greenbooks · December 18, 1972

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 15, By the Staff Board of Governors of the Federal Reserve System

1972

SUPPLEMENTAL NOTES The Domestic Economy Industrial production.

Industrial production rose 1.1 per

cent further in November and at 118.5 per cent was 10.3 per cent Gains in output over the month were widespread

above a year earlier.

among consumer goods, business equipment, and materials.

Production

of defense and space equipment, however, remained at the level prevailing since July. INDUSTRIAL PRODUCTION 1967=100, seasonally adjusted Per cent change from Oct. to Nov. A year ago

r.Sept.

1972 r.Oct.

e.Nov.

107.4

116.1

117.2

118.5

1.1

10.3

118.0

124.7

125.4

126.9

1.2

7.5

97.9 75.9

106.4 77.7

108.1 78.7

109.4 79.1

1.2 .5

11.7 4.2

Materials steel

106.5 81.9

119.1 113.4

120.2 117.3

120.9 115.9

.6 -1.2

13.5 41.5

Autos

109.2

109.6

116.9

124.2

6.2

13.7

1971 Nov. Total index Consumer goods Business equip. Defense equip.

Seasonally adjusted sales of new homes by merchant builders, which had already advanced to a new plateau in August, accelerated again in October to a record annual rate of 853,000 units.

As a result,

even though merchant builders' stocks of new homes rose somewhat further, the stocks level in October equaled 5.5 months' supply, compared with a

-2

relatively high 6.3 months' supply as recently as last July when sales were appreciably lower.

Upgraded demands continued to be a factor in

the sales expansion in October, as the median price of new homes sold reached $28,500, nearly $3,000 above the median price of the mix of such homes sold in October of last year. Sales of existing homes were also exceptionally strong in October, and at a median price--$27,060--

well above a year earlier.

NEW SINGLE FAMILY HOMES SOLD AND FOR SALE Homes Homes Sold 1/ for Sale 2/ (Thousands of units)

Median price of Homes Sold Homes for Sale (Thousands of dollars)

1971

682

284

25.5

25.9

QI QII QIII (p)

701 686 746

318 355 385

26.2 26.8 27.9

26.1 26.5 27.1

July (r) August (r) September (p) October (p)

692 774 772 853

361 385 385 394

27.7 28.0 28.0 28.5

26.7 27.0 27.1 27.6

QIV 1972

1/ 2/

SAAR. SA, end of period.

-3-

INTEREST RATES

Highs

1972 T ,,.lB

Nov. 20

Dec.

Short-Term Rates Federal funds (wkly. avg.)

5.29 (12/13)

3-month Treasury bills (bid) Comm. paper (90-119 day) Banker's acceptances Euro-dollars CD's (prime NYC) Most often quoted new

5.10 5,38 5.50 6.31

5.38 (10/25)

6-month Treasury bills (bid) Comm. paper (4-6 mo.) Federal agencies CD's (prime NYC) Most often quoted new 1-year Treasury bills (bid) Federal agencies CD's (prime NYC) Most often quoted new

3.18 (3/1)

4.89 (11/15)

5.29 (12/13)

(2/29) (2/23)

4.76 5.25 5.38

(3/8)

5.69

5.02 5.38 5.50 6.00

3.50 (2/23)

5.12 (11/15)

5.25

5.28 (12/12) 5.38 (12/14) 5.51 (9/25)

3.35 (1/10) 3.88 (3/3) 3.79 (2/17)

5.95 5.25 5.28

5.27 5.38 5.51

5.50 (12/13)

3.88 (2/23)

5.38 (11/15)

5.50

5.55 (9/22) 5.80 (10/16)

3.57 (1/8) 4.32 (1/17)

5.15

5.56

5.17 5.72

5.75 (11/15) 3.20 (9/14)

4.62 (1/19) 2.35 (1/12)

5.75 (11/15) 2.90 (11/17)

5.62 3.10

6.32 (9/14) 6.22 (4/14)

5.47 (1/13)

6.08

5.71 (11/15)

5.73

6.11 5.94

Seasoned Aaa Baa

7.37 (4/24) 8.29 (1/3)

7.05 (12/7) 7.93 (12/7)

7.10 7.96

7.09 7.94

New Issue Aaa Utility

7.60 (4/21)

7.08 (3/10)

7.12 (11/16)

7.21

Municipal Bond Buyer Index

5.54 (4/13)

4.99 (1/13)

5.01 (11/16)

5.03

Mortgage--implicit yield in FNMA auction 1/

7.72 (10/30)

7.54 (3/20)

7.71 (11/13)

7.67 (12/11)

Prime municipals

(12/11) (12/14) (12/14) (12/5)

2.99 3.75 3.75 4.62

(2/11)

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

Corporate

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

APPENDIX A:

MATURITIES ON NEW-AUTO LOANS

New-car loans for as long as 42 and 48 months, while still a very minor share of total new-car loans, are under experiment at a growing number of smaller commercial banks and finance companies. Currently, the usual maximum term is 36 months. If a leading national lender should begin to promote 42 or 48 month auto loans, longer maturity loans would probably soon be offered by virtually every auto lender, although the relative volume of such loans would probably increase only gradually for most lenders. Loans of 42 to 48 months may become widespread, even dominant, in the future, but the development is likely to take years rather than months. With credit involved in about two-thirds of all new-auto sales, auto demand could respond strongly to a widespread lengthening of maturities. An extension to 42 or 48 months could reduce monthly payments on a given car by approximately 10 to 20 per cent, or increase by about 15 to 30 per cent the size of loan that could be supported with a given monthly payment. Sales rose sharply during the last major upward shift in auto loan maturities (to 36 from 24 and 30 months) which took place in the mid-1950's. In 1955, when the shifting in maturities was in full force, auto sales grew explosively, and sales in the next two years, although falling below the 1955 level, remained generally strong. But even if auto sales were not to respond vigorously to a future lengthening of maturities, substantially lower monthly auto payments could permit consumers to increase expenditures on other goods and services. Although some lenders have begun to offer 42 and 48 month new-car loans, very few such loans have yet been originated. At finance companies, the proportion of over-36-month new-car loans made in October (latest date available) was double that of a year ago, but still only 1.3 per cent of total new-car loans. At commercial banks, no comparable data are available; but a spot check of banks around the country suggests that many are seriously studying longer maturiries though not yet committing themselves to such a policy. In Seattle, at least one bank has been actively promoting 42month auto loans (while also lowering the downpayment requirement from one-third to one-quarter) since March of this year. In September, 39 of this bank's 169 direct auto loans (23 per cent) had 42-month maturities. An officer of the bank cited five major reasons for the extendedmaturity plan:

(1)

competition from credit unions and auto dealers offering longer plans;

(2)

calculations that the equity position of the consumer in his automobile would not become adverse to the bank's interest under such terms;1/

Prepared by Charles Luckett, Economist, Mortgage, Agricultural, and Consumer Finance Section, Division of Research and Statistics.

A - 2 (3)

consideration of the extent to which car prices have risen in recent years;

(4)

the recognition that consumer attitudes are changing as indicated by more consumer leasing of cars, and a growing propensity for individuals to finance other expenditures by refinancing an auto loan that has been almost paid off; and

(5)

a desire to increase loan volume--consumer reluctance to borrow during Seattle's aerospace industry depression had lowered the loan-deposit ratio below the desired level.

In the East, several bankers indicated that new-auto loans in excess of 36 months were virtually nil, and they generally felt that no other banks in their area were offering such terms. But according to Bankers Research one large New York City bank has just recently reintroduced the use of balloon paper, an instrument which had virtually disappeared from the auto finance field. Since the large final balloon

payment is almost always refinanced, such loans can be used as an indirect way of lengthening maturities and reducing monthly payments. One bank was contacted in Worcester, Massachusetts, that had initiated a 48-month loan plan as reported last year in Automotive News. The bank has set up very strict guidelines for the plan, however, and only about 2 per cent of its loans have carried 48-month maturities since the program's inception. In the Midwest, some banks are moving cautiously towards trying out longer maturities. An Akron bank has just begun to offer 42-month loans in response to such a move a month ago by two competitors. In Columbus, apparently no banks are promoting longer maturity plans at present. One banker mentioned that a dealer from which his bank buys paper has been advertising 48-month loans for about three years, but no one else he knows of has followed suit. An April issue of the American Banker noted that a Detroit area bank had just then begun a 48-month plan. A call to an officer of that bank elicited the estimate that 5 to 8 per cent of the bank's new-car loans were in the 48-month category. He indicated that two major Detroit banks had also recently begun 48-month plans. In Chicago, according to the October 16 American Banker, a medium-sized bank was offering 48-month auto loans on an experimental basis during October.

Staff calculations indicate that, at the end of one year, assuming an original downpayment of 20 per cent of retail price, the tradein value of a standard size American car will be about $200 greater than the remaining loan obligation for a 36-month loan, about equal to the loan obligation for a 42-month loan, and $200 less than the loan obligation for a 48-month loan.

B- 1 SUPPLEMENTAL APPENDIX B THE OCTOBER 31 QUARTERLY SURVEY OF LOAN COMMITMENTS *

Outstanding unused loan commitments at the 42 banks participating in the October 31 Survey of Bank Loan Commitments showed sustained strength -- growing nearly six per cent since the end of July. (See Table 1A.) All major categories recorded some gains, with the major increase occurring in the commercial and industrial area. Commitments for real estate mortgages also were particularly strong, while commitments to nonbank financial institutions grew at about the moderate-to-strong pace recorded in the previous survey. The rise in commercial and industrial unused commitments was marked by a very strong advance in commitments for term loans and revolving credits -- the rate of growth in each category being the strongest since the survey began in early 1969. To some extent, this growth may be connected with reports of introductions of "cap" loans, which have maximum interest rates guaranteed over the life of the loan, and liberalized amortization schedules under which little or nothing is paid on the principal until maturity. As for underlying commitment flows, the volume in most categories of new commitments and takedowns, expirations, and cancellations was considerably below the levels of three months ago. (Tables 1B, 1C) Most of this moderation probably reflected earlier expirations and renewals which were induced by reviews of credit lines during the summer months. Moving more strongly than most other categories, new commitments for term loans and revolving credits matched the high reached in the previous survey. The volume of new commitments for real estate mortgages was also at an all-time high with new commitments on nonresidential properties responsible for most of the increased activity. At the same time, the level of takedowns, expirations, and cancellations for real estate mortgages was equaled only in July, 1971. Turning to respondents' views on commitments and commitment policies, more than half anticipated a moderate step-up in takedown

activity during the next three months.

(See Table 2.)

Commitment policies

at the majority of banks, in the meantime, had not changed significantly. Of the three banks which recently adopted less restrictive policies, one switch was explained, in comments to the survey, by increased competition, while the remaining two banks cited lack of strength in loan demand. (Table 3.) All three of the banks were in New York City.

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

B-2 NOT FOR QUOTATION OR PUBLICATION

QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U.S. BANKS *1 (AS OF OCT. 31, 1972) TABLE 1A UNUSED COMMITMENTS (DOLLAR AMOUNTS IN BILLIONS) (1) AS OF ODL. 31 I972 AMT it CIW ' I

(2) I AS OF I JUL. 31 I 1972 I AMT It F rlPrF

NUMBER OF BANKS

4e 4

UNUSED COMMITMENTS C & I FIRMS NONBK FINAN INSTS REAL ESTATE MORT( MEMOI CONSTRUCTION LOANS INCL ABOVE

80.21 60.51 14.41 5.31 4.11 I

5.91 5.81 5.01 10.91 8.21

COMMERCIAL & INDUST FIRMS TERM LOANS REVOLVING CREDITS TOT: TERM 6 HEV *2 CONFIRMED LINES OTHER COMMITMENTS

3.11 15.31 19.11 36.91 4.61

23.41 8.61 10.71 2.81 11.31

75.71 57.21 13.71 4.71 3.81 ) 1

2.51 14.11 17.21 35.91 4.11

I I I I I

131) AS OF APR. 30 1972 AU m

I I I

is w

Prr

(4) AS OF JAN. 31 1972

I I 1 I

AMT

(5) AS OF OCT. 29 1971 AMT I rP. e*YI

I I I I I -

(6) AS OF JUL. 31 1971 AMY IS Pw " - - -""' - - - ..--

I I 1

1 I

(7) AS OF APR. 30 1971 AMT I Pur -" -~~Y

I I I

1 I

(8 AS OF JAN. 31 1971 AMT

~_l__

5.11 4.91 4.81 8.91 8.71 1

72.01 54.51 13.11 4.41 3.51 I

2.51 P.61 0.91 5.91 8.21

70.31 53.21 13.01 4.11 3.21 I

5.01 3.91 6.71 13.61 9.21 I

66.91 51.11 12.21 3.61 2.91 I

2.91 2.41 4.11 6.21 1.01 I

65.11 50.01 11.71 3.41 2.91 I

4.71 5.31 3.31 1.11 5.41 I

62.11 47.41 11.31 3.41 2.71 3

6.41 6.51 3.01 18.01 18.81

58.41 44.51 11.01 2.91 2.31

12.71 4.91 5.61 4.81 3.21

2.31 13.41 16.31 34.21 4.01

5.21 -3.81 -2.31 4.71 5.41

2.11 14.01 16.71 32.71 3.81

-6.61 2.71 1.21 5.61 2.31

2.31 13.61 16.51 31.01 3.71

19.91 1.91 3.91 1.71 1.41

1.91 13.31 15.91 30.41 3.61

6.91 3.01 3.21 5.21 17.11 I

1.81 12.91 15.41 28.91 3.11

16.91 1.21 1.51 8.51 15.41

1.51 12.81 15.11 26.71 2.71 1

I142 42

NONBANK FINANCIAL INSTITUTIONS FINANCE COMPANIES MTGE WAREHOUSING ALL OTHER

8.41 2., 3.81

1.91 1.51 15.11

8.31 2.21 3.31

1.61 8.21 11.41

8.11 2.01 2.91

0.71 5.11 -1.11

8.11 1.91 3.01

5.81 2.71 12.21

7.71 1.91 2.61

5.21 5.01 0.21

7.31 1.81 2.61

1.91 10.61 2.61

7.11 1.61 2.61

0.01 -1.61 16.01 1

T.11 1.61 2.21

REAL ESTATE MORTGES RESIDENTIAL OTHER

1.81 3.41

-8.11 14.6

2.01 2.81

12.01 6.81

1.81 2.61

13.51 1.31

1.61 2.61

16.61 11.81

1.31 2.31

13.71 2.31

1.21 2.21

12.31 -4.01

1.01 2.31

17.71 18.21

0.91 2.01

*1 BANKS PARTICIPATING IN THE QUARTERLY INTEREST RATE SURVEY -- MAINLY BANKS WITH TOTAL DEPOSITS OF $1 BILLION OR MORE. *2 THE TOTAL MAY EXCEED THE SUM OF THE PREVIOUS TWO ITEMS SINCE SOME RANKS REPORT ONLY TOTALS.

** NOTE:

MINOR

INCONSISTENCIES MAY

OCCUR IN FIGURES DUE TO ROUNDING. **

rCMr. 1Y

___ _

B-3 QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U.S. BANKS *1 (AS OF OCT. 31. 1972)

NOT FOR QUOTATION OR PUBLICATION

TABLE 18 NEw COMMITMENTS IDOLLAR AMOUNTS IN BILLIONS) (1) I (2) I (3) AS OF AS OF AS OF OCT. 31 I JUL. 31 1 APR. 30 1972 1 1972 I 1972 AMT 1% CHG I AMT- I CHG I AMT 1%. CH NUMBER OF RANKS GRAND TOTAL NEW COMMITMENIS C & I FIRMS NONBK FINAN INSTS REAL ESTATE MORTG MEMO: CONSTRUCTION LOANS INCL AHOVE COMMERCIAL & INDUST FIRMS TERM LOANS REVOLVING CHEDITS TOT: TERM & WEV *2 CONFIRMED LINES OTHER COMMITMENTS

I I

48.71 -21.41 21.91 -22.11 4.31 -31.51 2.51 16.01 1.71 26.61 3 I

36.61 28.11 6.21 2.21 1.31 I

42 I

(4 AS OF J AN. 31 I 1972 I AMT 1 CHG

I I I I

I I

(5) AS OF OCT. 29 1971 AT

16 AS OF JUL. 31 1 1971 I AMT 35 CHG

42 I

I -39.41 -34.71 -48.11 -24.91 -24.21 I

35.31 38.11 32.81 12.31 10.01

27.01 20.41 4.71 1.91 1.21 i

15.61 12.01 30.21 23.91 11.71 I

23.41 18.21 3.61 1.61 1.11 3

10.31 8.51 25.51 1.91 4.81

21.21 16.81 2.91 1.51 1.01 I

2.21 11.6) 4.91 11.11 7.31 11.91 11.81 18.71 1.31 -25.81 I I

2.01 4.41 6.51 9.91 1.71

-8.81 17.61 5.41 4.81 57.01 1

2.21 3.81 6.21 9.51 1.11 1

17.31 -44.61 -30.41 -36.61 -68.91 1

1.91 6.81 8.91 14.91 3.51

2.91 -17.41 6.11 10.81 9.31 0.01 11.11 -36.31 1.51 10.01 1 1

3.61 5.51 9.31 17.51 1.41 1

60.31 12.31 26.91 48.31 8.21

3 3

(7) I AS OF I APR. 30 I 1971 I AMT 1S CHG

35.01 27.41 5.51 2.11 1.41

43.01 45.21 37.81 29.71 16.41

-0.11 40.8 29.21 35.11 291.11

I 181 I AS OF I JAN. 31 I 1971 I AMT -CH

I I

24.51 18.91 4.01 1.61 1.21 I

16.01 17.71 6.41 22.91 21.81 I

21.11 16.01 3.81 1.31 1.01 I 3

1.91 4.RA 6.91 11.11 0.91

4.s51 -6.71 1.11 30.51 25.41

1.51 5.21 6.RI 8.51 0.71

38.9 38.3 47.3 24.1 19.6

67.6 A3.0 75.3 19.6 18.8

NONBANK FINANCIAL INSTITUTIONS FINANCE COMPANIES MTGE WAREHOUSING ALL OTHER

1.91 -46.11 0.81 -17.01 1.51 -9.01

3.61 1.01 1.71

41.71 3.91 36.31

2.51 0.91 1.21

52.31 1.91 19.51

1.71 0.91 1.01

-0.41 65.91 S7.11

1.71 -52.61 0.51 -40.11 0.71 -40.31

3.51 63.61 0.91 46.21 1.11 -10.71

2.21 -4.41 0,61 -14.01 1.21 55.01

2.31 0.71 0.81

40.4 97.3 34.8

REAL ESTATE MORTGES RESIDENTIAL OTHER

1.01 1.bl

1.11 1.11

22.51 3.61

0.91 1.01

19.11 28.31

O.AI 0.81

-2.21 6.01

0.81 0.81

0.91 1.21

0.61 1,01

0.41 0.91

18.0 27.1

-5.71 3 .0o1

-13.01 -33.91

51.91 16.71

47.71 12.01

*1 HANKS PARTICIPATING IN THE QUARTERLY INTEREST RATE SURVEY -- MAINLY BANKS WITH TOTAL DEPOSITS OF S1 BILLION OR MORE. *2 THE TOTAL MAY EXCEED THE SUM OF THE PREVIOUS TWO ITEMS SINCE SOME BANKS REPORT ONLY TOTALS. ** NOTEI

MINOR INCONSISTENCIES MAY OCCUR IN FIGURES DUE TO ROUNDING. **

B-4 NOT FOR QUOTATION OR PUBLICATION

QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U.S. BANKS *1 (AS OF OCT. 31, 1972) TABLE 1C TAKEDOWNS,EXPIRATIONS AND CANCELLATIONS (DOLLAR AMOUNTS IN BILLIONS)

NUMBER OF BANKS TOTAL TAKEDOWNS C & I FIRMS NONBK FINAN INSTS REAL ESTATE MONMT MEMO: CONSTRUCTION LOANS INCL ABOVE COMMERCIAL & INDUST FIRMS TERM LOANS REVOLVING CREDITS TOTS TERM & REV *4 CONFIRMED LINES OTHER COMMITMENTS NONBANK FINANCIAL INSTITUTIONS FINANCE COMPANIES MTGE WAREHOUSING ALL OTHER REAL ESTATE MOHMGf S RESIDENTIAL OTHFR

(1) (2) I 131 I (4) I (5) 1 (6) I (7) I (81 AS OF I A OF I AS OF I AS OF I AS OF I AS OF I AS OF I AS OF OCT. 31 I JUL. 31 I APR. 30 I JAN. 31 1 OCT. 29 I JUL. 31 I APR. 30 I JAN. 31 1972 I 1972 I 1972 1 1972 I 1971 1971 1971 1 1971 AMT 1%CH I AMT IS CHG I AMT I CHO I ANT IS CHG I AMT I CH1 I ANT 1%CMH I AMT IS CHG I AMT 1. CH-l. I I I I I I I I I I I I I I 42 I 42 4242 I I 1 42 1 I 42 I I 42 I I 42 I I 42 I 1 I I I I 1 I I 1 I 1 I 24i.2 23.21 32.91 30.31 25.31 26.01 20.11 22.21 19.31 22.41 32.01 33.01 20.71 25.01 17.41 0.0 18.61 23.61 25.51 30.81 19.01 25.91 16.21 23.31 15.61 23.41 24.81 33.21 16.01 25.21 13.21 0.0 3.61 19.91 5.61 29.01 4.61 ?5.91 2.81 17.71 2.41 b1.51 5.21 30.61 3.71 24.61 3.01 0.0 2.01 2r.71 1.81 27.51 1.71 28.11 1.11 20.71 1.31 26.81 2.01 37.11 1.11 24.01 1.11 0.0 1.41 25.31 1.01 21.51 0.91 21.51 O.Al 20.41 1.01 25.61 1.21 29.61 0.71 21.21 0.81 0.0 I I I I I I I I I 1 I I I

1.81 0.81 1.11

I I 42.81 24.31 28.11 21.61 18.81 I I 17.41 25.61 21.91

I 1.21 0.81

I 39.71 19.21

I 2.31 4.91 7.51 10.11 1.11 I

I I 3.31 4.91 8.41 15.81 1.31 I I 3.51 0.81 1.41

I I 56.31 25.61 32.71 30.61 23.41 I I 29.51 26.61 29.51

II 0.91 30.91 0.91 24.81

I I 2.11 5.41 7.71 10.21 1.11 I I 2.51 0.81 1.31

48.31 28.91 32.11 23.01 21.31 I I 23.31 28.91 30.41

2.11 4.11 6.31 8.21 1.61 I I 1.21 0.91 0.71

50.01 22.51 27.51 20.11 30.21 I I 13.11 30.71 19.51

0.71 1.01

28.01 P8.21

I 0.51 0.51

25.41 17.61

I I 1.81 3.51 5.61 9.01 1.01 I I 1.31 0.51 0.71

I I 44.01 20.51 25.31 22.41 22.11 I I 14.41 19.61 19.91

I I 1.71 6.41 8.41 13.41 3.01 I I 3.41 0.71 1.01

I I 47.61 32.41 34.71 30.61 45.01 I I 31.71 29.31 28.41

I I 1.61 4.71 6.71 8.81 0.51 I I 2.21 0.71 0.91

I I 47.31 26.51 30.31 23.31 13.61 I I 23.21 28.71 25.81

I I 1.41 4.31 5.71 7.01 0.61 I I 1.81 0.61 0.71

I 0.61 0.71

I 31.31 23.91

I 39.11 36.01

0.81 1.31

0.41 0.61

I 28.91 21.61

I 0.31 0.81

1S BILLION OR MORE. *1 BANKS PARTICIPATING IN THE QUARTFRLY INTEREST RATE SURVEY -- MAINLY BANKS WITH TOTAL DEPOSITS OF *2 FOR THIS TABLE IHE PERCENTAGE CHANGE COLUMN CONTAINS THE RATIO OF TAKEDOWNS TO AVAILABLE COMMITMENTSI EXPRESSED AS A (AVAILABLE COMMITMENTS = UNUSED COMMITMENTS FROM THE PREVIOUS QUARTER * NEW COMMITMENTS IN THE CURRENT QUARTER). *3 PERCENTAGE CHANGE NOT COMPUTED FOR THIS QUARTER DUE TO THE SIZE CONSTRAINTS OF THE MATRIX. *4 THE TOTAL MAY EXCEED THE SUM OF THE PREVIOUS TWO ITEMS SINCE SOME BANKS REPORT ONLY TOTALS.

NOTE:

MINOR INCONSISTENCIES MAY OCCUR IN FIGURES DUE TO ROUNDING. **

0.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0

0.0 0.0

PERCENTAGE.

B -5 NOT FOR QUOTATION OH PUBLICATION

QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U.S. BANKS (AS OF OCT. 31, 1972) TABLE 2:

VIEWS ON COMMITMENT POLICY

TOTAL NUMBER OF BANKS RESPONDING: UNUSED COMMITMENTS IN THE PAST THREE MONTHS HAVEI 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 RESHIICTIVE UNCHANGED LESS RESTRICTIVE MUCH LESS RESTRICTIVE

0 1 42 5 0

0 1 44 3 0

0 0 14 3 1

0 0 37 11 0

0 2 37 9 0

0 1 25 21 1

B - 6 NOT FOR QUOTATION OR PUBLICATION

QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U.S. BANKS (AS OF OCT. 31, 1972) TABLE 3

(1) OCT. 31 1972

EXPLANATION OF CHANGES IN NEW COMMITMENT POLICY

(2) JULY 31 1972

(3) APR. 30 1972

(4) JAN. 31 1972

(5) OCT. 29 1971

(6) JULY 31 1971

(7) APR. 30 1971

(8) JAN. 31 1971

INDICATED CHANGE: MORE RESTRICTIVE: INCREASED DEMAND REDUCED FUNDS BOTH

4 0 I

LESS RESTRICTIVE: INCREASED FUNDS DECREASED DEMAND BOTH OTHER

3 0 2 0 1

1 0 0 1

0 0 0 0

2 1 1 0

1 0 0 1

0 0 0 0

5 1 2 2

3 2 1 0

14 2 3 9

11 0 5 6

9 5 2 2

22 7 4 11

39 11 5 23

SUPPLEMENTAL APPENDIX C

QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES* More than half of the 125 banks participating in the November 15 Survey of Changes in Bank Lending Practices indicated increased business loan demand in the previous three months, continuing the movement recorded in the preceding survey. More than 65 per cent of the respondents believe that this strength would be sustained through February. (See Table 1). Not surprisingly, this pick-up in realized and anticipated business loan demand was accompanied by a stiffening of terms and conditions of lending. Interest rate policies firmed significantly; compensating balances and standards of credit worthiness tightened moderately. Banks were appreciably more stringent in reviewing credit lines or loan applications from new and non-local service area customers and placed greater emphasis on the value of loan applicants as depositors or as a source of collateral business. An exception to the over-all rule of greater stringency, however, was in term lending, where competitive pressures from open market financing induced large money market loans. More willingness to lend also characterized consumer instalment lending, particularly at small banks. Reviewing the survey in greater detail shows that interest rate policies had tightened at three-fifths of the participating banks, reflecting largely the prime rate increases totaling one half of a percentage point over the three month interval from the preceding survey. Compensating balance requirements were somewhat more restrictive at about 15 per cent of the banks. And, on credit lines and loan applications roughly the same proportion of respondents reported that new and non-local customers faced more stringent reviews. The value of customers as depositors and as a source of collateral business was also given significantly greater weight as over 14 per cent of the respondents indicated a firmer policy.

In contrast to tightening in other aspects of lending, approximately one-fifth of the banks reported greater willingness to make term loans to non-financial businesses. Perhaps as a result, the ratio of

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

C - 2 term loans to total business loans has remained fairly steady in recent mdnths, against a background of a slight downtrend in that ratio over the last several years. The easing probably reflected, in part, recent innovations in lending policies where some term loans carry relatively little or no repayment of the principal until maturity and in other cases where there is a guaranteed upper limit on the interest rate charged over the life of the loan. As supplemental comments to the survey indicated, these easing policies probably had occurred in response to large customers' increasing use of open market financing as an alternative to bank financing. Accordingly, a relatively great portion of the modification in term lending policies seemed to be at large money market banks. Most of the banks showing greater ease were over $1 billion in total deposits and were in the New York, Chicago, and San Francisco Districts. (See Tables 2 and 3). Despite the increasing stringency in conditions surrounding loans to non-financial businesses, 22 per cent of the banks, particularly those with less than $1 billion in deposits, indicated some intention to expand their portfolios of consumer loans. (Tables 1 and 2). Otherwise, a greater proportion of the banks in the smaller size class moved toward more restrictive policies.

C -3 TABLE 1

NOT FOR QUOTATION OR PUBLICATION

QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. 1/ (STATUS OF POLICY ON NOVEMBER 15 1972 COMPARED TO THREE MONTHS EARLIER) (NUMBER OF BANKS & PERCENT OF TOTAL BANKS REPORTING) MUCH STRONGER

TOTAL BANKS

PCT

BANKS

PCT

MODERATELY STRONGER

ESSENTIALLY UNCHANGED

MODERATELY WEAKER

BANKS

RANKS

BANKS

PCT

MUCH WFAKER BANKS

PCT

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

125

100.0

54.4

39.2

3.2

0.0

ANTICIPATED DEMAND IN NEXT 3 MONTHS

125

100.0

64.0

33.6

0.8

0.0

ANSWFRING QUESTION

BANKS

PCT

MUCH FIRMER POLICY BANKS

PCT

MODERATELY FIRMER POLICY

ESSENTIALLY UNCHANGED POLICY

MODERATELY EASIER POLICY

BANKS

PCT

MUCH EASIER POLICY BANKS

PCT

LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONSI INTEREST RATES CHARGED

100.0

3.2

54.4

0.0

COMPENSATING OR SUPPORTING BALANCES

100.0

0.8

13.7

0.0

STANDARDS OF CREDIT

100.0

2.4

7.3

0.0

100.0

1.6

4.8

0.0

MATURITY OF

WORTHINESS

TERM LOANS

REVIEWING CREDIT LINES OR LOAN APPLICATIONS ESTABLISHED CUSTOMERS

100.0

7.2

NEW CUSTOMERS

100.0

14.4

LOCAL SERVICE AREA CUSTOMERS

100.0

6.4

NONLOCAL SERVICE AREA CUSTOMERS

100.0

15.2

1/ SURVEY OF LENDING PHACTICES AT 125 LARGE BANKS RFFORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS OF NOVEMBER 15 1972.

C -4 TABLE 1

NOT FOR QUOTATION OR PUBLICATION

ANSWERING UUESTION HANKS FACTORS RELATINg

PCT

(CONTINUED)

MUCH FIRMER POLICY BANKS

PCT

MODERATELY FIRMER POLICY

ESSENTIALLY UNCHANGED POLICY

MODERATELY EASIER POLICY

BANKS

PCT

MUCH

EASIER POLICY BANKS

PCT

TO APPLICANT 2/

VALUE AS DEPOSITOR OH SOURCE OF COLLATERAL BUSINESS

100.0

14.4

103

82.4

125

100.0

6.4

113

90.4

INTEREST RATES CHARGED

125

100.0

68.8

COMPENSATING OR SUPPORTING BALANCES

125

100.0

117

93.6

ENFORCEMENT OF

125

100.0

113

90.4

125

100.0

101

80.8

INTENDED USE OF THE LOAN

125

LENDING TO "NDNCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS1

BALANCE REQUIREMENTS

ESTABLISHING NEW OR LAMRER CREDIT LINES

ANSWERING QUESTION BANKS

PCT

CONSIDERABLY LESS WILLING BANKS

PCT

MODERATELY LESS WILLING

ESSENTIALLY UNCHANGED

MODERATELY MORE WILLING

BANKS

PCT

CONSIDERABLY MORE WILLING BANKS

PCT

WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES

125

100.0

0.8

8.0

76.8

13.6

0.8

CONSUMER INSTALMENT LOANS

123

100.0

0.8

75.6

22.0

0.8

SINGLE FAMILY MORTbAuE LOANS

123

100.0

0.0

8.9

78.1

13.0

0.0

MULTI-FAMILY MORTGAGE LOANS

122

100.0

0.0

9.0

104

85.3

5.7

0.0

82,9

13.0

0.0

ALL OTHER MORTGAGE LOANS

123

100.0

0.0

4.1

102

PARTICIPATION LOANS WITH CORRESPONDENT BANKS

123

100.0

0.0

0.8

105

85.4

13.8

LOANS TO BROKERS

121

100.0

0.0

2.b

109

90.0

5.8

2/ FOR THESL FACTORS, FIRMER MEANS THE FACTORS WERE CONSIDERED MORE IMPORTANT IN MAKING DECISIONS FOR APPROVING CREDIT REQUESTS, AND EASIER MEANS THEY WERE LESS IMPORTANT.

C -5 TABLE 2

NOT FOR QUOTATION OR PUBLICATION

COMPARISON OF QUARTERLY CHANGES IN BANK LENDING PRACTICES AT BANKS GROUPED BY SIZE OF TOTAL DEPOSITS 1/ (STATUS OF POLICY ON NOVEMBER 15, 1972, COMPARED TO THREE MONTHS EARLIER) (NUMBER OF BANKS IN EACH COLUMN AS PER CENT OF TOTAL BANKS ANSWERING QUESTION)

SIZE

TOTAL 51 & OVER

UNDER 51

OF BANK

MUCH STRONGER $1 k OVER

UNDER $5

TOTAL DEPOSITS IN BILLIONS

MODERATELY STRONGER

ESSENTIALLY UNCHANGED

MODERATELY WEAKER

SI & OVER

Sl & OVER

S1 L OVER

UNDER St

UNDER Si

MUCH WEAKER SI & OVFR

UNDER SI

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

IN NEXT 3 MONTHS

100

TOTAL

$1 & OVER

UNDER $1

MUCH FIRMER

Si & OVER

UNDER SI

MODERATELY FIRMER

ESSENTIALLY UNCHANGED

MODERATELY EASIER

SI L OVER

S1 L OVER

St I OVER

UNDER SI

UNDER 51

UNDER $1

MUCH EASIER

1S & OVER

LENDING TO NONINANCIAL BUSINESSES TERMS AND CONDITIONSI INTEREST RATES CHARHED

100

COMPENSATING ON SUPPORTING BALANCES

100

ESTABLISHEU CUSTOMERS

100

NEW CUSTOMERS

100

LOCAL SERVICE AREA CUSTOMERS

100

NONLOCAL SERVICE AREA CUSTOMERS

100

STANDARDS OF CREDIT MATURITY OF

wORTHINESS

TERM LOANS

REVIEWING CREDIT LINES OR LOAN APPLICATIONS

71 SMALL BANKS (DEPOSITS OF LESS THAN 1/ SURVEY OF LENDING PRACTICES AT 54 LARGE BANKS (DEPOSITS OF 51 BILLION OR MORE) AND 1972. Sl BILLIONI REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS OF NOVEMBER 15

UNDER

C-6 NOT FOR QUOTATION OR PUBLICATION

TABLE 2 (CONTINUED)

SIZE NUMBER ANSWERING QUESTION $1 & OVER

UNDER 51

OF BANK MUCH FIRMER POLICY

SI L OVER

UNDER 51

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

UNDER SI

Sl L OVER

UNDER S1

I5 & OVER

UNDER SI

MUCH EASIER POLICY $1S OVER

UNDER $1

FACTORS kELATING TO APPLICANT 2/ VALUE AS UEPOSITOR ON SOURCE OF COLLATERAL BUSINESS

100

INTENDED USt

100

INTEREST RATES CHAHGED

100

COMPENSATING OR SUPPORTING BALANCES

100

ENFORCEMENT OF BALANLE REQUIREMENTS

100

ESTABLISHING NEW OH LARGER CREDIT LINES

100

OF THE LOAN

LENDING TO "NUNCAPTIVt" FINANCE COMPANIES TERMS

ANU CONDITIONS:

NUMBER ANSWERING

QUESTION SI & OVER

UNDER S1

CONSIDERABLY LESS WILLING SI & OVER

UNDER S1

MODERATELY LESS WILLING

ESSENTIALLY UNCHANGED

Sl & OVER

51 L OVER

UNDER S1

UNDER SI

MODERATELY MORF WILLING 51 & OVER

UNDER S1

CONSIDERABLY MORE WILLING S1 & OVER

UNDER Sl

WILLINbNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES

100

CONSUMER INSTALMENT LOANS

100

SINGLE FAMILY MOHTGAGE LOANS

100

MULTI-FAMILY MORTGAbE LOANS

100

ALL OTHER MOTGAGE LUANS

10o

100

PARTICIPATION LOANS WITH CORRESPONDENT BANKS

100

LOANS TO BHOKEHS

100

2/ FOR THESE FACTORSt FIRMER MEANS THE FACTORS WERE CONSIDERED MORE IMPORTANT CREDIT REQUESTS, AND EASIER MEANS THEY WERE LESS IMPORTANT.

IN MAKING DECISIONS FOR APPROVING

C-

TABLE

NOT FOR QUOTATION OR PUBLICATION

QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. 1/ STATUS OF POLICY ON NOVEMBER 15, 1972 COMPARED TO THREE MONTHS EARLIER (NUMBER OF BANKS)

ALL USTS

ROSNEW YORK TON TOTAL CITY OUTSIDE

PHILADEL.

CLEVE- RICHLAND MOND

ATLAN- CHICST. TA AGO LOUIS

MINNE- KANS. APOLIS CITY

DALLAS

Si FRI

STRENGTH OF DEMAND FUR COMMERCIAL AND INDUSTRIAL LOANS (AF1ER ALLOWANCE FOR bANK'S USUAL SEASONAL VARIATION) COMPARED TO 3 MONTHb AGO

125

MUCH STRONGER MODERATELY STRONGER ESSENTIALLY UNCHANbEU MODERATELY WEAKER MUCH WEAKER

4 68 49 4 0

ANTICIPATED DEMAND NEXT THREE MONTHS

125

MUCH STRONGER MODERATELY STRONGEH ESSENTIALLY UNCHANGEO MUOEHATELY WEAKER MUCH WEAKER

2 80 42 I 0

0 5 3 0 0

0 13 6 1 0

0 5 4 0 0

0 B 2 1 0

0 6 2 0 0

0 12 7 1 0

0 7 2 0 0

0 5 5 1 0

0 7 4 0 0

0 7 5 0 0

0 4 3 1 0

0 8 11 1 0

0 2 6 1 0

0 6 5 0 0

1 4 6 0 0

1 10 1 0 0

0 2 4 1 0

0 2 1T 1 0

0 0 B 1 0

0 2 9 0 0

0 2 8 1 0

0 3 8 1 0

0 6 ? 1 0

1 9 0 0 0

1 10 4 0 0

1 5 6 1 0

0 3 6 0 0

0 4 5 0 0

0 10 3 0 0

7 6 0 0

LENDING TO NONFINANCIAL HUSINESSES TERMS ANO CONDITIONS INTEREST RATES CHARGED MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGEU POLICY MODERATLY EASIER POLICY MUCH EASIER POLICY COMPENSATING BALANCES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MDERATELY EASIER POLICY MUCH EASIER POLICY

125 4 68 50 3 0 124 1 17 99 7 0

1 1 B 0 0

0 1 14 0 0

SURVEY OF LENDING PRACTICES AT 125 LARGE BANKS REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY NOVEMBER 15, 1972. AS OF

C-8 NOT FOR QUOTATION OH PUBLICATION

TABLE 3 (CONTINUED)

ALL DSTS

NEW YORK 80STON TOTAL CITY OUTSIDE

PHILADEL.

CLEVE- RICHMOND LAND

ST. ATLAN- CHICLOUIS TA AGO

MINNE- KANS. APOLIS CITY

DALLAS

SAN FRAN

0 1 7 1 0

0 2 11 0 0

LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS STANDAHUb OF CHEDUI

WORTHINESS

MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANbLO POLICY MODERATELY EASIER POLILY MUCH LA>ItH PULICY MATUHITY OF

IEHM LOANS

MUCH FIkMER POLICY MODEkATELY FIRMEn POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

124 3 9 111 1 0

1 0 6 0 0

0 0 20 0 0

0 0 9 0 0

0 0 11 0 0

0 1 5 0 0

0 1 10 0 0

0 1 11 0 0

1 0 9 0 0

0 1 14 0 0

0 0 6 1 0

0 1 12 7 0

0 0 2 7 0

0 1 10 0 0

0 0 5 1 0

0 0 9 2 0

0 1 9 2 0

1 0 a 8 1 0

0 0 10 lo 5 0

0 1 7 0 0

0 0 20 0 0

0 0 9 0 0

0 0 11 0 0

0 1 5 0 0

0 1 10 0 0

0 1 11 0 0

0 2 8 0 0

0 0 15 0 0

0 1 7 1 0

0 0 I1 1 1

1 1 6 0 0

0 3 17 0 0

0 0 9 0 0

0 3 8 0 0

0 1 S 0 0

0 1 9 1 0

0 3 B 1 0

1 2 7 0 0

0 1 14 0 0

0 2 5 2 0

0 0 11 1 1

0 1 7 0 0

0 0 20 0 0

0 0 9 0 0

0 0 11 0 0

0 1 5 0 0

0 1 10 0 0

0 1 11 0 0

0 2 8 0 0

0 0 15 0 0

0 1 7 1 0

0 0 11 1 1

124 2 6 92 24 0

REVIEWING CREUIT LINLS ON LOANS ESTABLISHED CUSTOMEHL MUCH FIRMER POLICY MODERATELY FIRMEk POLICY ESSENTIALLY UNCHANbED POLICY MICERATELY EASIER POLICY MUCH EASIER POLICY NEW CUSTOMERb MUCH FIkMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANbED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY LOCAL SERVICE AREA CUSTOMtHb MUCH FIKMtK POLICY MODERATELY FIHMER POLICY ESSENTIALLY UNCHANbED POLICY EASIER POLICY MODERATELY MUCH EASIER POLICY

12b 0 9 113 2 1 125 2 18 99 5 1 125 0 8 114 2 1

C-9 NOT FOR QUOTATION OR

PUBLICATION

TABLE 3 (CONTINUED)

ALL OSTS

BOSNEW YORK TON TOTAL CITY OUTSIDE

PHILADEL.

CLEVE- NICHLAND MONO

ATLAN- CHICST. TA AGO LOUIS

MINNE- KANS. APOLIS CITY

DALLAS

SAN FRAN

LENDING TO NONFINANCIAL BUSINESSES REVIEWING CRLDIT LINLS OH LOANS -NONLOCAL SERVICE AREA CUST MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGEU POLICY ODERATELY EASIER POLICY MUCH EASIER POLICY

125 4 19 94 8 0

1 0 6 1 0

0 4 16 0 0

0 0 9 0 0

0 4 7 0 0

1 0 7 0 0

0 4 16 0 0

0 0 9 0 0

0 4 7 0 0

0 0 6 0 0

0 0 11 0 0

0 1 7 0 0

0 1 19 0 0

0 0 9 0 0

0 1 10 0 0

0 1 0 0

0 0 11 0 0

0 1 7 0 0

0 5 15 0 0

0 2 7

0 3 8 0 0

0 3 3 0 0

1 0 10 0 0

2 1 7 0 0

0 2 13 0 0

0 2 7 0 0

0 1 10 2 0

1 3 6 0 0

0 1 14 0 0

0 4 5 0 0

0 0 11 2 0

2 0 8 0 0

0 0 15 0 0

0 0 9 0 0

0 1 10 2 0

0 3 7 0 0

0 2 13 0 0

0 3 6 0 0

0 6 6 1 0

FACTORS RELATING TO APPLICANT e/ VALUE AS DEPOSITOR ON SOURCE OF COLLATERAL BUbINcSS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY ' EASIER POLICY MUCH EASIER POLICY INTENDED USE OF LOAN MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANbED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

125 2 18 103 2 0 125 2 8 113 2 0

0 1 11 0 0

LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS INTEREST RATES CHARGOE MUCH FINMEH POLICY MODERATELY FIRMER POLICY FSSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

125 1 37 86 1 0

0 0

2/ FOR THESE FACTORS. FIRMER MEANS THE FACTORS WERE CONSIDERED MORE IMPORTANT IN MAKINb DECISIONS FOR APPROVING CREDIT REQUESTS, AND EASIER MEANS THEY WERE LESS IMPORTANT.

C - 10 NOT FOR QUOTATION OR PUBLICATION

TABLE 3 (CONTINUED)

ALL USTS

BOSNEW YORK TON TOTAL CITY OUTSIDE

PHILADEL.

CLEVE- RICHLAND MOND

ATLAN- CHICST. TA AGO LOUIS

MINNE- KANS. APOLIS CITY

DALLAS

SAN FRAN

LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONSI SIZE OF COMPENSATINb 8ALANCES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANbED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY ENFORCEMENT OF BALANCE REQUIREMENT MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANbED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY ESTABLISHING NEW OR LARGER CREDIT LINES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANOED POLICY MCDEUITELY ' EASIER POLICY MUCH EASIER POLICY

125 0 4 117 4 0

0 1 9 1 0

0 0 8 0 0

0 0 20 0 0

0 0 9 0 0

0 0 11 0 0

0 0 8 0 0

0 2 18 0 0

0 0 9 0 0

0 2 9 0 D

1 12 101 11 0

0 0 6 2 0

0 3 If 1 0

0 0 8 1 0

D 3 8 0 0

0 2 8 1 0

1 10 96 17 1

0 0 7 1 0

0 1 16 3 0

0 0 6 3 0

0 1 10 0 0

0 1 9 1 0

0 0 7 0 0

0 1 16 2 0

0 0 7 1 0

0 1 9

0 1 11 0 0

0 1 9 0 0

0 0 15 0 0

1 1 8 0 0

0 0 15 0 0

0 0 12 0 0

1 1 8 0 0

0 0 14 1 0

0 0 11 1 0

0 2 7 1 0

0 1 13 1 0

0 0 7 3 0

1 0 10 4 0

125 1 8 113 3 0

0 0 6 0 0

0 1 10 0 0

125

WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANb TO BUSINLESEb CONSIDERABLY LESS WILLING MODERATELY LESS WILLINb ESSENTIALLY UNCHANbED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING CONSUMER INSTALMENT LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANbED MODERATELY MORE wILLING CONSIDERABLY MORE WILLING

123 1 1 93 27 1

1 0

0 0 5 1 0

0 0 10 1 0

0 0 7 2 0

0 0 10 3 0

C - 11 TABLE 3 (CONTINUED)

NOT FOR QUOTATION OR PUBLICATION

ALL USTS

BOSNEW YORK TON TOTAL CITY OUTSIDE

PHILADEL.

CLEVE- RICHLAND MOND

ATLAN- CHICST. TA AGO LOUIS

MINNE- KANS. APOLIS CITY

DALLAS

SAN FRAN

WILLINGNESS TO MAKE UIHEt TYPES OF LOANS SINGLE FAMILY MORTbAbE LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLINb CONSIDERABLY MORE WILLING MULTIFAMILY MORTGAGE LOANS CONSIDEHABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MONE WILLING CONSIDERABLY MORE WILLINb ALL OTHER MORTGAGE LUANS CONSIDERABLY LESS WILLING MODERATELY' LESS WILLING ESSENTIALLY UNCMANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING PARTICIPATION LOANS WITH CORRESPONDENT BANKS CONSIOERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING LOANS TO BROKERS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLINu CONSIDERABLY MORE WILLING

NUMBER OF BANKS

12 0 11 96 10 0

0 0 9 2 0

0 2 7 3 0

0 0 9 1 0

0 0 14 1 0

0 1 B 0 0

0 1 10 2 0

0 o 6 0 0

0 1 10 0 0

0 1 11 0 0

0 0 8 2 0

0 1 14 0 0

0 1 8 0 0

0 1 12 0 0

0 2 7 2 0

0 0 6 0 0

0 0 9 2 0

0 0 10 2 0

0 0 8 2 0

0 1 13 1 0

1 7 1 0

0 13 0 0

0 0 7 2 0

0 0 10 1 0

0 0 5 1 0

0 0 10 1 0

0 0 11 1 0

0 0 9 1 0

0 0 14 1 0

0 1 7 1 0

0 0 10 3 0

0 0 8 1 0

0 1 9 0 1

0 1 5 0 0

0 0 11 0 0

0 0 11 1 0

0 0 9 1 0

0 0 13 2 0

0 1 8 0 0

0 0 12 0 1

0 1 b 2 0

0 4 11 3 0

0 0 5 2 0

0 4 6 1 0

0 0 6 2 0

0 4 11 2 0

0 0 5 2 0

0 * 6 0 0

0 1 T 0 0

0 2 11 5 0

0 0 4 3 0

0 0 6 1 0

0 0 17 3 0

0 0 5 2 0

0 1 17 1 1

122 0 11 104

7 0 12J

0 b 12O lb 0

1e3 0 1 lob 17 0 121 0 3 109 7 2

125

C - 12 NOT FOR QUOTATION OR PUBLICATION

TABLE 4

COMPARISON OF SELECTED

RESPONSES

IN THE

AUGUST

AUG. 15. 1972 NUMRER OF RANKS

AND

NOVEMBER SURVEYS

NOVEMBER 15. 1972 NUMBER OF BANKS WEAKER STRONGER UNCHANGED

STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS COMPARLU TO THREE MONTHS AGO STRONGER UNCHANGED WEAKER ANTICIPATLU DEMAND 1HREE MONTHS HENCE STRONGER UNCHANGED WEAKER ANTICIPATLU DEMAND THREL MONTHS HENCE STRONGER UNCHANGED WEAKER

LENDING TU NONFINANCIAL BUSINESSES INTEREST HATES

Z3 19 0 COMPARED TO 55 17 0

FIRMER

THREE MONTHS AGO 32 3 IT 1 0 0

UNCHANGED

CHARGED FIRMER UNCHANGED EASIER

COMPENSATING OR SUPPORTING BALANCES FIRMER UNCHANGED EASIER STANDARDS OF CREDIT WORTHINESS FIRMER UNCHANGED EASIER MATURITY OF

TERM LOANS FIRMER UNCHANGED EASIER

0 6 2

0 1 0

6 77 9

EASIER

C - 13 NOT FOR QUOTATION OR PUBLICATION

TABLE 4 (CONTINUED)

AUG. 15,

1972

NUMBER OF BANKS

NOVEMBER 15,

1972

NUMBER OF BANKS FIRMER UNCHANGED EASIER

HtVIEWING CREDIT LINES OR LOAN APPLICATION ESTABLISHED CUSTOMERS FIRMER UNCHANbLO EASIER

3 116 6

1 8 0

2 108 3

0 0 3

13 104 7

6 13 1

7 B8 3

0 3 3

LOCAL SERVICE AHEA CUSTOMERS FIRMER UNCHANGED EASIER

3 117 5

1 7 0

2 109 3

0 1 2

NONLOCAL SERVICE AREA CUSTOMERS FIRMER UNCHANGED EASIER

14 103 8

10 12 1

4 86 4

0 5 3

VALUE AS DEPOSITOR OH SOURCE OF COLLATERAL BUSINESS FIRMER UNCHANGED EASIER

14 108 3

7 13 0

7 94 2

0 1 1

INTENDtU UbE OF THE LOAN FIRMER UNCHANGED EASIER

5 119 1

2 8 0

3 109 1

0 2 0

33 90 2

21 17 0

12 72 2

0 1 0

3 118 4

0 4 0

3 110 4

0 4 0

NEW CUSTOMERS FIRMER UNCHANGED EASIER

FACTORS RELATING TO APPLICANT

LENDING 70 "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONSI INTEREST RATES CHARGED FIRMER UNCHANGED EASIER COMPENSATING OR SUPPORTING BALANCES FIRMER UNCHANGED EASIER

C - 14

NOT FOR QUOTATION OR PUBLICATION

TABLE 4

(CONTINUED)

AUG. 15,

1972

NUMBER OF BANKS

NOVEMHER

159

1972

NUMBER OF BANKS FIRMER UNCHANGED EASIER

LENDING TO "NONCAPTIVt" FINANCE COMPANIES TtLHM

AND CONDITIONS1

ENFORCEMENT OF BALANCE REQUIREMENTS FIRMER UNCHANGEU EASIER ESTAbLISHING NL~ O0 LARbER CHEDIT LINES FIRMFR UNCHANGEU EASIER

WILLINGNESS

B 114 3

5 106 2

0 2 1

13 98 14

11 81 9

0 7 4

TO MAKE OTHER TYPES OF LOANS

UNCHANGED

TERM LOANS TO BUSINESSES LESS UNCHANbED MUNE

8 95 22

5 76 15

0 12 6

CONSUMER INSTALMENT LOANS LEbS UNCHANGED MORE

1 98 24

0 80 12

0 17 11

SINGLE FAMILY MORTGAGE LOANS LESS UNCHANGED MORE

6 103 13

0 12 4

MULTI-FAMILY MORTGAGE LOANS LESS UNCHANGED MORE

10 106 5

4 96 3

8 99 14

4 89 9

PANTICIPATION LOANS WITH CORRESPONDENT BANKS LESS 2 UNCHANGED 114 MORE 7

2 98 3

LOANS TO BROKERS LESS UNCHANGED MORE

2 97 8

ALL

UTHER MORTbAGE LUANS LESS UNCHANGED MORE

4 109 B

95 2

139 00 40 13 4 0 9 0

C - 15 TABLE 5

NOT FOR QUOTATION OR PUBLICATION

A CROSS-CLASSIFICATION OF SELECTED RESPONSES IN THE

NOV. 15,

1972

NUMBER OF RANKS

NOVEMBER SURVEY

NOVEMHER 15,

1972

NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED EASIER

LENDING TO NONFINANCIAL BUSINESSES

72 50 3

COMPENSATING OR SUPPORTING BALANCES 16 53 3 2 45 2 0 1 2

FIRMER ESSENTIALLY UNCHANGED EASIER

20 99 A

ESTABLISHED CUSTOMERS 9 11 0 99 0 3

VALUE AS DEPOSITOR ON SOURCE OF COLLATERAL BUSINESS FIRMEH ESSENTIALLY UNCHANGED EASIER

20 103 2

INTEREST RATES CHARGED FIRMER ESSENTIALLY UNCHANGED EASIER NEW CUSTOMERS

0 0 3

INTENDED USE OF THE LOAN 5 15 0 0 98 5 0 0 2

LENDING TO "NONCAPTIVE" FINANCE COMPANIES INTEREST RATES CHARGED FIRMER ESSENTIALLY UNCHANGED EASIER

38 86 I

COMPENSATING OR SUPPORTING BALANCES 3 34 1 1 83 2 0 0 1

COMPENSATING OR SUPPORTING BALANCES FIRMER ESSENTIALLY UNCHANGED EASIER

4 117 4

ENFORCEMENT OF BALANCE REQUIREMENTS 3 1 0 6 110 1 0 2 2

COMPENSATING OH SUPPORTING BALANCES FIRMER ESSENTIALLY UNCHANGEO EASIER

4 117 4

ESTABLISHING NEW OR LARGER CREDIT LINES 2 2 0 7 99 11 0 0 4

NOT FOR QUOTATION OR PUBLICATION

TABLE 5

- 16

(CONTINUED)

A CROSS-CLASSIFICATION OF SELECTED RESPONSES IN THE

NOV. 15,

1972

NUMBER OF BANKS

NOVEMBER SURVEY

NOVEMBER 15,

1972

NUMBER OF BANKS ESSENTIALLY UNCHANGED GREATER LESS

WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED (REATER

11 96 18

MATURITY OF TERM LOANS 7 4 4 77 R 0

SINGLE FAMILY MORTGAGE LOANS LESS ESSENTIALLY UNCHANGED GREATER

11 96 16

MULTI-FAMILY MORTGAGE LOANS 0 7 4 4 91 1 6 0 9

MORTGAbt LOANS LESS ESSFNTIALLY UNCHANGED 6HEATER

11 96 16

ALL OTHER MORTGAGE LOANS 3 8 0 8 2 86 0 B 8

TLHM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED GREATER

11 96 18

CONSUMER INSTALMENT 1 7 1 77 0 9

TEHM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED GREATER

11 96 1H

PARTICIPATION LOANS WITH CORRESPONDENT BANKS 0 11 0 9 0 85 8 1 9

TERM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED GREATER

11 96 18

LOANS TO BROKERS 10 1 85 ? 14 0

SINbLE FAMILY

0 15 9

LOANS 3 16 9

0 6 3

C - 17 TABLE 5

NOT FOR QUOTATION OR PUBLICATION A CROSS-CLASSIFICATIDN

(CONTINUED)

SELECTED RESPONSES IN THE

NOV.

15,

1972

NOVEMBER SURVEY

NUVEMRRF

15# 1972

NUMBER OF RANKS

NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED EASIER

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

72 49 4

INTEREST RATES CHARGED TO NONFINANCIAL BUSINESSES 46 25 1 23 24 2 3 1 0

COMPARED TO THREE MONTHS AGO STRONbER ESSENTIALLY UNCHANGED WEAKER

72 49 4

COMPENSATING OR SUPPORTING BALANCES 58 3 10 8 37 4 0 0 4

CUMPAREU To THREE MONTHS AGO STRONbER ESSENTIALLY UNCHANGED WEAKER

7? 49 4

STANDARDS OF CREDIT WORTHINESS 8 63 0 4 45 0 0 3 1

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKEN

72 49 4

MATURITY OF TERM LOANS 6 53 2 36 0 3

COMPARED 10 THREE MUNTHb AGO STRONbER ESSENTIALLY UNCHANGED WEAKER

72 49 4

NEW CUSTOMERS 13 b6 5 42 2 1

72 49 4

("NONCAPTIVE FINANCE COMPANIES") ENFORCEMENT OF BALANCE REQUIREMENTS 6 64 2 2 46 1 3 0 1

72 49 4

("NONCAPTIVE ESTABLISHING 7 5 1

blRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LUANS

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKEN

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

12 11 1

3 2 1

FINANCE COMPANIES") NEW OR LARGER CREDIT LINES 60 5 40 4 1 2

C - 18 NOT FOR QUOTATION OR PUBLICATION

TABLE 5 (CONTINUED)

A CROSS-CLASSIFICATION OF SELECTED RESPONSES IN THE

NOV. 15,

1972

NUMRER OF BANKS

NOVEMBER SURVEY

NOVEMBER 15t

LESS

1972

NUMBER OF BANKS ESSENTIALLY UNCHANGED GREATER

1NENGTH OF ULMAND FOR COMMERCIAL AND INDUSTRIAL LOANS

U TO THREE MONTHS AGO STHONbER ESSENTIALLY UNCHANGED WEAKEN

77 49 4

WILLINGNESS TO MAKE TERM LOANS TO HUSINESSES 6 56 10 4 39 6 1 1 4

COMPAHEU TO THREE MONTHS AGO STRONbER ESSENTIALLY UNCHANGED WEAKEN

72 49 4

WILLINGNESS TO MAKE CONSUMER INSTALMENT LOANS 16 55 1 9 37 1 3 1 0

COMPARED TO THREE MONTHS AGO STHON6ER ESSFNTIALLY UNCHANGED WEAKER

72 49 4

WILLINGNESS TO MAKE SINGLE FAMILY MORTGAGE LOANS 7 56 8 3 37 B 1 3 0

COMPARED TO THREE MONTHS AGO SIHONGER ESSENTIALLY UNCHANGED WEAKEN

7? 49 4

WILLINGNESS TO MAKE MULTI-FAMILY MORTGAGE LOANS 7 60 4 2 4? 3 0 2 2

72 49 4

WILLINGNESS TO MAKE ALL OTHER MORTGAGE LOANS 3 62 6 10 3B 0 2 2 0

72 49 4

WILLINGNESS TO MAKE PARTICIPATION LOANS WITH CORRESPONDENT BANKS 10 62 0 5 41 1 2 2 0

72 49 4

WILLINGNESS TO MAKE LOANS TO BROKERS 2 63 42 1 0 4

LUMPAR

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

COMPAREO TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

COMPARED TO

THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

6 3 0

C - 19 NOT FOR QUOTATION OR

PUBLICATION

TABLE 5 (CONTINUED)

A CROSS-CLASSIFICATION OF SELECTED RESPONSES IN THE

NOV.

15, 1972

NUMBER OF BANKS

NOVEMBER SURVEY

NOVEMHER 15,

1972

NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED EASIER

STRENGTH OF UEMAND FOR COMMERCIAL AND INDUSTRIAL LUANS ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

82 42 1

COMPENSATING OR SUPPORTING BALANCES 16 61 4 2 37 3 0 1 0

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKEN

R7 42 I

STANDARDS OF CREDIT WORTHINESS 0 71 10 2 39 1 D 1 0

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKEN

82 42 1

MATURITY OF TERM LOANS 6 59 2 32 0 1

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

82 42 I

NEW CUSTOMERS 15 65 33 5 0 1

82 42 1

("NUNCAPTIVE ESTABLISHING 10 3 0

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONbER ESSENTIALLY UNCHANGED WEAKER

LESS

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

82 42 1

16 B 0

2 4 0

FINANCE COMPANIES") NEW OR LARGER CREDIT LINFS 64 8 3 36 1 0

ESSENTIALLY UNCHANGED

WILLINGNESS TO MAKE TERM LOANS TO BUSINESSES 8 63 11 3 32 7 0 1 0

SUPPLEMENTAL APPENDIX D

NOTE:

The results of the Michigan Survey should be treated as Administratively Confidential until released by Michigan or Treasury Department.

RESULTS OF THE MICHIGAN SURVEY RESEARCH CENTER SURVEY AND EFFECTS OF TAX OVERWITHHOLDINGS* Introduction and Summary A change in the withholding schedules for Federal personal income taxes provided in the 1971 Revenue Act has added uncertainty to the forecasts of consumption in 1973. Early next year individuals will receive large, and to a considerable extent unexpected refunds due to overwithholding. Even after allowing for some offsetting effects of rising Social Security taxes the present staff projection for disposable income in the first half of 1973 is $866 billion (at an annual rate). This represents a 13 per cent annual rate of growth from the fourth quarter of 1973 compared to a 6.7 per cent growth for all of 1972. 1/ To improve the factual basis for projections of disposable income and consumption the staff has sought information on people's expectattions concerning the 1973 refunds and the possible saving and spending decisions if they receive large windfalls. There is little information on this subject. In fact, there is little information on what people do with their refund under normal circumstances. For this reason the Treasury, with financial support from the Board, contracted with the University of Michigan Survey Research Center (SRC) to provide data on this subject. A series of surveys began in August, 1972. A subsequent survey was taken in November, 1972 but its results have not yet been tabulated. Additional surveys will be taken in February and May of 1973. The Michigan survey results lead to several conclusions that are important for the 1973 outlook. The first is that taxpayers are not aware of the changes in withholding schedules and that the larger than normal refunds in 1973 will mainly be unexpected. It is, therefore, unlikely that those individuals that are overwithholding are doing so as a deliberate savings devise.

Social Security tax increases have a negative $5 billion effect on the 1973 disposable income figure. Also, in the fourth quarter of 1972 there was an increase in Social Security benefits of $8 billion (annual rate). *Prepared by Albert Teplin, Economist, Government Finance Section, Division of Research and Statistics 1/

-D2

The fact that few people have decreased their withholding may lead to changes in income expectations. If people see that their income is higher there is a strong possibility that consumption will be increased more than normal in 1973. Furthermore, it seems likely that the survey savings expectations are overstated, given the 1972 disposition pattern. This is especially important given significant downpayments incurred by recipients of large refunds in 1972. Background on Withholding In 1971, 55 million taxpaying units received refunds from their 1970 wage and salary withholdings. Total refunds amounted to over $14 billion. The average refund in 1971 was $263. Table 1 compares the 1971 figures with those of previous years. It also gives a rough estimate for 1972. Although uneven at times, the growth of refunds increased over 200 per cent between 1961 and 1972--about twice as fast as personal tax receipts. In one year, 1965, refunds dropped somewhat from the previous year. This was probably due to the 1964 tax rate changes. The Table also shows that the number of returns that resulted in refunds has grown over 43 per cent over the same period. The per cent of all returns with refunds has also increased. The August survey result on the per cent who received a refund compares favorably with the actual figures in Table 1. After eliminating respondents who did not file a tax return or did not know if they received a refund, the SRC survey shows that 59 per cent of the original sample received a refund in 1972. It has been estimated by both the Board's staff and the Treasury that refunds in 1973 will jump to $22 billion from $14.3 billion in 1972. This would be an increased of 54 per cent over the 1972 estimate--an unusually large annual increase. The jump is due to changes in the 1972 withholding schedule incorporated in the 1971 Revenue Act. The Congress felt that due to "the increase in the low-income allowance to $1,300 for 1972 and the acceleration of the increases in personal exemption and the percentage standard deduction scheduled for 1973 to 1972, it is necessary to change the withholding rates..." 2/ The new tax withholding schedule assumes that each taxpaying unit holds two jobs and that units that do not hold two jobs would declare an extra exemption. Also, there are additional increases in the progressivity as income increases into higher brackets. This does not take account of the fact that the higher income brackets include many taxpayers that itemize their deductions and thus experience lower effective tax rates. Individuals were expected to claim extra exemptions under the new rules in order to decrease their withholding, but such action had to be made at the taxpayer's 2/

House of Representatives Report No. 92-533, The Revenue Act of 1971, p. 39

initiative. The failure of taxpayers to adjust in this fashion is confirmed by the survey and reported in detail below. Table 1 Background data on tax refunds* (calendar years 1961-1972)

Year

Number of returns with a refund

Amount of refunds (billion dollars)

(thousands)

Average size of refunds ($ amounts)

Per cent of total returns with a refund

1961

38,356

5.216

136

62.4

1962

38,956

5.616

144

62.1

1963

39,765

6.053

152

62.2

1964

37,605

4.956

132

57.5

1965

42,595

5.926

139

63.0

1966

47,725

7.613

159

68.0

1967

49,405

9.080

184

69.0

1968

48,920

9.806

200

66.4

1969

53,076

13.071

246

70.0

1970e

54,845

13.322

243

74.0

1971e

55,299

14.533

1972e

55,059

14.311

n.a.

*Source for 1961 through 1969: Internal Revenue Service, Statistics of Income (for year of data), Individual Income Tax Returns. Data for 1970 and 1971 are based on unpublished Treasury memoranda. Data for 1972 are based on data from January thru October of this year. While the major concern of Congress was underwithholding they seemed to overlook the fact that there already existed a large degree of overwithholding. Clearly more than half of the taxpayers overwithheld and

-D4 in some cases taxpayers may have purposely overwithheld. The numbers in Table 1 seems to indicate that there is a tendency to "play it safe" with one's Federal tax liability. The exact amount of the current tax receipts that are attributable overwithholding is difficult to ascertain because of a number of simultaneous changes in the tax laws. The following table suggets one way of preparing such an estimate. Table 1A Overwithholding in 1972 Relative to 1971 (billions of dollars) Calendar Years 1971 1972 e/ 1.

Actual receipts, withheld & Social Security taxes

Wages & salaries

Observed tax rate (2 - I in per cent)

Receipts at stable tax rate of 19.9 per cent

Excess actual receipts Items explaining excess receipts: (a) Normal Progresstivity (b) Increase in social security wage base (c) Decrease in tax rates (Tax Reform Act of 1969 and 1971 Revenue Act) (d)

Overwithholding

$114.3

$132.6

573.5

626.3

19.9

21.2

114.3

124.6

8.0 2.4 3.0 -5.2 7.8

Since the tax law and withholding schedule changes affect so many individuals there is little way one can deduce, a priori, what the total impact will be. The direction of the overall effect, however, seems to be that there will be more refunds and/or less final payments. The fact that the withholding changes were designed not only to accommodate a reduction in tax rates but also to correct for underwithholding in previous years suggests that the magnitude of overwithholding has been increased. Survey Results

in general.

The first survey question dealt with Federal income tax rates About 87 per cent of the respondents incorrectly thought

- D5 that rates had gone up or remained about the same as in the past two or three years. This large per cent suggests that in this particular year, at least, taxpayers may not be fully aware of their tax liabilities. 3/ In line with this there is evidence that, although a high per cent of people may be aware that their withholding is larger than last year, they have not made the proper changes to prevent a large windfall in the spring of 1973. For example, 45.4 per cent of the respondents noticed that a larger proportion of their income was being withheld this year, but only 4.8 per cent of these respondents thought that the larger withholding was too large relative to their expected tax liabilities. In other words, the survey indicates that taxpayers generally are not aware of any overwithholding. These results suggest that taxpayers are not knowingly using their overwithholding as part of their savings. When savings rates fell last spring it was suggested that people have saved less in institutions but were holding savings in the form of tax withholdings. This of course, would be contrary to the economic behavior normally assumed for individuals. If people were aware of the overwithholding they could change their withholding status and put their funds in interest bearing accounts. However, only a few of the respondents decreased the number of exemptions and thereby increased their withholding as is seen by the following: -

16 per cent of the respondents said they changed their number of exemptions from last year.

Most of those that changed--60.3 per cent--decreased the number of exemptions and, therefore, increased their withholding.

This means that only 6.3 per cent of the sample with 1972 wage and salary income withheld decreased their withholding from the previous year.

These results taken together with the historical record of large numbers of taxpayers with refunds suggests that although people may desire refunds as a form of risk avoidance, they are not aware of the possibility of larger refunds in 1973. This evidence suggests that it is highly doubtful that overwithholding is a form of deliberate savings. Since the sample data suggests that there will be a considerable number of unexpected larger refunds in the spring of 1973 we are left with 3/

There are a number of other explanations for respondents not recognizing that tax rates have fallen. For example, many may have included Social Security taxes in their answer or they may have considered their own tax liabilities which may have increased due to income increases. Unfortunately, this result raises more questions than it answers.

two other alternative hypotheses. One is that individuals will be surprised with a windfall refund, and moreover, will revise their permanent income expectations. A second view is that individuals will be surprised by their refunds but will consider this a one time change and will not change their income expectations. A case can be made that many people will view the unexpected

refund as a change in permanent income.

Evidence in favor of this view is

that--judging by the survey--people in the past have more or less correctly

anticipated their tax liabilities. Thus when they get a surprise refund in 1973, this probably would not be attributed to chance and a reaction will ensue. In fact most taxpayers think that tax rates have recently gone up and the refund should allow them to revise this opinion. The evidence in favor of this line of reasoning is as follows: 1. Most respondents (64.5 per cent) receiving a 1971 refund were not surprised by the size of their refund. Of those who were surprised more thought the refund was smaller rather than larger than they expected (21.9 vs. 13.5). This difference is reasonable in view of the underwithholding that was introduced into the tax schedules in 1971. 2. Of the 45.4 per cent who noticed their withholdings was higher than last year only a few (4.2 per cent) attributed it to overwithholding. However 14.3 per cent explicitly gave increases in withholding rates or tax rates as causing the larger withholding. Whether or not people view an unexpected refund or a larger than normal refund as a change in their permanent income has a bearing on the disposition of the refund. A change in permanent income may induce people to increase their consumption over what they would otherwise spend. If they consider the refund a one time windfall, the spending/saving decision is more uncertain but some increment in spending is still likely. The disposition of the refunds may also affect the monetary aggregates. If individuals put their money in demand deposits as a transitory type of holding before they spend the funds there should be an unexpected temporary increase in demand for money. When the refunds are spent there will be an increase in transaction balance demand which is anticipated to the extent that spending projections are correct. Demand for time deposits may also be affected, of course. It is important, therefore, to ascertain the intentions of taxpayers regarding their spending and saving of the refund. The survey attempts to deal with this both in regard to past and future behavior.

-D7

Past Behavior Of those in the sample who have had 1972 income withheld, 67.3 per cent said they were entitled to a refund after filing last year's return. The per cent who received a refund in each of four income classes was different (Table 2). Those in the lower income classes had a higher incidence of refunds. If we add in those that said they came out even, the relationship is clearer. Over 10 per cent more of those in the lower income classes than in the higher income class answered that they received a refund or came out even. Table 2 Income (thous. $)

Per cent in income class who said they received a refund in 1972

Per cent with refund or came out even.

0-4.9

69.3

78.6

5-9.9

75.3

78.8

10-12.5

70.0

73.1

Over 12.5

59.8

65.1

All incomes

67.3

71.2

The following question was asked of those respondents who received a refund of $25 or more in 1972: Q1

"Whatdid you do with the money from your Federal income tax refund--did you spend it, save it, invest it, repay

debts, use it for a downpayment on something, or what?" Specific forms of saving and downpayments were also ascertained. Overall this question was asked to about 500 people, a fairly large cross section of the sample. Most respondents, 72.0 per cent, said they had spent their refunds while 23.9 per cent said they had saved them. 4/ The remaining 4.1 per cnet said they used the money for a downpayment--a form of spending combined with dissaving. A rather high per cent (28.3) of the respondents said they used 4/ It should be pointed out that these per cents can not be translated into savings rates unless one assumes that the per cent of respondents saving also represents the per cent of refunds saved.

- D8 the money to pay bills and debts (other than medical). These have been included in the spending category since it is believed that most of these bills are for current purchases such as small credit card purchases or department store charges. To the degree that the "pay bills, debts" category represents a reduction in aggregate consumer credit it should be considered a form of savings. After discussions with the Michigan SRC the pay bills item was left in the spending category. Table 3 summarizes the spending/savings information provided by the sample. Note that the per cent who said they saved was higher for the higher incomes. This may be due to the larger size of refunds going to higher income people as well as different behavior due to income differences. Table 3 Per cent of Respondents Spending or Saving Last Year's Refund by Income Class Income size (thous. $)

Down payment

Spend

Save

0-4.9

4.9

79.4

17.2

5-9.9

2.7

76.9

20.4

10-12.5

1.6

71.5

26.9

Over 12.5

6.4

65.4

28.1

4.1

72.0

23.9

All

There is additional evidence that the larger the refund the more chance the receipient will save it. In Table 4 the per cent who said they saved or spent the refunds is broken down by the size of the refunds they received. Of those in the largest refund category 30.2 per cent said they had saved the money while saving was only 11.9 per cent in the smallest category. These particular results are subject to larger sampling error than most of the per cents reported since the size of the sample by refund size was usually less than 100. The $126-175 refund group was the smallest (47 respondents) and its result, inconsistent with the rest of the table, should be considered as being more likely to be wrong than the other per cents in Table 3.

- D9 Table 4 Per Cent of Respondents Spending and Saving by Size of Last Year's Refund Size of refund

Down payment

$1-75

Spend

Save

56.0

11.9

76-125

0.0

78.6

21.4

126-175

0.5

82.4

14.3

68.6

29.5

176-225 226-325

3.9

74.3

21.7

326-550

7.1

58.5

34.4

11.0

58.9

30.2

511-9,997

Totals may not add to 100% since some answered they did not know.

An interesting result in Table 4 is that the larger the refund the more likely the respondent used the money for a downpayment. This has implications for the larger refunds in 1973. Note that for those with refunds over $362 the per cent using the money on downpayments is over 7 per cent. For the largest refund group it is 11 per cent. The dissaving associated with large refunds could offset in(dollar amounts),the over 30 per cent who said they saved the larger refunds. Anticipated Spend/Saving of 1973 Refund About 41 per cent of the sample said they expected a refund in 1973. This included some of those who received a refund in 1972 and some that had not received a 1972 refund. The group was asked two questions on

the disposition of the expected refunds. Q2

The first was the question:

What do you think you will do with the money you get from tax refund next spring ..

They were also asked the question: Q3

"Suppose your tax refund turns out to be a couple of hundred dollars larger than you expected--what would you do with the extra money?"

-D10

A different group, those who did not know if they would receive a refund or expected to owe less than last year (about 20 per cent of the total sample) were asked: Q4

"Suppose it turns out that you get a refund equal to about one week's income--what would you do with the money--...?

Table 5 presents the saving/spending pattern for the three questions relating to 1973 refunds and for Q1, the question relating to last years refund. C3, concerning $200 extra in refund money, shows the highest per cent of respondents who said they would save. Those that do not expect a refund or expect to come out even (Q4) also have a high per cent who said they would save. Table 5 Disposition of Refund for Four Questions Down payment

Spend

Save

Q1 (last years refund)

4.1

72.0

23.9

Q2 (Expected 1973 refund)

4.1

57.1

38.7

Q3 ($200 extra)

3.0

39.8

57.2

Q4 (Unexpected; equal to week's salary

0.1

49.9

Both the responses to Q3 to Q4 are quite different than the past behavior found in Q1. The general question posed in Q2 lies between the other responses. Of those that expected a refund in 1973, 38.7 said they would save the money. One wonders if more people say they are going to save than actually would since there is 15 percentage point spread between Q1 and Q2, even though people do not expect next year's refunds to be larger than last years. The February and May surveys should shed some light on this. The per cent of people who said they did or would use their refund for a downpayment is the same for Q1 and Q2. However, the per cent who said they would use the refund for a downpayment is lower for Q3 and Q4. People may report spending and downpayment intentions only when they have definite items in mind and report savings intentions when they have no specific plans. If this were the case the low downpayment and savings intentions that are reported as the refund becomes more hypothetical would fall into place.

- D11 Characteristics of the Survey The August sample consisted of 1,162 respondents. These respondents, used in previous Michigan SRC surveys, had been selected on a random basis and interviewed by telephone. This telephone technique was used to save time since most of the demographic and economic characteristics of the sample were known before respondents were asked questions relating to refunds. The subsequent November survey consisted of an entirely new sample, but the August and November questions were essentially the same. Also, the November survey was a personnal interview in the home of the respondent. 5/ A flow diagram at the end of this paper shows the procedure used by the interviewer and a rough idea of both the type of questions that were asked and the sequence of the questions. The diagram shows that respondents were first divided into groups according to their refund status in 1972. After questions concerning the disposition of last years refund or on the means of paying their taxes, respondents were asked about their refund expectations for 1973. The design of the survey was such that respondents were not asked about the disposition of a refund in 1973 if they expected to owe about the same amount (or more) money to the Treasury at tax settlement than in 1972. Also, the particular question about the disposition of a 1973 refund depended on the respondents expectations of a refund. This procedure was designed to assure that hypotehtical questions about the disposition of a refund were not asked of those who definitely expected to owe money. The per cent figures for each question and some of the responses in the flow diagram represent the per cent of the total sample of 1,162 that were asked a given question. On subsequent evaluation it was decided to eliminate those respondents that said they did not have any withholdings in 1972 (obtained through questions C21 and C23 at the end of the flow diagram. This reduced the total sample size to about 780. The percentages reported above, unless otherwise noted, are based on this smaller sample. Thus, a question dealing with disposition of a probable refund in 1973 is based on only those that were filtered through the flow and have had 1972 income withheld for Federal taxes. The sample was stratified by economic and demographic characteristics so that it would more closely represent the national population. 5/

A tentative schedule for the November survey calls for selected results to be reported in early December and the detailed data late in the month.

-D12 This involved weighting the respondents according to the characteristics obtained from their originl interview. Percentages in the text are based on the weighted sample size. It should be emphasized that results from any sampling technique are subject to errors. 6/ Nevertheless, the results do represent new information that may be of considerable use in economic projections. Results subject to abnormally large sampling errors were noted in the text.

The SRC method and standard errors are described in chapter 14 of their 1970 Survey of Consumer Finances, by George Katona, et. al., (University of Michigan, 1971) or in similar chapters of their previous consumer surveys.

FLOW CHART FOR OVERWITHHOLDING SURVEY he-

tiew , find

Federal

tax rates gone up, down, or remained About

the -

A, ;:;,

Cl 0". the last 2 .1 3 1

I--

you

that rou -

filing ti

to a refund,or did you new ch. C.-r-.t I

98 n

Denotes Selected It..p.....

you required to file Dennis.

98 9%

7reLlt

End of lit-ive

raises to pristry

refs"

respondent

to spous.

notr*qi"4 to file, ftu t knom,whether to file r"ui-d

case out Even loom whether refund 9 0%

Owed Money 26 3%

Entitled to r-lund 50 1%

Denotes Question.

led

(-nd :P"'t

14 2%

In the Itst 3 or 4

Cll About hot much did

ynu found Year.. hthat you art due a refund or vs. th . I.c year' so 1%

you own the I"' I when you filed last spring,

Owes your refund Itrip., or as .. pe.,.d before you fille out rat-' 50 1%

C12 Where did you got the -

in 1973?

y owed

get refund

her?

1*14%

14 2%

1% to

. '_.t 26 3%

CL3 When you 1 (you z g S"i "'t file asses to )-fact = 11808you *fumel , be due hst' 11 1% own

red beat

Large, 7 21

C' DO you expect that you to file will be rqnfftd

new ,

26 3%

When you file next spring do you -P*"

our I_

QE ,jA Why the refund larger than e.pmeted? Will .best the 1

re -

will

Isas or

Don't know 2 3%

, t-

6 Z%

66 About bow large Me -f..d lost Spring? so 1%

Why do you aspact .. " sent

CL5 Why do

own i.e.

.Won times I-0

ract ne?

refund seat SFT 6.2%

Ic", C7 What did ym do with th. refund mannyt 50.1%

C14 Do you seat

q-t

last?

you

Spat

we w with C17 What wilt the maway from ties tes

Rafted

g to be larger. or I" -

Wood?

23.8%

41.7%

If cam: refund turs,

Cie not to be $200 Lerger .. p.*red her with the -=a

1 1 .1 35

Do Two expe, C&A than yoo f S-rommat

It know 4

C14 Sup"se r. q-1. to one weak's i---sb.t would you do with do _y 21 2%

tto

-1

estimates Cl Do you file f9ymr tax or regalar recurnum.

Its. or D-.t 24 OL

GA Why do yom t.qp.

casm wat swen ar Don't kam 5 it

Will new 3 3%

III you do memay? 41.3%

-food? Cm

: I

CID Whom M'IL you set the assay for the income tan ? 4 2Z It I Status f Is

C28 Did you and aponam Is ar separate 01st wpwiog 1-t 3A = 65 It

j "i 6 I

ed..t Single 2 3 01

?W-ind Z2

Doo t kno"

24 is the proportion if (Your/you. spowes..) that in being lithha Id larger. "'It. or thou t the aP-as last Feer's?

C21 He- you rectived any wage or -1, . _ flow wftfh ysdaral IIn,.hae been withheld this year1 64 9. tastT Year than vd

C2::.

tyhi: the proportion

Y.. Dealt know, 5 9% C25 He- yon (7-T appose cbmsed &J"d .bar of -weiptim. the 0% 9 'his yose as as to Chang. withholding'

Larger

1. C12 He. or -'* hi.h ftT.... hebe..

say you racti-d 3 R.or salary Ithis y.. from which 1. leaves heFederal orbe., _,bhm, 21 0%

23 1%

S 9 8%

se I-It

Yet S 9%

federal chh.IV f.

R 49 3%

S 26 1%

9% FC232 Why wa. the .- be, (Iner ....d/D . . ... d

Cite this document

APA

Federal Reserve (1972, December 18). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19721219_part3

BibTeX

@misc{wtfs_greenbook_19721219_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1972},
  month = {Dec},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19721219_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}