S. commercial-bank assets, and the extremely high response rate of 26.7% was consistent by bank size and geographic region, according to Egon Zehnder. A sset The survey found that 74% of the CEOs expect their institutions to ac quire another bank within five years. Conversely, nearly one in three of the CEOs expects his bank to have a new owner within the same period. Mid sized banks (assets of $1 billion-$5 bil lion) are even more likely to be “for sale” than their smaller counterparts ($100 million-$l billion). Among other significant survey find ings were: • The new com petition: Four out of five C E O s (83% ) b eliev e M errill Lynch is a significant competitor now, with Shearson/American Express at 47% and Sears at 39%. However, when asked which institutions would be major competition in 1990, Sears (86%) edged out Merrill Lynch (85%), followed by Shearson/American Ex press (70%). Kroger, the giant grocery chain, also enjoyed dramatic growth in competitive reputation, from 0.4% now to 11% in 1990, indicating the era of the financial-services supermarket truly may have arrived. • B an kin g s le a d e r : In an openended question, 27% of the CEOs named Citibank, New York City, as What Bank Directors Should Know About Considering Tender Offers ANY BANK directors have noticed a decided step-up in tender offers for banks. Most offers are friendly, but some are not. Sometimes, only one or two major shareholder directors are privy to an offer since they control the bank and are in a position to accept or reject the offer. The courts have offered mixed decisions about the fairness of such practices to other shareholders and directors. Directors probably are safe from personal liability if they can show they acted with diligence. That means they carefully considered the merits of all tender offers or proposed mergers and gave stockholders the benefit of their informed business judgment. Some authorities suggest that placing a tender offer before a commit tee of outside directors helps defuse any argument that management didn’t self-entrench and that it acted in good faith. While bank control often sells at a premium to noncontrol and most banks are not “public” in the Securities and Exchange Commission connotation, it should be recognized that minority noncontrolling shareholders are much more litigation prone today than they were only a few years ago. Maintaining board minutes that show careful consideration of tender offers and recommendations of non-management directors will show stockholders that directors acted with informed business judgment. The precedin g is an excerpt fr o m a recen t issue o f The BANK BOARD L etter. See announcem ent on fa cin g page f o r details abou t an o ffe r f o r a sam ple copy. M S/22 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis the country’s best-managed bank, fol lowed by Morgan Guaranty, also of New York City (20%), and Wachovia Bank, Winston-Salem, N. C. (9%). Of the 59 banks nominated in total, only these three were cited by CEOs of every size bank and from every region of the country. Citibank was the clear favorite of smaller banks, says Egon Zehnder, while Morgan Guaranty was the primary choice of banks with assets of more than $5 billion. • Regional fav orites: When asked to name the best-managed bank in their regions, the CEOs chose: E a s t— Mel lon Bank, P ittsbu rgh ; S ou th — Wachovia Bank; M idwest — National Bank of Detroit; W est — Security Pa cific, Los Angeles. The CEOs also predicted cities in each region that have the most poten tial for economic growth in the next decade, with the leading choices for “Cinderella cities” being: E a s t — Bos ton, Pittsburgh, Washington, D. C.; M idwest — Minneapolis/St. Paul, In dianapolis, Columbus, O .; South — Dallas, Atlanta, Houston; W est — Denver, Phoenix, San Diego. “It’s clear,” says Samuel H. Pett way, p rincip al-in-ch arge of Egon Zehnder s Atlanta office and survey coordinator, “that acquisition fever is prevalent among banks all across the country. With the indicated overlap between banks that expect to be ac quired and those planning to acquire, there are intriguing implications for the price/earnings multiples of bank securities in the years ahead. These CEOs are at the forefront of one of the most radical competitive changes ever to face any industry, and a fascinating answer emerged when the CEOs were asked what experience would be significant for the next CEOs of their banks. ” Mr. Pettway points out that more than half (52%) think management ex perience in a nonbanking environment will be “very” or “extremely” impor tant to the next CEOs, and a resound ing 83% of CEOs of the nation’s largest banks (assets of over $5 billion) agree. Clearly,” he says, “bankers aspir ing to the top jobs in their own orga nizations may face career competition from some unexpected sources.” • • C o p ie s o f th e s u r v e y d e s c r i b e d in th e a c c o m p a n y in g a rt ic le m ay b e o b ta in e d by w ritin g o n e o f th ese E g o n Z e h n d e r I n t e r n a t io n a l o ffic e s : E i g h t P ie d m o n t C e n t e r , A t la n ta , G A 3 0 3 0 5 ; O n e F i r s t N a t io n a l P la z a , C h ic a g o , I L 6 0 6 0 3 ; 6 4 5 F ift h A v e ., N ew Y o rk , N Y 1 0 0 2 2 . M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Attention Bank CEOs: Directing a bank isn t easy! Why not give your board some help? • % t OUR D IRECTO RS deserve to be “enrolled” in the valuable — and continuous — educational program provided by The BANK BOARD Letter. This monthly educational program is designed to en lighten and inform directors of financial institutions and their HCs about the often-complicated business of financial-institution management. For almost 15 years, The BANK BOARD Letter (a four-page monthly newsletter) has been alerting directors to current topics of vital interest. Each issue includes information directors need to better serve their financial institutions and/or their HCs. Recent issues have discussed anti-takeover measures, changing cor respondent relationships, developments in risk management, changing legal lending limits, reducing overline-loan violations and considering tender-offer merits. Over a year’s time, dozens of current topics and timely advice are offered to guide directors in their deliberations. The BANK BOARD Letter is unique among publications for finan cial-institution directors because it draws on the long-time banking experience of Dr. Lewis E. Davids, former banker and current Profes sor of Finance at Southern Illinois University, Carbondale. As editor of The BANK BOARD Letter, Dr. Davids draws on his rich and extensive background of banking and teaching. His experience and resources make him eminently qualified to present banking topics to directors and top-management people at financial institutions. To receive a free sample copy of The BANK BOARD Letter, simply fill out and send in the coupon below. You will receive complete subscription information. Y r ----------------------------------------------------------1 I The BANK BOARD Letter j 408 Olive St., St. Louis, MO 63102 I Please send me complete information about The BANK BOARD I Letter, along with a sample copy. | | N am e_________________________T itle ------------------------------------- | | B a n k ---------------------------------------- ----------------------------- ------------ | I Address --------------------------------------- —----------------------------------- I | City __________________ S ta te ______________Z ip --------------------- | ____________________ 1 ------------------------------------------------------------------------------------------ ------ ■----------------M ID-CONTINENT BA N K E R fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S/23 BANKING WORLD • Donald T. Senterfitt, vice chairman/senior executive officer, Sun Banks, In c ., O rlando, F la ., has announced his candidacy for ABA president-elect in 1984-85. He has one opponent, Bill Rodgers, chairman, Security Bank, Blackwell, Okla. Mr. Senterfitt was the organizer/founding director of his bank HC in 1966 and is the former chairman of its executive and audit committees. He has been a director of Sun Bank, Orlando, 20 years. In the ABA, Mr. Senterfitt was on the ABA board from Region III, 1982-83; ABA council, 1980-present; ABA governing council, 1978; ABA taxation committee/subcommittee on state taxation, 1976-78; ABA special task force on state taxation of banks, 1971-76; and ABA special task force on Uniform Consum er C red it Code, 1967-70. He also was ABA state vice president for Florida, 1981-82. • The Chicago Fed has announced these staff changes: David R. Allardice, to economic adviser/vice presi dent, economic research department; G len Brooks, to vice p resid en t, marketing activities, Detroit Branch; Stephen M. Pill, to vice president, market research/product management and promotion/customer relations; Richard P. Anstee, to vice president/ d irecto r of autom ation serv ices; Frederick S. Dominick, to vice president/assistant branch manager, D e troit; Harvey Rosenblum, to vice president/associate director of research; and Gerard J. Nick and Kenneth R. Berg, to assistant vice presidents. Assistant Vice President William A. Bonifield has been assigned to the fis cal agency department; James M. Rudny, assistant vice president, to wire/ security transfer area; and Theodore Downing, assistant vice president, to operations. In other action, the Chica go Fed announced reelections of two directors for three-year terms: O. J. Tomson and Leon T. Kendall. Mr. Tomson is president, Citizens Nation al, Charles City, la., and Mr. Kendall is chairman/CEO, Mortgage Guaranty Insurance Corp., Milwaukee. • W ayne Angell, chairm an, F irst State, Pleasanton, Kan., has been elected to a second three-year term on the board of the Kansas City Fed. Richard D. Harrison, chairman/CEO, Fleming Cos., Inc., Oklahoma City, was elected to his first three-year term on the same board. S/24 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SENTERFITT FORRESTAL • R ob ert P. F o rre sta l has been elected president, Federal Reserve Bank of Atlanta, succeeding William F. Ford. Mr. Ford resigned in Octo ber to become president, First Nation wide Financial Corp., San Francisco. Since 1979, Mr. Forrestal had been first vice president of the bank, which he joined in 1970 as vice president/ general counsel and where he was senior vice president/general counsel, 1974-79. From 1968-70, Mr. Forrestal was assistant secretary, Federal Re serve Board, Washington, D. C. B e fore that, he had been the F R B ’s legal division’s attorney and then senior attorney. From 1961-64, Mr. Forrestal was an associate attorney with a law firm in the nation’s capital. He is a 1961 graduate of Georgetown University Law Center, Washington, D. C. • John J. Gill has been named general counsel to the ABA. He succeeds W il liam H. Smith, who has retired. Mr. Gill formerly was federal administra tive council for the ABA’s government relations group. He joined the ABA in 1964 after graduating from George town University Law Center, Wash ington, D. C. As the ABA’s general counsel, Mr. Gill heads the associa tion’s legal staff. • D a rrell W . Dochow has been appointed assistant chief national bank examiner, Office of the Comptroller of the Currency (OCC). In his new post, he is responsible for ensuring the effectiveness of activities carried out by the divisions of commercial ex aminations, consumer examinations, electronic data processing examina tions and bank accounting. He joined the OCC in 1972. • R ob ert M orris A ssociates has announced some changes in its head quarters staff in Philadelphia. Kathryn E. Tusler has been promoted to direc tor of the credit division, where she formerly was assistant director. John M. Murphy has been promoted from assistant director to director of the chapters division. In a related move, Luis W. Morales was given expanded managerial duties. Formerly chapters division director, Mr. Morales now su pervises the division’s new director, Mr. Murphy, and also supervises the RMA’s monthly Jo u rn a l o f C om m er cial B ank Lending. In addition, Mr. Morales continues to direct the asso ciation’s marketing/public relations/ publishing efforts. More Work for Banks! The Interest and Dividend Tax Compliance Act of 1983 significantly increases administrative responsi bilities of payors of interest, div idends and annuities, says the national director of technical tax ser vices for Price Waterhouse, account ing firm headquartered in New York City. The CPA firm says financial in stitutions and organizations offering pension and deferred-compensation plans now are subject to more strin gent IRS requirements. The new act relaxes some of the withholding and reporting require ments of 1982 s TEFRA (Tax Equity and Fiscal Responsibility Act), but expands others. Price Waterhouse says that one of the most controver sial provisions of TEFRA required federal income tax withholding on and increased reporting for interest and dividends. The 1983 act repeals these requirements. TEFRA also introduced the con cept of “backup withholding” pay ments whereby a tax of 15% is im posed on unreported interest and dividends. The new act increases this tax to 20% and provides for addi tional penalties. A number of major changes have been made regarding reporting of and withholding on various kinds of deferred compensation. For exam ple, recipients now will have greater control over the extent, if any, to which withholding applies to such compensation. Price Waterhouse is offering an analysis of the new regulations, called “Guide to the Withholding and Reporting Requirements: The 1982 and 1983 Tax Acts. ” Copies are available from any Price Waterhouse office or from Leon M. Nad, Nation al Director — Technical Tax Ser vices, Price Waterhouse, 1251 Ave nue of the Americas, New York, NY 10020. MID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Here Today, Here Tomorrow. A W mAà When you install Système's powerful Banking System, we want to make sure it will lead to higher productivity and better customer service at less cost for your institution. That's why Système professionals will be with you every step of the way — today and tomorrow — through installation, training and transition. And when there are regulatory changes, or when you act on new competitive opportunities, we'll still be there, helping you take advantage of every benefit this complete Banking System offers. We invite you to request details about the Système Banking System, which is designed specifically to run on the IBM 34/36/4300 computers. And be sure to ask about Système service after installation — we want you to know. The Système Banking System: 15 integrated applications for every information and operational need. The Système Banking System...You can bank on it. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis s/stème M ore than a system. A com m itm ent. Système Corporation 3443 Parkway Center Court • Orlando, Florida 32808 (305) 298-8180 ForYour Bank, Nothing Less W ill Do. Arrow Business Services offers you Kittinger, including the Georgian Series pictured here. And Baker, Gunlocke, Steelcase, Knoll...the who’s who of office furnishings. All the prestige names display their best in our Memphis showroom, complete with accessories, carpet, window and wallcovering. Arrow’s staff of ten experienced bank designers can make your bank a stunning and workable showcase from the executive offices to the customer, operations and data processing areas. Give us a call for a professional, costeffective proposal to meet your bank’s building and furnishings needs. We offer the best, and we know you expect nothing less. HRROI44 BUSINESS SER V IC ES IN C. r an affiliate of Midland Bank & Trust 3050 Millbranch, Memphis, Tennessee 38116 901/345-9861 34 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Mixed Bag of Banking Issues Expected in State Legislatures Illinois. Bill Olson of the Illinois M IXED BAG of legislative issues is expected to be considered by Bankers Association reports that the Illinois legislature will have a short ses legislators in the 17-state Mid-Con tinent area this year, according to state sion this year that will deal primarily bankers association representatives with revenue and appropriations bills. The IBA expects to have a legislative and bankers responding to inquiries by program formulated by February. The this publication. Interstate and intrastate branching association currently is soliciting input are uppermost in the minds of many from m em ber banks and from its bankers this year. More than one standing committees. No major legislation affecting bank state’s legislature is expected to raise the possibility of reciprocal-branching ing is expected. However, Gilbert E. Coleman, chairman/president, Secu privileges among states or regions. Interest-rate ceilings will be on the rity Bank, Mt. Vernon, says he is dockets in some states, with one or monitoring possible legislation that more legislatures taking up the issue of would permit reciprocal owning of whether or not to permit higher rates banks across state lines, branching passed under sunset provisions to be within a bank’s county or a 25-mile radius of the bank’s main office and renewed or allowed to lapse. State bankers also are eager to see consumer legislation. their institutions gain parity with their * * * nationally chartered brethren in the area of new powers that nationally Indiana. The Indiana Bankers Asso chartered banks received from the ciation’s board has established an Garn-St Germain legislation of 1982. agenda of legislative proposals for this Following is a b rief summary of year’s session of the Indiana General possible sta te-leg isla tiv e activity Assembly, according to Thomas B. affecting banks this year: Williams, director of government rela * * * tions. Alabama. At press time, the Ala Specific items on the agenda in bama Bankers Association’s legislative clude: committee had not fashioned a legisla • Amending statutory vacation re tive package for 1984, and, according quirements. The IBA favors amending to Kathryn J. Goray of the Ala. BA staff, existing legislation to reduce the re no legislation had b een proposed quirement that bank employees take affecting banking at the time M i d - annual vacations of at least two con C o n t i n e n t B a n k e r went to press. secutive weeks to just one week. However, Harry B. Brock Jr., CEO, • Updating lending limitations of Central Bank of the South, Birming state-chartered banks, to bring them ham, lists reciprocity in interstate in line with recently revised regula banking, S&L powers and expanded tions for national banks made by the intrastate branching as issues he is Comptroller of the Currency. monitoring. • Clarifying the agricultural prod * * * ucts lien law regarding the acceptabil ity of photocopies of UCC-1 forms to Arkansas. The Arkansas legislature satisfy notice requirements of the agri does not meet this year. However, cultural products lien law. possible changes in HC laws are being • Clarifying the Troubled Bank Act monitored by William H. Kennedy of 1983, which currently is in conflict Jr., chairman, National Bank of Com with the Bank Holding Company Act. merce, Pine Bluff. • Simplifying ATM-branching pro cedures by eliminating the need for a A M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis bank to apply for and receive the approval of the Department of Finan cial Institutions for the establishment of unmanned ATMs as branch banks. • R estrictin g out-of-state banks from the municipal-bond process. The IBA also favors allowing the D e partment of Financial Institutions to appoint the FD IC as a receiver when a bank is being liquidated, amending branching statutes to permit county wide branching by state-chartered sav ings banks and removing capital re quirem ents for ATMs operated by state-chartered savings banks. The IBA will again remain neutral on the bank-structure issue, although it will encourage discussions of the issue. Legislation to amend the state s banking-structure laws is anticipated this year, but there is no way at this time to judge the outcome of the leg islation. The IBA is opposed to any legisla tion allowing fertilizer distributors to file mechanic’s liens that would disturb the standing of any previously per fected lenders’ liens and to continue opposing any changes to statutes gov erning foreclosure procedures. * * * Kansas. By far the most visible banking issue in the Kansas legislature during 1984 will be establishment of multi-bank HCs, says James S. Maag, director of research, Kansas Bankers Association. Currently bank HCs in Kansas can own more than 25% of the stock in only one bank. HB 2001 would permit HCs to control 25% or more of the stock in one or more banks, but would limit the number of banks an HC could control in relation to total deposits of all financial institutions in the state. The Kansas Bankers Association will remain neutral on the issue, but the Kansas Independent Bankers Associa tion and the Kansas Association for Economic Growth are expected to be directly involved. The KBA will support legislation to 35 expand investment authority for statechartered banks that would permit them to invest in the obligations and securities of Sallie Mae and Freddie Mac as well as in financial futures. The KBA wants state-chartered banks to be on a par with national banks in this area. The KBA also is requesting legisla tion that would permit Kansas banks to utilize remote-service units in other states on a reciprocal basis. Two bills will be supported by the KBA involving reforms in the Kansas version of the Uniform Consumer C red it Code. Among the m ajor changes are deregulation of all con sumer loans in excess of $10,000 for rate purposes and a 30% ceiling on all consumer loans of less than $10,000. Also included is a removal of the Rule of 78s as a method of rebate and the allowance of balloon notes under the code. The KBA also supports increases in minimum finance and delinquency charges as well as the creation of a nonrefundable origination fee on second mortgages. A bill to authorize local government units to invest up to 25% of their monies in commercial paper is ex pected to be introduced. * * * Kentucky. The multi-bank HC issue will arise again this year, says Ted Bradshaw, director of government re lations for the Kentucky Bankers Asso ciation. This authority was defeated by one vote in the 1982 session. The KBA supports multi-bank HCs. Bank HCs would be allowed to ac quire no more than three banks in any one calendar year and no HC could hold more than 20% of the deposits in the state. After a two-year waiting period, bank HCs could make acquisi tions across state lines on a reciprocal basis. Other issues to come up include lending-rate legislation on loans under $15,000, a revolving-credit-rate in crease and authority to charge annual credit-card fees, legislation relating to investment of state funds and legisla tion regarding the bank-shares tax. * * * Louisiana. The Louisiana Bankers Association will be backing legislation to recodify state banking law. The effort has the support of the commis sioner of financial institutions, accord ing to John R. Williams, director of government relations for the LBA. Although recodification presently is in draft form, it’s anticipated that draft copies of the complete legislation will be in the hands of key legislators well 36 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis in advance of the April legislative ses sion. * * * Michigan. Although the Michigan Bankers Association doesn’t have a leg islative package ready to submit to the state’s lawmakers yet, a potpourri of bank-related legislation is expected during 1984, according to Don Heikkinen, MBA senior vice president/staff counsel. Michigan bankers want to give statechartered banks equal powers with national banks, ala the Garn-St Ger main legislation; the issue of state wide branching is expected to be raised (the MBA remains neutral on this issue); and interstate as well as foreign branching also may come up (foreign relating to Canada). Efforts are expected to be renewed to get a usury bill through the legisla ture this year, since Governor James J. Blanchard vetoed such a bill just last month. That bill would have raised the rate on auto loans from 15% to 16.5%. The governor is believed to have a plan in mind for economic development that would require banks to make a percentage of their capital available for loans to small businesses. * * * Minnesota. The Minnesota Bankers Association reports that it’s waiting for the state’s governor, Albert H. Quie, to show his hand as to what legislation he has in mind affecting banks. David M. Gilman, president, Fidel ity Bank, Minneapolis, says he is moni toring the topics of expanded intra state branching, increased powers for banks and thrifts and opening Minne sota to interstate branching on a recip rocal basis. * * * Mississippi. The state’s usury ceil- BANK POSITIONS Trust Administrator ........................... AgriLoan ................................................................... Second Officer/Loans ........................................ Cash Management............................................... Supervisor/Retail Dlv............................................ Commercial L o a n .................................................. Commer/AgriLoan ............................................... Asst. Controller .................................................... Operations................................................................ $28K $30K $30K $30K $24K $27K $30K $22K $28K Additional opportunities available in Midwestern States. All inquiries remain confidential. TOM HAGAN & ASSOCIÂTES of KANSAS CITY P.O. Box 12346/2024 Swift Worth Kansas City, MO 64116 816/474-6874 SERVING THE BANKING INDUSTRY SINCE 1970 ings revert to lower levels in June. The Mississippi Bankers Association will ask the legislature to adopt adequate, competitive and permanent usury ceil ings, says John Hubbard, MBA execu tive director. The association also will ask the legislature to remove bond and note rate ceilings for public offerings. Mr. Hubbard also says legislation is needed to permit adequate reimburse ment of banks for search time and re production costs in connection with records in response to subpoenas. * * * Missouri. Missouri bankers have assigned their highest priority to the passage of a variable-term consumerloan bill during this year’s legislative session. According to John Harlin, presi dent, Bank of Gainesville, and chair man of the MBA’s governmental affairs com m ittee, the proposal receiving maximum support of the association would: • Permit parties to agree to variable interest rates for all consumer loans. • Establish a floating-rate ceiling at double the current rate for 26-week Treasury bills, not to exceed 24%. Additionally, the proposal specifies that the variable rate would not apply to credit cards, that interest be com puted on a simple-interest basis and that no prepaym ent penalty be allowed. Missouri bankers also have assigned a high priority to defending the posi tion of those who make loans that list farm products as collateral. Some com mercial buyers of farm products have instituted a campaign to influence the General Assembly to alter the Uniform Commercial Code so non-consumer business buyers of farm crops and livestock could purchase such prod ucts from farmers free of any liens. Under existing law, such liens con tinue to be valid and must be satisfied, either by the product purchaser or the original borrow er. Although liens must be recorded with the county, farm-product buyers must check with numerous counties to make certain no liens are outstanding. Even then, Mr. Harlin says, buyers can’t be absolutely certain. In some instances, farmproduct buyers find they still must satisfy a lien after having paid for the farm product. To help protect buyers of livestock or other farm products, the MBA is suggesting that all such liens be filed not only with the county, but with the secretary of state. The MBA also will endorse a bill that would permit banks that are contract(C ontinued on page 44) M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Our clients rave about The “ People Campaign’s’! results. They’re even more impressed (and often surprised) with the SERVICE. The “ People Campaign’’ is America’s only marketing/motivation program that systematically involves your staff in “ selling’’ your financial institution. This is not a canned advertising or training program. It’s totally unique. It requires constant communication and followthrough from us year round or it will not work. It works. . . dramatically. And we make sure it works by running alongside you every step in the program. SERVICE can be an empty prom ise.. . or a passionate commitment. Our clients will tell you which to expect from us: “I’ve probably looked at 20-25 programs over the last 3V$ years... this is the best. It does two important tasks at once. It instills a new service ethic in the bank... and, at the same time, projects that service ethic out into the community in a first-class way. The communication and service level at KPS is well beyond what they represented in their initial presentation. We were sure the theme fit our institution, but the attention to detail, the follow-through and the quality of production exceeded our expectations. No community bank could possibly have the expertise to design and execute such a program with the almost infinite attention to detail and quality that is inherent in the program. KPS’ fee is an outstanding value in relation to all that’s provided.” JAMES C. HOLLY, President Bank of The Sierra Porterville, California “For years I have been reviewing programs in the hope that I would find the ‘right’ one for our bank. But with every interview I was disappointed to find that they all seemed the same -just another ‘canned’ program. KPS showed us that a prepackaged campaign could be different by providing that extra spark for our employees. I have been surprised that the president of the company, Ken Smith, has been in constant contact with us trying to insure that we utilized the program in the best possible way. It’s almost as if we have our own marketing staff - that’s what will make us renew our program for another year.” HARRY BROWN, JR . Vice-President The First National Bank in Sylacauga Sylacauga, Alabama “Communication with KPS has been excellent - effortless on our part! Service continues ‘as advertised’. I don’t see how KPS’ contribution to our Kick-Off Party could have been better.” JAMES LOWTHER, Vice-President Citizens National Bank & Trust Co. Emporia, Kansas “We registered an 18% decrease in our ad budget during the 1st year of campaign. I project an additional 20% reduction this year. We increased our market share over the previous year despite dropping all ‘product’ advertising. Also we increased asset growth with the same staff level- a 20% increase in productivity. We recently adopted the highest level of service charges in the area. Our staff sold it to customers because they felt they were worth what the bank was charging.” JAMES BILLMEYER, President Marine National Bank Wildwood, New Jersey “KPS is always available to answer our questions. If Ken or Teri are in a meeting, they always call back the same day. All promotional material has arrived on time and any copy changes or corrections have been handled immediately. KPS did a great job in both preparation and presentation at our Kick-Off Party. No details were overlooked. All response from the staff has been positive. We are going through a lot of changes in our bank and I believe this is helping to pull everyone together.” JER R Y KENNEDY, Vice-President First National Bank of Belen Belen, New Mexico Please send me your 12-page brochure describing T H E “ P E O P L E CAMPAIGN.” No obligation, of course. Title Name ©1983 Financial Institution Call Toll-Free 800-222-0461 Street ASSOCIATES,inc City 391 Somers Point/Mays Landing Rd., P.O. Box 100 Somers Point, New Jersey 0 8 2 4 4 Telephone https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis State Zip of employees Gap Exposure — It's Worse Than Your Accountant Thinks AP ANALYSIS became popular etc.), then four successive rapid in By David L. W ark about five years ago. In its early terest-rate increases will tend to de stages, it concentrated attention on the crease net income far more than four Da vi d L. W ark is e .v .p ., N a tio n a l single-period mismatch between vari interest-rate increases spread out over Bank of Commerce, able-rate-funding sources and vari longer intervals, and vice versa. Turn Memphis, and ch., able-rate uses. ing to the condensed gap report in Commerce General Technically, it has been difficult for Table I, we show six time intervals. C o rp ., d a ta proc the industry or even individual banks The gap in each interval would be: essing subsidiary of to take the theory much further be N BC, w h ich he T im e in joined in 1973 as cause the accounting information has E ach chief financial plan not been available. For example, until A vg. G ap In terv a l ning officer. He has recently, our variable-rate asset/liabilTime Interval 1 $68 Million 30 Days served as sec./treas., ity categories included all accounts Months) 2 $46 Million 30 Days National Commerce 3 $42 Million 30 Days whose rates were likely to change in Bancorp, M emphis, NBC's parent com 4 $24 Million 30 Days the next 12 months! In fact, as long as pany. Mr. Wark formerly was with Amer 5 $19 Million 30 Days rates inch back and forth to a limited ican Express International Bank as a.v.p., 6 $19 Million 30 Days degree in a calendar year, the length of planning/budgeting, and, before that, was director of corporate planning, American the maturity categories for variable Let us now assume we experience Express Co. rates doesn’t make that much differ four rapid interest-rate adjustments of ence. 1% per month for four consecutive A different picture emerges if we able-rate loans will be selling for a dis months and that for all practical pur take a new look at the maturity break count against money costs until fund poses, the individual period gaps stay down of variable- and fixed-rate cate ing rates are able to adjust to the lower the same. Also note that it will take six gories and manually calculate and esti prime levels. But what if prime drops time intervals before each separate in mate the volume of loans with fixed four times in four successive weeks? terest-rate change will work itself rates that are maturing at various That suggests the funding side of the through the balance sheet as shown. monthly intervals during the year. By balance sheet has received fo u r suc (See Table II on page 39.) the way, most banks will have a great cessive adjustynent shocks and just as In other words, if rates change for deal of difficulty estimating the size of one stone sends a series of ripples in a two successive months, the gap in the variable-rate-loan portfolio, let pond, four sequential interest-rate Month II will not be $68 million but alone the size and nature of fixed-rate adjustments will set up four separate $68M + $46M = $114M. Now notice loans m aturing over the next 12 and distinct wave patterns through the in Column I the effective income gap months. Difficulty aside, this informa various maturity categories of the builds to $180M in four months. Bear tion is crucial and, once in hand, we asset/liability sides of the balance in mind that a single-event 1% rise in may ponder the long-term-income ex sheet. interest rates would reduce income in posure inherent in our monthly gap Month I because the bank has $68M I f this w ave e ffe c t d oes, in fa c t, positions. occur, some o f the w ave adjustm ents more in variable-rate sources than U nfortunately , trad itional gap will be coincidental, an d this coinci uses. Or stated another way, during analysis never has focused on the long den ce will increase the am plitude o f Month I, the bank would have to term-income exposure inherent in any th e in te r est-ra te-in c o m e e ffe c t . In purchase $168M in funds for 1% more given gap position. Rather, the focus other words, if a bank is liability sensi than it had been paying. However, on has been almost exclusively on the size tive (has more variable-rate liabilities, the asset side, only $100M in loans is of the volume mismatch between vari able- and fixed-rate categories. A mis I II III IV V match was assumed to produce gains 1st 2nd 3rd 4th Net Effective or losses in net-interest income as rates (Months) Rate Change Rate Change Rate Change Rate Change Gap in move up or down, but we have needed Time Interval Month 1 Month 2 Month 3 Month 4 Time Interval a technique for calculating the extent of income exposure for periods longer than one month. The problem has (millions) (millions) been begging for attention, but is ex 1 $68 1 $ 68 46 $68 ceedingly complex and places severe 2 2 114 demands for detail on the accounting 3 42 46 $68 3 156 4 system. 24 42 $68 4 180 46 For example, assume the gap report 5 5 19 24 42 46 131 19 19 24 42 6 104 (see Table I on page 39) shows liability 6 19 19 62 24 7 sensitivity and a daily gap of $68 mil 7 19 19 8 38 lion in the current period. This means 8 19 9 19 if prime drops for a day or two, vari- 9 G 38 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 CONDENSED GAP REPORT Time Period - Months 4 3 5 6 26 71 131 70 50 90 150 (42) (24) (19) 1 2 Rate Sensitive Assets (millions) 100 40 28 Rate Sensitive Liabilities (millions) 168 86 (46) (68) GAP (19) In this example, the bank is liability sensitive and a rise in interest rates would result in increasing interest expense faster than earning assets could be repriced. TABLE I repriced. The bank has not been able to pass along the price increase on $68M because of the mismatch in maturity schedules. ($168M in current assets less $100M in current liabilities leaves $68M in liabilities, which will be repriced without any correspond ing increase in asset income.) In like fashion and if there were no further changes in interest rates, the effect of the one-time 1% rise in interest rates eventually would work its way through all time periods shown in Table I. For example, as we advance through the calendar and Month II becomes the current month, $46M in balances would be effected; as Month III be comes the current month, $42M in balances would be effected, etc. This process, of course, will continue until the 1% rate change passes through all maturity periods in the balance sheet, and this process will continue regard less of whether there are additional rate changes. Each rate change has its own independent life cycle and its own unique financial impact. It is the cumulative impact of a series of rate changes all in the same direction that may create large windfall losses or large windfall gains. Although the gap shown is fictional, it is not at all unusual and represents a substantial threat to current period in come and could, over time, result in serious impairment of the bank’s capi tal position. A proper assessment of gap expo sure must go beyond calculation of asset/liability balances and must focus on net-interest income implications of gap by month for at least 12 months and should allow calculation of gap in yearly intervals beyond the current year. Several years ago, the necessary accounting systems were rare and methodology was under development. Today both of these areas have been ASSUME PRIME DROPS 1% IN 4 SUCCESSIVE MONTHS MONTHS/AVERAGE GAP Maturity Prime Rate Movements Series 1 (000) Series 2 (000) Series 3 (000) Series 4 (000) Cum. Effect (000) Loss Exposure to 1% Prime Drop by Month ($) 1 2 3 4 -1 1 -1 1 -1 1 -1% 68,000 5 6 7 8 9 46,000 42,000 24,000 19,000 19,000 68,000 46,000 42,000 24,000 19,000 19,000 68,000 46,000 42,000 24,000 19,000 19,000 68,000 46,000 42,000 24,000 19,000 19,000 68,000 114,000 156,000 180,000 131,000 104,000 62,000 38,000 19,000 55,000 93,000 128,000 148,000 109,000 93,000 58,000 31,000 15,000 Annual Effect - $730,000 TABLE II M ID-CONTINENT B A N K ER fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 39 Monthly Effect on Operating Income From Four Successive Monthly Drops in Prime (1 % Each Month) (See Table II on page 39) M o n th 1 2 3 4 5 6 7 8 9 10 11 12 Loss $ 55,000 93,000 128,000 148,000 109,000 93,000 58,000 31,000 15,000 C o n c lu s i o n : If prime were to fall for four successive months and the average decline per month was 1%, the cumulative loss for the period would be $730,000. Coincidentally, prime fell by about 400 basis points in the months of October and November, 1981, so in this sense the example has historical precedence. $730,000 Somewhat Higher Interest Rates Forecast by St. Louis Banker OMEWHAT higher interest rates were forecast for 1984 by Eugene A. Leonard, senior vice president, Mercantile Bancorp, Inc., St. Louis, at its business-briefing session recently. With demand for credit coming from both the government and a strengthening private sector, he said, some borrowers could be crowded out of the credit markets. If that happens, he added, the one pushed aside won’t be the government because “the government will get its money. ” The business-briefing sessions are sponsored by St. Louis-area Mer cantile banks to bring together from time to time members of the small-business community and experts on topics of interest to them. About 150 persons attended the most recent one. While increasing demand for money might cause credit markets to tighten, Mr. Leonard continued, there’s another factor to consider because 1984 is a presidential election year. He believes the Fed will try to keep rates where they are to avoid charges of politics, and that could lead to a growth in the money supply if demand for credit rises. The bank HC officer said financing the federal government’s huge deficits can be inflationary or not depending on whether the Fed funds them with newly printed money . Record deficits haven’t choked off the current economic recovery, he noted. Even so, he considers high government deficits offensive and com pared the cost of supporting local, state, national governments. That cost a decade ago was 30% of the country’s gross national product. This year, the cost is up to 35% of GNP. He pointed out that the increase came from expenses for the federal government, mostly due to in creased transfer payments like social security, not from higher costs for state and local governments. In a survey of 850 members of the local small-business community conducted in conjunction with the business-briefing session, respon dents said President Ronald Reagan will be the Republican nominee for President in 1984 and will win the election. Former Vice President Walter Mondale was chosen as the Democratic nominee, with Senator John Glenn (D .,0 .) as second choice. However, when respondents were asked who will be elected to the nation’s top office next year, Senator Glenn outpolled Mr. Mondale by one percentage point. Both Democrats trailed President Reagan by a wide margin. Prime-rate predictions ranged between 9% and 15%, with a third saying the highest prime will be 12% this year. The Mercantile survey reflects opinions of some members of the St. Louis-area small-business community, but, because it was not a scien tific sample, it may not represent the opinions of all St. Louisans, a Mercantile Bancorp spokesperson points out. S 40 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis adequately addressed and no longer represent meaningful impediments. Once the gap has been placed in proper income perspective, the threat can be sized and steps can be taken to reposition maturities to mitigate expo sure. This strategy may result in loss of margin because it usually involves an increase in matched positions, which usually produces a loss in interest mar gin. The loss in margin should be viewed as the cost of insurance re quired to avoid much higher potential losses if markets were to turn in the wrong direction. On the other hand, margin may, in some cases, be pre served by use of interest-rate futures. In this case, basis risk will either en hance or diminish the original margin relationships. W hichever the case, and in today’s marketplace, gap in formation, strategy and action all will act to preserve margins — and the cost of laissez-faire is going up. • • James D. Berry (C ontinued fr o m page 10) move ahead of New York to rank second only to California in population by the year 2000. This continuing growth will underpin demand for a wide range of goods and services and stimulate a better business environ ment here than other areas of the country. The second factor is the current de fense buildup. Biggest beneficiaries of this increase in spending are the de fense contractors in the Dallas-Fort Worth and San Antonio areas. Other gainers will be those Texas cities, and there are many, that have local mili tary bases. In that respect, San Anto nio is a double winner. In summary, the economic recovery is strong and is beginning to broaden. The rate of inflation will increase a bit this year, but not get out of hand. Overall business conditions in Texas will improve significantly in the com ing year. Increased output in consum er-goods industries will more than offset any weakness in construction. More importantly, drilling activity will continue to grow, and that will lead to recov ery in the large oil-field equipment industry. And the Texas economy soon should be strongly out performing the national economy once again. • • MID-CONTINENT BANKER for January, 198 4 r T he ON E DAY Conference especially designed to PROFIT immediately improve IMPROVEMENT financial performance STRATEGIES using techniques proven SEMINAR effective in over 400 banks wf7 Identify immediate increased profit opportunities through improvements in fee income, non-earning assets and net interest W Develop short term tactics as well as longer range strategies for better financial performance Review and apply proven pricing and costing strategies Presented by Litdewood, Shain & C om pany the leading consultants to financial institutions nationally. Dallas .....................................February 8 Newport B e ac h ..................... February 22 San F ran cisco ....................... February 23 Denver .................................. February 24 O rlan d o ..................................March 2 Philadelphia ..........................March 27 New Y o rk ............................. March 28 C hicago..................................April 2 To request a complete agenda or for reservations ($245 per attendee), please contact Debbie McKay at 800-345-1245 or 215-687-5467 (within Pa.) litdew ood, Shain & C om pany Chosen for Performance M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 41 Putting Asset/LiabiIity Ratios In Better Balance at Community Banks ANY BANKS currently are ex W hen facing a positively sloped assets, so that if there is a rise in in periencing a rate-sensitivity yield curve, most banks are reluctant terest rates, the risk of a negative im imbalance favoring rate-sensitive liabi to restructure their balance sheets by pact on the bank’s net-interest margin lities (RSL) over rate-sensitive assets committing funds to short-term, low is minimized. (A bank’s net-interest (RSA), according to L. F. Rothschild, er-yielding investments. margin is defined as: net-interest in Unterberg, Towbin, a New York City F u rth e r, R othschild says, many come [tax adjusted] divided by earning institutional investm ent firm. community bankers have been lulled assets.) These are two alternatives: When this imbalance becomes ex into a false sense of security by the 1. The bank could sell some of its cessive — a RSA/RSL ratio less than drop in the prime since the sum m er of bonds, which are currently at a profit, •60 — the bank becomes vulnerable to 1981. They know that what has come and reinvest the proceeds in short a severe earnings squeeze. If short down so fast can go back up even fast term instruments. While this would term rates and consequently the cost of er, and who can say how much longer a increase the rate sensitivity of the the bank’s rate-sensitive liabilities lower-interest-rate environm ent will bank’s assets, a major drawback to this rise, its net interest margin will suffer. last? solution is that it would effectively F urther exacerbating the problem R othschild, U n te rb e rg , Towbin strip the bank of some of its higherare m o n ey -m a rk et-ty p e accounts, offers a num ber of alternatives to com yielding assets. Given a positively which are extrem ely rate sensitive. munity bankers who would like to get sloped yield curve, earnings would be The rapid shift of funds into market- their asset/liability ratios in better bal im m e d ia tely sacrificed w ith this rate accounts has put pressure on the ance — and perhaps satisfy examiners. strategy. earnings of thousands of community Following is an outline of a strategy 2. The bank could instead “desig banks, the Rothschild firm says in a that enables a bank to reclassify longer- nate a block(s) of securities now held special supplem ent of its “Bank Ser term assets in the bond portfolio as rate at a profit to be sold in the event rates vice Advisory” publication. sensitive: rise. As rates start to increase (but not M uch of the shift in funds into • Situation. Assume that a bank cur until this rise occurs), the bank could money-m arket deposit accounts has rently has a rate-sensitivity ratio o f. 50, sell these designated securities and come from stable longer-term existing $25MM of RSA and $50MM of RSL: reinvest the proceeds in short-term in accounts, drawing down such accounts strum ents. This strategy allows the considerably. RSA ............................... $25MM bank to effectively increase its asset To the extent that a bank has experi R S L ................................. $50MM sensitivity, minimizing the impact of a enced such shifts, both costs and ratefuture rise in rates, while maintaining sen sitiv e lia b ilitie s will have in G A P ............................... ($25MM) the current net-interest margin in the creased, perhaps radically. RSA/RSL................................ 50 existing rate environment. In addition, those banks whose rateThe key to this strategy is determ in sensitive asset/liability ratios are con Assume also that the bond portfolio ing at what interest rate — “break siderably out of balance can expect has profits; and the yield curve has a point” — the securities should be sold. some comment from regulators. positive slope, as illustrated in Exhibit • Program. The amount of secu For these reasons, Rothschild says, 1 . rities selected in a program depends correcting an imbalance becomes criti • Solution. Having determ ined that on the size of the bank’s gap. In this cally important. Should a bank decide a rate-sensitive gap of .50 is undesir case, the gap is $25MM. Therefore, to maintain a large liability imbalance, able, a program must be undertaken to any amount between $0 and $25MM it is assuming a substantial risk. increase th e b an k ’s ra te -sen sitiv e would serve to increase the bank’s asset sensitivity. For this example, $25MM of profit able securities are selected, to be sold as rates rise. There actually are two possible in terest-rate shifts that should initiate the sale of securities. Taking them in the order of likelihood: Short-term rates rise unexpectedly, resulting in a negatively sloped yield curve. The securities are sold when the rate on Fed funds (for this example) equals the book yield (in the case of municipal bonds, the taxable equiva Line #1 is the yield curve and point A represents the book yield lent book yield) of the block(s) of secu of a block of profitable securities. Point B is the market rate on the rities. M securities, and the distance between A and B is the amount of prof it associated with the securities. Exhibit 1 42 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis R a te s r is e , a s i l l u s t r a t e d in E x h i b i t 2 , a n d th e y ie ld c u r v e s h ifts u p f r o m l in e # 1 to lin e # 2 . Regardless of the profit, the secuM ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 rities should be sold when the Fedfunds rate at point C equals the book yield of the securities. W hen the sale takes place at this Fed-funds rate, there is no sacrifice of income. The proceeds are used to increase the b an k ’s rate-sensitive assets, which then will increase (or decrease) in yield at the same rate as rate-sensitive liabil ities. As a practical matter, the bank could select several blocks of securities with different book yields. The series of blocks would be sold selectively as the Fed-funds rate progressively rises to the book yield for each block. Using blocks of securities this way may be p re fera b le to selecting one larger block. “Selling into” the rise in the Fed-funds rate allows the bank to in crease its asset sensitivity gradually rather than all at once. • Result. The sale of securities and reinvestm ent in Fed funds locks in an improved RSA/RSL ratio, as follows: R S A ................................... $50MM RSL ................................... $50MM GAP ................................. $ 0 RSA/RSL............................... 1.0 • Risk. There is a risk that the up ward movement of the Fed-funds rate is transitory and constitutes a spike rather than a trend. The Fed-funds rate could rise quickly and fall just as rapidly. Had the bank sold its block(s) of securities and reinvested the pro ceeds in Fed funds, and then short term rates declined, the net result would be an improvement in asset sen sitivity, at the expense of earnings. Any securities in the portfolio, held at a profit, can be used w ith this strategy. Ideally, however, the secu rities selected should have as short a maturity as possible. All things being equal, using a shorter maturity limits th e ea rn in g s sacrifice over tim e, should rates spike up and subsequent ly drop below original levels. Instead of a specific rate, the bank may want to target a range of Fedfunds rates and a time criterion within which a sale should take place. For example, if the Fed-funds rate is b e tween 95% and 110% of the book yield for three days, the securities should be sold. A strategy such as this helps to en sure that the upward movement in the F ed-funds rate re p resen ts a tren d rather than a one- or two-day occur rence. It is nonetheless incum bent on the investm ent officer to exercise pru dent judgm ent regarding the timing of the sale. The strategy outlined above works As rates increase, the yield curve shifts from #1 to #2, and a sale and reinvestment take place at point D. Exhibit 2 well when short-term rates rise before longer rates do. However, a problem develops if the m arket rate on the “designated” securities increases b e fore Fed funds do, or a positive yield curve steepens. W hen this occurs, profits on the securities dissipate and may become losses. If the bank waited until the Fed-funds rate was equal to the book yield, no sale would have taken place. The bank then would be faced with taking a loss on the sale of the designated securities should it need to increase rate sensitivity in the bond portfolio. A second breakpoint, then, should be established to deal with this risk. Not only should the designated secu rities be sold when short-term rates rise to book yield, but a sale should be considered when market rates, of the maturity equivalent to that of the des ignated securities, equal book yield. • Situation. The bank now is faced with a changing yield curve, where rates in the short end of the maturity spectrum remain constant, or change at a rate consistent with an upward shift in the rest of the yield curve. • Solution. As the market rate on the selected block(s) of securities rises to the point where market value is equal to book value, the securities are M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis sold. The bank avoids being put in a position of having to take losses on its securities in order to improve rate sen sitivity. • Risk. The risk inherent in this program is that the reinvestm ent of the proceeds of the sale may take place at a Fed-funds rate lower than the book yield. An analysis of yield-curve changes over the past 10 years reveals that with a positively sloped yield curve and a general rise in rates, an increase in short rates precedes a rise in long rates. This often results in an inverted yield curve. Only occasionally does the interm ediate or long end of the yield curve rise significantly while the short end remains unchanged. This p h e nomenon is almost always transitory; the Fed-funds rate usually responds quickly and rises. • Summary. 1. A bank with a ratesensitivity (RSA/RSL) imbalance fac ing a positively sloped yield curve needs to increase rate-sensitive assets but may find it difficult to do so without giving up earnings. 2. The bank can put to g eth er a block(s) of securities currently at a profit to be sold o n l y in the event of rising interest rates. This avoids sacri ficing earnings in an effort to improve 43 the RSA/RSL ratio. 3. A program is established direct ing the sale of the securities when the Fed-funds rate equals their book yield — or the market price of the securities equals their book value. 4. Following this strategy ensures that the designated securities are not sold at a loss, and minimizes the risk that reinvestm ent dn Fed funds will impair earnings. 5. W hen a sale and reinvestm ent take place, the RSA/RSL ratio is locked in and the bank has insulated its netinterest margin from rising rates. 6 . In a sensitivity analysis, the bank can legitimately consider the desig nated block(s) of securities as rate sensitive, as follows: R S A .................................... $25MM Designated ..................... $25MM Total R S A ......................... $50MM RSL .................................... $50MM GAP .................................$ 0 RSA/RSL.......................... 1.0 The need for a strategy such as this one, which is a synthesis of several conventional approaches, could be com e ra th e r u rg e n t if com m unity bankers find themselves further pres sured by new deregulation of deposi tory accounts. Good asset/liability m anagem ent not only entails gap analysis, it must also incorporate such factors as liquid ity, capital adequacy, tax planning and the budgeting process. W ithin that framework, Rothschild, U nterberg, Towbin believes the strategies out lined in this article can be useful tools for strengthening a bank’s rate sensi tivity. • • State Legislation (C o n tin u e d fr o m p a g e 36) ing for trust services with other banks to do so with more than one bank. * * * Ohio. The Ohio Bankers Association is working on a legislative package to submit to the Ohio legislature, accord ing to Bill Morgan of the OBA staff. The primary concern of bankers in the Buckeye state is to either extend the current usury cap of 25% that is set to expire next year due to the sunset pro vision of the enabling legislation, or to scrap interest-rate caps altogether. The OBA’s legislative plans were ex pected to be firm by the first of the year, after this issue went to press. * * * Oklahoma. Legislation approved by the Oklahoma Bankers Association for the 1984 legislative session includes the following: • Revision of the appropriation pro cess for the State Banking D epartm ent to provide a sufficient portion of rev enues from state-bank assessments to be allotted to the departm ent to main tain a reasonable minimum examina tion force. • Proactive state-bank-powers leg islation to provide for new non-interest Banking Career Specialists Financial Placements is built on a history of strong relation ships between bankers and Bank News' publications. You can benefit from these relationships — plus the more than 65 years of bank-related experience of these two men — by using our specialized employment service. Call us! We can help find the right person or the right position. Mike Wall Manager 816-421-7941 Tom Cannon Associate FIN A N C IA L PLA C EM EN TS 912 Baltimore 44 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a division of BANK NEWS Kansas City, MO 64105 income activities, including at least those activities perm itted in legislation pending in Congress that provide for insurance underw riting and broker age, real estate dev elo p m en t and brokerage and certain securities activi ties, including dealing in, underw rit ing and purchasing government and municipal securities and sponsoring, managing and underwriting securities of investment firms. The bill to be in troduced will provide for up to 50% of a bank’s capital, surplus and undivided profits in any endeavor through a “lee way provision.” • Limiting dollar amount of exemp tions available for bankruptcy p u r poses for “tools of the tra d e ’’ and homestead” exemptions. The OBA also supports elimination of the 6 % -per-annum dividend on state bank preferred stock; clarification of the 10% rate on indebtedness of county/city issuances; holdover leg islation from the first year of the ses sion involving SB 168 and SB 149; clar ification of the permissibility of state banks investing in Freddie Mac equity investments after June 30, 1985; and legislation to deal with problems in the treatm en t of estate tax un d er new apportionm ent rules of case law in Oklahoma. * * * Tennessee. No m ajor legislative program is planned by the Tennessee Bankers Association. A tightening of state statutes in the wake of the United Am erican, Knoxville, failure is ex pected, says Don Baltimore of the TBA staff. A joint special com m ittee on the banking industry is expected to recom mend that letters of credit and stock transfers be recorded on the books of the affected institutions and that a pro hibition of transfers of classified loans without the approval of the state bank ing board be instituted. * * * Texas. There will be no regular leg islative session in Texas this year, but the Texas Bankers Association is an ticipating a special session that will consider the bank-stock-taxation ques tion. * * * Wisconsin. Interstate banking and m o rtg ag e -fo re clo su re re g u la tio n changes are among the topics being m o n ito re d by b an k e rs this year, according to John F. “Jack Kundert, p re sid e n t, C om m ercial & Savings Bank, Monroe. Giving state-chartered banks powers granted to nationally chartered banks by the Garn-St G er main Act also has priority. — Com piled by Jim Fabian, senior editor. M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Every financial institution over $ 2 5 million should offer equipment leasing. We’ll show you how in two days. Leasing is highly profitable. Our two day sem inar will show you how. A lease portfolio has a hig her yield than a c o m m ercial loan portfolio. A nd it’s a service that every bank and savings & loan over $25 m illion in assets will need to offer in the futu re to be com petitive. By the 1990’s, econo m ists predict that 80% of the c o u n try ’s capital eq u ip m e n t will be un d e r som e fo rm of Lease A g reem ent. T h at’s because leases conserve y o u r clie nts’ w o rkin g capital, perm it 100% financing, and transfer risks of obsolescence to the lessor. A t o u r sem inar, in tw o days you and yo u r officers get a clear understanding of the p ro ced ures and benefits of eq u ip m e n t leasing. You find ou t w hat it takes to get started and ho w to negotiate, d o c u m ent and fun d an eq u ip m e n t lease transaction. We sh ow you how First Lease experience and service enhance yo u r professionalism and reduce y o u r risks. To reserve y o u r place, call us at C502) 423-7730 o r send fo r o u r se m ina r brochure. W e’re experts. First Lease and E quipm ent C onsulting C o rp o ra tion has the kn o w -h o w and su p p o rt capability to get you into the profitable leasing business. We have the experience and staff that give you co n fi de nce in offering leasing services. It’s o u r business — helping financial institutions — so yo u r success is o u r success. But yo u r clients never need to know that y o u ’re backed by o u r operations: analysis, a cco u n tin g support, e q u ip m e n t evaluations, and access to o u r G uaranteed Residual P rogram . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis First Lease 4 2 0 H u rstb o u rn e Lane Suite 202 & Equipm ent Consuming Corp. Louisville, KY 4 0 222 Name. Position. Bank/Savings & Loan. Mailing Address______ State. Telephone. Please have one of your pro fessionals contact me about Lease Consulting and Operations Services. Please send me a brochure on your Equipment Leasing Seminar: □ Sept. 16-17, Kansas City □ Oct. 21-22, Atlanta □ Jan. 20-21, New Orleans O March 23-24, Nashville EH May 11-12, Louisville J Funds-Management Strategies For Financial Institutions INCE 1980, asset/liability manage In this example, interest rates had By Alan Norwood Jr. ment has gained recognition as a Independent Financial Adviser increased by mid-November, produc major component of financial success ing a decline in the market value of the Dallas in commercial banks and savings in Treasury bond. Since the price of the stitutions. The quantity and quality of futures contract is closely related to published material in this field make it the price of the bond, the bank real possible for any interested student to ized a gain by selling the futures con Alan Norwood Jr., for the last five years, tract. The net result is realization of gain an understanding of the concepts, has worked as an adviser to financial in the capital gain without sale of the terminology and principals of funds stitutions in financial planning, asset/liabil management. ity management, mergers/acquisitions and bond. Despite this attention, there exists a W hat is the risk of this strategy? If related fields. void in available literature. With a few He owns Planalyzer & Co., Dallas, a bond prices continue to increase, the notable exceptions, there is limited in producer of financial software for banks and bank would realize a loss on the short formation regarding specific strategies other firms. He also is associated with Dil sale of futures contracts in an amount lon Gage, Inc., Dallas, a regional broker approxim ately equal to the further and techniques that yield immediate results for the majority of financial in age firm specializing in products for finan gains in the price of the bond. This cial institutions. stitutions. The purpose of this article is strategy is suitable in situations where Before becoming an independent finan the bank is prepared to hold the bond to describe three specific situations cial adviser, Mr. Norwood was senior th a t re p re s e n t fu n ds-m anagem ent to maturity or for an extended period. financial officer for a major Texas bank HC opportunities. 2. In c r e a s in g I n v e s tm e n t In c o m e . for seven years. In that capacity, he had Each exam ple is p re sen ted as a responsibility for all financial activities, in Instead of locking in capital gains, the m iniature case study. Although the cluding funds management (asset/liability bank’s m anagem ent described p re purpose of each case is to demonstrate viously is interested in increasing cur management). practical m an ag em en t tech n iq u e s rent income. Prices of various options rather than theory, a few definitions contracts on October 6 are summa may be helpful to the reader: rized below: 2008 and the price paid was 100. By Total Per Gap: The difference between interest- O ctober, 1983, long-term in tere st Unit Price $3 Million bearing assets and liabilities that are rates had declined, and the market subject to change in yield in a spe price of the bond had increased to Call @ 72 1.72 $77,400 cific time period. The most common 105.50. If sold, the bank would realize Call @ 74 0.72 $32,400 0.23 $10,350 time frame applied to gap analysis is a gain of $136,000 as dem onstrated b e Call @ 76 30 days — the normal time for re low. Management, however, did not Since th e fu tu re s c o n tra c t was porting of income during the year. wish to sell the bond since reinvest priced at approximately 74 (see pre Futures contracts: A contract traded m ent of the proceeds would produce a vious example), m anagement decided on a major exchange that requires a reduction in income due to the decline to sell 45 options at a strike price of 74. seller and b u y er to deliver and The additional income ($32,400) has in interest rates. purchase a specific financial instru m ent (Treasury bond, bill or note, Bond Price Yield Annual Income certificate of deposit, GNMA or Date 100.00 12.00% $360,000 other instrument) at a specified date Original Purchase — 1982 October 6, 1983 105.50 11.35% $340,500 and yield. Increase in Value of Bond (105.50-100.00)*$3,000,000 = $165,000 Option contract: A contract giving the Reduction in Income if Sold — $19,500 purchaser the opportunity to buy or sell a specific financial instrum ent at To take advantage of the capital gain the effect of increasing the yield on the a certain price at a future date. The without reduction in income, manage $3,000,000 by 4.32% on an annualized option is unilateral in the sense that ment determ ined to hedge the current basis. the purchaser of the option may en value of the bond by selling TreasuryThe risk of this type of strategy is force the transaction or not at his bond futures contracts. Results of that that bond prices will rise and the op discretion. action are summarized in the following tion will be exercised. Should that occur, the bank may be forced to sell The following case studies are based table: on actual price and market data as of Date Bond Price Futures Price the bond in order to deliver under the option contract. However, the sale of the date indicated. 10-06-83 105.50 73.25 the bond would be at a price in excess 1. L o c k i n g i n C a p i t a l G a i n s . In 11-18-83 100.31 70.84 of book value, and the bank would 1982, the bank purchased $3-million have earned a superior yield through long-term Treasury bonds. The issue Net Change in Value -$155,700 $120,500 the option sale. F urther, the bank purchased was the 12 % coupon due S 46 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 Floating Rate Funds Sold Investments Loans Total Money Mkt. DDA Money Mkt. CD Other Deposits Total Net Assets/Liab. As % of Earning Assets Other Maturities Total Days 1-30 $ 2,000 0 500 $ 500 11,000 2,000 13,500 $2,500 2,500 0 1,700 1,700 2,500 2,500 6,700 4,200 6,800 (1,700) 20.00% -5.00% $ 2,000 0 9,000 11,000 2,500 0 0 2,500 8,500 25.00% could purchase another bond and re peat the process to continue to earn above-market yields indefinitely. 3 . L eve ra g e a n d G a p M a n a g e m e n t. The bank has an average 30-day gap equal to 20 % of earning assets as dis played above: Management would like to reduce this gap by $4,000,000 (8 % of earning assets). To accomplish this, the normal procedure is to reduce short-term in v estm en ts and increase long-term assets. In this case, the bank does not have enough liq u id ity (short-term assets) to achieve the desired result. As an a lte rn a tiv e , m an agem ent purchased $4,000,000 in long-term Treasury bonds yielding 12%. The bonds were used immediately as col la te ra l, and th e bank b o rro w ed $4,000,000 under repurchase agree ments (cost of 9.25%). The net result is increased income and an immediate reduction in rate sensitivity. The risk in this plan is that interest rates will increase, thereby elim inat ing the profitability and reducing the value of the bond. As discussed in ear lier examples, it is possible to hedge this risk in the futures market. Suc cessfully applied, this strategy may yield long-term benefits with a mini mum of risk. These briefly stated examples of im mediate funds-management strategies are applicable to a large num ber of financial institutions. However, suc cessful im plementation requires care ful monitoring and a clear understand ing of financial objectives. • • the first Union National/Kansas State University Fellow. Holder of under graduate degrees in finance and busi ness management, Ms. W hitaker has experience as an insurance claims B ec a u se B an k D irectors N e e d to K now — ASSEMBLIES FOR BANK DIRECTORS Programs to INFORM and CHALLENGE Since 1968 In lectures and small discussion groups, nationally known speakers address such topics as: • The Pace and Challenge of Deregulation • The Developing Competition in the Financial Ser vices Marketplace Join Directors from throughout the United States at one of these widely acclaimed programs. $6,000 Fellowship Started By Manhattan, Kan., Bank Establishm ent of a fellowship de signed to provide new masters of busi ness administration (MBA) students with the experience they need to p u r sue a career in banking has been announced by W illiam L. Edison, president, Union National, Manhat tan, and Tom Brown, assistant dean of the College of Business Administra tion at Kansas State University, Man hattan. Nancy J. W hitaker of Manhattan is M ID-CONTINENT B A N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis processor, as a production and sales assistant in marketing and communica tions and as an assistant manager of a fast-food establishment. “Union National Bank feels honored in offering the annual $6,000 fel lowship, which will attract quality stu dents to Kansas State University to further their business education,” said Mr. Edison. Fellows are chosen on the basis of u n d e rg ra d u a te p re p a ra tio n , te s t scores and a personal interview. The fellows normally will be selected in the summer for the upcoming school year. • Four Assemblies each year • Presented by the Southwestern Graduate School of Banking at Southern Methodist University April 12-15 — 57TH ASSEMBLY Hyatt on Hilton Head Island Hilton Head, South Carolina September 1-4 — 58TH ASSEMBLY The Broadmoor Colorado Springs, Colorado F o r inform ation: A s s e m b lie s for B a n k D irectors SM U B ox 214 D allas, T e x a s 7 5 2 7 5 T e le p h o n e : 2 1 4 / 6 9 1 -5 3 9 8 47 Interest-Rate Futures Accounting: An Explanation of FASB's Proposal By Michael P. Barry, Audit Partner, Arthur Andersen & Co., St. Louis AST JULY th e Financial A ccount Initial m argin deposits are the only ing Standards Board (FASB) issued assets to be recorded at the inception an exposure draft covering “A ccount of a futures contract. The FASB d e ing for F u tu res C o n tracts.” The FASB cided that no accounting recognition considered this topic for two years b e was to be given to o th er assets and fore exposing it for com m ents. liabilities related to the contract for a The FASB’s initial in ten t was only to variety of reasons, including the fact address questions w ith resp ect to in th at m ost futures contracts don’t in terest-rate-fu tu res contracts and not volve delivery, and some don’t even get into o th er types of futures con p erm it delivery. As noted in the draft, tracts. H ow ever, as it considered the a substantial m ajority of the contracts subject, the FASB decided to expand u n d e r w hich delivery is possible are the scope of the project to include all closed before trading ceases. As a re f u tu r e s c o n tra c ts e x c e p t fo re ig n - s u lt, m e a s u re m e n ts of rig h ts and currency futures (which are covered obligations related to delivery simply by SFAS # 5 2 , “ F o re ig n C u rre n c y are not practicable. Translations”). U n d er the overall basis of account The proposed statem en t may cause ing, unrealized gains or losses resu lt som e b e w ild e r m e n t, g iv e n th e ing from changes in quoted m arket b ro ad e n in g of th e ex p o su re d ra ft’s values of futures contracts (as well as scope. The statem en t deals w ith all fu realized gains and losses) are to be rec tures transactions from grains to p re ognized currently in the incom e state cious m etals to stock-index contracts to m e n t. T h is “ m a r k e t- to - m a r k e t” in te r e s t- r a te fu tu re s . As a re s u lt, m ethod of accounting is to be followed criteria for hedge accounting specified w hen futures contracts are specula in the exposure draft relate to price tiv e, w hen th e asset or liability to risks rath er than in terest-rate-sp read w hich th e hedge applies is carried at risks. m a rk e t v alu e or w h en c rite ria for The proposed statem en t does not, hedge accounting, as described below, how ever, address forw ard or standby are not m et. security transactions. The FASB d e If certain criteria are m et, the expo cided not to consider standbys because sure draft allows for hedge accounting. those com m itm ents essentially are op H edge accounting relates to the defer tion contracts and, th erefore, are fun ral of all or portions of the gain or loss d a m e n ta lly d iffe re n t from fu tu re s. on a futures contract against the re C orrespondingly, th e statem en t d id n ’t cover accounting for forw ard contracts Publication Available because th e re are significant differ ences b e tw e e n fu tu res and forw ard “Accounting for Interest-R ate F u contracts; nam ely, cash flows, availatures: An Explanation of the Pro bility-of-m arket quotations and deliv posed FASB Statem ent is the title of a special publication th at d e ery frequency. In addition, forwards scribes and clarifies the accounting w ere not addressed because doing so treatm en t for interest-rate-futures involves the issue of accounting for ex transactions as set forth in the FASB ecutory contracts, w hich th e FASB b e proposed statem ent referred to in lieves can best be addressed as part of the adjoining article. its conceptual-fram ew ork project. Case studies applying the recom The statem en t provides for an over m ended accounting procedures to all basis of accounting com parable to actual hedging situations and a brief that set forth in the A m erican In stitu te overview of important tax considera tions are included in the booklet. of C ertified Public A ccountants’ (AICCopies are available on request PA) issues paper, “Accounting for F o r from Arthur Andersen & Co., Dis w ard P lacem ent and Standby C om m it tributions Clerk, Room 1123, 33 W. m ents and Interest-R ate F u tu res C on Monroe, Chicago, IL 60603, or by tra c ts,” which had b een sub m itted to calling 312/580-0033, Ext. 7516. th e FASB. L 48 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis lated hedged asset or liability (or antic ip ated asset or liability). I will not attem p t to define a “h ed g e” because the FASB failed to define it in the ex posure draft. The FASB stated that the w ord “h ed g e” is used in different ways by different users of futures contracts. As a result, th e re is no universally a c c e p ted d efinition th a t th e FASB could include in its exposure draft. Simply stated, hedge accounting is based on a concept of sym m etry b e tw een accounting for futures contracts and assets or liabilities being hedged. If one enters into a futures contract to reduce the risk of in terest-rate m ove m ents betw een now and th e tim e the hedge is to be lifted, the resulting gain or loss on the contract becom es a part of the carrying basis of the hedged asset or liability, generally speaking. In dealing w ith this com plex sub ject, the FASB broke down hedges into two categories. F irst, it estab lis h e d c r ite r ia for a c c o u n tin g for hedges on existing assets, liabilities or firm fixed-price com m itm ents, as fol lows: 1. The item to be hedged exposes th e e n te rp ris e to p rice ris k .” This criterion is inten d ed to assure that the b a n k ’s o v erall in te r e s t- r a te risk is being reduced before applying hedge accounting. T he FASB proposes to adopt the AICPA philosophy of spe cific identification of asset, liability or firm com m itm ent for applying hedge accounting; how ever, th e FASB b e lieves the bank’s overall in terest-rate exposure also m ust be reduced. 2. “T he fu tu res con tract red u ces the exposure to price risk and is desig nated as a h e d g e .” This criterion is effectively two criteria; th at is, the en trance into the futures contract is d es ig n ated as a h ed g e and, secondly, th ere m ust be a high correlation b e tw een the asset or liability h ed g ed and the underlying instru m en t covered by the futures contract. 3. “U nrealized changes in the fair value of the hedged item are not in cluded, or are included only in certain circum stances, in the determ ination of incom e.” This criterion m eans hedge accounting is appropriate only if the M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 item being hed g ed is accounted for on e ith er a cost or a lower-of-cost or m ar k e t b a sis. I f th e h e d g e d ite m is accounted for on a m arket basis, the criterion is not m et and th e futures position is to be accounted for on a m arket-value basis. If all these criteria are m et, the fu tures contract can b e accounted for as a hedge. It is im p o rtan t to note th at hed g e accounting d o esn ’t affect th e p a r tic u la r a s s e t o r lia b ility b e in g hedged. H edge accounting will dic tate, how ever, w hen th e gain or loss on th e futures contract is recognized in income. If the futures contract hasn’t been effective as a hedge, its effectiveness as a hedge may be assessed by com paring th e change in m arket value of th e con tract with the unrecognized changes in th e fair value of th e item h ed g ed since the inception of th e hedge. In oth er words, to th e extent th e accum ulated f u tu re s g ain o r lo ss e x c e e d s th e accum ulated unrecognized loss or gain on the hed g ed item since th e hedge was initiated, the excess futures gain or loss is to be recognized cu rren tly in income. The “effectiveness te s t” as included in the exposure draft could be q uite difficult to evaluate. The m ost com m on concern relates to th e use of “fair value’’ as a m eans of m easuring hedge effectiveness. F air value is a subjective m easurem ent influenced by m any fac to rs, n o t only in te r e s t- r a te m o v e m ents; for exam ple, cred it considera tions on loans. A nother problem w ith this approach is th at it will be neces sary to k eep track o f a c c u m u la te d changes in both th e fair value of th e hedged item s and changes in values of the futures contracts. This is necessary because th e effec tiv e n e ss te s t is to b e m ad e on an accum ulated basis. As a resu lt, p e riodic reporting by an entity using fu tures contracts will be im pacted to the e x ten t of th e ineffectiveness of th e hedge. The excess gain or loss on the futures contract over th e change in the fair value of th e h edged item during th e life of th e hedge will be taken into incom e currently. T he second type of hedge covered by th e exposure draft is the anticipa tory hedge, w hich seem s a contradic tion in term s by its nam e. T hese fu tures contracts relate to a future event or transaction the bank anticipates e n tering into. An exam ple of a long an ticipatory hedge w ould be purchase of futures contracts to p ro tect against the risk of falling in terest rates on th e an ticipated purchase of fixed-rate invest m en t securities or th e anticipated re- pricing of an existing asset, such as a loan. If all the following criteria are m et, the gain or loss on an anticipatory hedge is to be deferred and is to re p re sent an ad justm ent of the cost of the item being hedged: 1. “The significant term s of the an ticipated transaction are to be id en ti fied .” 2. “It is p robable th at the subse q u e n t transaction will occur because, in th e norm al course of business, the en terp rise has little discretion to do o th erw ise.” 3. “C o n sum m ation of th e a n tici p ated transaction at a price substantial ly different from th e cu rren t price will have a d ire c t im pact on th e e n te r p rise ’s profitability.” 4. “It is probable that changes in th e m arket value of the futures con tract will offset changes in the price at w hich th e transaction can be consum m a te d .” If all the above criteria are m et, then th e futures gain or loss is to be d eferred and included in the m easurem ent of th e dollar basis of the asset acquired or th e liability incurred. The futures gain or loss th en is to be am ortized into incom e as an adjustm ent to interest expense or in terest incom e over the life of th e h edged item . O ne interesting note w ith respect to accounting for anticipatory hedges is th a t th e FASB d id n ’t p ro pose any separate accounting for the am ount by w hich an anticipatory hedge is ineffec- Bank Medical Directors Meet Continental Bank, Chicago, recently hosted a meeting of bank medical directors to discuss professional interests. Attending were (standing, from I.) Robert G. Brayton, Irving Trust, New York City; Wayne N. Bur ton, First National, Chicago; and Joseph C. King, Continental Bank. Seated (from I.) are Clinton G. Weiman, Citibank; William Schneider, Morgan Guaranty Trust; and Franz S. Ritucci-Chinni, Manufacturers Hanover Trust, all in New York City. All are M.D.s. Issues discussed at the meeting in cluded stress programs, health education and medical-department projects, fire and safety programs, workers' compensation and insurance design and administration. Future meetings are planned. M ID-CONTINENT B A N K ER for Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis tive. The entire futures gain or loss is to be deferred. If the futures contract is closed b e fore the anticipated transaction occurs, its entire gain or loss is to be deferred and added to the basis of th e new asset or new liability. If the am ount of the anticipated transaction declines, the futures gain or loss is to be adjusted prorata, for this decrease and incom e are to be charged or credited w ith the difference. R equired disclosures set forth in the exposure draft are quite lim ited. First off, only accounting policies n eed to be disclosed w ith respect to futures con tracts if the bank hedges. Presum ably, if the bank’s activities in the futures m arket are all m arked to m arket on a cu rren t basis, no disclosure w ould be necessary. R eq u ired disclosures in c lu d e (1) th e n a tu re of th e item s hedged or the anticipated transactions to which the futures relate and (2) the m ethod of accounting for futures con tracts. D isclo su re of th e m e th o d of ac counting is to include a description of th e events or transactions that result in th e recognition of incom e on futures co n tra c ts. P ro p o se d d isc lo su re r e quirem ents are lim ited com pared to those anticipated in th e AICPA issues paper. That p aper called for disclosure of the am ount of long and short futures positions, the nature of the hedging activity and gains or losses deferred u n d er hedge accounting for open posi tions. The FASB has rejected th e A ICPA’s re c o m m e n d a tio n s for a v a rie ty of reasons. Principally, th e FASB b e lieves such disclosure w ould presen t an incom plete picture of the results of hedging unless accom panied by disclo sure of analyses of hedging policies and p ractices and offsetting changes in cash-m arket prices. B a n k e rs a re h o p e fu l th a t o n ce generally accepted accounting princi ples are established for futures, bank regulatory authorities will revise th eir policies to conform to those of the accounting profession. M any believe the rules established by bank regula tors have inhibited banks from actively using the in terest-rate futures m arket. Hopefully, shortcom ings in the ex isting exposure draft will be overcom e once the FASB has had an opportunity to consider com m ents received on the exposure draft. T he ex p o su re-d raft period en ded last O ctober; how ever, com m ents are still being received. As th ere w ere a substantial n u m b er of com m ents received, it may be some tim e b e fo re th e e x p o su re d raft is issued in final form. • • 49 Is Interstate Banking Taking Shape In Proposed Regional Com pacts? N T E R S T A T E b a n k in g ’s f u tu r e tional and divisive and has indicated shape, like th at of an am orphous oth er compacts that exclude New York lum p of clay, was indiscernible as 1983 banks also m ight be challenged. drew to a close, b u t discussions am ong In W ashington, Senator Alfonse M. banking represen tativ es from several D ’Amato (R. ,N. Y.) has proposed phas regions of th e country during the year ing out federal restrictions on in te r may have begun to sculpt a silhouette state banking over a five-year period of what will be. and Senate Banking C om m ittee C hair O ne possible scenario for in terstate man Jake Garn (R., Utah) has endorsed banking is for th e evolution of regional zones w herein cross-border ow nership "Isn't a little interstate bank by bank HCs is p erm itted . C on sid er able overlap may develop at th e edges ing better for the public than of the in terstate zones, b u t states w ith none at all?" asks a Florida m oney-center banks may be conspic uous by th eir exclusion from th e re banker. gional compacts. B ankers in several s o u th e a ste rn , re g io n a l c o m p a c ts. F e w b a n k in g M iddle A tlantic and m idw estern states industry observers see m uch chance of currently are considering th e m erits of congressional action in 1984, b u t th ere following th e lead of M assachusetts, has been trem endous activity at the Rhode Island and C onnecticut in pass state level. ing laws p e rm ittin g in tra -re g io n a l, Joel R. W ells J r ., chairm an of a com cross-border bank ow nership by HCs. m ittee appointed by Florida G overnor In some quarters, regional in terstate Bob G raham to study in terstate bank banking is view ed as a m eans of fore ing, says he does not view regional stalling full in te rs ta te b anking th at c o m p acts as a m e th o d of k e e p in g m ight p erm it m o ney-center banks to m oney -center banks out of Florida. swallow small, locally ow ned banks Rather, he says, it is norm al for in te r around th e nation. M eanw hile, C iti state banking to begin at a regional corp, New York City, is challenging lev el. T his gives sta te leg isla tu re s the New England exp erim en t in in te r g reater control over the deregulatory state banking in court as u n co n stitu process, he says. U ltim ately, reciproc I In addition to existing compact among three New England states (legality of which was being challenged at press time), proposed interstate-banking compacts could create three distinct regions: Southeast, central Atlantic and North-Central plains. At this juncture, however, divisions shown on the above map must be considered largely hypothetical. 50 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ity m ight be extended to N ew York and other m oney-center states or Congress finally may get around to rem oving federal interstate-banking restrictions as Senator D ’Amato has proposed, but Mr. W ells sees no sen tim en t am ong Florida bankers to open th e door to New York, California, Texas or Illinois banks at the outset. E xperim ents in in te r s ta te b a n k in g a re b e s t d o n e among contiguous states w here results can be controlled, says Mr. W ells, who is ch airm an /ch ief ex ecu tiv e officer, Sun Banks, Inc., Orlando. At the tim e he was interview ed, Mr. W ells was p re p a re d to d e p a rt for Atlanta, w here he planned to engage in a “fact-finding” session w ith re p re sentatives from several o th er south eastern states who are in terested in interstate banking. H e notes that it is his u n d e rsta n d in g th a t th e original federal prohibitions against interstate banking w ere w ritten into th e law in 1956 because of fears by New York banks that an aggressive California in stitution m ight becom e too strong in New York. W hy, he asks, do m oneyc e n te r b an k s o p p o se re g io n a l a p proaches to in terstate banking w hen th ey ’ve been telling the public what great benefits in terstate banking will provide? Says Mr. Wells: “Isn ’t a little interstate banking b e tte r for th e public than none at all?” Florida is am ong a small group of states that could see the introduction and passage of reciprocal in terstate b a n k in g le g isla tio n in 1984. N ew Jersey is another. Bankers th ere have taken a leadership role in attem pts to develop a M iddle Atlantic state com pact that also m ight include P ennsyl vania, Delaw are, Ohio, M aryland, the D istrict of Colum bia and Virginia. I t’s only logical that New Jersey take the initiative on interstate banking since th e th reat from N ew York banks is m ore im m ediate, according to Richard F. Schaub, chairm an/chief executive officer, F irst National State of W est Jersey, Flem ington, and chairm an of th e N ew Jersey Bankers Association. H e adm its th e re ’s m ore than a little New Jersey chauvinism in his attitude tow ard interstate banking. New Jersey, w ith its infant gam bling M ID-CONTINENT BA N K ER for Jan u ary , 1 9 8 4 industry, a new je t p o rt and new ly ac legislation may be introduced in the qu ired football franchises, only re c e n t W ashington legislature in 1984 that ly has begun to em erge from the shad w ould p erm it a “w ide-open approach ow s o f N ew Y ork C ity a n d P h il sim ilar to Alaska, the only state that adelphia, Mr. Schaub says. “Suddenly places no restrictions on bank acquisi everyone knows w here N ew Jersey is tions by out-of-state bank HCs. W a s h in g to n a lre a d y has a larg e again,” he says, adding that he isn’t anxious to see his state “hom ogenized” n u m b e r o f o u t-o f-s ta te an d e v e n back into N ew York C ity and P hil offshore bank HCs operating w ithin its b orders, w hich is w hy a w ide-open adelphia. In Florida, it is th e governor who approach makes m ore sense than a re has taken the lead in spearheading th e g io n a l c o m p a c t w ith s u rro u n d in g drive tow ard regional in terstate bank states, says K eith S. H o p p er, staff ing, b u t in N ebraska, state Senator c o u n s e l/d ire c to r, g o v e rn m e n ta l af John D eC am p, chairm an of th e Bank fairs, W ash ington B ankers Associa ing, C om m erce, and Insurance C om tion. “H ere, interstate banking is old m itte e of th e u n icam eral N ebraska h a t,” he says. — John L. Cleveland, legislature, is at th e hfelm of a drive assistant to the publisher. tow ard in terstate banking opposed by th e N ebraska Bankers Association. In Seminar O n Parenting Skills D e c e m b e r S e n a to r D eC am p sp o n Provided For Bank Employees sored a hearing, during w hich banking A w id e -ra n g in g h u m a n -re la tio n s and governm ent leaders from N ebras ka and 10 surrounding states w ere in program is offered to em ployees at vited to express th e ir views on th e sub A m e riT ru st, C le v e la n d , in c lu d in g confidential counseling, aid in finding ject. W hile Senator D eC am p has yet c o m p e te n t d ay -care c e n te rs and a to propose legislation, th e N ebraska series of noontim e program s on such Bankers Association has claim ed that it’s too soon after the state’s approval of topics as self-developm ent, career e n hancem ent, budgets and health. m ulti-bank H C s to begin tam pering The program , described as “reacting w ith the stru ctu re of th e banking in w ith care to enrich em ployees lives, dustry again. has evolved because th e bank recog Bankers in th e N orthw est also have nizes that an individual’s difficulties at held talks on in terstate banking, and hom e inevitably lead to problem s at work. Bank m anagem ent believes that tim ely assistance or expert guidance can have an im m ediate, positive effect on em ployee productivity. Recently an experim ental sem inar attracted 20 volunteers w ho m et at breakfast and discussed how to b e come b e tte r parents of preschool chil dren. At the end of the eight-w eek session, participants asked for an ex tension, and two additional 10-week sessions w ere conducted. Farm Mgmt. Explained A book about farm business tech niques, titled “Business M anage m ent for F arm ers,” has been pub lished by D oane P ublishing, St. Louis. The 700-page volum e explains how agricultural economics, finance and law relate to each other. Con tents include a wide range of topics, from acquiring a farm to retirem ent planning. “It spells out all the factors farmers should consider when mak ing decisions, with attention to the how-to, when and w hy,” said J. W. Looney, author, who is dean of law at the University of Arkansas. W rite: G riff K ennedy, D oane Publishing, 11701 Borman D r., St. Louis, MO 63146. Designed for the busy executive — The nation’s newest and most com prehensive Financial Institutions Directory is now available. McFadden’s new Savings Directory when combined with its American Bank Directory becomes a handy 3-volume directory of American Financial Institutions. Each listing contains: city, population, mailing address, memberships, phone numbers, top officers/titles, financial data and much more! COMPLETE DIRECTORY — American Financial Institutions — Yes, I want all the nation’s top financial institutions in one complete directory: □ Send me________copies of the current AFI @ $165 ea. □ Enter standing order for each Spring AFI @ $133 ea. □ Enter standing order for each Spring AFI @ $116 ea. and stand ing order for Fall American Bank Directory @ $66 ea. (plus shipping and handling) SAVINGS DIRECTORY — American Savings Directory — Yes, I want to add this volume to my library to include savings and loans, mutual sav ings banks, major credit unions and money market funds. □ Send me________copies of the current ASD @ $65 ea. □ Enter standing order for each Winter ASD @ $50 ea. □ Enter standing order for each Winter ASD @ $50 ea. and stand ing order for Fall American Bank Directory @ $83 ea. (plus shipping and handling) □ SEND ME MORE INFORMATION PLACE YOUR ORDER TODAY! Mail to: McFadden Business Publications, 6195 Crooked Creek Rd., Norcross, GA 30092. COMPANY NAME ADDRESS M ID-CONTINENT B A N K ER fo r Jan u ary , 1 9 8 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis STATE ZIP 51 During Coming Year: Borrowings To M irror Interest Rates HE GENERAL consensus is that By Jack R. Crigger for the full four quarters of 1984, the economy will continue to improve Jack R. Crigger is gradually from its present status. The pres., Robert Morris rate of growth will not be as aggressive Associates, and as other recoveries have been; yet, e.v.p., American with a rather static and low rate of infla Nat'l, Chattanooga, Tenn., which he tion, the sustained growth will be rel joined in 1951. In atively solid. Interest rates should fol 1981, Mr. Crigger low in tandem with the inflation rate was named head of and, with a continued strong monetary the corporate bank policy, should fluctuate within 10 %ing group. 15% of present levels, in either direc tion. The fiscal policy, w herein large budgetary deficits are planned, could the economy. Yet relative to the total have an impact on several sectors of income and expense stream, the over all deficit burden is not considered by som e to have a stro n g influence. Perhaps the public’s reaction to that and the inflation rate will be a d eter mining factor in the consumer sector as to consumer spending or saving. Now there could be much rhetoric on each of the various com ponent parts that give rise to the economic cycle and/or cycles. Governm ent and pri vate spending, the m oney supply, monetary and fiscal policy along with real gut feelings of the present and future are some of the economic areas that are receiving attention as the eco nomists suggest what may happen in CALL THESE SPECIALISTS 1984. Corporate borrowings collectively Harold E. Ball • Carl W. Buttenschon today are static and are expected to John E. King • Milton G. Scarbrough increase slowly over the next year. As corporations see the need to expand, 1- 800- 527-5511 th e re will be m ore loan dem and, either term or short-term, depending on the companies’ interpretations of interest-rate expectations. Industry now has unused capacity in many sec tors. II technology in those sectors already is state of the art, additional capital e x p e n d itu re s may not be needed in the near future. At best, with the many alternatives to financing P.0. Box 220998, Dallas, Texas 75222 either capital expenditures on short A member company of term needs, bank borrowings will in Republic Financial Services. Inc crease. But loan demand is not ex T For faster service on BANK CREDIT INSURANCE INDUSTRIAL LIFE INSURANCE COMPANY 52 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis pected to be exceptionally strong. Corporate executives have found it profitable to operate at subsistence levels of in v en to ries, receivables, bricks and m ortar, equipm ent and machinery and human resources. This awareness will prevail. U nem ploym ent will, and should, continue to show modest declines, but will remain high by historical stan dards. The figure suggested for unem ployment for late 1984 is 8 %-81/ 2%. The decline will come about as indus try absorbs productive hum an re sources that are needed only at subsist ence levels of operation, and the level of unemployment will be slow in react ing during 1984. Consumer spending will increase as the economy recovers, due, in part, to real needs created by abstinence d ur ing the economic decline. Alternative and innoyative consumer financing in housing and transportation will add in centives to further an increase and should be reflective — lag time con sidered — in those industries. And on and on one can go — into the government and international arenas. Any discussion of the economy for the future m ust be tem pered with “all things being equal,” and that’s the sce nario we’ve observed. One or several outside influences could cause a quick mid-course correction in any forecast for 1984. These include, but are not lim ited to, an international crisis, either political or military; excessive unrest due to overseas loans and cur rencies; a major impact caused by a change in technology or a complete misalignment of monetary and fiscal policy. As stated earlier, recovery will con tinue. Borrowings will increase at a rate that should mirror interest rates, which will remain within certain con straints brought about by monetary control. In other words, expect more of the same for 1984 as we’ve experi enced in 1983. • • M ID-CONTINENT BA N K ER fo r Jan u ary , 1 9 8 4 foreign ownership had played a role in the defeat of a nascent but historically important financial institution. Some years before the demise of the federal banks, several states and terri tories had decided they needed banks. Two banks west of the Mississippi — Bank of St. Louis (not to be confused with the present institution bearing that name) and Bank of Missouri — opened for business in 1816 and 1817, respectively. Both were grossly under capitalized by today’s standards, and both attem pted to restrict ownership to U. S. citizens. Bank of St. Louis even restricted the num ber of shares that could be owned by citizens resid ing outside the Illinois and Missouri territories. Initially, these new financial institu tions w ere called on to estab lish branches outside St. Louis in order to prevent an undue concentration of financial power. Precisely the same logic was used when branching was rejected later. Fears of concentrated financial pow er and foreign involvement in Amer ican banking repeatedly have surfaced in legislation restricting bank opera tions and ow nership. The National Banking Act required bank directors to be American citizens, for example. Considering the xenophobia of the citizenry, it is, perhaps, understand able that regulatory authorities have at times m uddled the handling of the issue of foreign ownership of American banks. A case in point is Franklin National, New York, which became the takeover target of an Italian finan cier when it experienced problems. A foreign investor’s attem pt to bail out the ailing bank created mixed emo tions in Washington, D. C. On the one hand, the Justice D epartm ent was, by and large, happy with the develop ment, for it prevented the concentra tion of financial power that might have resulted had one of the big New York City banks stepped in. On the other hand, no foreigner could sit on Frank lin National’s board of directors and thus a foreign in v esto r w ould be beyond the liability a bank director normally assumes. Ultimately, foreign ownership was acceptable rather than the concentra tion of power that might otherwise have resulted. Looking back, one can only marvel at the Justice D epart m e n t’s naive and sophom oric atti tudes. Since the Franklin National case, a num ber of instances have occurred giving foreigners control of American banks. Chicago’s Harris Bancorp’s ac quisition by Canada’s Bank of Mon trea l for $547 m illion is only th e largest, most recent example. A few m onths ago, it appeared that New York’s First Womens Bank might be acquired by foreign investors. In that case, however, foreign overtures were resisted. Geographic linkage has been a factor in most recent acquisitions of Amer ican banks by foreigners. Banks in Florida have been attractive to South American investors, East Coast banks to European investors and W est Coast banks to Oriental investors. W ith each publicized foreign ac quisition of an American bank, popu lists raise th e s p e c tre of foreign domination. While it is possible that public outrage may ultimately force an end to foreign ownership of banks, re cent public-relations campaigns have neutralized those sentiments, for the most part. Bank of M ontreal w ent to great pains to point out its long history of involvement in the Chicago market prior to the acquisition and the con tinuity of the Harris management fol lowing the acquisition. Japan’s Mitsu bishi Bank, in announcing plans to ac q u ire BanCal T riS tate C orp., San Francisco, told the Securities and Ex change Commission it had “no present intention to cause a change in the pres en t board of directors or m anage m ent,” except that one or more repre sentatives of M itsubishi m ight be added. Contrary to conventional public atti tudes, bank regulatory authorities generally are happy when foreign in vestors are willing to step in and purchase an ailing U. S. bank. The acquired bank usually gets a much needed capital infusion. Foreign in vestors often are willing to pay a p re mium to get a foothold in American banking th at few dom estic suitors would be tem pted to match. Foreign bankers also are in a good position to feed some of their domestic business connections active in the export/import field to their new acquisitions. Nor should we forget that foreign acquisition of American banks is not a one-way street. U. S. banks have been acquiring partial or dom inant own ership of financial institutions all over the globe for years. The strength of the American dollar probably has dampened enthusiasm in th e U n ited S tates for expansion beyond U. S. boundaries; however, M ID-CONTINENT BA N K ER fo r Jan u ary 1984 Banking Scene (C o n tin u e d fr o m p a g e 54) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis m erg e rs of financial in stitu tio n s around the free world probably will continue for years. Americans are demonstrating that their attitudes toward the purchase of U. S. banks by foreigners have ma tured in recent years. The tendency to condem n, in knee-jerk fashion, all foreign-bank participation is fading. Som e cau tio n still is w a rra n te d , however. Nations whose citizens wish to in volve them selves in an investm ent capacity in American banks must ex te n d th e sam e co u rtesy to U. S. citizens. The Japanese, for instance, are notorious in their ability to ham per American business initiatives within their own country. Considering the reputation of the Japanese, we would be juvenile to assume that we will achieve recip ro city w ith o u t some hard-nosed bargaining. American fears of foreign ownership of U. S. banks are not as strong today as formerly, but they still lurk not far be low the facade of apparent acceptance of the new reality. Foreign suitors seeking A m erican banks as brides would do well to rem em ber that. • • • Index to Advertisers • American Bank D irectory............................................... 51 Arrow Business Services, Inc......................................... 34 Assemblies for Bank Directors ................................... 47 Bank Board Letter ......................................................... S/23 Bank Building Corp............................................................. 55 Bank Mate ............................................................................. 24 Banking Consultants of America .............................. 3 Bavis & Associates, Inc., E. F....................................... 31 Boatmen’s National Bank, St. Louis ....................... 56 Centerre Bank, St. L o u is ............................................... S/5 Chubb Systems M idw est............................................. S / l l Cole-Taylor Financial G roup................................... 28-29 Commerce Bank, Kansas C it y ..................................... 11 Commercial National Bank, Kansas City, Kan.......................................................... S/17 Dillon-Gage ........................................................................ S/10 Executive Software Co....................................................... 20 Financial Placem en ts....................................................... 44 First Lease & Equipment Consulting Corp............. 45 First National Bank, Belleville ................................... S/3 First National Bank, Kansas City ...................... 28/29 First National Bank of Commerce, New Orleans ................................................................ S/15 First Oklahoma Bancorp, Oklahoma City ............. S/7 Graduate School of Banking ........................................ 17 Hagan & Associates, Tom ............................................. 36 Industrial Life Insurance Co........................................... 52 KPS Associates ................................................................... 37 Laacke & Joys ..................................................................... 32 Liberty National Bank & Trust Co., Louisville . . 23 Liberty National Bank & Trust Co., Oklahoma City ................................................................. 2 Littlewood, Shain & Co..................................................... 41 Midland Bank & Trust Co., Memphis .................... S/9 Missouri Encom, Inc....................................................... S/18 Network Title Services, Inc......................................... S/13 Planalyzer & Co., Dallas ............................................... 32 Rothschild, Unterberg, Towbin, L. F......................... 5 Sendero Corp.......................................................................... 27 Systeme Corp.......................................................................... 33 Third National Bank, Nashville .............................. S/19 Whitney National Bank, New Orleans .................... S/l 53 THE BANKING S C E N E By Dr. LEW IS E. D A VID S Professor of Finance Southern Illinois University, Carbondale Foreign Ownership of U. S. Banks M ER IC A N S’ traditionally u n sophisticated attitudes toward foreign ownership of U. S. banks quire reassessm ent in an era when foreign bank holdings in the United States are growing. The vast majority of the more than 14,000 banks in the U. S. still are local ly owned and operated, but the p er centage of locally controlled assets is eroding, and, by historical standards, the level of foreign participation in American banking seems unaccept ably high. To get a better perspective on the roots of American antipathy to ward foreign investors in American banks, a short history lesson is in order. retained a fifth of the outstanding was passed in 1816. shares and shareholder voting priv While the bank was in formation, an re ileges deliberately were regressive. agent was sent abroad to purchase bul The more shares an investor held, the lion. Throughout its early years, the fewer votes per share he received. No bank had to borrow extensively from one could have more than 20 votes and Europe to bring in sorely needed spe an investor had to purchase 100 shares cie, although the incom petence of its to achieve that maximum. Foreigners first president, William Jones, as much were among those who bought up the as external political pressures, was 4,000 shares of the bank, but they were responsible for the bank’s troubles. not perm itted to vote. Mr. Jones was followed by a conserva Despite restrictions on the voting tive and effective adm inistrator in privileges of foreign shareholders, Langdon C heeves, who served as United States Bank came under grow p re sid e n t from 1819-1822. U n d er ing fire because of its alleged foreign P re sid e n t N icholas B iddle (1823domination. “The United States Bank 1828), the bank prospered financially, also was unpopular because of the b u t its conservative fiscal policies large foreign holdings in the bank’s made few friends in government. An early foe was Andrew Jackson. In 1832, P re sid e n t Jackson and American fears of foreign ownership of U. S. banks are not as others accused the Second U nited strong today as formerly, but still lurk just below the facade of States Bank of “financial strangula casual acceptance. Foreign suitors seeking American banks as tion.’’ In a letter to Mr. Biddle, Presi dent Jackson stated that he did not feel brides would do well to remember that. Congress had authority to charter a bank. “I do not dislike your bank any more Bank of North America, approved stock, amounting to 18,000 shares of a than all banks, but ever since I read the by Congress in 1781, was criticized for total of 25,000,” Thomas Dewey wrote history of the South Sea Bubble, I have its alleged “oppressive monetary pow in his F i n a n c ia l H i s t o r y o f th e U n i t e d been afraid of banks, ’’ President Jackers. Although the bank was perm itted S t a t e s . “This use of foreign capital was son wrote to Mr. Biddle. a total capitalization of no more than construed to be a large foreign tribute U ndeterred by President Jackson’s $10 million, the amount actually sub in dividends and though (foreign) hostility, Mr. Biddle attem p ted to scribed was ridiculously small by to shareholders could not vote, indirectly force the issue — and defeat President day’s standards. Private subscribers they would exert a ‘malignant’ influ Jackson — by having a bill recharter put up $70,000 and the U. S. govern ence.’’ ing the bank introduced in Congress in ment threw in $200,000 in specie it Never criticized for its economic 1832. President Jackson vetoed the had obtained from France. Criticism of viability, U nited States Bank had proposal, saying the bank was uncon Bank of North America’s so-called con picked up too much political baggage stitutional, owned by foreigners and a centration of financial power eventual by the time its charter came before handful of easterners. After his im ly caused it to divert its charter to Congress for renewal in 1808. Even pressive reelection victory, President Pennsylvania, even though the bank the support of prom inent financial Jackson felt he had a m andate to had been helpful in U. S. government statesman Albert Gallatin was insuffi accelerate expiration of the bank’s financings. cient to save the bank when the charter charter. He attem pted to do so by re F irs t U n ited S tates B ank, th e was subm itted to the Senate for renew moving the $6.5 million in govern realization of Alexander H am ilton’s al. m ent deposits from the bank. In 1835, long-held dream for a national bank, Loss of United States Bank was a the Second United States Bank liq was the target of fears that too much blow, particularly to the Treasury D e uidated most of its assets and reverted financial pow er was being concen partm ent, which by 1814 was vigor to a state charter in February of the trated in one place even before Presi ously supporting the foundation of a following year, becoming the Bank of dent George Washington signed the Second United States Bank. Although the U nited States of Pennsylvania. bill chartering the bank for a 20-year th e idea again drew co nsiderable Again, Am erican antipathy toward period in 1791. The U. S. government opposition, a bill establishing the bank (C o n tin u e d o n p a g e 53) A 54 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BANKER for January, 19 8 4 R e m o d e l in g F o r R e s u l t s Before https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Successful remodeling takes more than just a face lift!’ lit is usually more demanding than new construction. Fitting a new design to an existing structure demands highly specialized skills in architectural design and space and function planning. It requires the ability to anticipate problems unique to your building. Plus, a special sensitivity to your needs as well as those of your customers. In the last two years Bank Building Corporation completed successful remodel projects for over 140 financial clients. Projects completed on time, within budget and without business ¡interruption. Call Tom Spalding: 800 - 325 - 9573 . Architectural experience counts more than it costs. Bank Building Corporation 1130 Hampton St Louis, MD 63139 800-392-9168 (In Missouri) of the community you serve... by design. i9 i Bank Building C orporation https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis B oatm en’s Ted Sm others. O peration s A ssista n ce O verline A ssistan ce. Loan P articipation s. In vestm en ts. Boatmen’s Vice President Ted Smothers working w ith Bob Menz, Chairman and President o f The First National Bank o f Highland. Whatever your correspondent needs, Boatm en’s has know l edgeable people to assist you. Call Ted Smothers. He can help. Correspondent Banking Division THE BOATMEN'S NATIONAL BANK OF ST. LOUIS 314 - 4 2 5 -3 6 0 0 Member FDIC
@FedFRASER