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For Release on Delivery Friday, August 25, 1972 1:00 p.m., P.D.T. (4:00 p.m., E.D.T.) MEMBER BANK BORROWING, PORTFOLIO STRATEGY, AND THE MANAGEMENT OF FEDERAL RESERVE DISCOUNT POLICY A Paper By Andrew F. Brimmer Member Board of Governors of the Federal Reserve System Presented at the 47th Annual Conference of the Western Economic Association University of Santa Clara Santa Clara, California August 25, 1972 TABLE OF CONTENTS Section Page Preface i I. Introduction 1 II. Federal Reserve Bank Adjusment to Discount Rate Changes 7 III. Member Banking Borrowing at Federal Reserve Banks 21 Chart I -- Pattern of Member Bank Borrowing by District 27a Market Interest Rates and Member Bank Borrowing 32 Chart II -- Money Market Rates and Borrowing from the Federal Reserve 33a V. Bank Structure and Member Bank Borrowing 35 VI. Portfolio Structure and Member Banking Borrowing 42 VII. Member Bank Borrowing and Alternative Sources of Funds 44 VIII. Concluding Observations 45 IV. Tables 1 - 1 4 Appendix Table 1 PREFACE The preparation of this paper required far more than the usual amount and quality of staff support, and the contributions of particular staff members should be identified fully. Mr. James Pierce had overall staff responsibility for the measurement of member bank borrowing from the Federal Reserve. The actual task of relating borrowing to bank portfolio strategy required a great deal of imagination and computer programming skill, and several persons made an especially helpful contribution in accomplishing this goal. Ms. Jacqueline McDaniel did the basic planning and coordinated the programming effort to integrate three different sources of data. The first requirement was to examine on a daily basis each of roughly 5,800 member banks to determine their borrowing status and reserve position during the 3-1/2 years from January 1, 1969 through May 31, 1972. Mr. Stephen A. Nelick undertook this assignment—using primarily the "Short-Run Banking System Reports11 (SBR) series. The next task was to analyze the portfolio structure of borrowing banks compared with nonborrowers. Mr, Thomas A. Orndorff did the programming to retrieve data used for this purpose--using Call Reports for each member bank as of December 31, 1969, 1970, and 1971. He and Steve Nelick created the input data for the regression analysis described below. A third task was to analyze bank borrowing from the Federal Reserve compared with alternative sources of funds. Data used for this purpose came from the reports submitted weekly by 330 large banks (of which 315 are Federal Reserve member banks). However, the weekly data had to be matched with statistics from the SBR series and from the Call Report. This assignment was carried out by Mr. Charles L. Monts. In each of these assignments, the objective was to generate data for member banks distributed by size and Federal Reserve District. A few member banks were excluded from the data because their heavy borrowing from the Federal Reserve was related to supervisory problems. Member bank borrowing was also studied using econometric techniques. Through the use of regression analysis, borrowing was related to interest rate differentials» size of bank, and other factors. Mr. John Austin carried out this task. The study of the timing of discount rate changes at Federal Reserve Banks also required considerable detailed examination of the Board's records extending over the last 20 years. Mr. James Hilbanks undertook this assignment. He also did the calculations to measure the propensity of Federal Reserve Banks to lead or lag with respect to changes in the discount rate. - 4 Several other members of the Board's staff assisted the project in various ways, Mrs, Virginia Timenes supplied the statistics showing long-run trends in member banks1 use of Federal Reserve Banks compared with other credit sources, and Hiss Donata Price sketched the chart based on these data. Mrs. Dorothy Folsom prepared the chart showing money market interest rates and member bank borrowing. Also Miss Harriett Harper, Mrs. Tonsa Fuqua, and Mrs. Linda Zuk worked on various statistical and other assignments which had to be done in the preparation of the paper. I have benefited immeasurably from numerous discussions of discount rate policy with my colleagues--especially Governors J.L. Robertson and George W. Mitchell. Much of this discussion focused on the making of policy during the 1950's and early 1960fs. Governor Mitchell chaired the Federal Reserve System study which in 1968 recommended a basic revamping of the discount mechanism. Mr. Robert C* Holland (now Executive Director at the Board) had overall staff responsibility for that study, and he has been especially helpful in connection with the present project. I have also traced the evolution of discount policy during this period in the Board's records and in the Minutes of the Federal Open Market Committee (FOMC). As is generally known, while the meetings of the latter are devoted primarily to the conduct of open market operations in U.S. Government securities, the FGMC also serves as a forum for the discussion and coordination of all of the instruments of monetary policy--including discount policy. I have also found it helpful to discuss discount policy with Messrs. Howard H. Hackley and P.D. Ring. Mr. Hackley (formerly General Counsel and now Assistant to the Board) probably knows more about the evolution of Federal Reserve discount policy than anyone else currently in the System (as exemplified by his authorship of the comprehensive study, "A History of the Lending Functions of the Federal Reserve Banks,11 (mimeo.),(1961). Mr. Ring is the Board's staff officer who maintains the closest continuing contact with the discount policy through his day-to-day surveillance of the discount function in Reserve Banks. Finally, while I am grateful for the staff's support in this project, the conclusions reached in this paper are my own. Nor should the views expressed be attributed to my colleagues on the Board. Andrew F. Brimmer MEMBER BANK BORROWING, PORTFOLIO STRATEGY, AND THE MANAGEMENT OF FEDERAL RESERVE DISCOUNT POLICY By Andrew F. Brimmer I. * Introduction For a number of years, discount rate policy as administered by the Federal Reserve has rested heavily on a few key assumptions about the behavior of commercial banks that are members of the System. In fact, the Federal Reserve Act itself visualized the establishment of discount facilities by Federal Reserve Banks as the principal means through which the latter were to provide for an "elastic" currency for the United States. In the more than half-century of the System's life, the nature and functioning of the discount mechanism has probably been criticized, studied, assessed, and reformed more than any other 1/ aspect of our central banking arrangement.Consequently, one might want to raise a question at the outset: why should one take up the matter again? The answer is simple: the Federal Reserve discount rate and the administrative arrangements surrounding it are matters of importance--because of the nature of the banking system in the United States. From the point of view of most member banks, access to the discount window represents a valuable means * Member, Board of Governors of the Federal Reserve System. 1/ The latest of these is the comprehensive Reappraisal of the Federal Reserve Discount Mechanism, published by the Board of Governors of the Federal Reserve System. Vols. 1 and 2 (1971) and Vol.3 (1972). - 2 of making temporary adjustments in their asset and liability position—and thus strengthens their ability to serve their customers. From the perspective of the Federal Reserve System, borrowing by member banks provides an additional channel management of monetary policy. that can be used to enhance the Moreover, the discount rate is an important star in the constellation of short-term interest rates—and thus casts a great deal of light on current credit conditions. Yet, despite the importance of the Federal Reserve discount mechanism—and despite the considerable amount of effort that has been devoted to its illumination—numerous aspects of its functioning remain obscure to some. For example, the principles which are supposed to govern borrowing by member banks are clearly stated in both the Federal 2/ Reserve Act and in the Federal Reserve Board's regulations.— However, the ways in which these principles actually work out in practice—under varying monetary and credit conditions and among different classes of member banks in different regions of the country--are only partially understood by economists and other observers outside the System. The foundation of the Federal Reserve discount mechanism has been the presumption that member banks are reluctant to borrow. On this base, the strategy of discount policy determination and the rules for its administration have been erected. The broad outlines for both were embodied in the last major revision of the Federal Reserve Board's regulation covering 3/ member bank borrowing adopted in 1955 2? 3/ Section 13 of the Act and Regulation A. For a discussion of the 1955 revision see Bernard Shull, "Rationale and Objectives of the 1955 Revision of Regulation A," Reappraisal, Vol. 1, pp. 119-131. - 3 —While recognizing that access to Federal Reserve credit facilities is a privilege of membership, Reserve Banks must give due regard to the effect of any extension of credit upon the maintenance of sound credit conditions. --Normally, Reserve Bank credit should be extended to member banks for short periods of time to meet temporary credit needs (including seasonal requirements). — T o meet unusual and exigent situations, Federal Reserve credit may be extended for as long as seems necessary. --Continuous use of Federal Reserve credit under ordinary conditions would not be appropriate. --Federal Reserve Banks, in deciding whether to grant or refuse credit, must consider the general character and amount of the loans and investments of the particular member bank and whether the latter is extending an undue amount of credit for speculative purposes. —Where it appears that a member bank's principal purpose is to profit from interest rate differentials or to obtain a tax advantage, Federal Reserve Bank credit should not be extended. Given this conception of member bank borrowing, the Federal Reserve Banks1 discount rate traditionally has been viewed as an instrument to regulate—but not penalize—borrowing by member banks. Thus, it generally has not been considered desirable to maintain the discount rate significantly above market rates to discourage borrowing— as has been the case in a number of foreign countries. Instead, a view seems to have emerged which holds that any problems of excess use of Federal Reserve credit can be handled by administrative decisions. Moreover, in administering the discount function, efforts have been made to achieve reasonable uniformity among differentFederal Reserve Districts. Uniformity in the level of discount rates among Districts is not required. Nevertheless, most officials within the System apparently have felt that monetary and credit conditions in various parts of the Nation ordinarily are so similar that differential discount rates among Federal Reserve Banks would not be justified* On the other hand, under the Federal Reserve Act and by earlier prevailing traditions, the Boards of Directors of each Reserve Bank were expected to give dominant weight to economic conditions in their respective Districts when they establish the discount rate roughly every 14 days. this view has changed considerably. Over time, however, Currently, many Directors place significantly more stress on national and international developments. While many of the detailed features have been set aside, these are the broad principles within which the Federal Reserve discount mechanism is expected to function. in recent years? How—in fact—have they been working For a number of months, I have been engaged in a study of several aspects of Federal Reserve discount policy, and some of the results of that inquiry are presented in this paper. Some of the • highlights of those findings can be summarized here: —Once a discount rate change has been approved, most other Federal Reserve Banks seem to act more quickly to bring their own rates into line whfen the rate is increased than when it is reduced. But among individual Banks, some are more likely to lead in making rate reductions than they are in making rate increases. - 5 — I n recent years, for a variety of reasons, the Federal Reserve Board seems to have exercised an increased degree of leadership in the determination of the discount rate. A number of Reserve Bank Directors have become much more willing to vote rate changes. But in some of these cases, the timing or size of the planned change has been unacceptable to the Board, and several proposals have been disapproved in the last few years. —The traditional reluctance of most member banks to borrow from the Federal Reserve Banks seems to remain in force. Even during the most recent period of severe monetary restraint, barely more than onequarter of all member banks borrowed from the Federal Reserve. In fact, the reluctance to borrow may have become somewhat stronger. Over the last decade, an increasing proportion of member banks which had to borrow turned to sources other than the Federal Reserve Banks. — I n general, among the banks which do borrow from the Federal Reserve, only a small part of their required reserves is obtained from the central bank—for example, just over 5 per cent at the height of credit restraint in 1969. — T h e volume of borrowing seems to be closely related to the differential between the discount rate and interest rates in the money market. In other words, banks seem to borrow from the Federal Reserve when the benefits of doing so are clearly evident. — T h e propensity to borrow from Reserve Banks is particularly strong among the largest institutions, of whom 90 per cent use such credit compared with only 10 per cent of the smallest member banks§ --However, the extent to which the borrowing banks rely on the Reserve Banks for assistance varies both by size of institution and prevailing credit conditions. Under normal circumstances, the small "borrowing" banks borrow more frequently and for longer periods of time than do the large "boir towing" banks in the System. The smaller banks also normally obtain through Reserve Bank borrowing a larger proportion of their required reserves (about 4-1/2 per cent vs. 2 per cent). - 6 — B u t during periods of severe monetary restraint, the normal pattern appears to be reversed: Putting aside the biggest institutions (about 50 in number), the other large banks tend to borrow more frequently-and to obtain a greater proportion of their required reserves (about 8 per cent vs. 6 per cent)--from Reserve Banks than is true of the smaller units. The very largest banks also become more dependent on Federal Reserve credit during periods of monetary restraint. Yet, the degree of such reliance is restricted significantly by close Reserve Bank surveillance of their borrowing activity (which represented about 4-1/2 per cent of the largest banks1 required reserves in 1969). --Large member banks which borrow from Reserve Banks tend to rely somewhat less than large nonborrowers on some of the alternative means available to adjust their reserve positions. For example, those large borrowers using Reserve Bank credit raise a smaller proportion of their funds through sales of largedenomination certificates of deposit--especially those sold to individuals and other private investors. Perhaps surprisingly, with the exception of the very largest banks, large borrowers as a group rely on purchases of federal funds somewhat more than large nonborrowers. —Finally, banks which borrow from the Federal Reserve carry a much larger proportion of higher-yielding assets (e.g., loans rather than U.S. Government securities) in their portfolios than do banks which do not rely on Federal Reserve credit. Thus, while borrowing banks are able to supply a relatively greater volume of funds to the economy, they also seem better able to concentrate on lending activities yielding the highest rates of return. - 7 These conclusions are amplified in the remainder of this paper. In Section II, the pattern of Federal Reserve Bank adjustment to discount rate changes is sketched. In Section III, the trend and magnitude of member bank borrowing are traced. The relationship between market interest rates and member bank borrowing is discussed in Section IV. In Section V, the banking structure and member bank borrowing are examined. In Sections VI and VII, the banks1 portfolio strategy and alternative sources of funds are analyzed. Some concluding observations are presented in Section VIII. II. Federal Reserve Bank Adjustment to Discount Rate Changes It will be recalled that, under the Federal Reserve Act, the Boards of Directors of each Federal Reserve Bank are required "... to establish from time to time, subject to review and determination of the Board of Governors of the Federal Reserve System, rates of discount to be charged... for each class of paper, which shall be fixed with a view of accommodating commerce and business....11 Such rates must be established every 14 days—or more frequently if thought necessary by the Federal Reserve Board. In implementing this part of the Act, the normal situation involves the re-establishment of the existing discount rates which the Board dimply allows to stand. For example, the present 4/ rate of 4-1/2 per cent has been in effect since December 13, 1971.— 47 ~ This is the rate of interest charged on loans to member banks under Sees. 13 and 13a—most widely referred to as "the" discount rate. - 8 At times, however, prospective changes in economic and financial conditions will force the question of the discount rate to the forefront of monetary policy discussions. In fact, on a number of occasions, the question of changing the discount rate has become a burning issue—not only in the Federal Reserve System but also among other Government officials, within the financial community, and among the public at l a r g e . B u t under normal circumstances, the Directors of Reserve Banks (occasionally through an executive committee) will propose a change in the rate when they become convinced that changing economic conditions (mainly in their respective Districts) require it. In reaching that decision, they are undoubtedly influenced substantially by the recommendations of the Reserve Bank Presidents. Discount rate setting is a product of Board-Reserve Bank interaction, and both the form and the substance of that interaction have changed over time. In a few cases, the Board has formally requested the Reserve Bank Directors to assess the currently prevailing rate with a view toward changing it if the judgment were reached that such a 5/ The most dramatic instance in recent years arose in December, 1965, when the Federal Reserve Board (on a 4-3 vote) raised the rate by 1/2 per cent to 4-1/2 per cent over the opposition of the Administration. A less dramatic—but still important—example of a similar reaction occurred in April, 1956, following an increase in the discount rate by 1/4 per cent to 2-3/4 per cent by 3 Banks and by 1/2 per cent to 3 per cent by 1 Bank. Apparently some of the key members of the Administration (but not the President himself) also opposed those actions—especially the 1/2 per cent increase. See FOMC Minutes, 1956, pp. 224-227. - 9 move was desirable.- But the most frequently used approach is the encouragement of an informal discussion of possible discount rate changes at regular meetings of the FOMC. Within the last year or so, Reserve Bank Presidents have been asked informally by the Federal Reserve Board to encourage a full discussion at regular meetings of their Directors Of those factors which might influence the decision to change the discount rate. To a considerable extent, the Board's action was a by-product of the decision to experiment with making small and fairly frequent changes in the discount rate. Such a policy was recommended by the System Committee which conducted the Fundamental Reappraisal of the Discount mechanism in the mid-1960's. The System tried that technique rather extensively from late 1970 through late 1971. 6/ Perhaps the most explicit example of the exercise of such Board leadership is provided by the telegram which Chairman William McC. Martin sent to Presidents of Federal Reserve Banks on "... November 9, 1955 suggesting that, without implying that action should be taken on the matter, there be a full review of the discount rate by the directors of the Reserve Bank at their next meeting....11 (FOMC Minutes, 1955, p. 604). The reactions to the wire were discussed at the FOMC meeting of November 16. It is both interesting and instructive to contrast the views of Board Members and Bank Presidents regarding a discount rate change which were expressed at the November 16 meeting with those expressed at .the previous meeting on October 25. At the earlier meeting 9 of the 12 Presidents did not favor an increase in the discount rate. (The remaining 3 did not comment on the question.) Of the 6 Board Members who spoke on the issue, 2 favored an increase and 4 did not. At the November 16 meeting, 11 of the Presidents were present, and 9 now said that they were prepared to recommend a rate increase in the near future; only & were still opposed. All 6 of the Board Members present now favored an increase. The next day—November 17, 1955—the Board approved an increase of 1/4 per cent to 2-1/2 per cent in the discount rate for Reserve Banks. Within 5 days, the remaining 6 Banks had moved to the higher rate. On the day prior to the Board's action, no Reserve Bank had actually recommended a change in the discount rate. FOMC Minutes, 1955, pp. 597-623, and Board Records, 1955. - 10 Record of Discount Rate Adjustment: 1953-71 Given these developments affecting the environment in which discount rate policy is administered, what does the record show with respect to Federal Reserve Bank adjustment to discount rate changes? To answer this question, all changes in the rate from January, 1953, through December, 1971, were examined in some detail. During that period, the discount rate was changed 39 times. were increases, and 17 were rate reductions. Twenty-two In examining the changes, answers were sought to several subsidiary questions: — H o w long did it take the Federal Reserve System to effect a rate change--from the point at which the first Reserve Bank Directors voted a change through approval by the Board until the last Bank comes into line with the new rate? — I s the adjustment time required the same for both rate increases and rate reductions? — D o adjustment patterns differ appreciably among Reserve Banks—depending on whether the change is an increase or a decrease? — C a n one detect a differential propensity among Reserve Banks to lead or lag in making rate changes? The data used in answering these questions are summarized in a number of statistical tables (attached at the end of the text). Selected information on each of the 39 rate changes is presented in Appendix I. The adjustment time for the Federal Reserve System as a whole is shown in Table 1. Data relating to individual Reserve Banks are shown in Tables 2, 3 and 4. In assessing the adjustment pattern - 11 of Reserve Banks, the rate changes were classified according to whether they were increases or decreases, and the time required for each Reserve Bank to complete the change was calculated. For the System as a whole, "adjustment time11 represents the weighted averages of days involved in the process, using as weights the number^of Federal Reserve Banks posting a change on a given day. "Lead time11 is the number of days elapsed between action by the first Reserve Bank Board proposing a rate change and approval by the Federal Reserve Board. "Coincident action" describes those cases in which the Reserve Bank Directors and the Federal Reserve Board took action on the same day. "Time lag" is the number of days elapsed between approval action by the Federal Reserve Board and the adjustment of the rate by the last Reserve Bank. "Duration" is the time elapsed between the beginning and the end of the rate adjustment process. From an examination of the statistics, several conclusions emerge: Adjustment Time for the Federal Reserve System With respect to the System as a whole, it took an average of 5.3 days to effect a discount rate change during the 1953-71 period. (Table 1) Once rate changes were voted by Reserve Banks, the Federal Reserve Board typically approved the proposals rather quickly—since lead time averaged only 1.1 days. However, the remaining Banks took somewhat longer to bring their rates into line—since the time lag for all Banks averaged 4.1 days. Within the period, there was considerable variation in the - 12 duration of the rate adjustment process. In general, the adjustment period was much longer in the 1950's than it was in later years—for example, 6.1 days in 1953-60; and 4.0 days in 1970-71. 1.9 days in 1963-65; 4.7 days in 1967-69, In general, over the period as a whole, the lead time increased while the time lag became shorter. Reductions in the discount rate required somewhat mo.re time than did increases—5.7 days vs. 4.9 days for the 1953-71 period. The lead time was about the same for both increases and decreases (1.2 days and 1.0 days, respectively). However, the time lag was longer for the rate decreases than it was for rate increases (4.7 days vs. 3.7 days). Adjustment Time for Federal Reserve Banks Individual Federal Reserve Banks displayed considerable diversity in adjusting to discount rate changes. disparity shows up in a variety of ways. The extent of this In Table 2, the average adjustment time for each Bank is shown for the period 1953-71. From these data, it is evident that some banks took a great deal more time to adjust to discount rate changes than did required 5.3 days). the System as a whole (which For example, the Dallas Bank had the longest average duration (9.2 days) for any phase of the adjustment process, and New York had the shortest (2.1 days). When the adjustment process is divided more sharply to distinguish among lead, coincident and lag positions and between increases and decreases, the variation in behavior among Reserve Banks becomes even more evident. For this purpose, the information in Table 3 is especially - 13 helpful. This table shows the number of times a particular Reserve Bank was among the lead banks, coincident banks, or lag banks, when the discount rate was increased compared with its position when the rate was reduced. It will be noted that, of the 22 instances of an increase in the rate, the typical Reserve Bank was among the leaders 3.8 times; it was in the lag it was in the coincident group about 6.8 times, and category about 11.4 times. These figures represented 17.3 per cent, 30.1 per cent, and 51.8 per cent, respectively, of the 22 cases of rate increases. Of the 17 instances of discount rate decreases, the average Reserve Bank was among the leaders 2.8 times; it was in the coincident group about 4.7 times, and it was in the lag category about 9.5 times. Again, these instances represented 16.5 per cent, 27.7 per cent, and 55.9 per cent, respectively, of the 17 cases of rate reductions. So, relative lead-lag position of the typical Reserve Bank in the System was pretty much the same whether the discount rate was increased or decreased. However, among individual Reserve Banks, this pattern varied considerably. For example, the New York Bank was never among the leaders in the 17 cases when discount rates were reduced, and the Richmond and Atlanta Banks were among the leaders only one time each when rates were lowered. In contrast, when discount rates were increased, all three of these Banks were among the leaders approximately the average number of times (roughly 4 times). On the other hand, the Boston Bank (which was also among the leaders about the average number of times) was - 14 far in the lead when discount rates were reduced (7 out of 17 times—or 41 per cent). At the other end of the spectrum, three Banks (Atlanta, Kansas City, and Dallas) lagged considerably behind the System as a whole when discount rates were lowered. They were in the delayed adjustment category 12 of the 17 times—or in 71 per cent of the cases. Still other contrasts could be drawn, but enough has been said to provide the general flavor of the diversity of discount rate adjustment patterns among Federal Reserve Banks. To reduce the scattering of experience and to see whether a generalized pattern can be discerned in the data, each Bank was ranked according to its average lead-lag position with respect to the total number (39) of discount rate changes during the years 1953-71. shown in Table 4. The results are Here, the St. Louis Bank (with a lead of 3.1 days) turns out to hold the top rank as the Reserve Bank most likely to lead in the upward adjustment of discount rates. closely behind (with a lead of 3.0 days). The Dallas Bank follows The Minneapolis Bank is at the bottom of the list (with a lead of only 0.2 days). Again, the top position as the institution most likely to lag when discount rates are increased is held by the Boston Bank (with a lag of 5.2 days). The Richmond Bank is second (at 5.1 days), and the remaining 10 Banks follow in descending order with only modest differences between them with the 12th Bank (Minneapolis) at 2.7 days. - 15 With respect to discount rate decreases, the Boston Bank is the institution most likely to lead a downward adjustment in the rate level. close second. Its average lead was 5.2 days. No other Bank was even a The latter spot was held by the Philadelphia Bank where the average lead was 1.5 days. As already indicated, the New York Bank was at the bottom of this ranking—since it was never among the leaders when discount rates were decreased. Finally, the Dallas Reserve Bank continues to emerge as the Bank most likely to lag behind when discount rates are reduced. Its time-lag averaged 8.8 days. It was followed by Richmond (5.6 days) and Atlanta (5.1 days). Again, the New York Bank (with 2.1 days) was in the bottom spot. Assessment of Federal Reserve Bank Adjustment Pattern Several comments can be made which might illuminate further the observed pattern of adjustment to discount rate changes. In general, when discount rates are increased, most Reserve Banks apparently move as expeditiously as possible to bring their own rate into line. In large part, this action is designed to minimize the chance of member banks shifting a disproportionate amount of their borrowing to the Federal Reserve discount window where the cost of funds might otherwise be noticeably below market interest rates. In the case of the New York Federal Reserve Bank, that institution has traditionally assigned considerable weight to economic and financial developments in the international arena. Reflecting this concern, it has frequently stressed - 16 the advantage of having short-term interest rates in the United States in reasonable relationship to those in Western Europe—which are typically higher than similar rates in this country. This perception of the role of interest rates seems to have often caused the New York Bank to be more reluctant than the average Bank to take the lead in reducing the discount rate. The Dallas Federal Reserve Bank appears to feel that it is operating in an environment that is usually much more ebullient than that prevailing in most other parts of the country. In that Bank's view, a somewhat stronger posture to discourage member bank borrowing might generally be desirable. In the case of the Boston Bank, somewhat more than the average amount of emphasis seems to have been placed on the role of interest rates in stimulating economic growth. This concern has been as much national in scope as it has had regional dimensions. Finally, several of the Reserve Banks have tended to cluster around the average behavior of the System as a whole. The Philadelphia, Chicago, and San Francisco Banks seem to fall into this category. No obvious reasons can be advanced to explain the observed tendency, but its persistence over time is clearly evident. Disapproval of Discount Rate Proposals As indicated above, the Federal Reserve Board has turned down a number of discount rate proposals voted by Directors of Reserve Banks. Through 1965, no such formal disapprovals had been recorded.— However, from July, 1966, through August, 1971, the Board disapproved 24 discount rate changes put forward by Reserve Bank Directors* The proposed changes--all of which were increases—are summarized in Table 5. Of the 24 rejections, 11 occurred in 1966; and 5 occurred in 1971. 8 occurred in 1969, In each of the first two years, the disapprovals occurred at the peak of monetary restraint. In 1971, the disapprovals also occurred in those months when money market interest rates were at or near their peaks for the year. In 1966, nine of the proposals were for 1/2 per cent to raise the rate from 4-1/2 to 5 per cent. Two (Chicago and Minneapolis) were for 1 per cent to raise the rate to 5-1/2 per cent. In 1969, two proposals were for 1/2 per cent—one (St. Louis) would have raised the rate from 5-1/2 to 6 per cent, and the other (Boston) would have raised the rate from 6 to 6-1/2 per cent. All other proposals disapproved in 1969 were for 1 per cent to raise the rate from 6 to 7 per cent. In 1971, two proposals (Philadelphia and St. Louis) were for 1/4 per cent to raise the rate to 5 per cent. Three proposals were for 1/2 per cent—one (New York) to raise the rate from 4-3/4 to 5-1/4, and two (Dallas and St. Louis) to raise the rate from 5 to 5-1/2 per cent. It will also be noted that three of the Reserve Banks (Richmond, Atlanta, and San Francisco) were not among those whose rate proposals were disapproved. On the other hand, two of the Banks (St. Louis 7_/ Actually, the Board disapproved some of the rate proposals when discount rates were fixed for the first time in the closing months of 1914. The structure of rates submitted by the different Banks was quite diverse. To bring about some degree of order (but not uniformity) the Board disapproved some of the initial proposals and left it to the affected Banks to submit new rates that were more acceptable. See Henry Parker Willis, The Federal Reserve System, New York: The Ronald Press http://fraser.stlouisfed.org/ Company, 1923, Ch. XLI, pp. 886-904. Federal Reserve Bank of St. Louis - 18 and Chicago) each accounted for about one-quarter of the turndowns. Two of the Banks (Cleveland and Minneapolis) had rates rejected in 1966— but none in the other two years. While the Board disapproved 24 separate rate proposals, a number of the cases represented reaffirmations of a decision which had been reached previously on the basis of facts similar to those stressed by the Directors of a particular Reserve Bank. By this standard, the 24 increases that were disapproved can be regrouped into six basic decisions. The reasons for their actions advanced by the Directors and the Board, respectively, can be summarized: 1. July 15, 1966 Reserve Bank: Market rates had been moving upward, and widespread expectations of a discount rate increase had contributed to market uncertainties. The Banks, therefore, reasoned that an adjustment in the rate would serve as a stabilizing influence. They also believed that a rate increase could be helpful in symbolizing continued concern about the balance of payments deficit. Use of the discount rate instrument, along with other instruments of Federal Reserve policy, was called for to maximize the effectiveness of monetary policy to limit excessive credit expansion. Federal Reserve Board: On the preceding day, the Bank of England had raised the Bank rate from 6 to 7 per cent, and the Board was reluctant to weaken that action with an offsetting action here. On the domestic side, doubt was expressed as to whether an increase of 1/2 per cent would be sufficient to quiet prevailing uncertainties, or whether such an increase might simply promote speculation concerning the possibility of additional rate increases. There was also concerti that in view of the many strains and cross-currents prevailing in the financial and credit markets, a rate increase might be exaggerated and misconstrued, with resulting ramifications extending beyond the intended scope of the action. Further, it was not evident that the existing rate was hampering the pursuit of a policy of monetary restraint or that it was causing unmanageable problems at the discount windows. Another factor contributing to the Board's decision was the widespread desire to avoid further escalation of interest rates. - 19 2. January 27, 1969 Reserve Bank: The St. Louis Bank believed that a rate increase would place the rate closer to its historical relationship with other money market rates and would reduce the incentive for member banks to come to the discount window. Further, the Bank felt that the recent slowing that had occurred in the rate of growth of commercial bank credit reflected a rechanneling of funds around the banks, with little net effect on total credit extended in the economy, more than it provided evidence of monetary restraint. It was their view that a rate increase would indicate to the public that the System was seriously interested in combating prevailing strong inflationary expectations. Federal Reserve Board: The Board concluded that a rate increase at this time would not be appropriate in light of the imminent Treasury refinancing. Also, apart from the refinancing, the Board had reservations as to whether a rate increase, particularly one of as much as 1/2 per cent, was called for by prevailing and prospective economic and financial conditions. 3. May 28, 1969 Reserve Bank: The St. Louis Bank proposed the rate increase on the grounds that it would bring the rate into better alignment with relevant market rates, and would reduce the incentive for member banks to make excessive use of the discount window. The Bank also believed that a rate increase might help to convince the public that the System was serious about resisting inflationary pressures and might therefore help to reduce inflationary expectations and hasten a turnaround in interest rates. Federal Reserve Board: The Board felt that a rate increase at the present time would be untimely in light of the prevailing conditions and uncertainties in financial markets. It was also noted that while the present rate was out of line with market rates, there had been no evidence that there had been unmanageable difficulties at the discount windows. 4. May 7, 1971 Reserve Bank: The New York Bank proposed the rate increase out of concern over the current unsettlement in foreign exchange markets and the attendant massive flows of dollars into foreign currencies. They felt that the rate action would serve as an important signal that the U.S. intended to defend the value of the dollar. While the Bank realized this action posed risks of an increase in domestic interest rates, they felt these risks were outweighed by the need to maintain international confidence in the dollar, particularly against the background of rapid growth in monetary and credit aggregates in recent months. - 20 Federal Reserve Board: While the Board agreed that arguments could be made in favor of a rate increase on international grounds, it was not convinced that such action would have any significant effect on European currency decisions. The Board believed that in the existing circumstances, a rate increase might be considered to be precipitate and hence would present problems both domestically and internationally. The Board also believed that the sensitive state of domestic debt markets argued strongly against an increase, and that such an action could prove damaging to general confidence at a time when the economic recovery was still fragile. The Board felt that any sharp increase in interest rates might have severely adverse effects on flows of funds to key sectors of the economy. 5. June 22, 1971 Reserve Bank: The Philadelphia Bank felt that a rate increase would be a desirable way to signal concern over persistent inflationary pressures, particularly in view of the recent rapid expansion in the monetary aggregates. They also noted that a rate increase could be justified as a move toVmaintain general alignment between the discount rate and the short-term market rates and that it will be in keeping with their preference for a policy of flexibility in adjusting the discount rate to changes in market rates. Federal Reserve Board: The Board believed that a rate increase at this time would not prove to be a constructive step in dealing with inflation. The Board did not think that the current levels of shortterm rates called for a rate increase. An additional consideration at this time was the desirability of avoiding a change in monetary policy during the period when a Treasury financing was in progress. 6. August 16, 1971 Reserve Bank: The St. Louis and Dallas Banks proposed the rate increase against a background of continuing rapid growth in the monetary aggregates and persisting concern about the rates of advance in wages and prices. Most market interest rates had risen somewhat further since the announcement of the rate increase on July 15. Federal Reserve Board: The Board's decision not to approve the proposed rate increase was made in light of the President's major economic policy announcements on August 15. The Government's new economic program was thought likely to help moderate the rise in prices and wages while stimulating economic activity, and early reactions to the President's announcements suggested that a downward adjustment in market interest rates was developing. In these newly emerging circumstances the Board concluded that an increase in the discount rate would not be appropriate. A central conclusion emerges from the experience summarized here: The Directors of a number of the Federal Reserve Banks have become much more willing to vote discount rate changes based on economic developments as they see the situation unfolding. The Federal Reserve Board has encouraged the Directors to take more of an active role in this regard. At the same time, however, it is clear that many of the Directors base their decisions on factors other than economic trends in their own Districts. In fact, an increasing number of Reserve Bank Directors are stressing national and international developments as the main reasons supporting their recommendations for rate changes. (The Directors of the New York Bank have traditionally followed that course.) On the other hand, the Federal Reserve Board has demonstrated an increasing willingness to disapprove formally those Reserve Bank proposals for rate changes that do not accord ^ith its judgment as to appropriate timing or amount. Given the diversity of factors which must be considered from the point of view of the country as a whole, the Board is the only body within the System which has the overall perspective necessary to orchestrate the instruments of monetary policy with other tools of national economic policy. III. Member Bank Borrowing at Federal Reserve Banks As mentioned at the outset, member banks as a group have typically borrowed only infrequently and in modest amounts from Federal Reserve Banks. However, at times—such as during periods of substantial monetary restraint—the banks have relied somewhat more heavily on Reserve Bank credit. Reliance by member banks on the Federal Reserve System also varies significantly by class of bank and among Federal Reserve Districts. - 22 Record of Member Bank Borrowing The record of member bank borrowing from Federal Reserve Banks is shown in Table 6. Borrowing in relation to member banks1 required reserves is also indicated. In terms of the level of borrowing, four periods stand out sharply: 1952-53; 1955-59; 1966, and 1969-70. In the early 1950's, a substantial part of the sharp jump in credit outstanding at the discount window was related to the freeing of the Government securities market from pegged rates at a time when private credit demands were strong. But tax advantages rather than credit conditions also played a significant part. Such borrowing climbed from about $300 million in 1951 to the neighborhood of $800 million in 1952-53. This represented a rise from 1.5 per cent to 4.0 per cent of the banks1 required reserves. Tax-related borrowing played a significant role because of the profitability of such borrowing under the provisions of the excess profits tax temporarily in effect during 8/ the Korean War. The sizable volume of member bank borrowing in the remaining years of the 1950*s was related more directly to the generally strong private demands for credit in the face of severe monetary restraint. 8/ See Report of the System Committee on "Reappraisal of the Federal Reserve Discount Mechanism,11 1968, p. 3. In passing, it should be noted that this experience with taxmotivated borrowing by member banks was one of the main reasons (and perhaps the most important one) why the Board undertook the basic revision of Regulation A adopted in 1955. - 23 From a level of around $200 million in 1954 (when monetary policy had been eased to counter the recession), borrowing rose to $666 million in 1955 and climbed further to an average of $840 million in 1956-57. In attempting to cope with these demands, the Federal Reserve made a number of increases in the discount rate. For example, of the 22 rate increases in the 1953-71 period examined earlier, 9 occurred between April, 1955, and August, 1957. These moves took the discount rate from 1-1/2 per cent (set in April, 1954) to 3-1/2 per cent (set in August, 1 9 5 7 ) ^ _9/ During the 1957-58 recession borrowing by member During this period, the System engaged in the only debate which I have been able to find over whether the discount rate should be a penalty rate. At the FOMC meeting of August 23, 1955, Chairman Martin advanced such a proposal and asked the Board Members and Reserve Bank Presidents to consider it. His proposal was based on an analytical and historical analysis presented by Messrs. Winfield W. Riefler and Ralph A. Young. At the time the question at issue focused on a possible increase in the discount rate of 1/4 per cent. Chairman Martin thought that was the minimum increase required and argued strongly for a general revamping of the conception and administration of the discount rate--although he did not indicate exactly what the penalty ought to be. The general reaction to the proposal was overwhelmingly negative. Of the five Board Members present at the meeting, Chairman Martin was the only one to support the idea. Of the nine Reserve Bank Presidents present, two supported the proposal, and six opposed it. Moreover, at the next meeting of the FOMC, two Reserve Banks (after studying the Riefler-Young papers which had not been distributed prior to the August 23 meeting) returned to the issue and again came out against the transformation of the discount rate into a penalty rate. The 1/4 per cent increase was adopted on August 25, 1955, and the matter was never raised again in a formal way. FOMC Minutes, 1955, pp. 466-497, and 520-525. - 24 banks again declined substantially and averaged just under $300 million in 1958. But with the revival of economic activity, the level spurted to $811 million in 1959. With the shrinkage of credit demands during the 1960-61 recession—and the easing of Federal Reserve credit policy to stimulate economic activity—the level of borrowing dropped to only $83 million in 1961. Over the following three years, it remained below $300 million. As the pace of economic activity quickened in 1965--partly under the impact of rising defense spending related to the Vietnam War--member bank borrowing also rose. It reached $492 million in that year and advanced further to $650 million in 1966. In this episode, however, the Board took an entirely different view of the use of the discount rate. In fact, after the increase in the discount rate from 4 to 4-1/2 per cent in December, 1965 (adopted on a 4-3 vote), the rate was not raised again until November, 1967—and it was reduced only once, i.e., in April, 1967. As indicated above, however, some of the Reserve Banks did make rate proposals in 1966 that were disapproved. Rather than relying more heavily on discount rate changes to moderate credit demands, the Federal Reserve System adopted a variety of other techniques in the pursuit of its goals. Through open market operations, the FGMC generated considerable pressure on bank reserves. The Board .raised member bank reserve requirements twice to achieve the same effect. The maximum rates of interest which member banks could pay on time and - 25 savings deposits were restricted. Finally, on September 1, 1966, at the Board's instruction, Federal Reserve Banks sent a letter to all member banks indicating the desirability of the banks1 reducing the expansion of business loans while avoiding further sizable liquidations of municipal securities. At the same time, it was recognized that banks which followed this course might require 10/ accommodation at the discount window for longer periods than usual. With the return of monetary restraint in 1969, member bank borrowing again rose substantially—and averaged $1.1 billion in that year. The discount rate reached 6 per cent, and—as indicated above— some Reserve Bank Directors wanted to raise it to 7 per cent. Instead, to restrict the availability of bank credit, the Board again relied on a combination of other instruments--including higher reserve requirements, the imposition of reserves against Euro-dollar borrowings, and restriction on the use of funds obtained through sales of commercial 11/ paper.— As credit conditions eased somewhat in 1970, member bank borrowing also declined—to an average of $835 million. In fact, the decrease would have been even larger except for the special borrowing by some banks necessitated by pressures in the commercial paper market which were evident in June of that year. As part of its effort to cope with the situation, member banks were told that they could borrow from TO? U/ See Board of Governors, Anrm]^Re£ort, 1966, p. 32. See Board's Annual Report, 1969, pp. 69-93. - 26 Reserve Banks outside the normal standards if this were needed to enable them to meet the credit needs of businesses unable to roll 12/ over maturing commercial paper.— Borrowing under this facility extended for about two months (from the first week in July into early September). The amounts outstanding reached a peak of just under $500 million (in the third week of July) and had dropped to less than $70 million by the time the facility was no longer needed in early September, At the peak, these special Federal Reserve credits represented just under two-fifths of total member bank borrowing—and they averaged about one-third of the total during the weeks of most active use. As monetary conditions eased through 1971, the volume of borrowing declined to about $400 million, and it dropped further to an average of only $80 million during the first seven months of this year. District Variation in Member Bank Reliance on the Federal Reserve System The extent to which member banks rely on the Federal Reserve for assistance varies considerably. Documentation to illustrate — and above all explain--this diversity is hard to obtain. However, by drawing on a variety of statistical sources and oral discussions with officials and staff members within the System and with numerous officials in member banks, I have gotten a broad overview of what seems to H7 See Board's Annual Report, 1970, p. 74. be the - 27 currently prevailing situation. in Table 7 and Chart I. The first piece of evidence is presented This table shows Federal Reserve member banks which borrowed from the Federal Reserve Bank in their District as a percentage of all member banks which borrowed from any source. These sources of member bank borrowing include the following: (1) borrowing from Federal Reserve Banks; funds; (2) purchases of federal (3) sales of participations in loan pools; correspondent banks. and (4) borrowing from They do not include Euro-dollar borrowings and 13/ sales of capital notes and debentures. In December, 1959, there were 6,227 banks that were members of the Federal Reserve System. During the course of that year, 2,339 banks borrowed from a variety of sources—including Federal Reserve Banks. The number which borrowed from the Federal Reserve was 1,967. So in 1959, the proportion of members which borrowed from any source was 38 per cent (2,339 out of 6,227); the proportion of all members which borrowed from Reserve Banks was 32 per cent (1,967 out of 6,233). The proportion of members borrowing from any source which also borrowed from the Reserve Banks was 84 per cent (1,967 out of 2,339). the situation had changed noticeably. 13/ By 1971, In December, 1971, there were Information on these sources of member bank borrowing was obtained from the following: 1959-1968, Federal Reserve Board Questionnaire completed by Reserve Banks. 1969-1971, Income and Dividend Reports completed by member banks. CHART 1 MEMBER BANKS BORROWING FROM THE RESERVE BANKS AS A PERCENTAGE OF MEMBER BANKS BORROWING FROM ANY SOURCE, 1959-1971 PER CENT - 33 5,727 member banks in the Federal Reserve System. During the course of that year, 2,584 banks borrowed from numerous sources--including Reserve Banks. was 900. The number which borrowed from the Federal Reserve So in 1971, the proportion of members which borrowed from any source was 45 per cent (2,584 out of 5,728); the proportion of all members which borrowed from Reserve Banks was 16 per cent (900 out of 5,727). The proportion of members borrowing from any source which also borrowed from Reserve Banks was 35 per cent (900 out of 2,584). Since 1959 was a year of monetary restraint--and 1971 was a year of monetary ease--it might be helpful to look at 1969 as well—which was also a year of restraint. In 1969, there were 5,870 member banks. Some 2,707 (46 per cent) of these borrowed from a variety of sources. However, only 1,714 (29 per cent) of all member banks borrowed from Federal Reserve Banks. So in 1969, about 62 per cent of the banks which borrowed from any source also borrowed from Reserve Banks (1,714 out of 2,707). In Table 7, the Reserve Bank-any source percentages are recorded. These were: 35 per cent. years. 1959, 84 per cent; 1969, 62 per cent; and 1971, Percentages are also recorded for each of the intervening The same percentages are shown separately for each Federal Reserve District for each of the years. The same statistics are plotted in Chart I for the System as a whole and for each of the 12 Federal Reserve Districts. The dotted line shows the percentages year by year for all member banks combined—or for the System as a whole. This System profile is reproduced in each of the District panels—whose own experience i s described by the solid line. - 34 Several observations can be made on the basis of the information presented here. Turning back to the statistics on Federal Reserve membership and borrowing, it will be noted that between 1959 and 1969, the number of banks in the Federal Reserve System declined by 6 per cent, and between 1959 and 1971 the decrease was 8 per cent. However, the number of member banks borrowing from any source rose by 16 per cent between 1959 and 1969. Even after allowing for the decline in the number of all borrowers between 1969 and 1971 (with the easing of monetary restraint), the number of all member bank borrowers still rose by 10 per cent between 1959 and 1971. In contrast, the number of member banks borrowing from Federal Reserve Banks dropped by 12 per cent between 1959 and 1969 and by 54 per cent between 1959 and 1971. In other words, the number of member banks depending on the Federal Reserve for some part of their credit resources declined substantially while the number turning to other sources registered a noticeable rise* This is due, at least in part, to the increased development of the Federal funds market during the period. Aside from the decline in the actual number of banks borrowing from Reserve Banks, the proportion using the latter compared with all sources of borrowing also recorded a persistent decline—except for the period of severe monetary restraint in 1966 and 1969. is clearly evident in Chart I. This downtrend But an equally striking feature of the experience is the great diversity among Federal Reserve Banks. - 35 For instance, the percentage of member banks which borrowed from any source—but which also relied on Reserve Banks—was generally above the System average in three Districts—Boston, New York, and Kansas City. The proportion was roughly the same as the System average in four Districts—Philadelphia, Richmond, Chicago, and Minneapolis. It was below the System average in five Districts—Cleveland, Atlanta, St. Louis, Dallas, and San Francisco. The factors accounting for this diversity of experience among Districts are not readily evident. However, several considerations seem to have a bearing on the situation. First, the structure of banking within each District must exert some influence. Those Districts with a disproportionate number of small member banks would probably see only a small proportion of such members coming to the discount window. Secondly, some of the Districts have a significant number of banks whose deposit flows are subject to considerable variation. These banks might normally find it necessary to borrow fairly frequently, and in so doing they might rely somewhat more than the average on Reserve Banks. In addition, the extent to which large city correspondent banks compete for the balances—and to meet the credit needs—of smaller member banks varies greatly from one District to another. Such correspondent banks apparently are particularly active in seeking business in all of the five Districts where member banks seem to have a below-average tendency to rely on Reserve Banks. But correspondent banks are also reportedly active in three of the four Districts where - 36 the experience was about in line with average situations in the System as a whole. Thus, the role of correspondent banks might not be especially decisive. Finally, member banks in some Districts have traditionally displayed a high degree of readiness to rely on their Reserve Banks. This seems to have been the case in the Boston and New York Districts. In the end, however, one must simply lay the observed experience on the record and to encourage others to reflect on i t — and hopefully join in the quest for explanations. Borrowing By Class of Bank Under ordinary conditions, the large money market banks account for about one-fifth to one-quarter of total member bank borrowing, and the remainder is divided about evenly between other reserve city and country banks. the situation in 1968. As shown in Table 8, this was roughly However, as credit conditions tighten--and as the level of borrowing rises—the growth in such borrowing is likely to be centered mainly in other reserve city banks. was the pattern in 1969. This too In that year, the money market banks1 share of total borrowings declined to 15 per cent, and the country banks1 share remained about unchanged—at 39 per cent. In contrast, the share of other reserve city banks climbed from 38 per cent to 46 per cent. In 1970 and 1971, however, as monetary policy became less severe, the distribution of borrowing did not return to the previous pattern. For example, in 1971, the proportion of total borrowings taken - 37 by the money market banks did tend to converge toward the earlier percentage—20 per cent compared with 25 per cent in 1968. But for other reserve city banks, the proportion of total borrowing outstanding rose even further—to 56 per cent. This experience was related to the situation of a few large banks whose behavior was not directly related to general credit conditions. IV. Market Interest Rates and Member Bank Borrowing As noted above, one of the questions raised persistently in the Federal Reserve has been concerned with the relationship between the discount rate and short-term interest rates prevailing in the money market. On numerous occasions when proposals were made to change the discount rate, among the reasons given was the desire to keep the discount rate better aligned with other market rates. logic of this argument appears to be straightforward: The if market rates exceed the discount rate by a sizable margin, member banks would have an incentive to turn to the discount window to meet a somewhat greater share of their short-term credit needs. If market rates were substantially below the discount rate, member banks might be unduly inhibited from using Reserve Bank resources. What can be said about the reasonableness of this view? While the evidence is mixed, it appears that member banks generally do make somewhat greater use of the discount window when the structure of interest rates suggests that it is to their benefit to do so. - 38 Interest Rate Differentials and the Pattern of Borrowing This general pattern of behavior is illustrated in Chart II. The upper panel of the chart shows (1) the discount rate at the Federal Reserve Bank of New York, (2) the federal funds rate, and (3) the market yield on 90-day U.S. Treasury bills. The lower panel shows (1) the differential between the federal funds rate and the discount rate, and (2) the volume of member bank borrowing outstanding. The time period covered is the 3-1/2 years extending from January, 1969 through July, 1972. In general, the volume of borrowing does seem to vary directly with the size of the interest rate differential. When one allows for those special events other than basic economic conditions which had a direct bearing on the volume of borrowing, the suggested relationship becomes even more evident. For example, in mid-1970, the special borrowing at the discount window that was related to the Penn Central situation stands out sharply. It will be noted that in 1969, the discount rate remained unchanged until early April. As monetary policy became increasingly restrictive, market interest rates rose, and the spread between the federal funds rate and the discount rate widened somewhat. level of borrowing also rose slightly. The average However, the rise in the discount rate was followed by a sharp spurt in market yields, and the differential between the rates became substantially wider. bank borrowing also rose considerably. The volume of member CHART 2 MONEY MARKET RATES AND BORROWING FROM THE FEDERAL RESERVE PER CENT —110 FEDERAL FUNDS I 1 1 I I I I I I I I 1 I I I I I I I I I I I 1 I I I I l*< BASIS POINTS 8ILLI0NS OF DOLLARS 2 4oor~ BORROWINGS AT F.R. BANKS 200 FEDERAL FUNDS RATE LESS F.R. DISCOUNT RATE — LEFT SCALE I I1IIIIIIIIIIIIIIIIIII I 1969 1970 I IIIII1 0 1971 1972 - 34 Moreover, throughout 1969 and well into 1970, the volume of member bank borrowing subject to administrative review at the discount window also increased somewhat. In the process, an increasing number of borrowing banks were questioned by Reserve Bank officers concerning the frequency and duration of their use of Reserve Bank credit. These consultations undoubtedly had a restraining influence on the volume of borrowing. Statistical Analysis of Member Bank Borrowing The relationship between market interest rates and member bank borrowing was also studied with the use of commonly employed econometric techniques. For this purpose, a preliminary regression was run, which related the relative size of borrowings to interest rates and the size of banks. 14/ The statistical results are described below.— The regression relates the relative size of borrowings to interest rates and the size of banks. The estimated relation is: B/RR ** = .1924 + .01299 ( r _ (18.996) (53.8093) " -r ) D .0003815-S (-2.1309) R 2 = .0335 where B / r r is the ratio of borrowings to required reserves, r ^ is the federal fund rate, r^ is the discount rate, and S is the size code for the bank—where 1 is the largest class and 9 is the smallest. Data were available for 40 months on banks that borrowed at least once during the period. Thus, a total of 8 3 , 6 7 6 observations were used. These preliminary results do indicate that banks borrow more as the spread in interest rates increases, and that larger banks (represented by the smaller status code) borrow relative more than do small banks. This equation is indeed preliminary to further study. There are many zero values for the dependent variable in the data used. This Implies that the normal distribution does not apply to the disturbance term, and thus the t values are unreliable. Secondly, the size variable should be replaced by a more appropriate variable such as total deposits or total assets. We will also test the significance of portfolio variables such as loan to asset ratios. As is the case with all findings of this character, these results must be interpreted with caution. But they do indicate in a general way that banks tend to borrow more as the spread between market interest rates and the discount rate increases. The results also suggest that the larger banks--at least during the period studiedtended to borrow more in relation to their share of reserves than did the smaller banks. Bank Structure and Member Bank Borrowing As I mentioned at the outset, aside from tracing the broad trends in member bank borrowing, I also wanted to probe the ways in which banks which borrowed from the Federal Reserve managed their assets and liabilities compared with those member banks which did not rely on credit from the Federal Reserve discount window. In approaching this part of the assignment, I wanted to examine the member banks primarily according to size and location in particular Districts. For this purpose,three primary sources of data had to be integrated. The first task was to identify in a systematic fashion those banks which borrowed and those which did not. So the first requirement was to examine on a daily basis each of the roughly 5,800 member banks to determine their borrowing status and reserve position during the 3-1/2 years from January 1, 1969, through May 31, 1972. This project was carried out by a member of the Board's staff with the aid of the Board's computer and using primarily statistics from the "ShortRun Banking System Reports" (SBR). - 36 The next task was to analyze the portfolio structures of borrowing banks compared with nonborrowers. For this purpose,use was made of the Call Reports for each member bank, as of December 31, 1969, 1970, and 1971. The third task was to analyze bank borrowing from the Federal Reserve compared with alternative sources of short-term funds. Data for this purpose came from the reports submitted weekly by 330 large banks (of which 315 are Federal Reserve member banks). However, the weekly data had to be matched with statistics from the SBR series and the Call Report. In each of these assignments, the objective was to generate data for member hanks distributed by size and Federal Reserve District, (A few member banks were excluded from the data because their heavy borrowing from the Federal Reserve was related to supervisory problems.) The examination of member bank borrowing using econometric techniques, which was described above, was also based on the same set of data. The statistical data relating to member bank borrowing by size and Federal Reserve District obtained as a result the projects described above and are summarized in Tables 9 through 14. contain the Call Report data. Tables 9 and 10 Table 11-a shows the distribution of member banks, required reserves, and amount borrowed (by size and Federal Reserve District) during the 3-1/2 years January, 1969 through May, 1972. Tables11-b through 11-e show the same data for each year taken separately. Table 12-a shows member bank borrowing in relation to required reserves by size of bank and Federal Reserve District for the 3-1/2 years combined. Tables 12-b through 12-e present the same data for each of the years taken separately. Tables 13 and 14 show selected assets and liabilities, respectively, for weekly reporting banks--identifying borrowers and nonborrowers separately by size of bank—for the three years 1969, 1970 and 1971. Borrowing By Size of Bank As shown in Table 9, 5,877 member banks were included in the borrowing study for 1969. and to 5,730 in 1971. The number decreased to 5,776 in 1970 Of these members, 1,695 borrowed from the Federal Reserve Banks in 1969; the number of borrowers totaled 1,391 in 1970 and 900 in 1971. Thus, in 1969, 29 per cent of the member banks included in the study bor-owed from the Federal Reserve. The proportion was 24 per cent in 1970 and 16 per cent in 1971. However, as indicated earlier, the degree of reliance by member banks on the Federal Reserve varied directly with size. Among the member banks with total deposits of $1.0 billion and over, 90 per cent borrowed from the Federal Reserve in 1969. The corresponding figure was 91 per cent in 1970 and 84 per cent in 1971. In contrast, among the member banks with total deposits of under $3.0 million, only 10 per cent borrowed during each of the 3 years. In all 3 years, the percentage of member banks which borrowed from the Federal Reserve decreased steadily throughout the size spectrum—except for banks with deposits under $3 million. The reasons underlying this observed pattern of borrowing are easily understood. The larger institutions — especially those located in Reserve cities--typically experience considerable variation in - 38 deposit flows. While some of these are seasonal in nature, to a considerable extent this somewhat unstable deposit behavior is inherent in the character of their business. On the other hand, many of the smaller member banks are located outside of metropolitan areas, and the composition of their deposits is such that they can predict fairly accurately the timing of deposit and withdrawal of funds. Although their accounts may be subject to considerable seasonal variations, they typically do not have the types of short-term credit needs which can normally be satisfied at Reserve Banks. Borrowing By Federal Reserve District The extent to which member banks in particular Districts borrowed from their respective Reserve Banks is shown in Table 10. In each of the 3 years, the Federal Reserve Bank of Boston had the highest proportion of borrowers. borrowed in 1969. Over three-fifths of the members Although the proportion declined to just over one- half in 1970 and to roughly two-fifths in 1971, these were still the highest fractions for any of the Districts. The New York Federal Reserve District ranked second in each of the 3 years. Borrowers as a proportion of all members amounted to 50 per cent in 1969; per cent in 1970, and 37 per cent in 1971. 44 In both of these Districts, member banks have a long-standing tradition of reliance on the Federal Reserve. - 39 At the opposite end of the spectrum, the District with the lowest percentage of borrowing members changed over the 3 years. In 1969, the Cleveland District was at the bottom— as borrowers represented 16 per cent of all member banks. In both 1970 and 1971, Dallas was in the last position—with 12 per cent of its banks borrowing in 1970 and only 4 per cent in 1971. Again, in looking for an explanation of the observed experience, one is thrown back on the kind of considerations mentioned above in connection with the discussion of diversity among District borrowing patterns. play The characteristics of the intra-District banking structure undoubtedly a role. Beyond that, the different ways in which member banks view themselves with respect to access to the discount window may also have a bearing on the behavior noted. Other detailed comparisons of borrowing patterns among Reserve Districts could also be made. However, the mosaic sketched in Chart I seems to be generally reproduced in the detailed statistics. Time Span of Borrowings and Required Reserves When member banks do borrow from the Federal Reserve, they must do so within specified guidelines governing the frequency and duration of borrowing. Moreover, the typical member bank seeks Reserve Bank accommodation with an eye toward meeting its required reserves during a given reserve accounting period. By 1969, all member banks were on a one-week reserve period basis. (Prior to September, 1968, country banks had a two-week reserve computation period.) - 40 In an attempt to identify the time span of borrowing by the typical bank from the System, the approach in the present study was to focus on the average number of days during a given period on which a member bank was indebted to a Federal Reserve Bank. As already indicated, each member bank was examined on a daily basis during the entire 3-1/2-year period covered by this study. follows: The results were as during the whole 3-1/2-year period the member banks which borrowed were indebted to Reserve Banks for an average of 78 days. Since these 3-1/2 years were composed of 1,278 days, this meant that member banks borrowing from Reserve Banks were indebted to the System for about 6 per cent of the total time covered. The average number of borrowing days varied directly with size of bank. Among the largest group, the average number of borrowing days equaled 108-or approximately 8 per cent of the time. At the smaller end of the size spectrum, the average number of banks in the $3-7 million class averaged 66 borrowing days—or only 5 per cent of the time. On the other hand, the average number of borrowing days among banks in different size categories varied considerably with credit conditions. During 1969-- a year of considerable monetary restraint—the banks with total deposits of $1.0 billion and over averaged 57 borrowing days; this represented 16 per cent of the days of that year. But in 1971, banks in the $1 billion and over class had 18 borrowing days, or an average - 41 of only 5 per cent of the time. In contrast, banks at the lower end of the spectrum averaged about 40 borrowing days in 1969 (just over 10 per cent of the time), and in 1971 they averaged 45 days of indebtedness to Reserve Banks (more than 12 per cent of the time). Over the 3-1/2 year period, all member banks which borrowed from the Federal Reserve had average required reserves of $11.2 million. However, as one would expect, the amount of required reserves varied considerably with respect to size of bank. For example, borrowing banks with $1.0 billion and over of total deposits had average required reserves of $225 million, while those in the smaller size group had average required reserves of only $134,000- In this analysis,the interest is not so much in the amount of reserves but rather in the proportion of their requirement which member banks from Reserve Banks. borrowed For the 3-1/2 years as a whole, those member banks which did borrow from the Federal Reserve obtained about 2-1/2 per cent of their required reserves from this source. varied sharply with credit conditions. were This proportion Thus, in 1969, borrowings 5 per cent of required reserves for all of the borrowing member banks—but only 1-1/2 per cent in 1971. The situation also varied noticeably during these years when the borrowing banks are examined by size. In general, the smaller banks obtained a larger proportion of their required reserves (about 4-1/2 per cent vs. 2 per cent) through Reserve Bank borrowing than did the borrowing institutions at the top of the size scale. Again, however, the relative position varied with credit conditions. In 1969, the largest banks obtained about 3-1/2 per - 42 cent of their required reserves by borrowing from the Federal Reserve Banks, but in 1971 the proportion had dropped to 1 per cent. In contrast, the smallest member banks borrowed about 6-1/2 per cent of their required reserves from the System in 1969, but the fraction rose to 7 per cent in 1971. This general tendency for the banks to rely less on the Federal Reserve as their size class increased— and as credit conditions eased--is dlso evident in fche data. VI^ Portfolio Structure and Member Bank Borrowings In this study, we were interested in the type of bank likely to be a borrower from the Federal Reserve. As mentioned earlier, borrowing does tend to be positively related to size. We also expected to find a relationship between willingness to borrow and the borrowing banks1 general portfolio strategy. The data do indicate some rather pronounced tendencies. A look at Table 9 reveals that large banks tend to keep a higher proportion of their assets in loans. The $1 billion and over borrowing banks in 1969 had a loan to asset ratio of 56.6 per cent, whereas the banks in the smallest category had only 51.9 per cent. In periods of less stringent credit conditions than 1969, the ratio for all banks tended to be lower. Note that the average loan to asset ratio for total borrowing banks is higher than the total for the nonborrowers. The difference is especially pronounced in 1969—55.4 per cent contrasted to 50.6 per cent. In the tw6 latter years,the deficiency is not as great- but still apparent. Borrowing banks tend to be more aggressive lenders. with our expectations. This was in accord Banks that seek profits through a greater volume -43of loans are likely to be aggressive in the management of the liability side of the balance sheet as well. This aggressiveness is also illustrated in holdings of U.S. Government securities. hold Governments is decidely less. The borrowing banks desire to Looking at Table 9 again, we see that in 1969 nonborrowers held 13.7 per cent of their assets in these securities and borrowers held only 7.7 per cent. The difference is also pronounced in the two latter years. The borrowing group also had a higher propensity to buy more-- and to sell less—federal funds. Table 10 presents the data by Federal Reserve District rather than size. Loan to asset ratios differ greatly among the Districts. Among borrowing banks, San Francisco member banks had the highest ratio (59.2) in 1969 and the Kansas City banks had the lowest (49.4). In each year, the San Francisco District had the highest ratio in both the borrowing and nonborrowing category. This probably reflects the greater deposit predictability (and the resulting greater willingness to tie up money in loans) that large branch banks enjoy. The greater aggressiveness of borrowers is also shown in the weekly reported data in Tables 13 and 14. Borrowers hold far more commercial and industrial loans than do nonborrowers. represent the most illiquid portion of total loans. These, of course, Although borrowers hold fewer Government securities, the proportion of Treasury bills held Is very similar. Need for Treasury bills may be uniform because these securities are used primarily to meet pledging requirements, and this need is not greatly different for borrowers or nonborrowers. - 44 VII. Member Bank Borrowing and Alternative Sources of Funds It was not a priori obvious whether borrowers at the Federal Reserve would be more or less likely to be aggressive bidders for alternative sources of funds. One could have reasoned that greater borrowing causes a lesser need for other funds. Alternatively, we could have reasoned that banks feeling in need of funds would tap all sources simultaneously. The evidence developed here (Table 14) suggests that the use of alternative sources of short-term funds does differ slightly between borrowers and nonborrowers. For example, borrowing banks obtain a lesser proportion of their liabilities through issues of large denomination certificates of deposit. On average, Federal Reserve borrowers1 purchases of federal funds is slightly greater. There is an interesting disparity by size of bank, however. In the $1 billion or over class, non-Federal Reserve borrowers have a ratio of funds purchases to liabilities of 11.7 per cent (1969 data). compares to only 6.0 per cent for borrowers. class, the disparity is in the other direction. of the 3 years analyzed. This In every other size This occurs in eqch Note that "other borrowing" is about the same for the users and non-users of the discount window. This category includes nonfederal funds borrowing from security dealers and other commercial banks, and repurchase agreements with non-financial corporations. -45- VIII. Concluding Observations The main results obtained in this study of discount policy and borrowing by Federal Reserve member banks were sunmarized in Section I. made. Before closing, several additional observations can be First, the analysis suggests that smaller borrowers do rely on the Reserve Banks to meet a somewhat larger proportion of their required reserves than do the biggest institutions. Yet, it Is the changing behavior of the latter which determines the most prominent features in the landscape of total member bank borrowing. Over the 3-1/2 years covered in the study, banks with $1 billion and over in total deposits, on the average, represented 1 per cent of all member banks and 3 per cent of all the members which borrowed from Reserve Banks. The largest groups' required reserves averaged 58 per cent of the total, and they accounted for just under half of total borrowings. During 1969—a year of severe monetary restraint--the largest groups1 share of required reserves remained essentially unchanged at 59 per cent of the total, while their share of borrowing declined to 41 per cent. In 1971, partly under the influence of easier credit conditions, the biggest banks' share of required reserves rose to 70 per cent, and their share of total borrowing climbed to 56 per cent. In contrast, the share of required reserves and borrowings accounted for by the smallest banks (less than 0.2 per cent) remained essentially unchanged. While borrowing banks in the middle of the size spectrum -46- showed modest changes in their proportions of required reserves and borrowings during the 3-1/2 years, they also contributed very little to the overall variation in member bank borrowing from the Federal Reserve. If the volume of borrowing is taken as a rough approximation of the benefits associated with the privilege of discounting at Reserve Banks, the data examined in this study also suggest that the largest banks (with total deposits of $1 billion and over) obtain benefits that are somewhat tess than their relative position in the System would imply. However, the large banks just below those in the top size category receive a somewhat larger share of the benefits. This tendency for the share of borrowing to exceed the respective share of required reserves extends down through the size spectrum including member banks with total deposits between $20 million and $50 million. (See Tables 12-a through 12- e .) This general profile is not altogether surprising. mentioned several times above As (despite the noticeable variability of their deposits), the very largest banks are normally under close and continuous surveillance by the Federal Reserve. Thus, their indebtedness to the System is likely to be held under fairly firm restraint at all times. On the other hand, many of the large member banks just below the top size category also have deposits on their books that are normally quite volatile. Yet, they frequently are more able to turn to the Federal Reserve—among other sources to -47- obtain the short-term credit needed to adjust their positions. In so doing, they become beneficiaries of Federal Reserve credit extended through the discount window to a degree somewhat in excess of their proportionate share of total member bank required reserves. The evidence presented in this paper also suggests that borrowing by member banks is somewhat sensitive to money market interest rates. While the statistical foundation for this observation is less firm than one would wish, the general conclusion does seem to be supported. clear: The inference to be drawn from these facts also seems member banks which borrow from the Federal Reserve do seem to have at least a modest incentive to use the discount window at times when the discount rate diverges appreciably from interest rates in the money market. Finally, as I reflect on the principal features of member bank borrowing which emerged from this study, several questions are raised in my own mind: --Should borrowing by member banks continue to be viewed as a "privilege11 rather than as a "right" of Federal Reserve membership? --Should the discount rate be kept more closely in line with market rates? In fact, should the discount rate take on more of the characteristics of a penalty rate—and thus subject member bank borrowing to the price mechanism to a greater degree than has normally been the case? --Should the administrative posture at the discount window in the different Reserve Banks be re-examined with the idea of enhancing uniformity of conditions affecting borrowing throughout the System? Table 1. Increase Time Lag Adjustment Time for Federal Reserve System Discount Rate Changes, 1953-1971 (Number of Days) Lead Time Decrease Time Lag Duration 5.4 0.1 6.6 6.7 0.3 5.8 6.1 2.6 3.7 0.0 1/ 0.0 1/ 0.0 1/ 0.6 1.3 1.9 3.4 1.1 4.5 0.1 4.8 4.9 1.8 3.0 4,7 1970-71 0.6 2.6 3.2 2.2 2.4 4.7 1.4 2.5 4.0 1953-71 1.2 3.7 4.9 1.0 4.7 5.7 1.1 4.1 5.3 Period Lead Time 1953-60 0.4 5.0 1963-65 1.1 1967-69 If Duration Total Adjustment Time Lead Time Time Lag No rate decreases occurred during this period. Note: "Adjustment Time" represents the weighted averages of days involved in the adjustment of discount rate changes, using as weights the number of Federal Reserve Banks posting the change on a given day. "Lead Time" is the number of days elapsed between action by the first Reserve Bank Board proposing a rate change and approval action by the Federal Reserve Board. "Time Lag" is the number of days elapsed between approval action of the Federal Reserve Board and the adjustment of the rate by the last Reserve Bank. "Duration" is the time elapsed between the beginning and end of the rate adjustment process. -48- Still other questions are raised in my mind, but I think these few raise enough substantive questions to keep those of us who work in the Federal Reserve System busy for a long time. I personally have not arrived at a firm position with respect to any of these issues, and I look forward to weighing them with my colleagues within the System. - 0 - Table 3. Behavior of Federal Reserve Banks in the Discount Rate Adjustment Process, 1953-1971 Number of Cases I Boston Per cent of Cases Coincident Bank Number of Per cent of Cases Cases Number of Cases Per cent of Cases Lead Bank Number of Per cent of Cases Cases Decrease Coincident Bank Number of Per cent of Cases Cases Lag Bank Number of Per cent of Cases Cases Total Adjustment Process Lead Bank Coincident Bank Number of Per cent of Number of Per cent of Cases Cases Cases Cases Las Bank Number of Per cent Cases ^ q f Cases » 4M p . O 4 18. 2 3 13. 6 15 6fc.2 41..2 2 11,.8 8 47.1 11 28,>2 5 12,.8 11 50, 0 7 31.8 0,.0 7 41,.2 10 58.8 4 10,,3 18 46,.2 17 43.6 AO. 9 10 45.5 11,.8 8 47,,1 7 41.2 5 12..8 17 43,,6 17 43.6 7 2 New York 4 18.,2 3 Philadelphia 3 13.,6 4 Cleveland 6 27.,3 4 18.,2 12 54.6 11,,8 8 47..1 41.2 8 20,,5 12 30,.8 19 48.7 5 Richmond 3 13.,6 6 27..3 13 59.1 5,,9 5 29,,4 U 64.7 4 10..3 11 28.2 24 61.5 6 Atlanta 5 22.J 4 18.,2 13 59.1 5.,9 4 23..5 12 70.6 6 15.,4 8 20..5 25 64.1 45.,5 8 36.4 17,.6 4 23..5 10 58.8 7 17..9 14 35,,9 18 46.2 7 Chicago 4 18. 2 10 8 St. Louis 5 22,,7 7 31..8 10 45.5 23,.5 4 23.,5 9 52.9 9 23,.1 11 28..2 19 48.7 3 13,,6 8 36.>4 11 50.0 23,,5 6 35,,3 7 41.2 7 17.,9 14 35,.9 18 46.2 9 Minneapolis 10 Kansas City I 4,.5 6 27,.3 15 68.2 17.,6 2 11..8 12 70.6 4 10, 8 20,,5 27 69.2 It Dallas 4 16.,2 6 27,.3 12 54.6 17.,6 2 11,.8 12 70.6 7 17.,9 8 20..5 24 61.5 12 San Francisco 4 18,,2 7 31,.8 11 50.0 23..5 4 23.,5 9 52.9 8 20.5 11 28,,2 20 51.3 Average Position (All Banks) 3.8 17,.3 6.8 30,,1 11.4 51.8 16.,5 4.7 27..7 9.5 55.9 6.7 17.,2 11.4 29..2 20.9 53.6 Total (Number of Actions) Note: 22 22 See Note on ppendlx Table 1. - 22 - 2.8 17 17 17 — 39 - 39 -- 39 Table 2. District Reserve Bank Adjustment Time for Federal Reserve Banks Discount Rate Changes, 1953-1971 (Number of Days) Lead Time Increase Time Lag Duration Lead Time Decrease Time Lag Duration 1 Boston 0.6 5.2 5.8 5.2 3.7 8.9 2 New York 0.5 3.5 4.0 0.0 2.1 2.1 3 Philadelphia 0.9 3.4 4.3 1.5 4.1 5.6 4 Cleveland 1.0 4.2 5.2 0.3 3.9 4.2 5 Richmond 0.7 5.1 5.8 0.1 5.6 5.7 6 Atlanta 1.9 2.9 4.8 0.2 5.1 5.3 7 Chicago 0.6 3.3 3.9 0.4 3.5 3.9 8 St. Louis 3.1 3.3 6.4 1.0 4.3 5.3 9 Minneapolis 0.2 2.7 2.9 1.0 4.2 5.2 10 Kansas City 0.3 4.5 4.8 0.1 4.4 4.5 11 Dallas 3.0 2.9 5.9 0.4 8.8 9.2 12 San Francisco 0.8 3.3 4.1 0.9 4.4 5.3 Total System 1.2 3.7 4.9 1.0 4.7 5.7 Note: Weighted averages of days. (See note to Table 1.) Table 5. District 1 2 3 4 5 6 7 8 9 10 11 12 Discount Rate Proposals Disapproved by the Federal Reserve Board, 1966, 1969, and 1971 Reserve Bank Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total Note: 1966 1969 1971 3-Year Total 2 1 2 2 0 0 2 1 1 0 0 0 1 0 0 0 0 0 3 3 0 1 0 0 0 1 1 0 0 0 0 2 0 0 1 0 3 2 3 2 0 0 5 6 1 1 1 0 11 8 5 24 Rates Proposed (Per Cent) 1966 1969 1971 5, 5 4-1/2 5, 5 5, 5 6-1/2 - 5-1/4 5 - - - - - - - - 5,5-1/2 5 5-1/2 7,7,7 6,7,7 - 5,5-1) - - - 7 - - - - - 5-1/2 (1) All proposals involved rate increases. (2) In 1966, 9 of the proposals were for 1/2 per cent to raise the rate from 4-1/2 to 5 per cent; 2 (Chicago and Minneapolis) were for 1 per cent to raise the rate to 5-1/2 per cent. In 1969, 2 proposals were for 1/2 per cent- 1 (St. Louis) to raise the rate from 5-1/2 to 6 per cent and 1 (Boston) to raise the rate from 6 to 6-1/2 per cent. All other proposals were for 1 per cent to raise the rate from 6 to 7 per cent. In 1971, 2 proposals (Philadelphia and St. Louis) were for 1/4 per cent to raise the rate to 5 per cent; 3 proposals were for 1/2 per cent - 1 (New York) to raise the rate from 4-3/4 to 5-1/4 and 2 (Dallas and St. Louis) to raise the rate from 5 to 5-1/2 per cent. - Table 4. Relative Position of Federal Reaerve Banks Ranked by Size of Average Lead-Lag Position in Discount Rate Changes, 1953-1971 (Lead*Lag in Days) Increases Rank Reserve Bank Lead Position Rank Reserve Bank Lag Position Rank Reserve Bank Decreases Lead Rank Position Reserve Bank Lag Position 3.1 1 Boston 5.2 1 Boston 5.2 1 Dallas 8.8 2 Dallas 3.0 2 Richmond 5.1 2 Philadelphia 1.5 2 Richmond 5.6 3 Atlanta 1.9 3 Kansas City 4.5 3 St. Louis 1.0 3 Atlanta 5.1 4 Cleveland 1.0 4 Cleveland 4.2 4 Minneapolis 1.0 4 Kansas City 4.4 5 Philadelphia 0.9 5 New York 3.5 5 San Francisco 0.9 5 San Francisco 4.4 6 San Francisco 0.8 6 Philadelphia 3.4 6 Chicago 0.4 6 St. Louis 4.3 7 Richmond 0.7 7 Chicago 3.3 7 Dallas 0.4 7 Minneapolis 4.2 8 Boston 0.6 8 St. Louis 3.3 8 Cleveland 0.3 8 Philadelphia 4.1 9 Chicago 0.6 9 San Francisco 3.3 9 Atlanta 0.2 9 Cleveland 3.9 10 New York 0.5 10 Atlanta 2.9 10 Richmond 0.1 10 Boston 3.7 11 Kansas City 0.3 11 Dallas 2.9 11 Kansas City 0.1 11 Chicago 3.5 12 Minneapolis 0.2 12. Minneapolis 12. New York 0 12 New York 2.1 System Average Adjustment Time 1.2 --J u> to St. Louis -sj 1 1.0 4.7 Table 7. Year | All Districts! Member Banks Borrowing from the Federal Reserve Banks as a Percentage of Member Banks Borrowing From Any Source, 1959-1971 1 2 3 4 5 Districts """" 6 1 7 8 9 10 1 XI 1 12 1959 1960 1961 1962 84 80 71 64 90 90 81 77 83 82 77 66 95 89 84 71 84 78 66 55 79 77 70 60 70 63 48 46 85 86 77 73 72 72 40 44 91 85 68 49 91 90 86 83 80 78 46 52 65 54 36 32 1963 1964 1965 1966 65 56 45 63 76 69 56 78 68 65 64 74 69 62 57 60 68 46 35 51 54 50 48 57 49 39 40 51 74 60 58 69 40 42 34 49 68 56 59 66 80 77 71 81 53 43 31 50 37 24 22 33 1967 1968 1969 1970 1971 44 51 62 52 35 57 69 91 73 52 64 67 71 71 58 38 47 52 48 33 27 37 38 31 21 39 45 61 51 37 29 31 45 28 24 48 54 62 60 43 34 38 55 47 20 40 58 69 52 27 65 60 80 63 48 30 47 56 36 12 27 34 39 39 23 Source: Division of Federal Reserve Bank Operations, Federal Reserve Board. Table 6, Member Bank Borrowing and Required Reserves, 1951 - 1972 (Amounts in Millions of Dollars) Borrowing from Federal Reserve Banks Per Cent of Required Reserves Amount YEAR Required Reserves 1951 1952 1953 1954 1955 19,667 20,520 19,397 18,618 18,903 293 801 777 217 666 1.5 3.9 4.0 1.2 3.5 1956 1957 1958 1959 1960 19,089 19,091 18,574 18,619 18,988 833 850 295 811 436 4.4 4.5 1.6 4.4 2.3 1961 1962 1963 1964 1965 20,114 20,071 20,677 21,663 22,848 83 137 269 294 492 0.4 0.7 1.3 1.4 2.2 1966 1967 1968 1969 1970 24,321 25,905 27,439 28,173 30,033 650 178 569 1,103 835 2.7 0.7 2.1 3.9 2.8 1971 1972 (July) 32,496 32,820 412 202 1.3 0.6 Table 9. Selected Portfolio Characteristic* of Federal Reserve Heather Banks, Borrowers vs. Nonborrowers, By Sire of Bank, 1969, 1970 and 1971 Six* of Bank (Total deposits In adlllons of dollars) lumber of Banks Total FED Borrowers Bon-FED Borrowers FED Borrowers as Per Cent of Total FED Borrowers Percentage of Total Assets U.S. Gov't. Securities Federal Funds Sold Non-FED FED Ron-FED FED Non-FED Borrowers Borrowers Borrowers Borrowers Borrowers Percentage of Total Liabilities Total Borrowings Federal Panda Purchased Non-FED FED Non-FED FED Borrowers Borrowers Borrowers Borrowers 1969 1.000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total 49 55 336 336 1,063 942 lt260 1.353 463 5.877 44 48 271 207 409 241 235 196 44 1,695 5 7 65 129 654 701 1,025 1,157 439 4,182 89.8 87.3 80.7 61.6 38,5 25.6 18.7 14.5 9.1 28.8 56.6 54.3 54.0 53.4 53.3 51.2 50.9 51.2 51.9 55.4 54.2 56.7 51.0 51.3 50.9 49.1 48.0 46.1 43.6 50.6 1,000 and user 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 local 56 59 349 367 1,129 980 1,233 1,205 398 5,776 51 44 226 167 318 204 205 138 38 1,391 5 15 123 200 811 776 1,028 1,067 360 4,385 91.1 74.6 64.8 45.5 28.2 20.8 16.6 11.5 9.6 24.1 53.4 52.0 51.8 51.4 51.1 50.7 51.6 51.5 50.0 52.7 53.7 54.0 49.4 49.7 49.1 47.5 46.7 45.7 42.3 49.5 6.1 7.4 9.3 11.9 12.6 13.7 14.5 16.9 20.9 7.7 7.7 8.0 12.3 12.6 13.3 15.8 17.4 20.2 23.8 13.7 1.2 2.2 1.6 1.4 1.5 7.2 9.2 10.3 12.4 12.9 15.4 17.0 19.9 24.0 12.5 1.9 3.7 3.0 3.0 2.6 2.2 2.3 1.9 1.3 2.3 4.1 7.6 8.7 9.8 11.6 12.6 15.2 16.0 18.9 22.3 11.4 2.4 3.2 4.0 4.6 4.0 3.6 3.8 4.5 4.5 5.0 6.1 4.1 1.6 1.5 2.3 2.3 2.8 3.6 3.4 4.1 3.6 2.7 1.0 1.4 0.5 0.2 0.3 0.2 0.4 0.3 0.6 0.9 3.6 * 0.2 • 0.1 * * * * 0.4 5.1 6.1 2.7 1.0 0.5 0.4 0.3 OA 0.1 4.2 7.7 1.4 1.6 0.7 # 0.1 * 1.2 1970 6.8 8.3 9.4 11.8 12.9 14.4 15.4 18.0 21.5 8.0 2.6 0.7 3.7 3.3 3.9 4.3 4.1 4.4 4.5 3.8 0.6 l.l 0.2 0.7 0.3 0.2 * 0.2 0.1 0.2 0.5 0.3 0.7 0.1 5.5 6.0 2.7 1.2 0.4 0.4 0.3 0.4 0.4 4.7 6.3 2.7 2.3 0.4 0.3 0.1 0.1 0*.1 1.4 1971 1,000 and ovtr 500-1,000 100-500 50-100 20-50 12-20 7-12 3-12 Under 3 Total Soqrte: Call 53 10 63 44 26 70 155 221 376 107 307 414 1,031 to* 1,216 958 lit 1,069 1,170 1,037 133 1,034 81 953 318 287 31 5, 730 900 4,830 Exports,,Decndter 31 of each year. 84.1 62.9 41.2 25.9 15.2 10.4 11.4 7.8 9.8 15.7 53.1 51.5 52.0 52.9 50.5 52.1 5K8 52.0 48.4 52.7 •less than 0.05 per cent. 51.8 50.7 48.7 49.4 49.1 47.1 46.6 45.3 42.1 49.0 6.6 7.9 9.0 11,7 12.7 15.1 16.0 17.7 23.5 7.4 2.0 1.9 1.8 2.3 2.1 1.5 1.8 2.4 0.3 0.7 0.2 * 0.2 0.3 0.5 0.4 1.4 0.3 0.1 0.3 0.5 0.1 0, *1 0.1 * 0.1 0.2 7.4 6.1 3.4 1.2 0.7 0.9 0.4 0.3 0.3 6.4 9.0 6.1 3.4 0.8 0.4 « 0.2 0.2 .2 Table 8. All Banks Member Bank Borrowing By Class of Bank, 1968 - 1972 Total Borrowing (millions of dollars)!' Money Other Market . Reserve Banks^/ City Banks Country Banks Percentage Distribution Money Other Market . Reserve Country Banks^-' City Banks Banks 1968 January February March April May June July August September October November December Average (Estimated) 237 361 671 683 746 692 525 565 515 427 569 765 562 51 110 165 171 144 107 99 194 177 74 79 315 140 111 126 288 283 262 258 152 161 194 186 274 270 214 75 125 218 229 340 327 274 210 144 167 216 180 208 21.5 30.5 24.6 25.0 19.3 15.5 18.9 34.3 34.4 17.3 13.9 41.2 24.9 46.8 34.9 42.9 41.4 35.1 37.3 29.0 28.5 37.7 43.6 48.2 35.3 38.1 31.7 34.6 32.5 33.6 45.6 47.2 52.1 37.2 27.9 39.1 38.0 23.5 37.0 697 824 918 996 1,402 1,407 1,190 1,249 1,067 1,135 1,241 1,086 1,105 113 102 163 227 273 123 91 132 138 157 226 286 169 321 420 449 512 618 713 517 480 461 531 572 479 506 263 302 306 257 511 571 582 637 468 447 443 321 430 16.2 12.4 17.8 22.8 19.5 8.7 7.7 10.6 12.9 13.8 18.2 26.3 15.3 46.1 51.0 48.9 51.4 44.1 50.7 43.4 38.4 43.2 46.8 46.1 44.1 45.8 37.7 36.6 33.3 25.8 36.4 40.6 48.9 51.0 43.8 39.4 35.7 29.6 38.9 965 1,092 896 822 976 888 1,358 827 607 462 425 321 802 227 157 184 288 199 132 138 220 131 23 71 29 172 455 535 436 372 477 489 682 424 369 338 301 264 428 283 400 276 162 300 267 278 183 107 101 53 28 202 23.5 14.4 20.5 35.0 20.4 14.9 10.2 26.6 21.6 5.0 16.7 9.0 21.4 47.2 49.0 48.7 45.3 48.9 55.1 50.2 51.3 60.8 73.2 70.8 82.2 53.4 29.3 36.6 30.8 19.7 30.7 30.0 20.6 22.1 17.6 21.8 12.5 8.8 25.2 370 328 319 148 330 453 820 804 501 360 407 107 414 41 33 67 19 126 111 114 171 42 82 129 43 82 294 268 236 119 136 181 441 425 318 163 177 22 232 35 27 16 10 68 161 265 208 141 115 101 42 100 11.1 10.1 21.0 12.8 38.2 24.5 13.9 21.3 8.4 22.8 31.7 40.2 19.8 79.5 81.7 74.0 80.4 41.2 40.0 53.8 52.9 63.5 45.3 43.5 20.6 56.0 9.4 8.2 5.0 6.8 20.6 35.5 32.3 25.8 28.1 31.9 24.8 39.2 24.2 20 33 99 109 119 94 79 5 75 53 62 6 34 12 9 22 31 40 19 16 15 34 26 48 26 15.2 75.8 48.6 52.1 6.4 43.0 36.4 9.1 20.2 26.0 42.6 24.0 1969 January February March April May June July August September October November December Average (Estimated) 1970 January February March April May June July August September October November December Average 1971 January February March April May June July August September October November December Average 1972 January February March April May JuneE/ Average (Estimated) It Monthly averages of daily figures. 2/ New York and Chicago banks only. ]>/ Preliminary. 20 100.0 48.4 15.1 31.2 21.9 51.0 33.0 Table 11-a. Member Bank Borrowing in Relation to Required Reserves, By Size of Bank and Federal Reserve District, January 1, 1969 through May 31, 1972 (Amounts in thousands of dollars') Category Number of Banks FED FED Borrowers Borrowers Total As Per Cent (Average (Average of Total during during period) period) Average Number of Borrowing Days during Period Average Amount of Required Reserves Average Amount Borrowed Borrowing as Per Cent of Required Reserves Size of Bank (millions of dollars) 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total 58 64 359 383 1,157 1,016 1,207 1,153 378 5,775 50 45 203 144 277 175 180 132 37 1,243 86.2 70.3 56.6 37.6 23.9 17.2 14.9 11.5 9.8 21.5 108 109 102 80 71 70 69 66 86 78 225,445 49,099 13,530 3,952 1,763 830 502 263 134 11,151 229 348 319 470 362 554 946 454 491 813 635 154 5,775 110 152 56 56 86 75 246 64 111 186 65 36 1,243 48.0 43.7 17.6 11.9 23.8 13.5 84 86 45 47 68 73 87 6,748 30,533 9,025 14,326 9,593 9,068 8,048 5,943 2,495 2,787 7,655 78,440 11,151 4,813 1,581 450 103 44 21 13 8 6 284 2.1 3.2 3.3 2.6 2.5 2.6 2.6 3.0 4.4 2.5 306 4.5 2.4 District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total 26.0 14.1 80 22.9 57 103 23.4 21.5 84 78 22.6 10.2 l i 742 176 255 238 281 266 139 80 98 202 1,229 284 2.0 1.8 2.5 3.1 3.3 2.4 3.2 3.5 2.6 1.6 2.5 Table 10. Selected Portfolio Characteristics of Federal Reserve Member Banks, Borrowers vs. Nonborrowers, By Federal Reserve District, 1969, 1970 and 1971 Federal Reserve District Total Number of Banks FED Non-FED Borrowers Borrowers FED Borrowers as Per Cent of Total Loans FED Non-FED Borrowers Borrowers Percentage of Total Assets U.S. Gov't. Securities Federal Funds Sold FED Non-FED FED Non-FED Borrowers Borrowers Borrowers Borrowers Percentage of Total Liabilities Total Borrowings Federal Funds Purchased TED Non-FED FED Non-FED Borrowers Borrowers Borrowers Borrowers 1969 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total 146 180 83 76 109 120 332 103 161 224 116 45 90 184 262 400 258 418 622 363 330 605 524 126 61.9 49.5 24.1 16.0 29.7 22.3 34.8 22.1 32.8 27.0 18.1 26.3 56.6 54.6 57.7 54.5 55.9 52.2 55.9 51.4 54.7 49.4 51.5 59.2 54.9 53.9 54.4 52.3 48.6 46.6 50.2 44.7 50.9 48.3 49.6 57.4 7.5 6.2 18.1 9.5 8.4 8.7 9.5 9.7 9.1 9.7 7.7 7.0 10.5 11.0 11.8 14.3 17.4 13.0 15.1 18.1 16.8 16.1 10.8 9.4 1.9 0.9 2.0 2.6 1.2 2.5 1.5 2.3 0.8 2.5 1.8 1.2 5.6 3.6 3.7 2.7 3.6 3.2 2.2 2.4 1.5 3.3 2.3 1.6 0.9 1.1 5,877 1,695 4,182 28.8 55.4 50.6 7.7 13.7 1.4 2.7 232 352 321 470 361 547 945 460 489 809 634 156 126 154 60 66 92 71 286 T8 130 211 77 40 106 198 261 404 269 476 659 382 359 598 557 116 54.3 43.8 18.7 14.0 25.5 13.0 30.3 17.0 26.5 26.1 12.2 25.6 53.7 52.6 53.2 50.4 53.5 49.7 53.5 49.6 53.2 47.1 49.6 55.2 53.5 53.8 55.3 50.5 47.9 45.3 48.0 45.2 51.0 48.2 46.5 54.6 8.1 6.3 8.6 9.7 8.1 8.9 9.6 9.9 10.1 10.4 7.0 8.1 10.2 10.0 10.1 14.4 14.3 11.9 14.4 15.1 15.8 12.9 10.6 9.2 1.7 l.l 3.2 4.0 2.3 4.4 2.0 3.7 5.7 5.4 2.7 5.8 2.5 3.0 2.8 4.8 4.2 4,4 4.6 2.4 4.3 4.3 3.0 8.0 12.5 2.3 3.6 236 364 345 476 36 7 538 954 466 491 829 640 171 * 0.3 5.2 4.5 4.4 4.1 2.4 3.9 3.4 4.6 4.1 3.6 5.5 4.5 0.7 0.7 0.3 0.7 2.5 0.5 0.4 0.3 2.9 1.5 0.9 0.4 4.2 1.2 0.4 1.1 * 0.2 0.7 0*9 1.8 1.2 0.7 1.5 1.8 0.6 1.2 0,6 0.6 1.9 1.2 0.4 2.1 0.8 0.5 0.1 * 0.6 * * 0.9 0.1 * 0.1 1.1 1970 1. Boston 2. New York 3. Philadelphia 4. Cleveland 5. Richmond 6. Atlanta 7. Chicago 8. St. Louis 9. Minneapolis 10. Kansas City 11. Dallas 12. San Francisco Total 5,776 1,391 4,385 24.1 52.7 49.5 1.1 0.1 0.4 6.1 4.1 5.3 4.5 2.3 4.4 5.1 7.1 4.9 4.0 9.2 4.3 0.7 0.1 4.7 0.6 0.1 0.4 0.8 1.2 0.1 0.5 0.4 0.8 0.2 0.1 * 0.1 0.2 oa • 0.3 * 1.2 0.4 1.8 1.2 4 1971 1. Boston 227 2 I: A 5 6 1 i « 340 306 468 360 562 943 458 490 in* New York XuSlfphi. rieveland Richmond Atlanta Chlc"go is Minneapolis Citl U . Dallas 796 C U y 38.3 53 8 53.8 55,5 52 1 52 I ' 50 9 649 i, i 13.1 M 8.6 10.1 19.6 ' 13.9 « 8 55 8 147 266 423 293 505 758 427 422 18.5 49.9 47.5 24 609 J.8 47.3 46;4 900 4,830 15.7 52.7 87 126 40 45 67 57 185 31 68 140 214 53.1 49.7 53.8 45.7 53.0 12. San Francisco Total 6.5 ^ 7.3 ^ 7 5 8.9 ^ 10.8 ^ 1Q 8 ^ Source: Call Reports, December 31 of each year. * Less than 0.05 per cent. 1.5 ^ 2 5 ^ 4.9 ^ 3.0 ^ 3<6 ^ 2 2 48.4 « 3 8 ^ ^ 1 Q 9 ^ 5,730 2.0 ^ + * ^ * # 0.1 # # ^ 0.1 0.2 QA ^ 0 .3 0.2 2 ^ ^ ^ 0.4 0.3 ^ 0.6 * ^ 0.6 0.6 3<3 4 0.2 ^ ^ ^ 6.5 ^ 7.2 0.6 ? Q 1.3 fi1>9 4.0 ^ 6.3 ^ 6.0 5.6 6.4 1.4 ^ 2.8 ^ 2.6 4.1 Tsble 11-c. Member Bank Borrowing in Relation to Required Reserves, By Size of Bank and Federal Reserve District, 1970 (Amounts in thousands of dollars) Category Number of Banks FED FED Total Borrowers Borrowers As Per Cent of Total Average Number of Borrowing Days during Period Average Amount of Required Reserves Average Amount Borrowed Borrowing as Per Cent of Required Reserves Si-e of Bank, (millions of dollars) 1,000 and over 500-1,000 1Q0-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total 56 59 349 367 1,129 980 1,233 1,205 398 5,776 51 44 226 167 318 204 205 138 38 4,385 91.0 74.6 64.8 45.5 28.2 20.8 16.6 11.5 9.6 24.1 43 36 38 32 35 38 41 46 49 38 234,670 50,918 13,661 3,913 1,743 824 503 274 142 14,874 6,650 1,751 580 130 71 37 26 18 10 478 2.8 3.4 4.3 3.3 4.1 4. 5 5.1 6.5 7.0 3.2 232 352 321 470 361 547 945 460 489 809 634 156 5,776 126 154 60 66 92 71 286 78 130 211 7.7 40 54.3 43.8 18.7 14.0 25.5 13.0 30.2 17.0 26.5 26.1 12.2 25.6 24.1 33 38 24 29 29 39 39 34 36 52 42 33 38 8,417 41,602 14,667 18,507 12,484 12,315 10,028 6,906 3,082 2,791 10,462 94,655 14,874 477 1,313 372 573 348 469 384 162 172 147 450 1,725 478 5.3 3.2 2.5 3.1 2.8 3.8 3.8 2.4 5.6 5.3 4.3 1.8 3.2 District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago Sc. Louis Minneapolis Kansas City Dallas San Francisco Total 1,391 Table 11 -b. Member Bank Borrowing in Relation to Required Reserves, By Size of Bank and Federal Reserve District, 1969 (Amounts in thousands of dollars) Category Number of Banks FED FED Total Borrowers Borrowers As Per Cent of Total Size of Bank (millions of dollars) 1,000 and over 49 500-1,000 55 100-500 336 50-100 336 20-50 1,063 942 12-20 7-12 1,260 3-7 1,353 Under 3 483 Total 5,877 Average Number of Borrowing Days during Period Average Amount of Required Reserves Average Amount Borrowed Borrowing as Per Cent of Required Reserves 44 48 271 207 409 241 235 196 44 1,695 89.8 87.2 80.7 61.6 38.4 25.6 18.7 14.5 9.1 28.8 57 71 67 55 48 44 41 40 37 51 231,129 47,531 13,296 3,919 1,750 811 510 276 146 12,674 8,201 3,648 1,008 249 102 47 27 15 9 640 3.6 7.7 7.6 6.3 5.8 5.7 5.4 5.6 6.5 5.1 146 180 83 76 109 120 332 103 161 224 116 45 1,695 61.9 49.5 24.1 16.0 29.7 22.3 34.8 22.1 32.8 27.1 18.1 26.3 28.8 54 54 35 33 42 50 58 57 38 59 54 57 51 7,358 35,423 10,513 16,503 10,377 9,199 9,010 6,098 2,932 3,449 7,425 85,454 12,674 597 1,407 403 569 504 666 659 395 210 289 454 2,673 640 8.1 4.0 3.8 3.5 4.9 7.2 7.3 6.5 7.2 8.4 6.1 3.1 5.1 District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total 236 364 345 476 367 538 954 466 491 829 640 171 5,877 Table 11-e. Member Bank Borrowing in Relation to Required Reserves, By Size of Bank and Federal Reserve District, January 1 through May 31, 1972 (Amounts in thousands of dollars) Category Number of Banks FED FED Total Borrowers Borrowers As Per Cent of Total Average Number of Borrowing Days during Period Average Amount of Required Reserves Average Amount Borrowed Borrowing as Per Cent of Required Reserves Size of Bank (millions of dollars) 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total 63 71 377 415 1,219 1,072 1,165 1,020 313 5,715 32 23 58 23 56 55 56 46 17 366 50.8 32.4 15.4 5.5 4.6 5.1 4.8 4.5 5.4 6.4 3 4 3 9 9 19 18 20 27 12 317,804 60,646 19,627 4,515 1,955 956 583 330 153 35,572 1,485 341 112 114 63 46 31 25 19 201 0.5 0.6 0.6 2.5 3.2 4.8 5.3 7.6 12.6 0.6 222 335 303 466 359 568 942 433 494 817 632 144 5,715 26 73 13 10 33 13 60 11 29 70 11 17 366 11.7 21.8 4.3 2.2 9.2 2.3 6.4 2.5 5.9 8.6 1.7 11.8 6.4 5 12 14 3 11 7 8 7 8 26 17 4 12 21,392 89,270 12,935 51,935 24,706 25,803 19,932 7,874 6,671 3,977 22,580 123,847 35,572 162 615 79 64 119 158 113 64 26 60 84 213 201 0.8 0.7 0.6 0.1 0.5 0.6 0.6 0.8 0.4 1.5 0.4 0.2 0.6 District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total Number of banks for size breakdown estimated from 1970-71 change. Number of banks for Districts based on June 30, 1972 Call Report. Table 11-d. Member Bank Borrowing In Relation to Required Reserves, By Size of Bank and Federal Reserve District, 1971 (Amounts in thousands of dollars) Category 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total Total Number of Banks FED FED Borrowers Borrowers as Per Cent of Total Average Number of Borrowing Days during Period Average Amount of Required Reserves Average Amount Borrowed Borrowing as Per Cent of Required Reserves 1.2 63 70 376 414 1,216 1,069 1,170 1,034 318 5,730 53 44 155 107 185 111 133 81 31 900 84.1 62.9 41.2 25.9 15.2 10.4 11.4 7.8 9.8 15.7 18 24 22 24 22 29 29 36 45 26 261,639 r * 55,008 15,210 4,301 1,971 879 532 287 152 21,755 3,046 1,068 334 109 49 32 18 15 227 340 306 468 360 562 943 458 490 796 633 147 5,730 87 126 40 45 67 57 185 31 68 147 24 23 900 38.3 37.1 13.1 9.6 25 23 14 14 23 12,111 51,804 17,961 22,899 17,948 13,692 14,633 6,499 3,866 2,437 376 768 3.1 1.5 1.7 277 297 401 1.2 49 27 46 342 0.8 11 319 1.9 2.2 2.5 2.5 3.7 3.4 5.2 7.1 1.5 District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total 18.6 10.1 19.6 6.8 13.9 18.5 3.8 15.7 15.7 28 28 21 16 40 29 17 26 23,110 175,420 21,755 302 230 1,188 319 1.7 2.9 1.6 0.7 1.9 1.5 0.7 1.5 Table 12-b. Percentage Distribution of Member Banks* Required Reserves* and Amount Borrowed* By Size of Bank and Federal Reserve District* 1969 Size of Bank lions of dollars) 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total Total Number of Banks Number of FED Borrowers Required Reserves Amount Borrowed 59.4 13.1 18.1 4.3 3.5 0.9 0.5 0.2 41.1 19.6 26.8 6.6 4.0 1.0 0.6 0.2 0.8 0.9 5.7 5.7 18.1 16.0 21.4 23.0 8.2 100.0 2.6 2.8 16.0 12.2 24.1 14.2 13.9 11.6 2.6 100.0 100.0 100.0 4.0 6.2 5.9 8.1 6.2 9.2 16.2 7.9 8.4 14.1 10.9 2.9 100.0 8.6 10.6 4.9 4.5 6.4 7.1 19.6 6.1 9.5 13.2 6.8 2.7 100.0 5.1 30.1 4.1 5.8 5.4 5.1 13.8 3.0 2.2 3.6 4.0 18.0 100.0 8.2 23.7 3.1 3.9 5.2 7.3 20.0 3.8 3.1 5.9 4.8 11.1 100.0 * * District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total * Less than 0.1 per cent. Note: Totals may not add to 100.0 dua to rounding. Table 12-a. Percentage Distribution of Member Banks, Required Reserves, and Amount Borrowed, By Size of Bank'and Federal Reserve District, January 1, 1969 through May 31, 1972 Size of Total Number of Banks Bank Llions of dollars)(Average during period) 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total Number of FED Borrowers Required Reserves Amount Borrowed 1.0 1.1 6.2 6.6 20.0 17.6 20.9 20.0 6.6 100.0 2.9 3.1 14.9 12.7 24.3 15.0 15.1 9.6 2.5 100.0 57.9 13.6 18.1 4.5 3.8 1.1 0.7 0.2 * 100.0 48.6 17.3 23.6 4.6 3.8 1.1 0.7 0.3 0.1 100.0 4.0 6.0 5.5 8.1 6.3 9.6 16.4 7.9 8.5 14.1 11.0 2.7 100.0 8.0 10.7 5.5 5.0 6.4 6.6 19.0 5.5 9.8 14.6 6. 5 2.5 100.0 4.9 29.2 4.4 6.5 5.5 5.4 13.7 2.9 2.2 3.6 4.4 17.2 100.0 8.7 27.9 3.4 4.5 5.4 6.6 17.9 2.7 2.8 5.0 4.6 10.6 100.0 District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total * Less than 0.1 per cent. Note: Totals may not add to 100.0 due to rounding. Table 12-d. Percentage Distribution of Member Banks, Required Reserves, and Amount Borrowed, By Size of Bank and Federal Reserve District, 1971 Size of Total Number Bank of Banks (millions of dollars) 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total Number of FED Borrowers Required Reserves 70.4 12.3 12.1 2.4 1.9 0.5 0.4 0.1 Amount Borrowed 1.1 1.2 6.6 7.2 21.2 18.7 20.4 18.0 5.6 100.0 5.9 4.9 17.2 11.9 20.6 12.3 14.8 9.0 3.4 100.0 100.0 55.9 16.3 18.0 4.1 3.2 1.2 0.8 0.4 0.1 100.0 4.0 5.9 5.3 8.2 6.3 9.8 16.5 8.0 8.6 13.9 11.1 2.6 100.0 9.7 14.0 4.4 5.0 7.4 6.3 20.6 3.4 7.6 16.3 2.7 2.6 100.0 5.4 34.5 3.7 5.2 6.1 4.0 13.7 1.0 1.3 1.8 2.8 20.5 100.0 11.5 34.8 4.2 4.3 6.9 7.9 14.6 0.5 0.6 2.3 2.8 9.5 100.0 * District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total *Less than 0.1 per cent. Note: Totals may not add to 100.0 due to rounding. Table 12-c. Percentage Distribution of Member Banks, Required Reserves, and Amount Borrowed* By Size of Bank and Federal Reserve District, 1970 Size of Bank (millions of dollars) 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total Number of FED Borrowers Required Reserves Amount Borrowed 1.0 1.0 6.0 6.4 19.6 17.0 21.4 20.9 6.9 100.0 3.7 3.2 16.3 12.0 22.9 14.7 14.7 9.9 2.7 100.0 63.7 12.9 15.8 3.5 2.8 0.8 0.5 0.1 100.0 56.5 13.9 20.9 3.6 3.5 1.1 0.1 0.3 0.1 100.0 4.0 6.1 5.6 8.1 6.3 9.5 16.4 8.0 8.5 14.0 11.0 2.7 100.0 9.1 11.1 4.3 4.7 6.6 5.1 20.6 5.6 9.4 15.2 5.5 2.9 100.0 5.1 31.1 4.5 6.0 5.7 4.2 13.6 2.6 1.9 2.9 3.9 18.5 100.0 8.4 30.5 3.6 5.8 4.9 5.0 16.2 1.9 3.3 4.7 5.3 10.5 100.0 Total Number of Banks * District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total * Less than 0.1 per cent. Note: Totals may not add to 100.0 due to rounding. Table 13. Selected Assets of Weekly Reporting Member Banks, Borrowers vs. Nonborrovers, By Sire of Bank, 1969, 1970 and 1971 Size of Deposits (millions of dollars) Number of Banks FED Non-FED Total Borrowers Borrower FED Borrowing as Per Cent of Total Total Loans FED Non-FED Borrowers Borrowers Percentage of Total Assets C&I Loans U.S. Gov*t Securities U.S. Treasury Bills FED FED Non-FED Non-FED Non-FED FEE Borrowers Borrowers Borrowers Borrowers Borrowers Borrowers Federal Funds Sold FED Non-FED Borrowers Borrowers 1969 1,000 and over 500-1,000 100-500 Total 43 54 218 315 39 47 183 269 4 7 35 46 90.7 48 55 210 313 43 42 145 230 56 63 192 311 47 47 129 223 27.0 8.8 1.0 8.9 14.2 0.7 0.5 83.9 85.4 55.2 56.1 54.0 55.1 52.4 57.3 50.7 53.0 29.0 22.2 19.0 26.0 15.2 20.7 10.0 7.4 11.0 5 13 65 83 89.6 76.4 69.1 73.5 55.0 55.5 53.7 54.9 56.7 55.4 50.4 53.4 28.2 21.7 18.3 25.7 25.0 20.6 18.3 20.6 6.9 7.8 9.4 7.4 8.2 8.4 11.1 9.6 9 16 63 88 83.9 74.6 67.2 71.7 52.9 52.8 51.0 52.6 53.3 53.1 48.2 51.3 26.1 22.9 7.1 8.0 9.3 7.6 7.1 8.7 10.8 8.9 87.0 21.6 6.5 7.8 1.4 0.2 2.0 1.6 1.9 1.9 4.1 0.9 2.5 0.8 0.9 0.9 1.3 0.8 0.7 1.1 0.5 0.9 2.0 2.5 2.6 2.2 4.0 2.2 3.6 3.3 1.2 1.1 0.B 1.1 1.1 0.8 1.4 1.1 2.3 3.0 2.9 2.5 4.0 3.0 3.5 3.6 2.6 1970 1,000 and over 500-1,000 100-500 Total 1.1 0.8 1971 1,000 and over 500-1,000 100-500 Total Source: Note: Weekly Reporting Banks Series. (Annual Averages) There are 330 banks in the Weekly Reporting sample. 20.6 17.4 24.0 20.8 17.2 20.2 Table 12-e. Percentage Distribution of Member Banks, Required Reserves, and Amount Borrowed, By Size of Bank and Federal Reserve District, January 1 through May 31, 1972 Size of Total Number Bank of Banks (millions of dollars) 1,000 and over 500-1,000 100-500 50-100 20-50 12-20 7-12 3-7 Under 3 Total Number of FED Borrowers Required Reserves Amount Borrowed 78.1 10.7 8.7 0.8 0.8 0.4 0.3 0.1 1.1 1.2 6.6 7.3 21.3 18.8 20.4 17.9 5.5 100.0 8.7 6.3 15.9 6.3 15.3 15.0 15.3 12.6 4.7 100.0 100.0 64.4 10.6 8.8 3.6 4.8 3.4 2.4 1.6 0.4 100.0 3.9 5.9 5.3 8.2 6.3 9.9 16.5 7.6 8.6 14.3 11.1 2.5 100.0 7.1 20.0 3.6 2.7 9.0 3.6 16.4 3.0 7.9 19.1 3.0 4.6 100.0 4.3 50.0 1.3 4.0 6.3 2.7 9.2 0.7 1.5 2.1 1.9 16.2 100.0 5.7 60.9 1.4 0.9 5.3 2.8 9.2 1.0 1.0 5.7 1.3 4.9 100.0 * District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Total * Less than 0.1 per cent. Note: Totals may not add to 100.0 due to rounding. Page 1 Appendix Table I Federal Reserve Board Action 1. January 15, 1953 2. February 4, 1954 Rate Change (Per Cent) +1/4 -1/4 Lead Banks Number of Number of Banks Days 4 Coincident Banks Number of Banks Lag Banks Number of Number of Days Banks 4 2 2 2 1 1 1 1 1-3/4 6 1 3, April 13, 1954 5 U 2 3 -1/4 1 1 1 2 4 . April 13, 1955 1 U +1/4 6. August 25, 1955 7 5 1 1 1 2 8 2-1/4 10 +1/4 5 1 1 8. April 12, 1956 +1/4 +1/4 1-3/4 7 8 15 1 1 1 7. November 17, 1955 10 13 15 31 37 1 +1/2 6 2 3 0 3 10 1 1 1 2-1/4 4 7 13 14 15 18 4 5 +1/4 7 6 +1/2 0 1 4 4 7 8 3 1 1 1 2 11. November 14, 1957 Divided Board Yes 4 No 1 12. January 21, 1958 Divided Board Yes No -1/2 8 1 3 3 -1/4 3 1 1 10. August 8, 1957 2-3/4 3 +1/2 1 2-1/2 1 7 3 9. August 23, 1956 1-1/2 2 9 1 1 +1/4 4 7 7 2 5. August 3, 1955 New Rate Level (Per Cent) 1 10 6 2 1 1 3-1/2 4 6 8 11 14 4 7 13 15 2-3/4 2 6 16 23 Table 14. Selected Liabilities of Weekly Reporting Member Bank*, Borrowers vs. Nonborrowers, By Size of Bank, 1969, 1970, and 1971 FED Borrowers Non-FED Borrowers FED Borrowing as Per Cent of Total 39 47 183 269 4 7 35 46 90.7 87.0 83.9 85.4 0.2 0.5 0.4 0.3 1.0 1.2 0.6 1.0 2.3 0.1 0.4 0.9 5 13 65 83 89.6 76.4 69.1 73.5 0.2 0.2 0.2 0.2 0.8 313 43 42 145 230 1.0 0.4 0.7 56 63 192 311 47 47 129 223 16 63 88 9 83.9 74.6 67.2 71.7 0.2 0.3 0.5 0.3 0.3 Number of Banks Size of Deposits (millions of dollars) Total FED Borrowings Borrowers Other Borrowings Non-FED FED Borrowers Borrowers Percentage of Total Liabilities Federal Funds Purchased Total CD's (over $100,000) CD's issued to others (over $100.0001 FED Non-FED Non-FED FED FED Non-FED Borrowers Borrowers Borrowers Borrowers Borrowers Borrowers 1969 1,000 and over 500-1,000 100-500 Total 43 54 218 315 2.0 3.6 5.6 11.7 2.3 2.1 5.3 3.9 4.9 4.8 4.2 4.7 5.1 5.1 5.0 2.0 1.8 2.0 0.7 1.9 1.5 1.4 1.2 0.4 0.3 0.5 6.6 6.6 3.9 6.1 9.0 3.3 4.0 5.0 6.2 6.2 5.7 6.1 7.2 7.6 6.7 7.1 3.0 2.5 2.3 2.8 3.2 3.3 2.4 2.9 0.2 0.5 0.2 0.3 7.3 7.7 3.9 6.8 9.9 4.8 3.9 6.3 10.2 9.2 6.8 9.6 9.8 10.6 7.8 9.3 3.7 4.0 3.0 3.7 4.6 4.0 3.3 4.0 6.0 6.2 1970 1,000 and over 500-1,000 100-500 Total 48 55 210 1971 1,000 and over 500-1,000 100-500 Total Source: Weekly Reporting Banks Series. (Annual Averages) Note: There are 330 banks in the Weekly Reporting sample. 0.1 0.1 0.2 Page 3 Appendix Table I (continued) Federal Reserve Board Action Rate Change (Per Cent) 26. November 18, 1967 +1/2 27- March 14, 1968 +1/2 Lead Banks Number of Number of Banks Days Coincident Banks Number of Banks Lag Banks Number of Number of Banks Days 7 3 3 New Rate Level (Per Cent) 4-1/2 1 2 1 1 28* April 18, 1968 6 +1/2 5-1/2 1 29. August 15, 1968 5 U -1/4 5-1/4 1 30. December 17, 1968 31. April 3, 1969 +1/4 +1/2 7 4 3 8 3 1 32. November 10, 1970 -1/4 2 2 2 1 1 33. November 30, 1970 -1/4 2 1 34. January 1, 1971 -1/4 36. February 12, 1971 -1/4 3 -1/4 1 1 1 10 1 1 1 1 6 37. July 15, 1971 38. November 10, 1971 +1/4 -1/4 1 1 3 1 2 39. December 10, 1971 Note: -1/4 3 3 5-1/2 21 16 6 1 4 8 1 0 14 6 5 3 3 1 1 1 35. January 18, 1971 5 4 5 1 1 4 2 4 2 2 24 8 6 4 2 7 3 1 3 5-3/4 2 3 5-1/2 3 9 10 2 5-1/4 1 1 1 6 7 4 3 1 2 3 2 3 10 1 4-3/4 22 15 8 4 1 8 3 5 5 5 1 7 5 1 1 2 8 1 4-3/4 8 4 2 2 6 12 13 4-1/2 "Lead Banks" Include those Federal Reserve Banks whose Boards proposed discount rate changes at least one (1) day prior to the date on which the Federal Reserve Board approved a rate change. "Coincident Banks'1 are those whose Boards acted on the same day the Federal Reserve Board approved a rate change. "Lag Banks" include those whose Boards acted at least one (1) day after the Federal Reserve Board approved a rate change. Appendix Table I (continued) Federal Reserve Board Action 13. ttarch 6, 1958 Rate Change (Per Cent) -1/2 -3/4 14. April 17, 1958 15. August 14, 1958 16. October 23, 1958 17. March 5, 1959 18. Hay 28, 1959 -1/2 +1/4 21. August 11, 1960 22. July 16, 1963 Divided Board Yes 3 Ifo +1/2 +1/2 -1/2 -1/2 +1/2 1 23. November 23, 1964 Divided Board Yes 5 No 1 24. December 3, 1965 Divided Board Yes 4 No 3 +1/2 25. April 6, 1967 -1/2 0 0 1 1 +1/2 19. September 10, 1959 +1/2 20. June 2, 1960 Lead Banks Number of Number of Banks Days 0 0 0 0 0 Coincident Banks Number of Banks Page 2 Lag Banks Number of Number Banks Days 8 1 1 5 1 1 1 7 2 3 1 1 11 I 1 1 2 4 1 1 7 1 1 1 2 1 1 8 1 1 4 2 7 2 2 1 2 4 3 1 10 8 1 1 8 1 1 3 1 1 1 5 3 1 1 7 1 4 2 New Rate Level 2-1/4 1 4 7 14 2-/4 6 1-3/4 4 7 13 21 7 11 14 21 28 35 39 2-1/2 4 6 7 11 13 14 4 6 7 8 3-1/2 4 7 13 14 4 1 7 3-1/2 7 8 11 1 4 7 10 21 28 3-1/2 2 7 9 1 2 4 4-1/2 +1/2 10 2 7 1 3 6 7 2 1 1 1 7
@FedFRASER