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FEDERAL RESERVE BANK O F ST. L O U IS OCTOBER 1977 Vol. 59, No. The Growing Similarities Among Financial Institutions ................ The Early 1960s: A Guide to the Late 1970s .................................... 10 The Growing Similarity Among Financial Institutions JEAN M. LOVATI D e POSITORY financial institutions are able to exist because of certain efficiencies which allow them to provide credit to borrowers at lower rates and higher net returns to depositors than would be available without such intermediaries.1 These efficiencies, com bined with nationally mandated priorities concerning the roles of these institutions in society, have pro duced institutions which are specialized in scope. Despite some efforts to maintain this specialization, financial institutions are forming a new framework within which to operate. By creating and reacting to competitive challenges, financial institutions are break ing away from their specialized roles and successfully altering traditional distinctions. CHANGES IN ASSET COMPETITION Response of Thrifts to Rising Interest Rates Most depository financial institutions are subject to regulatory ceilings on the rates they are allowed to offer to attract funds. In general, these ceilings pose few problems to the institutions as long as the ceiling rates remain competitive with market rates. However, during periods of rising interest rates, short-term money market rates rise above the interest rate ceil ings imposed on these institutions. Because of their more diverse and more stable source of funds, commercial banks are not as seriously affected as “thrifts” by such an imbalance in relative interest rates;2 being very specialized institutions, thrifts suffer more acutely from deposit outflows, called disintermediation, as market rates rise. When other short-term interest rates become more attractive than those which can be earned at the thrifts, de positors transfer their funds out of savings accounts and into other instruments. Twice during the last eight years, once in the second half of 1969 and again in 1This article focuses only on commercial banks, savings and loan associations, mutual savings banks, and credit unions. 2Thrifts here include saving and loan associations and mutual savings banks. Digitized for Page 2 FRASER 1974, disintermediation put severe financial strain on the operations of thrifts. To complicate matters, thrifts further suffer from problems relating to short-term financing of long-term assets (mortgages). Since only a fraction of thrifts’ mortgage portfolios are replaced in any one year, the average return on mortgages ( the major earning asset of the institutions) typically does not rise fast enough to match increases in short-term rates. At such times, thrifts are caught in an earnings squeeze. As these situations arise, thrift institutions increas ingly are being pressured to stabilize their deposit sources of funds. Thrifts, taking advantage of the current level of technology, are attempting this sta bilization by offering new deposit services (which are discussed in a following section). At the same time, when high and variable interest rates have forced many institutions to examine the structure of their assets, thrifts are emphasizing shorter-term assets in their portfolios. Such assets typically have shorter maturities than mortgages, yet still are within regulatory bounds. In vestments, such as U.S. Government and agency securities and state and local government securities, are growing in importance. Investment securities at savings and loan associations (S&Ls) rose $23 billion between 1970 and 1976, or at an 18 percent annual rate, compared to an 11 percent rate between 1960 and 1970 (Table I ). These securities increased to 9 percent of assets in 1976 from 7 percent in 1970. Investment in corporate and other securities by mu tual savings banks ( MSBs) increased at a 17 percent rate over the six-year period, compared to a 10 per cent rate in the 1960-70 period, and rose from 16 to 25 percent of total assets between 1970 and 1976. To shorten the average maturity of other assets, some thrifts are emphasizing the development of con sumer loans, often forging new regulatory powers. Mutual savings banks and state-chartered S&Ls in Connecticut, Maine, and New York state have been authorized to expand the type of consumer loans they OCTOBER FEDERAL RESERVE BANK OF ST. LOUIS T a b le 1977 1 DISTRIBUTION OF ASSETS A n n u a l Rates of C h a n g e I9 6 0 1970 1976 ($ m illio n s ) ( $ m illio n s ) 19601970 1970 1976 ($ m illio n s ) C O M M E R C IA L B A N K S 1 $ 1 1 2 ,2 1 5 $ 1 7 7 ,1 2 8 2 8 ,6 9 4 7 3 ,0 5 3 1 4 9 ,2 7 6 9 .8 1 2 .7 C o n su m er Lo an s 2 6 ,3 7 7 6 6 ,0 0 6 1 1 8 ,0 5 1 9 .6 1 0 .2 U .S . T re a s u ry an d A g e n c y S e cu ritie s 6 0 ,4 2 3 6 1 ,6 1 7 1 3 6 ,7 2 9 0 .2 1 4 .2 S ta te & Lo cal S e cu ritie s 1 7 ,3 3 7 6 9 ,3 9 0 1 0 4 ,3 7 4 1 4 .9 7 .0 O th e r A ssets 8 0 ,3 6 0 1 9 4 ,0 7 0 31 8 ,4 6 2 9 .2 8 .6 2 5 6 ,3 2 3 5 7 6 ,3 5 1 1 ,0 0 4 ,0 2 0 8 .4 9 .7 $ 6 0 ,0 7 0 $ 1 5 0 ,3 3 1 $ 3 2 3 ,1 3 0 TO TAL 1 0 .0 % 7 .9 % $ 4 3 ,1 3 2 B u sin ess Loans M o rtg a g e s S A V IN G S & L O A N A S S O C IA T IO N S M o rtg ag e s 9 .6 % 1 3 .6 % In ve stm e n t S e cu ritie s2 4 ,5 9 5 1 3 ,0 2 0 3 5 ,6 6 0 11.0 1 8 .3 O th e r A ssets 6 ,8 1 1 1 2 ,8 3 2 3 3 ,2 0 9 6 .5 1 7 .2 7 1 ,4 7 6 1 7 6 ,1 83 3 9 1 ,9 9 9 9 .4 1 4 .3 $ 2 6 ,7 0 2 $ 5 7 ,7 7 5 $ 8 1 ,6 3 0 6 ,2 4 3 3 ,1 5 1 5 ,8 4 0 - 6 .6 1 0 .8 TO TAL M U T U A L S A V IN G S B A N K S M o rtg ag e s U .S . G o ve rn m e n t S e cu ritie s 8 .0 % 5 .9 % 672 197 2 ,4 1 7 - 1 1 .6 5 1 .9 C o rp o ra te a n d O th e r S e cu ritie s 5 ,0 7 6 1 2 ,8 7 6 3 3 ,7 9 3 9 .8 1 7 .5 O th e r A ssets 1 ,8 7 8 4 ,9 9 6 1 1 ,1 3 1 1 0 .3 1 4 .3 7 8 ,9 9 5 1 3 4 ,8 1 1 6 .9 9 .3 S ta te & Lo cal S e cu ritie s TO TAL 4 0 ,5 7 1 C R E D IT U N IO N S Lo a n s O u tsta n d in g O th e r A sse ts TO TA L 1 4 ,1 5 2 $ 3 4 ,2 9 3 1 2 .4 % 1 5 .9 % 1 ,2 5 7 3 ,7 9 8 1 0 ,5 4 2 1 1 .7 1 8 .6 5 ,6 5 9 1 7 ,9 5 0 4 4 ,8 3 5 1 2 .2 1 6 .5 $ 4 ,4 0 2 $ i n s u r e d banks. 2Includes cash. S ources: B anking and M onetary Statistics 1941-1970; Federal Reserve Bulletins. bylaws to permit membership for M SB s, and in M ay term market rates. With variable rate mortgages, the returns to the thrifts on their mortgage portfolios adjust more rapidly to changes in the level of interest rates than with traditional mortgages. 1976, membership was extended to S&Ls. As of A u 1977, 124 of the nation’s 469 savings banks were Increased Competition from Credit Unions make, which includes overdraft checking. Credit card services also have been accorded increased impor tance b y thrifts. In 1974, Visa U .S .A . Inc. altered its gust offering bank credit card services.3 O n e of the most publicized changes in thrifts’ asset structure is the variable rate hom e m ortgage ( V R M ), which is being successfully marketed by some statechartered S&Ls in California and the M idw est.4 The interest rate on a variable rate m ortgage is tied to a cost of funds index such that the mortgage rate adjusts, within certain bounds, to changes in short In addition to pressures from high and variable interest rates, thrift institutions will be faced with increased competition for mortgages from credit unions (C U s). In the past, length of loan maturity at credit unions was restricted to not more than 10 years, effectively excluding CUs from the mortgage market. Although state laws often permitted more latitude to credit unions with respect to real estate loans, mort gage holdings of state-chartered CUs typically have been small. 3Savings Bank Journal (August 1977), p. 40. 4In 1976, five California S&Ls together made about $6.4 billion in new mortgage loans. O f this amount, $4 billion, or 63 percent, were VRMs. These five associations represent approximately 30 percent of the S&L industry in California. American Banker, May 23, 1977. This is likely to change as a result of legislation recently passed by Congress which enables CUs to supply mortgage loans within expanded size and ma turity ranges. As a result of legislation which was Page 3 FEDERAL RESERVE BANK OF ST. LOUIS OCTOBER 1977 T a b le II A COM PARISON OF SELECTED INTEREST RATES N EW C re d it U n io n s 1 AU TO LO A N S A u to C o m m ercial F in an ce Banks C o m p an ie s O TH ER C O N S U M E R G O O D S F e d e ra l C re d it U n io n s1 C o m m ercial B a n ks C o n su m er Fin a n ce C o m p a n ies 1 9 .0 4 % PERSO N AL F e d e ra l C re d it U n io n s1 LO A N S C o n su m er C o m m e rcial Fin a n ce B an ks C o m p an ie s 1973 Ja n u a ry 9 .9 8 % 1 0 .0 1 % 1 1 .8 9 % 1 1 .3 6 % 1 2 .4 6 % F e b ru a ry 9 .9 8 1 0 .0 5 1 1 .8 6 1 1 .3 7 1 2 .5 1 M arch 9 .9 0 1 0 .0 4 1 1 .8 5 1 1 .3 3 1 2 .4 8 A p r il 9 .8 9 1 0 .0 4 1 1 .8 8 1 1 .3 0 1 2 .5 0 M ay 9 .9 0 1 0 .0 5 1 1 .9 1 1 1 .2 4 1 2 .4 8 Ju n e 1 0 .0 2 1 0 .0 8 1 1 .9 4 1 1 .2 6 1 2 .5 7 J u ly 1 0 .1 2 1 0 .1 0 1 2 .0 2 1 1 .2 7 1 2 .5 1 A u g u st 1 0 .0 6 1 0 .2 5 1 2 .1 3 1 1 .2 6 1 2 .6 6 S e p te m b e r 9 .9 9 1 0 .4 4 1 2 .2 8 1 1 .2 7 1 2 .6 7 O c to b e r 9 .9 7 1 0 .5 3 1 2 .3 4 1 1 .3 2 1 2 .8 0 N o vem b e r 1 0 .0 2 1 0 .4 9 1 2 .4 0 1 1 .4 3 1 2 .7 5 Decem ber 1 0 .2 2 1 0 .4 9 1 2 .4 2 1 1 .4 3 1 2 .8 6 1 2 .6 5 % 1 2 .7 6 1 1 .4 4 1 2 .7 1 1 1 .4 3 1 8 .9 2 1 1 .3 9 % 1 1 .4 0 1 2 .7 4 1 1.41 1 2 .7 8 1 1 .4 4 1 8 .8 8 1 1 .4 4 1 2 .7 5 1 1 .4 9 1 2 .9 6 2 0 .5 5 1 3 .0 2 1 1 .4 3 1 2 .9 4 1 1 .3 6 1 8 .7 7 2 0 .7 6 1 2 .8 4 1 1 .4 8 1 8 .6 9 2 0 .7 9 1 2 .7 8 1 1 .5 1 1 8 .9 3 2 1 .0 0 % 2 0 .5 2 1 3 .1 2 2 0 .6 5 1974 Ja n u a ry 1 0 .2 0 1 0 .5 5 1 2 .3 9 1 1 .4 1 1 2 .7 8 F e b ru a ry 1 0 .2 7 1 0 .5 3 1 2 .3 3 1 1 .3 8 1 2 .8 2 M arch 1 0 .0 6 1 0 .5 0 1 2 .2 9 1 1 .2 3 1 2 .8 2 A p r il 1 0 .0 0 1 0 .5 1 1 2 .2 8 1 1.31 1 2 .8 1 M ay 1 0 .1 7 1 0 .6 3 1 2 .3 6 1 1.31 1 2 .8 8 Ju n e 1 0 .2 3 1 0 .8 1 1 2 .5 0 1 1 .4 0 1 0 .3 1 1 0 .9 4 1 2 .5 8 1 1 .3 9 1 3 .1 4 A u g u st 1 0 .1 9 1 1 .1 5 1 2 .6 7 1 1 .2 5 13.1 1 Se p tem b e r 1 0 .3 9 11 .3 1 1 2 .8 4 1 1 .2 6 1 3 .2 0 O c to b e r 1 0 .4 4 1 1 .5 3 1 2 .9 7 1 1 .2 4 1 3 .2 8 N o vem b e r 1 0 .4 5 1 1 .5 7 1 3 .0 6 1 1 .3 9 1 3 .1 6 D ecem ber 1 0 .3 4 1 1 .6 2 1 3 .1 0 1 1 .4 6 1 0 .2 9 11 .6 1 1 3 .0 8 1 1.51 1 3 .2 8 F e b ru a ry 1 0 .4 5 1 1.51 1 3 .0 7 1 1 .5 5 M arch 1 0 .4 8 1 1 .4 6 1 3 .0 7 1 1 .4 8 1 3 .0 7 1 0 .6 6 1 1 .4 4 1 3 .0 7 1 1 .6 0 M ay 1 0 .7 7 1 1 .3 9 1 3 .0 9 1 1 .6 7 13.1 1 1 0 .8 6 1 1 .2 6 13.1 2 1 1 .6 3 1 3 .0 4 1 3 .0 0 1 1 .2 3 1 3 .1 0 1 3 .1 0 1 9 .4 9 1 1 .2 8 2 0 .5 7 1 3 .4 2 1 1 .2 9 1 3 .4 1 2 0 .5 7 1 3 .4 5 1 1 .4 4 1 9 .3 0 2 0 .6 8 1 3 .2 0 1 1 .2 3 1 3 .2 2 Ju n e 1 9 .2 4 1 3 .2 0 A p r il 1 1 .1 6 1 1 .3 1 1 8 .9 0 1 3 .2 7 Ja n u a ry 1 2 .9 6 1 3 .0 2 1 1 .1 5 1 8 .6 9 1 1 .3 7 1 1 .3 4 1 3 .0 1 J u ly 1 8 .9 0 1 3 .6 0 1 1 .6 0 1 3 .4 7 1 1 .5 6 2 0 .7 8 2 0 .9 3 1 3 .6 0 2 1 .1 1 1975 J u ly 10 .7 1 1 1 .3 0 1 3 .0 9 1 1 .5 6 1 3 .1 3 A u g u st 1 0 .5 9 1 1.31 1 3 .1 0 1 1 .5 2 10 .5 1 1 1 .3 3 1 3 .1 8 1 1 .5 2 1 3 .0 6 O cto b e r 1 0 .6 2 1 1 .2 4 1 3 .1 5 1 1 .6 4 1 0 .5 8 1 1 .2 4 1 3 .1 7 1 1 .6 5 1 2 .9 6 Decem ber 1 0 .6 1 1 1 .2 5 1 3 .1 9 1 1 .7 1 1 1 .5 0 1 3 .4 0 13.1 1 1 1 .5 7 1 3 .4 1 1 1 .5 0 1 3 .4 9 1 1 .5 5 1 3 .4 1 1 1 .6 4 1 3 .4 0 1 3 .4 6 1 1 .5 9 1 3 .4 0 1 1 .5 9 1 3 .2 4 1 1 .5 6 1 3 .1 3 1 1 .4 8 2 0 .9 7 1 3 .3 8 1 1 .6 1 1 9 .6 6 2 0 .7 2 1 3 .3 7 1 1 .6 8 1 9 .6 9 2 0 .8 6 1 3 .4 0 1 1 .5 5 1 9 .8 7 2 1 .0 9 1 3 .5 5 1 1 .5 7 1 9 .6 3 1 3 .0 0 N o vem b e r 1 3 .6 0 1 3 .4 4 1 1 .5 2 2 0 .0 0 1 3 .0 5 Se p tem b e r 1 1 .5 2 1 1 .4 8 1 9 .8 0 2 1 .1 4 1 3 .1 6 2 1 .0 9 1976 Ja n u a ry 1 0 .6 8 1 1 .2 1 1 3 .1 8 1 1 .6 8 1 3 .1 4 F e b ru a ry 10 .8 1 1 1 .1 8 1 3 .1 4 1 1 .6 5 1 3 .0 2 M arch 1 0 .7 3 1 1 .1 3 1 3 .1 3 1 1.61 1 3 .0 2 A p r il 1 0 .6 1 1 1 .0 8 1 3 .1 3 1 1 .5 9 1 2 .9 5 M ay 1 0 .5 9 1 1.00 1 3 .1 5 1 1.61 1 2 .9 6 Ju n e 1 0 .6 5 1 1 .0 2 1 3 .1 7 1 1 .5 9 1 2 .9 9 J u ly 1 0 .6 8 1 1 .0 6 1 3 .1 6 1 1 .6 0 1 3 .0 2 A u g u st 1 0 .6 8 1 1 .0 7 1 3 .1 8 1 1 .5 6 1 3 .0 2 S e p tem b e r 1 0 .7 3 1 1 .0 7 1 3 .2 1 1 1 .5 2 1 3 .0 8 O c to b e r 1 0 .8 7 1 1 .0 4 1 3 .2 0 1 1 .5 2 1 3 .0 3 N o vem ber 1 0 .8 7 1 1 .0 2 1 3 .2 2 1 1 .5 5 1 3 .0 6 D ecem b er 1 0 .8 6 1 1 .0 2 1 3 .2 1 1 1 .6 1 1 2 .9 7 1 9 .5 8 1 1 .4 6 1 3 .2 7 1 1 .5 0 1 3 .3 2 1 1 .5 5 1 9 .3 7 1 3 .3 8 1 3 .3 1 2 0 .9 3 1 3 .4 0 1 1 .4 3 1 9 .5 7 1 1 .5 0 1 1 .4 2 1 9 .5 1 2 1 .1 3 1 3 .2 6 1 1 .4 4 1 3 .4 0 1 1 .5 2 2 0 .8 6 1 3 .3 1 2 1 .2 3 1Credit union rates are centered 3 m onth m oving averages o f weighted interest rates. Sources: Credit union rates are from N ational Credit U nion A dm inistration. Other rates are from Board o f G overnors o f the Federal Reserve System. Page 4 FEDERAL RESERVE BANK OF ST. LOUIS formally passed in April 1977, CUs are able to make mortgages with maturities up to 30 years and home improvement or mobile home loans with maturities up to 15 years. Consumer Loan Market While credit unions are recent competitive addi tions to the mortgage market, they are mature and effective competitors with commercial banks in the consumer loan market.5 Credit unions, with $34 billion in consumer loans in 1976, represent the third largest consumer instalment lender in the country and hold over 16 percent of the 1976 dollar volume of consumer instalment loans outstanding. Over 76 percent of credit union assets is devoted to consumer loans. Commercial banks, with $118 billion devoted to con sumer loans, hold 48 percent of the total outstanding consumer instalment debt. From 1960 to 1970, consumer loans at CUs increased strongly at a 12 percent annual rate. Since 1970, growth has been even more rapid; CU loans have more than doubled between 1970 and 1976, increasing at an average annual rate of 16 percent. The con sumer loan business at commercial banks has not grown as fast. Between 1960 and 1970, these loans grew at an annual rate of 9.6 percent, slightly slower, on average, than in the subsequent six years. The growth of CU loans, and therefore their assets, has been aided by favorable loan rates compared to those of commercial banks and other lending institu tions (See Table II). Credit unions are able to profit ably offer lower instalment loan rates because they experience lower fixed costs on loans. Several factors contribute to lower fixed costs, including lower costs in assembling information on loan applicants and collecting payments. Regulations governing CUs re quire a common bond among members before organ ization of a credit union is permitted. This common bond often provides an established source of informa tion on members and facilitates the payment of the loan through payroll deductions, for example. More over, because of the subsidies granted them, credit unions often realize free office space and clerical help, pay no Federal taxes and generally pay little state tax, thus escaping many expenses other institutions face.6 Com m ercial banks, finance companies, and credit unions comprise the three largest sources of consumer loans. As mentioned above, S&Ls' and MSBs are not yet strong com petitors in this market. • ’Peggy Brockschmidt, “ Credit Union Growth in Perspective,” Federal Reserve Bank of Kansas City Monthly Review (February 1977), pp. 3-13. OCTOBER 1977 During December 1974, for example, direct loans on new cars carried an interest rate of 11.62 percent at commercial banks, while at credit unions such loans carried a rate of 10.34 percent. Personal loans at commercial banks were made at an interest rate of 13.60 percent at that time; at CUs they were made at an 11.56 percent rate.7 (Table II) Since credit union rates already include such factors as the cost of credit life insurance, the basic rates would be even lower than those indicated here. Although the difference in rates charged has not been so great since 1974, it is nevertheless noteworthy. During 1976, interest rates for new auto loans at CUs varied between 15 and 53 basis points below those at commercial banks. Personal loans at credit unions fluc tuated between 157 and 198 basis points below per sonal loan rates at commercial banks. As a result, credit unions are advancing their posi tion in the consumer loan market. Based on instalment credit outstanding, CUs held 13 percent of the total credit outstanding in 1972 (15 percent of automobile credit). In 1976, they held about 17 percent of total credit outstanding (23 percent of automobile credit). Commercial banks, on the other hand, have held a fairly constant share of instalment credit, averaging about 48 percent of the total. The share of automobile credit held by commercial banks declined from 62 percent in 1972 to 58 percent in 1976. Thus, CUs have found themselves in a favored posi tion relative to commercial banks in the consumer loan market. This advantage, combined with favorable interest rates at a time when the public has become increasingly interest-rate conscious in the face of in flation, has propelled the growth of CUs. As a result, credit unions are providing commercial banks with intensifying competition for consumer loans. More over, as S&Ls and MSBs continue to move to shorten the maturity of their asset portfolios, thrifts will be come more effective competitors in this market as well. Future competition in this market is likely to focus on credit card services. Membership rules of Visa U.S.A. Inc. were extended in 1976 to include credit unions. Recently, Visa approved 32 credit unions as card-issuing members, 22 of which participate in a pilot program sponsored by Credit Union National 7Interest rates for credit unions are from the National Credit Union Administration and are centered three-month moving averages of weighted interest rates; those for commercial banks are from the Board of Governors of the Federal Re serve System. Page 5 FEDERAL RESERVE BANK OF ST. LOUIS T a b le OCTOBER 1977 III SELECTED REGULATORY AND INSTITUTIONAL CHAN GES D A TE C O M M E R C IA L B A N K S O T H ER F IN A N C IA L IN S T IT U T IO N S S e p te m b e r 1 9 7 0 S a v in g s a n d lo an a ss o c ia tio n s (S & Ls) a re perm itted to m ake p re a u th o rize d n o n n e g o tia b le tra n s fe rs from s a v in g s acco u n ts fo r h o u se h o ld -re la te d e xp e n s e s . Ju n e 1972 M a ssa ch u se tts m utual s a v in g s b a n k s (M S B s ) b eg in to o ffe r N e g o tia b le O rd e r of W it h d r a w a l (N O W ) acco u n ts. S e p te m b e r 1 9 7 2 N e w H a m p sh ire M SBs b eg in to o ffe r N O W acco u n ts. Ja n u a ry 197 4 A ll d e p o sito ry in stitu tio n s in M a ssa ch u se tts an d N e w H a m p sh ire (e x c e p t cre d it u n io n s ) a re a u th o riz e d by C o n g re s sio n a l a ctio n s to o ffe r N O W a cco u n ts. T h is a ctio n lim ite d in te re s t-b e a rin g n e g o tia b le d e p o sits to th ese tw o s ta te s . T h u s, in te re s t-b e a rin g n e g o tia b le tra n s fe r acco u n ts a t b a n k s b eg in on a n e x p e rim e n ta l b a s is . Ja n u a ry 197 4 N e b ra s k a S&L b eg in s P o in t-o f-S a le (P O S ) e le c tro n ic fu n d s tra n s fe r system . F irst F e d e ra l S&L of Lin c o ln , N e b ra s k a p la ce s an e le ctro n ic te rm in a l in a " H in k y D in k y S u p e r m a r k e t." Th e te rm in a l a llo w s custom ers o f the S&L to p a y fo r g ro c e rie s , m ake d e p o sits to , o r w ith d ra w a ls from th e ir sa v in g s acco u n ts. A p r il 1 9 7 4 M ay 1974 S ta te o f W a s h in g to n en acts le g is la tio n w h ich a llo w s sta te -ch a rte re d co m m e rcial b a n k s , M S B s, S&Ls to e sta b lish a n y num b er of a u to m ate d f a c ilit ie s th ro u gh ou t the s ta te , p ro vid e d th a t th ose o p e ra tin g th ese fa c ilit ie s sh a re the cost an d o p e ra tio n s o f the te rm in a ls w h en a s k e d to do so b y the state a u th o ritie s . C o m m e rcia l b a n k s a re re q u ire d to sh a re fa c ilit ie s w ith o th e r co m m ercial b a n k s an d h a ve the o p tio n o f s h a rin g them w ith th rift in s titu tio n s . T h rifts a re p erm itte d , but not re q u ire d to s h a re f a c ilit ie s . E xp e rim e n ta l 2 4 -h o u r e le ctro n ic f a c ilit y o p e n s on a s h a re d b a s is b y 15 W a s h in g to n M SBs an d S&Ls. N ew Y o rk sta te b a n k re g u la tio n p erm its M SB to o ffe r n o n in te re st b e a rin g NOW accou n ts (N IN O W s ). Ju n e 1 9 7 4 A u g u st 1 9 7 4 S e p tem b e r 1 9 7 4 D ecem b er 1 9 7 4 Ja n u a ry 197 5 A d m in is tra to r o f the N a tio n a l C re d it U n io n A d m in istra tio n g ra n ts 3 F e d e ra l cre d it u n io n s te m p o ra ry a u th o rity to b eg in o ffe rin g sh a re d ra fts . T h e se 3 cre d it u n io n s w e re jo in e d b y 2 sta te cre d it u n io n s in a 6-m onth p ilo t p ro g ram (la u n c h e d O c to b e r 1 9 7 4 .) P e n n s y lv a n ia C o m p tro lle r o f the C u rre n c y 's in te rp re tiv e ru lin g p erm its n a tio n a l b a n k s to o p e ra te C u sto m e r-B a n k C o m m u nicatio n T e rm in a ls ( C B C T s ) . C a lifo r n ia A tto rn e y G e n e ra l ru les M SB m ay le g a lly o ffe r a form o f n e g o tia b le o rd e r d ra w a l accou n t. of w ith F e d e ra l Hom e Loan B a n k B o a rd (F H L B B ) a d o p ts a re g u la tio n w h ich g ive s d e p o sito rs tra v e lin g more th a n 5 0 m iles from th e ir hom es a ccess to th e ir s a v in g s acco u n t b a la n c e s thro ugh a n y o th e r f e d e ra lly - in s u re d S&L b y m ean s o f a T ra v e le rs C o n v e n ien ce W it h d r a w a l (w ir e o r te le p h o n e a c c e s s ). s ta te -ch a rte re d S&L o ffe rs V a ria b le M o rtg a g e s (V R M s ). Rate M in n e so ta M SB in tro d u ces P a y -B y -P h o n e s e rv ice . Ju n e 1 9 7 5 http://fraser.stlouisfed.org/ Page 6 Federal Reserve Bank of St. Louis FHLBB j j A u th o rize s F e d e ra l S&Ls to o ffe r th e ir custom ers b ill- p a y in g se rv ice from in te re s t-b e a rin g sav; ng S acco u n ts. 2 ). M ay 1975 Co m m ercial b a n k s a re a u th o rize d to m ake tra n s fe rs from a custom er s s a v in g s acco u n t to a d em an d d e p o sit account upon te le p h o n e o rd e r from th e custom er. A p r il 1 9 7 5 a d o p ts tw o re g u la tio n s : A llo w s F e d e ra l S&L se rv ice c o rp o ra tio n s an d co m p a n ies to m ake co nsum er lo a n s (lim ite d to sta te s w h ich a llo w such a c tiv ity a n d su b je ct to state r e s t r ic t io n s ). C B C T o p e ra te d e x c lu s iv e ly b y a n a tio n a l b a n k is su b je cte d to a 5 0 -m ile g e o g ra p h ic a l restrictio n u n less C B C T is a v a ila b le to be s h a re d w ith on e or m ore d e p o sit in s titu tio n s . A n a tio n a l b a n k m a y use a C B C T e s ta b lis h e d an d o p e ra te d b y som e oth e r in stitu tio n a n d m a y p a rtic ip a te in a sta te w id e EFTS system . O re g o n g o ve rn o r sig n s in to la w le g is la tio n w h ich a llo w s the sta te 's o n ly M SB to o ffe r ch eckin g a cco u n ts. OCTOBER 1977 FEDERAL RESERVE BANK OF ST. LOUIS SELECTED REGULATORY AND INSTITUTIONAL CH A N G ES (Continued) DATE C O M M E R C IA L B A N K S Ju n e 3 1 , 1 9 7 5 U .S . D istrict C o u rt Ju d g e Rob inson ru le s C B C Ts a u th o rize d fo r n a tio n a l b a n k s b y the C o m p tro lle r o f th e C u rre n c y a re ille g a l a n d must be shut d o w n . (A b o u t 7 2 C B C T s, o w n e d b y n a tio n a l b a n k s , h ave been in s ta lle d in v a rio u s p a rts o f the co u n try under the in te rp re tiv e ru lin g issu ed b y C o m p tro lle r D e cem ber 1 2 , 1 9 7 4 .) R o b in so n 's d ecisio n d ire c tly a t tack s th e D ecem b er 1 2 , 1 9 7 4 in te rp re ta tio n , c a llin g the te rm in a ls b ra n c h e s , both a s d efin e d b y th e U .S . Su prem e C o u rt in its 1 9 6 9 P la n t C it y ca se an d as co n stru ed b y C o n g re ss w h en it p a sse d the M cFadd en A c t in 1 9 2 8 . Se p tem b e r 1 9 7 5 C o m m e rcial b a n k s a re a u th o riz e d to m ake p re a u th o riz e d n o n n e g o tia b le tra n s fe rs from a cu s to m e r’s sa v in g acco u nt fo r a n y p u rp o se . P re v io u sly (s in c e 1 9 6 2 ) , such tra n s fe rs w ere lim ite d to m o rtg a g e -re la te d p a ym e n ts. O T H ER F IN A N C IA L IN S T IT U T IO N S S ta te le g isla tio n p erm its sta te -ch a rte re d th rift in s ti tu tio n s in M a in e to o ffe r p e rs o n a l ch eckin g accou n ts. O cto b e r 1 9 7 5 N o vem b e r 1 9 7 5 M a ssa ch u se tts M SB in tro d u ces VRM p ro g ra m . F e d e ra l Reserve am e n d s d e fin itio n o f s a v in g s d e p o sits in R e g u latio n s D a n d Q to p erm it b u sin e ss sa v in g s acc o u n ts, up to $ 1 5 0 ,0 0 0 , a t m em ber b an ks. S ta te le g is la tio n p erm its th rift in stitu tio n s in necticut to o ffe r p e rso n a l ch e ckin g acco u n ts. D ecem b er 1 9 7 5 Con W h ile th e a u th o rity to o ffe r sh a re d ra fts w a s still o ffic ia lly te m p o ra ry , a d d itio n a l cre d it u n ion s b eg in to o ffe r sh a re d ra ft accou n ts fo llo w in g the end o f th e 6-m onth p ilo t p ro g ram in itia te d in F a ll 1 9 7 4 . A s o f th e y e a r e n d , 2 2 2 cre d it u n io n s (ro u g h ly 1 p e rce n t) in 4 4 sta te s h a v e b een ap p ro v e d to o ffe r sh a re d ra fts to th e ir sh a re h o ld e rs . F e d e ra l R e se rve System a d o p ts a p o lic y fo r a u to m ated check c le a rin g system s (A C H s ) to o ffe r th e ir se rv ice s on a n o n d iscrim in a to ry b a s is to a ll typ e s o f fin a n c ia l in stitu tio n s. Ja n u a ry 1 9 7 6 Illin o is S&Ls b eg in N O W acco u n ts. o ffe rin g n o n in te re st b e a rin g C o n g re ss a u th o rize s a ll d e p o sito ry in stitu tio n s in N e w E n g la n d to o ffe r in te re s t-p a y in g N O W accounts (e ffe c tiv e M arch 1 , 1 9 7 6 ) . F e b ru a ry 1 9 7 6 M ay 1976 U .S . Co u rt o f A p p e a ls fo r the D istrict o f C o lu m b ia u p h o ld s e a r lie r ru lin g b y the U .S . D istrict C o u rt fo r the D istrict of C o lu m b ia th a t n a tio n a l b a n k s ’ C B C Ts a re b ra n ch e s un der th e M cFad d e n A c t. O c to b e r 4 , 1 9 7 6 U .S . S u p re m e C o u rt lets stan d ru lin g th a t C B C T s a re b a n k b ra n c h e s. F e b ru a ry 1 4 , 1 9 7 7 N e w Y o rk g o ve rn o r sig n s le g is la tio n p erm ittin g ch e ckin g a cc o u n ts, in clu d in g o v e r- d ra ft p riv ile g e s , at sta te -ch a rte re d M SBs a n d S&Ls. Io w a s ta te w id e e le ctro n ic b a n k in g system b eg in s o p e ra tin g an d re p rese n ts th e n a tio n s first sh a re d sta te w id e n e tw o rk , e n co m p assin g a b ro a d ro n g e o f la rg e a n d sm all b a n k s in Io w a . (A t la s t co u n t, the system h ad 3 3 p a rtic ip a tin g b a n k s ; 9 2 m erch an t te rm in a ls o p e ra te th ro u g h a sw itch o r ce n tra l c o m p u te r). A p r il 1 9 7 7 A ll but 15 of th e n a t io n ’s 4 7 0 M SBs h ave e ith e r N O W acc o u n ts, tra d itio n a l ch e ckin g acco u n ts, o r a co m b in a tio n o f the tw o . Le g isla tio n e n a cte d to e x p a n d cre d it union le n d in g a u th o rity , in clu d in g a u th o rity to m ake 3 0 - y e a r m o rtg age lo a n s . Page 7 FEDERAL RESERVE BANK OF ST. LOUIS OCTOBER Association. As CUs are given endorsement to apply for Visa credit, they undoubtedly will improve their competitive position. Federal credit unions are lim ited by regulation to charging no more than one percent per month on the unpaid balance of a loan. Under present conditions, this regulation would limit interest rates on credit card services to 12 percent per year, while many banks typically are charging 18 percent annually. CHANGES IN LIABILITY COMPETITION Deposit liabilities of financial institutions are also undergoing change, primarily surrounding the distinc tion between demand and savings deposits. Important institutional changes have occurred since 1970 which have allowed more vigorous competition for deposits among institutions (See Table III for a listing of some of these developments). Combined with various maximum rates of interest allowed financial institu tions, these changes will likely translate into new posi tions in the competition for deposits (See Table IV ). Some thrifts were permitted in 1970 to make pre authorized nonnegotiable transfers from savings ac counts for household-related expenditures. However, the major impetus for change occurred in 1972 when MSBs in Connecticut and New Hampshire began to offer Negotiable Order of Withdrawal (N O W ) ac counts. These accounts are essentially interest-bearing savings accounts on which checks can be written. While, at first, introduction of NOW accounts was limited to these two states, authorization for NOW accounts was expanded in 1976 to include MSBs, S&Ls, and commercial banks in all New England states (Table V ).8 Moreover, expanded authority for NOW accounts is currently being proposed to include all states.9 At credit unions, similar services are called “share draft accounts.” Introduced at five credit unions in 1974, share drafts are now available at more than 940 CUs in 46 states.1 These accounts, offered through a 0 Credit Union National Association program, permit 8On January 1, 1974, total NOW account balances in Massa chusetts amounted to $1.38 million. Three years later, in January 1977, N O W balances totalled $1.47 billion. During the same time period, NOWs in New Hampshire increased from $5 million to $186 million. 1977 payable-through drafts which are drawn on the mem bers’ interest-bearing share accounts. Share drafts are processed through the credit union’s account at a commercial bank. In addition to NOW accounts, savings and loan associations have also initiated several services which allow them to compete for demand deposit business that has gone, traditionally, to commercial banks. Pri marily through the use of electronic services, these thrifts have access to another source of deposits, one which they may be able to more successfully retain than other sources during business cycle fluctuations. At the same time, these services allow thrift depositors to use their savings accounts more like the transaction accounts of demand deposits. Through electronic terminals, called remote service units (RSU s), depositors of thrift institutions are able to perform within seconds many of the transac tions formerly conducted through demand deposit accounts, such as withdrawing cash, making charge account and loan payments, and transferring funds from one account to another.1 One basic advantage 1 of these units is that they frequently are located in such convenient places as supermarkets, airports, and factories. Moreover, S&Ls as well as MSBs have in troduced telephone transfers to third parties and auto matic payment services which allow their customers to more easily utilize their savings accounts for trans actions purposes.1As far as customers are concerned, the new deposit services at nonbank institutions are little different from demand deposit accounts of commercial banks, except in one important respect: typically, nonbank deposit services explicitly pay interest, whereas those of commercial banks do not.1 Commercial banks 3 have been prohibited since 1933 from explicitly pay ing interest on demand deposits. Savings deposit ac counts at S&Ls and MSBs, on the other hand, are permitted by law to bear interest which is one-quarter of one percent higher than similar accounts at com mercial banks.1 Thus, not only have thrifts begun to 4 11Between January 1974 and December 1976, 112 applica tions for remote service units have been approved by the Federal Home Loan Bank Board. Federal Home Loan Bank Board Journal (April 1977), p. 39. ’ -’Fourteen savings banks in New York, Connecticut, Maine, New Jersey, Pennsylvania, and Washington offer pay-byphone services (Table V I). ''Some institutions, mainly state-chartered thrifts, have sur passed the initial offering of N O W accounts. Savings banks in New England and five other states are authorized to offer demand deposit accounts. 13In a few areas, nonbank deposit accounts called NonInterest Negotiable Order of Withdrawal accounts, (N IN O W s) do not bear interest. 10About 200,000 CU members wrote million in share drafts during 1976. 14Current ceilings on passbook accounts at commercial banks and thrifts are 5 and 5Vi percent, respectively. Page 8 approximately $800 OCTOBER 1977 FEDERAL RESERVE BANK OF ST. LOUIS T a b le IV COM POSITION O F DEPOSITS A n n u a l R ates of C h a n g e End of Period 19601970 19701976 1960 1970 1976 (m illio n s ) (m illio n s ) (m illio n s ) $ 1 5 5 ,3 8 6 $ 2 4 6 ,1 6 8 $ 3 3 2 ,2 8 3 7 3 ,0 1 5 2 3 3 ,0 0 6 4 9 2 ,7 1 9 1 2 .3 1 3 .3 2 2 8 ,4 0 1 4 7 9 ,1 7 4 8 2 5 ,0 0 2 7 .7 9 .5 $ 6 2 ,1 4 2 $ 1 4 6 ,4 0 4 C O M M E R C IA L B A N K S 1 D em and Tim e & S a v in g NOW 5 .1 % $ 1 ,2 6 5 TO TA L S A V IN G S & L O A N 4 .7 % A S S O C IA T IO N S S a v in g s C a p ito l $ 3 3 6 ,0 3 0 9 .0 % 1 4 .9 % $ 1 2 1 ,9 6 1 7 .0 % 9 .4 % 1 80 NOW M U T U A L S A V IN G S B A N K S Tim e an d S a v in g s $ 3 6 ,0 8 6 $ 7 1 ,1 5 7 NOW 580 O th e r 916 5.1 1 3 .7 1 2 2 ,8 7 7 423 257 7 .0 9 .4 493 Dem and TO TA L 7 1 ,5 8 0 3 6 ,3 4 3 C R E D IT U N IO N S M e m b e rs' S a v in g s $ 4 ,9 8 1 $ $ 3 8 ,9 6 8 1 5 ,4 8 6 S h a re D rafts 1 2 .0 % 1 6 .6 % 803 ‘ Insured banks S ources: B anking and M onetary Statistics 1941-1970; Federal Reserve B ulletin s; N ational F a ct B ook o f Mutual Savings Banking, 1971, 1975, 1977 ; Statistical A b stra ct o f the U nited States, 1974. compete with commercial banks for demand deposits, but by servicing their “demand deposits” from savings accounts, thrifts generally seem to be making the most of their interest rate advantage. Credit unions are in an even better competitive position. The maximum rate permitted members’ sav ings accounts at CUs is 7 percent. Although not all CUs pay the highest rate, about 50 percent paid between 6 and 7 percent in 1975, significantly higher than the ceiling rates at other institutions. This favor able rate differential for CUs not only appeals to current and potential members, but also allows credit unions to retain funds when other institutions are suffering from disintermediation. By increasing the convenience of the services which compete with demand deposits, nonbank institutions effectively have decreased the transactions cost to customers of their accounts. Coupled with the higher maximum interest rates allowed these institutions, their deposit growth rates generally have been stronger than those of commercial banks. Since 1970, savings of credit union members have increased at a 17 percent annual rate, and in the last two years, have grown at about a 19 percent rate (Table IV ). Total deposits of commercial banks, on the other hand, grew at nearly a 10 percent rate in the period between 1970 and 1976, up from the 8 percent rate which prevailed between 1960 and 1970. Savings capital of S&Ls and deposits of MSBs grew at annual rates of 9 and 7 percent, respectively, between 1960 and 1970. The latter institutions maintained deposit growth rates of 15 and 9 percent, respectively, since 1970. While many new demand deposit services began in 1974, data on such services tend to be incomplete, making comparisons difficult. However, NOW account data are the most complete, and available across institutions. These data indicate that the dollar vol ume of NOW accounts at commercial banks in creased from $65 million in 1974 to $1.3 billion by the end of 1976. NOWs at S&Ls and MSBs have also shown intense growth, though not as strong as at commercial banks. Between 1974 and 1976, NOWs at thrift institutions increased $146 and $367 million, respectively (Table V ). In the same two-year period, share draft balances at CUs grew from $375,000 to $803 million. In an era of rising prices, people have become more aware of the cost of holding money. More money holders are seeking methods of reducing noninterestbearing claims in favor of highly liquid earning assets that can either be easily transformed into payments Page 9 FEDERAL RESERVE BANK OF ST. LOUIS OCTOBER 1977 T a b le V N O W Account Activity in New England C o m m e rcial B an ks M onth Ended N um b er of B a n k s o ffe rin g NOWs O u ts ta n d in g b a la n c e s ( $ th o u sa n d s) M u tu a l S a v in g s B an ks N u m b er o f M SBs o ffe rin g N O W s S a v in g s a n d Loan A sso cia tio n s O u ts ta n d in g b a la n ce s ( $ th o u s a n d s ) S e p te m b e r 1 9 7 2 1 23 D ecem b er 1 9 7 2 2 59 90 O u ts ta n d in g b a la n c e s ( $ th o u s a n d s ! $ 3 3 ,6 6 6 4 5 ,2 7 2 D ecem b er 1 9 7 3 2 N u m b er o f S&Ls o ffe rin g N O W s 1 4 3 ,2 5 4 $ 1 1 ,0 9 4 D ecem b er 1 9 7 4 2 63 6 5 ,2 4 9 151 2 1 3 ,6 6 1 81 D ecem b er 1 9 7 5 2 134 3 5 8 ,9 4 0 175 3 8 6 ,5 6 0 121 9 3 ,7 5 6 D ecem b er 1 9 7 6 242 1 ,2 6 5 ,2 6 2 248 5 8 0 ,5 9 6 159 1 7 9 ,6 2 2 Ju n e 1 9 7 7 247 1 ,5 0 1 ,1 3 5 250 6 6 1 ,7 6 0 1 58 2 1 3 ,4 9 8 $ 1Massachusetts only. M assachu setts and N ew H am pshire only. S ou rce: Federal Reserve Bank o f Boston. media or used indirectly for payments. The above figures tend to indicate the extent to which these preferences are influencing relative rates of deposit growth. Communication Terminals (C B C T s), placement of them has been limited and certainly more restrictive than that of the similar Remote Service Units of sav ings and loan associations. The courts have judged that CBCTs are branches as defined in the McFadden IMPACT In certain areas, new competition has prompted commercial banks to retaliate in order to maintain or regain their competitive position. In some cases, com mercial banks have been successful in initiating tele phone transfers and automatic payment services simi lar to those at nonbank institutions.15 Perhaps the best example of a situation in which commercial banks have been able to equalize competition is the case of N O W accounts in New England. Initiating N OW accounts in 1974, two years after their intro duction by MSBs, commercial banks have surpassed savings banks in NOW balances and have about equalled the number of savings banks offering the accounts (Table V ) .1 8 In other cases, commercial banks have been less successful. For example, although national banks have initiated electronic terminals, called Customer Bank T a b le V I Selected Services Offered by Mutual Savings Banks June 30, 1976 N u m b er o f M u tu al S a v in g s Banks A u to m a te d te lle r f a c ilitie s C h e ck in g acco u n ts1 C lu b accounts C o lla te r a l lo a n s C re d it card s E d u c a tio n a l lo a n s 16See Ralph C. Kimball, “ Recent Developments in the NOW Account Experiment in New England” and Donald Basch, “ The Diffusion of N O W Accounts in Massachusetts,” Fed eral Reserve Bank of Boston, New England Economic Review (N ovem ber/Decem ber 1976), pp. 3-19 and pp. 20-30, respectively. http://fraser.stlouisfed.org/ Page 10 Federal Reserve Bank of St. Louis 1 2 .4 % 4 6 .7 8 6 .5 8 6 .3 79 1 6 .6 Home im p rovem en t lo an s 2 4 -h o u r cash d isp e n sin g In d iv id u a l R etirem en t A cco u n ts1 376 447 48 379 7 9 .2 9 4 .1 M o n e y o rd ers N O W accou n ts 455 254 9 5 .8 5 3 .5 P assb o o k lo an s 469 9 8 .7 P ay-b y-p h o n e2 14 2 .9 P a y ro ll d ed u ctio n s 281 5 9 .2 P e rso n al lo a n s 3 369 7 7 .7 51 1 0 .7 (in te re s t b e a r in g ) 1 P e rso n a l trust se rvice s 15One area in which commercial banks have been successful in attaining an equal footing with S&Ls is for Individual Retirement Accounts (IR A s) and Keogh plans. S&Ls offer these accounts to savers at a 7.75 percent interest rate, while commercial banks offered comparable accounts at a maximum rate of 7.5 percent. Effective July 6, 1977, com mercial banks which are members of the Federal Reserve System can introduce a new category of time deposit accounts which are available for use as IRAs and Keogh plans and pay a maximum rate of 7.75 percent. 59 222 4 11 410 P ercen t of T o ta l 10.1 7 9 .8 7 1 .5 S a fe d e p o sit b o xe s 378 7 9 .6 S a v in g s 325 6 8 .4 P o in t-o f-sa le se rvice s Bank Life In su ra n c e 94 1 9 .8 119 2 5 .1 S e lf-e m p lo y e d retire m e n t s a v in g s ( K e o g h ) 1 259 5 4 .5 T ra v e le rs checks 453 9 5 .4 S a v in g s p a ym e n t p lan Sch oo l sa v in g s T o ta l n u m b er o f m utual s a v in g s b a n ks 475 1A s o f Decem ber 31, 1976 2A s o f June 1977 3Ineludes overd ra ft loans. S ou rce: 1977 N ational F a ct B ook o f Mutual Savings Banking. FEDERAL RESERVE BANK OF ST. LOUIS OCTOBER 1977 Act of 1928, a severe competitive blow to commercial banks. This ruling subjects placement of CBCTs to state laws prohibiting or limiting branch banking by commercial banks. S&Ls are not subject to any com parable ruling. coming blurred, and with it, the distinction between the institutions themselves. Moreover, as more institutions pay interest on their “checking accounts,” more pressure is placed on com mercial banks to pay interest on comparable accounts. Legislation has been proposed which would allow all financial institutions in the nation to offer NOWs, with an identical ceiling rate.1 Legislation of this sort 7 would eliminate the interest rate differential on passbook/N O W accounts among institutions. Commercial banks, savings and loan associations, mutual savings banks, and credit unions perform many similar functions. They accept the savings of economic units and allocate them to borrowers. Since 1970, these institutions have been becoming similar in more specific ways. Nonbank institutions are diversify ing and broadening the scope of their assets. S&Ls are including shorter-term assets in their portfolios; MSBs and CUs are devoting more assets to various types of consumer loans. In terms of liabilities, demand deposit accounts are no longer the exclusive domain of com mercial banks. All types of thrift institutions are per mitted some type of demand deposit services. With one uniform interest rate, it is a short step to complete elimination of all interest rate differentials. Moreover, if nonbank institutions have formal access to other sources of funds, regulators may argue that the institutions no longer “require” the advantage of the interest rate differential to maintain deposit flows. Whether or not such proposals pass, the innovations which have occurred already have increased the num ber of alternative services available to consumers. Consumers are now able to obtain larger mortgages at CUs, a wider range of consumer services at MSBs, and closer substitutes for checking accounts at S&Ls. More over, the quantity and variety of services offered at each type of financial institution will probably con tinue to increase in the future. Such changes are altering the focus of most financial organizations. Having begun as basically specialized institutions, they are now taking on a more diverse character. The distinction between the asset and lia bility powers of bank and nonbank institutions is be 17Credit unions have been included among such legisla tive packages for share drafts. CONCLUSION Thus, competition is intensifying among the institu tions and will likely provide them with incentives to increase efficiency and reduce costs to customers in the future. As a result, consumers have more alterna tives for “banking” services from which to choose. In the process, asset and liability powers of the institu tions have yielded to equalizing forces. Begulations and incentives for specialization, which maintained the distinction among institutions, are being broken down. The traditional roles of nonbank financial institu tions are changing; their domain, once narrow, is now much more extensive and similar to that of commer cial banks. However, there is likely to be some limit to this process of financial institutions becoming more similar. Given current trends, the extent o f specializa tion of the institutions is likely to be determined by competitive forces as well as by public policy to channel credit to specific uses. The Early 1960s: A Guide to the Late 1970s NORMAN N. BOWSHER T J ESSONS can be learned from a study of the past. Future mistakes can be avoided, using the informa tion gained through analysis of the policy actions that were taken and evaluating the resulting economic performance. Similarly, for these periods when eco nomic performance was successful, an analysis of the contributing forces provides some positive guidance to policymakers. From an economic growth and sta bilization viewpoint, the four-year period from 1961 to 1965 was one of the most successful in our history. Throughout the early 1960s, as in other periods of economic expansion, the desires of the public for rapid gains were strong. Policymakers sought to in crease economic welfare by additional stimulus. Taxes were reduced, Government spending was increased, and money growth was accelerated. Yet, the net stimulus from policy actions was more moderate and steadier than in other periods of economic expansion. Although the economic policy actions which evolved were not necessarily completely intended, in retrospect it appears that they were appropriate. As such, this earlier period can serve as a useful guide to the present by analyzing the economy’s responses to the chief causal forces in operation over this period. Policy Actions and Other Causal Forces Operating on the Econom y The record of the early 1960s demonstrates the strength of the private economy and its movements in http://fraser.stlouisfed.org/ Page 12 Federal Reserve Bank of St. Louis the absence of shocks from outside forces. In part, the lack of shocks was the result of fortuitous circum stances. Although there was apprehension caused by the Berlin crisis, resulting in some precautionary buildup of U.S. defenses, no outside force such as a foreign war, an international commodity cartel, or major adverse weather developments caused any ma terial constraints on supply or huge shifts in demand. However, much of the credit for developments in the early 1960s should probably go to Governmental economic policies followed during that period. These policies were both less restrictive and less stimulative to the economy than those prevailing during most other expansionary periods in our history. Reliance was placed primarily on competition as a means of regulating economic activity in the late 1950s and early 1960s. There were some Government regulations, price guidelines, and a major confronta tion with the steel industry on pricing, but, on bal ance, it was a period of relative regulatory calm. As pointed out at the time by Beryl W . Sprinkle, “A sur prising number of political actions have been consist ent with the free market doctrine.”1 This is in sharp contrast to the period of the early 1970s when the Government engaged in a massive regulatory effort in the areas of prices, the environment, safety, and employment. 1Discussion of a paper by Neil H. Jacoby, “ The Fiscal Policy of the Kennedy-Johnson Administration,” Journal of Finance ( May 1964), p. 391. FEDERAL RESERVE BANK OF ST. LOUIS Fiscal actions of the Federal Government, when used, were relatively moderate during the early 1960s. Government spending expanded at a 5 percent annual rate from 1961 to 1965 (national income accounts budget). However, from 1955 to 1961 Government expenditures rose at a 7 percent rate, and since 1965 have increased at an average 11 percent rate. Tax reductions were also implemented, but amounts were relatively small. New depreciation guidelines combined with an investment tax credit enacted in 1962, increased the annual cash flow to corporations by about $2.5 billion and raised the after tax rate of return on new investment projects. After a prolonged debate, which began in the summer of 1962, taxes were finally lowered in early 1964 by $11 billion on personal incomes and $3 billion on corpor ate profits to add further stimulus. The tax decrease and the rise in Government out lays only partially offset a so-called “fiscal drag” emanating from an increase in Government tax re ceipts as consumer and business incomes grew during the period of pronounced expansion. As a result, the average Federal budget deficit from 1960 through 1965 was just over $1 billion per year. By comparison, in the last three years of the 1950s the average annual deficit was $3 billion. During 1966 through 1970, which included most of the Vietnam buildup, the deficit averaged $5 billion, and since 1970 the deficit has averaged $32 billion. Monetary actions in the early 1960s were expan sionary, but the acceleration of money growth came later than in most other periods of economic recovery and growth. Inflation changed little in that period since most of the increased monetary expansion came after 1963. Nevertheless, these monetary actions con tributed to an increase in the rate of inflation in the late 1960s. The money stock grew at an average 2.4 percent rate from 1960 to 1963, and at a 4 percent rate in 1964 and 1965, compared with a 2 percent rate in the 1952-60 period. By contrast, money has been growing at an average 6 percent rate since 1965. According to a number of studies, the trend growth of money over a period of four years or more primarily determines the rate of inflation.2 The results of these 2See W . Philip Gramm, “ Inflation: Its Cause and Cure,” this Review (February 1975), pp. 2-7. Leonall C. Andersen and Denis S. Kamosky, “ The Appropriate Time Frame for Con trolling Monetary Aggregates: The St. Louis Evidence” (Paper presented at the Federal Reserve Bank of Boston Conference on “ Controlling Monetary Aggregate II; The Implementation,” Melvin Village, New Hampshire, Septem ber 8, 1972); Milton Friedman, The Optimum Quantity of OCTOBER 1977 studies strongly suggest that the moderate money growth from 1952 through 1963 was a major factor in the relative price stability of the early 1960s, and that the more rapid money growth since 1965 has been largely responsible for the much higher inflation rates in recent years. There were no large prolonged decreases in the growth rate of money in the 1961-65 period, except for a brief period preceding the pause in activity dur ing 1962. Marked and sustained declines in the rate of money growth, such as occurred from early 1969 to early 1970 and from mid-1973 to early 1975, are usually followed within a few months by a decline in the demand for goods and services, resulting in de creased production, employment, and incomes. The absence of any large and sustained slowing in money growth during the 1961-65 period eliminated a force which has preceded most recessions in this country as well as many countries abroad.3 Policy Performance Versus Expectations Despite a robust expansion with little inflation, public desire for aggressive policies to obtain further gains remained strong, as is usually the case during economic expansions. Many analysts in the early 1960s concluded that the pronounced and sustained growth of the economy was not “fast enough.” Although un employment declined from 7 percent of the labor force in early 1961 to 5 percent in 1964 and to 4.5 per cent in 1965, these analysts considered such perform ance inadequate when compared with an “interim target” of 4 percent or less. As late as 1965, the President’s Council of Economic Advisers calculated that “a gap of $25-30 billion still remains between the nation’s actual output and its potential output . . . 4 percent of our current potential.”4 Because of the challenge to policymakers to achieve even greater levels of production, employment, and purchasing power, pressures for more expansive fiscal M oney and Other Essays (Chicago: Aldine Publishing Com pany 1969); and Irving Fisher, The Purchasing Power o f M oney (N ew York: Augustus M. Kelley, 1963). 3See “ Production, Prices, and Money in Four Industrial Coun tries,” this Review (September 1972), pp. 11-15; Leonall C. Andersen and Jerry L. Jordan, “ Monetary and Fiscal A c tions: A Test of Their Relative Importance in Economic Stabilization,” this Review (November 1968); Milton Fried man and Anna Schwartz, A Monetary History of the United States 1867-1960” (Princeton, New Jersey: Princeton Uni versity Press, 1963). 4Economic Report of the President (Washington, D .C .: United States Government Printing Office, 1965), p. 39. Page 13 FEDERAL RESERVE BANK OF ST. LOUIS policies increased. With prices relatively stable and an observed “excess” capacity believed plaguing the economy, inflationary potentialities received only nominal attention. However, “The record suggests that the Kennedy-Johnson Administrations were frus trated in their efforts to attain professed goals. It re veals the great power of Congress which, by pulling against the Executive Branch . . ., kept them chained near the middle of the fiscal road.”5 As noted above, Government expenditures were increased and tax rates reduced, but the actual extent of these actions was both moderate and delayed. Actual monetary developments were not as stimula tive as some would have desired for domestic pur poses. The monetary authorities accepted, as a prime objective during much of this period, the reduced cost and increased availability of borrowed funds. It was contended that through this goal growth in the na tion’s liquidity would contribute to continued orderly economic expansion.8 However, during much of the time the nation also faced a large deficit in the bal ance of payments and a sizable net outflow of gold. This situation apparently called for maintaining or raising short-term interest rates in order to discourage an outflow of funds seeking more favorable interest rates abroad. These two objectives were partially con flicting, and the dilemma brought compromises. Efforts were made by the Federal Reserve System to reconcile the conflict by “twisting the yield curve.” This was supposed to be accomplished by buying long-term obligations to provide bank reserves and to obtain lower capital market yields for domestic pur poses, and by selling some short-term Treasury bills to maintain the higher rates in this sector for inter national balance-of-payments objectives. During 1961 through 1965 about $8 billion of Government securi ties with maturities over one year were purchased by the System.7 On balance, short-term interest rates did rise relative to long-term rates in this period. How ever, cost and availability of domestic credit changed only marginally, and the shift in the yield curve was similar to that which occurred in other periods of 5Neil H. Jacoby, “ The Fiscal Policy of the Kennedy-Johnson Administration,” Journal of Finance (M ay 1964), p. 357. 6See Annual Report of the Board of Governors of the Federal Reserve System, covering operations for the year 1964, p. 9. 7The System received a powerful assist in twisting the yield curve from debt-management policy aimed at heavy concen tration of Treasury financing in short-term paper. See John J. Balles, “The Outlook for Fiscal, Monetary and Debt Man agement Policies,” Journal of Finance (M ay 1964), p. 407. http://fraser.stlouisfed.org/ Page 14 Federal Reserve Bank of St. Louis OCTOBER 1977 expansion where no massive purchases of longer-term obligations by the System occurred.8 There was a sizable growth in total credit extended in the early 1960s. Total new funds raised by individ uals, businesses, and state and local governments ad vanced steadily by a 16 percent annual rate from early 1961 to 1965, compared with an average 9 per cent rate since 1965. Large personal and business saving contributed to the growth. Monetary authori ties attempted to bolster the availability of credit by maintaining net “free” reserves at member banks (that is, smaller borrowings from Reserve Banks than re serves held in excess of requirements) throughout most of the period. However, the free reserves were a misleading measure of bank credit availability. The small borrowings from Reserve Banks reflected the position of the discount rate, which remained at higher levels than market rates on alternative sources of bank funds. The Econom y’s Response to Moderate Policies The economy’s performance in the period 1961-65 was exceptional. There was little inflation, and pro duction grew at a relatively rapid and steady pace for one of the longest spans on record. Over that period industrial production rose at nearly an 8 percent aver age annual rate, and total real output increased at over a 5 percent rate (see accompanying chart). Em ployment rose faster than the population of labor force age, and real output per capita expanded at about a 4 percent rate — or double the trend rate since 1965. Corporate profits (after taxes) increased at a 15 percent pace. Notwithstanding, the consumer price index inched up at only a 1.3 percent rate. The 1961-65 period was characterized by growth. The recession of 1960-61 had been relatively mild, and the upward movement after early 1961 was not a quick rebound, but a period of relatively steady ex pansion of capacity as well as demand. Investment “Two studies found little, if any, effect on the term structure of interest rates from a shift in the maturity composition of the debt. Frank De Leeuw, “A Model o f Financial Behavior,” Chapter 13 in The Brookings Quarterly Economic Model of the United States Economy, ed. James S. Duesenberry et al. (Chicago: Rand McNally & Company, 1965); and Franco Modigliani and Richard Sutch, “ Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience” (Paper delivered at the Conference of University Professors, The American Bankers Association, September 1966). See also Richard W . Lang and Robert H. Rasche, “ Debt-Management Policy and the Own Price Elas ticity of Demand for U.S. Government Notes and Bonds,” this Review (September 1977), pp. 8-22. FEDERAL RESERVE BANK OF ST. LOUIS R eal G ro ss N atio n al Product T ro s g h s = 1 0 0 T ro u g h s = 1 0 0 OCTOBER 1977 compared with near price stability in the early 1960s. Also, real production had dropped at a 5 percent annual rate from late 1973 to early 1975 versus a moderate net increase in real output from 1960 to 1961. The dramatic change in supply and demand condi tions for energy resources since 1973 has had a sub stantial adverse effect on the productive capabilities of the U.S. economy.9 Hence, even though real pro duction had dropped sharply from 1973 to early 1975, excess economic capacity did not rise proportionately, and was probably about similar to that in 1961. This decrease in capacity, without an offsetting decrease in money growth, also accounted for much of the rise in the rate of increase in the price level,from 5 percent in the early 1970s to 11 percent from late 1973 to early 1975.1 0 La te st d a ta p lo tte d : QUARTERS FROM TROUGH 2n d q u a rte r 1977 expenditures accelerated in response to an increase in demand for final products, improved rates of profit and cash flow, relatively steady interest rates, reduced taxes, and an improved outlook. From the previous cyclical peak in 1960 to 1965, real output grew at an average 4.7 percent rate, compared with 2.8 percent in the previous cycle and about a 3 percent average in the period since 1965. During this period there were relatively few large fluctuations in demand or constraints on supply, and the economy expanded in a balanced fashion. Balance was maintained between production and sales at rela tively stable prices, thus avoiding both temporary shortages and sizable inventory accumulation. Balance was maintained between the expansion of effective demand and the expansion of productive capacity to satisfy that demand, avoiding the need for cutbacks in capital expenditures. Also, balance was maintained between wages and productivity, and unit labor costs as well as prices changed little. Hence, few destabiliz ing endogenous forces developed during this extended period. Recent Period of Recovery and Expansion The current economic expansion, which began in the spring of 1975, started with an economic situation much worse than the one in the early 1960s. Inflation, as measured by the GNP deflator, had risen at an 11 percent annual rate in the previous six quarters, After turning up in the early spring of 1975, the economy has progressed in the past two and one-half years at a pace remarkably similar to or even stronger than that of the early sixties. There was a very rapid recovery in the first year following the business trough of early 1975 as activity rebounded from the previous drop, but expansion was fairly rapid in most of 1961 also. Then, there was a hesitation in the rate of the upswing during much of 1976, similar to the pause in 1962, and in both cases the slowdown was attributable to a decline in the rate of inventory accumulation. So far in 1977, economic expansion has been vigorous, similar to that in 1963. On balance, real production rose at a 5.9 percent annual rate from early 1975 to the second quarter of 1977, somewhat faster than the 5.1 percent rate re corded in the first nine quarters of the expansion in the early 1960s. Other indicators of the strength of the recent expansion have been a 10 percent rate of in crease in industrial production and a rise in employ ment at a rate about 25 percent faster than the population of labor force age since March 1975. Per sonal income has grown at an 11 percent rate in the same period. Rasche and Tatom, using a production function which accounts explicitly for capital and energy re sources, calculated that because of the new energy regime imposed in 1974, current production is cur 9Robert H. Rasche and John A. Tatom, “ The Effects o f the New Energy Regime on Economic Capacity, Production, and Prices,” this Review (M ay 1977), pp. 2-12. i"See Denis S. Kamosky, “Another Recession, But Different, this Review (D ecem ber 1974), pp. 15-18. Page 15 FEDERAL RESERVE BANK OF ST. LOUIS rently near potential output.1 Hence, they concluded 1 that attempts to obtain much greater output now through stimulative policy actions are likely to fail and will add to inflationary pressures. There is little pro spect for an extended period of real growth at rates higher than the rate of potential output expansion, which is currently about 3.5 percent a year. Early in the current recovery some progress had been made at reducing inflation. Overall prices (GNP deflator) rose at an average 5.5 percent rate from the first quarter of 1975 to the fourth quarter of 1976, considerably faster than the 1.6 percent pace observed in the corresponding period in the early 1960s. Expe rience indicates that eliminating inflation takes time, and the 1975-76 price developments should be judged against the 1970-75 average rate of 7 percent. In the first two quarters of 1977, however, these prices rose at a faster 6.2 percent rate, reflecting both constraints on supply from the severe weather last winter and a faster money growth since early 1976. On balance, the causal forces bearing on economic activity since early 1975 have moderated from those of the earlier 1970s. Although business has been hampered by numerous Governmental regulations and much higher energy prices, the constraints on production recently have been less than in the imme diately preceding period. During the 1972-74 period, the economy received a host o f shocks to production which contributed to both the inflationary bulge and the recession. Major shocks include a marked rise in energy prices caused by the cartel of oil producing nations, a hampering of production by Governmental price, environmental, safety, and other regulations, a pronounced realignment of exchange rates among currencies, and a drouth which adversely affected food production. OCTOBER 1977 exhibited in the early 1960s, has been a contributing force to the economic expansion since early 1975. In addition, Governmental actions bearing on the economy have been more moderate, on balance, than in the immediately preceding period. Since the second quarter of 1975, total Federal outlays have risen at an 8 percent annual rate, or at about a 2 percent rate in real terms. In the early 1960s, nominal expenditures rose at a 5 percent rate, or at about a 3 percent rate in real terms. By contrast, from 1970 to 1975, Govern ment outlays rose at a 12 percent rate (a 5 percent real rate). Although deficits have been enormous (averaging about $62 billion per year since early 1975), they have been financed primarily through saving. Despite an acceleration of money stock growth re cently, money increased at an average 5.8 percent annual rate from early 1975 to mid-1977. This was faster than in the early 1960s, but the rate was moder ated from the 7 percent average rate which occurred from early 1971 to mid-1974. The average monetary growth since early 1975 has lowered the trend growth of money slightly, contributing to a slightly lower fundamental rate of inflation. Large and sustained fluctuations in money, such as occurred from mid-1974 to early 1975 when the pace abruptly fell to a 3 per cent rate, were avoided. The avoidance of such fluc tuations in the pace of money growth has prevented shocks to the economy from this source. The current situation and many evaluations o f it are similar to the situation in early 1963, which was de scribed by the President’s Council of Economic Ad visers as follows: Despite the gains of the past 2 years, the economy has not yet regained full use of its labor and capital resources . . . As 1963 begins, too many workers remain without jobs; too many machines continue idle; too much output goes unrealized as our econ omy runs below its potential.12 Fortunately, most of these constraints on production have not intensified. For example, general price con trols were abolished in 1974, although selective con trols remain in place. The weather generally has been better for crops since early 1975, and energy prices have been much more stable, albeit at a higher level. However, Government continues to regulate business in a myriad of ways, and expectations are that Gov ernment regulation will increase in the future. H ow ever, the absence of further shocks to production to date, combined with the same underlying strength and resiliency of the private enterprise system as was Beflecting this evaluation, President Kennedy rec ommended a “major tax reduction” and an increase in Federal purchases for stepping up the U.S. growth rate. His report also suggested that monetary policy, as well as debt policy, must be coordinated with fiscal policy to secure the objectives of higher employment and growth. But, as mentioned earlier, there were delays in implementing these recommendations, and some were scaled down as a result of changing cir 1'Robert H. Rasche and John A. Tatom, “Energy Resources and Potential GNP,” this Review (June 1977), pp. 10-24. 12Economic Report of the President (Washington, D .C.: United States Government Printing Office, 1963), p. 9. Page 16 OCTOBER 1977 FEDERAL RESERVE BANK OF ST. LOUIS cumstances and conflicting objectives. As a result, actions became only moderately more expansive, but the stimulation was comparatively even. Now, in the fall of 1977, the economic recovery is roughly 2% years old. To some analysts the volume of unused resources appears sizable. Official reports in dicate that unemployment has recently been at about 7 percent of the labor force, and that output has been running at roughly 83 percent of measured capacity.1 3 There is considerable discussion in the business com munity of a marked slowdown in the rate of eco nomic expansion in the near future. A number are calling for increased stimulation to accelerate the progress toward a higher level of resource utilization. The announced policies of the Government to date have been similar to those follow ed in the 1961-65 period. The Administration has stated its intention to trim Government expenditures and to attain a bal anced budget by fiscal 1981. Monetary policies have been directed to holding money growth at a moderate rate and gradually reducing this rate over time. Since early 1975 the long-range money targets have been lowered. Also, it is the stated policy to reduce the burden of Government on the private enterprise sys tem by eliminating regulations which cannot be justi fied on a cost-benefit basis. Nevertheless, recent Government actions have tended to approximate those in other expansionary periods when heavy reliance was placed on increased Government stimulation to bring about more rapid expansion, and when more Government controls were substituted for competition in regulating business activity. Despite a Federal budget deficit of over $40 billion in the first half of 1977, the probabilities are relatively high that there will be some net tax rate reductions and further increases in Government ex penditures in the near future. Money growth, which had been at a 4.1 percent annual rate from the second quarter of 1974 to the first quarter of 1976 when the recession was halted and a rapid expansion was launched, has accelerated to an average 6.5 percent rate since the first quarter of 1976 and then about a 9 percent rate since February of this year. Current discussions and actions concerning the energy pro gram indicate more Government involvement in the productive process. 13These statistics probably greatly underestimate the degree that potential output is being utilized. See Rasche and Tatom, “ Energy Resources and Potential GNP.” Summary and Conclusions The early 1960s was a period of relative regulatory calm and few disruptions from fiscal and monetary actions. Although no two periods in our history are identical, support for using the early sixties as a guide to the late seventies is strengthened by a large body of economic analysis, based on an examination of policy actions and economic responses over a wide range of circumstances. These studies support the conclusions that the experience of the early 1960s was not unusual, but, upon reflection, was the result expected from the policies pursued. In the early 1960s the private sector of the economy was not shocked or stimulated greatly by outside forces. There were no large shifts in factors determin ing either demands or supplies, and the economy responded commendably. The early 1960s was one of the longest periods on record of rapid economic growth with little inflation. All during the period, de sires of the public for still better performance were strong; the record indicates that policymakers gener ally sought to provide more stimulus, but they were partially thwarted in their attempts by conflicting ob jectives, lack of agreement, and inertia. The economy has expanded rapidly for about two and one-half years, just as it had in 1963; if anything, the more recent expansion has been even more pro nounced than in the corresponding earlier period. When capacity is adjusted for energy developments and other constraints on production, output currently is rapidly approaching potential. In the early 1960s relative price stability was maintained, and during 1975 and 1976 there was a slowing in the rate of inflation. Yet, as in most periods of expansion, the desire for even better short-run economic perform ance is strong. Typically, in periods of economic expansion, the attraction of expected short-run benefits to production and employment from ever increasing stimulation has become irresistable. However, these actions have led to boom-bust situations. With more stimulation, up ward pressures on prices develop. Removal o f the stimulation, once it becomes anticipated, depresses production and employment for a time, but the infla tion built up during the period of stimulation remains for several years. Now, it would seem prudent to adopt intentionally moderate economic policies. This would imply a re duction in the growth rate of Government spending, Page 17 FEDERAL RESERVE BANK OF ST. LOUIS and a gradual move toward a balanced Federal budget, a policy advocated by the current Adminis tration. Monetary authorities might well follow the course which they have charted since 1975 — that of relatively steady and moderate money growth and a gradual reduction of this rate over time. Regulations Page 18 OCTOBER 1977 on the private sector might be critically assessed, and those that cannot be justified on a rigorous cost-benefit basis removed. Uncertainties caused by potential changes in the energy program and by possible tax law revisions should be clarified soon as they only serve to hamper investment decisions. FEDERAL RESERVE BANK OF ST. LOUIS OCTOBER 1977 Reprint Series The following R e v i e w articles have been added to our Reprint Series in the last eight years. Single copies of these articles are available to the public without charge. Please indicate the title and number of the article(s) selected and send your request to: Research Department, Federal Reserve Bank of St. Louis, P. O. Box 442, St. Louis, Mo. 63166. NUMBER 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. TITLE OF ARTICLE Elements of Money Stock Determination Monetary and Fiscal Influences on Economic Activity — The Historical Evidence The Effects of Inflation (1960-68) Interest Rates and Price Level Changes, 1952-69 The New, New Economics and Monetary Policy Some Issues in Monetary Economics Monetary and Fiscal Influences on Economic Activity: The Foreign Experience The Administration of Regulation Q Money Supply and Time Deposits, 1914-69 A Monetarist Model for Economic Stabilization Neutralization of the Money Stock, and Comment Federal Open Market Committee Decisions in 1969 — Year of Monetary Restraint Metropolitan Area Growth: A Test of Export Base Concepts Selecting a Monetary Indicator— Evidence from the United States and Other Developed Countries The “ Crowding Out” of Private Expenditures by Fiscal Policy Actions Aggregate Price Changes and Price Expectations The Revised Money Stock: Explanation and Illustrations Expectations, Money and the Stock Market Population, The Labor Force, and Potential Output: Implications for the St. Louis Model Observations on Stabilization Management The Implementation Problem of Monetary Policy Controlling Money in an Open Economy: The German Case The Year 1970: A "Modest” Beginning for Monetary Aggregates Central Banks and the Money Supply A Monetarist View of Demand Management: The United States Experience High Employment Without Inflation: On the Attainment of Admirable Goals Money Stock Control and Its Implications for Monetary Policy German Banks as Financial Department Stores Two Critiques of Monetarism Projecting With the St. Louis Model: A Progress Report Monetary Expansion and Federal Open Market Committee Operating Strategy in 1971 Measurement of the Domestic Money Stock An Appropriate International Currency — Gold, Dollars, or SDRs FOMC Policy Actions in 1972 The State of the Monetarist Debate Commentary: Lawrence R. Klein and Karl Brunner The Russian Wheat Deal — Hindsight vs. Foresight A Comparative Static Analysis of Some Monetarist Propositions Balance-of-Payments Deficits: Measurement and Interpretation Real Money Balances: A Misleading Indicator of Monetary Actions The Federal Open Market Committee in 1973 A Primer on the Consumer Price Index Channels of Monetary Influence: A Survey A Primer on Inflation: Its Conception, Its Costs, Its Consequences The FOMC in 1974: Monetary Policy During Economic Uncertainty A Monetary View of the Balance of Payments A Monetary Model of Nominal Income Determination Observed Income Velocity of Money: A Misunderstood Issue in Monetary Policy ISSUE October 1969 November 1969 November 1969 December 1969 January 1970 January 1970 February 1970 February 1970 March 1970 April 1970 May 1970 June 1970 July 1970 September 1970 October 1970 November 1970 January 1971 January 1971 February 1971 December 1970 March 1971 April 1971 May 1971 August 1971 September 1971 September 1971 October 1971 November 1971 January 1972 February 1972 March 1972 May 1972 August 1972 March 1973 September 1973 October 1973 December 1973 November 1973 February 1974 April 1974 July 1974 November 1974 January 1975 April 1975 April 1975 June 1975 August 1975 Page 19