Federal Reserve Bulletin, 1977-03

M ARCH 1977 FEDERAL RESERVE BULLETIN Housing in the Recovery Treasury and Federal Reserve Foreign Exchange Operations Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A copy of the Federal Reserve Bulletin is sent to each member bank without charge; member banks desiring additional copies may secure them at a special $10.00 annual rate. The regular subscription price in the United States and its possessions, and in Bolivia, Canada, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, Guatemala, Haiti, Republic of Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, El Salvador, Uruguay, and Venezuela is $20.00 per annum or $2.00 per copy; elsewhere, $24.00 per annum or $2.50 per copy. Group subscriptions in the United States for 10 or more copies to one address, $1.75 per copy per month, or $18.00 for 12 months. The Bulletin may be obtained from the Division of Administrative Services, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, and remittance should be made payable to the order oi the Board of Governors of the Federal Reserve System in a form collectible at par in U.S. currency. (Stamps and coupons are not accepted.) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

N U M BER 3 □ VO LU M E 63 □ M ARCH 1977 FEDERAL RESERVE BULLETIN Board of Governors of the Federal Reserve System Washington, D.C. PUBLICATIONS COMMITTEE James L. Kichline Joseph R. Coyne John M. Denkler John E. Reynolds Stephen H. Axilrod Janet O. Hart John D. Hawke, Jr. Richard H. Puckett, Staff Director The Federal Reserve Bulletin is issued monthly under the direction of the staff publications committee. This committee is responsible for opinions expressed except in official statements and signed articles. Direction for the art work is provided by Mack R. Rowe. Editorial support is furnished by the Economic Editing Unit headed by Elizabeth B. Sette. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table of Contents 189 Housing in the Recovery Arthur F. Burns, Chairman of the Board of Governors, reports on the Analysis of the major upswing in condition of the Nation’s banking sys­ housing activity over the last 2 years. tem, before the Committee on Bank­ ing, Housing and Urban Affairs, U.S. 200 Treasury-Federal Reserve Senate, March 10, 1977. Foreign Exchange Operations Report on foreign exchange opera­ 247 Record of Policy Actions of the tions for the period from August 1976 Federal Open Market Committee to January 1977 points out the dispari­ At the meeting held on January ties in economic performance and 17-18, 1977, the FOMC reviewed the changes in policy among industrial domestic policy directive and decided countries. to seek bank reserve and money market conditions consistent with moderate 222 Statements to Congress growth in the monetary aggregates over Arthur F. Burns, Chairman of the the period ahead and agreed to ar­ Board of Governors, presents the rangements relating to official sterling Board’s views on the condition of the balances and to “warehousing” of national economy, before the Joint currencies for the Exchange Stabiliza­ Economic Committee of the U.S. tion Fund. Congress, February 23, 1977. 263 Law Department Arthur F. Burns, Chairman of the Board of Governors, discusses the Rules regarding availability of in­ evolving trends in economic and fi­ formation and miscellaneous interpre­ nancial conditions and spells out the tations and orders. implications of those trends for some of the critical economic policy ques­ 305 Announcements tions that confront our Nation, before Changes in rules for purchase of Fed­ the Committee on the Budget, U.S. eral agency securities. House of Representatives, March 2, 1977. Money stock measures: 1977 revi­ sion. Philip E. Cold well, Member of the Board of Governors, presents the Policy statement on divestitures re­ Board’s views on H.R. 2176, a bill that quired of bank holding companies. would direct the General Accounting Three State banks admitted to F.R. Office to conduct audits of the F.R. membership. Board and Banks, before the Com­ merce, Consumer, and Monetary Af­ 309 Industrial Production fairs Subcommittee of the Committee on Government Operations, U.S. Output rebounded 1.0 per cent in House of Representatives, March 3, February after sustaining a weather- 1977. related decline in January. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Al Financial and Business Statistics A74 Federal Reserve Board Publications A3 Domestic Financial Statistics A46 Domestic Nonfinancial Statistics A54 International Statistics A76 Index to Statistical Tables A70 Board of Governors and Staff A78 Map of Federal Reserve System A72 Open Market Committee and Staff; Federal Advisory Council Inside Back Cover: A73 Federal Reserve Banks and Guide to Tabular Presentation and Branches Statistical Releases Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Housing in the Recovery This article was prepared in the Mortgage and Associated with this development, the share Consumer Finance Section of the Division of of residential construction expenditures in the Research and Statistics. gross national product (GNP) declined through­ out the 1974-75 business recession—also con­ A major upswing in housing activity has been trary to the more usual pattern. The residential in progress now for 2 years. Although unusually construction share then increased only slightly severe winter weather interrupted the uptrend in the early quarters of the recovery in general in private housing starts early in 1977, both business activity, despite a surge in outlays for financial and nonfinancial factors point to a con­ additions and alterations to existing residential tinuation of the expansion in coming months. structures. By the fourth quarter of last year, Mortgage lending commitments outstanding at the share had risen significantly from the busithe nonbank thrift institutions have held near ness-cycle trough, but it remained well below the record high reached at the end of 1976. Sales levels reached at comparable stages of most of new and existing homes—although down other postwar expansions. (See Chart 2.) somewhat in January—have remained strong, The recovery in homebuilding has been fi­ while average prices of new homes sold have nanced by a sharp expansion in mortgage lend­ continued to rise relative to costs of con­ ing. This expansion was fueled in large part by struction. Moreover, rental markets have been tightening in many areas of the country, pro­ viding the basis for expanded investment in 1. Private housing starts multifamily properties. In terms of its role in the general economic Ratio scale, millions of ur recovery, the current upswing in housing con­ Total struction has differed somewhat from earlier patterns. From the standpoint of timing, total housing starts have ordinarily led recoveries in aggregate economic activity; in previous post­ war cycles, upturns in housing starts preceded business-cycle troughs by more than half a year, on the average, and in 1970 the lead was 10 months. In the current cycle, however, housing starts began to rise only a month before over-all economic activity reached its low, reflecting both the effects of substantial overbuilding dur­ ing the earlier real estate boom—particularly in I f | 1968 1970 1972 1974 1976 the multifamily sector—and the extended period M • m iidv& Q : • of time needed by financial intermediaries to Census Bureau seasonally adjusted monthly data at annual rates converted to quarterly averages by F.R. “Multifamily” reduce outstanding debt and to rebuild depleted includes structures with 2 or more units. Shading indicates periods of recession as designated by the National Bureau of liquid asset balances. Economic Research (NBER). Latest data, Jan.-Feb. average. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

190 Federal Reserve Bulletin □ March 1977 2. Value of new residential construction of mortgages used as collateral for securities issued and/or guaranteed by the Government Ratio scale, billions of dollars National Mortgage Association (GNMA), the ; 80 Federal Home Loan Mortgage Corporation T o tals 40 (FHLMC), or the Farmers Home Administration (FmHA) have accounted for more than a fifth zoun of the net increase in residential mortgage debt outstanding. While savings and loan associa­ 10 tions have at times been major investors in these liquid bond-type securities, other investors— • ! 1 1 1 1 f I 1 including pension funds—not traditionally ac­ Per cent tive in the market for mortgage loans have also been purchasing such securities. 5 Total as a share > — of GNP X. Single-family housing has dominated the ------------N . current recovery in the residential building and | 3 p mortgage markets to a much greater extent than 1968 1970 1972 1974 1976 in other recent cycles. By the end of 1976, starts of such units were near the highs recorded in Census Bureau data on value of new construction put in place, at seasonally adjusted annual rates. “Total” includes 1972 and early 1973—a period when Federal nonhousekeeping units, not shown separately, and excludes subsidy programs designed to stimulate home­ mobile homes and sales commissions on new and existing residential properties. “Additions and alterations” derived by building were particularly active. In contrast, F.R. from Census series. “Share of GNP” based on constantstarts of multifamily housing units, even after dollar values for both total residential and GNP. Shading indicates periods of recession as designated by the NBER. strong net savings flows to depositary institu­ 3. Net change in residential mortgage debt tions, which picked up as short-term market Billions of dollars interest rates declined from their cyclical peaks in 1974. In the final quarter of last year, resi­ dential mortgage debt formation reached a record high, almost triple the amount at its low in the first quarter of 1975. The residential mortgage share of all funds raised in U.S. credit markets, which had declined during most of the general recession, has increased appreciably thus far in the recovery and it exceeded a fourth in the final quarter of 1976. Even so, this was well below the share attained at similar stages Per cent of most other postwar expansions. Throughout the current housing recovery, savings and loan associations have dominated the residential mortgage markets to an even greater degree than usual; direct mortgage in­ vestment by these institutions accounted for 1968 1970 1972 1974 1976 about two-thirds of the growth in residential Quarterly mortgage debt data by type of structure esti­ mated—and converted to seasonally adjusted annual rates—by mortgage debt outstanding last year. Perhaps F.R. as required to supplement reports of Federal agencies even more striking, mortgage-backed securities and private sources. Total funds raised in credit markets refers to all funds raised in U.S. credit markets—excluding equi­ have become a much more important factor in ties—by all nonfinancial sectors, both private and foreign. Shading indicates periods of recession as designated by the housing finance. In fact, in recent quarters pools NBER. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Housing in the Recovery 191 4. Mobile home shipments period, as was the case earlier in the 1970’s. This has been due to a persistent rise in the quality—size and related amenities—of new homes sold. After adjustment for changes in quality, the increase in new-home prices has about matched the rise in average prices of all types of existing homes sold—around 20 per cent over the past 2 years. Escalating prices of homes have been pri­ marily responsible for increases—to unprece­ dented levels—in average monthly payments on Private domestic shipments of new mobile homes as reported monthly by the Manufactured Housing Institute, seasonally newly originated mortgages, although the adjusted and converted to annual rates by the Census Bureau and to quarterly averages by F.R. Shading indicates periods maintenance of average mortgage interest rates of recession as designated by the NBER. Latest data, Jan.-Feb. average. at levels close to 9 per cent has also been a factor. In early 1977, average monthly principal-plus-interest payments on conven­ a substantial rise in the second half of last year, tion^ first mortgages made to finance the pur­ have remained below the pace registered at the chase of new homes exceeded $300. That was trough of the previous housing cycle in 1970. more than 50 per cent above the average pre­ Meanwhile, apart from the conventional housing vailing as recently as 1973 before the cyclical sector, shipments of mobile homes—which had upswing in mortgage rates. Moreover, the rise accounted for a fifth of all types of housing units in average mortgage payments—which in the completed in the boom years of 1972 and case of new buyers normally account for about 1973—have recovered only modestly during the current economic expansion. 5. Single-family housing SINGLE-FAMILY HOUSING millions of units Sales of both new and existing homes have expanded vigorously during the upswing in housing activity. By the end of 1976, they had reached a combined rate nearly double the low 2 years earlier. To some extent, this strength reflected pent-up demand resulting from post­ poned purchases during the prolonged economic Thousands of dollars slump of 1974-75. Also, the inflation-hedge MEDIAN PRICE OF HOMES SOLD potential of homeownership and the opportunity for upgrading have remained strong investment incentives for households able and willing to Existing meet the costs. Home Buyer Considerations -m'jj.h' The strong demand for single-family homes has been reflected in rapidly rising prices of both Merchant builder sales of new homes as reported monthly new and existing homes. Prices of new homes by the Census Bureau, and existing home sales as reported by the National Association of Realtors, both at seasonally sold have increased at a somewhat faster pace adjusted annual rates. Median prices of new and existing homes sold, also reported by these sources, seasonally adjusted by than existing-home prices over the recovery Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

192 Federal Reserve Bulletin □ March 1977 two-thirds of total homeownership costs—has As generally occurs, home buyers who en­ occurred at the same time that costs of operating tered the market with an existing home to sell homes have mounted. For example, real prop­ have not always invested all of their accumu­ erty taxes have risen along with home prices, lated housing equity in a newly acquired unit. and fuel and utility costs have increased more In a period of ample mortgage funds, many than 50 per cent since the energy crisis emerged households have instead opted for as large a in 1973. Although average family income has mortgage as lenders would permit on homes also been rising, it has not kept pace with such purchased, thus raising funds through the mort­ increases in homeowner costs. gage market to be used for other purposes. Of Prospective home buyers have also been course, homeowners who have not moved may faced with sharply rising downpayment require­ also borrow against their housing equity by ments as home prices have soared. In the case taking out second mortgages or by increasing of new homes, the average downpayment on the size of first mortgages through refinancing. conventional first mortgages—the major financ­ Available data suggest that homeowners have ing instrument used—exceeded $13,000 in early been liquidating large amounts of housing eq­ 1977. This was more than 10 per cent above uity by these three techniques. It is estimated a year earlier and about three-fifths higher than that in 1976 the net increase in long-term home levels prevailing in 1973 when average mortgage debt of households exceeded the value loan/price ratios on such mortgages were about of household net purchases of new and existing the same as currently. homes (including condominium units in multi­ Because of diversity in income and wealth family structures) by about $15 billion. This positions, some households have obviously been increase compares with less than $1 billion in in a better position than others to afford the 1974 when credit conditions were relatively advanced costs of home purchase and operation. tight. In particular, home buyers with houses to sell or to trade have in general held a greater-than- Lender Behavior usual advantage over first-time buyers, and such households have been a major factor behind the Faced with extremely strong demands for home strength of demand for single-family homes. mortgage funds, lenders have reduced average Homeowners as a group have accrued large interest rates on new commitments for long-term amounts of housing equity during the rapid infla­ home mortgages only slightly over the course tion in home prices since 1970, in many cases of the economic recovery. By contrast, most on highly leveraged positions that offer the other long-term interest rates declined substan­ potential for large capital gains on the basis of tially last year. As a result, the yield spread relatively small initial investments. Thus, sellers between home mortgages and bonds—a factor of existing homes, who in recent years have of some importance to lenders with broad in­ accounted for about half of all home buyers in vestment options—widened considerably during any case, have been able to use such equity to 1976 and has remained rather large since then help meet downpayment requirements on the even though bond rates have risen. purchase of new or existing units. Moreover, The relative stability of home mortgage rates this equity can facilitate trading up to better during the recovery period has been attributable homes or the placement of downpayments larger in part to some easing by lenders of nonrate than lenders require—thus effectively lowering loan terms, indicated by higher loan/value ratios monthly mortgage outlays. First-time home and longer contract maturities. The stickiness buyers, who tend to be concentrated in the of mortgage rates has also been due to reluc­ growing number of households with heads in tance on the part of diversified lending institu­ the 25- to 34-year age group, must ordinarily tions—such as commercial banks and mutual meet downpayment requirements out of finan­ savings banks—to commit funds to long-term cial asset balances. home mortgages. This reluctance was particu­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Housing in the Recovery 193 6. Yields on home mortgages and bonds versified private financial institutions quite lim­ ited, Federal and related credit agencies and mortgage pools backing issues of securities guaranteed by GNMA, FHLMC, or FmHA ac­ counted for most of the balance. As yield spreads vis-a-vis bonds improved in favor of home loans during 1976, commercial banks and mutual savings banks increased their direct investment in mortgages to some degree, particularly in the latter half of the year. Never­ theless, the savings and loan share of the ex­ panded volume of mortgage lending rose even further. Net acquisitions by the Federal and related credit agencies fell sharply last year, primarily because of sales to private investors by GNMA and FHLMC of home mortgages that had been acquired under interest rate subsidy programs instituted during the business reces­ sion. Some sales were in the form of mortgagebacked securities guaranteed by the agencies. Mortgage pools accounted for an even larger “Conventional mortgages” are monthly average contract share of total acquisitions of long-term home interest rates on new commitments for conventional new-home mortgage loans in the primary market, based on HUD (FHA) mortgages in 1976 than during 1975. Indeed, field-office reports. “Corporate bonds” are monthly average $13.8 billion in GNMA-guaranteed “pass­ implied yields on newly issued Aaa-rated utility bonds with 5-year call protection, estimated by F.R. “Yield spread” is through” securities—backed by home mort­ mortgage yield less bond yield. gages underwritten by the Federal Housing Ad­ larly marked during 1975, when mortgage ministration (FHA) or the Veterans Administra­ yields were still relatively low compared with tion (VA)—were issued in 1976. This was yields on other long-term debt instruments and equivalent to more than two-thirds of all lenders were placing heavy emphasis on im­ FHA/VA home loans originated last year. Di­ proving the liquidity of their portfolios. versified investors purchased an unusually large In an environment of rapid home-price ap­ share of security issues based on these pools— preciation, however, investors have apparently thus indirectly supplying a significant quantity not been overly concerned about the quality of of funds to the home mortgage market. Demand mortgage credit on single-family homes. Delin­ by savings and loan associations for GNMAquency rates on outstanding home mortgages, guaranteed securities fell sharply after mid-1976 which had risen only slightly during the as yields on these securities—which move 1974-75 business recession, have changed little closely with bond yields—dropped well below since then, after allowance for seasonal influ­ average returns on home mortgages acquired in ences. Meanwhile, foreclosure rates have been the primary market. trending downward, owing to the economic With long-term financing readily assured, recovery as well as to special Federal efforts lenders have been quite willing to make short­ to encourage lender forbearance in accordance term loans to builders for the construction of with provisions of the Emergency Homeowners’ single-family structures. Average interest rates Relief Act of 1975. on single-family construction loans—generally As the housing markets began to recover in linked to the bank prime rate—are currently 1975, savings and loan associations acquired around 9 per cent as compared with levels of more than half of all long-term home mortgages 12 per cent or more at the beginning of the made. With direct mortgage investment by di­ recovery period. In 1975 and 1976 savings and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

194 Federal Reserve Bulletin □ March 1977 7. Home mortgage markets: wholesale prices of building materials in general Construction loans and have been rising at a pace well below the rate of advance in 1974 and early 1975. Moreover, Lender share, per < upward adjustments in construction labor costs Billions of dollars 10.1 15.8 20.2 21.8 16.0 15.6 23.9 Other 100 have been comparatively moderate throughout REIT’s-1 the recovery. Even so, prices of lumber and Mortgage companies 80 plywood have been rising rapidly since mid- 1976, and costs of land and land development have continued upward, owing in part to envi­ Commercial banks 60 ronmental, zoning, and related requirements. With new-home prices rising briskly and 40 construction costs increasing less sharply than before, merchant builders have been eager to Savings and loans 20 start new single-family units in recent quarters despite high and rising inventories of unsold 0 new homes. These inventories have posed no long-term loans significant impediment to housing starts, partly Billions of dollars 35.4 57.5 76.8 77.9 67.4 80.2 108.1 because they reflect to a large extent a base made Other 100 up of a slow-selling carryover of older com­ Federal credit agencies pleted homes that are for various reasons non­ 80 Mutual savings banks competitive. Most newly completed units are Mortgage pools selling quickly, and the recent additions to the Commercial banks 60 stock of unsold new homes have been primarily units still under construction rather than com­ 40 pleted dwellings. Finally, despite the overhang Savings and loans of unsold units, the inventory/sales ratio for new 20 single-family homes has drifted down, and it is well below the highs that had been reached 0 in 1974 and early 1975. 1970 1972 1974 1976 Based on data for 11 major lender groups accounting for about 93 per cent of total 1- to 4-family mortgage debt outstanding, as reported by HUD. “Construction loans” are in terms of originations; “long-term loans” are in terms of net acquisi­ tions—originations plus net purchases. loan associations provided more than half of all mortgage loans for the construction of homes, while commercial banks—which also make construction loans not collateralized by real es­ tate—supplied about a third. The share of con­ Number of months struction loans made by mortgage companies, which obtain a significant part of their funds by borrowing from banks, has continued to fall from the unusually high levels attained in the early 1970’s. Builder Positions Merchant builder stocks of unsold single-family homes are While interest rates on construction loans have seasonally adjusted end-of-month figures reported by the Census Bureau. “Months’ supply” is the ratio of end-of-month been receding during the recovery period, stocks to seasonally adjusted sales during that month. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Housing in the Recovery 195 Regional Differences ership—has been sluggish in most parts of the country. This has reflected a number of prob­ The degree of expansion in single-family starts, lems associated with inflation and earlier over­ in sales of new and existing homes, and in home building. Multifamily construction has as yet mortgage lending has varied widely across the expanded appreciably in only a few local mar­ country. Housing activity and mortgage loan kets, located primarily in southern California demands have picked up most in the West— and in Texas. However, rental markets have particularly in California—while the weakest been tightening in many areas, and the sales recovery has been in the Northeast. Parts of the rate for the reduced supply of newly completed South (excluding Florida) as well as the North condominium units—still low by earlier stand­ Central and South Central regions have experi­ ards—has improved somewhat. enced moderate growth. These geographic differences have been as­ sociated primarily with differing degrees of Occupancy Shifts economic recovery in various parts of the The demand for rental space in both new and country and with ongoing population shifts in existing residential properties of all types has favor of the South and West. Additions to been strengthening at a time when completions nonfarm payrolls in the Northeast, for example, of multifamily units have receded to extremely amounted to less than 0.5 per cent during the low levels. As a result, new rental units coming year ending September 1976. At the other ex­ treme, employment gains in the Far West and Southwest exceeded 2.5 per cent in the same 9. Rental market indicators period. Ratio scale, millions of units Owing primarily to the strength of demand MULTI FAMILY UNITS for home mortgage funds, savings and loan ■1.0 Under construction associations in the West experienced a particu­ larly large shortfall in loanable funds during .5 1976; that is, the loans they made exceeded by Completed an unusually wide margin the sum of their net savings flows, interest credited, and loan Per cent principal repayments. Consequently, these as­ Rental vacancy rate sociations relied even more heavily than usual on the secondary mortgage market in order to meet demands in their regions for mortgage funds, mainly for single-family dwellings. Alto­ 1967= gether, the associations in the West accounted RENTAL PROPERTIES for about half of the dollar volume of all whole Operating costs^^-mortgage loans and loan participations sold by savings and loan associations in 1976, and for only about 10 per cent of loans purchased. ___—*— Rents Associations in the Northeast, by contrast, were 1 large net buyers in the secondary market. ! i i Multifamily units completed and under construction are Census Bureau seasonally adjusted data with completions at annual rates. “Rental vacancy rate,” as reported by Census Bureau, is the percentage of all year-round rental units in all MULTIFAMILY HOUSING types of structures that are vacant and available for rent. “Operating costs” index calculated by F.R. as a weighted- Unlike single-family housing activity, the re­ average of various consumer and wholesale price indexes related to apartment owner costs; weights based on expense covery in construction of multifamily struc­ data for multifamily structures published by the Institute of Real Estate Management. “Rents” index is the rental rate tures—whether for rent or condominium own­ component of the consumer price index. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

196 Federal Reserve Bulletin □ March 1977 on the market have been leased quickly. In fact, 10. Multifamily mortgage markets: 85 per cent of the units completed during the Construction loans and third quarter of 1976 had been rented before Lender share, per cent the end of the fourth quarter. Billions of dollars 6.5 9.5 1L9 12.9 10.7 5.8 5.4 In addition, average vacancy rates for all Other types of rental properties have fallen signifi­ REIT’s cantly in recent quarters. The sharpest decline Mutual savings banks has occurred in the South, where the vacancy Mortgage companies rate of 5.8 per cent in the fourth quarter of 1976 was the lowest in 20 years. During the previous Commercial banks boom the tendency to build ahead of demand had been most marked in the South; in early 1975, 8.4 per cent of all rental units in that region were vacant and available for occupancy. Savings and loans long-term loans Specia l P ro blem s The problems that have plagued multifamily Billions of dollars 8.1 11.5 13.9 13.3 13.2 11.6 12.3 housing markets since 1973 are in varying de­ Other grees still exerting a drag on the expansion in Federal credit agencies residential construction. While interest by in­ Mutual savings banks vestors in multifamily rental properties has im­ proved somewhat, lenders in general remain quite selective in making loans for the con­ Life insurance companies struction of multifamily projects, even when commitments for long-term financing can be Commercial banks obtained by builders. As a general rule, con­ struction loans for multifamily housing are rela­ Savings and loans tively high-risk investments—even when condi­ 1970 1972 1974 1976 tions in local markets appear to justify the Based on data for 11 major lender groups accounting for about projects. This is because potential cost overruns, 95 per cent of total mortgage debt outstanding on structures with 5 or more units, as reported by the HUD. “Construction loans” materials shortages, labor strikes, adverse are in terms of originations; “long-term loans” are in terms of weather, and shifts in housing market conditions net acquisitions—originations plus net purchases. pose a special threat over the comparatively long production periods involved. Lenders have also been cautious about pro­ The severe problems experienced by mort- viding long-term financing for multifamily proj­ gage-oriented real estate investment trusts ects, given the deterioration in the quality of such (REIT’s) and other lenders in the wake of the credit in recent years. At life insurance compa­ unprecedented wave of condominium and rental nies, for example, delinquency and foreclosure project construction during 1972-74 left all rates on multifamily mortgages by mid-1976 lenders wary. The REIT’s, which grew rapidly were about four times higher than during the during the last boom and supplied as much as 1970-72 period. Indeed, net acquisitions of 30 per cent of all multifamily construction loans long-term multifamily mortgages by insurance originated in 1973, are not currently a signifi­ companies have fallen to low levels; these in­ cant source of supply. In 1976 commercial stitutions have been concentrating their long­ banks and savings and loan associations ac­ term investments in corporate bonds. Savings counted for most of the still limited volume of and loan associations have recently accounted multifamily construction loans. for nearly half of the reduced total, with com­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Housing in the Recovery 197 mercial banks and mutual savings banks sup­ and Section 236 programs for low- and moderplying most of the balance. ate-income families—were more than double Repayment problems on outstanding long­ the rate during earlier quarters of the recovery term multifamily mortgages have occurred as period, and they accounted for about 15 per cent many owners of rental projects have been caught of all multifamily starts. in a cost-revenue squeeze. On the average the Moreover, GNMA has issued about $2.8 bil­ expense of operating rental projects has risen lion of commitments to purchase belowover the past 3 years at a considerably faster market-rate, long-term mortgages for new pace than have available rents. The sharpest FHA-insured multifamily rental projects based increases have been in the costs of fuel and on a “tandem plan” initiated last year under utilities, although all major cost components the authority of the Emergency Housing Act of have increased significantly. Meanwhile, rent 1975, as amended. A total of $5 billion was controls—or the threat of such controls—have released during 1976 for this tandem plan in limited rent increases in some areas. As of the expectation that the funding would finance mid-1976, rent controls were in effect in about about 200,000 new units. The GNMA commit­ 230 communities—mostly along the east ment to supply long-term financing provides the coast—containing about 14 per cent of the U.S. type of firm back-up that developers need to urban population; an additional 14 per cent of secure construction loans from private sources. the population lives in areas where State laws In addition, the below-market contract interest permit rent controls or where State or local rate of IVz per cent on the mortgages enhances governments have recently considered rent con­ the profit potential of the rental projects. trol laws. Particularly under these conditions, Various institutional adjustments have also prospective returns on multifamily rental proj­ been made to stimulate additional activity in the ects have in many cases been too low and/or multifamily sector. For example, HUD recently uncertain to warrant new investment. introduced a co-insurance plan to enhance in­ Faced with eroding net income, some land­ vestor interest in the security issues of State lords have offered their properties for condo­ home finance agencies. Also in 1976 the Federal minium sale, and others have sought to support Home Loan Bank Board granted Federally their net income from rental projects by use of chartered savings and loan associations author­ contracts that require tenants to pay directly for ity to use variable-rate mortgages in financing electricity, heating, and certain other variable multifamily—as well as commercial— costs associated with occupancy. The latter properties. In addition, attempts have been methods help landlords maintain levels of serv­ made by both the FHLMC and the Federal ices for tenants without serious erosion of net National Mortgage Association to develop a income. broader secondary market for conventional multifamily mortgages. In particular, the FHLMC recently instituted a program whereby F ed era l S u bsid y P rogram s it makes commitments, in advance, to buy such a n d In stitu tio n a l A d ju stm en ts mortgages from private financial institutions. The pick-up in multifamily housing starts in the The Tax Reform Act of 1976, passed in latter half of 1976 was associated partly with September, appreciably limits the availability of an acceleration in activity under Federal subsidy tax shelters that had provided inducements to programs at a time when the prospects for investors to accept the risk of rental property profitable operation of rental projects were im­ ownership. Accelerated depreciation on apart­ proving somewhat. In the second half of last ment structures must now be treated as ordinary year, starts under rental assistance programs of income when the property is sold—as is true the U.S. Department of Housing and Urban for other types of income properties. However, Development (HUD)—primarily the Section 8 partly in recognition of the special problems Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

198 Federal Reserve Bulletin □ March 1977 being faced by multifamily real estate, some of reflected a downward adjustment in dealers’ the tax reform changes have been deferred. For inventory positions after a large build-up. Indi­ example, the requirement that investors in mul­ cations are that the modest recovery in mobile tifamily projects capitalize interest and tax pay­ home shipments during the past year and a half ments incurred during the construction period has been associated with a roughly similar up­ and amortize these costs over a period of years trend in sales. will not become fully effective for some time. C r ed it C o n d itio n s Limited availability of financing has constrained MOBILE HOMES sales of mobile homes during the current eco­ Manufacturers’ shipments of mobile homes to nomic recovery period. As in the case of the dealers and developers have turned modestly multifamily sector, this constraint reflects prob­ higher since mid-1975, following a sharp de­ lems inherited from the prior boom. In 1974 cline from a 650,000-unit annual rate early in credit conditions tightened considerably as the 1973 to a 200,000-unit rate in the second quarter economic recession deepened and loan delin­ of 1975. Part of this drop in shipments had quencies and repossessions of financed units rose. Although repossession rates have declined significantly since early 1975, delinquency rates have remained at advanced levels. 11. Mobile home financing In this environment, average interest rates on Per cent conventional loans to finance purchases of mo­ ‘V. 'C ' . • \ ‘ ‘" ’ bile homes have held around the highs reached in mid-1975. Moreover, average contract ma­ Repossession rate / \ turities—which had lengthened considerably earlier in the 1970’s—and average loan/value Delinquency rate ratios have changed little. Apparently more WmSmKKHKI HBHI stringent credit standards have also been applied Per cent in granting new loans for the purchase of mobile homes. Both commercial banks and finance companies, which together account for about three-fourths of total mobile home credit out­ standing, have experienced a net contraction in their holdings of such loans during the past 2 years. Number of months N o n fin a n c ia l F actors In addition to the credit factors that have tended to limit sales of mobile homes, the sluggishness of the recovery in this sector of 1972 1974 1976 housing has reflected several important nonfi­ nancial developments. These have included Quarterly averages computed from seasonally adjusted monthly or bimonthly data. Delinquencies and repossessions continued high unemployment among younger are for a sample of commercial banks, from the American Bankers Association. The delinquency rate is the proportion and lower-income households—population seg­ of the number of mobile home loans outstanding that are 30 days or more past due. The repossession rate is the number ments that typically are most likely to con­ of units repossessed, at an annual rate, as a proportion of the sider purchase of mobile homes. Moreover, number of loans outstanding. “Interest rate” and “contract maturity” are for finance companies reporting directly to the upgraded construction and safety standards F.R. Interest rates are annual percentage rates as defined by Regulation Z. adopted in recent years, as well as higher site Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Housing in the Recovery 199 costs, have added further to the dollar outlays homes that are purchased with a lot eligible for required of buyers. Zoning restrictions, envi­ subsidy under the Section 235 program. ronmental considerations, and the limited avail­ ★ ★ ★ ability of suitable sites have also continued to be problems. All aspects of homebuilding—the production of mobile homes, additions and alterations to existing housing, and the construction of new A d ju stm en ts in G o v er n m en tconventionally built dwellings—have contrib­ U n d er w r itten uted in some degree to the upswing in expendi­ L o a n A r ra n g em en ts tures on housing. As measured in the national A number of changes in Government programs income and product accounts, residential in­ have been introduced that may help increase vestment expenditures also reflect a relatively mobile home activity further over the period large amount of income in the form of sales ahead. For example, to facilitate buyer use of commissions on the extremely large number of low-downpayment FHA financing under condi­ transactions in new and existing homes at higher tions of rising prices, in 1976 HUD increased prices. By early 1977 the current-dollar value the limits for FHA-insured mobile home loans of this expenditures component, taken as a to $12,500 for single-width units and to $20,000 whole, had already increased on the order of for those that are made up of two or more $35 billion from its low 2 years earlier; in modules. Moreover, the VA raised its maximum constant-dollar terms this represented an expan­ guaranty for mobile home loans to 50 per cent sion of more than 50 per cent. Given the mo­ from 30 per cent, and early this year such loans mentum of the rise in housing starts, as well were made eligible for pools backing issues of as the strength of financial and nonfinancial GNMA-guaranteed securities. HUD also re­ forces helping to sustain this rise, the upswing vised its Title I loan program for mobile homes in residential investment is likely to contribute to cover both the housing units and the lots they further to the evolving recovery in the general occupy, and it made those loans on mobile economy. □ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

200 Federal Reserve Bulletin □ March 1977 Treasury and Federal Reserve Foreign Exchange Operations This 30th joint interim report reflects the pate both economic developments and possible Treasury-Federal Reserve policy of making policy changes, swings in sentiment generated available additional information on foreign ex­ large-scale shifts of funds into and out of some change operations from time to time. The Fed­ currencies. Among those that had weakened eral Reserve Bank of New York acts as agent early in 1976, the pound sterling and the Italian for both the Treasury and the Federal Open lira came under renewed pressure, while other Market Committee of the Federal Reserve Sys­ currencies—such as the Mexican peso and the tem in the conduct of foreign exchange opera­ Canadian dollar—were also heavily on offer at tions. various times during the period. Meanwhile, This report was prepared by Alan R. Holmes, speculation over a realignment within the Euro­ Manager, System Open Market Account, and pean Community (EC) currency arrangement Executive Vice President in charge of the put the “snake” margins under renewed pres­ Foreign Function of the Federal Reserve Bank sure. And the Japanese yen was also subjected of New York, and by Scott E. Pardee, Deputy to reversals in market assessment. Manager for Foreign Operations of the System The authorities of several countries moved to Open Market Account and a Vice President in the Foreign Function of the Federal Reserve 1. Federal Reserve Bank of New York. It covers the period August reciprocal currency arrangements 1976 through January 1977. Previous reports have been published in the March and Sep­ In millions of dollars tember Bulletins of each year beginning with September 1962. Amount of Institution facility, Jan. 31, 1977 During the August 1976-January 1977 period under review, market participants remained Austrian National Bank ... 250 sensitive to the possibility of further sharp rate National Bank of Belgium 1,000 Bank of Canada .................. 2,000 movements for major currencies as wide National Bank of Denmark 250 disparities in economic performance persisted Bank of England ................ 3.000 among industrial countries. With the pace of Bank of France ........... 2.000 German Federal Bank 2,000 economic expansion slowing in several coun­ Bank of Italy .............. 3.000 Bank of Japan ............ 2.000 tries during the summer and early fall, many Bank of Mexico ......... 360 traders became concerned that individual gov­ Netherlands Bank __ 500 ernments might not succeed in achieving greater Bank of Norway __ 250 Bank of Sweden ....... 300 price stability and payments equilibrium in the Swiss National Bank 1,400 face of historically high unemployment rates Bank for International Settlements: and mounting political pressures to stimulate Swiss francs/dollars ..................... 600 Other authorized European domestic demand. currencies/dollars ..................... 1,250 Total .......................................... 20,160 Consequently, as the market sought to antici­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 201 2. Federal Reserve System activity under its reciprocal swap lines In millions of dollars equivalent Drawings,, or repayments (—) System System commit­ 1976 1977 commit­ Transactions with- ments , ments, Jan. 1, Jan. 31, 1976 Ql Q2 Q3 Q4 Jan. 1977 National Bank of Belgium ........... 297.6 -86.5 -83.7 -100.0 -27.4 133.91 German Federal Bank ................... 1-26.4J - 107.5 l'4;;9 -M i} Netherlands Bank ............................ 19.61 19.6J Swiss National Bank ..................... 567.2 ^oo.ol ...2—1,147.2 1-20.0J Bank for International Settlements (Swiss francs) .............................. |600.0 -600.0 Total ......................................... -191.2 -100.0 14 -14.9 752.6 -1,174• • 9 6J 1 Consolidation of Swiss franc debt. 2The Federal Reserve repaid the outstanding $1,147.2 million equivalent of its pre-August 1971 Swiss franc swap indebtedness and took down the same amount of the newly created special swap line designed to refund the short-term obligation into a medium-term obligation, which is being reduced as drawings are repaid over a 3-year period (see Table 3). Note.—Discrepancies in totals are due to rounding. bring about internal and external balance in their ropean markets. But in addition, sentiment economies and to restore order in the exchange toward the dollar shifted in response to the pause markets. The U.K. authorities adopted a pro­ in the U.S. recovery, which spurred a gradual gram of fiscal and monetary restraint tied to reassessment of the outlook for interest rates. agreement on important medium-term credits. As U. S. short-term interest rates declined while These included a $3.9 billion standby arrange­ comparable rates elsewhere held steady or ad­ ment with the International Monetary Fund vanced somewhat, the narrowing in interest rate (IMF) and a $3 billion arrangement with the differentials prompted flows out of dollars. At major central banks and the Bank for Interna­ times, other uncertainties—over the U.S. elec­ tional Settlements (BIS) to deal with official tion, over our widening trade deficit, and over sterling balances. The governments in France a potentially large Organization of Petroleum and Italy also introduced broad-based stabiliza­ Exporting Countries (OPEC) price hike—had an tion programs, including fiscal and monetary adverse effect on market psychology. measures and direct controls. In late October By early January 1977 the dollar had there­ the governments participating in the snake ar­ fore declined by some 10 per cent from late-July rangement agreed on a parity realignment in levels against the German mark and the other which the German mark was adjusted upward currencies linked to it. Much of the dollar’s by 2 to 6 per cent against its partner currencies. decline was gradual and trading in New York Although many disparities in economic per­ was generally orderly. But on those days when formance remained in early 1977, these various the market became unsettled, the Federal Re­ corrective measures were interpreted by the serve countered with moderate offerings of market to be steps in the right direction and marks to stabilize trading conditions. There­ therefore helpful in alleviating many of the after, however, the market’s attitude toward the tensions in the exchanges. dollar was buoyed by economic indicators that During the period, the dollar was again suggested the U.S. economy was picking up caught up in the crosscurrent affecting the Eu­ steam once again, and by a reversal in interest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

202 Federal Reserve Bulletin □ March 1977 3. Federal Reserve System drawings and repayments under special swap arrangement with the Swiss National Bank In millions of dollars equivalent Drawings, or repayments ( —) System System swap swap Transactions with— commit­ 1976 1977 comitments , ments, Jan. 1, Jan. 31, 1976 1977 Ql Q2 Q3 Q4 Jan. Swiss National Bank ..................................... fl,147.21 -58.4 992.5 1 -96.2 j Jl,147.21 Total ......................................................... -58.4 992.5 I -96.2/ Note.—Discrepancies in totals are due to rounding. Data are on a value-date basis with the exception of the last two columns that include transactions executed in late January for value after the reporting period. differentials as U.S. rates firmed while those the sale of $48.1 million equivalent of German abroad eased. The dollar then came into demand marks, $4.8 million of French francs, and $.04 and firmed against the main continental curren­ million of Dutch guilders. The marks and cies through the end of January. French francs came from balances acquired in In exchange-market intervention during the the market during the period, while the guilders August 1976-January 1977 period, the Federal came from existing holdings. Finally, by No­ Reserve sold $175.6 million equivalent of vember, using Belgian francs acquired from marks, of which $160.7 million was from bal­ correspondents and in the market, the Federal ances acquired before and during the period and Reserve liquidated the last $82.4 million equiv­ $14.9 million was drawn in December under alent of swap debt to the National Bank of the swap line with the German Federal Bank. Belgium outstanding since August 1971. That swap drawing was quickly repaid in Jan­ Also during the period, the Bank of England uary when the dollar’s buoyancy enabled the drew in September a further $100 million each System, by purchases in the market and from on the Federal Reserve and U.S. Treasury that correspondents, to rebuild balances once again. was in proportion to British drawings on other In all, the System bought $205.0 million of participants in the June 1976 standby credit marks during the 6-month period. facility. Total drawings on the System and the Moreover, pursuant to an agreement in late Treasury were thereby increased to $300 million October between the U.S. authorities and the each. These drawings were repaid in full at their Swiss National Bank for repayment in 3 years maturity when the facility terminated on De­ of Federal Reserve and U.S. Treasury debt in cember 9, along with drawings on other partici­ Swiss francs outstanding from August 1971, the pants. The Bank of Mexico repaid an earlier System repaid $154.6 million equivalent and the swap drawing of $360 million on the Federal Treasury repaid $86.1 million equivalent Reserve and drew a further $150 million, which through the end of January. Most of the francs it arranged to repay at maturity in February. The were purchased directly from the Swiss National Bank of Mexico also drew and repaid a total Bank against dollars. But in addition, $7.9 of $365 million under a special short-term credit million of Swiss francs were acquired from facility initiated in September with the U.S. correspondents, while additional francs were Treasury. In addition, that central bank subse­ bought from the Swiss National Bank against quently drew a further $300 million under the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 203 4. Drawings and repayments on Federal Reserve System by its swap partners In millions of dollars Drawings, or repayments (—) Drawings Drawings on on Banks drawing on System System 1976 1977 System Jan. 1, Jan. 31, 1976 1977 Ql Q2 Q3 Q4 Jan. Bank of England ............................ J200.0 100.0 ...1 \ ... ... -300.0J Bank of Italy ................................... |500.0 -500.00] r Bank of Mexico .............................. 360.0 ... J 150.01 150.0 1-360.0J Bank for International Settlements (against German marks) ........... f 14.0 37.01 ■' 14.0 -37.0J Total ......................................... SftrtO J 574 0 137 0 15001 150.0 500.U |_ 140 -537.0 —660.0J Exchange Stabilization Agreement, of which Meanwhile, against the dollar, the mark $150 million was outstanding at the end of leveled off below $0.3900 in the late spring and January 1977. early summer, as the market considered the German and U.S. economies to be broadly in phase, even to the extent of entering the pause in growth at roughly the same time. Traders GERMAN MARK nevertheless remained concerned that changing During most of early 1976 the exchange markets money market conditions might at any time were bullish for the German mark. By that time, generate a reversal of the heavy volume of funds the economy was expanding smartly. Export German banks had previously placed abroad in growth continued strong enough to keep Ger­ dollars and other currencies. Moreover, persist­ many’s trade and current accounts in substantial ent expectations of a mark revaluation against surplus even though imports were on the rise. the other EC currencies sometime before or after And Germany’s rate of inflation, at around 5 the German general elections in early October per cent per annum, remained one of the lowest left traders poised to buy marks at the first sign among industrial countries and was continuing that it was strengthening once again. to moderate. This picture contrasted sharply Against this background, market speculation with that for many of Germany’s trading over a realignment within the snake was quickly partners in Europe where more rapid economic reignited when sizable orders to buy marks activity was leading to a deterioration in cur­ triggered a sharp rise in the spot rate in late rent-account balances and upward pressure on July. The mark moved quickly to its upper wages and prices. Although by early summer intervention limit against several of the other the markets had settled down somewhat after snake currencies. There it came under recurrent the strains of January-March, expectations re­ waves of heavy demand during August, as mained that sooner or later the mark would dealers built up mark positions and commercial appreciate against the currencies of other Euro­ leads and lags shifted in Germany’s favor. The pean countries with significantly higher rates of German Federal Bank and the other snake cen­ inflation. Thus, the mark held firm at the ceiling tral banks intervened forcefully in one another’s of the EC band, while the other currencies in currencies to keep their exchange rates within the arrangement remained clustered near the the prescribed limits. At the same time the dollar bottom. again became caught up in the pressures of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

204 Federal Reserve Bulletin □ March 1977 ulation could resurface at any time and that 5. U.S. Treasury securities, Germany’s exchange-rate policy might once foreign currency series more emerge as a campaign issue in the closing In millions of dollars equivalent days of a close contest for the upcoming general elections. As a result, trading remained nervous, Period Swiss National the German Federal Bank made further large Bank Total purchases of dollars, and the Federal Reserve Commitments sold a further $16.3 million equivalent of marks in New York on 2 days, September 16 and 24. Jan. 1, 1976................ 1,599.3 1,599.3 With the approach of the October 3 German elections, the mark came into renewed specula­ Issues, or redemptions ( —) tive demand late in September. The snake again became fully extended and the German Federal 1976—Q l................ Q2............... Bank intervened heavily, along with other par­ Q3................ Q4................ -53.6 -53.6 ticipating central banks, to maintain the limits. Jan. 1977 ............... -32.6 -32.6 As these tensions resurfaced, the mark also advanced against the dollar following news of Commitments another large U.S. trade deficit and of a decline Jan. 31, 1977.............. 1,513.1 1,513.1 in leading economic indicators announced for August. Note.—Data are on a value-date basis with the exception of the last two items, which include transactions executed in After the election, no parity changes were late January for value after the reporting period. announced, but the market was kept on edge by persistent talk about the possibility of a mark revaluation. Thus, the mark remained in de­ snake, and, as the mark strengthened, the Ger­ mand through midmonth, advancing to man Federal Bank purchased sizable amounts $0.4117, more than 6 per cent above the levels of dollars in Frankfurt. To maintain orderly of late July. The Federal Reserve sold an addi­ conditions in New York, the Federal Reserve tional $20.9 million equivalent of marks from followed up by selling $15.9 million equivalent balances when trading became unsettled in New of marks from balances on August 16-17, the York on October 5-6. Meanwhile, the German System’s first intervention sales since March. Federal Bank purchased dollars to moderate the By September in the wake of the large-scale mark’s rise. Intervention in snake currencies and official intervention and monetary measures in dollars was largely responsible for the $2.8 taken in Europe, the immediate pressures within billion increase in German reserves during the the snake had temporarily tapered off. But sen­ 3 months, July-October. timent toward the mark remained bullish. Re­ On Sunday, October 17, the EC finance min­ ports of increased foreign orders on top of an isters and central bank governors meeting in already large trade surplus for July provided an Frankfurt agreed on a realignment of parities optimistic outlook for Germany’s future trade within the joint float to avoid a repetition of performance. In addition, reports suggesting a the speculative pressures of previous months. continued pause in the U.S. recovery generated The German authorities announced a 2 per cent expectations of a protracted decline in U.S. revaluation of the mark, which, together with money market rates while German rates were the parity changes by Scandinavian members of expected to hold steady or rise somewhat. the EC monetary arrangement, resulted in a Moreover, as sterling dropped sharply in the parity adjustment of 2 per cent to 6 per cent exchanges early in September, the shift of funds between the mark and other snake currencies. out of sterling into marks magnified the demand After some initial hesitancy in the market, for the German currency all the more. Conse­ the mark soon dropped to the bottom of the quently, the market remained fearful that spec­ realigned joint float, and, against the snake Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 205 currencies, it began to trade below levels pre­ moves contrasted with the German Federal Bank vailing before the realignment was announced. announcement of an 8 per cent target for the By the end of October a substantial unwinding growth of central bank money in 1977—a target of commercial leads and lags was under way. interpreted as restrictive in view of the much The other central banks participating in the EC more rapid growth of the preceding months. As monetary agreement quickly took advantage of a result, interest differentials favorable to the these reflows to buy marks in the market to dollar were squeezed out by early December. repay their indebtedness stemming from pre­ At the same time, the possibility of a sizable vious interventions. These official purchases of hike in oil prices at the upcoming OPEC talks marks also had the effect of absorbing some of weighed on the dollar. the liquidity created in Germany as a result of Thus, the mark was in demand throughout the huge currency inflows of preceding months. December, and this demand intensified as Ger­ To bring the pace of monetary expansion back man banks sought to satisfy year-end needs by closer to the target levels for 1976 as a whole, acquiring marks in the exchange market. Most the Federal Bank reinforced the process by of this bidding for marks was concentrated dur­ selling large amounts of German Government ing the European trading day and, to provide securities in the open market. resistance to a cumulative rise in the mark rate, As a result, the mark did not ease against the Federal Bank bought substantial amounts of the dollar as it did against other snake currencies dollars in Frankfurt. When these pressures but rose to around $0.4150. In general though, spilled over into the New York market, the trading was well balanced from the time of the Federal Reserve followed up with sales of marks EC realignment to mid-November. Only infre­ on 4 days during December, for a total of $74.5 quently did particularly large demands for marks million equivalent. Of this, $59.6 million come into the market in a way that put pressure equivalent was financed from System balances on the mark during the New York trading day. and $14.9 million equivalent was drawn under In particular, the mark became well bid on the swap arrangement with the German Federal October 19 and 26, in response to heavy shifts Bank. Nevertheless, the mark had firmed to out of sterling, and on November 22 following $0.4249 by the end of the year, a rise of 3Vi publication of disappointing economic indica­ per cent since the snake realignment of October tors for the United States. On these occasions 17. of market unsettlement, the Federal Reserve With the dollar declining, dealers had tended offered marks, selling a total of $22.9 million to ignore several recent reports pointing to a equivalent from balances. At other times the pick-up in U.S. economic activity—a substan­ Trading Desk was able to purchase modest tial increase in November’s leading economic amounts of marks for System balances mostly indicators, a surge in durable goods orders, and from correspondents but also in the market when strong Christmas retail sales. Instead, after the trading was quiet. passing of the year-end and particularly in the Over the rest of the year, however, the market light of the mark’s recent strength, market pro­ became increasingly sensitive to the relative fessionals began building new long-mark, progress of the economic recoveries in Germany short-dollar positions on the expectation that and the United States. Reports of a steep rise U.S. interest rates would go still lower and that in German industrial output in October gave rise the U.S. trade deficit would worsen this year to expectations that money market conditions while Germany’s trade surplus would increase. in the two countries would continue to diverge. Consequently, the mark extended its advance To the market, these expectations seemed to be against the dollar, reaching $0.4274 in Europe confirmed by the lA percentage point cut in on January 4, fully \Wa per cent above levels Federal Reserve discount rates on November 19 in late July 1976. To avoid an even sharper rise, and a technical reduction in reserve require­ the Federal Bank made sizable dollar purchases. ments announced on December 17. These The Federal Reserve followed up by selling $7.3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

206 Federal Reserve Bulletin □ March 1977 million equivalent of marks out of balances away from broad social welfare programs, while before the market turned around. seeking to restrain both public and private con­ The shift in sentiment in favor of the dollar sumption to make room for export growth. followed wire service reports of a 1 per cent But the delicate balance upon which the gov­ fall in German industrial production in No­ ernment’s strategy for gradually achieving eco­ vember. In addition, after the liquidity pressures nomic stability rested was brought into question of the year-end had passed, German short-term last spring. Between March and early June, the interest rates began to ease. Consequently, the pound fell by more than 15 per cent to $1.7065 mark began to move back on some professional against the dollar and nearly 12 percentage covering. The decline soon gathered momentum points to 41.9 per cent below the December as U.S. interest rates edged somewhat higher, 1971 Smithsonian agreement level on an effec­ as the market reacted favorably to the incoming tive basis against the major currencies. This Carter administration’s fiscal stimulus propos­ drop left the market badly shaken. als, and as substantial amounts of funds flowed Following announcement of a $5.3 billion out of marks back into sterling. package of standby credits from the Group of By late January the mark eased back 4 per Ten countries plus Switzerland and the BIS, the cent to $0.4101. In cushioning the mark’s de­ pound recovered some 4 per cent from its June cline, the Federal Bank sold modest amounts low to trade between $1.77 and $1.78. The of dollars in Frankfurt while the Federal Reserve market nevertheless remained volatile, and the bought $90.1 million equivalent to repay in full British authorities continued to intervene at its recent swap drawing and to replenish System times in sizable amounts. To replenish reserves, balances. On January 31, however, widespread the Bank of England drew late in June $1.03 publicity about the disruptive economic effects billion on the standby facility, including $200 of severe winter conditions in the United States million under the Federal Reserve swap line and triggered a burst of demand for marks and other $200 million from the U.S. Treasury’s Ex­ European currencies, and the Federal Reserve change Stabilization Fund. sold $17.8 million equivalent of marks from During the summer the sterling market was balances to stabilize trading conditions. The in better balance, with the spot rate still above mark thus closed the period at $0.4157, some $1.77, until latent uneasiness about Britain’s IV4 per cent above levels in late July 1976. economic prospects resurfaced in late August. Meanwhile, by the end of January 1977 German The immediate catalyst for reassessment was the reserves had fallen by $1.3 billion from the peak highly publicized water shortage in Britain, re­ at the end of October 1976 for a net rise of sulting from a record drought, which raised the $1.5 billion since July 1976. possibility of cutbacks in production and em­ ployment in several parts of the country. And by then the evident pause in other industrial economies had dimmed hopes that the United STERLING Kingdom would be pulled out of recession by For some time the British economy has been rising export demand. At home the economy plagued by one of the highest inflation rates in was stagnant, unemployment was still increas­ Europe, disappointingly slow economic growth, ing, and the inflation rate was beginning to edge and a persistently large deficit in its balance of upward again, in large part because of spiraling payments. To address these underlying prob­ import costs. In addition, the market focused lems, during the spring of 1976 the authorities increasingly on the size of Britain’s large public successfully secured trade union agreement to sector deficit—even after the government’s an­ a second 1-year phase of wage restraint in nouncement in July of planned cutbacks in gov­ exchange for some tax relief. For the longer ernment expenditures for the next fiscal year— term, the government announced a shift in as well as on the potential threat of a ballooning priorities toward stimulating key industries and in the money supply should the debt not be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 207 financed through sales of government bonds. tember 29 that Britain intended to apply for $3.9 The aggregates already had increased rapidly in billion in further credits from the IMF to repay July, and this was seen not only as a potential borrowings under the June $5.3 billion standby source of inflation but also as an indication of credit facility scheduled to expire December 9. large-scale British financing of adverse leads Also, to offset recent reserve losses, the British and lags against sterling. authorities again drew on the standby facility, In the face of these various uncertainties, the obtaining another $100 million each from the pound came on offer again in late August. Federal Reserve and the U.S. Treasury— Market sentiment soured further over subse­ amounts that were in proportion to drawings on quent weeks on reports of strikes and wage other countries participating in that facility. demands beyond the bounds of the govern­ Shortly thereafter, the authorities moved further ment’s incomes policy, as well as in reaction to tighten liquidity and to drive up the cost of to official figures showing a reduction of 905 financing short sterling positions. The Bank of million pounds in foreign official holdings of England raised the minimum lending rate an­ sterling balances in the second quarter. In re­ other 2 percentage points to an unprecedented sponse, sizable commercial selling (including 15 per cent, called a second round of special outflows to finance third-country trade), several deposits to absorb more liquidity, and operated large “sell” orders thought to have been from forcefully in the market for short-dated swaps. the Middle East, and outright dealer positioning These policy initiatives drew favorable com­ against sterling weighed heavily on the pound. ments both in the market and from foreign At first, the Bank of England provided substan­ government officials. In addition, the resulting tial support to keep the pound around the $1.77 squeeze in the domestic and Euro-sterling level. But when the selling pressure persisted, money markets helped the pound to steady at the authorities cut back on intervention to con­ around $1.65 during early October. Never­ serve official reserves. Instead, the Bank of theless, sterling’s 7 per cent depreciation from England hiked its minimum lending rate by 1V2 the $1.77 level left the market fearful that pres­ percentage points to 13 per cent, issued a call sure could re-emerge at any time. In addition, for special deposits to drain bank liquidity, and a disagreement within the Labour Party over the announced a new long-term government bond degree of restrictiveness the government should issue yielding close to 15 per cent. accept in negotiating terms and conditions of Nevertheless, heavy commercial and profes­ the IMF loan introduced another layer of uncer­ sional selling continued, and by late September tainty into the market. the pound had been pushed down to nearly In this atmosphere, a London newspaper ar­ $1.70. At that point the Labour Party’s annual ticle—alleging that the IMF and the U.S. conference provided a platform for sharp criti­ Treasury had proposed that the pound be al­ cism of the government’s planned public ex­ lowed to depreciate to $1.50 as a precondition penditure cuts as well as for demands for import for IMF credit—touched off widespread selling controls to protect British jobs. Following of sterling as soon as markets opened on Mon­ widespread press coverage of these disputes, the day, October 25. Even though the report was pound came under further pressure and was firmly denied by IMF, U.S., and British driven below $1.70. Once the rate moved officials, the pound dropped precipitously, de­ through this benchmark without meeting any clining almost 5 per cent in early trading. In market resistance, the slide quickly gathered an attempt to restore order in the market, the momentum, and by September 28 the rate had Bank of England intervened forcefully. But this plunged to a low of $1.6320 before steadying quick and unprecedented plunge in the rate left somewhat. the market thoroughly confused over the appro­ To “buy time for the market to give a more priate level for sterling and kept the pound positive assessment of government economic vulnerable to every rumor or press report about policy,” Chancellor Healey announced on Sep­ the IMF loan conditions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

208 Federal Reserve Bulletin □ March 1977 Thus, when reports came over the news ser­ and the sale of part of the British government’s vices that the Labour Party National Executive holdings in British Petroleum—measures ex­ had voted to oppose further cuts in public pected to reduce the public sector borrowing spending, the pound fell to a record low of requirement as a share of gross domestic product $1.5550 on the morning of October 28. At this from 9 to 6 per cent for the 1977-78 fiscal year. level, the pound had sunk some 13 per cent The Chancellor also revealed targets for do­ below the end-of-July levels and to 48.8 per mestic credit expansion over the next 3 years cent on a trade-weighted average basis. Mean­ that would meet IMF conditions for keeping a while, during the 3 months to the end of Oc­ tight rein on monetary expansion. In addition, tober, reserves dropped over $600 million, even to prefinance IMF drawings, he announced after the $515 million of drawings on the June standby swap facilities of $350 million with standby facility and the receipt of more than Germany and of $500 million with the United $500 million in public sector borrowings States (of which the Federal Reserve and the abroad. Exchange Stabilization Fund would each pro­ By early November, however, the pound had vide $250 million). Finally, he indicated that bounced back above $1.60, following the first there was a general desire among the major reports that negotiations might be under way countries to achieve a satisfactory arrangement with Germany, Japan, and the United States for for the sterling balances. major new credits to deal with the problems of After some initial hesitancy in the market, official sterling balances. The pound then ad­ the pound was buoyed by an extreme shortage vanced to the $1.65 level by midmonth in a of funds in the London money market that was turnaround that was triggered in part by new only partially alleviated by the Bank of England. moves by the government to curb outflows and As settlements for the growing sales of British credit expansion. In particular, on November Government gilt-edged securities drained liquid­ 19, the authorities sealed off a gap in exchange - ity from the banking system just before the control regulations, through which sizable year-end, the banks bid for balances in the amounts of funds had flowed out during the exchanges. In addition, some fairly sizable summer, by restricting the use of the pound in commercial orders came into the market, also financing third-country trade—a measure ex­ for year-end purposes or for covering open pected to generate a substantial reflow over the positions taken up earlier in the year. Accord­ subsequent 6 months. In addition, the Bank of ingly, the rise in the pound gradually accelerated England reintroduced the supplementary deposit during December, and the rate reached $1.7080 scheme—the so-called “corset” regulation— by the month-end, some 10 per cent above its whereby banks place with the central bank a late-October low. Meanwhile, the Bank of rising proportion of the increase in interest- England repaid, upon maturity, its drawings of bearing deposit liabilities above specified levels. $300 million each on the Federal Reserve and The pound’s turnaround in November also the Exchange Stabilization Fund as part of its reflected growing market expectations that the total $1,545 million repayment of outstanding government was reaching an accommodation credits on the standby facility. Partly as a result, over the terms of a new IMF package, even British reserves fell to $4.1 billion by the yearif that were to involve severe fiscal restraints. end, their lowest level in 6 years. As the market awaited the announcement of new In early January, announcement of the IMF’s budgetary measures, these expectations solidi­ official approval of the $3.9 billion loan to fied and sterling advanced to $1.6857 by De­ Britain further reassured the market. Moreover, cember 15, while the Bank of England bought following discussions in Paris and Basle, the dollars in the market to moderate the rise. In central banks of the major industrial countries the budget message that day, the Chancellor reached agreement on a plan to deal with the announced cuts in public spending over the next sterling balances. Under this plan, 11 countries two fiscal years, an increase in indirect taxation, (the United States, Germany, Japan, Switzer­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 209 land, Belgium, the Netherlands, Canada, Aus­ purchases of dollars in January had, along with tria, Sweden, Norway, and Denmark) would the initial takedown on Britain’s IMF standby, provide up to $3 billion to the BIS to back up contributed to a $3.1 billion increase in reserves British drawings for financing net reductions in for the month. As a result, Britain’s foreign official sterling holdings below December 1976 exchange reserves stood at $7.2 billion on Jan­ levels. Of this, the Federal Reserve and the U.S. uary 31, $1.8 billion more than 6 months be­ Treasury would provide $1 billion. For their fore. part, the British authorities would offer me­ dium-term, foreign-currency-denominated se­ SWISS FRANC curities to official holders to fund part of the total sterling balances and to achieve an orderly During the first half of 1976, the Swiss franc reduction in the reserve currency role of the was propelled progressively higher against all pound. The Managing Director of the IMF was major currencies. Switzerland’s inflation rate also requested to assist in the implementation declined to about 3Vi per cent, the lowest among of the agreement. the industrial countries, while an unprecedented Announcement of these agreements early in trade surplus swelled the Swiss current-account January triggered a sharp jump in the sterling surplus to nearly 10 per cent of GNP. Moreover, rate to as high as $1.7350, before it subse­ large amounts of funds were drawn into francs quently leveled off at about $1.7150. Then, the as market participants sought protection against long process of reversing previously adverse the severe uncertainties plaguing many other commercial leads and lags and of unwinding European currencies at the time. At home, sterling credits used in third-country trade fi­ however, the Swiss economy was stagnant, with nancing generated a steady demand for sterling. over-all economic activity only a little higher At the same time, British interest rates moved than at the trough of the 1975 recession. While progressively lower, as reflected in the six cuts the appreciation of the franc helped to reduce in the Bank of England’s minimum lending rate import costs significantly, it also led to a deteri­ from the 15 per cent level of mid-November oration of profitability in Switzerland’s export to 12% per cent on January 28. In addition, industries and in turn exerted a drag on invest­ the central bank scaled back its earlier calls for ment. special deposits. Under these circumstances, Consequently, the Swiss authorities moved to prospects of capital gains spurred some flows limit the franc’s rise in the exchanges. They of foreign funds into British securities. intervened to buy large amounts of dollars, both Late in the month the authorities announced in Zurich and through the Federal Reserve Bank a $ 1.5 billion Euro-dollar loan with a syndicate of New York, offsetting enough of these pur­ of European and North American commercial chases with sales to foreign borrowers, who banks, which gave a further boost to the pound. were required to convert the proceeds of their As a result, spot sterling traded firmly during borrowings in Switzerland with the central January while the Bank of England took the bank, to avoid jeopardizing the monetary target opportunity to buy dollars in the market and to for the year. In addition, the Swiss authorities rebuild its official reserve position. At $1.7149 imposed additional exchange controls, restrict­ by month-end the pound was up 10V2 per cent ing the importation of large foreign bank notes from its October low and was only 4 per cent in April and adopting quotas in June to curtail below late-July 1976 levels. On a trade- forward sales of Swiss currency to nonresidents weighted average basis, sterling’s depreciation while entering into a gentleman’s agreement since the 1971 Smithsonian agreement had nar­ whereby Swiss banks would refrain from ac­ rowed 6 percentage points from the record low cepting franc deposits abroad. Moreover, the reached in October to 42.8 per cent, compared Swiss National Bank reduced its discount and with 38.8 per cent at the end of July 1976. Lombard rates to the lowest levels in 10 years Meanwhile, the Bank of England’s large-scale to bring down domestic interest rates, and it Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

210 Federal Reserve Bulletin □ March 1977 indicated a willingness to continue to provide purchases amounted to nearly $2 billion, well temporary liquidity through dollar swaps with in excess of the dollar sales under the capital the commercial banks to maintain a comfortable export conversion program. money market. As a result, the Swiss franc continued to drop By late July these various measures had back further against the German mark and other begun to take effect. The Swiss franc eased back European currencies while trading narrowly 5V4 per cent from its peak levels of early against the dollar. Then in January 1977, with June to $0.3981, while slipping some 5Vi per economic stagnation in Switzerland contrasting cent lower against the German mark. In contrast sharply with the improved outlook emerging in to previous periods of turbulence in the ex­ the United States, the franc eased back in the changes, trading in Swiss francs remained rela­ generalized decline of European currencies tively quiet as renewed tensions built up in the against the dollar to end the period at $0.3990. EC snake during August. Now that interest rates At this level, from the record highs of June in Switzerland were well below those elsewhere 1976, the franc had declined by a net 5 per cent in Europe and were expected to decline further against the dollar and fully 113A per cent against as the Swiss authorities pursued their accom­ the mark. modative monetary policy, funds flowed in­ In October the Federal Reserve and the U.S. creasingly back out of francs into marks. Treasury reached agreement with the Swiss Na­ In addition, a move into deficit in the trade tional Bank on an orderly procedure to repay accounts during the summer led some market over 3 years the Swiss franc indebtedness re­ participants to question whether Switzerland maining from August 1971. This included would continue to show the unusually strong $1,147.2 million equivalent of drawings under trade performance of recent months. As a result, the Federal Reserve swap line, as well as the the franc gradually dropped back against the $1,599.3 million equivalent of U.S. Treasury mark throughout the fall, declining by some 4 Swiss franc-denominated notes. In this connec­ per cent between the end of July and late No­ tion the Federal Reserve’s drawings on the vember. Against the dollar, however, the franc original swap agreement with the National Bank was pulled up by the rise of the mark to trade were repaid on October 29, using Swiss francs around $0.4100 through late November with the drawn under a newly established special swap National Bank intervening frequently to moder­ facility, which, in turn, will be reduced as the ate daily movements in the rate. swap is repaid over the 3-year period. By late 1976 the Swiss economy was still The System then began to liquidate its obli­ failing to show any signs of expansion. The gations in accordance with the new arrange­ continued softness in domestic demand was ment, primarily using francs purchased directly reflected in a further reduction in inflation to from the Swiss National Bank against dollars just 1 per cent at an annual rate, its lowest since and other foreign currencies. By the end of the the mid-1960’s. The current account remained period the Federal Reserve had repaid $154.6 in large surplus, totaling some $3.5 billion for million equivalent, leaving $992.5 million out­ the year as a whole. In the absence of any standing as of January 31, 1977. During this upward pressures on domestic prices and with same period the U.S. Treasury purchased suffi­ growth in the monetary base lagging, the Swiss cient francs directly from the Swiss National authorities stepped up their efforts to provide Bank to repay $86.1 million equivalent of liquidity to the banking system. While continu­ franc-denominated securities, leaving $1,513.1 ing to accommodate the banks’ temporary needs million equivalent outstanding as of January 31. with large amounts of dollar swaps, the National Bank announced that it was prepared to inject FRENCH FRANC substantial Swiss francs on a permanent basis through dollar purchases in the exchange mar­ Last year the French authorities faced particu­ kets. Over November-December, these outright larly difficult policy choices. Although domestic Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 211 demand had recovered briskly from the reces­ On September 22 Prime Minister Barre an­ sion of 1974-75, this pick-up led to a greater nounced a wide-ranging set of measures de­ rise in imports than in exports and a sharp signed to balance the budget, to reduce the widening of the current-account deficit. At the French inflation rate, and to restore equilibrium same time, domestic inflation continued to hover to the balance of payments. These measures at a rate of nearly 10 per cent per annum, almost included increases in income taxes to offset double that of countries such as Germany and proposed reductions in value-added taxes and the United States. Early in the year the franc to finance aid to drought-stricken farmers. came under heavy selling pressure within the Moreover, to curb the cost of inflation, the EC arrangement on the expectation that sooner government imposed a 3-month price freeze on or later it would have to be adjusted downward most goods other than oil and called upon trade within the EC snake or otherwise depreciated unions to keep 1977 wage increases within the against the currencies of countries that had anticipated rise of retail prices. At the same time lower rates of inflation. In mid-March, when the monetary authorities lowered ceilings and the governments participating in the arrange­ reactivated reserve requirements on bank lend­ ment failed to agree on a realignment of parities, ing in order to achieve a 12.5 per cent monetary the French authorities decided to allow the franc growth target during the next year. Finally, to to float independently. Although the franc rate discourage further adverse shifts in commercial initially dropped by some 5XA per cent, it sub­ leads and lags while these longer-term measures sequently settled at about 2 per cent below its were taking hold, the Bank of France hiked its previous EC parity and traded around $0.2125 discount rate a further 1 percentage point to 10V2 against the dollar through early summer. per cent and imposed a modest tightening in During the summer, however, France was hit foreign exchange controls. by a severe drought, which threatened to push The market’s initial response was cautious, up food prices, cut agricultural exports, and in part because of the potentially controversial increase oil imports to compensate for lost hy­ nature of the tax increase and the call for wage droelectric power. By that time also, the do­ restraint, and the franc was marked down mestic economic expansion had slowed and, somewhat. Over subsequent weeks, as strains with rates of unemployment and inflation re­ emerged within France’s ruling coalition of maining uncomfortably high, the debate over parties, the market atmosphere became more economic policy choices in France had heated uncertain. In addition, talk of another large up considerably. Consequently, market concern OPEC oil price increase in December raised over the outlook for the franc resurfaced, and concern that such a move would undercut in late July and early August the franc came France’s domestic anti-inflationary effort and under renewed selling pressure. widen the trade deficit further. As a result, the Although the authorities countered by sharply franc came on offer during the late fall and early raising interest rates, the franc slipped back to winter, with pressure particularly strong at times a 2%-year low of $0.1986 by August 13, while of tension within the EC snake or pressures on easing a further 8 per cent against the EC snake sterling. The franc held generally above currencies. The spot rate then steadied after the $0.2000 vis-a-vis the dollar but declined, in government indicated it was working on a new parallel with the dollar, a further 6 per cent from economic stabilization program. Following a mid-August against the mark and other EC cabinet reshuffle in late August the new Prime snake currencies. To avert a steeper decline, the Minister, Raymond Barre, stressed his intention Bank of France kept a tight rein on domestic to give priority to curbing inflation and defend­ monetary conditions, thereby encouraging in­ ing the franc. Consequently, trading quieted flows of interest-sensitive funds by both nonres­ down and the rate rose to around $0.2030 idents and French companies. through mid-September as the market awaited Late in the year signs of an improvement the new program. began to appear in the French economic out­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

212 Federal Reserve Bulletin □ March 1977 look. The trade deficit narrowed significantly in oped, moreover, fiscal policy remained expan­ response to a sharp decline in French imports. sionary, threatening to blunt the effectiveness The OPEC oil price increase was not so large of the restrictive monetary measures adopted as feared. Moreover, the domestic price freeze during the spring to support the lira. To halt clearly was containing the rise in price indexes. the slide of the rate in early May, the authorities Although market sentiment toward the franc therefore resorted to a set of tough foreignremained cautious, the closing-out of positions exchange restrictions. The most important was taken earlier in the year and a reversal of pre­ a temporary 50 per cent deposit requirement on viously adverse commmercial leads and lags the lira countervalue of virtually all foreign contributed to a 1 per cent rise in the franc rate currency purchases by Italian residents, which before the year-end. mopped up some $5 billion equivalent of do­ In early 1977 the market atmosphere im­ mestic liquidity over the next 3 months and proved even further. Several of the strikes that stimulated sizable capital inflows. Meanwhile, had been threatened in response to the anti- as efforts to reach a political compromise to deal inflationary measures failed to materialize. The with Italy’s economic and social problems release of retail price figures showing a slow­ evaporated, new elections were set for late June. down in the inflation rate in December for the The outcome of those elections, a narrow but third consecutive month confirmed to the market clear-cut plurality for the Christian Democratic that the government’s price and wage restraints, Party over the Communist Party, gave an im­ resting heavily on voluntary compliance, were mediate boost to market sentiment. Delicate proving more effective than many traders had political compromises had to be struck, how­ expected. Moreover, although interest rates in ever, and several weeks passed before a minor­ France eased somewhat, they did not decline ity government under Prime Minister Andreotti so much as in other financial centers, and the was formed and confirmed by the Parliament. Bank of France did not join several other Euro­ Meanwhile, until broader policy measures could pean central banks in lowering its official lend­ be taken, the authorities maintained a squeeze ing rate. Thus, the franc remained relatively on domestic liquidity by extending the import firm throughout January, holding at $0.2012 deposit requirement for a further 3 months. This against the dollar by the month-end, while re­ squeeze continued to draw funds in from covering some 2 to 3 per cent against the Ger­ abroad, which, coupled with seasonally high man mark and other continental currencies. The tourist receipts and reversals of pre-election Bank of France was therefore able to add to outflows, kept the lira firm around $0.001197 reserves, with the result that official exchange (835 lire). The Bank of Italy took advantage holdings rose a net $264 million during the of the lira’s buoyancy to absorb large amounts August 1976-January 1977 period. of dollars in the market. Using these acquisi­ tions, that Bank not only repaid external indebt­ edness—including in late July the full $500 million drawn under the swap line with the ITALIAN LIRA Federal Reserve earlier in the year—but was The Italian lira was under severe pressure from able to add substantially to reserves. Although the beginning of 1976, dropping as much as 26 the pace of reflows began to slow late in August, per cent through early spring in response to the Bank of Italy was still able to repay $500 deep-rooted economic and political strains in million of its $2 billion gold collateral loan with Italy. Recovery of the domestic economy, the German Federal Bank, while extending the though still tentative, stimulated a rapid re­ arrangement itself for another 2 years. building of inventories, which, together with the By mid-September the Andreotti government rise in raw materials prices, swelled Italy’s had begun to negotiate the components of a import bill and turned the trade account into stabilization program with various political fac­ deep deficit. In the political impasse that devel­ tions. By that time, however, Italy’s inflation Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 213 rate was accelerating again, in part reflecting were increased, while cost-of-living-linked a surge in import costs. In response, the trade wage increases for certain high income groups unions maintained their resistance to the gov­ were ordered to be invested in government se­ ernment’s efforts to slow wage increases by curities. The market response was hesitant, modifying or eliminating the cost-of-living in­ however, as the limited change in wage indexa­ dexation system. Meanwhile, the scheduled ex­ tion was interpreted as underscoring the gov­ piration of the import deposit requirement in ernment’s difficulty in resolving this highly November was approaching. The market was charged political issue. Thus, sentiment toward concerned that, as these deposits ran off, new the lira remained bearish, and the authorities liquidity would be injected into the money mar­ again found it necessary to tighten exchange ket at a time when the Italian Treasury was still controls in an effort to avoid an outburst of borrowing heavily from the Bank of Italy to speculative selling when the special foreign ex­ finance the public sector deficit. Also, with the change tax terminated on October 15. Ceilings tourist season over, many market participants on Italian banks’ spot and forward positions were again expecting a deterioration of Italy’s were cut. Moreover, in a sweeping restriction, current account. the authorities prohibited until further notice In this uncertain atmosphere a gradual build­ nearly all nonresident drawings on existing up of commercial selling by Italian oil compa­ credit lines with Italian commercial banks. In nies and other firms pushed the lira progres­ addition, in order to bring credit growth back sively lower in late September. In response, the within the limits agreed with the EC, a ceiling Bank of Italy supported the lira in the market on the growth of loans was reintroduced on and the government arranged to phase out the October 15. Even after these measures were import deposit requirement gradually over 6 imposed, however, the removal of the foreign months from November. In addition, the au­ currency tax released a flood of pent-up foreign thorities imposed a V2 per cent levy on com­ currency demand that drove the lira back down mercial bank deposits to reduce liquidity by 550 to $0.001147 (872 lire). To cushion the decline billion lire. Nevertheless, as speculative pres­ in the rate, the Bank of Italy again had to sure in other European markets broadened to intervene heavily. Consequently, in a matter of envelop the lira, the spot rate fell off to a low days the authorities reimposed the tax on of $0.001146 (873 lire), down 4% per cent from foreign-exchange transactions—this time at 7 late July. per cent for 4 months beginning in October—to To check this pressure on the lira while the bridge the period until the new economic meas­ government completed negotiating its package ures could begin to improve the balance of of economic stabilization measures, the author­ payments. ities imposed a temporary 10 per cent tax, As a result of all the restrictions then in force, effective October 1-15, on most resident foreign the lira again came into demand. To avoid currency purchases to supplement the import incurring the deposit and tax requirements on deposit requirement still in force. In addition, spot purchases of foreign exchange, Italian im­ they hiked the discount rate a full 3 percentage porters sought additional short-term trade credits points to 15 per cent and raised cash financing abroad. At the same time, high domestic interest requirements on exports invoiced in foreign rates forced Italian commercial banks and other currencies from 30 per cent to 50 per cent. In market participants to shift an increasing amount response, the spot rate was immediately marked of their borrowing into the Euro-dollar market. up by as much as 4 per cent to trade at Moreover, the risk of severe penalties on $0.001190 (840 lire). breaching nonresident credit limits prompted On October 13 the government announced its foreign banks to build up working balances in proposals for increased taxes and sizable public lire. In addition, the lira also benefited from a spending cuts for 1977. In addition, regulated return flow of funds, placed illegally abroad prices for gasoline and for many public services earlier in the year, after the authorities extended Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

214 Federal Reserve Bulletin □ March 1977 their amnesty program to encourage further re­ only a further 3A per cent to $0.001134 (882 patriations. On the strength of these various lire) by the month-end, a net decline of 5lA per inflows of funds, the lira remained in demand cent for the 6 months since July 1976. through mid-December, fluctuating narrowly around $0.001156 (865 lire). The Bank of Italy took the opportunity to buy sizable amounts of NETHERLANDS GUILDER dollars virtually every day, thereby rebuilding official reserves by some $1.4 billion during During 1976 the Dutch guilder was caught up October and November. Early in December the in wide swings in market sentiment. In the Bank of Italy repaid the $486 million portion speculative atmosphere that emerged in Euro­ of the EC credit provided by Britain, while pean currency markets early in the year, the borrowing an additional $236 million on its gold guilder was bid up on the expectation that it collateral loans with the German Federal Bank. would be revalued along with the German mark. By late in the year the Italian balance of Following a showdown over EC parities in payments was beginning to show signs of im­ March, however, the guilder came suddenly on provement as some of the restrictive measures offer when the market learned that the Dutch adopted in October began to take effect. With authorities were unwilling to revalue. Subse­ the public-sector deficit under more effective quently, the market grew increasingly bearish control, the government forecast a reduction in toward the guilder. To be sure, the economy the Treasury’s borrowing requirement for 1977. was moving gradually into recovery, and the In addition, the authorities took the opportunity current account continued in substantial surplus. to reduce compulsory commercial bank invest­ But the rise of domestic prices was still more ments in public sector securities, while at the rapid than in Germany, and the market ques­ same time the central bank was able for the first tioned the prospects for any reduction of infla­ time since 1975 to sell Treasury bills in the open tionary pressures. Thus, the guilder fell to near market to absorb commercial bank free reserves. the bottom of the snake, where the central bank In this improved atmosphere the government intervened heavily by selling dollars until a was in the position late in December to an­ tightening of conditions in the Amsterdam nounce its decision to cut the currency tax in money market helped bring the guilder market half, effective December 27, and to reduce the into better balance in early summer. Meanwhile, remaining levy in successive V2-percent- the guilder had joined in the general decline age-point cuts, phasing it out entirely by Febru­ against the dollar to trade around $0.3675 by ary 21, 1977. Initially, the lira was marked the end of July. down, as Italian firms—especially oil compa­ In early August, when speculation renies—came into the market to satisfy postponed emerged over a possible parity realignment foreign currency needs. By December 28 the within the EC snake, funds were shifted into lira had slipped over 1 per cent to $0.001143 marks, and the guilder came under attack once (875 lire), even as the Bank of Italy intervened again, dropping to the bottom of the EC band to moderate the decline. With market partici­ where heavy intervention by the Netherlands pants still delaying their foreign currency pur­ Bank was required. To demonstrate a determi­ chases in anticipation of further relaxation of nation to maintain the guilder within the EC the restrictions, however, the lira steadied after snake at prevailing rates, the authorities brought that burst of selling pressure had passed. In about an intense squeeze in the money market January the continuing domestic money squeeze by successively raising the discount rate to 7 stimulated further inflows from the Euro-cur- per cent by August 20 and by imposing increas­ rency market, which offset much of the demand ingly stiff penalties on commercial banks’ bor­ for currencies that emerged as both the foreign rowings in excess of their quotas at the central currency tax and the import deposit requirement bank. were progressively reduced. Thus, the lira eased By late August the combined effect of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 215 heavy central bank intervention, the penal in­ external holdings declined only marginally on terest rates, and resident demand for balances balance. to meet tax payments had sent overnight money rates in Amsterdam soaring to unprecedented levels. Dealers, faced with sharply increased BELGIAN FRANC costs of financing short guilder positions, rushed for cover. Dutch commercial banks liquidated During the various episodes of exchange-market some of their short-term foreign assets to meet turbulence in early 1976, the Belgian franc was liquidity needs, while adverse commercial leads vulnerable to selling pressures, partly on market and lags dating back to the spring were reversed. concern over Belgium’s relatively high rate of As a result, the guilder snapped sharply higher inflation. Whenever tensions flared up in the in late August and then kept pace with the exchanges, the Belgian authorities vigorously mark’s rise against the dollar except for a tem­ defended the franc by raising short-term interest porary setback just prior to the October 3 Ger­ rates and squeezing domestic liquidity. At the man elections. The Netherlands Bank was same time, even though the economic recovery therefore able to purchase sufficient German was slower than in most other countries, they marks in September and early October to repay took other anti-inflationary measures. The mar­ the remaining indebtedness resulting from its ket expected only slow progress toward price previous intervention. stability, however, in view of Belgium’s system In the October 17 realignment of snake pari­ of indexing wage increases to the rise in prices, ties, the mark was adjusted upward by 2 per and this concern became even stronger when cent against the guilder. As a substantial reflux the serious drought last summer threatened to of funds and unwinding of adverse leads and push domestic food prices up sharply. lags developed within the arrangement, the Under these circumstances, when strains on guilder remained in demand. In this atmosphere the EC band resurfaced in late July and early the Netherlands Bank moved progressively to August, adverse shifts in leads and lags put ease domestic liquidity. It continued its pur­ renewed pressure on the Belgian franc at the chases of German marks and dollars in the snake’s lower limit. Therefore, the National exchanges, reduced penalty rates on commercial Bank of Belgium was obliged to intervene in bank borrowings from the central bank, entered large amounts, along with the other participating into swaps against dollars before the year-end, central banks. But the generalized flow into and lowered the official discount rate in two marks was great enough to pull the franc up steps to 5 per cent January 7. In December the against the dollar, to $0.025750 by mid-August. Dutch capital market, closed since the previous Meanwhile, the Belgian authorities publicly May, was reopened for selected foreign issues. reaffirmed their commitment to defend the These various measures helped to keep the franc’s existing EC parity, expressing the view guilder just below the upper limit of the snake, that a devaluation of the franc within the snake where it followed the rising trend of the mark would have serious inflationary consequences through the fall and early winter. On January while complicating the tasks of promoting eco­ 4, the spot guilder reached an 18-month high nomic recovery and reducing unemployment. of $0.4102. Thereafter, as U.S. interest rates Moreover, the authorities reimposed a severe firmed and sentiment toward the dollar im­ credit squeeze, hiking the official discount rate proved, the guilder settled back to $0.3965 at in two steps to 9 per cent, raising interest rates the month-end, for a net rise of 7 per cent since on other official advances and short-term Treas­ the end of July 1976. In the meantime the ury certificates even more, and cutting back on sizable central bank purchases of marks and commercial bank credit limits with the central dollars since August 1976 had contributed to bank. a substantial increase in official exchange re­ As Belgian liquidity tightened early in Sep­ serves so that in the year from January 1976 tember, dealers began to cover some of their Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

216 Federal Reserve Bulletin □ March 1977 now expensive short positions, and pressure arising from the central bank’s purchases of against the Belgian franc subsided. After mid- dollars and marks helped to ease strains in the September the commercial franc moved away Belgian money market, and the authorities fol­ from the snake’s floor and, apart from a brief lowed up by lowering official lending rates on speculative outburst before the German elec­ various advances and loans in line with the tions, the franc required only limited additional easing in market rates of interest. support against the mark through mid-October. By January official figures showed that Bel­ In fact, on a few days, the franc firmed suffi­ gium’s current account had moved roughly into ciently within the joint float to enable the Na­ balance and that Belgium’s inflation rate was tional Bank to buy small amounts of marks in moderating once again. Domestic economic ac­ the market to begin repaying the mark debt it tivity remained slack, however, and the unem­ had accumulated from earlier interventions. ployment rate, seasonally adjusted, had risen to Nevertheless, disparities in economic per­ nearly 6.2 per cent of the labor force. Under formance between Belgium and Germany con­ these circumstances and with the franc remain­ tinued to raise expectations of an eventual re­ ing steady within the EC snake, the Belgian alignment between the currencies of the two authorities followed other European central countries. Thus, the market’s initial reaction to banks in cutting domestic interest rates further. the announcement on October 17 that the Bel­ The National Bank reduced its discount rate for gian franc’s snake parity—like the guilder’s— the first time since August to 8 per cent, lowered would not be independently lowered in the re­ a variety of other official lending rates by as alignment of the snake was one of disappoint­ much as 2 percentage points, and raised com­ ment, and the franc was marked down sharply mercial banks’ rediscount quotas to increase the the next day at the opening in Europe. But availability of credit. During the remainder of almost immediately thereafter the franc began January, the commercial franc eased back along moving back up against the dollar and within with the mark against the dollar to $0.027040 the snake, as market professionals came to the by the month-end, a net rise of 6 per cent in view that no further realignment could be ex­ the 6 months from the end of July 1976. pected in the near term. During the period under review, the Federal Then, as short positions and adverse com­ Reserve completed its program of regular pur­ mercial leads and lags built up since mid-July chases of Belgian francs to repay swap debt were progressively reversed, the franc joined the outstanding since August 1971, acquiring suffi­ other EC currencies in a steady advance against cient francs from correspondents and in the spot the dollar that continued through the year-end. and forward markets to liquidate the remaining By early January 1977 the franc rate had firmed $82.4 million of drawings by November 12. to $0.028000, 9Vi per cent above midsummer levels. During this period the National Bank occasionally purchased dollars to moderate the rise. At the same time, with the franc holding JAPANESE YEN firm within the EC snake, the National Bank bought sizable amounts of German marks in the Following the economic dislocations of previous market, initially to repay the remaining mark years—inflation, payments deficit, and reces­ debt and later to build up dollar reserves by sion—the Japanese authorities were seeking to converting mark purchases at the German Fed­ revive the domestic economy through fiscal eral Bank. stimulus and accommodative monetary policy As a result, Belgian reserves increased from without rekindling domestic inflation. When the end of October to the end of December by early in the year, however, the United States about $700 million—enough to offset losses and other industrial countries experienced a during the preceding 3 months. Meanwhile, the sharp expansion of demand, particularly in re­ substantial injections of Belgian franc liquidity building inventories, Japanese exports surged Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 217 without an immediate rise in imports and had led to a narrowing of the trade and current- Japan’s trade and current accounts moved into account surplus. Since the Japanese economy substantial surplus. This development generated was also sluggish, the market came to expect more positive expectations toward the yen, that interest rates in Japan might eventually which, combined with favorable interest arbi­ decline, and market rates softened somewhat trage incentives, led to substantial capital in­ even as the Bank of Japan kept its discount rate flows to Japan. unchanged. Consequently, in the early months of 1976 In this atmosphere, the yen came increasingly the yen rebounded by some 2 per cent from its on offer in the exchange market during October lows of late 1975. Although the market came and November, as professional traders shifted into better balance over the late spring, the out of yen and into dollars while previously possible persistence of a large trade surplus for favorable leads and lags were unwound. Selling Japan became a matter of official concern abroad pressures increased on the days before and after and was one of the subjects discussed at the the December 5 election, in which the ruling economic summit meeting among major nations Liberal Democratic Party almost lost its absolute in Puerto Rico in late June. Moreover, the majority in the lower house of the Diet. By Japanese press carried reports that, in the eco­ December the yen rate slipped to as low as nomic policy debate emerging in Japan, some $0.003359 (297.7 yen), some 4lA per cent leaders expressed a readiness to accept a gradual below its September high, with the Bank of rise in the yen to contain domestic inflation. Japan by then intervening forcefully to maintain As the market reacted to reports of these orderly market conditions. policy discussions, the yen came into heavy Over the next few days, however, the market demand from late June through August. Foreign atmosphere improved markedly. The smooth importers of Japanese goods advanced their yen transition of authority to a new government purchases in the spot and forward markets to under Prime Minister Fukuda had a reassuring cover future needs, nonresident investors shifted effect, particularly as the new administration in funds into Japanese securities, and market pro­ Japan reasserted the policy of cautious stimulus fessionals both in Tokyo and abroad shifted into to the economy. In addition, the outcome of long or longer yen positions. The spot rate the OPEC meeting in midmonth with a smallerreached a high of $0.003504 (285.4 yen) by than-expected increase in OPEC oil prices also September 9, some 5lA per cent above midyear came as a relief to the market. Consequently, levels. To maintain an orderly market, the Bank the yen turned upward once again, bolstered by of Japan bought moderate amounts of dollars seasonal conversions of export receipts. in August and September before the yen eased By early 1977, figures had been released back somewhat late in September. showing an over-all Japanese trade surplus of In early October, however, the balance of $10 billion for 1976 and & current-account sur­ market sentiment shifted back against the yen. plus of about $3V2 billion, or nearly 1 per cent Talk of a sizable OPEC oil price rise in De­ of GNP. Moreover, the revival of demand in cember had become a major concern in view the United States and elsewhere was reportedly of Japan’s dependence on oil imports for the again generating a rise in Japanese exports that bulk of its energy needs. With the approach of outpaced import growth. Amid renewed ex­ the national election in Japan in early De­ pression of concern over the size of Japan’s cember, political uncertainties also weighed on trade and current-account surplus, funds again market psychology toward the yen. Moreover, began to flow heavily into Japan. The yen thus the economic pause in the United States and continued to advance through most of January, Europe during the summer had been reflected reaching a high at the month-end of $0.003469 in a deceleration of Japanese export growth, (288.3 yen), some 3XA per cent above the early which, coupled with a delayed rise in imports December low, with only modest intervention to rebuild stocks run down earlier in the year, by the Bank of Japan. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

218 Federal Reserve Bulletin □ March 1977 pointing pace of recovery, raising the possibility CANADIAN DOLLAR of higher unemployment especially in Quebec By midsummer 1976 the Canadian authorities and the Maritime Provinces. At the same time, had made significant progress in reducing infla­ the growth of monetary aggregates was slipping tion from the levels of 1974-75, partly as a below the Bank of Canada’s target range. Under result of a broad anti-inflationary program that these circumstances, the market became wary included price and wage restraints as well as of significant declines in Canadian interest rates a restrictive monetary policy. At the same time, relative to those in the United States. however, the pace of expansion of the domestic Thus, sentiment toward the Canadian dollar economy was sluggish, unemployment was still was already turning more hesitant when reports high, and Canada’s current account remained spread that the Separatist Party of Quebec might in sizable deficit. make severe inroads in the Liberal Party’s ma­ During the first half of 1976, this deficit had jority in the upcoming November 15 elections been more than offset by Canadian borrowings for the Quebec provincial legislature. In re­ abroad, amounting to some $4.5 billion. Thus, sponse, the Canadian dollar came on offer and while the market remained hesitant about the the spot rate began to soften even before the longer-term prospects, the conversions of these elections. Nevertheless, market participants borrowings had pushed the Canadian dollar rate were caught by surprise when the Separatist up strongly in the exchanges. The broader in­ Party won by a sizable majority. In reaction, terest in the Canadian dollar that these borrow­ the Canadian dollar was marked down sharply ings had generated, together with the impressive in London the day after the election, before rise in the rate, had attracted sizable professional temporarily recovering somewhat in the New position-taking that left the currency more ex­ York and Canadian markets. posed to volatile swings in market sentiment. Over subsequent days, as the market tried to When the pace of new borrowings and conver­ assess the broader political and economic im­ sions slowed during midsummer, the Canadian plications of the election results in Quebec, the dollar dropped about 3 per cent from its June selling pressure gathered force. Professional highs to below $1.01 early in August. dealers in both Europe and North America In August and September, however, several scrambled to cut back their Canadian dollar new foreign borrowings were announced that positions or to take up short positions. As the generated a reversal of professional positions rate fell, commercial demand for Canadian dol­ and reportedly attracted renewed flows of OPEC lars virtually dried up, U.S. corporations funds into Canadian dollars. Buoyed also at brought forward their normal year-end conver­ times by seasonally strong commercial demand, sions of earnings by Canadian subsidiaries, and the Canadian dollar advanced again to above Canadian borrowers postponed their conver­ $1.03 by late October. The Bank of Canada sions of new foreign issues. continued to intervene on both sides of the Meanwhile, interest rates in Canada also market to maintain orderly trading conditions; began to ease. On November 19, after a % the net result was that by the end of October percentage point cut in Federal Reserve discount Canada’s official reserves were almost back up rates, the Bank of Canada announced a reduc­ to the end-of-June levels. tion in its lending rate of Vi percentage point Meanwhile, some longstanding concerns over to 9 per cent. With the Canadian dollar increas­ prospects for the Canadian economy began to ingly on offer, the spot rate tumbled through weigh on market sentiment. Opposition was the $1.00 level over the Thanksgiving Day building up, within both the labor unions and holiday and, in record turnover, continued to the business community, to an extension of the slide over the next few days. By Tuesday, government’s year-old wage-price control pro­ November 30, it had reached $0.9587 in Lon­ gram. Also, the latest economic statistics indi­ don, the lowest level since June 1970. The Bank cated a further slippage in the already disap­ of Canada provided substantial resistance to the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 219 sharp fall in the rate, and Canadian official ties’ efforts to mobilize domestic savings and reserves fell $759 million in November. attract funds from abroad to finance the devel­ The Canadian dollar began a tentative recov­ opment effort. Externally, this approach resulted ery in early December, when some participants in a current-account deficit that was normally began to feel that the selling had been overdone. offset by sufficient capital inflows to achieve at Reports of new foreign borrowings scheduled least over-all balance and, in most years, to for early 1977 tended to provide some reassur­ allow for some accumulation of international ance that, even after the Quebec election, Ca­ reserves. Throughout this period, the Mexican nadian borrowers could continue to tap the in­ authorities successfully maintained a fixed rate ternational credit markets. As the atmosphere of $0.08, meeting with only occasional bouts improved, there were renewed borrowing con­ of selling pressure. This stability nevertheless versions in the market, and some short positions rested on a delicate balance of economic forces. were covered. In addition, reports circulated Beginning in the early 1970’s, ambitious social that the proceeds of Canadian wheat sales to and economic programs at home led to growing China were being converted. fiscal deficits that eventually generated rates of Thus, even after the Bank of Canada cut its inflation well above those in the United States discount rate another V2 percentage point on and other major countries. December 21, the exchange rate was marked At the same time, Mexico was caught up in down only briefly, and by January 5 it had the backwash of worldwide inflation, particu­ recovered to $0.9984, more than 4 per cent larly after the oil price rise of 1973-74, and above its November 30 low. The Bank of Can­ the subsequent recession in the United States ada intervened about as heavily to moderate the and other industrial countries. The Mexican rise as it had to cushion the decline, adding $764 authorities managed to avoid an economic million to official reserves during December. downturn in 1974-75, but at the expense of a Nevertheless, the market remained cautious sharp widening in the current-account deficit toward the Canadian dollar and the rate gener­ that required even greater foreign borrowings ally fluctuated lower during the rest of January. than before. By this time, market participants held firm ex­ By early 1976 the authorities had recognized pectations of a further easing of short-term in­ the need for restoring internal and external bal­ terest rates in Canada, while in contrast U.S. ance and had made a start toward that objective. money market rates were tending to rise. Un­ Nevertheless, market participants remained certainties over the timing of future borrowing cautious, in view of the large economic imbal­ conversions dampened professional bidding for ances that remained, the increasing wage de­ Canadian dollars. In addition, the market mands of Mexican trade unions, and electionreacted adversely to Quebec Premier Levesque’s year uncertainties in Mexico. speech to businessmen in New York, in which Against this background the Mexican peso he reaffirmed his party’s objective of an inde­ came under heavy selling pressure on several pendent French-speaking Quebec. By the end occasions in early 1976. By April rumors of of January, therefore, the Canadian dollar rate a forthcoming devaluation of the peso had led had slipped back to $0.9825, for a net decline to outflows of resident funds as well as to of 4lA per cent over the 6-month period. During hedging by nonresidents of peso claims and that time, Canadian official reserves declined by receivables. To help finance its intervention at $115 million on balance. that time, the Bank of Mexico drew the full $360 million available under the swap arrange­ ment with the Federal Reserve. Some reflows subsequently developed but not in sufficient MEXICAN PESO volume for the Bank of Mexico to liquidate the For nearly two decades, Mexico’s impressive swap drawing quickly, as it had with earlier economic growth largely reflected the authori­ drawings in 1974 and 1975. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

220 Federal Reserve Bulletin □ March 1977 The market remained edgy throughout the toward the Mexican peso remained bearish. spring and early summer. After former Finance Although wage increases were substantially Minister Lopez Portillo was voted to succeed below levels originally demanded by the labor President Echeverria in the July 4 election, unions, domestic prices had nevertheless risen many market participants expressed concern sharply following the floating of the peso. over the possible need for a change in the Moreover, the market had come to expect that exchange rate either before or after the De­ implementation of new measures in connection cember 1 inauguration. Although Mexico’s im­ with Mexico’s eligibility for drawing on the ports had steadied, the growth of exports was Fund would have to await the installation of a falling well below expectations, halting progress new administration on December 1. in reducing the current-account deficit. Yet, the In this atmosphere, a variety of rumors of authorities were unable to step up the pace of capital controls or freezes on resident bank foreign borrowings to offset fully both the accounts began to appear in the market, trigger­ widening current-account deficit and the contin­ ing renewed movements of funds out of Mexico uing hot money outflows. The Bank of Mexico in early autumn. Later, in mid-November, re­ continued to support the peso at the $0.08 level, ports of seizures of privately held land in north­ but at a heavy loss of international reserves. ern Mexico generated further uncertainty. In On August 31 the Mexican authorities an­ response, capital outflows intensified and Mexi­ nounced that, as part of an over-all strategy of can residents rushed to convert more pesos into economic adjustment, the peso would be al­ U.S. dollars, including dollar currency notes. lowed to float, with the Bank of Mexico inter­ In an effort to maintain an orderly market for vening only to prevent “erratic and speculative the peso, the Bank of Mexico at first stepped fluctuations” in the spot rate. Other measures up its official dollar sales. But, after sustaining included steps to cut the public sector deficit, a further loss of reserves, the authorities per­ price controls on raw materials, and taxes on mitted the peso to sink a further 25 per cent exceptional profits that exporters might receive to $0.0380 on October 27, before resuming from the peso’s depreciation. support for the rate. Among other credits to Immediately after these announcements, the augment reserves, the authorities drew in No­ spot peso was marked down almost 39 per cent vember $150 million on the swap line with the before recovering slightly in thin trading. To Federal Reserve and a total of $300 million help steady the rate, official intervention was under the Exchange Stabilization Agreement soon resumed and the peso traded around with the U.S. Treasury. $0.0505 through late October. Meanwhile, in Later that month, in the face of massive conjunction with these new policies, the Mexi­ selling pressure on the peso and the likelihood can Government had entered into negotiations of even more capital outflows before December with the IMF. In that context, the U.S. Treasury 1, the authorities announced over the November and the Federal Reserve agreed to a special 20-21 weekend that they were withdrawing arrangement with the Bank of Mexico on Sep­ temporarily from the market. To deter additional tember 20, making available to that Bank up speculative selling of pesos, commercial banks to $600 million of interim financing. On that and other credit institutions were prohibited basis, the Bank of Mexico drew early in October from trading for their own accounts, except to $365 million on the U.S. Treasury—an amount cover existing commitments. Instead, stock­ that was fully repaid when Mexico made its first brokers were authorized to act as foreign ex­ drawing on $963 million in credits made avail­ change dealers for the purpose of executing able by the IMF beginning in November. In essential transactions. Following these measures October the Bank of Mexico also repaid the the immediate selling of pesos stopped and a $360 million of swap drawings on the Federal technical shortage of peso balances quickly de­ Reserve outstanding for 6 months. veloped in both Mexico and abroad. Thus, the In the exchanges, however, the attitude peso bottomed out at $0.0345 on November Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Foreign Exchange Operations 221 22—57 per cent below the prefloat level—and lifted the prohibition against commercial banks’ rose to as high as $0.0526 by December 1. trading for their own account. Even as more That day, in his inaugural address, President normal trading resumed, the peso held firm at Lopez Portillo called for national unity, auster­ around the $0.05 level through the year-end and ity measures, and a productivity improvement into early 1977. When some selling pressure program to strengthen the Mexican economy. emerged briefly after mid-January, the rate The speech was well received in Mexico and dropped to as low as $0.0444 before firming abroad, and over the following days a substan­ in good two-way trading. By the month-end, tial reflux of funds into pesos developed. the peso was trading at $0.0463, some 42 per Thereafter, the new administration began im­ cent below the prefloat level. Meanwhile, the plementation of the policy measures embodied Bank of Mexico’s reserve position had im­ in the agreement with the IMF and gained proved sufficiently to repay in December $150 agreement in the January round of wage talks million of the $300 million drawn on the U.S. for wage increases that were more modest than Treasury and to schedule repayment of the $150 expected. million in swap drawings on the Federal Reserve Moreover, on December 20, the authorities at maturity in February. □ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

222 Statements to Congress Statement by Arthur F. Burns, Chairman, growth in economic activity than actually oc­ Board of Governors of the Federal Reserve curred. System, before the Joint Economic Committee The Federal Reserve’s moderate policy, by of the U.S. Congress, February 23, 1977. damping inflationary expectations, has helped to restore public confidence—both here and As always, I welcome the opportunity to meet abroad—in the value of our currency and in the with this distinguished committee to present the future of our economy. The dollar is once again views of the Board of Governors of the Federal a respected currency in international markets. Reserve System. The demand for U.S. securities and other dol­ Your deliberations this year take place at a lar-denominated assets is again strong. And the time when the interpretation of statistical infor­ substantial increase in the exchange value of the mation has been made especially difficult by the dollar since the recovery began has relieved vagaries of the weather. While that is trouble­ some of the upward pressures on the general some, there is good reason, I believe, to feel price level in this country. a sense of encouragement about underlying Moreover, and mainly as a result of the trends in our Nation’s economy. We at the lessening of inflationary expectations, interest Board are especially pleased that the financial rates have not increased as they usually do in situation stands out as a significant positive a period of cyclical expansion. On occasion factor in the economic outlook for the year during the past 2 years, yields in securities ahead. markets have registered noticeable upward The task for monetary policy in the recent movements—sometimes, as last month, because past has been clear—to facilitate a substantial of shifting market expectations or the pressures expansion in economic activity, while guarding of heavy Treasury borrowing, at other times as against the release of new inflationary forces. a result of Federal Reserve actions intended to In its pursuit of that basic objective, the Federal hold monetary growth within desirable bounds. Reserve has fostered moderate rates of monetary But the general trend has been downward, and growth. During the period extending from the the level of market interest rates on both short­ cyclical trough of March 1975 to January of this term and long-term securities is appreciably year, M-l, the narrowly defined money stock— lower now than it was at the beginning of the which includes only currency and demand de­ economic recovery. posits—grew at an annual rate of 5.7 per cent. Declines in interest rates have not been con­ A broader monetary aggregate, M-2—which fined to public markets for securities; they have also includes savings and consumer-type time extended also to loans by financial institutions. deposits at commercial banks—increased at a Interest rates have come down on residential 10.7 per cent rate. Contrary to the predictions mortgage loans. The rate of interest on bank of many economists who urged a more expan­ loans to borrowers of the highest credit rating sionist monetary policy, these increases in the has declined sharply. Rates paid by other bank stock of money have proved sufficient to finance customers are also down; in fact, at the end a large gain in the physical volume of output of last year, interest rates on loans to small and employment. Indeed, the evolving stock of businesses and farmers were at, or very near, money could readily have accommodated larger their lowest levels since 1973. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 223 Meanwhile, the stock market has shown a issues of municipal securities has narrowed. good recovery. Despite some decline since the Record volumes of new tax-exempt bonds were beginning of this year, the average price of a sold in 1975 and 1976, in part to pay off share on the New York Stock Exchange at short-term debt. These repayments, as well as present is more than 65 per cent above its 1974 the progress made in strengthening budgetary trough. A large measure of financial wealth has positions, have improved the standing of State thus been restored to the millions of individuals and local governments with the investment across our land who own common stocks. community. In addition, the recent court deci­ Our Nation’s business enterprises have taken sion setting aside the moratorium on certain of advantage of the prevailing financial climate to New York City’s debt repayments has added improve their liquidity. Corporations have is­ materially to the confidence of investors in the sued a huge volume of long-term bonds, and safety of State and local obligations. they have used the proceeds largely to repay The condition of financial institutions has also short-term debt and to acquire liquid assets. For improved over the past 2 years. Commercial a time, access to public markets for long-term banks, for example, have greatly increased their funds was confined primarily to firms with the liquidity by doubling their holdings of Treasury highest credit ratings. During 1976, however, securities and reducing their reliance on volatile lower-rated firms began to find a more receptive sources of funds. With greater attention to market for their debt issues; the yield spread canons of prudent management, banks have between Aaa- and A-rated bonds, which was achieved moderate increases in profits—even in W2 percentage points when the recovery began, the face of substantial loan losses and larger has averaged only about V2 of a percentage point allocations to reserves for possible future losses. since last summer. In addition, many medium­ A large share of bank profits has been used to sized firms, as well as firms with lower credit enhance capital positions, so that the ratio of ratings, have met their needs for long-term capital to risk assets, which had declined stead­ funds in the private placement market where life ily during the early 1970’s, has risen apprecia­ insurance companies and other institutional bly. These changes have done much to enhance lenders have extended a record volume of credit. public confidence in the soundness of the Na­ Besides this, the improved stock market has tion’s banking system. made it much easier for corporations to raise Other depositary institutions have made simi­ equity funds for financing new investment proj­ lar progress in strengthening their financial con­ ects or for rebuilding capital cushions. The dition. Savings and loan associations, in partic­ dollar volume of corporate stock flotations in ular, have repaid large amounts of debt besides 1976 was far above the depressed level during adding heavily to their holding of liquid assets. the recession. By following conservative divi­ Furthermore, with savings inflows continuing dend policies, business enterprises also have very ample, the thrift institutions have stepped been able to add substantially to their retained up their mortgage lending to a record level. profits, and debt-to-equity ratios of corporations Outstanding loan commitments are at an all-time have generally declined. high, and mortgage rates have continued to edge The market for State and local government downward despite the huge volume of mortgage securities was troubled in late 1975 and early borrowing and the recent upward movement in 1976, when the New York City financial crisis sensitive market rates of interest. made investors very cautious and drove up bor­ In sum, it is clear that the financial base for rowing costs to many States and their political economic activity has greatly improved. That, subdivisions. Since then, interest rates on mu­ of course, is a highly important positive factor nicipal securities have declined sharply—more in the general economic outlook. sharply, in fact, than interest rates on other Other factors also suggest the likelihood of fixed-income obligations. In addition, the spread gathering economic strength as 1977 unfolds. between yields on higher- and lower-quality During the closing months of last year, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

224 Federal Reserve Bulletin □ March 1977 demand for goods and services—except for in­ added indebtedness in order to finance the pur­ ventory additions—picked up, reflecting pri­ chase of automobiles and other big-ticket items. marily a resurgence in consumer buying and a The strong pace of consumer buying during further strong advance in homebuilding. The the Christmas season resulted in a sharp decline higher level of sales enabled business firms in the ratio of inventories to sales in many lines across the Nation to work off a good part of of activity. Stocks of some goods probably have the excess inventories that had accumulated over been further depleted in recent weeks because the preceding months. With sales and stocks of production curtailments caused by weather coming into better balance, the pace of orders and fuel problems. Businessmen may be reluc­ and production began to quicken and the de­ tant to reorder in volume until they are more mand for labor strengthened. We thus began this confident that the economy has regained its year with employment and incomes increasing upward momentum. But as sales rise, they will briskly. soon have to add substantially to their invento­ During the past month or so, jobs, output, ries in order to meet customer demands. and sales have been adversely affected by cold Prospects for residential construction are also weather and interruptions of fuel supplies. In bright. Construction of single-family homes has some parts of the country, drought conditions already rebounded sharply, and production of have led to the rationing of water and may later multifamily units is now gradually recovering affect some branches of agriculture as well as from the overbuilding and other problems that the cost and availability of hydroelectric power. have been troubling this sector. Mortgage credit Although the weather is leaving a mark on is readily available in practically all parts of the household budgets through its impact on in­ country, and residential building activity should comes, fuel bills, and food prices, the over-all therefore continue to move upward. economic effect seems to be considerably less The outlook is less clear for the demand for than has been suggested by many news head­ U.S. exports. Our merchandise trade balance lines. In fact, production and employment have fell sharply last year—in large part because of already snapped back smartly in most places. our increasing dependence on foreign sources The hardships imposed on many American of oil and the weak revival of economic activity families by this inclement winter will be long in many other countries. During 1977 imports remembered and, I hope, will stimulate long- will increase as the domestic economy continues needed action on a national energy policy. The to expand, but the rise is not likely to be as recent difficulties, however, are not likely to rapid as last year. Our export trade can be have large or lasting effects on the performance expected to improve, with the extent of the gain of the economy during 1977. depending on the pace of worldwide economic Most major sectors of demand can be ex­ expansion. pected to contribute to the expansion of eco­ At present economic recovery is under way nomic activity over the remainder of the year. abroad, but the recovery in many countries is Consumers have been showing an inclination to less decisive than in the United States. In a spend more freely; during the fourth quarter, number of instances, less vigorous economic the percentage of disposable personal income growth reflects actions taken to cope with infla­ devoted to consumer spending was the highest tion and severe imbalances in international pay­ in several years. Except in areas where the ments. Among other difficulties, the process of weather has been especially unfavorable, retail adapting to the harsh reality of much higher oil sales since the beginning of the year have con­ prices is by no means complete. Thus, our tinued at a satisfactory pace. Moreover, con­ export trade may be adversely affected for some sumers have built up their stocks of liquid assets time, particularly since credits to many foreign substantially during the past 2 years. With their countries cannot very well continue rising as financial condition thus improved, they are now rapidly as they have in recent years. displaying an increased willingness to incur There is much less uncertainty about the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 225 outlook for investment in business fixed capital hard experience, it is not surprising that cor­ in our country. Indeed, the near-term prospect porate managers became more cautious in their is clearly favorable. It is our judgment at the planning and that rebuilding of the confidence Board—based on the continuing improvement needed for a new surge of investment activity of product markets, the intentions of business is taking time. firms disclosed by survey data, the upward trend This pattern of events has been worldwide of capital-goods ordering, the increasing num­ in scope. Industrial nations generally have suf­ ber of new firms, and the improved state of fered a cycle of inflation and recession similar financial conditions—that business capital in­ to that in the United States, and businessmen vestment will grow significantly over the re­ everywhere have since then tended to be unu­ mainder of this year and into 1978. There is sually cautious in making major long-term in­ some question, nevertheless, as to just how vestment commitments. During the past year, vigorous or how durable the rise may be. economic expansion in most countries has been Historically, investment in plant and equip­ held back by weakness in business capital out­ ment has often increased rapidly even in the lays. early stage of cyclical expansions. In the current Contributing to this lack of confidence is the recovery, however, business capital outlays fact that, despite heartening progess over the have been sluggish; measured in constant dol­ past 2 years, inflation is still proceeding at a lars, they rose only 3 per cent through the final troublesome rate almost everywhere. In 1976, quarter of 1976. This contrasts with an average consumer prices in this country rose about 5 increase of 15 per cent during corresponding per cent. This was down from 7 per cent in periods of the earlier business-cycle expansions 1975 and 12 per cent in 1974. But our busi­ since World War II. Of late, businessmen have nessmen as well as other citizens fear that the been especially hesitant to commit themselves continuation of even a 5 per cent rate of inflation to major investment undertakings. The capital may be incompatible with the attainment of a spending that has occurred so far in this expan­ durable prosperity. In an inflationary environ­ sion has been heavily concentrated in relatively ment such as we have had in recent years, many small-scale items—for instance, office equip­ business managers are apt to feel that they ment, light machinery, and trucks. Relatively cannot reliably assess costs and profits over the few large-sized industrial or commercial con­ long time horizons frequently involved in new struction projects have been started recently. investment projects. This inevitably affects their I believe that a major reason for the inade­ investment planning. quate expansion of plant and equipment spend­ In addition, businessmen have been con­ ing is the impact of the recession of 1974-75 cerned for some time about the possibility of on the psychology of the business community. an early reintroduction—in one form or an­ Not many of the current generation of business other—of price and wage controls. I sense, managers had ever experienced an economic however, that this particular apprehension has decline of comparable severity. In recent times, diminished, thanks in large measure to President the view spread in business circles, as it already Carter’s perception that concern about controls had in the academic community, that the busi­ was complicating the process of business deci­ ness cycle was dead—that any recession that sion-making. might occur would prove brief and mild be­ I must note also that governmental regulation cause governmental policies could be relied has become an important deterrent to capital upon to keep the economy moving forward at spending. Businessmen tend to shy away from a rather steady pace. Businessmen certainly costly investments whose useful economic lives were unprepared for the slump in sales and may be cut short by the introduction of more production in late 1974 and early 1975 that stringent safety, health, or environmental resulted from an inflationary process that had standards. Rigid price regulation—as in the gotten out of control. In the aftermath of this natural gas and transport industries—has served Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

226 Federal Reserve Bulletin □ March 1977 to reduce the incentives for investment. And the and 1970. This unquestionably has affected the failure of the Federal Government to formulate trend of productivity, which has been decidedly a coherent, long-range energy policy has left disappointing in recent years. the business community troubled and uncertain What should concern us perhaps most of all about the future cost and availability of fuels is the distinct possibility that a continued lag and petroleum feedstocks. in capital formation will make the attainment Furthermore, compliance with existing envir­ of full employment of our labor force extremely onmental and safety regulations adds to the cost difficult further along in the current expan­ of building and operating productive facili­ sion—simply because we may have a deficiency ties—without increasing their salable output. of plant capacity relative to available labor. It These costs involve not only expensive equip­ is important, therefore, to focus intently on the ment—such as pollution control devices—but whole range of problems relating to capital also the time lost in going through extensive formation. Senator Humphrey and Senator governmental review procedures. I understand Percy wisely called attention to this need last that any given industrial construction project year by introducing S. 3693, the “Investment may be subject to as many as 10 different Policy Act of 1976,”—a bill that stresses the environmental regulations at the Federal level importance of creating an environment that is alone. And overlapping regulations at the Fed­ more conducive to business capital formation. eral, State, and local levels, besides causing The steps suggested here will not suffice, confusion and delay, sometimes work at cross however, to bring about a lasting improvement purposes. This tangled regulatory system has in the level of investment activity if our Nation caused some extraordinary delays both in the fails to pursue fiscal and monetary policies that launching and completion of major capital proj­ promise continuing progress in moderating in­ ects. flation. Forward business planning, which is The consideration of remedies deserves high extremely challenging under the best of circum­ priority. We must find the political courage to stances, becomes exceptionally hazardous in an consider objectively not only the very real ben­ inflationary environment of the kind that has efits of environmental and safety regulations but existed in our country since the mid-1960’s. Nor also their economic costs. for that matter can there be satisfactory planning We should give serious consideration as well in such an environment by households or gov­ to reform of our system of Federal taxation in ernments. Many of the problems that our cities order to reduce the disincentives to business have been living with are traceable to the capital formation and to equity investment in stresses of inflation in the early 1970’s—speci­ American enterprises. The current congressional fically, to the ballooning of costs for munici­ study of proposals for integrating the personal palities whose tax revenues, unlike those of the and corporate income taxes is a step in the right Federal Government, respond sluggishly to in­ direction. I hope that the Congress will also flation. examine the distorting effects of inflation on the In conducting fiscal and monetary affairs, we corporate income tax, which have contributed in the Federal Government must not allow our­ to the weakness in after-tax earnings of our selves to be lulled into thinking that stimulative businesses over the past decade. actions are riskless because there is now con­ It may be well to emphasize that the Nation’s siderable slack in the economy. As we should stock of industrial capital has been growing too know by now, pressures on resources and prices slowly not just during the current recovery but can arise even at a time of substantial unem­ over a period stretching back at least to the ployment. beginning of this decade. The volume of busi­ For its part, therefore, the Federal Reserve ness fixed investment per person added to the System is committed to a course of monetary labor force was appreciably smaller between policy that will permit sufficient growth of 1970 and 1975 than it had been between 1960 money and credit to support good expansion in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 227 economic activity, but which will avoid the periencing, must be scaled down as the Nation release of new inflationary pressures or expec­ moves toward fuller utilization of its resources. tations. On the fiscal side, it is no less impera­ No problem more urgently requires our at­ tive that budgetary deficits be gradually reduced tention than the unemployment of some 7 mil­ and before long eliminated. If they are not, lion Americans. But we must be skeptical of anxieties about the future path of inflation may solutions that require ever-larger governmental threaten the hard-won progress that has been deficits or ever-faster money creation. achieved in improving the condition of our Fortunately, understanding of the complexi­ financial markets and the over-all economy. As ties of our Nation’s economic problems has our economy continues to expand, a significant grown as a result of the hard lessons of recent and steady lessening of Federal Government years. If all of us in government work together demands on capital markets will be vital to and share ideas, I am optimistic that we can release savings for use in the private sector of fashion policies that will go far toward the economy. The supportive role which gov­ strengthening the state of confidence on which ernment appropriately plays at a time of exten­ the jobs and prosperity of our people ultimately sive unemployment, such as we have been ex­ rest. □ Statement by Arthur F. Burns, Chairman, financial conditions and to spell out the impli­ Board of Governors of the Federal Reserve cations, as I see them, of those trends for some System, before the Committee on the Budget, of the critical economic policy questions that U.S. House of Representatives, March 2, 1977. confront our Nation. This winter’s unusual weather has, of course, It is a particular pleasure, Mr. Chairman— greatly complicated the interpretation of statis­ and I do not say that lightly—for me to meet tical data. For a while, jobs, output, and sales with this committee. For many years, I joined were significantly affected by cold weather and other citizens in urging a reform of the budget interruptions of fuel supplies, especially in the process, so that tax and expenditure decisions eastern half of the country. And in parts of the of the Congress would become effectively West, drought conditions have necessitated the linked. Passage of the Congressional Budget rationing of water and may later affect some Act of 1974 was a major landmark in financial branches of agriculture and also the cost and reform—comparable in importance, I think, to availability of hydroelectric power. the Budget and Accounting Act of 1921, which These vagaries of the weather have left their rationalized budgetary procedures for the exec­ mark on household budgets through their impact utive branch. In my judgment, the experience on incomes, fuel bills, and food prices. The of the last 2 years confirms the wisdom of the over-all economic effect, however, in all proba­ 1974 innovation. The new element of order and bility will prove considerably smaller than many discipline that this committee, your counterpart news accounts initially suggested. The period in the Senate, and the Congressional Budget of acute disruption of industrial and commercial Office have brought to fiscal deliberations has operations was, after all, brief, and as we meet served the American people well. We finally here today, production and employment appear have a mechanism for determining congres­ to have recovered in most places. While I am sional priorities and relating expenditures to sure that the hardships imposed on many Amer­ prospective revenues. ican families by this winter’s extraordinary Today, I would like to share with you my weather will long be remembered, it seems most views about evolving trends in economic and unlikely that the disturbance we have suffered Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

228 Federal Reserve Bulletin □ March 1977 will have large or lasting effects on the per­ In some instances further depletion of stocks has formance of our economy. since then occurred because of the production There is good reason, I think, to feel a sense curtailments occasioned by bad weather and fuel of encouragement about the way in which un­ problems. Very possibly, therefore, consid­ derlying economic conditions are unfolding. erable inventory investment by businesses lies Before the advent of inclement weather, the ahead. economy was already emerging from the phase The major influences that affect residential of hesitancy that prevailed for a while last year. construction are also favorable. Indeed, except During the closing months of 1976, the demand for January’s weather-related setback, housing for goods and services—except for inventory activity has been in a strong upward movement additions—accelerated, reflecting primarily a since last autumn. The swelling of new housing resurgence of consumer buying and a further starts in the fourth quarter of 1976—to a rate, strong advance in homebuilding. The improve­ incidentally, 30 per cent greater than a year ment in sales volume enabled business firms to earlier-—assures that work on homes under con­ work off a good part of the excess inventories struction will be very active for a good many that had accumulated over preceding months months to come. And some further rise in starts when buying was fairly sluggish. With sales and is a reasonable expectation, in view of the liquid stocks coming into better balance, the pace of condition of mortgage-lending institutions and orders and production began to quicken and the the progressive correction of the imbalances in demand for labor strengthened. This reaccelera­ the housing market that arose during the early tion of the recovery was the consequence, in 1970’s. my judgment, of gradually cumulating strength The outlook for business capital spending in in key sectors of our economy and an improved 1977 is also promising, even though serious financial environment. I believe that we shall questions can be raised as to the likely adequacy see evidence before long that the reacceleration of capital formation in our country over the has survived the weather disturbance, and I longer term. So far in the current recovery, expect good gains to be recorded in general capital spending has been lagging; measured in economic activity this year. constant dollars, it rose by only 3 per cent Emerging trends in the consumer sector were through the final quarter of 1976. This contrasts strongly favorable as this year began. The con­ with an average rise of 15 per cent during the siderable expansion in jobs last year, also the corresponding periods of earlier business-cycle decline in the rate of inflation and the enlarged expansions since World War II. However, the liquid assets of households, served to improve average rate of gain should be decidedly better consumer sentiment. It seems reasonable to during the next year or so. think that it is those trends—rather than the This judgment is based on a number of con­ transitory effects of bad weather—that will ba­ siderations—the continuing improvement of sically condition household behavior in the product markets, the intentions of business firms months ahead. A quickening tempo, as I have to invest as disclosed by survey data, the in­ noted, developed in late 1976 for both incomes creasing number of new firms that are starting and employment. This created the basis for up operations, the comparatively favorable cash more aggressive retail buying. Indeed, reliance position of corporations, and an impressive up­ on instalment credit to finance purchases of trend in capital-goods ordering. Contracts and consumer durable goods increased in late 1976; orders for plant and equipment, a leading indi­ and, strikingly, the personal saving rate for the cator of investment activity, spurted at an annual fourth quarter fell to its lowest reading in several rate of more than 20 per cent in the fourth years. quarter of last year, and monthly data covering One consequence of the buying surge was that new orders for nondefense capital goods show inventories toward the close of last year fell the rise continuing in January. To be sure, the below levels preferred by many business firms. level of capital-goods production is still far short Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 229 of what we normally might expect at this stage During the period extending from the cyclical of cyclical expansion, but we can at least antic­ trough of March 1975 to February of this year, ipate that it will make a larger contribution to M-1, the narrowly defined money stock—which the advance of the general economy this year includes only currency and demand deposits— than it did in 1976. grew at an annual rate of 5.6 per cent. A broader It is much more difficult to reach a confident monetary aggregate, M-2—which includes as judgment about how exports and imports will well savings and consumer-type time deposits impinge on our Nation’s economy this year. In at commercial banks—increased at a 10.7 per 1976 both exports and imports rose consid­ cent rate. erably, but our export trade was held back by These increases in the stock of money have the weak expansion of many foreign economies. proved adequate to finance a large gain in the The rise in imports was far more pronounced, physical volume of output and employment. reflecting in significant part our increasing de­ Indeed, the evolving stock of money could pendence on foreign sources of fuel. Some readily have accommodated larger growth in further decline in our trade balance and also in economic activity than actually occurred. In that the broader current-account balance is likely this connection, it is important to bear in mind that year, but not nearly to the degree that occurred consideration of the stock of money alone is in 1976. not sufficient for assessment of the adequacy of The challenge facing our exporters is formi­ the economy’s liquidity. Money has a second dable because of the continuation of less deci­ dimension, namely, velocity, or—in common sive recovery tendencies abroad than here at parlance—the efficiency with which it is being home. In some instances, less vigorous eco­ used. For the narrowly defined money supply, nomic growth reflects actions taken by foreign efficiency of use has been improving with spe­ officials to cope with severe inflationary prob­ cial rapidity in recent years, reflecting numerous lems and the accompanying imbalances in in­ innovations in financial technology that serve to ternational payments. An important drag on reduce reliance on demand deposits for handling recovery in numerous countries is the ongoing monetary transactions. In fact, during the span adjustment, as yet far from complete, to the of the current recovery, the gains recorded in quantum jump of oil prices since 1973. Thus, the efficiency of M-l appear to have exceeded our export trade may be adversely affected for typical gains during corresponding periods of past some time, particularly since the external in­ cyclical upswings. debtedness of many nations cannot continue Major benefits have flowed from the Federal rising as rapidly as it has in recent years. Reserve’s carefully fashioned monetary policy. But with the exception of these uncertainties By holding resolutely to a course of modera­ relating to foreign trade, factors on the demand tion—a policy that at times has run counter to side generally seem to point to good growth in strongly voiced urgings that we be much more our Nation’s output this year. Buttressing that expansionist—we have helped in very signifi­ expectation is the fact that over-all financial cant degree, I think, to dampen inflationary conditions in this country—an area in which the expectations. This has strengthened public con­ Federal Reserve System has a major respon­ fidence—both here and abroad—in the value of sibility—provide a satisfactory foundation for our currency and in the future of our economy. economic growth. Mainly as a result of the lessening of infla­ The basic objective of monetary policy in the tionary expectations, interest rates have not in­ recent past has been to promote conditions creased as they usually do in a period of cyclical conducive to substantial expansion in economic expansion. On occasion during the past 2 years, activity, while guarding against the release of both short- and long-term interest rates have new inflationary forces. To that end, the Board registered noticeable upward movements, but of Governors of the Federal Reserve System has the general trend has been downward in the fostered moderate rates of monetary growth. yields on securities traded in public markets and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

230 Federal Reserve Bulletin □ March 1977 also in the interest charges on loans extended made by many States and municipalities in by financial institutions. In general, interest strengthening their budgetary positions, have rates are appreciably lower now than they were improved the standing of such governments with at the beginning of the economic expansion—a the investment community. Testifying to that is fact that augurs well for the continuation of the fact that interest rates on municipal securites recovery. One of the considerations brightening have not only declined; they have declined more the housing outlook, for example, is that the sharply than interest rates on other fixed-income average rate on residential mortgage loans obligations. In addition, the spread between across the country has come down almost IV2 yields on higher- and lower-quality issues of percentage points from its earlier high. Also municipal securities has narrowed. These de­ important to the housing outlook is the fact that velopments suggest that the demand for goods the rates paid by mortgage-lending institutions and services by States and municipalities to their depositors remain attractive relative to —which was relatively subdued during the past money market obligations, so that no threat several years of difficult adjustment—will now exists—at least for the immediate future—of expand somewhat more rapidly. heavy shifts of funds out of such institutions. During the past 2 years, the Nation’s financial Significantly^ our Nation’s business enter­ institutions have also strengthened their capa­ prises have made good use of the prevailing bility to be supportive of economic expansion. financial climate to improve their liquidity. Commercial banks have materially improved Corporations have issued a huge volume of their liquidity by doubling their holdings of long-term bonds, and they have used the pro­ Treasury securities and reducing reliance on ceeds largely to repay short-term debt and to volatile sources of funds. They have, moreover, acquire liquid assets. They have also greatly retained a large share of profits to enhance increased the volume of stock flotations above capital positions, so that the ratio of capital to the depressed level during the recession. Sup­ risk assets, which had declined steadily during plementing these actions, business enterprises the early 1970’s, has risen appreciably. Other have followed generally conservative dividend depositary institutions have made similar policies, thereby retaining substantial amounts progress in strengthening their capacity to re­ of current earnings for internal use. The conse­ spond to financing requests. Savings and loan quence of this combination of moves is that associations, for instance, have repaid large corporate balance sheets have a much healthier amounts of debt besides adding heavily to their look now than they did several years ago. The holdings of liquid assets. With savings inflows average maturity of outstanding corporate debt ample, thrift institutions have already stepped has been lengthened appreciably, and businesses up their mortgage lending to a record level, and now also have more equity relative to debt. This they clearly are going to have considerable clearly puts business firms in a good position scope to accommodate further the demands for to expand the scale of their operations as op­ mortgage credit in 1977. portunities arise. For a while the improvement In sum, both the background of favorable in liquidity occurred mainly in the case of firms financial conditions prevailing at this time and enjoying the highest credit ratings and therefore the growth patterns that have been unfolding in having the easiest access to longer-term funds; key sectors of our economy justify considerable but the improvement has progressively become optimism about the immediate future. Indeed, a generalized phenomenon. it seems doubtful to me, as I have previously The favorable condition of financial markets indicated, that any special efforts to stimulate has been of important help as well to the Na­ growth—at least none of conventional charac­ tion’s State and local governments. Record vol­ ter—are now needed to assure broad economic umes of new tax-exempt bonds were sold in expansion this year and on into 1978. 1975 and 1976, in part to pay off short-term I realize that a majority of this committee, debt. Those repayments, together with progress as well as the able members of President Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 231 Carter’s economic team, feel differently. I We have built momentum into the rise of thoroughly respect their judgment as well as Federal expenditures by the enactment of “en­ yours. In matters pertaining to the future, no titlement” programs relating to income security sensible person can be at all certain that he has and health and by extending inflation escalator captured the truth. As things stand, I diagnose clauses to a significant range of Federal pro­ the condition of our economy somewhat dif­ grams. The merit of many of these responses ferently, and it is my duty to advise you as best to the needs of our citizens is indisputable, but I can. the impetus thus imparted to budgetary expan­ I believe that we can all agree that, in wres­ sion is nevertheless very serious. It underscores tling with the policy challenges that face our the imperative need for us to be extremely Nation, no objective deserves higher priority cautious in adding new programs to the budget. than that of creating job opportunities for the In stressing this principle, President Carter de­ millions of Americans who want to work but serves your and the Nation’s full support. But who nevertheless now find themselves idle. But it is equally important that the Congress ponder while the goal we seek is clear, appropriate carefully any abrupt surrender of sizable actions for dealing with unemployment are not amounts of tax revenue. easy to devise or to carry out. The inflation that has plagued the American By my diagnosis, as I have already noted, economy since the mid-1960’s is a complex our economy faces a serious deficiency of busi­ phenomenon, and it is by no means solely the ness investment in fixed capital, rather than any product of budgetary practices. But there can be generalized problem of demand deficiency. The little doubt that the chronic reaching of the underlying difficulty is that we have done many Federal Government for both financial and real things over a span of years that have been resources has been a major contributory element damaging to the state of confidence—especially in inflation—indeed, the dominant one in my the confidence of the business community. Ef­ judgment. The Federal Government was a forts at fiscal stimulation do not seem promising party—rather than the counterweight it should to me in these circumstances. Indeed, they could have been—to the demand pressures that began prove inimical to real progress, if only because building up in the mid-1960’s and that culmi­ they are likely to be perceived by many people nated in the speculative distortions of the as an extension of the loose budgetary practices 1973-74 period. Inflation, by my assessment, from which so many of our troubles derive. not only sowed the seeds of the recession that By and large, the American public is familiar ensued; it also is the basic explanation— with the sorry record of Federal Government precisely because it became so virulent—of why finances in our generation. More and more of the recession that followed was so severe. our citizens have come to appreciate the linkage Blinded by the explosive advance of prices— between the record of persistent deficit financing which for a while swelled nominal profits—bus­ and the debilitating inflation of recent years. The inessmen were unusually slow in adapting their degree to which we have been unwilling to tax activities to the weakening pattern in consumer ourselves—even in good years—to finance the markets that had actually become quite well programs enacted by the Congress never ceases defined during 1973. When businessmen finally to astonish me, no matter how often I scan the recognized in the autumn of 1974 that their figures. Only once since 1960 has the Federal perception of market conditions had been mis­ budget shown a surplus. The cumulative deficit taken, the response in scaling back operations in the unified budget over the past 15 years, was often drastic—in large part because distor­ including the newly revised official estimate for tions had been allowed to cumulate for such a the current fiscal year, comes to $308 billion. long period. If the spending of off-budget agencies is also A strong residue of caution has been evident taken into account, as it should be, the aggregate in business circles since then. That caution— deficit for the period amounts to $337 billion. which explains, I believe, the relatively weak Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

232 Federal Reserve Bulletin □ March 1977 recovery in capital spending so far in this ex­ current calendar year could be $10 billion or pansion—is an amalgam of several things. so higher than in 1976. The prospect that Fed­ These include the rude discovery that the busi­ eral demand for credit will run considerably ness cycle is by no means dead, a heightened higher than earlier seemed likely has stirred worry about the troubles inflation can breed, uneasiness among credit market participants, as apprehension about the cost and availability of is evidenced by the decline in prices of fixedenergy supplies, & lingering fear that expan­ income obligations that followed disclosure of sionist governmental policies could again lead the administration’s intentions. While a to price controls, and growing concern about “crowding out” of private borrowers from the costs of complying with existing environ­ credit markets does not seem a serious threat, mental and safety regulations. In short, a confi­ at least not for 1977, the enlarged prospective dent business mood has been slow to emerge competition of the Federal Government with in the aftermath of recession, in considerable private borrowers—with the housing sector, for part for the reasons that relate to our recent instance—is most unwelcome. It may impart history of inflation and Government’s role in some upward tendency to interest rates, and it that history. The consumer mood is stronger; will also make it more difficult for the Treasury but consumers, too, have anxieties about infla­ to achieve further progress in lengthening the tion and inflation-inducing actions by Govern­ maturity of outstanding debt. ment. I have felt obligated in the course of this What this analysis suggests to me is that statement to explain to you why, on the basis governmental consideration of economic policy of my interpretation of the events that have should focus sharply on ways and means of occurred during recent years, I have reservations strengthening the confidence of our people in about budget moves that do not yet have the their own and the Nation’s economic future. By appearance of breaking with the past. Whatever focusing as we have on the size of a “stimula­ early action is taken in the Congress with regard tive” fiscal package, we inadvertently have been to the budget, I hope that the point I have made diverting attention from what I believe to be about the vital need for confidence-building ac­ the main problem. tions will carry some weight in your continuing At this juncture of history, Government actions deliberations as the year goes on. To give should aim above all else at reassuring our citizens Americans confidence that the future will be that the policy mistakes of the past will not be something other than a repetition of the past, repeated. Indeed, from the viewpoint of the re­ Government must demonstrate in a persuasive sponsibilities of this committee, a consideration way that it is regaining control of our fiscal of what not to do again ought, I believe, to serve affairs. as the critical point of departure for policy formu­ The President’s commendable goal of a bal­ lation. anced Federal budget within 4 years might still Starting there, I obviously cannot feel com­ be within reach even if the budget is now fortable about the official budget for fiscal 1977, enlarged by the full amounts that have been or for that matter about any budget, which recommended. The task of holding to that time­ moves toward enlarging the Federal deficit. This table will, however, be made more difficult by prospective enlargement comes at a time— each and every enlargement of spending. This unlike that of 1975—when private credit de­ emphasizes the need for an especially cautious mands are rising. Thus, a troubling departure approach to requests for program increases— is occurring from the normal pattern of gradu­ both now and in the future. In that regard, I ally diminishing demands for credit by the Fed­ particularly want to applaud the President’s de­ eral Government as recovery proceeds. cision to go forward with a zero-base budget On the basis of the revised budget proposals system for fiscal 1979, and also to review very submitted by the administration, it would appear critically the current practice of allowing offthat Federal borrowing in public markets in the budget outlays. These steps should serve to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 233 reduce, if not eliminate, programs that have tion. If a judgment emerges after the acceptance outlived their usefulness. of a particular concurrent resolution that some Such a budgetary approach, it seems to me, significant change has occurred in national condi­ has great potential for helping to arrest the tions, then a reopening of that resolution for powerful upward push of Federal spending. For revision is a clearly proper and responsible the record, I would note that the Federal Reserve action. has for some time been conducting two pilot I would voice, however, one cautionary studies of the feasibility of adopting zero-base word. As a practical matter, if the Congress budgeting. One of those studies is going forward were to move in the direction of very frequent at the Chicago Federal Reserve Bank and the revision of concurrent resolutions, the essential other in a division of the Board. While evalua­ discipline of the new budgetary process would tion will take some time, I am inclined to think be lost. It may be useful to recall that the only that we may be able to move to the recom­ previous effort by the Congress to operate with mended approach fairly rapidly, even though as a formal legislative budget—under the Legisla­ an independent agency we have no formal obli­ tive Reorganization Act of 1946—foundered in gation to do so. part because liberal supplemental appropriations In closing, I would like to come back for a made the whole exercise of spending ceilings moment to the workings of the new congres­ by concurrent resolution somewhat pointless. sional budget system. I am aware, of course, While I do not think there is great risk that we that the proposal for a Third Concurrent Reso­ shall travel such a route again, I mention that lution for fiscal 1977 has been subjected to some bit of history because it is so vital that the new fairly sharp criticism. To the extent that such legislative budget process continue to evolve criticism has been directed at the specific content along the lines of its promising beginnings. The of the resolution, it seems entirely proper. In­ last 2 years have clearly demonstrated the value deed, as I have made clear here today, I take of the legislative budget as an instrument for some exception myself to its basic thrust. The bettering fiscal discipline. This committee has legitimacy of having a third resolution, how­ earned the Nation’s gratitude by its commitment ever, does not seem to me to be open to ques­ to that objective. □ Statement by Philip E. Coldwell, Member, compromising the ability of the Federal Reserve Board of Governors of the Federal Reserve System as the Nation’s central bank to render System, before the Commerce, Consumer, and objective, independent judgments on the course Monetary Affairs Subcommittee of the Commit­ of monetary policy. Second, the Federal Re­ tee on Government Operations, U.S. House of serve Banks, which account for almost 95 per Representatives, March 3, 1977. cent of the expenditures of the System, are already subject to extensive audit by the Board I am pleased to present the views of the Board of Governors pursuant to an express mandate of Governors of the Federal Reserve System on in the Federal Reserve Act and maintain an H.R. 2176, a bill that would direct the General independent audit staff for day-to-day review of Accounting Office (GAO) to conduct audits of expenses. The GAO itself has recognized the the Federal Reserve Board and of all the Federal effectiveness of this audit procedure, and there Reserve Banks. The Federal Reserve opposes have been no significant challenges to the ex­ enactment of this legislation—as it has opposed pense control of the System. Furthermore, for similar proposals over the past 25 years—for almost 25 years the Board itself has been audited two principal reasons: First, it would constitute, annually by a leading national firm of inde­ in our view, the first significant step toward pendent auditors. The results of this audit work Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

234 Federal Reserve Bulletin □ March 1977 are available to the Congress. Accordingly, we lated the Board from control by the executive submit that there is no need for legislation that branch by providing its members 14-year terms, would impose an additional audit upon the Sys­ staggered so that one term expires every 2 years, tem. and by excluding the System from the classified The Federal Reserve System is the creation Civil Service. It has also insulated the System of the Congress, and the Congress has the from the continuing operational control that authority to change the nature of the central might be exercised by the Congress itself bank in any manner it sees fit. We are con­ through the appropriations process. The Reserve cerned, however, that by significantly altering Banks fund their operations through the earnings one of the primary protections to the System’s realized on their securities portfolios, and under independence—its authority to establish its own the provisions of the Federal Reserve Act the budget and audit its expenditures—the Congress Board’s expenses are met through periodic as­ may, without intending to do so—and notwith­ sessments levied upon the Reserve Banks. standing supposed safeguards in the legisla­ As a part of that nonpolitical structure, the tion—profoundly change the concept of an in­ Congress deliberately created a quasi-private dependent monetary authority that has served status for the Reserve Banks. The concern over the country well for over 60 years. Our fears concentration of power, credit control, and re­ in this regard are not based upon mere specula­ gional diversities, led the Congress to give tion, for it is no secret that a principal objective semiautonomous powers to the Banks with their of many proponents of a GAO audit of the own Boards of Directors and with their Pres­ Federal Reserve over the past quarter century idents participating in the formulation of na­ has been to achieve control over monetary pol­ tional monetary policies. General supervision of icy through that means. Indeed, little over a year the Banks was assigned to the Board of Gover­ ago when this very issue was before the 94th nors, including approval of budgets and exami­ Congress in H.R. 7590, a leading consumer nation of expenses. Changing this arrangement advocate argued quite bluntly that if the public to inject the GAO into Reserve Bank oversight would rally behind a GAO audit bill4 ‘they could could shift the fundamental roles of the Banks help substantially to reduce interest rates in the and upset that fine balance of control and par­ coming years.” Reduction of interest rates may ticipation that has brought valuable regional or may not be in the broad public interest at input to national policy. any particular time, and it was precisely because The Congress has repeatedly rejected propos­ the Congress recognized that political expedi­ als to alter this structure. Indeed, on those few ency should not determine the course of interest occasions since 1913 when the Congress has rates that it created the Federal Reserve as an made changes in the original structure of the independent monetary authority. While H.R. System it has moved toward providing greater 7590 failed of passage in the 94th Congress, protection of the System’s independence. In it was clearly perceived by the opponents of an 1933, for example, the Congress repealed that independent Federal Reserve as a means of portion of the Federal Reserve Act that desig­ bringing outside influence to bear upon the Sys­ nated the Secretary of the Treasury and the tem’s monetary policy judgments. Comptroller of the Currency as ex officio mem­ The Congress has carefully constructed the bers of the Board, because of its concern that Federal Reserve System in such a way as to the formal participation of these executive be free from day-to-day political pressures. As branch officials in the policy deliberations of the the House Banking Committee stated emphati­ System could impair the independent judgment cally in its 1913 report on the original Federal of the Federal Reserve. Reserve Act, the Board was created “as a Significantly, it was also in 1933 that the distinctly nonpartisan organization whose func­ Congress took action to exclude the Federal tions are to be wholly divorced from politics.” Reserve Board from the audit jurisdiction of To achieve this purpose the Congress has insu­ GAO. As I have mentioned, the original Federal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 235 Reserve Act provided that the Board’s expenses review of compliance with established proce­ should be paid from assessments levied by the dures, regulations, and policies. The operational Board upon the Federal Reserve Banks, rather reviews are in-depth studies of methods and than from appropriated funds. Shortly after the procedures followed by the Banks in carrying creation of the Federal Reserve System, the out their principal functions. At the conclusion Attorney General ruled that the funds raised of each examination or review, detailed oral and through these assessments on the Reserve Banks written reports are rendered, documented re­ were “public monies” within the meaning of sponses are requested, and a final report is the Federal auditing statutes. As a result of that prepared. A comprehensive oral report is pre­ opinion the funds of the Board were audited by sented annually by the Division to the Board Treasury Department auditors until 1921, when of Governors and to the Directors of each Bank the GAO was established. From that time until on the results of all reviews and examinations 1933, the Board’s funds were audited by the in the respective Districts. GAO. Another part of this control of expenses is In the Banking Act of 1933, however, the the audit department in each Reserve Bank. Congress amended the Federal Reserve Act to These professionals, acting independently of state explicitly that funds derived from such Bank managements, are responsible directly to assessments on the Reserve Banks “shall not the Board of Directors for enforcement of Sys­ be construed to be Government funds or appro­ tem guidelines and policies. The Board of Gov­ priated monies,” and it specified that “the ernors’ examiners review the procedures and Board shall determine and prescribe the manner activities of the audit departments as well as in which its obligations shall be incurred and check a portion of their audit work in detail. its disbursements and expenses allowed and The Board’s examiners also appraise the com­ paid.” As a result of this amendment, which petence and independence of the Federal Re­ was enacted for the explicit purpose of increas­ serve Bank auditors and report their findings to ing the independence of the Federal Reserve, both the Board of Directors and the Board of the Board was no longer subject to audit by the Governors. GAO. The other two parts of the over-all control Exclusion of the System from GAO’s audit program involve the managements and Boards jurisdiction has not by any means meant that the of Directors of the Reserve Banks. The senior System’s operations are free from careful scru­ officers exercise their best judgment in manag­ tiny and accountability. In the original Federal ing the Reserve Banks and compete among Reserve Act, the Congress expressly charged themselves for the best rank in the System in the Board of Governors with responsibility for productivity, cost efficiency, and quality of exercising supervisory authority over the Banks service. As a former President of a Federal and directed the Board to examine “the ac­ Reserve Bank, I can assure you that the Bank counts, books and affairs” of each Reserve Presidents do exercise careful control over the Bank at least once each year. To accomplish costs of the banks and view the audits not as this task the Board’s Division of Federal Re­ a self-audit but instead as a searching examina­ serve Bank Examinations and Budgets, com­ tion by informed personnel. posed of about 50 auditors and managers, per­ The Boards of Directors, which include ex­ forms a detailed annual financial examination perienced businessmen and bankers, also con­ of each Reserve Bank, as well as periodic oper­ tribute their knowledge of organization, ational reviews of all major operations of the methods, and procedures to the efficient opera­ Banks. The financial audit includes verification tion of the Banks. Moreover, through their audit of the accuracy and reliability of the balance committees the Boards of Directors receive the sheet, verification of cash and securities, evalu­ reports of the auditors and counsel with man­ ation of the propriety of expenditures and the agements to insure adherence to System poli­ effectiveness of internal control systems, and a cies. The Chairman of each Reserve Bank Board Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

236 Federal Reserve Bulletin □ March 1977 meets personally each year with the Board’s risdiction the question arose whether the Federal Committee on Federal Reserve Bank Activities Reserve System should be subject to GAO to review and appraise the operating efficiency audit. At that time the GAO supported exclusion of the Bank and the performance of its senior of the Federal Reserve, based upon its judgment officers. The conferences permit frank ex­ that there were already strong controls within changes about the strengths and weaknesses of the System and that the Reserve Banks were each Bank and the relative position of each audited “frequently and thoroughly” under the against the ever-improving position of others. direction of the Board of Governors. In 1952, Thus the Federal Reserve has four distinct when a subcommittee of the Joint Committee lines of control to assure adherence to System on the Economic Report under the Chairman­ policies and to promote steady improvement in ship of Congressman Patman once again con­ productivity and cost efficiency. The manage­ sidered this issue, the Acting Comptroller Gen­ ments, Boards of Directors, and auditors of the eral of the United States informed the Subcom­ Reserve Banks and the examiners of the Board mittee that nothing had occurred since the en­ of Governors are all part of an elaborate system actment of the Government Corporation Control of formal and informal surveillance over Re­ Act in 1945 that would require any different serve Bank efficiency, costs, and services. view as to the need for a GAO audit of the As a result of this whole procedure of audits, Federal Reserve. reviews, and consultation, the Reserve Banks Twenty-five years later, I can state emphati­ have been making significent gains in effi­ cally that at no time in the history of the Federal ciency. As measures of this progress, the fol­ Reserve System has the Board’s program of lowing may be cited: financial and operational audit and review of the —Checks processed in 1976 totaled 12.3 bil­ Reserve Banks been stronger or more effective lion items—up 23 per cent from 1973 but han­ than it is today. While the GAO has now ap­ dled with almost 9 per cent fewer employees and parently departed from its historical position with total costs increasing only 15 cents per with respect to an audit of the System, that thousand or 1.5 per cent over 1973 costs. change cannot have been based upon an in­ —Currency sorted and counted rose 4.5 per formed judgment that the Board’s audit had cent from 1973 to a 1976 total of 7.0 billion deteriorated or is inadequate for today’s envi­ pieces handled by 19 per cent fewer employees ronment. and with an increase in cost of only 8 cents As I have indicated, since the Reserve Banks per thousand or 5.8 per cent over 1973 costs. account for almost 95 per cent of the expendi­ —Just in the past 2 years the number of tures of the System, an audit of the System personnel needed to handle Reserve Bank essentially implies an audit of the Reserve operations has declined by 1,374 or 5.4 per Banks. The Board’s expenses for its own cent. operations during 1976 were only $39.5 million, We do not see what advantage there is to be of which 76.8 per cent was expended for salaries gained either in requiring the GAO to duplicate and related personnel expenses. While the the audit of the Federal Reserve Banks that has Board of Governors itself is not subject to an been carried on by the Board for decades, or audit by another governmental entity, its ac­ in substituting GAO for the Board as the auditor counts are audited annually by a leading firm of the Banks. Indeed, the GAO itself has re­ of independent public accountants and the re­ peatedly recognized the effectiveness of the sults of that audit have been furnished regularly Board’s audits of the Reserve Banks, and in past to the Congress. In addition to auditing the years has represented to the Congress that there accounts of the Board, these outside auditors was no need for GAO to audit the Banks. In conduct a review and evaluation of the exami­ 1945, when the Congress was considering gen­ nation and auditing procedures employed by eral legislation to bring government corpora­ the Board itself in its own audit of the Reserve tions generally within the scope of GAO’s ju­ Banks. The auditor’s report of that review has Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 237 also been provided to the Congress along with check float rises sharply because of a computer the Board’s Annual Report, which makes public malfunction, the open market desk must take the expenses of each Reserve Bank and of the this into account in planning its reserve opera­ Board. tions. We are, of course, aware that H.R. 2176 The difficulty of segregating monetary policy would exclude monetory policy transactions and functions so as to keep them outside the scope deliberations from the scope of GAO’s audit of a GAO audit is compounded by the fact that authority. Thus, the bill itself appears to reflect virtually every administrative expenditure or recognition of the need to protect the inde­ procedure of the System can be related ulti­ pendence of the monetary authority and to limit mately to a policy function. No matter how the potential for intrusion into policy matters carefully the scope of the audit may be limited, through a GAO audit. While we warmly endorse the potential will always exist that the audit may this objective, we believe that as a practical be used to impinge upon policy matters. Indeed, matter the enforcement of such limitations as we understand the GAO’s new position on would be extremely difficult and that even a this subject, it believes that it must have access carefully circumscribed audit would be likely to monetary policy deliberations and transac­ to encroach upon—or would at the least provide tions in order to perform its audit and program a means for encroaching upon—those judg­ review function properly. In light of this we ments of the System that the Congress intended believe that the Federal Reserve’s frequently to be independent. There is not clear and easy repeated fear that even a limited GAO audit demarcation between “monetary policy delib­ would constitute an “entering wedge” for the erations” and the many other functions per­ control of monetary policy is not unrealistic. formed by the Board. Monetary policy concerns Moreover, the congressional oversight embod­ inevitably become intertwined with bank regu­ ied in House Concurrent Resolution No. 133 latory and supervisory matters. Our current de­ clearly provides the vehicle for monetary policy liberations, undertaken at the request of the review and obviates the need for this new legis­ Congress, include questions of whether banks lation from that standpoint. Under this Resolu­ should be permitted to pay interest on demand tion the Chairman of the Board appears before deposits and whether the Federal Reserve should the Congress every 3 months to report on the pay interest on reserves. These questions exem­ System’s monetary policy targets and to review plify the difficulty of neatly segregating our the condition of the economy. Similarly, the functions. Although they appear to involve planned oversight hearings on the condition of matters of regulatory policy, monetory policy the banking industry should supply the infor­ considerations have permeated our discussions mation the Congress needs for this aspect of of these questions. the System’s work. Similarly, Federal Reserve Bank operations We do not suggest that the Federal Reserve cannot be neatly pigeonholed. Administration of System is or should be beyond the scope of the discount window, for example, is tradition­ congressional oversight or that it should not be ally viewed as a monetary policy function, yet held accountable to the Congress for its expend­ the proper performance of that function involves itures. We do suggest—as GAO itself recog­ considerations of regulatory policy and matters nized over 30 years ago—that a detailed and relating to the soundness and condition of effective audit of the System’s expenditures and member banks. Similarly, our conduct of the procedures is already being performed by the process of bank supervision frequently gives rise Board in response to a mandate from the Con­ to concerns that relate to the Board’s respon­ gress. Before the Congress takes steps such as sibilities as the monetary authority Even the those contemplated by H.R. 2176, which may System’s work of clearing checks and process­ fundamentally alter the nature of the System, ing government securities has important impacts it should consider evaluating the Board’s per­ on policy implementation. For example, if formance of its statutory duty as the auditor of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

238 Federal Reserve Bulletin □ March 1977 the Reserve Banks. The generally favorable bilization are hallmarks of objective central results of the hearings under House Concurrent bank policy formulation. Determination of its Resolution No. 133, through which we com­ own budget needs and freedom from outside municate with the Congress on monetary policy audit and influence on its allocation of expenses matters, has led the Congress to adopt this are indispensable elements in this fabric of in­ procedure as a means of facilitating congres­ dependence. sional oversight on the condition of the banking In our opinion, the Congress should consider industry. To achieve a similar relationship and carefully the implications of this proposed leg­ understanding with the Congress with respect islation that will begin the process of compro­ to the Board’s performance of its statutory duty mising the objectivity and impartiality of central as the auditor of the Reserve Banks we suggest bank judgments. The Congress already has an that the Congress consider holding annual over­ oversight of monetary policies pursuant to sight hearings on this subject. We are confident House Concurrent Resolution No. 133, but that if the Congress were to conduct such hear­ could easily under this proposed bill slip into ings it would conclude, as the GAO itself con­ a dominantly influential position on monetary cluded in 1945 and 1952, that this function is policies through audit criticisms or budget com­ being performed well and that there is no need ments without the responsibility for those poli­ for a separate or duplicative audit by GAO. cies, and thereby, severely weaken the central In this uncertain and inflation-prone world, bank’s position. it is worth noting that the lowest rates of infla­ Central bank independence has been eroded tion among the developed nations are evident or extinguished in a number of countries over in the countries that have relatively independent the postwar period by subjugating the banks central banks. The abilities to restrict the growth either to finance ministers’ domination or par­ of the money supply, to neutralize heavy in­ liamentary control. I am convinced that this loss flows of foreign capital, or to insist upon public of independence has been a significant factor marketing of government deficit financing are in the weakening of monetary control and has tests of the independence of a central bank. led to a heavy stimulus to inflation. If the Similarly, the freedom to exercise an inde­ Congress is concerned about the rate of money pendent judgment on the credit needs of an supply growth as an important element in infla­ economy, to resist the short-run expedient tion, it should look with special care upon the clamors for easy credit, and to make the hard monetary growth in countries where central long-range impact decisions so necessary for banks cannot exercise relatively independent improving our opportunities for economic sta­ policy judgments. □ Statement by Arthur F. Burns, Chairman, This hearing, the first of its kind for this Board of Governors of the Federal Reserve committee, is an outgrowth of our shared judg­ System, before the Committee on Banking, ment—the committee’s and the Board’s—that Housing, and Urban Affairs, U.S. Senate, there ought to exist an official forum for objec­ March 10, 1977. tive and systematic review of our banking sys­ tem. Certainly from the Board’s standpoint, As you know, Mr. Chairman, I attach special there has been a regrettable lack of balance at importance to this meeting today at which I shall times in the past several years in public discus­ report to you, on behalf of the Board of Gover­ sion of banking matters. It is our hope, which nors of the Federal Reserve System, on the I am sure you share, that hearings of this kind condition of the banking system. will contribute to better understanding of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 239 performance of the Nation’s banking system and Most importantly, the growth of loans and in so doing will bring individual banking prob­ investments in the banking system proceeded lems into better perspective. much more rapidly than did additions to the base A few years ago it would have been difficult of equity capital. Commercial bank assets in­ to generate broad interest in the kind of review creased at an average annual rate of 9 per cent this committee is now initiating. The reason, in the decade of the 1960’s and at the even more obviously, is that from the standpoint of the rapid rate of 15 per cent in the first 3 years public the Nation’s banking system was adjust­ of the 1970’s. In both periods, the rate of growth ing well to the general growth of the economy. of bank assets appreciably exceeded the growth During the decade of the 1960’s, bankers pro­ in the dollar value of the Nation’s production—a gressively shed much of the caution that had fact indicative of the determined efforts banks carried over from the Great Depression and— were making to enlarge their share of total freed, as they came to be, of some of the financing activity. restraints imposed on them—they began to do The consequence of the hard push for growth things that were impressively creative. was that, by the end of 1973, equity capital was That history of change during the 1960’s is equivalent to only about 6V2 per cent of total reasonably well known, and I need not dwell bank assets—down sharply from 9 per cent at on it. In brief, what bankers did was to reach the end of 1960. Moreover, the equity capital out for new business far more aggressively than of banks had been leveraged by some parent they had formerly. To that end, they devised holding companies, which used funds raised in new techniques—many highly ingenious—for debt markets to increase equity investment in gathering deposits and making loans. They their subsidiary banks. opened offices at a rate much more rapid than That thinning of the capital cushion would the growth of the Nation’s population, and in­ have been reason enough for some uneasiness creasingly extended their operations to new about banking trends as we moved into the geographic areas and functions. Banks that pre­ 1970’s. But there were other reasons as well. viously served only local markets sought to Of key importance was the particular way in become regional in scope; regional banks which asset growth was achieved. The 1960’s moved to establish a national presence; and our witnessed the birth and rapid spread of so-called Nation’s largest banks looked more and more liability management by banks—a technique to opportunities abroad. As long as such growth that in practice involved heavy reliance on bor­ was outwardly free of signs of strain—as it rowed funds, often very short-dated funds, to generally was for more than a decade—the accommodate loan requests. Thus, uneasiness development met with broad approval. Com­ was engendered not only by the rapid expansion plaints were few—except, of course, from of assets relative to equity but also because that banking’s competitors, who were understanda­ expansion rested so heavily on volatile re­ bly unenthusiastic about banking’s new display sources. of entrepreneurial energy and talent. Consumers The unease was accentuated by the fact that, and businessmen could only be pleased by the in addition to the rapid growth of loans, com­ enlarged range of banking services and the more mercial banks proceeded with a rapid build-up intense competition among financial institutions. of commitments to their customers to make There is, however, another side to the ledger. additional loans in the future. A suspicion, As often happens with evolutionary change that moreover, that banks had to some extent com­ is essentially constructive, the pendulum swung promised previous standards of asset quality in too far too quickly. Excited by the profit gains, their drive for growth added to concern in the which the drive for growth yielded in the early 1970’s. So, too, did realization that the 1960’s, a good many bankers paid less heed holding company device had carried bankers than they should have to traditional canons of into terrain that was relatively unfamiliar. Fi­ banking prudence. nally, the advent of widespread floating of cur­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

240 Federal Reserve Bulletin □ March 1977 rencies produced keen awareness that many of sively, the large New York banks—to the vicis­ the Nation’s larger banks, by virtue of their situdes of municipal finances. international involvement, had become exposed All of these events have at times made for to additional risks. In sum, as the decade of nervousness about the condition of banking, and the 1970’s began, apprehension was emerg­ that situation may not change quickly. A number ing—and this was not confined to banking reg­ of the problems impinging on banks—for ex­ ulators—that the innovations and developments ample, those related to international oil financ­ of the 1960’s, welcome as they were in many ing and those having to do with New York respects, posed some formidable challenges. City—are almost certain to keep coming back Such uneasiness as existed in the public mind into the headlines. Then, too, loan losses and with respect to trends in banking remained rela­ loan problems often continue months or even tively mild, however, until 1974. The failure years after a recession in economic activity has of U.S. National of San Diego in October 1973, ended. The recent recession illuminated the bad followed some months later by the well-adver­ credits, indeed to a large extent caused them, tised difficulties of Franklin National and Bank- but considerable time will be required for trou­ haus Herstatt, both ending in failures, trans­ bled debtors to work out their financial difficul­ formed the incipient unease into serious appre­ ties. Hence, the total amounts of questionable hension. Indeed, for the first time since the loans, and the number of banks classified as 1930’s major doubts began to be voiced here problem banks because of a sizable volume of and there about the soundness of our Nation’s, such loans, may not diminish rapidly even in and indeed the world’s, banking system. an upbeat economy. We ought to expect that The unhappy closing in our country of two and not be surprised by such disclosures. large banks—U.S. National and Franklin Na­ On behalf of the Federal Reserve, I am tional—was handled by the regulatory authori­ pleased to report that our analysis leads to the ties in a manner that caused a minimum of conclusion that the Nation’s banking system has disturbance to their customers and no loss at passed well beyond the worst of its recent all to their depositors. Even so, public concern difficulties and is in fact regaining strength about banking continued. In fact, it still lingers steadily. This is the product of several influ­ on in some degree, having been nurtured since ences—among them, corrective actions taken by 1974 by a succession of troubling events and the banks on their own initiative, supervisory revelations. pressure for better performance, and the recov­ Financial strains associated with the quantum ery that is under way in the general economy. jump in oil prices—involving as they did huge All of the widely used measures of bank-cap­ borrowing by oil-deficit nations—have contrib­ ital position have shown definite improvement uted to unease about the health of banking. So since 1974, reflecting a combination of much too has the severity of the recent recession—it­ slower growth in banking activity and sizable self the product of an inflationary environment additions to capital resources. Total loans and that fostered widespread speculation. The slump investments of commercial banks have in­ in business activity triggered a number of major creased at an annual rate of approximately 5 Vi business bankruptcies entailing some well-pub­ per cent during the past 2 years, only about a licized loan losses for banks. The recession, third of the pace that prevailed in the opening moreover, laid bare the financial weakness of years of this decade. A major part of the slow­ many real estate investment trusts, which, as down reflects, of course, the subsidence of is well known, are heavily in debt to our Na­ credit needs occasioned by the state of the tion’s banks. And the recession also played a economy and the increased reliance of business part in exposing New York City’s financial firms on public debt markets. But there also has difficulties, thus bringing to acute national con­ become discernible a greater sense of caution sciousness the risk exposure of commercial and selectivity on the part of bankers in extend­ banks—particularly, but by no means exclu­ ing credit. Meanwhile, in order to bolster their Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 241 capital, banks have raised substantial sums in added enormously to their holdings of U.S. the longer-term debt market, and they have also Government securities—in all, about $47 bil­ added to their equity base both by stepping up lion. This emphasis on liquid assets has sales of new stock and by continuing to pursue strengthened the general quality of bank asset conservative dividend policies. positions. Moreover, in view of the chastening Fortunately, our Nation’s banks have enjoyed experience so many banks have had, loan relatively good profits, in part because of a new officers have typically been exercising greater cost consciousness that has manifested itself not care in extending new credit. just in go-slow policies affecting the scope of Besides the improvement in asset composi­ operations but in some instances also in person­ tion, there has been a diminished emphasis by nel reductions—something that until recently banks on accommodating expansion of their was wholly uncharacteristic of the banking in­ portfolios by relying on short-term borrowed dustry. Earnings of banks have been big funds. The total of so-called managed liabilities enough, taken in the aggregate, to absorb the of large banks declined between December 1974 large loan losses that have occurred in lagged and December 1976, despite a substantial rise response to the recession and yet permit moder­ in the over-all liabilities of these banks. The ate gains in net income. This performance of relative dependence on borrowed funds that are profits has been a key factor, of course, in potentially very volatile has thus decreased. At enabling banks to strengthen their capital posi­ present, the average ratio of managed liabilities tion by retaining a large part of earnings. It is to the total assets of large banks is some 6 per­ also worth noting that in many of the larger centage points below the high recorded in the banks, profits have been bolstered by excep­ summer of 1974. tional income gains growing out of international As I stated earlier, it would be unrealistic, activities. even with the improvement now occurring in The ratio of bank equity to total assets that asset quality, to expect a rapid change in the I mentioned earlier as having fallen to 6V2 per loan-loss experience of banks. Banks for some cent at the end of 1973 recorded no significant time will continue to wrestle with the legacy deterioration thereafter. It tended to stabilize in of loans that turned sour during the recession. 1974, then improved modestly in 1975, and Complete information on loan-loss experience modestly again through the middle of 1976, is not yet available for 1976. But such data as when it approached 7 per cent. Other available we do have indicate a flattening tendency in the measures of the status of bank capital—those net loan losses of commercial banks, measured that take debt capital into account as well as as a percentage of loans. That is an encouraging equity and which focus on risk assets rather than change from 1975, when loan losses climbed total assets—show either equal or greater sharply. Strengthening the impression that a turn strengthening. In particular, the ratio of total for the better has occurred is the fact that during capital—that is, equity plus subordinated 1976 a decline was recorded in the proportion debt—to risk assets rose by more than a full of past due loans of national banks. Moreover, percentage point between the end of 1974 and preliminary data for 1976 on bank assets classi­ mid-1976, when it reached 10.2 per cent. Sig­ fied by bank examiners as substandard or worse nificantly, this improvement in bank capital po­ also suggest that the dollar amount of classified sitions has occurred for all size classes of banks, loans is no longer rising. Thus, some signs of from the smallest to the biggest. improvement in bank loan experience have ap­ The growth of bank assets has not merely peared, and these should multiply as expansion slowed, but—as is typical in strength-rebuilding of the economy continues and gives support to phases of the kind now proceeding—there has the financial position of bank customers. been a decided improvement in the composition Essentially the same stabilizing tendencies are of newly acquired bank assets. Between the end evident with regard to banks classified by bank­ of 1974 and the end of 1976, commercial banks ing agencies as being in the “problem” cate­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

242 Federal Reserve Bulletin □ March 1977 gory. When a bank is placed in such a category, mark. So has the embarrassment that certain this simply means that it requires special super­ institutions suffered in having to pay a premium visory attention. The number of such banks rate on their certificates of deposit. Fresh is the increased sharply in 1974 and 1975, but it has memory, also, of the cost and strain many banks since then remained substantially unchanged. experienced in making good on liberally granted For purposes of evaluation, it is important to commitments to extend credit. Such things as bear in mind that the composition of these lists these, combined with the shock of heavy loan changes frequently as difficulties are identified losses, appear to have significantly altered the by the regulators and resolved by the institu­ psychological framework within which banking tions. Thus, no inference of a lack, of progress decisions are made. Liability management no in overcoming specific problems should be longer seems quite so wondrous to many bank­ drawn from the recent relative stability in the ers, and there is clearly a new degree of appre­ over-all number of banks on such lists. In par­ ciation that commitments to lend ought not to ticular, the recent stability of numbers does not be undertaken lightly. Having learned the hard mean that there is a set of chronic “hardcore” way that the business cycle is, after all, very cases that defy remedy. We should, moreover, much alive, most bankers are likely for a time keep in mind the fact that the overwhelming to apply stricter standards than they did a few majority of our commercial banks do not require years ago in making credit judgments. All in special supervisory attention. all, the banking industry is exhibiting consid­ The so-called problem banks represent only erable caution, which extends both to the tradi­ a small percentage of the total number of com­ tional range of banking operations and to the mercial banks in the United States—less than nonbanking activities of holding companies. 5 per cent even at the worst readings of recent This should help to clear up old problems and years. And, of course, the number of banks that avoid new ones. actually fail is a small percentage of so-called Not only bankers but also their customers are problem banks. The incidence of failure in the in a more sober mood and this, likewise, bodes banking industry is, indeed, very much smaller well for progress towards a healthier banking than in other lines of business. In the difficult industry. Business managers in particular— period from 1973 through 1976, there were only stung by their own discovery that the business 39 bank failures in the United States and most cycle is not yet dead and that huge risks are failing institutions were relatively small. As a entailed in enlarging balance-sheet totals through rule, the supervisory agencies were able to ar­ short-term borrowings—have been hard at work range takeovers of the failed institutions by putting their houses in order. They have sold healthy banks. Few were liquidated; thus serv­ sizable amounts of both long-term bonds and ices to customers were generally uninterrupted, equity securities and have used the proceeds of and losses to depositors on uninsured balances these sales largely to reduce short-term bank were minimal. debt and to increase their liquid assets. Those The Federal Reserve Board expects the grad­ developments, together with the continuing im­ ual improvement that is under way in the con­ provement of corporate earnings, certainly dition of the banking system to continue. Our ought to result in fewer new bad-loan problems anticipation that the general economy will ex­ for banks and also should help progressively in pand at a good rate during 1977 and on into cleaning up existing problems. next year is, of course, critical to that judgment. I can, moreover, assure this committee that But other important reasons also suggest further the Federal Reserve Board will make every strengthening in the banking situation. effort to see to it that the current trend toward By no means the least of these is the sobered a strengthened banking situation continues. The mood of bankers. The difficulty experienced by Board in its regulatory and supervisory actions some banks in issuing certificates of deposit at is adhering basically to the cautionary thrust times during 1974 or 1975 has clearly left its that was formally initiated in the spring of 1973. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 243 There has been no significant departure, for The wiser attitude that now appears to prevail instance, in our “go-slow” policy toward ex­ among bankers needs to be tested as the expan­ pansion of bank holding company activities. sion in economic activity proceeds. Memo­ The list of activities generally permissible for ries—however painful—can sometimes be these companies has not been expanded since short. Should we find that the lessons of the early 1974, and the Board has recently deter­ recent past—concerning capital adequacy, ex­ mined that two requested activities are not to cessive reliance on volatile funds, or expansion be permitted. Individual companies have been into unfamiliar areas—are no longer generally allowed to expand into new areas only when respected by bankers, the Board will be ready the Board has been satisfied with their financial to take whatever action seems appropriate. condition and managerial capabilities. On the Nor, even now, despite steady improvement other hand, companies whose asset composi­ in real estate markets, do we have any compla­ tion, capital, or liquidity raises doubts ought by cency about the involvement of banks and bank now to know that the Board will be extremely holding companies in real estate investment skeptical of proposals that divert financial or trusts (REIT’s). Many of these trusts have managerial resources to new undertakings. avoided bankruptcy only because of the for­ Partly as a result of pointed denial of various bearance of creditors, and from the strained and applications to undertake new investments— often touchy relationships that inevitably exist through which the Board has signalled to the in such a situation, sudden flare-ups of trouble market its “go-slow” policy—the number of are always possible. A number of REIT’s face requests filed with the Federal Reserve has a significant increase of maturing medium-term sharply diminished in the past 2 years. More­ debt later this year and in 1978. This situation over, in some instances in which applications demands close attention, with the prospect that for expansion have been approved, the authority more REIT-related losses lie ahead for banks to proceed has been made conditional on im­ and that it will be a long while before the messy provement of the applicant’s capital base. problems in that area have been resolved. The Board intends to continue using such Much the same is true of the financial leverage in the interest of assuring further im­ difficulties of New York City in which the New provement in the condition of the banking sys­ York banks have such a substantial stake. The tem. The capabilities of the Federal Reserve to working assumption must be that a solution exercise a constructive influence on banker atti­ calming to financial markets will be devised, tudes and actions are numerous, even though but simple prudence demands that the Federal our power to deal with certain problem areas Reserve System, because of its responsibility for is inadequate. Perhaps of greatest significance containing shocks to financial markets, be alert is the fact that the examination and supervisory to any sudden untoward turn in that troublesome process is being strengthened by expanded and situation. more timely surveillance, thereby enhancing our Another area of concern with respect to the ability to identify problems and to respond to soundness of our banking system is the contin­ them at an early stage. Parallel developments ued attrition in Federal Reserve membership. In to strengthen monitoring and follow-through 1976, 46 banks chose to give up membership capabilities are under way in the office of the and 8 banks left the System as a result of Comptroller of the Currency and at the Federal mergers with nonmembers. Over the past 8 Deposit Insurance Corporation. Coordination of years a total of 427 member banks have with­ efforts among the three agencies is, of course, drawn from the System, and an additional 91 frequent. have left as a result of merger. These banks The conclusion of the Federal Reserve Board have left mainly because of the high cost of that the condition of the banking system is the non-interest-earning reserves that they are improving does not mean that we are taking required to hold as members of the Federal anything for granted or that we see no problems. Reserve. Not a few of the banks, that dropped Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

244 Federal Reserve Bulletin □ March 1977 out of the System, being financially weak, faced stronger bank. As you know, this recently oc­ a desperate need to cut costs and improve prof­ curred in New York and California, where large. its. At present 60 per cent of insured commercial in-State banks were available to acquire the banks, accounting for about 25 per cent of problem banks involved. Had institutions of the deposits, are outside the Federal Reserve Sys­ size of Franklin National or U.S. National failed tem. in certain other States, no in-State bank would Unless the trend toward nonmembership is have been large enough to acquire them. In such reversed, the soundness of the banking system circumstances, the ability to arrange acquisi­ will be jeopardized by the fact that so many tions across State boundaries would become banks will not have direct access to the Federal urgent. Reserve discount window. The availability of These specific legislative changes would be the discount window—as was demonstrated helpful. From a broader perspective, it is vital dramatically in 1974—is an important element to make membership in the Federal Reserve contributing to the stability of our banking sys­ more attractive—perhaps by providing for lower tem. There should be no assumption that corre­ reserve requirements or allowing the System to spondent banks will always be able to afford pay interest on the reserve balances that member assistance to nonmembers. This is a problem banks maintain. Moreover, in view of the ex­ that warrants priority attention by this commit­ panding presence of foreign banks in the United tee and the full Congress. States—with assets here that now exceed $75 The Board also would like to see this com­ billion—the Board believes it important to sub­ mittee focus as soon as it reasonably can on ject foreign banks to the same Federal rules and gaps that continue to exist in the supervisory regulations that apply to domestic banks. To powers of the agencies that regulate banks. On strengthen our banking system, we therefore January 31 of this year, the Board, as you know, urge adoption by the Congress of legislation on forwarded to this committee a regulatory reform foreign banking such as the House of Repre­ bill that we believe would contribute materially sentatives passed last year. to better bank supervision. I have dwelt thus far on the condition of the Our draft bill proposes, among other things, banking system in relation to the activities that the creation of a statutory inter-agency bank banks carry on in our domestic markets. A examination council that would establish uni­ proper assessment must take into account as form standards and procedures for Federal ex­ well the role of our banks abroad. That role amination of banks. The bill would also place has expanded enormously, and the pace of statutory limits on loans to insiders. As the growth has been especially fast in the last sev­ committee is aware, problems with insider loans eral years. The indebtedness of foreigners to have been a major contributing factor in a num­ U.S. banks and their foreign branches rose ber of bank failures. In addition, we see a need annually during the past 3 years by about 20 for change in existing “cease and desist” au­ per cent. It is important to recognize in this thority. At present the Board cannot remove connection that most of the expansion in foreign bank or bank holding company officers for any­ lending by our banks has been made possible thing less than a showing of personal dishon­ by funds raised abroad. esty. We believe that authority for removal, As the world economy keeps getting bigger, with appropriate safeguards, ought to extend as some year-to-year increase in the international well to gross managerial negligence. loan portfolios of U.S. banks is a normal oc­ The bill we have proposed would also permit currence. But the recent pace of bank lending out-of-State acquisition of large banks in danger to foreigners goes beyond anything that can of failure. When adverse developments trigger be explained in terms of the growth of either deposit losses that seriously weaken a bank, it world economic activity or international trade. may be necessary in the public interest to com­ In addition, it reflects three developments: first, bine the weakened institution with a larger and the enormous rise of financing needs around the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to Congress 245 world that was occasioned by the quintupling the vast scale that then became necessary. The of oil prices; second, the willingness of Ameri­ supportive role that American and other com­ can banks to respond to those financing needs; mercial banks played in this situation thus pre­ third, the growth of multinational corporations vented financial strains from cumulating dan­ and the internationalization of banking through gerously, and this role continues even now. the Euro-currency markets. Certainly, our export trade and the general The sharp increase of oil prices did not in economy have been helped—and are being and of itself give rise to a need for financing helped—by banking’s role in international activity of the kind American banks have been lending. engaged in. Theoretically, at least, the Organi­ This is not to say there have been no excesses zation of Petroleum Exporting Countries or that expansion of international lending by (OPEC) group, recognizing the severe payments American banks can continue at an undimin­ imbalances they had caused, could themselves ished pace. Even though losses on foreign loans have become bankers on a major scale. We have been small—indeed, relatively smaller know, of course, that they largely avoided the than on domestic loans—the Federal Reserve route of extending credit directly to the countries Board is concerned about the enlarged risk ex­ that were buyers of their oil but instead funneled posure of our banks. I personally have voiced their huge surpluses into a variety of financial apprehension about various aspects of these assets—chiefly bank deposits. They thereby international lending activities in both private shifted the banking opportunity—and with it, and public discussion. of course, the burden of credit evaluation—to The rapid expansion of credit to the non-oil others, which meant mainly the large American “less developed countries” (LDC’s) warrants and European banks that the OPEC group used particularly close attention. The total indebt­ as depositories. The fact that things might have edness of such countries to American banks happened otherwise is something we should not alone approximated $45 billion at the end of forget, since in the years immediately ahead—if 1976. These countries also owe substantial sums serious oil-related payments imbalances per­ to foreign banks, official institutions, and others. sist—it may yet be necessary to urge upon the The fact that the aggregate external indebtedness OPEC group a much more active role as bankers of these countries may run to something like than they have so far played. $180 billion has been well publicized. American banks, as is well known, responded Of course, total debt figures—and more im­ along with other banks to the “recycling” chal­ portantly the interest charges flowing from lenge, serving since 1974 a very substantial them—need to be viewed in the context of the intermediary role between the OPEC group and levels of production and exports of the non-oil the countries whose external payments had de­ LDC’s. Looked at in those terms, they are teriorated because of OPEC pricing. The fact decidedly less worrisome. Nevertheless, the that loan demand within the United States was ratio of the external debt to exports and also relatively weak in 1975 and 1976 undoubtedly the ratio of the external interest burden to ex­ has been a factor helping to sustain an unusually ports have deteriorated for most non-oil LDC’s high rate of foreign lending activity by our in recent years, although some stabilizing tend­ banks. encies did emerge in 1976. In some countries, The sharp increase of oil prices, to say noth­ such ratios have reached levels that justify ing of the worldwide recession, caused exten­ serious concern and that point to the need for sive dislocations in the world economy; but determined stabilization policies. In the absence much more serious difficulties would have oc­ of such policies, difficulties may be encountered curred if commercial banks here and elsewhere in rolling over existing debt or borrowing to had not acted as they did. There simply was meet new requirements. no official mechanism in place in 1974 that This situation demands a heightened sense of could have coped with recycling of funds on caution on the part of our banks in managing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

246 Federal Reserve Bulletin □ March 1977 their international loan portfolios, and such the fact that the statement I have made this caution does in fact appear to be emerging. morning—despite its length—by no means re­ Here too, though, the Board will be watchful views the condition of our banking system as of developments. As part of a broader effort fully as would be desirable. Some of the matters to improve knowledge of international lending I have touched on are extremely complex, and activities, we are currently engaged in a joint that inherently creates risks that relatively brief project with other central banks to obtain a more treatment may give rise to misunderstandings. accurate size and maturity profile of the indebt­ I particularly hope that the emphasis I have edness to banks of individual countries. Such placed on the need for caution in credit exten­ data should prove useful to bankers as they sion will not be misunderstood. In banking, as proceed to evaluate credit requests by foreign­ in other pursuits, a fine line exists between being ers. The Board has communicated its intent to too cautious and not being cautious enough. At be both helpful to banks and watchful of their the Federal Reserve Board, we certainly do not activities. The latter point is currently being want caution to be overdone in the sense of signaled, for example, by an informal survey having our bankers be unresponsive to the needs of bank practices in defining, monitoring, and of creditworthy borrowers, either at home or controlling risk in international lending. abroad. Nor do we as supervisors, despite our The Board’s judgment about the condition of obligation to be watchful, seek to substitute our the international loan portfolios of American judgments for those of on-line bankers in de­ banks is not easily summarized. We have been ciding who should get credit. We have neither concerned with the rapidity of the rise in foreign the capacity nor do we have the desire to play lending, and we believe that here and there a such a role. slowing must occur—to rates of growth, gener­ The legitimate credit needs of our citizens and ally, that are consonant with expansion of the our businesses must be met if our economy— debt-servicing capabilities of individual bor­ and indeed the world economy—is to prosper. rowing countries. Such slowing, it should be It is precisely for that reason that the Federal appreciated, may well involve some problems Reserve is pursuing a policy of adding steadily for the international economy, since the struc­ to our banking system’s resources, and yet tural payments imbalances that have occasioned doing so on a scale that will not reignite the such heavy bank lending to foreign countries fires of inflation. Our banks are in a good are not going to disappear rapidly. The inference position to serve the needs of their communities. is clear that a strong cooperative effort is more They have been extending impressive amounts than ever necessary—involving, among others, of credit to consumers, to farmers, and to those official international agencies, the Group of Ten in need of mortgage credit. As the demand for countries, OPEC, the non-oil LDC’s, and the business credit strengthens, that too will be private banks. Unless we succeed in devising reasonably accommodated. I hope that in sound financial alternatives, serious strains in dwelling on other considerations this morning, the world economy may develop. I have created no misimpressions about this In closing, let me say that I am sensitive to critical matter. □ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

247 Record of Policy Actions of the Federal Open Market Committee MEETING HELD ON JANUARY 17-18, 1977 1. Domestic Policy Directive Preliminary estimates of the Commerce Department indicated that growth in real output of goods and services (real gross national product) had slowed to an annual rate of 3.0 per cent in the fourth quarter, from 3.9 per cent in the third quarter and 4.5 per cent in the second. Such estimates also indicated that average prices—as measured by the fixed-weighted index for gross domestic business product—had risen at an annual rate of 5.0 per cent in the fourth quarter, compared with 4.3 per cent in the third and 5.2 per cent in the second. According to those estimates, a sharp curtailment in business inventory accumulation during the fourth quarter had been the main factor in the reduction of growth in real output. The rise in business expenditures for fixed capital had also slowed, but total final purchases had risen at a somewhat more rapid pace than in the third quarter; in fact, at an annual rate of 4.8 per cent, growth in real final sales exceeded that in the first two quarters as well. In the fourth quarter personal consumption expenditures had ex­ panded sharply and residential construction had risen at an acceler­ ated pace. The staff projections suggested that the rate of growth in real GNP would increase appreciably in the first quarter of 1977 as the decline in business inventory accumulation came to a halt. Growth in final purchases of goods and services in real terms was projected to be sustained; it was expected that the rise in business investment in fixed capital would pick up while the expansion in personal consumption expenditures and in residential construction would moderate somewhat from the high rates in the fourth quarter of 1976. Staff projections for subsequent quarters of 1977 incorporated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

248 Federal Reserve Bulletin □ March 1977 assumptions that rebates of Federal income taxes and one-time payments to recipients of social security would be disbursed in the second quarter; that both personal income taxes and corporate taxes would be reduced; and that Federal spending for job-creating programs would be expanded. Reflecting these assumptions as well as expectations of a strengthening in business fixed investment, the projections suggested that real GNP would grow at a moderately faster pace than in the first quarter. It was expected that the rate of increase in the fixed-weighted price index for gross business product would change relatively little during 1977. Retail sales—which had strengthened considerably in October and November—were indicated by the advance estimate to have risen sharply further in December, with gains fairly widespread among categories of stores. The rise in the fourth quarter as a whole had been much larger than that in the third. The number of new domestic automobiles sold rose to an annual rate of about 9xh million in December, the highest rate in more than 3 years. To some extent, however, the rise reflected recovery from the strike that had limited sales in October and November; sales for the fourth quarter as a whole—at an annual rate of about 8V4 million—were down a little from the third-quarter pace. The number of foreign models sold was the same in the fourth quarter as in the third. Indicators of residential construction activity had remained strong in recent months. Private housing starts rose sharply in December to an annual rate of more than 1.9 million units, the highest since August 1973. Starts in the fourth quarter, at an annual rate of about 1.8 million units, were up 15 per cent from the third quarter. Although residential building permits declined somewhat in De­ cember, from the third to the fourth quarter they rose about as rapidly as starts. Mortgage commitments outstanding at savings and loan associations had risen $1 billion further in November to a record level of $24.5 billion. In contrast with developments in markets for consumer goods and services and for housing, current indicators of business fixed investment had been relatively weak. New orders for nondefense capital goods had declined sharply in November, and the average for October and November was only a little above that for the third quarter. Contract awards for commercial and industrial build­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of FOMC 249 ings—measured in terms of floor space—also had declined sharply in November and the average for October and November was below that of both the second and the third quarters. Moreover, such indicators of business investment as shipments of nondefense capital goods, sales of trucks, and expenditures for nonresidential construction suggested that actual business outlays for plant and equipment would not show the strong gain in the fourth quarter that had been indicated by the Department of Com­ merce survey of spending plans taken in late October and No­ vember. That survey had also suggested that the increases planned for the first two quarters of 1977 would be no greater than the rise in prices. On the other hand, a later Department of Commerce annual survey, conducted in December, indicated that businesses were planning to spend 11.3 per cent more for plant and equipment in 1977 than in 1976. Thus, it appeared that the shortfall in the fourth quarter of 1976 might be made up early in 1977 and that capital spending might strengthen further during the course of the year. The index of industrial production—which had risen 1.2 per cent in November, more than recovering the losses in the preceding 2 months caused in part by strikes—rose 0.7 per cent further in December. Expansion in production of motor vehicles accounted for a large share of the over-all gain in December, but increases were widespread among other final products and also among mate­ rials other than metals. Over the 12 months ending in December 1976 the total index had risen about 7 per cent. Payroll employment in nonfarm establishments expanded con­ siderably in December—reflecting mainly increases among the service-producing industries, although employment in manufac­ turing also increased somewhat. The average factory workweek was unchanged, after having recovered in November from the effects of strikes. As measured by the household survey, total employment had increased in December while the civilian labor force had changed little, and the unemployment rate declined from 8.1 to 7.9 per cent. Most of the reduction in unemployment was among adult men; for this group, the rate declined from 6.5 to 6.2 per cent. The advance in personal income—which had been large in November, in part because of the ending of major strikes—was Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

250 Federal Reserve Bulletin □ March 1977 even larger in December. Gains in wage and salary payments were widespread among industries, and large increases were reported for farm proprietors’ income and for dividend payments. The index of average hourly earnings for private nonfarm pro­ duction workers advanced at an annual rate of about 5 per cent in December, somewhat less than in the two preceding months. Over the 12 months of 1976 the index rose about 6% per cent, compared with about 8 per cent over the 12 months of 1975. The rise in the wholesale price index for all commodities re­ mained rapid in December. Average prices of farm products and foods rose substantially, in large part because of sizable increases for pork, oilseeds, coffee, cocoa beans, tea, and fresh fruits and vegetables. The rise in average prices of industrial commodi­ ties—which had accelerated around midyear—slowed to a relatively low rate, mainly reflecting a reduction in prices for natural gas. Sizable increases were recorded for steel mill products, fabricated metal products, lumber and wood products, and refined petroleum products. Over the 12 months ending in December, the index for all commodities rose about 4% per cent, as industrial commodities advanced about 6V2 per cent and farm products and foods declined about 1 per cent. The average value of the dollar against leading foreign currencies declined in December, but then it recovered somewhat as U.S. market interest rates rose not only in absolute terms but also in relation to rates in European markets. The pound sterling strength­ ened following negotiation of a $3.9 billion standby arrangement with the International Monetary Fund and subsequent announce­ ment of a plan to seek an orderly reduction in the reserve currency role of sterling. The U.S. foreign trade deficit increased in November, and the average for October and November was close to the substantial rate for the third quarter. For the 2-month period both exports and imports were somewhat below their high rates in the third quarter. Total credit at U.S. commercial banks rose little during De­ cember after 2 months of sizable increases. Bank holdings of Treasury securities and of mortgages expanded during December, but bank holdings of other securities declined; outstanding loans to businesses contracted slightly following 2 months of appreciable expansion. Over the fourth quarter bank loans to businesses grew Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Action of FOMC 251 at an annual rate of about 9Vi per cent. However, about one-third of the growth in such loans represented acquisitions of bankers acceptances by some commercial banks. The volume of commercial paper outstanding rose sharply during December for the second consecutive month. The volume issued by nonfinancial corporations expanded appreciably, after having declined in October and having risen only a little in November. Over the fourth quarter the combined total of nonfinancial com­ mercial paper and business loans at banks grew at an annual rate of almost IOV2 per cent. The narrowly defined money stock (M-l),1 which had grown at an annual rate of almost 14 per cent in October and had been unchanged in November, expanded at a rate of about 8 per cent in December. From the third to the fourth quarter, M-l grew at a rate of 6 per cent. Over the year from the fourth quarter of 1975 to the fourth quarter of 1976, growth had been about 5V2 per cent. Growth in M-2 and M-32—which had moderated in November but had still remained substantial—accelerated somewhat in De­ cember, reflecting the renewal of growth in M-l. Inflows of the time and savings deposits included in these broader aggregates were almost as large as in November. Although there had been reports of recent reductions in interest rates paid on these deposits by some institutions, such rates in general remained more attractive than yields available on competing market instruments. From the third to the fourth quarter, M-2 and M-3 grew at annual rates of about 12 and 14 per cent, respectively. Over the year ending in the fourth quarter of 1976, growth had been 11 per cent for M-2 and 12% per cent for M-3. At the December meeting, the Federal Open Market Committee had decided to maintain prevailing bank reserve and money market conditions, provided that monetary aggregates appeared to be 1M-l is composed of private demand deposits and currency in circulation. 2 M-2 includes M-l and commercial bank time and savings deposits other than large-denomination certificates of deposit. M-3 includes M-2 and deposits at nonbank thrift institutions (savings and loan associations, mutual savings banks, and credit unions). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

252 Federal Reserve Bulletin □ March 1977 growing at about the rates then expected. Over most of the inter­ meeting period incoming data suggested that the aggregates were growing at about the expected rates, and the Manager of the System Open Market Account conducted operations with a view to main­ taining the Federal funds rate close to 4% per cent—the level prevailing at the time of the December meeting. Near the end of the inter-meeting period, incoming data began to suggest that over the December-January period growth in M-l would be somewhat above the range that had been specified by the Committee but that growth in M-2 would be near the midpoint of its range. With the Committee scheduled to meet in a few days, the Manager continued to aim for a Federal funds rate of about 4% per cent, although with a little greater willingness to tolerate small deviations above that rate than below it. Interest rates generally changed little during the latter half of December. In early January, however, substantial upward pressures developed, particularly on rates for intermediate-term Treasury issues—in part, apparently, because market expectations of some further decline in the Federal funds rate were not realized. Interest rates also appeared to be influenced by indications of improvement in the outlook for economic activity, by a more rapid rate of growth in M-l than had been generally anticipated, and by announcement of the incoming administration’s fiscal proposals. Advances in rates over the inter-meeting period ranged from 10 to 40 basis points for short-term instruments, from 45 to 60 basis points for interme­ diate-term Treasury issues, and from 10 to 25 basis points for long-term corporate and Treasury bonds. Gross issues of bonds offered to the public by domestic corpora­ tions amounted to nearly %2Vi billion in December—more than twice the reduced volume of November—and the total of such issues in January was expected to exceed $3 billion. Most of the new offerings in December had been from lower-rated industrial and finance companies, but in January a number of highly rated industrial companies were also offering new issues, apparently to take advantage of the still relatively favorable interest rates. In addition, several utility companies announced intentions to advance-refund or to call bonds issued in 1969 and 1970 when interest rates on such obligations had been substantially higher. Although the volume of new State and local government bond Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of FOMC 253 offerings dropped in December, it was large for the fourth quarter as a whole. Declines in rates on municipal bonds to relatively low levels in the fourth quarter had encouraged State and local govern­ ments to pre-refund higher-cost issues, to accelerate offerings that had been scheduled for later dates, and to continue reducing their reliance on short-term issues. In 1976 the volume of new issues of State and local government bonds was nearly 15 per cent larger than in 1975—the previous record year—while the volume of short-term financing declined. The U.S. Treasury had raised $4 billion of new money in the 5 weeks since the December FOMC meeting, and it was expected to raise a larger amount in the 4 weeks following this meeting. The terms of the Treasury’s mid-February refunding were due to be announced on January 26. Of the issues maturing in mid-February, only $2.1 billion were held by the public, and the Treasury was expected to take that occasion to raise several billion dollars of new money. In primary mortgage markets, rates on new commitments for conventional home loans declined in December and early January. In secondary mortgage markets, rates declined during December by more than in the primary markets, but they turned up in early January along with yields on other market securities. It appeared likely that over-all demands for funds in securities markets would continue to be sizable during the months just ahead. Cash borrowing by the U.S. Treasury and Federal agencies com­ bined was expected to remain large. Bond issues by business corporations and State and local governments seemed likely to continue heavy, partly because of widespread expectations that interest rates would be advancing later in the year. At the same time, however, it appeared likely that institutional investors would continue to have a sizable volume of funds available for investment in bonds. In the discussion of the economic situation at this meeting, members of the Committee agreed that the outlook for growth in real output of goods and services had strengthened. Attention was called to the recent surge in retail sales—and the resulting im­ provement in inventory positions—and to the increasing strength in housing starts. It was suggested that, as a consequence of recent developments, business fixed investment was likely to increase Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

254 Federal Reserve Bulletin □ March 1977 more during the coming year than had been expected heretofore and that expansion in over-all economic activity might well accel­ erate to a relatively rapid pace. It was also observed, however, that even if growth in real GNP during 1977 were significantly greater than projected by the staff, rates of resource use in the fourth quarter of the year still would not appear to be excessive; indeed, unemployment would still be relatively high. Because of the character of the fiscal measures in prospect and for other reasons, one or two members remarked that the rate of expansion in economic activity in 1977 was likely to be uneven. Although Committee members in general now held a more favorable view of the economic situation and outlook than they had a month or two ago, attention was called to a number of problems. For one, the severity of the winter weather and its impact on the availability of fuels for industrial use posed a threat to output and employment in some parts of the country. Even though the unemployment rate was still unacceptably high, current and prospective rates of inflation also remained a source of major concern. A measure of concern was also provoked by certain aspects of the Federal budget, after incorporation of assumptions about the new administration’s fiscal proposals. It was noted that the highemployment deficit was projected to increase substantially in cal­ endar 1977—to the highest level in relation to GNP since 1976— and that relatively large high-employment deficits tended to tighten financial markets and to exert upward pressures on interest rates. Should intermediate- and long-term interest rates rise significantly during 1977, it was observed, expansion in business fixed invest­ ment might well be less than would seem desirable. Concern also was expressed that the proposed second phase of the 2-year package of fiscal measures might overstimulate economic activity at a late stage in the expansion, as had happened at times in the past. At this meeting the Committee reviewed its 12-month ranges for growth in the monetary aggregates. In early November the Committee had specified the following ranges for growth over the period from the third quarter of 1976 to the third quarter of 1977: M-l, 4Vi to 6Vi per cent; M-2, IV2 to 10 per cent; and M-3, 9 to 1IV2 per cent. The associated range for growth in the bank credit proxy was 5 to 8 per cent. The ranges being considered at this Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of FOMC 255 meeting were for the period from the fourth quarter of 1976 to the fourth quarter of 1977. In commenting on the ranges for growth in the monetary aggre­ gates over the period from the fourth quarter of 1976 to the fourth quarter of 1977, most members concurred in a suggestion that the existing range for M-l be retained and that the lower limits of the ranges for M-2 and M-3 be reduced by Vi of a percentage point. Several of these members indicated that they would also be agreeable to retaining the existing ranges for all three monetary aggregates. In connection with the proposal favored by most members, it was noted that M-2 had increased 10.9 per cent over the course of 1976, compared with an average yearly rise of 8.3 per cent in the preceding decade; and that M-3 had increased 12.4 per cent over 1976, compared with an average yearly rise of 8.8 per cent in the preceding 10 years. Growth of the broader measures of money over 1976 had been unusually rapid in relation to growth of M-l. In large part this reflected ongoing changes in financial markets that reduced reliance on demand deposits for transactions purposes; it also reflected the attractiveness of interest rates paid on time and savings deposits in relation to rates on market instru­ ments. It was also noted that growth rates of M-2 and M-3 from the third to the fourth quarter of 1976 had exceeded the ranges adopted by the Committee in early November. For the period ahead, therefore, the ranges favored by most members would imply a moderation of growth in these aggregates. Several members of the Committee suggested that in the period ahead a significant slowing of growth in the time and savings deposits included in the broader aggregates was likely to develop. They noted that some banks and thrift institutions already had reduced the rates they were offering on such deposits and had taken other steps to slow inflows. Moreover, in 1976 growth in M-2 and M-3 had been sustained by shifts of funds from outstanding market securities to time and savings deposits, and the effect of such stock adjustments was likely to be less important in 1977. Thus, growth rates of the broader aggregates seemed likely to slow both in absolute terms and in relation to growth of M-l. The downward adjustments of the lower limits of the projected Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

256 Federal Reserve Bulletin □ March 1977 ranges for M-2 and M-3 reflected this possibility. They also reflected the Committee’s intention to continue to move gradually toward longer-run rates of monetary expansion consistent with general price stability. In this connection, it was noted that since April 1975, when 1-year growth ranges were first established for the monetary aggregates, the Committee had taken a number of small steps in pursuit of that objective. It was observed that the Committee ought to continue doing so in order to re-establish a foundation for economic stability over the longer term. At the same time, however, it was suggested that retaining the existing range for M-l at this time would be consistent with efforts to accelerate the pace of economic expansion and to reduce unemployment from its unduly high rate. One member suggested a variation of the proposal concurred in by most members: V2 of a percentage point reduction in the upper, rather than in the lower, limits of the ranges for M-2 and M-3 along with retention of the existing range for M-l. Another member, noting the influence of innovations in financial markets, expressed the view that for some time the Committee’s longer-run ranges for M-2 and M-3 had not been consistent with its range for M-l; therefore he suggested reducing the range for M-l to 4 to 6 per cent and making small upward adjustments in the ranges for M-2 and M-3, leaving the ranges for the broader aggregates still well below the rates of growth from the third to the fourth quarter of 1976. Against the suggestion for a reduction in the range for M-1, it was observed that the staff projections of nominal GNP in combination with growth of M-l within the existing range implied a sizable rise in the income velocity of M-l in 1977, even after allowance for further contributions to the rise in velocity from financial innovations. At the conclusion of its discussion the Committee arrived at a consensus calling for retention of the existing range for M-l and reductions of V2 of a percentage point in the lower limits of the ranges for M-2 and M-3. The ranges thus were 4V2 to 6V2 per cent for M-l, 7 to 10 per cent for M-2, and 8V2 to IIV2 per cent for M-3. The associated range for the rate of growth in the bank credit proxy was 7 to 10 per cent. It was agreed that the longer-run ranges, as well as the particular aggregates for which such ranges were specified, would be subject to review and modification at Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of FOMC 257 subsequent meetings. It also was understood that short-run factors might cause growth rates from month to month to fall outside the ranges contemplated for the year ahead. The Committee adopted the following ranges for rates of growth in monetary aggregates for the period from the fourth quarter of 1976 to the fourth quarter of 1977: M-l, 4Vi to 6V2 per cent; M-2, 7 to 10 per cent; and M-3, 8V2 to IIV2 per cent. Votes for this action: Messrs. Burns, Volcker, Balles, Black, Coldwell, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, and Winn. Votes against this action: None. As to policy for the period immediately ahead, members differed little in their preferences for ranges of growth in the monetary aggregates over the January-February period. For M-l, most members favored a range of 3 to 7 per cent; a number of members preferred 3% to IV2 per cent, and one suggested 4 to 7 per cent. For M-2, most members favored a range of 7 to 11 per cent, while some preferred IV2 to 11V2 per cent. Differences of view were somewhat greater concerning the range for the Federal funds rate. A number of members preferred a relatively narrow range, one of V2 or % per cent, centered on the prevailing level of 4% per cent or on 4%. per cent—in large part because, in their view, financial markets at present were in a sensitive state. Other members preferred a wider range centered on a rate of 43A per cent—specifically, 4lA to 5xk per cent—because they believed that additional leeway for System operations should be provided in the event that over the January-February period growth in the aggregates appeared to be deviating significantly from the rates now expected. One member suggested that the Committee give greater weight than usual to money market conditions in conducting open market operations in the period until the next meeting—as it had decided to do at its December meeting—because of the uncertainties asso­ ciated with projections of growth in monetary aggregates around the year-end. However, most members preferred to have operating decisions in the period ahead based primarily on the behavior of the monetary aggregates. At the conclusion of the discussion the Committee decided to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

258 Federal Reserve Bulletin □ March 1977 seek bank reserve and money market conditions consistent with moderate growth in monetary aggregates over the period ahead. Specifically, the Committee concluded that growth in M-l and M-2 over the January-February period at annual rates within ranges of 3 to 7 per cent and 7 to 11 per cent, respectively, would be appropriate. It was understood that in assessing the behavior of the aggregates, the Manager should continue to give approximately equal weight to the behavior of M-l and M-2. It was agreed that until the next meeting the weekly-average Federal funds rate might be expected to vary in an orderly way within a range of 4% to 5 per cent. It was also agreed that early in the inter-meeting period the Manager should aim for a Federal funds rate in the area of 4% to 43A per cent, with specific operating decisions to depend in part on the state of securities markets. As customary, it was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if significant inconsistencies appeared to be developing among the Committee’s various objec­ tives. The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that growth in real output of goods and services slowed somewhat further in the fourth quarter, mainly because of a sharp decline in the rate of inventory accumulation. In December retail sales increased sharply, following strong gains in the preceding 2 months. Industrial production and total employment rose further, and the unemploy­ ment rate declined from 8.1 to 7.9 per cent. The wholesale price index for all commodities rose substantially, reflecting a sharp increase in average prices of farm products and foods; the rise in average prices of industrial commodities slowed, owing largely to declines in prices of fuels. The advance in the index of average wage rates over recent months has remained below the rapid rate of increase during 1975. The average value of the dollar against leading foreign currencies declined in December but has since recovered somewhat. The pound sterling strengthened following negotiation of an IMF standby ar­ rangement and of a medium-term facility to offset reductions in official sterling balances. In November the U.S. foreign trade deficit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of FOMC 259 increased, bringing the October-November average deficit to about the third-quarter rate. M-l, which was unchanged in November, expanded appreciably in December; from the third to the fourth quarter growth in M-l was moderate. Inflows of the time and savings deposits included in M-2 and M-3 were almost as large in December as in November, and growth in these broader aggregates was substantial. Interest rates changed little in late December but recently have moved up. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions that will encourage continued economic expansion while resisting infla­ tionary pressures and contributing to a sustainable pattern of inter­ national transactions. To implement this policy, while taking account of developments in domestic and international financial markets, the Committee seeks to achieve bank reserve and money market conditions consistent with moderate growth in monetary aggregates over the period ahead. Votes for this action: Messrs. Burns, Volcker, Black, Cold well, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, and Winn. Vote against this action: Mr. Balles. Mr. Balles dissented from this action for the following reasons. In view of recent financial market innovations, he believed that the course of real GNP and prices now bore a closer relationship to the behavior of M-2 than to that of M-l. Therefore, he was concerned about the fact that growth in M-2 had been exceeding the Committee’s longer-run range and about the consequent impli­ cations for future inflation. Accordingly, he thought that in the period ahead the System should aim initially for a Federal funds rate of about 4% per cent and should be prepared to aim over the course of the period for a rate as high as 5% per cent if the aggregates, especially M-2, appeared to be growing at rates signif­ icantly higher than the longer-run ranges. 2. Agreements in Connection with Credit Facility Relating to Official Sterling Balances For some time prior to this meeting discussions had been under way among representatives of central banks of the Group of Ten Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

260 Federal Reserve Bulletin □ March 1977 countries and Switzerland in regard to a medium-term standby credit facility relating to official sterling balances for the Bank of England. Concurrently, officials of the U.S. Treasury Department and the Federal Reserve System had been considering arrangements for U.S. participation in such a facility. As announced on January 10, an agreement in principle for a $3 billion facility was reached at a meeting in Basle, Switzerland, by representatives of the Bank for International Settlements (BIS), the Bank of England, and a number of other central banks, including the Federal Reserve. The U.S. share was $1 billion, to be provided through the Federal Reserve System and the U.S. Treasury’s Exchange Stabilization Fund (ESF). At this meeting the Committee ratified the agreement reached in Basle and arrangements made with the Treasury Depart­ ment for Federal Reserve-Treasury participation. The objective of the Basle agreement was to help the United Kingdom achieve an orderly reduction in the reserve currency role of sterling and thus to avoid the kind of disturbances to the international monetary system that had occurred at times in the past as a result of fluctuations in official sterling balances. In general, the agreement provided for the extension of a $3 billion facility to the Bank of England by the BIS, with backing, as necessary, by the other participants, for a period of 2 years—and for a third year if mutually agreed upon by the participants. For its part, the United Kingdom agreed to reduce official sterling balances to working levels over the “drawdown” period. In ex­ change for official holdings of sterling, it would offer negotiable bonds denominated in currencies other than sterling and having maturities of 5 to 10 years. The Bank of England would be entitled to draw on the credit facility to the extent necessary to finance reductions in official sterling balances other than those associated with sales of foreign currency bonds. Repayments would begin at the end of the “drawdown” period and would be completed within the succeeding 4 years. It was understood that eligibility to draw on the standby credit facility would be conditional on continuing eligibility of the United Kingdom to draw on the $3.9 billion credit recently negotiated with the International Monetary Fund (IMF). The facility could also be suspended if the United Kingdom were not making reason­ able efforts to achieve reductions in official sterling balances; the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Record of Policy Actions of FOMC 261 Managing Director of the IMF was being asked to assist in making a determination on this score. With respect to U.S. participation, the Federal Reserve and the Treasury had agreed that if the United States were required to provide financing to the BIS in support of the standby facility, the funds would be provided initially by the Federal Reserve through its existing swap arrangement with the BIS, taking the form of a usual 3-month swap, subject to three renewals. Should such financing be required continuously for more than one year, however, it would subsequently be provided by the Treasury, acting through the Exchange Stabilization Fund. Risk associated with such financing, whether provided by the Federal Reserve or the ESF, was to be borne equally by the two. Votes for ratification of these agreements: Messrs. Burns, Volcker, Balles, Black, Coldwell, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, and Winn. Votes against ratification: None. 3. Agreement to “Warehouse” Currencies for the Exchange Stabilization Fund At this meeting the Committee agreed to a suggestion by the Treasury that the Federal Reserve undertake to “warehouse” foreign currencies held by the ESF—that is, to make spot pur­ chases of foreign currencies from the ESF and simultaneously to make forward sales of the same currencies to the ESF—if that should prove necessary to enable the ESF to deal with potential liquidity strains. Specifically, the Committee agreed that the Federal Reserve would be prepared, if requested by the Treasury, to warehouse up to $1 Vi billion of eligible foreign currencies, of which half would be for periods of up to 12 months and half for periods of up to 6 months. In the discussion it was noted that such warehousing operations had proved useful from time to time in the past, on occasions when the resources of the ESF had been inadequate to meet all the demands on them. It was also noted that, while the present agreement to warehouse currencies did not have a specific terminal date, it would be subject to review by the Committee at its Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

262 Federal Reserve Bulletin □ March 1977 organizational meeting each March in connection with the regular review of all outstanding authorizations. The members concurred in an observation that no modifications in the warehousing arrange­ ment were likely to be proposed at the next organizational meeting, which was only 2 months away, but that the Committee could decide to reconsider the arrangement at a subsequent organizational meeting. Votes to approve the warehousing arrangement: Messrs. Burns, Volcker, Balles, Black, Coldwell, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, and Winn. Votes to disapprove: None. * * * * * Records of policy actions taken by the Federal Open Market Committee at each meeting, in the form in which they will appear in the Board’s Annual Report, are released about a month after the meeting and are subsequently published in the Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

263 Law Department Statutes, regulations, interpretations, and decisions RULES REGARDING Act was adopted, or it may be required as a result AVAILABILITY OF INFORMATION of a foreclosure upon collateral held by the com­ pany or a bank subsidiary in connection with a The Board of Governors has amended its Rules debt previously contracted in good faith. Certain Regarding Availability of Information as required divestiture periods may be extended in the discre­ by the Government in the Sunshine Act. tion of the Board, but in other cases the Board Effective March 12, 1977, section 261.6(a)(1) may be without statutory authority, or may have is amended to read as follows: only limited authority, to extend a specified dives­ titure period. Section 261.6— In the past, divestitures have taken many dif­ Exemptions from Disclosure ferent forms, and the Board has followed a variety (ci) * * * of procedures in enforcing divestiture require­ (1) is specifically authorized under criteriam ents. Because divestitures may occur under established by an Executive order to be kept secret widely disparate factual circumstances, and be­ in the interests of national defense or foreign cause such forced dispositions may have the po­ policy and is in fact properly classified pursuant tential for causing a serious adverse economic to such Executive order, or is specifically ex­ impact upon the divesting company, the Board empted from disclosure by statute (other than believes it is important to maintain a large measure section 552b of Title 5 United States Code) pro­ of flexibility in dealing with divestitures. For these vided that such statute (A) requires that the matters reasons, there can be no fixed rule as to the type be withheld from the public in such a manner as of divestiture that will be appropriate in all situa­ to leave no discretion on the issue, or (B) estab­ tions. For example, where divestiture has been lishes particular criteria for withholding or refers ordered to terminate a control relationship created to particular types of matters to be withheld; or maintained in violation of the Act, it may be necessary to impose conditions that will assure that * * * * * the unlawful relationship has been fully terminated and that it will not arise in the future. In other INTERPRETATION OF REGULATION Y circumstances, however, less stringent conditions may be appropriate. Statement of policy concerning divestitures by 1. Avoidance of Delays in Divestitures. Where bank holding companies.—From time to time the a specific time period has been fixed for accom­ Board of Governors receives requests from com­ plishing divestiture, the affected company should panies subject to the Bank Holding Company Act, endeavor and should be encouraged to complete or other laws administered by the Board, to extend the divestiture as early as possible during the time periods specified either by statute or by Board specific period. There will generally be substantial order for the divestiture of assets held or activities advantages to divesting companies in taking steps engaged in by such companies. Such divestiture to plan for and accomplish divestitures well before requirements may arise in a number of ways. For the end of the divestiture period. For example, example, divestiture may be ordered by the Board delays may impair the ability of the company to in connection with an acquisition found to have realize full value for the divested assets, for as been made in violation of law. In other cases the the end of the divestiture period approaches the divestiture may be pursuant to a statutory require­ “forced sale” aspect of the divestiture may lead ment imposed at the time an amendment to the potential buyers to withhold firm offers and to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

264 Federal Reserve Bulletin □ March 1977 bargain for lower prices. In addition, because identities of the individuals involved in such dis­ some prospective purchasers may themselves re­ cussions, the terms of any offers received, and the quire regulatory approval to acquire the divested reasons for rejecting any offers. In addition, the property, delay by the divesting company may— reports should indicate whether the company has by leaving insufficient time to obtain such approv­ employed brokers, investment bankers or others als—have the effect of narrowing the range of to assist in the divestiture, or its reasons for not prospective purchasers. Thus, delay in planning doing so, and should describe other efforts by the for divestiture may increase the likelihood that the company to seek out possible purchasers. The company will seek an extension of the time for purpose of requiring such reports is to insure that divestiture if difficulty is encountered in securing substantial and good faith efforts are being made a purchaser, and in certain situations, of course, by the company to satisfy its divestiture obliga­ the Board may be without statutory authority to tions. The frequency of such reports may vary grant extensions. depending upon the nature of the divestiture and 2. Submission and Approval of Divestiture Plans. the period specified for divestiture. However, such When a divestiture requirement is imposed, the reports should generally not be required less fre­ company affected should generally be asked to quently than every three months, and may in submit a divestiture plan promptly for review and appropriate cases be required on a monthly or even approval by the Reserve Bank or the Board. Such more frequent basis. Progress reports as well as a requirement may be imposed pursuant to the divestiture plans should be afforded confidential Board’s authority under section 5(b) of the Bank treatment. Holding Company Act to issue such orders as may 4. Extensions of Divestiture Periods. Certain be necessary to enable the Board to administer and divestiture periods—such as the December 31, carry out the purposes of the Act and prevent 1980 deadline for divestitures required by the 1970 evasions thereof. A divestiture plan should be as Amendments to the Bank Holding Company specific as possible, and should indicate the man­ Act—are not extendable. In such cases it is im­ ner in which divestiture will be accomplished—for perative that divestiture be accomplished in a example, by a bulk sale of the assets to a third timely manner. In certain other cases, the Board party, by “spinoff” or distribution of shares to may have discretion to extend a statutorily pre­ the shareholders of the divesting company, or by scribed divestiture period within specified limits. termination of prohibited activities. In addition, For example, under section 4(c)(2) of the Act the the plan should specify the steps the company Board may extend for three one-year periods the expects to take in effecting the divestiture and two-year period in which a bank subsidiary of a assuring its completeness, and should indicate the holding company is otherwise required to divest time schedule for taking such steps. In appropriate shares acquired in satisfaction of a debt previously circumstances, the divestiture plan should make contracted in good faith. In such cases, however, provision for assuring that “controlling influence” when the permissible extensions expire the Board relationships, such as management or financial no longer has discretion to grant further exten­ interlocks, will not continue to exist. sions. In still other cases, where a divestiture 3. Periodic Progress Reports. A company sub­ period is prescribed by the Board, in the exercise ject to a divestiture requirement should generally of its regulatory judgment, the Board may have be required to submit regular periodic reports broader discretion to grant extensions. detailing the steps it has taken to effect divestiture: Where extensions of specified divestiture pe­ Such a requirement may be imposed pursuant to riods are permitted by law, extensions should not the Board’s authority under section 5(b) of the be granted except under compelling circum­ Bank Holding Company Act, referred to above, stances. Neither unfavorable market conditions, as well as its authority under section 5(c) of the nor the possibility that the company may incur Act to require reports for the purpose of keeping some loss, should alone be viewed as constituting the Board informed as to whether the Act and such circumstances—particularly if the company Board regulations and orders thereunder are being has failed to take earlier steps to accomplish a complied with. Reports should set forth in detail divestiture under more favorable circumstances. such matters as the identities of potential buyers Normally, a request for an extension will not be who have been approached by the company, the considered unless the company has established that dates of discussions with potential buyers and the it has made substantial and continued good faith Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 265 efforts to accomplish the divestiture within the timely steps are being taken to effect divestitures; prescribed period. Futhermore, requests for exten­ and they should prompt companies to take such sions of divestiture periods must be made suffi­ steps when it appears that progress is not being ciently in advance of the expiration of the pre­ made. Where Reserve Banks have delegated au­ scribed period both to enable the Board to consider thority to extend divestiture periods, that authority the request in an orderly manner and to enable should be exercised consistently with this policy the company to effect a timely divestiture in the statement. event the request for extension is denied. Compa­ nies subject to divestiture requirements should be INTERPRETATIONS OF REGULATION Z aware that a failure to accomplish a divestiture within the prescribed period may in and of itself On December 29, 1976, the Board published be viewed as a separate violation of the Act. for comment three sample lease disclosure state­ 5. Use of Trustees. In appropriate cases a com­ ments as proposed official Board interpretations of pany subject to a divestiture requirement may be Regulation Z (41 FR 56657). The statements were required to place the assets subject to divestiture proposed for use in conjunction with three types with an independent trustee under instructions to of lease transactions: (1) open-end or finance ve­ accomplish a sale by a specified date, by public hicle leases (Interpretation § 226.1501), (2) auction if necessary. Such a trustee may be given closed-end or net vehicle leases (Interpretation § the responsibility for exercising the voting rights 226.1502), and (3) furniture leases (Interpretation with respect to shares being divested. The use of § 226.1503). such a trustee may be particularly appropriate Thirty written comments on the proposal were where the divestiture is intended to terminate a received. The comments have been given careful control relationship established or maintained in consideration and, on the basis of the comments violation of law, or where the divesting company and its own analysis, the Board has revised the had demonstrated an inability or unwillingness to interpretations and has issued them in final form. take timely steps to effect a divestiture. The comments generally supported the design, 6. Presumptions of Control. Bank holding format and use of simplified language in the forms. companies contemplating a divestiture should be The instructions were generally considered ade­ mindful of section 2(g)(3) of the Bank Holding quate by the commenters; revisions to the instruc­ Company Act, which creates a presumption of tions will be discussed below. The completed continued control over the transferred assets where forms provided by the Board, which were not part the transferee is indebted to the transferor, or of the interpretations, have not been reproduced where certain interlocks exist, as well as section in final form. They appeared to be a source of 225.2 of Regulation Y, which sets forth certain confusion, and the Board is concerned that the additional control presumptions. Where one of provision of contract terms merely as illustrations these presumptions has arisen with respect to di­ would be misconstrued as approval of those terms vested assets, the divestiture will not be considered for use by lessors. as complete until the presumption has been over­ The forms have not been reduced to one page come. It should be understood that the inquiry into for this publication. They will be printed as soon the termination of control relationships is not lim­ as possible, republished in the Federal Register ited by the statutory and regulatory presumptions and made available in limited quantities to inter­ of control, and that the Board may conclude that ested parties. a control relationship still exists even though the The Board wishes to emphasize, as it did in presumptions do not apply. the December 29, 1976, publication, that these 7. Role of the Reserve Banks. The Reserve forms are not the exclusive method of compliance Banks have a responsibility for supervising and with the Consumer Leasing Act and the imple­ enforcing divestitures. Specifically, in coordina­ menting Regulation. Lessors are permitted to de­ tion with Board staff they should review divestiture sign other formats by which compliance may be plans to assure that proposed divestitures will achieved. Lessors that do choose to use the forms result in the termination of control relationships issued by the Board, however, must not alter the and will not create unsafe or unsound conditions wording or sequence of the disclosures, except to in any bank or bank holding company; they should the extent that provisions have been made for monitor periodic progress reports to assure that deletion or substitution of terms. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

266 Federal Reserve Bulletin □ March 1977 Any inapplicable disclosure should be deleted. profit and sales/use tax on that payment. It will The titles of the forms and the numbering system be used in calculating the “Total Lease Obliga­ may be changed or deleted, but care should be tion.” Item 4(b) contains all other charges which taken that consistency is maintained in the refer­ may be incurred on a monthly basis by the lessee. ences to item numbers in the disclosures. The Lessors should refer to the form’s specific instruc­ statement that the disclosures are provided pursu­ tions for further guidance. ant to Federal law may be deleted or changed. The closed-end vehicle lease and the furniture Brackets have been provided around disclosures lease forms have been revised to provide similar which are alternative in nature (e.g., the purchase totals without the separate elements, as there is option disclosures). no total lease obligation disclosure in those types The following changes have been made to the of leases. interpretations: 4. All instructions in the forms themselves have 1. A statement that the disclosures are provided been deleted and placed in the accompanying pursuant to the Federal Consumer Leasing Act has instructions in response to comments that the been added to at the top of all three disclosure forms could be more easily reproduced without statements. A similar statement at the beginning them. of Item 14 in § 226.1501 has been deleted. A 5. The forms have been revised to provide comment was received that the placement of that disclosures for leases with monthly payment statement in Item 14 implied that the other disclo­ schedules. The majority of consumer leases appear sures are not required, when in fact they are. to have monthly schedules, and differing periodic 2. In Item 2 of the vehicle lease statements (§§ terms can be easily substituted where a lease 226.1501 and 1502) the words “Body Style” have provides otherwise. been substituted for the words “Body Make” and 6. The sequence of disclosure has been changed the term “Vehicle ID # ” has been substituted for to provide a more meaningful format. “Serial # ” in response to comments that these 7. The disclosures in Item 4 regarding the terms more accurately reflect business usage. In number, amounts and due dates of periodic pay­ Item 2 of the furniture lease statement (§ ments have been revised to provide the number 226.1503), the term “Price” has been deleted of scheduled payments and a simpler method of from the description; it is not a required term and determing the “Total of Basic Monthly Pay­ appeared to be confusing as it is suspectible of ments” in § 226.1501. a variety of definitions. 8. The insurance disclosure in all statements 3. In response to a number of written com­ (Item 9) has been revised to permit disclosure of ments, the Board has significantly changed the optional as well as required insurance. disclosures of the payment due at consummation 9. Item 10 in the open-end lease statement has and the periodic payment. In order to avoid double been amended to permit the lessor to state what disclosure, the proposal provided for disclosure in type of value (e.g., wholesale or retail) is being the open-end vehicle lease statement only of those placed on the vehicle at the end of the term. A elements of these two disclosures which were to similar space is provided in Item 14(b). be used in calculating the “Total Lease Obliga­ It has also been amended to state that the les­ tion.” As a consequence, there were no disclo­ see’s liability for the estimated value of the vehicle sures of the total payment made by the lessee at “may be” (rather than “is”) limited. Comments consummation or the total monthly payment. stated that the lessee’s liability for this sum may Commenters felt that disclosure of these inclusive in fact be unlimited. totals was more important than the avoidance of 10. Item 14 (End of Term Liability) of § double disclosure. 226.1501 has been revised to provide the follow­ The Board has therefore amended § 226.1501, ing: Items 3 and 4, to provide these totals. Item 3(a) (a) A more precise statement of the lessee’s consists of those elements of a total payment due liability at the end of the term by stating that the at inception which will be used to calculate “Total lessee may have liability beyond that for the dif­ Lease Obligation.” Item 3(b) consists of all other ference between estimated and actual values as a elements of that total initial payment. Item 4(a) result of disposition charges, unpaid traffic tickets consists of that portion of the total monthly pay­ and other charges incurred under the lease (Item ment which is attributable to rent, depreciation, 14(a)). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 267 (b) A reference to the standards used to deter­ furniture statement as it does not appear to be a mine unreasonable or excessive wear or use, if common term in furniture leases. the lessor sets such standards (Item 14(a) 1). 12. The instructions have been revised to pro­ (c) Space has also been added in which the vide further guidance for use of the forms. lessor may set forth the type of appraisal to be In consideration of the foregoing the Board obtained by the lessee (14(b)). issues the following interpretations of 12 CFR Part 11. Item 13 in § 226.1502 (closed-end vehicle 226, effective March 23, 1977. The forms and statement) has been amended to provide disclosure instructions are avaliable upon request from Pub­ of the lessee’s right to an appraisal at early termi­ lications Services, Division of Administrative nation where the charge for such early termination Services, Board of Governors of the Federal Re­ is based on the estimated value of the vehicle. serve System, Washington, D.C. 20551. A similar disclosure has not been provided in the BANK HOLDING COMPANY AND BANK MERGER ORDERS ISSUED BY THE BOARD OF GOVERNORS Orders Under Section 3 deposits in commercial banks in the market. Inas­ of Bank Holding Company Act much as this proposal represents essentially a reorganization of existing ownership interests, the Bankstock One, Inc., acquisition of Bank by Applicant would not have Ozark, Arkansas any significant adverse effect upon either existing or potential competition within the relevant bank­ Order Denying Formation of ing market. Bank Holding Company The Board has indicated on previous occasions Bankstock One, Inc., Ozark, Arkansas, has that it believes that a holding company should applied for the Board’s approval under § 3(a)(1) constitute a source of financial and managerial of the Bank Holding Company Act (12 U.S.C. strength to its subsidiary bank(s) and that the § 1842(a)(1)) of formation of a bank holding Board will closely examine the condition of an company through acquisition of 80 per cent or applicant in each case with this consideration in more of the voting shares of Bank of Ozark, mind. As part of the subject proposal, Applicant Ozark, Arkansas (“Bank”). would assume a substantial portion of the debt Notice of the application, affording opportunity incurred by Applicant’s principal in acquiring his for interested persons to submit comments and shares of Bank. Applicant proposes to service this views, has been given in accordance with § 3(b) debt over a 12-year period, through dividends to of the Act. The time for filing comments and views be declared by Bank and tax benefits to be derived has expired, and the Board has considered the from filing consolidated tax returns. In the Board’s application and all comments received in light of view, Applicant’s financial projections over the the factors set forth in § 3(c) of the Act (12 U.S.C. debt-retirement period appear to be unduly opti­ § 1842(c)). mistic and it does not appear that Applicant will Applicant is a nonoperating corporation organ­ possess the financial flexibility necessary to meet ized under the laws of Arkansas for the purpose its annual debt service requirements while main­ of becoming a bank holding company through the taining adequate capital at Bank. If Bank’s growth acquisition of Bank. Upon acquisition of Bank, continues at or near its historical rate,3 total capital Applicant would hold less than 1 per cent of the total deposits in commercial banks in the State.1 3Applicant has projected that Bank’s assets will grow at an annual rate of 8 per cent. However, Bank has experienced Bank (deposits of approximately $20.1 million) is average annual asset growth of 20.7 per cent over the past the larger of two commercial banks in the relevant five years. Even if, as Applicant has suggested, Bank’s asset banking market2 and holds 63.8 per cent of total growth over the past five years has been the result of nonrecur­ ring circumstances, Applicant’s asset growth projections ap­ pear unealistic. In 1976, Bank assets grew at an annual rate lAs of September 30, 1976. of approximately 16 per cent. Over the past five years, the 2 The relevant banking market is approximated by Franklin average annual growth rate of all Arkansas banks has been County, Arkansas. Market data is as of December 31, 1975. approximately 15 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

268 Federal Reserve Bulletin □ March 1977 funds of Bank as related to its total assets would The Berlin City Bank, become insufficient because Applicant’s substan­ Berlin, New Hampshire tial debt servicing requirements would not permit Order Denying Retention of Bank Shares Bank to increase its capital by earnings retention in amounts sufficient to keep pace with Bank’s asset growth. The Board is of the view that it The Berlin City Bank, Berlin, New Hampshire would not be in the public interest to approve the (“Applicant”), has applied for the Board’s ap­ formation of a bank holding company with an proval under §3(a)(l) of the Bank Holding Com­ initial debt structure that could result in the weak­ pany Act (12 U.S.C. § 1842(a)(1)) to continue to ening of Bank’s overall financial condition. Ac­ be a bank holding company through the retention cordingly, the Board concludes that the consid­ of 50.3 per cent of the voting shares of The White erations relating to Applicant’s and Bank’s finan­ Mountain Trust Company, Gorham, New Hamp­ cial resources and future prospects weigh against shire (“Bank”). approval of the application. Moreover, in light of Notice of the application, affording opportunity Bank’s recent operating history, the Board con­ for interested persons to submit comments and cludes that financial and managerial resources of views, has been given in accordance with §3(b) Applicant and Bank lend little weight toward ap­ of the Act (12 U.S.C. § 1842(b)). The time for proval of the instant application. filing comments and views has expired, and the As stated previously, consummation of this Board has considered the application and all com­ proposal would merely result in a restructuring of ments received in light of the factors set forth in Bank’s present ownership. No significant changes §3(c) of the Act (12 U.S.C. § 1842(c)). Included in Bank’s operations or in the services to be among the comments received and considered by offered to Bank’s customers are contemplated. the Board were submissions by and on behalf of Consequently, considerations relating to the con­ the Bank Commissioner of the State of New venience and needs of the community to be served Hampshire; The North Country Bank, Berlin, New are consistent with, but lend no weight toward, Hampshire; Gorham Savings Bank, Gorham, New approval. Hampshire; Edward J. Reichert; and the manage­ On the basis of all of the circumstances con­ ment of The White Mountain Trust Company. cerning this application, the Board concludes that As a result of Applicant acquiring a majority the financial considerations involved in this pro­ of Bank’s voting shares early in 1975 (Applicant’s posal present adverse circumstances bearing upon acquisition of a majority of Bank’s voting shares the financial resources and future prospects of both in violation of the prior approval requirement in Applicant and Bank. Such adverse factors are not the Bank Holding Company Act is described in outweighed by any procompetitive effects or by detail below), Applicant became a bank holding benefits that would result in serving the conven­ company controlling a total of $34.4 million in ience and needs of the community. Accordingly, commercial bank deposits, which represents 2.3 it is the Board’s judgment that approval of the per cent of the total deposits in commercial banks application would not be in the public interest and in New Hampshire, and is the eighth banking that the application should be denied. organization in that State.1 Although retention of On the basis of the record, the application is Bank (which accounts for 0.1 per cent of Statewide denied for the reasons summarized above. commercial bank deposits) would not have signif­ By order of the Board of Governors, effective icant adverse effects upon the concentration of February 25, 1977. banking resources in New Hampshire, retention would have significant adverse competitive effects within the relevant banking market. In analyzing the competitive effects of a reten­ tion proposal under §3(a) of the Act, the Board Voting for this action: Chairman Burns and Gover­ nors Gardner, Wallich, Coldwell, Jackson, Partee, and considers the competitive consequences of the Lilly. acquisition at the time it was made. Based upon (Signed) G riffith L. Garwood, [seal] Deputy Secretary of the Board. *A11 banking data are as of December 31, 1975. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 269 its analysis, the Board must conclude that approval applicant. As the Board has recently indicated,4 of the instant proposal would amount to a counte­ the reference to “managerial resources” does not nancing by the Board of the significant adverse refer solely to the business abilities of management competitive consequences that resulted from the or to its past financial success. The legislative original acquisition of Bank by Applicant. history of §3(c) makes it clear that this factor Bank ($1.4 million in deposits) is the smallest relates not only to management’s competence but of the three commercial banks operating in the also to management’s disposition to conduct the Berlin-Gorham banking market2 and controls ap­ affairs of the bank holding company in accordance proximately 2.8 per cent of market deposits. Berlin with the requirements of law. In assessing the City Bank is the largest and clearly the dominant managerial resources of an applicant, the Board commercial bank in the market controlling ap­ must thus consider all the factors that bear upon proximately 66.2 per cent of market deposits. the competence and quality of the management of Applicant’s acquisition of a majority of Bank’s any entity seeking approval to become a bank voting shares had a number of significantly adverse holding company. The Board has previously stated competitive consequences: Applicant increased its that when it comes to its attention that an acquisi­ market share to close to 70 per cent of commercial tion has been made without the requisite prior bank deposits and thereby increased the already approval of the Board, whether or not such viola­ high level of concentration of banking resources tion of the law appears to have been “willful,” in the market; a significant amount of existing such conduct may reflect so adversely upon the competition between Berlin City Bank and Bank managerial factors in connection with an applica­ was eliminated;3 future competition was adversely tion for permission to retain the illegally acquired affected by the removal of Bank as an independent interests that the conduct, in and of itself, consti­ competitive alternative in the Berlin-Gorham tutes grounds for denial of such an application. banking market (thereby reducing alternatives in In the course of processing this application, it the market from three to two), and the closed-town has come to the Board’s attention that during status of Gorham was preserved. Approval of this January 1975, Applicant’s management learned proposal would have the effect of sanctioning the that a competitor bank, The North Country Bank, above-described significant adverse competitive Berlin, New Hampshire, was actively making ef­ consequences. Accordingly, on the basis of the forts to purchase stock of Bank in an attempt to foregoing and other facts of record, the BoaYd obtain control. In an effort to forestall the acquisi­ concludes that competitive considerations relating tion of Bank, and “to protect its market position,” to this application weigh sufficiently against ap­ Applicant’s board of directors authorized its pres­ proval so that it should not be approved unless ident to investigate the legality of purchasing the anticompetitive effects are clearly outweighed shares of Bank. On February 13, 1975, Applicant by benefits to the public in meeting the conven­ sought the advice of a New Hampshire law firm ience and needs of the communities to be served. and was informed that it would need the Federal The financial resources and future prospects of Reserve Board’s prior approval before it could Applicant and Bank are regarded as satisfactory acquire more than 25 per cent of the outstanding and consistent with approval of the application. voting shares of Bank. On the same day, Applicant In addition to such considerations, among the was advised by one of its directors, an attorney, factors enumerated in §3(c) of the Act that the that it was his opinion that Applicant could acquire Board must consider in acting on an application as many shares of Bank as it desired without being under the Act are the managerial resources of the in contravention of the Bank Holding Company Act. Thereafter, during the period of February 14, 1975, to March 10, 1975, Applicant acquired a 2The Berlin-Gorham banking market, which is the relevant market within which to assess the competitive effects of this application, includes the five towns of Berlin, Gorham, Milan, Randolph, and Shelburne. 4 Board Order of July 29, 1976, denying the application of 3The record shows that Berlin City Bank derives demand Florida National Banks of Florida to acquire Citizens Bank deposits from Gorham residents equal to 66 per cent of those of Bunnell (1976 Federal Reserve Bulletin 696); and Board held by Bank. In terms of loans, Berlin City Bank has over Order of January 14, 1977, denying the application of Seilon, three times the dollar volume of loans outstanding to Gorham Inc., to retain shares in Nevada National Bancorporation, residents as Bank does. Reno, Nevada. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

270 Federal Reserve Bulletin □ March 1977 majority (151) of Bank’s outstanding voting proval of the application would not be in the public shares, without the Board’s prior approval. By interest and that the application should be denied.5 letter of April 4, 1975, the Federal Reserve Bank On the basis of the record, and for the reasons of Boston advised Applicant that it had in fact summarized above, the application is hereby de­ violated the Bank Holding Company Act. nied. Moreover, in view of such action Applicant Section 3(a) of the Act provides that it shall is hereby ordered to take all appropriate and nec­ be unlawful, except with the prior approval of the essary steps to divest itself of the shares of Bank Board, “. . . (1) for any action to be taken that unlawfully acquired and to effect a complete and causes any company to become a bank holding effective divestiture of its interest and control over company.” Section 2(a)(1) of the Act provides Bank no later than 60 days from the effective date that “‘bank holding company’ means any com­ of this Order. pany which has control over any bank or over any By order of the Board of Governors, effective company that is or becomes a bank holding com­ February 10, 1977. pany by virtue of this Act.” Section 2(a)(2)(A) Voting for this action .Chairman Burns and Governors of the Act further provides that any company has Gardner, Wallich, Coldwell, Partee, and Lilly. Absent control over a bank or over any company if “(A) and not voting: Governor Jackson. the company directly or indirectly . . . owns, controls, or has power to vote 25 per centum or (Signed) Griffith L. Garwood, more of any class of voting securities of the bank [seal] Deputy Secretary of the Board. or company.” On the basis of the facts of record, the Board 5In its consideration of the subject application, the Board concludes that Berlin City controls Bank within has also considered the comments submitted by those opposing the meaning of §2(a)(2)(A) of the Act. The Board the application, and this Order reflects a consideration of those views. In addition, the management of Bank has requested further concludes that Berlin City violated §3(a)(l) that the Board hold a hearing on the application. Under § 3(b) of the Act by acquiring control of Bank and of the Act, the Board is required to hold a hearing only when the primary supervisor of the bank to be acquired recommends thereby causing itself to become a bank holding disapproval of the application. In this case, the Commissioner company without the prior approval of the Board. of Banking of the State of New Hampshire has not recom­ In view of Berlin City’s failure to resolve the mended that the application be denied. Thus, there is no statutory requirement that a hearing be held and in view of contradictory legal advice it received which, in the its denial action, the Board believes that no useful purpose Board’s view, it was under a legal obligation to would be served by ordering a hearing in connection with this application. clarify, and its subsequent acquisition of control of Bank, insofar as this application is concerned, Applicant’s management has not demonstrated a Byron B. Webb, Inc., disposition to conform the conduct of Applicant’s Palmyra, Missouri affairs with the requirements of the Bank Holding Company Act. Section 3(a) of the Act requires Order Approving Retention and prior approval for such acquisitions, and where Acquistion of Bank Shares an acquisition is made without obtaining such prior approval under circumstances such as those pre­ Byron B. Webb, Inc., Palmyra, Missouri, a sented here, the Board believes it should not bank holding company within the meaning of the approve an application to retain an illegally ac­ Bank Holding Company Act, has applied for the quired interest and thereby allow the offending Board’s approval under § 3(a)(3) of the Act (12 party to receive the benefit from its violative act. U.S.C. § 1842(a)(3)) to acquire 33.2 per cent of There is no evidence in the record that the the voting shares of Palmyra State Bank, Palmyra, banking needs of the communities to be served Missouri (“Bank”), and to retain an additional are not currently being adequately served. Appli­ 15.8 per cent of the outstanding voting shares of cant has proposed to expand certain of Bank’s Bank. services; however, in the context of this applica­ Notice of the application, affording opportunity tion, these considerations are not sufficient to out­ for interested persons to submit comments and weigh the significant adverse competitive factors views, has been given in accordance with § 3(b) and managerial considerations associated with of the Act. The time for filing comments and views Applicant’s above-described violation of the Act. has expired, and the Board has considered the Accordingly, it is the Board’s judgment that ap­ application and all comments received in light of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 271 the factors set forth in § 3(c) of the Act (12 U.S.C. public interest and that the application should be § 1842(c)). approved. Applicant is a one-bank holding company by On the basis of the record, the application is virtue of its ownership since 1961 of more than approved for the reasons summarized above. The 25 per cent of the outstanding voting shares of transaction involving the acquisition of additional Bank. At the present time, Applicant owns ap­ shares shall not be made (a) before the thirtieth proximately 47.4 per cent of the outstanding vot­ calendar day following the effective date of this ing shares of Bank.1 Bank, one of the smaller Order or (b) later than three months after the commercial banks in Missouri, is located in Pal­ effective date of this Order, unless such period myra, Missouri, and is the third largest of four is extended for good cause by the Board, or by banks in its relevant market area, which is ap­ the Federal Reserve Bank of St. Louis pursuant proximated by Marion County. With total deposits to delegated authority. of $15.1 million, Bank holds approximately 22.0 By order of the Board of Governors, effective per cent of total market deposits.2 Applicant pro­ February 16, 1977. poses to acquire 33.2 per cent (9,962 of the Voting for this action: Chairman Burns and Gover­ outstanding voting shares) of Bank and also re­ nors Gardner, Wallich, Coldwell, Jackson, Partee, and quests permission to retain 15.8 per cent (4,766 Lilly. of the outstanding voting shares) of Bank that was acquired without the Board’s prior approval.3 Be­ (Signed) Griffith L. Garwood, cause Applicant’s proposal involves the acquisi­ [seal] Deputy Secretary of the Board. tion and retention of shares in a bank that Appli­ cant already controls, it appears that consumma­ First Bancorp, Inc., tion of the proposal would not eliminate existing Corsicana, Texas or potential competition, nor would it increase the concentration of banking resources. Thus, com­ Order Approving Continuation of petitive considerations are consistent with approval Control Relationship with Bank of the application. The financial and managerial resources and fu­ First Bancorp, Inc., Corsicana, Texas, a bank ture prospects of Applicant and Bank are regarded holding company within the meaning of the Bank as satisfactory and consistent with approval of the Holding Company Act, has applied for the Board’s application. Although there will be no immediate approval under § 3(a)(2) of the Act (12 U.S.C. changes in the services offered by Bank as a result § 1842(a)(2)) and § 225.2(b)(2) of the Board’s of consummation of the proposal, considerations Regulation Y (12 C.F.R. 225.2(b)(2)) regarding relating to the convenience and needs of the com­ a rebuttable presumption of control, to continue munity to be served are consistent with approval its control relationship with First National Bank, of the application. Therefore, it is the Board’s Fairfield, Texas (“Bank”). judgment that the proposal is consistent with the Notice of the application, affording opportunity for interested persons to submit comments and views, has been given in accordance with § 3(b) of the Act. The time for filing comments and views has expired, and the Board has considered the 1 Applicant, a family-owned company, is a “company cov­ ered in 1970,” as defined in § 2(b) of the Act and engages application and all comments received in light of in the following activities under the exemption in § 4(c)(ii) the factors set forth in § 3(c) of the Act (12 U.S.C. of the Act: (a) ownership and management of income-produc- § 1842(c)). No evidence has been submitted to ing real property, and (b) holding marketable securities and loans for Applicant’s own account. indicate that Applicant does not control Bank. 2All banking data are as of December 31, 1975. Applicant, the 39th largest banking organization 3Between June 1 and August 5, 1976, Applicant acquired in Texas, controls seven banks with aggregate 15.8 per cent of outstanding voting shares (4,766 shares) of Bank without the Board’s prior approval. In accord with the deposits of $124.8 million, representing .26 per Board’s position with respect to violations of the Act, the Board cent of the total deposits in commercial banks in has scrutinized the underlying facts surrounding the acquisition the State.1 In addition, Applicant owns 4,800 of Bank’s shares. Upon an examination of all the facts of record, including Applicant’s undertaking to guard against violations in the future, the Board is of the view that the facts concerning the violation are not such as would call for denial of the application. 1A11 banking data are as of December 31, 1975. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

272 Federal Reserve Bulletin □ March 1977 shares or 24 per cent of the outstanding voting Voting for this action: Chairman Burns and Gover­ stock of Bank and one of Applicant’s officers owns nors Gardner, Wallich, Coldwell, Jackson, Partee, and Lilly. 2 per cent of Bank’s voting shares, thereby giving rise to a rebuttable presumption that Applicant (Signed) Theodore E. Allison, controls Bank under section 225.2(b)(2) of Regu­ [seal] Secretary of the Board. lation Y. When informed of the existence of the presumption, Applicant indicated that it did not First National Boston Corporation, wish to rebut this presumption, but instead has applied to retain the control relationship. Boston, Massachusetts Bank is the third largest of five banks in the Order Approving Acquisition of Bank relevant banking market with deposits of $6.5 million representing 19.5 per cent of market de­ First National Boston Corporation, Boston, posits.2 Applicant’s nearest subsidiary bank is lo­ Massachusetts, a bank holding company within the cated 34 miles north of Bank in a separate banking meaning of the Bank Holding Company Act, has market. Inasmuch as Applicant’s present subsidi­ applied for the Board’s approval under § 3(a)(3) aries and Bank are located in separate banking of the Act (12 U.S.C. § 1842(a)(3)) to acquire markets and do not compete with one another, all of the voting shares of the successor by merger there would be no adverse effects on existing to The First National Bank of Yarmouth, Yar­ competition as a result of approval of this pro­ mouth, Massachusetts (“Bank”). The bank with posal. Moreover, it does not appear that potential which Bank is to be consolidated has no signifi­ competition would be adversely affected. Accord­ cance except as a means to facilitate the acquistion ingly, competitive considerations are consistent of the voting shares of Bank. Accordingly, the with approval of the application. proposed acquisition of shares of the successor The financial and managerial resources of Ap­ organization is treated herein as the proposed ac­ plicant and Bank are regarded as satisfactory and quisition of the shares of Bank.1 the future prospects for each appear favorable. Notice of the application, affording opportunity Accordingly, banking factors are consistent with for interested persons to submit comments and approval. Although there will be no change in the views, has been given in accordance with § 3(b) services offered by Bank, convenience and needs of the Act. The time for filing comments and views considerations are also consistent with approval of has expired, and the Board has considered the the application. Therefore, it is the Board’s judg­ application together with all comments received, ment that continuation of Applicant’s control rela­ including those of the Comptroller of the Cur­ tionship with Bank is consistent with the public rency,2 in light of the factors set forth in § 3(c) interest and that the application should be ap­ of the Act (12 U.S.C. § 1842(c)). proved.3 Applicant, the largest commercial banking or­ On the basis of the record, the application is ganization in Massachusetts, controls four banks approved for the reasons summarized above. with aggregate domestic deposits of approximately By order of the Board of Governors, effective $3,493 billion,3 representing 23.52 per cent of February 22, 1977. total domestic deposits in commercial banks in the State. Acquisition of Bank would increase Appli­ cant’s share of commercial bank deposits in the State only slightly and would not have a significant effect upon the concentration of banking resources in Massachusetts. 2 The relevant banking market is approximated by Freestone County, Texas. 3As a result of this order, continuation of the existing relationship between Applicant and Bank is approved, and Bank will be deemed to be a subsidiary of Applicant for the purposes of the Bank Holding Company Act and regulations Applicant previously filed an application to acquire shares issued pursuant thereto. However, approval of the instant of Bank, but withdrew that application in February 1975, prior application does not indicate that the Board would in the future to Board action on that application. permit Applicant to acquire any additional shares of Bank. 2 The Comptroller of the Currency recommended that the Any such action would require a separate application under Board approve the instant application. section 3 of the Act and would be considered by the Board 3Deposit data are as of March 31, 1976, unless otherwise in light of the factors set forth in the Act. indicated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 273 Bank (deposits of $33.2 million)4 operates six committed that, upon consummation of the acqui­ banking offices in the Barnstable County (Cape sition, it would make a contribution of funds to Cod) banking market, the relevant geographic increase Bank’s equity capital position and would market for purposes of analyzing the competitive provide Bank with managerial assistance. Accord­ effects of the proposed acquisition. Bank is the ingly, the financial and managerial factors, as they fourth largest of eight banks in the Barnstable relate to Bank, lend weight toward approval of County banking market with 13.5 per cent of the the application. total deposits held by offices of commercial bank Affiliation with Applicant would enable Bank in that market,5 and is the sixty-ninth largest to draw upon Applicant’s resources and expertise commercial bank in the State with .20 per cent and thereby offer expanded services to Bank’s of the total commercial bank deposits in the State. customers. Applicant states that, following con­ Inasmuch as Applicant has no subsidiary banking summation of the acquisition, Bank would make offices in that market (the nearest office of Bank available to its customers new services, including to any office of Applicant’s subsidiary banks is free checking accounts, overdraft privileges, and approximately 73 miles), the Board is of the opin­ 90-day notice accounts. Through affiliation with ion that Applicant’s acquisition of Bank would not Applicant, Bank would also expand existing serv­ result in the elimination of a significant amount ices, such as revolving auto loans, credit card of existing competition. services, and smaller denomination certificates of While the market is somewhat concentrated and deposit. It is expected that enabling Bank’s cus­ Applicant possesses the financial and managerial tomers to obtain additional and expanded services resources to enter the Barnstable County market through Bank would result in Bank becoming a de novo, the amount of potential competition that more attractive banking alternative and a stronger would be eliminated in the context of the subject competitor in the relevant banking market. Con­ proposal would not be significant, in view of siderations relating to the convenience and needs Bank’s market share and rank in the Barnstable of the community to be served lend some weight County market. toward approval of the application and, considered In the context of this proposal, the Board re­ together with the financial and managerial factors gards the financial and managerial resources of discussed above, outweigh any adverse competi­ Applicant and its subsidiaries as generally satis­ tive effects that might result from consummation factory and their future prospects as favorable. On of the proposal. March 18, 1976, the Board denied an unrelated On the basis of the record, the application is bank acquisition application filed by Applicant. approved for the reasons summarized above. The The Board expressed the view that Applicant transaction shall not be made (a) before the thir­ should direct is financial and managerial resources tieth calendar day following the effective date of toward its existing structure.6 That application this Order, or (b) later than three months after the contemplated a proposed cash purchase of shares, effective date of this Order, unless such period whereas the instant application contemplates an is extended for good cause by the Board or by exchange of shares. Applicant’s financial condition the Federal Reserve Bank of Boston, pursuant to has improved somewhat this past year and that delegated authority. improvement is expected to continue. The finan­ By order of the Board of Governors, effective cial and managerial resources and future prospects February 9, 1977. of Bank, absent consummation of the proposed acquisition, are not entirely satisfactory but are expected to show improvement as a result of Bank’s affiliation with Applicant. Applicant has Voting for this action: Chairman Burns and Gover­ nors Gardner, Wallich, Partee, and Lilly. Absent and not voting: Governors Coldwell and Jackson. 4As of September 30, 1976. 5As of December 31, 1975. 6Board’s order of March 18, 1976, denying the application of First National Boston Corporation, Boston, Massachusetts, to acquire Blackstone Valley National Bank, Northbridge, (Signed) Griffith L. Garwood, Massachusetts. 62 F. Res. Bull 372 (1976). [seal] Deputy Secretary of the Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

274 Federal Reserve Bulletin □ March 1977 Great Southwest Ban Corp., Inc., is the third largest of seven banks operating in Dodge City, Kansas the relevant banking market3 and controls 10.25 per cent of total market deposits. Applicant cur­ Order Denying rently controls no banks. One of Applicant’s Formation of Bank Holding Company principals is also principal shareholder of a bank Great Southwest Ban Corp., Inc., Dodge City, holding company that controls Hanston State Kansas, has applied for the Board’s approval under Bank, Hanston, Kansas, which does not compete § 3(a)(1) of the Bank Holding Company Act (12 in the relevant market area served by Bank.4 U.S.C. § 1842(a)(1)) of formation of a bank Inasmuch as the proposed transaction appears to holding company by acquiring 80 per cent or more be primarily a change to corporate ownership, it of the voting shares of Bank of the Southwest, is unlikely that the proposal would have a signifi­ Dodge City, Kansas (“Bank”). Applicant has also cant effect on competition. applied, pursuant to § 4(c)(8) of the Act (12 The Board has indicated on previous occasions U.S.C. § 1843(c)(8)) and § 225.4(b)(2) of the that a holding company should constitute a source Board’s Regulation Y (12 CFR § 225.4(b)(2)), for of financial and managerial strength to its subsidi­ permission to continue to engage on Bank’s pre­ ary bank(s), and that the Board will closely exam­ mises in the sale of credit life, accident, and health ine the condition of the applicant in each case with insurance. The activities that Applicant proposes this consideration in mind. While the Board con­ to engage in have been determined by the Board siders the managerial resources of Applicant and to be closely related to banking (12 CFR § Bank to be generally satisfactory, the Board notes 225.4(a)(9) (ii)). that Applicant will incur a sizable amount of debt5 Notice of the application, affording opportunity in connection with the acquisition of shares of for interested persons to submit comments and Bank. Applicant proposes to repay that debt over views, has been given in accordance with §§ 3 an eleven-year period through dividends on Bank and 4 of the Act. (41 Fed. Reg. 52530 (1976)). stock, insurance commissions, and rental income The time for filing comments and views has ex­ from Bank. Although Bank, which commenced pired, and the Board has considered the application business on May 22, 1972, has never paid cash and all comments received in light of the factors dividends, its asset growth has outpaced the set forth in § 3(c) of the Act (12 U.S.C. § growth of its capital account.6 Payment by Bank 1842(c)), and the considerations specified in § 4(c) of dividends sufficient to enable Applicant to serv­ (8) of the Act (12 U.S.C. § 1843(c) (8)). ice its debt would decrease the amount of Bank’s Applicant, a Kansas corporation, was incorpo­ capital that would otherwise be available to sup­ rated in early 1975 at which time its shareholders port its operations. Under the instant proposal, it purchased the majority interest in Bank. In March does not appear that an adequate level of capital 1975, Applicant purchased from Bank’s former would be maintained throughout the debt retire­ principal shareholder 100 per cent of the stock of ment period. two corporations, Wes Kan Insurance Limited, Applicant’s projections of Bank’s asset growth which was engaged in the sale of credit-related and earnings over the debt retirement period, on insurance on Bank’s premises, and First Manage­ their face, suggest that Bank’s capital structure ment, Inc., which owned and leased to Bank will not be adversely affected by the dividend certain bank facilities.1 Applicant caused both payout requirement over the debt retirement pe­ corporations to be liquidated, assumed their lia­ riod. Should Bank’s assets grow faster than Ap­ bilities, and acquired their assets. Bank ($10.9 million in deposits) ranks 228th in size among 616 banks in the State and holds 0.12 per cent of total deposits in Kansas.2 Bank 3The relevant banking market is approximated by Ford County, Kansas. 4Hanston State Bank is located in Hodgeman County, Kansas, outside the Ford County market area. 5 In addition to this debt, the proposal contemplates Appli­ cant’s issuance of a class of cumulative preferred stock that 1 Under § 4(c)(1)(A) of the Act, Applicant’s continued own­ may be expected to constitute an additional indirect drain on ership of the bank facilities would be exempt from the prohibi­ Bank’s capital. tions of § 4 were Applicant to become a bank holding com­ 6The need for Bank’s capital accounts to support Bank’s pany. rapid deposit growth is heightened by Bank’s high ratio of 2 All banking data are as of December 31, 1975. loans to deposits. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 275 plicant projects or if Bank’s earnings fail to meet siderations involved in this proposal present ad­ the levels projected by Applicant, dividend verse factors bearing upon the financial resources payouts necessary to service Applicant’s debt and future prospects of both Applicant and Bank. would decrease Bank’s capital to amounts below Such adverse factors are not outweighed by any acceptable levels. In such event, Applicant’s abil­ procompetitive effects, the managerial resources ity to serve as a source of financial strength to of Applicant or Bank, or benefits that better satisfy Bank would be in serious doubt. Accordingly, the the convenience and needs of the community to reliability of Applicant’s projections of Bank’s be served. Accordingly, it is the Board’s judgment asset and earnings growth, which bear directly on that approval of the application to become a bank Bank’s future capital needs, is of considerable holding company would not be in the public inter­ importance. est and that the application should be denied. The financial projections submitted by Applicant On the basis of the facts of record, the applica­ are not substantiated by Bank’s growth and earn­ tion to become a bank holding company is denied ings record. In view of Bank’s brief operating for the reasons summarized above.8 history since 1972, it is difficult to project Bank’s By order of the Board of Governors, effective rate of growth and earnings on the basis of its February 4, 1977. past record. The Board notes, however, that Bank Voting for this action: Vice Chairman Gardner and is located in an expanding suburban area, and its Governors Wallich, Jackson, Partee, and Lilly. Absent rapid growth to date and its small size relative and not voting: Chairman Burns and Governor Coldto the two competing banks in Dodge City suggest well. that Bank’s growth rate is likely to remain high (Signed) Griffith L. Garwood, for the next several years.7 While Bank’s earnings [seal] Deputy Secretary of the Board. improved in the first half of 1976, it does not appear, in the absence of a proven past record of earnings, that Applicant’s projections of Bank’s earnings can be realized. This is particularly true 8In view of the Board’s action with respect to the applica­ tion to become a bank holding company, consideration of Ap­ for the later years of the debt retirement period, plicant’s application to retain insurance sales activities be­ during which more than 75 per cent of the acqui­ comes moot. sition debt is to be retired. In conclusion, the proposal would not provide Applicant the neces­ sary financial flexibility to service its debt while The Jacobus Company and maintaining adequate capital in Bank, and there­ Inland Heritage Corporation, fore Applicant’s and Bank’s financial resources Wauwatosa, Wisconsin and future prospects weigh against approval of the application. Order Denying Formation No significant changes in Bank’s operations or of a Bank Holding Company and in the services offered to customers of Bank are Acquisition of Two Bank Holding Companies anticipated to follow from consummation of the The Jacobus Company, Wauwatosa, Wisconsin, proposed acquisition. Consequently, convenience and its 45.4 per cent owned subsidiary, Inland and needs factors lend no weight toward approval. Heritage Corporation, Wauwatosa, Wisconsin On the basis of the circumstances concerning (hereinafter jointly referred to as “Applicant”), the application to become a bank holding com­ both of which are bank holding companies within pany, the Board concludes that the banking conthe meaning of the Bank Holding Company Act, have applied for the Board’s approval under § 3 of the Bank Holding Company Act (12 U.S.C. 7The deposit size of all banks in the County increased at § 1842) to acquire all of the voting shares of an average annual rate of 15 per cent in the years 1970 Financial Network Corporation (“FNC”), a onethrough 1975. During this period the two other banks operat­ ing in Dodge City (deposits of $41.9 million and $34.0 mil­ bank holding company that owns 95.4 per cent lion at year-end 1975), both of which are older, established of the voting shares of The Beloit State Bank banks, grew at annual average rates of 14 per cent and 10 per cent, respectively. Applicant projects that Bank, which (“Beloit Bank”), and to acquire all the voting has grown since it commenced operations in 1972 to its cur­ shares of Community Holding Corporation rent size of more than $10 million in deposits, will experience (“CHC”), a one-bank holding company that owns only a 10 per cent annual growth rate during the debt servicing period. 75.3 per cent of the voting shares of Community Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

276 Federal Reserve Bulletin □ March 1977 Bank of Beloit (“Community Bank”), all of Although Beloit Bank and Community Bank both which are located in Beloit, Wisconsin. The pro­ operate within the relevant market, they have been posed acquisition of FNC and CHC would be closely affiliated through common ownership since effected through the formation of a new holding 1966 when principals of Beloit Bank chartered company to be named Inland Beloit Corporation, Community Bank. Since that time the two banks Milwaukee, Wisconsin, a newly formed corpora­ have had common directors, officers, and stock­ tion that is wholly owned by Inland Heritage holders, and as a result they do not compete with Corporation and for which a § 3 (a) (1) application each other. While approval of this proposal would has been filed with the Board. The proposed ac­ foreclose the possibility of Beloit Bank and Com­ quisitions would involve the merger of FNC and munity Bank becoming disaffiliated in the future, CHC into Inland Beloit Corporation, giving Inland the Board does not regard the elimination of such Beloit Corporation direct ownership of FNC and an alternative as particularly adverse in light of CHC. As the parent companies of Inland Beloit the sizes of the banks involved and the number Corporation, The Jacobus Company and Inland of competing banks in the market. Moreover, Heritage Corporation would thereby gain indirect viewed in light of Applicant’s relative size and ownership of FNC and CHC. FNC and CHC serve the nature of competition in the relevant market, no purpose other than to hold the stock of their the Board is of the view that consummation of respective banks in corporate form, and Inland the proposed acquisition of both Beloit Bank and Beloit Corporation serves no purpose other than Community Bank by Applicant would not result to facilitate the acquisition of FNC and CHC. in Applicant gaining an excessive share of the Accordingly, the proposed acquisition of FNC and deposits in the market, nor would it otherwise CHC by Inland Beloit Corporation is treated herein appreciably affect the structure of banking compe­ as the proposed acquisition of Beloit Bank and tition within the market. Community Bank by Applicant. It does not appear that consummation of the Notice of the applications, affording opportunity proposal would have significantly adverse effects for interested persons to submit comments and on existing or potential competition. Applicant is views, has been given in accordance with § 3(b) not presently represented in the relevant market, of the Act. The time for filing comments and views and its nearest existing banking subsidiary to Be­ has expired, and the Board has considered the loit Bank and Community Bank is Heritage Bank applications and all comments received in light of of Mt. Pleasant, Mt. Pleasant, Wisconsin, which the factors set forth in § 3(c) of the Act (12 U.S.C. is located approximately 60 miles east of Beloit § 1842(c)). in a separate banking market. Accordingly, no Applicant controls four banks with aggregate significant existing competition would be elimi­ deposits of $146.8 million, representing 1.0 per nated. With respect to potential competition, it cent of total commercial bank deposits in Wiscon­ appears that the distances separating Applicant’s sin, and ranks as the twelfth largest banking orga­ present subsidiary banks and the two banks to be nization in that State. Applicant’s acquisition of acquired, Wisconsin’s restrictive branching laws, the two banks (aggregate deposits of $85.6 mil­ and the relative unattractiveness of the area for lion) would increase Applicant’s share of total de novo entry, make it unlikely that significant commercial bank deposits in Wisconsin by 0.57 competition would develop in the future between per cent, and change its ranking from the twelfth Applicant and the two banks. Accordingly, on the to the eighth largest banking organization in the basis of the above and other facts of record, the State. The Board is of the view that the proposed Board concludes that consummation of the pro­ acquisition would have no appreciable effect upon posed transaction would not have a significantly the concentration of banking resources in Wiscon­ adverse effect on existing or potential competition. sin. Under the Bank Holding Company Act, the Beloit Bank is the second largest of 14 banking Board is required to take into consideration the organizations operating in the relevant market and financial and managerial resources and future controls 20 per cent of the market’s deposits, while Community Bank is ranked 11th in the market and controls 1.9 per cent of the market’s deposits.1 'The Janesville-Beloit banking market is approximated by Rock County. Unless otherwise indicated, all banking data are ^ee opposite column for footnote. as of December 31, 1975. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 211 prospects of the Applicant and of the bank(s) to overall ability in meeting the needs of the relevant be acquired. The subject proposal would involve market, any public benefits that might result from an acquisition debt of $4.8 million, which would approval are not sufficient to outweigh the adverse immediately be reduced to $3.6 million from effects specified herein. Accordingly, it is the available funds. This would represent a substantial Board’s judgment that approval of the applications addition to Applicant’s already significant level of would not be in the public interest and that the long-term debt.2 In the Board’s view, the projected applications should be denied. earnings of Applicant would not provide Applicant On the basis of the record, the applications are with the necessary funds to meet this proposed denied for the reasons summarized above. increase in its annual debt servicing requirements By order of the Board of Governors effective while at the same time maintaining and strength­ February 7, 1977. ening the capital of its existing subsidiary banks.3 Voting for this action: Vice Chairman Gardner and Moreover, the past and projected growth in the Governors Wallich, Coldwell, Jackson, and Partee. deposits of Applicant’s subsidiaries indicates that Voting against this action: Governor Lilly. Absent and there will be a need for additional capital in those not voting: Chairman Burns. banks during the debt retirement period, existing (Signed) Griffith L. Garwood, subsidiaries are in need of capital, and approval [seal] Deputy Secretary of the Board. of this proposal would detract Applicant’s finan­ cial and managerial resources from meeting such needs. Under these circumstances, the Board be­ Dissenting Statement of Governor Lilly lieves that Applicant should direct its financial resources toward strengthening its exisiting sub­ I disagree with the Board’s decision and would sidiaries before seeking further expansion of its approve the applications to acquire The Beloit banking interests. Accordingly, the Board con­ State Bank and Community Bank of Beloit. cludes that considerations relating to the financial The majority correctly concludes that consum­ and managerial resources and future prospects mation of the proposal would have no significant weigh against approval of the applications. adverse competitive effects. I disagree, however, In the Board’s view the above adverse financial with the conclusion that the proposal presents factors involved with Applicant’s proposal are not adverse financial factors that warrant denial of the outweighed by any convenience and needs con­ applications. Although the proposal would result siderations. It appears that the banking needs of in an increase in Applicant’s long-term debt obli­ the relevant market are being well served at the gation, in my opinion the record demonstrates that present time, and that Beloit Bank and Community Applicant is a sound organization possessing the Bank are generally competitive with, the other overall financial resources and managerial capa­ banks operating in the market. While affiliation bility needed to service this additional debt. Fur­ with Applicant might enhance the two banks’ thermore, since affiliation with Applicant would provide access to Applicant’s greater financial and managerial resources, Beloit Bank and Commu­ nity Bank would be strengthened and the residents 2As of September 30, 1976, Applicant’s consolidated long­ of the area served by the institutions would benefit term debt to equity ratio was 46 per cent, and the addition of $3.6 million in acquisition debt would increase Applicant’s from the improved and expanded services that long-term debt to equity ratio to 69 per cent. These ratios do could be offered. not include The Jacobus Company, since The Jacobus Com­ For these reasons, I would approve the applica­ pany is required to dispose of its interest in Inland Heritage Corporation as a result of the 1970 Amendment to the Bank tions. Holding Company Act and commitments made to the Board in connection with previous applications under the Act. Ac­ cordingly, while The Jacobus Company is currently a source The Royal Trust Company, of strength to Applicant’s subsidiary banks, that will not con­ Montreal, Quebec, Canada tinue, and thus it is appropriate to exclude The Jacobus Com­ pany from the above ratios. Order Approving Acquisition of Bank 3In order to strengthen its financial position, Applicant has committed to sell $2.0 million in convertible debentures The Royal Trust Company, Montreal, Quebec, within one year following consummation of the subject acqui­ sition. Even assuming that Applicant would be able to sell Canada (“Applicant”), and its wholly-owned the convertible debentures and that the debentures would there­ subsidiary, Royal Trust Bank Corp., Miami, after be converted to equity, Applicant would remain highly leveraged. Florida (“Corp.”), both of which are holding Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

278 Federal Reserve Bulletin □ March 1977 companies within the meaning of the Bank Hold­ storing and processing of banking, financial, and ing Company Act (“Act”), have applied for the other related economic data for financial institu­ Board’s approval under § 3(a)(3) of the Act (12 tions located in Florida. With four subsidiary U.S.C. § 1842(a)(3)) to acquire 51 per cent or banks, Applicant and Corp. comprise the 30th more of the voting shares of First Bank of Pem­ largest commercial banking organization in broke Pines, Pembroke Pines, Florida (“Bank”).1 Florida, controlling aggregate deposits of $135.5 Inasmuch as Corp. is a wholly-owned subsidiary million,4 representing approximately 0.5 per cent of Applicant, the proposed acquisition of Bank by of the total deposits held by commercial banks in Applicant and Corp. is treated herein as a proposed the State. Acquisition of Bank would increase acquisition by Applicant. Applicant’s share of commercial bank deposits in Notice of the applications, affording opportunity Florida only slightly and would not have a signifi­ for interested persons to submit comments and cant effect upon the concentration of banking re­ views, has been given in accordance with § 3(b) sources in the State. of the Act. The time for filing comments and views Bank (with deposits of $13.3 million) is the 41st has expired, and the Board has considered the largest of 46 banking organizations (operating 115 applications and all comments received in light of banks) in the greater Miami banking market,5 and the factors set forth in § 3(c) of the Act (12 U.S.C. controls approximately 0.2 per cent of the total § 1842(c)). deposits in commercial banks in that market. Ap­ Applicant, with total assets of approximately plicant is currently the 19th largest banking orga­ $3.7 billion,2 is the largest trust company and the nization in the market by virtue of its ownership eighth largest financial institution in Canada, and of Royal Trust Bank of Miami (deposits of $80.3 operates, through its subsidiaries and other inter­ million, representing 1.3 per cent of the total ests, in both Europe and the Caribbean Islands. commercial bank deposits in the market), which Corp., with total assets of approximately $7.5 is located 21 miles south of Bank in downtown million, controls four banks and one nonbank Miami. Although Applicant and Bank are located subsidiary,3 a computer service bureau for the in the same market, it does not appear that con­ summation of this proposal would have significant adverse effects on competition. Even after con­ summation of this proposal, Applicant would con­ Applicant became a one-bank holding company with re­ trol only 1.5 per cent of the market deposits and spect to The Royal Trust Bank of Miami, N.A., Miami, a large number of alternative banking organi­ Florida (“Miami Bank”), due to the passage of the 1970 zations would remain competing in the market. Amendments to the Act. Thereafter, Applicant acquired two additional Florida banks: The Royal Trust Bank of St. Peters­ In addition, Applicant has committed itself to burg (“St. Petersburg Bank”), Gulfport, and The Royal Trust eliminating all director interlocks that currently Bank of Tampa (“Tampa Bank”), Tampa. Applicant and exist between Bank and First National Bank of Corp. both subsequently acquired one additional Florida bank: Worth Avenue National Bank, Palm Beach, Florida. In re­ Hialeah, a competing bank located 12 miles away, sponse to applications filed by Applicant and Corp. pursuant and such action may have a positive effect on to § 3 of the Act, the Federal Reserve Bank of Atlanta, acting under delegated authority, granted approval for Applicant to transfer its shares of Miami Bank and St. Petersburg Bank to Corp. so that all of Applicant’s banks are now directly held by Corp. Applicant and Corp. are currently requesting Board approval to acquire one other Florida bank. pursuant to § 4(c)(8) of the Act, for Applicant to acquire ISD- 2Total asset figures for Applicant and Corp. are as of June Florida as a subsidiary of ISD-California without altering the 30, 1976. All other banking data are as of December 31, Board’s requirement that Applicant divest itself of ISD-Cali­ 1975, unless otherwise indicated. fornia. ISD-Florida performs data processing activities permis­ 3Information Systems Design of Florida, Inc., Miami, sible for bank holding companies (12 CFR § 225.4(a)(8)). On Florida (“ISD-Florida”), was formed as a subsidiary of Infor­ January 31, 1977, the Board approved a plan of divestiture mation Systems Design, Inc., Santa Clara, California (“ISD- of ISD-California that has been submitted by Applicant. Im­ California”), in order to perform data processing activities mediately prior to consummation of the divestiture proposal, permissible for bank holding companies. ISD-California, and Applicant will retain ISD-Florida through a corporate reorgan­ in turn, ISD-Florida are owned by Computel Systems, Ltd. ization by which ISD-Florida will be transferred to Applicant (“Computel”), a Canadian data processing company. On De­ or to another subsidiary of Applicant. cember 6, 1973, the Board approved Applicant’s request, filed 4As of December 31, 1975. pursuant to § 4(c)(9) of the Act, to acquire Computel but de­ 5The greater Miami banking market, the relevant market, nied Applicant’s request to retain ISD-California thereafter. includes Dade County and that portion of Broward County [38 Fed. Reg. 34514 (1973); 60 Fed. Res. Bull. 58 (1974)]. lying south of the Dania Canal. The northern boundary of the On June 20, 1975, the Federal Reserve Bank of Atlanta, act­ market area is delineated by the Dania Canal, the Miami Inter­ ing under delegated authority, approved an application filed national airport, and a tract of undeveloped land extending (Continued in opposite column) across Broward County. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 279 competition. Accordingly, on the basis of the facts Orders Under Section 4 of record, the Board concludes that consummation of Bank Holding Company Act of the proposal would not have significant adverse effects on existing or potential competition. The financial and managerial resources and fu­ Commercial National Corporation, Peoria, Illinois ture prospects of Applicant and Corp., their sub­ Order Approving Acquistion of Commercial sidiary banks,6 and Bank are regarded as satis­ National Management Consulting Company factory and consistent with approval of the appli­ cations. Affiliation with Applicant would enable Commercial National Corporation, Peoria, Illi­ Bank to draw upon Applicant’s financial resources nois, a bank holding company within the meaning and thereby improve Bank’s ability to make large of the Bank Holding Company Act, has applied loans to its customers. Furthermore, affiliation for the Board’s approval, under section 4(c)(8) of would also enable Bank to utilize Applicant’s the Act [12 U.S.C. § 1843(c)(8)] and section managerial resources and expertise and it is ex­ 225.4(b)(2) of the Board’s Regulation Y [12 CFR pected that this affiliation would result in Bank § 225.4(b)(2) (1976)], to acquire Commercial Na­ being better able to serve the needs of the area. tional Management Consulting Company, Peoria, Therefore, considerations relating to the conven­ Illinois (“Company”), a proposed new company ience and needs of the community to be served that would engage in the activity of providing lend some weight toward approval of the applica­ management consulting advice on an explicit fee tions. Based upon the foregoing and other consid­ and noncontinuing basis to nonaffiliated banks. erations reflected in the record, it is the Board’s Such activity has been determined by the Board judgment that the proposed acquisition would be to be closely related to banking [12 CFR § in the public interest and that the application 225.4(a)(12) (1976)]. should be approved. Notice of the application, affording opportunity On the basis of the record, the applications are for interested persons to submit comments and approved for the reasons summarized above. The views on the public interest factors, has been duly transaction shall not be made (a) before the thir­ published [41 Federal Register 55940 (1976)]. tieth calendar day following the effective date of The time for filing comments and views has ex­ this Order or (b) later than three months after the pired, and the Board has considered the application effective date of this Order, unless such period and all comments received in the light of the public is extended for good cause by the Board, or by interest factors set forth in section 4(c)(8) of the the Federal Reserve Bank of Atlanta pursuant to Act [12 U.S.C. § 1843(c)(8)]. delegated authority. Applicant controls one banking subsidiary, By order of the Board of Governors, effective Commercial National Bank of Peoria, Peoria, Illi­ February 7, 1977. nois (“Bank”) which is the 17th largest bank in Illinois and holds deposits of $238 million, repre­ senting approximately four-tenths of 1 per cent of Voting for this action: Chairman Burns and Gover­ the total deposits in commercial banks in that nors Coldwell, Jackson, Partee and Lilly. Absent and State.1 In addition, Applicant engages through its not voting: Governors Gardner and Wallich. sole nonbanking subsidiary in underwriting, as reinsurer, credit life, accident and health insurance in connection with extensions of credit by Bank. (Signed) Griffith L. Garwood, Company proposes to provide management [seal] Deputy Secretary of the Board. consulting advice on an explicit fee and noncon­ tinuing basis to nonaffiliated banks. This advice will be offered with respect to activities including, but not limited to, the following: auditing, mar­ keting, mergers and acquisitions, site planning, 6On October 29, 1976, the Board approved applications of Applicant and Corp, to acquire Worth Avenue National Bank, Palm Beach, Florida (62 Fed. Res. Bull. 962). In connection with that proposal, Applicant committed itself to inject $600,- 000 in equity capital into that bank within 90 days after its 'All banking data are as of June 30, 1975, unless otherwise acquisition. indicated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

280 Federal Reserve Bulletin □ March 1977 financial planning, computer applications, capital three months after the effective date of this Order, adequacy, security measures and procedures, and unless such period is extended for good cause by personnel evaluation and compensation. In addi­ the Board or by the Federal Reserve Bank of tion, Company will make recommendations and Chicago, pursuant to authority hereby delegated. suggestions, including alternative policies or By order of the Board of Governors, effective courses of action, where appropriate, concerning February 24, 1977. the policies and actions of its client banks. It appears that no adverse effects upon competi­ Voting for this action: Chairman Burns and Gover­ tion would result from Company providing man­ nors Wallich. Coldwell, Jackson, Partee, and Lilly. agement consulting advice as proposed. Bank Absent and not voting: Governor Gardner. offers similar advice and services through its cor­ (Signed) Griffith L. Garwood, respondent banking division;2 such advice and [seal] Deputy Secretary of the Board. services are limited in scope and are not offered on an explicit fee basis. No actual or potential competition would be eliminated upon approval of this application. Moreover, Applicant’s de novo entry into this industry should have a procompeti­ D. H. Baldwin Company, Cincinnati, Ohio tive effect by increasing the number of firms of­ Order Denying Retention of fering this specialized financial and consulting Empire Savings, Building and Loan Association advice. Furthermore, Applicant’s making this ad­ vice available on an explicit fee basis, rather than D. H. Baldwin Company, Cincinnati, Ohio, a as a correspondent banking service, will enable bank holding company within the meaning of the client banks to more accurately analyze the cost Bank Holding Company Act, has applied for the of such service and to more efficiently allocate Board’s approval, under section 4(c)(8) of the Act their funds. [12 U.S.C. § 1843(c)(8)] and section 225.4(b)(2) There is no evidence in the record indicating of the Board’s Regulation Y [12 CFR § that consummation of the proposed transaction 225.4(b)(2) (1976)], to retain all of the voting would result in any undue concentration of re­ shares of Empire Savings, Building and Loan sources, unfair competition, conflicts of interests, Association, Denver, Colorado (“Empire”), and unsound banking practices, or other adverse ef­ its wholly-owned service corporation subsidiary, fects upon the public interest. ESL Corporation, Denver, Colorado (“ESL”). In Based upon the foregoing and other consid­ decisions involving two applications previously erations reflected in the record, the Board has considered by the Board under section 4(c)(8) of determined, in accordance with the provisions of the Act, the activity of operating a savings and section 4(c)(8), that consummation of this proposal loan association has been determined by the Board can reasonably be expected to produce benefits to to be closely related to banking. the public that outweigh possible adverse effects. Notice of the application, affording opportunity Accordingly, the application is hereby approved. for interested persons to submit comments and This determination is subject to the conditions set views has been duly published [41 Federal Regis­ forth in section 225.4(c) of Regulation Y and to ter 26276 (1976)]. The time for filing comments the Board’s authority to require such modification and views has expired and the Board has consid­ or termination of the activities of a bank holding ered the application and all comments received, company or any of its subsidiaries as the Board including those of the Federal Home Loan Bank finds necessary to assure compliance with the Board (“FHLBB”) and the United States Depart­ provisions and purposes of the Act and the Board’s ment of Justice, in the light of the public interest regulations and orders issued thereunder, or to factors set forth in section 4(c)(8) of the Act [12 prevent evasion thereof. U.S.C. § 1843(c)(8)]. In considering this applica­ The transaction shall be made not later than tion, the Board also took into account the record of a rulemaking proceeding initiated in 1973 con­ cerning the general question whether the operation of a savings and loan association is so closely related to banking or managing or controlling 2Company will be operated independently of Bank’s corre­ spondent division. banks as to be a proper incident thereto, as well Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 281 as records in two adjudicatory proceedings con­ a head office in Denver, Colorado, and 17 branch cerning applications from bank holding companies locations throughout that State. Pursuant to Colo­ to engage in the savings and loan business.1 rado law and FHLBB regulations, Empire is em­ Applicant, the fourth largest commercial bank­ powered to make real estate loans, and certain ing organization in Colorado, controls 12 banks instalment and commercial loans; to accept sav­ with aggregate deposits of $582.1 million,2 repre­ ings accounts; and to issue certificates of deposits. senting approximately 7.7 per cent of the total Empire is also able to order payments to be made deposits in commercial banks in that State. Appli­ to third persons even though it cannot accept cant also controls several nonbanking subsidiaries demand deposits. As a further extension of its engaged in underwriting life and casualty insur­ activities, Empire operates a small insurance ance, performing commercial mortgage and leas­ agency and owns 100 per cent of the capital stock ing activities, and manufacturing and marketing of a service corporation subsidiary (“ESL”)5 that musical instruments.3 Applicant also engages, is involved in two joint ventures that engage in through Empire, in savings and loan activities. land development and in the construction and sale Applicant acquired all of Empire’s outstanding of residential units. ESL is also the general partner shares pursuant to an approval Order issued by in a limited partnership that owns and operates the FHLBB on January 17, 1969.4 Pursuant to an apartment complex. section 4(a)(2), a company that became a bank As noted above, the Board has previously had holding company as a result of the 1970 Amend­ an opportunity to consider both the nature and the ments to the Act, such as Applicant, is entitled structure of the savings and loan industry in con­ to 10-year grandfather rights for an activity that nection with a rulemaking proceeding and in the it acquired after June 30, 1968, but on or before context of two applications by bank holding com­ December 31, 1970. Therefore, Applicant is re­ panies to engage in the activity of operating a quired to divest itself of Empire by December 31, savings and loan association. The Board concluded 1980. The subject application has been filed pur­ in those proceedings that the savings and loan suant to section 4(c)(8) to enable Applicant to business is “closely related” to banking, within retain Empire beyond December 31, 1980. the meaning of section 4(c)(8) of the Act.6 While Empire is a state-chartered stock savings and the Board has determined this activity to be loan association that conducts its business from “closely related” to banking, it has not formally amended Regulation Y to add the savings and loan business to the list of activities permissible for bank holding companies because it has not yet made the judgment that this activity is in general 'See the Board’s Order of November 4, 1974, denying the application of American Fletcher Corporation, Indianapolis, a “proper incident” to banking. Whether the ac­ Indiana, to acquire shares of Southwest Savings and Loan As­ tivity of operating a savings and loan association sociation, Phoenix, Arizona. 39 Federal Register 39912 (1974); 60 Federal Reserve Bulletin 868 (1974). In addi­ is a “proper incident” to banking, within the tion, refer to the Board’s Order of April 10, 1975, denying meaning of section 4(c)(8), requires a determi­ the application of Memphis Trust Company, Memphis, Ten­ nation by the Board that the performance of the nessee, to acquire Homeowners Savings and Loan Associa­ tion, Inc., Collierville, Tennessee, a newly-formed savings activity by a bank holding company can reasonably and loan association. 40 Federal Register 17199 (1975); 61 be expected to produce benefits to the public that Federal Reserve Bulletin 327 (1975). outweigh possible adverse effects. In applying this 2A11 banking data are as of December 31, 1975, unless oth­ erwise indicated. balancing test, the Board may consider not only 3 Baldwin became a bank holding company with respect to the benefits and detriments specifically enumerated its indirect ownership of more than 25 per cent of the voting in the statute that may be involved in a particular shares of Central Bank and Trust Company, Denver, Colorado (name changed in May 1975, to Central Bank of Denver), case, but also the broader questions of economic as a result of the 1970 Amendments to the Bank Holding Company Act of 1956. Baldwin has been engaged in the man­ ufacturing and selling of musical instruments for over 100 years and continues to engage in these activities pursuant to 5ESL conducts its business from Empire’s main office in permanent grandfather rights under section 4(a)(2) of the Act. Denver and although ESL is permitted to make certain types Baldwin’s insurance underwriting activities must be divested of loans that Empire cannot make, both State and Federal by December 31, 1980. supervisory authorities regulate and periodically examine 4Subsequently, Baldwin acquired and merged Jefferson ESL. Savings and Loan Association, Arvada, Colorado, into Em­ 6 In neither of the two previous instances did the savings pire pursuant to another approval Order issued by the FHLBB and loan association have a service corporation subsidiary en­ on September 17, 1970 (amended November 17, 1970). gaged in other nonbanking activities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

282 Federal Reserve Bulletin □ March 1977 and regulatory policy that may be raised by a million, representing approximately 5.7 per cent proposal. In the present case, the Board is unable of the market’s total savings deposits. to make a determination favorable to Applicant In analyzing competition between a commercial on the “proper incident” test, either with regard bank and a savings and loan association, the Board to the particular facts presented in this case or on believes it appropriate to focus on two relevant the broader issue as to the propriety of affiliations, product markets: (i) commercial bank and savings through the means of a bank holding company, and loan association time and savings deposits; between banks and savings and loan associations and (ii) originations of one-to-four family residen­ generally. tial mortgage loans. The Board has previously indicated that it re­ Applicant’s acquisition of Empire in 1969 in­ gards the standards under section 4(c)(8) of the creased Applicant’s share of total time and savings Act for retention of a 10-year grandfathered activ­ deposits in the Denver market held by commercial ity to be the same as the standards for a proposed banks and savings and loan associations from acquisition. Accordingly, in this case, the com­ approximately 4.3 per cent to 9.2 per cent ($84 petitive effects of Applicant’s retention of Empire million to $180 million) and increased Applicant’s must be examined and evaluated both as of the rank from eighth to second among all commercial time of the original acquisition in 1969 and as of banking organizations and savings and loan asso­ the present time. In view of the fact that banks ciations. As of December 31, 1975, Applicant and savings and loan associations are competitors (including Empire) controlled approximately 10.3 in several product or service lines, the competitive per cent ($425.6 million) of the total time and analysis of the retention by a bank holding com­ savings deposits in both commercial banks and pany of a savings and loan association is essen­ savings and loan associations in the Denver mar­ tially similar to that regularly applied by the Board ket, and it continued as the second largest of such in passing upon applications from bank holding organizations. It appears that the acquisition in companies to acquire additional banks or non­ 1969 by Applicant (then the fourth largest banking banking companies that are competitive with organization in the market) of Empire (then the banks. fifth largest savings and loan association in the Applicant is the fourth largest banking organi­ market) did eliminate existing competition for time zation in the Denver market7 through its control and savings deposits in the market between those of three banks (including Central Bank of Denver) two organizations. In view of their relative sizes with aggregate deposits of $376.6 million, repre­ and market positions, it is clear that in 1969 senting approximately 8.9 per cent of the total Applicant and Empire were significant competitors deposits in the market’s commercial banks. In in the Denver market for deposits and, therefore, addition, Applicant (excluding Empire) controls the Board concludes, based upon all the facts of $188.9 million of the time and savings deposits record, that the acquisition in 1969 of Empire by in the market, representing approximately 4.5 per Applicant had an adverse effect upon existing cent of the total time and savings deposits therein. competition for deposits in the relevant market. Empire, the fifth largest savings and loan asso­ With respect to mortgage lending activities, ciation in Colorado, controls total savings deposits Applicant’s acquisition of Empire in 1969 in­ of $329.7 million, representing approximately 4.5 creased Applicant’s share of one-to-four family per cent of the total savings deposits in the State. residential mortgage loan originations in the Empire’s home office, as well as 11 of its branch Denver SMSA at the time from approximately 2 offices, are located within the Denver market and per cent to 3.8 per cent ($21.1 million). Even all but three of those offices are situated within though Applicant’s market share of one-to-four seven miles of one of Applicant’s three banks in family residential mortgage loan originations in the that market. Within the Denver market, Empire Denver SMSA decreased to approximately 2.7 per is the fifth largest of 17 savings and loan associa­ cent ($40.2 million) in 1974, it appears that Ap­ tions and controls total savings deposits of $236.6 plicant’s acquisition in 1969 of Empire did elimi­ nate existing competition for mortgage loan origi­ nations (particularly one-to-four family) in the Denver mortgage market. Accordingly, based 7The Denver market includes all of Denver, Adams, Arapa­ upon the facts of record, the Board concludes that hoe, and Jefferson Counties and the Broomfield portion of Boulder County. the original acquisition by Applicant had an ad­ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 283 verse effect upon existing competition for residen­ expansion does not appear to be any better than tial mortgage loans in the relevant market. average when compared to the growth of the The Board further concludes that there would savings and loan industry in the Denver SMSA.9 be public benefits derived from disaffiliation of With respect to Applicant’s second and third Baldwin and Empire. These benefits would be contentions, it appears that Applicant has opened reflected in the reintroduction of Empire as an nine de novo offices of Empire since 1969 and independent competitor in the two product lines has expanded business hours to include Friday discussed above, thus enhancing future competi­ nights and Saturdays at most of its branch offices. tion in the relevant market.8 In addition, Applicant has provided Empire access In commenting to the Board on the subject to a computer system that expedites customer application the Department of Justice recommends transactions. Affiliation with Applicant appears to denial of the application based upon both the have improved Empire’s capital position, as is adverse competitive effects that resulted from Em­ evidenced by an increase in Empire’s equity-capipire’s acquisition of Jefferson Savings & Loan in tal-to-assets ratio above the average for all savings 1970 and the persistence, and possible worsening, and loan associations in Colorado as of December of such adverse competitive effects since that ac­ 31, 1975. The Board notes that, on the one hand, quisition. On the basis of all the facts of record, from 1969 to 1975, Empire performed better than including the comments submitted by the Depart­ its savings and loan industry competitors in the ment of Justice, the Board concludes that the relevant market with respect to deposit growth; adverse competitive considerations relating to this became better capitalized than other Colorado application weigh against approval. savings and loan associations; and provided its In support of its proposal, Applicant has stated customers new services and expanded facilities. that its affiliation with Empire has produced public On the other hand, in the light of the fact that benefits that generally would not have occurred savings and loan associations are primary funding without such affiliation: (1) the expansion of sources for mortgage loans, the Board notes that mortgage lending since 1969; (2) the expansion Empire has not performed significantly better than of Empire’s facilties and services that have im­ the average savings and loan association with proved convenience to the public; and (3) the respect to mortgage originations. In addition, even improved financial condition of Empire. At issue Applicant concedes that some of the benefits in this application is whether these claimed bene­ claimed to have occurred as a result of affiliation fits to the public since the acquisition in 1969 of with Empire would have occurred over time even Empire outweigh the adverse effects upon compe­ absent affiliation with Applicant. tition resulting from such acquisition. The Board is of the view that the public benefits Turning to Applicant’s first contention, the claimed by Applicant may have resulted, in part, Board notes that from 1961 to 1968, prior to from Empire’s affiliation with Applicant. How­ Empire’s affiliation with Applicant, Empire’s total ever, the Board is unable to conclude that the mortgage loan portfolio increased approximately benefits claimed by Applicant are unique to its 81.3 per cent ($73.2 million) and from 1969 to ownership of Empire or that Empire could not have 1975, after affiliation, the portfolio increased ap­ achieved such benefits on its own. Empire was proximately 188.3 per cent ($132.7 million to the fourth largest savings and loan association in $382.6 million). Furthermore, Empire’s total Colorado in 1969 (total deposits of $122.2 million mortgage originations increased approximately and total mortgage loans outstanding of $149.5 233 per cent ($34 million to $113.2 million) from million) and was an effective and viable competitor year-end 1969 to December 31, 1975. While the at the time of its acquisition by Applicant. There Board recognizes that Applicant has expanded is no indication that it would not have been able Empire’s mortgage loans from 1969 to 1975, such to continue to play an effective role in serving various areas in Colorado if it had not been ac­ quired by Applicant. Therefore, in view of the 8Applicant, through a subsidiary bank, and Empire, through foregoing, the Board concludes that public benefits certain of its branches, also compete in the Greeley market for time and savings deposits and mortgage loans. Because of their existing common ownership, Applicant and Empire do not now compete with each other. However, the public benefits to be derived from the disaffiliation would also en­ 9 Part of the increase occurred as a result of the merger of hance future competition in the Greeley market. Empire with Jefferson S&L (see footnote 4). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

284 Federal Reserve Bulletin □ March 1977 considerations are not sufficient to outweigh the efits as might result in individual cases. Accord­ adverse effects upon competition that the Board ingly, the Board believes that the judgment to has found in connection with the proposal. permit such affiliations on a broad scale should Although Applicant’s acquisition of Empire be left to the Congress.10 eliminated existing competition, there is no evi­ In determining the broad “proper incident” dence in the record that its affiliation with Empire question the Board has considered, apart from the has resulted in any undue concentration of re­ adverse competitive effects of this particular ap­ sources, conflicts of interests, unsound banking plication, the more general effects that are likely practices, or unfair competition. Nevertheless, the to result from permitting bank holding companies Board concludes that the adverse effects upon to acquire savings and loan associations. One of competition resulting from the acquisition are not the principal factors the Board has considered is outweighed by any benefits to the public that the conflict between the regulatory framework resulted from the acquisition or that can reasonably within which banks and savings and loan associa­ be expected to be produced by the continued tions operate. affiliation of Applicant and Empire and, accord­ Savings and loan associations are authorized ingly, the application should be denied. under applicable State and Federal law and regu­ While the Board believes that the present appli­ lations to engage, either directly or through sub­ cation should be denied on the basis of factors sidiary service corporations, in a number of activ­ relating to this case alone, it recognizes that this ities—such as real estate development, property would be the third case in which the Board has management and the operation of insurance agen­ refused to permit a bank holding company to own cies dealing in homeowners, fire, theft, automo­ a savings and loan association based upon factors bile, life, health, accident, and title insurance— unique to the individual application, and that such that have heretofore been deemed impermissible action might imply that the Board would approve by this Board for bank holding companies. Thus, an application presenting no adverse market or if the Board were now to allow bank holding other factors in and of itself. For this reason, the companies to enter the savings and loan business, Board believes it appropriate to address an alter­ it would be faced with a difficult issue in defining native and broader ground for action of this appli­ the permissible scope of that business as conducted cation—namely, whether the savings and loan by a bank holding company subsidiary. Indeed, business should in general be considered a ‘ ‘proper this issue is presented in the instant case in view incident” to banking within the meaning of section of Empire’s activities, and those of its service 4(c)(8). corporation subsidiary, in such fields as insurance Even if the Board were not to have determined sales, land development and property manage­ that Applicant’s retention of Empire could not be ment. On the one hand, if the Board were to permit expected, on the facts of this case, to produce a company such as Applicant to engage through public benefits that outweigh possible adverse ef­ a subsidiary S&L in real estate development, fects, the Board has concluded, on the basis of property management and insurance agency the broader issues raised by this application, that operations, it would be acting in conflict with the savings and loan business, generally, albeit earlier decisions11 holding such activities to be “closely related” to banking, should not be deter­ mined by the Board to be a “proper incident” 10The Board has permitted affiliations between banks and to banking. While the Board recognizes that there thrifts in one narrow circumstance. Specifically, it has allowed may well be individual cases of affiliations be­ mutual thrift institutions in Rhode Island to hold interests in commercial banks. See Newport Savings and Loan Associa­ tween banks and savings and loan associations in tion, 58 Federal Reserve Bulletin 313 (1972), and Old Col­ which no adverse competitive considerations are ony Co-operative Bank, 58 Federal Reserve Bulletin 417 presented, and in which compelling arguments (1972). These decisions were based upon the unique, histori­ cal situation in Rhode Island, however, where there was a may be made that, on the particular facts pre­ pervasive pattern of ownership of banks by mutual thrift insti­ sented, public benefits may be realized in a partic­ tutions, such that a thrift lacking such an affiliation was at ular market, the Board has nevertheless concluded, a distinct competitive disadvantage. See also Profile Bank­ shares, Inc., 61 Federal Reserve Bulletin 901 (1975). for the reasons set forth below, that the potential 11 The Board has already determined that real estate broker­ adverse effects of generally allowing affiliations age, real estate syndication, land development, and property management are activities not so closely related to banking of banks and savings and loan associations are or managing or controlling banks as to be a proper incident presently sufficiently strong to outweigh such ben­ thereto. See 12 CFR § 225.126 (1976). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 285 impermissible for bank holding companies. Hav­ stated that it did not intend to hold that commercial ing done so, it would thereafter be difficult for banking was a proper incident to the operation of the Board to deny such activities to bank holding an insured savings and loan. Thus, if this Board companies that did not operate savings and loan were to conclude that the savings and loan business associations. On the other hand, if it denied a is a “proper incident” to banking, a clear regula­ bank-affiliated savings and loan association per­ tory conflict would exist. Any bank holding com­ mission to engage in such activities or conditioned pany that thereafter was permitted to acquire a approval on termination of such activities—and it savings and loan association would effectively be could well be that such a result would be required prohibited from acquiring any additional savings by section 4(c)(8)—savings and loan associations and loan association. Moreover, even if the owned by bank holding companies might then not FHLBB did permit a “multiple” savings and loan only be at a competitive disadvantage with respect holding company to acquire a bank, it seems clear to savings and loan associations not affiliated with that the resulting bank-S&L holding company banks, but they would also be limited in their would be precluded, under FHLBB regulations ability to provide a full range of S&L services implementing section 4(c)(2) of the National to the public. The Federal Home Loan Bank Housing Act, from engaging in many activities Board, which has opposed the acquisition of sav­ that this Board has found permissible for bank ings and loans by bank holding companies, has holding companies. expressed the view in this case that if the Board In the American Fletcher case, the Board noted were to impose such limitations as a predicate for that the mere existence of separate regulatory allowing a bank holding company to acquire an framework for banks and S&Ls does not neces­ S&L, the Board would be “in effect redefining sarily imply that Congress intended to prohibit the role of the savings and loan.” common ownership of the two types of institu­ Administrative resolution of this conflict in reg­ tions. In that case, however, the Board denied the ulation is made more difficult by the fact that while application without reaching the broad issue raised S&L holding companies operate under somewhat here. In the present case, the scope of the activities more permissible rules than bank holding compa­ carried on by Empire has required the Board to nies in certain regards, there are more stringent focus upon these conflicts between the regulatory limitations in others. For example, section 408(c) structures. In effect, savings and loan regulators, of the National Housing Act, which deals with acting pursuant to their legislative mandates, have the permissible activities of savings and loan decided that it is in the public interest for savings holding companies, imposes virtually no restric­ and loan associations to be able to provide certain tions upon the non-S&L activities of holding services that are incidental to the savings and loan companies that own only one savings and loan business. The Board, on the other hand, has de­ association. However, section 408(c)(2), which cided under the standards of the Bank Holding has as its model the pre-1970 provisions of the Company Act that the public interest would be Bank Holding Company Act, which were inappli­ disserved by allowing bank holding companies to cable to one-bank holding companies, imposes engage in the same activities. A conflict in regula­ strict limitations on the non-S&L activities of tion has arisen only because of the proposal to holding companies that own more than one savings allow the creation of holding companies that would and loan association. In general, only activities operate subject to both sets of regulators. This determined by the FHLBB to be “a proper incident conflict cannot responsibly be reconciled unilat­ to the operations of insured institutions and not erally by this Board through the imposition of a detrimental to the interests of savings account regulatory restriction truncating the activities of holders therein” may be permitted. The FHLBB bank-affiliated S&Ls to fit within the confines of regulations implementing section 408(c)(2) and the Bank Holding Company Act, for to do so could setting forth the permissible activities of “mul­ prevent full realization of the public benefits that tiple” savings and loan holding companies, 12 might be expected from the operation of a savings CFR § 584.2-1, do not include the operation of and loan association. The conflict can be resolved a commercial bank or of certain other activities only by Congress. Until it is resolved it must be that this Board has found permissible for bank viewed as a significant adverse factor that pre­ holding companies under section 4(c)(8). In fact, cludes the Board from finding, under the standards in the American Fletcher proceeding the FHLBB of the Bank Holding Company Act as presently Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

286 Federal Reserve Bulletin □ March 1977 in effect, that the operation of a savings and loan [T]here is a discernible trend toward less­ association is a “proper incident” to banking. ening distinctions between banks and sav­ ings and loan associations. Geographic re­ The Board also recognizes that disparities in the strictions on mortgage lending by savings respective regulatory frameworks within which and loan associations have been liberalized. banks and S&Ls operate has encouraged an insti­ Recently, savings and loan associations were tutional rivalry between the two industries that permitted by the Federal Home Loan Bank Board to participate in the Federal funds offers certain public benefits. Savings and loans, market, previously dominated by commer­ having as their principal function the provision of cial banks. Savings and loan associations funds for housing, have traditionally had limited recently were authorized to offer large ne­ access and liability powers. As S&Ls have strived gotiable certificates of deposit. The role of to increase their competitive positions with respect savings and loan associations in the nation’s payments mechanism is growing. The Pres­ to commercial banks they have sought broader ident’s Commission on Financial Institutions asset and liability powers. The development of and others have made proposals to expand NOW accounts is an example. the powers of savings and loan associations. If the Board were to permit bank holding com­ The close relationship between banking and operation of savings and loan associations panies generally to acquire savings and loan asso­ would become even closer should these pro­ ciations, such action could set in motion a train posals be implemented. Should this trend of events that might tend to erode such institutional continue to the point where savings and loan rivalry, which would undoubtedly become less associations both accept demand deposits intense as banks and thrifts came under common and engage in the business of making com­ mercial loans, savings and loan associations control and the commonality of interest between would actually become “banks” for pur­ the two industries grew.12 The Board believes that poses of the Act. a judgment having the potential for such long The Bank Holding Company Act imposes cer­ range effects should be made by Congress. tain restrictions with respect to banks that are not Congress has in fact been considering numerous applicable to nonbanks—most notably, a bank proposals in recent years for expanding the powers holding company cannot acquire a “bank” in a of savings and loan associations, and the implica­ State other than that in which it does its principal tions of such expansion provide an additional basis banking business. As the Board noted in Ameri­ for the Board to conclude that it should not deem the savings and loan business to be a “proper can Fletcher, this restriction would not currently incident” to banking under presently applicable apply to the acquisition of a savings and loan as­ standards. Although savings and loan associations sociation because they are not now technically “banks” for purposes of the Act. However, if the are not currently considered to be “banks” within the definition of “bank” in section 2(c) of the Board were presently to permit bank holding Bank Holding Company Act—because they do not companies to acquire savings and loan associa­ both take demand deposits and make commercial tions in other States—and the desire to avoid ac­ loans—there have been repeated efforts to expand quisitions threatening adverse competitive conse­ their powers and to make them more nearly quences in particular markets might well compel bank holding companies to look to other States equivalent to those of banks.13 As the Board stated in the American Fletcher decision at 60 Federal for savings and loan association acquisitions—it could develop in time, if savings and loan associ­ Reserve Bulletin 869 (1974): ation powers expanded, that savings and loan as­ sociations would satisfy the definition of “bank” and that the interstate banking prohibitions of the 12While at present only about 15 per cent of the Federally- Act had been substantially undermined by earlier insured savings and loan associations in the country are stock companies (representing about 22 per cent of the assets of all such savings and loan associations), and thus potential candi­ dates for acquisition, that percentage would be very likely to increase significantly if conversions of mutuals were to be 13The proposed “Financial Reform Act of 1976,” H.R. generally authorized. In Public Law 93-495 Congress author­ 13077, 94th Cong., 2d Sess., would have authorized Feder­ ized a limited number of conversions of mutual savings and ally-chartered savings and loan associations to make loans for loan associations to the stock form. The FHLBB has received education; consumer loans; loans for “community conserva­ approximately 70 applications for conversions and has ap­ tion, development, or improvement”; loans to corporations proved 24. The 17 associations that have already converted whose activities “are reasonably related to the activities of represent more than $2 billion in assets. [savings and loan] associations;” and loans to States and their 13See opposite column for footnote. subdivisions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 287 affiliations between commercial banks and savings approval of the Board, was not a “willful” viola­ and loan associations. While the import of this tion of the Bank Holding Company Act (“Act”), decision may be that the savings and loan busi­ and that FSC’s continued holding of FSS&L sub­ ness is so closely related to banking that it should sequent to that acquisition was not contrary to the not be viewed as a “proper incident” to banking, directives given to FSC by the Federal Reserve the Board has concluded that the decision should Bank of San Francisco (“Reserve Bank”) and the be left to Congress whether, in light of the poli­ Board in 1971 and 1972, respectively, to divest cies underlying the Bank Holding Company Act, FSS&L. such “near-banks” should be treated as “banks” The circumstances concerning FSC’s ownership or “nonbanks”. of FSS&L are set forth in the July 30 Order, and For the foregoing reasons and other consid­ nothing submitted by FSC in support of its request erations reflected in the record, the Board has de­ for reconsideration leads the Board to conclude termined that the operation of a savings and loan that the operative facts are other than as stated association, although closely related to banking or in that Order. Specifically, the record establishes managing or controlling banks, is not a proper in­ that on April 1, 1970, at a time when First Security cident to banking. Therefore, the subject applica­ Investment Corporation (“FSIC”) had pending in tion is hereby denied. escrow a sale of its controlling interest in FSS&L In reaching this decision, the Board wishes to to U.I.P. Corporation, Milwaukee, Wisconsin emphasize that the conclusions reflected herein (“UIP”), FSIC merged into FSC. The Board are expressed only within the boundaries of the concluded in the July 30 Order that upon consum­ Board’s responsibilities under the Bank Holding mation of the FSIC-FSC merger FSC acquired Company Act as currently in effect, and are appli­ control of FSS&L, within the meaning of section cable only with respect to the present regulatory 2(a) of the Act, without the prior approval of the framework and the characteristics of banks and Board, and the material submitted with the request S&Ls as they presently operate within that frame­ for reconsideration has not caused the Board to work. The Board does not intend to suggest that alter that conclusion. On September 30, 1970, the affiliations between banks and thrift institutions Federal Home Loan Bank Board denied UIP’s should not be permitted under any circumstances. application under section 408 of the National By order of the Board of Governors, effective Housing Act for permission to acquire control of February 22, 1977. FSS&L, and the shares of FSS&L held in escrow were thereupon delivered to FSC. FSC was subse­ Voting for this action: Chairman Burns and Gover­ quently advised by the Federal Reserve Bank of nors Gardner, Wallich, Coldwell, Jackson, Partee, and San Francisco that its acquisition of FSS&L vio­ Lilly. lated the Act and it was directed to take steps to (Signed) Theodore E. Allison, effect a divestiture. [seal] Secretary of the Board. Over a period of several years following the initial instruction to FSC to divest FSS&L, the Reserve Bank, with the concurrence of Board First Security Corporation, staff, granted FSC a number of extensions of the Salt Lake City, Utah time within which to effect the divestiture. The premise for the extensions was that the Board had Order Denying Request for Reconsideration under consideration the general question whether First Security Corporation, Salt Lake City, Utah the operation of a savings and loan association (“FSC”), has requested that the Board reconsider should be deemed to be a permissible activity for and modify its Order of July 30, 1976 (the “July a bank holding company, and that if this activity 30 Order”), denying any further extension of time were to be permitted, the Board might entertain for divestiture by FSC of its ownership of First an application from FSC to retain the shares of Security Savings and Loan Association of Poca­ FSS&L. Late in 1975, after consultations with the tello, Idaho (“FSS&L”), and ordering FSC to file Reserve Bank, FSC submitted an application to a divestiture plan and to effect a divestiture of retain the shares of FSS&L, which was transmitted FSS&L. Among the grounds advanced in support to the Board in May 1976. On July 30, 1976, of FSC’s request are its contention that FSC’s before notice of the application had been published acquisition of FSS&L in 1970, without the prior in the Federal Register, the Board considered Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

288 Federal Reserve Bulletin □ March 1977 FSC’s request for a further extension of time to Patagonia Corporation, divest FSS&L. As of that date the Board had still Tucson, Arizona not decided that the operation of a savings and loan asosciation was a permissible activity for Determination Regarding “Grandfather” bank holding companies, and it determined in the Privileges Under Bank Holding Company Act July 30 Order not to grant any further extension of time for divestiture of FSS&L by FSC. On Section 4 of the Bank Holding Company Act August 23, 1976, FSC filed its request for recon­ (12 U.S.C. 1843) provides certain privileges sideration of the July 30 Order . On September 15, (“grandfather” privileges) with respect to non­ 1976, the Board extended the time for the filing banking activities of a company that, by virtue of a divestiture plan until a date following action of the 1970 Amendments of the Bank Holding on the request for reconsideration, and on No­ Company Act, became subject to the Bank Hold­ vember 8, 1976, the Board extended the time for ing Company Act (“Act”). Pursuant to § 4(a)(2) divestiture until such date as might be fixed in an of the Act, a “company covered in 1970” may order deciding the request for reconsideration. continue to engage, either directly or through a In considering the application of D. H. Baldwin subsidiary, in those nonbanking activities that such Company, Cincinnati, Ohio, for permission to a company was lawfully engaged in on June 30, retain control of Empire Savings, Building and 1968 (or on a date subsequent to June 30, 1968, Loan Association, Denver, Colorado, the Board in the case of activities carried on as a result of has today decided, both as to the facts of that case the acquisition by such company or subsidiary, and as a general matter, that the operation of a pursuant to a binding written contract entered into savings and loan association is not a proper inci­ on or before June 30, 1968, of another company dent to banking, within the meaning of section engaged in such activities at the time of the acqui­ 4(c)(8) of the Act. In light of this decision the sition), and has been continuously engaged in Board has determined that FSC’s request for re­ since June 30, 1968 (or such subsequent date). consideration should be denied as moot. Section 4(a)(2) of the Act provides, inter alia, Accordingly, the dates fixed in the Board’s that the Board of Governors of the Federal Reserve Order of July 30, 1976, for the filing of a plan System may terminate such grandfather privileges of divestiture and for the completion of divestiture if, having due regard to the purpose of the Act, by FSC are hereby extended as follows: FSC is the Board determines that such action is necessary directed to file a plan of divestiture for approval to prevent an undue concentration of resources, no later than May 22, 1977, and to accomplish decreased or unfair competition, conflicts of inter­ divestiture no later than August 22, 1977. The est, or unsound banking practices. With respect length of these periods has been expanded beyond to a company that controls a bank with assets in those fixed in the July 30 Order principally in excess of $60 million on or after December 31, consideration of FSC’s contention that damage 1970, the Board is required to make such a deter­ caused by the collapse of the Teton Dam in 1976 mination within a two-year period. may have an impact upon the business of FSS&L By petition, dated June 28, 1972, Patagonia conducted from its Rexburg, Idaho office. Corporation (“Patagonia”), Tucson, Arizona, re­ By order of the Board of Governors, effective quested a determination by the Board, pursuant February 22, 1977. to section 2(d)(3) of the Act (12 U.S.C. § 1841(d)(3)), that on or before June 30, 1968, Patagonia had the power to exercise a controlling influence over Pima Savings and Loan Association (“Pima”), Tucson, Arizona, and, therefore, that Voting for this action: Chairman Burns and Gover­ Pima was an indefinitely grandfathered “subsidi­ nors Gardner, Wallich, Coldwell, Jackson, Partee, and ary” of Patagonia pursuant to section 4(a)(2) of Lilly. the Act (12 U.S.C. § 1843(a)(2)). By Order dated Votes against this action: None. June 29, 1973 (38 Fed. Reg. 18411), the Board determined the grandfather privileges of Pata­ gonia, finding that it was entitled to retain indefi­ (Signed) Theodore E. Allison, nitely on the basis of § 4(a)(2) of the Act only [seal] Secretary of the Board. the 20.005 per cent of the outstanding voting stock Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 289 of Pima that it acquired before June 30, 1968 and its subsidiary on June 30, 1968 by reason of that it was required to divest itself of, or obtain Patagonia’s power to exercise a controlling influ­ the Board’s approval to retain by December 31, ence over the management or policies of Pima, 1980, the almost 80 per cent interest in Pima that the Board, having considered the entire record of it acquired after June 30, 1968. By letter of July the hearing, including the transcript, exhibits, and 6, 1973, the Board informed Patagonia that its briefs filed in connection with the hearing, and request for a controlling influence determination the Recommended Decision filed by the Adminis­ had been denied on the ground that any such trative Law Judge, together with Patagonia’s ex­ determination could not grant Patagonia grandfa­ ceptions and Board counsel’s response thereto, has ther privileges. However, the Board went on to determined that the Administrative Law Judge’s state that, after examining the material Patagonia findings of fact, conclusions and recommendations had submitted with its request, it was of the are substantially correct in all respects material to opinion that Patagonia did not have the power to the Board’s decision herein, and, as modified and exercise a controlling influence over the manage­ supplemented herein, are supported by the evi­ ment or affairs of Pima on June 30, 1968. dence of record and should be, and are, adopted Upon judicial review, the United States Court as the findings and conclusions of the Board. of Appeals for the Ninth Circuit vacated those Background: portions of the Board’s Order dealing with grand­ father rights to the 80 per cent interest in Pima Pima Savings and Loan Association was organ­ acquired after June 30, 1968; and, in a decision ized in 1953 by Messrs. Irving Hall, Elmer rendered May 19, 1975, the Court remanded the Present, Frank O’Reilly, B. G. Beck, and B. G. matter to the Board with instructions to hold a Thompson, who composed its first board of direc­ formal hearing on the issue of whether Patagonia tors.2 At that time, Mr. Hall owned 50.5 per cent did, in fact, have the power to exercise a control­ of Pima’s outstanding shares.3 In 1956, at Mr. ling influence over Pima Savings and Loan Asso­ Hall’s request, Mr. John Sakrison joined Pima as ciation on or before June 30, 1968.1 The required its president, chief executive officer, and a member formal hearing was held in Tucson, Arizona, from of the board of directors.4 In November 1956, Mr. September 30, 1975 through October 3, 1975, Hall agreed to allow Mr. Sakrison to purchase up before Philip J. LaMacchia, former Administrative to 50 per cent of the shares that he held, and further Law Judge, now retired, in accordance with the agreed that Mr. Sakrison could vote all of Mr. Board’s Rules of Practice for Formal Hearings (12 Hall’s stock in Pima so long as Mr. Sakrison CFR Part 263). A substantial record on the issue remained in the employ of Pima.5 Mr. Hall and was developed through extensive testimony by Mr. Sakrison agreed in 1957 that neither could witnesses on behalf of Patagonia, through cross sell or otherwise dispose of his stock in Pima examination of witnesses by Board counsel, and without the written consent of the other. These through numerous exhibits submitted by both par­ agreements also bound Mrs. Hall in the event of ties to the proceeding. Mr. Hall’s death.6 As a result of these agreements, In a Recommended Decision dated March 31, in 1957 and 1958 Mr. Sakrison purchased slightly 1976, the Administrative Law Judge concluded on in excess of 25 per cent of Pima’s voting stock.7 the basis of the evidence of record that Patagonia In 1958 Mr. Kenneth Herman joined Pima at did not have the power directly or indirectly to Mr. Sakrison’s request as vice president and be­ exercise a controlling influence with respect to the came a member of Pima’s board of directors.8 Mr. management or policies of Pima on or before June and Mrs. Hall sold Mr. Herman some of their Pima 30, 1968, and, therefore, Pima was not a subsidi­ shares; however, Mr. Sakrison retained the right ary of Patagonia within the meaning of § 2(d)(3) to vote those shares and to veto their sale.9 Further, of the Act (12 U.S.C. § 1841(d)(3)). Therefore, in the event Mr. Hall and Mr. Sakrison sold their Patagonia was not engaged within the meaning of interests in Pima, Mr. Herman was obligated to § 4(a)(2) of the Act, in the savings and loan sell his stock to their purchaser.10 Mr. Hall died business on June 30, 1968, directly or through a in 1959 and Mrs. Hall inherited his shares.11 subsidiary. As a result of other transactions, by 1967 Mr. With respect to Patagonia’s claim that Pima was Sakrison’s control was reduced to approximately 40+ per cent of Pima’s guarantee stock.12 How­ ^ee pp. 299 and 300 for footnotes to this order. ever, Mr. Sakrison also held the voting proxies Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

290 Federal Reserve Bulletin □ March 1977 of Pima’s borrowers and depositors which, when controlling influence over its management or poli­ combined with his own guarantee stock and the cies. Patagonia raises various arguments concern­ stock he voted pursuant to the agreements, gave ing the existence of this power. Among other him control of substantially in excess of 50 per arguments, it contends that, because of its slightly cent of Pima’s voting power.13 more than 20 per cent interest, Patagonia had the In June of 1967, Mrs. Hall determined to sell potential for exercising a restraint on various types her stock directly and indirectly to Patagonia Cor­ of corporate action or a sale by stockholders and poration.14 At the time of the sale Mr. Sakrison, therefore exercised a controlling influence. Fur­ as required by the agreement, gave his consent ther, Patagonia argues it had a controlling influ­ and the agreements with Mrs. Hall and Mr. Her­ ence by virtue of the desire of Mr. Sakrison and man were terminated.15 At the same time Pata­ his associates to sell to Patagonia and by virtue gonia purchased a few additional shares from of Mr. Sakrison’s desire that his associates con­ another party, with the result that Patagonia con­ tinue in employment in the event Patagonia was trolled slightly in excess of 20 per cent of Pima’s the purchaser. Additionally, Patagonia argues that guarantee stock.16 the judgment and experience of its representatives As a result of these transactions, Mr. Sakrison on the board of directors gave them a controlling lost control of a majority of Pima’s voting stock influence in the formulation of Pima’s actions and for the first time in his association with it.17 How­ long-range policies. ever, less than two weeks after Patagonia’s pur­ Statutory Framework for the Board’s Decision: chase of Mrs. Hall’s stock, Mr. Sakrison and the other Pima directors and substantial stockholders The relevant part of § 4(a)(2) of the Bank consolidated approximately 56 per cent of Pima’s Holding Company Act provides: outstanding guarantee stock in a voting trust.18 By That a company covered in 1970 may also engage in those activities in which directly virtue of this trust, Mr. Sakrison retained control or through a subsidiary (i) it was lawfully since the voting trustees were Mr. Sakrison and engaged on June 30, 1968 (or on a date his two long-time friends and business associates subsequent to June 30, 1968 in the case of Mr. Present and Mr. O’Reilly.19 Under the terms activities carried on as a result of the acqui­ of the trust, the trustees had to unanimously agree sition by such company or subsidiary, pur­ suant to a binding written contract entered before the stock held in the voting trust could be into on or before June 30, 1968, of another sold.20 In addition, they agreed not to sell until company engaged in such activities at the a prospective purchaser guaranteed to purchase all time of the acquisition). . . . the stock in the trust at a price and terms decided Therefore, the question for the Board is whether on by the trustees.21 Patagonia can be considered to have been engaged In July 1967, Mr. Williams and Mr. Money through Pima in the savings and loan business on were elected to Pima’s board of directors as Pata­ June 30, 1968. To have been so engaged, Pima gonia’s representatives.22 Mr. Williams was the must qualify as a subsidiary as of that date. Sub­ largest shareholder and a founder of Patagonia and sidiary is defined by § 2(d)(3) of the Act as Mr. Money the third-largest shareholder and also meaning with respect to a specified bank holding a founder of Patagonia.23 In February 1968, Mr. company: Raymond Rich was elected to Pima’s board of . . . any company with respect to the man­ directors. Mr. Rich was also one of the founders agement or policies of which such bank holding company has the power, directly or of Patagonia and was a major driving force behind indirectly, to exercise a controlling influ­ it.24 As a result of these occurrences, Patagonia ence, as determined by the Board after no­ was represented by three of the 15 Pima direc­ tice and opportunity for hearing. tors.25 This situation obtained through October There are no judicial decisions interpreting the 1968, when, at a meeting between Mr. Rich and concept of controlling influence in the Bank Hold­ Mr. Sakrison, an agreement on the sale of Pima ing Company Act. However, this concept appears was reached.26 In June of 1969 Patagonia pur­ in both § 2(a)(9) of the Investment Company Act chased control of Pima. of 1940 [15 U.S.C. § 80a-2(a)(9)] and in § 2(a)(8) Patagonia claims that, notwithstanding the fact of the Public Utility Holding Company Act [15 that it did not acquire 25 per cent or more of the U.S.C. § 79b(a)(8)]. With respect to those acts voting shares of Pima until June 1969, Pima was there have been a number of judicial and adminis­ a subsidiary on June 30, 1968 by virtue of the trative interpretations defining the scope of the fact that Patagonia had the power to exercise a term.26 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 291 Among others, the following statements have been which the term appears and the context within the made about the power to exercise a controlling statute in which it appears. This point has pre­ influence: viously been recognized by both the SEC and the The existence of “controlling influence” is courts. The context and purposes of the term a factual determination to be ascertained in “power to exercise a controlling influence” are the Commission’s expert judgment by the somewhat different in the Bank Holding Company weighing of circumstantial evidence and the Act than in the Public Utility Holding Company drawing of reasonable inferences therefrom. The principal factors in determining this Act or the Investment Company Act. from the special circumstances of each case First, there are structural differences in the stat­ for the statutory exemption are the size and utes. For instance, the latter two statutes create extent of the companies involved, the extent a presumption of control by virtue of a certain of the intercompany relationships, the own­ ership and distribution of securities, and the level of stock ownership. Thus, the proceedings parent company’s part in the organization in which the above statements about controlling and development of the subsidiary company influence were made were ones in which a com­ together with the past relationships. . . . pany was attempting to establish that it did not (Footnotes omitted.) American Gas and exercise a controlling influence despite the pre­ Electric Co. v. S.E.C., 134 F.2d 633, 642, (D.C. Cir. 1943) sumption to the contrary. As the court stated in Considered in the light of the legislative Koppers United Co. v. S.E.C.: history and the over-all purposes of the stat­ The theory of the Act is that ownership of ute, it is clear that the statutory concept of more than ten per cent of a corporation’s control embraces within it those pressures stock is sufficient to show control or a con­ and influences, at times admittedly delicate, trolling influence, unless in a particular case by which an investment company can exer­ other facts rebut that inference. [138 F.2d, cise a dominating persuasiveness in the af­ 577, 580 (1943)] fairs of the portfolio company. And this Secondly, the latter two statutes have different “does not necessarily mean that those exer­ cising a controlling influence must be able purposes. As an example, the Public Utility Hold­ to carry their point. A controlling influence ing Company Act requires that the determination may be effective without accomplishing its as to whether the management or policies of a purpose fully.” Nor is it necessary that there company are subject to a controlling influence be be an actual exercise of the “controlling guided by the purpose of the inquiry. That is, is influence.” It is sufficient if the power exists in a latent form. In determining the existence a company’s influence such “as to make it neces­ of this latent power, consideration may of sary or appropriate in the public interest or for course be given to events which have not the protection of investors or consumers that the occurred but may occur and which would applicant be subject to the obligations, duties, and result in the invocation of the latent power. (Footnotes omitted.) The Chicago Corpora­ liabilities imposed in this chapter”? tion, 28 S.E.C. 463, 468 (1948) There are clearly different standards to be em­ ployed in making a judgment as to whether the An analysis of the administrative and judicial influence of a company in another company’s cases in this area convinces the Board that there operations is significant enough that investors or is, and can be, no standard definition of the term consumers should be entitled to appropriate infor­ “power to exercise a controlling influence” which mation and other protections than in determining might be applied by the Board. Rather, as the whether a company may be considered to have Securities and Exchange Commission has noted: been so involved with another company that it Control determinations involve issues of fact might be considered to have been engaged in that which cannot be resolved by the use of a mathematical formula. Each requires a care­ company’s business.28 ful appraisal of the whole effect of the The purpose of the inquiry under § 4(a) of the various relations and other circumstances Bank Holding Company Act is to determine in present in the particular case, some of which this case whether Patagonia can be considered to may point to one inference while others to an opposite one. Investors Mutual, CCH have been engaged in the savings and loan busi­ Fed. Sec. Law Rep. H 77, 348 at f 82,635 ness through Pima, a subsidiary, on the June 30, The Board believes that in determining the na­ 1968 date. The definition of subsidiary in § 2(d)(3) ture of the facts to look for in order to decide speaks in terms of the “power to exercise” a whether a controlling influence exists, great weight controlling influence. This section, however, was should be given to the purposes of the statute in added by Congress to conform to § 2(a)(2)(C) of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

292 Federal Reserve Bulletin □ March 1977 the Act,29 which provides that a company has controlling influence over the management or pol­ control over another company if it “exercises” icies of Pima. a controlling influence. The original amendment Mr. Kenneth H. Herman, formerly Executive was offered by Congressman Ashley, and from Vice President of Pima, subsequently President, statements by him and Congressman Patman it was and a member of the Board of Directors of Pima, clear that they intended to reach situations of cited two examples of Patagonia’s influence over actual control.293 This difference is of very little the management or policies of Pima through Mr. importance, however, and may be primarily se­ Raymond A. Rich, who was a member of the mantic. Congress intended to allow bank holding Board of Directors of Pima in 1968 and subse­ companies which were engaged in a particular quently the Chariman of the Board of Patagonia. business on the grandfather date to continue to Mr. Herman cited Mr. Rich’s influence in chang­ engage in that business since the primary purpose ing Pima’s longstanding policy against leveraging of the legislation was to prevent future abuses (using borrowed funds to expand Pima’s lending rather than to remedy existing ones. The Board capability).30 However, the record shows, and the believes that the test is, therefore, whether a com­ Administrative Law Judge found, that Pima’s pol­ pany may be considered to have been so influential icy on leveraging did not change until 1969, after in the affairs of a particular company as to be Mr. Sakrison had sold his shares and Patagonia considered to have been engaged in that business had acquired majority control of Pima’s voting on June 30, 1968. stock.31 The second example Mr. Herman cited Obviously, there may be no evidence which was Mr. Rich’s success in getting the Board of bears directly on happenings on that date. In the Pima to defer making a decision on whether to Board’.s view, the proper approach to the question make a loan to a certain publicly held corporation. is to examine relatively contemporaneous evidence Based on information subsequently supplied by both before and after the June 30 date to determine Mr. Rich, the loan was denied. However, the whether it is likely that a power to exercise a record supports the finding that both the deferral controlling influence existed on that date such that decision and the loan denial occurred after June a company should be considered to have been 30, 1968.32 engaged in the business of another company. In Patagonia also cited its influence through Mr. this regard, the Board, while adopting the hearing William C. Money, third largest stockholder of officer’s findings of fact and conclusions of law Patagonia, and a director of Pima. Mr. Herman to the extent not inconsistent herewith, has, among credited Mr. Money with persuading Pima to move other things, considered the following: whether back more heavily into the VA and FHA mortgage there are facts in the record which demonstrate market in 1968, aiding in the discussion of whether an actual exercise of a controlling influence; or or not Pima should make a large commitment in whether the record discloses that the structure of the mobile home industry, assisting in dissuading the situation was such that the power to exercise Pima from entering the consumer lending business a controlling influence is likely to have existed and establishing a salary committee.33 The Ad­ even though actual evidence of its exercise may ministrative Law Judge found, and Mr. Sakrison not have been obvious; or, finally, whether there testified, that the movement by Pima back into the are sufficient events in the record from which one FHA and VA market did not occur until after can infer that a controlling influence must have Patagonia purchased majority control of Pima in been exercised. The Board now turns to a discus­ 1969.34 Although the discussion of whether or not sion of whether the facts of record lead one to Pima should make a large commitment in the the conclusion that Patagonia was engaged, mobile home industry occurred during 1967-1968 through Pima, in the savings and loan business. according to Mr. Herman, the record shows and Analysis of Whether the Power to Exercise a the Administrative Law Judge noted in his Rec­ Controlling Influence Existed on June 30, 1968 ommended Decision, that both Arizona chartered 1. Are there events evidencing an actual exer­ and Federally chartered savings and loan associa­ cise of a controlling influence over the manage­ tions were not authorized to make mobile home ment or policies of Pima? loans until July 1969.35 Patagonia, through the testimony of its wit­ Mr. Herman also noted Mr. Money’s influence nesses at the hearing, cited various examples in dissuading Pima from entering the consumer which it claimed showed its actual exercise of a lending business in 1968, “when the vehicle was Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 293 provided to savings and loans, by regulations. directors other than his policy against leveraging, ”36 recorcj shows that Pima did not in fact which he refused to change until after he had sold enter into the consumer lending business in 1968. his stock to Patagonia in 1969.42 Mr. Herman described the consumer lending busi­ 2. Does an inference of either the power to ness as “making loans, like a property improve­ exercise or the exercise of a controlling influence ment loan, a trailer loan, non-first real estate arise from the structure of the situation prior to mortgage lending.”37 However, it appears that or on June 30, 1968? there was no change in the regulations prohibiting Patagonia’s basic contentions in this regard are or permitting savings and loans to make consumer that the power generated by its ownership of loans during 1967 or 1968.38 Thus, Pima’s re­ slightly more than 20 per cent of the stock as well fraining from making consumer loans of the type as its announced intention to buy a substantial Mr. Herman described appears to have been the additional block of stock in the future for cash result of its abiding by the regulations restricting gave it a controlling influence over the manage­ the types of loans savings and loans could make ment or policies of Pima. They argue that this is and not the result of Patagonia’s exercising a due in part to Mr. Sakrison’s desire to have his controlling influence through Mr. Money to re­ associates retained by Patagonia. Patagonia further strain Pima from entering the consumer lending claims that the qualitative aspects of Patagonia’s business. representative directors on the Pima board gave Finally, Mr. Herman pointed to Mr. Money’s it a controlling influence. suggestion that Pima’s Board establish a salary The Board finds that, as of June 1967, Mr. committee as an example of the controlling influ­ Sakrison held 20.7 per cent of Pima’s stock, Mrs. ence Patagonia exercised over the management Hall (the widow of Pima’s founder, Irving Hall) and policies of Pima. At Pima’s Board of Direc­ together with Dr. Elmer Yeoman (her advisor) tors’ meeting of January 9, 1968, Mr. Sakrison owned 20.6 per cent of Pima’s stock, and Elmer appointed a salary committee (Mr. Sakrison ap­ Present together with his family owned 15.3 per pointed all members of all committees) that in­ cent of Pima’s stock. Neither Mr. Sakrison nor cluded Mr. Money.39 The minutes of the Board Mrs. Hall could sell their stock without the other’s meeting do not indicate that the salary committee consent.43 On June 29, 1967, Mr. Sakrison and was formed at the suggestion of Mr. Money but, Mrs. Hall terminated the agreement which re­ in any event, the formation of the committee was stricted the sale of their Pima stock and Mrs. Hall well received and supported by the entire Board. disposed of all but 3,500 of her shares of Pima The salary committee did not have final authority to Patagonia and Mr. David R. Williams, Jr. (a over salaries; it merely made recommendations to founder of Patagonia) for a combination of Pata­ Pima’s Board, which retained ultimate authority gonia stock and cash.44 in this area.40 On July 11, 1967, Mr. Sakrison and the other The Board finds that the record simply does not directors and substantial stockholders of Pima contain direct evidence that Patagonia actually consolidated approximately 56 per cent of Pima’s exercised a controlling influence over Pima. outstanding stock in a Voting Trust controlled by Rather, the record supports a finding that, up until Messrs. Sakrison, Present and Frank C. O’Reilly Patagonia acquired a majority of the shares of (a founder of Pima and owner of 7 per cent of Pima in 1969, Mr. Sakrison controlled a majority its stock).45 The terms of the trust provided that of the voting stock of Pima either through direct the trustees had to unanimously agree to sell the ownership or indirectly through a voting trust.41 stock held in trust and, only if the purchaser agreed The record clearly indicates that Mr. Sakrison, as to buy all the stock at a price agreed to unani­ President of Pima, was in complete control of the mously by the Trustees, could the stock be sold management and policies of Pima. The few spe­ at all.46 At all times relevant to the issue of whether cific examples of influence by the three Patagonia Patagonia had the power to exercise a controlling directors on Pima’s 15-member Board that Pata­ influence over the management or policies of gonia claimed represented the exercise of a con­ Pima, the structure of the situation remained un­ trolling influence either occurred after June 30, changed with respect to the quantitative ownership 1968 or were not supported by the record. Mr. of the outstanding stock of Pima; Patagonia con­ Sakrison himself could name no incident and no trolled 20.005 per cent and Mr. Sakrison con­ policy in which he differed with Patagonia’s trolled in excess of 56 per cent. In addition, Mr. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

294 Federal Reserve Bulletin □ March 1977 Sakrison had the power of proxy over the votes from Mr. Storek to Mrs. Hall dated June 12, 1967 of the people entitled to vote at the annual meeting indicates that, at that time, Sakrison would not by reason of their deposits or outstanding loans grant a right of first refusal to Patagonia.53 In any with Pima.47 case, whether there was an informal contractual In terms of common directors, two Patagonia right of first refusal or not, Mr. Sakrison’s testi­ directors, Messrs. Williams and Money, were ap­ mony shows that he was not influenced in his pointed to the Board of Directors of Pima in July management of Pima by the prospect of a future 1967. Mr. Sakrison controlled the appointment of sale to Patagonia.54 directors to Pima’s Board and initially offered There may well be situations in which a 20 per Patagonia three seats on the 15-man Board; how­ cent shareholder may have the power to exercise ever, on the advice of counsel, Mr. Rich waited a controlling influence over a corporation because until February 1968 to be elected to the Board of his ability to veto extraordinary corporate ac­ since he was filling a vacancy caused by the death tions. These factors are relied on in some of the of a director rather than replacing a director who case law under other statutes. However, those had sold his shares, as were Messrs. Williams and cases did not involve situations where there were Money. The minutes of the relevant Board meet­ other shareholders who had absolute control.55 ings show that after joining Pima’s Board, Mr. Such a finding of influence cannot be made here Money attended 11 out of 12 of the meetings; Mr. where absolute control rested in the voting trust Williams attended 3 out of 12 of the meetings; controlled by Mr. Sakrison. In fact, Sakrison tes­ and Mr. Rich, who joined the Board in February tified, and contemporaneous evidence supports the 1968, attended 1 out of 5 of the meetings held conclusion, that the purpose of the voting trust prior to June 30, 1968.48 was to keep Patagonia from gaining control.56 The record shows that there was no historical Likewise, the argument that Patagonia’s repre­ or traditional relationship between Pima and Pat­ sentative Directors had qualitative aspects because agonia from which a power to exercise a control­ of their wide business experience that led to a ling influence could be inferred. Messrs. Williams controlling influence does not appear to have and Rich first became aware of the possibility of merit. Mr. Sakrison could not name any actions acquiring Pima in February 1967, during the pe­ that were taken by Pima at the request of Patagonia riod when they were still forming Patagonia.49 directors.57 Nor could he recall any instances, prior Through Mr. Ben Storek, a Tucson broker and to January 1969, in which he sought the counsel business advisor to Mrs. Hall, the principals of and advice of Messrs. Rich or Williams, although the still-to-be-formed Patagonia were brought into he felt he had but was not certain.58 Furthermore, contact with the principals of Pima (Mrs. Hall, the minutes of the Board meetings held by Pima Mr. Sakrison, and Mr. Present) in February during this period do not indicate any events or 1967.50 Although Mrs. Hall finally decided to actions that might give rise to an inference that exchange her shares of Pima for a combination Patagonia had the power to exercise a controlling of cash and Patagonia stock in June 1967, Messrs. influence over the management or policies of Sakrison, Present and O’Reilly were adamant in Pima.58a (See also Mr. Sakrison’s testimony on their refusal to sell their shares for anything but this matter in the next section, which is equivocal cash.51 Thus, the record shows that the relationship on the question whether Patagonia’s directors’ between Patagonia’s and Pima’s principals was not views had greater weight.) historically or traditionally close, but rather an With respect to the question whether influence arms-length relationship among businessmen from existed because of Sakrison’s desire that his asso­ the very start. Furthermore, that relationship com­ ciates be retained, the hearing officer rejected this menced in February 1967, only 16 months prior contention, stating, “There is no evidence that the to June 30, 1968. career aspirations of Pima’s management in­ The record shows that there was no formal fluenced any action which could be said to favor written contractual agreement between the prin­ Patagonia. In the absence of any evidence to the cipals of Pima and Patagonia. Messrs. Rich and contrary, the unflattering notion implicit in the Sakrison testified that there was an understanding point to be made here is rejected.”5813 The Board between them that before Sakrison sold Pima to agrees that the record is devoid of any evidence anyone else he would provide Patagonia with an indicating that the power to exercise a controlling opportunity to meet the price.52 However, a letter influence arose from these considerations. In fact, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 295 in a related aspect, Mr. Sakrison testified that the Patagonia had the power to exercise a controlling prospect of an impending sale to Patagonia did influence over the management or policies of not influence his conduct.59 Pima.68 3. Can a controlling influence be inferred from Furthermore, the events surrounding Pata­ the events? gonia’s acquisition of the shares of Pima controlled The Board believes that the record does not by the Sakrison group give rise to an inference contain any events from which one can infer that that Patagonia had no power to exercise a control­ the existence or exercise of a controlling influence ling influence over the management (Mr. Sakrison) on June 30, 1968 is more likely than not. Indeed, or policies of Pima. Mr. Sakrison, still seeking the events surrounding Patagonia’s initial invest­ to sell his shares and those of the other share­ ment in Pima and the events surrounding Pata­ holders who had joined the Voting Trust for cash, gonia’s acquisition of the majority of Pima’s stock approached a savings and loan broker in the sum­ in 1969, weigh against an inference of a control­ mer of 1968 to assist him in finding a cash pur­ ling influence over the management or policies of chaser. Mr. Sakrison did not inform Patagonia of Pima. his intentions and specifically instructed the broker The record shows that at the time Mrs. Hall not to contact Patagonia as a potential purchaser.69 sold her stock to Patagonia, Mr. Sakrison took It was not until October 1968, after Mr. Sakrison steps to assure his continued complete control over had already turned down two potential purchasers Pima by forming a voting trust with the directors and was considering a third, that Patagonia learned and large shareholders of Pima.60 By its terms, of Mr. Sakrison’s efforts to sell the stock he the Voting Trust would not have been effective controlled.70 The Administrative Law Judge sum­ unless joined in by the holders of in excess of marized the events leading to Patagonia’s purchase 50 per cent of Pima’s stock.61 Mr. Sakrison testi­ of the remaining shares of Pima as follows:71 fied that the Voting Trust served several purposes, Prior to leaving for Florida, Mr. Sakrison not the least of which was preventing Patagonia advised Mr. Rich of his scheduled meetings from gaining control of Pima.62 Other testimony with the two prospective purchasers. Within and written documentation in the record supports an hour and a half Mr. Rich arrived at Mr. this version.63 The formation of the Voting Trust Sakrison’s office to discuss a purchase of Pima. (Sakrison, Tr. 200). An Agreement was an event evidencing Patagonia’s lack of con­ of Sale was reached in less than an hour. trol of Pima. (Sakrison, Tr. 200; Rich, Tr. 54). There was The record provides no evidence of any events no negotiation with respect to the price per that occurred during 1967 or 1968 that would give share, which had been previously set by the rise to an inference that Patagonia had the power Voting Trustees at $9.50 per share, nor with respect to their demand for cash. (Sakrison, to exercise a controlling influence over the man­ Tr. 200; Rich, Tr. 54-55, 120). agement or policies of Pima. As has already been noted, no significant changes occurred in the way Pima conducted its business during this period. The $9.50 price per share was $2.00 per share Mr. Sakrison could not name any specific ex­ higher than the amount Patagonia had paid for amples of changes or actions that were taken by Mrs. Hall’s stock 16 months earlier, and $3.58 Pima at the request of the Patagonia directors.64 over the book value per share as of December 31, Nor could he recall any instance, prior to January 1968.72 Following execution of an Agreement of 1969, in which he sought the counsel and advice Sale on October 28, 1968, it became apparent that of Messrs. Rich or Williams, although he felt he the closing date of January 16, 1969 could not had but was not certain.65 Furthermore, Mr. be met because of the need for approval of the Sakrison could not recall that Messrs. Rich or Federal Home Loan Bank Board.73 On January 9, Williams set any of Pima’s policies before January 1969, a Modification Agreement was negotiated 1969.66 Finally, Mr. Sakrison testified that there between Patagonia and Mr. Sakrison postponing was no instance in which a strong conviction he the closing date and providing that if the transac­ held concerning a practice of Pima was opposed tion was not consummated by June 2, 1969, all or changed during this period.67 The minutes of parties would be released from any liability or the board meetings of Pima which were held obligation arising from the original Agreement of during this period do not indicate any events or Sale of October 28, 1968.74 Patagonia also con­ actions that might give rise to an inference that sented to the payment of a cash dividend of 9.50 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

296 Federal Reserve Bulletin □ March 1977 per share on all of the issued and outstanding stock conducted its business. The relevant minutes of of Pima, including the recently declared and paid the Board of Directors’ meetings of Pima disclose stock dividend of 20 per cent.75 This dividend was no instances, and Mr. Sakrison could recall no originally to have been paid solely to Patagonia.76 specific instances, from which a power to exercise Patagonia also agreed to pay an additional 10# per a controlling influence over the management or share for the Pima stock “to equitably compen­ policies of Pima can be inferred. Finally, the sate” the sellers “for the unforeseen delay”.77 events surrounding Patagonia’s acquisition in 1969 On January 14, 1969, the Voting Trustees (in­ of the shares of Pima controlled by Mr. Sakrison cluding Mr. Sakrison) gave Patagonia a written suggest that Patagonia had so little control over assurance that they, as Directors, and Mr. Sakri­ the situation that Mr. Sakrison was able to dictate son, as President, would continue to operate Pima not only the time of the sale, but also the premium in accordance with the policies evolved and estab­ price and the terms of sale, and it was necessary lished over the years and, secondly, that they for Patagonia to get written assurances from the would “neither initiate, recommend or vote for controlling stockholders and directors that they any action which would cause Pima to waive any would not engage in or undertake any action that rights of substantial value, nor . . . initiate, rec­ would materially affect the value of Pima’s stock. ommend or vote for any action which would cause Furthermore, the testimony of the witnesses and Pima to enter into any material transactions other the contemporaneous documents in the record do than in the ordinary course of business.”78 The not provide a basis for inferring a power to exer­ need for such written assurances contradicts any cise a controlling influence. The most important inference that Patagonia had the power to exercise testimony in the record is that of Mr. Sakrison, a controlling influence over the management or whom all agree was the management of Pima and policies of Pima. the person who established the policies of Pima Finally, in its application to the FSLIC for prior that took it from an institution with $5.3 million approval to acquire control of Pima filed on Feb­ of assets in 1956 to an institution with $83.8 ruary 5, 1969, Patagonia did not claim Pima million of assets in 1969.81 already was its subsidiary within the meaning of Mr. Sakrison stated that he did not express any 12 U.S.C. § 1730(a)(2).79 On June 11, 1969, Mr. hostility to the Patagonia people when they made Sakrison reported to the FHLBB pursuant to 12 their initial 20 per cent investment.82 Yet in a letter U.S.C. § 1730(7) (1) that a change of control of dated May 7, 1968, to Pima’s Federal Home Loan Pima had occurred. 12 U.S.C. § 1730(7) (1) Bank Board Supervisory Agent, Mr. Sakrison ex­ requires the president or chief executive of any plained the reason for the formation of the Voting insured institution to report to the FSLIC “when­ Trust: “This agreement was entered into strictly ever a change occurs in the outstanding voting to preclude a holding company from gaining con­ stock of any insured institution which will result trol of Pima Savings and Loan Association.”83 in control or a change in the control of such Mr. Sakrison also testified that the Voting Trust institution.” Control is defined as “the power to prevented Patagonia from: directly or indirectly direct or cause the direction “Gaining control by going around to indi­ vidual stockholders and getting their stock, of the management or policies of the insured buying their stock and leaving me out, could institution.” 12 U.S.C. § 1730(7) (1) was enacted have been accomplished. I would have been October 16, 1966, and was in effect during the sitting there with my stock and they would time Patagonia claims to have had the power to have had the majority of the stock.”84 exercise a controlling influence over the manage­ On the question of influence over the manage­ ment or policies of Pima.80 ment or policies of Pima, Mr. Sakrison testified The record thus shows that at the time Patagonia that the Patagonia Directors were a valuable addi­ acquired its 20+ per cent interest in Pima from tion to Pima’s board because they were business­ Mrs. Hall, Mr. Sakrison acted to ensure his con­ men who readily understood what the problems tinued absolute control of Pima by forming a were.85 However, he also testified that none of the voting trust that enabled him to control 56 per cent three Patagonia directors added to the Pima Board of the outstanding voting stock of Pima. During had any savings and loan experience and that Pima the period when Patagonia held 20+ per cent of had done quite well without them.86 Pressed to Pima’s stock, no significant events occurred that explain his statement in an earlier affidavit that represented a change in the manner in which Pima the addition of the Patagonia directors increased Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 297 the functional capability of Pima’s board, Mr. Did the prospect of sale to Patagonia, following Sakrison stated that Messrs. Rich and Williams the sale of the Hall block, per se, influence your kept abreast of the money market, but could not judgment as president of Pima? provide any other specific examples.87 Mr. Sakri­ Mr. Sakrison: son initially avoided answering the question No, I don’t believe it did. whether he gave the Patagonia directors’ views Although other witnesses, including Messrs. more weight than the views of other substantial Rich, Williams, Money, and Herman testified, stockholders of Pima.88 He could not recollect their statements are inconclusive. In any event, whether Messrs. Rich and Williams set any poli­ if Mr. Sakrison, who was the management of cies before January 1969.89 Mr. Sakrison couldn’t Pima, could not provide an example of Patagonia’s be sure whether he ever affirmatively sought the power to exercise a controlling influence over him counsel or advice of either Mr. Rich or Mr. and his policies, the statements of the other wit­ Williams.90 Mr. Sakrison testified that by June 30, nesses do not carry much weight. 1968, . .it was all fixed in my mind that no doubt Patagonia would become the purchaser.”91 Furthermore, that knowledge did influence his Summary and Conclusion: conduct toward Messrs. Rich, Williams, and Money and Patagonia in the management of the As previously noted, determining whether or not affairs of Pima Savings and Loan, . . but I the power to exercise a controlling influence ex­ had a great respect for their ability and didn’t want isted on a particular date requires a careful ap­ to just put it on that basis.” 92 praisal of the whole effect of the various relation­ At one point late in his testimony, Mr. Sakrison ships and other circumstances present in a particu­ indicated that the Patagonia directors had an ex­ lar case. The controlling influence provisions were traordinary influence beyond that of other directors added to the Bank Holding Company Act in 1970 because of their prestige and status, and that he at the Board’s request. Shortly thereafter, the had wooed them to a certain extent because he Board gave extensive consideration to the types viewed Patagonia as the likely purchaser of his of facts which could be considered to bear on the Pima stock.93 When asked how this desire to sell issue of control. affected Pima as an institution, Mr. Sakrison stated On July 9, 1971, the Board published for com­ that . . we would certainly consult with the ment a proposed regulation establishing certain directors, Mr. Rich, Mr. Williams, and Mr. presumptions of control when certain factual cir­ Money, prior to going ahead with the procedures cumstances were present (36 Fed. Reg. 12915). and policies, as to their viewpoint on it.”94 Mr. After consideration of very extensive public com­ Sakrison could not recall whether the Patagonia ment, the Board adopted a final regulation, effec­ directors had asked him to consult with them, but tive September 21, 1971, which is found in § did testify that “posibly I consulted with them 225.2 of Regulation Y (12 CFR 225.2). On Sep­ more as to policy than I did with the other direc­ tember 17, 1971 the Board instructed the Reserve tors.”95 Mr. Sakrison could not provide an ex­ Banks that: ample of a strong conviction he had about a The Board regards the circumstances de­ practice of Pima that was ever “battled” by any scribed in the rebuttable presumptions as member of Pima’s Board.96 Finally, near the end constituting sufficient legal bases (unless ev­ of his testimony, Mr. Sakrison answered the fol­ idence rebutting the presumptions is offered) upon which to make determinations of con­ lowing questions asked by the Administrative Law trol and impose the sanctions of the Act upon Judge.97 the companies involved. There are a number of other circumstances that, standing alone, Judge LaMacchia: might not support valid presumptions of control but nevertheless are indicia of con­ Did you feel at any time prior to June 30, 1968, trol and may call for further investigation subordinate to Rich and Williams in connection to uncover facts that may support a determi­ with your administration of the affairs of Pima? nation of control. Mr. Sakrison: Among the facts set forth by the Board as calling No, I wouldn’t say that I did. I did, though, for a further investigation were: value their opinion. A company owning five per cent or more Judge LaMacchia: of a bank or bank holding company has been Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

298 Federal Reserve Bulletin □ March 1977 instrumental in: hiring or firing a person or above, the evidence of record does not provide persons; establishing policies or places for substantial evidence that sale considerations pro­ branches; establishing hours of business; vided Patagonia with substantial influence over deciding on rates, terms or acceptance of loans or deposits; following uniform adver­ Pima’s affairs. tising practices or using a common telephone Throughout this proceeding, Patagonia has re­ system; or in any other respects directing peatedly argued that the Board and Board counsel the activities of management or establishing have misconstrued the definition of the power to the policies of a bank or company. exercise a controlling influence. In this regard, While these factors were aimed primarily at a Patagonia has placed great weight upon the Chi­ consideration of whether control existed over a cago Corporation case and other cases which bank, they are equally applicable to the exercise speak in terms of a latent power being sufficient of controlling influence over other organizations. to establish a controlling influence. An examination of the facts found by the hearing While there should be a difference in the defini­ officer and the Board in this case indicates that tions of the term because of the differing purposes none of the presumptions of controlling influence of the statutes and the fact that the Investment apply to the relationship between Patagonia and Company Act and the Public Utility Company Act Pima. Nor do facts similar to those cited by the start from the position of a presumption of control, Board as calling for a further investigation exist. any such difference would not affect the Board’s As previously noted, it does not appear that the determination in this case. Those cases, particu­ record establishes instances of actual control, or larly those such as the Chicago Corporation case events or structural situations from which a con­ referred to above, which speak in terms of a latent trolling influence might readily be inferred. power to exercise a controlling influence as being Patagonia places great weight in establishing a sufficient, have been carefully examined. In those controlling influence on the fact that it was viewed cases there was either no other party clearly in by Mr. Sakrison and the others as a probable control or there was evidence of an actual exercise purchaser of Pima for cash. We might note at this of control on certain occasions. This is to be point that Congress may well have considered expected, since it is difficult to determine, absent whether the prospect of a sale to a third party a presumption, that a power exists without dem­ would necessarily give that party, through the onstrating its exercise. For instance, in the Chi­ seller, a controlling influence over the company cago Corporation case, while speaking in terms sold. Congress adopted a provision allowing com­ of a latent power, the Securities and Exchange panies covered in 1970 to continue to engage in Commission pointed out that majority control in activities of a subsidiary acquired after the grand­ a third party had not been clearly established. It father date pursuant to binding written contracts went on to say, however, that even assuming a entered into before that date. It was stated: united group, “Chicago has, in actuality been able to exercise a material and dominant influence in This latter provision was adopted in order the corporation.”99 An analysis of these cases to prevent inequities from arising with re­ shows that in all of them there were facts from gard to a company which may have, in good faith, entered into a binding written contract which an inference of controlling influence could to acquire a new subsidiary . . . and which be drawn which were stronger than the facts es­ otherwise would have been required under tablished by the record in this case. the provisions of this legislation to divest The context of this case is one in which actual such subsidiary, even though it was legally committed to make the acquisition before the majority control was cemented in a voting trust “grandfather” date adopted by the commit­ for the very purpose of preventing a third party tee.98 from gaining control. Under such circumstances, the evidence of the power to exercise a controlling Here, Patagonia did not even have the influence influence must be clear to establish its existence over Pima’s affairs that would arise from a binding and overcome the contrary inference. However, written contract to purchase, yet Congress ap­ even viewing the evidence as a whole, with respect parently felt that the influence arising from a to the question whether Patagonia can be consid­ binding written contract to purchase would not be ered to have engaged in the savings and loan sufficient to provide grandfather rights without business through Pima on June 30, 1968 in a light special statutory language. Furthermore, as noted most favorable to Patagonia Corporation, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 299 Board believes that the most that can be stated By order of the Board of Governors, effective is that the record provides support for inconsistent February 24, 1977. inferences. Patagonia had the burden in this pro­ Voting for this action: Chairman Burns and Gover­ ceeding of providing substantial evidence upon nors Gardner, Wallich, Coldwell, Jackson, Partee, and which a Board finding of a controlling influence Lilly. could be based.100 Patagonia has failed to carry (Signed) G riffith L. G arw ood, that burden. As stated by the Court of Appeals: [seal] Deputy Secretary of the Board. The most that could be said in petitioner’s favor would be that two equally probable, but inconsistent inferences could be drawn from the entire evidence. In such circum­ Footnotes stances a finding against the party upon Citations are abbreviated as follows: whom rests the necessity of sustaining one A. Citations to the hearing transcript indicate of these inferences is clearly correct. Kop- the name of the witness and the appropriate tran­ pers United Co. v. S.E.C., 138 F.2d 577, script pages, e.g. Sakrison, Tr. 208. 581 1943). B. Citations to Exhibits introduced at the hear­ On the basis of the record in this matter, the ing by the Board and by Patagonia are “BX” and Board concludes that: “PX,” respectively. (1) Patagonia Corporation (“Patagonia”), Tuc­ C. Citations to the Recommended Decision son, Arizona, a registered one-bank holding com­ Findings of Fact are cited “RD, FF” and the pany and a “company covered in 1970” did not, appropriate numbered paragraph, e.g. “RD, FF directly or indirectly, exercise, or have the power 19.” to exercise, a controlling influence over Pima Citations Savings and Loan Association (“Pima”), Tucson, *The Ninth Circuit Court of Appeals in its decision remanding the case to the Board for further proceedings specifically reserved for the Arizona, on June 30, 1968; and therefore, Board’s consideration the meaning of the phrase “controlling influ­ (2) Pima was not a “subsidiary” of Patagonia ence.” on June 30, 1968, as that term is defined in the 2PX 1, p. 23; BX 2A, pp. R41, R43, R48; BX 2B, p. R252. 3BX 12. Bank Holding Company Act (12 U.S.C. § 4BX 2A, p. 41; Sakrison, Tr. 173-174, 212; Rich, Tr. 42. 1841(d)); and consequently, •’Sakrison, Tr. 212; BX 12. (3) Patagonia was not engaged, either directly 6BX 12, 13. 7BX 12, 13, 14. or through a subsidiary, in the activities of a 8BX 2A, p. R54; Herman, Tr. 371-372. savings and loan association on June 30, 1968 and 9BX 16; BX 35; Herman, Tr. 398; Sakrison, Tr. 398. 10BX 35, Sakrison, Tr. 398. is not entitled to indefinite grandfather privileges nBX 2A, p. R42. with respect to the additional shares of Pima Sav­ 12Sakrison, Tr. 213. ings and Loan Association that it acquired after 13Sakrison, Tr. 224-225. 14 RD FF 66-71. June 30, 1968. ,5RD FF 72; BX 10. Patagonia has also requested, pursuant to § 16BX 39; PX 1, p. 41; Williams, Tr. 136. 263.14 of the Board’s Rules of Practice for Formal 17Sakrison, Tr. 247. 18BX 28D; BX 53, p. 19.1a. Hearings, that it be granted an opportunity for oral ,9RD FF 80; Sakrison, Tr. 190; BX 53, p. 191; BX 28D. argument before the Board. That section provides 20BX 28D. 21 BX 28D. that at the request of any party the Board “in its 22BX 73A, pp. 1023-1024. discretion may order the matter to be set down 23RD FF 4 and 5. for oral argument before the Board or one or more 24 RD FF 3; Rich Tr. 28. 25BX 2B, p. 252. members thereof.” The matter has been exhaus­ 26RD FF 114, 140-146. tively argued and briefed before the hearing 27Investors Mutual, Inc. et al. CCH Fed. Sec. Law Rep. f 77.348 officer. Additionally, Patagonia has had an oppor­ (1966); The Chicago Corporation 28 SEC 463 (1948); M.A. Hanna Company 10 SEC 581 (1941); Bessemer Securities Company 13 SEC tunity to submit exceptions to the hearing officer’s 281 (1943); American Gas & Electric Co. v. S.E.C. 134 F.2d 633; decision and the Board has taken these exceptions Detroit Edison Co. v. S.E.C. 119 F.2d 730. into account. In view of the numerous opportu­ 28As more fully set forth in the summary and conclusion, any such difference in tests would not affect the result reached by the Board nities Patagonia has had to state and argue its in this case. position in this case, the Board believes that oral 29Senate Report 91—1084 p. 24. 29a 115 Cong. Rec. 33141, 91st Cong. (1st Sess.). argument in this matter is not necessary or appro­ 30BX 2A, p. R57; RD FF 155(a). priate. 31 Sakrison, Tr. 208, 217, 308. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

300 Federal Reserve Bulletin □ March 1977 32RD FF 155(b); BX 73B pp. 114, 1151. It appears that Mr. Rich’s 74PX 5. suggestion was accepted by Pima’s Board of Directors because of its 73PX 5. individual merit, not because of the exercise of a controlling influence 76PX 5. over the management or policies of Pima. 77BX 55 p. 7, 8. 33RD FF 157, Herman Tr. 382-384; BX 2A, pp. R57-R58. 78 BX 33. 34RD FF 158; Sakrison Tr. 219, 311. 79 BX 55. 35 RD Attachments A and B, FF 166, 167. 80BX 28P; RD FF 129. 36Herman, Tr. 383, 389. 81 Herman, Tr. 385-386, 393; Rich, Tr. 42, 66, 73, 89, 93; Sakrison, 37Herman, Tr. 383. Tr. 180, 275, 306; PX 3. 38 RD FF 169-171. 82Sakrison, Tr. 208, 209. 39BX 73 B p. 1073. 83 BX 28C. ^BX 73 B p. 1089-1091. As with Mr. Rich’s suggestions concerning 84Sakrison, Tr. 302. the deferral of action on a loan, the record supports a finding that the 85Sakrison, Tr. 193. salary committee was formed because of the merit of the suggestion, ^Sakrison, Tr. 244, 245. not because of the exercise of a controlling influence. 87Sakrison, Tr. 274. 41 Sakrison, Tr. 180-181, 223-226, 228, 275, 284, 306; Rich, Tr. 88Sakrison, Tr. 274. 42, 66, 73, 89, 93; Herman, Tr. 385-386, 393. 89Sakrison, Tr. 276. 42Sakrison, Tr. 306, 307. ^Sakrison, Tr. 277. 43Storek, Tr. 456; Sakrison, Tr. 188; BX 12, 13, 14. 91 Sakrison, Tr. 298. 44BX 36, 39; PX 1, p. Rl; Williams, Tr. 136. 92Sakrison, Tr. 298. 45Sakrison, Tr. 190; BX 53, p. 19.1; BX 28D. 93Sakrison, Tr. 299. 46BX 28D. ^Sakrison, Tr. 306. 47Sakrison, Tr. 224-225, 282. Voting power in an Arizona stock 95Sakrison, Tr. 306. S&L is shared by all members of the association—consisting of (a) ^Sakrison, Tr. 307. each person with a savings account having one vote for each $100 97Sakrison, Tr. 309. in the account, (b) each person with an outstanding loan having one 98Senate Report 91-1084 p. 4. vote, and (c) each stockholder having one vote for each share owned. "The Chicago Corporation, 28 S.E.C. 463, 468. 48BX 73A, 73B, 73C. 100This is in accord with section 556(d) of the Administrative Proce­ 49Storek, Tr. 443-444; Williams, Tr. 152. dure Act, which provides that in formal hearings the proponent of an 50BX 2A pp. R44, R69. order has the burden of proof. 51 RD FF 59. 32Sakrison, Tr. 198, 256-257; Rich, Tr. 47, 62-63. 53 BX 41. 54Judge La Macchia: Did the prospect of sale to Patagonia Order Under Section 2 of following the sale of the Hall block, per Bank Holding Company Act se, influence your judgment as president of Pima? Equimark Corporation, Sakrison: No, I don’t believe it did. (Sakrison, Tr. 309.) Pittsburgh, Pennsylvania 55 The Chicago Corporation; M. A. Hanna; American Gas & Elec­ tric; Detroit Edison Co. (fn. 27 supra). Order Granting Determination under the 56 “Gaining control by going around to individual stockholders and Bank Holding Company Act getting their stock, buying their stock and leaving me out, could have been accomplished. I would have been sitting with my stock and they Equimark Corporation, Pittsburgh, Pennsyl­ would have had the majority of the stock.” (Sakrison, Tr. 302.) 57Sakrison, Tr. 276. vania (“Equimark”), which has transferred all of 58Sakrison, Tr. 227. its stock holdings, in Lombard-Wall Incorporated 58aThe Board rejects Patagonia’s qualitative argument. A director’s (“Lombard”), dealer in short-term instruments duty is, after all, to make meritorious suggestions. To establish a controlling influence, something more must be shown than the limited and Federal Government securities, to H-K Enter­ number of instances in this record in which suggestions with merit were prises, Inc., New York, New York (“H-K”), has accepted. As the Recommended Decision finds at page 79, the record supports the conclusion that the information and advice given depended requested a determination, pursuant to the provi­ on merit to persuade. If accepted by Pima’s Board they were accepted sions of section 2(g)(3) of the Bank Holding because they were good ideas, not because of the source of the Company Act of 1956 (12 U.S.C. § 1841(g)(3)) suggestion. 58bRD, Discussion p. 79. (“the Act”), that Equimark is not in fact capable 59Sakrison, Tr. 309. of controlling H-K, notwithstanding the fact that 60BX 28C, BX 28D. a portion of the purchase price was paid by H-K 61 BX 28D. 62Sakrison, Tr. 302. in the form of a note, said note being secured by 63BX 28C, BX 28D. a pledge of 19.9 per cent of the shares sold. 64Sakrison, Tr. 276, 306, 307. Under the provisions of § 2(g)(3) of the Act, 63Sakrison, Tr. 276, 277. ^Sakrison, Tr. 276, 277. shares transferred after January 1, 1966, by any 67Sakrison, Tr. 307, 308. bank holding company to a transferee that is in­ 68BX 73A, 73B, 73C. 69Sakrison, Tr. 196, 292. debted to the transferor or has one or more officers, 70Rich, Tr. 125; Sakrison, Tr. 196-197. directors, trustees, or beneficiaries in common 71 RD FF 108. with or subject to control by the transferor, are 72 BX 70. 73BX 8, p. 3; Rich, Tr. 56. deemed to be indirectly owned or controlled by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 301 the transferor unless the Board, after opportunity tors adopted a resolution to the effect that Equi­ for hearing, determines that the transferor is not mark does not, and will not attempt to, exercise in fact capable of controlling the transferee. a controlling influence over H-K and that Equi­ Notice of an opportunity for hearing with re­ mark will immediately notify the Board should it spect to Equimark’s request for a determination exercise its right to vote, transfer or sell the shares under § 2(g)(3) was published in the Federal of Lombard in the event of a default. The boards Register on July 29, 1976 (41 Federal Register of directors of H-K and Lombard have adopted 31618). The time provided for requesting a hearing resolutions to the effect that they are not and will expired on August 23, 1976. No such request has not be controlled by Equimark. H-K’s principal been received by the Board, nor has any evidence shareholder has made an affidavit that he is not been received to show that Equimark is in fact subject to Equimark’s control. capable of controlling H-K. Based on these and other facts of record, it is The aggregate amount of debt owed by H-K hereby determined that Equimark is not in fact to Equimark does not constitute a significant por­ capable of controlling H-K. tion of the debt or assets of H-K or Lombard, Accordingly it is ordered, that the request of and the number of shares pledged is less than 20 Equimark for a determination pursuant to § 2(g)(3) per cent. H-K is a closely-held corporation which be and hereby is granted. Any material change was formed for the purpose of purchasing Lom­ in the facts or circumstances relied upon in making bard, and none of its shareholders is related to this determination or any material breach of any Equimark. There are no common directors or of the commitments upon which the decision is officers between Equimark and H-K, and there are based could result in reconsideration of the deter­ only minimal transactions between Equimark and mination made herein. Lombard, conducted in the ordinary course of By order of the Board of Governors, acting business. It appears that the sale of Lombard was through its General Counsel, pursuant to delegated negotiated at arm’s length. The terms of the Pledge authority (12 CFR § 265.2 (b)(1)), effective Feb­ Agreement give Equimark no right to vote, ruary 4, 1977. transfer or sell the shares of Lombard during the term of the indebtedness unless H-K should default (Signed) Griffith L. Garwood, on the indebtedness. Equimark’s Board of Direc­ [seal] Deputy Secretary of the Board. ORDERS APPROVED UNDER BANK HOLDING COMPANY ACT By the Board of Governors During February 1977, the Board of Governors approved the applications listed below. The orders have been published in the Federal Register, and copies are available upon request to Publications Services, Division of Administration Services, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Section 3 Board action Federal (effective Register Applicant Bank(s) date) citation First Bancshares, Inc., First State Bank 2/18/77 42 F.R. 11280 Kansas City, Missouri of Kansas City, 2/28/77 Kansas, Kansas City, Kansas First International Beaumont State 2/28/77 42 F.R. 12923 Bancshares, Inc., Bank, Beaumont, 3/7/77 Dallas, Texas Texas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

302 Federal Reserve Bulletin □ March 1977 Section 3—Continued Board action Federal (effective Register Applicant Bank(s) date) citation Peoples Bancshares of Bank of Lancaster, 2/11/77 42 F.R. 10045 Schuyler County, Lancaster, 2/18/77 Lancaster, Missouri Missouri Quivira Banc Shares, The First State 2/9/77 42 F.R. 9435 Inc., Hutchinson, Bank of Sterling, 2/16/77 Kansas Sterling, Kansas Ramapo Financial The Ramapo Bank, 2/28/77 42 F.R. 12924 Corporation, Wayne Wayne Township, 3/1/11 Township, New Jersey New Jersey TIC Inc., Kansas City, Tower State Bank, 2/18/77 42 F.R. 11281 Kansas Kansas City, Kansas 2/28/77 Westland Banks, Inc., Westland Bank of 21 n m 42 F.R. 10045 Lakewood, Colorado Lakewood, Lakewood, 2/18/77 Colorado; and Westland National 2/ M ill 42 F.R. 10046 Bank, South, 2/18/77 Longmont, Colorado Section 4 Board action Federal Nonbanking company (effective Register Applicant (or activity) date) citation Citizens and Southern Ison Finance Cor­ 2/24/77 42 F.R. 12235 National Bank and poration, Atlanta, 3/3/77 Citizens and Georgia Southern Holding Company, Atlanta, Georgia Security Bancorp, Inc., United Bankers Life 2/2/77 42 F.R. 8214 Southgate, Michigan Insurance Company, 2/9/77 Phoenix, Arizona By Federal Reserve Banks During February 1977, applications were approved by the Federal Reserve Banks as listed below. The orders have been published in the Federal Register, and copies are available upon request to the Reserve Banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Law Department 303 Section 3 Federal Reserve Effective Register Applicant Bank(s) Bank date citation T.N.B. Financial Cor­ The First National Boston 2/2/77 42 F.R. 8708 poration, Springfield, Bank of Athol, 2/11/77 Massachusetts Athol, Massachusetts Fort Sam Houston Northern Hills Dallas 2/2/77 42 F.R. 8708 Bankshares, Inc., Bank of San 2/11/77 San Antonio, Texas Antonio, Texas PENDING CASES INVOLVING THE BOARD OF GOVERNORS* Farmers State Bank of Crosby v. Board of Grandview Bank & Trust Company v. Board Governors, filed January 1977, U.S.C.A. for of Governors, filed March 1976, U.S.C.A. the Eighth Circuit. for the Eighth Circuit. National Automobile Dealers Association, Inc. Association of Bank Travel Bureaus, Inc. v. v. Board of Governors, filed November 1976, Board of Governors, filed February 1976, U.S.C.A. for the District of Columbia. U.S.C.A. for the Seventh Circuit. Michigan National Corporation v. Board of Memphis Trust Company v. Board of Gover­ Governors, filed September 1976, U.S.C.A. nors, filed February 1976, U.S.D.C. for the for the Sixth Circuit. Western District of Tennessee. First Security Corporation v. Board of Gover­ First Lincolnwood Corporation v. Board of nors, filed August 1976, U.S.C.A. for the Governors, filed February 1976, U.S.C.A. Tenth Circuit. for the Seventh Circuit. First State Bank of Clute, Texas, etal. v. Board Roberts Farms, Inc. v. Comptroller of the Cur­ of Governors, filed July 1976, U.S.C.A. for rency, et al., filed November 1975, U.S.D.C. the Fifth Circuit. for the Southern District of California. North Lawndale Economic Development Cor­ National Computer Analysts, Inc. v. Decimus poration v. Board of Governors, filed June Corporation, et al., filed November 1975, 1976, U.S.C.A. for the Seventh Circuit. U.S.D.C. for the District of New Jersey. Central Wisconsin Bankshares, Inc. v. Board Florida Association of Insurance Agents, Inc. of Governors, filed June 1976, U.S.C. A. for v. Board of Governors, and National Asso­ the Seventh Circuit. ciation of Insurance Agents, Inc. v. Board National Urban League, et al. v. Office of the of Governors, filed August 1975, actions Comptroller of the Currency, et al., filed consolidated in U.S.C.A. for the Fifth Cir­ April 1976, U.S.D.C. for the District of cuit. Columbia Circuit. tt David R. Merrill, et al. v. Federal Open Mar­ Farmers & Merchants Bank of Las Cruces, ket Committee of the Federal Reserve System, New Mexico v. Board of Governors, filed filed May 1975, U.S.D.C. for the District of April 1976, U.S.C.A. for the District of Columbia, appeal pending, U.S.D.A. for the Columbia Circuit. District of Columbia. tDecisions have been handed down in these cases, subject *This list of pending cases does not include suits against to appeals noted. the Federal Reserve Banks in which the Board of Governors $The Board of Governors is not named as a party in this is not named a party. action. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

304 Federal Reserve Bulletin □ March 1977 Louis J. Roussel v. Board of Governors, filed f Consumers Union of the United States, Inc., April 1975, U.S.D.C. for the Eastern District et al. v. Board of Governors, filed September of Louisiana. 1973, U.S.D.C. for the District of Columbia. Georgia Association of Insurance Agents, et al. Bankers Trust New York Corporation v. Board v. Board of Governors, filed October 1974, of Governors, filed May 1973, U.S.C. A. for U.S.C.A. for the Fifth Circuit. the Second Circuit. Alabama Association of Insurance Agents, et al. v. Board of Governors, filed July 1974, t Decision has been handed down in this case, subject to appeals U.S.C.A. for the Fifth Circuit. noted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

305 Announcements FEDERAL AGENCY SECURITIES: 1. Old and revised money stock growth rates Change in rules for purchase Annual rates, per cent The Federal Open Market Committee has an­ M-l M-2 M-3 nounced a change in its rules for purchase of Period Old Revised Old Revised Old Revised Federal agency securities to take account of the operations of the Federal Financing Bank. Annual Under the rule change, effective February 22, 1975 .................... 4.4 4.4 8.3 8.3 11.1 11.1 1976 .................... 5.4 5.5 10.9 10.9 12.8 12.8 1977, the Federal Reserve will limit its purchases Half-year of Federal agency securities to issues of those 1976—HI .......... 5.6 5.6 10.4 10.3 11.8 11.8 H2 .......... 5.1 5.3 10.8 10.9 13.0 13.1 agencies that are not eligible to borrow funds from Quarterly the Federal Financing Bank, which began opera­ 1976—QI .......... 2.7 2.9 9.7 9.9 11.2 11.5 tions in mid-1974. Securities of the Bank itself— Q2 .......... 8.4 8.2 10.8 10.5 12.0 11.8 Q3 .......... 4.1 4.2 9.2 9.2 11.6 11.4 none is outstanding at present—may be purchased Q4 .......... 6.0 6.3 12.2 12.3 14.0 14.3 by the System. Note.— Based on quarterly-average data. The Federal Financing Bank is authorized to handle financing operations for such agencies as June 1976 call report data for domestic nonthe General Services Administration, U.S. Postal member banks. Nonmember bank demand depos­ Service, Washington Metropolitan Area Transit its were increased $100 million in June and Authority, Export-Import Bank, Farmers Home time deposits were reduced $200 million. Seasonal Administration, and the Government National factor revisions were also quite small and the Mortgage Association. The Federal Reserve will changes in rates of growth by quarters and halfno longer purchase securities of such agencies. years were minor. Securities of the Government-sponsored agen­ The current revision also incorporates new sea­ cies—such as the Federal home loan banks, Fed­ sonal factors for M-3. Revised factors for M-3 go eral National Mortage Association, Federal land back to 1959, but the changes had little impact banks, Federal intermediate credit banks, and the on M-3 growth rates. banks for cooperatives—will continue to be eligi­ Monthly and weekly data from 1959 to date are ble for System purchase under the new rules. available on request from the Banking Section of the Board’s Division of Research and Statistics. MONEY STOCK MEASURES: Revision STATEMENT ON DIVESTITURE The money stock and related measures have been revised to incorporate the latest benchmark adjust­ The Board of Governors on February 15, 1977, ments for nonmember banks and revised seasonal issued a policy statement on divestitures required factors. of bank holding companies. Rates of change for recent annual, half-year, On a number of recent occasions, the Board has and quarterly periods for M-l, M-2, and M-3 been presented with difficult issues concerning the derived from quarterly averages are shown in timing of divestitures required by either law or Table 1. Monthly and weekly M-l and M-2 sea­ Board order. As the 1980 deadline for divestiture sonal factors for 1977 are shown in Table 2, which approaches, the Board expects that the frequency appears on page 306. of such problems will increase. Only very small adjustments were required to Companies covered by the 1970 amendments benchmark the money stock (M-1 and M-2) to the to the Bank Holding Company Act have until Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

306 Federal Reserve Bulletin □ March 1977 2. Money stock seasonal factors—1977 December 31, 1980, to divest holdings that are not closely related to banking as defined by the Time deposits Board, or to divest their banking interests. The Board has no authority to extend this deadline. Month, Currency Demand Member banks or week deposits Nonmember This provision does not apply to holdings that are banks grandfathered under the act. In its statement the Board urged bank holding MONTHLY companies to take early steps to carry out divesti­ 1.0010 ture orders. It also suggested early submission of Jan. .9930 1.0280 .9990 .9950 Feb. .9870 .9870 .9690 1.0010 1.0020 a divestiture plan and periodic progress reports. Mar. .9920 .9900 .9780 1.0060 1.0090 Apr. .9960 1.0090 .9750 1.0080 1.0080 The text of the Board’s statement, which was May .9975 .9790 .9820 1.0090 1.0070 June 1.0030 .9965 .9850 1.0060 1.0030 sent to all bank holding companies, is as follows: July 1.0075 .9990 .9990 1.0010 .9990 Aug. 1.0035 .9855 1.0200 .9990 1.0010 From time to time the Board of Governors Sept. .9975 .9920 1.0350 .9950 .9980 receives requests from companies subject to the Oct. .9975 .9960 1.0300 .9950 .9970 Nov. 1.0070 1.0060 1.0100 .9890 .9920 Bank Holding Company Act, or other laws ad­ Dec. 1.0185 1.0320 1.0160 .9920 .9890 ministered by the Board, to extend time periods specified either by statute or by Board order for the divestiture of assets held or activities engaged in by such companies. Such divestiture require­ Jan. 5 . 1.0090 1.0656 1.0090 .9973 .9908 ments may arise in a number of ways. For ex­ 12 . 1.0050 1.0484 1.0070 .9980 .9934 19 . .9937 1.0331 1.0040 .9985 .9948 ample, divestiture may be ordered by the Board 26 .9799 .9986 .9970 .9995 .9962 in connection with an acquisition found to have Feb. 2 . .9783 .9978 .9870 1.0000 .9973 been made in violation of law. In other cases the 9 . .9961 .9930 .9760 .9995 .9998 divestiture may be pursuant to a statutory require­ 16 . .9900 .9900 .9690 1.0005 1.0016 23 . .9832 .9761 .9630 1.0020 1.0035 ment imposed at the time an amendment to the Act was adopted, or it may be required as a result Mar. 2 . .9868 .9620 1.0030 1.0054 9 . 1.0000 .9905 .9700 1.0045 1.0072 of a foreclosure upon collateral held by the com­ 16 . .9960 .9965 .9770 1.0060 1.0088 pany or a bank subsidiary in connection with a 23 . .9902 .9861 .9830 1.0060 1.0088 30 . .9814 .9847 .9850 1.0085 1.0098 debt previously contracted in good faith. Certain Apr. 6 . 1.0019 1.0108 .9830 1.0080 1.0106 divestiture periods may be extended in the discre­ 13 . 1.0087 1.0186 .9800 1.0080 1.0090 tion of the Board, but in other cases the Board 20 . .9949 1.0206 .9730 1.0080 1.0070 may be without statutory authority, or may have 27 . .9822 .9932 .9690 1.0080 1.0062 only limited authority, to extend a specified dives­ May 11 4 . . 1 . .0 9 0 9 5 2 7 6 . . 9 99 8 1 2 3 0 . . 9 9 7 7 0 3 0 0 1 1 . . 0 0 0 0 8 9 0 0 1 1. . 0 0 0 05 6 4 0 titure period. 18 . .9989 .9815 .9820 1.0085 1.0068 25 . .9921 .9662 .9880 1.0095 1.0074 In the past, divestitures have taken many dif­ ferent forms, and the Board has followed a variety June 1 . .9949 .9806 .9910 1.0085 1.0062 8 . 1.0102 .9933 .9900 1.0070 1.0058 of procedures in enforcing divestiture require­ 2 1 2 5 . . 1 1 . . 0 0 0 0 7 0 7 9 1. . 0 9 0 97 6 6 0 . . 9 9 8 8 5 3 0 0 1 1 . . 0 0 0 0 7 4 5 0 1 1 . . 0 0 0 0 4 1 8 0 ments. Because divestitures may occur under 29 . .9906 .9882 .9830 1.0035 .9998 widely disparate factual circumstances, and be­ cause such forced dispositions may have the po­ July 6 . 1.0169 1.0078 .9860 1.0025 .9998 13 . 1.0143 1.0115 .9930 1.0010 .9986 tential for causing a serious adverse economic 2 27 0 . . 1. . 0 9 0 9 6 6 9 6 . . 9 9 8 9 2 9 2 6 1 1 . . 0 0 0 0 6 00 0 1 1 . . 0 0 0 0 0 0 5 0 . . 9 99 98 89 4 impact upon the divesting company, the Board believes it is important to maintain a large measure Aug. 1 3 0 . . 1 1 . . 0 0 0 1 0 6 7 5 . . 9 9 9 9 3 0 1 8 1 1 . . 0 0 1 1 0 3 0 0 . . 9 9 9 9 9 9 5 5 1 . . 9 0 9 0 9 1 9 8 of flexibility in dealing with divestitures. For these 17 . 1.0092 .9915 1.0170 .9990 1.0012 reasons, there can be no fixed rule as to the type 2 31 4 . . . .9 9 8 99 9 9 6 . .9 9 7 7 8 6 3 6 1 1 . . 0 0 2 3 5 0 0 0 . . 9 99 9 7 8 5 0 1 1. . 0 0 0 0 0 1 4 0 of divestiture that will be appropriate in all situa­ tions. For example, when divestiture has been Sept. 7 . 1.0108 .9931 1.0320 .9970 .9993 14 . 1.0030 1.0028 1.0330 .9955 .9984 ordered to terminate a control relationship created 21 . .9947 .9951 1.0350 .9930 .9968 or maintained in violation of the Act, it may be 28 . .9829 .9767 1.0390 .9945 .9968 necessary to impose conditions that will assure that Oct. 5 . .9975 .9956 1.0390 .9945 .9976 the unlawful relationship has been fully terminated 1 1 2 9 . 1. . 0 9 0 9 9 9 5 2 1. .9 00 9 1 6 1 3 1 1 . . 0 0 3 3 5 1 0 0 . . 9 9 9 9 6 5 5 5 . . 9 9 9 9 7 7 9 4 and that it will not arise in the future. In other 26 .9904 .9847 1.0270 .9955 .9958 circumstances, however, less stringent conditions Nov. 2 . .9893 1.0068 1.0190 .9930 .9934 may be appropriate. 9 1.0131 1.0045 1.0100 .9915 .9926 16 1.0100 1.0125 1.0080 .9895 .9920 1. Avoidance of Delays in Divestitures. When 2 3 3 0 , 1 1. .0 0 0 01 92 4 1 1 . . 0 0 0 0 1 4 1 7 1 1 . . 0 0 0 1 9 10 0 . . 9 9 8 8 8 7 5 5 . . 9 99 9 0 1 3 4 a specific time period has been fixed for accom­ plishing divestiture, the affected company should Dec. 1 7 4 . . 1 1 . . 0 01 19 83 5 1 1. . 0 02 3 0 0 1 8 1 1 . . 0 0 1 1 5 7 0 0 . . 9 9 8 9 8 0 5 0 . .9 9 8 89 9 6 4 endeavor and should be encouraged to complete 21 . 1.0197 1.0331 1.0170 .9920 .9878 the divestiture as early as possible during the 28 . 1.0228 1.0305 1.0180 .9940 .9876 specific period. There will generally be substantial Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Announcements 307 advantages to divesting companies in taking steps reasons for rejecting any offers. In addition, the to plan for and accomplish divestitures well before reports should indicate whether the company has the end of the divestiture period. For example, employed brokers, investment bankers, or others delays may impair the ability of the company to to assist in the divestiture, or its reasons for not realize full value for the divested assets, for as doing so, and should describe other efforts by the the end of the divestiture period approaches the company to seek out possible purchasers. The “forced sale” aspect of the divestiture may lead purpose of requiring such reports is to insure that potential buyers to withhold firm offers and to substantial and good faith efforts are being made bargain for lower prices. In addition, because by the company to satisfy its divestiture obliga­ some prospective purchasers may themselves re­ tions. The frequency of such reports may vary quire regulatory approval to acquire the divested depending upon the nature of the divestiture and property, delay by the divesting company may— the period specified for divestiture. However, such by leaving insufficient time to obtain such approv­ reports should generally not be required less fre­ als—have the effect of narrowing the range of quently than every 3 months, and may in appro­ prospective purchasers. Thus, delay in planning priate cases be required on a monthly or even more for divestiture may increase the likelihood that the frequent basis. Progress reports as well as divesti­ company will seek an extension of the time for ture plans should be afforded confidential treat­ divestiture if difficulty is encountered in securing ment. a purchaser, and in certain situations, of course, the Board may be without statutory authority to 4. Extensions of Divestiture Periods. Certain grant extensions. divestiture periods—such as the December 31, 1980, deadline for divestitures required by the 2. Submission and Approval of Divestiture 1970 amendments to the Bank Holding Company Plans. When a divestiture requirement is imposed, Act—are not extendable. In such cases, it is im­ the company affected should generally be asked perative that divestiture be accomplished in a to submit a divestiture plan promptly for review timely manner. In certain other cases, the Board and approval by the Reserve Bank or the Board. may have discretion to extend a statutorily pre­ Such a requirement may be imposed pursuant to scribed divestiture period within specified limits. the Board’s authority under section 5(b) of the For example, under section 4(c)(2) of the Act the Bank Holding Company Act to issue such orders Board may extend for three 1-year periods the as may be necessary to enable the Board to ad­ 2-year period in which a bank subsidiary of a minister and carry out the purposes of the Act and holding company is otherwise required to divest prevent evasions thereof. A divestiture plan should shares acquired in satisfaction of a debt previously be as specific as possible, and should indicate the contracted in good faith. In such cases, however, manner in which divestiture will be accom­ when the permissible extensions expire the Board plished—for example, by a bulk sale of the assets no longer has discretion to grant further exten­ to a third party, by “spin-off” or distribution of sions. In still other cases, when a divestiture period shares to the shareholders of the divesting com­ is prescribed by the Board, in the exercise of its pany, or by termination of prohibited activities. regulatory judgment, the Board may have broader In addition, the plan should specify the steps the discretion to grant extensions. company expects to take in effecting the divestiture and assuring its completeness, and should indicate When extensions of specified divestiture periods the time schedule for taking such steps. In appro­ are permitted by law, extensions should- not be priate circumstances, the divestiture plan should granted except under compelling circumstances. make provision for assuring that “controlling in­ Neither unfavorable market conditions nor the fluence” relationships, such as management or possibility that the company may incur some loss financial interlocks, will not continue to exist. should alone be viewed as constituting such cir­ cumstances—particularly if the company has 3. Periodic Progress Reports. A company sub­ failed to take earlier steps to accomplish a divesti­ ject to a divestiture requirement should generally ture under more favorable circumstances. Nor­ be required to submit regular periodic reports mally, a request for an extension will not be detailing the steps it has taken to effect divestiture. considered unless the company has established that Such a requirement may be imposed pursuant to it has made substantial and continued good faith the Board’s authority under section 5(b) of the efforts to accomplish the divestiture within the Bank Holding Company Act, referred to above, prescribed period. Furthermore, requests for ex­ as well as its authority under section 5(c) of the tensions of divestiture periods must be made suf­ Act to require reports for the purpose of keeping ficiently in advance of the expiration of the pre­ the Board informed as to whether the Act and scribed period both to enable the Board to consider Board regulations and orders thereunder are being the request in an orderly manner and to enable complied with. Reports should set forth in detail the company to effect a timely divestiture in the such matters as the identities of potential buyers event the request for extension is denied. Compa­ who have been approached by the company, the nies subject to divestiture requirements should be dates of discussions with potential buyers and the aware that a failure to accomplish a divestiture identities of the individuals involved in such dis­ within the prescribed period may in and of itself cussions, the terms of any offers received, and the be viewed as a separate violation of the Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

308 Federal Reserve Bulletin □ March 1977 5. Use of Trustees. In appropriate cases a com­ 7. Role of the Reserve Banks. The Reserve pany subject to a divestiture requirement may be Banks have a responsibility for supervising and required to place the assets subject to divestiture enforcing divestitures. Specifically, in coordina­ with an independent trustee under instructions to tion with Board staff they should review divestiture accomplish a sale by a specified date, by public plans to assure that proposed divestitures will auction if necessary. Such a trustee may be given result in the termination of control relationships the responsibility for exercising the voting rights and will not create unsafe or unsound conditions with respect to shares being divested. The use of in any bank or bank holding company ; they should such a trustee may be particularly appropriate monitor periodic progress reports to assure that when the divestiture is intended to terminate a timely steps are being taken to effect divestitures; control relationship established or maintained in and they should prompt companies to take such violation of law, or when the divesting company steps when it appears that progress is not being has demonstrated an inability or unwillingness to made. When Reserve Banks have delegated au­ take timely steps to effect a divestiture. thority to extend divestiture periods, that authority should be exercised consistently with this policy 6. Presumptions of Control. Bank holding com­ statement. panies contemplating a divestiture should be mindful of section 2(g)(3) of the Bank Holding Company Act, which creates a presumption of continued control over the transferred assets when SYSTEM MEMBERSHIP: the transferee is indebted to the transferor, or when Admission of State Banks certain interlocks exist, as well as section 225.2 of Regulation Y, which sets forth certain addi­ tional control presumptions. When one of these The following State banks were admitted to mem­ presumptions has arisen with respect to divested bership in the Federal Reserve System during the assets, the divestiture will not be considered as period between February 16, and March 15, 1977: complete until the presumption has been over­ come. It should be understood that the inquiry into New Hampshire the termination of control relationships is not lim­ Bristol .........................................The Bristol Bank ited by the statutory and regulatory presumptions Virginia of control, and that the Board may conclude that a control relationship still exists even though the Danville ....................Peoples Bank of Danville presumptions do not apply. Norfolk ........................Heritage Bank and Trust Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

309 Industrial Production Released for publication March 15 cent to a level 8.0 per cent above a year earlier and almost 14 per cent above the March 1975 low. Industrial production rebounded in February from Output of materials, for both durable goods and the weather-related decline in January. At an esti­ nondurable goods, rose 1.2 per cent in February, mated 133.2 per cent of the 1967 average, the but on balance the increases were not so large as February index was up 1.0 per cent from a month the declines in January. earlier. Further weather-related production losses early in the month were more than offset later by Seasonally adjusted, ratio scale, 1967=100 sizable gains in output in many industries. The factory workweek in February lengthened consid­ erably from the average in January, and the warmer weather put less pressure on fuel supplies available to industry. Newly available data have resulted in an upward revision in earlier estimates of January industrial production, and a decline of 0.8 per cent from December is now indicated rather than the 1.0 per cent decline estimated earlier. Small upward revi­ sions were made in the index for December and November as well, and output is estimated to have increased 0.9 per cent and 1.1 per cent, respec­ tively. Over-all output of consumer goods increased moderately in February, as a 3.5 per cent drop in auto assemblies to an annual rate of 8.2 million units resulted in a small decline in the output of consumer durable goods. Output of other con­ sumer goods rose sharply. The production of F.R. indexes, seasonally adjusted. Latest figures: February. business equipment advanced an estimated 1.0 per *Auto sales and stocks include imports. Seasonally adjusted, 1967 = 100 Per cent changes from— Industrial production 1976 1977 Nov. Dec. Jan.p Feb.p Month ago Year ago Q3 to Q4 Total ......................................... 131.8 133.0 131.9 133.2 1.0 4.6 .6 Products, total ................................. 131.7 133.8 133.0 134.1 .8 5.3 1.4 Final products ............................. 129.8 132.3 130.9 131.9 .8 5.3 1.6 Consumer goods ................... 139.1 142.1 140.2 140.9 .5 4.4 1.9 Durable goods ................. 143.8 151.4 146.0 145.4 -.4 5.4 2.5 Nondurable goods .......... 137.1 138.4 137.8 139.0 .9 3.8 1.6 Business equipment ............ 140.2 143.4 141.8 143.2 1.0 8.0 1.7 Intermediate products .............. 138.8 139.7 140.6 142.0 1.0 5.0 .7 Construction supplies .......... 135.7 135.6 135.0 136.4 1.0 5.2 1.0 Materials ............................................. 131.9 132.1 130.2 131.7 1.2 3.5 -.5 ^Preliminary. ^Estimated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A 1 Financial and Business Statistics CONTENTS DOMESTIC FINANCIAL STATISTICS Weekly Reporting Commercial Banks A3 Monetary aggregates and interest rates Assets and Liabilities of A4 Factors affecting member bank reserves A20 All reporting banks A5 Reserves and borrowings of member A21 Banks in New York City banks A22 Banks outside New York City A6 Federal funds transactions of money A23 Balance sheet memoranda market banks A24 Commercial and industrial loans A25 Gross demand deposits of individuals, Policy Instruments partnerships, and corporations A8 Federal Reserve Bank interest rates A9 Member bank reserve requirements A10 Maximum interest rates payable on Financial Markets time and savings deposits at Federally insured institutions A25 Commercial paper and bankers All Federal Reserve open market acceptances outstanding transactions A26 Prime rate charged by banks on short-term business loans A26 Interest rates charged by banks on business loans Federal Reserve Banks A27 Interest rates in money and capital A12 Condition and F.R. note statements markets A13 Maturity distribution of loan and A28 Stock market—Selected statistics security holdings A29 Savings institutions—Selected assets and liabilities Monetary and Credit Aggregates A13 Demand deposit accounts—Debits and Federal Finance rate of turnover A14 Money stock measures and components A30 Federal fiscal and financing operations A15 Aggregate reserves and deposits of A31 U.S. Budget receipts and outlays member banks A3 2 Federal debt subject to statutory A15 Loans and investments of all commercial limitation banks A32 Gross public debt of U.S. Treasury— Types and ownership A33 U.S. Government marketable securities—Ownership, by maturity Commercial Bank Assets and Liabilities A34 U.S. Government securities dealers— A16 Last-Wednesday-of-month series Transactions, positions, and financing A17 Call-date series A3 5 Federal and Federally sponsored credit A18 Detailed balance sheet, June 30, 1976 agencies—Debt outstanding Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A2 Federal Reserve Bulletin □ March 1977 Securities Markets and Corporate INTERNATIONAL STATISTICS Finance A54 U.S. international transactions— A36 New security issues—State and local Summary government and corporate A55 U.S. foreign trade A37 Corporate securities—Net change in A55 U.S. reserve assets amounts outstanding A56 Selected U.S. liabilities to foreigners A37 Open-end investment companies—Net and to foreign official institutions sales and asset position A3 8 Corporate profits and their distribution A3 8 Nonfinancial corporations—Assets and Reported by Banks in the United States: liabilities A57 Short-term liabilities to foreigners A39 Business expenditures on new plant A59 Long-term liabilities to foreigners and equipment A60 Short-term claims on foreigners A61 Long-term claims on foreigners Real Estate A62 Foreign branches of U.S. banks— A40 Mortgage markets Balance sheet data A41 Mortgage debt outstanding Securities Holdings and Transactions Consumer Instalment Credit A64 Marketable U.S. Treasury bonds and A42 Total outstanding and net change notes—Foreign holdings and A43 Extensions and liquidations transactions A64 Foreign official accounts A65 Foreign transactions in securities Flow of Funds A44 Funds raised in U.S. credit markets A45 Direct and indirect sources of funds to Reported by Nonbanking Concerns in credit markets the United States: A66 Short-term liabilities to and claims on foreigners DOMESTIC NONFINANCIAL STATISTICS A67 Long-term liabilities to and claims on A46 Nonfinancial business activity— foreigners Selected measures A47 Output, capacity, and capacity utilization Interest and Exchange Rates A47 Labor force, employment, and A68 Discount rates of foreign central banks unemployment A68 Foreign short-term interest rates A48 Industrial production A68 Foreign exchange rates A50 Housing and construction A51 Consumer and wholesale prices A52 Gross national product and income Special Table A53 Personal income and saving A69 Sales, revenue, profits, and dividends of large manufacturing corporations Inside Back Cover Guide to Tabular Presentation and Statistical Releases Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Domestic Financial Statistics A3 1.10 MONETARY AGGREGATES AND INTEREST RATES 1976 1976 1977 Item Ql Q2 Q3 Q4 Nov. Dec. Jan. Feb. Monetary and credit aggregates (annual rates of change, seasonally adjusted in per cent)12 Member bank reserves 1 Total.................................................................................................... -3.7 0.6 2.7 4.4 11.8 4.9 10.9 2 Required.............................................................................................. -3.4 1.1 2.4 4.0 10.5 4.3 11.3 3 Nonborrowed...................................................................................... -3.0 0.4 2.6 4.8 12.6 5.6 10.4 Concepts of money 1 4 M-l. ........................................................................................ 2.9 8.2 4.2 6.3 0.0 8.1 5.4 5 M-2...................................................................................................... 9.9 10.5 9.2 12.3 10.1 12.6 9.2 6 M-3...................................................................................................... 11.5 11.8 11.4 14.3 12.3 13.0 11.2 Time and savings deposits Commercial banks: 7 Total................................................................................................ 7.1 5.4 7.3 11.8 15.3 16.1 10.0 8 Other than large CD’s................................................................... 15.3 12.4 13.0 16.8 17.6 15.6 12.4 9 Thrift institutions2............................................................................. 14.2 13.7 14.8 17.3 15.6 13.7 13.5 10 Total loans and investments at commercial banks3........................... 3.8 5.4 6.0 8.7 9.4 2.0 9.0 Interest rates (levels, per cent per annum) Short-term rates 11 Federal funds4....................................... 4.83 5.19 5.28 4.88 4.95 4.65 4.61 4.68 12 Treasury bills (3-month market yield) 5 4.92 5.16 5.15 4.67 4.75 4.35 4.62 4.67 13 Commercial paper (90- to 119-day)6.. 5.18 5.45 5.41 4.91 4.98 4.66 4.72 4.76 14 Federal Reserve discount7................... 5.59 5.50 5.50 5.39 5.43 5.25 5.25 5.25 Long-term rates Bonds: 15 U.S. Govt. 8....................................... 8.00 8.01 7.90 7.54 7.64 7.30 7.48 7.64 16 Aaa utility (new issue) 9................... 8.65 8.69 8.48 8.15 8.17 7.94 8.08 8.22 17 State and local government10.......... 6.98 6.78 6.64 6.18 6.29 5.94 5.87 5.89 18 Conventional mortgages11.................. 9.00 8.98 9.03 8.95 8.95 8.90 8.80 1 M-l equals currency plus private demand deposits adjusted. 8 Market yields adjusted to a 20-year maturity by the U.S. Treasury. M-2 equals M-l plus bank time and savings deposits other than large 9 Weighted averages of new publicly offered bonds rated Aaa, Aa, and CD’s. A by Moody’s Investors Service and adjusted to an Aaa basis. Federal M-3 equals M-2 plus deposits at mutual savings banks, savings and Reserve compilations. loan associations, and credit union shares. 10 Bond Buyer series for 20 issues of mixed quality. 2 Savings and loan associations, mutual savings banks, and credit 11 Average rates on new commitments for conventional first mortgages unions. on new homes in primary markets, unweighted and rounded to nearest 3 Quarterly changes calculated from figures shown in Table 1.23. 5 basis points, from Dept, of Housing and Urban Development. 4 Seven-day averages of daily effective rates (average of the rates on 12 Unless otherwise noted, rates of change are calculated from average a given date weighted by the volume of transactions at those rates). amounts outstanding in preceding month or quarter. 5 Quoted on a bank-discount rate basis. 6 Most representative offering rate quoted by five dealers. Note.—Data in this series have been revised; for further details see 7 Rate for the Federal Reserve Bank of New York. “Announcements”, page 305. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A4 Domestic Financial Statistics □ March 1977 1.11 FACTORS AFFECTING MEMBER BANK RESERVES Millions of dollars Monthly averages of daily figures End-of-month figures 1976 1977 1976 1977 Aug. Sept. Oct. Nov. Dec. Jan. Feb.* Dec. Jan. Feb.?5 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding... 105,393 105,880 107,270 106,522 107,632 108,700 109,065 110,892 107,253 108,285 2 U.S. Govt, securities1.................... 91,583 91,966 93,535 92,659 93,412 94,513 95,843 97,021 94.134 95,837 3 Bought outright.......................... 89,259 89,926 91,886 91,527 91,031 92,905 94,674 93,268 94.134 94,905 4 Held under repurchase agree­ ment .......................................... 2,324 2,040 1,649 1,132 2,381 1,608 1,169 3,753 932 5 Federal agency securities,............ 6,875 6,831 6,839 6,848 6,916 6,884 6,846 7,072 6.790 6,844 6 Bought outright......................... 6,799 6,763 6,757 6,804 6,805 6,792 6,787 6,794 6.790 6,767 7 Held under repurchase agree­ ment ......................................... 76 68 82 44 111 92 59 278 77 8 Acceptances.................................... 580 447 323 326 457 413 330 991 191 322 9 Loans.............................................. 104 75 66 84 62 61 79 25 47 24 10 Float................................................ 2,512 2,880 2,763 3,094 3,536 3,514 2,943 2,601 2,482 2,467 11 Other Federal Reserve assets 3,739 3,681 3,744 3,511 3,249 3,315 3,024 3,182 3,609 2,791 12 Gold stock.......................................... 11,598 11,598 11,598 11,598 11,598 11,638 11,658 11,598 11,658 11,651 13 Special Drawing Rights certificate account........................................ 700 703 1,123 1,200 1,200 1,200 1,200 1,200 1,200 1,200 14 Treasury currency outstanding___ 10,690 10,737 10,778 10,826 10,865 10,897 10,930 10,810 10,865 10,939 ABSORBING RESERVE FUNDS 15 Currency in circulation.................... 89,548 89,863 90,312 91,988 93.730 92,582 91,753 93,717 91,164 91,745 16 Treasury cash holdings.................... 454 442 482 458 464 461 499 460 502 514 Deposits, other than member bank reserves with F.R. Banks: 17 Treasury.......................................... 7,797 8,270 9,199 6,709 6,138 7,850 10,698 10,393 11,397 12,179 18 Foreign............................................ 275 249 266 259 306 269 294 352 383 362 19 Other................................................ 979 1,071 1,012 947 974 820 616 1,357 642 856 20 Other F.R. liabilities and capital... 3,326 3,315 3,372 3,326 3,253 3,223 3,224 3,063 3,475 3,630 21 Member bank reserves with F.R. Banks............................................... 26,001 25,708 26,127 26,458 26,430 27,229 25,769 25,158 23,411 22,788 Weekly averages of daily figures for weeks ending— Wednesday figures 1977 1977 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23p Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23p SUPPLYING RESERVE FUNDS 22 Reserve Bank credit outstanding. . .. 108,632 109,597 109,203 107,829 110,045 112,098 105,738 111,898 110,804 113,453 23 U.S. Govt, securities1..................... 94,900 95,322 95,274 95,069 97,445 97,409 91.401 97,656 96,633 99,371 24 Bought outright........................ 94,028 93,983 94,788 94,639 95,053 95,049 91.401 95,748 93,624 95,047 25 Held under repurchase agree­ ment ....................................... 872 1,339 486 430 2,392 2,360 1,908 3,009 4,324 26 Federal agency securities................. 6,854 6,852 6,828 6,806 6,890 6,989 6.790 6,911 6,901 7,033 27 Bought outright......................... 6,790 6,790 6,790 6,790- 6,709 6,790 6.790 6,790 6,790 6,790 28 Held under repurchase agree­ ment ....................................... 64 62 38 16 100 199 121 111 243 29 Acceptances.................................. 324 310 299 237 377 461 191 431 513 502 30 Loans............................................. 89 86 75 129 37 483 347 81 738 77 31 Float.............................................. 2,985 3,594 3,285 2,432 2,694 2,740 3,705 3,396 3,498 3,756 32 Other Federal Reserve assets; . . . 3,480 3,434 3,443 3,155 2,602 4,016 3,304 3,423 2,521 2,714 33 Gold stock........................................ 11,658 11,658 11,658 11,658 11,658 11,658 11,658 11,658 11,658 11,658 34 Special Drawing Rights certificate account.......................................... 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 35 Treasury currency outstanding........ 10,900 10,916 10,925 10,931 10,934 10,901 10,919 10,930 10,934 10,935 ABSORBING RESERVE FUNDS 36 Currency in circulation.................... 91,799 91,303 91,610 91,940 91,809 91,715 91,517 92,095 92,029 92,105 37 Treasury cash holdings..................... 451 481 496 502 501 471 485 501 509 516 Deposits, other than member bank reserves with F.R. Banks: 38 Treasury................................. 8,630 10,898 11,258 9,302 10,961 10,283 10,980 9,627 10,854 11,778 39 Foreign.......................................... 228 302 279 314 269 253 256 272 295 222 40 Other.............................................. 750 641 622 546 538 722 614 759 518 551 41 Other F.R. liabilities and capital. .. 3,301 3,419 3,038 3,175 3,303 3,416 2,949 3,109 3,233 3,438 42 Member bank reserves with F.R. Banks............................................. 27,233 26,328 25,684 25,837 26,457 28,997 22,714 29,322 27,158 28,636 1 Includes securities loaned—fully guaranteed by U.S. Govt, securities Note.—For amounts of currency and coin held as reserves, see Table pledged with F.R. Banks—and excludes (if any) securities sold and sched­ 1.12. uled to be bought back under matched sale-purchase transactions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

M ember Banks A 5 1.12 RESERVES AND BORROWINGS Member Banks Millions of dollars Monthly averages of daily figures Reserve classification 1975 1976 1977 Dec. June July Aug. Sept. Oct. Nov. Dec. Jan. Feb.? All member banks Reserves: At F.R. Banks................... 27,215 25,711 25,933 26,001 25,708 26,127 26,458 26,430 27,229 25,769 Currency and coin............ 7,773 7,903 8,064 7,989 8,113 8,025 8,180 8,548 8,913 8,324 Total held1......................... 34,989 33,774 34,146 34,141 33,979 34,305 34,797 35,136 36,290 34,241 Required......................... 34,727 33,657 34,076 33,844 33,692 34,116 34,433 34,964 35,796 34,232 Excess1........................... 262 117 70 297 287 189 364 111 494 9 Borrowings at F.R. Banks:2 Total................................... 127 120 123 104 75 66 84 62 61 79 Seasonal............................. 13 20 24 28 31 32 21 12 8 12 Large banks in New York City 8 Reserves held.......................... 6,812 6,546 6,507 6,559 6,372 6,374 6,589 6,520 7,076 6,369 9 Required............................. 6,748 6,524 6,548 6,501 6,308 6,346 6,485 6,602 6,948 6,537 10 Excess................................. 64 22 -41 58 64 28 104 -82 128 -168 11 Borrowings2........................... 63 26 37 28 22 36 15 6 47 Large banks in Chicago 12 Reserves held.............. 1,740 1,767 1,672 1,684 1,615 1,648 1,621 1,632 1,731 1,573 13 Required................. 1,758 1,676 1,690 1,625 1,617 1,635 1,602 1,641 1,698 1,623 14 Excess..................... -18 91 -18 59 -2 13 19 -9 33 -50 15 Borrowings2............... 7 13 6 3 3 4 2 Other large banks 16 Reserves held. .. 13,249 12,318 12,633 12,610 12,584 12,704 12,889 13,117 13,556 12,500 17 Required....... 13,160 12,443 12,660 12,549 12,521 12,706 12,802 13,053 13,427 12,763 18 Excess............ 89 -125 -27 61 63 -2 87 64 129 -263 19 Borrowings2___ 26 22 11 20 3 17 7 14 25 4 All other banks 20 Reserves held. 13,188 13,143 13,334 13,288 13,408 13,579 13,698 13,867 13,927 13,450 21 Required... 13,061 13,014 13,178 13,169 13,246 13,429 13,544 13,668 13,723 13,309 22 Excess........ 111 129 156 119 162 150 154 199 204 141 23 Borrowings2.. 38 65 62 50 47 46 41 29 28 28 Weekly averages of daily figures for weeks ending- 1976 1977 Dec. 22 Dec. 29 Jan. 5 Jan. 12 Jan. 19 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23? All member banks Reserves: At F.R. Banks................... 26,859 27,043 27,203 26,623 27,452 27,233 26,328 25,684 25,837 26,457 Currency and coin............ 8,136 8,632 8,628 8,984 9,228 8,812 8,797 8,763 8,568 7,602 Total held1......................... 35,154 35,834 35,974 35,753 36,830 36,193 35,275 34,595 34,553 34,205 Required......................... 35,083 35,486 35,461 35,383 36,941 35,769 35,145 34,339 34,389 33,925 Excess1........................... 71 348 513 370 -111 424 130 256 164 280 Borrowings at F.R. Banks:2 Total................................... 37 82 31 20 109 89 86 75 129 37 Seasonal............................. 11 11 7 8 8 8 11 12 13 11 Large banks in New York City 31 Reserves held......................... 6,586 6,609 6,921 6,839 7,310 7,010 6,623 6,621 6,706 6,386 32 Required............................ 6,569 6,629 6,778 6,800 7,454 6,915 6,663 6,596 6,714 6,391 33 Excess................................. 17 -20 143 39 -144 95 -40 25 -5 34 Borrowings2........................... 6 29 41 43 98 7 Large banks in Chicago 35 Reserves held.............. 1,646 1,668 1,729 1,749 1.790 1,632 1,662 1,632 1,670 1,549 36 Required................. 1,630 1,673 1,691 1,713 1.791 1,616 1,666 1,605 1,654 1,621 37 Excess..................... 16 -5 38 36 -1 16 -4 27 16 -72 38 Borrowings2............... 9 Other large banks 39 Reserves held. .. 13,096 13,507 13,377 13,396 13,728 13,542 13,119 12,857 12,765 12,356 40 Required....... 13,164 13,341 13,304 13,296 13,883 13,385 13,155 12,782 12,809 12,612 41 Excess............ -68 166 73 100 -155 157 -36 75 -44 -256 42 Borrowings2.... 10 44 2 40 58 19 7 3 All other banks 43 Reserves held. 13,826 14,050 13,947 13,769 14,002 14,009 13,871 13,485 13,412 13,569 44 Required... 13,720 13,843 13,688 13,574 13,813 13,853 13,661 13,356 13,212 13,301 45 Excess........ 106 207 259 195 189 156 210 129 200 268 46 Borrowings2.. 27 32 31 18 31 31 26 25 28 30 1 Adjusted to include waivers of penalties for reserve deficiencies in nonmember bank joins the Federal Reserve System. For weeks for which accordance with Board policy, effective Nov. 19, 1975, of permitting figures are preliminary, figures by class of bank do not add to total transitional relief on a graduated basis over a 24-month period when a because adjusted data by class are not available. nonmember bank merges into an existing member bank, or when a 2 Based on closing figures. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A6 Domestic Financial Statistics □ March 1977 1.13 FEDERAL FUNDS TRANSACTIONS of Money Market Banks Millions of dollars, except as noted 1977, week ending- Type Jan. 5 Jan. 12 Jan. 19 Jan. 26 | Feb. 2 Feb. 9 Feb. 16 Feb. 23 Total, 46 banks Basic reserve position Excess reserves1.............................................. 246 312 -90 85 13 73 9 95 Less: Borrowings at F.R. Banks......................... 63 46 37 46 91 7 Net interbank Federal funds transactions. 16,621 21,537 20,085 16,443 14,175 18,004 17,687 16,755 Equals: Net surplus, or deficit ( —): Amount....................................................... -16,375 -21,225 -20,237 -16,404 -14,199 -17,977 -17,770 -16,666 Per cent of average required reserves......... 105.2 135.7 120.8 104.7 92.8 119.9 116.9 113.5 Interbank Federal funds transactions Gross transactions: Purchases..................................... 24,929 27,907 25,972 22,582 21,637 24,143 23,795 23,441 Sales............................................. 8,308 6,371 5,887 6,139 7,462 6,139 6,108 6,686 Two-way transactions2................... 6,033 5,627 5,031 4,927 5,564 5,041 A,156 5,200 Net transactions: Purchases of net buying banks. . 18,896 22,280 20,941 17,655 16,073 19,102 19,039 18,241 Sales of net selling banks........... 2,276 744 856 1,213 1,898 1,098 1,352 1,487 Related transactions with U.S. Govt, securities dealers 11 Loans to dealers 3............................................. 4,075 4,408 3,721 3,084 3,060 2.541 2,748 2,437 12 Borrowing from dealers4................................ 1,712 1,313 1,426 1,532 1,864 1,513 1,380 1,775 13 Net loans.......................................................... 2,364 3,095 2,295 1,553 1,196 1,028 1,369 662 8 banks in New York City Basic reserve position 14 Excess reserves1.............................................. 141 149 -71 21 -23 -11 -8 29 Less: 15 Borrowings at F.R. Banks......................... 29 37 43 89 7 16 Net interbank Federal funds transactions. 6,860 8,891 7,145 5,511 4,233 5,626 6,191 5,611 Equals: Net surplus, or deficit ( —): 17 Amount....................................................... -6,719 -8,742 -7,244 -5,490 -4,293 -5,680 -6,288 -5,589 18 Per cent of average required reserves........... 108.8 141.1 105.9 87.2 70.9 94.5 102.6 96.4 Interbank Federal funds transactions Gross transactions: Purchases..................................... 7,481 9,507 7,801 6,515 5,557 6,623 6,932 6,604 Sales............................................. 622 617 656 1.004 1.324 997 742 994 Two-way transactions2................... 622 617 656 1.004 1.324 997 742 994 Net transactions: Purchases of net buying banks. . 6,860 8,890 7,145 5,511 4,233 5,626 6,191 5,611 Sales of net selling banks........... Related transactions with U.S. Govt, securities dealers 24 Loans to dealers 3........................................... 2,366 2,316 2,108 1,878 1,671 1,516 1,809 1,602 25 Borrowing from dealers4............................... 534 641 691 784 765 680 621 648 26 Net loans........................................................ 1,832 1,674 1,417 1,093 906 836 1,187 954 38 banks outside New York City Basic reserve position 27 Excess reserves1.............................................. 105 163 -19 64 36 84 17 67 Less: 28 Borrowings at F.R. Banks......................... 34 46 3 3 29 Net interbank Federal funds transactions. 9,761 12,646 12,940 10,932 9,942 12,378 11,496 11,144 Equals: Net surplus, or deficit ( —): 30 Amount....................................................... -9,656 -12,483 -12,993 -10,913 -9,905 -12,297 -11,482 -11,077 31 Per cent of average required reserves........... 102.9 132.1 131.1 116.4 107.1 136.9 126.5 124.7 Interbank Federal funds transactions Gross transactions: Purchases..................................... 17,448 18,400 18,171 16,067 16,080 17,520 16,862 16,837 Sales.............................................. 7,687 5,754 5,231 5,135 6,138 5,142 5,366 5,693 Two-way transactions2............... 5,411 5,010 4,375 3,923 4,240 4,043 4,014 4,207 Net transactions: Purchases of net buying banks. . 12,036 13,390 13,796 12,144 11,840 13,476 12,848 12,630 Sales of net selling banks............ 2,276 744 856 1,213 1,898 1,098 1,352 1,487 Related transactions with U.S. Govt, securities dealers 37 Loans to dealers3............................................ 1,709 2,093 1,613 1,207 1,390 1,025 940 835 3 38 9 B N o e r t r o lo w a i n n s g . . f .. r . o .. m ... .. d .. e .. a .. l . e .. r . s .. 4 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,1 5 7 3 8 2 1,4 6 2 7 1 2 8 7 7 3 9 5 4 7 5 4 9 7 1,1 2 0 9 0 0 8 1 3 9 3 2 7 1 5 81 8 1 -2 ,1 9 2 2 7 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Funds Al 1.13 Continued 1977, week ending— Type Jan. 5 Jan. 12 Jan. 19 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23 5 banks in City of Chicago Basic reserve position 40 Excess reserves1.............................................. 38 60 15 23 13 26 42 Less: 41 Borrowings at F.R. Banks......................... 9 42 Net interbank Federal funds transactions. 5,942 5,769 6,164 5,027 5,506 5,665 5,742 Equals: Net surplus, or deficit (—): 43 Amount....................................................... -5,904 -5,710 -6,158 -5,004 -5,494 -5,968 -5,623 -5,747 44 Per cent of average required reserves......... 373.9 356.3 367.0 332.1 352.6 398.3 363.2 378.7 Interbank Federal funds transactions Gross transactions: Purchases..................................... 6,890 6,681 7,025 5,864 6,280 6,839 6,473 6,784 Sales............................................. 948 911 862 837 774 844 807 1,042 Two-way transactions2................... 902 889 846 837 743 828 807 1,035 Net transactions: Purchases of net buying banks. . 5,988 5,791 6,179 5,027 5,537 6,011 5,665 5,749 Sales of net selling banks........... 46 22 15 31 17 7 Related transactions with U.S. Govt, securities dealers 50 Loans to dealers3........................................... 331 331 392 299 333 298 254 174 51 Borrowing from dealers4.............................. 111 304 190 189 257 235 402 488 52 Net loans........................................................ 220 27 202 110 75 62 -148 -314 33 other banks Basic reserve position............................................... 53 Excess reserves1................................................... 68 103 -34 41 24 58 -25 72 Less: 54 Borrowings at F.R. Banks............................... 25 46 3 3 55 Net interbank Federal funds transactions___ 3,820 6,877 6,776 5,905 4,436 6,384 5,831 5,402 Equals: Net surplus, or deficit (—): 56 Amount............................................................. -3,752 -6,774 -6,835 -5,910 -4,412 -6,329 -5,859 -5,330 57 Per cent of average required reserves............... 48.1 86.3 83.0 75.1 57.4 84.5 77.8 72.4 Interbank Federal funds transactions Gross transactions: 58 Purchases.......................................................... 10,558 11,719 11,145 10,203 9,800 10,681 10,390 10,053 59 Sales.................................................................. 6,738 4,843 4,369 4,298 5,364 4,298 4,559 4,651 60 Two-way transactions 2........................................ 4,509 4,121 3,528 3,086 3,497 3,216 3,207 3,172 Net transactions: 61 Purchases of net buying banks....................... 6,049 7,599 7,617 7,118 6,303 7,465 7,183 6,881 62 Sales of net selling banks................................ 2,229 722 841 1,213 1,868 1,082 1,352 1,480 Related transactions with U.S. Govt, securities dealers 63 Loans to dealers3................................................ 1,379 1,761 1,221 908 1,057 727 685 661 64 Borrowing from dealers4..................................... 1,067 368 545 558 842 598 356 639 65 Net loans.............................................................. 312 1,394 676 350 215 130 329 22 1 Based on reserve balances, including adjustments to include waivers 4 Federal funds borrowed, net funds acquired from each dealer by of penalties for reserve deficiencies in accordance with changes in Board clearing banks, reverse repurchase agreements (sales of securities to policy effective Nov. 19, 1975. dealers subject to repurchase), resale agreements, and borrowings secured 2 Derived from averages for individual banks for entire week. Figure by U.S. Govt, or other securities. for each bank indicates extent to which the bank’s average purchases and sales are offsetting. Note.—Weekly averages of daily figures. For description of series, 3 Federal funds loaned, net funds supplied to each dealer by clearing see Federal Reserve Bulletin for August 1964, pp. 944-53. Back data for banks, repurchase agreements (purchases from dealers subject to resale), 46 banks appear in the Board’s Annual Statistical Digest, 1971-1975, or other lending arrangements. Table 3. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A8 Domestic Financial Statistics □ March 1977 1.14 FEDERAL RESERVE BANK INTEREST RATES Per cent per annum Current and recent levels Loans to member banks— Loans to all others Under Se:c. 10(b)2 under last par. Sec. 134 Federal Reserve Under Secs. 13 and 13a1 Bank Regular rate Special rate3 Rate on Effective Previous Rate on Effective Previous Rate on Effective Previous Rate on Effective Previous 2/28/77 date rate 2/28/77 date rate 2/z8/77 date3 rate 2/28/77 date rate Boston.................. 51/4 11/22/76 51/2 534 11/22/76 6 6*4 11/22/76 6*4 8*4 11/22/76 8*4 New York............ 51/4 11/22/76 5*4 534 11/22/76 6 614 11/22/76 61/2 814 11/22/76 8*4 Philadelphia......... 51/4 11/22/76 51/2 53/4 11/22/76 6 6*4 11/22/76 6*4 81/4 11/22/76 8*4 Cleveland............. 5*4 11/22/76 51/2 534 11/22/76 6 6*4 11/22/76 6*4 8*4 11/22/76 81/2 Richmond............ 514 11/22/76 51/2 53/4 11/22/76 6 614 11/22/76 6*4 8*4 11/22/76 8*4 Atlanta................. 5*4 11/22/76 51/2 534 11/22/76 6 614 11/22/76 61/2 8*4 11/22/76 8*4 Chicago................ 5*4 11/22/76 5*4 534 11/22/76 6 6*4 11/22/76 6*4 8*4 11/22/76 8*4 St. Louis............... 5*4 11/26/76 51/2 534 11/26/76 6 6*4 11/26/76 61/2 8*4 11/26/76 8*4 Minneapolis......... 51/4 11/22/76 51/2 53/4 11/22/76 6 6*4 11/22/76 61/2 81/4 11/22/76 81/2 Kansas City.......... 5*4 11/22/76 51/2 534 11/22/76 6 61/4 11/22/76 6*4 81/4 11/22/76 81/2 Dallas................... 5*4 11/22/76 51/2 534 11/22/76 6 6*4 11/22/76 6*4 81/4 11/22/76 8*4 San Francisco.... 5*4 11/22/76 51/2 534 11/22/76 6 6*4 11/22/76 61/2 8*4 11/22/76 8*4 Range of rates in recent years5 Range F.R. Range F.R. Range F.R. Effective date or level)— Bank Effective date (or level)— Bank Effective date (or level)— Bank All F.R. of All F.R. of All F.R. of Banks N.Y. Banks N.Y. Banks N.Y. In effect Dec. 31, 1970 51/2 51/2 1973—Jan. 15................. 5 5 1975—Jan. 6.............. 7*4-734 734 Feb. 26.................. 5-51/2 51/2 10.............. 7*4-734 7*4 1971—Jan. 8............ 51/4-51/2 51/4 Mar. 2.................. 5 V4 5i/i 24.............. 71/4 71/4 15............. 51/4 51/4 Apr. 23.................. 5%-5% 51/2 Feb. 5.............. 63/4-7*4 634 19........... 5 -514 51/4 May 4.................. 5y4 5V4 7.............. 634 634 22............ 5 -514 5 11.................. 53/4-6 6 Mar. 10.............. 6*4-634 6*4 29........... 5 5 18.................. 6 6 14.............. 6*4 6*4 Feb. 13........... 434-5 5 June 11................. 6-61/2 61/2 May 16.............. 6-6*4 6 19........... 434 434 15.................. 61/2 61/2 23.............. 6 6 July 16............. 434-5 5 July 2................. 7 7 2 3 5 5 Aug. 14................. 7-71/2 71/2 1976—Jan. 19.............. 5*4-6 5*4 Nov. 11............ 434-5 5 23................. m 7*4 23.............. 51/2 5*4 19............ 434 434 Dec. 13............ 41/2-434 434 1974—Apr. 25................. 7*4-8 Nov. 22.............. 5*4-51/2 514 17........... 4*4-434 4*4 30................. 8 26.............. 51/4 5*4 2 4 41/2 41/2 Dec. 9................. 73,4-8 734 16................. m 7V4 In effect Feb. 28, 1977. 5*4 514 1 Discounts of eligible paper and advances secured by such paper or by 4 Advances to individuals, partnerships, or corporations other than U.S. Govt, obligations or any other obligations eligible for F.R. Bank member banks secured by direct obligations of, or obligations fully purchase. guaranteed as to principal and interest by, the U.S. Govt, or any agency 2 Advances secured to the satisfaction of the F.R. Bank. Advances thereof. secured by mortgages on 1- to 4-family residential property are made at 5 Rates under Secs. 13 and 13a (as described above). For description the Section 13 rate. and earlier data, see the following publications of the Board of Governors: 3 Applicable to special advances described in Section 201.2(e)(2) of Banking and Monetary Statistics, 1914-1941, Banking and Monetary Regulation A. Statistics, 1941-1970, and Annual Statistical Digest, 1971-75. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A9 1.15 MEMBER BANK RESERVE REQUIREMENTS1 Per cent of deposits Requirements in effect Previous requirements Feb. 28, 1977 Type of deposit, and deposit interval in millions of dollars Per cent Effective date Per cent Effective date Net demand:2 0-2.................................................................................................. 7 12/30/76 m 2/13/75 2-10................................................................................................. 9Vi 12/30/76 10 2/13/75 10-100............................................................................................. uy4 12/30/76 12 2/13/75 100-400........................................................................................... ny4 12/30/76 13 2/13/75 Over 400......................................................................................... I6I/4 12/30/76 I61/2 2/13/75 Time:2,3 i Savings............................................................................................ 3 3/16/67 3% 3/2/67 Other time: 0-5, maturing in— 30-179 days............................................................................ 3 3/16/67 3V4 3/2/67 180 days to 4 years................................................................ 4 2% 1/8/76 3 3/16/67 4 years or more...................................................................... 41 10/30/75 3 3/16/67 Over 5, maturing in— 6 12/12/74 5 10/1/70 180 days to 4 years................................................................ 4 214 1/8/76 3 12/12/74 4 years or more...................................................................... 4 1 10/30/75 3 12/12/74 Legal limits, Feb. 28, 1977 Minimum Maximum Net demand: Reserve city banks......................................................................... 10 22 Other banks.................................................................................... 7 14 3 10 1 For changes in reserve requirements beginning 1963, see Board’s (c) Member banks are required under the Board’s Regulation M to Annual Statistical Digest, 1971-1975 and for prior changes, see Board’s maintain reserves against foreign branch deposits computed on the basis Annual Report for 1975, Table 13. of net balances due from domestic offices to their foreign branches and 2 (a) Requirement schedules are graduated, and each deposit interval against foreign branch loans to U.S. residents. Loans aggregating $100,000 applies to that part of the deposits of each bank. Demand deposits or less to any U.S. resident are excluded from computations, as are total subject to reserve requirements are gross demand deposits minus cash loans of a bank to U.S. residents if not exceeding $1 million. Regulation D items in process of collection and demand balances due from domestic imposes a similar reserve requirement on borrowings from foreign banks banks. by domestic offices of a member bank. A reserve of 4 per cent is required (b) The Federal Reserve Act specifies different ranges of requirements for each of these classifications. for reserve city banks and for other banks. Reserve cities are designated 3 Negotiable orders of withdrawal (NOW) accounts and time deposits under a criterion adopted effective Nov. 9, 1972, by which a bank having such as Christmas and vacation club accounts are subject to the same net demand deposits of more than $400 million is considered to have the requirements as savings deposits. character of business of a reserve city bank. The presence of the head 4 The average of reserves on savings and other time deposits must be office of such a bank constitutes designation of that place as a reserve at least 3 per cent, the minimum specified by law. city. Cities in which there are F.R. Banks or branches are also reserve cities. Any banks having net demand deposits of $400 million or less Note.—Required reserves must be held in the form of deposits with are considered to have the character of business of banks outside of F.R. Banks or vault cash. reserve cities and are permitted to maintain reserves at ratios set for banks not in reserve cities. For details, see the Board’s Regulation D. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic Financial Statistics □ March 1977 .16 MAXIMUM INTEREST RATES PAYABLE on Time and Savings Deposits at Federally Insured Institutions Per cent per annum Commercial banks Savings and loan associations and mutual savings banks Type and maturity of deposit In effect Dec. 31, 1976 Previous maximum In effect Dec. 31, 1976 Previous maximum Effective Per cent Effective Per cent Effective Per cent Effective date date date date 1 Savings.................................................. 7/1/73 41/2 1/21/70 5Va (4) (5) 2 Negotiable order of withdrawal (NOW) accounts1.................................. 1/1/74 5 1/1/74 Time (multiple- and single-maturity unless otherwise indicated):2 30-89 days: 4 3 S M in u g lt l i e p - l m e- a m tu a r t i u ty ri . t .. y .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7/1/73 4 5 1/2 9 1 / / 2 2 6 1 / / 6 7 6 0 (6) (6) 90 days to 1 year: 5 6 S M in u g lt l i e p - l m e- a m tu a r t i u ty ri . t .. y .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Vi 7/1/73 9 7 / / 2 2 6 0 / / 6 6 6 6 3534 (4) 5V4 1/21/70 7 8 2 1 t t o o 2 2 V y i e y ar e s a 3 rs .. 3 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7/1/73 5 5V V 4 i 1 1 / / 2 2 1 1 / / 7 7 0 0 6Vi (4) 6 5V4 1 1 / / 2 2 1 1 / / 7 7 0 0 9 2 Vi to 4 years................................... 61/z 7/1/73 5V4 1/21/70 ey4 (4) 6 1/21/70 10 4 to 6 years....................................... 71/4 11/1/73 (7) 71/2 11/1/73 (7) 11 6 years or more................................ 7Vi 12/23/74 71/4 11/1/73 71/4 12/23/74 7Vi 11/1/73 12 Governmental units (all maturities). 7% 12/23/74 m 11/27/74 7% 12/23/74 7Vz 11/27/74 1 For authorized States only. Federally insured commercial banks, were limited to the 6 Vi per cent ceiling on time deposits maturing in 2Vi savings and loan associations, cooperative banks, and mutual savings years or more. banks were first permitted to offer NOW accounts on Jan. 1, 1974. Effective Nov. 1, 1973, the present ceilings were imposed on certificates Authorization to issue NOW accounts was extended to similar institu­ maturing in 4 years or more with minimum denominations of $1,000. tions throughout New England on Feb. 27, 1976. There is no limitation on the amount of these certificates that banks can 2 For exceptions with respect to certain foreign time deposits see the issue. In December 1975, the Federal regulatory agencies removed the Federal Reserve Bulletin for October 1962 (p. 1279), August 1965 (p. minimum-denomination requirement on time deposits representing funds 1094), and February 1968 (p. 167). contributed to an individual retirement account (IRA) established pursuant 3 A minimum of $1,000 is required for savings and loan associations, to the Internal Revenue Code. Similar action was taken for Keogh (H.R. except in areas where mutual savings banks permit lower minimum de­ 10) plans in November 1976. nominations. This restriction was removed for deposits maturing in less than 1 year, effective Nov. 1, 1973. Note—Maximum rates that can be paid by Federally insured commer­ 4 July 1, 1973, for mutual savings banks; July 6, 1973, for savings and cial banks, mutual savings banks, and savings and loan associations are loan associations. established by the Board of Governors of the Federal Reserve System, 5 Oct. 1, 1966, for mutual savings banks; Jan. 21, 1970, for savings and the Board of Directors of the Federal Deposit Insurance Corporation, loan associations. and the Federal Home Loan Bank Board under the provisions of 12 6 No separate account category. CFR 217, 329, and 526, respectively. The maximum rates on time de­ 7 Between early July 1, 1973, and Oct. 31,1973, there was no ceiling for posits in denominations of $100,000 or more were suspended in midcertificates maturing in 4 years or more with minimum denominations 1973. For information regarding previous interest rate ceilings on all of $1,000; however, the amount of such certificates that an institution types of accounts, see earlier issues of the Federal Reserve Bulletin, could issue was limited to 5 per cent of its total time and savings deposits. the Federal Home Loan Bank Board Journal, and the Annual Report Sales in excess of that amount, as well as certificates of less than $1,000, of the Federal Deposit Insurance Corporation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A ll 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS Millions of dollars 1976 1977 Type of transaction 1974 1975 1976 July Aug. Sept. Oct. Nov. Dec. U.S. GOVT. SECURITIES Outright transactions (excl. matched salepurchase transactions) Treasury bills: 1 Gross purchases. 11,660 11,562 14,343 279 1,100 1,125 618 346 975 2,535 2 Gross sales.......... 5,830 5,599 8,462 1,413 171 480 1,546 313 3 Redemptions 4,550 26,431 2 5,017 875 ’200 600 Others within 1 year:1 Gross purchases.................. 450 3,886 472 42 129 18 45 Gross sales........................... Exchange, or maturity shift. -1,183 -4 *792 59 -i *525 -285' 66 i jo47 252' Redemptions....................... 131 3,549 1 to 5 years: Gross purchases.................... 797 2 3,284 2 3,202 301 580 113 681 475 9 Gross sales............................. 177 10 Exchange, or maturity shift. -697 **3*, 854 -2,588 -59 -79 ’285' -66 *430 -7 -252 5 to 10 years: 11 Gross purchases.................... 434 1,510 1,048 72 272 62 170 128 12 Gross sales............................. 13 Exchange, or maturity shift., * i i 675 -4’, 697 * 1i 572 i ,354 Over 10 years: 14 Gross purchases.................... 196 1,070 642 65 95 73 119 15 Gross sales............................. 16 Exchange, or maturity shift. *205 848 '225 ’250 -3i6 All maturities:1 17 Gross purchases. 13,537 221,313 19,707 279 1,579 2,202 618 612 2,004 3,229 18 Gross sales.......... 5,830 5,599 8,639 1,413 171 480 1,546 313 19 Redemptions 4,682 2 9,980 2 5,017 875 '266 600 Matched sale-purchase transactions 20 Gross sales................................. 64,229 151,205 196,078 10,522 16,389 19,828 23,289 22,675 23,193 24,595 21 Gross purchases........................ 62,801 152,132 196,579 10,468 16,180 19,563 24,501 21,525 24,343 22,544 Repurchase agreements 22 Gross purchases. ., 71,333 140,311 232,891 12,947 26,641 24,108 16,603 17,612 30,872 23,820 23 Gross sales............ 70,947 139,538 230,355 14,657 24,655 23,477 18,821 20,173 27,119 27,573 24 Net change in U.S. Govt, securities___ 1,984 7,434 9,087 -3,773 3,357 2,397 -588 -4,179 5,361 -2,887 FEDERAL AGENCY OBLIGATIONS Outright transactions: 25 Gross purchases.......... 3,087 1,616 891 115 26 Gross sales................... 27 Redemptions................ ‘’*322 246 i69 27 22 14 63 4 Repurchase agreements: 28 Gross purchases.......... 23,204 15,179 10,520 495 769 1,071 705 897 1,380 930 29 Gross sales................... 22,735 15,566 10,360 726 674 889 949 976 1,102 1,208 BANKERS ACCEPTANCES 30 Outright transactions, net. .. 511 163 -545 -31 -68 -55 -9 -9 8 -5 31 Repurchase agreements, net. 420 -35 410 -339 220 85 -492 -140 795 -795 32 Net change in total System Account. 6,149 8,539 9,833 -4,375 3,577 2,587 -1,332 -4,307 6,379 -3,969 1 Both gross purchases and redemptions include special certificates amounting to $189 million. Acquisition of these notes is treated as a created when the Treasury borrows directly from the Federal Reserve, purchase; the run-off of bills, as a redemption. as follows (millions of dollars): 1973, 1,187; 1974, 131; and 1975, 3,549. 2 In 1975, the System obtained $421 million of 2-year Treasury notes Note.—Sales, redemptions, and negative figures reduce holdings of in exchange for maturing bills. In 1976 there was a similar transaction the System Open Market Account; all other figures increase such holdings. Details may not add to totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A12 Domestic Financial Statistics □ March 1977 1.18 FEDERAL RESERVE BANKS Condition and F.R. Note Statements Millions of dollars 1977 1976 1977 Account Jan 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23? Dec. 31 Jan 31 Feb. 28? Consolidated condition statement ASSETS 1 Gold certificate account................................ 11,658 11,658 11,658 11,658 11,651 11,598 11,658 11,651 2 Special Drawing Rights certificate account. 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 3 Cash................................................................ 381 391 388 382 364 395 388 Loans: 4 Member bank borrowings.............. 483 347 81 738 77 25 47 24 5 Other................................................. Acceptances: 6 Bought outright................................ 193 191 191 186 179 196 191 173 7 Held under repurchase agreements. 268 240 327 323 795 149 Federal agency obligations: 8 Bought outright............................... 6,790 6,790 6,790 6,790 6,790 6,794 6,790 6,767 9 Held under repurchase agreements. 199 121 111 243 278 77 U.S. Govt, securities Bought outright: 10 Bills................................................ 39,675 36,009 40,356 38,232 38,968 38,571 38,742 38,826 11 Certificates—Special.................... 12 Other....................... 13 Notes............................................ 48,601 48,619 48,619 48,319 48,920 47,972 48,619 48,920 14 Bonds............................................ 6,773 6,773 6,773 7,073 7,159 6,725 6,773 7,159 15 Total i............................................... 95,049 91,401 95,748 93,624 95,047 93,268 94,134 94,905 16 Held under repurchase agreements. 2,360 1,908 3,009 4,324 3,753 932 17 Total U.S. Govt, securities. 97,409 91,401 97,656 96,633 99,371 97,021 94,134 95,837 18 Total loans and securities.. 105,342 98,729 105,079 104,785 106,983 105,109 101,162 103,027 19 Cash items in process of collection... 8,138 9,367 8,357 9,480 10,701 7,835 5,995 6,250 20 Bank premises..................................... 366 367 368 369 369 363 366 371 21 Operating equipment.......................... 25 Other assets: 22 Denominated in foreign currencies. 212 207 209 125 53 170 222 62 23 All other............................................ 3,438 2,730 2,846 2,027 2,292 2,620 3,021 2,358 24 Total assets. 130,735 124,649 130,112 130,032 133,631 129,284 124,019 125,307 LIABILITIES 25 F.R. notes.......................................... 81,666 81,474 82,062 81,992 82,061 83,727 81,198 81,709 Deposits: 26 Member bank reserves................. 28,997 22,714 29,322 27,158 28,636 25,158 23,411 22,788 27 U.S. Treasury—General account. 10,283 10,980 9,627 10,854 11,778 10,393 11,397 12,179 28 Foreign........................................... 253 256 272 295 222 352 383 362 29 Other 2............................................ 722 614 759 518 551 1,357 642 856 30 Total deposits. 40,255 34,564 39,980 38,825 41,187 37,260 35,833 36,185 31 Deferred availability cash items........... 5,398 5,662 4,961 5,982 6,945 5,234 3,513 3,783 32 Other liabilities and accrued dividends. 1,020 945 990 999 1,088 1,097 980 1,193 33 Total liabilities................................... 128,339 122,645 127,993 127,798 131,281 127,318 121,524 122,870 CAPITAL ACCOUNTS 34 Capital paid in................................................... 984 986 986 986 989 983 986 989 ‘35 Surplus............................................................... 983 983 983 983 983 983 983 983 36 Other capital accounts...................................... 429 35 150 265 378 526 465 37 Total liabilities and capital accounts................. 130,735 124,649 130,112 130,032 133,631 129,284 124,019 125,307 Memo: 38 Marketable U.S. Govt, securities held in custody for foreign and inti, account....................... 51,798 52,729 53,359 54,747 54,040 50,269 52,271 53,991 Federal Reserve note statement 39 F.R. notes outstanding (issued to Bank)............. 88,712 88,549 88,425 88,307 88,221 89,303 88,603 88,205 Collateral held against notes outstanding: 40 Gold certificate account.................................... 11,656 11,656 11,656 11,656 11,646 11,596 11,656 11,645 41 Special Drawing Rights certificate account.... 643 643 643 643 643 643 643 643 42 Acceptances........................................................ 43 U.S. Govt, securities.......................................... 78,100 78,100 78,100 78,030 78,030 78,100 78,100 78,030 44 Total collateral. 90,399 90,399 90,399 90,329 90,319 90,339 90,399 90,318 i Includes securities loaned—fully guaranteed by U.S. Govt, securities 2 includes certain deposits of domestic nonmember banks and foreignpledged with F.R. Banks—and excludes (if any) securities sold and owned banking institutions voluntarily held with member banks and scheduled to be bought back under matched sale-purchase transactions. redeposited in full with F.R. Banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Reserve Banks A13 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holdings Millions of dollars Wednesday End of month Type and maturity 1977 1976 1977 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23 Dec. 23 Jan. 31 Feb. 28 1 482 348 81 737 77 26 46 24 2 Within 15 days..................................................... 480 342 77 731 72 17 44 19 3 16 days to 90 days............................................... 2 6 4 6 5 9 2 5 A 461 191 431 573 502 991 191 322 6 302 34 268 349 343 818 39 169 7 103 103 113 111 110 112 95 106 8 91 days to 1 year.................................................. 56 54 50 53 49 61 57 47 9 U.S. Govt, securities................................................ 97,409 91,401 97,656 96,633 99,371 97,021 94,134 95,837 10 Within 15 days1................................................... 7,081 4.868 8,561 5,221 8,136 7,207 3,957 3,994 11 18,770 15,561 17,356 20,784 19,920 19,227 18,096 20,862 12 26,204 25,870 26,637 25,689 25,795 25,889 26,979 25,362 13 Over 1 year to 5 years......................................... 31,185 30,933 30,933 29,953 30,302 30,710 30,933 30,401 14 Over 5 years to 10 years...................................... 9,173 9,173 9,173 9,690 9,841 9,045 9,173 9,841 15 Over 10 years....................................................... 4,996 4,996 4,996 5,296 5,377 4,949 4,996 5,377 16 Federal agency obligations....................................... 6,989 6,790 6,911 6,901 7,033 7,072 6,790 6,844 17 Within 15 days1................................................... 239 121 232 487 319 40 247 18 16 days to 90 days............................................... 330 375 375 254 132 309 330 171 19 91 days to 1 year.................................................. 1,037 1,054 1,054 1,054 1,054 964 1,037 1,091 20 Over 1 year to 5 years......................................... 3,361 3,339 3,339 3,339 3,354 3,355 3,361 3,358 21 Over 5 years to 10 years...................................... 1,281 1.281 1,281 1,281 1,265 1,388 1,281 1,217 22 Over 10 years........................................................ 741 741 741 741 741 737 741 760 1 Holdings under repurchase agreements are classified as maturing within 15 days in accordance with maximum maturity of the agreements. 1.20 DEMAND DEPOSIT ACCOUNTS Debits and Rate of Turnover Seasonally adjusted annual rates 1976 1977 Standard metropolitan statistical area 1973 1974 1975 Sept. Oct. Nov. Dec. Jan. Debits (billions of dollars)2 1 All 233 SMSA’s....................................................... 18,641.3 22,192.2 23,565.1 27,250.2 27,406.2 28,061.4 r28,914.6 29,282.1 2 New York City........................................................ 8,097.7 9,931.8 10,970.9 12,727.9 13,522.0 13,495.5 13,835.0 14,411.8 3 232 SMSA’s............................................................. 10,543.6 12,260.6 12,594.2 14,522.3 13,884.2 14,565.9 r15,079.7 14,870.3 4 6 leading SMSA’s other than N.Y.C.1.............. 4,462.8 5,152.7 4,937.5 5,857.3 5,447.9 5,693.2 5,917.1 5,864.3 5 226 others.............................................................. 6,080.8 7,107.9 7,661.8 8,665.0 8,436.3 8,872.7 r9,162.6 9,006.0 Turnover of deposits (annual rate) 6 All 233 SMSA’s....................................................... 110.2 128.0 131.0 145.8 146.4 147.2 r153.3 154.1 7 New York City........................................................ 269.8 312.8 351.8 393.7 416.2 395.1 419.8 443,5 8 232 SMSA’s.............................................................. 75.8 86.6 84.7 94.0 89.8 93.1 r94.0 94.4 9 6 leading SMSA’s other than N.Y.C.1.............. 115.0 131.8 118.4 136.1 126.6 131.7 136.9 133.5 10 226 others.............................................................. 60.6 69.3 71.6 77.7 75.6 78.3 m .i 79.3 1 Boston, Philadelphia, Chicago, Detroit, San Francisco-Oakland, and Note.—Total SMSA’s includes some cities and counties not designated Los Angeles-Long Beach. as SMSA’s. 2 Excludes interbank and U.S. Govt, demand deposit accounts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Financial Statistics □ March 1977 1.21 MONEY STOCK MEASURES AND COMPONENTS Billions of dollars; averages of daily figures 1976 1973 1974 1975 Dec. Dec. Dec. Item July Aug. Sept. Oct. Nov. Dec. Jan. 3 Seasonally adjusted r MEASURES i 1 M-l...................................... 270.5 283.1 294.8 305.0 306.3 306.6 310.1 310.1 312.2 313.6 2 M-2...................................... 571.4 612.4 664.3 705.2 710.5 716.5 725.9 732.0 739.7 745.4 3 M-3...................................... 919.6 981.5 1,092.9 1.169.2 1,181.4 1.194.5 1.211.2 1,223.6 1,236.9 1.248.4 4 M-4...................................... 634.4 701.4 746.5 774.1 775.5 779.5 788.2 794.3 803.0 808.4 5 M-5...................................... 982.5 1,070.5 1,175.1 1.238.2 1,246.3 1.257.6 1,273.6 1,285.8 1,300.2 1.311.5 COMPONENTS 6 Currency.............................. 61.5 67.8 73.7 78.1 78.6 79.2 79.9 80.3 80.7 81.3 Commercial bank deposits: 7 Demand........................... 209.0 215.3 221.0 226.8 227.7 227.4 230.3 229.8 231.6 232.3 8 Time and savings............... 363.9 418.3 451.7 469.1 469.1 472.9 478.1 484.2 490.7 494.8 9 Negotiable CD’s2........ 63.0 89.0 82.1 68.9 65.0 63.1 62.3 62.2 63.3 63.1 10 Other............................. 300.9 329.3 369.6 400.2 404.1 409.9 415.8 421.9 427.4 431.8 11 Nonbank thrift institutions3 348.1 369.1 428.6 464.0 470.9 478.0 485.3 491.6 497.3 503.1 Not seasonally adjusted r MEASURES i 12 M-l........................................................... 278.3 291.3 303.2 305.3 303.3 304.6 309.0 312.1 321.1 319.5 13 M-2........................................................... 576.5 617.5 669.3 705.7 707.3 712.8 723.0 729.7 744.7 750.3 14 M-3........................................................... 921.8 983.8 1,094.6 1,173.7 1,178.6 1,189.2 1,205.5 1,216.5 1,237.7 1,250.9 15 M-4........................................................... 640.5 708.0 752.8 774.6 773.6 778.1 787.1 792.6 809.0 813.4 16 M-5........................................................... 985.8 1,074.3 1,178.1 1,242.6 1,244.9 1,254.5 1,269.7 1,279.4 1,302.0 1,314.1 COMPONENTS 17 Currency.................................................. 62.7 69.0 75.1 78.7 78.9 79.0 79.7 80.8 82.2 80.7 Commercial bank deposits: 18 Demand........................................... 215.7 222.2 228.1 226.6 224.4 225.6 229.3 231.2 239.0 238.8 19 Member........................................... 156.5 159.7 162.1 160.1 158.4 159.0 161.7 162.6 168.5 168.2 20 Domestic nonmember.................. 56.3 58.5 62.6 62.5 62.1 62.9 63.9 64.8 66.4 66.6 21 Time and savings................................ 362.2 416.7 449.6 469.2 470.3 473.5 478.2 480.5 487.8 493.9 22 Negotiable CD’s2......................... 64.0 90.5 83.5 68.9 66.3 65.3 64.2 62.9 64.3 63.1 23 Other................................................ 298.2 326.3 366.2 400.3 404.0 408.2 414.0 417.6 423.5 430.7 24 Nonbank thrift institutions3______ 345.3 366.3 425.3 468.0 471.3 476.4 482.6 486.8 493.1 500.6 25 U.S. Govt, deposits (all commercial banks).............................................. 6.3 4.9 4.1 3.4 3.7 4.9 3.9 4.0 4.4 3.8 1 Composition of the money stock measures is as follows: For a description of the latest revisions in the money stock measures, see “Revision of Money Stock Measures” on pp. 82-87 of the February M-l: Averages of daily figures for (1) demand deposits of commercial 1976 Bulletin. banks other than domestic interbank and U.S. Govt., less cash items in Latest monthly and weekly figures are available from the Board’s H.6 process of collection and F.R. float; (2) foreign demand balances at F.R. release. Back data are available from the Banking Section, Division of Banks; and (3) currency outside the Treasury, F.R. Banks, and vaults Research and Statistics. of commercial banks. Data in this series have been revised; for further details see “Announce­ M-2: M-l plus savings deposits, time deposits open account, and time ments”, page 305. certificates of deposits (CD’s) other than negotiable CD’s of $100,000 or 2 Negotiable time CD’s issued in denominations of $100,000 or more more of large weekly reporting banks. by large weekly reporting commercial banks. M-3: M-2 plus the average of the beginning and end-of-month deposits 3 Average of the beginning- and end-of-month figures for deposits of of mutual savings banks, savings and loan shares, and credit union shares mutual savings banks, for savings capital at savings and loan associations, (nonbank thrift). and for credit union shares. M-4: M-2 plus large negotiable CD’s. M-5: M-3 plus large negotiable CD’s. NOTES TO TABLE 1.23: 1 Adjusted to exclude domestic commercial interbank loans. “Other securities,” and $600 million in “Total loans and investments.” 2 Loans sold are those sold outright to banks’ own foreign branches, As of Oct. 31, 1974, “Total loans and investments” of all commercial nonconsolidated nonbank affiliates of the bank, the banks’ holding banks were reduced by $1.5 billion in connection with the liquidation company (if not a bank), and nonconsolidated nonbank subsidiaries of of one large bank. Reductions in other items were: “Total loans,” $1.0 the holding company. Prior to Aug. 28, 1974, the institutions included billion (of which $0.6 billion was in “Commercial and industrial loans”), had been defined somewhat differently, and the reporting panel of banks and “Other securities,” $0.5 billion. In late November “Commercial and was also different. On the new basis, both “Total loans” and “Com­ industrial loans” were increased by $0.1 billion as a result of loan re­ mercial and industrial loans” were reduced by about $100 million. classifications at another large bank. 3 Reclassification of loans reduced these loans by about $1.2 billion as of Mar. 31, 1976. Note.—Data are for last Wednesday of month except for June 30 4 Data beginning June 30, 1974, include one large mutual savings and Dec. 31; data are partly or wholly estimated except when June 30 bank that merged with a nonmember commercial bank. As of that date and Dec. 31 are call dates. there were increases of about $500 million in loans, $100 million in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

M onetary Aggregates A15 1.22 AGGREGATE RESERVES AND DEPOSITS Member Banks Billions of dollars; averages of daily figures 1976 1977 Item 1973 1974 1975 Dec. Dec. Dec. June July Aug. Sept. Oct. Nov. Dec. Jan. Seasonally adjustedr 1 34.94 33.60 34.73 34.29 34.34 34.51 34.34 34.51 34.85 34.95 34.78 2 33.64 35.87 34.60 34.16 34.21 34.41 34.27 34.41 34.78 34.90 34.71 3 Required................................................................. 34.64 36.34 34.47 34.07 34.11 34.31 34.14 34.29 34.59 34.68 34.51 4 Deposits subject to reserve requirements 2................ 442.3 486.2 505.4 513.0 514.1 514.2 515.6 520.0 524.9 529.6 532.5 5 Time and savings................................................... 210.5 322.1 337.9 341.9 343.5 341.7 343.3 346.2 350.2 355.0 357.3 Demand: 6 Private................................................................. 158.1 160.6 164.5 167.5 167.9 168.6 168.7 170.4 170.7 171.4 172.5 7 U.S. Govt............................................................ 5.0 3.5 3.0 3.6 2.7 3.9 3.6 3.4 4.0 3.2 2.7 8 Deposits plus nondeposit items 3.............................. 448.9 495.6 513.8 521.4 522.9 523.2 523.9 529.2 534.2 539.1 541.1 Not seasonally adjusted r 9 Deposits subject to reserve requirements 2................ 447.5 491.8 510.9 512.7 513.9 511.3 514.9 518.9 522.5 534.8 537.7 10 Time and savings.................................................... 278.5 321.7 337.2 342.5 343.7 342.7 344.1 346.7 347.6 353.6 357.0 Demand: 11 Private................................................................. 164.0 166.6 170.7 166.7 167.7 165.9 167.2 169.5 171.9 177.9 177.8 12 U.S. Govt............................................................ 5.0 3.5 3.1 3.6 2.5 2.7 3.6 2.9 2.9 3.3 2.9 13 Deposits plus non deposit items 3............................... 454.0 500.1 519.3 521.2 522.8 520.3 523.3 528.1 531.8 544.2 546.3 1 Series reflects actual reserve requirement percentages with no adjust­ 3 “Total member bank deposits” subject to reserve requirements, plus ment to eliminate the effect of changes in Regulations D and M. There Euro-dollar borrowings, loans sold to bank-related institutions, and are breaks in series because of changes in reserve requirements effective certain other nondeposit items. This series for deposits is referred to as Dec. 12, 1974; Feb. 13, May 22, and Oct. 30, 1975; and Jan. 8, 1976. “the adjusted bank credit proxy.” In addition, effective Jan. 1, 1976, statewide branching in New York was instituted. The subsequent merger of a number of banks raised Note.—Back data and estimates of the impact on required reserves required reserves because of higher reserve requirements on aggregate of changes in reserve requirements are shown in Table 14 of the Board’s deposits at these banks. Annual Statistical Digest, 1971-1975. Data in this series have been revised; 2 Includes total time and savings deposits and net demand deposits as for further details see “Announcements”, page 305. defined by Regulation D. Private demand deposits include all demand deposits except those due to the U.S. Govt., less cash items in process of collection and demand balances due from domestic commercial banks. 1.23 LOANS AND INVESTMENTS All Commercial Banks Billions of dollars; last Wednesday of month except for June 30 and Dec. 31 1976 1977 1973 4 1974 1975 Dec. 31 Dec. 31 Dec. 31 Category Aug. 25 Sept. 29 Oct. 27 Nov. 24 Dec. 31 Jan. 26 Feb. 23 P V p V p p p Seasonally adjusted 1 Loans and investments1......................................... 633.4 690.4 721.1 748.7 752.5 760.3 766.3 767.5 773.1 782.8 2 Including loans sold outright2.......................... 637.7 695.2 725.5 752.8 756.6 764.3 770.3 771.6 111 A 787.0 Loans: 3 Total................................................................... 449.0 500.2 496:9 507.6 511.4 519.3 521.8 521.6 528.4 532.9 4 Including loans sold outright2...................... 453.3 505.0 501.3 511.7 515.5 523.3 525.8 525.7 532.7 537.1 5 Commercial and industrial3............................. 156.4 183.3 176.0 171.0 172.0 174.8 176.7 176.2 177.1 178.6 6 Including loans sold outright2,3................... 159.0 186.0 178.5 173.6 174.6 177.4 179.3 178.8 180.0 1-81.5 Investments: 7 U.S. Treasury..................................................... 54.5 50.4 79.4 95.0 94.0 93.5 94.3 96.5 95.7 100.2 8 Other................................................................... 129.9 139.8 144.8 146.1 147.1 147.5 150.2 149.4 149.0 149.7 Not seasonally adjusted 9 Loans and investments1......................................... 647.3 705.6 737.0 746.1 752.9 758.7 766.0 784.4 111 A 776.6 10 Including loans sold outright........................... 651.6 710.4 741.4 750.2 757.0 762.7 770.0 788.5 775.7 780.8 Loans: 11 Total1................................................................. 458.5 510.7 507.4 508.5 513.3 518.2 520.6 532.6 523.6 526.5 12 Including loans sold outright2...................... 462.8 515.5 511.8 512.6 517.4 522.2 524.6 536.7 527.9 530.7 13 Commercial and industrial3............................. 159.4 186.8 179.3 170.3 172.5 174.2 176.0 179.5 175.2 176.8 14 Including loans sold outright2,3................... 162.0 189.5 181.8 172.9 175.1 176.8 178.6 182.1 178.1 179.7 Investments: 15 U.S. Treasury..................................................... 58.3 54.5 84.1 91.8 92.6 93.5 96.9 101.7 99.8 101.3 16 Other.................................................................. 130.6 140.5 145.5 145.8 147.0 147.0 148.6 150.2 148.0 148.7 For notes see bottom of opposite page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics □ March 1977 1.24 COMMERCIAL BANK ASSETS AND LIABILITIES Last-Wednesday-of-Month Series Billions of dollars, except for number of banks 1974 1975 1976 3 1977 Account Dec. 31 Dec. 31 June 30? July 28? Aug. 25? Sept. 29? Oct. 27?Nov. 24? Dec. 29p Jan. 26?Feb.23? All commerical 1 Loans and investments............. 744.1 775.8 779.8 772.5 782.1 790.4 796.9 805.6 826.4 811.5 818.7 2 Loans, gross......................... 549.2 546.2 543.7 537.6 544.5 550.8 556.4 560.2 576.0 563.7 568.7 Investments: 3 U.S. Treasury securities. . 54.5 84.1 90.8 89.5 91.8 92.6 93.5 96.9 101.2 99.8 101.3 4 Other................................. 140.5 145.5 145.3 145.5 145.8 146.9 147.0 148.6 149.2 148.0 148.7 5 Cash assets............................... 128.0 133.6 125.2 111.5 109.1 118.7 115.2 124.3 128.7 117.8 124.3 6 Currency and coin............... 11.7 12.3 12.0 12.2 12.0 12.2 12.5 11.8 13.9 12.6 12.3 7 Reserves with F.R. Banks.. 27.1 26.8 27.1 28.0 25.4 29.7 26.4 29.1 29.9 28.6 28.7 8 Balances with banks............ 42.0 47.3 40.4 34.6 36.1 36.1 36.7 40.2 39.8 37.2 39.2 9 Cash items in process of collection.. 47.3 47.3 45.7 36.7 35.6 40.6 39.5 43.3 45.1 39.4 44.2 10 Total assets/total liabilities and capital1................................. 919.6 964.9 957.1 934.3 940.5 960.0 962.6 982.9 1,010.8 983.4 997.8 11 Deposits.................................... 747.9 786.3 782.8 761.2 759.4 773.3 777.9 789.1 812.4 792.2 800.3 Demand: 12 Interbank.......................... 43.5 41.8 38.3 33.1 33.4 35.2 34.8 39.9 39.1 35.7 37.0 13 U.S. Govt......................... 4.8 3.1 4.7 3.5 3.7 5.8 3.7 3.3 3.4 3.9 3.7 14 Other................................. 267.5 278.7 266.4 250.6 247.4 252.9 258.2 260.8 275.9 256.9 260.8 Time: 15 Interbank............................ 11.5 12.0 10.6 10.2 9.7 9.5 9.1 9.0 9.2 8.8 8.6 16 Other................................... 420.6 450.6 462.9 463.8 465.3 469.9 472.2 476.1 484.8 486.8 490.3 17 Borrowings................................. 58.4 60.2 65.9 66.8 72.3 77.5 76.0 83.6 88.0 81.2 86.8 18 Total capital accounts2............. 63.7 69.1 72.1 72.2 72.5 73.1 73.7 74.1 75.0 75.5 75.4 19 Memo: Number of banks......... 14,465 14,633 14,636 14,635 14,649 14,655 14,659 14,674 14,671 14,671 14,671 Member 20 Loans and investments............... 568.5 578.6 577.5 570.1 578.2 583.6 588.6 595.3 612.7 598.8 603.7 21 Loans, gross........................... 429.5 416.4 411.7 405.3 410.8 415.1 419.5 421.9 435.3 424.2 427.8 Investments: 22 U.S. Treasury securities. .. 38.9 61.5 65.6 64.4 66.7 67.0 67.7 70.8 74.3 72.6 73.7 23 Other................................... 100.1 100.7 100.2 100.3 100.7 101.5 101.4 102.6 103.1 102.0 102.3 24 Cash assets, total....................... 107.0 108.5 104.0 92.3 89.4 98.9 94.9 103.0 107.6 97.7 102.8 25 Currency and coin................. 8.8 9.2 9.0 9.1 9.0 9.2 9.4 8.9 10.5 9.5 9.3 26 Reserves with F.R. Banks. . . 27.1 26.8 27.1 28.0 25.4 29.8 26.4 29.1 29.9 28.6 28.6 27 Balances with banks.............. 25.5 26.9 23.8 19.6 20.5 20.6 20.9 23.3 23.5 21.5 22.2 28 Cash items in process of collection.. 45.6 45.5 44.1 35.5 34.4 39.3 38.2 41.8 43.7 38.1 42.7 29 Total assets/total liabilities and capital i................................... 715.6 733.6 726.8 706.2 710.7 726.8 727.6 744.8 769.1 744.6 755.1 30 Deposits...................................... 575.6 590.8 585.3 565.1 562.4 573.9 576.1 584.8 604.6 587.0 592.0 Demand: 31 Interbank............................ 41.1 38.6 35.6 30.7 30.9 32.7 32.2 37.2 36.4 33.1 34.1 32 U.S. Govt........................... 3.2 2.3 3.7 2.7 2.8 4.3 2.9 2.4 2.5 3.0 2.7 33 Other................................... 204.2 210.8 202.1 188.6 185.9 191.0 194.7 196.0 208.6 193.7 196.6 Time: 34 Interbank............................ 10.1 10.0 8.6 8.1 7.6 7.5 7.1 7.0 7.2 6.8 6.6 35 Other................................... 317.1 329.1 335.4 334.9 335.1 338.4 339.2 342.1 349.9 186.9 351.9 36 Borrowings................................. 52.9 53.6 59.3 60.3 65.9 70.6 69.1 76.4 80.4 73.6 78.0 37 Total capital accounts2.............. 48.2 52.1 55.0 55.1 55.4 55.7 56.2 56.6 57.3 57.7 57.9 38 Memo: Number of banks........ 5,780 5,788 5,776 5,767 5,771 5,773 5,768 5,767 5,759 5,759 5,759 1 Includes items not shown separately. Note.—Figures include all bank-premises subsidiaries and other sig­ Effective Mar. 31, 1976, some of the item “reserve for' loan losses” nificant majority-owned domestic subsidiaries. and all of the item “unearned income on loans” are no longer reported Commercial banks: All such banks in the United States, including as liabilities. As of that date the “valuation” portion of “reserve for member and nonmember banks, stock savings banks, nondeposit trust loan losses” and the “unearned income on loans” have been netted companies, and U.S. branches of foreign banks, but excluding one na­ against “other assets,” and against “total assets” as well. tional bank in Puerto Rico and two in the Virgin Islands. Total liabilities continue to include the deferred income tax portion of Member banks: The following numbers of noninsured trust companies “reserve for loan losses.” that are members of the Federal Reserve System are excluded from mem­ 2 Effective Mar. 31, 1976, includes “reserves for securities” and the ber banks in Tables 1.24 and 1.25 and are included with noninsured banks contingency portion (which is small) of “reserve for loan losses.” in Table 1.25: 1974—June, 2; December, 3; 1975—June and December, 3 Figures partly estimated except on call dates. 4; 1976 (beginning month shown)—July, 5. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banks A17 1.25 COMMERCIAL BANK ASSETS AND LIABILITIES Call-Date Series Millions of dollars except for number of banks 1974 1975 1976 1974 1975 1976 Account Dec. 31 June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31 June 30 Total insured National (all insured) 1 734,516 736,164 762,400 773,696 428,433 428,167 441,135 443,955 Loans: 2 Gross............................................................... 541,111 526,272 535,170 539,017 321,466 312,229 315,738 315,624 3 Net................................................................... (2) (2) (2) 520,970 (2) (2) (2) 305,275 Investments: 4 U.S. Treasury securities................................. 54,132 67,833 83,629 87.413 29,075 37,606 46,799 47,409 5 Other............................................................... 139,272 142,060 143,602 147,266 77,892 78,331 78,598 80,922 6 125,375 125,181 128,256 124,072 76,523 75,686 78,026 75,488 7 Total assets/total liabilities1.................................. 906,325 914,781 944,654 942,511 534,207 536,836 553,285 548,698 8 741,665 746,348 775,209 776,957 431,039 431,646 447,590 444,251 Demand: 9 U.S. Govt....................................................... 4,799 3,106 3,108 4,622 2,437 1,723 1,788 2,858 10 Interbank........................................................ 42,587 41,244 40,259 37,503 23,497 21,096 22,305 20,329 11 Other............................................................... 265,444 261,903 276,384 265,670 154,397 152,576 159,840 152,382 Time: 12 10,693 10,252 10,733 9,407 6,750 6,804 7,302 5,532 13 Other............................................................... 418,142 429,844 444,725 459,753 243,959 249,446 256,355 263,148 14 55,988 59,310 56,775 63,824 39,603 41,954 40,875 45,184 15 63,039 65,986 68,474 68,990 35,815 37,483 38,969 39,504 16 Memo: Number of banks..................................... 14,216 14,320 14,372 14,373 4,706 4,730 4,741 4,747 State member (all insured) Insured nonmember 17 Loans and investments, Gross............................... 140,373 134,759 137,620 136,915 165,709 173,238 183,645 192,825 Loans: 18 Gross............................................................... 108,346 100,968 100,823 98,889 111,300 113,074 118,609 124,503 19 Net................................................................... (2) (2) (2) 96,036 (2) (2) (2) 119,658 Investments: 20 U.S. Treasury securities................................. 9,846 12,004 14,720 15,096 15,211 18,223 22,109 24,907 21 Other............................................................... 22,181 21,787 22,077 22,929 39,199 41,942 42,927 43,414 22 Cash assets.............................................................. 30,473 31,466 30,451 30,422 18,380 18,029 19,778 18,161 23 181,683 179,787 180,495 179,644 190,435 198,157 210,874 214,167 24 Deposits.................................................................. 144,799 141,995 143,409 142,061 165,827 172,707 184,210 190,644 Demand: 25 U.S. Govt....................................................... 746 443 467 869 1,616 940 853 894 26 17,565 18,751 16,265 15,834 1,525 1,397 1,689 1,339 27 Other............................................................... 49,807 48,621 50,984 49,658 61,240 60,706 65,560 63,629 Time: 28 Interbank........................................................ 3,301 2,771 2,712 3,074 642 676 719 799 29 Other............................................................... 73,380 71,409 72,981 72,624 100,804 108,989 115,389 123,980 30 Borrowings............................................................. 13,247 14,380 12,771 15,300 3,138 2,976 3,128 3,339 31 Total capital accounts............................................ 12,425 12,773 13,105 12,790 14,799 15,730 16,400 16,696 32 Memo: Number of banks..................................... 1,074 1,064 1,046 1,029 8,436 8,526 8,585 8,597 Noninsured nonmember Total nonmember 33 9,981 11,725 13,674 15,905 175,690 184,963 197,319 208,730 Loans: 34 Gross............................................................... 8,461 9,559 11,283 13,209 119,761 122,633 129,892 137,712 35 Net................................................................... (2) (2) (2) 13,092 (2) (2) (2) 132,751 Investments: 36 U.S. Treasury securities................................. 319 358 490 472 15,530 18,581 22,599 25,379 37 Other............................................................... 1,201 1,808 1,902 2,223 40,400 43,750 44,829 45,637 38 2,667 3,534 5,359 4,362 21,047 21,563 25,137 22,524 39 Total assets/total liabilities.................................... 13,616 16,277 20,544 21,271 204,051 214,434 231,418 235,439 40 6,627 8,314 11,323 11,735 172,454 181,021 195,533 202,380 Demand: 41 U.S. Govt........................................................ 8 11 6 4 1,624 951 859 899 42 Interbank........................................................ 897 1,338 1,552 1,006 2,422 2,735 3,241 2,346 43 2,062 2,124 2,308 2,555 63,302 62,830 67,868 66,184 Time: 44 Interbank........................................................ 803 957 1,291 1,292 1,445 1,633 2,010 2,092 45 2,857 3,883 6,167 6,876 103,661 112,872 121,556 130,857 46 Borrowings............................................................. 2,382 3,110 3,449 3,372 5,520 6,086 6,577 6,711 47 Total capital accounts............................................ 611 570 651 663 15,410 16,300 17,051 17,359 48 Memo: Number of banks..................................... 249 253 261 270 8,685 8,779 8,846 8,867 1 Includes items not shown separately. For Note see Table 1.24. 2 Not available. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Financial Statistics □ March 1977 1.26 COMMERCIAL BANK ASSETS AND LIABILITIES Detailed Balance Sheet, June 30, 1976 Asset and liability items are shown in millions of dollars Member banks 1 All Insured Non- Asset account commercialcommercial Large banks member banks banks banks 1 Total All other New York City of Other City Chicago large 1Cash bank balances, items in process..................... 128,435 124,072 105,911 26,914 4,699 41,097 33,201 22,524 2 Currency and coin............................................... 11,984 11,972 8,987 686 184 3,054 5,063 2,997 3 28,212 28,212 28,212 4,956 2,174 11,508 9,575 4 Demand balances with banks in United States.. 30,921 28,765 17,838 6,562 286 3,351 7,639 13,083 5 Other balances with banks in United States.... 6,833 6,041 3,818 93 7 1,478 2,240 3,015 6 Balances with banks in foreign countries.......... 4,948 3,623 3,179 327 33 1,767 1,052 1,769 7 Cash items in process of collection.................... 45,537 45,459 43,877 14,290 2,016 19,939 7,633 1,660 8 Total securities held—Book value........................... 235,836 233,184 165,113 18,349 7,553 53,364 85,847 70,723 9 U.S. Treasury....................................................... 91,420 90,948 66,013 9,209 3,766 22,163 30,875 25,408 10 Other U.S. Govt, agencies.................................. 34,264 33,729 20,706 996 348 5,880 13,482 13,558 11 States and political subdivisions......................... 102,994 102,694 74,465 7,718 3,225 24,322 39,201 28,529 12 All other securities.............................................. 6,995 5,701 3,849 425 214 970 2,239 3,146 n 162 113 80 30 50 83 14 Trading-account securities.................................... 5,795 5,745 5,654 2,612 678 2,103 261 141 15 3,535 3,535 3,507 1,950 494 970 93 28 16 Other U.S. Govt, agencies.............................. 665 665 659 244 44 342 28 6 17 States and political subdivisions..................... 1,043 1,043 1,025 316 80 557 73 17 18 All other trading acct. securities..................... 391 391 383 103 60 204 17 8 19 162 113 80 30 50 83 20 Bank investment portfolios.................................. 230,041 227,439 159,460 15,737 6,875 51,261 85,586 70,582 21 U.S. Treasury................................................... 87,886 87,413 62,506 7,260 3,272 21,193 30,782 25,380 22 Other U.S. Govt, agencies.............................. 33,600 33,064 20,047 752 304 5,538 13,454 13,552 23 States and political subdivisions..................... 101,952 101,651 73,440 7,403 3,145 23,764 39,128 28,512 24 All other portfolio securities........................... 6,604 5,310 3,466 323 155 766 2,223 3,138 25 F.R. stock and corporate stock............................. 1,539 1,495 1,244 248 78 470 448 295 26 Federal funds sold and securities resale agreement.. 36,120 34,262 26,819 1,929 1,150 14,110 9,630 9,300 27 Commercial banks................................................ 30,954 29,471 22,170 1,094 1,016 10,937 9,124 8,784 28 Brokers and dealers............................................. 2,658 2,459 2,376 180 108 1,703 384 283 29 Others................................................................... 2,507 2,333 2,273 655 26 1,470 123 234 30 Other loans, gross.................................................... 516,107 504,755 387,695 67,105 20,802 147,088 152,699 128,412 31 Less: Unearned income on loans....................... 12,000 11,941 8,286 471 81 2,824 4,910 3,714 32 Reserves for loan loss............................... 6,163 6,105 4,916 1,112 331 1,830 1,642 1,248 33 Other loans, net.................................................... 497,944 486,709 374,493 65,522 20,390 142,434 146,148 123,451 Other loans, gross, by category 34 Real estate loans.................................................. 141,964 141,737 100,545 8,693 1,988 36,933 52,930 41,419 35 Construction and land development.............. 16,568 16,562 13,586 3,119 532 6,352 3,584 2,981 36 Secured by farmland........................................ 6,355 6,344 2,717 2 14 288 2,413 3,638 37 Secured by residential...................................... 80,203 80,062 57,630 3,976 922 21,168 31,563 22,573 38 1- to 4-family residences............................... 75,826 75,692 54,450 3,563 821 20,034 30,032 21,376 39 FHA-insured or VA-guaranteed............. 8,297 8,262 7,150 533 52 3,958 2,607 1,147 40 Conventional............................................ 67,529 67,429 47,300 3,030 769 16,076 27,425 20,229 41 Multifamily residences.................................. 4,377 4,371 3,180 413 101 1,134 1,531 1,197 42 412 411 321 121 25 99 77 90 43 Conventional............................................ 3,965 3,960 2,859 293 76 1,035 1,455 1,107 44 Secured by other properties............................ 38,839 38,769 26,612 1,596 521 9,125 15,370 12,227 45 Loans to financial institutions.............................. 41,609 36,645 34,684 12,206 4,548 14,980 2,949 6,925 46 To REIT’s and mortgage companies............. 10,556 10,510 10.172 3,753 1,457 4,193 769 384 47 To domestic commercial banks...................... 5,182 3,201 2,527 806 138 1,215 369 2,655 48 To banks in foreign countries......................... 8,625 6,076 5,907 2,297 324 2,873 413 2,718 49 To other depositary institutions..................... 1,637 1,572 1,424 185 25 1,064 151 212 50 To other financial institutions......................... 15,608 15,285 14,652 5,165 2,605 5,635 1,248 956 51 Loans to security brokers and dealers............... 7,743 7,521 7,390 4,535 987 1,734 134 353 52 Other loans to purch./carry securities............... 4,032 4,018 3,373 428 314 1,720 911 659 53 Loans to farmers—except real estate................. 22,174 22,149 12,380 77 135 2,988 9,179 9,795 54 Commercial and industrial loans....................... 174,384 169,345 140,087 33,896 10,435 55,517 40,239 34,297 55 Loans to individuals............................................ 110,393 110,031 77,597 4,680 1,627 27,854 43,435 32,796 56 Instalment loans.................................................... 87,465 87,141 61,238 3,322 916 22,383 34,617 26,227 57 Passenger automobiles................................. 36,951 36,685 24,065 510 150 7,291 16,114 12,886 58 Residential-repair/modernize...................... 6,107 6,106 4,320 263 37 1,747 2,274 1,787 59 Credit cards and related plans.................... 12,196 12,193 10,746 1,127 534 6,112 2,973 1,450 60 Charge-account credit cards.................... 9,517 9,516 8,540 817 504 4,987 2,232 977 61 Check and revolving credit plans........... 2,680 2,677 2,206 310 30 1,125 741 473 62 Other retail consumer goods....................... 15,536 15,526 10,730 203 86 3,884 6,557 4,805 63 Mobile homes........................................... 8,720 8,719 6,238 112 33 2,300 3,792 2,483 64 Other......................................................... 6,815 6,807 4,493 91 52 1,584 2,765 2,323 65 Other instalment loans................................ 16,675 16,630 11,376 1,219 109 3,350 6,698 5,299 66 Single-payment loans to individuals............... 22,927 22,891 16,358 1,358 711 5,471 8,818 6,569 67 All other loans..................................................... 13,807 13,309 11,639 2,589 766 5,362 2,922 2,168 68 Total loans and securities, net................................. 771,439 755,650 567,670 86,047 29,171 210,378 242,074 203,769 69 Direct lease financing.............................................. 4,675 4,675 4,455 983 128 2,714 630 221 70 Fixed assets—Buildings, furniture, real estate.... 18,585 18,484 13,902 1,626 611 5,605 6,060 4,683 71 Investment in unconsolidated subsidiaries............ 2,107 2,104 2,063 827 160 1,005 70 44 72 Customer acceptances outstanding......................... 10,682 10,316 9,990 5,278 517 3,924 111 692 73 Other assets.............................................................. 27,861 27,210 24,353 9,081 1,627 9,775 3,871 3,507 74 Total assets............................................................... 963,783 942,511 728,344 130,756 36,912 274,499 286,177 235,440 For notes see opposite page. 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Commercial Banks A19 1.26 Continued Member banks 1 All Insured Liability or capital commercialcommercial Large banks account banks banks Non- Total member New York City of Other All other banks 1 City Chicago large 75 Demand deposits...................................................... 311,363 307,796 241,932 54,110 9,807 87,697 90,318 69,431 76 Mutual savings banks.............................................. 1,299 1,113 1,014 491 2 229 291 286 77 Other individuals, partnerships, and corporations.................................................. 236,614 235,547 179,037 29,740 7,268 67,579 74,449 57,577 78 U.S. Govt............................................................. 4,627 4,623 3,728 474 154 1,604 1,496 900 79 States and political subdivisions......................... 17,336 17,216 12,278 620 155 3,732 7,770 5,058 80 Foreign governments, central banks, etc............ 1,757 1,295 1,250 981 21 230 17 507 81 Commercial banks in United States................... 30,870 30,573 29,454 13,524 1,781 10,589 3,560 1,416 82 Banks in foreign countries.................................. 6,341 5,817 5,697 4,240 148 1,192 117 644 83 Certified and officers’ checks, etc........................ 12,520 11,612 9,477 4,038 278 2,542 2,619 3,043 84 Time deposits............................................................ 293,204 285,431 212,740 32,483 13,165 77,746 89,347 80,464 85 Accumulated for personal loan payments.......... 171 171 136 13 123 35 86 Mutual savings banks......................................... 481 458 445 266 7 135 36 36 87 Other individuals, partnerships, and corporations.................................................. 227,578 222,500 163,935 22,766 9,494 58,633 73,042 63,643 88 U.S. Govt............................................................. 678 678 550 77 1 251 220 128 89 States and political subdivisions......................... 43,942 43,653 30,739 803 1,106 13,711 15,121 13,203 90 Foreign governments, central banks, etc........... 10,143 9,029 8,778 5,255 1,295 2,187 41 1,366 91 Commercial banks in United States................... 8,082 7,522 6,797 2,613 1,162 2,337 685 1,285 92 Banks in foreign countries.................................. 2,129 1,419 1,360 702 100 478 80 769 93 Savings deposits....................................................... 184,126 183,730 131,640 8,752 2,715 48,362 71,811 52,486 94 Individuals and nonprofit organizations............ 175,381 174,995 125,270 8,332 2,611 45,993 68,334 50,111 95 Corporations and other profit organizations. . . 6,049 6,043 4,521 262 95 1,982 2,182 1,529 96 U.S. Govt............................................................. 2,648 2,645 1,805 130 9 376 1,290 843 97 All other............................................................... 47 47 44 28 11 4 4 98 Total deposits........................................................... 788,693 776,957 586,312 95,345 25,687 213,805 251,476 202,381 99 Federal funds purchased and securities sold under agreements to repurchase............................... 60,719 58,944 55,906 11,224 7,215 29,308 8,158 4,813 100 Commercial banks............................................. 35,182 33,936 32,667 6,445 4,883 17,374 3,965 2,514 101 Brokers and dealers........................................... 8,053 7,976 7,512 735 1,073 4,903 801 542 102 Others................................................................. 17,484 17,031 15,727 4,045 1,259 7,032 3,392 1,757 103 Other liabilities for borrowed money................... 6,478 4,881 4,579 2,243 80 1,806 450 1,899 104 Mortgage indebtedness.......................................... 789 787 577 53 16 316 192 212 105 Bank acceptances outstanding.............................. 11,287 10,917 10,591 5,854 525 3,938 274 696 106 Other liabilities...................................................... 21,262 16,198 14,148 4,736 892 5,575 2,945 7,114 107 Total liabilities........................................................ 889,228 868,684 672,114 119,456 34,415 254,749 263,495 217,114 108 Subordinated notes and debentures..................... 4,901 4,837 3,935 1,099 83 1,752 1,001 966 109 Equity capital......................................................... 69,655 68,991 52,295 10,201 2,414 17,998 21,681 17,360 110 Preferred stock................................................... 81 75 34 10 24 47 111 Common stock.................................................. 15,963 15,843 11,723 2,264 570 3,894 4,995 4,239 112 Surplus............................................................... 27,903 27,648 20,676 3,966 1,155 7,509 8,047 7,226 113 Undivided profits............................................... 23,842 23,630 18,566 3,858 645 6,154 7,909 5,276 114 Other capital reserves........................................ 1,867 1,794 1,296 114 44 431 706 571 115 Total liabilities and equity capital......................... 963,783 942,511 728,344 130,756 36,912 274,499 286,177 235,440 Memo: 116 Demand deposits adjusted 2................................. 230,329 227,142 164,874 25,822 5,857 55,566 77,629 65,455 Average for last 15 or 30 days: 117 Cash and due from bank.................................. 123,703 119,246 102,291 26,314 4,360 39,625 31,992 21,412 118 Federal funds sold and securities purchased under agreements to resell......................... 38,280 35,632 27,149 2,253 1,341 13,353 10,202 11,131 119 Total loans.......................................................... 502,155 490,759 377,741 66,363 20,569 143,388 147,421 124,414 120 Time deposits of $100,000 or more.................. 146,166 140,300 115,892 29,258 10,747 48,444 27,443 30,275 121 Total deposits..................................................... 775,140 763,837 574,789 89,888 25,003 209,900 249,999 200,350 122 Federal funds purchased and securities sold under agreements to repurchase................ 64,655 62,022 58,970 14,334 7,184 29,212 8,240 5,695 123 Other liabilities for borrowed money................ 6,485 4,782 4,474 2,064 87 1,957 367 2,011 124 Standby letters of credit outstanding................... 10,950 10,535 9,927 5,289 954 3,043 641 1,023 125 Time deposits of $100,000 or more...................... 146,783 141,105 117,342 28,910 11,159 49,561 27,712 29,441 126 Certificates of deposit........................................ 122,071 118,464 97,455 24,503 8,937 39,866 24,149 24,616 127 Other time deposits............................................ 24,712 22,641 19,887 4,407 2,221 9,696 3,563 4,825 128 Number of banks.................................................. 14,643 j 14,373 5,776 11 9 155 5,601 j 8,867 1 Member banks exclude and nonmember banks include 5 noninsured Note.—Data include consolidated reports, including figures for all trust companies that are members of the Federal Reserve System, and bank-premises subsidiaries and other significant majority-owned do­ member banks exclude 2 national banks outside the continental United mestic subsidiaries. Securities are reported on a gross basis before deduc­ States. tions of valuation reserves. Holdings by type of security will be reported 2 Demand deposits adjusted are demand deposits other than domestic as soon as they become available. commercial interbank and U.S. Govt., less cash items reported as in Back data in lesser detail were shown in previous Bulletins. Details process of collection. may not add to totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Financial Statistics □ March 1977 1.27 ALL LARGE WEEKLY REPORTING COMMERCIAL BANKS Assets and Liabilities Millions of dollars, Wednesday figures 1977 Jan. 5 Jan.12 Jan. 19 Jan. 26 Feb. 2 Feb. 9 Feb.16 Feb. 23 1Total loans and investments..................................... 415,647 413,172 410,576 404,350 407,711 404,696 408,196 406,950 Loans: 2 Federal funds sold1.............................................. 24,716 24,251 22,655 20,207 22,822 20,082 21,311 21,403 3 To commercial banks...................................... 20,159 18,553 17,676 16,232 17,026 15,906 16,856 17,212 To brokers and dealers involving— 4 U.S. Treasury securities............................... 2,505 3,193 3,029 2,058 2,805 2,223 2,536 2,086 5 Other securities............................................ 996 1,317 816 892 971 827 911 1,077 6 To others.......................................................... 1,056 1,188 1,134 1,025 2,020 1,126 1,008 1,028 7 Other, gross.......................................................... 288,576 285,976 286,369 284,078 286,032 284,798 285,968 285,152 8 Commercial and industrial............................. 116,896 115,437 115,136 114,422 114,771 114,840 115,027 115,339 9 Agricultural...................................................... 4,304 4,300 4,272 4,221 4,183 4,187 4,174 4,165 For purchasing or carrying securities: To brokers and dealers: 10 U.S. Treasury securities........................... 1,755 1,742 1,982 1,313 1,523 1,417 1,257 1,278 11 Other securities......................................... 7,528 7,557 8,042 7,559 8,075 7,832 8,475 7,582 To others: 12 U.S. Treasury securities........................... 83 80 76 74 75 75 77 76 13 2,533 2,531 2,526 2,532 2,540 2,540 2,520 2,516 To nonbank financial institutions: 14 Personal and sales finance cos., etc............. 7,394 7,011 6,936 6,885 7,112 7,071 7,002 6,978 15 Other............................................................. 16,586 16,296 16,154 16,240 16,152 16,128 16,002 15,846 16 Real estate........................................................ 63,690 63,753 63,908 63,966 63,945 64,118 64,365 64,413 To commercial banks: 17 Domestic....................................................... 1,813 1,733 1,781 1,883 2,003 1,702 1,777 1,790 18 Foreign.......................................................... 6,042 5,869 5,944 5,790 5,885 5,672 5,915 5,869 19 Consumer instalment....................................... 39,633 39,583 39,480 39,547 39,551 39,472 39,544 39,551 20 Foreign governments, official institutions, etc.. 1,939 1,991 1,872 1,900 1,95,2 1,897 1,884 1,857 21 18,380 18,093 18,260 17,746 18,265 17,847 17,949 17,892 22 Less : Loan loss reserve and unearned income on loans................................................ 8,536 8,531 8,551 8,555 8,561 8,613 8,673 8,686 23 Other loans, net.................................................... 280,040 277,445 277,818 275,523 277,471 276,185 277,295 276,466 Investments: 24 U.S. Treasury securities....................................... 50,038 50,333 49,622 48,185 47,615 48,147 49,273 48,822 25 Bills.................................................................... 13,721 13,487 12,851 11,836 11,121 10,993 10,583 10,281 Notes and bonds, by maturity: 26 7,223 7,205 7,255 7,269 7,577 7,654 7,681 7,805 27 1 to 5 years................................................... 24,962 25,307 25,253 24,883 24,631 25,512 26,914 26,785 28 4,132 4,334 4,263 4,197 4,286 3,988 4,095 3,951 29 Other securities.................................................... 60,853 61,143 60,481 60,435 59,803 60,282 60,317 60,259 Obligations of States and political subdivisions: 30 Tax warrants, short-term notes, and bills........................................................ 6,269 6,602 6,324 6,352 6,009 6,485 6,296 6,220 31 All other........................................................ 40,355 40,465 40,324 40,245 40,000 40,114 40,177 40,309 Other bonds, corporate stocks, and securities: 32 Certificates of participation2....................... 2,251 2,239 2,153 2,217 2,244 2,218 2,182 2,178 33 All other, including corporate stocks......... 11,978 11,837 11,680 11,621 11,550 11,465 11,662 11,552 34 Cash items in process of collection........................ 39,933 36,679 36,792 34,703 36,944 31,676 35,352 38,336 24,329 21,367 20,984 21,894 16,199 23,029 20,960 21,382 36 Currency and coin................................................... 5,756 5,908 5,779 5,759 5,273 5,265 5,459 5,634 37 Balances with domestic banks................................ 13,929 13,303 12,392 12,048 12,474 10,922 12,071 12,308 38 Investments in subsidiaries not consolidated........ 2,402 2,441 2,471 2,471 2,490 2,535 2,515 2,511 39 50,839 52,548 50,716 50,701 51,155 51,819 49,784 50,478 552,835 545,418 539,710 531,926 532,246 529,942 534,337 537,599 Deposits: 41 Demand deposits.................................................. 184,662 178,242 174,253 167,449 172,695 162,147 167,657 169,535 42 Individuals, partnerships, and corporations.. 131,982 128,675 125,906 120,612 123,671 120,055 121,955 122,731 43 States and political subdivisions..................... 6,397 5,970 6,391 5,997 6,816 6,046 6,147 6,178 44 U.S. Govt.......................................................... 2,721 1,930 3,077 2,070 1,467 1,255 2,006 1,710 Domestic interbank: 45 Commercial.................................................. 28,093 27,328 23,520 24,292 25,238 21,229 23,794 24,718 46 Mutual savings............................................. 1,040 942 889 836 951 796 802 790 Foreign: 47 Governments, official institutions, etc........ 1,463 1,344 1,276 1,264 1,172 869 793 1,114 48 Commercial banks....................................... 5,831 5,619 5,800 5,756 5,676 5,624 5,774 5,918 49 Certified and officers’ checks........................... 7,135 6,434 7,394 6,622 7,704 6,273 6,386 6,376 50 Time and savings deposits3.................................. 231,951 230,310 230,505 230,525 230,446 231,523 230,716 230,284 Individuals, partnerships, and corporations: 51 Savings.......................................................... 91,008 91,038 91,301 91,394 91,515 92,038 92,084 92,318 52 106,798 105,675 105,716 105,435 105,159 105,476 104,717 104,268 53 States and political subdivisions..................... 19,252 19,336 19,435 19,581 19,773 19,990 20,080 20,096 54 Domestic interbank.......................................... 5,520 5,306 5,265 5,352 5,358 5,410 5,323 5,176 55 Foreign governments, official institutions, etc. 8,019 7,626 7,436 7,472 7,352 7,293 7,178 7,078 56 Federal funds purchased, etc.4............................... 69,736 69,469 66,037 65,134 59,636 67,003 65,753 68,169 Borrowings from: 57 0 11 621 449 315 58 705 50 58 Others................................................................... 3,645 3,384 3,578 3,748 4,030 3,995 4,093 4,154 59 Other liabilities, etc. 5.............................................. 21,391 22,420 23,166 22,942 23,234 23,344 23,663 23,685 60 Total equity capital and subordinated notes/debentures6............................................ 41,450 41,582 41,550 41,679 41,890 41,872 41,750 41,722 1 Includes securities purchased under agreements to resell. 5 Includes minority interest in consolidated subsidiaries and deferred 2 Federal agencies only. tax portion of reserves for loans. 3 Includes U.S. Govt, and foreign bank deposits not shown separately. 6 Includes reserves for securities and contingency portion of reserves 4 Includes securities sold under agreements to repurchase. for loans. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Banks A21 1.28 LARGE WEEKLY REPORTING COMMERCIAL BANKS IN NEW YORK CITY Assets and Liabilities Millions of dollars, Wednesday figures 1977 Account Jan. 5 Jan. 12 Jan. 19 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23 91,843 90,131 91,350 89,516 90,261 88,435 89,938 88,967 Loans: 2 Federal funds sold 1.............................................. 2,238 1,765 2,406 3,382 4,024 2,608 3,125 2,852 3 To commercial banks....................................... 1,611 737 1,305 2,260 3,052 1,664 1,925 1,694 To brokers and dealers involving— 4 U.S. Treasury securities............................... 285 538 461 345 375 302 568 308 5 Other securities............................................ 56 288 274 404 360 388 369 346 6 To others.......................................................... 286 202 366 373 237 254 263 504 7 Other, gross.......................................................... 70,541 68,770 69,092 67,489 68,104 67,433 68,031 67,437 8 Commercial and industrial.............................. 35,622 34,341 33,977 33,687 33,496 33,642 33,577 33,641 9 Agricultural...................................................... 124 123 121 121 120 122 115 113 For purchasing or carrying securities: To brokers and dealers: 10 U.S. Treasury securities........................... 1,590 1,583 1,815 1,142 1,313 1,192 1,071 1,097 11 Other securities......................................... 4,064 4,185 4,747 4,323 4,614 4,435 4,912 4,291 To others: 12 U.S. Treasury securities........................... 18 14 12 12 12 13 13 13 13 Other securities......................................... 382 392 388 388 384 382 378 374 To nonbank financial institutions: 14 Personal and sales finance cos., etc............. 2,554 2,264 2,264 2,271 2,357 2,357 2,315 2,314 15 Other............................................................. 5,511 5,410 5,389 5,519 5,376 5,354 5,317 5,262 16 Real estate........................................................ 8,991 8,965 8,955 8,955 8,934 8,923 8,991 8,990 To commercial banks: 17 Domestic....................................................... 608 537 609 644 679 471 553 602 18 Foreign.......................................................... 2,794 2,693 2,678 2,549 2,629 2,429 2,629 2,670 19 Consumer instalment....................................... 4,075 4,069 4,055 4,047 4,042 4,034 4,037 4,040 20 Foreign governments, official institutions, etc. 522 528 425 All 505 470 474 459 21 All other loans.................................................. 3,686 3,666 3,657 3,359 3,643 3,609 3,649 3,571 22 Less : Loan loss reserve and unearned income on loans................................................. 1,645 1,639 1,641 1,632 1,655 1,660 1,685 1,687 23 Other loans, net.................................................... 68,896 67,131 67,451 65,857 66,449 65,773 66,346 65,750 Investments: 24 U.S. Treasury securities....................................... 11,462 11,990 12,304 11,278 11,227 11,494 11,836 11,798 25 Bills................................................................... 3,085 3,398 3,855 3,176 3,121 3,128 2,917 2,985 Notes and bonds, by maturity: 26 Within 1 year................................................ 688 723 728 111 690 742 639 657 27 1 to 5 years................................................... 6,529 6,696 6,634 6,414 6,475 6,783 7,273 7,309 28 After 5 years................................................. 1,160 1,173 1,087 966 941 841 1,007 847 29 Other securities..................................................... 9,247 9,245 9,189 8,999 8,561 8,560 8,631 8,567 Obligations of States and political subdivisions: 30 Tax warrants, short-term notes, and bills.. 1,223 1,205 1,177 1,178 840 926 919 909 31 All other........................................................ 6,095 6,238 6,212 6,112 6,001 5,967 6,019 6,040 Other bonds, corporate stocks, and securities: 32 Certificates of participation2....................... 223 223 222 222 220 235 221 222 33 All other, including corporate stocks......... 1,706 1,579 1,578 1,487 1,500 1,432 1,462 1,396 12,836 12,865 13,450 12,589 12,582 11,210 11,725 12,475 35 Reserves with F.R. Banks....................................... 8,229 7,844 5,782 6,097 3,998 7,556 6,373 6,080 36 Currency and coin................................................... 809 831 803 816 767 775 784 803 37 Balances with domestic banks................................ 5,995 5,862 5,534 5,793 5,478 4,760 5,528 5,267 38 Investments in subsidiaries not consolidated........ 1,107 1,138 1,152 1,148 1,158 1,166 1,167 1,173 39 Other assets.............................................................. 17,011 19,066 18,000 18,144 18,095 19,019 17,450 17,262 40 Total assets/total liabilities...................................... 137,830 137,737 136,071 134,103 132,339 132,921 132,965 132,027 Deposits: 41 Demand deposits................................................... 52,594 51,504 50,540 49,275 50,085 46,228 47,074 47,879 42 Individuals, partnerships, and corporations.. 29,479 28,279 28,418 26,426 27,344 27,566 26,960 27,325 43 States and political subdivisions..................... 578 511 585 598 713 676 629 620 44 U.S. Govt.......................................................... 511 285 507 357 109 131 294 180 Domestic interbank: 45 Commercial.................................................. 12,971 13,696 11,167 12,552 12,129 9,450 10,636 10,866 46 Mutual savings............................................. 586 538 475 475 519 426 406 401 Foreign: 47 Governments, official institutions, etc......... 1,098 1,084 988 986 889 635 579 870 48 Commercial banks....................................... 4,380 4,274 4,519 4,443 4,432 4,231 4,517 4,599 49 Certified and officers’ checks........................... 2,991 2,837 3,881 3,438 3,950 3,113 3,053 3,018 50 Time and savings deposits3................................... 42,401 41,912 42,275 42,390 42,611 42,844 42,371 41,955 Individuals, partnerships, and corporations: 51 Savings.......................................................... 10,149 10,241 10,299 10,349 10,408 10,548 10,602 10,609 52 Other............................................................. 23,926 23,688 23,954 23,802 23,883 13,811 23,410 23,090 53 States and political subdivisions..................... 1,080 1,047 1,064 1,107 1,073 1,127 1,208 1,220 54 Domestic interbank.......................................... 2,192 2,095 2,132 2,234 2,344 2,390 2,306 2,227 55 Foreign governments, official institutions, etc. 4,328 4,109 4,082 4,162 4,174 4,153 4,105 4,065 20,609 21,073 18,933 18,374 15,225 19,373 18,070 17,502 Borrowings from: 57 F.R. Banks............................................................ 0 0 200 0 285 0 685 50 58 Others................................................................... 1,772 1,519 1,632 1,813 2,094 2,125 2,184 2,178 59 Other liabilities, etc.5.............................................. 8,612 9,875 10,636 10,384 10,142 10,472 10,683 10,559 60 Total equity capital and subordinated notes/debentures6............................................ 11,842 11,854 11,855 11,867 11,897 11,879 11,898 11,904 1 Includes securities purchased under agreements to resell. 5 Includes minority interest in consolidated subsidiaries and deferred 2 Federal agencies only. tax portion of reserves for loans. 3 Includes U.S. Govt, and foreign bank deposits not shown sepa- 6 Includes reserves for securities and contingency portion of reserves ately. for loans. 4 Includes securities sold under agreements to repurchase. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic Financial Statistics □ March 1977 1.29 LARGE WEEKLY REPORTING COMMERCIAL BANKS OUTSIDE NEW YORK CITY Assets and Liabilities Millions of dollars, Wednesday figures 1977 Account Jan. 5 Jan. 12 Jan.19 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23 1 Total loans and investments..................................... 323,804 323,041 319,226 314,834 317,450 316,261 318,258 317,983 Loans: 22,478 22,486 20,249 16,825 18,798 17,474 18,186 18,551 3 To commercial banks...................................... 18,548 17,816 16,371 13,972 13,974 14,242 14,931 15,518 To brokers and dealers involving— 4 U.S. Treasury securities............................... 2,220 2,655 2,568 1,713 2,430 1,921 1,968 1,778 5 Other securities............................................. 940 1,029 542 488 611 439 542 731 6 To others.......................................................... 770 986 768 652 1,783 872 745 524 7 Other, gross.......................................................... 218,035 217,206 217,277 216,589 217,928 217,365 217,937 217,715 8 Commercial and industrial............................. 81,274 81,096 81,159 80,735 81,275 81,198 81,450 81,698 9 Agricultural...................................................... 4,180 4,177 4,151 4,100 4,063 4,065 4,059 4,052 For purchasing or carrying securities: To brokers and dealers: 10 U.S. Treasury securities........................... 165 159 167 171 210 225 186 181 11 Other securities......................................... 3,464 3,372 3,295 3,236 3,461 3,397 3,563 3,291 To others: 12 U.S. Treasury securities........................... 65 66 64 62 63 62 64 63 13 Other securities......................................... 2,151 2,139 2,138 2,144 2,156 2,158 2,142 2,142 To nonbank financial institutions: 14 Personal and sales finance cos., etc............. 4,840 4,747 4,672 4,614 4,755 4,714 4,687 4,664 15 Other............................................................. 11,075 10,886 10,765 10,721 10,776 10,774 10,685 10,584 16 Real estate........................................................ 54,699 54,788 54,953 55,011 55,011 55,195 55,374 55,423 To commercial banks: 17 Domestic....................................................... 1,205 1,196 1,172 1,239 1,324 1,231 1,224 1,188 18 Foreign.......................................................... 3,248 3,176 3,266 3,241 3,256 3,243 3,286 3,199 19 Consumer instalment....................................... 35,558 35,514 35,425 35,500 35,509 35,438 35,507 35,511 20 Foreign governments, official institutions, etc. 1,417 1,463 1,447 1,428 1,447 1,427 1,410 1,398 21 All other loans.................................................. 14,694 14,427 14,603 14,387 14,622 14,238 14,300 14,321 22 Less : Loan reserve and unearned income on loans.................................................... 6,891 6,892 6,910 6,923 6,906 6,953 6,988 6,999 23 Other loans, net.................................................... 211,144 210,314 210,367 209,666 211,022 210,412 210,949 210,716 Investments: 24 U.S. Treasury securities....................................... 38,576 38,343 37,318 36,907 36,388 36,653 37,437 37,024 25 Bills................................................................... 10,636 10,089 8,996 8,660 8,000 7,865 7,666 7,296 Notes and bonds, by maturity: 26 Within 1 year................................................ 6,535 6,482 6,527 6,547 6,887 6,912 7,042 7,148 27 1 to 5 years.................................................... 18,433 18,611 18,619 18,469 18,156 18,729 19,641 19,476 28 After 5 years................................................. 2,972 3,161 3,176 3,231 3,345 3,147 3,088 3,104 29 Other securities..................................................... 51,606 51,898 51,292 51,436 51,242 51,722 51,686 51,692 Obligations of States and political subdivisions: 30 Tax warrants, short-term notes, and bills.. 5,046 5,397 5,147 5,174 5,169 5,559 5,367 5,311 31 All other........................................................ 34,260 34,227 34,112 34,133 33,999 34,147 34,158 34,269 Other bonds, corporate stocks, and securities: 32 Certificates of participation2....................... 2,028 2,016 1,931 1,995 2,024 1,983 1,961 1,956 33 All other, including corporate stocks......... 10,272 10,258 10,102 10,134 10,050 10,033 10,200 10,156 34 Cash items in process of collection......................... 27,097 23,814 23,342 22,114 24,362 20,466 23,627 25,861 35 Reserves with F. R. Banks...................................... 16,100 13,523 15,202 15,797 12,201 15,473 14,587 15,302 36 Currency and coin................................................... 4,947 5,077 4,976 4,943 4,506 4,490 4,675 4,831 37 Balances with domestic banks................................ 7,934 7,441 6,858 6,255 6,996 6,162 6,543 7,041 38 Investments in subsidiaries not consolidated........ 1,295 1,303 1,319 1,323 1,332 1,369 1,348 1,338 39 Other assets.............................................................. 33,828 33,482 32,716 32,557 33,060 32,800 32,334 33,216 40 Total assets/total liabilities...................................... 415,005 407,681 403,639 397,823 399,907 397,021 401,372 405,572 Deposits: 41 Demand deposits................................................... 132,068 126,738 123,713 118,174 122,610 115,919 120,583 121,656 42 Individuals, partnerships, and corporations.. 102,503 100,396 97,488 94,186 96,327 92,489 94,995 95,406 43 States and political subdivisions..................... 5,819 5,459 5,806 5,399 6,103 5,370 5,518 5,558 2,210 14,46 45 U.S.2 ,G57o0vt..........1..,.7..1..3.............1..,.3..5..8..............1..,.1..2..4 1,712 1,530 Domestic interbank: 45 Commercial.................................................. 15,122 13,632 12,353 11,740 13,109 11,779 13,158 13,852 46 Mutual savings............................................. 454 404 414 361 432 370 396 389 Foreign: 47 Governments, official institutions, etc........ 365 260 288 278 283 234 214 244 48 Commercial banks....................................... 1,451 1,345 1,281 1,313 1,244 1,393 1,257 1,319 49 Certified and officers’ checks........................... 4,144 3,597 3,513 3,184 3,754 3,160 3,333 3,358 50 Time and savings deposits*................................... 189,550 188,398 188,230 188,135 187,835 188,679 188,345 188,329 Individuals, partnerships, and corporations: 51 Savings.......................................................... 80,859 80,797 81,002 81,045 81,107 81,490 81,482 81,709 52 Other............................................................. 82,872 81,987 81,762 81,633 81,276 81,599 81,307 81,178 53 States and political subdivisions..................... 18,172 18,289 18,371 18,474 18,700 18,863 18,872 18,876 54 Domestic interbank.......................................... 3,328 3,211 3,133 3,118 3,014 3,020 3,017 2,949 55 Foreign governments, official institutions, etc. 3,691 3,517 3,354 3,310 3,178 3,140 3,073 3,013 56 Federal funds purchased, etc.4............................... 49,127 48,396 47,104 46,760 44,411 47,630 47,683 50,667 Borrowings from: 57 F. R. Banks.......................................................... 0 11 421 449 30 58 20 0 58 Others................................................................... 1,873 1,865 1,946 1,935 1,936 1,870 1,909 1,976 59 Other liabilities, etc. 5.............................................. 12,779 12,545 12,530 12,558 13,092 12,872 12,980 13,126 60 Total equity capital and subordinated notes/debentures6............................................ 29,608 29,728 29,695 29,812 29,993 29,993 29,852 29,818 1 Includes securities purchased under agreements to resell. 5 Includes minority interest in consolidated subsidiaries and deferred 2 Federal agencies only. tax portion of reserves for loans. 3 Includes U.S. Govt, and foreign bank deposits not shown sepa­ 6 Includes reserves for securities and contingency portion of reserves rately. for loans. 4 Includes securities sold under agreements to repurchase. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Banks A23 1.30 LARGE WEEKLY REPORTING COMMERCIAL BANKS Balance Sheet Memoranda Millions of dollars, Wednesday figures 1977 Account and bank group Jan. 5 Jan. 12 Jan. 19 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23 Total loans (gross) and investments, adjusted1 1 Large banks.......................................................... 402,211 401,417 399,670 394,790 397,243 395,701 398,236 396,634 2 New York City banks..................................... 91,269 90,496 91,077 88,244 88,185 87,960 89,145 88,358 3 Banks outside New York City........................ 310,942 310,921 308,593 306,546 309,058 307,741 309,091 308,276 Total loans (gross), adjusted 4 Large banks.......................................................... 291,320 289,941 289,567 286,170 289,825 287,272 288,646 287,553 5 New York City banks..................................... 70,560 69,261 69,584 67,967 68,397 67,906 68,678 67,993 6 Banks outside New York City........................ 220,760 220,680 219,983 218,203 221,428 219,366 219,968 219,560 Demand deposits, adjusted2 7 Large banks.......................................................... 113,915 112,305 110,864 106,384 109,046 107,987 106,505 104,771 8 New York City banks..................................... 26,276 24,658 25,416 23,777 25,265 25,437 24,419 24,358 9 Banks outside New York City........................ 87,639 87,647 85,448 82,607 83,781 82,550 82,086 80,413 Large negotiable time CD’s included in time and savings deposits3 Total: 10 Large banks.............................................................. 64,593 62,803 62,500 62,162 61,739 62,148 61,196 60,481 11 New York City................................................ 22,264 21,770 22,016 22,052 22,069 22,155 21,639 21,184 12 Banks outside New York City........................ 42,329 41,033 40,484 40,110 39,670 39,993 39,557 39,297 Issued to IPC’s: 13 Large banks.......................................................... 42,899 41,656 41,538 41,019 40,623 40,737 39,883 39,436 14 New York City Banks..................................... 15,297 15,120 15,331 15,144 15,145 15,170 14,706 14,384 15 Banks outside New York City........................ 27,602 26,536 26,207 25,875 25,478 25,567 25,177 25,052 Issued to others: 16 Large banks.......................................................... 21,694 21,147 20,962 21,143 21,116 21,411 21,313 21,045 17 New York City banks..................................... 6,967 6,650 6,685 6,908 6,924 6,985 6,933 6,800 18 Banks outside New York City........................ 14,727 14,497 14,277 14,235 14,192 14,426 14,380 14,245 All other large time deposits4 Total: 19 Large banks.............................................................. 26,108 25,955 25,922 25,995 26,101 26,101 26,079 26,160 20 New York City banks..................................... 5,295 5,205 5,197 5,176 5,311 5,289 5,247 5,287 21 Banks outside New York City........................ 20,813 20,750 20,725 20,819 20,790 20,812 20,832 20,873 Issued to IPC’s: 22 Large banks.......................................................... 14,443 14,253 14,151 14,214 14,179 14,239 14,223 14,255 23 New York City banks..................................... 3,991 3,924 3,915 3,910 3,950 3,898 3,876 3,888 24 Banks outside New York City........................ 10,452 10,329 10,236 10,304 10,229 10,341 10,347 10,367 Issued to others: 25 Large banks.......................................................... 11,665 11,702 11,771 11,781 11,922 11,862 11,856 11,905 26 New York City banks..................................... 1,304 1,281 1,282 1,266 1,361 1,391 1,371 1,399 27 Banks outside New York City........................ 10,361 10,421 10,489 10,515 10,561 10,471 10,485 10,506 Savings deposits, by ownership category Individuals and nonprofit organizations: 28 Large banks.......................................................... 83,312 83,753 83,992 84,117 84,240 84,600 84,640 84,837 29 New York City banks..................................... 9,293 9,381 9,402 9,433 9,436 9,511 9,567 9,587 30 Banks outside New York City........................ 74,019 74,372 74,590 74,684 74,804 75,089 75,073 75,250 Partnerships and corporations for profit:5 31 Large banks.......................................................... 4,444 4,515 4,556 4,621 4,634 4,737 4,732 4,790 32 New York City banks..................................... 455 470 476 486 490 509 515 524 33 Banks outside New York City........................ 3,989 4,045 4,080 4,135 4,144 4,228 4,217 4,266 Domestic governmental units: 34 Large banks.......................................................... 3,150 2,689 2,656 2,552 2,542 2,565 2,607 2,608 35 New York City banks..................................... 317 332 349 351 403 418 442 439 36 Banks outside New York City........................ 2,833 2,357 2,307 2,201 2,139 2,147 2,165 2,169 All other:6 37 Large banks.......................................................... 102 81 97 104 99 136 105 83 38 New York City banks..................................... 84 58 72 79 79 110 78 59 39 Banks outside New York City........................ 18 23 25 25 20 26 27 24 Gross liabilities of banks to their foreign branches 40 Large banks.......................................................... 4,503 4,595 4,513 3,967 3,221 2,671 3,036 3,831 41 New York City banks..................................... 3,484 3,570 3,577 2,906 2,270 1,722 2,009 2,930 42 Banks outside New York City........................ 1,019 1,025 936 1,061 951 949 1,027 901 Loans sold outright to selected institutions by all large banks7 43 Commercial and industrialr............................... 2,506 2,518 2,562 2,615 2,547 2,546 2,554 2,612 44 Real estate............................................................ 216 216 216 215 214 212 211 212 45 Allother............................................................... 1,184 1,186 1,173 1,167 1,165 1,137 1,096 1,118 1 Exclusive of loans and Federal funds transactions with domestic 5 Other than commercial banks. commercial banks. 6 Domestic and foreign commercial banks, and official international 2 All demand deposits except U.S. Govt, and domestic commercial organizations. banks, less cash items in process of collection. 7 To bank’s own foreign branches, nonconsolidated nonbank af­ 3 Certificates of deposit (CD’s) issued in denominations of $100,000 or filiates of the bank, the bank’s holding company (if not a bank), and more. nonconsolidated nonbank subsidiaries of the holding company. 4 All other time deposits issued in denominations of $100,000 or more (not included in large negotiable CD’s). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A24 Domestic Financial Statistics □ March 1977 1.31 LARGE WEEKLY REPORTING COMMERCIAL BANKS Commercial and Industrial Loans Millions of dollars Outstanding Net change during— Industry group 1977 1976 1977 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23 Q3 Q4 Dec. Jan. Feb. Total loans classified2 1 Total.................................................... 94,510 94,597 94,663 94,841 95,058 -641 4,048 1,543 -2,051 548 Durable goods manufacturing: 2 Primary metals............................... 2,389 2,460 2,474 2,471 2,523 -36 138 104 191 134 4,586 4,589 4,639 4,643 4,629 -417 41 38 -70 43 4 Transportation equipment............. 2,210 2,207 2,203 2,219 2,198 -252 -196 55 -22 -12 5 Other fabricated metal products... 1,698 1,733 1,747 1,764 1,779 -56 24 2 -13 81 6 Other durable goods...................... 3,107 3,134 3,154 3,189 3,203 -109 -249 -114 -138 96 Nondurable goods manufacturing: 7 Food, liquor, and tobacco............. 3,412 3,386 3,365 3,347 3,357 3 134 92 -100 -55 8 Textiles, apparel, and leather........ 3,117 3,119 3,209 3,199 3,240 178 -503 -258 125 123 9 Petroleum refining.......................... 2,639 2,538 2,513 2,526 2,514 217 121 134 4 -125 10 Chemicals and rubber.................... 2,545 2,538 2,522 2,547 2,570 41 33 20 -9 25 11 Other nondurable goods................ 1,899 1,871 1,882 1,914 1,941 -34 16 -36 11 42 12 Mining, including crude petroleum and natural gas........................... 7,405 7,349 7,370 7,441 7,416 229 354 74 130 11 Trade: 13 Commodity dealers......................... 1,912 2,010 2,194 2,161 2,092 -212 377 -5 -8 180 14 Other wholesale.............................. 6,208 6,286 6,320 6,297 6,331 189 227 49 -49 123 15 Retail............................................... 6,101 6,144 6,197 6,193 6,158 19 -242 -593 22 57 16 Transportation.................................... 5,042 5,126 5,164 5,175 5,173 -496 121 183 -262 131 17 Communication.................................. 1,411 1,503 1,486 1,604 1,595 -263 -131 -36 51 184 5,613 5,659 5,576 5,699 5,697 -526 -98 63 -6 84 3,861 3,895 3,905 3,908 3,924 -51 -283 -141 -34 63 10,798 10,857 10,828 10,792 10,832 -174 150 118 234 34 21 All other domestic loans................... 7,504 7,564 7,468 7,548 7,496 385 567 110 -394 -8 22 Bankers acceptances........................... 5,062 4,543 4,373 4,203 4,388 629 3,286 1,372 -1,772 -674 23 Foreign commercial and industrial loans............................................ 5,991 6,086 6,074 6,001 6,002 95 161 312 58 11 Memo: 24 Commercial paper included in total classified loans1 • 376 365 -142 115 109 -80 -11 25 Total commercial and industrial loans of all large weekly reporting banks........................... 114,422 114,771 114,840 115,025 115,339 -391 4,098 1,475 -1,991 917 1976 1977 1976 1977 Oct. 27 Nov. 24 Dec. 29 Jan. 26 Feb. 23 Q3 Q4 Dec. Jan. Feb. “Term” loans classified3 26 Total.................................................... 44,462 44,823 45,211 45,291 45,735 -545 439 388 80 444 Durable goods manufacturing: 27 Primary metals................................ 1,191 1,253 1,317 1,449 1,481 -27 103 64 132 32 28 Machinery....................................... 2,592 2,637 2,585 2,587 2,551 -354 -90 -52 2 -36 29 Transportation equipment............. 1,315 1,303 1,352 1,365 1,298 -124 -29 49 13 -67 30 Other fabricated metal products... 747 777 776 767 815 -43 20 -1 -9 48 31 Other durable goods....................... 1,668 1,655 1,624 1,549 1,585 -79 -112 -31 -75 36 Nondurable goods manufacturing: 1,425 1,392 1,398 1,449 1,447 32 -37 6 51 -2 33 Textiles, apparel, and leather........ 1,125 1,118 1,098 1,033 1,036 28 -46 -20 -65 3 1,931 1,864 1,971 1,925 1,901 201 63 107 -46 -24 35 Chemicals and rubber.................... 1,486 1,449 1,444 1,456 1,522 -2 -20 -5 12 66 36 Other nondurable goods................ 930 950 955 975 987 -51 20 5 20 12 37 Mining, including crude petroleum and natural gas........................... 5,514 5,517 5,683 5,793 5,761 122 341 166 110 -32 Trade: 38 Commodity dealers......................... 220 218 200 227 219 2 -9 -18 27 -8 39 Other wholesale.............................. 1,400 1,474 1,463 1,483 1,478 86 69 -11 20 -5 40 Retail............................................... 2,173 2,249 2,045 2,085 2,209 102 -89 -204 40 124 41 Transportation................................... 3,883 3,809 3,938 3,720 3,833 -303 4 129 -218 113 42 Communication.................................. 910 913 847 810 829 -87 -56 -66 -37 19 43 Other public utilities........................... 3,523 3,549 3,664 3,762 3,869 -304 60 115 98 107 44 Construction....................................... 1,708 1,669 1,629 1,638 1,683 -48 -67 -40 9 45 4,886 5,151 4,998 5,212 5,216 -130 31 -153 214 4 46 All other domestic loans.................... 2,447 2,567 2,600 2,383 2,352 69 181 33 -217 40 47 Foreign commercial and industrial loans............................................ 3,388 3,309 3,624 3,623 3,663 365 102 315 -1 -31 1 Reported for the last Wednesday of each month. all outstanding loans granted under a formal agreement—revolving credit 2 Includes “term” loans, shown below. or standby—on which the original maturity of the commitment was in 3 Outstanding loans with an original maturity of more than 1 year and excess of 1 year. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Deposits and Commercial Paper A25 1.32 GROSS DEMAND DEPOSITS of Individuals, Partnerships, and Corporations Billions of dollars; estimated daily-average balances All commercial banks Type of holder 1975 1976 1977 1972 1973 1974 Dec. Dec. Dec. Sept. Dec. Mar. June Sept. Dec. Jan. 1 All holders, IPC..................................................... 208.0 220.1 225.0 227.0 236.9 227.9 234.2 236.1 250.1 2 Financial business.................................................. 18.9 19.1 19.0 19.0 20.1 19.9 20.3 19.7 22.3 109.9 116.2 118.8 118.7 125.1 116.9 121.2 122.6 130.2 65.4 70.1 73.3 76.5 78.0 77.2 78.8 80.0 82.6 5 Foreign................................................................... 1.5 2.4 2.3 2.2 2.4 2.4 2.5 2.3 2.7 6 Other..................................................................... 12.3 12.4 11.7 10.6 11.3 11.4 11.4 11.5 12.4 All weekly reporting banks 1976 1977 1973 1974 1975 Dec. Dec. Dec. July Aug. Sept. ' Oct. Nov. Dec. Jan.p 7 All holders, IPC..................................................... 118.1 119.7 124.4 122.5 112.9 121.4 123.8 124.3 128.5 127.4 8 Financial business.................................................. 14.9 14.8 15.6 16.3 15.0 15.4 16.8 16.2 17.5 16.7 66.2 66.9 69.9 64.8 61.4 66.6 68.4 68.7 69.7 69.5 28.0 29.0 29.9 33.3 29.2 30.7 29.6 30.4 31.7 32.0 2.2 2.2 2.3 2.3 1.8 2.2 2.4 2.5 2.6 2.2 12 Other....................................................................... 6.8 6.8 6.6 5.8 5.6 6.6 6.6 6.6 7.1 7.1 Note.—Figures include cash items in process of collection. Estimates of banks. Types of depositors in each category are described in the June 1971 gross deposits are based on reports supplied by a sample of commercial Bulletin, p. 466. 1.33 COMMERCIAL PAPER AND BANKERS ACCEPTANCES OUTSTANDING Millions of dollars, end of period 1976 1977 1974 1975 1976 Instrument Dec. Dec. Dec. July Aug. Sept. Oct. Nov. Dec. Jan. 1 Commercial paper, all issuers............................... 49,144 47,690 52,011 51,138 59,063 49,814 51,334 53,080 52,011 53,926 Financial companies:1 Dealer-placed paper:2 2 Total................................................................ 4,611 6,239 7,294 6,187 6,243 6,347 6,674 7,113 7,294 7,347 3 Bank-related.................................................... 1,814 1,762 1,930 1,655 1,650 1,681 1,739 1,860 1,930 1,895 Directly-placed paper:3 4 Total................................................................ 31,839 31,276 32,386 32,513 31,500 31,438 31,844 32,655 32,386 32,774 5 Bank-related................................................... 6,518 6,892 5,928 5,936 5,938 6,213 5,828 r5,908 5,928 5,637 6 Nonfinancial companies4...................................... 12,694 10,175 12,331 12,438 12,320 12,029 12,816 13,312 12,331 13,805 7 Dollar acceptances, total....................................... 18,484 18,727 22,523 19,544 19,383 19,599 20,312 20,678 22,523 22,362 Held by: 8 Accepting banks.................................................. 4,226 7,333 10,442 r5,905 6,107 6,798 7,959 9,031 10,442 8,183 9 3,685 5,899 8,769 5,255 5,449 5,865 6,789 7,706 8,769 7,011 10 542 1,435 1,673 r650 658 933 1,170 1,325 1,673 1,172 F.R. Banks: 11 999 1,126 991 656 808 838 337 188 991 191 12 Foreign correspondents................................. 1,109 293 375 447 442 417 387 349 375 374 13 Others.................................................................. 12,150 9,975 13,447 12,968 12,026 12,299 11,629 12,184 13,447 14,747 Based on: 14 Imports into United States............................... 4,023 3,726 4,992 4,611 4,530 4,498 4,737 4,667 4,992 4,992 15 Exports from United States.............................. 4,067 4,001 4,818 4,327 4,355 4,420 4,715 4,628 4,818 5,137 16 All other.............................................................. 10,394 11,000 12,713 10,606 10,498 10,680 10,860 11,383 12,713 12,233 1 Institutions engaged primarily in activities such as, but not limited to, 3 As reported by financial companies that place their paper directly commercial, savings, and mortgage banking; sales, personal, and mortgage with investors. financing; factoring, finance leasing, and other business lending; insurance 4 Includes public utilities and firms engaged primarily in activities such underwriting; and other investment activities. as communications, construction, manufacturing, mining, wholesale and 2 Includes all financial company paper sold by dealers in the open retail trade, transportation, and services, market. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A26 Domestic Financial Statistics □ March 1977 1.34 PRIME RATE CHARGED BY BANKS on Short-term Business Loans Per cent per annum Effective date Rate Effective date Rate Month Average rate 1975—Jan. 9................................. 10*4 1975—Aug. 12................................. m 1975—Aue................................ 7.66 15................................. 10 Sept.................... 7.88 20................................. 9V4 Sept. 15................................. 8 Oct........ 7.96 28................................. 9Vi Nov................................. 7 53 Oct. 27................................. m Dec.................................. 7.26 Feb. 3................................. 9 y4 10................................. 9 Nov. 5................................. 7 Vi 1976—Jan............................... 7.00 18................................. 8% Feb.................................. 6.75 24................................. 8% Dec. 2................................. TVa Mar.................... 6.75 Apr.................................. 6.75 Mar. 5................................. SV4 1976—Jan. 12................................. 7 May................. 6.75 10................................. 8 21................................. V/4 June................. 7.20 18................................. m July................................. 7.25 24................................. m June 1................................. 7 Aug.................................. 7.01 7................................. 7% Sept................................. 7.00 May 20................................. 7% Oct................................... 6.78 Aug. 2................................. 7 Nov................................. 6.50 June 9................................. 7 Dec.................................. 6.35 Oct. 4................................. 6Y4 July 18................................. 71/4 1977—jan................................... 6.25 28................................. m Nov. 1................................. 6 % Feb.................................. 6.25 Dec. 13................................. 6% 1.35 INTEREST RATES CHARGED BY BANKS on Business Loans Per cent per annum Size of loan (in thousands of dollars) All sizes Center 1--9 10-99 100-499 500-999 1,000 and over 1976 1976 1976 1976 1976 1976 1976 1976 1976 1976 1976 1976 Nov. Aug. Nov. Aug. Nov. Aug. Nov. Aug. Nov. Aug. Nov. Aug. Short-term rates 1All 35 centers........................ 7.28 7.80 8.83 9.06 8.18 8.58 7.66 7.99 7.31 7.84 7.02 7.61 2 New York City................. 6.88 7.48 8.56 8.85 7.94 8.40 7.43 7.91 7.24 7.77 6.74 7.36 3 7 Other Northeast............ 7.62 8.18 9.22 9.41 8.34 8.84 7.88 8.25 7.49 8.16 7.34 7.98 4 8 North Central................ 7.28 7.70 8.45 8.65 8.12 8.50 7.69 7.85 7.36 7.71 7.03 7.55 5 7 Southeast....................... 7.51 7.95 9.13 9.33 8.48 8.76 7.71 8.00 7.04 7.85 7.07 7.54 6 8 Southwest....................... 7.33 7.75 8.51 8.83 7.82 8.24 7.39 7.80 7.21 7.61 7.12 7.55 7 4 West Coast..................... 7.52 8.15 8.69 9.26 8.46 8.79 7.88 8.28 7.44 8.06 7.34 8.05 Revolving credit rates 7.19 7.87 8.37 8.70 8.14 8.33 7.60 8.02 7.41 7.80 7.12 7.88 9 New York City................. 7.18 8.14 7.23 7.25 7.86 8.26 7.21 7.70 6.97 7.56 7.19 8.19 10 7 Other Northeast............ 6.92 7.59 8.15 8.00 8.20 8.22 7.26 7.67 7.75 8.36 6.75 7.47 11 8 North Central................ 7.54 7.96 8.52 8.94 8.95 9.03 8.05 8.50 7.88 7.74 7.39 7.90 12 7 Southeast........................ 7.05 7.48 8.31 8.75 8.09 8.40 7.56 8.16 6.77 6.83 7.13 13 8 Southwest....................... 7.45 7.81 8.19 8.74 7.96 8.09 7.74 8.20 7.24 7.47 7.39 7.80 14 4 West Coast..................... 7.11 7.73 8.77 9.10 7.85 8.08 7.58 7.95 7.45 7.91 7.01 7.68 Long-term rates 15 All 35 centers........................ 7.48 8.45 9.39 9.61 8.88 9.02 8.14 8.55 8.13 8.60 7.24 8.40 16 New York City................. 7.36 8.52 7.19 8.55 8.27 7.93 8.05 8.06 8.44 7.26 8.56 17 7 Other Northeast 6.64 8.62 9.22 9.40 8.84 9.43 7.95 8.93 7.92 7.50 5.73 8.70 18 8 North Central................ 7.66 8.05 9.20 8.83 9.03 9.07 8.35 8.26 8.99 8.36 7.32 7.92 19 7 Southeast....................... 7.59 8.88 9.87 9.60 9.35 9.08 7.93 9.88 4.00 8.18 7.79 8.06 20 8 Southwest....................... 7.73 8.42 10.54 10.85 9.05 9.04 8.28 8.23 8.44 8.69 7.20 8.30 21 4 West Coast..................... 8.04 8.67 8.70 9.28 8.54 8.58 8.31 8.81 7.78 10.00 8.03 8.46 Note.—Weighted-average rates based on sample of loans made during first 7 days of the survey month. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities M arkets A ll 1.36 INTEREST RATES Money and Capital Markets Averages, per cent per annum 1976 1977 1977, week ending- Instrument 1974 1975 1976 Nov. Dec. Jan. Feb. Feb. 5 Feb. 12 Feb. 19 Feb. 26 Money market rates Prime commercial paper1 1 90 to 119 day.......................................................... 10.05 6.26 5.24 4.98 4.66 4.72 4.76 4.80 4.75 4.75 4.75 2 4- to 6-month.......................................................... 9.87 6.33 5.35 5.05 4.70 4.74 4.82 4.88 4.80 4.78 4.84 3 Finance company paper, directly placed, 3- to 6month2................................................................ 8.62 6.16 5.22 4.92 4.56 4.64 4.75 4.75 4.75 4.75 4.75 4 Prime bankers acceptances, 90-day3......................... 9.92 6.30 5.19 4.90 4.62 4.81 4.83 4.90 4.82 4.78 4.84 5 Federal funds4........................................................... 10.51 5.82 5.05 4.95 4.65 4.61 4.68 4.60 4.66 4.70 4.74 Large negotiable certificates of deposit 6 3-month, secondary market 5................................. 10.27 6.43 5.26 5.00 4.67 4.82 4.65 4.91 4.75 4.78 4.82 7 1-month, nrimarv market6.................................... 5.15 4.95 4.54 4.68 4.69 4.75 4.75 4.63 4.63 8 Euro-dollar deposits, 3-month7................................ 10.96 6.97 5.57 5.29 5.01 5.14 5.08 4.85 4.87 4.85 4.83 U.S. Govt, securities Bills: 8 Market yields: 9 3-month........................................................... 7.84 5.80 4.98 4.75 4.35 4.62 4.67 4.71 4.62 4.63 4.71 10 6-month........................................................... 7.95 6.11 5.26 4.88 4.51 4.83 4.90 4.99 4.85 4.84 4.94 11 1-year............................................................... 7.71 6.30 5.52 5.00 4.64 5.00 5.16 5.24 5.11 5.08 5.22 Rates on new issue: 12 3-month........................................................... 7.886 5.838 4.989 4.810 4.354 4.597 4.662 4.720 4.625 4.633 4.668 13 7.926 6.122 5.266 4.944 4.513 4.783 4.896 5.008 4.840 4.862 4.872 Notes and bonds maturing in—9 14 9 to 12 months.................................................... 8.25 6.70 5.84 5.29 4.92 5.34 5.50 5.62 5.46 5.43 5.52 15 3 to 5 years......................................................... 7.81 7.55 6.94 6.35 5.96 6.49 6.69 6.78 6.64 6.60 6.76 Constant maturities:1 o 16 1-yea r 8.18 6.76 5.88 5.29 4.89 5.29 5.47 5.57 5.40 5.37 5.54 17 2-yea r 6.31 5.81 5.38 5.90 6.09 6.18 6.03 6.03 6.14 18 3-year................................................................... 7.82 7.49 6.77 6.09 5.68 6.22 6.44 6.54 6.39 6.35 6.51 19 5-year................................................................... 7.80 7.77 7.18 6.52 6.10 6.58 6.83 6.88 6.75 6.73 6.95 Capital market rates Government notes and bonds U.S. Treasury: Constant maturities:1 o 20 7-year............................................................... 7.71 7.90 7.43 6.86 6.37 6.92 7.16 7.17 7.12 7.13 7.24 21 10-year............................................................. 7.56 7.99 7.61 7.29 6.87 7.21 7.39 7.40 7.35 7.35 7.47 22 20-year............................................................. 8.05 8.19 7.86 7.64 7.30 7.48 7.64 7.63 7.60 7.61 7.71 23 Long-term 9........................................................ 6.99 6.98 6.78 6.62 6.39 6.68 7.15 7.15 7.12 7.12 7.18 State and local:11 Moody’s series: 24 Aaa.................................................................. 5.89 6.42 5.66 5.27 5.07 5.10 5.17 5.17 5.17 5.15 5.20 25 Baa................................................................... 6.53 7.62 7.49 7.16 6.73 6.58 6.50 6.55 6.50 6.47 6.47 26 Bond Buyer series12........................................ 6.17 7.05 6.64 6.29 5.94 5.87 5.89 5.93 5.86 5.83 5.92 Corporate bonds Seasoned issues13 27 All industries...................................................... 9.03 9.57 9.01 8.66 8.47 8.41 8.48 8.47 8.46 8.48 8.51 By rating groups: 28 Aaa.................................................................. 8.57 8.83 8.43 8.25 7.98 7.96 8.04 8.03 8.01 8.04 8.08 29 Aa.................................................................... 8.84 9.17 8.75 8.46 8.24 8.16 8.26 8.24 8.26 8.27 8.28 30 A...................................................................... 9.20 9.65 9.09 8.69 8.53 8.45 8.49 8.49 8.49 8.49 8.50 31 Baa................................................................... 9.50 10.61 9.75 9.23 9.12 9.08 9.12 9.13 9.09 9.11 9.16 Aaa utility bonds:14 32 New issue............................................................ 9.33 9.40 8.48 8.17 7.94 8.08 8.22 8.15 8.18 8.28 33 Recently offered issues....................................... 9.34 9.41 8.49 8.18 7.93 8.09 8.19 8.14 8.12 8.17 8.26 Common stocks Dividend price ratio: 34 Preferred stocks.................................................. 8.23 8.38 7.97 7.80 7.70 7.54 7.55 7.58 7.62 7.49 7.50 35 Common stocks.................................................. 4.47 4.31 3.77 4.04 3.99 3.99 4.21 4.10 4.20 4.18 4.35 1 Averages of the most representative daily offering rate quoted by 8 Except for new bill issues, yields are computed from daily closing dealers. bid prices. Yields for all bills are quoted on a bank-discount basis. 2 Averages of the most representative daily offering rates published by 9 Unweighted averages for all outstanding notes and bonds in maturity finance companies for varying maturities in this range. ranges shown, based on daily closing bid prices. “Long-term” includes 3 Beginning Aug. 15, 1974, the rate is the average of the midpoint of all bonds neither due nor callable in less than 10 years. the range of daily dealer closing rates offered for domestic issues; prior I o Yields on the more actively traded issues adjusted to constant data are averages of the most representative daily offering rate quoted by maturities by the U.S. Treasury, based on daily closing bid prices. dealers. II General obligations only, based on figures for Thursday, from 4 Weekly figures are 7-day averages of daily effective rates for the week Moody’s Investors Service. ending Wednesday; the daily effective rate is an average of the rates on 12 Twenty issues of mixed quality. a given day weighted by the volume of transactions at these rates. 13 Averages of daily figures from Moody’s Investors Service. 5 Averages of the daily midpoints as determined from the range of 14 Compilation of .the Board of Governors of the Federal Reserve offering rates in the secondary market. System. 6 Posted rates, which are the annual interest rates most often quoted Issues included are long-term (20 years or more). New-issue yields are on new offerings of negotiable CD’s in denominations of $100,000 or based on quotations on date of offering; those on recently offered issues more. Rates prior to 1976 not available. Weekly figures are for Wednes­ (included only for first 4 weeks after termination of underwriter price day dates. restrictions), on Friday close-of-business quotations. 7 Averages of daily quotations for the week ending Wednesday. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A28 Domestic Financial Statistics □ March 1977 1.37 STOCK MARKET Selected Statistics 1976 1977 Indicator 1974 1975 1976 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Prices and trading (averages of daily figures) Common stock prices 1 New York Stock Exchange (Dec. 31,1965 == 50). 43.84 45.73 54.45 55.06 56.30 54.43 54.17 56.34 56.28 54.93 2 Industrial................................................ 48.08 51.88 60.44 61.09 62.34 60.07 59.45 61.54 61.26 59.65 3 Transportation....................................... 31.89 30.73 39.57 40.63 40.36 38.37 39.28 41.77 41.93 40.59 4 Utility...................................................... 29.82 31.45 36.97 37.56 38.77 38.33 38.85 40.61 41.13 40.86 5 Finance................................................... 49.67 46.62 52.94 54.22 54.51 52.74 53.25 57.45 57.86 55.65 6 Standard and Poor’s Corporation (1941-43= 10). 82.85 85.17 102.01 103.29 105.45 101.89 101.19 104.66 103.81 100.96 7 American Stock Exchange (Aug. 31,1973 = 100). 79.97 83.15 101.63 102.79 102.92 98.99 99.20 104.06 111.04 112.17 Volume of trading (thousands of shares)2 8 New York Stock Exchange................... 13,883 18,568 21,189 15,758 18,892 17,397 19,370 23,621 23,562 19,310 9 American Stock Exchange.................... 1,908 2,150 2,565 1,605 1,902 1,700 2,211 3,095 3,268 2,830 Customer financing (end-of-period balances, in millions of dollars) 10 Regulated margin credit at brokers/dealers and banks3............................................ 4,836 6,500 9,001 8,683 8,566 8,772 8,629 '8,995 11 Brokers, total..................................................... 3,980 5,540 8,166 7,622 7,707 7,704 7,790 8,166 8,469 12 Margin stock4.......................................... 3,840 5,390 7,960 7,450 7,530 7,530 7,610 7,960 8,270 13 Convertible bonds.................................... 137 147 204 167 174 168 178 204 196 14 Subscription issues................................... 3 3 2 5 3 6 2 2 3 15 Banks, total.................................................. 856 960 835 1,061 859 1,068 839 r829 16 Margin stocks.......................................... 815 909 790 1,008 813 1,019 790 r29 17 Convertible bonds.................................... 30 36 31 34 32 34 35 r2 18 Subscription issues................................... 11 15 14 19 14 15 14 14 19 Unregulated nonmargin stock credit at banks5 2,064 2,281 3,785 2,368 2,830 2,774 3,351 r3,784 Memo: Free credit balances at brokers6 20 Margin-account............................................ 410 475 585 555 555 611 615 585 645 21 Cash-account................................................ 1,425 1,525 1,855 1,605 1,710 1,580 1,740 1,855 1,930 Margin-account debt at brokers (percentage distribution, end of period) 22 Total........................................ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 By equity class (in per cent):7 23 Under 40.............................. 45.4 25.0 13.0 18.2 12.2 15.0 14.0 13.0 15.0 24 40-49.................................... 23.0 28.8 22.0 33.9 29.9 34.0 32.0 22.0 23.0 25 50-59.................................... 13.9 22.3 35.0 22.7 29.6 25.6 27.0 35.0 35.0 26 60-69.................................... 8.8 11.6 15.0 12.7 14.1 12.7 13.0 15.0 13.0 27 70-79.................................... 4.6 6.9 8.7 6.9 8.0 7.2 8.0 8.7 8.0 28 80 or more........................... 4.3 5.3 6.0 5.7 6.3 5.7 6.0 6.0 6.0 Margin requirements 8 (per cent of market value) effective— Mar. 11, 1968 June 8, 1968 May 6, 1970 Dec. 6, 1971 Nov. 24, 1972 Jan. 3, 1974 29 Margin stocks. . . 70 80 65 55 65 50 30 Convertible bonds 50 60 50 50 50 50 31 Short sales........... 70 80 65 55 65 50 1 Effective July 1976 includes a new financial group, banks and in­ counter margin stocks. At banks, loans to purchase or carry nonmargin surance companies. With this change the index includes 400 industrial stocks are unregulated; at brokers, such stocks have no loan value. stocks (formerly 425), 20 transportation (formerly 15 rail), 40 public 6 Free credit balances are in accounts with no unfulfilled commitments utility (formerly 60), and 40 financial. to the brokers and are subject to withdrawal by customers on demand. 2 Based on trading for a 5 Vi-hour day. 7 Each customer’s equity in his collateral (market value of collateral 3 Margin credit includes all credit extended to purchase or carry less net debit balance) is expressed as a percentage of current collateral stocks or related equity instruments and secured at least in part by stock. values. Credit extended by brokers is end-of-month data for member firms of 8 Regulations G, T, and U, prescribed in accordance with the Securities the New York Stock Exchange; June data for banks are universe totals; Exchange Act of 1934, limit the amount of credit to purchase and carry all other data for banks are estimates for all commercial banks based on margin stocks that may be extended on securities as collateral by pre­ data from a sample of reporting banks. scribing a maximum loan value, which is a specified percentage of the In addition to assigning a current loan value to margin stock generally, market value of the collateral at the time the credit is extended. Margin Regulations T and U permit special loan values for convertible bonds requirements are the difference between the market value (100 per cent) and stock acquired through exercise of subscription rights. and the maximum loan value. The term “margin stocks” is defined in 4 A distribution of this total by equity class is shown below. the corresponding regulation. 5 Nonmargin stocks are those not listed on a national securities ex­ Regulation G and special margin requirements for bonds convertible change and not included on the Federal Reserve System’s list of over-the- into stocks were adopted by the Board of Governors effective Mar. 11, 1968. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Institutions A29 1.38 SAVINGS INSTITUTIONS Selected Assets and Liabilities Millions of dollars, end of period 1976 1977 1974 1975 1976 Account May June July Aug. Sept. Oct. Nov. Dec. Jan. Savings and loan associations 1 Assets..................................... 295,545 338,233 391,999 362,861 366,425 371,770 376,188 379,747 385,013 389,173 391,999 398,216 2 Mortgages............................. 249,301 278,590 323,130 294,492 299,296 303,527 307,766 311,847 315,742 319,273 323,130 326,056 3 Cash and investment securities1........................... 23,251 30,853 35,660 36,938 35,258 35,968 35,815 35,209 36,442 36,605 35,660 38,223 4 Other...................................... 22,993 28,790 33,209 31,431 31,871 32,275 32,607 32,691 32,829 33,295 33,209 33,937 5 Liabilities and net worth....... 295,545 338,233 391,999 362,861 366,425371,770 376,188 379,747 385,013 389,173 391,999 398,216 242,974 285,743 336,030 307,884 312,904 316,072 318,227 323,800 327,252 329,833 336,030 341,093 24,780 20,634 19,087 17,595 18,173 18,360 18,856 19,083 18,810 18,715 19,087 18,423 8 FHLBB.............................. 21,508 17,524 15,708 14,898 15,016 15,139 15,495 15,832 15,636 15,571 15,708 14,999 3,272 3,110 3,379 2,697 3,157 3,221 3,361 3,251 3,174 3,144 3,379 3,424 10 Loans in process................... 3,244 5,128 6,836 6,089 6,397 6,572 6,628 6,688 6,735 6,753 6,836 6,725 11 Other...................................... 6,105 6,949 8,015 10,592 8,176 9,756 11,197 8,779 10,531 11,918 8,015 9,727 18,442 19,779 22,031 20,702 20,775 21,010 21,280 21,398 21,685 21,954 22,031 22,248 Memo: 13 Mortgage loan commitments outstanding 3................. 7,454 10,673 14,828 16,590 16,610 16,301 15,773 15,449 15,319 15,467 14,828 15,022 Mutual savings banks 14 Assets............................... 109,550 121,056 127,470 128,436 129,826 130,571 131,413 132,455 133,361 Loans: 15 Mortgage....................... 74,891 77,221 78,286 78,803 79,398 79,781 80,145 80,543 80,884 16 Other............................ 3,812 4,023 5,103 5,137 5,341 5,210 5,478 5,549 5,801 Securities: 17 U.S. Govt....................... 2,555 4,740 5,660 5,635 5,640 5,733 5,851 5,796 5,836 18 State and local government. 930 1,545 2,318 2,337 2,376 2,339 2,359 2,429 2,466 19 Corporate and other4....... 22,550 27,992 31,179 31,493 32,028 32,319 32,432 32,793 33,074 20 Cash....................................... 2,167 2,330 1,539 1,558 1,538 1,552 1,581 1,695 1,668 21 Other assets........................... 2,645 3,205 3,385 3,470 3,505 3,576 3,567 3,649 3,632 22 Liabilities............................... 109,550 121,056 127,470 128,436 129,826 130,571 131,413 132,455 133,361 23 Deposits................................. 98,701 109,873 115,521 116,876 117,883 118,225 119,590 120,360 120,971 24 Regular:5........................... 98,221 109,291 114,761 115,985 116,895 117,203 118,510 119,346 120,125 25 Ordinary savings............ 64,286 69,653 72,156 72,763 73,223 72,872 73,484 73,610 73,857 26 Time and other.............. 33,935 39,639 42,605 43,223 43,662 44,331 45,027 45,736 46,268 27 Other.................................. 480 582 760 890 988 1,022 1,080 1,014 846 28 Other liabilities..................... 2,888 2,755 3,296 2,841 3,161 3,490 2,898 3,140 3,376 29 General reserve accounts---- 7,961 8,428 8,654 8,719 8,781 8,855 8,925 8,955 9,015 Memo: 30 Mortgage loan commitments outstanding 6................. 2,040 1,803 2,426 2,402 2,433 2,459 2,671 2,548 2,553 Life insurance companies 31 Assets..................... 263,349 289,304 320,555 301,754 304,728 307,005 309,295 312,044 313,960 316,505 320,555 Securities: 32 Government........ 10,900 13,758 17,270 15,975 15,947 16,672 16,902 16,862 17,329 17,565 17,270 33 United States7 3,372 4,736 5,156 5,141 4,863 5,150 5,922 5,150 5,448 5,606 5,156 34 State and local 3,667 4,508 5,551 5,146 5,196 5,263 5,324 5,364 5,446 5,467 5,551 35 Foreign8.......... 3,861 4,514 6,563 5,688 5,888 6,259 6,286 6,348 6,435 6,492 6,563 36 Business.............. 119,637 135,317 157,625 114,496 147,193 148,617 150,303 152,125 153,298 154,502 157,625 37 Bonds.............. 97,717 107,256 123,149 113,087 114,583 116,101 117,806 118,706 120,358 121,659 123,149 38 Stocks.............. 21,920 28,061 34,476 31,409 32,610 32,516 32,497 33,419 32,940 32,843 34,476 39 Mortgages.............. 86,234 89,167 91,581 89,529 89,691 89,753 89,891 90,217 90,323 90,808 91,581 40 Real estate.............. 8,331 9,621 10,526 9,909 10,004 10,050 10,146 10,175 10,285 10,310 10,526 41 Policy loans............ 22,862 24,467 25,849 24,978 25,142 25,257 25,383 25,505 25,607 25,710 25,849 42 Other assets............ 15,385 16,971 17,704 16,867 16,751 16,656 16,670 17,160 17,118 17,610 17,704 Credit unions 43 Total assets/liabilities and 31,948 38,037 44,897 41,025 41,884 41,729 42,266 43,079 43,415 44,204 44,897 45,618 16,715 20,209 24,164 21,930 22,520 22,385 22,698 23,198 23,283 23,763 24,164 24,606 15,233 17,828 20,733 19,095 19,364 19,344 19,658 19,881 20,132 20,441 20,733 21,012 46 Loans outstanding................. 24,432 28,169 34,033 30,115 31,089 31,555 32,300 33,093 33,275 33,365 34,033 34,517 47 Federal............................... 12,730 14,869 18,022 15,855 16,421 16,614 17,065 17,458 17,522 17,592 18,002 18,264 11,702 13,300 16,011 14,260 14,668 14,941 15,235 15,635 15,753 15,773 16,011 16,253 49 Savings................................... 27,518 33,013 39,264 35,894 36,675 36,615 36,752 37,436 37,854 38,650 39,264 39,664 50 Federal (shares)................. 14,370 17,530 21,149 19,211 19,696 19,663 19,783 20,167 20,358 20,805 21,149 21,357 51 State (shares and deposits). 13,148 15,483 18,115 16,683 16,979 16,952 16,969 17,269 17,496 17,845 18,115 18,307 For notes see bottom of page A30. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic Financial Statistics □ March 1977 1.39 FEDERAL FISCAL AND FINANCING OPERATIONS Millions of dollars Fiscal year Calendar year Transition quarter Type of account or operation (July- 1975 1976 1977 1975 1976 Sept. 1976) H2 HI H2 Nov. Dec. Jan. U.S. Budget 1 Receipts............................................ 280,997 300,005 81,773 139,455 r160,552 157,961 25,698 29,472 29,977 2 Outlays 1,2....................................... 326,105 366.466 94,746 r185,097 r181,369 193,719 33,083 31,891 32,640 3 Surplus, or deficit (—).................. - 45,108 -66,461 -12,973 r-45,642 r—20,816 -35,758 -7,385 -2,419 -2,664 4 Trust funds.................................. 7,419 2,409 -1,952 -3,125 5,503 -4,621 328 1,737 -2,344 5 Federal funds 3............................ -52,526 -68,870 -11,021 -42,517 -26,320 -31,137 -7,713 -4,156 -321 Off-budget entities surplus, or deficit (—) 6 Federal Financing Bank outlays. .. -6,389 -5,915 -2,575 -2,693 -3,222 c —5,176 -301 -1,598 -1,009 7 Other i,4.......................................... -1,652 -1,355 793 -236 -1,119 C3,8G9 -305 48 -1,881 U.S. Budget plus off-budget, in­ cluding Federal Financing Bank 8 Surplus, or deficit ( —)..................... -53,149 -73,731 -14,755 r-48,571 r-25,158 -37,125 -7,991 -3,969 -5,554 Financed by: 9 Borrowing from the public 2. . . . 50,867 82,922 18,027 r49,361 r33,561 35,457 6,738 6,306 3,157 10 Cash and monetary assets (de­ crease, or increase ( —))........ -320 -7,796 -2,899 -2,046 '-7,909 2,153 4,308 -3,527 -1,583 11 Others.......................................... 2,602 -1,396 -373 1,256 r —495 -485 -3,055 1,189 3,980 Memo: 12 Treasury operating balance (level, end of period)...................................... 7,591 14,836 17,418 8,452 14,836 11,670 8,657 11,670 12,688 13 F.R. Banks....................................... 5,773 11,975 13,299 7,286 11,975 10,393 6,766 10,393 11,397 14 Tax and loan accounts.................... 1,475 2,854 4,119 1,159 2,854 1,277 1,891 1,277 1,292 15 Other demand accounts 6............... 343 7 7 7 1 Outlay totals reflect the reclassification of the Export-Import Bank accounts; seignorage; increment on gold; net gain/loss for U.S. currency from off-budget status to unified budget status. valuation adjustment; conversion of interest receipts of Government 2 Export-Import Bank certificates of beneficial interest (effective July accounts to an accrual basis. 1, 1975) and loans to Pefco are treated as debt rather than asset sales. 6 Excludes the gold balance but includes deposits in certain commercial 3 Half years calculated as a residual of total surplus/deficit and trust depositories that have been converted from a time deposit to a demand fund surplus/deficit. deposit basis to permit greater flexibility in Treasury cash management. 4 Includes Pension Benefit Guaranty Corp., Postal Service Fund, Rural Electrification and Telephone Revolving Fund, Rural Telephone Bank, Source.—“Monthly Treasury Statement of Receipts and Outlays of and Housing for the Elderly or Handicapped Fund. the U.S. Government”, Treasury Bulletin, and U.S. Budget, Fiscal Year 5 Includes: Public debt accrued interest payable to the public; deposit 1978. funds; miscellaneous liability (including checks outstanding) and asset NOTES TO TABLE 1.38 1 Stock of the Federal Home Loan Bank Board (FHLBB) is included Even when revised, data for current and preceding year are subject to in “other assets.” further revision. 2 Includes net undistributed income, which is accrued by most, but not Mutual savings banks: Estimates of National Association of Mutual all, associations. Savings Banks for all savings banks in the United States. Data are re­ 3 Excludes figures for loans in process, which are shown as a liability. ported on a gross-of-valuation-reserves basis. 4 Includes securities of foreign governments and international organiza­ Life insurance companies: Estimates of the Institute of Life Insurance tions and nonguaranteed issues of U.S. Govt, agencies. for all life insurance companies in the United States. Annual figures are 5 Excludes checking, club, and school accounts. annual-statement asset values, with bonds carried on an amortized basis 6 Commitments outstanding (including loans in process) of banks in and stocks at year-end market value. Adjustments for interest due and New York State as reported to the Savings Banks Assn. of the State of accrued and for differences between market and book values are not New York. made on each item separately but are included, in total, in “other assets.” 7 Direct and guaranteed obligations. Excludes Federal agency issues Credit unions: Estimates by the National Credit Union Administration not guaranteed, which are shown in this table under “business” securities. for a group of Federal and State-chartered credit unions that account for 8 Issues of foreign governments and their subdivisions and bonds of the about 30 per cent of credit union assets. Figures are preliminary and International Bank for Reconstruction and Development. revised annually to incorporate recent benchmark data. Note.—Savings and loan associations: Estimates by the FHLBB for all associations in the United States. Data are based on monthly reports of Federally insured associations and annual reports of other associations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A31 1.40 U.S. BUDGET RECEIPTS AND OUTLAYS Millions of dollars Fiscal year Calendar year Transition quarter Source or type (July— 1975 1976 1977 1975 1976 Sept. 1976) H2 HI H2r Jan. Receipts 1 All sources....................................... 280,997 300,005 81,773 '139,455 160,552 157,961 25,698 29,472 29,977 2 Individual income taxes, net............ 122,386 131,603 38,801 65,835 65,767 75,094 12,535 12,663 18,108 3 Withheld..................................... 122,071 123,408 32,949 59,549 63,859 68,023 12,201 12,179 11,979 4 Presidential Election Campaign Fund.................................... 32 34 33 1 5 Nonwithheld............................... 34,296 35,528 6,809 7,649 27,879 8,426 375 678 6,141 6 Refunds...................................... 34,013 27,367 958 1,362 26,004 1,356 41 194 13 7 Corporation income taxes: 8 Gross receipts............................. 45,747 46,783 9,808 18,810 27,973 20,706 1,185 7,838 2,007 9 Refunds...................................... 5,125 5,374 1,348 2,735 2,639 2,886 486 205 313 10 Social insurance taxes and contribu­ tions, net..................................... 86,441 92,714 25,760 40,886 51,828 47,596 9,432 6,207 7,320 11 Payroll employment taxes and contributions 1.................... 71,789 76,391 21,534 35,443 40,947 40,427 7,775 5,809 6,271 12 Self-employment taxes and contributions 1................... 3,417 3,518 269 268 3,250 286 17 240 13 Unemployment insurance.......... 6,771 8,054 2,698 2,861 5,193 4,379 1,205 -26 347 14 Other net receipts 2................... 4,466 4,752 1,259 2,314 2,438 2,504 451 407 462 15 Excise taxes.................................... 16,551 16,963 4,473 r8,761 8,204 8,910 1,517 1,513 1,447 16 Customs.......................................... 3,676 4,074 1,212 1,927 2,147 2,361 r392 412 381 17 Estate and gift............................... 4,611 5,216 1,455 2,573 2,643 2,943 r570 502 504 18 Miscellaneous receipts 3................ 6,711 8,026 1,612 3,397 4,630 3,236 553 542 521 Outlays 19 AH types 4...................................... 326,105 366,466 94,746 '185,097 '181,369 193,719 33,083 31,891 32,640 20 National defense............................ 86,585 89,996 22,518 '46,214 44,052 45,002 7,434 7,575 7,082 21 International affairs 4................... 5,862 5,067 1,997 '2,574 '2,668 3,028 294 472 349 22 General science, space, and technology............................... 3,989 4,370 1,161 '2,415 1,708 2,377 418 304 23 Natural resources, environment, and energy.............................. 9,537 11,282 3,324 '5,018 6,900 7,206 1,341 1,217 1,042 24 Agriculture..................................... 1,660 2,502 584 '1,489 417 2,019 630 507 582 25 Commerce and transportation.... 16,010 17,248 4,700 '11,496 5,766 9,643 1,726 995 681 26 Community and regional development........................... 4,431 5,300 1,530 '2,548 2,411 3,192 756 506 397 27 Education, training, employment, and social services.................. 15,248 18,167 5,013 '8,423 9,116 9,083 1,709 1,563 1,541 28 Health............................................. 27,647 33,448 8,720 '16,681 17,008 19,329 3,014 4,071 2,961 29 Income security............................. 108,605 127,406 32,796 '61,655 65,336 65,456 11,016 10,533 11,652 30 Veterans benefits and services.... 16,597 18,432 3,962 '9,010 9,450 8,542 1,699 1,467 1,630 31 Law enforcement and justice........ 2,942 3,320 859 '1,589 1,784 1,839 300 297 340 32 General government...................... 3,089 2,927 878 '1,929 870 1,734 395 326 93 33 Revenue sharing and general purpose fiscal assistance........ 7,005 7,119 2,024 '3,528 3,664 4,729 590 127 2,062 34 Interest5.......................................... 30,974 34,589 7,246 '15,180 18,560 18,409 2,438 6,025 2,382 35 Undistributed offsetting receipts 5 -14,075 -14,704 -2,567 '-4,652 -8,340 -7,869 -659 -4,207 -460 1 Old-age, disability and hospital insurance, and Railroad Retirement 5 Effective September 1976, “Interest” and “Undistributed Offsetting accounts. Receipts” reflect the accounting conversion for the interest on special 2 Supplementary medical insurance premiums, Federal employee re­ issues for U.S. Govt, accounts from an accrual basis to a cash basis. tirement contributions and Civil Service retirement and disability fund. 6 Consists of interest received by trust funds, rents and royalties on 3 Deposits of earnings by F.R. Banks and other miscellaneous receipts. the Outer Continental Shelf, and U.S. Govt, contributions for em­ 4 Outlay totals reflect the reclassification of the Export-Import Bank ployee retirement. from off-budget status to unified budget status. Export-Import Bank certificates of beneficial interest (effective July 1, 1975) and loans to Pefco are treated as debt rather than asset sales. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A32 Domestic Financial Statistics □ March 1977 1.41 FEDERAL DEBT SUBJECT TO STATUTORY LIMIT Billions of dollars 1973 1974 1975 1976 Item June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31 June 30 Sept. 30 Dec. 31 1 Federal debt outstanding..................... 468.4 480.7 486.2 504.0 544.1 587.6 '631.9 2646.4 665.5 2 Public debt securities........................... 457.3 469.1 474.2 492.7 533.7 576.6 620.4 634.7 653.5 3 Held by public................................. 333.9 339.4 336.0 351.5 387.9 437.3 470.8 488.6 506.4 4 Held by agencies............................. 123.4 129.6 138.2 141.2 145.3 139.3 149.6 146.1 147.1 5 Agency securities.................................. 11.1 11.6 12.0 11.3 10.9 10.9 r11.5 m.6 12.0 6 Held by public................................. 9.1 9.6 10.0 9.3 9.0 8.9 r9.5 29.7 10.0 7 Held by agencies............................. 2.0 2.0 2.0 2.0 1.9 2.0 2.0 1.9 1.9 8 Debt subject to statutory limit............ 459.1 470.8 476.0 493.0 534.2 577.8 621.6 635.8 654.7 9 Public debt securities........................... 456.7 468.4 473.6 490.5 532.6 576.0 619.8 634.1 652.9 2.4 2.4 2.4 2.4 1.6 1.7 1.7 1.7 1.7 11 Memo: Statutory debt limit............... 465.0 475.7 495.0 495.0 577.0 595.0 636.0 636.0 682.0 1 Includes guaranteed debt of Govt, agencies, specified participation $0.5 billion due to a retroactive reclassification of the Export-Import Bank certificates, notes to international lending organizations, and District of certificates of beneficial interest from loan asset sales to debt, effective Columbia stadium bonds. July 1, 1975. 2 Gross Federal debt and Agency debt held by the public increased Source.—U.S. Treasury Bulletin. 1.42 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership Billions of dollars, end of period 1976 Type and holder 1973 1974 1975 Sept. Oct. Nov. Dec. Feb. 1 Total gross public debt1...................... 469.9 492.7 576.6 634.7 637.6 644.6 653.5 653.9 663.3 By type: 2 Interest-bearing debt............................ 360.7 373.4 457.1 505.7 508.7 517.0 523.5 527.0 535.3 3 Marketable....................................... 270.2 282.9 363.2 407.7 408.6 415.4 421.3 424.0 431.6 4 Bills............................................... 107.8 119.7 157.5 161.5 161.5 161.7 164.0 164.0 164.2 5 Notes............................................ 124.6 129.8 167.1 206.3 207.3 213.0 216.7 219.5 225.9 6 Bonds............................................ 37.8 33.4 38.6 39.8 39.8 40.7 40.6 40.5 41.6 7 Nonmarketable2............................... 197.6 208.7 212.5 225.9 226.5 228.2 231.2 229.0 230.7 8 Convertible bonds3..................... 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 9 Foreign issues4............................. 26.0 22.8 21.6 20.8 22.3 22.5 22.3 22.2 22.2 10 Savings bonds and notes............. 60.8 63.8 67.9 71.2 71.5 71.9 72.3 72.6 73.0 11 Govt, account series5................. 108.0 119.1 119.4 128.6 127.2 127.4 129.7 126.8 127.8 By holder:6 12 U.S. Govt, agencies and trust funds 129.6 141.2 139.3 146.1 144.6 144.9 147.1 13 F.R. Banks....................................... 78.5 80.5 87.9 96.4 95.7 91.7 97.0 14 Private investors............................... 261.7 271.0 349.4 392.2 397.3 408.1 409.5 15 Commercial banks....................... 60.3 55.6 85.1 93.3 94.8 99.8 102.5 16 Mutual savings banks................. 2.9 2.5 4.5 5.3 5.3 5.3 5.5 17 Insurance companies................... 6.4 6.1 9.3 11.6 12.1 12.2 12.3 18 Other corporations...................... 10.9 11.0 20.2 25.7 24.7 24.2 25.5 19 State and local governments .... 29.2 29.2 33.8 39.1 41.5 42.1 41.6 Individuals: 20 Savings bonds........................... 60.3 63.4 67.3 70.9 71.3 71.6 72.0 21 Other securities......................... 16.9 21.5 24.0 28.8 28.8 29.0 28.8 22 Foreign and international7......... 55.5 58.4 66.5 74.6 75.2 76.0 78.1 23 Other miscellaneous investors8. . 19.3 23.2 38.6 42.9 43.6 47.7 43.2 1 Includes $1.0 billion of non-interest-bearing debt (of which $612 6 Data for F.R. Banks and U.S. Govt, agencies and trust funds are million on Feb. 28, 1977, was not subject to statutory debt limitations). actual holdings; data for other groups are Treasury estimates. 2 Includes (not shown separately): Securities issued to the Rural 7 Consists of the investments of foreign balances and international Electrification Administration and to State and local governments, de­ accounts in the United States. Beginning with 1974, the figures exclude positary bonds, retirement plan bonds, and individual retirement bonds. non-interest-bearing notes issued to the International Monetary Fund. 3 These nonmarketable bonds, also known as Investment Series B 8 Includes savings and loan associations, nonprofit institutions, cor­ Bonds, may be exchanged (or converted) at the owner’s option for 1 Vi porate pension trust funds, dealers and brokers, certain Govt, deposit per cent, 5-year marketable Treasury notes. Convertible bonds that have accounts, and Govt.-sponsored agencies. been so exchanged are removed from this category and recorded in the notes category above. Note.—Gross public debt excludes guaranteed agency securities and, 4 Nonmarketable certificates of indebtedness, notes, and bonds in the beginning in July 1974, includes Federal Financing Bank security issues. Treasury foreign series and foreign-currency series. Source.—For data by type of security, Monthly Statement of the Public 5 Held only by U.S. Govt, agencies and trust funds. Debt of the United States, U.S. Treasury Department; for data by holder, Treasury Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A33 1.43 U.S. GOVERNMENT MARKETABLE SECURITIES Ownership, by maturity Par value; millions of dollars; end of period 1976 1977 1976 1977 1975 1975 Type of holder Nov. Dec. Jan. Nov. Dec. Jan. All maturities 1 to 5 years 1A11 holders............................................................................... 363,191 415,399 421,216 423,995 112,270 137,932 141,132 138,727 2 U.S. Govt, agencies and trust funds..................................... 19,347 16,429 16,485 16,214 7,058 6,213 6,141 6,143 3 F. R. Banks............................................................................. 87,934 91,660 96,971 94,134 30,518 30,036 31,249 30,933 4 Private investors...................................................................... 255,860 307,310 307,820 313,647 74,694 101,683 103,742 101,651 5 Commercial banks.............................................................. 64,398 74,013 IS,262 78,077 29,629 38,254 40,005 40,110 6 Mutual savings banks......................................................... 3,300 3,956 4,072 4,169 1,524 2,083 2,010 1,941 7 Insurance companies.......................................................... 7,565 10,194 10,284 10,070 2,359 3,768 3,885 3,706 8 Nonfinancial corporations................................................. 9,365 13,062 14,193 15,330 1,967 2,873 2,618 2,981 9 Savings and loan associations............................................ 2,793 4,462 4,576 4,808 1,558 2,320 2,360 2,310 10 State and local governments.............................................. 9,285 12,543 12,252 14,836 1,761 2,546 2,543 2,620 11 All others............................................................................. 159,154 189,080 184,182 186,357 35,894 49,840 50,321 47,984 Total, within 1 year 5 to 10 years i 12 All holders................................................................................ 199,692 208,271 211,035 213,558 26,436 43,060 43,045 45,731 13 U.S. Govt, agencies and trust funds..................................... 2,769 1,929 2,012 1,767 3,283 2,835 2,879 2,870 14 F. R. Banks............................................................................. 46,845 47,920 51,569 49,033 6,463 8,876 9,148 9,173 15 Private investors...................................................................... 150,078 158,422 157,454 162,758 16,690 31,349 31,018 33,688 16 Commercial banks.............................................................. 29,875 28,629 31,213 29,805 4,071 6,301 6,278 7,466 17 Mutual savings banks......................................................... 983 1,087 1,214 1,238 448 516 567 716 18 Insurance companies........................................................... 2,024 2,348 2,191 2,173 1,592 2,427 2,546 2,589 19 Nonfinancial corporations.................................................. 7,105 9,738 11,009 11,751 175 295 370 359 20 Savings and loan associations............................................ 914 1,926 1,984 2,115 216 139 155 313 21 State and local governments.............................................. 5,288 7,072 6,622 9,083 782 1,380 1,465 1,488 22 All others............................................................................. 103,889 107,621 103,220 106,592 9,405 20,291 19,637 20,756 Bills, within 1 year 10 to 20 years 23 All holders............................................................................... 157,483 161,711 163,992 164,005 14,264 11,915 11,865 11,814 24 U.S. Govt, agencies and trust funds..................................... 207 375 449 239 4,233 3,102 3,102 3,102 25 F. R. Banks............................................................................. 38,018 37,992 41,279 38,743 1,507 1,303 1,363 1,370 26 Private investors...................................................................... 119,258 123,344 122,264 125,023 8,524 7,510 7,400 7,342 27 Commercial banks.............................................................. 17,481 15,202 17,303 15,136 552 406 339 343 28 Mutual savings banks........................................................ 554 355 454 429 232 155 139 132 29 Insurance companies........................................................... 1,513 1,621 1,463 1,416 1,154 1,122 1,114 1,074 30 Nonfinancial corporations.................................................. 5,829 8,712 9,939 10,504 61 120 142 181 31 Savings and loan associations............................................ 518 1,257 1,266 1,341 82 65 64 55 32 State and local governments.............................................. 4,566 6,022 5,556 8,057 896 723 718 713 33 All others............................................................................. 88,797 90,175 86,282 88,137 5,546 4,919 4,884 4,842 Other, within 1 year Over 20 years 34 All holders............................................................................... 42,209 46,560 47,043 49,553 10,530 14,221 14,200 14,165 35 U.S. Govt, agencies and trust funds..................................... 2,562 1,554 1,563 1,528 2,053 2,350 2,350 2,331 36 F. R. Banks............................................................................. 8,827 9,928 10,290 10,290 2,601 3,527 3,642 3,626 37 Private investors...................................................................... 30,820 35,078 35,190 37,735 5,876 8,344 8,208 8,208 38 Commercial banks.............................................................. 12,394 13,427 13,910 14,669 211 423 421 353 39 429 732 760 809 112 115 143 141 40 Insurance companies........................................................... 511 727 728 757 436 529 548 527 41 Nonfinancial corporations.................................................. 1,276 1,026 1,010 1,247 57 36 55 58 42 396 669 718 774 22 12 13 14 43 State and local governments.............................................. 722 1,050 1,066 1,026 558 821 904 931 44 All others............................................................................. 15,092 17,446 16,938 18,455 4,420 6,409 6,120 6,184 Note.—Direct public issues only. Based on Treasury Survey of Owner­ banks, 468 mutual savings banks, and 728 insurance companies, each ship. From Treasury Bulletin (U.S. Treasury Dept.). about 90 per cent; (2) 448 nonfinancial corporations and 486 savings Data complete for U.S. Govt, agencies and trust funds and F.R. Banks, and loan assns., each about 50 per cent; and (3) 500 State and local but data for other groups include only holdings of those institutions govts., about 40 per cent. that report. The following figures show, for each category, the number “All others,” a residual, includes holdings of all those not reporting and proportion reporting as of January 31, 1977; (1) 5,502 commercial in the Treasury Survey, including investor groups not listed separately. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A34 Domestic Financial Statistics □ March 1977 1.44 U.S. GOVERNMENT SECURITIES DEALERS Transactions Par value; averages of daily figures, in millions of dollars 1976 1977 1977 Item 1974 1975 Week ending Wednesday Jan.? Nov. Dec. Jan. 19 Jan. 26 Feb. 2 Feb. 9 Feb. 16 Feb. 23 1 U.S. Govt, securities............................. 3,579 6,027 14,995 13,059 12,502 13,811 '9,813 11,565 15,925 11,228 10,978 By maturity: 2 Bills.................................................... 2,550 3,889 8,565 7,511 7,630 8,555 6,108 7,182 9,231 7,114 6,356 3 Other within 1 year........................... 250 223 170 172 156 153 126 254 314 243 192 4 1-5 years............................................ 465 1,414 4,034 3,355 2,805 2,947 2,408 2,633 3,866 2,336 2,898 5 5-10 years.......................................... 256 363 1,804 1,653 1,604 1,807 962 1,218 2,088 1,173 1,209 6 Over 10 years.................................... 58 138 422 368 307 349 209 279 426 363 323 By type of customer: 7 U.S. Govt, securities dealers............ 652 885 1,873 1,650 1,641 1,945 1,388 1,369 1,686 1,421 1,498 8 U.S. Govt, securities brokers........... 965 1,750 5,389 4,444 4,586 5,234 3,167 3,875 6,089 3,758 3,618 9 Commercial banks............................ 998 1,451 3,279 2,999 2,884 3,020 2,328 2,617 3,643 2,598 2,493 10 All others1......................................... 964 1,941 4,454 3,966 3,392 3,611 2,931 3,703 4,508 3,451 3,367 11 Federal agency securities...................... 965 1,043 2,096 2,025 1,764 '1,860 '1,484 1,413 1,647 1,489 1,639 1 Includes—among others—all other dealers and brokers in commodi­ Transactions are market purchases and sales of U.S. Govt, securities ties and securities, foreign banking agencies, and the F.R. System. dealers reporting to the F.R. Bank of New York. The figures exclude allotments of, and exchanges for, new U.S. Govt, securities, redemptions Note.—Averages for transactions are based on number of trading days of called or matured securities, or purchases or sales of securities under in the period. repurchase, reverse repurchase (resale), or similar contracts. 1.45 U.S. GOVERNMENT SECURITIES DEALERS Positions and Sources of Financing Par value; averages of daily figures, in millions of dollars 1976 1977 1976 1977 Item 1974 1975 Week ending Wednesday Nov. Dec. Jan.? Dec. 29 Jan. 5 Jan. 12 Jan. 19 Jan. 26 Feb. 2 Positions2 1U.S. Govt, securities.............................. 2,580 5,884 9,744 10,840 8,914 11,310 10,140 9,929 9,557 8,426 5,582 2 Bills.................................................... 1,932 4,297 7,321 8,394 6,596 8,250 7,123 7,249 7,608 6,181 3,888 3 Other within 1 year........................... -6 265 161 155 138 217 182 99 117 151 196 4 1-5 years............................................ 265 886 1,102 1,336 1,270 1,815 1,631 1,472 1,011 1,348 857 5 5-10 years.......................................... 302 300 789 596 532 649 779 652 454 436 348 6 Over 10 years..................................... 88 136 372 359 379 378 424 458 367 310 292 7 Federal agency securities...................... 1,212 943 1,110 1,435 923 1,349 1,292 999 924 891 423 Sources of financing3 3,977 6,666 11,613 14,032 11,938 13,990 '13,213 12,563 12,835 11,371 8,922 Commercial banks: 9 New York City................................. 1,032 1,621 2,453 2,567 2,362 2,379 '2,277 2,858 2,985 1,904 1,430 10 Outside New York City................... 1,064 1,466 2,397 2,839 2,353 2,515 2,242 3,048 2,634 1,872 1,666 459 842 1,871 2,437 2,141 2,110 2,059 2,069 2,189 2,213 2,068 12 All other................................................ 1,423 2,738 4,893 6,188 5,082 6,997 6,635 4,589 5,027 5,381 3,759 1A11 business corporations except commercial banks and insurance firms and dealer departments of commercial banks against U.S. Govt, companies. and Federal agency securities (through both collateral loans and sales 2 Net amounts (in terms of par values) of securities owned by nonbank under agreements tc repurchase), plus internal funds used by bank dealer dealer firms and dealer departments of commercial banks on a commit­ departments to finance positions in such securities. Borrowings against ment, that is, trade-date basis, including any such securities that have been securities held under agreement to resell are excluded where the borrowing sold under agreements to repurchase. The maturities of some repurchase contract and the agreement to resell are equal in amount and maturity, agreements are sufficiently long, however, to suggest that the securities that is, a matched agreement. involved are not available for trading purposes. Securities owned, and hence dealer positions, do not include securities purchased under agree­ Note.—Averages for positions are based on number of trading days ments to resell. in the period; those for financing, on the number of calendar days in the 3 Total amounts outstanding of funds borrowed by nonbank dealer period. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A35 1.46 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars; end of period 1976 Agency 1973 1974 1975 July Aug. Sept. Dec. 1 Federal and Federally sponsored agencies. '71,594 '89,381 '97,680 TOO, 839 101,724 r102,456 103,865 103,415 103,308 2 Federal agencies.................................................... 11,554 12,719 19,046 21,029 21,453 21,895 22,676 22,645 22,419 3 Defense Department1...................................... 1,439 1,312 1,220 1,164 1,152 1,136 1,128 1,117 1,113 Export-Import Bank2,3.................................... 2,625 2,893 7,188 7,578 7,945 7,728 8,353 8,336 8,574 Federal Housing Administration4................... 415 440 564 584 582 578 589 585 575 Government National Mortgage Association Participation Certificates5........................ 4,390 4,280 4,200 4,145 4,145 4,145 4,145 4,145 4,120 Postal Service®.................................................. 250 721 1,750 2,998 2,998 3,498 3,498 3,498 2,998 Tennessee Valley Authority............................. 2,435 3,070 3,915 4,470 4,535 4,713 4,865 4,865 4,935 United States Railway Association6............... 3 209 90 96 97 98 99 104 10 Federally sponsored agencies............................... r60,040 '76,662 r78,634 r79,810 '80,271 '80,561 '81,189 '80,770 '80,889 11 Federal home loan banks............................... 15,362 21,890 18,900 17,102 17,113 17,061 17,122 16,807 16,811 Federal Home Loan Mortgage Corporation. 1,784 1,551 1,550 1,550 1,150 1,150 1,150 1,150 1,150 Federal National Mortgage Association___ 23,002 28,167 29,963 29,845 30,429 30,685 30,656 30,413 30,565 Federal land banks......................................... 10,062 12,653 15,000 16,566 16,566 16,566 17,124 17,127 17,127 Federal intermediate credit banks................. 6,932 8.589 9,254 10,595 10,687 10,791 10,712 10,669 10,494 Banks for cooperatives................................... 2,695 3.589 3,655 3,745 3,919 3,901 4,023 4,207 4,330 Student Loan Marketing Association7.......... 200 220 310 405 405 405 400 '395 410 Other................................................................ 3 3 2 2 2 2 2 2 2 Memo: 19 Federal Financing Bank Debt6,8 17,154 24,149 25,052 25,888 26,636 27,028 28,711 Lending to Federal and Federally sponsored agencies: 20 Export-Import Bank3................................... 4,595 4,985 4,985 4,768 4,768 4,768 5,208 21 Postal Service6.............................................. 500 1,500 2,748 2,748 3,248 3,248 3,248 2,748 22 Student Loan Marketing Association7........ 220 310 405 405 405 400 395 410 23 Tennessee Valley Authority......................... 895 1,840 2,495 2,560 2,738 2,810 2,890 3,110 24 United States Railway Association6........... 3 209 90 96 97 98 99 104 Other lending: 9 25 Farmers Home Administration.......... 2,500 7,000 9,200 9,650 9,650 10,250 10,250 10,750 26 Rural Electrification Administration. 566 1,164 1,215 1,514 1,573 '1,674 1,768 27 Others................................................... 356 1,134 3,062 3,393 3,468 3,489 '3,704 4,613 1 Consists of mortgages assumed by the Defense Department between 7 Unlike other Federally sponsored agencies, the Student Loan 1957 and 1963 under family housing and homeowners assistance programs. Marketing Association may borrow from the Federal Financing Bank 2 Includes participation certificates reclassified as debt beginning (FFB) since its obligations are guaranteed by the Department of Health, Oct. 1, 1976. Education, and Welfare. 3 Off-budget Aug. 17,1974 through Sept. 30,1976 on-budget thereafter. 8 The FFB, which began operations in 1974, is authorized to purchase 4 Consists of debentures issued in payment of Federal Housing Ad­ or sell obligations issued, sold, or guaranteed by other Federal agencies. ministration insurance claims. Once issued, these securities may be sold Since FFB incurs debt solely for the purpose of lending to other agencies, privately on the securities market. its debt is not included in the main portion of the table in order to avoid 5 Certificates of participation issued prior to fiscal 1969 by the Govern­ double counting. ment National Mortgage Association acting as trustee for the Farmers 9 Includes FFB purchases of agency assets and guaranteed loans; Home Administration; Department of Health, Education, and Welfare; the latter contain loans guaranteed by numerous agencies with the Department of Housing and Urban Development; Small Business Ad­ guarantees of any particular agency being generally small. Note that the ministration; and the Veterans Administration. Farmers Home Administration item consists exclusively of agency assets 6 Off-budget. while the Rural Electrification Administration entry contains both agency assets and guaranteed loans. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A36 Domestic Financial Statistics □ March 1977 1.47 NEW SECURITY ISSUES State and Local Government and Corporate Millions of dollars 1976 Type of issue or issuer, or use 1973 1974 1975 June July Aug. Sept. Oct. State and local government 1 All issues, new and refunding1............................................ 23,969 24,315 30,607 3,028 2,691 2,765 2,808 By type of issue: 2 General obligation....................................................... 12,257 13,563 16,020 1,689 1,186 1,269 1,265 3 Revenue........................................................................ 10,632 10,212 14,511 1,324 1,496 1,488 1,538 4 Housing Assistance Administration2......................... 1,022 461 5 U.S. Govt, loans.......................................................... 58 79 76 15 9 8 5 By type of issuer: 6 State.............................................................................. 4,212 4,784 7,438 590 308 669 470 7 Special district and statutory authority..................... 9,505 8,638 12,441 1,097 1,261 1,162 1,229 8 Municipalities, counties, townships, school districts. 10,249 10,817 10,660 1,331 1,118 930 1,104 9 Issues for new capital, total................................................. . 22,397 23,508 29,495 2,807 2,470 2,504 2,590 By use of proceeds: 10 Education..................................................................... 4,311 4,730 4,689 414 309 373 356 11 Transportation............................................................. 2,804 1,712 2,208 128 36 166 251 12 Utilities and conservation........................................... 5,654 5,634 7,209 745 1,000 784 747 13 Social welfare............................................................... 4,588 3,820 4,392 423 488 694 767 14 Industrial aid............................................................... 571 494 445 47 66 24 30 15 Other purposes............................................................. 4,465 7,118 10,552 1,050 571 463 439 Corporate 16 All issues3. . 32,025 38,311 53,644 6,418 3,216 r3,356 '4,817 4,363 17 Bonds. 21,049 32,066 42,756 5,023 2,578 '2,678 '4,263 3,435 By type of offering: 18 Public.................... 13,244 25,903 32,583 3,140 1,239 1,565 2,100 2,784 19 Private placement. 7,802 6,160 10,172 1,883 1,348 '1,113 '2,163 651 By industry group: 20 Manufacturing........................... 4,199 9,867 16,980 1,321 1,090 '749 '670 1,223 21 Commercial and miscellaneous. 1,318 1,845 2,750 483 171 319 '546 51 22 Transportation........................... 1,084 1,550 3,439 263 118 48 '1,205 237 23 Public utility............................... . 5,578 8,873 9,658 869 621 663 '1,118 858 24 Communication......................... 3,523 3,710 3,464 698 20 209 '147 150 25 Real estate and financial........... 5,344 6,218 6,469 1,389 568 692 '577 919 26 Stocks. . 10,979 6,247 10,863 1,395 629 678 554 928 By type: 27 Preferred. . 3,337 2,253 3,458 360 89 214 136 255 28 Common. 7,642 3,994 7,405 1,035 540 464 418 673 By industry group: 29 Manufacturing........................... 638 544 1,670 125 108 282 83 87 30 Commercial and miscellaneous. . 1,532 940 1,470 58 164 69 33 73 31 T ransportation........................... 26 22 1 3 13 7 32 Public utility............................... 4,691 3,964 6,235 479 311 257 347 591 33 Communication......................... 1,348 217 1,002 711 6 3 34 Real estate and financial.......... 2,745 562 488 19 40 54 84 177 1 Par amounts of long-term issues based on date of sale. than $100,000, secondary offerings, undefined or exempted issues as 2 Only bonds sold pursuant to the 1949 Housing Act, which are secured defined in the Securities Act of 1933, employee stock plans, investment by contract requiring the Housing Assistance Administration to make companies other than closed-end, intracorporate transactions, and sales to annual contributions to the local authority. foreigners. tha 3 n F i 1 g u y r e e a s r , , w so h l i d c h f o re r p c r a e s s h en i t n g th ro e s s U p n r it o e c d e e S d ta s te o s f , i a s r s e u e p s r i m nc a ip tu a r l i n a g m i o n u n m t o o re r As S s o o u ci r a c ti e o s n .— ; c S o ta rp te o r a a n te d s l e o c c u a r l i ti g es o , v e S r e n c m ur e it n i t e s s e a c n u d r it E ie x s c , ha S n e g cu e ri C tie o s m I m n i d s u si s o tr n y . number of units multiplied by offering price. Excludes offerings of less Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Corporate Finance A37 1.48 CORPORATE SECURITIES Net Change in Amounts Outstanding Millions of dollars 1975 1976 Source of change, or industry 1973 1974 1975 Ql Q2 Q3 Q4 Ql Q2 Q3 All issues1 1 New issues.............................................................. 33,559 39,344 53,255 15,211 15,602 9,079 13,363 13,671 14,229 11,385 2 Retirements............................................................ 11,804 ' 9,935 10,991 2,088 3,211 2,576 3,116 2,315 3,668 2,478 21,754 29,399 42,263 13,123 12,390 6,503 10,247 11,356 10,561 8,907 Bonds and notes 4 New issues............................................................. 21,501 31,354 40,468 12,759 11,460 6,654 9,595 9,404 10,244 8,701 5 Retirements............................................................ 8,810 6,255 8,583 1,587 2,336 2,111 2,549 1,403 3,159 1,826 6 Net change: Total.................................................. 12,691 25,098 31,886 11,172 9,124 4,543 7,047 8,001 7,084 6,875 By industry: 801 7,404 13,219 5,134 4,574 1,442 2,069 2,966 1,529 1,551 8 Commercial and other2..................................... -109 1,116 1,605 373 483 221 528 203 726 610 9 Transportation, including railroad................... 1,044 341 2,165 1 429 147 1,588 985 488 1,092 10 Public utility...................................................... 4,265 7,308 7,236 2,653 1,977 1,395 1,211 1,820 1,260 2,109 11 Communication.................................................. 3,165 3,499 2,980 1,269 810 472 429 498 953 335 12 Real estate and financial................................... 3,523 5,428 4,682 1,742 852 866 1,222 1,530 2,128 1,178 Common and preferred stock 13 New issues............................................................. 12,057 7,980 12,787 2,452 4,142 2,425 3,768 4,267 3,985 2,684 14 Retirements............................................................ 2,993 3,678 2,408 501 875 465 567 912 509 652 15 Net change: Total.................................................. 9,064 4,302 10,377 1,951 3,266 1,960 3,200 3,355 3,477 2,032 By industry: 658 17 1,607 262 500 412 433 838 1,120 744 17 Commercial and other2.................................... 1,411 -135 1,137 77 490 108 462 88 318 117 18 Transportation, including railroad................... -93 -20 65 1 7 53 4 5 25 17 19 Public utility...................................................... 4,509 3,834 6,015 1,569 1,866 1,043 1,537 2,174 1,300 932 20 Communication.................................................. 1,399 398 1,084 24 359 97 604 47 735 19 21 Real estate and financial................................... 1,181 207 468 18 43 247 160 203 -21 203 1 Excludes issues of investment companies. New issues and retirements exclude foreign sales and include sales of 2 Extractive and commercial and miscellaneous companies. securities held by affiliated companies, special offerings to employees, new stock issues and cash proceeds connected with conversions of bonds Note.—Securities and Exchange Commission estimates of cash trans­ into stocks. Retirements, defined in the same way, include securities actions only, as published in the Commission’s Statistical Bulletin. retired with internal funds or with proceeds of issues for that purpose. 1.49 OPEN-END INVESTMENT COMPANIES Net Sales and Asset Position Millions of dollars 1976 1977 Item 1975 1976 July Aug. Sept. Oct. Nov. Dec. Jan. INVESTMENT COMPANIES Excluding money market funds: 1 Sales of own shares1........................................ 3,302 4,226 281 256 338 378 446 661 655 2 Redemptions of own shares2.......................... 3,686 6,802 596 536 573 450 419 628 628 3 Net sales........................................................... -384 2,496 -315 -280 -235 -72 27 33 141 4 42,179 47,537 45,986 45,457 46,138 44,858 45,369 47,537 45,760 5 Cash position4.............................................. 3,748 2,747 2,547 2,561 2,507 2,434 2,635 2,747 2,947 6 Other............................................................. 38,431 44,790 43,439 42,896 43,631 42,424 42,734 44,790 42,813 1 Includes reinvestment of investment income dividends. Excludes 4 Also includes all U.S. Govt, securities and other short-term debt reinvestment of capital gains distributions and share issue of conversions securities. from one fund to another in the same group. 2 Excludes share redemption resulting from conversions from one fund Note.—Investment Company Institute data based on reports of mem­ to another in the same group. bers, which comprise substantially all open-end investment companies 3 Market value at end of period, less current liabilities. registered with the Securities and Exchange Commission. Data reflect newly formed companies after their initial offering of securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A38 Domestic Financial Statistics □ March 1977 1.50 CORPORATE PROFITS AND THEIR DISTRIBUTION Billions of dollars; quarterly data are at seasonally adjusted annual rates 1975 1976 Account 1973 1974 1975 Ql Q2 Q3 Q4 Ql Q2 Q3 1 Profits before tax..................................................... 115.8 127.6 114.5 94.2 105.8 126.9 131.3 141.1 146.2 150.2 2 Profits tax liability................................................... 48.7 52.4 49.2 40.2 44.8 54.8 57.2 61.4 63.5 65.1 3 Prpfits after tax........................................................ 67.1 75.2 65.3 54.0 61.0 72.1 74.2 79.7 82.7 85.1 4 Dividends................................................................. 27.8 30.8 32.1 31.7 31.9 32.6 32.2 33.1 34.4 35.4 5 Undistributed profits............................................... 39.3 44.4 33.2 22.3 29.1 39.5 42.0 46.6 48.3 49.7 6 Capital consumption allowances1.......................... 73.7 81.6 89.4 86.4 87.9 90.5 92.9 94.3 96.2 98.2 7 Net cash flow........................................................... 113.0 126.0 122.6 108.7 117.0 130.0 134.9 140.9 144.5 147.9 1 With capital consumption adjustment. Source.—U.S. Dept, of Commerce, Survey of Current Business. 1.51 NONFINANCIAL CORPORATIONS Current Assets and Liabilities Billions of dollars, end of period 1975 1976 Account 1971 1972 1973 1974 Q2 Q3 Q4 Ql Q2 Q3 1Current assets......................................................... 529.4 574.4 643.2 712.2 703.2 716.5 731.6 753.5 775.4 791.8 2 Cash.................................................................... 53.3 57.5 61.6 62.7 63.7 65.6 68.1 68.4 70.8 71.1 3 U.S. Govt, securities......................................... 11.0 10.2 11.0 11.7 12.7 14.3 19.4 21.7 23.3 23.9 4 Notes and accounts receivable........................... 221.1 243.4 269.6 293.2 288.1 298.0 298.2 310.9 321.8 328.5 5 U.S. Govt.1.................................................... 3.5 3.4 3.5 3.5 3.3 3.3 3.6 3.6 3.7 4.3 6 Other............................................................... 217.6 240.0 266.1 289.7 284.8 294.7 294.6 307.3 318.1 324.2 7 Inventories.......................................................... 200.4 215.2 246.7 288.0 281.4 279.6 285.8 288.8 295.6 302.1 8 Other.................................................................. 43.8 48.1 54.4 56.6 57.3 59.0 60.0 63.6 63.9 66.3 9 Current liabilities.................................................... 326.0 352.2 401.0 450.6 434.2 444.7 457.5 465.9 475.9 484.1 10 Notes and accounts payable............................... 220.5 234.4 265.9 292.7 275.9 279.6 288.0 286.9 293.8 291.7 11 U.S. Govt.1.................................................... 4.9 4.0 4.3 5.2 5.8 6.2 6.4 6.4 6.8 7.0 12 Other.............................................................. 215.6 230.4 261.6 287.5 270.1 273 A 281.6 280.5 287.0 284.7 13 Accrued Federal income taxes......................... 13.1 15.1 18.1 23.2 17.7 19.4 20.7 23.9 22.0 24.9 14 Other.................................................................. 92.4 102.6 117.0 134.8 140.6 145.6 148.8 155.0 160.1 167.5 15 Net working capital............................................... 203.6 221.3 242.3 261.5 269.0 271.8 274.1 287.6 299.5 307.7 1 Receivables from, and payables to, the U.S. Govt, exclude amounts Source.—Securities and Exchange Commission estimates published offset against each other on corporations’ books. in the Commission’s Statistical Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Corporate Finance A39 1.52 BUSINESS EXPENDITURES on New Plant and Equipment Billions of dollars; quarterly data are at seasonally adjusted annual rates 1975 1976 1977 Industry 1974 1975 1976 Q3 Q4 Ql Q2 Q3 r Q4r Ql2 1 All industries.......................................................... 112.22 112.75 120.82 112.16 111.80 114.72 118.12 122.55 127.87 129.38 Manufacturing 2 Durable goods industries................................... 22.57 21.88 23.50 21.01 21.07 21.63 22.54 24.59 25.23 25.52 3 Nondurable goods industries............................ 23.28 26.13 29.22 26.38 25.75 27.58 28.09 30.20 31.00 31.47 Nonmanufacturing 4 Mining................................................................ 3.18 3.80 3.98 3.82 3.82 3.83 3.83 4.21 4.03 4.22 Transportation: 5 Railroad.......................................................... 2.56 2.56 2.35 2.75 2.39 2.08 2.64 2.69 1.98 2.22 6 Air................................................................... 2.00 1.87 1.31 2.12 1.65 1.18 1.44 1.12 1.51 1.45 7 Other............................................................... 2.09 3.03 3.56 2.99 3.56 3.29 4.16 3.44 3.34 2.67 Public utilities: 8 Electric............................................................ 17.61 16.99 18.90 16.58 17.92 18.56 18.82 18.22 20.01 20.75 9 Gas and other................................................ 2.93 3.14 3.47 3.21 3.00 3.36 3.03 3.45 4.04 3.82 1 11 0 C Co o m m m m e u r n c i i c a a l t a io n n d . . o ... t . h .. e .. r .. 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1 2 3 . . 0 9 5 6 2 1 0 2 . . 6 7 1 6 2 1 0 2 . . 8 9 7 3 2 1 0 2 . .9 3 5 4 2 1 0 2 . . 4 2 4 2 2 1 0 2 . . 6 5 8 4 2 1 0 2 . . 9 6 4 2 2 1 0 3 . . 9 6 9 4 I> DO.H/'Jl J / ,ZO 1 Includes trade, service, construction, finance, and insurance. Note.—Estimates for corporate and noncorporate business, excluding 2 Anticipated by business. agriculture; real estate operators; medical, legal, educational, and cultural service; and nonprofit organizations. Source.—U.S. Dept, of Commerce, Survey of Current Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A40 Domestic Financial Statistics □ March 1977 1.53 MORTGAGE MARKETS Millions of dollars, except as noted 1976 1977 Item 1974 1975 1976 Aug. Sept. Oct. Nov. Dec. Jan. Terms and yields inprimary and secondary markets PRIMARY MARKETS Conventional mortgages on new homes Terms:1 1 Purchase price (thous. dollars)..................... 40.1 44.6 48.4 49.6 50.6 49.0 c48.6 51.0 51.5 2 Amount of loan (thous. dollars)................. 29.8 33.3 35.9 36.8 37.4 36.2 36.0 37.1 38.5 3 Loan/price ratio (per cent)........................... 74.3 74.7 74.2 75.8 75.6 75.3 75.6 74.7 76.6 4 Maturity (years)............................................ 26.3 26.8 27.2 27.8 27.7 28.0 27.0 27.7 28.2 5 Fees and charges (per cent of loan amount) 2. 1.30 1.54 1.44 1.38 1.42 1.38 1.36 1.38 1.39 6 Contract rate (per cent per annum)............ 8.71 8.75 8.76 8.79 8.85 8.85 8.83 8.87 8.83 Yield (per cent per annum): 7 FHLBB series 3.............................................. 8.92 9.01 8.99 9.02 9.08 9.07 9.05 9.10 9.05 8 HUD series4.................................................. 9.22 9.10 8.99 9.05 9.00 9.00 8.95 8.90 8.80 SECONDARY MARKETS Yields (per cent per annum) on— 9 FHA mortgages (HUD series)5................... 9.55 9.19 8.82 8.93 8.82 8.55 8.45 8.25 8.40 10 GNMA securities6........................................ 8.72 8.52 8.17 8.30 8.10 7.98 7.93 7.59 7.85 FNMA auctions:7 11 Government-underwritten loans.............. 9.53 9.31 8.92 8.99 8.88 8.75 8.66 8.45 8.48 12 Conventional loans................................... 9.70 9.36 9.12 9.15 9.11 9.05 9.00 8.84 8.82 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings at end of period: 13 Total................................................................... 29,578 31,824 32,904 32,069 32,062 32,019 32,929 32,904 32,848 14 FHA-insured.................................................. 19,189 19,732 18,916 19,180 19,133 19,077 18,986 18,916 18,854 15 VA-guaranteed.............................................. 8,310 9,573 9,212 9,394 9,366 9,314 9,264 9,212 9,162 16 Conventional................................................. 2,080 2,519 4,776 3,496 3,563 3,628 4,679 4,776 4,833 Mortgage transactions during period: 17 Purchases........................................................... 6,953 4,263 3,606 277 199 162 1,131 191 141 18 Sales................................................................... 4 2 86 1 8 Mortgage commitments:8 19 Contracted during period................................ 10,765 6,106 6,247 492 463 480 615 290 1,180 20 Outstanding at end of period........................... 7,960 4,126 3,398 4,335 3,983 3,672 3,649 3,398 4,142 Auction of 4-month commitments to buy— Government-underwritten loans: 21 Offered9......................................................... 5,492.7 7,042.8 4,929.8 361.4 221.0 235.5 494.1 56.9 747.4 22 Accepted........................................................ 2,371.4 3,848.3 2,787.2 214.4 117.9 107.1 221.1 41.5 549.1 Conventional loans: 23 Offered9......................................................... 1,206.8 1,401.1 2,595.7 298.8 321.7 297.5 353.3 150.2 326.8 24 Accepted........................................................ 656.4 765.2 1,879.3 208.7 225.4 215.8 296.9 135.4 238.3 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings at end of period:1 o 25 Total.................................................................. 4,586 4,987 4,269 4,310 4,269 4,190 4,162 4,269 26 FHA/VA....................................................... 1,904 1,824 1,618 1,695 1,679 1,660 1,638 1,618 27 Conventional................................................. 2,682 3,163 2,651 2,614 2,590 2,530 2,523 2,651 Mortgage transactions during period: 28 Purchases........................................................... 2,191 1,716 1,175 77 88 78 101 208 29 Sales................................................................... 52 1,020 1,396 278 93 116 91 60 Mortgage commitments:11 30 Contracted during period................................. 4,553 982 1,477 117 163 171 245 105 31 Outstanding at end of period........................... 2,390 111 333 175 243 326 452 333 1 Weighted averages based on sample surveys of mortgages originated securities, assuming prepayment in 12 years on pools of 30-year FHA/VA by major institutional lender groups. Compiled by the Federal Home Loan mortgages carrying the prevailing ceiling rate. Monthly figures are Bank Board in cooperation with the Federal Deposit Insurance Cor­ unweighted averages of Monday quotations for the month. poration. 7 Average gross yields (before deduction of 38 basis points for mortgage 2 Includes all fees, commissions, discounts, and “points” paid (by servicing) on accepted bids in Federal National Mortgage Association’s the borrower or the seller) in order to obtain a loan. auctions of 4-month commitments to purchase home mortgages, assuming 3 Average effective interest rates on loans closed, assuming prepayment prepayment in 12 years for 30-year mortgages. No adjustments are made at the end of 10 years. for FNMA commitment fees or stock related requirements. Monthly 4 Average contract rates on new commitments for conventional first figures are unweighted averages for auctions conducted within the month. mortgages, rounded to the nearest 5 basis points; from Dept, of Housing 8 Includes some multifamily and nonprofit hospital loan commitments and Urban Development. in addition to 1- to 4-family loan commitments accepted in FNMA’s 5 Average gross yields on 30-year, minimum-downpayment, Federal free market auction system, and through the FNMA-GNMA Tandem Housing Administration-insured first mortgages for immediate delivery plans. in the private secondary market. Any gaps in data are due to periods of 9 Mortgage amounts offered by bidders are total bids received. adjustment to changes in maximum permissible contract rates. 10 Includes participations as well as whole loans. 6 Average net yields to investors on Government National Mortgage 11 Includes conventional and Government-underwritten loans. Association-guaranteed, mortgage-backed, fully-modified pass-through Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Real Estate Debt A41 1.54 MORTGAGE DEBT OUTSTANDING Millions of dollars End of year End of quarter Type of holder, and type of property 1976 1972 1973 1974 1975 Ql Q2 Q3 Q4 1All holders.................................................. 603,417 682,321 742,504 801,546 817,278 838,893 '862,197 884,232 2 1- to 4-family........................................ 372,793 416,883 449,937 491,678 503,402 519,437 '537,336 c553,054 3 Multifamily............................................ 82,572 92,877 99,851 100,348 100,487 100,680 '100,708 101,460 4 Commercial........................................... 112,294 131,308 146,428 158,644 161,024 164,527 '168,144 171,978 5 Farm...................................................... 35,758 41,253 46,288 50,876 52,365 54,249 56,009 57,740 6 Major financial institutions....................... 450,000 505,400 542,552 581,296 592,061 609,086 626,487 642,851 7 Commercial banks1............................... 99,314 119,068 132,105 136,186 137,986 141,086 143,986 146,586 8 1- to 4-family.................................... 57,004 67,998 74,758 77,018 78,218 80,218 81,928 83,402 9 Multifamily........................................ 5,778 6,932 7,619 5,915 5,515 5,115 5,040 5,012 10 Commercial....................................... 31,751 38,696 43,679 46,882 47,812 49,112 50,251 51,233 11 Farm.................................................. 4,781 5,442 6,049 6,371 6,441 6,641 6,767 6,879 12 Mutual savings banks............................ 67,556 73,230 74,920 77,249 77,738 78,735 80,145 81,554 13 1- to 4-family..................................... 46,229 48,811 49,213 50,025 50,344 50,989 51,902 52,814 14 Multifamily........................................ 10,910 12,343 12,923 13,792 13,876 14,030 14,282 14,534 15 Commercial....................................... 10,355 12,012 12,722 13,373 13,456 13,653 13,897 14,141 16 Farm.................................................. 62 64 62 59 62 63 64 65 17 Savings and loan associations............... 206,182 231,733 249,293 278,693 286,556 299,574 312,139 323,130 18 1- to 4-family.................................... 167,049 187,750 201,553 224,710 231,337 241,996 252,521 261,732 19 Multifamily........................................ 20,783 22,524 23,683 25,417 25,847 26,722 27,468 28,116 20 Commercial....................................... 18,350 21,459 24,057 28,566 29,372 30,856 32,150 33,282 21 Life insurance companies...................... 76,948 81,369 86,234 89,168 89,781 89,691 90,217 91,581 22 1- to 4-family.................................... 22,315 20,426 19,026 17,590 17,321 16,861 16,458 16,058 23 Multifamily........................................ 17,347 18,451 19,625 19,629 19,726 19,374 19,256 19,276 24 Commercial....................................... 31,608 36,496 41,256 45,196 45,907 46,456 47,322 48,766 25 Farm.................................................. 5,678 5,996 6,327 6,753 6,827 7,000 7,181 7,481 26 Federal and related agencies.................... 40,157 46,721 58,320 66,891 67,350 66,165 '67,282 67,144 27 Government National Mortgage Assn... 5,113 4,029 4,846 7,438 7,619 5,557 5,068 4,241 28 1- to 4-family.................................... 2,513 1,455 2,248 4,728 4,886 3,165 2,486 1,970 29 Multifamily........................................ 2,600 2,574 2,598 2,710 2,733 2,392 2,582 2,271 30 Farmers Home Admin........................... 1,019 1,366 1,432 1,109 650 830 1,355 1,064 31 1- to 4-family.................................... 279 743 759 208 97 228 754 454 32 Multifamily........................................ 29 29 167 215 23 46 143 218 33 Commercial....................................... 320 218 156 190 96 151 133 72 34 Farm.................................................. 391 376 350 496 434 405 325 320 35 Federal Housing and Veterans Admin... 3,338 3,476 4,015 4,970 5,033 5,243 r5,060 5,539 36 1- to 4-family.................................... 2,199 2,013 2,009 1 ,990 1,908 1,781 '1,731 1,736 37 Multifamily........................................ 1,139 1,463 2,006 2,980 3,125 3,462 '3,329 3,803 38 Federal National Mortgage Assn.......... 19,791 24,175 29,578 31,824 32,182 32,028 32,962 32,904 39 1- to 4-family.................................... 17,697 20,370 23,778 25,813 26,262 26,112 27,030 26,934 40 Multifamily........................................ 2,094 3,805 5,800 6,011 5,920 5,916 5,932 5,970 41 Federal land banks................................ 9,107 11,071 13,863 16,563 17,264 17,978 18,568 19,127 42 1- to 4-family.................................... 13 123 406 549 563 575 586 603 43 Farm.................................................. 9,094 10,948 13,457 16,014 16,701 17,403 17,982 18,524 44 Federal Home Loan Mortgage Corp.... 1,789 2,604 4,586 4,987 4,602 4,529 4,269 4,269 45 1- to 4-family.................................... 1,754 2,446 4,217 4,588 4,241 4,166 3,917 3,889 46 Multifamily........................................ 35 158 369 399 355 363 352 380 47 Mortgage pools or trusts2......................... 14,404 18,040 23,799 34,138 37,684 41,225 44,960 49,801 48 Government National Mortgage Assn... 5,504 7,890 11,769 18,257 20,479 23,634 26,725 30,572 49 1- to 4-family..................................... 5,353 7,561 11,249 17,538 19,693 22,821 25,841 29,583 50 Multifamily........................................ 151 329 520 719 786 813 884 989 51 Federal Home Loan Mortgage Corp... 441 766 757 1,598 1,999 2,153 2,506 2,671 52 1- to 4-family.................................... 331 617 608 1,349 1,698 1,831 2,141 2,282 53 Multifamily........................................ 110 149 149 249 301 322 365 389 54 Farmers Home Admin........................... 8,459 9,384 11,273 14,283 15,206 15,438 15,729 16,558 55 1- to 4-family..................................... 5,017 5,458 6,782 9,194 9,516 9,670 9,581 10,219 56 Multifamily........................................ 131 138 116 295 542 541 535 532 57 Commercial....................................... 867 1,124 1,473 1,948 2,122 2,104 2,291 2,440 58 Farm.................................................. 2,444 2,664 2,902 2,846 3,026 3,123 3,316 3,367 59 Individuals and others3............................. 98,856 112,160 117,833 119,221 120,183 122,366 123,468 124,436 60 1- to 4-family.................................... 45,040 51,112 53,331 56,378 57,312 59,024 60,454 61,378 61 Multifamily........................................ 21,465 23,982 24,276 22,017 21,738 21,533 20,540 19,910 62 Commercial....................................... 19,043 21,303 23,085 22,489 22,259 22,195 22,100 22,044 63 Farm.................................................. 13,308 15,763 17,141 18,337 18,874 19,614 20,374 21,104 1 Includes loans held by nondeposit trust companies but not bank trust Note.—Based on data from various institutional and Govt, sources, departments. with some quarters estimated in part by Federal Reserve in conjunction 2 Outstanding principal balances of mortgages backing securities in­ with the Federal Home Loan Bank Board and the Dept, of Commerce. sured or guaranteed by the agency indicated. Separation of nonfarm mortgage debt by type of property, if not re­ 3 Other holders include mortgage companies, real estate investment ported directly, and interpolations and extrapolations where required, are trusts, State and local credit agencies, State and local retirement funds, estimated mainly by Federal Reserve. Multifamily debt refers to loans on noninsured pension funds, credit unions, and U.S. agencies for which structures of 5 or more units. amounts are small or separate data are not readily available. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A42 Domestic Financial Statistics □ March 1977 1.55 CONSUMER INSTALMENT CREDIT Total Outstanding, and Net Change Millions of dollars 1976 1977 Holder, and type of credit 1974 1975 1976 July Aug. Sept. Oct. Nov. Dec. Jan. Amounts outstanding (end of period) 1 155,384 162,237 178,775 168,674 171,160 172,918 173,930 175,333 178,775 177,975 By holder: 2 Commercial banks.......................... 75,846 78,703 85,379 81,930 82,961 83,714 84,152 84,278 85,379 85,051 3 36,208 36,695 39,642 38,026 38,398 38,575 38,809 39,129 39,642 39,665 4 22,116 25,354 30,546 28,234 28,956 29,600 29,711 30,053 30,546 30,410 5 Retailers1........................................ 17,933 18,002 19,178 16,660 16,911 17,012 17,205 17,726 19,178 18,693 6 Others2............................................ 3,281 3,483 4,030 3,824 3,934 4,017 4,053 4,147 4,630 4,156 By type of credit: 7 Automobile....................................... 50,392 53,028 60,498 57,659 58,665 59,270 59,717 60,002 60,498 60,349 8 Commercial banks..................... 30,994 31,534 35,313 33,877 34,414 34,701 35,009 35,095 35,313 35,284 9 Purchased................................ 18,687 18,353 19,642 19,151 19,404 19,495 19,611 19,575 19,642 19,566 10 Direct....................................... 12,306 13,181 15,671 14,726 15,010 15,206 15,398 15,520 15,671 15,719 11 Finance companies..................... 10,618 11,439 13,059 12,573 12,748 12,808 12,901 12,957 13,059 12,973 12 8,414 9,653 11,633 10,749 11,024 11,270 11,311 11,442 11,633 11,579 13 Others.......................................... 366 402 493 460 479 491 496 508 493 513 Mobile homes: 14 Commercial banks..................... 8,972 8,704 8,233 8,384 8,379 8,340 8,294 8,254 8,233 8,146 15 Finance companies..................... 3,524 3,451 3,277 3,333 3,323 3,319 3,309 3,295 3,277 3,248 16 Home improvement......................... 7,754 8,004 8,773 8,452 8,562 8,665 8,726 8,790 8,773 8,736 17 Commercial banks..................... 4,694 4,965 5,381 5,192 5,263 5,318 5,359 5,388 5,381 5,340 Revolving credit: 18 Bank credit cards....................... 8,281 9,501 11,075 9,725 9,924 10,153 10,232 10,329 11,075 10,996 19 Bank check credit....................... 2,797 2,810 3,010 2,835 2,870 2,922 2,933 2,935 3,010 3,031 20 All other........................................... 73,664 76, 738 83,910 78,286 79,438 80,249 80,719 81,728 83,910 83,469 21 Commercial banks, total........... 20,108 21,188 22,368 21,917 22,112 22,280 22,325 22,277 22,368 22,254 22 Personal loans......................... 13,771 14,629 15,606 15,148 15,308 15,450 15,534 15,517 15,606 15,569 23 Finance companies, total........... 21,717 21,655 23,178 21,983 22,192 22,316 22,469 22,748 23,178 23,319 24 Personal loans......................... 16,961 17,681 19,043 18,079 18,275 18,371 18,509 18,773 19,043 19,002 25 13,037 14,937 17.993 16,635 17,060 17,438 17,505 17,706 17,993 17,915 26 Retailers...................................... 17,933 18,002 19,178 16,660 16,911 17,012 17,205 17,726 19,178 18,693 27 Others.......................................... 869 956 1,193 1,091 1,163 1,203 1,215 1,271 1,193 1,288 Net change (during period)3 28 Total.................................................... 8,952 6,843 16,539 1,303 1,403 1,481 1,564 1,243 1,823 1,918 By holder: 29 Commercial banks......................... 3,975 2,851 6,678 619 518 697 671 381 913 565 30 Finance companies......................... 806 483 2,946 264 169 233 317 245 364 481 31 Credit unions.................................. 2,507 3,238 5,192 365 386 483 280 395 537 416 32 Retailers.......................................... 1,538 69 1,176 116 183 24 263 98 64 249 33 Others.............................................. 126 202 547 -61 148 45 33 124 -55 207 By type of credit: 34 327 2,631 7,470 556 621 605 528 477 1,013 758 35 Commercial banks...................... -508 535 3,779 327 377 376 350 221 652 418 36 Purchased................................ -310 -340 1,289 60 159 125 117 70 330 160 37 Direct...................................... -198 875 2,490 267 218 251 233 151 322 258 38 Finance companies..................... -100 821 1,620 108 62 28 77 98 146 99 39 Credit unions............................... 958 1,239 1,980 135 136 172 105 144 207 174 40 Other........................................... -23 36 91 -13 46 28 -4 14 8 66 Mobile homes: 41 Commercial banks..................... 632 -268 -471 -28 -35 -53 -56 -43 32 -43 42 Finance companies..................... 168 -73 -174 -9 -16 -16 -16 -16 -16 -18 43 Home improvement......................... 804 248 768 19 39 65 73 103 73 130 44 Commercial banks...................... 611 271 416 22 25 43 44 55 54 36 Revolving credit: 45 Bank credit cards........................ 1,443 1,220 1,576 171 86 166 123 71 -33 28 46 Bank check credit....................... 543 14 199 27 -6 17 27 6 7 41 47 All other.......................................... 5,036 3,072 7,172 567 714 698 884 645 747 1,023 48 Commercial banks, total............ 1,255 1,080 1,180 101 71 148 183 72 199 85 49 Personal loans......................... 898 858 977 70 46 108 161 47 148 101 50 Finance companies, total........... 803 -64 1,523 170 126 223 258 163 236 401 51 Personal loans......................... 479 717 1,362 143 106 198 237 161 113 178 52 Credit unions.............................. 1,473 1,900 3,056 220 240 297 166 239 313 227 53 Retailers...................................... 1,538 69 1,176 116 183 24 263 98 64 249 54 Others.......................................... -33 87 237 -39 96 5 15 73 -66 60 1 Excludes 30-day charge credit held by retailers, oil and gas companies, Note.—Total consumer noninstalment credit outstanding—credit and travel and entertainment companies. scheduled to be repaid in a lump sum, including single-payment loans, 2 Mutual savings banks, savings and loan associations, and auto dealers. charge accounts, and service credit—amounted to $39.0 billion at the 3 Net change equals extensions minus liquidations (repayments, charge- end of 1976, $35.0 billion at the end of 1975, and $33.4 billion at the end offs, and other credits); figures for all months are seasonally adjusted. of 1974. Comparable data for Dec. 31, 1977, will be published in the Bulletin for February 1978. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer Debt A43 1.56 CONSUMER INSTALMENT CREDIT Extensions and Liquidations Millions of dollars 1976 1977 Holder, and type of credit 1974 1975 1976 July Aug. Sept. Oct. Nov. Dec. Jan. Extensions1 1 160,008 163,483 186,221 15,240 15,685 15,775 16,055 15,763 16,702 16,870 By holder: ? Commercial banks......................... 72,605 77,131 88,666 7,358 7,487 7,546 7,618 7,486 8,182 7,546 3 Finance companies......................... 35,644 32,582 35,956 2,861 2,965 3,072 3,148 3,059 3,157 3,431 4 Credit unions................................... 22,403 24,151 28,829 2,329 2,313 2,424 2,350 2,395 2,688 2,683 ,5 27,034 27,049 29,569 2,533 2,548 2,463 2,673 2,467 2,480 2,775 6 Others3............................................ 2,322 2,570 3,201 159 372 271 266 356 194 436 By type of credit: 7 Automobile...................................... 43,209 48,103 55,807 4,477 4,712 4,769 4,587 4,632 5,263 4,940 8 Commercial banks...................... 26,406 28,333 32,687 2,680 2,762 2,846 2,770 2,691 3,170 2,892 9 Purchased................................. 15,576 15,761 17,600 1,417 1,480 1,511 1,479 1,426 1,723 1,544 10 Direct....................................... 10,830 12,572 15,087 1,263 1,282 1,335 1,291 1,265 1,446 1,349 11 Finance companies..................... 8,630 9,598 11,210 891 937 891 904 927 992 964 12 Credit unions............................... 7,788 9,702 11,336 879 928 963 875 957 1,051 974 13 Others.......................................... 385 470 574 27 84 69 37 57 51 110 Mobile homes: 14 Commercial banks...................... 3,486 2,681 2,449 223 186 200 178 207 267 195 15 Finance companies..................... 1,413 771 690 59 54 53 59 54 53 50 16 4,571 4,398 5,034 381 400 434 463 464 461 494 17 Commercial banks...................... 2,789 2,722 3,036 240 242 266 282 276 288 262 Revolving credit: 18 Bank credit cards........................ 17,098 20,428 25,481 2,152 2,183 2,165 2,198 2,181 2,217 2,117 19 Bank check credit....................... A,221 4,024 4,832 401 413 375 413 410 426 462 20 All other.......................................... 86,004 83,079 91,928 7,546 7,737 7,779 8,158 7,815 8,015 8,612 21 Commercial banks, total............ 18,599 18,944 20,182 1,661 1,702 1,693 1,777 1,721 1,815 1,618 22 Personal loans......................... 13,176 13,386 14,463 1,174 1,197 1,193 1,286 1,238 1,317 1,213 23 Finance companies, total........... 25,316 22,135 24,014 1,907 1,970 2,125 2,182 2,072 2,108 2,413 24 Personal loans......................... 16,691 17,333 19,610 1,535 1,607 1,745 1,776 1,696 1,688 1,787 25 Credit unions............................... 14,228 13,992 16,911 1,403 1,338 1,410 1,426 1,389 1,582 1,656 26 Retailers...................................... 27,034 27,049 29,569 2,533 2,548 2,463 2,673 2,467 2,480 2,775 27 Others.......................................... 827 959 1,253 43 180 87 100 166 30 151 Liquidations1 28 Total.................................................... 151,056 156,640 169,682 13,937 14,282 14,294 14,491 14,520 14,879 14,952 By holder: 29 Commercial banks......................... 68,630 74,280 81,988 6,739 6,970 6,849 6,947 7,105 7,269 6,981 30 Finance companies......................... 34,838 32,099 33,010 2,597 2,796 2,839 2,831 2,814 2,793 2,949 31 Credit unions.................................. 19,896 20,913 23,637 1,964 1,927 1,941 2,070 2,000 2,151 2,267 32 Retailers2........................................ 25,496 26,980 28,393 2,417 2,365 2,439 2,410 2,369 2,416 2,526 33 Others3............................................ 2,196 2,368 2,654 220 224 226 233 232 249 228 By type of credit: 34 42,883 45,472 48,337 3,922 4,090 4,165 4,059 4,155 4,250 4,183 35 Commercial banks..................... 26,915 27,798 28,908 2,354 2,385 2,470 2,420 2,470 2,517 2,474 36 Purchased................................. 15,886 16,101 16,311 1,357 1,321 1,386 1,363 1,356 1,393 1,384 37 11,029 11,697 12,597 996 1,064 1,084 1,058 1,114 1,124 1,090 38 Finance companies..................... 8,730 8,777 9,590 784 874 862 827 829 846 866 39 Credit unions............................... 6,830 8,463 9,356 745 792 791 770 813 843 800 40 Others.......................................... 408 434 483 39 39 42 42 43 43 43 Mobile homes: 41 Commercial banks...................... 2,854 2,949 2,921 251 222 253 233 250 234 238 42 Finance companies..................... 1,245 844 864 68 70 69 74 70 70 67 43 3,767 4,150 4,266 362 361 369 390 360 388 364 44 Commercial banks...................... 2,178 2,451 2,620 218 216 223 239 221 234 227 Revolving credit: 45 Bank credit cards........................ 15,655 19,208 23,905 1,981 2,097 2,000 2,074 2,110 2,250 2,089 46 Bank check credit....................... 3,684 4,010 4,632 374 419 358 386 404 419 421 47 All other........................................... 80,969 80,007 84,757 6,979 7,023 7,081 7,274 7,170 7,268 7,590 48 Commercial banks, total............ 17,345 17,864 19,002 1,560 1,631 1,545 1,594 1,649 1,615 1,533 49 Personal loans......................... 12,278 12,528 13,486 1,104 1,151 1,085 1,125 1,191 1,169 1,111 50 Finance companies, total........... 24,513 22,199 22,491 1,737 1,844 1,902 1,924 1,909 1,872 2,012 51 Personal loans......................... 16,212 16,616 18,248 1,392 1,501 1,547 1,539 1,535 1,575 1,608 52 Credit unions............................... 12,755 12,092 13,855 1,183 1,098 1,113 1,260 1,150 1,268 1,429 53 Retailers....................................... 25,496 26,980 28,393 2,417 2,365 2,439 2,410 2,369 2,416 2,526 54 Others.......................................... 860 872 1,016 82 85 82 86 93 96 90 1 Monthly figures are seasonally adjusted. 3 Mutual savings banks, savings and loan associations, and auto dealers. 2 Excludes 30-day charge credit held by retailers, oil and gas companies, and travel and entertainment companies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A44 Domestic Financial Statistics □ March 1977 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS Billions of dollars; half-year data are at seasonally adjusted annual rates 1975 1976 Transaction category, or sector 1971 1972 1973 1974 1975 1976 HI H2 HI H2 1NONFINANCIAL SECTORS......................... 151.0 176.9 197.6 188.8 210.4 257.7 184.2 236.5 238.3 277.2 1 2 Excluding equities.......................................... 139.6 166.4 190.0 185.0 200.3 247.3 173.8 226.9 224.7 269.9 2 By sector and/or instrument: 3 U.S. Govt........................................................ 24.7 15.2 8.3 12.0 85.2 68.9 80.8 89.6 71.7 66.2 3 4 Public debt securities................................. 26.0 14.3 7.9 12.0 85.8 69.1 82.0 89.7 71.8 66.5 4 5 Agency issues and mortgages................... -1.3 1.0 .4 * -.6 -.2 -1.2 -.1 -.1 -.4 5 6 All other nonfinancial sectors......................... 126.3 161.7 189.4 176.8 125.2 188.8 103.4 146.9 166.6 211.0 6 7 Corporate equities..................................... 11.5 10.5 7.7 3.8 10.0 10.5 10.5 9.6 13.6 7.3 7 8 Debt instruments....................................... 114.8 151.2 181.7 173.0 115.1 178.3 93.0 137.3 153.0 203.7 8 9 Private domestic nonfinancial sectors........ 121.1 157.7 183.1 161.6 112.2 168.5 94.9 129.4 151.1 185.8 9 10 Corporate equities.................................. 11.4 10.9 7.9 4.1 9.9 10.1 10.3 9.5 13.3 6.9 10 11 Debt instruments..................................... 109.7 146.8 175.3 157.5 102.3 158.4 84.6 119.9 137.8 178.9 11 12 Debt capital instruments..................... 86.8 102.8 106.7 101.2 101.3 122.0 97.5 105.1 110.6 133.4 12 13 State and local obligations............ 17.5 15.4 16.3 19.6 17.3 18.2 16.2 18.4 17.9 18.6 13 14 Corporate bonds............................. 18.8 12.2 9.2 19.7 27.2 23.7 33.4 21.0 20.7 26.7 14 Mortgages: 15 Home.......................................... 28.6 42.6 46.4 34.6 40.8 59.1 33.5 48.1 53.5 64.8 15 16 Multifamily residential............... 9.7 12.7 10.4 7.0 -.1 1.3 * -.2 .7 1.9 16 17 Commercial................................ 9.8 16.4 18.9 15.1 10.9 12.8 8.7 13.1 11.9 13.7 17 18 Farm............................................ 2.4 3.6 5.5 5.1 5.2 6.9 5.6 4.8 6.0 7.8 18 19 Other debt instruments....................... 22.8 44.0 68.6 56.3 1.0 36.4 -12.8 14.8 27.2 45.5 19 20 Consumer credit............................. 11.6 18.6 21.7 9.8 8.5 20.5 1.1 16.0 19.4 21.6 20 21 Bank loans n.e.c.............................. 6.5 18.1 34.8 26.2 -14.5 -2.2 -23.5 -5.5 -12.9 8.6 21 22 Open market paper........................ -.4 .8 2.5 6.8 -2.2 3.5 -.2 -4.2 8.2 -1.3 22 23 Other............................................... 5.1 6.5 9.6 13.5 9.1 14.6 9.7 8.5 12.6 16.5 23 24 By borrowing sector................................... 121.1 157.7 183.1 161.6 112.2 168.5 94.9 129.4 151.1 185.8 24 25 State and local governments............. 17.8 15.2 14.8 18.6 14.9 17.7 13.9 15.9 16.2 19.3 25 26 Households......................................... 42.1 64.8 73.5 45.2 49.7 80.2 39.0 60.4 71.9 88.5 26 27 Farm.................................................... 4.5 5.8 9.7 7.9 9.4 12.7 9.4 9.4 11.9 13.5 27 28 Nonfarm noncorporate..................... 10.3 13.1 12.3 6.7 1.2 4.7 -.8 3.2 3.8 5.7 28 29 Corporate............................................ 46.4 58.8 72.9 83.1 37.1 53.1 33.5 40.6 47.3 58.8 29 30 Foreign........................................................ 5.2 4.0 6.2 15.3 13.0 20.3 8.5 17.4 15.4 25.2 30 31 Corporate equities................................. * -.4 -.2 -.2 .1 .4 .1 .1 .3 .4 31 32 Debt instruments.................................... 5.2 4.4 6.4 15.5 12.8 20.0 8.4 17.3 15.1 24.8 32 33 Bonds.................................................. .9 1.0 1.0 2.1 6.2 8.8 5.7 6.7 7.3 10.3 33 34 Bank loans n.e.c.................................. 2.1 3.0 2.8 4.7 4.0 5.0 .6 7.4 3.8 6.1 23 35 Open market paper............................ .3 -1.0 .9 7.1 -.1 2.5 -1.2 1.0 .8 4.2 35 36 U.S. Govt, loans................................ 1.8 1.5 1.7 1.6 2.8 3.7 3.3 2.2 3.2 4.2 36 37 Memo: U.S. Govt, cash balance..................... 3.2 -.3 -1.7 -4.6 2.9 2.8 .5 5.2 11.1 -5.4 37 Totals net of changes in U.S. Govt, cash balance: 38 Total funds raised.......................................... 147.8 177.2 199.3 193.4 207.5 254.9 183.7 231.3 227.2 282.6 38 39 By U.S. Govt.............................................. 21.6 15.5 9.9 16.6 82.3 66.1 80.3 84.4 60.6 71.6 39 40 FINANCIAL SECTORS................................. 17.0 29.1 56.7 43.0 14.8 29.4 14.4 15.3 30.5 28.3 40 By instrument: 41 U.S. Govt, related.......................................... 5.9 8.4 19.9 23.1 13.5 17.4 14.0 13.1 18.0 16.9 41 42 Sponsored credit agencies......................... 1.1 3.5 16.3 16.6 2.3 2.4 1.4 3.3 3.9 .9 42 43 Mortgage pool securities........................... 4.8 4.9 3.6 5.8 10.3 15.2 11.5 9.2 14.2 16.2 43 44 Loans from U.S. Govt.............................. .7 .9 -.2 1.1 .6 * -.3 44 45 Private financial sectors................................. 11.1 20.7 36.8 19.9 1.3 11.9 .4 2.1 12.4 11.4 45 46 Corporate equities..................................... 3.5 2.8 1.5 1.0 1.2 .7 1.2 1.2 .3 1.1 46 47 Debt instruments........................................ 7.6 18.0 35.3 18.9 .1 11.2 -.8 1.0 12.1 10.3 47 48 Corporate bonds.................................... 3.8 5.1 3.5 2.1 2.9 5.7 2.5 3.3 7.2 4.3 48 49 Mortgages.............................................. 2.1 1.7 -1.2 -1.3 2.3 2.0 1.2 3.4 1.2 2.8 49 50 Bank loans n.e.c..................................... 3.5 6.8 14.0 7.5 -3.9 -3.9 -4.7 -3.2 -2.8 -4.9 50 51 Open market paper and Rp’s............... .9 4.4 11.8 3.9 2.8 9.3 7.6 -1.9 8.7 9.9 51 52 Loans from FHLB’s.............................. -2.7 * 7.2 6.7 -4.0 -2.0 -7.3 -.6 -2.3 -1.7 52 By sector: 53 Sponsored credit agencies............................. 1.1 3.5 16.3 17.3 3.2 2.2 2.5 4.0 3.9 .7 53 54 Mortgage pools.............................................. 4.8 4.9 3.6 5.8 10.3 15.2 11.5 9.2 14.2 16.2 54 55 Private financial sectors................................. 11.1 20.7 36.8 19.9 1.3 11.9 .4 2.1 12.4 11.4 55 56 Commercial banks..................................... 2.4 4.8 8.1 -1.1 1.7 9.3 5.7 -2.3 11.9 6.8 56 57 Bank affiliates............................................ -.4 .7 2.2 3.5 .3 -.8 .9 -.3 -1.3 -.3 57 58 Foreign banking agencies......................... 1.6 .8 5.1 2.9 -.3 -.5 -.9 .2 -1.5 .5 58 59 Savings and loan associations................... -.1 2.0 6.0 6.3 -2.1 * -7.8 3.6 -.7 .8 59 60 Other insurance companies....................... .6 .5 .5 .9 .9 1.0 .9 1.0 1.0 1.0 60 61 Finance companies.................................... 2.7 6.2 9.4 4.5 .7 5.4 -.8 2.1 6.6 4.3 61 62 REIT’s........................................................ 2.9 6.3 6.5 1.1 -1.9 -1.4 -1.6 -2.2 -1.7 -1.0 62 63 Open-end investment companies.............. 1.3 -.5 -1.2 -.5 .8 -.9 1.5 .1 -1.1 -.7 63 64 Monev market funds...................................... 2.4 1.3 -.3 2.6 * -.7 .2 64 65 ALL SECTORS, by instrument....................... 168.1 206.0 254.3 231.8 225.2 287.1 198.6 251.8 268.7 305.5 65 66 Investment company shares.......................... 1.3 -.5 -1.2 -.5 .8 -.9 1.5 .1 -1.1 -.7 66 67 Other corporate equities............................... 13.7 13.8 10.4 5.4 10.4 12.1 10.2 10.7 15.1 9.1 67 68 Debt instruments............................................. 153.1 192.8 245.2 227.0 214.0 275.9 187.0 241.0 254.8 297.1 68 69 30.7 23.7 28.3 34.5 98.0 86.6 93.6 102.4 89.9 83.4 69 70 17.5 15.4 16.3 19.6 17.3 18.2 16.2 18.4 17.9 18.6 70 71 Corporate and foreign bonds................... 23.5 18.4 13.6 23.9 36.3 38.2 41.6 31.0 35.2 41.3 71 72 Mortgages.................................................. 52.5 76.8 79.9 60.5 59.0 82.0 49.1 69.0 73.2 90.8 72 73 Consumer credit........................................ 11.6 18.6 21.7 9.8 8.5 20.5 1.1 16.0 19.4 21.6 73 74 Bank loans n.e.c......................................... 12.1 27.8 51.6 38.4 -14.4 -1.1 -27.6 -1.2 -11.9 9.8 74 75 Open market paper and Rp’s................... .9 4.1 15.2 17.8 .5 15.3 6.2 -5.1 17.7 12.8 75 76 Other loans................................................. 4.2 8.0 18.5 22.5 8.7 16.1 6.8 10.7 13.5 18.8 76 Note.—Full statements for sectors and transaction types quarterly, and Flow of Funds Section, Division of Research and Statistics, Board of annually for flows and for amounts outstanding, may be obtained from Governors of the Federal Reserve System, Washington, D.C. 20551. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A45 1.58 DIRECT AND INDIRECT SOURCES OF FUNDS TO CREDIT MARKETS Billions of dollars, unless noted otherwise; half-year data are at seasonally adjusted annual rates 1975 1976 Transaction category or sector 1971 1972 1973 1974 1975 1976 HI H2 HI H2 1 Total funds advanced in credit markets to nonfinancial sectors.................................... 139.6 166.4 190.0 185.0 200.3 247.3 173.8 226.9 224.7 269.9 1 By public agencies and foreign: 2 Total net advances.............................................. 43.4 19.8 34.2 52.7 44.2 54.5 51.9 36.6 50.8 58.3 2 3 U.S. Govt, securities......................................... 34.4 7.6 9.6 11.9 22.5 25.6 32.6 12.4 26.6 24.7 3 4 Residential mortgages................................... 7.0 7.0 8.2 14.7 16.2 12.7 15.9 16.5 11.1 14.4 4 5 FHLB advances to S&L’s............................. -2.7 * 7.2 6.7 -4.0 -2.0 -7.3 -.6 -2.3 -1.7 5 6 Other loans and securities............................. 4.6 5.1 9.2 19.5 9.5 18.1 10.6 8.3 15.4 20.9 6 Totals advanced, by sector 7 U.S. Govt....................................................... 2.8 1.8 2.8 9.8 15.1 10.7 14.9 15.2 5.9 15.5 7 8 Sponsored credit agencies............................. 5.2 9.2 21.4 25.6 14.5 20.3 15.9 13.2 20.0 20.6 8 9 Monetary authorities..................................... 8.9 .3 9.2 6.2 8.5 9.8 7.0 10.1 13.6 6.1 9 10 Foreign........................................................... 26.4 8.4 .7 11.2 6.1 13.8 14.2 -2.0 11.4 16.1 10 11 Agency borrowing not included in line 1........ 5.9 8.4 19.9 23.1 13.5 17.4 14.0 13.1 18.0 16.9 11 Private domestic funds advanced 12 Total net advances.............................................. 102.1 155.0 175.7 155.3 169.6 210.2 135.9 203.4 191.9 228.4 12 13 U.S. Govt, securities..................................... -3.7 16.1 18.7 22.6 75.5 61.0 61.0 90.0 63.3 58.8 13 14 State and local obligations........................... 17.5 15.4 16.3 19.6 17.3 18.2 16.2 18.4 17.9 18.6 14 15 Corporate and foreign bonds....................... 19.5 13.1 10.0 20.9 32.8 31.5 38.9 26.7 27.0 35.9 15 16 Residential mortgages................................... 31.2 48.1 48.5 26.9 24.4 47.6 17.7 31.1 43.1 52.1 16 35.0 62.3 89.3 71.9 15.7 49.9 -5.2 36.5 38.4 61.4 17 18 Less: FHLB advances.................................. -2.7 * 7.2 6.7 -4.0 -2.0 -7.3 -.6 -2.3 -1.7 18 Private financial intermediation 19 Credit market funds advanced by private financial institutions.................................... 109.7 149.4 163.8 126.2 116.0 168.2 97.7 134.3 141.3 195.1 19 20 Commercial banks......................................... 50.6 70.5 86.5 64.6 27.6 42.6 13.5 41.7 20.8 64.5 20 21 Savings institutions.................................... 39.1 47.2 36.0 27.0 51.0 72.3 49.8 52.2 71.1 73.5 21 22 Insurance and pension funds.................... 14.2 17.8 23.8 30.1 39.3 46.5 36.4 42.3 44.3 48.8 22 23 Other finance.................................................. 5.9 13.8 17.4 4.5 -1.8 6.7 -1.9 -1.8 5.1 8.3 ■ 23 24 Sources of funds................................................. 109.7 149.4 163.8 126.2 116.0 168.2 97.7 134.3 141.3 195.1 24 25 Private domestic deposits............................. 89.4 100.9 86.4 69.4 90.5 108.1 90.3 90.6 88.8 127.3 25 26 Credit market borrowing.............................. 7.6 18.0 35.3 18.9 .1 11.2 -.8 1.0 12.1 10.3 26 27 Other sources.................................................. 12.6 30.5 42.1 37.8 25.4 48.9 8.2 42.7 40.4 57.5 27 28 Foreign funds............................................. -3.9 5.3 6.9 14.5 -.4 4.9 -5.7 5.0 2.1 7.6 28 29 Treasury balances...................................... 2.2 .7 -1.0 -5.1 -1.7 -.2 -3.5 .1 3.8 -4.1 29 30 Insurance and pension reserves................ 8.6 11.6 18.4 26.0 29.9 35.6 27.4 32.5 33.6 37.6 30 31 Other, net................................................... 5.7 12.8 17.8 2.4 -2.4 8.6 -10.1 5.2 .9 16.4 31 Private domestic nonfinancial investors 32 Direct lending in credit markets........................ * 23.6 47.2 40.8 53.7 53.1 37.4 70.1 62.7 43.7 32 33 U.S. Govt, securities..................................... -10.8 4.2 19.4 17.9 23.0 22.4 5.0 41.0 28.3 16.5 33 34 State and local obligations........................... .5 3.1 7.5 12.2 9.9 6.5 10.3 9.6 7.1 5.9 34 35 Corporate and foreign bonds....................... 8.3 4.2 .9 5.3 10.4 5.9 12.9 7.9 6.4 5.4 35 36 Commercial paper......................................... -1.1 3.0 12.5 4.6 3.1 6.3 3.5 2.7 9.4 3.2 36 37 Other.............................................................. 3.2 9.1 6.9 8.1 7.3 12.0 5.6 8.9 11.6 12.6 37 38 Deposits and currency........................................ 92.8 105.3 90.3 75.7 96.7 115.8 95.7 97.7 93.0 138.5 38 39 Time and saving accounts............................... 79.1 83.7 76.2 67.4 84.8 105.6 75.0 94.7 85.1 126.0 39 40 Large negotiable CD’s.............................. 7.7 8.7 18.4 23.6 -9.7 -15.1 -22.3 2.9 -23.0 -7.4 40 41 Other at commercial banks....................... 31.8 29.7 29.4 21.4 35.4 51.5 34.4 36.4 42.1 60.9 41 42 At savings institutions............................... 39.6 45.4 28.4 22.4 59.2 69.2 63.0 55.4 66.0 72.4 42 43 Money............................................................. 13.7 21.6 14.1 8.3 11.9 10.2 20.7 3.0 7.9 12.5 43 44 Demand deposits....................................... 10.4 17.2 10.2 2.0 5.7 2.5 15.3 -4.0 3.7 1.3 44 45 Currency..................................................... 3.4 4.4 3.9 6.3 6.2 7.7 5.4 7.1 4.1 11.2 45 46 Total of credit market instr., deposits, and currency...................................................... 92.9 129.0 137.5 123.7 150.4 168.9 133.1 167.8 155.7 182.1 46 47 Private support rate (in per cent)................. 31.1 11.9 18.0 28.5 22.1 22.0 29.9 16.1 22.6 21.6 47 48 Private financial intermediation (in per cent) 107.4 96.4 93.2 81.2 68.4 80.0 71.9 66.0 73.6 85.4 48 49 Total foreign funds........................................ 22.5 13.7 7.6 25.7 5.7 18.6 8.5 3.0 13.5 23.8 49 Memo : Corporate equities not included above 50 Total net issues.................................................. 15.0 13.3 9.2 4.9 11.2 11.2 11.7 10.8 14.0 8.4 50 51 Mutual fund shares....................................... 1.3 -.5 -1.2 -.5 .8 -.9 1.5 .1 -1.1 -.7 51 52 Other equities................................................. 13.7 13.8 10.4 5.4 10.4 12.1 10.2 10.7 15.1 9.1 52 53 Acquisitions by financial institutions............... 17.8 15.3 13.3 5.5 8.3 10.4 9.2 7.4 11.8 9.1 53 54 Other net purchases.......................................... -2.9 -2.1 -4.1 -.7 2.9 .8 2.4 3.4 2.2 -.6 54 Notes by line no. 29. Demand deposits at commercial banks. 1. Line 2 of p. A-44. 30. Excludes net investment of these reserves in corporate equities. 2. Sum of lines 3-6 or 7-10. 31. Mainly retained earnings and net miscellaneous liabilities. 6. Includes farm and commercial mortgages. 32. Line 12 less line 19 plus line 26. 11. Credit market funds raised by Federally sponsored credit agencies. 33-37. Lines 13-17 less amounts acquired by private finance. Line 37 Included below in lines 13 and 33. Includes all GNMA-guaranteed includes mortgages. security issues backed by mortgage pools. 45. Mainly an offset to line 9. 12. Line 1 less line 2 plus line 11. Also line 19 less line 26 plus line 32. 46. Lines 32 plus 38 or line 12 less line 27 plus line 45. Also sum of lines 27, 32, 39, and 44. 47. Line 2/line 1. 17. Includes farm and commercial mortgages. 48. Line 19/line 12. 25. Lines 39 plus 44. 49. Lines 10 plus 28. 26. Excludes equity issues and investment company shares. Includes 50. 52. Includes issues by financial institutions. line 18. 28. Foreign deposits at commercial banks, bank borrowings from foreign branches, and liabilities of foreign banking agencies to foreign af­ filiates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A46 Domestic Nonfinancial Statistics □ March 1977 2.10 SELECTED MEASURES OF NONFINANCIAL BUSINESS ACTIVITY 1967 = 100 except as noted; monthly and quarterly data are seasonally adjusted 1976 1977 Measure 1974 19757 1976 July Aug. Sept. Oct. Nov.' Dec. Jan.*5 Feb.e 1 Industrial production.................................................. 129.3 117.8 129.8 130.7 131.3 130.8 130.4 131.8 133.0 131.9 133.2 Market groupings: 2 Products, total.................................................... 129.3 119.3 129.3 129.8 130.3 129.7 129.6 131.7 133.8 133.0 134.1 3 Final, total...................................................... 125.1 118.2 127.3 127.6 128.3 127.4 127.4 129.8 132.3 130.9 131.9 4 Consumer goods......................................... 128.9 124.0 136.8 136.8 137.5 136.2 136.9 139.1 142.1 140.2 140.9 5 Equipment.................................................. 120.0 110.2 114.3 114.9 115.7 115.2 114.4 116.9 118.8 117.9 119.5 6 Intermediate.................................................... 135.3 123.1 136.9 137.6 137.8 138.7 138.3 138.8 139.7 140.6 142.0 7 Materials............................................................. 132.4 115.5 130.5 132.2 133.0 132.5 131.6 131.9 132.1 130.2 131.7 Industry groupings: 8 Manufacturing.................................................... 129.4 116.3 129.4 131.0 131.6 130.7 129.9 131.9 132.7 131.3 132.7 Capacity utilization (per cent)1 in: 9 Manufacturing........................................................ 84.2 73.6 80.1 80.9 81.1 80.4 79.7 80.8 '81.1 '80.0 '80.7 10 Industrial materials industries............................... 87.7 73.6 80.3 81.2 81.6 81.0 80.3 80.3 '80.2 '78.9 '79.6 11 Construction contracts2............................................ 173.9 162.3 190.2 186.0 186.0 182.0 237.0 186.0 183.0 203.0 12 Nonagricultural employment, total3.......................... 119.1 116.9 120.6 120.7 120.9 121.4 121.2 121.6 122.0 122.3 122.7 13 Goods-producing, total.......................................... 106.2 96.9 100.3 100.3 100.2 100.8 100.2 100.9 101.0 101.3 101.7 14 Manufacturing, total.......................................... 103.1 94.3 97.5 97.4 97.6 98.2 91A 98.0 98.2 98.8 98.8 15 Manufacturing, production-worker.................. 102.1 91.3 95.2 95.2 95.2 96.1 94.9 95.6 95.7 96.5 96.6 16 Service-producing................................................... 126.1 127.8 131.7 131.9 132.2 132.6 132.7 132.9 133.5 133.8 134.2 17 Personal income, total 4.............................................. '184.1 *199.4 '219.1 '220.4 '221.1 '222.1 '224.9 '226.8 '229.7 '230.3 18 Wages and salary disbursements........................... r178.9 r188.7 r208.3 '206.6 '208.8 '209.9 '211.3 '213.2 '217.6 '218.7 19 Manufacturing........................................................ '157.6 *■157.9 *•176.7 '177.5 '178.1 '178.9 '179.1 '182.4 '184.1 '185.3 20 Disposable personal income...................................... 180.5 198.5 '218.2 217.0 '218.1 21 Retail sales5............................................................... 171.2 186.1 206.5 205.4 208.8 206.7 206.7 212.3 221.2 216.2 220.0 Prices:6 22 Consumer............................................................... 147.7 161.2 170.5 171.1 171.9 172.6 173.3 173.8 174.3 175.3 23 Wholesale.............................................................. 160.1 174.1 182.9 184.3 183.7 184.7 185.2 185.6 187.1 188.0 190.0 1 Ratios of indexes of production to indexes of capacity. Based on data 5 Based on Bureau of Census data published in Survey of Current from Federal Reserve, McGraw-Hill Economics Department, and De­ Business (U.S. Dept, of Commerce). partment of Commerce. 6 Data without seasonal adjustment, as published in Monthly Labor 2 Index of dollar value of total construction contracts, including Review (U.S. Dept, of Labor). Seasonally adjusted data for changes in residential, nonresidential, and heavy engineering, from McGraw-Hill the price indexes may be obtained from the Bureau of Labor Statistics, Informations Systems Company, F. W. Dodge Division. U.S. Dept, of Labor. 3 Based on data in Employment and Earnings (U.S. Dept, of Labor). 7 Bureau of Labor Statistics revised these figures back to July 1975. Series covers employees only, excluding personnel in the Armed Forces. 4 Based on data in Survey of Current Business (U.S. Dept, of Com­ Note.—Basic data (not index numbers) for series mentioned in notes merce). Series for disposable income is quarterly. 3, 4, and 5, and indexes for series mentioned in notes 2 and 6 may also be found in the Survey of Current Business (U.S. Dept, of Commerce). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Capacity and Manpower A47 2.11 OUTPUT, CAPACITY, AND CAPACITY UTILIZATION Seasonally adjusted 1976 1976 1976 Series Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Output Capacity Utilization rate (1967 = 100) (per cent of 1967 output) (per cent) 1 Manufacturing.............................................. 126.7 129.4 131.1 131.3 160.4 161.3 162.3 163.2 79.0 80.2 80.8 80.4 2 Primary processing.................................. '133.3 136.6 139.3 138.7 166.2 167.5 168.8 170.1 80.2 '81.6 82.5 81.6 3 Advanced processing............................... 122.9 125.2 126.3 127.4 157.2 158.0 158.8 159.6 78.2 '79.3 79.6 79.8 4 Materials...................................................... '127.0 130.3 132.6 '131.7 160.6 161.7 163.1 164.3 '79.1 80.6 81.3 80.1 5 Durable goods.......................................... 120.8 126.1 130.7 128.3 164.4 165.5 166.7 167.8 73.5 76.2 78.4 76.4 6 Basic metal........................................... 103.7 110.8 117.1 108.2 142.4 143.1 143.7 144.4 72.8 77.4 81.5 74.9 7 Nondurable goods................................... 145.0 146.9 146.6 '147.2 169.4 171.0 172.5 174.1 85.6 85.9 85.0 84.6 8 Textile, paper, and chemical............... 150.2 151.6 151.2 '151.9 176.5 178.3 180.1 182.0 85.1 85.0 84.0 83.5 9 Textile............................................... 116.5 115.5 114.4 111.4 138.2 139.0 139.8 140.6 84.3 83.1 81.8 '79.2 10 Paper................................................. 128.9 132.5 131.9 130.7 144.6 145.7 146.7 147.9 89.1 90.9 89.9 88.4 11 Chemical........................................... 173.6 175.3 '175.2 178.3 206.2 208.7 211.2 213.7 84.2 84.0 82.9 '83.4 12 Energy...................................................... '119.6 120.0 '119.8 120.8 140.3 141.5 142.7 143.9 85.3 84.8 84.0 83.9 2.12 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data are seasonally adjusted; exceptions noted 1976 1977 Category 1974 1975 1976 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Household survey data 1 Noninstitutional population1.............. 150,827 153,449 156,048 156,367 156,595 156,788 157,006 157,176 157,381 157,584 2 Labor force (including Armed Forces)1....................................... 93,240 94,793 96,917 97,498 97,387 97,449 98,020 98,106 97,649 98,282 3 Civilian labor force............................. 91,011 92,613 94,773 95,351 95,242 95,302 95,871 95,960 95,516 96,145 Employment: 4 Nonagricultural industries2........ 82,443 81,403 84,188 84,462 84,516 84,428 84,972 85,184 85,468 85,872 5 Agriculture................................... 3,492 3,380 3,297 3,372 3,278 3,310 3,248 3,257 3,090 3,090 Unemployment: 6 Number....................................... 5,076 7,830 7,288 7,517 7,448 7,564 7,651 7,517 6,958 7,183 7 Rate (per cent of civilian labor force).................................... 5.6 8.5 7.7 7.9 7.8 7.9 8.0 7.8 7.3 7.5 8 Not in labor force............................... '57,587 '58,655 '59,130 58,869 59,208 59,339 58,986 59,071 59,732 59,302 Establishment survey data 9 Nonagricultural payroll employment3 78,413 77,050 79,443 79,618 79,918 79,819 80,106 '80,344 '80,559 80,818 10 20,046 18,347 18,958 18,979 19,100 18,941 19,065 '19,095 '19,212 19,212 11 Mining............................................. 694 745 783 752 798 800 805 '808 '817 832 12 Contract construction..................... 3,957 3,515 3,593 3,579 3,565 3,582 3,619 '3,605 '3,545 3,614 13 Transportation and public utilities. 4,696 4,499 4,508 4,501 4,528 4,506 4,519 '4,553 '4,549 4,562 14 Trade............................................... 17,017 16,997 17,694 17,764 17,839 17,824 17,808 '17,898 '17,985 18,102 15 Finance............................................ 4,208 4,222 4,315 4,312 4,338 4,359 4,381 '4,403 '4,425 4,440 16 13,617 14,008 14,645 14,751 14,798 14,819 14,873 '14,936 '15,007 15,059 17 Government.................................... 14,177 15,954 14,947 15,122 15,095 15,130 15,036 '15,046 '15,019 14,997 1 Persons 16 years of age and over. Monthly figures, which are based 3 Data include all full- and part-time employees who worked during, on sample data, relate to the calendar week that contains the 12th day; or received pay for, the pay period that includes the 12th day of the annual data are averages of monthly figures. By definition, seasonality month, and exclude proprietors, self-employed persons, domestic servants, does not exist in population figures. From Employment and Earnings (U.S. unpaid family workers, and members of the Armed Forces. Data are Dept, of Labor). adjusted to the February 1977 benchmark. From Employment and Earn­ 2 Includes self-employed, unpaid family, and domestic service workers. ings (U.S. Dept, of Labor). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A48 Domestic Nonfinancial Statistics □ March 1977 2.13 INDUSTRIAL PRODUCTION Unless otherwise noted, figures are indexes (1967 = 100); monthly data are seasonally adjusted 1967 1975 1976 1976 1977 Grouping pro­ 1976? por­ aver­ tion age Dec. Jan. Aug. Sept. Oct. Nov.r Dec. Jan.P Feb.e Major market groupings 1 Total index. 100.00 129.8 124.4 125.7 130.8 130.4 131.8 133.0 131.9 133.2 2 Products........................... 60.71 129.3 124.9 126.0 130.3 129.7 129.6 131.7 133.8 133.0 134.1 3 Final products.............. 47 82 127.3 123.5 123.9 128.3 127.4 127.4 129.8 132.3 130.9 131.9 4 Consumer goods 27.68 136.8 132.3 133.1 137.5 136.2 136.9 139.1 142.1 140.2 140.9 5 Equipment.............. 20.14 114.3 111.5 111.2 115.7 115.2 114.4 116.9 118.8 117.9 119.5 6 Intermediate products. 12.89 136.9 129.9 133.6 137.8 138.7 138.3 138.8 139.7 140.6 142.0 7 Materials......................... 39.29 130.5 123.3 125.3 133.0 132.5 131.6 131.9 132.1 130.2 131.7 Consumer goods Durable consumer goods.............. 7.89 141.5 134.0 134.7 143.7 138.4 139.4 143.7 151.4 146.0 145.4 9 Automotive products.............. 2.83 154.7 147.7 142.8 158.4 147.4 148.8 161.6 180.6 165.1 161.0 10 Autos and utility vehicles... 2.03 149.8 140.0 133.4 158.2 139.1 137.9 154.6 180.3 158.8 154.3 11 Autos................................ 1.90 132.0 122.8 118.9 137.7 120.9 121.5 139.1 159.8 136.9 132.8 12 Auto parts and allied goods., .80 167.2 167.0 167.4 158.4 168.6 176.6 179.3 181.1 180.5 178.0 13 Home goods.......................... 5.06 134.1 126.4 130.3 135.6 133.3 134.1 133.8 135.0 135.4 136.7 14 Appliances, A/C, and TV., 1.40 115.7 101.1 107.8 119.1 111.4 115.8 115.3 111.7 113.8 115.1 15 Appliances and TV....... 1.33 118.6 104.4 110.6 121.9 115.1 118.6 117.6 113.8 116.5 16 Carpeting and furniture. ., 1.07 144.3 142.0 144.8 145.0 146.3 147.0 143.6 145.1 140.9 17 Misc. home goods............. 2.59 139.9 133.6 136.6 140.7 139.8 138.6 139.9 143.6 144.7 i46.0 18 Nondurable consumer goods............ 19.79 134.9 131.5 132.5 134.9 135.3 135.8 137.1 138.4 137.8 139.0 19 Clothing....................................... 4.29 126.6 123.9 127.4 123.2 123.0 125.9 126.4 126.4 j............ 20 Consumer staples........................ 15.50 137.2 133.6 133.9 138.1 138.7 138.5 140.0 141.8 141.6 143.3 21 Consumer foods and tobacco. 8.33 131.0 127.2 128.5 131.9 133.0 133.2 132.5 133.0 131.7 22 Nonfood staples.......................... 7.17 144.5 141.0 140.2 145.3 145.4 144.8 149.0 151.8 153.0 155.2 23 Consumer chemical products., 2.63 166.4 159.7 157.3 168.8 169.2 168.3 174.4 111.9 177.9 24 Consumer paper products 1.92 113.3 113.4 113.3 113.9 111.9 109.9 113.8 117.7 118.0 25 Consumer energy products. . . 2.62 145.3 142.8 142.4 144.8 145.9 146.9 149.0 150.4 153.7 26 Residential utilities.............. 1.45 153.1 152.0 154.5 151.4 Equipment 27 Business equipment...................... 12.63 135.9 131.6 131.0 137.7 137.5 135.9 140.2 143.4 141.8 143.2 28 Industrial equipment.............. 6.77 127.7 124.5 123.5 128.1 129.8 129.9 131.3 133.5 132.2 133.0 29 Building and mining equip., 1.44 177.2 172.9 171.4 179.8 180.4 180.9 181.5 187.4 188.4 189.5 Manufacturing equipment. 3.85 106.2 101.3 101.2 107.2 108.6 107.9 109.9 110.7 108.7 109.4 Power equipment............................................ 1.47 135.5 137.6 134.6 132.0 135.6 137.8 138.0 140.0 138.5 139.4 32 Commercial transit, farm equip.. 5.86 145.3 139.7 139.7 148.7 146.1 142.7 150.5 154.9 153.1 154.9 33 Commercial equipment........... 3.26 173.0 164.4 165.0 176.2 176.8 177.5 179.7 186.3 186.2 186.9 34 Transit equipment................... 1.93 103.6 102.9 100.2 106.6 99.3 98.3 107.6 108.8 103.0 107.2 35 Farm equipment...................... .67 130.6 125.6 131.5 136.8 131.4 102.0 132.2 134.8 135.9 36 Defense and space equipment... 7.51 78.0 77.7 78.0 78.6 77.7 78.5 77.9 77.4 77.5 79.6 Intermediate products 37 Construction supplies............... 6.42 132.0 124.1 126.8 134.1 134.3 134.0 135.7 135.6 135.0 136.4 38 Business supplies........................... 6.47 141.6 135.9 140.3 141.5 143.0 142.5 141.7 132.8 146.2 39 Commercial energy products. 1.14 156.6 147.9 158.1 156.4 156.4 154.0 155.4 155.6 160.8 Materials 40 Durable goods materials. . . 20.35 126.5 115.5 118.3 131.4 130.0 128.5 128.5 128.2 126.1 127.8 41 Durable consumer parts. 4.58 121.5 111.6 111.7 125.1 123.5 119.4 126.2 124.7 120.2 120.9 42 Equipment parts............ 5.44 133.9 123.9 125.7 138.0 138.3 138.0 137.2 138.8 135.7 139.3 43 Durable materials n.e.c.. 10.34 124.9 112.9 117.4 130.6 128.4 127.5 124.9 123.9 123.9 125.0 44 Basic metal materials., 5.57 110.0 96.1 101.9 120.0 113.9 112.0 106.3 104.7 104.0 45 Nondurable goods materials......... 10.47 146.5 142.6 142.9 146.1 147.8 147.5 147.2 146.9 145.1 146.8 46 Textile, paper, and chem. mat., 7.62 151.3 147.9 147.5 150.6 152.6 152.5 151.3 151.8 150.3 151.8 47 Textile materials................... 1.85 114.5 118.9 117.8 114.9 113.6 112.6 108.8 113.6 110.7 48 Paper materials..................... 1.62 131.2 125.9 126.5 132.7 131.0 132.1 131.0 128.6 128.9 49 Chemical materials............... 4.15 175.7 169.5 168.9 173.4 178.2 178.2 178.3 177.9 176.3 50 Containers, nondurable 1.70 142.5 136.1 139.0 143.2 143.5 141.7 145.9 143.8 137.4 51 Nondurable materials n.e.c.. 1.14 120.0 116.7 118.3 121.2 122.8 122.4 122.2 119.7 122.0 52 Energy materials...................... 8.48 120.1 118.7 120.6 120.5 119.6 119.6 121.7 122.8 121.3 122.1 53 Primary energy..................... 4.65 107.0 107.3 107.7 107.9 108.4 109.0 107.1 106.4 102.7 54 Converted fuel materials. . . 3.82 136.0 132.3 136.3 136.0 133.2 132.7 139.5 142.8 144.0 Supplementary groups 55 Home goods and clothing. 9.35 130.7 125.2 129.9 129.9 128.7 130.3 130.4 131.0 130.0 130.9 56 Energy, total....................... 12.23 128.9 126.6 128.8 129.0 128.6 128.6 130.7 131.7 131.9 132.7 57 Products......................... 3.76 148.7 144.5 147.2 148.2 149.1 149.1 150.9 151.9 156.0 58 Materials......................... 8.48 120.1 118.7 120.6 120.5 119.6 119.6 121.7 122.8 121.3 For Note see opposite page. 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Output A49 2.13 Continued 1967 1975 1976 1976 1977 Grouping SIC pro­ 1976p code por­ aver­ tion age Dec. Jan. Aug. Sept. Oct. Nov.r Dec. Jan.p Feb.6 Gross value of products in market structure (Annual rates, in billions of 1972 dollars) 1 Products, total............. . 1286.3 550.9 528.4 531.9 556.4 548.8 549.4 558.3 571.2 561.1 568.3 2 Final products........ i221.4 426.3 410.6 410.9 431.3 422.2 423.6 432.2 444.8 434.2 439.3 3 Consumer goods. 1156.3 302.9 292.0 292.3 304.6 300.7 302.2 307.4 315.5 308.8 311.5 4 Equipment.......... 165.3 123.6 118.9 119.1 126.7 121.7 121.4 125.0 129.3 125.5 128.1 5 Intermediate products. 164.9 124.5 117.9 120.8 125.1 126.6 126.0 126.2 126.3 126.7 129.0 Major industry groupings 6 Mining and utilities. 12.05 131.8 129.2 131.8 131.8 131.9 133.1 134.1 134.7 134.6 136.4 7 Mining................ 6.36 114.1 112.9 113.6 114.4 115.7 116.7 116.2 116.3 113.5 115.4 8 Utilities............... 5.69 151.5 147.2 152.0 151.3 150.1 151.2 154.0 155.2 158.3 159.7 9 Electric............ 3.88 168.1 162.3 167.4 168.5 10 Manufacturing. 87.95 129.4 123.6 125.2 131.6 130.7 129.9 131.9 132.7 131.3 132.7 11 Nondurable. 35.97 140.9 136.9 138.4 140.9 142.6 142.2 143.5 143.8 143.3 145.0 12 Durable.... 51.98 121.4 114.4 115.8 125.1 122.4 121.5 123.8 125.1 122.9 124.1 Mining: 13 Metal mining..................... 10 .51 122.8 117.9 122.2 127.5 123.6 127.4 128.1 130.2 136.4 14 Coal................................... 11, 12 .69 116.7 109.9 111.2 112.6 121.3 132.3 125.1 123.4 88.8 100.2 15 Oil and gas extraction___ 13 4.40 112.0 113.1 112.5 112.3 113.3 112.5 112.4 112.9 113.6 114.2 16 Stone and earth minerals., 14 .75 118.3 111.5 117.1 119.0 119.2 120.0 121.4 121.1 120.0 Nondurable manufactures: Foods............................. 20 8.75 132.1 128.5 129.2 133.4 135.7 134.7 134.7 134.9 134.0 Tobacco products.......... 21 .67 117.5 116.0 117.3 114.8 115.4 118.3 119.7 119.1 Textile mill products... 22 2.68 135.9 139.0 137.6 135.1 135.7 134.2 132.2 133.3 i3i'.4 Apparel products.......... 23 3.31 125.5 121.2 123.8 123.7 122.5 126.4 125.9 128.0 Paper and products 26 3.21 133.1 129.5 130.3 134.6 132.1 132.3 132.5 131.8 131.2 134.0 22 Printing and publishing___ 27 4.72 120.6 118.4 120.0 120.6 120.6 119.2 119.3 123.1 124.7 125.3 23 Chemicals and products.... 28 7.74 169.5 163.3 162.9 170.4 170.5 170.6 174.2 174.3 173.3 24 Petroleum products............ 29 1.79 132.4 126.3 125.7 133.8 134.1 130.2 135.8 137.1 139.8 144:6* 25 Rubber & plastic products. 30 2.24 199.3 185.3 188.4 186.1 212.4 211.1 215.7 210.5 210.1 26 Leather and products.......... 31 .86 82.0 83.2 86.0 77.3 77.9 77.2 75.8 73.4 74.3 Durable manufactures: 27 Ordnance, pvt. & govt.. 19,91 3.64 71.9 70.1 69.9 73.9 73.2 73.3 72.2 71.8 71.6 71.8 28 Lumber and products.. 24 1.64 125.5 116.4 123.5 128.1 128.7 130.7 129.0 127.5 132.5 29 Furniture and fixtures.. 25 1.37 132.7 130.3 132.7 134.4 133.0 134.5 134.0 136.0 133.8 30 Clay, glass, stone prod. 32 2.74 135.8 129.4 128.6 138.1 138.4 138.4 142.2 141.6 135.5 31 Primary metals................ 33 6.57 108.0 92.6 98.1 118.6 114.1 109.9 107.3 102.7 99.4 101.7 32 Iron and steel.............. 4.21 104.4 89.1 92.9 116.2 110.3 105.1 103.1 95.6 90.2 94.2 33 Fabricated metal prod... 24 5.93 123.1 117.3 116.6 125.8 126.6 123.5 126.7 128.2 125.4 124.6 34 Nonelectrical machinery. 35 9.15 134.4 128.6 129.0 136.4 136.8 134.1 137.5 141.0 139.7 140.5 35 Electrical machinery........ 36 8.05 131.7 122.7 124.7 133.3 133.7 135.0 135.8 135.6 134.8 138.0 36 Transportation equip.......... 37 9.27 110.6 106.7 105.8 115.0 104.4 104.7 112.7 118.2 113.1 113.4 37 Motor vehicles & pts.... 4.50 140.7 130.1 126.7 150.6 130.2 129.3 145.8 156.3 143.9 142.2 38 Aerospace & misc. tr. eq., 4.77 82.3 84.7 86.1 81.5 80.1 81.4 81.6 82.4 84.0 86.2 39 Instrument........................... 2.11 148.0 140.9 142.0 149.6 148.7 150.3 150.3 154.0 153.8 157.4 40 Miscellaneous mfrs............. 1.51 143.4 137.3 139.5 142.1 143.8 142.2 143.7 146.8 145.0 148.8 i 1972 dollars. Note.—Published groupings include some series and subtotals not shown separately. For summary description and historical data, see Bulletin for June 1976, pp. 470-79. Availability of detailed descriptive and historical data will be announced in a forthcoming Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 Domestic Nonfinancial Statistics □ March 1977 2.14 HOUSING AND CONSTRUCTION Monthly figures at annual rates except as noted 1976 1977 Item 1974 1975 1976 July Aug. Sept. Oct. Nov. Dec. Jan. Private residential real estate activity (thousands of units; monthly figures, seasonally adjusted; exceptions noted) NEW UNITS 1 Permits authorized....................... 1,074 927 1,281 1,215 1,296 1,504 1,492 1,590 1,514 1,307 2 1-family.................................... 644 669 895 870 874 926 998 1,072 1,053 970 3 2-or-more-family..................... 431 278 386 345 422 578 494 518 461 337 A Started......................................... 1,338 1,160 1,540 1,413 1,530 1,768 1,715 1,706 1,884 1,375 5 1-family................................... 888 892 1,163 1,129 1,172 1,254 1,269 1,236 1,331 1,029 6 2-or-more-family..................... 450 268 377 284 358 514 446 470 553 346 7 Under construction, end of period 1,189 1,003 1,157 1,063 1,074 1,107 1,140 1,164 1,193 8 1-family................................... 535116 616562 646122 662 61A 693 9 2-or-more-family..................... 673 All 495 448 452 466 478 490 500 10 Completed.................................... 1,692 1,297 1,354 1,307 1,401 1,387 1,326 1,445 1,377 11 1-family................................... 931 866 1,021 1,038 1,094 1,017 989 1,114 1,039 12 2-or-more-family..................... 760 430 333 269 307 370 337 331 338 13 Mobile homes shipped............... 329 213 250 224 252 255 111 251 252 273 Merchant builder activity in 1-family units: 14 Number sold............................... 501 544 635 606 640 741 735 703 748 15 Number for sale, end of period.. 407 383 411 406 415 419 431 435 Price (thous. of dollars)1 Median: 16 Units sold............................ 35.9 39.3 44.2 44.6 44.2 44.7 45.4 45.8 46.4 17 Units for sale....................... 36.2 38.9 41.6 40.7 40.8 41.0 41.0 41.2 41.6 Average: 18 Units sold............................ 38.9 42.6 48.0 48.0 48.5 48.2 50.4 49.9 50.8 51.3 EXISTING UNITS (1-family) 19 Number sold............................... 2,272 2,452 2,998 2,900 3,070 3,330 3,290 3,320 3,560 3,190 Price of units sold (thous. of dollars):1 20 Median........................................ 32.0 35.3 38.1 38.9 39.4 38.7 38.5 38.8 39.0 39.6 21 Average....................................... 35.8 39.0 42.2 43.2 43.4 42.7 42.4 42.9 43.3 44.0 Value of new construction 2 (millions of dollars; monthly figures, seasonally adjusted) CONSTRUCTION 22 Total put in place............................... 138,526 132,043 144,458 141,055 142,031 146,281 146,805 150,448 150,381 135,698 23 Private................................................. 100,179 93,034 107,961 104,288 104,682 108,650 112,833 116,381 117,114 105,907 24 Residential...................................... 50,378 46,476 59,419 57,176 55,427 58,701 63,428 66,385 68,194 61,958 25 Nonresidential, total...................... 49,801 46,558 48,542 47,112 49,255 49,949 49,405 49,996 48,920 43,949 Buildings: 26 Industrial................................. 7,902 8,017 6,898 6,097 6,902 6,894 6,407 6,461 6,323 6,055 27 Commercial............................. 15,945 12,804 12,569 12,574 12,984 12,786 12,560 12,522 12,552 12,325 28 Other........................................ 5,797 5,585 6,251 6,178 6,689 6,669 6,489 6,677 6,491 6,024 29 Public utilities and other............ 20,157 20,152 22,824 22,263 22,680 23,600 23,949 24,336 23,554 19,545 30 Public.................................................. 38,347 39,009 36,397 36,767 37,349 37,631 33,972 34,067 33,267 29,791 31 Military........................................... 1,188 1,391 1,479 1,448 1,450 1,352 1,467 1,622 1,567 1,503 32 Highway.......................................... 12,069 10,345 9,115 8,297 9,596 8,856 8,738 7,843 7,551 33 Conservation and development. .. 2,741 3,227 3,658 3,573 3,618 4,281 2,949 A,011 3,842 34 Other............................................... 22,349 24,046 22,145 23,449 22,685 23,142 20,818 20,525 20,307 1 Not seasonally adjusted. Note.—Census Bureau estimates for all series except (a) mobile 2 Value of new construction data in recent periods may not be strictly homes, which are private, domestic shipments as reported by the Manu­ comparable with data in prior periods due to changes by the Bureau of factured Housing Institute and seasonally adjusted by the Census Bureau the Census in its estimating techniques. For a description of these changes and (b) sales and prices of existing units, which are published by the see Construction Reports (C-30-76-5), issued by the Bureau in July 1976. National Association of Realtors. All back and current figures are avail­ able from originating agency. Permit authorizations are for 14,000 jurisdictions reporting to the Census Bureau. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Prices A51 2.15 CONSUMER AND WHOLESALE PRICES Percentage changes based on seasonally adjusted data, except as noted 12 months to— 3 months (at annual rate) to— 1 month to— Index level Item 1976 1976 1977 Jan. 1976 1977 1977 Jan. Jan. (1967 Mar.r Juner Sept.r Dec.r Sept.r Oct.r Nov.r Dec.r Jan. = 100)1 Consumer prices 1 All items........................................................ 6.8 5.2 3.9 6.1 5.3 4.2 .3 .3 .3 .4 .8 175.3 2 Commodities.................................................. 5.9 3.9 .2 6.0 3.9 3.4 .2 .3 .2 .4 .8 168.7 3 Food.......................................................... 5.8 1.4 -5.4 6.2 1.6 0.0 .1 .2 -.3 .1 .9 183.4 4 Commodities less food............................ 5.8 5.4 4.0 5.6 5.5 5.7 .3 .4 .4 .6 .7 160.6 5 Durable................................................. 7.0 6.6 7.2 6.5 5.0 6.0 .3 .3 .4 .7 .9 158.9 6 Nondurable.......................................... 5.1 4.7 1.8 5.0 6.0 5.4 .4 .4 .4 .4 .5 161.9 7 Services.......................................................... 8.4 7.2 10.6 6.5 7.5 5.1 .5 .4 .4 .9 187.5 8 Rent.......................................................... 5.0 5.5 6.1 5.4 5.4 5.3 .5 .4 .4 .5 .5 149.0 9 Services less rent....................................... 8.9 7.4 11.2 6.7 7.7 5.4 .5 .5 .4 .4 .9 194.4 Other groupings: 10 All items less food1................................. 7.0 6.3 5.3 7.0 7.4 5.3 .7 .5 .5 .3 .4 172.9 11 All items less shelter1.............................. 6.7 5.3 3.0 6.9 5.6 4.3 .4 .4 .4 .3 .5 173.1 12 Homeo wnership1..................................... 7.5 4.2 1.9 4.3 8.0 1.2 .5 .2 0.0 .1 .9 196.7 Wholesale prices 13 All commodities............................................ 4.4 4.9 1.6 6.4 3.3 7.4 .7 .5 .6 .6 .5 188.0 14 Farm products, and processed foods and feeds....................................................... .4 .1 - 9.5 12.7 -12.2 6.6 .3 -.6 .1 2.1 .3 184.8 15 Farm products......................................... 7.3 .4 -12.2 16.5 -12.1 6.1 1.0 -.5 -.5 2.6 1.1 193.5 16 Processed foods and feeds....................... -3.8 -.1 -7.7 10.3 -12.2 7.0 -.1 -.6 .5 1.8 -.2 179.3 17 Industrial commodities................................. 5.9 6.3 5.1 4.5 8.2 7.8 .8 .9 .7 .3 .5 188.4 Materials, supplies, and components of which: 18 Crude materials2.................................. 6.6 10.9 5.2 16.8 10.8 21.4 -.5 3.7 3.5 -2.2 -1.2 259.4 19 Intermediate materials3....................... 5.0 6.2 5.8 3.5 8.1 7.5 .9 .8 .5 .5 .5 195.1 Finished goods, excluding foods: 20 Consumer.............................................. 6.4 5.2 3.1 3.0 8.2 5.2 .9 .5 .4 .3 1.0 167.2 21 Durable............................................. 5.2 4.2 4.0 2.8 5.1 3.6 .6 .5 .2 .1 .7 148.9 22 Nondurable....................................... 7.1 5.8 2.4 3.1 9.9 6.5 .9 .6 .7 .3 1.1 179.4 23 Producer................................................ 7.7 6.1 7.1 4.5 5.0 9.2 .6 1.1 .4 .7 .4 179.8 Memo: 24 Consumer foods........................................... 3.8 -1.2 -13.7 13.2 -13.8 8.6 0.0 -.5 -.3 2.8 -.1 181.5 1 Not seasonally adjusted. 3 Excludes intermediate materials for food manufacturing and manu- 2 Excludes crude foodstuffs and feedstuffs, plant and animal fibers, factured animal feeds. oilseeds, and leaf tobacco. Source.—Bureau of Labor Statistics. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A52 Domestic Nonfinancial Statistics □ March 1977 2.16 GROSS NATIONAL PRODUCT AND INCOME Billions of current dollars; quarterly data are at seasonally adjusted annual rates. Exceptions noted 1975 1976 Account 1974 1975 1976 Q3 Q4 Ql Q2 Q3 1 Q4 Gross national product 1 1,413.2 1,516.3 rl,691.4 1,548.7 1,588.2 1,636.2 1,675.2 1,708.9 1,744.3 By source: 2 Personal consumption expenditures................... 887.5 973.2 1,079.7 987.3 1,012.0 1,043.6 1,064.7 1,088.5 1,122.0 3 Durable goods.............................................. 121.6 131.7 156.5 136.0 141.8 151.4 155.0 157.6 162.0 4 Nondurable goods........................................ 376.2 409.1 440.4 414.6 421.6 429.1 434.8 441.8 456.0 5 Services.......................................................... 389.6 432.4 482.8 436.7 448.6 463.2 474.9 489.1 504.0 6 Gross private domestic investment.................... 215.0 183.7 239.6 197.7 201.4 229.6 239.2 247.0 242.8 7 Fixed investment........................................... 204.3 198.3 227.7 198.6 205.7 214.7 223.2 231.9 241.0 8 Nonresidential............................................ 149.2 147.1 160.0 146.1 148.7 153.4 157.9 163.0 165.6 9 Structures............................................... 54.1 52.0 55.3 51.8 52.1 53.2 54.9 56.0 57.0 10 Producers’ durable equipment.............. 95.1 95.1 104.7 94.2 96.6 100.2 103.0 107.0 108.6 11 Residential structures............................... 55.1 51.2 67.7 52.6 57.0 61.3 65.3 68.9 75.5 12 Nonfarm................................................ 52.7 49.0 65.1 50.2 54.2 58.6 62.9 66.3 72.7 13 Change in business inventories.................... 10.7 -14.6 11.9 -2.0 -4.3 14.8 16.0 15.1 1.7 14 Nonfarm.................................................... 12.2 -17.6 11.9 -4.2 -9.5 12.7 17.3 15.6 2.2 15 Net exports of goods and services..................... 7.5 20.5 6.4 21.4 21.0 8.4 9.3 4.7 3.3 16 Exports.......................................................... 144.4 148.1 162.7 148.2 153.7 154.1 160.3 167.7 168.6 17 Imports.......................................................... 136.9 127.6 156.3 126.8 132.7 145.7 151.0 163.0 165.3 18 Govt, purchases of goods and services.............. 303.3 339.0 365.6 343.2 353.8 354.7 362.0 369.6 376.2 19 Federal........................................................... 111.6 124.4 133.4 124.6 130.4 129.2 131.2 134.5 138.9 20 State and local.............................................. 191.6 214.5 232.2 218.6 223.4 225.5 230.9 235.0 237.4 By major type of product: 21 Final sales, total................................................ 1,402.5 1,531.0 1,679.5 1,550.6 1,592.5 1,621.4 1,659.2 1,694.7 1,742.6 22 Goods............................................................. 639.7 681.7 760.2 703.5 719.7 742.3 758.4 766.1 774.3 23 Durable goods........................................... 247.2 254.4 300.5 265.0 270.0 282.7 301.2 308.2 309.8 24 Nondurable................................................ 392.4 427.3 459.8 438.4 449.7 459.6 457.1 457.9 464.5 25 Services.......................................................... 626.6 692.5 771.8 700.2 719.5 742.6 759.6 781.5 803.5 26 Structures...................................................... 146.9 142.1 159.3 145.0 149.1 151.3 157.3 162.2 166.5 27 Change in business inventories........................ 10.7 -14.6 11.9 -2.0 -4.3 14.8 16.0 15.1 1.7 28 Durable goods............................................... 7.1 -12.1 2.7 -7.0 -10.6 -3.6 5.4 6.8 2.0 29 Nondurable goods........................................ 3.6 -2.6 9.2 5.0 6.3 18.5 10.6 8.3 -.3 Memo: 30 Total GNP in 1972 dollars................................. 1,214.0 1,191.7 1,264.6 1,209.3 1,219.2 1,246.3 1,260.0 1,272.2 1,279.9 National income Total ................................................................ 1,135.7 1,207.6 rl,348.4 1,233.4 1,264.6 1,304.7 1,337.4 1,362.5 32 Compensation of employees................................ 875.8 928.8 1,028.4 935.2 963.1 994.4 1,017.2 1,037.5 1,064.5 33 Wages and salaries.................................................... 764.5 806.7 890.4 811.7 836.4 861.5 881.1 897.8 921.0 34 Government and Government enterprises.. 160.4 175.8 190.7 177.3 182.2 185.4 188.7 191.7 197.0 35 Other.............................................................. 604.1 630.8 699.7 634.4 654.1 676.1 692.4 706.1 '723.9 36 Supplement to wages and salaries..................... 111.3 122.1 138.0 123.5 126.7 132.9 136.2 139.6 143.5 37 Employer contributions for social insurance................................................ 55.8 59.7 67.9 60.2 61.6 65.9 67.1 68.6 70.2 38 Other labor income....................................... 55.5 62.5 70.1 63.3 65.2 67.1 69.0 71.1 73.3 39 Proprietors' income1.............................................. 86.9 90.2 96.7 95.5 97.2 93.2 100.3 96.1 97.1 40 Business and professional1............................... 61.1 65.3 73.8 66.3 69.0 71.4 72.8 74.4 76.8 41 Farm1................................................................ 25.8 24.9 22.8 29.2 28.3 21.9 27.5 21.7 20.3 42 Rental income of persons2................................... 21.0 22.4 23.5 22.1 22.9 23.3 23.1 23.4 24.3 43 Corporate nrofits l........................................................ 84.8 91.6 rl 17.7 105.3 105.6 115.1 116.4 122.0 44 Profits before tax3............................................ 127.6 114.5 '147.8 126.9 131.3 141.1 146.2 150.2 45 Inventory valuation adjustment....................... -39.8 -11.4 -14.6 -9.0 -12.3 -11.5 -14.4 -12.6 -20.0 46 Capital consumption adjustment..................... -3.0 -11.5 -15.5 -12.6 -13.5 -14.5 -15.4 -15.7 -16.4 47 Net interest........................................................... 67.1 74.6 '82.0 74.9 75.8 78.6 80.3 83.5 '85.6 1 With inventory valuation and capital consumption adjustments. 3 For after-tax profits, dividends, etc., see Table 1.50. 2 With capital consumption adjustments. Source.—Survey of Current Business (U.S. Dept, of Commerce). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

National Income Accounts A53 2.17 PERSONAL INCOME AND SAVING Billions of current dollars; quarterly data are at seasonally adjusted annual rates. Exceptions noted. 1975 1976 1974 1975 1976 Account Q3 Q4 Ql Q2 Q3 Q4 Personal income and saving 1,153.3 1,249 7 rl,375.3 1,265.5 1,299.7 1,331.3 1,362.0 1,386.0 rl,421.7 765.0 806.7 890.4 811.7 836.4 961.5 881.1 897.8 921.0 3 Commodity-producing industries.................... 273.9 275.3 304.8 272.2 285.8 295.3 302.9 307.0 314.0 4 Manufacturing.............................................. 211.4 211.7 237.0 212.5 220.3 229.6 235.6 238.9 >■243.2 5 Distributive industries...................................... 184.4 195.6 214.9 196.8 202.3 208.3 212.8 216.5 r221.9 6 Service industries.............................................. 145.9 159.9 180.0 161.3 166.1 172.4 176.7 182.7 188.1 7 Government and government enterprises....... 160.9 175.8 190.7 177.3 182.2 185.4 188.7 191.7 197.0 8 Other labor income.............................................. 55.5 62.5 70.1 63.3 65.2 67.1 69.0 71.1 73.3 9 Proprietors’ income1.............................................. 86.9 90.2 96.7 95.5 97.2 93.2 100.3 96.1 97.1 10 Business and professional1............................... 61.1 65.3 73.8 66.3 69.0 71.4 72.8 74.4 76.8 11 Farm1................................................................ 25.8 24.9 22.8 29.2 28.3 21.9 27.5 21.7 20.3 12 Rental income of persons2................................... 21.0 22.4 23.5 22.4 22.9 23.3 23.1 23.4 24.3 13 Dividends.............................................................. 30.8 32.1 35.1 32.6 32.2 33.1 34.4 35.4 37.7 14 Personal interest income...................................... 101.4 110.7 '123.0 111.0 114.4 118.0 120.7 125.0 r128.4 15 Transfer payments................................................ 140.3 175.2 191.3 179.1 182.5 188.6 187.6 192.4 196.6 16 Old-age survivors, disability, and health insurance benefits...................................... 70.1 81.4 93.0 84.7 86.3 88.1 89.5 95.8 r98.5 17 Less: Personal contributions for social insurance.................................................... 47.6 50.0 54.9 50.1 51.0 53.4 54.3 55.2 56.6 18 Equals : Personal income................................... 1,153.3 1,249.7 rl,375.3 1,265.5 1,299.7 1,331.3 1,362.0 1,386.0 1,421.7 19 Less: Personal tax and nontax payments.... 170.4 168.8 193.6 174.0 197.8 183.8 189.5 195.8 205.3 20 Equals : Disposable personal income................ 982.9 1,080.9 '1,181.7 1,091.5 1,119.9 1,147.6 1,172.5 1,190.2 1,216.5 21 Less: Personal outlays........*.......................... 910.7 996.9 rl,105.2 1,011.1 1,036.2 1,068.0 1,089.6 1,114.3 1,148.6 22 Equals : Personal saving..................................... 72.2 84.0 r76.5 80.5 83.7 79.5 82.9 75.8 r67.8 Memo: Per capita, 1972 dollars: 23 Gross national product..................................... 3,968.0 4,007.0 '4,140.0 4,009.0 4.049.0 4,103.0 4,143.0 4,142.0 r4,168.0 24 Personal consumption expenditures................ 887.5 973.2 '1,079.7 987.3 1.012.0 1,043.6 1,064.7 1,088.5 1,122.0 25 Disposable personal income............................. 840.8 855.5 r890.5 857.1 867.5 880.4 890.5 892.0 '899.6 26 Saving rate (per cent)........................................... 7.3 7.8 6.5 7.4 7.5 6.9 7.1 6.4 '5.6 Gross saving 27 Gross private saving.............................................. 211.6 255.6 r274.6 262.7 269.4 273.8 279.1 r278.9 28 Personal saving.................................................. 72.2 84.0 '76.5 80.5 83.7 79.5 82.9 75.8 '67.8 29 Undistributed corporate profits1..................... 1.7 10.3 18.8 17.9 16.2 20.6 18.5 21.5 30 Corporate inventory valuation adjustment.... -39.8 -11.4 -14.6 -9.0 -12.3 -11.5 -14.4 -12.6 —20.0* Capital consumption allowances: 31 Corporate...................................................... 84.6 100.9 112.8 103.1 106.4 108.8 111.6 113.9 116.9 32 Noncorporate................................................ 53.1 60.4 67.0 61.3 63.2 64.8 66.1 67.7 69.3 33 Wage accruals less disbursements................... 34 Government surplus, or deficit (—), national income and product accounts......................... —4.2 —64.4 r—44.7 —58.1 -61.5 -51.6 -44.9 -44.7 35 Federal.............................................................. — 11.5 —71.2 ' —58.7 -66.0 -69.4 -63.8 -54.1 -57.4 36 State and local.................................................. 7.3 6.9 r14.0 7.9 7.9 12.2 9.2 12.7 37 Capital grants received by the United States, net.................................................................. —2.0 38 Investment............................................................. 211.9 195.6 r237.5 209.8 214.0 229.4 240.0 242.9 r237.6 39 Gross private domestic.................................... 215.0 183.7 r239.6 196.7 201.4 229.6 239.2 247.0 '242.8 40 Net foreign........................................................ -3.0 11.9 '2.2 13.1 12.6 -.2 .8 -4.1 '5.1 41 Statistical discrepancy.......................................... 6.8 4.4 7.6 5.1 6.1 7.2 5.8 8.7 1 With inventory valuation and capital consumption adjustments. Source.—Survey of Current Business (U.S. Dept, of Commerce). 2 With capital consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A54 International Statistics □ March 1977 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars. Quarterly data are seasonally adjusted except as noted.1 1975 1976 Item credits or debits 1973 1974 1975 Q3 Q4 QI Q2 Q3 1 Merchandise exports........................................................................... 71,410 98,310 107,088 26,562 27,657 26,836 28,428 29,581 2 Merchandise imports......................................................................... 70,499 103,679 98,058 24,483 25,437 28,510 29,111 32,614 3 Merchandise trade balance 2......................................................... 911 -5,369 9,030 2,079 2,220 -1,674 -1,343 -3,033 4 -2,287 -2,083 -883 -115 12 -5 -146 366 5 5,178 10,227 6,007 1,682 1,670 2,279 2,460 2,712 6 Other service transactions, net.......................................................... 102 812 2,163 619 455 458 765 824 7 Balance on goods and services 3........................................................ 3,905 3,586 16,316 4,265 4,357 1,058 1,736 869 8 Unilateral transfers............................................................................. -3,883 -7,185 -4,620 -1,044 -1,251 -1,118 -920 -1,925 9 Remittances, pensions, and other transfers................................. -1,945 -1,710 -1,727 -429 -433 -483 -452 -464 10 U.S. Govt, grants (excluding military).......................................... -1,938 -5,475 -2,893 -615 -818 -635 -468 -1,461 11 Balance on current account................................................................. 22 -3,598 11,697 3,221 3,106 -60 816 -1,056 1? 513 4,305 1,479 771 -4,033 13 U.S. Govt, capital transactions, other than official reserve assets, net (outflow,—)........................................................................... -1,492 1,089 -1,731 -401 -453 798 -212 301 14 Change in U.S. official reserve assets (increase,—)........................... 209 -1,434 -607 -342 89 -773 -1,578 -407 15 Gold................................................................................................. 16 SDR’s.............................................................................................. 9 -172 -66 -25 -21 -45 14 -18 17 Reserve position in IMF................................................................ -33 -1,265 -466 -95 -57 -237 -798 -716 18 Foreign currencies........................................................................... 233 3 -75 -222 167 -491 -794 327 19 Change in U.S. private assets abroad (increase, — ).......................... -13,998 -32,323 -27,523 -3,297 -10,375 -8,550 -7,288 -7,040 20 Bank-reported claims....................................................................... -5,980 -19,494 -13,487 -617 -5,348 -3,582 -4,767 -3,339 21 Long-term.................................................................................... -933 -1,183 -2,373 -608 -943 -250 -385 -989 22 Short-term................................................................................... -5,047 -18,311 -11,114 -9 -4,405 -3,332 -4,382 -2,350 23 Nonbank-reported claims................................................................ -2,378 -3,221 -1,522 -972 -972 -751 -962 350 24 Long-term.................................................................................... -396 -474 -441 -139 -379 -187 146 21 25 Short-term................................................................................... -1,982 -2,747 -1,081 -833 -593 -564 -1,108 329 26 U.S. purchase of foreign securities, net........................................ -671 -1,854 -6,206 -938 -2,361 -2,460 -1,357 -2,806 27 -4,968 -7,753 -6,307 -770 -1,694 -1,757 -202 -1,245 28 Change in foreign official assets in the United States (increase,-\~).. 5,145 10,257 5,166 -1,977 2,272 2,460 3,308 1,258 29 U.S. Treasury securities................................................................. 114 3,282 4,338 -2,847 1,069 1,998 2,166 1,261 30 582 902 891 25 307 68 316 66 31 4,126 5,818 -2,158 320 134 -275 135 -595 32 Other foreign official assets............................................................ 323 254 2,095 525 762 669 691 526 33 Change in foreign private assets in the United States (increase,+). . 12,220 21,452 8,427 4,313 3,103 1,454 3,225 5,458 34 U.S. bank-reported liabilities.......................................................... 4,702 16,017 647 1,639 691 675 3,518 1,719 35 Long-term................................................................................... 227 9 -300 -114 146 -91 -25 67 36 Short-term................................................................................... 4,475 16,008 947 1,753 545 766 3,543 1,652 37 U.S. nonbank-reported liabilities.................................................... 1,035 1,615 171 -141 -68 24 -248 -141 38 Long-term................................................................................... 298 -212 345 -99 10 -332 -188 -215 39 Short-term............................................................................................................ 737 1,827 -174 -42 -78 356 -60 74 40 Foreign private purchases of U.S. Treasury securities, net........ --214 697 2,667 2,125 213 453 -598 3,020 41 Foreign purchases of other U.S. securities, net........................... 4,041 378 2,505 738 1,038 1,030 131 77 42 2,656 2,745 2,437 -48 1,229 -728 422 784 43 Allocations of SDR’s......................................................................... 44 Discrepancy......................................................................................... -2,107 4,557 4,570 -1,517 2,258 4,671 1,729 1,485 45 Owing to seasonal adjustments..................................................... —2,561 1,275 1,349 -76 -2,829 46 Statistical discrepancy in recorded data before seasonal -2,107 4,557 4,570 1,044 983 3,322 1,805 4,314 Memo: Changes in official assets: 47 U.S. official reserve assets (increase,—)........................................ 209 -1,434 -607 -342 89 -773 -1,578 -407 48 Foreign official assets in the U.S. (increase,+)........................... 5,145 10,257 5,166 -1,977 2,272 2,460 3,308 1,258 49 Transfers under military grant programs (excluded from lines 1, 4, and 10 above)..................................................................... 2,809 1,817 2,232 56 177 50 99 156 1 Seasonal factors are no longer calculated for capital transactions— the national income and product (GNP) account. The GNP definition lines 14 through 49. excludes special military sales from exports and U.S. Govt, interest pay- 2 Adjusted to a balance of payments basis; among other adjustments, ments from imports, excludes military transactions and includes imports into the Virgin Islands. Note.—Data are from Bureau of Economic Analysis, Survey of Current 3 Differs from the definition of “net exports of goods and services” in Business (U.S. Dept, of Commerce). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Trade and Reserve Assets A55 3.11 U.S. FOREIGN TRADE Millions of dollars; monthly data, are seasonally adjusted 1976 1977 1974 1975 1976 Julyr Aug.r Sept.r Oct.r Nov.r Dec. Jan. 1 EXPORTS of domestic and foreign merchandise excluding grant-aid shipments........................................ 97,908 107,130 114,807 9,956 9,737 9,788 9,699 9,589 10,410 9,599 2 GENERAL IMPORTS including merchandise for immediate con­ sumption plus entries into bonded warehouses...................................... 100,252 96,115 120,677 10,717 10,477 10,651 10,555 10,623 11,020 11,269 3 Trade balance...................................... -2,344 +11,014 -5,870 -761 -740 -863 -857 -1,034 -610 -1,670 Note.—Bureau of Census data reported on a free-alongside-ship exports (which are combined with other military transactions and are (f.a.s.) value basis. Before 1974 imports were reported on a customs reported separately in the “service account”). On the import side, the import value basis. For calendar year 1974 the f.a.s. import value was largest single adjustment is the addition of imports into the Virgin Islands $100.3 billion, about 0.7 per cent less than the corresponding customs (largely oil for a refinery on St. Croix), which are not included in Census import value. The international-accounts-basis data shown in Table 3.10 statistics. adjust the Census basis data for reasons of coverage and timing. On the Source.—U.S. Dept, of Commerce, Bureau of the Census, Summary export side, the largest adjustments are: (a) the addition of exports to of U.S. Export and Import Merchandise Trade (FT 900). Canada not covered in Census statistics, and (b) the exclusion of military 3.12 U.S. RESERVE ASSETS Millions of dollars; end of period 1976 1977 Type of asset 1973 1974 1975 Aug. Sept. Oct. Nov. Dec. Jan. Feb. 1 Total.................................................... 3 14,378 15,883 16,226 18,586 18,945 19,013 19,416 18,747 19,087 419,122 2 Gold stock, including Exchange 311,652 11,652 11,599 11,598 11,598 11,598 11,598 11,598 11,658 11,658 3 Special Drawing Rights2................... 3 2,166 2,374 2,335 2,325 2,357 2,352 2,365 2,395 2,375 42,383 4 Reserve position in International Monetary Fund............................... 3552 1,852 2,212 3,818 3,952 3,997 4,307 4,434 4,682 4 4,819 5 Convertible foreign currencies.......... 8 5 80 845 1,038 1,066 1,146 320 372 262 1 Gold held under earmark at F.R. Banks for foreign and international 4 Beginning July 1974, the IMF adopted a technique for valuing the accounts is not included in the gold stock of the United States; see 3.24. SDR based on a weighted average of exchange rates for the currencies 2 Includes allocations by the International Monetary Fund of SDR’s of 16 member countries. The U.S. SDR holdings and reserve position in as follows: $867 million on Jan. 1, 1970; $717 million on Jan. 1, 1971; the IMF also are valued on this basis beginning July 1974. At valuation and $710 million on Jan. 1, 1972; plus net transactions in SDR’s. used prior to July 1974 (SDR1 = $1.20635) total U.S. reserve assets 3 Change in par value of U.S. dollar on Oct. 18, 1973 increased total at end of February amounted to $19,325; SDR holdings, $2,487; and reserve assets by $1,436 million, gold stock by $1,165 million, SDR’s reserve position in IMF, $4,918. by $217 million, and reserve position in IMF by $54 million. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A56 International Statistics □ March 1977 3.13 SELECTED U.S. LIABILITIES TO FOREIGNERS Millions of dollars; end of period 1974 1976 1977 Holder, and type of liability 1973 1975 Dec. 9 Aug. r Sept.r Oct.r Nov. Dec.? Jan.? 1 Total.................................................... 92,490 119,240 119,164 126,552 138,769 140,834 143,728 144,643 151,319 147,653 2 Foreign countries................................. 90,487 115,918 115,842 120,929 131,713 133,072 136,093 136,411 142,836 139,709 3 Official institutions1............................ 66,861 76,801 76,823 80,695 86,725 86,085 86,827 87,745 91,833 92,976 4 Short-term, reported by banks in the United States.2................. 43,923 53,057 53,079 49,513 51,246 49,654 49,017 49,273 53,461 54,465 U.S. Treasury bonds and notes: 5 Marketable3................................ 5,701 5,059 5,059 6,671 9,835 10,800 11,027 11,367 11,788 12,017 6 Nonmarketable4......................... 15,564 16,339 16,339 19,976 19,801 19,803 20,876 21,131 20,648 20,622 7 Other readily marketable liabilities 5............................. 1,673 2,346 2,346 4,535 5,843 5,828 5,907 5,974 5,936 5,872 Commercial banks abroad 8 Short-term reported by banks in the United States2,6............... 17,694 30,314 30,106 29,516 32,853 34,641 36,940 35,384 37,436 33,252 9 Other foreigners................................... 5,932 8,803 8,913 10,718 12,135 12,346 12,326 13,282 13,567 13,481 10 Short-term, reported by banks in the United States2.................. 5,502 8,305 8,415 10,017 11,224 11,475 11,399 12,312 12,591 12,479 11 Marketable U.S. Treasury bonds and notes3,7............................. 430 498 498 701 911 871 927 970 976 1,002 12 Nonmonetary international and re­ gional organization s.................... 2,003 3,322 3,322 5,623 7,056 7,762 7,635 8,232 8,483 7,944 13 Short-term, reported by banks in the United States2.......... 1,955 3,171 3,171 5,292 5,649 5,966 5,102 5,506 5,450 4,650 14 Marketable U.S. Treasury bonds and notes3................ 48 151 151 331 1,407 1,796 2,533 2,726 3,033 3,294 1 Includes Bank for International Settlements. 9 Data in the two columns shown for this date differ because of changes 2 Includes Treasury bills as shown in Table 3.15. in reporting coverage. Figures in the first column are comparable in cover­ 3 Derived by applying reported transactions to benchmark data. age with those for the preceding date; figures in the second column are 4 Excludes notes issued to foreign official nonreserve agencies. comparable with those shown for the following date. 5 Includes long-term liabilities reported by banks in the United States and debt securities of U.S. Federally sponsored agencies and U.S. cor­ Note.—Based on Treasury Dept, data and on data reported to the porations. Treasury Dept, by banks (including Federal Reserve banks) and brokers 6 Includes short-term liabilities payable in foreign currencies to com­ in the United States. Data exclude the holdings of dollars of the Inter­ mercial banks abroad and to other foreigners. national Monetary Fund derived from payments of the U.S. subscription, 7 Includes marketable U.S. Treasury bonds and notes held by com­ and from the exchange transactions and other operations of the IMF. mercial banks abroad and other foreigners. Data also exclude U.S. Treasury letters of credit and nonnegotiable, non- 8 Principally the International Bank for Reconstruction and Develop­ interest-bearing special U.S. notes held by nonmonetary international ment and the Inter-American and Asian Development Banks. and regional organizations. 3.14 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars; end of period 1974 1976 1977 Area 1973 1976 Dec. 3 Aug.r Sept.r Oct.r Nov. Dec.? Jan.? 1Total.................................................... 66,861 76,801 76,823 80,695 86,725 86,085 86,827 87,745 91,833 92,976 2 Western Europe 1........................... 45,764 44,328 44,328 45,685 41,507 41,565 41,933 44,075 45,844 45,930 3 Canada............................................ 3,853 3,662 3,662 3,132 3,212 3,417 3,389 2,406 3,406 3,197 4 Latin American republics.............. 2,544 4,419 4,419 4,450 4,374 4,287 4,086 4,087 4,847 4,547 5 Asia.................................................. 10,887 18,604 18,626 22,550 32,634 32,434 33,438 33,906 34,105 35,541 6 Africa.............................................. 788 3,161 3,161 2,984 3,098 2,759 2,415 1,925 1,843 1,707 7 Other countries 2............................ 3,025 2,627 2,627 1,894 1,900 1,623 1,566 1,346 1,788 2,054 1 Includes Bank for International Settlements. 3 See Note 9 to Table 3.13. 2 Includes countries in Oceania and Eastern Europe, and Western European dependencies in Latin America. Note.—Data represent breakdown by area of line 3, Table 3.13. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank-reported Data A57 3.15 SHORT-TERM LIABILITIES TO FOREIGNERS Reported by Banks in the United States By Holder and by Type of Liability Millions of dollars; end of period 1974 1976 1977 Holder, and type of liability 1973 1975 Dec.8 Aug.' Sept.' Oct.' Nov.' Dec.' Jan.p 1 A11 foreigners, excluding the International Monetary Fund............................................... 69,074 94,847 9 A,111 r94,338 100,972 101,736 102,458 102,474 108,938 104,846 2 Payable in dollars............................................... 68,477 94,081 94,004 r93,780 100,303 101,034 101,692 101,693 108,215 104,120 Deposits: 3 Demand...................................................... 11,310 14,068 14,051 13,564 14,193 14,793 14,658 15,811 16,803 15,331 4 Time1.......................................................... 6,882 10,106 9,932 10,348 10,180 10,644 10,546 10,757 11,551 11,450 5 U.S. Treasury bills and certificates 2............. 31,886 35,662 35,662 37,414 40,964 40,119 38,934 38,643 40,744 41,276 6 Other short-term liabilities 3.......................... 18,399 34,246 34,359 32,466 34,966 35,478 37,552 36,484 39,118 36,063 7 Payable in foreign currencies............................. 597 766 766 558 669 702 766 781 724 726 8 Nonmonetary international and regional organizations4................................................. 1,955 3,171 3,171 5,293 5,649 5,966 5,102 5,506 5,450 4,650 9 Payable in dollars............................................... 1,955 3,171 3,171 5,284 5,641 5,692 5,098 5,502 5,445 4,646 Deposits: 10 Demand...................................................... 101 139 139 139 379 331 256 287 290 166 11 Time1.......................................................... 83 111 111 148 148 151 164 199 208 230 12 U.S. Treasury bills and certificates.............. 296 497 497 2,554 3,475 4,031 3,196 3,604 2,701 2,890 13 Other short-term liabilities5.......................... 1,474 2,424 2,424 2,443 1,639 1,449 1,482 1,412 2,247 1,360 14 Payable in foreign currencies............................. 8 8 4 4 4 5 4 15 Official institutions, banks, and other foreigners.. 67,119 91,676 91,600 '89,046 95,323 95,770 97,356 96,969 103,488 100,196 16 Payable in dollars............................................... 66,522 90,910 90,834 '88,497 94,662 95,073 96,594 96,193 102,769 99,474 Deposits: 17 Demand...................................................... 11,209 13,928 13,912 13,426 13,814 14,462 14,402 15,520 16,513 15,165 18 Time1.......................................................... 6,799 9,995 9,821 10,200 10,032 10,493 10,383 10,558 11,343 11,220 19 U.S. Treasury bills and certificates2............ 31,590 35,165 35,165 34,860 37,489 36,086 35,736 35,039 38,042 38,386 20 Other short-term liabilities3.......................... 16,925 31,822 31,935 30,023 33,327 34,029 36,070 35,072 36,871 34,703 21 Payable in foreign currencies............................. 597 766 766 549 661 697 762 776 719 722 22 Official institutions6............................................... 43,923 53,057 53,079 49,513 51,246 49,654 49,017 49,273 53,461 54,465 23 Payable in dollars............................................... 43,795 52,930 52,952 49,513 51,246 49,654 49,017 49,273 53,461 54,465 Deposits: 24 Demand...................................................... 2,125 2,951 2,951 2,644 2,380 2,544 2,706 2,685 3,394 2,931 25 Time1.......................................................... 3,911 4,257 4,167 3,423 2,207 2,144 2,Ml 2,149 2,335 2,456 26 U.S. Treasury bills and certificates2............. 31,511 34,656 34,656 34,182 36,974 35,651 35,241 34,656 37,675 38,031 27 Other short-term liabilities5.......................... 6,248 11,066 11,178 9,264 9,685 9,314 8,943 9,783 10,057 11,047 28 Pavahle in foreien currencies___________________ 127 127 127 29 Banks and other foreigners.................................... 23,196 38,619 38,520 '39,533 44,077 46,115 48,339 47,696 50,027 45,888 30 Payable in dollars............................................... 22,727 37,980 37,881 '38,984 44, 738 45,418 47,577 48,472 49,308 45,166 31 Banks7............................................................ 17,224 29,676 29,467 28,966 32,192 33,944 36,178 34,608 36,717 32,687 Deposits: 32 Demand.................................................. 6,941 8,248 8,231 7,534 7,929 8,233 8,361 8,897 9,104 8,492 33 Time1...................................................... 529 1,942 1,910 1,942 2,206 2,578 2,291 1,949 2,484 2,086 34 U.S. Treasury bills and certificates........... 11 232 232 335 162 176 223 174 169 172 35 Other short-term liabilities3...................... 9,7 43 19,254 19,094 19,155 21,895 22,956 25,303 23,589 24,960 21,937 36 Other foreigners............................................. 5,502 8,304 8,414 '10,017 11,223 11,475' 11,399 12,312 12,591 12,479 Deposits: 37 Demand.................................................. 2,143 2,729 2,730 3,248 3,505 3,686 3,335 3,943 4,015 3,742 38 Time1...................................................... 2,359 3,796 3,744 '4,823 5,618 5,771 5,965 6,461 6,524 6,678 39 U.S. Treasury bills and certificates........... 68 277 277 342 353 259 274 209 198 183 40 Other short-term liabilities5...................... 933 1,502 1,664 1,605 1,747 1,759 1,824 1,700 1,854 1,876 41 Payable in foreign currencies............................. 469 639 639 549 661 697 762 776 719 722 1 Excludes negotiable time certificates of deposit, which are included 6 Foreign central banks and foreign central governments and their in “Other short-term liabilities.” agencies, and Bank for International Settlements. 2 Includes nonmarketable certificates of indebtedness and Treasury 7 Excludes central banks, which are included in “Official institutions.” bills issued to official institutions of foreign countries. 8 Data in the two columns shown for this date differ because of changes 3 Includes liabilities of U.S. banks to their foreign branches, liabilities in reporting coverage. Figures in the first column are comparable with of U.S. agencies and branches of foreign banks to their head offices and those for the preceding date; figures in the second column are comparable foreign branches of their head offices, bankers acceptances, commercial with those shown for the following date. paper, and negotiable time certificates of deposit. 4 Principally the International Bank for Reconstruction and Develop­ Note.—“Short-term obligations” are those payable on demand, or ment, and the Inter-American and Asian Development Banks. having an original maturity of 1 year or less. 5 Principally bankers acceptances, commercial paper, and negotiable time certificates of deposit. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A58 International Statistics □ March 1977 3.16 SHORT-TERM LIABILITIES TO FOREIGNERS Reported by Banks in the United States By Country Millions of dollars; end of period 1974 1976 1977 Area and country 1973 1975 ' Dec. 7 Aug.r Sept.r Oct.r Nov.r Dec.r Jan.p 1 69,074 94,847 94,771 '94,338 100,972 101,736 102,458 102,475 108,938 104,846 2 Foreign countries.................................................... 67,119 91,676 91,600 89,046 95,323 95,770 97,356 96,969 103,488 100,196 3 Europe................................................................... 40,742 48,667 48,813 43,988 39,002 40,177 39,967 42,480 46,915 43,597 4 Austria............................................................ 161 607 607 754 412 335 334 332 348 373 5 Belgium-Luxembourg.................................... 1,483 2,506 2,506 2,898 1,976 1,946 1,879 2,085 2,268 2,376 6 Denmark........................................................ 659 369 369 332 439 317 372 416 363 419 7 Finland............................................................ 165 266 266 391 435 415 407 378 419 389 8 France............................................................. 3,483 4,287 4,287 7,733 4,222 4,363 4,409 4,642 4,875 4,701 9 Germany......................................................... 13,227 9,420 9,429 4,357 4,738 5,964 6,532 5,418 5,965 5,303 10 Greece............................................................. 389 248 248 284 350 336 405 378 403 421 11 Italy................................................................. 1,404 2,617 2,577 1,072 2,641 1,574 1,583 2,884 3,206 2,858 12 Netherlands.................................................... 2,886 3,234 3,234 3,411 2,189 2,566 2,534 2,694 3,007 2,829 13 Norway........................................................... 965 1,040 1,040 996 684 789 690 740 785 566 14 Portugal.......................................................... 534 310 310 195 257 193 177 206 239 172 15 Spain............................................................... 305 382 382 426 419 540 506 478 565 494 16 Sweden............................................................ 1,885 1,138 1,138 2,;86 2,227 1,979 1,295 1,420 1,693 1,613 17 Switzerland..................................................... 3,377 9,986 10,139 8,514 9,250 9,016 8,331 8,846 9,453 9,570 18 Turkey............................................................ 98 152 152 118 100 65 74 88 166 85 19 United Kingdom............................................ 6,148 7,559 7,584 6,886 6,143 7,296 7,953 8,401 10,001 8,831 20 Yugoslavia...................................................... 86 183 183 126 142 128 131 147 188 113 21 Other Western Europe1................................. 3,352 4,073 4,073 2,970 2,130 2,103 2,089 2,639 2,661 2,263 22 U.S.S.R........................................................... 22 82 82 40 34 70 80 84 51 47 23 Other Eastern Europe................................... 110 206 206 200 215 182 184 203 255 172 24 Canada................................................................ 3,627 3,517 3,520 3,076 3,805 4,796 4,033 3,944 4,784 4,519 25 Latin America.................................................... 7,664 12,038 11,754 r14,942 17,600 17,490 19,065 17,684 19,009 17,745 26 Argentina........................................................ 924 886 886 1,147 1,510 1,437 1,374 1,293 1,538 1,648 27 Bahamas.......................................................... 852 1,448 1,054 1,827 3,006 2,628 4,817 2,654 2,789 1,974 28 Brazil............................................................... 860 1,034 1,034 1,227 1,200 1,132 1,323 1,168 1,432 1,292 29 Chile................................................................ 158 276 276 317 298 325 298 315 335 325 30 Colombia........................................................ 247 305 305 417 772 767 804 922 1,017 1,110 31 Cuba................................................................ 7 7 7 6 7 6 6 6 6 6 32 Mexico............................................................ 1,296 1,770 1,770 '2,066 2,287 2,348 2,475 2,860 2,848 2,710 33 Panama........................................................... 282 488 510 1,099 1,387 912 866 1,188 1,140 909 34 Peru................................................................. 135 272 272 244 239 236 247 243 256 244 35 Uruguay.......................................................... 120 147 165 172 226 244 233 238 245 250 36 Venezuela........................................................ 1,468 3,413 3,413 3,289 3,092 3,208 2,644 3,009 3,060 2,966 37 Other Latin American republics................... 884 1,316 1,316 1,494 1,703 1,750 1,676 1,740 2,062 2,033 38 Netherlands Antilles2.................................... 71 158 158 129 149 147 160 157 140 151 39 Other Latin America..................................... 359 519 589 1,507 1,723 2,348 2,142 1,890 2,141 2,126 40 Asia..................................................................... 10,839 21,073 21,130 21,539 29,360 28,406 29,745 28,982 28,460 29,788 41 China, People’s Republic of (Mainland)__ 38 50 50 123 45 45 48 59 47 307 42 China, Republic of (Taiwan)........................ 757 818 818 1,025 1,132 1,122 1,182 1,092 985 797 43 Hong Kong.................................................... 372 530 530 623 842 874 887 859 892 941 44 India................................................................ 85 261 261 126 1,047 985 1,048 910 648 510 45 Indonesia........................................................ 133 1,221 1,221 369 1,002 995 1,154 314 340 695 46 Israel................................................................ 327 386 389 386 324 300 310 325 385 430 47 Japan.............................................................. 6,967 10,897 10,931 10,218 14,194 14,424 14,663 14,736 14,380 14,480 48 Korea.............................................................. 195 384 384 390 369 350 366 324 437 448 49 Philippines...................................................... 515 747 747 698 653 622 582 606 627 603 50 Thailand.......................................................... 247 333 333 252 248 215 223 244 275 301 51 Middle East oil-exporting countries3........... 4,633 4,623 6,461 8,127 7,198 7,741 8,124 8,073 9,029 52 Other4............................................................. 1,202 813 844 867 1,376 1,276 1,539 1,388 1,372 1,245 53 Africa.................................................................. 1,056 3,551 3,551 3,373 3,469 3,076 2,782 2,281 2,300 2,207 54 Egypt.............................................................. 35 103 103 343 200 186 213 171 333 209 55 Morocco......................................................... 11 38 38 68 107 80 85 72 88 97 56 South Africa................................................... 114 130 130 169 164 165 183 132 143 211 57 Zaire................................................................ 87 84 84 63 36 37 45 64 35 48 58 Oil-exporting countries5................................ 2,814 2,814 2,239 2,368 2,075 1,732 1,321 1,115 1,033 59 Other4............................................................. 808 383 383 491 593 532 524 521 586 609 60 Other countries................................................... 3,190 2,831 2,831 2,128 2,087 1,824 1,763 1,598 2,019 2,339 61 Australia......................................................... 3,131 2,742 2,742 2,014 1,964 1,711 1,645 1,486 1,911 2,224 62 All other......................................................... 59 89 89 114 122 114 119 112 108 116 63 Nonmonetary international and regional organizations....................................................... 1,955 3,171 3,171 5,293 5,649 5,966 5,102 5,506 5,450 4,650 64 International...................................................... 1,627 2,900 2,900 5,064 5,285 5,613 4,717 5,109 5,091 4,300 65 Latin American regional................................... 272 202 202 187 168 154 182 160 136 160 66 Other regional6.................................................. 57 69 69 42 196 199 203 237 223 190 For notes see bottom of p. A59. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank-reported Data A59 3.17 SHORT-TERM LIABILITIES TO FOREIGNERS Reported by Banks in the United States Supplemental “Other” Countries 1 Millions of dollars; end of period 1974 1975 1976 1974 1975 1976 Area and country Area and country Apr. Dec. Apr. Dec. Apr. Apr. Dec. Apr Dec. Apr. Other Western Europe: Other Asia: 1 Cyprus........................ 10 7 17 6 25 Afghanistan................. 11 18 19 41 54 2 Iceland....................... 11 21 20 33 26 Bangladesh................... 12 21 50 54 3 Ireland, Republic of.. 53 29 29 75 39 27 Burma.......................... 42 65 49 31 34 28 Cambodia.................... 4 4 4 4 Other Eastern Europe: 29 Jordan.......................... 6 22 30 39 20 4 Bulgaria................................... 6 36 13 19 13 30 Laos............................. 3 3 5 2 2 5 Czechoslovakia....................... 19 34 11 32 10 31 Lebanon....................... 68 126 180 117 6 German Democratic Republic 3 36 18 17 3 32 Malaysia...................... 40 63 92 77 105 7 Hungary................................... 8 14 11 13 10 33 Nepal........................... 21 25 22 28 34 8 Poland..................................... 36 55 42 66 65 34 Pakistan....................... 108 91 118 74 89 9 Rumania.................................. 16 25 14 44 28 35 Singapore..................... 165 245 215 256 36 Sri Lanka (Ceylon).... 13 14 13 13 9 Other Latin American republics: 37 Vietnam....................... 98 126 70 62 33 10 Bolivia................................... 102 96 93 110 104 11 Costa Rica............................. 88 118 120 124 69 Other Africa: 12 Dominican Republic............ 137 128 214 169 149 38 Ethiopia (incl. Eritrea) 118 95 76 60 70 13 Ecuador................................. 90 122 157 120 39 Ghana.......................... 22 18 13 23 14 El Salvador............................ 129 129 144 171 i28 40 Ivory Coast................. 13 7 11 62 15 Guatemala............................. 245 219 255 260 177 41 Kenya........................... 20 31 32 19 37 16 Haiti....................................... 28 35 34 38 33 42 Liberia......................... 29 39 33 53 61 17 Honduras............................... 71 88 92 99 69 43 Southern Rhodesia___ 1 2 3 1 1 18 Jamaica.................................. 52 69 62 41 49 44 Sudan........................... 2 4 14 12 17 19 Nicaragua.............................. 119 127 125 133 89 45 Tanzania...................... 12 11 21 30 18 20 Paraguay............................... 40 46 38 43 43 46 Tunisia......................... 17 19 23 29 33 21 Surinam2............................... 12 47 Uganda........................ 11 13 38 22 22 Trinidad and Tobago........... 21 107 31 131 48 Zambia......................... 66 22 18 78 Other Latin America: All Other: 23 Bermuda.................. 201 116 100 170 49 New Zealand............... 33 47 36 42 29 24 British West Indies. 354 449 627 1,311 1 Represents a partial breakdown of the amounts shown in the “Other” 2 Surinam included with Netherlands Antilles until January 1976. categories on Table 3.16. 3.18 LONG-TERM LIABILITIES TO FOREIGNERS Reported by Banks in the United States Millions of dollars; end of period 1976 1977 Holder, and area or country 1973 1974 1975 July r Aug.r Sept.r Oct.r Nov.r Dec.*3 Jan .p 1 Total....................................................................... 1,462 1,285 1,812 2,271 2,242 2,206 2,315 2,310 2,393 2,349 2 Nonmonetary international and regional organizations....................................................... 761 822 415 235 246 214 333 308 261 264 3 Foreign countries.................................................... 700 464 1,397 2,026 1,991 1,991 1,962 2,003 2,132 2,085 X Official institutions, including central banks. .. 310 124 931 1,454 1,402 1,386 1,314 1,313 1,352 1,242 5 Banks, excluding central banks........................ 291 261 364 438 445 446 499 524 585 620 5 Other foreigners................................................. 100 79 100 143 149 159 170 165 194 224 Area or country: 7 Europe................................................................ 470 226 330 451 457 458 489 507 525 571 8 Germany......................................................... 159 146 214 307 311 312 310 309 313 313 ? United Kingdom............................................ 66 59 66 85 88 87 99 125 132 157 O Canada................................................................ 8 19 23 26 26 26 26 26 29 31 1 Latin America................................................ 132 115 140 117 122 125 151 152 230 244 2 Middle East oil-exporting countries1............... 94 894 1,423 1,369 1,340 1,286 1,239 1,251 1,166 3 Other Asia2.................................................... 82 7 8 17 19 41 27 77 96 68 X African oil-exporting countries3....................... * * * * * * * * * 5 Other Africa4..................................................... 1 1 1 1 1 1 1 1 1 2 5 All other countries............................................. 7 * * 1 1 1 1 1 1 4 1 Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, 4 Includes African oil-exporting countries until December 1974. and United Arab Emirates (Trucial States). 2 Includes Middle East oil-exporting countries until December 1974. Note.—Long-term obligations are those having an original maturity 3 Comprises Algeria, Gabon, Libya, and Nigeria. of more than 1 year. NOTES TO TABLE 3.16: 1 Includes Bank for International Settlements. 6 Asian, African, and European regional organizations, except BIS, 2 Surinam included with Netherlands Antilles until January 1976. which is included in “Other Western Europe.” 3 Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, 7 Data in the two columns shown for this date differ because of changes and United Arab Emirates (Trucial States). in reporting coverage. Figures in the first column are comparable with 4 Includes oil-exporting countries until December 1974. • those shown for the preceding date; figures in the second column are 5 Comprises Algeria, Gabon, Libya, and Nigeria. comparable with those shown for the following date. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A60 International Statistics □ March 1977 3.19 SHORT-TERM CLAIMS ON FOREIGNERS Reported by Banks in the United States By Country Millions of dollars; end of period 1976 1977 Area and country 1973 1974 1975 ^ July r Aug.r Sept.r Oct.r Nov.r Dec.?5 Jan.p 1 20,723 39,056 50,231 59,316 58,014 60,317 60,986 63,890 68,885 63,663 2 Foreign countries.................................................... 20,723 39,055 50,229 59,308 58,002 60,305 60,981 63,884 68,880 63,656 3 Europe................................................................. 3,970 6,255 8,987 9,995 9,479 9,436 10,435 10,797 12,082 10,441 4 Austria............................................................ 11 21 15 24 24 47 42 54 44 41 5 Belgium-Luxembourg.................................... 147 384 352 555 465 437 504 501 662 554 6 Denmark........................................................ 48 46 49 68 50 57 64 129 85 72 7 Finland............................................................ 108 122 128 133 176 129 137 136 141 137 8 France............................................................. 621 673 1,471 1,100 929 1,169 1,096 1,098 1,448 1,246 9 Germany......................................................... 311 589 436 430 412 498 585 577 563 512 10 Greece............................................................. 35 64 49 70 68 117 88 76 79 81 11 Italy................................................................. 316 345 370 644 617 648 733 877 929 875 12 Netherlands.................................................... 133 348 300 253 268 256 399 240 304 246 13 Norway........................................................... 72 119 71 74 78 68 79 85 98 124 14 Portugal.......................................................... 23 20 16 53 57 55 46 53 65 80 15 Spain............................................................... 222 196 249 302 239 265 264 304 429 362 16 Sweden........................................................... 153 180 167 97 143 106 101 93 111 112 17 Switzerland..................................................... 176 335 237 374 442 417 499 511 412 539 18 Turkey............................................................ 10 15 86 81 77 80 125 140 183 199 19 United Kingdom............................................ 1,459 2,580 4,718 5,435 5,167 4,844 5,376 5,591 6,068 4,864 20 Yugoslavia...................................................... 10 22 38 45 40 28 37 38 45 60 21 Other Western Europe.................................. 25 22 27 42 50 56 54 58 56 57 22 U.S.S.R........................................................... 46 46 103 69 53 52 83 103 99 82 23 Other Eastern Europe.................................... 44 131 108 147 125 107 123 134 135 200 24 Canada............................................................... 1,955 2,776 2,817 3,027 3,050 3,169 3,129 3,136 3,100 2,944 25 Latin America.................................................... 5,900 12,377 20,532 28,461 27,607 30,042 29,275 31,580 33,898 31,447 26 Argentina........................................................ 499 720 1,203 1,149 1,149 961 902 858 962 924 27 Bahamas......................................................... 883 3,405 7,570 12,367 11,519 14,192 12,587 14,594 15,205 13,901 28 Brazil............................................................... 900 1,418 2,221 2,633 2,772 2,891 3,125 3,259 3,383 3,456 29 Chile............................................................... 151 290 360 364 352 343 350 358 396 370 30 Colombia........................................................ 397 713 689 537 501 459 517 523 575 593 31 Cuba............................................................... 12 14 13 13 13 13 13 14 13 13 32 Mexico............................................................ 1,373 1,972 2,80! 3,561 3,559 3,457 3,211 3,285 3,414 3,356 33 Panama........................................................... 274 505 1,052 697 778 809 1,119 781 1,021 770 34 Peru................................................................. 178 518 583 665 666 694 638 629 690 731 35 Uruguay.......................................................... 55 63 51 31 31 28 28 35 38 41 36 Venezuela........................................................ 518 704 1,086 1,237 1,503 1,305 1,338 1,512 1,552 1,296 37 Other American republics............................. 493 852 967 1,059 978 1,112 1,037 1,068 1,140 1,132 38 Netherlands Antilles1.................................... 13 62 49 28 29 42 41 43 40 45 39 Other Latin America..................................... 154 1,142 1,885 4,121 3,759 3,737 4,369 4,620 5,469 4,821 40 8,224 16,226 16,057 15,898 15,832 15,695 16,099 16,365 17,765 16,687 41 China, People’s Republic of (Mainland) . . . 31 4 22 12 4 4 5 3 3 4 42 China, Republic of (Taiwan)........................ 140 500 736 908 939 981 991 1,099 987 1,028 43 Hong Kong.................................................... 147 223 258 296 251 252 208 267 361 229 44 India............................................................... 16 14 21 36 36 33 64 48 41 28 45 Indonesia........................................................ 88 157 102 125 108 119 117 120 76 54 46 Israel............................................................... 155 255 491 269 257 313 320 330 554 352 47 Japan............................................................... 6,398 12,518 10,776 10,340 10,116 10,220 10,534 10,428 10,992 10,581 48 Korea............................................................. 403 955 1,561 1,614 1,551 1,594 1,555 1,577 1,722 1,700 49 Philippines...................................................... 181 372 384 389 459 472 478 495 559 586 50 Thailand.......................................................... 273 458 499 465 437 434 415 414 422 421 51 Middle East oil-exporting countries2........... 330 524 780 836 721 765 1,082 1,312 994 52 Other3............................................................. 392 441 684 665 838 553 647 503 735 710 53 Africa................................................................. 388 855 1,228 1,310 1,395 1,332 1,382 1,394 1,486 1,519 54 Egypt.............................................................. 35 111 101 117 115 114 106 109 132 151 55 Morocco......................................................... 5 18 9 18 15 17 8 14 13 19 56 South Africa................................................... 129 329 545 698 695 691 772 748 763 798 57 Zaire............................................................... 61 98 34 24 24 23 14 25 29 16 58 Oil-exporting countries4................................ 115 231 185 268 176 215 213 256 238 59 Other3............................................................. 158 185 308 269 278 312 267 284 293 297 60 Other countries................................................... 286 565 609 617 638 631 661 612 549 617 61 Australia......................................................... 243 466 535 542 553 521 558 502 450 512 62 All other......................................................... 43 99 73 74 85 110 103 110 99 105 63 Nonmonetary international and regional ' organizations...................................................... 1 * 1 8 12 12 5 6 5 7 1 Includes Surinam until January 1976. 3 Includes oil-exporting countries until December 1974. 2 Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, 4 Comprises Algeria, Gabon, Libya, and Nigeria, and United Arab Emirates (Trucial States). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank-reported Data A61 3.20 SHORT-TERM CLAIMS ON FOREIGNERS Reported by Banks in the United States By Type of Claim Millions of dollars; end of period 1976 1977 Type 1973 1974 1975 July ' Aug.' Sept.' Oct.' Nov.' Dec.p Jan.? 1 Total....................................................................... 20,723 39,056 '50,231 59,316 58,014 60,317 60,986 63,890 68,885 63,663 2 Payable in dollars.................................................. 20,061 37,859 '48,902 57,859 59,556 58,661 59,330 62,085 67,240 61,947 3 Loans, total............................................................ 7,660 '11,291 '13,205 15,586 15,270 14,914 16,221 16,191 18,357 16,143 4 Official institutions, including central banks........ 284 381 613 730 1,009 781 1,055 1,269 1,451 1,250 5 Banks, excluding central banks........................ 4,538 '7,332 '7,665 9,660 9,060 9,003 10,015 9,639 11,091 9,378 6 All other, including nonmonetary interna­ tional and regional organizations................. 2,838 3,579 '4,926 5,196 5,202 5,130 5,151 5,282 5,814 5,516 7 Collections oustanding...................................... 4,307 5,637 5,467 5,542 5,495 5,746 5,586 5,628 5,846 5,834 8 Acceptances made for accounts of foreigners... 4,160 11,237 11,147 11,451 11,144 11,213 11,461 11,422 12,367 12,021 9 Other claims1..................................................... 3,935 9,689 '19,082 25,280 24,562 26,789 26,015 28,843 30,670 27,949 10 Payable in foreign currencies................................. 662 1,196 1,329 1,457 1,542 1,656 1,704 1,805 1,645 1,716 11 Deposits with foreigners.................................... 428 669 656 850 903 1,029 1,052 1,084 1,063 1,113 12 Foreign government securities, commercial and finance paper.......................................... 119 289 301 132 143 120 102 85 84 145 13 Other claims....................................................... 115 238 372 475 496 507 550 635 498 458 1 Includes claims of U.S. banks on their foreign branches and claims made to, and acceptances made for, foreigners; drafts drawn against of U.S. agencies and branches of foreign banks on their head offices and foreigners, where collection is being made by banks and bankers for foreign branches of their head offices. their own account or for account of their customers in the United States; and foreign currency balances held abroad by banks and bankers and Note.—Short-term claims are principally the following items payable their customers in the United States. Excludes foreign currencies held on demand or with a contractual maturity of not more than 1 year: loans by U.S. monetary authorities. 3.21 LONG-TERM CLAIMS ON FOREIGNERS Reported by Banks in the United States Millions of dollars outstanding; end of period 1976 1977 Type, and area or country 1973 1974 1975 July1' Aug.' Sept.' Oct.' Nov.' Dec.? Jan.? 1 5,996 7,179 9,540 10,385 10,955 11,205 11,345 11,612 11,675 11,686 By type: 2 Payable in dollars................................................... 5,924 7,099 9,423 10,252 10,822 11,063 11,206 11,465 11,527 11,536 3 Loans, total........................................................ 5,446 6,490 r8,316 8,867 9,357 9,551 9,670 9,837 9,921 9,925 4 Official institutions, including central banks 1,156 1,324 1,350 1,321 1,338 1,312 1,323 1,364 1,420 1,402 5 Banks, excluding central banks..................... 591 929 1,567 1,850 1,979 2,039 2,115 2,164 2,202 2,185 6 All other, including nonmonetary interna­ tional and regional organizations............. 3,698 4,237 5,399 5,695 6,040 6,201 6,232 6,308 6,298 6,338 7 Other long-term claims......................................... 478 609 '1,107 1,386 1,465 1,512 1,536 1,628 1,606 1,611 8 Payable in foreign currencies................................. 72 80 116 133 133 142 139 147 148 150 By area or country: 9 Europe................................................................ 1,271 1,908 2,708 2,871 3,093 3,133 3,191 3,285 3,236 3,303 10 Canada............................................................... 490 501 555 575 592 623 570 590 586 520 11 Latin America.................................................... 2,116 2,614 3,468 4,102 4,382 4,519 4,565 4,694 4,806 4,877 12 Asia..................................................................... 1,582 1,619 1,795 1,810 1,835 1,856 1,901 1,885 1,886 1,839 13 Japan............................................................... 251 258 296 337 355 370 381 368 391 387 14 Middle East oil-exporting countries1........... 384 220 183 187 171 171 141 146 117 15 Other Asia2.................................................... 1,331 977 1,279 1,290 1,667 1,315 1,349 1,376 1,349 1,335 16 Africa.................................................................. 355 366 747 742 771 800 839 888 883 852 17 Oil-exporting countries3................................ 62 151 212 226 236 259 269 264 201 18 Other 4............................................................. 355 305 596 530 545 564 580 619 619 651 19 All other countries5........................................... 181 171 267 245 239 233 281 226 234 251 1 Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, 3 Comprises Algeria, Gabon, Libya, and Nigeria. and United Arab Emirates (Trucial States). 4 Includes oil-exporting countries until December 1974. 2 Includes Middle East oil-exporting countries until December 1974. 5 Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A 62 International Statistics □ March 1977 3.22 FOREIGN BRANCHES OF U.S. BANKS Balance Sheet Data Millions of dollars; end of period 1976 Asset account 1973 1974 1975 Juner July r Aug.r Sept.r Oct.r Nov. Dec.p All foreign countries 1 Total, all currencies............................ 121,866 151,905 176,493 194,554 196,865 196,174 199,843 206,383 207,372 219,542 2 Claims on United States................... 5,091 6,900 6,743 6,618 8,709 6,980 6,628 9,939 7,557 7,908 3 Parent bank................................. 1,886 4,464 3,665 3,277 5,575 3,934 3,248 6,834 4,280 4,390 4 Other............................................ 3,205 2,435 3,078 3,341 3,134 3,046 3,381 3,105 3,276 3,518 5 Claims on foreigners.......................... 111,974 138,712 163,391 181,307 181,323 182,499 186,192 189,317 192,609 204,597 6 Other branches of parent bank 19,177 27,559 34,508 41,010 41,738 41,000 41,174 41,812 42,729 46,566 7 Other banks................................. 56,368 60,283 69,206 74,402 71,762 71,802 74,796 76,152 77,179 83,417 8 Official institutions..................... 2,693 4,077 5,792 7,814 8,444 8,766 9,208 9,205 9,540 10,598 9 Nonbank foreigners................... 33,736 46,793 53,886 58,080 59,379 60,932 61,015 62,148 63,162 64,016 10 Other assets.................................... 4,802 6,294 6,359 6,629 6,834 6,695 7,022 7,128 7,206 7,037 11 Total payable in U.S. dollars............. 79,445 105,969 132,901 146,034 149,124 147,245 150,434 156,031 156,364 167,961 12 Claims on United States................... 4,599 6,603 6,408 6,301 8,440 6,666 6,269 9,595 7,214 7,614 13 Parent bank................................. 1,848 4,428 3,628 3,208 5,530 3,895 3,184 6,790 4,218 4,330 14 Other............................................ 2,751 2,175 2,780 3,093 2,910 2,771 3,085 2,805 2,996 3,284 15 Claims on foreigners.......................... 73,018 96,209 123,496 136,663 137,293 137,374 140,919 143,083 145,837 157,149 16 Other branches of parent bank.. 12,799 19,688 28,478 32,890 33,843 33,009 33,358 34,051 34,382 38,521 17 Other banks................................. 39,527 45,067 55,319 58,856 56,597 56,422 58,877 59,316 60,246 66,100 18 Official institutions..................... 1,777 3,289 4,864 6,611 7,148 7,606 7,906 7,885 8,289 9,007 19 Nonbank foreigners................... 18,915 28,164 34,835 38,306 39,705 40,337 40,779 41,831 42,920 43,521 20 Other assets.................................... 1,828 3,157 2,997 3,070 3,392 3,206 3,246 3,353 3,314 3,198 United Kingdom 21 Total, all currencies......................... 61,732 69,804 74,883 74,460 73,494 73,229 73,589 76,854 77,249 81,450 22 Claims on United States................ 1,789 3,248 2,392 1,702 1,862 1,758 2,036 3,256 3,426 3,355 23 Parent bank.............................. 738 2, All 1,449 802 1,002 938 1,081 2,413 2,538 2,376 24 Other.......................................... 1,051 776 943 900 860 821 955 843 888 979 25 Claims of foreigners........................ 57,761 64,111 70,331 70,526 69,359 69,298 69,217 71,162 71,477 75,842 26 Other branches of parent bank 8,773 12,724 17,557 18,143 18,843 18,044 17,745 18,358 17,949 19,737 27 Other banks............................... 34,442 32,701 35,904 35,799 33,589 34,135 34,405 35,336 35,846 38,089 28 Official institutions.................. 735 788 881 888 909 1,007 1,138 1,211 1,168 1,274 29 Nonbank foreigners................. 13,811 17,898 15,990 15,695 16,018 16,112 15,929 16,257 16,514 16,742 30 Other assets.................................. 2,183 2,445 2,159 2,233 2,273 2,173 2,335 2,436 2,345 2,253 31 Total payable in U.S. dollars........... 40,323 49,211 57,361 55,360 54,871 54,522 54,547 57,161 57,699 61,571 32 Claims on United States................ 1,642 3,146 2,273 1,614 1,780 1,658 1,902 3,124 3,313 3,276 33 Parent bank.............................. 730 2,468 1,445 795 991 934 1,064 2,406 2,523 2,374 34 Other............................................. 912 678 828 819 783 724 838 719 789 903 35 Claims on foreigners...................... 37,817 44,694 54,121 52,900 52,250 52,006 51,782 53,112 53,541 57,471 36 Other branches of parent bank 6,509 10,265 15,645 15,455 16,204 15,401 15,195 15,829 15,405 17,233 37 Other banks.............................. 23,389 23,716 28,224 27,066 25,370 25,826 25,866 26,421 27,008 28,983 38 Official institutions.................. 510 610 648 631 659 799 862 912 817 846 39 Nonbank foreigners................. 7,409 10,102 9,604 9,747 10,018 9,980 9,859 9,950 10,311 10,409 40 Other assets.................................. 865 1,372 967 846 841 858 863 925 845 824 Bahamas and Caymans 41 Total, all currencies............................ 23,771 31,733 45,203 57,118 59,913 57,677 60,753 63,508 61,758 67,144 4 4 4 3 2 4 Cl P a O i a m t r h e s e n r o t . n . b . .. U a .. n n .. k . i . t . . e . . . d . . . . . . S . . . . . t . . a . . . . t . . e . . . . s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1 , , 2 8 3 1 9 1 3 0 7 2 1 1 , , , 4 0 3 8 6 8 1 3 4 3 I 1 , , , 2 7 A 2 5 l 9 2 l 3 2 1 , , , 0 7 6 8 3 1 1 6 6 5 3 1 , , , 8 8 97 3 6 1 4 5 3 1 1 , , , 5 6 9 4 5 1 1 3 4 3 2 1 , , , 0 3 2 7 3 5 2 0 7 5 3 1 , , , 4 9 4 7 6 9 3 0 4 2 2 , , 8 1 7 2 9 6 6 2 6 3 2 1 , , , 3 4 0 2 1 9 3 5 8 4 4 4 4 4 5 6 7 8 9 Cl N a O O O i f m o t t f h h n i s e e c b i r r o a a n l b b n r a f i k a n o n n r s f k e t c o s i i h r t . g u e . e . n i s . t . g i e . o o . r n . s n . f e . . s . r . p . . . s . . a . . . . . . . . r . . . . . e . . . . . . . . n . . . . . . . . t . . . . . . . . . b . . . . . . . . . a . . . . . . . n . . . . . . . . . k . . . . . . . 2 9 1 8 1 1 , , , , , 8 0 0 9 1 9 4 5 6 2 5 1 1 8 8 2 1 1 2 8 3 1 1 , , , , , 0 4 4 3 5 2 7 5 5 9 8 2 3 4 9 4 1 1 5 3 1 6 5 , , , , , 4 5 0 2 7 1 7 4 9 5 1 6 8 6 0 5 2 1 7 5 1 2 8 , , , , , 2 2 1 3 7 0 5 6 6 4 5 4 0 3 4 5 2 1 7 0 5 2 9 , , , , , 1 6 6 8 3 6 9 8 4 9 1 9 9 9 8 5 2 1 6 5 0 2 9 , , , , , 7 9 2 9 9 9 2 1 3 9 1 9 3 7 5 2 5 2 2 7 6 0 6 , , , , , 2 0 4 4 2 5 4 5 9 5 9 8 7 0 5 5 2 2 6 7 6 2 1 , , , , , 0 2 1 3 8 4 9 3 3 0 6 6 0 4 6 2 2 5 6 7 2 1 7 , , , , , 4 3 4 3 6 8 3 2 8 3 5 8 2 9 4 2 6 2 7 1 5 2 8 , , , , , 1 1 3 8 5 0 6 9 5 1 1 5 5 3 3 50 Other assets.................................. 520 815 933 1,039 1,180 1,190 1,169 1,239 1,232 1,213 51 Total payable in U.S. dollars.......... 21,937 28,726 41,887 53,365 56,076 53,520 56,600 59,219 57,672 63,084 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Overseas Branches A63 3.22 Continued 1976 Liability account 1973 1974 1975 June 1 JT u1l yrr Aug. Sept.r Oct. Nov. Dec.? All foreign countries 1Total, all currencies............................ 121,866 151,905 176,493 194,554 196,865 196,174 199,843 206,383 207,372 219,542 2 To United States............................. 5,610 11,982 20,221 27,897 28,616 27,118 29,978 29,457 30,757 31,428 3 Parent bank................................. 1,642 5,809 12,165 16,430 15,947 16,495 18,957 17,869 19,058 18,067 4 Other............................................ 3,968 6,173 8,057 11,467 12,669 10,623 11,020 11,588 11,699 13,361 5 To foreigners................................... 111,615 132,990 149,815 160,436 161,637 162,711 163,318 170,083 169,862 181,299 6 Other branches of parent bank.. 18,213 26,941 34,111 39,979 41,064 40,071 40,119 41,044 41,650 46,458 7 Other banks................................. 65,389 65,675 72,259 75,537 74,211 74,367 75,054 78,912 77,810 83,308 8 Official institutions..................... 10,330 20,185 22,773 21,635 22,279 23,428 23,731 25,019 23,967 25,828 9 Nonbank foreigners................... 17,683 20,189 20,672 23,285 24,084 24,844 24,414 25,107 26,436 25,705 10 Other liabilities............................... 4,641 6,933 6,456 6,221 6,612 6,346 6,547 6,844 6,753 6,815 11 Total payable in U.S. dollars............. 80,374 107,890 135,907 150,536 153,221 151,788 155,149 160,440 160,824 173,326 12 To United States............................. 5,027 11,437 19,503 27,094 27,848 26,348 29,088 28,683 29,866 30,641 13 Parent bank................................. 1,477 5,641 11,939 16,156 15,691 16,254 18,624 17,633 18,821 17,854 14 Other............................................ 3,550 5,795 7,564 10,938 12,157 10,094 10,464 11,049 11,046 12,787 15 To foreigners................................... 73,189 92,503 112,879 120,178 121,997 122,187 122,677 128,358 127,535 139,088 16 Other branches of parent bank.. 12,554 19,330 28,217 32,760 33,852 32,690 32,921 33,850 33,951 39,189 17 Other banks................................. 43,641 43,656 51,583 54,085 53,573 53,298 53,505 56,302 55,464 60,170 18 Official institutions..................... 7,491 17,444 19,982 19,066 19,625 20,620 20,787 21,910 20,924 22,877 19 Nonbank foreigners................... 9,502 12,072 13,097 14,267 14,947 15,579 15,465 16,296 17,196 16,852 20 Other liabilities............................... 2,158 3,951 3,526 3,263 3,377 3,252 3,383 3,400 3,422 3,597 United Kingdom 21 Total, all currencies............................ 61,732 69,804 74,883 74,460 73,494 73,229 73,589 76,854 77,249 81,450 22 To United States............................. 2,431 3,978 5,646 5,874 5,628 5,266 5,379 5,310 5,520 5,997 23 Parent bank................................. 136 510 2,122 1,562 1,727 1,520 1,442 1,468 1,459 1,198 24 Other............................................ 2,295 3,468 3,523 4,312 3,901 3,746 3,938 3,842 4,061 4,798 25 To foreigners................................... 57,311 63,409 67,240 66,536 65,594 65,883 66,026 69,151 69,368 73,212 26 Other branches of parent bank.. 3,944 4,762 6,494 7,288 6,927 6,668 6,788 6,826 6,783 7,092 27 Other banks................................. 34,979 32,040 32,964 33,313 31,487 30,834 31,015 32,488 33,690 36,243 28 Official institutions..................... 8,140 15,258 16,553 14,825 15,462 16,147 16,389 17,567 16,181 17,273 29 Nonbank foreigners................... 10,248 11,349 11,229 11,110 11,718 12,234 11,834 12,270 12,713 12,605 30 Other liabilities............................... 1,990 2,418 1,997 2,050 2,272 2,080 2,184 2,394 2,360 2,241 31 Total payable in U.S. dollars............. 39,689 49,666 57,820 56,574 55,978 55,701 55,625 58,031 58,757 63,158 32 To United States............................. 2,173 3,744 5,415 5,682 5,443 5,093 5,183 5,152 5,330 5,849 33 Parent bank................................. 113 484 2,083 1,546 1,703 1,498 1,404 1,448 1,447 1,182 34 Other............................................ 2,060 3,261 3,332 4,136 3,740 3,595 3,779 3,704 3,883 4,666 35 To foreigners................................... 36,646 44,594 51,447 50,044 49,691 49,746 49,579 52,017 52,503 56,356 36 Other branches of parent bank.. 2,519 3,256 5,442 6,218 5,878 5,604 5,790 5,742 5,520 5,874 37 Other banks................................. 22,051 20,526 23,330 22,690 21,765 20,910 20,526 21,493 23,040 25,511 38 Official institutions..................... 5,923 13,225 14,498 13,074 13,604 14,296 14,418 15,550 14,283 15,423 39 Nonbank foreigners................... 6,152 7,587 8,176 8,062 8,444 8,936 8,846 9,233 9,660 9,547 40 Other liabilities............................... 870 1,328 959 848 844 862 862 862 924 953 Bahamas and Caymans 41 Total, all currencies............................ 23,771 31,733 45,203 57,118 59,913 57,677 60,753 63,508 61,758 67,144 42 To United States............................. 1,573 4,815 11,147 18,213 19,370 18,237 21,218 20,640 21,144 21,315 43 Parent bank................................. 307 2,636 7,628 12,130 11,611 12,311 15,243 14,000 14,797 14,337 44 Other............................................ 1,266 2,180 3,520 6,083 7,759 5,927 5,975 6,640 6,347 6,978 45 To foreigners................................... 21,747 26,140 32,949 37,817 39,411 38,380 38,411 41,815 39,515 44,692 46 Other branches of parent bank.. 5,508 7,702 10,569 12,117 13,317 12,416 11,854 13,381 12,931 16,085 47 Other banks................................. 14,071 14,050 16,825 19,724 20,350 20,125 20,621 22,240 19,525 21,429 48 Official institutions..................... 492 2,377 3,308 2,917 2,811 2,857 2,712 2,784 3,198 3,573 49 Nonbank foreigners.................... 1,676 2,011 2,248 3,059 2,933 2,982 3,224 3,409 3,861 3,606 50 Other liabilities............................... 451 778 1,106 1,088 1,131 1,059 1,125 1,053 1,099 1,137 51 Total payable in U.S. dollars............. 22,328 28,840 42,197 53,834 56,636 54,154 57,232 59,972 58,244 63,794 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A64 International Statistics □ March 1977 3.23 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Holdings and Transactions Millions of dollars 1976 1977 Country or area 1974 1975 1976 July r Aug.r Sept.r Oct.r Nov. Dec.p Jan.P Holding, end of period4 1 Estimated total... 5,708 7,703 rll,424 r12,153 r13,467 *14,487 '15,063 *15,798 16,313 2 Foreign countries. 5,557 7,372 10,350 10,746 11,671 11,954 12,337 >12,765 13,019 3 Europe.............................. 885 1,085 1,604 1,733 2,024 2,064 2,293 *2,330 2,305 4 Belgium-Luxembourg.. 10 13 11 9 9 13 14 14 14 5 Germany...................... 9 215 221 324 518 535 746 764 764 6 Netherlands................. 6 16 283 283 282 283 288 288 287 7 Sweden......................... 251 276 291 275 240 242 192 191 191 8 Switzerland.................. 30 55 132 171 268 267 291 261 270 9 United Kingdom.......... 493 363 368 383 396 403 433 485 481 10 Other Western Europe. 81 143 294 284 307 317 325 r323 294 11 Eastern Europe............ 5 4 4 4 4 4 4 4 4 12 Canada. 713 395 341 337 386 390 250 256 256 13 Latin America....................... 100 200 203 271 178 160 302 312 315 14 Latin American republics. 12 33 39 39 30 36 177 184 176 15 Netherlands Antilles1. . . . 83 161 157 222 138 113 115 118 125 16 Asia....... 3,709 5,370 7,701 7,883 8,552 8,808 8,950 9,323 9,637 17 Japan. 3,498 3,271 3,077 2,952 3,052 3,093 2,587 2,687 2,692 18 Africa. .. 151 321 501 521 531 531 543 543 506 19 All other. * * * * * * * * * 20 Nonmonetary international and regional organizations..................................... 151 331 *1,073 rl,406 rl,796 "2,533 *•2,726 '3,033 3,294 21 International.................... 97 322 1,065 1,388 1,768 2,504 2,655 2,905 3,180 22 Latin American regional. 53 9 r8 M 8 r28 r28 r71 r 128 114 Transacl:ions, net ■purchases, or sales (; —), durinig period 23 Total................... -472 1,994 r8,095 r815 729 1,315 1,019 577 r735 24 Foreign countries. -573 1,814 r5,393 324 396 925 283 383 '428 25 Official institutions. -642 1,612 5,116 294 316 964 227 340 421 26 Other foreign.......... 69 202 276 31 80 -39 56 43 6 27 Nonmonetary international and regional organizations..................................... 101 180 2,698 r491 333 390 736 193 307 Memo: Oil-exporting countries 28 Middle East 2....................... 1,797 *•3,886 246 228 315 98 630 140 29 Africa3.................................. 170 221 30 20 10 11 1 Includes Surinam until January 1976. 4 Estimated official and private holdings of marketable U.S. Treasury 2 Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, securities with an original maturity of more than 1 year. Data are based and United Arab Emirates (Trucial States). Data not available until 1975. on a benchmark survey of holdings as of Jan. 31, 1971, and monthly 3 Comprises Algeria, Gabon, Libya, and Nigeria. Data not available transactions reports. Excludes nonmarketable U.S. Treasury bonds and until 1975. notes held by official institutions of foreign countries. 3.24 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS Millions of dollars outstanding, end of period 1976 1977 Assets 1973 1974 1975 Aug. Sept. Oct. Nov. Dec. Jan. Feb. 1 Deposits................................................................. 251 418 352 254 393 362 305 352 383 361 Assets held in custody: 2 U.S. Treasury securities1................................... 52,070 55,600 60,019 63,457 64,215 64,942 63,962 66,532 66,992 68,653 3 Earmarked gold2............................................... 17,068 16,838 16,745 16,565 16,590 16,505 16,457 16,414 16,343 16,304 1 Marketable U.S. Treasury bills, certificates of indebtedness, notes, Note.—Excludes deposits and U.S. Treasury securities held for inter­ and bonds; and nonmarketable U.S. Treasury securities payable in dollars national and regional organizations. Earmarked gold is gold held for and in foreign currencies. foreign and international accounts and is not included in the gold stock 2 The value of earmarked gold increased because of the changes in of the United States. par value of the U.S. dollar in May 1972 and in October 1973. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Investment transactions A65 3.25 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1976 1977 Transactions, and area or country 1974 1975 1976 July r Aug.r Sept.r Oct.r Nov. Dec.p Jan.*> U.S. corporate securities3 Stocks: 1 Foreign purchases.............................................. 7,636 15,347 18,227 1,605 1,062 1,124 1,226 977 1,562 1,410 2 Foreign sales...................................................... 7,096 10,678 15,474 1,363 971 1,116 1,321 1,025 1,287 1,139 3 Net purchases, or sales (—)............................... 540 4,669 2,752 242 91 9 -95 -49 274 271 4 Foreign countries................................................ 527 4,651 2,740 244 87 7 -98 -50 281 274 5 Europe............................................................ 281 2,491 336 -32 -15 -60 -251 -118 111 115 6 France.......................................................... 203 262 256 72 28 23 -12 -25 37 27 7 Germany..................................................... 39 251 68 -20 -13 -6 -16 -13 24 1 8 Netherlands................................................ 330 359 -199 -22 -21 -26 -37 -29 -35 23 9 Switzerland.................................................. 36 899 -100 -58 6 -55 -95 -44 -7 40 10 United Kingdom........................................ -377 594 340 5 13 29 -72 -5 84 24 11 Canada............................................................ -6 361 325 55 35 5 18 1 60 5 12 Latin America................................................ -33 -7 155 3 -26 10 -17 25 1 6 n 1,640 1,803 209 92 60 126 64 115 100 14 Other Asia2.................................................... 288 142 117 10 -2 -4 28 -23 9 45 15 Africa.............................................................. -6 10 7 -3 -3 -4 -3 1 2 2 16 Other countries.............................................. 3 15 -4 1 2 * 1 * -17 2 17 Nonmonetary international and regional organizations............................................... 13 18 12 -2 3 2 4 2 -6 -2 Bonds3: 18 Foreign purchases.............................................. 8,571 5,408 5,529 307 411 361 625 355 533 414 19 Foreign sales...................................................... 7,582 4,642 4,322 156 237 375 386 364 524 339 20 Net purchases, or sales (—)............................... 988 766 1,207 151 174 -14 239 -9 9 75 21 Foreign countries................................................ 1,472 1,795 1,248 159 173 -9 203 110 6 71 22 Europe............................................................ 741 113 92 49 29 -16 -10 24 53 3 23 France......................................................... 96 82 49 10 4 -1 -1 5 7 -5 24 Germany..................................................... 33 -6 -50 -3 -3 * 5 4 1 -2 25 Netherlands................................................ 183 -8 -29 4 -3 * -5 3 -20 2 26 Switzerland................................................. 96 117 158 35 16 -7 -2 -3 13 16 27 United Kingdom........................................ 395 -52 23 3 23 7 * 15 54 3 28 Canada............................................................ 45 128 96 2 9 18 -1 16 7 14 29 Latin America................................................ 43 31 94 7 9 5 29 6 27 -5 30 Middle East1.................................................. 1,553 1,179 104 121 18 156 74 -21 59 31 Other Asia2.................................................... 632 -35 -165 -3 5 -15 3 -8 -43 1 32 Africa.............................................................. * 5 -25 1 * -19 -2 -2 -14 * 33 Other countries.............................................. 10 1 -21 * * * * * -2 * 34 Nonmonetary international and regional organizations............................................... -483 -1,030 -41 -8 * —4 64 -119 3 4 Foreign securities 35 Stocks, net purchases, or sales (—)...................... 184 -189 -322 -129 -11 27 -1 -1 4 -10 36 Foreign purchases.............................................. 1,907 1,541 1,937 128 123 126 132 167 217 203 37 Foreign sales...................................................... 1,723 1,730 2,259 257 134 153 133 168 213 213 38 Bonds, net purchases, or sales ( —)....................... -2,218 -6,324 -8,547 -1,748 -478 -427 -367 -400 -1,298 -30 39 Foreign purchases.............................................. 1,036 2,383 4,932 440 333 363 452 455 670 816 40 Foreign sales...................................................... 3,254 8,707 13,479 2,188 811 790 819 855 1,968 846 41 Net purchases, or sales ( —) of stocks and bonds. . -2,034 -6,514 -8,866 -1,877 -489 -454 -369 -402 -1,290 -40 42 Foreign countries.................................................... -1,974 -4,323 -6,968 -1,059 -423 -471 -282 -270 -761 -330 43 Europe................................................................ -546 -53 -835 -130 -60 -145 -37 -10 -139 -10 44 Canada............................................................... -1,508 -3,202 -5,126 -868 -98 -331 -301 -26 -640 -300 45 Latin America.................................................... -93 -306 1 19 47 20 13 -28 37 25 46 Asia..................................................................... 142 -622 -640 -93 -317 -16 34 -10 -24 -53 47 Africa.................................................................. 7 15 48 9 1 * 1 * 2 -1 48 Other countries.................................................. 22 -155 -416 3 3 2 9 -197 3 9 49 Nonmonetary international and regional organizations................................................... -60 -2,192 -1,898 -819 -66 17 -87 -132 -529 290 1 Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, 3 Includes State and local government securities, and securities of U.S. Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates (Trucial Govt, agencies and corporations. Also includes issues of new debt securities States). sold abroad by U.S. corporations organized to finance direct investment 2 Includes Middle East oil-exporting countries until 1975. abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 International Statistics □ March 1977 3.26 SHORT-TERM LIABILITIES TO AND CLAIMS ON FOREIGNERS Reported by Nonbanking Concerns in the United States Millions of dollars; end of period 1974 1975 1976 1974 1975 1976 Type, and area or country Dec. Dec. Mar. June Sept.? Dec. Dec. Mar. June Sept.3* Liabilities to foreigners Claims on foreigners 1 5,927 6,010 6,326 6,301 6,335 11,266 12,172 12,733 13,889 13,220 By type: 2 Payable in dollars............................................... 5,077 5,393 5,659 5,663 5,696 10,241 11,025 11,688 12,895 12,173 3 Payable in foreign currencies............................. 910 617 667 638 639 1,024 1,146 1,045 994 1,048 4 Deposits with banks abroad in reporter’s 473 565 483 501 505 s 551 581 562 493 543 By area or country: 6 Foreign countries.................................................... 5,769 5,734 6,108 6,056 6,149 11,265 12,171 12,732 13,888 13,220 7 Europe................................................................. 3,016 2,338 2,342 2,284 2,282 4,450 4,504 4,946 5,344 5,162 8 Austria............................................................ 20 14 6 13 16 26 16 17 17 21 9 524 299 296 233 181 128 133 116 193 195 10 24 9 12 12 13 42 39 35 30 26 11 Finland........................................................... 16 14 10 7 21 120 91 36 138 139 12 France............................................................. 202 149 205 159 185 428 293 358 365 418 13 Germany........................................................ 313 149 152 228 256 335 355 305 360 489 14 Greece............................................................. 39 19 25 29 28 65 33 41 Al 56 15 Italy................................................................. 124 172 124 115 126 395 380 406 335 357 16 Netherlands.................................................... 117 114 162 170 141 143 167 176 147 141 17 Norway........................................................... 9 20 22 22 24 36 41 58 52 43 18 Portugal.......................................................... 19 4 3 3 5 81 44 45 22 28 19 Spain............................................................... 56 81 68 51 36 367 407 516 432 335 20 Sweden........................................................... 41 29 25 24 35 89 62 80 84 62 21 Switzerland..................................................... 138 130 159 213 239 136 242 207 270 254 22 Turkey............................................................ 8 25 14 20 16 26 27 26 31 23 23 United Kingdom............................................ 1,256 996 928 845 806 1,847 1,905 2,289 2,609 2,370 24 Yugoslavia...................................................... 40 76 91 108 113 22 36 30 28 30 25 Other Western Europe.................................. 5 8 6 7 8 21 14 18 14 17 26 U.S.S.R........................................................... 48 20 23 10 19 91 150 106 96 81 27 Other Eastern Europe................................... 16 11 10 16 14 50 70 80 75 79 28 Canada................................................................ 307 295 316 373 332 1,613 2,109 2,244 2,211 2,224 29 Latin America.................................................... 929 914 1,177 1,073 1,007 2,336 2,369 2,564 3,055 2,814 30 Argentina........................................................ 38 36 41 42 41 67 58 48 43 39 31 Bahamas......................................................... 374 277 376 330 251 594 667 883 1,150 924 32 Brazil.............................................................. 118 96 91 90 53 468 409 475 462 417 33 Chile............................................................... 22 14 11 15 16 106 36 27 46 26 34 Colombia........................................................ 14 17 16 19 11 54 49 Al 57 66 35 Cuba............................................................... * * * * * 1 1 1 1 1 36 Mexico............................................................ 60 82 92 72 74 308 362 331 332 352 37 28 24 17 14 11 132 92 86 103 84 38 Peru................................................................. 14 23 24 26 28 44 41 37 39 35 39 Uruguay......................................................... 2 3 2 3 3 5 4 4 4 22 40 Venezuela........................................................ 49 100 163 184 222 193 178 156 186 215 41 Other Latin American republics................... 83 71 71 95 100 199 160 171 185 180 42 26 35 58 54 68 20 12 7 10 9 43 Other Latin America..................................... 101 138 214 130 129 147 301 292 437 445 44 1,237 1,719 1,699 1,749 2,024 2,326 2,634 2,493 2,729 2,418 45 China, People’s Republic of (Mainland)---- 17 6 5 8 7 17 65 35 23 11 46 China, Republic of (Taiwan)........................ 92 97 110 124 129 138 164 100 215 136 47 Hong Kong.................................................... 19 17 23 28 33 62 110 66 104 83 48 India............................................................... 7 7 9 10 11 37 39 60 51 53 49 Indonesia........................................................ 60 137 137 133 146 92 143 158 166 196 50 Israel............................................................... 50 29 23 28 26 44 54 42 53 48 51 Japan.............................................................. 348 295 307 290 275 1,230 1,130 1,161 1,169 1,008 52 Korea............................................................. 75 69 53 62 83 201 263 105 127 143 53 Philippines...................................................... 25 14 18 18 28 97 96 106 114 93 54 Thailand......................................................... 10 18 18 11 23 24 22 20 19 22 55 Other Asia...................................................... 536 1,031 995 1,038 1,263 384 549 640 691 625 56 Africa................................................................. 193 395 508 532 437 374 414 351 391 422 57 Egypt.............................................................. 3 37 30 22 25 15 22 22 28 36 58 Morocco......................................................... 14 8 7 32 42 7 10 10 12 9 59 South Africa.................................................. 43 100 113 88 65 101 93 78 86 79 60 Zaire............................................................... 18 6 7 12 24 24 28 28 30 33 61 Other Africa.................................................. 115 245 351 377 281 227 261 213 235 267 62 Other countries................................................... 86 73 65 43 67 165 141 133 157 180 63 Australia......................................................... 56 55 47 32 50 116 102 97 101 113 64 All other......................................................... 30 17 18 12 18 49 39 36 56 67 65 Nonmonetary international and regional organizations.................................................. 158 276 219 246 186 * 1 1 1 1 1 Includes Surinam until 1976. mercial concerns and other nonbanking institutions in the United States. Data exclude claims held through U.S. banks and intercompany accounts Note.—Reported by exporters, importers, and industrial and com- between U.S. companies and their affiliates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-reported Data A67 3.27 SHORT-TERM CLAIMS ON FOREIGNERS Reported by Large Nonbanking Concerns in the United States Millions of dollars; end of period 1976 Type and country 1973 1974 1975 May r June' July' Aug.' Sept. Oct.? Nov.p 1 Total....................................................................... 3,164 3,357 3,791 5,204 4,949 5,185 5,142 4,750 4,869 5,133 By type: 2 Payable in dollars............................................... 2,625 2,660 3,035 4,516 4,315 4,552 4,538 4,075 4,284 4,597 3 Deposits.......................................................... 2,588 2,591 2,703 4,090 3,970 4,192 4,119 3,705 3,893 4,210 4 Short-term investments 1............................... 37 69 332 426 345 360 419 370 391 387 5 Payable in foreign currencies............................. 540 697 756 689 632 634 604 675 586 535 6 Deposits.......................................................... 435 429 510 452 432 431 377 447 344 308 7 Short-term investments 1............................... 105 268 246 237 200 203 227 228 242 227 By country: 8 United Kingdom................................................ 1,118 1,350 1,304 1,915 1,915 2,068 2,082 1,712 1,641 1,691 9 Canada................................................................ 765 967 1,153 1,521 1,276 1,415 1,397 1,356 1,400 1,563 10 Bahamas.............................................................. 589 390 546 1,035 1,029 918 823 810 1,059 1,059 11 Japan................................................................... 306 398 343 245 190 139 137 146 116 135 12 All other.............................................................. 386 252 445 488 539 645 703 726 653 685 1 Negotiable and other readily transferable foreign obligations payable Note.—Data represent the assets abroad of large nonbanking conon demand or having a contractural maturity of not more than 1 year cerns in the United States. They are a portion of the total claims on from the date on which the obligation was incurred by the foreigner. foreigners reported by nonbanking concerns in the United States and are included in the figures shown in Table 3.26. 3.28 LONG-TERM LIABILITIES TO AND CLAIMS ON FOREIGNERS Reported by Nonbanking Concerns in the United States Millions of dollars; end of period 1974 1975 1976 1974 1975 1976 Area and country Dec. Dec. Mar. June*> Sept.? Dec. Dec. Mar. June? Sept.? Liabilities to foreigners Claims on foreigners 1 Total....................................................................... 3,889 4,277 4,092 3,960 3,705 4,544 4,959 5,152 5,008 4,958 2 Europe.................................................................... 3,033 3,280 3,128 3,007 2,790 1,007 1,002 949 959 925 474 506 446 425 406 23 41 38 39 77 218 202 214 214 270 280 217 219 211 211 572 505 466 448 308 44 55 52 52 50 1,256 1,629 1,601 1,520 1,441 364 396 349 365 290 7 Canada................................................................... 110 164 153 175 121 1,290 1,426 1,473 1,516 1,510 8 Latin America........................................................ 216 269 248 222 230 1,384 1,633 1,770 1,602 1,547 9 Bahamas............................................................. 177 210 184 157 132 19 8 7 37 37 10 Brazil.................................................................. 3 4 5 5 5 187 171 182 164 171 11 Chile................................................................. 1 1 1 1 1 435 315 312 306 244 12 Mexico................................................................ 3 3 6 6 7 153 216 209 187 219 13 Asia......................................................................... 460 496 496 489 498 681 669 685 709 736 14 Japan.................................................................. 367 397 394 388 402 112 90 91 85 80 6 2 2 2 2 127 168 214 163 181 16 All other 1.............................................................. 65 66 65 64 64 54 60 62 59 58 1 Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A68 International Statistics □ March 1977 3.29 DISCOUNT RATES OF FOREIGN CENTRAL BANKS Per cent per annum Rate as of Rate as of Rate as of Feb. 28, 1977 Feb. 28, 1977 Feb. 28,1977 Country Country Country Per Month Per Month Per Month cent effective cent effective cent effective Argentina........................ 18.0 Feb. 1972 10.5 Sept. 1976 6.0 Sept. 1976 Austria............................. 4.0 June 1976 Germany, Fed. Rep. of. 3.5 Sept. 1975 8.0 Oct. 1976 Belgium........................... 7.0 Feb. 1977 15.0 Oct. 1976 2.0 June 1976 Brazil............................... 28.0 May 1976 6.5 Oct. 1975 United Kingdom.......... 12.0 Feb.1977 Canada............................ 8.0 Feb. 1977 4.5 June 1942 5.0 Oct. 1970 Denmark......................... 10.0 Dec. 1976 Netherlands.................. 5.0 Jan. 1977 Note.—Rates shown are mainly those at which the central bank either more than one rate applicable to such discounts or advances, the rate discounts or makes advances against eligible commercial paper and/or shown is the one at which it is understood the central bank transacts the government securities for commercial banks or brokers. For countries with largest proportion of its credit operations. 3.30 FOREIGN SHORT-TERM INTEREST RATES Per cent per annum; averages of daily figures 1976 1977 Country, or type 1974 1975 1976 Sept. Oct. Nov. Dec. Jan. Feb. 1 Euro-dollars.......................................................... 11.01 7.02 5.58 5.53 5.46 5.29 5.01 5.14 5.08 2 United Kingdom.................................................. 13.34 10.63 11.35 12.11 14.57 14.75 14.27 13.53 11.56 3 Canada.................................................................. 10.47 8.00 9.39 9.40 9.34 9.08 8.51 8.24 7.78 4 Germany............................................................... 9.80 4.87 4.19 4.57 4.76 4.61 4.82 4.70 4.64 5 Switzerland........................................................... 3.01 1.45 1.40 1.80 2.12 1.98 1.24 1.68 6 Netherlands........................................................... 5.17 7.02 12.67 10.23 8.22 6.51 6.18 6.04 7 France.................................................................. 7.91 8.65 9.53 10.39 10.41 10.55 10.02 9.81 8 Italy....................................................................... 10.37 16. 32 16.83 18.61 17.76 17.13 15.68 15.86 9 Belgium................................................................. 6.63 10.25 13.90 13.94 12.48 10.73 8.49 7.59 10 Japan.................................................................... 11.64 7.70 7.50 7.50 8.00 8.00 7.50 7.50 Note.—Rates are for 3-month interbank loans except for—Canada, over; and Japan, loans and discounts that can be called after being held finance company paper; Belgium, time deposits of 20 million francs and over a minimum of two month-ends. 3.31 FOREIGN EXCHANGE RATES Cents per unit of foreign currency 1976 1977 Country/currency 1974 1975 1976 Sept. Oct. Nov. Dec. Jan. Feb. 1 Australia/dollar.................. 143.89 130.77 122.15 124.25 123.40 120.66 105.29 108.53 109.04 2 Austria/shilling................... 5.3564 5.7467 5.5744 5.6567 5.7960 5.8332 5.9061 5.8852 5.8453 3 Belgium/franc..................... 2.5713 2.7253 2.5921 2.6046 2.6822 2.7047 2.7483 2.7249 2.7114 4 Canada/dollar..................... 102.26 98.30 101.41 102.56 102.81 101.46 98.204 98.985 97.295 5 Denmark/krone.................. 16.442 17.437 16.546 16.694 16.968 16.934 17.145 16.967 16.891 6 Finland/markka................. 26.565 27.285 25.938 25.781 25.938 26.073 26.315 26.313 26.169 7 France/franc....................... 20.805 23.354 20.942 20.334 20.072 20.042 20.055 20.108 20.083 8 Germany/deutsche mark... 38.723 40.729 39.737 40.169 41.165 41.443 41.965 41.792 41.582 9 India/rupee......................... 12.460 11.926 11.148 11.036 11.243 11.155 11.296 11.231 11.285 10 Ireland/pound..................... 234.03 222.16 180.48 172.72 163.77 163.81 167.84 171.24 171.03 11 Italy/lira.............................. .15372 .15328 .12044 .11837 .11684 .11554 .11521 .11372 .11327 12 Japan/yen........................... .34302 .33705 .33741 .34800 .34344 .33879 .33933 .34359 .35087 13 Malaysia/ringgit................. 41.682 41.753 39.340 39.753 39.575 39.513 39.550 39.718 40.011 14 Mexico/peso....................... 8.0000 8.0000 6.9161 5.0286 4.8535 4.0200 4.8626 4.8114 4.4084 15 Netherlands/guilder........... 37.267 39.632 37.846 38.390 39.265 39.678 40.240 39.953 39.813 16 New Zealand/dollar........... 140.02 121.16 99.115 98.869 98.484 95.392 92.179 94.839 95.192 17 Norway/krone.................... 18.119 19.180 18.327 18.427 18.812 18.954 19.193 18.946 18.904 18 Portugal/escudo................. 3.9506 3.9286 3.3159 3.2062 3.1920 3.1742 3.1674 3.1276 3.0717 19 South Africa/rand.............. 146.98 136.47 114.85 114.77 114.85 114.88 114.95 114.94 115.00 20 Spain/peseta....................... 1.7337 1.7424 1.4958 1.4721 1.4675 1.4626 1.4634 1.4577 1.4475 21 Sri Lanka/rupee................. 14.978 14.385 11.908 11.516 11.453 11.479 11.246 11.421 11.442 22 Sweden/krona..................... 22.563 24.141 22.957 22.998 23.511 23.699 24.051 23.734 23.543 23 Switzerland/franc............... 33.688 38.743 40.013 40.431 40.876 40.958 40.823 40.127 39.669 24 United Kingdom/pound... 234.03 222.16 180.48 172.72 163.77 163.81 167.84 171.24 171.03 Memo: 25 United States/dollar 1........ 84.11 82.20 89.68 90.25 90.88 91.06 90.55 90.35 90.55 1 Index of weighted-average exchange value of U.S. dollar against cur- Note.—Averages of certified noon buying rates in New York for cable rencies of other G-10 countries plus Switzerland. May 1970 parities = 100. transfers. Weights are 1972 global trade of each of the 10 countries. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Business Finance A69 4.10 SALES, REVENUE, PROFITS, AND DIVIDENDS OF LARGE MANUFACTURING CORPORATIONS (In millions of dollars) 1974 1975 1976 Industry 1974 1975 Q2 Q3 Q4 Ql Q2 Q3 Q4 Qlr Q2r Q3 Total (170 corps) Sales..................................... 564,862 586,948 143,108 145,089 149,806 138,392 145,898 148,008 154,650 159,311 166,452 161,596 Total revenue...................... 573,275 595,337 145,259 147,286 151,971 140,482 147,811 149,841 157,203 161,461 168,958 164,631 Profits before taxes............. 67,858 60,356 18,239 17,902 15,096 12,925 14,875 15,507 17,049 17,502 18,902 16,904 Profits after taxes................ 32,591 27,040 9,302 8,449 7,089 5,566 6,715 7,102 7,657 8,613 9,539 8,442 Memo: PAT unadj.1. ... 32,780 27,810 9,233 8,518 7,390 5,682 6,603 7,054 8,471 8,636 9,490 8,550 Dividends............................. 12,434 12,458 2,932 3,077 3,512 3,132 3,036 3,076 3,214 3,191 3,456 3,546 Nondurable goods industries (86 crops.):2 Sales..................................... 309,033 323,136 77,193 80,543 82,515 77,297 78,656 82,361 84,822 86,927 87,404 88,678 Total revenue....................... 314,584 328,502 78,654 82,021 83,843 78,616 79,940 83,595 86,351 88,179 88,864 90,967 Profits before taxes............. 46,446 40,905 11,998 12,618 9,943 9,378 9,989 10,924 10,614 10,674 10,595 10,642 Profits after taxes................ 20,568 16,303 5,740 5,473 4,300 3,586 3,919 4,441 4,357 4,809 4,833 4,871 Memo: PAT unadj.1. ... 20,465 16,719 5,689 5,398 4,420 3,572 3,900 4,439 4,808 4,829 4,809 4,962 Dividends............................. 6,873 7,228 1,645 1,720 1,882 1,815 1,784 1,803 1,826 1,879 1,950 2,032 Durable goods industries (84 crops.):3 Sales..................................... 255,829 263,812 65,915 64,546 67,291 61,095 67,242 65,647 69,828 72,384 79,048 72,918 Total revenue...................... 258,691 266,835 66,605 65,265 68,128 61,866 67,871 66,246 70,852 73,282 80,094 73,664 Profits before taxes............. 21,412 19,451 6,241 5,284 5,153 3,547 4,886 4,583 6,435 6,828 8,307 6,262 Profits after taxes................ 12,023 10,737 3,562 2,976 2,789 1,980 2,796 2,661 3,300 3,804 4,706 3,571 Memo: PAT unadj.1. .. . 12,315 11,091 3,544 3,120 2,970 2,110 2,703 2,615 3,663 3,807 4,681 3,588 Dividends............................. 5,561 5,230 1,287 1,357 1,630 1,317 1,252 1,273 1,388 1,308 1,502 1,514 Selected industries: Food and kindred products (28 crops.): Sales..................................... 52,753 57,149 12,729 13,663 14,476 13,490 14,117 14,600 14,942 14,762 15,057 16,048 Total revenue....................... 53,728 58,156 12,996 13,939 14,683 13,708 14,356 14,844 15,248 14,993 15,395 16,221 Profits before taxes............. 4,602 5,025 1,190 1,289 1,077 1,066 1,190 1,385 1,384 1,471 1,507 1,462 Profits after taxes................ 2,298 2,496 607 645 517 502 607 719 668 665 778 817 Memo: PAT unadj.1. . .. 2,329 2,601 610 646 540 526 615 745 715 667 785 827 Dividends............................. 1,011 1,100 248 253 267 268 271 274 287 307 325 309 Chemical and allied products (22 crops.): Sales..................................... 55,083 57,735 13,892 14,606 14,078 13,618 14.329 14,660 15,128 15,756 16,081 15,878 Total revenue...................... 55,676 58,376 14,066 14,778 14,165 13,756 14,503 14,791 15,326 15,899 16,242 16,084 Profits before taxes............. 8,263 7,082 2,293 2,194 1,920 1,647 1,622 1,858 1,955 2,179 2,117 2,008 Profits after taxes................ 4,876 3,889 1,247 1,223 1,362 932 929 1,035 993 1,244 1,208 1,130 Memo: PAT unadj.1. ... 4,745 4,015 1,245 1,180 1,289 927 937 1,028 1,123 1,225 1,153 1,163 Dividends............................. 1,647 1,723 405 422 437 430 425 429 439 444 448 484 Petroleum refining (15 corps): Sales..................................... 165,150 172,645 41,362 42,747 44,938 41,988 41,342 43,873 45,442 46,656 46,065 46,923 Total revenue....................... 168,680 175,915 42,261 43,659 45,847 42,851 42,100 44.633 46,331 47,407 46,888 48,744 Profits before taxes............. 30,657 26,305 7,564 8,339 6,458 6,227 6,612 6,961 6,505 6,254 6,210 6,569 Profits after taxes................ 11,775 8,551 3,349 3,181 2,147 1,905 2,078 2,300 2,268 2,481 2,383 2,606 Memo: PAT unadj.1. ... 11,746 8,712 3,304 3,132 2,299 1,871 2,040 2,268 2,533 2,512 2,404 2,635 Dividends............................. 3,635 3,801 853 899 1,019 966 937 949 949 971 1,017 1,075 Primary metals and products (23 crops.): 54,044 48,578 13,976 14,285 13,895 12,482 12,393 12,274 11,429 12,733 14,441 13,751 Total revenue....................... 55,048 49,534 14,171 14,504 14,328 12,782 12,604 12,479 11,669 12,904 14,650 13,958 Profits before taxes............. 5,579 2,921 1,586 1,791 1,229 1,015 711 487 708 633 924 701 Profits after taxes................ 3,199 1,822 927 1,028 655 633 478 396 315 409 603 513 Memo PAT unadj.1........ 3,485 2,003 942 1,137 799 639 485 381 498 416 610 521 Dividends............................. 965 945 209 238 297 273 227 216 229 218 227 230 Machinery (27 crops.): Sales..................................... 74,032 79,049 18,867 18,888 19,400 18,315 19,907 19,786 21,041 20,455 21,627 21,133 Total revenue....................... 74,864 80,000 19,055 19,110 19,639 18,535 20,130 19,977 21,358 20,707 22,072 21,280 Profits before taxes............. 7,782 8,735 2,095 1,985 1,848 1,757 2,105 2,233 2,640 2,469 2,781 2,700 Profits after taxes................ 4,270 4,837 1,159 1,095 998 986 1,186 1,232 1,433 1,355 1,528 1,461 Memo: PAT unadj.1. ... 4,209 4,899 1,148 1,117 936 990 1,180 1,239 1,490 1,354 1,517 1,467 Dividends............................. 1,970 2,031 445 480 603 487 489 523 532 537 581 602 Motor vehicles and equipment (9 crops.): Sales..................................... 80,386 85,863 20.979 19,443 21,497 18,866 22,275 21,005 23,717 26,395 28,710 24,250 Total revenue...................... 80,881 86,475 21,146 19,593 21,545 19,011 22,341 21,083 24.040 26,702 28,942 24,500 Profits before taxes............. 2,920 3,077 1,115 231 938 -98 854 590 1,731 2,494 3,056 1,272 Profits after taxes................ 1,686 1,471 657 113 527 -127 451 328 819 1,331 1,668 705 Memo: PAT unadj.1. ... 1,742 1,604 648 147 586 -12 455 280 881 1,337 1,658 704 Dividends............................. 1,537 1,121 382 386 385 294 276 274 277 285 422 372 1 Profits after taxes unadjusted are as reported by the individual com­ of returns, allowances, and discounts, and exclude excise taxes paid di­ panies. These data are not adjusted to eliminate differences in accounting rectly by the company. Total revenue data include, in addition to sales, treatments of special charges, credits, and other nonoperating items. income from nonmanufacturing operations and nonoperating income. 2 Includes 21 corporations in groups not shown separately. Profits are before dividend payments and have been adjusted to exclude 3 Includes 25 corporations in groups not shown separately. special charges and credits to surplus reserves and extraordinary items not related primarily to the current reporting period. Income taxes (not Note.—Data are obtained from published reports of companies and shown) include Federal, State and local government, and foreign. reports made to the Securities and Exchange Commission. Sales are net Previous series last published in June 1972 Bulletin, p. A-50. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Board of Governors of the Federal Reserve System Arthur F. Burns, Chairman Stephen S. Gardner, Vice Chairman Henry C. Wallich Philip E. Coldwell Philip C. Jackson, Jr. J. Charles Partee David M. Lilly OFFICE OF OFFICE OF BOARD MEMBERS OFFICE OF STAFF STAFF DIRECTOR FOR MANAGEMENT DIRECTOR FOR MONETARY POLICY Thomas J. O’C onnell, Counsel to the John M. D enkler, Staff Director Chairman Stephen H. Axilrod, Staff Director Robert J. Lawrence, Deputy Staff M ilton W. Hudson, Assistant to the Arthur L. Broida, Deputy Staff Director Director Chairman M urray Altm ann, Assistant to the Board Gordon B. Grimwood, Assistant Director Joseph R. Coyne, Assistant to the Board Peter M. Keir, Assistant to the Board and Program Director for Kenneth A. G uenther, Assistant to the Board Stanley J. Sigel, Assistant to the Board Contingency Planning Jay Paul Brenneman, Special Assistant to the Normand R. V. Bernard, Special Assistant to W illiam W. Layton, Director of Equal Board the Board Employment Opportunity Frank O’Brien, Jr., Special Assistant to the Brenton C. Leavitt, Program Director for Board Banking Structure Donald J. W inn, Special Assistant to the DIVISION OF RESEARCH AND STATISTICS Board James L. K ichline, Director Joseph S. Zeisel, Deputy Director Edward C. Ettin, Associate Director LEGAL DIVISION John H. K alchbrenner, Associate Director James B. Eckert, Senior Research Division John D. Hawke, Jr., General Counsel Officer DIVISION OF FEDERAL RESERVE Baldwin B. T uttle, Deputy General Eleanor J. Stockw ell, Senior Research BANK EXAMINATIONS AND BUDGETS Counsel Division Officer Robert E. M annion, Assistant General tJoHN J. M ingo, Associate Research Division W illiam H. W allace, Director Counsel Officer A lbert R. H am ilton, Associate Director A llen L. Raiken, Assistant General Counsel J. C ortland G. Peret, Associate Research Clyde H. Farnsworth, Jr., Assistant Director Gary M. W elsh, Assistant General Counsel Division Officer John F. Hoover, Assistant Director Charles R. M cN eill, Assistant to the Helm ut F. W endel, Associate Research P. D. Ring, Assistant Director General Counsel Division Officer A70 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

DIVISION OF DIVISION OF CONSUMER AFFAIRS James R. W etzel, Associate Research FEDERAL RESERVE BANK OPERATIONS Division Officer Janet O. H art, Director James M. Brundy, Assistant Research James R. Kudlinski, Director N athaniel E. B utler, Associate Director Division Officer W alter A. A lthausen, Assistant Director Jerauld C. Kluckman, Associate Director Jared J. Enzler, Assistant Research Division Brian M. Carey, Assistant Director Officer Harry A. G uinter, Assistant Director Robert M. Fisher, Assistant Research OFFICE OF THE SECRETARY Division Officer DIVISION OF DATA PROCESSING Richard H. Puckett, Assistant Research Theodore E. A llison, Secretary Division Officer C harles L. Hampton,' Director G riffith L. Garwood, Deputy Secretary Stephen P. Taylor, Assistant Research Bruce M. Beardsley, Associate Director *Ruth A. Reister, Assistant Secretary Division Officer U yless D. Black, Assistant Director Levon H. Garabedian, Assistant Director G lenn L. Cummins, Assistant Director Robert J. Zemel, Assistant Director DIVISION OF BANKING SUPERVISION AND REGULATION DIVISION OF PERSONNEL Brenton C. Leavitt, Director DIVISION OF INTERNATIONAL FINANCE David L. Shannon, Director John E. Ryan, Associate Director John E. Reynolds, Acting Director Charles W. W ood, Assistant Director W illiam W. W iles, Associate Director Edwin M. Truman, Associate Director Peter E. Barn a, Assistant Director Robert F. Gemmill, Senior International Frederick R. D ahl, Assistant Director Division Officer OFFICE OF THE CONTROLLER Jack M. Egertson, Assistant Director George B. Henry, Senior International John T. M cClintock, Assistant Director Division Officer John K akalec, Controller Thomas E. M ead, Assistant Director Tyler E. W illiam s, Jr., Assistant Controller Robert S. Plotkin, Assistant Director Reed J. Irvine, Senior International Division Officer Thomas A. Sidman, Assistant Director 1*Helen B. Junz, Senior International Division DIVISION OF ADMINISTRATIVE SERVICES Officer Samuel Pizer, Senior International Division W alter W. Kreimann, Director Officer D onald E. Anderson, Assistant Director *On loan from the Federal Reserve Bank of Minneapolis. Charles J. Siegman, Associate International John D. Smith, Assistant Director Division Officer fOn leave of absence. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A72 Federal Open Market Committee Arthur F. Burns, Chairman Paul A. Volcker, Vice Chairman Philip E. Coldwell Philip C. Jackson, Jr. J. Charles Partee Stephen S. Gardner David M. Lilly Lawrence K. Roos Roger Guffey Robert P. Mayo Henry C. Wallich Frank E. Morris Arthur L. Broida, Secretary A natol Balbach, Associate Economist M urray Altm ann, Deputy Secretary Richard G. Davis, Associate Economist Normand R. V. Bernard, Assistant Thomas Davis, Associate Economist Secretary Robert Eisenmenger, Associate Economist Thomas J. O’C onnell, General Counsel Edward C. Ettin, Associate Economist Edward G. Guy, Deputy General Counsel James L. K ichline, Associate Economist Baldwin B. T uttle, Assistant General John E. Reynolds, Associate Economist Counsel K arl Scheld, Associate Economist Stephen H. Axilrod, Economist Edward M. Truman, Associate Economist Joseph S. Zeisel, Associate Economist A lan R. Holmes, Manager, System Open Market Account Peter D. Sternlight, Deputy Manager for Domestic Operations Scott E. Pardee, Deputy Manager for Foreign Operations Federal Advisory Council Richard D>. H ill, first federal reserve district, President G ilbert F. Bradley, tw elfth federal reserve district, Vice President Walter B. Wriston, second federal Edward Byron Smith, seventh federal reserve district reserve district Roger S. Hill as, third federal Donald E. Lasater, eighth federal reserve district reserve district M. Brock Weir, fourth federal Richard H. Vaughan, ninth federal reserve district reserve district John H. Lumpkin, fifth federal J. W. McLean, tenth federal reserve district reserve district Frank A. Plummer, sixth federal Ben F. Love, eleventh federal reserve district reserve district Herbert V. Prochnow, Secretary W illiam J. Korsvik, Associate Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A73 Federal Reserve Banks, Branches, and Offices FEDERAL RESERVE BANK, Chairman President Vice President branch, or facility Zip Deputy Chairman First Vice President in charge of branch BOSTON* ................... 02106 Louis W. Cabot Frank E. Morris Robert M. Solow James A. McIntosh NEW YORK* ............ 10045 Frank R. Milliken Paul A. Volcker Robert H. Knight Thomas M. Timlen Buffalo .................... 14240 Paul A. Miller John T. Keane PHILADELPHIA 19105 John W. Eckman David P. Eastburn Werner C. Brown Mark H. Willes CLEVELAND* 44101 Horace A. Shepard Willis J. Winn Robert E. Kirby Walter H. MacDonald Cincinnati ............... 45201 Lawrence H. Rogers, II Robert E. Showalter Pittsburgh ............... 15230 G. Jackson Tankersley Robert D. Duggan RICHMOND* .............23261 E. Angus Powell Robert P. Black E. Craig Wall, Sr. George C. Rankin Baltimore ..................21203 James G. Harlow Jimmie R. Monhollon Charlotte ..................28230 Robert C. Edwards Stuart P. Fishburne Culpeper Communications and Records Center.. 22701 Albert D. Tinkelenberg ATLANTA ................. 30303 H. G. Pattillo Monroe Kimbrel Clifford M. Kirtland, Jr. Kyle K. Fossum Birmingham ............ 35202 William H. Martin, III Hiram J. Honea Jacksonville ............ 32203 Gert H. W. Schmidt Edward C. Rainey Miami ...................... 33152 David G. Robinson W. M. Davis Nashville ................. 37203 John C. Bolinger Jeffrey J. Wells New Orleans .......... 70161 George C. Cortright, Jr. George C. Guynn CHICAGO* ............... 60690 Peter B. Clark Robert P. Mayo Robert H. Strotz Daniel M. Doyle Detroit ...................... 48231 Jordan B. Tatter William C. Conrad ST. LOUIS ................. 63166 Edward J. Schnuck Lawrence K. Roos William B. Walton Eugene A. Leonard Little Rock ............. 72203 Ronald W. Bailey John F. Breen Louisville ............... 40201 James C. Hendershot Donald L. Henry Memphis ................. 38101 Frank A. Jones, Jr. L. Terry Britt MINNEAPOLIS 55480 James P. McFarland Vacant Stephen F. Keating Clement A. Van Nice Helena ...................... 59601 Patricia P. Douglas John D. Johnson KANSAS CITY 64198 Harold W. Andersen Roger Guffey Joseph H. Williams Henry R. Czerwinski Denver .................... 80217 A. L. Feldman Wayne W. Martin Oklahoma City 73125 James G. Harlow, Jr. William G. Evans Omaha .................... 68102 Durward B. Varner Robert D. Hamilton DALLAS .................... 75222 Irving A. Mathews Ernest T. Baughman Charles T. Beaird Robert H. Boykin El Paso .................... 79999 Gage Holland Fredric W. Reed Houston ................... 77001 Alvin I. Thomas J. Z. Rowe San Antonio ............ 78295 Marshall Boykin, III Carl H. Moore SAN FRANCISCO ....94120 Joseph F. Alibrandi John J. Balles Cornell C. Maier John B. Williams Los Angeles ............ 90051 Joseph R. Vaughan Richard C. Dunn Portland .................. 97208 Loran L. Stewart Angelo S. Carella Salt Lake City 84110 Sam Bennion A. Grant Holman Seattle ...................... 98124 Lloyd E. Cooney James J. Curran * Additional offices of these Banks are located at Lewiston, Maine 04240; Windsor Locks, Connecticut 06096; Cranford, New Jersey 07016; Jericho, New York 11753; Columbus, Ohio 43216; Columbia, South Carolina 29210; Des Moines, Iowa 50306; Indianapolis, Indiana 46204; and Milwaukee, Wisconsin 53202. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A 74 Federal Reserve Board Publications Available from Publications Services, Division of Ad­ request and be made payable to the order of the Board ministrative Services, Board of Governors of the Fed­ of Governors of the Federal Reserve System in a form eral Reserve System, Washington, D.C. 20551. Where collectible at par in U.S. currency. (Stamps and a charge is indicated, remittance should accompany coupons are not accepted.) The Federal Reserve System—Purposes and The Performance of Bank Holding Companies. Functions. 1974. 125pp. $1.00each; lOormore 1967. 29 pp. $.25 each; 10 or more to one address, to one address, $.75 each. $.20 each. Bank Credit-Card and Check-Credit Plans. 1968. Annual Report 102 pp. $1.00 each; 10 or more to one address, Federal Reserve Bulletin. Monthly. $20.00 per $.85 each. year or $2.00 each in the United States, its posses­ Survey of Financial Characteristics of Con­ sions, Canada, and Mexico; 10 or more of same sumers. 1966. 166 pp. $1.00 each; 10 or more issue to one address, $18.00 per year or $1.75 to one address, $.85 each. each. Elsewhere, $24.00 per year or $2.50 each. Survey of Changes in Family Finances. 1968. 321 Banking and Monetary Statistics, 1914-1941. pp. $1.00 each; 10 or more to one address, $.85 (Reprint of Part 1 only) 1976. 682 pp. $5.00. each. Banking and Monetary Statistics, 1941-1970. Report of the Joint Treasury-Federal Reserve 1976. 1,168 pp. $15.00. Study of the U.S. Government Securities Annual Statistical Digest, 1970-75. 1976. 339 pp. Market. 1969. 48 pp. $.25 each; 10 or more to $4.00 per copy for each paid subscription to Fed­ one address, $.20 each. eral Reserve Bulletin. All others, $5.00 each. Joint Treasury-Federal Reserve Study of the Federal Reserve Monthly Chart Book. Subscrip­ Government Securities Market: Staff Stud­ tion includes one issue of Historical Chart Book. ies—Part 1. 1970. 86 pp. $.50 each; 10 or more $ 12.00 per year or $1.25 each in the United States, to one address, $.40 each. Part 2. 1971. 153 pp. its possessions, Canada, and Mexico; 10 or more and Part 3. 1973. 131 pp. Each volume $1.00; of same issue to one address, $1.00 each. Else­ 10 or more to one address, $.85 each. where, $15.00 per year or $1.50 each. Open Market Policies and Operating Proce­ Historical Chart Book. Issued annually in Sept. dures—Staff Studies. 1971. 218 pp. $2.00 Subscription to Monthly Chart Book includes one each; 10 or more to one address, $1.75 each. issue. $1.25 each in the United States, its posses­ Reappraisal of the Federal Reserve Discount sions, Canada, and Mexico; 10 or more to one Mechanism. Vol. 1. 1971. 276 pp. Vol. 2. 1971. address, $1.00 each. Elsewhere, $1.50 each. 173 pp. Vol. 3. 1972. 220 pp. Each volume $3.00; Capital Market Developments. Weekly. $15.00 per 10 or more to one address, $2.50 each. year or $.40 each in the United States, its posses­ The Econometrics of Price Determination Con­ sions, Canada, and Mexico; 10 or more of same ference, October 30-31, 1970, Washington, D.C. issue to one address, $13.50 per year or $.35 each. 1972. 397 pp. Cloth ed. $5.00 each; 10 or more Elsewhere, $20.00 per year or $.50 each. to one address, $4.50 each. Paper ed. $4.00 each; Selected Interest and Exchange Rates—Weekly 10 or more to one address, $3.60 each. Series of Charts. Weekly. $15.00 per year or Federal Reserve Staff Study: Ways to Moderate $.40 each in the United States, its possessions, Fluctuations in Housing Construction. 1972. Canada, and Mexico; 10 or more of same issue 487 pp. $4.00 each; 10 or more to one address, to one address, $13.50 per year or $.35 each. $3.60 each. Elsewhere, $20.00 per year or $.50 each. Lending Functions of the Federal Reserve The Federal Reserve Act, as amended through De­ Banks. 1973. 271 pp. $3.50 each; 10 or more cember 1971, with an appendix containing provi­ to one address, $3.00 each. sions of certain other statutes affecting the Federal Introduction to Flow of Funds. 1975. 64 pp. $.50 Reserve System. 252 pp. $1.25. each; 10 or more to one address, $.40 each. Regulations of the Board of Governors of the Improving the Monetary Aggregates (Report of the Federal Reserve System Advisory Committee on Monetary Statistics). Published Interpretations of the Board of Gov­ 1976. 43 pp. $1.00 each; 10 or more to one ernors, as of June 30, 1976. $2.50. address, $.85 each. Trading in Federal Funds. 1965. 116 pp. $1.00 Annual Percentage Rate Tables (Truth in Lend­ each; 10 or more to one address, $.85 each. ing—Regulation Z) Vol. I (Regular Transactions). Industrial Production—1971 Edition. 1972. 383 1969. 100 pp. Vol. II (Irregular Transactions). pp. $4.00 each; 10 or more to one address, $3.50 1969. 116 pp. Each volume $1.00, 10 or more each. of same volume to one address, $.85 each. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Board Publications A 75 CONSUMER EDUCATION PAMPHLETS Revision of Bank Credit Series. 12/71. Assets and Liabilities of Foreign Branches of (Short pamphlets suitable for classroom use. Multiple U.S. Banks. 2/72. copies available without charge.) Bank Debits, Deposits, and Deposit Turnover— Revised Series. 7/72. Fair Credit Billing Yields on Newly Issued Corporate Bonds. 9/72. If You Borrow To Buy Stock Recent Activities of Foreign Branches of U.S. U.S. Currency Banks. 10/72. What Truth in Lending Means to You Revision of Consumer Credit Statistics. 10/72. One-Bank Holding Companies Before the 1970 STAFF ECONOMIC STUDIES Amendments. 12/72. Yields on Recently Offered Corporate Bonds. Studies and papers on economic and financial subjects 5/73. that are of general interest in the field of economic Credit-Card and Check-Credit Plans at Commer­ research. cial Banks. 9/73. Rates on Consumer Instalment Loans. 9/73. Summaries Only Printed in the Bulletin New Series for Large Manufacturing Corpora­ (Limited supply of mimeographed copies of full text tions. 10/73. available upon request for single copies.) U.S. Energy Supplies and Uses, Staff Economic Study by Clayton Gehman. 12/73. The Growth of Multibank Holding Companies: Inflation and Stagnation in Major Foreign In­ 1956-73, by Gregory E. Boczar. Apr. 1976. 27 dustrial Countries. 10/74. pp. The Structure of Margin Credit. 4/75. Extending Merger Analysis Beyond the Single- New Statistical Series on Loan Commitments at Market Framework, by Stephen A. Rhoades. Selected Large Commercial Banks. 4/75. May 1976. 25 pp. Recent Trends in Federal Budget Policy. 7/75. Seasonal Adjustment of Mx—Currently Pub­ Recent Developments in International Financial lished and Alternative Methods, by Edward Markets. 10/75. R. Fry. May 1976. 22 pp. M INNIE: A S m all V ersion of th e Effects of NOW Accounts on Costs and Earnings MIT-PENN-SSRC Econometric Model, Staff of Commercial Banks in 1974-75, by John D. Economic Study by Douglas Battenberg, Jared J. Paulus. Sept. 1976. 49 pp. Enzler, and Arthur M. Havenner. 11/75. An Assessment of Bank Holding Companies, Staff Printed in Full in the Bulletin Economic Study by Robert J. Lawrence and Staff Economic Studies shown in list below. Samuel H. Talley. 1/76. Industrial Electric Power Use. 1/76. REPRINTS Revision of Money Stock Measures. 2/76. (Except for Staff Papers, Staff Economic Studies, and Survey of Finance Companies, 1975. 3/76. some leading articles, most of the articles reprinted do Changing Patterns in U.S. International Trans­ not exceed 12 pages.) actions. 4/76. Revised Series for Member Bank Deposits and Seasonal Factors Affecting Bank Reserves. 2/58. Aggregate Reserves. 4/76. Measures of Member Bank Reserves. 7/63. Bank Holding Company Financial Developments Research on Banking Structure and Perform­ in 1975. 4/76. ance, Staff Economic Study by Tynan Smith. Changes in Bank Lending Practices, 1975. 4/76. 4/66. Industrial Production—1976 Revision. 6/76. A Revised Index of Manufacturing Capacity, Federal Reserve Operations in Payment Mecha­ Staff Economic Study by Frank de Leeuw with nisms: A Summary. 6/76. Frank E. Hopkins and Michael D. Sherman. 11/66. Recent Growth in Activities of U.S. Offices of U.S. International Transactions: Trends in Foreign Banks. 10/76. 1960-67. 4/68. New Estimates of Capacity Utilization: Manu­ Measures of Security Credit. 12/70. facturing and Materials. 11/76. Revised Measures of Manufacturing Capacity Survey of Time and Savings Deposits, July 1976. Utilization. 10/71. 12/76. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 Federal Reserve Bulletin □ March 1977 Index to Statistical Tables References are to pages A-3 through A-69 although the prefix “A” is omitted in this index ACCEPTANCES, bankers, 11, 25, 27 Demand deposits: Agricultural loans of commercial banks, 18, 20-22 Adjusted, commercial banks, 13, 15, 19 Assets and liabilities (See also Foreigners): Banks, by classes, 16, 17, 19, 20-23 Banks, by classes, 16, 17, 18, 20-23, 29 Ownership by individuals, partnerships, and Federal Reserve Banks, 12 corporations, 25 Nonfinancial corporations, current, 38 Subject to reserve requirements, 15 Automobiles: Turnover, 13 Consumer instalment credit, 42, 43 Deposits (See also specific types of deposits): Production, 48, 49 Banks, by classes, 3, 16, 17, 19, 20-23, 29 Federal Reserve Banks, 4, 12 BANK credit proxy, 15 Subject to reserve requirements, 15 Bankers balances, 16, 18, 20, 21, 22 Discount rates at F.R. Banks (See Interest rates) (See also Foreigners) Discounts and advances by F.R. Banks (See Loans) Banks for cooperatives, 35 Dividends, corporate, 38, 69 Bonds (See also U.S. Govt, securities): New issues, 36, 37 EMPLOYMENT, 46, 47 Yields, 3 Euro-dollars, 15, 27 Branch banks: Assets and liabilities of foreign branches of U.S. banks, 62 FARM mortgage loans, 41 Liabilities of U.S. banks to their foreign Farmers Home Administration, 41 branches, 23 Federal agency obligations, 4, 11, 12, 13, 34 Business activity, 46 Federal and Federally sponsored credit agencies, 35 Business expenditures on new plant and equipment, 39 Federal finance: Business loans (See Commercial and industrial loans) Debt subject to statutory limitation and types and ownership of gross debt, 32 CAPACITY utilization, 46, 47 Receipts and outlays, 30, 31 Capital accounts: Treasury operating balance, 30 Banks, by classes, 16, 17, 19, 20 Federal Financing Bank, 35 Federal Reserve Banks, 12 Federal funds, 3, 6, 18, 20, 21, 22, 27, 30 Central banks, 68 Federal home loan banks, 35 Certificates of deposit, 23, 27 Federal Home Loan Mortgage Corp., 35, 40, 41 Commercial and industrial loans: Federal Housing Administration, 35, 40, 41 Commercial banks, 15, 18, 23, 26 Federal intermediate credit banks, 35 Weekly reporting banks, 20, 21, 22, 23, 24 Federal land banks, 35, 41 Commercial banks: Federal National Mortgage Assn., 35, 40, 41 Assets and liabilities, 3, 15-18, 20-23 Federal Reserve Banks: Business loans, 26 Condition statement, 12 Commercial and industrial loans, 24 Discount rates (See Interest rates) Consumer loans held, by type, 42, 43 U.S. Govt, securities held, 4, 12, 13, 32, 33 Loans sold outright, 23 Federal Reserve credit, 4, 5, 12, 13 Number, by classes, 16, 17 Federal Reserve notes, 12 Real estate mortgages held, by type of holder and Federally sponsored credit agencies, 35 property, 41 Finance companies: Commercial paper, 3, 24, 25, 27 Loans, 20, 21, 22, 42, 43 Condition statements (See Assets and liabilities) Paper, 25, 27 Construction, 46, 50 Financial institutions, loans to, 18, 20, 21, 22, 23 Consumer instalment credit, 42, 43 Float, 4 Consumer prices, 46, 51 Flow of funds, 44, 45 Consumption expenditures, 52, 53 Foreign: Corporations: Currency operations, 12 Profits, taxes, and dividends, 38 Deposits in U.S. banks, 4, 12, 19, 20, 21, 22 Sales, revenue, profits, and dividends of Exchange rates, 68 large manufacturing corporations, 69 Trade, 55 Security issues, 36, 37, 65 Foreigners: Cost of living (See Consumer prices) Claims on, 60, 61, 66, 67 Credit unions, 29, 42, 43 Liabilities to, 23, 56-59, 64-67 Currency and coin, 5, 16, 18 Currency in circulation, 4, 14 GOLD: Customer credit, stock market, 28 Certificates, 12 Stock, 4, 55 DEBITS to deposit accounts, 13 Government National Mortgage Assn., 35, 40, 41 Debt (See specific types of debt or securities) Gross national product, 52, 53 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

All HOUSING, new and existing units, 50 REAL estate loans: Banks, by classes, 18, 20-23, 29, 41 INCOME, personal and national, 46, 52, 53 Life insurance companies, 29 Industrial production, 46, 48 Mortgage terms, yields, and activity, 3, 40 Instalment loans, 42, 43 Type of holder and property mortgaged, 41 Insurance companies, 29, 32, 33, 41 Reserve position, basic, member banks, 6 Insured commercial banks, 17, 18 Reserve requirements, member banks, 9 Interbank deposits, 16, 17, 20, 21, 22 Reserves: Interest rates: Commercial banks, 16, 17, 20, 21, 22 Bonds, 3 Federal Reserve Banks, 12 Business loans of banks, 26 Member banks, 3, 4, 5, 15, 16 Federal Reserve Banks, 3, 8 U.S. reserve assets, 55 Foreign countries, 68 Residential mortgage loans, 40 Money and capital market rates, 3, 27 Retail credit and retail sales, 42, 43, 46 Mortgages, 3, 40 Prime rate, commercial banks, 26 SALES, revenue, profits, and dividends of Time and savings deposits, maximum rates, 10 large manufacturing corporations, 69 International capital transactions of the Saving: United States, 56-67 Flow of funds, 44, 45 International organizations, 56-61, 65-67 National income accounts, 53 Inventories, 52 Savings and loan assns., 3, 10, 29, 33, 41, 44 Investment companies, issues and assets, 37 Savings deposits (See Time deposits) Investments (See also specific types of investments): Savings institutions, selected assets, 29 Banks, by classes, 16, 17, 18, 20, 21, 22, 29 Securities (See also U.S. Govt, securities): Commercial banks, 3, 15, 16, 17 Federal and Federally sponsored agencies, 35 Federal Reserve Banks, 12, 13 Foreign transactions, 65 Life insurance companies, 29 New issues, 36, 37 Savings and loan assns., 29 Prices, 28 Special Drawing Rights, 4, 12, 54, 55 LABOR force, 47 State and local govts.: Life insurance companies (See Insurance companies) Deposits, 19, 20, 21, 22 Loans (See also specific types of loans): Holdings of U.S. Govt, securities, 32, 33 Banks, by classes, 16, 17, 18, 20-23, 29 New security issues, 36 Commercial banks, 3, 15-18, 20-23, 24, 26 Ownership of securities of, 18, 20, 21, 22, 29 Federal Reserve Banks, 3, 4, 5, 8, 12, 13 Yields of securities, 3 Insurance companies, 29, 41 State member banks, 17 Insured or guaranteed by U.S., 40, 41 Stock market , 28 Savings and loan assns., 29 Stocks (See also Securities): New issues, 36, 37 MANUFACTURERS: Prices, 28 Capacity utilization, 46, 47 Production, 46, 49 TAX receipts, Federal, 31 Margin requirements, 28 Time deposits, 3, 10, 15, 16, 17, 19, 20, 21, 22, 23 Member banks: Trade, foreign, 55 Assets and liabilities, by classes, 16, 17, 18 Treasury currency, Treasury cash, 4 Borrowings at Federal Reserve Banks, 5, 12 Treasury deposits, 4, 12, 30 Number, by classes, 16, 17 Treasury operating balance, 30 Reserve position, basic, 6 Reserve requirements, 9 UNEMPLOYMENT, 47 Reserves and related items, 3, 4, 5, 15 U.S. balance of payments, 54 Mining production, 49 U.S. Govt, balances: Mobile home shipments, 50 Commercial bank holdings, 19, 20, 21, 22 Monetary aggregates, 3, 15 Member bank holdings, 15 Money and capital market rates (See Interest rates) Treasury deposits at Reserve Banks, 4, 12, 30 Money stock measures and components, 3, 14 U.S. Govt, securities: Mortgages (See Real estate loans) Bank holdings, 16, 17, 18, 20, 21, 22, 29, 32, 33 Mutual funds (See Investment companies) Dealer transactions, positions, and financing, 34 Mutual savings banks, 3, 10, 20-22, 29, 32, 33, 41 Federal Reserve Bank holdings, 4, 12, 13, 32, 33 Foreign and international holdings and NATIONAL banks, 17 transactions, 12, 32, 64 National defense outlays, 31 Open market transactions, 11 National income, 52 Outstanding, by type of security, 32, 33 Nonmember banks, 17, 18 Ownership, 32, 33 Rates in money and capital markets, 27 OPEN market transactions, 11 Yields, 3 Utilities, production, 49 PERSONAL income, 53 Prices: VETERANS Administration, 40, 41 Consumer and wholesale, 46, 51 Stock market, 28 WEEKLY reporting banks, 20-24 Prime rate, commercial banks, 26 Wholesale prices, 46 Production, 46, 48 Profits, corporate, 38, 69 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A78 The Federal Reserve System Boundaries of Federal Reserve Districts and Their Branch Territories ° * HAWAII & © 0 LEGEND — ■ Boundaries of Federal Reserve Districts ® Federal Reserve Bank Cities ----- Boundaries of Federal Reserve Branch • Federal Reserve Branch Cities Territories Federal Reserve Bank Facility © Board of Governors of the Federal Reserve System Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Guide to Tabular Presentation and Statistical Releases GUIDE TO TABULAR PRESENTATION Symbols and Abbreviations p Preliminary SMSA’s Standard metropolitan statistical areas r Revised REIT’s Real estate investment trusts rp Revised preliminary Amounts insignificant in terms of the partic­ e Estimated ular unit (e.g., less than 500,000 when c Corrected the unit is millions) n.e.c. Not elsewhere classified ........ (1) Zero, (2) no figure to be expected, or Rp’s Repurchase agreements (3) figure delayed or, (4) no change (when IPC’s Individuals, partnerships, and corporations figures are expected in percentages). General Information Minus signs are used to indicate (1) a decrease, (2) obligations of the Treasury. “State and local govt.” a negative figure, or (3) an outflow. also includes municipalities, special districts, and other “U.S. Govt, securities” may include guaranteed political subdivisions. issues of U.S. Govt, agencies (the flow of funds figures In some of the tables details do not add to totals also include not fully guaranteed issues) as well as direct because of rounding. STATISTICAL RELEASES List Published Semiannually, with Latest Bulletin Reference Issue Page Anticipated schedule of release dates for individual releases ............................................... Dec. 1976 A-82 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis