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ess

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ew

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Monetary Policy-

A New Emphasis in Regulations
Affects Liability Management
.....
1'he Board of Governors of the
F

ment should be in a position to
ever, show no significant associat ederal Reserve System has alchoose between different sources
tion between such rate competition
a:ed .the thrust of its regulations
mainly on the basis of cost.
a~d b~nking problems involving
it' ectmg money market-type liabilSince interest rate ceilings have
high-rIsk assets. And until the late
pIes of member banks during the
been actively used as a tool of
1950's, in fact, RegUlation Q ceilmonetary policy only since the
s~s~ few years. In earlier periods,
ings were usually raised when necra c. as 1966 and 1969, when the
midsixties, the new emphasis might essary to allow commercial banks
b P~d expansion of bank loans to
to compete freely for time and
appear to be no more than a redisinUSll1e~s borrowers was contribut- covery of traditional techniques of savings deposits.
Recent administration of ReguF gdto mflationary pressure the
restraint. But because the financial
ra~eera.l ~eserve had used i~terest structure has changed considerably lation Q has been guided by at
least two main considerations. One
cert' ceIlings on large-denomination since the 1960's, neither the reguth lficates of deposit to help slow
lations affecting bank liabilities nor has been to make restrictive monetary policies more effective as a
~rowt~ ~f b~k credit directly. the conditions under which these
brake on business spending for
regulations operate are the same.
the
a slillliar sItuation in 1973,
And since the new marginal reserve inventories and plant and equipceil' oard suspended interest rate
ad tngs on large CD's entirely and
requirement applies only to certain ment by restricting the availability
of credit at banks. Fluctuations in
apoPted a somewhat different
bank liabilities not included in the
Proach.
money supply, the new approach is business spending of this type have
llle~tnew marginal reserve require- really more a selective credit con- contributed greatly to business
trol than a traditional tool of mon- cycles. The new emphasis in liaand v w~s placed on large CD's
bility regulations has substituted
fund ano~s nondeposit sources of
etary restraint. This article disvariations in reserve requirements
cusses the economics of the new
lllenr ThIS new reserve requireemphasis, traces the main develop- on money market-type liabilities
of fu mcreased the internal cost
of banks for the use of Regulation
tend~ds to banks and, in that way, ments leading up to it, and offers
Q ceilings as a means of controlling
an assessment of its potential
cred'td to slow the growth of bank
bank credit directly.
significance.
SiZe ~i T~e Board increased the
loan d thIS reserve requirement as
Rationales for Regulation Q
fUrth eInand at banks intensified
r ~d adjusted it downward
The new emphasis in liability
The power of the Board of Goveronce
regulations has substituted
nors to impose interest rate ceilings
Credit hsmess demands for bank
variations in reserve requireon time and savings deposits of
mh' ad moderated.
.\.
h'ft'
ments on money market-type
Hanc IS S.I m emphasis from a re- member banks originates in the
liabilities of banks for the
the eon mterest rate ceilings to
Banking Act of 1933. These conUSe of
. 1
use of Regulation Q ceilings
ll1ents f margm~ reserve require- trols, administered under Federal
as a means of controlling
Reserve Regulation Q, apparently
COUld h or c?ntrollmg bank credit
bank credit directly.
fOr the aVe II?portant implications were enacted in the belief that
and b practIces of monetary policy competition for time and savings
apPro ank management. The new
deposits had contributed to wideRegulation Q ceilings have been
spread banking failures in the dethe F ~h could make it easier for
used to slow the growth of bank
!lolic e eral Reserve to pursue a
pression of the 1930's.
To pay competitive rates on time credit, usually by being left una "c/~f restraint without risking
changed as market rates of interlargee t crunch" that prevents
and savings deposits, it was beest rose in periods of monetary
lieved, banks had to increase their
Obtai~umbers of borrowers from
restraint. This type of action has
A.nd lng money at any price.
loan-deposit ratios, seeking out
the effect of inducing investors to
SOUl' as the availability of anyone
risky, high-yield loans and investshift out of time and savings delikel~et o~funds to banks is now less ments to cover the higher cost of
posits-particularly large CD's-into
o e cut off, bank managefunds. Studies of the period, how-

13;t

B

b

~Ils'lr1ess n

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eVlew I November 1974

1

-Impact of Regulation Q ceilings on bank credit and total credit

In principle, Regulation Q could be used as
a measure of general monetary control, affecting both business spending and other
types of spending through the overall availability of money and credit. But the effect
of using Regulation Q ceilings as a general
monetary control is somewhat uncertain.
The impact-in direction and strength-on
credit conditions depends on the net outcome of opposing forces.
The circumstances under which Regulation Q ceilings influence credit markets usually entail increases in market rates above
the Regulation Q ceilings. But the alternative to holding Regulation Q ceilings constant under such circumstances is to raise
them in line with market rates. Therefore,
the exact impact of R egulation Q ceilings
alone can best be isolated by considering
the consequences of a decrease in Regulation Q ceilings from a position in line with
market rates to a point somewhere below
them.
A reduction in Regulation Q ceilings on
time and savings deposits at commercial
banks would tend to induce the public to
shift out of these deposits and into other
assets. The effect on overall credit conditions, under these circumstances, depends
then on whether the public shifts mainly
into interest-bearing securities or into demand deposits and currency.l
If the shift is into open market securities,
the banking system will, at first, reduce
loans and investments by an equal amount
to cover withdrawals of time and savings
deposits. Suppose, for example, that time
and savings deposits fall by $100, leading
the banking system to reduce loans and
investments by $100 also. Since time and
savings deposits are subject to a legal reserve requirement of, say, 5 percent, the
banks now have reserves of $5 in excess of
the legal requirement. These changes, for
all commercial banks taken together, are
shown in Balance Sheet 1. At this point,

total credit is unaffected even though bank
credit falls. The effect on total credit of the
shifting of credit supplies to the open market by the public is just offset by the decline in bank loans and investments.
(1 )

Assets

Liabilities

Required reserves

- $5

Excess reserves

+ $5

Loans and
investments

Time and savings
deposits
-$100

- $100

The excess reserves permit-and, indeed,
induce-banks to expand their credit and
demand deposits, causing lower interest
rates and a greater availability of overall
credit. This adjustment of the banking system to excess reserves is indicated in Balance Sheet 2, which assumes the legal reserve requirement for demand deposits is
20 percent. At this point, both total credit
and bank credit expand by $25.
(2)

Assets

liabilities

Required reserves

+ $5

Excess reserves

- $5

Loans and
investments

+ $25

+ $25

The net result of these operations is an
increase in total credit of $25 and a reduction in bank credit of $75. Since reserve
requirements on demand deposits are higher
than those on time and savings deposits,
the relative increase in demand deposits
requires that, for the same amount of reserves in the banking system, bank credit
must fall. The fall in bank credit and the
net changes in bank liabilities are shown
in Balance Sheet 3.
(3)

Assets

liabilities
Demand deposits

1. For si mplicity, t his a na lysis assumes t hat. fo llow ing a reduction in Reg ulation Q ceili ngs, nondeposit sour ces of

fu nds to bun ks-for example, E urodo l1nr borr owings a nd
bun k-related comm ercia l paper- n rc not SUbst itu ted f or t ime
and savings deposits.

Demand deposits

Loans and
investments

- $75

+ $25

Time and savings
deposits
- $100

--------------------------------------------------------------~
2

If, on the other hand, holders of time
and savings deposits-as, for example, small
savers-cannot readily invest in market securities, they may want to increase their
holdings of demand deposits or currency.
There is a greater incentive to do so be?ause the interest they forgo by holding
Idle money balances is now less. Banks will
then either create new demand deposits for
h?lders of time and savings deposits or proVIde currency from their vaults. Since reserve requirements on demand deposits are
higher than those on time deposits and
vault cash is counted as a legal reserve,
banks now have a deficiency of reserves.
The more likely shift into demand deposits is illustrated in Balance Sheets 4-6.
Assuming $100 is shifted into demand deposits, the banking system now has a reserve deficiency of $15, as shown in Balance
Sheet 4. At this point, there is no change
in either total credit or bank credit.
(4)

Assets

liabilities

Required reserves

+$15

Demand deposits +$100

Excess reserves

-$15

Time and savings
deposits
-$100

The deficiency in reserves leads banks
to contract bank credit and demand deposits by $75, causing higher interest rates
and a reduction in total credit of $75. This
adjustment of the banking system to the
deficiency of reserves is indicated in Balance Sheet 5.
(5)

Assets

liabilities

Required reserVes -$15
Excess reserves

-$75

+$15

loans and
investments

Demand deposits

-$75

The net effect of such a shift into demand
deposits is shown in Balance Sheet 6. As
in the case of a shift into open market securities, bank credit falls because of the
increase in demand deposits relative to time
and savings deposits. But in this instance,

bank credit and total credit move in the same
direction and change by equal amounts,
both decreasing by $75.
(6)

Assets

liabilities
Demand deposits

Loans and
investments

-$75

+ $25

Time and savings
deposits
-$100

In summary, a shift from time and savings deposits into demand deposits and
currency, following a decrease in Regulation
Q ceilings, exerts upward pressure on interest rates and diminishes the availability of
total credit. A shift into open market securities, on the other hand, leads to a general easing in credit conditions and an increase in the availability of total credit.
In practice, of course, both shifts occurthe net result being in either direction, depending on the strength and kind of substitutions made for the different types of time
and savings deposits and the composition of
such deposits at all banks. This is some
combination of the changes indicated by
Balance Sheets 3 and 6. But overall, the
effect on credit conditions is probably small
in any event. Moreover, even if the direction
and strength of the overall effect were
known, changes in Regulation Q ceilings
would have no advantages over System
open market operation~ for b~i~ging about
changes in general credIt condItIOns.
Combined with appropriate open market
operations, however, reductions in Regul~­
tion Q ceilings can be used to adv~tag~ ill
restricting the amount of bank credit WIthout changing the availability of total credit.
Bank credit always declines after a reduction in Regulation Q ceilings, whether holders of time and savings deposits shift into
open market securities or into cash. Therefore, Regulation Q appears to be more us~­
ful as a selective control over bank credIt
than as a tool of general monetary control.

~-----------------------------------------------------3
I

l}\ts.

llless Review

November 1974

higher-yielding open market securities. At the same time that investors shift their funds to the
open market, the banking system
must reduce the credit it supplies
by an equal amount so as to cover
the withdrawals of time and savings deposits. Consequently, the
total amount of credit extended
to the market is unaffected.
Since time and savings deposits
are subject to legal reserve requirements, however, the banking system would end up with reserves in
excess of the legal requirement.
But these excess reserves would
normally be absorbed by the Federal Reserve System through sales
of securities in the open market in
order to offset a potential expansion in the overall availability of
money and credit. When combined
with appropriate open market operations, therefore, Regulation Q
ceilings can be used to restrict the
amount of bank credit without
changing the availability of total
credit.
Through its ability to influence
the amount of bank credit relative
to total credit, the Federal Reserve
can exert a more direct influence
on business spending. Business borrowers constitute the largest portion of loan customers at banks.
And even large corporations-which
usually do not do as much of their
borrowing at banks as do small
businesses-become heavy users of
bank credit when faced with the
sudden increases in financing needs
that are typical of an upswing in
business activity.
Fluctuations in business spending for inventories and plant and
equipment have been a dominant
factor in business cycles. When
only general monetary restraint is
applied during capital investment
booms-for example, through System open market sales of securities-businesses can usually bid
loanable funds away from other
users. Although the shift tends to
free labor and physical resources
4

for use in industries supplying capital goods to businesses, such a
movement of resources takes timeand is not without cost. And the
prices of capital goods may be bid
up without price declines necessarily taking place elsewhere, thereby
contributing to inflation.
A more refined approach to the
stabilization of aggregate demand
under such conditions is to restrict
the availability of credit more
precisely in the areas where the
demand for it is the strongest.
Regulation Q can be used for this
purpose so as to limit credit extended to business borrowers by restricting the availability of credit
at banks.
Another consideration in the administration of Regulation Q-this
one unaffected by the new emphasis-has been to shield nonbank
thrift institutions from possibly destructive interest rate competition
for consumer-type time and savings deposits. Mainly because of
legal restrictions, assets of mutual
savings banks and savings and loan
associations are mostly long-term
mortgage loans. By contrast, assets
of commercial banks are mostly
short-term business and consumer
loans and shorter-term Government and municipal securities.
One implication of this difference
is that, in times of rising interest
rates, nonbank thrift institutions
are at a disadvantage in competing with banks for deposits. When
interest rates rise, the returns on
the relatively fixed portfolios of
nonbank institutions do not keep
pace with the higher interest rates
to depositors.
In 1966, when demand conditions were very strong and interest
rates were rising rapidly, interest
rate competition among depositholding financial institutions
threatened the solvency of some
mutual savings banks and savings
and loan associations. As a consequence, Regulation Q ceilings on
consumer-type deposits at com-

mercial banks were actually reduced that year and interest rate
ceilings were put on deposits at
nonbank thrift institutions. In the
years since, the potential pressure
on nonbank thrift institutions may
have become even greater because
of the increase in inflation.
In principle, thrift institutions
that borrow short and lend long
should be able to accumulate reserves in times of credit ease, when
the spread between the return on
their assets and their deposit rates
is generally larger, and then use
the reserves to make interest payments to depositors when credit is
tight and this spread is smaller-.
maybe even negative. And if thrIft
institutions followed such practices, interest rate ceilings would
ordinarily not be necessary.

---------------------------One consideration in the administration of Regulation Q
has been to shield nonbank
thrift institutions from possibly destructive interest rate
competition for consumertype time and savings
deposits.

-------------------------But because participants in financial markets did not anticip~te
the recent increase in inflation, Interest rates on seasoned mortgage
loans held by thrift institutions
are much lower than those on neW
mortgage loans. As a result, even
if all nonbank thrift institutions
had followed reserve policies appropriate for a less inflationary ld
time, competitive pressures woU
have tended to subject them to all
earnings squeeze. This is bec~US~
the return on their large holdJIlg
of old mortgage loans is fixed.
The immediate solution to .th ed
ue
problem of ensuring the contln.
solvency of nonbank thrift ins tI ·
tutions was the extension 0 f JD tet est rate ceilings to time and s~v- S
ings deposits at these institutIon,

....
~der the Interest Rate Control
authority to reimpose them in
type of discretionary access to the
thct of 1~?6, an~ coordination of
extreme situations. 1
liquidity of the nonbanking sector
C ?~e ceilings WIth Regulation Q
of the economy, making liability
Regulation Q in the 1960's
hetn.gS for commercial banks. To
management an important alterf e P Insulate thrift institutions
Regulation Q ceilings on consumer- native to asset management.
hrom deposit withdrawals ceilings
type time and savings deposits con- . Before 1966, Regulation Q ceilw'::';: been ~ifferent~ated t~ increase tinue to be used, as in the 1960's, mgs on large CD's and other time
depOSIt matunty and size.
to moderate interest rate competideposits had usually been raised
But this does not appear to be
tion between banks and nonbank
in line with increases in market
ao Very
thrift institutions. On the other
rates to allow banks to compete
t IOn satisfactory long-term soluh ' Wh'le Interest rate ceilings
I .
hand, as part of the new emphasis
for funds. But as money tightened
t~1 ~elp~d p:otect the earnings of in the regulation of bank liabiliin mid-1966, the credit demands
fu dt InstItutIons, competition for
ties, Regulation Q ceilings on large of the large nonfinancial corporau~ s has ten.ded to reduce the vol- CD's were recently suspended.
tions that were supporting the
Of
Regulation Q ceilings on large
cou!d deposIts these institutions
business investment boom continj"t attract when market rates of CD's were used vigorously in 1966
ued to be satisfied. And market
" l erest
..
th
were rIsmg and, therefore,
and 1969 to slow the growth of
pressures acted to reduce the
ar e amount of savings flowing into
amount of credit supplied to borbank credit in an effort to limit
.
.
Ateas they se~e-pnmarily housmg. selectively the availability of credit rowers in other areas, particularly
th
ated e same tIme, the differentihousing. At that time, under a new
to business borrowers. But comauthority allowing differentiation
mercial banks sought to overcome
llated ca1e .of rates has discrimilea t agaInst small savers-those
among time deposits according to
this constraint on their ability to
ter s a.ble to t ake advantage of alsize, Regulation Q ceilings on CD's
tap the money market by makX~tIve investment opportunities. ing more intensive use of various
of $100,000 or more were not raised
th e onger-term solution awaits
in line with market rates, and a
non deposit sources of funds. This
irn tnoderation of inflation. An
rapid runoff of large CD's soon
response of banks to the use of
followed.
illl~~tant benefit of a slowing in
Regulation Q ceilings on large
This policy with respect to Regubar: IO~ would be that institutions CD's was an important factor shaplation Q ceilings was supplemented
wou~WIng short and lending long
ing the development of the new
by a change in the administration
"iab} become more economically
emphasis in liability regulation.
e
of the discount window at Reserve
ceilin and, ~s a result, interest rate
banks to further help in restricting
flosit gs on tIme and savings dethe availability of credit to busiB s could be generally relaxed.
The response of banks to the
ness borrowers. Federal Reserve
bou:J as periods of tight credit are
use of Regulation Q ceilings
credit through the discount winstitut" to recur, nonbank thrift inon large CD's was an impordow was made available to help
flab. IOns would benefit from the
tant factor shaping the devel.. er to di
.
individual banks adjust to reserve
tY!:>e
VerSIfy into more liquid
opment of the new emphasis
losses resulting from attrition of
flete s of loans so they could comin liability regulation.
their time deposits. But accomrates tnore effectively when interest
modation at the discount window
S g a~e high. It has also been
Ug
depended partly on a bank's efforts
flo\\1ees ed that they be given the
A phenomenal growth in large
to moderate the extension of credit
able [ ~o offer mortgages with vari- negotiable CD's has taken place
to businesses.
WOUldn ~rest rates-a change that
since the early 1960's. The inAgain in 1968, as a supplement
creased issuance of negotiable CD's
60\\1 \\1-feve.them a steadier cash
to a general policy of monetary
'the B n Interest rates fluctuate.
by large banks appears to have
restraint, Regulation Q ceilings
"ored oard of Governors has fabeen prompted by the relatively
on large CD's were increased only
stitut·granting nonbank thrift inslow growth of demand deposits at
slightly, inducing a runoff that
tlO\\1er~~s expanded investment
these banks-which, in turn, was
totaled $13.5 billion at all member
Illore f 0 allow them to compete
partly the result of corporations
banks by the end of 1969. This
lloard ~~ly. And eventually, the
and other large depositors investtate ceili uld ph~se out all int erest
ing their excess funds in short-tenn time, however, the use of Reguladeflos't ngs on tIme and savings
market instruments. The growth of tion Q was probably less effective
1 s ret· .
in curtailing business spending, as
;--...: '
ammg only standby
negotiable CD's gave banks a new
, );'01'

II

n

elnbol'nt'

' t'

ankin~ ..,. Ion of the Boal'd's position see statement of Robert C Holland before the Subcommittee on Financial Instltu IOns 0
o . "'~oU 8 i
'
•

f th C
'tt
e omml ee on

ng, a nd U r ba n Affairs, United States Senate, November 7, 1978.

IISille.ss n .
eVlew / November 1974

5

banks and nonbank corporations
had found other sources of funds.
Nonbank corporations with
good credit ratings were able to
bypass commercial banks and obtain short-term funds by issuing
commercial paper. Thus, between
1966 and 1970, the volume of nonbank commercial paper tripled,
rising from about $10 billion to
roughly $30 billion. And banks
used existing nondeposit sources
of funds more intensively and developed new techniques to obtain
the liquidity they desired.
The most important innovation
in bank liability management
prompted by the uncertain availability of CD's was borrowing in
the Eurodollar market. Eurodollars
are dollar-denominated deposits in
banks outside the United States.
U.S. commercial banks obtained
funds for malting business loans by
borrowing dollars from banks in
the Eurodollar market. From J anuary through December 1969, for
example-a period in which CD attrition at large banks amounted
to $10.6 billion-these institutions
increased their borrowings in the
Eurodollar market by $6.5 billion.

The most important innovation
in bank liability management
prompted by the uncertain
availability of CD's was borrowing in the Eurodollar
market.
Some large lenders that might
otherwise have purchased negotiable CD's placed their funds in
the Eurodollar market at attractive interest rates. And Eurodollar
banks subsequently relent the
funds to banks in the United
States to meet their loan demands.
Besides attracting the deposits
of U.S. nationals, the high interest
rates paid in the Eurodollar market induced foreigners to purchase
dollars for deposit in Eurobanks.
6

At the margin, and under a fixed
foreign exchange rate system, these
dollars would have been supplied
by foreign central banks. But since
foreign central banks usually obtained the dollars simply by liquidating some of their holdings of
securities in New York, there was
generally no direct increase in bank
reserves or the money supply in
the United States.
In September 1969, the Board
of Governors amended Regulations
D and M to make Eurodollar borrowing less attractive by imposing
a 10-percent reserve requirement
on any additional funds obtained
from this source. As the new reserve requirement became effective,
large banks sought other sources
of funds that were not as costly.
Regulations D and Q had already been amended in 1966 to
make bank issues of notes maturing in less than two years subject
to the same restrictions as deposits
with respect to reserve requirements and interest rate ceilings,
blunting the incentive for banks
to issue short-term notes directly.
But since the restrictions were
not explicit in covering bankrelated organizations, proceeds
from the sale of commercial paper
by a bank holding company or
affiliate were used to purchase loans
from banks.
By late 1969, bank-related commercial paper had come into wide
use. From July 1969 to July 1970a period when, in partial response
to the new reserve requirement on
Eurodollar borrowing, borrowings
of U.S. banks from their foreign
branches declined $3.9 billionissues of bank-related commercial
paper increased $5.9 billion.
In the summer of 1970, the
Board imposed a 5-percent reserve
requirement against funds obtained by member banks through
the issuance of commercial paper
or similar obligations by their holding companies or affiliates. This
action put bank-related commer-

cial paper on a more nearly equal
footing with Eurodollar borroWings and negotiable CD's as a
source of funds for large banks.
Banks also used other techniques to tap unregulated sources
of short-term funds, but the Board
soon closed these loopholes as well.
One of these techniques was th~
practice of issuing small-denom~a­
tion capital notes. These subordinated notes were not subject to
reserve requirements or interest
rate ceilings, and by issuing thern,
banks could raise funds fairly
cheaply from small savers. But by
June 1970, the Board required
that for a note to be exempt frorn
Regulations D and Q, it had to have
an original maturity of at least
seven years and be for at leas~
d
$500. Until then, any subordInate
note maturing in more than two
years had been exempt from these
regulations.
r
Some banks also purchased ove night funds from their corporate
customers, usually paying the rna rket rate on Federal funds. Suc~ t
transactions were not then subJec
to reserve requirements or in terest rate limitations. However, t he
Board later narrowed the categorY
of Federal funds transactions ed"Q
empted from Regulations D an '
effectively eliminating corporat;et
access to the Federal funds mar
through member banks.
Another practice was for ban~i
to sell corporate customers partl~:
pations in bank loans under repu d
chase agreements. Funds obt~~e
from such sales were not conSI -e
ered deposits and, therefore, werts
exempt from reserve requirement
and interest rate limitations.
Q
in July 1969, Regulations D an
were amended to cover all repurchase agreements on any assets
except U.S. Government obliga
tions with anyone besides a ban .

Ed

k

Impact of the new emphasis
By the end of 1970, all these te~~e
niques banks had used to overc

~noffs of large CD's-Eurodollar

maturing in less than 90 days was
of a customer that a bank guaran?rrowing, bank-related commersuspended to help banks meet untees will be paid at maturity. These
CIal pa
.
de
~er, promIssory notes, smallusual demands for short-term
bills had been growing rapidly and
nomInatIOn capital notes accredit, which had been precipitated were the latest innovation by
Cesst
'
b o th e Federal funds market
by uncertainties in the commercial banks for drawing funds from the
Y nonbank corporations, and repaper market caused by the failure money market.
burchase agreements with nonof the Penn Central Railroad. BeIn October 1973, the marginal
ank corporations on anything but cause this measure was originally
G
reserve requirement on the total
I oVermnent obligations-were no
thought to be only temporary,
of large CD's, bank-related coma~~g~r exempt from Regulation D
ceilings on large CD's maturing
mercial paper, and finance bills was
a ' ln some cases, Regulation Q
in 90 days or more were not lifted
raised from 8 percent to 11 percent
Well. And during the next period at that time. But in 1973, when
in an effort to curb a continued
q ~onetary restraint, reserve rerapid expansion of bank credit.
strong demands for business loans
had helped drive up money marBut in December, the requirement
of~~ements on the largest portion
aI ese nondeposit liabilities
ket rates, rather than choosing to
was dropped back to 8 percent as
,,, ong with those on large CD:s
business demands for bank cre'dit
reimpose the ceiling on shorter.
,
had moderated. And in September
In
maturity CD's, the Board of Govi"'ere raIse d' a coordinated fashbon to help slow the growth of
1974, the supplemental marginal
ernors suspended entirely the inark credit.
reserve requirement of 3 percent
terest rate ceilings on CD's of
was removed for these types of
q . ncreases in these reserve re$100,000 or more.
bank liabilities having initial mafeu~rements have both a general efturities of at least four months.
se~ o~ credit conditions and a
The impact of the new regulage ectIve effect on credit flows. The
Increases in reserve requireis neral deficiency: in reserves that
ments on nondeposit liabilities tory emphasis on major bank liabilities other than demand deposits
by
and large CD's have both a
qU~reatedtSISraising reserve re.
lremen · SlIDl'1ar to that creis suggested by a comparison of
general effect on credit conated
the growth of these liabilities befro by a withdrawal of reserves
ditions and a selective effect
fore and after the shift in emphaop III the banking system through
on credit flows.
sis. In 1968-70, before the new
th e~market sales of securities by
emphasis, banks in both the nation
te~d :de~al Reserve. Interest rates
as a whole and the Eleventh DisWithout these ceilings on large
tot I 0 nse, and the availability of
trict more than offset runoffs in
Th credit i~ reduced.
CD's, the Federal Reserve employed increases in reserve require- large CD's with borrowings in the
ab T e selectIve effect is on the
Eurodollar market and issues of
el{~ lty of the banking system to
ments on money market instrucommercial paper by holding comments to help slow the growth of
fun~n1 bank credit by channeling
panies 01' affiliates.
business loans at banks. In May
spen~ rom savers to ultimate
Standing in marked contrast is
1973, the Board imposed a new 8larg . t~rs through the medium of
.
e
the 1972-74 period, by which time
sour lme deposits and non deposit percent marginal reserve reqUlrethe new emphasis was being imrese ces of funds. An increase in
ment--composed of the regular 5
plemented. Without any Regulatnonl'Ve requirements on these
percent plus a supplemental 3
tion Q ceilings on large CD's and
effe
market instruments has the percenir-on any further increases
with roughly the same marginal
\\>iU~ of reducing rates banks are
in large CD's and bank-related
reserve requirements on major
al1dl~g to pay suppliers of funds
commercial paper, but in no case
Incr .
money market sources of funds,
where the amount outstanding
qui!.' f easIng the rates they rebanks have shown a clear preferth er: o borrowers. The increase,
was less than $10 million.
f
ence for large CD's over other
In July 1973, this new marginal
able fu,re, tends to channel loansources of discretionary liquidity.
into t nds away from banks and
reserve requirement was extended
This has been true not only in the
to cover finance bills so as to ap~l1an ~e ~pen market and other
nation but also in the District.
effectclalInstitutions. In fact, the
ply to the total of finance bills,
Nationwide, the volume of outlarge CD's, and bank-related comOUght ~n the allocation of credit
standing large CD's has more than
mercial paper. And the regular 5caused be quite similar to that
tripled since 1970. And it has alpercent reserve requirement was
tion Q :y ~ reduction in Regulamost doubled in the District. EuroIn thCelhngs on large CD's.
applied to the amount of finance
bills already outstanding. A finance dollar borrowings, on the other
terest e SUmmer of 1970, the inhand, have been substantially berate ceiling on large CD's
bill is basically a marketable note

0;

?

b

ntts·1Iless n .
eVlew / November 1974

7

Impact of Regulatory Changes' on Selected Liabilities of Commercial Banks
... the Nation
BILLION DOLLARS

BILLION DOLLARS

350

350 --------------------------TIME AND SAVINGS

_

DEPOSITS OTHER THAN

250 -

250

LARGE CD'S

150

-.....-----------~

Ir-------,r.--------r--------r-----------------------~-------T----------------~
==

150

___________________________ 100

100 --------------------------

LARGE CD'S

50 -

-50

Orl--------r--------r--------~----------------------~------_,--------~------~10

------------_____________ 16

16 - - - - - - - - - - - - - - - - LIABILITIES TO THEIR
FOREIGN BRANCHES

-8

~~-.-.---.~--~~~.,~~---;-~~

Orl--------r--------r--------T,-----------------------~------_,--~----~------~10
__________________________ 10

10 - - - - - - - - - - - - - - - - - BANK-RELATED

_5

COMMERCIAL PAPER

5-

°1r-----.------.------~----------------~----~------~----~1°
1968

1969

1970

1972

1973

1974

SOURCE: Board of Governors, Federal Reserve System

------------------------------------------------------------~~

8

... the Eleventh District
BILLION DOLLARS
4 -_____________________

BILLION DOLLARS

-~4
~
TIME AND SAVINGS

3-

DEPOSITS OTHER THAN

-3

LARGE CD'S

2 .....

r

I

4 __________________________

2-

2'

--------------------------4
LARGE CD'S

-2

orr-------,------__~------_r---------------------,--------r-------~------,IO
.100 ____________

--------------------------.100
LIABILITIES TO THEIR

.050_

-.050

FOREIGN BRANCHES

O~~ ~
____

________

~ ~--------------------II~
-------r~~~=-,IO
____

________________________ .400

,400 - _____._ _ _ _ _ _ __
_

BANK-RELATED
.200 _

-.200

COMMERCIAL PAPER

0r---__-.c-____

- r____

1968

1969

~~----------------_r~~rrm
~~~~~T4~~~10

1970

1972

1973

1974

~----------------------------------------------9
R .
SS
I

nUSine

eVlew

November 1974

low their peak levels of 1969 in
recent years-both in the nation
and in the District.
Although use of bank-related
commercial paper has continued
to grow in the nation as a whole,
the total amount of paper outstanding is still less than in the
peak months of 1969. And in the
District, use of bank-related commercial paper has shown hardly
any new growth. The amount outstanding in the District is now
about a tenth of what it was in the
peak months of 1970, with several
large banks not using such paper
at all as a source of funds.
New emphasis in perspective
The use of discretionary changes
in marginal reserve requirements
to influence the growth of bank
credit-and, thereby, loans to business borrowers-appears to have
important advantages over use of
Regulation Q. Because variations
in reserve requirements do not
abruptly change the availability of
a particular source of bank funds,
their effects are easier to predict
than those of interest rate ceilings.
And there is less risk that bank
credit will cease to be available at
any price to many borrowers.
Nevertheless, the use of marginal
reserve requirements as a device
for controlling the flow of shortterm credit to business borrowers
has an important limitation.
Because variations in reserve
requirements do not abruptly
change the availability of a
particular source of bank
funds, their effects are easier
to predict than those of interest rate ceilings.

By extending the coverage of
reserve requirements to various
nondeposit sources of funds available to banks, the Board of Governors has endeavored to tighten
10

its control over bank credit. But
the new emphasis on reserve requirements has probably been as
subject to circumvention through
the use of nonbank financing as
the old approach that emphasized
interest rate ceilings.
The most important substitute
for bank credit has been the commercial paper market. Although
most business borrowers are not
known well enough to obtain shortterm credit outside banks at reasonable cost, a significant number
can. Similarly, investors that are
in a position to purchase money
market-type liabilities of commercial banks are also generally
willing to supply funds directly to
well-known business borrowers
through the commercial paper
market if they are provided the
proper incentive.
In 1969, when Regulation Q was
being vigorously used to curb the
growth of bank credit, a decline
of $13 billion in the outstanding
volume of large negotiable CD's
was largely offset by an increase
of $11.5 billion in the outstanding
volume of nonbank commercial
paper. And the ease of substitution of commercial paper for bank
credit-for some borrowers and
lenders-was demonstrated again
in 1973.
That year, the Government's
Committee on Interest and Dividends acted to restrain increases
in the prime rate on loans at commercial banks. From February to
September, the prime rate was held
about 50 basis points below the 90
to 119-day commercial paper rate.
Usually, this relationship is almost
exactly the opposite. The result
was a shift of about $15 billion in
credit from the commercial paper
market to banks, as business borrowers took advantage of the more
favorable terms at commercial
banks and banks obtained the necessary funds by issuing large CD's.
It is hard to isolate the amount
of commercial paner that has been

substituted for bank credit under
the new emphasis. Actions of the
Committee on Interest and Dividends significantly affected shortterm credit flows at about the time
reserve requirements on all money
market-type liabilities were increased in 1973. But since changes
in reserve requirements on money
market instruments and changes
in Regulation Q ceilings on large
CD's should have similar effects
on credit flows, such substitutions
probably occurred again.
When reserve requirements on
money market-type liabilities of
commercial banks are increased,
banks should tend to raise their
loan rates relative to interest rates
on those liabilities. Large corporations that can obtain funds from
either market would then tend to
shift their credit demands from
banks to the commercial paper
market, and larger nonbank len~ers
would similarly shift their supplies.
The new emphasis, therefore,
ought to be as subject to circumvention outside the banking system as the earlier approach was ..
But even when such circumventIon
takes place, the cost of short-term
credit is still increased for most
business borrowers. And this is
true even if the net deficiency of
reserves caused by the increase in
reserve requirements is offset by a
like amount of System open market purchases of securities.
Borrowers that can shift to n017bank sources may be able to obtaJD
credit at nearly the same cost as
before. But most business borrowers, not being able to change
sources, are forced to pay more ~or
the short-term credit they obtaIn
at banks. This is because the internal cost of funds to banks is
boosted by the higher reserve re- tquirements on their money marke
type liabilities.
An alternative approach
A more comprehensive device for
selectively influencing business

spending might be found in the investment tax credit-an instrument
of ~scal, rather than monetary,
polIcy. First introduced in 1962 as
a means of stimulating capital expenditures over the longer run, the
Investment tax credit allows businesses to deduct from tax liabilities
a proportion of their expenditures
on depreciable machinery and
equipment.
It has been suggested however
that the investment tax 'credit be'
~sed flexibly to moderate fluctua~Ions in business investment spend~~g, effectively substituting for
e Use of changes in marginal
b:s.e:ve requirements on bank Hat ilihes. When business spending
hreatens to become excessive
fhnerating i~flationary pressu~e,
te e t:u credi.t could be lowered,
ndmg to dIscourage business
spending without increasing the
Cost of credit to the rest of the
eC?nomy. Similarly, it could also be
raIsed to stimulate business in-

::---

vestment spending selectively. To
be fully effective for this purpose,
though, the coverage of the investment tax credit would need to be
broadened to apply to investment
in inventories and buildings.

As its influence could not be
weakened by shifts between
different forms of financing,
the investment tax credit
might well be more effective
than selective controls over
bank credit as an instrument
for stabilizing business
spending.
Variations in the investment
tax credit could affect the profitability of all kinds of business investment, regardless of the channels through which projects were
financed. As its influence could not
be weakened by shifts between
different forms of financing, the

investment tax credit might well
be more effective than selective
controls over bank credit as an instrument for stabilizing business
spending.
Recognizing the advantages of
such an approach, the Board of
Governors has recommended to
Congress that priority consideration be given to legislation allowing
more flexible use of the investment
tax credit. 2 Experience suggests
that, if the investment tax credit
is to be adjusted promptly as circumstances change, authority for
making such adjustments would
have to be delegated to the executive branch. But this could be
done without seriously undermining the ultimate power of Congress over taxes by prescribing
limits to the changes the President
could make and by reserving for
Congress the power to veto any
such changes within, say, 60 days.
-Adrian W. Throop

2. Se" "Ways to Moderate Fluctuations in the Construction of Housing," Federal R eBerve Bulletin, March 1972, especially pp. 228-225.

llllS'

!neSS Review / November 1974

11

Digest of recent changes in Federal Reserve regulations
affecting liability management banking
Regulatory change
December 6, 1965
Increased the maximum interest rates on all time
deposits and certificates of deposit from 4 percent
to 51;2 percent for those of less than 90 days and
from 41;2 percent to 51;2 percent for those of 90
days or more. Maintained the maximum rate on
passbook savings deposits at 4 percent.
July 14, 1966
Raised from 4 to 5 percent the reserve requirement
against time deposits (other than savings deposits) in excess of $5 million.
July 20, 1966
Reduced the maximum interest rates on multiplematurity time deposits from 51;2 to 4 percent for
those of less than 90 days and from 51;2 to 5 percent for those of 90 days or more.
September 1, 1966
Amended Regulations D and Q to bring certain
promissory notes issued by member banks within
the coverage of the definition of deposits.
September 8, 1966
Raised from 5 to 6 percent the reserve requirement against time deposits (other than savings
deposits) in excess of $5 million.
September 26, 1966
Reduced from 51;2 to 5 percent the maximum interest rate on single-maturity time deposits under
$100,000, under a new authority allowing differentiation among time deposits according to size.
April 19, 1968
Allowed graduated increases in the maximum interest rates on single-maturity time deposits of
$100,000 or more. Maintained the interest ceiling
on those maturing in 30 to 59 days at 51;2 percent.
But increased the ceilings from 51;2 percent for
other large time deposits: to 5% percent for those
with maturities of 60 to 89 days, 6 percent with
maturities of 90 to 179 days, and 67'4 percent with
maturities of 180 days and over.

Purpose

To enable member banks to attract and retain
deposits.

To exert a tempering influence on the issuance of
large CD's and to apply some additional restraint
on the expansion of bank credit to business and
other borrowers.
To help forestall excessive interest rate competition among financial institutions at a time when
monetary policy was aimed at curbing the rate of
expansion of bank credit.
To prevent future use of these instruments as a
means of circumventing the regulations governing reserve requirements and the payment of interest on deposits.
To further discourage reliance on large CD's as
a base for credit expansion in the face of continuing strong loan demands.
To limit further escalation of interest rates paid
in competition for consumer savings and to moderate the growth of bank credit.

To enable banks to resist further large reductions in large CD's but not permit a significant
expansion in them and, thus, in bank credit.

July 25, 1969
Narrowed the scope of member bank liabilities
under repurchase agreements that are exempt
from Regulations D and Q.

To prevent the avoidance of reserve requirements
and the rules governing payment of interest on
deposits by the use of repurchase agreements.

September 4, 1969
Established a 10-percent reserve requirement
against certain foreign borrowings, primarily
Eurodollars, by member banks and against the
sale of assets to their foreign branches.

To remove a special advantage to member banks
that had used Eurodollars not subject to reserve requirements to adjust to domestic credit
restraint.

---------------------------------------------------------------------~
12

Regulatory change
January 21, 1970
!ncreased from 4 to 4Yz percent the maximum
mte~est rate on savings deposits. Increased the
maxunum rate on all time deposits of less than
$100,000 by one-half to three-fourths of a percentage point, depending on maturity. Increased
the maxunum rate on all time deposits of $100,000
or mor~ by three-fourths to 1~ percentage points,
dependmg on maturity.
February 12, 1970
Amended Regulations D and Q to narrow the
category of Federal funds transactions that are
exempt from reserve requirements and interest
rate limitations.
June 24, 1970
Susp~nded ceilings applying to the interest rates
on smg!e-maturity time deposits of $100,000 or
more wlth maturities of less than 90 days.

Purpose

To introduce greater equity into rates payable to
small savers while facilitating an increase in the
pool of savings for investment in mortgage loans.

To prevent the future use of Federal funds transactions with business customers as a means of
circumventing the regulations governing reserve
requirements and the payment of interest on
deposits.
To place member banks in a better position to
obtain funds with which to meet unusual demands
for short-term credit accommodation as a consequence of serious uncertainties in financial
markets.

June 30,1970
Narrowed the category of member bank subordinated notes that aFe exempt from reserve requirements and interest rate limitations increasing
the minimum original maturity from two to seven
years.

To prevent the future use of these instruments as
a means of circumventing the regulations governing reserve requirements and the payment of
interest on deposits.

September 17,1970
Amended Regulation D to establish a 5-percent
reserve requirement against bank-related commercial paper.

To put instruments of this kind on a more nearly
equal footing with negotiable CD's issued by
banks.

October 1, 1970
Lowered from 6 to 5 percent the reserve requirement against time deposits (other than savings
deposits) in excess of $5 million.

To offset the increase in required reserves stemming from the September 17 change and to release extra resewes to the banking system.

May 16,1973
Lo,,:"ered to 8 percent the reserve requirement
agamst certain foreign borrowings, primarily
Eurodollars, by member banks. Established an 8percent marginal reserve requirement (the reguIa~ 5 percent plus a supplemental 3 percent)
agamst the sum of further increases in singlematurity time deposits of $100,000 or more and
bank-related commercial paper, . but in no case
w~e~e the amount outstanding is less than $10
~lllihon. And suspended ceilings applying to the
mterest rates on single-maturity time deposits of
$100,000 or more with maturities of 90 days or
more.

To curb the rapid expansion of bank credit, while
at the same time assuring the availability of
credit on a reasonable scale, and to provide
roughly parallel treatment with respect to reserve
requirements against Eurodollar borrowings, large
CD's, and bank-related commercial paper. Recent
growth of bank credit had been stimulated considerably by increases in loans to business corporations, which were largely financed by increased issuance of the money market instruments
covered by this change.

(Continued)

"---------------------------------------------------n
llsin

ass Review I November 1974

13

Regulatory change

Purpose

July 1,1973
Increased the maximum interest rates on passbook
savings deposits from 4112 to 5 percent and on all
time deposits of less than $100,000 by one-fourth
to three-fourths of a percentage point, depending
on maturity.

To provide a greater measure of equity in the
payment of interest to consumers and enable
member banks to bid more effectively for consumer deposits in an environment where interest
rates were generally rising.

July 12, 1973
Established a basic 5-percent reserve requirement
against funds raised by member banks through
sales of finance bills. Established an additional
3-percent reserve requirement against the sum of
finance bills, all time deposits of $100,000 or more,
and bank-related commercial paper in excess of
the amount outstanding during the week ended
May 16, 1973, or $10 million, whichever is larger.
And eliminated the distinction between multiplematurity and single-maturity time deposits in the
regulation of maximum interest rates and reserve requirements.
October 4, 1973
Raised from 8 to 11 percent the marginal reserve
requirement against the sum of time deposits of
$100,000 or more, bank-related commercial paper,
and finance bills.
December 13, 1973
Lowered from 11 to 8 percent the marginal reserve
requirement against the sum of time deposits of
$100,000 or more, bank-related commercial paper,
and finance bills.
September 5,1974
Reestablished a uniform 5-percent reserve requirement against all time deposits of $100,000
or more, bank-related commercial paper, and
finance bills with maturities of at least four
months. Maintained an 8-percent marginal reserve requirement against such instruments with
maturities of less than four months and in excess
of the amount outstanding during the week ended
May 16, 1973, or $10 million, whichever is larger.

To provide parallel treatment with respect to
reserve requirements against funds raised through
finance bills, large time deposits, and bank-related commercial paper.

To further curb the rapid expansion of bank
credit to business firms.

To reduce the costs to banks of accommodating
credit demands of their customers, in recognition
of the recent moderation in bank credit growth,
including a much slower pace of expansion for
business loans.
Primarily to encourage banks to lengthen maturities on large time deposits and related obligations.

NOTE: Adapted from "Record of Policy Actions of the Board of Governors," Annual Report of the Board
of Governors of the Federal Reserve System, 1965 through 1973, and Federal Reserve Bulletin,
September 1974

------------------------------------------------------------------------~

14

New member bank

The West Loop National Bank, Houston, Texas, a newly organized institution
located in the territory served by the Houston Branch of the Federal Reserve
Bank of Dallas, opened for business October 7, 1974, as a member of the Federal
Reserve System. The new member bank opened with capital of $600,000, surplus
of $600,000, and undivided profits of $300,000. The officers are: W. H. Fenoglio,
Jr., President; Raymond Mikeska, Jr., Vice President and Cashier; and J. Doug
Toole, Jr., Vice President.
New par banks

The Harlingen State Bank, Harlingen, Texas, a newly organized insured
nonmember bank located in the territory served by the San Antonio Branch of
the Federal Reserve Bank of Dallas, opened for business September 23, 1974,
remitting at par. The officers are: Wayne D. Grayson, President, and Michael
O'Connell, Cashier.
The Addicks Bank, Addicks, Texas, a newly organized insured nonmember bank
located in the territory served by the Houston Branch of the Federal Reserve
Bank of Dallas, opened for business October 1, 1974, remitting at par. The officers
are: James L. Emerson, President, and Jon A. Franz, Vice President and Cashier.

......

lluSine R .
Ss

eVlew / November 1974

15

Federal Reserve Bank of Dallas
November 1974

Statistical Supplement to the Business Review
~otal ~redit at weekly reporting
anks m the Eleventh District rose
COntraseasonally in the four weeks
:nded October 16. All of this rise
. epresented net bank investment
In Sec un Ies, pnnclpally municipal
't'
"
.
~ues, as overall loan demand conlnued to be subdued.
l' 'I'otalloans declined about in
slne with seasonal expectations. A
ntnaller than usual decline in busiwess loans, however, offset greater
Ceakness in other types of loans
inonsumer loans weakened, reve~s­
ovg the trend of recent weeks. More£ er, real estate loans declined
qor the first time since the third
Uarter of last year. Concern over
COntin'
'.
abl umg pnce mcreases has probC y been the main factor in the re~~t ~eakening of loan demand,
t h Increasing costs and high in.
terest r a t es promptmg consumers
o.j,pend very ?autiously.
1'0 otal depOSIts at District banks
sharpI~ in the four-week peto refi~ctmg large net additions
an~ bec~mg accounts of individuals
S usmesses in the final week.
d~rne of this increase probably was
ite~to. a SUbstantial gain in cash
th s In the process of collection
at Week
1'he . '.
CO, nse m the volume of large
con ~ outstanding continued to be
w slderably more than usual but
oth P~tially offset by decreases in
l'h er hme. and savings deposits.
sa~esultmg. gain in total time and
With gs depOSIts was about in .line
seasonal expectations.
l'hes
ind e~sonally adjusted Texas
tno~:tnal.production index rose
OUtpust~y m September. Industrial
thto t In Texas had been strong
cl'ea~gh~ut most of the year, intnOllt ng In seven of the first nine
hs. The September gain, which

l'i:J

h

followed a slight decline in August,
was well diversified among the
state's industries.
Manufacturing activity turned
upward after declining in August.
The upturn was due primarily to
sizable increases in the output of
chemicals and in petroleum refining-the two most heavily weighted
components of the index. Durable
goods production was also up, even
with continued weakness in building-related industries.
Lower recovery of crude oil and
natural gas resulted in a fall in mining activity. Output of utilities was
up sharply, however, as the distribution of both electricity and gas
was well above August.

were off 13 percent from the previous year.
Seasonally adjusted department
store sales in the Eleventh District
fell 2 percent from mid-September
to mid-October. Sales had softened
since midsummer, with the sharpest
reductions in purchases of furniture
and appliances.

Agricultural conditions in states of
the Eleventh District were generally mixed in October. Cool, wet
weather slowed the harvest of cotton and grain sorghum but boosted
pasture and range growth, filled
stock tanks, and provided a favorable start for small-grain crops.
Early-planted wheat provided
limited grazing in the Texas PanSeasonally adjusted employment in
handle, and demand for stocker
the five southwestern states was
cattle for winter grazing increased.
mixed in September, but, on balLivestock in most areas of the Disance, the labor market appeared to
trict were in good condition. In
weaken. The number of jobholders
Texas, the citrus crop was expected
was up for the third consecutive
to be a fifth less than last year, or
month, although the rate of inthe smallest since 1969.
crease was down slightly from the
Based on October 1 conditions,
previous two months. Accelerated
crop production in District states
growth of the labor force, however,
was sharply below the 1973 harvest.
resulted in a sharp rise in unemRice, corn, soybean, and sweet poployment statistics. The number
tato crops were larger, but most
of jobless workers jumped 5.6 perother crops were considerably
cent to a level 12 percent higher
smaller.
than a year earlier. As a result,
Beef production, on the other
the unemployment rate reached
hand, had increased considerably
5.0 percent-the highest level in
over a year earlier, even with a
three years.
sharp drop in the number of cattle
on feed. A gain in marketings of
New car sales, seasonally adjusted,
cows and grass-fed cattle more than
in the four largest metropolitan
offset a decline in grain-fed cattle
counties of Texas rose 0.4 percent
slaughter. Milk production had
in September. That was the third
slowed, primarily because dairyconsecutive month that sales had
men, in an effort to lower feed costs
shown a gain. The rate of growth
and improve depressed incomes,
declined steadily over the three
have reduced their herds. Pork
months, however, as inventories of
production and wool and mohair
1974 models were depleted. Sales of
(Continued on back page)
new cars in the 1974 model year

CONDITION STATISTICS OF WEEKLY REPORTING COMMERCIAL BANKS

Eleventh Federal Reserve District

-

(Thousand dollars)
Oct. 16.
1974

ASSETS
Federal funds sold and securiti es purchased
under agreements to resell .........
Other loans and discounts. gross
Commercial and Industrial loans .
Agricultural loans. excluding CCC
certi fic ates of interest .............
Loans to brokers and dealers for
purchasing or carrying :
U.S. Government securities ......
Other securiti es
Other loans for purchasing or carrying :
U.S. Government securities ..
Other securities ................................
Loans to nonbank financial Institutions:
Sales finance. personal finance. factors.
and oth er business credit companies ...
Other .
Real estate loans .....................................
Loans to domestic commercial banks .
Loans to foreign banks .
Consumer Instalment loans .........
Loans to foreign governments. official
Institutions. central banks. and International
....................
institutions ..
Other loans .........
Total Investments .
Total U.S. Government securities ...
Treasury bills ....................
Treasury certificates of Indebtedness
Treasury notes and U.S. Government
bonds maturing :
Within 1 year ..
1 year to 5 years ..
After 5 years ................................................
Obligations of states and political subdivisions:
Tax warrants and short-term notes and bills .
.....................
All other
Other bonds. corporate stocks. a"'(j securities:
Certificates representing participations In
federal agency loans ..........................
All other (Including corporate stocks) .....
Cash Items In process of collection
.........
Reserves with Federal Reserve Bank
Currency and coin .....................................
Balances with banks In the United States ................
Balances with banks In foreign countries ................
Other assets (Including Investments in subsidiaries
not conSOlidated) .

Sept. 18.
1974

Oct. 17.
1973

1.073,481
10.502.711

1.202.129
10.517.817

1.059.511
9.595.161

4.725.929

4.734.735

4.285.195

243.247

252.659

283.662

1.232
33.014

1.253
35.309

850
47.923

5,409
428.010

5.292
432.765

6.903
471.767

Oct. 16.
1974

LIABILITIES
Total deposits .

154,455
740.559
1.558.894
53.160
73.194
1.119,427

169.578
719 .125
1.564.974
47.054
93.745
1.121.050

150.357
632.246
1.368.282
29.465
71.673
1.050.424

17
1.366.224
4.253.610

73
1.340.205
4.175.540

270
1.190.144
4.006,499

904.277
93.692
0

910.294
96.375
0

976.211
172.942
0

154,465
483,482
172.638

135.506
521.900
156.513
183.454
2.766.108
14.336
301 .348
1.541.540
1.059.898
130.248
420.699
26 .067

8.363
260.230
1.581.719
991 .786
121,450
443,460
16.046

924.037

15.659.393 14.965.583 13663. 628
~
7.826.228 7.178.912 6838.7 12
5.632.867 5.099.677 4'951.855
'309.516
479.946
533.837
138.846
166.417
92.891
1.271,614
1,383.605 1.209.144
3.142
77.997
155.780
7.833.165

2.385
64.945
102.507
7.786.671

3.112
49.829
113.9 40
6.824.856

1.138.131
4.536,409
2.004.399
10.289
120.174

1.129,426
4.445.869
2.064.971
10.272
114.366

1135.169
3'799. 194
1'131 .482
. 21.53 4
111 .451

12.676
11 .087

11.780
9.981

2.185.871
160.563
582.571
187.564
21,441
1.374.692

2.640. 137
229.304
591.366
187.963
20,436
1.363.186

20.712.107 19.997.975

25.40 0
20

2180. 005
'220.598
535.56~
161.82
14.421
1 231,105

~

~

804,481

921 .944

DEMAND AND TIME DEPOSITS OF MEMBER BANKS

Eleventh Federal Reserve District

--

(Averages of dally figures. Million dollars)

I

TOTAL ASSETS ..

-

Oct. 17.
1973

138.965
2.622.730

20.358
298.467
2.235.520
1.121 .518
133.D47
502.860
27.356

TOTAL LIABILITIES. RESERVES. AND
CAPITAL ACCOUNTS .

158.366
487.526
157.371

158.982
2.871.526

Total demand deposits .
Individuals. partnerships. and corporations ..
States and political subdivisions ..
U.S. Government ........
Banks In the United States .
Foreign :
Governments. official Institutions. central
banks. and international Institutions .
Commercial banks ......
Certified and officers' checks: · ~ic . .
Total time and savings deposits ...........................
Individuals. partnerships. and corporations:
Savings deposits .........................................
Other time deposits
........................
States and political subdivisions ....................
U.S. Government (Including postal savings) ..
Banks In th e United States ............................
Foreign :
Governments. official Institutions. central
banks. and International Institutions ...
Commercial banks
Federal funds purchased and securities sold
under agreements to repurchase .....
Other liabilities for borrowed money .
Other liabilities ......
......................
Reserves on loans .........
Reserves on securities .
Total capital accounts

Sept. 18.
1974

TIMEDEPOS~

DEMAND DEPOSITS

20 .712.107 19.997.975 18.619.753

U.S.
I gs
Date
Total
Adjusted '
Government
Total
S~
-19-7-2--S-ep-t-em-be-r---1-2-.6-1- ---8.-9-33---- 2-5-4----1-1.-49-2 - - - : 2 •744
:
..
9
:

1973: September...
October ..
November ....
Decem ber .. ..
1974: January ........
February ......
March
April ..
May .. ........
June
July .
August.. ..
September..

CONDITION STATISTICS OF ALL MEMBER BANKS

Eleventh Federal Reserve District
(Million dollars)

Item
ASSETS
Loans and discounts. gross . .. .................. .
U.S. Government obligations
Other securities ................................. .
Reserves with Federal Reserve Bank
Cash in vault .............................................. .
Balances with banks In the United States .
Balances with banks In foreign countrlese
Cash items In process of collection
Other assetse .................................................. .
TOTAL ASSETse
LIABILITIES AND CAPITAL ACCOUNTS
Demand deposits of banks .................. .
Other demand depoSits
Time deposits ....
Total deposits .................... .................... .
Borrowings .......
Other lIabllltiese
Total capital accountse
TOTAL LIABILITIES AND CAPITAL
ACCOUNTSe
e-Estlmated

Sept. 25.
1974

Aug. 28.
1974

Sept. 26.
1973

20.920
2.064
6.803
1.683
381
1.227
35
1.872
1.662

20.981
2.100
6.775
1,473
383
1.286
33
1.682
1.691

18.945
2.244
6.089
1.562
350
1.249
17
1.722
1.523

36.647

36.404

33.701

1.597
11 .826
15.678

1.662
11.834
15.579

1.584
11 .317
13.716

29.101
3.363
1.590
2.593

29.075
3.174
1.572
2.583

26.617
3.394
1.347
2.343

36.647

36.404

33.701

13.039
13.289
13.455
14.008
14.384
13.949
13.933
13.984
13.553
13.742
13.809
13.634
13.740

9,442
9,461
9.816
10.086
10.276
10.082
10.150
10.289
9.880
10.030
10.056
9.988
9.973

208
239
167
244
302
264
260
236
278
240
212
175
222

13.618
2 .~~~
13.795
2. 71
13.953
2'~83
14.154
2.
14.533
2.~~g
14.919
2'958
15.126
~'915
15.143
2:962
15.148
2.979
15.333
83
15,442
2.9
2956
15.509
2'952
15.586..::::----

------~---------------------------------------------- s ca5~
1. Other than those of U.S. Government and domestic commercial bankS. le5
Items In process of collection

RESERVE POSITIONS OF MEMBER BANKS

Eleventh Federal Reserve District
(Averages of dally figures. Thousand dollars)

~

----------------------------------------------~:n~ded
4 weeks ended
4 weeks ended
4 weekS e913
Item
Oct. 2. 1974
Sept. 4. 1974
O~

-T-o-ta-l-re-s-er-v-es-he-ld-- -.-.. -..----2-.0-0-1.-94 1---- .0-21 .-58 1---::-:
.
2- - 1·m·g~~
With Federal Reserve Bank ...
1.659.000
1.684 .363
1. 3'092
Currency and coin ...
342.941
337.218
1 ~~6:588
Required reserves .......
1.975.887
2.005.361
. _499
Excess reserves ............ .............
26 054
16 220
535
Borrowings ..... ............................ .. ..
164:702
177:019
_1~~:034...-Free reserves ........................
- 138.648
-160.799
~
--------~~~~--------------~------

BANK DEBITS, END-Of-MONTH DEPOSITS, AND DEPOSIT TURN OVER

SMSA's in Eleventh Federal Reserve Distri ct
(Dollar amounts In thousands, seasonally adjusted)

-

DEBITS TO DEMAND DEPOSIT ACCOUNTS '

DEMAND DEPOSITS'

Percent change

ARIZONA: Tucson
LOUISIANA: Monro~ :: ....
Shreveport
NEW MEX ICO: Roswell '
TEXAS: Abilene ........
Amarillo ........

~~~~~O;;i~PortArthur~6;ii;;ge· ••••••••

Brownsville-Harlingen-San Benito .
Bryan-College Station ......
gorpus Christi ...............

orslcana' ..
Dallas ....
EI Paso .. .. ......
Fort Worth ....................
Galveston-Texas City ..

~~I~!t~_~e;;;pie """"''''
................. " ..

Laredo
......
Lubbock ..........................
McAlien-Pharr-Edlnburg

......... , .............

~~~:~~ ............................
San Angelo ...

~~~r~~~-~~;;iso;; ... .. ...............

iexarkana (Texas-Arkan;iils) ·.

--

Wichita Falls

....................

......................

Total-30 centers

Aug.
1974

$16.686.222
5.681.226
20.229.310
1.350.632
3.938.666
10.089.725
22.352.381
11,405.896
3,477.002
1.786.697
11 .284.200
730.355
260,457.734
14.185.369
35.894.042
4.747.452
249.750.830
2.622.370
1.987.391
9.067.973
3.827.725
3,893.586
2.968.204
2.692.702
32.878.429
1.712.986
2.137.752
3.658.259
6.011.551
5.974.290

-5%
- 3
- 13
-7
- 12
- 13
11
2
-27
9
8
- 11
- 1
3
- 6
0
9
1
-2
- 10
- 5
- 6
-5
-7
3
4
-1
- 3
13
21

$753,480.957

Standard metropolitan
statistical area

W!~~

Sep\. 1974 from

Sep\.
1974
(Annual-rate
basis)

2%

Annual rate
of turnover
9 months,
1974 from
1973

Sep\. 30.
1974

Sep\.
1974

Aug.
t974

Sep\.
1973

16%
20
21
14
19
-2
36
38
23
3
33
11
19
13
13
28
53
11
23
14
24
51
27
26
22
2
12
15
32
69

23%
15
24
20
31
13
35
31
32
15
36
17
33
24
21
20
35
9
31
35
19
41
23
31
15
9
8
15
15
43

$360.392
123,407
384.680
52.151
146.665
236,637
451.305
322.827
120.329
59.057
297.283
38.566
3.091 .610
317.200
932.679
145.948
3.876.064
125.335
68.331
222.614
157.675
213.837
119.569
89.387
900.172
86,461
96.960
147.345
159.618
172.926

45.1
45 .2
55.3
25.9
26.9
43 .1
49.0
36.0
28.5
30.0
38.1
18.9
83.0
44.8
39.6
33 .2
65.9
21 .5
29.5
38.9
24.2
18.9
24.8
29.2
36.7
19.9
22.6
25.7
38.1
35.2

47.0
46.0
65.4
27.5
30.1
49.7
43.8
35 .7
38.1
27.0
35.1
20.3
83.3
40.8
42.9
33.6
61.0
21 :6
30.8
41 .3
25.6
20.6
25.8
30.2
35.6
19.4
23.1
26.3
32.9
29.5

41 .0
39.7
52.4
23.5
23.7
46.9
37.3
28.9
24.0
30.3
29.5
16.1
78.0
39.7
37.3
28.5
49.6
19.9
25.0
35.5
19.9
16.1
22.4
26.5
30.2
20.3
21.2
25.6
29.7
23.6

30%

$13.517.030

56.1

55.2

47.7

29%

Sept.
1973

1. Co
2. Oep as Its of Individuals. partnerships and corporations and of states and political subdivisions
•
unty basis

CONDITION Of THE fEDERAL RESERVE BANK Of DALLAS

BUILDING PERMITS

(ThOusand dollars)

......

VALUATION (Dollar amounts In thou sands)

-

Oc\. 23.
1974

Item

lotal I
lOan go d certificate reserves .
Othe~ I~ member banks .... .......
~aderal ans ..............................
U.S G agency obligations ......
lotil! e~~~;nment securities .....
Mambe b ng assets .................
!'Odar rank reserve depOSits
Clrc~\~~~~rve notes In actual

---=:::

335.763
139.961
0
180,667
3,589,503
4,245,894
1,712,333

.........

2,594,840

Sep\. 25.
1974

Oct. 24.
1973

554.472
133,417
0
176,368
3,525,418
3,835,203
1,683 ,109

676.011
181 .061
0
73 ,015
3,215,171
3,469,247
1,832,663

2,576,235

2,370,621

VALU E Of CONSTRUCTION CONTRACTS
(Milil

on dOllars)

........

January-September

~eaa ndtyp e
!'IVE

SI~~EUS~HWESTERN

Sep\.
1974

Aug.
1974

July
1974

1,538
930
369
398
665
Non~eSldential building
321
504
211
UNllEOUlldlng construction
9,295
Ras STATES
8,416
3,350
Nonl~entlal building
3,060
3,698
3,246
Nonb~~:~rntlal building .
~ ng construction ....
2110
2247
Arl20na L
"
NQ~eVlsed' oulslana, New Mexico, Oklahoma, and Texas

~~~Identlal building

r

1,255
325
561
370
8,359
2,503
3,320
2,536

SOUE: Details may not add to totals because of rounding .
RCE: F W
. . Dodge, McGraW-HIli , Inc.

1974

1973r

9,562
3,487
3,779
2,296
72,882
28,304
26,270
18,308

8,917
4,224
3,137
1.556
76,761
36,633
24,138
15,990

Percent change
Sep\.1974
from

NUMBER
Sep\.
1974

9 Mos.
1974

Sept.
1974

9 mos.
1974

421

4,611

$4,471

$65,922

60
693

579
6,595

815
5,415

15,846
80,105

TEXAS
65
Abil ene ............
433
Amarillo ........
454
Au stin...
125
Beaumont .
102
Brownsville ..
197
Corpus Christi ..
1,055
Dallas
23
Denison
511
EI Paso.
288
Fort Worth ........
41
Galveston
1,489
Houston .......
25
Laredo ..............
Lubbock ............ 155
58
Midland
59
Odessa ............
78
Port Arthur ........
46
San Angelo
San AntoniO ..... 2,773
24
Sherman
55
Texarka na
170
Waco ............
43
Wichita Falls

693
3,776
4,298
1,624
979
2,167
12,478
203
4,635
3,268
480
18,003
315
1,437
652
915
622
603
17,214
263
583
1,911
656

992
5,579
38,479
1.013
3,049
5,728
12,892
171
11,730
5,368
827
28,164
111
4,543
1,130
359
313
720
5,882
332
486
748
952

12,499
49,302
205,7701
34,325
23,521
49,462
253,452
1,434
137,763
111 ,824
30,152
494,856
7,968
109,106
26,232
14,960
1,967
11 ,042
147,954
4,300
6,581
31,774
11 ,134

9,443

89,560

Area
ARIZONA
Tucson ..
LOUISIANA
MonroeWest Monroe ....
Shreveport.. .....

Total 26 ci ties ..

- -

$140,269 $1,939,252

Sep\.
1973

9 months,
1974 from
1973

-61%

-51%

- 81
48

-59
-32

- 30
22

- 9
- 19
286
- 6
- 1
119
-21
122
44
-24
-9
-58
- 8
-55
2
-73
78
14
-21
101
13
-90
17

180
139
591
- 90
455
- 9
-61
- 81
- 8
2
70
0
- 7
-39
14
- 59
122
- 12
- 68
-229
163
- 82
- 61

- 36
25
11
5
2
14
- 2
-49
- 1
25
316
- 5
-46
96
15
31
- 58
34
- 21
- 16
35
2
-59

Aug.
1973
11 %

- 16%

- 14%

0%

DAILY AVERAGE PRODUCTION OF CRUDE OIL

LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT

(Thousand barrels)

Five Southwestern States'
Percent change from

Area

Sept.
1974

Aug.
1974

Sept.
1973r

Aug.
1974

FOUR SOUTHWESTERN
STATES ......................... ,
Louisiana ..
New Mexico ..
Oklahoma .
Texas .... ...... .. ...
Gulf Coast .
West Texas .
East Texas (proper) ."
Panhandle .
Rest of state ..
UNITED STATES

6,23.0.9
1,939.6
263 ..0
476.7
3,551 .6
7.01 .3
1,869.8
23.0.8
6.0.1
689 .6
8,8.09.1

6,313.1
1,964.9
271.7
479.6
3,596.9
712.8
1,887.7
234 ..0
61 ..0
7.01.4
8,913.9

6,482.4
2,137 ..0
268.3
54.0.9
3,536.2
691 .3
1,843.1
2.03.9
58.9
739 ..0
9,.076.8

-1 .3%
-1.3
-3.2
- .6
-1.3
-1 .6
-1 ..0
-1.4
-1 .5
-1 .7
-1 .2%

-

(Seasonally adjusted)

Sept.
1973
- 3.9%
- 9.2
-2 ..0
-11 .9
.4
1.5
1.5
13.2
2..0
-6.7
-3 ..0%

r-Revlsed
SOURCES : American Petroleum Institute
U.S. Bureau of Mines
Federal Reserve Bank of Dallas

Percent change
Sept.1974f~m

Thousands of persons
Item
Civilian labor force
Total employment ........
Total unemployment..
Unemployment rate
Total nonagricultural wage
and salary employment ..
Manufacturing ..
Durable
Nondurable .
Nonmanufacturlng
Mining ... ..............
Construc tion ............
Transportation and
public utilities
Trade ...
Finance
Service .. ...... ....
Government .

Sept.
1974p

Aug.
1974

Sept.
1973r

Aug .
1974

9,.013 .1
8,566.1
447 ..0
5 ..0%

8,961 .8
8,538.6
423.3
4.7%

8,738.3
8,34.0 ..0
398.3
4.6%

.0.6%
.3
5.6

7,5.04.4
1,286.8
723.8
563 ..0
6,217.6
249.2
494.2

7,444.6
1,277 .7
713.8
563.9
6,166.9
246.3
493.6

7,27.0.8
1,264.8
712.5
552.3
6,0.06.0
238.4
493.5

509.1
1,803.7
416.7
1,246.8
1,497.9

505.7
1,793.6
414.4
1,24.0.1
1,473.1

489.5
1,736.5
395.6
1,208.8
1,443.6

-

3.1%
2.7
12.2

'.3

'.4

.8
.7
1.4
- .2
.8
1.2
.1

3.2
1.7
1.6
1.9
3.5
4.5
.1

.7
.6
.6
.5
1.7%

1. Arizona, LOUisiana, New Mexico , Oklahoma, and Texas
2. Actua l change
p-Prellmlnary
r-Revlsed
NOTE : Details may not add to totals because of rounding .
SOURCES : State employment agencies
Federal Reserve Bank of Dallas (seasonal adjustment)

CROP PRODUCTION

sept.
1973

4.0
3.9
5.3

-

U%

(Thousand bushels)
FIVE SOUTHWESTERN STATES'

TEXAS

Crop
Cotton'
Corn .
Winter wheat ..
Oats .. .
Barley ....... ...
Rye ...............
Rice' .............
Sorghum grain .
Flaxseed
Hay' ..
Peanuts' ..
Irish potatoes' ......
Sweet potatoes' .

Pecans'

Soybeans ..

1974,
estimated
Oct. 1
3,126
69,75.0
52 ,80.0
8,10.0
1,350
200
25,335
295,00.0
374
4,810
454,50.0
2,863
65.0
4.0,.00.0
6,500

1973

1972

4,699
60,80.0
98,600
26,650
3,510
648
2.0,530
417,.000
80
5,808
471,225
3,778
855
2.0,.000
8,5.0.0

4,277
39,56.0
44,00.0
9,720
1,980
630
22,122
319,780
165
3,899
48.0,455
3,182
813
75,.0.0.0
5,46.0

1. Arizona, LouiSiana, New Mexico, Oklahoma , and Texas
2. Thousand bales
3. Thousand hundredweight
4. Thousand tons
5. Thousand pounds
SOURCE: U.S. Department of Agriculture

output had been sharply reduced.
And even though broiler production had increased swnewhat, fewer
eggs had been marketed.
Average prices received by Texas
farmers and ranchers in the month
ended September 15 were down
slightly to a level 13 percent below
a year earlier. Prices for both meat
animals and wool and mohair reflected big month-to-month and
year-to-year declines. By contrast,
prices for all feed grains and hay
were up during the same periods.

1974,
estimated
Oct. 1

1973

1972

5,117
81,634
2.09,013
11 ,892
12,71.0
965
48,339
343,376
374
1.0,795
722,64.0
6,251
3,975
57,5.0.0
52,9.05

6,446
73,118
280,442
34,948
21,645
1,981
41,924
478,164
8.0
12,964
743,867
6,880
3,825
96,5.0.0
51 ,80.0

6,140
52,795
150,115
16,149
19,334
1,89.0
42,.089
378,218
165
9,734
743,566
6,665
4,113
99,3.0.0
47,371

INDUSTRIAL PRODUCTION
(Seasonally adjusted Indexes, 1967 - 1.0.0)

Area and type of Index
TEXAS
Total Industrial production ..... ......
Manufacturing ..... ... ........................
Durabla ........
Nondurabla ..
Mining ..... ...... ,., .................
Utilities ......
............ " .....
UNITED STATES
Total Industrial production
Manufacturing .. ......................
Durabla
........ ,', ...............
Nondurable
Mining
. Utilities

Aug.
1974

July
1974

Sept.
1973

141.6
148.4
164.1
137..0
118.1
167.8

14.0.7
147.5
162.8
136.5
119 ..0
159.5

141 .1r
147.9
161.8
137.9
117.4r
167.9r

14.0.2
145.4
161.3
133.8
12o.e
165.7

125.5
125.5
121.4
131.2
1.09.7
153.1

125.1
124.7
12.0.5
13.0.5
1.07.6
153.4

125.6r
125.2r
121 .6r
13.o.4r
11.o ..or
152.4r

126.8
126.3r
123.3r
130.7
111 .8
155.8

p-Prellmlnary
r-Revlsed
SOURCES : Board of Governors of the Federal Reserve System
Federal Reserve Bank of Dallas

While prices farmers and ranchers
received fell, prices they had to pay
continued to climb-intensifying
the cost-price squeeze. The index of
prices paid by farmers and ranchers
was 17 percent higher than in September 1973.
Cash receipts from farm and
ranch marketings in District states
in the first eight months of this year
totaled $6.9 billion-only slightly
higher than a year before. A sharp
rise in crop sales more than offset a
marked decline in livestock receipts.

-

Sept.
1974p

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