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Impact of Credit
Commercial Ba
across the
of eight a
indicates that most believe liank credit
ograms are a
s haw
f hanking, M
produced
a 13nged relationship between
among t
h ank n;.;;.,.-.... -;::.::::.c::n::::.::.:
rchauts.

Local Borrowing and
___,,.,, ·...,.,., _al Spending in 1966
Federal Res e Bank survey
than 600 state and local borrowing units in
New England shows that while restrictive
monetary policies had an effect on the borrowing plans of these go ernments, the impact on
their capital pending wa small.

The New England Business Review is produced in the Research Department. The
authors are glad to receive comments. Additional copies may be obtained from the
Federal Reserve Bank of Boston , 30 Pearl Street, Boston , Massachusetts 02106.

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NEW

ENGLAND

BUSINESS REVIEW
Impact of Credit Cards on
Commercial Banks

have attracted more
public attention · than any other recent
development in banking. They have become
the center of much controversy. Some regard credit cards as an inappropriate activity for commercial banks and anticipate
difficulties for con umers, the card issuing
banks, and the entire financial system. Others
see the card as the key to the future of banking.
Credit card plans are thought to represent the
first step on the long road to the checkless
society - that promised land of instant money.
ANK CREDIT CARDS

What impact have credit cards had on banks?
Are they profitable? How do losses compare
with those in other instalment loan programs?
What are the implications of this new type of
banking? To answer these and similar questions, an in-depth study was undertaken in
Much of the information in this article was drawn from
a thesis by Donald M. T. Gibson from the Harvard Graduate School of Business Administration. Copies of the
thesis are available on request to this Bank's Research
Department. Dr. Gibson is currently Manager, Market•
ing Planning for Rank Xerox (Australia) Pty. Limited in
Sydney, Australia.
The Federal Reserve System report, entitled Bank
Credit Cards and Check-Credit Plans, may be obtained for
$1.00 from Publication Services, Division of Administrative Services, Board of Governors of the Federal
Reserve System, Washington, D. C. 2055 L

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1967 of credit card operations m eight large
commercial banks located in different areas of
the country. The major findings of this study
were subsequently confirmed by a nationwide
Federal Reserve System survey made in the
fall of 1967.
In the study of eight banks, three were early
entries in the credit card field - one in 1953
and the other two in 1958-59. The remaining
five banks started their plans in 1965 or 1966.
The study revealed that the early plans are
profitable today after incurring losses in earlier
years. As expected~ the credit card plans of
the more recent entrants did not cover incremental costs in the first 2 years of operation.
Credit quality of cardholders compares favorably with that of borrowers accepted for other
types of consumer loans. The sample banks
expect that the future development of credit
card banking will have widespread effects on
retail bank management. They anticipate that
credit card outstandings will absorb much more
of a bank's retail loan resources - probabiy
at the expense of other instalment lending. In
short, credit cards are viewed as an important
vehicle for enabling banks to become lenders
to individuals making retail purchases, rather

New England Business Review
than remaining secondary lenders through
finance companies and department stores.
While the sample banks were all large with over
$100 million in deposits, the growing availability of bank plans through correspondents,
franchise arrangements, and nonprofit corporations suggests that size should not he a
barrier to entry into credit card banking.

Growth of Bank Credit Cards
Credit cards for consumer purchases are
hardly new. Major oil companies and large
department stores have used them for handling
credit sales since the early 1900's.
After
World War 11 an added impetus to the charge
system arose from the development of the
national travel and entertainment cards, such
as Diners Club, Carte Blanche and American
Express.
Some banks became interested in credit
cards in the early 1950's. Over 60 plans were
in operation at the beginning of 1953. Most,
however, found the plans less profitable than
anticipated and discontinued them. But at
the end of the decade, a few large banks
showed new interest and implemented credit
card plans.
ot until 1966 did a significant
number of banks begin to enter the field.
According to the latest Federal Reserve System survey, 197 banks across the country are
at present offering credit card plans. This
number does not include banks that operate
as local agents of large city correspondents.
Almost two-thirds of the credit card banks
entered the field in 1966. As of October 1967,
total credit outstanding under credit card
plans amounted to $640 million, a little less
than 2 percent of total consumer instalment
credit held by commercial banks.

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Characteristics of Credit Card Plan
as a New Banking Service
Credit card plans are differentiated from
traditional banking services by three specific
features. First, the credit card opens up a new
relationship between the bank and the retail
merchant. Prior to the credit card, banks were
leery of lending to merchants against retail
accounts receivable. It was considered a risky
business. The bulk of the bank's business with
the merchant had been in financing of large or
big ticket i terns, while financing the accounts
receivable was largely on an indirect basis.
Now when a merchant agrees to honor a bank
credit card, he must open an account at the
bank if he does not already have one. With
the deposit of his sales slips, he receives immediate credit (less a discount) in his bank
deposit. Thus the bank takes over the financing
of the merchant's accounts receivable. The
bank issuing the credit card may obtain a new
demand deposit account or increase balances
maintained in existing accounts. In addition,
the contact with the merchant through the
bank credit card provides an opportunity for
increased marketing of other bank services to
both old and new retail customers. By the end
of September 1967, 424,000 merchants had
declared their intention of honoring bank
credit cards. Most, however, tended to be concentrated in a few areas, with about half on the
West Coast and another fourth in the Chicago
area.
A second differentiating characteristic of
credit card banking is the extension to individuals of a revolving line of credit without
collateral. While the revolving credit aspects
of the bank card are similar to the bank's traditional instalment lending activities, banks

August 1968
have discovered that the credit card is highly
attractive to customers. Customers view the
card as a convenient method of handling uneven expenditure patterns and of borrowing
for emergencies. From the bank's standpoint,
the revolving credit aspect becomes attractive
because it provides an opportunity to increase
its instalment loans and to handle small consumer loans more efficiently and profitably.
Moreover, it offers an opportunity to tap new
consumer markets. No prior banking relationship is necessary, a feature especially important
to banks in states where branching is limited
or prohibited entirely. As with the merchant,
the possibilities of extending the market for
other bank services is a key feature of the
credit card.
The third distinguishing characteristic of
bank credit card plans is that they represent
a step in the direction of an electronic money
transfer system. Most bankers believe that the
future will bring about major changes in banking practices due to automation of the payments mechanism. The credit card operation
is viewed as a method of providing the bank
experience with the methods and equipment
which will be used in tomorrow's banking. In
addition, credit cards familiarize the bank and
the cardholder with an automatic transfer
system and with the use of a card for consumer
identification. Thus, the desi.re to keep abreast
of developments that may ultimately lead to
the establishment of an electronic money transfer system has been one motivation in the
development of bank credit card plans.

Cardholder Distribution Policies
Two major approaches were used by the
sample banks to establish their cardholder

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groups. Most used mass mailing of credit
cards; one provided cre<lit cards only to selected
customers of the merchants. All the banks felt
that competitive conditions at the present
time made it essential to launch a plan with a
mass issue of cards to establish a potential
share of the market. The one sample bank
which did not pursue this course first issued
cards in 1953 when the threat of competition
was insignificant. Moreover, to establish a
profitable base of operations, the banks typically needed a large number of cardholders
with high sales volume and outstanclings to
cover their operating expenses.
The mass issue banks used their own customer lists to provide names for sending out
credit cards. The major criteria for an acceptable credit risk were the absence of any negative information, and evidence of a satisfactory
balance in a checking or savings account.
Other sources of names were such upper income
groups as members of professions and country
clubs, names provided by member merchants,
and credit bureau lists. This last category,
however, was generally regarded as less dependable and was used least. Because of the
expense, the difficulties, and the time needed,
detailed credit investigations of individuals
were not usually made before the mass mailing.

Management of Credit Card Plans
All the sample banks established new and
separate organizations for the administration
of their credit card programs. Most banks appointed plan managers who showed evidence
of general management and promotional ability. Several banks suggested that the credit
card field had to develop its own specialists

New England Business Review
because the average banker was not geared to
credit card operating policies. The president of
one bank put it this way:
We started with a banker, but a banker doesn't
know what he's doing in this area, and he isn't
any good at it. A banker's approach is "pay us."
This is no goo<l because you have to have a retail
merchant's approach, which is "come back to the
store." To be successful, we feel very strongly,
that you have to have a retail credit man from a
retail store.

Interestingly, most of the banks felt strongly
that credit card opera Lions should be separated
from their instalment loan departments. Even
a bank instalment lending background was regarded as undesirable for officers associated
with credit card departments. The consensus
was that the traditional instalment lending
practices would adversely affect the growth
of credit card outstandings. Personnel trained
in instalment lending would tend to be too
strict in approving credits and in foJlowing
up delinquent accounts. For these reasons,
the banks felt it was desirable to establish a
separate credit card group that would promote
the development of the credit card actively.
Still another consideration in setting up an
independent department was that income and
expenditures related to credit cards could be
easily identified for accounting purposes.

Characteristics of Card holders
.Based on data from a few sample banks, the
typical regular card user emerges as either a
man or a woman in a family that earns between $5,000 and $10,000 a year, is between 25
and 55 years old, and has had a high school
education or more. Even if grade-school educated persons held credit cards, they were much
less likely to u se their cards than those with
more schooling. Most regular card users were

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white collar workers in professional, managerial, or sales and clerical occupations. Thus
it appears that the bank credit card has had its
greatest impact on a broad group of lowermiddle income families in the age group where
expenditures are at their peak, payment habits
more flexible, and personal background in dieating capacity for responsible borrowing
behavior.
How often do cardholders actually use their
cards? A comparison of cardholder usage experience in early and late entry banks shows
that usage ratios tend to rise steadily over the
first few years of a plan until they reach a
plateau. By the fifth year between a third and
a half of the outstanding accounts are active
each month. 'I'he data also show that each
plan tends to develop a small group of regular
users. These cardholders, representing less than
30 percent of the total accounts, tend to establish regular usage patterns early in their association with the plan.
These figures are similar to those reported
in the Federal Reserve System survey. At the
end of September 1967, the total number of
credit card accounts was more than 14 million,
but only about one-third were considered active. Moreover, they used, on the average,
only about 12 percent of the authorized lines
of credit .

Credit Card Pricing Policies
The most important sources of revenue for
the credit card plans were the interest charges
paid by cardholders on balances outstanding
in excess of 30 days and the discount paid by
merchants on all credit card sales. The interes t
rates set by the sample banks were typically
the maximums allowed by state laws and

August 1968
ranged between 1 and 1.5 percent a month.
These figures were corroborated by the results
of the nationwide Federal Reserve System survey of all credit card banks last fall which
showed that as of September 1967 almost fourfifths of the cre<li t card banks charged 1.5
percent.
In a<l<li tion to the interest charge, the cardholder is also required to repay part of his
outstanding balance each month. Most banks
started out requiring $10 or 10 percent of the
balance, whichever was higher, but under
pressure to attract cardholders and generate
outstandings, two banks later dropped their
repayment terms to $10 or 5 percent of the
balance, whichever was higher.
In contrast to the relative uniformity of
cardholder charges, the sample banks showed
considerable variation in their merchant discount r'ates, both in different banking markets
and in methods used. The most common rates
paid by member merchants were between 3.6
and 4,.5 percent. The maximum charged by
most banks was 6 percent, but one bank had a
maximum merchant discount of only 3 percent.
Three banks in the sample established separate
rates for each type of business, volume of sales,
and average size of ticket. The higher the size
of the average purchase and the merchant's
volume, the lower the assigned rate. For example, shoe stores as a category might be
charged 4 percent while furniture stores could
justify a rate of 3.25 percent. Some banks
deducted the maximum from the deposited
sales slips daily and then gave the merchants a
quarterIy rebate based on their average sales
volume. One bank used an end of the month
merchant settlement system based on average
ticket size without daily discount deductions.

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One bank in a state where branching is prohibited split its discounts with correspondent
banks in return for their aid in enrolling merchants. The wide diversity of merchant discount rates was also evident in the Federal
Reserve System survey where rates ranged
from a low of .5 to a high of 8 percent, with the
average about 3.5 percent.
For most credit card plans m the sample
banks, the largest source of income in 1966 was
service charges paid hy cardholders, accounting
for 54 to 66 percent of total revenue. These
charges generally tended to increase in importance as a source of credit card revenue over
the life of the plan. Conversely, merchant
discounts which provided between one-third
and one-half of credit card revenue had generally declined in importance as a source of
revenue.

Financial Analysis
In general, the study showed that the proportion of bank loan funds absorbed by credit
card plans has been minor. The largest percentage of loan resources used by credit card
outstandings was 6 percent in the bank with
the oldest plan studied. The majority of credit
card plans had taken less than 2 perccn t of the
issuing banks' total loan portfolio. Even when
measured as a proportion of consumer instalment loans, credit card outstandings were
small. ln the nationwide survey of the Federal
Reserve System, credit cards accounted for
7.4 percent of the instalment portfolio of credit
card banks.

In analyzing the profit yield of credit cards,
net operating profit - defined in this study as
the difference between total revenue and direct
costs - was measured as a percent of average
7

New England Business Review
outstan<lings. On that basis, the three older
plans were currently profitable after losses in
earlier years. Two plans with 12 percent net
operating profit in 1966 were twice as profitable
as the thir<l plan. Data were not available to
measure profit on a more sophisticated basis
net of administrative overhead cost an<l the
cost of money. As a result the profit performance of these plans could not be compared
with the return on other loans in the bank
portfolio. All the early entrants, however, regarded the credit card as important for longterm growth and as a valuable, although relatively small, contributor to the bank's earnings
at the present time.

gave them adequate access to the credit card
market. The other six banks located in states
that had limited branching or prohibited it
entirely ci ther had or were planning correspondent credit card policies. The effects of
correspondent relationships were most significant in the states where branching was prohibited. There 90 percent of the credit cards
outstanding were issued through correspondents. One important implication for the future
in such states is that if the major unit banks
can achieve a fair share of retail borrowing
through correspondent credit card outlets,
their desire for new branches may be diminished.

None of these credit plans had a positive net
operating profit for its first or second year of
act1v1ty. Typically, however, the banks expected some monthly profits toward the end of
this period. In general, this profitability picture was corroborated by the Federal Reserve
System's survey. That study suggests that
after the jnitia] start-up perjo<l, credit cards
normally produce yields comparable with - if
not higher than - those of other instalment
lending operations in the banks. Moreover, to
the extent that credit cards increase the sales
of other bank services~ even higher profits will
be generated. lt is also interesting to note that
a number of small bank plans are very successful.

Business terms for correspondent relationships varied somewhat. Because correspondents of the big city banks typically lacked the
resources and the willingness to risk investment
in cardholder balances, the arrangements usually provided that the major bank did most of
the processing work, retained control over
policy and received the bulk of the revenue.
More ''sweeteners" in the form of larger shares
of merchant discounts and the specific identification of the correspondent bank were added
in markets where it was necessary to attract
correspondent cooperation.

Relations with Correspondent Banks
The sample banks' credit card relations with
their correspondents depended in part on the
state branching laws. Two banks located in
states permitting statewide branching had no
credit card affiliations with correspondents
because they believed their own branch systems

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Interchange Systems
To expand the acceptability of credit cards
beyond local areas accessible to a particular
bank, several interchange systems have been
developed. Of the eight sample banks, six had
joined one of three major interchange systems,
thus effecting a new type of structural relationship. The development of national interchange systems is still in its early stages, however, and the volume and income effects of

August 1968
such jnterchanges on interstate banking relations are not yet significant.
Although every sample bank was in favor of
some arrangement to make credit cards acceptable on a national and possibly an international basis, many problems remain to be
solved. One difficulty js the distribution of
revenue on interchange transactions. Because
rates charged to merchants are not uniform,
conceivably merchants might take advantage
of lower charges and move their paper away
from a local bank, a1though this is prohibited in
some plans.
Another and more difficult problem is the
relationship between the existing interchange
systems. One of these, BankAmericard, grants
franchises to its participants and receives
royalties from them. Some arrangement would
probably be necessary so that franchisee banks
did not pay dual fees to a central association
in addition to BankAmericard, if a single interchange system were established. Moreover, the
antitrust legal issues of such a system would
have to be clarified. To achieve a workable
national interchange plan, the rates charged
would probably have to be uniform thereby
eliminating some competition among credit
However, banks could still
card systems.
compete in signing up cardholders and merchants.
On the operational side, the most basic
problem is the need for a system to clear merchant sales slips between member banks. Two
main approaches could be considered . One
might involve a series of clearing points set up
by the member banks at central locations
across the country. Another possibility might
be the use of the Federal Reserve System's
check clearing system. A step in this direction

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was indicated by the Fed's recent agreement
to issue check transit numbers for credit cards.
Standardized sales slips with special encoding
would have to be developed to allow high speed
handling. Finally, other problems such as
auditing and fraud control would also have to
be solved.
Still another important problem that may
impede the overall growth of the credit card is
the reluctance of large department stores to
use them. So far these stores have found it
profitable to conduct their own credit departments and are consequently unwilling to turn
these operations over to banks.

Blue Sky Department
If the credit card does succeed in becoming
widely accepted, and if all the interchange
problems can be ironed out so that a single
national interchange system can be established,
the nature of our banks and banking services
could change considerably. The bank credit
card might become the individual's principal
financial instrument and means of identificaMost commercial banks would issue
tion.
credit cards under these plans which would
have five principal functions:

to obtain cash, either from banks or member merchants.

to purchase goods and services. Almost
all retail establishments such as large department stores and supermarkets might
participate. Also professional groups such
as doctors, lawyers, dentists, and accountants might accept credit cards.

for automatic (pre-authorized) payment
of regular bills, such as utilities, rent, and
insurance.

New England Business Review
4.

as a consolidating point for all consumer
lending. Larger loans including those for
automobiles and home improvements
might be included.

as a source of accounting information including the individual's checking account,
transfers to savings accounts, etc.

These changes would have profound effects
on retail stores. They will no longer need
credi land collection departments. Thus, most
of their bookkeeping functions will be taken
over by banks, which will also provide sales
analyses, inventory control data~ payroll, and
cash flow information.
The banks' economic relationships with cardholders and member merchants would also
undergo changes. ln general, the banks would
pay customers for deposits and charge for
loans and services. Merchants would pay a
transaction fee based on the estimated cost of
bookkeeping services and the value of money
advanced by the bank.

Conclusion
Most of the sample banks believed that
existing bank credit card programs are an in-

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terim and useful phase in the evolution of
retail banking. They felt that cre<li t cards
could be used to prepare cardholders, retailers,
and their own organizations for the implementation of an automated payment system in
which checks would be used much less frequently than they are at present. Before such
a system could begin to operate, the consumer
has to become accustomed to substitute some
form of money card for traditional payment
practices. They felt that most commercial
banks would issue credit cards to be in the
strongest position to benefit from the funds
transfer technology.
Although at present the total volume of
credit card outstandings continues to be small
as compared with other types of loans, credit
card plans have produced important innovations in retail banking. These are primarily
the new relationship between the bank and the
retail merchant, the pre-approved revolving
lines of credit, and a step toward an electronic
money transfer system. In addition, these
plans have been responsible for creating new
methods for competition and developing new
relationships between large city banks and
their smaller correspondents.

August 1968

State and Local Borrowing and
Capital Spending in 1966
by Mary N. Chamberlain and Ruth B. Norr
commonly held notion is that state
and local governments often delay their
long-term borrowing and capital spending <luring periods of monetary restraint. These governments are presumed to be reluctant to pay
high interest rates or are prevented from doing
so by legal limitations imposed by city charters
or similar documents. As a result, when prevailing interest rates climb, these governments
refrain from floating bond issues. Moreover,
in periods of tight money banks are presumed
to be more anxious to accommodate their
business borrowers than to purchase state and
local bonds. Thus, many economists have
assumed that the tight money policies of 1966
had a substantial effect on state and local governments. To see whether this was actually
the case, this Bank, as part of a nationwide
Federal Reserve System study, surveyed 623
New England state and local governments on
their capital borrowing and spending experiences during the tight money year 1966.
States, counties, large cities and towns, school
districts and other governmental entities were
included. The coverage is explained in detail
in the box on page 13.

The results of the survey showed that the
great majority of units with long-term borrowing plans achieved their aims without diffi-

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culty. Only 23 units postponed or abandoned
their plans for borrowing because of high
interest rates. Despite these postponements,
monetary restraint had Ii ttle actual effect on
planned capital outlays since only two units
deferred spending.

Borrowing Plans
Two-thirds of the survey respondents were
not at all affected by monetary policy since
they never had plans to borrow long term in
1966. The units with plans to raise funds had
expected to obtain a total of $471.2 million and
most succeeded. All but $69.0 million was
raised. Altogether only 35 governmental enti ties postponed or abandoned one or more
bond offerings. Of these 35 units, 23 were
affected by high interest rates while the remaining 12 were forced to change their plans
for such reasons as failure of bond referendums,
pending litigation, or others.
Anticipated tight monetary policies, however, did cause a few of the units to accelerate
their borrowing plans. Three units speeded up
their plan to raise funds because they expected
interest rates to be even higher later in the year.

The Effect of High Interest Rates
The units affected by tight money postponed
four bond offerings within 1966 and either
ll

New England Business Review
LONG-TERM FINANCING PROBLEMS IN 1966
New England State and Local Governments
Units*

Volume
($ Millions)

Problems Arising from Monetary Restraint .............. .
Postponed Long-term Borrowing within 1966 .......... .
Postponed Long-term Borrowing beyond 1966 ........ .

23
4
20

$90.7
21.7
69.0

Funds Borrowed Short-term ......................... .
Cash and Federal Grants Used ...................... .
Contract Awards Reduced ........................... .

16
4
2

50.8
16.4
1.8

Problems Arising from Other Reasons .................... .
Postponed Long-term Borrowing within 1966 .......... .
Postponed Long-term Borrowing beyond 1966

12
1

23.3

23.1

11.4
11.7

Action Taken

0.2

Action Taken
Cash and Federal Grants Used
Contract Awards Reduced ........................... .

*Units do not add to total since some had more than one experience.
Source: Federal Reserve Bank of Boston.

postponed beyond 1966 or abandoned 20 offerings. (One government with two offerings
did both.) The postponements within 1966
amounted to $21.7 million and included three
o.f less than 11 weeks duration. The other
deferral was for 6 months and a revision in
project costs was a secondary reason for its
delay.

Four of the 20 units that deferred their offerings beyond 1966 had little choice since the
prevailing interest rates were higher than their
legal limits. The other units felt that interest
costs were too high even though they were not
constrained by a rate ceiling. Altogether $69.0
million was not borrowed long term in 1966
because of high interest rates.

Presumably a government postponing an
issue because of high interest rates expected to
pay a lower rate when the offering was finally
made. The interest costs for the short postponements were probably little changed from
what they would have been if the borrowing
had occurred as planned. The 6-month postponement, however, undoubtedly resulted in
higher interest costs to the borrowing unit since
municipal bond yields had risen about .40 of a
percentage point by the time the borrowing
was finally undertaken.

Despite their postponed borrowing, the government units apparently did not feel that
their capital spending plans could be delayed.
Only two units reduced awards in 1966, by a
total of $1.8 million. One of them reported that
its spending continued to be reduced in 1967.
Except for this small amount, however, the
planned capital outlays were undertaken.
They were financed primarily by short-term
borrowing, although Federal grants and a
slower rate of cash disbursements were also
used. A large part of the spending that was

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August 1968
undertaken even in Lhe ab sence of Jong-Lerm
borrowing was for education al facilities and
hi ghways w hile postponem enLs were mainl y for
wat er and sewage facili Li es.

Other Borrowing Problems
The 12 units with borrowing difficulti es thaL
were not relat ed t o interes t rates were forced
to postpone $23.3 miIJion of long-term borrowing. Most of the postponem en ts were for legal
reasons such as failure of bond referendums,
t he need for condemnation proceedings, and
pending litigation. T wo units, accounting for
about half of the proposed borrowing, went
ahead with their proj ect s u sing cash and
Federal grants. One unit postponed $.2 million
for a short period within 1966 and then borrowed long t erm. T he other governments cut
back their proposed capital spending b y a

t o Lal o f $11.7 milli on. Of t hi s am ounL, $2 .3
million had s Lill no L been underta ken in 1967 .
T axpayer unh app iness appea rs to b e a m ore
effecti ve de Lerren L Lo ca p i La l spending th an
ew
does m onet ar y res Lra inL, at least in
E n gland.

Conclusion
Jn general, th e res Lric ti ve mone tar y policies
of 1966 had Ii ttle effect on state and local
governmen ts in ew E ngland. Onl y 15 percent of the pl anned long- Lerm borrowing was
postponed as a resul t of hi gh interes t r a tes.
M oreo ver, the effec t on spend ing was even less
signifi cant, with less t han half of 1 percent of
anti cipated capiLal spending de ferred. Most
government uni ts felt that their proj ec Ls warranted either paym ent of the prevailing hi gh
rates of long-term money or o ther m eans o f
financing.

THE SURVEY
As a part of a nationwide study by the Federal Reserve
System, this Bank conducted a survey of New England
state and local governments' borrowing experiences in
1966. All large government units were included: that is,
all states, counties over 250,000 population, cities and
towns over 50,000 population, local school districts over
25,000 enrollees, special local districts with $5 million
debt outstanding, all state agencies, and all state and
local institutions of higher learning except the very
small. A stratified random sample was used to survey
small and medium-size units. In this District of 65 large
units and 558 small units surveyed, 64 large and 452
small units responded making an 83 percent response.

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Federal Reserve Bank of St. Louis

These survey respondents accounted for almost 78
percent of total long-term borrowing of $490 million by
all New England government units in 1966. Only the
borrowing and spending of the government units
responding to the survey are discussed in this article.
An article on "Monetary Restraint and Borrowing a nd
Capital Spending by Large State and Local Governments
in 1966" in the July issue of the Federal Reserve Bulletin
analyzes the nationwide survey results for large govern ment units. A later article will analyze the U. S. results
for small and middle -size units.

New England Business Review

FOREIGN TRADE AND PAYMENTS
BUREAU Of CENSUS DATA

Billions of dollars

Jun

30 f----------+--------..--------

- t - - - ~ ~ - - - - - - - = - ; , - --

The chart shows a
steady deterioration m
our trade balance at
seasonally adjusted rates
because imports have
been rising much more
rapidly than exports in
recent months.

--------,

25~--""-----½------- - - t - -,...--=---------+-- ----t----------i

TS
2o t - - - - - = + -------- - -

- - - - + - - - - -- - - - - - - - 1

15~~~~~~~~~~~~~~~

1964

1965

1966

1967

1968

Source: Federal Reserve Bank of New York

LONG-TERM INTEREST RATES
MONTHLY
Per cent

Jun
7.52

7.5

1.01----s~-t---+-~~-+--t---+--t---+--t----t-:r---1

6.5~~--+----+----<
6.0t--~~t---f--+-~~--+--t----+--t------H--t----,-;--

5.51---1~:--f-t=---~~-t----'==,,,...~--t-=--""'"t--f--t-t-----.t-=------1

5.o~~-+-~~
4.5~~-ft-t-f--t-~~t-A--t----,llk~i.:.r:;;~---'#--'~l;.#--t---f
4.o~~-t--t--,---t-~~~~~""-+-_..,_t---+---=-f---+t----'--I

3.5~~----f-----i~~~
3.oi.--+--,~~~-,-~~-----t-"l,~t,,,,,---t--w----t--t---t---1

2.5~~-+----=-....:....:.;-:-~-=-=2.0lillll1.litffiffifi.11lJ.1.ulUlJJJ.U.ll..ll..Lll.l£~.lJ.J..lJJ..lil.U..llul.tllull1lJtLU..LU.U...l.llLI..I..U.U.U..U.U.U..LU..U.LU..1.1.I..U..lJ.J..L.ll.l.LllµJw...u.J.Ll..l.ll.lllJ

1957 58 59

60 61 62 63 64 65 66 61 68

Source: Federal Reserve Ba nk of New York

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Federal Reserve Bank of St. Louis

Home mortgage rates
rose sharply in June.
Other more sensitive
long-term rates showed
declines that extended
into July.

August 1968

Here's New England MANUFACTURING INDEXES (seasonally adjusted)
1957-59 = 100

NEW ENGLAND
pJune '68 May '68
June '67

UNITED STATES
June'67
May'68
June '68

All Manufacturing

147

146

166

157

Nonelectrical Machinery
Electrical Machinery
Transportation Equipment

157
169
160

153
172
157

166
175
169

178
184
182

177
184
181

182
179
168

Textiles, Apparel, Leather
Textiles
Apparel
Leather and Shoes

106
100
116
107

105
97
115
108

101
97
113
98

144
149
n.a.
n.a.

144
147
149
119

135
138
143
105

Paper

142

140

n.a.

161

151

Percent Change From:

Percent Change From:
BANKING AND CREDIT
Commercial and Industrial Loans($ millions)
(Weekly Reporting Member Banks)

June '68
3,047

+18

4,353.5

+17

190.2

237.5

133

Consumer Installment Credit Outstanding
(index, seas. adj. 1957-59 = 100)

Weekly Earnings in Manufacturing($)

OTHER INDICATORS
Total Construction Contract Awards**($ thous.)

June'67
+ 9

198,959

315.1

Consumer Prices
(index, 1957-59 = 100)
Production-Worker Man-Hours
(index, 1957-59 = 100)

May'68
+ 1

Check Payments ($ billions)
(Selected Metropolitan Areas)*

Insured Unemployment (thousands)
(excl. R.R. and temporary programs)

June '68
68,328

8,109

EMPLOYMENT, PRICES, MAN-HOURS
& EARNINGS
Nonagricultural Employment (thousands)

June'67
+13

Deposits ($ millions)
(Weekly Reporting Member Banks)

DEPARTMENT STORE SALES
(index, seas. adj. 1957-59 = 100)

May '68
+ 1

4,457
71

+ 2
-12

n.a.

+ 1
-10

+ 3
-14

68,544

909

n.a.

120.9

105.5

119.7

107.47
(Mass.)

123.30

+12

+26

352,023

-12

+28

5,545,957

Residential

150,979

+45

2,365,890

Nonresidential

158,013

+ 2
+11
-60

+33
-16

1,926,477

1,253,590

203

Public Works and Utilities
Electrical Energy Production (4 weeks
ending June 15)
(index, seas. adj. 1957-59 = 100)
Business Failures (number)
New Business Incorporations (number)

43,030
192

n.a.
1,050

n.a.
-

n.a.

18,760

n.a.

*Seasonally adjusted annual rate
**3-mos. moving averages - Apr., May, June

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Federal Reserve Bank of St. Louis

p = preliminary

n.a. = not available

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Federal Reserve Bank of St. Louis

•

V
~

.-\
0

•

l.iJ

•

...

•

Full text of New England Economic Review : August 1968

FRASER