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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

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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

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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

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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

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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




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do so in th e f u tu re .

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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.




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