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NEWS RELEASE FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D. C. 20429 FOB RELEASE TUESDAY A.M., NOVEMBER 22, 1966 IN THE INTEREST OF THE DEPOSITOR Address of K. A. RANDALL, CHAIRMAN FEDERAL DEPOSIT INSURANCE CORPORATION Washington, D. C. before the 73rd Annual Convention o f the SAVINGS BANES ASSOCIATION OF NEW YORK STATE at The Roosevelt H otel New O rleans, Louisiana Tuesday, November 22, 1966 Telephone: 393-84C0 Br. 221 BT THE INTEREST OF THE DEPOSITOR Mutual savings banks were e sta b lish e d during th e e a rly years of our n a tio n ’s in d u s tria liz a tio n to encourage personal t h r i f t among smal l savers by providing a safe re p o sito ry fo r t h e ir savings. The tru s te e s h ip form o f organization developed to provide fo r th e se c u rity o f th e sav ers' hard-won earnings and to ensure t h e i r u se fu l and p ro fita b le employment. This concept has endured to t h i s day, and th e mutual savings bank in d u stry can be ¿justly proud of i t s continuing record o f concern fo r th e in te r e s ts o f i t s d e p o sito rs. The outstanding record o f th e mutual savings bank industry is w ell represented by th e New York s ta te savings banks which hold more then $30 b illio n in d ep o sits and account fo r a major share o f mortgage financing w ithin th e s t a te . I t i s w ith g rea t p lea su re , th e re fo re , th a t I speak to you today. As th e Federal agency e n tru ste d w ith supervisory powers over insured mutual savings banks, I want to say th a t you have earned our resp ec t and th a t o f your d epositors and o f th e general public fo r your c o n trib u tio n s to our economic w ell-being. The p a st year has been one o f ferment and change, e sp e c ia lly in secto rs of p a rtic u la r concern to you. The r a te of personal saving slowed s ig n ific a n tly in th e face o f an almost unprecedented demand fo r funds. The com petition fo r savings among fin a n c ia l in s titu tio n s and in th e money and c a p ita l markets has been in te n se . Many fin a n c ia l interm ed iaries have had to o ffe r p ro g ressiv ely higher r a te s o f in te r e s t in order to a tt r a c t new money as w ell as to r e ta in th e funds already on d e p o sit. th e highs o f th e e a rly 1920’s. I n te re s t r a t e s , as a consequence, approached - 2 - The in crease in in te r e s t r a te s has served to f a c i l i t a t e th e re a llo c a tio n pf our fin a n c ia l resources to those se cto rs experiencing th e stro n g e st demand p ressu res. In th e p ro cess, o th er se cto rs have been unable to a t t r a c t s u ffic ie n t funds to m aintain previous le v e ls of a c tiv ity —most notably, th e in te r e s t- s e n s itiv e housing m arket. The impact on th e economy o f higher in te r e s t r a te s has th e re fo re been ra th e r uneven. The com petition fo r savings acc elera te d sh o rtly a f te r th e Federal Reserve increased th e discount r a te and ra is e d th e in te r e s t r a te c e ilin g in December 1965. Then, th e p ressu res were p a rtic u la rly strong in th e major fin a n c ia l cen ters—and have subsequently spread to banks in outlying a re as. The s h iftin g o f d e p o sito rs' funds w ithin a sin g le fin a n c ia l in s titu tio n from a lower y ield in g account to a higher one, from one in s titu tio n to another, or d ir e c tly in to the money and c a p ita l markets and an e sc a la tin g r a te p a tte rn tended to have a d e s ta b iliz in g e ffe c t on th e savings market and on th e money and c a p ita l m arkets. The Federal supervisory agencies th e re fo re supported Congressional actio n granting us broadened a u th o rity fo r one year to se t in te r e s t r a te c e ilin g s according to any reasonable c r i t e r i a . Insured mutual savings banks were brought under th e in te r e s t r a te c e ilin g s on September 26. Insured savings and loan asso c iatio n s became subject to r a te c e ilin g s a t the same time in reco g n itio n o f th e close in te rre la tio n s h ip o f th e various savings in s titu tio n s competing in th e savings market. Some two months have elapsed since th e new r a te c e ilin g s went in to e ff e c t. Adjustments are s t i l l being made in th e m arket, bu t th e e sc a la tio n o f in te r e s t r a te s paid by savings in s titu tio n s has been la rg e ly dampened. Market r a te s o f in te r e s t have fa lle n from t h e i r September peaks, and th e re seems to be le s s churning in th e fin a n c ia l m arkets. The calmer tone c h arac te riz in g the - 3 - fin a n c ia l se cto r in rec en t weeks can be a ttrib u te d in p a rt to th e slackening of th e in ten siv e in te r e s t r a te com petition. The in te r e s t r a te c e ilin g s th a t became e ffe c tiv e l a s t September have contributed to a lessen in g o f upward r a te p ressu re s. demand p ressu res has a lso been a fa c to r. But some easing in Market r a te s o f in te r e s t may now r e f le c t a more r e a l i s t i c assessment o f th e prospeets fo r continued high le v e ls o f economic a c tiv ity , th e p e rsisten c e o f p ric e p ressu re s, and fu tu re m ilita ry requirem ents. The economic outlook, however, remains clouded because of u n c e rta in tie s regarding Vietnam. The cu rren t p a tte rn o f savings flows and o f in te r e s t r a te s o ffered on time money by savings in s titu tio n s does not in d ic ate a need a t t h i s time fo r a d d itio n al reg u la to ry actio n a ffe c tin g th e c e ilin g r a te s applicable to mutual savings banks. The present c e ilin g s appear to give savings in s titu tio n s s u ffic ie n t f l e x i b i l i t y to ad ju st to foreseeable changes in market conditions and perm it fin a n c ia l interm ediaries to remain com petitive w ith oth er instrum ents. market N evertheless, we are continuing to m aintain close sc ru tin y of th e market. Two p o in ts might be stre sse d in t h i s connection, however. In th e f i r s t place, th e c e ilin g r a te s must not be in te rp re te d as suggested r a te s . The in te r e s t r a te re g u la tio n s were not designed to give supervisors o f fin a n c ia l agencies th e r ig h t to assume a prerogative th a t belongs to bank management. The r a te of re tu rn o ffered to savers w ithin th e lim its imposed by re g u la tio n is a d ecisio n th a t must always remain w ith management—and w ith management alone. Bate c e ilin g s should be e sta b lish e d a t le v e ls th a t give most in s titu tio n s leeway to ex ercise t h e i r own Judgment on th e r a te s appropriate to t h e ir own situ a tio n and c o n sisten t w ith th e public in te r e s t. The issuance o f frequent - if and d e ta ile d re g u la tio n s by th e supervisory a u th o ritie s could f r u s tr a te th e in te n t o f in te r e s t r a te le g is la tio n . In th e second p la c e , l e t us not fo rg e t th a t th e a ctio n s o f l a s t September do not c o n s titu te a c u re - a ll in th e com petition fo r savings. We must continue to s tr iv e fo r a b e tte r understanding o f th e b a sic fa c to rs resp o n sib le fo r the sharp e s c a la tio n in r a te s and fo r th e d isru p tiv e savings flow s. The r e la tiv e calm in fin a n c ia l markets^ which we are c u rre n tly experiencing, may be only temporary. But we should t r y to tak e advantage o f t h i s pause— however b r i e f —and not become overly complacent about th e cu rren t s t a b i l i t y in th e savings m arkets. Now i s th e time to take stock to see where we have been, where we a re , and where we want to go. Let us prepare to take th e i n it i a t i v e in determ ining our fu tu re course and d ire c tio n ra th e r than w ait p assiv ely to d r i f t w ith events. Now may be an opportune time to take th e long view—b u t w ithout s a c rific in g our a b i l i t y to cope w ith sh o rt-ru n problems and p re ssu re s. The environment in which we operate today i s in many re s p e c ts u nlike th e world o f yesterday—and p resen ts us w ith new challenges. New and la rg e r demands are being made on our r e a l reso u rces—already close to f u l l employment le v e ls : th e ex p lo ratio n o f space, th e Vietnam c o n flic t, th e development o f model c i t i e s , and broader educational o p p o rtu n ities fo r la rg e r numbers of people, to name only a few. These demands w ill ta x our resources and our c a p a b ilitie s fo r years to come. At th e same tim e, changes are occurring more ra p id ly and are more perv asiv e. The problems are not only new b u t they are g re a te r in magnitude than before and a t l e a s t as complex. I t i s th e re fo re im portant th a t we be prepared to a d ju st to th ese new demands and to th e problems th a t may develop. The p a st s ix years o f steady - 5 - economic expansion may have masked instances where adjustm ents were to b a sic changes in th e environment. not made A slower r a te o f economic growth could expose some o f th ese h ith e rto unrecognized weaknesses or point up some lack of f l e x i b i l i t y and a d a p ta b ility . But th e re i s s t i l l time to c o rre c t these d e fic ie n c ie s. The a b i l i t y to a d ju st to changing tim es and to a n tic ip a te < fu tu re needs and problems i s a c ru c ia l determ inant o f th e stre n g th and v i t a l i t y o f our fin a n c ia l i n s titu tio n s . Each in s titu tio n has th e re s p o n s ib ility fo r developing and strengthening i t s own a b i l i t y to adapt. Since t h i s r e s p o n s ib ility i s shared by a l l o f u s, X would lik e to ask each o f you to p a rtic ip a te along with th e Corporation in a "com petition in excellence"—a com petition th a t w ill y ie ld b e n e fits fo r a l l . By s triv in g fo r excellence, ra th e r than jockeying for p o s itio n , fo r in stan c e, th e w ell-being o f th e economy and o f each in s titu tio n can be maximized. I t i s d i f f i c u l t to p re d ic t th e sp e c ific problems o f th e fu tu re --b u t, as long as r e s p o n s ib ility , i n i t i a t i v e , and im agination e x is t in each i n s t it u t io n , we can be o p tim istic fo r th e fu tu re . Mutual savings banks have chalked up an ex cellen t record o f serv ice to th e in d iv id u a l saver in t h i s regard. N evertheless, ways to improve or expand serv ices in lin e w ith th e o rig in a l concepts on which your in s titu tio n s were founded should be co n tin u ally explored. The advantages o f sh o rt-term growth must be c a re fu lly weighed against longer-run co n sid eratio n s o f earning cap acity and th e sa fe ty o f th e savings e n tru ste d to your c are. Por b r i e f periods o f tim e, however, i t may o ccasionally be necessary to allow sh o rt-ru n considerations to dominate current p o lic y . But th e b a sic fa c to rs should never be ignored. Your b an k 's - 6 - a b ility to adapt to changes over a business cycle should a lso be reassessed in th e context o f rec en t developments. s u ffic ie n tly fle x ib le ? Are your p o rtfo lio p o lic ie s Is your a sse t and deposit stru c tu re appropriate to the current s itu a tio n and fo r th e fu tu re? I f n o t, are th e a lte rn a tiv e s being inve s t igated? P o sterin g o f a dynamic and w ell-balanced fin a n c ia l system i s a primary objective o f th e F ederal Deposit Insurance Corporation. A s ig n ific a n t co n trib u tio n th a t we can make to th e "com petition in e x c e lle n c e ,” th e re fo re , is to help th e in s titu tio n s under our supervision to ad ju st to new s itu a tio n s and to a s s is t during th e tr a n s itio n period. Our a ssista n ce can include the development and exchange o f b e tte r inform ation, p erio d ic discu ssio n s of conanon problems and fu rth e r improvements in th e q u a lity o f our supervision. The lia is o n committee appointed e a r l ie r t h i s year by your A ssociation should provide an e ffe c tiv e and u se fu l channel of two-way communication. Furthermore, the Corporation always welcomes your views on m atters o f in te r e s t and concern to you. Your continued cooperation has enabled us to carry out our r e s p o n s ib ilitie s more e ffe c tiv e ly . We share w ith you an overriding in te r e s t in th e stre n g th and v i a b i l i t y of savings in s titu tio n s in our fin a n c ia l system and, in p a r tic u la r, mutual savings banks. In d iv id u al savings have played an important p a rt in th e economic growth o f our n atio n --w ith savings banks f u l f i l l i n g an e s s e n tia l fu n ctio n . Because in d iv id u a l savings w ill continue to play a major ro le in th e financing o f economic a c tiv ity , fin a n c ia l interm ediation must remain w ith those in s titu tio n s b e s t equipped to do a good job. Mutual savings banks have served as a v i t a l cog in our fin a n c ia l mechanism in th e p a st and should continue to - do so in th e f u tu re . 7 - The e ffe c tiv e n e ss w ith which t h i s function i s discharged, however, depends p rim a rily on your own e f f o r ts and a d a p ta b ility . The supervisory agencies are o f n e c e ssity in a secondary p o sitio n --b u t you can be assured o f our f u l l e s t support and wholehearted cooperation in carrying out your r o le . By committing ourselves to a "com petition in ex cellen ce," ’ our ta s k w i l l be f a c i l i t a t e d and our b e n e fits g re a te r. Each o f us i s an in te g ra l p a rt o f a la rg e r whole, and whatever we accomplish W ill redound to the b e n e fit Of a l l —b u t most o f a l l to th e pub lic we serve. ######