greenbooks · December 13, 1971

Greenbook/Tealbook

Prefatory Note

The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act.

In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing).

A two-step process was used. An advanced optical character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff.

Content last modified 6/05/2009.

CONFIDENTIAL (FR)

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

December 10, 1971

By the Staff Board of Governors of the Federal Reserve System

SUPPLEMENTAL NOTES

The Domestic Economy Inventories.

Book value of retail trade inventories declined

at a $0.5 billion annual rate in October, GAAF outlets declined.

as stocks at automotive and

Based on the advance retail sales estimate,

the retail stock-sales ratio declined slightly, from 1.45 to 1.44. For total manufacturing and trade stocks, the October increase was at a $5.7 billion rate compared with $6.1 billion in the third quarter.

The turnaround from negative to positive in manufacturing stocks

almost offset the switch from positive to negative at retail.

The over-

all inventory-sales ratio rose from 1.55 in September to 1.56 in October. Manufacturers' inventory and sales anticipations. surveyed in November,

When

manufacturers anticipated adding to the book value

of their inventories at an annual rate of $5.2 billion in the fourth quarter; this was slightly higher than their anticipations taken three months earlier,

and if

realized would be the highest rate since 1969-III.

For the first quarter of next year they anticipate a $2.4 billion rate of accumulation. However, inventory growth fell short even of the more reliable second anticipation in the two latest quarters,

with the actual third

quarter rate a rundown instead of the anticipated $1.6 billion rate buildup.

Third quarter sales also declined rather than increasing as

anticipated.

- 2 -

For sales, a slight increase is expected in the fourth quarter and a 3.2 per cent rise (quarterly rate) in the first quarter, resulting in a rise in the inventory-sales ratio in December and then a drop to 1.70 by March. The amount and percentage of inventory reported as excess (net) were unchanged from June to September and were below 1970 levels.

-3The Domestic Financial Situation Mortgage quality.

The quality of home mortgage debt outstanding

deteriorated further during the third quarter, according to the Mortgage Bankers Association after-the-fact delinquency and foreclosure series, The average delinquency

which are heavily weighted with FHA and VA loans.

rate of 3.59 per cent was the highest for any third quarter in the history of the series, which began in 1953.

The further rise partly re-

flected an additional spurt in delinquency rates on loans under FHA's Sec. 235 program that subsidizes interest rates down to 1 per cent for eligible lower-income homeowners.

Delinquency rates on these subsidized

loans continued to run more than twice the average rates indicated for other types of FHA-insured loans in the MBA series.

Meanwhile, foreclosure

rates edged up to a new third-quarter high of .41 per cent.

DELINQUENCY AND FORECLOSURE RATES ON HOME MORTGAGES (Per cent)

Third quarter averages 1954-61 1962-71

1966

1967

Third quarter 1968 1969 1970

Delinquent

2.66

3.11

3.09

3.15

2.93

2.91

3.10

In foreclosure

n.a.

.32

.36

.31

.26

.25

.31

NOTE:

1971 3.59

Mortgage Bankers Association survey based on several million mortgages on 1-to 4-family properties held or serviced by approximately 400 member respondents, largely involving FHA and VA loans.

.41

-4-

Monetary aggregates.

The revisions to recent M1 data noted

in the Greenbook now have been completed and the resulting rates of change are shown in the revised Monetary Aggregates table.

The annual

rate of decline in M 1 for September has been reduced to -2.1 from the -3.2 per cent shown earlier, while October now shows a 0.5 per cent rate of growth as compared with the previous 1.6 per cent rate of decline.

The annual rate of increase for November has been reduced to

0.5 per cent from the 1.1 per cent rise shown earlier, a somewhat smaller downward adjustment than was anticipated.

This smaller November

adjustment is not related to the effects of the revision but reflects final figures for the last week of the month which came in considerably stronger than the preliminary unpublished estimate.

- 5 -

MONETARY AGGREGATES (Seasonally adjusted changes)

Nov.1971

SOct. QI

QIII

Oct.

Nov.

Annual percentage rates 1.

M 1 (Currency plus private demand deposits)

9.1

10.6

3.7r

18.1

12.4

4.4r

7.lr

6 .8p

19.0

14.7r

7.4r

9.1r

8.3p

10.9

8.4

7.6

4.8

Total time and savings deposits

28.8

14.7

8.2

17.1

9.6 p

Time and savings deposits other than large CD's

27.5

14.0

5.3

13.7

13.5p

M2 (Ml plus commetcial bank time and savings deposits other than large CD's) M 3 (M2 plus savings deposits at mutual savings banks

and S&L's) 4.

Adjusted bank credit proxy

Other aggregates a)

12.2p

Billions of dollars c)

Negotiable CD's (Monthly or monthly average)

Nondeposit sources (Monthly or monthly average) r - Revised p - Preliminary

1.1

-1.5

-. 9

-. 1

.5p

- 6 -

INTEREST RATES

1971

Highs

Aug.

Lows

Nov.

Dec.

Short-Term Rates

Federal funds (wkly. avg.) 5.59 (9/15) 3.29 (3/10) 5.59 (8/11) 4.93(11/10) 4.59 3-month Treasury bills (bid) Bankers' acceptances Euro-dollars Federal agencies

5.53 5.62 10.00 5.70 Comm. paper (90-119 day) 5.88 CD's (prime NYC) Most often quoted new 5.75 6.05 Secondary market

6-month Treasury bills (bid) Bankers' acceptances Comm. paper (4-6 mo.) Federal agencies

5.84 5.75 5.88 6.02

(7/19) (8/23) (8/17) (7/30) (8/18)

3.22 (3/11) 5.15 3.88 (3/10) 5.,62

4.94 <3/17) 7.89 3.27 (2/24) 5.58 4.25 <4/12) 5.68

4.11 4.75 4.50 5.90 6.64 4.33(11/10) 4.17 4.16

4.88

4.75

(8/11) 3.62 (3/24) 5.75 4.75(11/10) 4.75 (8/18) 3.80 (3/17) 5.88 (8/11) 4.88(11/10) 4.80 (7/24) 3.35 (3/11) 5.51 (8/23) 4.00 (3/10) 5.75 <e) (8/18) 4.00 (3/29) 5.88 (7/30) 3.53 (3/10) 5.83

4.31 4.88 (e) 5.00 4.43(11/10)

4.30

4.62(e) 4.88 4.55

CD's (prime NYC) Most often quoted new Secondary market

1-year Treasury bills (bid) CD's (prime NYC) Most often quoted new Prime municipals

6.00 (8/11) 4.00 (3/24) 6.00 6.40 (8/18) 3.70 (3/3)

5.00(11/10) 4.88 6.25 <8/11) 5.00(11/10) 5.02

6.01 (7/28) 3.45 (3/11)

5.85

6.25 (8/11) 3.60 (8/12)

4.38 (3/3) 6.25 2.15 (3/24) 3.60

4.40

4.54

5.12(11/10) 5.13 2.70(11/10) 2.90

Intermediate and Long-Term Treasury coupon issues 5-years 20-years

7.03 (8/10) 4.74 (3/22) 6.78 6.56 (6/15) 5.69 (3/23) 6.32

5.71 5.84

5.79 6.00

Corporate Seasoned Aaa Baa

7.71 (8/13) 7.05 <2/16) 7.71 8.93 (1/5) 8.33 (2/25) 8.87

7.26 8.37

7.24 8.42

8.23 <5/20) 6.76 (1/29) 7.97

7.12(11/12) 7.08

Municipal Bond Buyer Index Moody's Aaa

6.23 (6/24) 5.00 (3/18) 6.03 5.90 (6/30) 4.65 (10/21)5.80

5.19(11/10) 5.23 4.90(11/11) 5.00

Mortgage--implicit yield in FNMA auction 1/

8.07 (7/26) 7.32 (4/12) --

7.70

New Issue Aaa

7.6(11/2

Yield on short-term forward commitment after allowance for commitment fee and required purchase and holding of FNMA stock. Assumes discount on 30-year loan amortized over 15 years. e - estimated.

- 7-

International Developments Direct investment control.

The Office of Foreign Direct

Investment issued an amendment to its regulations on December 9 which had the effect of giving direct investors a grace period of the first two months in 1972 for complying with the OFDI regulations as they would have affected 1971.

Direct investors are allowed to credit towards

their 1971 compliance requirements long-term borrowings abroad or net reductions in amounts due from foreign affiliates effected during the first two months of 1972.

In addition, the requirement that they

repatriate unused proceeds of foreign borrowings at year-end was suspended.

The likely effect of these amendments will be to eliminate any

abnormal return flow of funds that would have resulted from speculative outflows during 1971, and it is also likely that corporations will take advantage of the grace period to delay their ordinary year-end windowdressing until some time early in 1972.

CORRECTIONS: Section I, page 4, line 4 of paragraph 1, insert "in" after however and before the tax. Section I, page 5, line 8 of Outlook change foreign "inventories" to foreign currencies. Section II, page 20, caption in lower part of the table should be Per cent change in "November" from a year earlier (not August). Section III - page 3, line 1 of last paragraph should read offsetting some of the expansion in "Government deposits" (not interbank balances). Section III, page 16,

line 5,

last word should be "eased"

(not evened).

A-

SUPPLEMENTAL APPENDIX A: LOAN COMMITENTS* The Federal Reserve survey of loan commitment activity at 48 large banks in the three months ending October 31, 1971, confirms the Although outstanding unused general weakness in business loan demand. commitments rose to the highest level in the three years of the survey, the increase in unused commitments was the smallest in one and a half years. At the same time, the quarter-to-quarter declines in the flow of new commitments and in takedowns were the largest in the history (See Table 1.) As indicated in Table 2, although one of the survey. fourth anticipated some pickup, two thirds of the respondents expected their rate of takedowns to remain modest (unchanged) in the three About one fourth of those surveyed have months ending January, 1972. adopted a less restrictive commitment policy than existed in the previous three months; no respondent has adopted a more restrictive policy. As indicated in Table 3, those adopting less restrictive policies explain their action by weak loan demand and the availability of funds. The weakness in new commitments and takedowns, expirations and cancellations centered mainly in the business loan category and in loans to finance companies. However, the continued policy of business firms to extend the maturity structure of their liabilities is indicated by the increase in both new commitments and takedowns for term loans over the three month period.

Prepared by Marilyn Barron, Research Assistant, Banking Section, Division of Research and Statistics.

QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U.S. October 31, 1971 Table 1: NEW AND UNUSED COMMITMENTS (Billions of dollars, not seasonally adjusted)

New commitments made during 3-month ending Apr. 31 IJuly 311 Oct. 31 i

Grand total commitments Total-Comm. & Industrial Total-Nonbank Financial Institutions Total-Real Estate Mortgages NEMD: Const. Loans (included above)

Total-Comm. & Industrial Term Loans Revolving Credits Total Term & Revolving 2/ Confirmed Lines of Credit Other Commitments Total-Nonban Financial Institutions Finance Companies For Mortgage Warehousing All Other Total-Real Estate Mortgages Residential Other

Takedowns, expirations and cancellations during 3-months ending IAnr. 31lJulv 311 Oct. 31 '

BANKS

'Unused commitments Change during 3-months Outstanding endine on /Aar_

-,-r---

307Jalu

-- .

?II

n~t.

Onr-t

'l'l

'AT

24.5

35.0

21.2

20.7

32.0

18.8

3.7

2.9

2.4

67.5

18.9

27.4

16.8

16.0

24.8

15.1

2.9

2.5

1.7

51.7

4.0

5.5

2.9

3.7

5.2

2.4

0.3

0.4

0.5

12.2

1.6

2.1

1.5

1.1

2.0

1.3

0.5

0.2

3.6

1.2

1.4

1.0

0.7

1.2

1.0

0.4

0.2

2.9

1.9 4.8

1.9 6.8

2.2 3.8

1.6 4.7

1.7 6.4

1.8 3.5

0.3 0.1

0.1 0.4

0.4 0.3

13.6

6.9

8.9

6.2

6.7

8.4

5.6

0.2

0.5

0.6

16.5

11.1 0.9

14.9 3.5

9.5 1.1

8.8 0.5

13.4 3.0

9.0 0.5

2.3 0.4

1.5 0.5

0.5 0.6

31.0 4.2

2.2

3.5

1.7

2.2

3.4

1.3

0.1

0.4

7.7

0.6 1.2

0.9 1.1

0.5 0.7

0.7 0.9

0.7 1.0

0.5 0.7

0.2 0.1

0.1

0.4

1.9 2.6

0.6 1.0

0.9 1.2

0.8 0.8

0.4 0.6

0.8 1.3

0.6 0.7

0.2 0.4

2.3

0.1 0.2 -0.1 0.1 Participants in Quarterly Interest Rate Survey with total deposits of more than $1 billion (4 2 banks). This item may exceed sum of previous two items because some banks report combined total only. Less than $50 million. NOTE: Figures may not add to total due to rounding.

1.3 2.3

ATable 2:

VIEWS ON COMMIMENT POLICY

Total number of banks responding:

Jan. 31 1970

Apr. 30 1970

July 31 1970

Oct. 31 1970

Jan. 31 1971

Apr. 30 1971

July

31 1971

Oct. 31 1971

Unused commitments in the past three months have: Risen rapidly Risen moderately Remained unchanged Declined moderately Declined rapidly Takedowns in the next three months should: Rise rapidly Rise moderately Remain unchanged Decline moderately Decline rapidly Commitment policy compared to three months ago is: Much more restrictive Somewhat more restrictive Unchanged Less restrictive Much less restrictive

Table 3:

Indicated Change

EXPLANATION OF RECENT CHANGE IN NEW COMMITMENT POLICIES AS INDICATED IN THE CURRENT SURVEY

Number of Banks Indicating Change

More restrictive

Less restrictive

Reasons for Change

Increased Loan Demand

Reduced Availability of Funds

Both Demand And Funds

Decreased Loan Demand

Increased Availability of Funds

Both Demand And Funds

B-

SUPPLEMENTAL APPENDIX B: QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES*

Consistent with other information on conditions in loan markets, the Survey of Bank Lending Practices for the three months ending November 15, indicated relatively weaker loan demands and a Reflecting declines in greater availability of funds. (See Table 1.) time of the previous survey to rate from 6 per cent at the the prime split rates of 5-1/2 per cent to 5-5/8 per cent in effect when this survey was taken, the majority of respondents participating in the survey noted easier policies regarding interest rates. Respondents, in addition, indicated some easing of nonprice terms and a greater aggressiveness in seeking business from new and existing customers, including those outside of their bank's local service area. Somewhat more widespread availability of credit also was shown as bankers reported they were more willing to offer funds for purposes such as consumer installment loans, mortgage loans for single family housing, term loans, and participations. Weaker loan demands, which were noted at about 40 per cent of the banks in the sample, were indicated to be the major reasons for easier conditions in loan markets. A few respondents commented that businesses have obtained a more comfortable liquidity position from nonbank sources, thus reducing their requirements for bank loans. Nearly 30 per cent of the respondents, nonetheless, expected stronger loan demands in the next quarter. Examination of the responses to the survey by size of bank, as seen in Table 2, shows small differences between banks with deposits of $1 billion or more and those banks with deposits less than $1 billion. Policies at larger banks were somewhat more liberal in extending credit Relatively more of the smaller banks moved to established customers. toward an easier policy regarding interest rates charged on loans to finance companies. Regional differences among banks, shown in Table 3, in general, did not seem striking.

Prepared by Marilyn Barron, Research Assistant, Banking Section, Division of Research and Statistics.

NOT FCR QUOTATION OR

TABLE 1

PUBLICATION QUARTERLY

(STATUS

SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. 1/ NOVEMBER 15, 1971 COMPARED TO THREE MONTHS EARLIER) OF POLICY ON (NUMBER OF BANKS & PERCENT OF TOTAL BANKS REPORTING) MUCH STRONGER

TOTAL BANKS

PCT

BANKS

PCT

MODERATELY STRONGER

ESSENTIALLY UNCHANGED

MODERATELY WEAKER

BANKS

PCT

MUCH

WEAKER BANKS

PCT

STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TC THREE MONTHS AGO

125

100.0

18.4

41.6

ANTICIPATED CEMAKD IN NEXT 3 MONTHS

124

100.0

29.8

60.5

MUCH FIRMER POLICY

ANSWERING QUESTION BANKS

PCT

BANKS

PCT

MODERATELY FIRMER POLICY BANKS

PCT

38.4 8.9

ESSENTIALLY UNCHANGED POLICY

MODERATELY EASIER POLICY

BANKS

PCT

0.8

0.0

MUCH EASIER POLICY BANKS

PCT

LENDING TO NCNFINANCIAL BUSINESSES TERMS

ANC CONCITIONS: 39

31.2

64.8

4.0

1.6

107

85.6

12.8

0.0

5.6

114

91.2

3.2

0.0

1.6

108

87.1

11.3

0.0

0.C

0.0

105

84.0

16.0

0.0

100.0

71.7

21.8

0.0

124

100.0

104

83.9

16.1

0.0

123

100.0

78.1

15.4

0.0

INTEREST RATES CHARGED

125

100.0

0.0

COMPENSATING OR

125

100.0

0.0

125

100.0

0.0

124

100.0

ESTABLISIEC CUSTOMERS

125

100.0

NEW CUSTOMERS

124

STANDARDS

CF CREDIT WORTHINESS

MATURITY CF

TERM LCANS

REVIEWING CRECIT

LOCAL

SUPPORTING BALANCES

LINES CR LCAN APPLICATIONS

SERVICE AREA

NONLOCAL

SERVICE

CUSTOMERS

AREA CUSTOMERS

1/ SLRVEY OF LENCING PRACTICES AT AS dF NOVEMBER 15. 1971.

125 LAPGE BANKS

AEPORTIAG

IN THE FEDERAL RESERVE QUARTERLY

INTEREST

RATE

SURVEY

NOT FOR QUOTATION

1 (CONTINUEO)

TABLE

OR PUBLICATION

ANSWERING QUESTION BANKS

PCT

MUCH FIRMER POLICY BANKS

PCT

MODERATELY FIRMER POLICY

ESSENTIALLY UNCHANGED POLICY

MODERATELY EASIER POLICY

BANKS

PCT

BANKS

PCT

MUCH EASIER POLICY BANKS

PCT

FACTCRS RELATING TO APPLICANT 2/ VALUE AS CEPCSITCR OR SOURCE OF COLLATERAL BUSINESS

123

100.0

0.8

5.7

102

82.9

10.6

0.0

INTENDED USE OF THE LCAN

125

100.0

0.8

2.4

116

92.8

4.0

0.0

INTEREST RATES CHARGED

125

100.0

0.0

0.8

59.2

37.6

2.4

COMPENSATING OR

SUPPORTING BALANCES

125

100.0

0.0

1.6

119

95.2

3.2

0.0

ENFORCEMENT OF BALANCE REQUIREMENTS

125

100.0

0.0

2.4

120

96.0

1.6

0.0

ESTABLISHING NEW OR LARGER CREDIT

125

100.C

0.8

2.4

76.8

20.0

0.0

LENDING TO "NCNCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS:

LINES

ANSWERING SQUESTION BANKS WILLINGNESS TO MAKE OTHER

PCT

CONSIDERABLY LESS WILLING BANKS

PCT

MODERATELY LESS WILLING

ESSENTIALLY UNCHANGED

MODERATELY MORE WILLING

BANKS

PCT

BANKS

PCT

CONSIDERABLY MORE WILLING BANKS

PCT

TYPES OF LCANS

TERM LOANS TO BUSINESSES

125

100.0

0.0

2.4

100

80.3

17.6

O.C

CONSUMER

124

100.0

0.0

0.8

69.4

26.6

3.2

SINGLE FAMILY MORTGAGE LCANS

122

100.0

1.6

3.3

72.2

22.1

0.8

MULTI-FAMILY MORTGAGE LCANS

121

100.0

0.8

4.1

110

91.0

4.1

0.0

ALL OTHER MORTGAGE LOANS

123

100.0

0.O

2.4

104

84.6

13.0

0.0

PARTICIPATICN LOANS kITH CORRESPCNCENT BANKS

125

100.0

C.O

1.6

104

83.2

15.2

0.0

LCANS TO BROKERS

123

100.0

0.0

110

89.4

9.8

0.8

INSTALMENT LOANS

2/ FOR THESE FACTORS, FIRMER MEANS THE FACTORS WERE CCNSIERED MCRE CREDIT REQUESTS. AND EASIER MEANS THEY WERE LESS IMPORTANT.

IMPORTANT

IN MAKING DECISIONS FOR APPROVING

NOT

FOR QUOTATION OR COMPARISON

TABLE 2

PUBLICATION

OF QUARTERLY CHANGES IN BANK LENDING PRACTICES AT BANKS GROUPED BY SIZE OF TOTAL DEPOSITS 1/ NOVEMBER 15, 1971, COMPARED TO THREE MONTHS EARLIER) (STATUS OF POLICY ON (NUMBER OF BANKS IN EACH COLUMN AS PER CENT OF TOTAL BANKS ANSWERING QUESTION)

SIZE

TOTAL $1 & CVER

UNDER t$

OF BANK

MUCH STRONGER $1 & CVER

UNDER $1

TOTAL

DEPOSITS

IN BILLIONS

MODERATELY STRONGER

ESSENTIALLY UNCHANGED

MODERATELY WEAKER

$I 6 OVER

$1 & OVER

$S £ OVER

UNDER $1

MUCH WEAKER $1 E OVER

UNDER $I

STRENGTH CF DEMANC FOR COMMERCIAL AND INCUSTRIAL LCANS (AFTER ALLOWANCE FOP BANK'S bSLAL SEASONAL VARIATICN) COMPARED TC THREE MONTHS AGO

100

ANTICIPATED DEMAND

100

NEXT 3 MONTHS

TOTAL

$1 & OVER LENDING TO NCNFINANCIAL

UNDER $1

MODERATELY FIRMER

MUCH FIRMER

$1 & OVER

UNDER $1

$1 & OVER

UNDER $1

ESSENTIALLY UNCHANGED

MODERATELY BASIER

$1 & OVER

UNDER $1

UNDER It

MUCH EASIBR

$1 & OVER

UNDER $I

BUSINESSES

TERMS AND CCNCITIONS: INTEREST RATES ChARGED

100

COMPENSATING

1CO

100

STANCARCS OF CRECIT kCRTHINESS

100

MATURITY OF TERM LOANS

ICC

100

ESTABLIShED CUSTOMERS

100

NEW CUSTCMERS

100

ICC

100

1CO

100

SUPPORTING BALANCES

REVIEWING CRECIT LINES CR

LOCAL

SERVICE

KOKLOCAL

AREA

SERVICE

LOAN APPLICATIONS

CUSTOMERS

AREA

CUSTOMERS

SURVEY OF LENDING PRACTICES AT 54 LARGE BANKS (DEPOSITS OF $1 BILLION CP MOE) AND 71 SMALL BANKS (DEPOSITS NOVEMBER 15, 1971. $1 BILLICK) PEPCRTING IN THE FECERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS CF

LESS

THAN

TABLE 2

NOT FOR QUOTATION OR PUBLICATION

(CGhTINUED)

SIZE NUMBER ANSWERING QUESTION StI OVER FACTORS RELATING TO

UNDER $t

100

INTENDED USE OF

100

TERMS

$1 & OVER

UNDER $1

TOTAL DEPOSITS IN BILLIONS -MODERATELY ESSENTIALLY MODERATELY EASIER FIRMER UNCHANGED POLICY POLICY POLICY $1 & OVER

UNDER s$

l$ & OVER

UNDER $I

$1 & OVER

UNDER $1

MUCH EASIER POLICY t$1 OVER

UNDER $1

APPLICANT 2/

VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS

LENDIGl

OF BANK MUCH FIRMER POLICY

THE LCAN

"NCNCAPTIVE" FINANCE COMPANIES

ANC CONCITIONS:

INTEREST RATES CHARGED COMPENSATING GR ENFCRCEMENT OF

SUPPORTING

BALANCES

BALANCE REQUIREMENTS

ESTABLISHING NEW OR

LARGER CREDIT LINES

NUMBER ANSWERING CUESTION $1 & OVER WILLINGNESS

TC MAKE

TERM LOANS TO

LCANS

CTHER MERTGAGE

PARTICIPATICN LOANS COPRESPONCENT BANKS

$l 0 OVER

$1 & OVER

UNOER $1

UNDER

MODERATELY MORE WILLING $1 E OVER

UNDER $l

100

FAMILY MORTGAGE LCANS

LOANS TO EROKERS

UNDER $1

ESSENTIALLY UNCHANGED

100

BUSINESSES

100

MULTI-FAMILY MORTGACE LCANS ALL

l$ L OVER

MODERATELY LESS WILLING

CTHER TYPES OF LOANS

CONSUMER INSTALMENT SINGLE

UNDER $I

CONSIDERABLY LESS WILLING

1CO

LOANS

100

WITH 100

100

1C0

100

FOR THESE FACTORS. FIRMER MEANS THE FACTORS WERE CONSIDERED MORE CREDIT RECUESTS. AND EASIER MEANS THEY WERE LESS IMPORTANT.

IMPORTAnT

IN MAKING DECISIONS

FOR

AOPPPVING

CONSIDERABLY MORE WILLING $1 & OVER

UNOER $1

NOT

FOR QUOTATION OR

TABLE 3

PUBLICATION

QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. COMPARED TO THREE MONTHS EARLIER NOVEMBER 15, 1971 STATUS OF POLICY ON (NUMBER OF BANKS)

ALL OSTS

NEW YORK BOSTON TOTAL CITY CUTSIDE

PHILADEL.

CLEVELAND

RICHMOND

ST. ATLAN- CHICTA AGC LOUIS

MINNEAPOLIS

KANS. CITY

DALLAS

SAN FRAN

STRENGTH OF DERAND FCR CCMPERCIAL AND INCUSTRIAL LCANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATIONI COMPARED

TC 3 MONTHS

AGO

125 1 23 52 48 1

PUCH STPCRGER NOCERATELY STRONGER ESSENTIALLY UNCHANGED MODEPATELY WEAKER MUCH WEAKER ANTICIPATED CEMAND NEXT THREE MONTPS

0 1 3 4 0

0 5 6 9 0

0 0 3 6 0

0 5 3 3 0

0 3 1 2 0

C 2 5 4 0

0 2 5 5 0

1 1 4 4 0

0 5 5 4 1

0 0 6 3 0

0 1 1 1 0

c 1 5 3 0

0 1 5 3 0

0 1 6 6 0

0 2 5 1 0

0 4 15 1 C

0 1 7 1 C

0 3 8 0 0

0 3 3 0 0

0 2 8 I C

0 3 8 1 0

1 4 5 0 0

0 8 5 2 0

0 4 4 1 0

0 1 0 1 0

0 3 6 0 0

0 1 7 1 0

0 2 9 2 0

C 0 1 6 1

C C 8 12 C

0 0 5 4 C

0 0 1 5 0

0 0 4 6 1

C 0 3 0

O C 6 4 0

0 0 6 8 I

0 0 2 5 2

0 C 0 3 0

C 0 1 8 0

0 0 3 6 0

0 0 4 9 0

C 0 8 C C

C 0 15 5 0

C C 7 2 O

C 0 8 3 0

0 0 6

0 0 10 1 0

0 0 11 1 0

0 0 7 3 0

C 1 12 2 0

0 0 7 2 0

0 1 7 1 C

C 0 9 0 0

0 0 12 1 0

124 1 37 75 11 0

MUCH STRCNGE9 MOCERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER MUCH WEAKER

LENDING TO NONFINANCIAL BUSINESSES TERMS

ANC CONOITIONS

INTEREST RATES CFARGEG

125

MUCH FIPMER POLICY MCOERATELY FIRMER POLICY ESSENTIALLY UKCHANGEL POLICY MOCERATE Ly tASIER PCLICY MUCH EASIER POLICY

PUCH FIRMER POLICY NODERATELY FIRMER POLICY ESSENTIALLY UNCHANGEG PCLICY MGCERATELY EASIER PCLICY MUCH EASIER POLICY

OF LENDING PRACTICES NGVEMBER 15, 1971.

0 3 8 C

125

COMPENSATING BALANCES

1/ SURVEY AS CF

O 0 39 81 5

0 2 167 16 O

125 LARGE

BANKS REPORTINC

0 0

THE FEDERAL

RESERVE

QUARTERLY

INTEREST

0 9 P 0

FATE SUPVEY

NOT

FOR

QUOTATION

TABLE 3 (COMTINUEDI

PUBLICATION

ALL DSTS

NEW YORK BOSTOTAL CITY CLTSIDE TON

PHILAGEL.

CLEVE- RICHMONO LAND

ATLANTA

CHICAGO

ST. LOUIS

MINNEAPOLES

KANS. CITY

DALLAS

SAN FRAN

LENDIKG TO NCNFINANCIAL BUSINESSES TERMS

AMB CCNDITIONS

STANDARCS CF CREDIT WCRTHINESS MUCH FIRMER POLICY MODERATELY FIRMER PCLICY ESSENTIALLY UNCHANCEC PCLICY MODERATELY EASIER POLICY MUCH EASIER POLICY MATURITY OF

TERM LCANS

MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGEC POLICY MOOERATELY EASIER POLICY MUCH EASIER POLICY

125 0 7 114 4 0

0 C 7 1 C

0 0 2C C CG

0 C 9 0

0 0 11 0 C

0 2 4 0 0

0 0 10 1 0

0 0 11 1 0

0 1 8 1 0

0 1 14 0 0

0 1 8 0 0

0 0 3 0 0

C 1 8 0 0

0 0 9 0 0

0 1 12 0 0

C C 6 2 0

0 C 18 2 C

C 0 9 0 C

0 C 9 2

0 0 5 1 O

0 0 9 2 O

0 0 11 1 0

0 1 8 1 0

0 0 15 0 0

0 1 5 3 0

0 0 3 0 0

0 0 7 2 0

0 0 8 0 0

0 0 13 0 0

C O 7 1 O

C O 19 2 0

0 0 9 0 0

0 0 9 2 0

0 0 6 0 0

0 0 7 4 0

0 0 10 2 0

0 0 9 1 0

0 0 11 4 0

0 0 7 2 0

0 0 3 0 0

0 0 8 1 0

0 0 9 0 0

0 0 10 3 0

C 0 6 2 0

C 0 16 4 0

0 0 8 1 0

0 0 8 3 0

0 1 5 0 0

C 0 8 3 0

0 1 9 2 0

0 2 6 2 0

0 10 3 0

0 0 6 3 C

0 1 1 1 0

C 0 6 3 0

0 0 7 1 0

0 1 9 3 0

C 0 7 1 0

0 C 18 2 C

0 0 9 2 0

0 0 6 0 0

0 0 7 4 0

0 0 10 2 0

0 0 9 1 0

0 0 12 3 0

0 0 6 3 0

0 0 3 0 0

C 0 7 2

0 0 8 0

0 0 11 2 0

124 C 2 108 14

REVIEWING CREDIT LINES CR LCANS ESTABLISIEC CUSTOMERS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER PCLICY MUCH EASIER POLICY

MUCH FIRMER POLICY MCDERATELY FIRMER POLICY ESSENTIALLY UNCHANCEC PCLICY MODERATELY EASIER POLICY MUCh EASIER POLICY SERVICE

C 0 105 20 C

-4

124

NEW CUSTOMERS

LOCAL

125

AREA

CUSTOMERS

MUCH FIRMER POLICY MOCERATELY FIRMER POLICY ESSENTIALLY UNCHANCEL PCLICY MODERATELY EASIER POLICY MUCH EASIER PCLICY

0 8 89 27 0

124 0 0 104 2G 0

0 9 0 0

NOT FOR QUOTATION OR PUBLICATION

TABLE

ALL DSTS LENlING TO BUSINESSES REVIEWING

BOSTON

NEW YORK TCTAL CITY CLTSIDE

3 (CONTINUED)

PHILADEL.

CLEVE- RICHMOND LAND

ST. ATLAN- CHICLOUIS AGO TA

MINNEAPOLIS

KANS. CITY

DALLAS

SAN FRAN

NCNFINANCIAL

CREDIT LINES

NONLOCAL SERVICE

CR LCANS

AREA CUST

MUCH FIRWER POLICY MCOERATELY FIRMER POLICY POLICY ESSENTIALLY UNCHANC-E MOCERATELY EASIER PCLICY MUCH EASIER POLICY

FACTCRS RELATINC

123 1 7 96 19 O

0 0 6 2 O

0 0 18 1 0

0 0 8 0 0

0 0 10 1 0

0 2 4 0 0

0 0 7 4 0

0 1 11 0 0

1 1 8 0 0

0 2 11 2 0

0 0 6 3 0

0 0 2 1 0

0 0 8 1 0

0 0 6 2 0

0 1 9 3 0

0 0 6 1 0

C 0 17 2 0

0 0 8 0 0

0 0 9 2 0

0 0 5 1 0

0 0 8 3 0

0 0 10 2 0

1 1 8 0 0

0 1 13 1 0

0 2 7 0 0

0 1 2 0 0

0 2 6 1 0

0 0 9 0 0

0 0 11 2 0

0 0 8 0 0

0 0 2C 0 0

0 0 9 0 0

0 0 11 0 0

0 0 6 0 0

0 0 11 0 0

0 10 2 0

1 0 q 0 0

0 2 12 1 0

0 0 8 1 0

0 0 3 0 0

0 0 9 0 0

0 0 8 1 0

0 1 12 0 0

0 0 6 1 1

C 0 14 6 0

0 0 7 4 0

0 0 3 3 0

0 0 6 5 0

0 0 6 6 0

0 0 8 2 0

0 0 9 5 1

0 1 2 5 1

0 1 2 0

0 0 4 5 0

0 0 7 2 0

0 0 8 5 6

TO APPLICANT 2/

VALUE AS CEPCSITCR OR SOURCE OF CCLLATERAL BUSINESS MUCH FIRMER POLICY MOOERATELY FIRMER PCLICY ESSENTIALLY UNCHANGED PCLICt MObERATELY EASIER POLICY MUCM EASIER POLICY INTENDEC USE CF LOAN MUCH FIRMER POLICY MOCERATELY FIRMER POLICY ESSENTIALLY UNCHANGEC POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

123 1 7 102 13 0 125 1 3 116 5 0

LENDING TC "NCNCAPTIVE" FINANCE COMPANIES TERMS ANC CONDITICNS INTEREST

RATES CHARGED

MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGEt PCLICY MOCERATELY EASIER PCLICY MUCH EASIER POLICY

125 0 1 74 47 3

7 2 0

2/ FOR THESE FACTOkS, FIRMER MEANS THE FACTORS WERE CONSICERED CREDIT REQUESTS. ANb EASIcR MEANS THEY WERE LESS IMPORTANT.

VCRE IMPORTANT

IN MAKING OECISIONS FOR

APPRnVINS

NOT FCR

QUOTATION

TABLE

OR PUBLICATION

ALL DSIS

NEW YORK BOSTON TOTAL CITY OUTSIDE

(CONTINUED)

PHILADEL.

CLEVE- RICHLAND MOND

ATLAN- CHICTA AGO

ST. LOUIS

MINNFAPOLIS

KANS. CITY

DALLAS

SAN FRAN

LENDING IC "NCNCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: SIZE OF COMPENSATING BALANCES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MCOERATELY EASIER POLICY MUCH EASIER POLICY ENFORCEMENT CF BALANCE REQUIREMENT

0 2 119 4 0

0 C 8 O 0

0 0 20 0 0

0 0 9 0 0

0 O 11 0 0

0 0 6 0 0

0 0 10 1 0

0 0 11 1 0

0 1 9 0 0

0 1 13 1 0

0 0 9 0 0

0 0 3 0 0

0 0 9 0 0

0 0 12 1 0

C 0 8 0 0

0 0 2C 0 0

O 0 9 C 0

0 0 11 0 0

0 0 6 0 0

0 0 11 0 0

0 12 0 0

1 9 0 0

1 13 1 0

0 1 8 0 0

0 3 0 0

0 9 0 0

0 12 1 0

0 0 5 3 0

0 0 17 3 0

0 0 8 1 0

0 0 9 2 0

0 0 5 1 0

0 0 9 2 0

0 1 9 2 0

1 0 8 1 0

0 2 9 4 0

0 0 7 2 0

0 0 2 1 0

0 0 7 2 0

0 0 9 0 0

0 0 9 4 0

C C 6 2 0

0 0 ie 4 O

0 O 8 1 0

0 0 8 3 0

0 0 4 2 0

0 0 10 1 0

0 C 10 2 0

0 0 10 0 0

0 0 14 1 0

0 1 6 2 0

0 0 3 0 0

0 1 5 3 0

0 0 5 4

0 1 11 1 0

C 0 8 0 C

O 0 5 1 0

0 0 6 5 0

0 1 5 3 1

0 0 10 5 C

0 0 7 2 C

C 0 3 C 0

0 0 7 2 0

0 0 5 4 C

125

MUCH FIRMER POLICY MOCERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER PGLICY ESTABLISHING NEW OR CREDIT LINES

125

0 3 120 2 0

LARGER

MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

125 1 3 96 25 0

WILLINGNESS TC MAKE OTHER TYPES OF LCAhS TERM LCANS

IC BUSINESSES

CONSIDERABLY LESS hILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE MILLING CONSIDERABLY MORE WILLING CONSUMER

INSTALMENT LCANS

CCNSIGERABLY LESS wILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGEC MODERATELY MORE WILLING CCNSIDERABLY MORE WILLING

125

0 3 100 22 0 124 0 1 86 33 4

0 15 3 1

0 0 7 1 0

0 8 2 1

8 3 1

0 7 5 1

NOT

FOR

QUOTATION

TABLE

PUBLICATION

ALL DSTS WILLINGNESS TC MAKE TYPES OF LOANS

CONSIOERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGEC MODEPATELY MORE WILLING CONSIDERABLY MORE WILLING MULTIFAMILY MORTGAGE LOANS CONSICERAELY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGEG MOOERATELY MORE WILLING CONSIDERABLY MORE WILLING ALL OTHER MORTGAGE LOANS CONSICERALY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGEC MODERATELY MORE WILLING CONSIDERABLY MORE WILLING PARTICIPATION LOANS WITH CORRESPONDENT BANKS CONSIDERABLY LESS WILLING MOOERATELY LESS WILLING ESSENTIALLY UNCHANGEC MODERATELY MORE WILLING CONSIDERABLY MORE WILLING TO BROKERS

CGNSIOERAELY LESS WILLING MOOEPATELY LESS WILLING ESSENTIALLY UNCIANGEC MODERATELY MORE WILLING CONSIDERABLY MORE WILLING

NUMBER OF

BANKS

NEW YORK TOTAL CITY OUTSIDE

(CONTINUED)

PHILADEL.

CLEVELAND

RICHMONO

ST. ATLAN- CHICAGO LOUIS TA

MINNEAPOLIS

KANS. CITY

DALLAS

SAN FRAN

OTHER

SINGLE FAMILY MORTGAGE LOANS

LOANS

BOSTON

122 2 4 88 27 1

6 2 0

0 0 16 2 0

0 0 7 1 0

0 0 9 1 0

0 0 4 2 0

0 0 4 7 0

0 0 9 3 0

1 0 7 1 0

0 0 8 7 0

1 1 6 1 0

0 0 3 0 0

0 1 8 0 0

0 1 9 2 1

C 0 7 1 0

0 0 17 1 0

0 0 8 0 0

0 0 9 1 0

0 0 6 0 0

0 0 10 1 0

0 0 12 0 0

1 0 8 0 0

0 0 12 2 0

0 2 7 0 0

0 0 3 0 0

0 1 8 0 0

0 I 8 0 0

0 I 12 0 0

C C 7 1 0

0 0 16 3 0

O 0 8 0 0

0 0 8 3 0

0 0 5 1 0

0 0 8 3 0

0 0 11 1 0

0 0 9 0 0

0 0 12 3

0 2 5 2 0

0 0 3 0 0

0 1 6 2 0

a 0 9 0 0

0 0 13 0 0

C 0 6 2 0

0 1 16 3 0

0 1 8 0 0

O 0 8 3 0

0 0 4 2 0

0 0 11 0 0

0 0 11 1 0

0 0 9 1 0

O 0 12 3 0

0 0 7 2 0

0 0 3 0 0

0 1 6 2 0

0 0 6 3 0

0 0 13 0 0

C 0 6 2 0

0 0 17 3 0

0 0 6 3 0

0 0 11 C 0

0 0 6 0 0

0 0 10 1 0

0 0 11 1 0

0 0 9 1 0

0 0 13 0 1

0 0 7 2 0

0 0 3 0 0

0 8 0 "

8 1 0

121 1 5 110 5 0 123 0 3 104 16 0

125 O 2 104 19 0 123 0 0 110 12 1

125

0 12 1 0

CONFIDENTIAL (FR) SUPPLEMENTAL APPENDIX C SURVEY OF STATE AND LOCAL LONG-TERM BORROWING REALIZATIONS: THIRD QUARTER, 1971*

State and local governments, on balance, realized all but 6 per cent of the $6.2 billion of long-term borrowing planned for the third quarUniverse estimates projected from the FRB-Census ter of 1971 (Table 1). Survey of State and Local Long-term Borrowing Realizations1/ indicate that some governments borrowed $1.3 billion above original planned levels while other units--in most reported instances only temporarily--abandoned about the same amount of long-term tax-exempt offerings. Due to some nonresponse, no information is available concerning the results of an additional $.3 billion of previously reported borrowing anticipations. In all, State and local governments borrowed $5.9 billion in long-term markets during the July through September period of which $5.8 billion was accounted for by the survey. Results compiled from survey returns indicate that the net effect of downward interest rate movements (borrowing above originally scheduled amounts offset by shortfalls from borrowing plans) was to stimulate almost $550 million in long-term borrowing above previously planned levels; this of course contrasts with the strong negative impact on borrowing that had been caused by high interest rates in previous years. Most of the delayed or cancelled borrowing could be accounted for by units which were faced with administrative or legal delays. Future borrowing plans, as adjusted to universe levels from survey results,2/ show an estimated $6.2 billion of long-term offerings for the fourth quarter, about the same as had been planned for the third quarter. Although long-term borrowing anticipations for the first half of 1972 amount to $8.6 billion, they are expected to increase as the time horizon shortens, assuming that this sector continues to evaluate

market conditions favorably. 1/ The Governments Division of the U.S. Bureau of the Census is responsible for the polling of respondents. Their expertise has consistently produced fine reporting results with a response rate of 82 per cent for this quarter. The survey accounted for all but $300 million of previously reported anticipations and for 98 per cent of actual long-term borrowing during the quarter. 2/ These anticipations data were collected in the survey of borrowing plans as of June 30, 1971 and were modified by results from the third quarter realizations survey. * Prepared by Paul Schneiderman, Economist, Capital Markets Section, Division of Research and Statistics.

Table 1 LONG-TERM BORROWING ANTICIPATIONS AND REALIZATIONS OF STATE AND LOCAL GOVERNMENTS 3rd Quarter, 1971

Anticipations States and state colleges

Billions of dollars Borrowed as Borrowed above planned plans

Shortfalls from borrowing plans

Per cent Borrowing/ Anticipations

100

2.1

1.5

Special districts

School districts

2.1

1.7

Cities And towns

Counties

Totals

NOTE: */ 1/ 2/

Totls /

6.2-

4.5-

1.3-

1.3

Totals may not add due to rounding.

Less than $100 million. Of this total, the behavior of units having $.3 billion in anticipations could not be accounted for by this survey because of non-response. The survey accounted for $5.8 billion of the $5.9 billion of known long-term borrowing that was undertaken during June-September 1971.

CONFIDENTIAL

(FR)

C - 3

Shortfalls from Planned Borrowing State and local governments elected to postpone to future periods a little more than $900 million and cancel another $400 million of planned long-term borrowing during the third quarter. Total shortfalls were one-half as large as those for the previous quarter. The bulk of the long-term borrowing suspensions during the third quarter--$850 million--were accounted for by units which indicated administrative or legal problems were an inhibiting factor at the time (Table 2). This amount is about in line with the average effect such delays have had upon borrowing plans in each of the last four quarters. Delays in the scheduling of the projects themselves--and not delays in the arranging of financing--appear to be the cause for more than one-half of all such shortfalls. Actually, problems associated with the financing of the projects directly caused only slightly more than $30 million of capital outlay cutbacks, with financial substitutes supporting projects not postponed or cancelled. Respondents indicated plans to reinitiate over 72 per cent of the long-term borrowing that was suspended during the quarter because of legal or administrative delays in projects or their financing. Actual or anticipated interest rate movements were responsible for only a small part of the failure to realize borrowing plans during the third quarter. At $180 million, postponements and cancellations induced by interest rate considerations were well below the $480 million average of the last four quarters. The nearly one percentage point drop in interest costs over the third quarter induced some governmental units to carry out borrowing as planned and to accelerate other plans when practical. Of the units that did report borrowing setbacks induced by interest rates, interest rate ceilings, yields evaluated as too high, and expectations that yields would decline further accounted for 7, 4, and 2.5 per cent of all shortfalls, respectively. Reports of postponements or delays in capital projects because of borrowing shortfalls so induced were insignificant, as the bulk of long-term borrowing deficits was absorbed by financing out of liquid assets or by short-term borrowing. Over 80 per cent of such alternative financing is scheduled to be replaced by long-term funding during the next year. The survey indicated a small amount of long-term borrowing suspended because authorization for such issues was not forthcoming. A continuation o authorization difficulties is expected to be reported in future quarters given the high rate of rejections of bond proposals included on the November election ballots.

Table 2 SHORTFALLS FROM BORROWING PLANS 3rd Quarter, 1971 (In millions of dollars) Interest rates too high

Authorization not obtained

Administrative and legal delays

Interest rate ceiling

States and state colleges

195

280

Counties

135

183

Cities and towns

249

371

Special districts

School districts

243

104

418

851 1/

224

1,346

100

Total

Per cent NOTE: 1/

Interest rates expected to fall

Totals may not add due to rounding.

Of this total, $404 million represents delays not necessarily related to financing.

Other

Total

Memo: Per Cent

CONFIDENTIAL (FR) C -5

School districts, among types of units, fared poorly in their realization of long-term borrowing plans, even under favorable market conditions. This probably occurred because of their dependence on the property tax--voters have been reluctant to approve bonds, elected officials hesitant about proposing issues, and units may have reached their bonding limits. While the State and local sector experienced total shortfalls equal to roughly one-fifth of anticipations, the rate for school districts was twice as high. School districts accounted for only 15 per cent of reported anticipations, but experienced 37 per cent of interest rate induced shortfalls. Additionally, the impact of suspended long-term borrowing plans was more severe for school districts; these units absorbed more than 70 per cent of all capital outlay cutbacks while at the same time experienced 30 per cent of total State and local long-term borrowing shortfalls. Such impacts may result from these districts relatively small borrowings, irregular use of the capital markets, relative lack of liquidity and overall tight operating budgets. Borrowing Above Originally Planned Levels Early authorizations, firming of project plans, and favorable interest rate movements accounted for the bulk of the $1.3 billion in long-term borrowing that exceeded previously scheduled levels for the July through September period (Table 3). According to survey responses, the sizable decline in municipal yields, most of which occurred following announcement of the administration's new economic policy, accounted for over one-half of the long-term borrowing accelerations. The favorable interest rate movements may also have had some influence on the speeding up of authorizations and project plans. Alternative Means of Finance Where borrowing shortfalls did occur, many governments, desiring to maintain their planned capital expenditures, relied upon other financing means (Table 4). As has typically been the case, short-term borrowing was resorted to most often, and, although slightly below the average use of this expedient over the last four quarters,the $309 million of short-term borrowing could perhaps account for a substantial amount of the net change in State and local short-term debt outstanding in the recent quarter. The magnitudes of use of existing liquid assets and reduction of other cash outlays do not differ markedly from those in previous periods. Their relatively limited role as an alternative source of funds for capital projects reflects the generally tight budget positions of the governments involved. Long-term Borrowing Anticipations State and local governments reported long-term borrowing anticipations of $6.2 billion for the fourth quarter. It now appears

Table 3

BORROWING ABOVE PREVIOUSLY PLANNED LEVELS 3rd Quarter, 1971 (In millions of dollars)

Memo: Per cent

Authorized sooner than expected

Project plans ready early

Interest Rates expected to rise

Interest rates declined

Other

States and state colleges

239

441

Counties

100

238

Cities and towns

/ 170-'

173-

469

Special districts

stricts

School Total

Per cent

NOTE: 1/

Total

1,276

100

150

242

198

529

157

11.8

19.0

15.5

41.5

12.3

100.0

Totals may not add due to rounding.

The bulk of this amount, $167 million under each category, large metropolitan city.

accounted for by the report of one

CONFIDENTIAL (FR) C - 7

unlikely that these plans will be completely realized as staff estimates for long-term municipal issues through December now total only $5.5 billion. half of 1972 indicate $4.9 billion Preliminary anticipations for the first in the authorized category and another $3.7 billion of borrowings already scheduled though not yet authorized. More accurate estimates for the first and second quarters of 1972 will be available after the semi-annual anticipations survey to be conducted as of the end of December.

Table 4

ALTERNATIVE MEANS OF FINANCING LONG-TERM BORROWING SHORTFALLS 3rd Quarter, 1971

Millions of dollars

Per cent

Short-term borrowing

309

Use of liquid assets

131

Postpone other cash outlays

145

Money not needed and other 1/

169

754

100

Total

MEMO :

Capital outlay cutbacks

106

1/ Does not include $457 million reported as delay becuse of problems inherent in the projects themselves, but does reflect long-term borrowing units hoped to accomplish before the inception of the project.

Cite this document

APA

Federal Reserve (1971, December 13). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19711214_part3

BibTeX

@misc{wtfs_greenbook_19711214_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1971},
  month = {Dec},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19711214_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}