greenbooks · December 20, 1976

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) CLASS II

December 17, 1976

- FOMC

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

TABL

OF CONTENTS Page

THE DOMESTIC NONFINANCIAL ECONOMY Industrial production..................................... Private housing starts.................................. Personal income......................................... Price of crude oil........ ................ . .............

1 2 4 5

TABLES: Industrial production....................................

Private housing starts and residential building permits............................

Personal income.......................................

THE DOMESTIC FINANCIAL ECONOMY Mortgage market..........................................

TABLES: Average rates and yields on new-home mortgages ........................... ........... ......... ...................... Interest rates ....................

6 7

INTERNATIONAL DEVELOPMENTS Deutsche Bundesbank announces 1977 central bank money growth target........................

ERRATUM Part I....................................................

APPENDICES Changes in bank lending practices ......................... Changes in offering terms of small time and savings deposits in response to declining market rates of interest.....................................

A-1

B-1

Business loan expansion by industry.......................

C-l

U.K. economic package ....................................

D-

SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Industrial production increased by an estimated 1.2 per cent in November to 132.0 per cent of the 1967 average, fractionally above the record high of 131.9 per cent reached in June 1974.

The increase

followed declines in the index for both September and October. than half of the November increase resulted from

resumption of produc-

tion following the settlement of strikes, but additional moderate increases were widespread among consumer goods, business equipment, and nondurable materials. PRODUCTS.

Output of consumer goods advanced sharply in

November primarily because of a post-strike rebound in motor vehicle production, but moderate increases occurred in other industries also. Auto assemblies, up 14 per cent, were at an 8.8 million unit annual rate and at their pre-strike level. indicate a further rise in December.

Current production schedules Production of home goods last

month increased moderately, as did output of consumer nondurables, including clothing and consumer staples.

Business equipment produc-

tion increased more than 2 per cent, the result mainly of the resolution of strikes affecting farm equipment and truck production.

139.3 per cent of the 1967 average, business equipment remains 5 per cent below its 1974 high. increased somewhat.

Output of construction and business supplies

- 2 The production of durable materials rose sharply

MATERIALS.

in November, but this was mainly in the auto supplying industries. Output of other durable materials rose slightly.

Production of non-

durable materials advanced moderately. INDUSTRIAL PRODUCTION (Seasonally adjusted)

Aug.

1976 Sept. Oct.

Nov.

Per cent changes Month Year QII to

(P)

(e)

ago

QIII 1.2

131.3

130.9

130.4

132.0

1.2

6.9

130.3

130.0

129.6

131.5

1.5

6.2

128.3 137.5 143.7 134.9 137.7

127.5 136.2 138.5 135.3 137.6

127.3 136.5 138.1 135.8 136.4

129.5 138.9 144.6 136.6 139.3

1.7 1.8 4.7 .6 2.1

5.9 5.9 9.1 4.6 7.5

.6 -.2 -1.1 .2 2.1

Intermediate products 137.8 Construction supplies 134.1

139.0

138.3

139.2

134.3

133.9

134.9

.7 .7

7.7 9.6

2.1 2.8

132.4

131.7

133.0

1.0

8.0

1.7

Total Products, total Final products Consumer goods Durable goods Nondurable goods Business equipment

Materials

133.0

p--preliminary

e--esestimated

Private housing starts declined 6 per cent further in November to a seasonally adjusted annual rate of 1.71 million units.

Despite

this decline, indications are that starts in the fourth quarter, as a whole, will average a tenth above the third quarter figure. the November decline was in the single-family sector.

Most of

Even so, at a

- 3rate of 1.24 million units, such starts continued near the cyclical peak recorded in early 1973.

Multifamily starts, which have been

bolstered in recent months by federal subsidy programs, edged down 1 per cent in November.

The decline in total starts was shared by three of the four Census regions.

However, in the Northeast, where starts had been quite

low for nearly 2 years, the rate jumped more than 50 per cent above the October figure. In contrast to housing starts, residential building permits rose 6 per cent in November to a seasonally adjusted annual rate of 1.59 million units--the highest rate in more than 3 years.

Permits for

all types of units increased. PRIVATE HOUSING STARTS AND RESIDENTIAL BUILDING PERMITS Sept.

Nov. Oct. (r) (r) (Thousands of units, SAAR)

Per cent October

change from November 1975

STARTS

1,840

1,813

1,735

1976 -6

1 - family 2 - or more - family

1,280

1,340

560

473

1,237 468

-8 -1

+18 +41

164 503 708 465

175 478 548

264 365 571 505

+51 -24 -7 -8

+51 +8 +7 +51

1,504

1,492

1,585

441

1 - family 2-- or more - family

926 578

998 494

1,085 500

+9 +1

+33 +60

Northeast North Central South

164 395 478 467

185 381 429 497

163 361 452 609

-12 -5 +5 +23

+14 +25 +30 +75

269

244

-9

Northeast North Central South West PERMITS

West MEMO:

Mobile home shipments

NOTE: NOTE:

r == revised, r revised,

612

255

preliminary, p p -= preliminary, ---

+24

means change is less than 1 per cent. means change is

less than 1 per cent.

-4

Total personal income rose $14.9 billion at a seasonally adjusted annual rate in November compared to an upward revised increase of $11.2 billion in October. Wage and salary disbursements increased $10.2 billion in November, comsiderably more than in October.

This reflected a $4.5

billion increase in manufacturing payrolls in November, compared to only $0.3 billion in October, as employment, average weekly hours, and average hourly earnings all increased.

The largest increase was

in the transportation equipment industry reflecting the first full month of operation since the Ford strike. Farm proprietors' income leveled out after having declined since mid-year. PERSONAL INCOME billions of dollars seasonally change, monthly (Average adjusted at an annual rate) Jully 75-* Jul ly 76

Total Personal Income

] 0.7

Labor and Nonfarm Proprietors' Income

8.8 7.5 .7 .7

Wage and Salary Disbursements Other Labor Income Nonfarm Proprietors' Income

July 76Nov. 76p

Sept. 76Oct. 76r

Oct. 76Nov. 76p

11.2

14.9

8.5

9.0

11.8

7.2 .7 .6

7.8 .7 .5

10.2

-.9

-.1

9.3

-2.2

.8 .8

Farm Proprietors' Income

-.2

Transfer Payments

1.2

1.4

1.5

2.3

Rents, Dividends, and Personal Interest

1.4

2.0

1.8

1.6

July 1975 was the specific low for deflated wage and salary disbursements.

p -r --

preliminary revised

- 5 -

An increase of 5 per cent in the price of crude oil was announced today (December 17) by Saudi Arabia and the United Emirates, who account for about one-third of OPEC production.

The other 11

countries raised prices by 10 per cent and intend to add another 5 per cent in six months. the oil cartel.

This is the first open break in ranks in

Saudi Arabia's oil minister has announced that his

country will lift its self-imposed limit on oil production in an effort to meet demands at the lower price level. The staff estimated a 15 per cent increase would have had an impact of 0.6 per cent on the fix-weighted price index for Gross Domestic Final Purchases.

A 5 per cent increase thus would tend to

raise these prices by 0.2 per cent in 1977.

The Domestic Financial Economy Mortgage market.

The average interest rate on new commit-

ments for conventional new-home loans in the primary market was reported by HUD to be 8.85 per cent in November--down 5 basis points from the October rate.

The rate spread between these mortgages and

new issues of Aaa utility bonds is the largest since October 1973, reflecting the declining bond rates of recent weeks.

The rate on

new commitments for existing home loans remained at 9.00 per cent for the second consecutive week. In the private secondary market for FHA-insured new home mortgages, the yield declined to 8.45 per cent--its lowest level since July 1973.

- 6 -

AVERAGE RATES AND YIELDS ON NEW-HOME MORTGAGES (HUD-FHA Field Office Opinion Survey)

Primary market Conventional loans Level 2/ Spread 4/ (per cent) (basis points)

End of Month 1975-Low High 1976-Jan. Feb. Mar. Apr. May June

July Aug.

Sept Oct. Nov. I/ 2/ 3/

8.90(Mar.) 9.25(Sept., Oct.) 9.05

9.00 8.95 8.90 9.00

9.05 9.05 9.05 9.00 9.00 8.95

Secondary market 1/ FHA-insured loans

Level 3/ (per cent)

-70 (Mar.) +15 (Jan.)

8.69 (Mar.)

+39 442 +42 +32 +5 +35 +33 +58 +77 +71 +90

9.06 9.04 n.a. 8.82 9.03

9.74(Sept.)

9.05 8.99 8.93 8.82 8.55 8.45

Spread 4/ (basis points)

Discounts (points)

-91 (Mar.) +31 (Oct.)

2.4 (Dec.) 6.2 (Aug.)

440 -46 n.a. +24 +8 +35

2.4 2.2 n.a. 2.5 4.1 4.2 3.8 3.3 2.5 4.3 3.6

+27 +46 +59 +26 +40

Any gaps in data are due to periods of adjustment to changes in maximum permissible contract rates on FHA-insured loans. Average contract rates (excluding fees or points) on commitments for conventional first mortgage loans, rounded to the nearest 5 basis points. Average gross yield (before deducting servicing costs) to investors on 30-year minimum-downpayment FHA-insured first mortgages for immediate delivery in the private secondary market (excluding FNMA), assuming prepayment in 15 years. Average mortgage rate minus average yield on new issues of Aaa utility bonds in the last week of the month.

-7INTEREST RATES (One day quotes - in per cent)

1976 Highs

Lows

Nov. 15

Dec. 16

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

5.58(6/30)

4.67(12/8)

5.02(11/17)

4.68(12/14)

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

5.57(6/2) 6.00(6/15) 5.95(6/2) 6.81(6/1)

4.33(12/16) 4.63(12/14) 4.58(12/3)

4.90 5.13

4.33

4.81(12/8)

5.38

4.75 4.63 5.06

5.75(6/16)

4.50(12/15)

5.06(11/10)

4.50(12/15)

5.96(5/27) 6.00(6/22) 6.42(5/27)

4.49(12/10)

5.02 5.13 5.32

4.56

4.63(12/7) 4.82(12/10)

6.50(6/2)

4.60(12/15)

5.30(11/10)

4.60(12/15)

6.39(5/27) 6.86(5/28)

4.61(12/3) 5.12(12/10)

5.16 5.70

4.67 5.12(12/10)

6.75(6/16) 3.70(5/28)

4.80(12/15) 2.50(12/10)

5.50(11/10) 2.95(11/12)

4.80(12/15)

7.82(5/27) 8.20(5/21)

5.99(11/26) 7.30(12/10)

6.70 7.73

6.14(12/15) 7.34(12/15)

7.99(12/7) 9.01(12/15)

8.31 9.14

8.01(12/15) 9.01(12/15)

8.95(5/28)

7.93(12/10)

8.31(11/12)

7.95p(12/17)

Municipal Bond Buyer Index

7.13(1/8)

5.95(12/16)

6.39(11/11)

5.95

Mortgage--average yield in FNMA auction

9.20(6/1)

8.51(12/13)

8.68

8.51(12/13)

6-month Treasury bills (bid)

Comm. paper (4-6 mo.) Federal agencies CD's (NYC) 180 day Most often quoted new 1-year Treasury bills (bid) Federal agencies CD's (NYC) Most often quoted new Prime municipals

5.00

4.75 4.82(12/10)

2.50(12/10)

Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa Utility

8.66(1/2) 10.34(1/2)

-8

International Developments Deutsche Bundesbank announces 1977 central bank money growth target.

On December 16 the Deutsche Bundesbank set a target of 8 per

cent for the growth of central bank money (CBM), in annual average terms, during 1977.1/ This is the third year the Bundesbank has put forth a central bank money growth target, which on each occasion has been 8 per cent, and on the last two occasions average growth.

has been stated in terms of annual

The 8 per cent selected for 1977 is higher than the

figure recently recommended by the major German economic institutes (6-1/2 per cent).

Most observers also had expected the 1977 target

to be somewhat lower because in 1976 central bank money will increase by about 9.2 per cent, overshooting this year's target.

The Bundes-

bank's choice of 8 per cent for 1977 thus appears to validate the excess CBM growth in 1976, and may be interpreted as a sign of continued monetary accommodation in the coming year. In its announcement on next year's growth target, the Bundesbank set out an additional guideline relating to CBM growth: that between the fourth quarter of 1976 and the fourth quarter of 1977 CBM should not grow by more than 6-7 per cent.

This additional objec-

tive suggests that during 1977 the Bundesbank will endeavor to keep monthly and quarterly CBM growth on a smoother path than has been the case during the past two years. 1/

Central bank money in Germany is defined as currency in circulation plus minimum reserves (at January 1974 reserve ratios) on banks' domestic liabilities.

-9-

Erratum Part I; Table: U.S. Net Exports and Related Items page 1-22, line 2, 1976p

19 77 p

(6.5)

(4.4)

Net Exports of Goods and Services (GNP basis of net exports) 1/

A1 SUPPLEMENTAL APPENDIX A* CHANGES IN BANK LENDING PRACTICES The Survey of Changes in Bank Lending Practices for November 15, 1976, indicates that commercial and industrial loan demand at the responding banks was essentially unchanged as compared to three months earlier. Further, since the last survey, the respondents as a group have become considerably less optimistic about an upturn in loan demand over the near future. A large number of respondents report moderately easier policies on interest rates and compensating balance requirements while a somewhat smaller number relaxed other terms of lending. Finally, the number of respondents reporting an increased willingness to make various specified types of loans has increased further. Two-thirds of the 121 respondents reported that demand for commercial and industrial loans in mid-November was about unchanged as compared to three months earlier, while one-fifth reported a strengthening and the remainder a weakening in demand over the period. Looking ahead, optimism about an impending upturn in business loan demand apparently has waned somewhat since the previous survey. Only about 35 per cent of the banks now anticipate moderately stronger demand in the next three months, with most of the rest predicting unchanged demand. In contrast, about half of the banks in the August survey expected moderately stronger demand between then and mid-November.1/ The tendency for the respondents to overpredict the strength of loan demand is not uncommon as is illustrated in Chart 1, which shows that in every one of the past six surveys this has occurred. The respondents' evaluation of the strength of commercial and industrial demand in mid-November is similar to their mid-August evaluation. In both surveys about [80]per cent of the banks in the sample reported no upturn in demand, while approximately [20] per cent reported modest strengthening. For the most part the strength was at different banks in the two surveys. Further, slightly fewer banks reported weaker demands in the November survey. Taken together, the mid-August and mid-November surveys suggest that about 30 per cent of the sample experienced an unambiguous strengthening in demand over the 6-month period, while about 23 per cent

1/ Of these previously optimistic banks, a majority (37 of 64) are no longer predicting an upturn in commercial and industrial loan demand in the near future. This perhaps reflects the fact that only 25 per cent of these previously optimistic banks actually reported any strength in loan demand in the November survey. * Prepared by John Scott, Economist, Banking Section, Division of Research and Statistics.

A-2 found unambiguous weakening.2/ Respondents to the November survey report further modest concessions on the terms of lending to nonfinancial businesses. A majority of the banks report moderately easier policy with regard to interest rates.3/ There has also been an increase in the number of banks making moderate concessions on compensating balance requirements. In the August survey, about 10 per cent (12 banks) reported moderately easier policy. The November survey shows that 9 of these same banks report further modest concessions on balances and that 20 per cent of those reporting no change in policy in August had initiated a moderately easier policy on such balances. Considering the August and November surveys together, slightly over one-fourth of the respondents have eased their compensating balance requirements. Chart 2 provides a longer run perspective of the gradual move toward easier policy on compensating balances since August 1975. Over 80 per cent of the respondents reported no change in policy on all other price and nonprice terms of lending to nonfinancial businesses. The prolonged weakness of business loan demand may explain much of the increased willingness of banks to make other types of loans included in the survey. The respondents were particularly interested in making consumer instalment loans, and participation loans with correspondent banks. With regard to commercial and industrial loans, they expressed increased willingness to make term loans. For the two most recent surveys together, 45 per cent of the respondents reported an increased willingness to make term loans to business, 35 per cent were more willing to make consumer instalment loans, and 29 per cent were more willing to make participation loans. The essentially unchanged loan demand indicated by the November survey is somewhat surprising in view of observed increases in commercial and industrial loan volume since August. Comparison of the survey responses

2/ Unambiguous strength (weakness) means that strengthening (weakening) demands were reported in either or both periods and that no weakening (strengthening) was reported. 3/ Comments from the survey forms indicate that many respondents equate the recent cuts in the prime rate with easier policy while others do not, apparently believing that lowering the prime rate along with market rates implies no change in policy.

A-3 of respondents with their weekly outstandings for commercial and industrial loans shows that for some respondents outstandings increased while their survey responses indicated weaker or unchanged demands. Since the increase in outstandings resulted largely from increases in holdings of bankers' acceptances, some respondents probably are not considering such acceptances when assessing the strength of loan demand.4/

4/ Of course, it is possible that demand weakened somewhat or remained unchanged while banks' willingness to supply funds increased. If this occurred, we would observe an increase in outstanding loans and lower rates.

NOT FOR

QUOTATION OR

PUBLICATION

(STATUS OF

TABLE

QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. 1/ NOVEMBER 15, 1976 COMPARED TO THREE MONTHS EARLIER) 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 TO THREE MONTHS AGO

121

100.0

19.0

67.0

12.4

0.8

ANTICIPATED DEMAND

121

100.0

35.5

57.1

7.4

0.0

IN NEXT

3 MONTHS

ANSWERING QUESTION BANKS

PCT

MUCH FIRMER POLICY BANKS

PCT

MODERATELY FIRMER POLICY

ESSENTIALLY UNCHANGED POLICY

MODERATELY EASIER POLICY

BANKS

PCT

MUCH EASIER POLICY BANKS

LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS: INTEREST RATES CHARGED

121

100.0

0.0

1.7

47.1

51.2

0.0

COMPENSATING OR SUPPORTING BALANCES

121

100.0

0.0

0.B

74.4

22.3

2.5

STANDARDS OF

121

100.0

0.8

0.t

117 196.7

1.7

0.0

121

100.0

0.0

1.7

100

82.6

15.7

0.0

ESTABLISHED CUSTOMERS

121

100.0

0.0

1.7

105

86.7

11.6

0.0

NEW CUSTOMERS

121

100.0

0.8

2.5

103

85.1

11.6

0.0

LOCAL

121

100.0

0.0

1.7

112

92.5

5.8

0.0

121

100.0

1.7

4.1

103

85.1

9.1

0.0

MATURITY OF REVIEWING

CREDIT WORTHINESS TERM LOANS

CREDIT LINES OR LOAN APPLICATIONS

SERVICE AREA CUSTOMERS

NONLOCAL SERVICE AREA

CUSTOMERS

1/ SURVEY OF LENDING PRACTICES AT 121 AS OF NOVEMBER 15, 1976.

LARGE BANKS REPORTING IN THE FEDERAL RESERVE

QUARTERLY

INTEREST

RATE

SURVEY

NOT QUOTATION FOR OR

PUBLICATION

TABLE

ANSWERING QUESTION BANKS

PCT

ITINUED)

MUCH FIRMER POLICY BANKS

MODERATELY FIRMER POLICY

PCT

BANKS

PCT

ESSENTIALLY UNCHANGED POLICY

MODERATELY EASIER POLICY

BANKS

PCT

MUCH EASIER POLICY BANKS

PCT

FACTORS RELATING TO APPLICANT 2/ VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS

121

100.0

81.0

10.7

INTENDED USE OF THE LOAN

121

100.0

106

89.3

9.9

INTEREST RATES CHARGED

100.0

78.5

19.0

COMPENSATING OR SUPPORTING BALANCES

100.0

115

95.0

3.3

ENFORCEMENT OF BALANCE REQUIREMENTS

100.0

114

94.2

3.3

ESTABLISHING NEW OR LARGER CREDIT LINES

100.0

81.0

LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS:

ANSWERING QUESTION BANKS

PCT

CONSIDERABLY LESS WILLING BANKS

PCT

13.2

MODERATELY LESS WILLING

ESSENTIALLY UNCHANGED

MODERATELY MORE WILLING

BANKS

PCT

WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES

100.0

60.3

36.4

CONSUMER INSTALMENT LOANS

100.0

75.0

21.7

SINGLE

100.0

81.7

13.3

MULTI-FAMILY MORTGAGE LOANS

100.0

117

97.5

0.8

ALL OTHER MORTGAGE

100.0

108

90.7

7.6

FAMILY MORTGAGE LOANS

LOANS

PARTICIPATION LOANS WITH CORRESPONDENT BANKS

120

100.0

75.8

21.7

LOANS TO BROKERS

121

100.0

100

82.7

13.2

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

IMPORTANT

IN MAKING DECISIONS FOR APPROVING

CONSIDERABLY MORE WILLING BANKS

PCT

NOT

FOR QUOTATION OR

PUBLICATION

COMPARISON

TABLE 2

QUARTERLY CHANGES IN BANK LENDING PRACTICES AT BANKS GROUPED BY SIZE OF TOTAL DEPOSITS NOVEMBER 15, 1976, 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

STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFIER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED

TO THREE

ANTICIPATED

MONTHS

DFMAND

TOTAL DEPOSITS IN BILLIONS

MODERATELY STRONGER

MUCH STRONGER

$1 E OVER

UNOERk I

ESSENTIALLY UNCHANGED 11 .iVER

UNDER I1

MODERATELY WEAKER $1 C OVER

UNDER $1

MUCH WEAKER $1 L OVER

UNDER $1

t$ (L OViR

NDEH 21

10t0

100

AGO

IN NEXT

OF BANK

3 MONTHS

TOTAL

$I i; OVER

UNDER ''.l

MUCH FIRMER

MODERATELY FIRMER

ESSENTIALLY UNCHANGED

MODERATELY EASIER

II L OVER

UNDER $1

s1 E OVER

$1 £ OVER

MUCH EASIER a

11 E OVkR LENDING

TO NONFINANCIAL

IUJDER $1

$I1 & OVER

uNDR $1

UNDER $1

$1 £ OVER

UNDER $1

BUSINESSES

TERMS AND CONDIIIOIS: INTEREST RATES

LIARGED

100

COMPENSATING

OR SUPPORTING BALANCLS

100

STANDARDS OF

CRELIT WORTIIINESS

100

100U

100ii

1o)0

100

MATURITY

OF TERM LOANS

REVIEWING CREDIT LINES OR ESTABLISHED

LOAN APPLICATIONS

CUSIOMERS

NEW CUSTOMERS LOCAL

SERVICE

AREA

CUSTOMES

NONLOCAL SERVICE AREA CUSTOMERS

a 0

1/ SURVEY OF LENDING PRACTICES AT 52 LARGE BANKS (UEPOSITS OF I1 BILLION OR MORE) AND 69 SMALL BANKS (DEPOSITS OF LESS THAN $1 BILLION) REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS OF NOVEMBER 15, 1976.

NOT

QUOTATION OR FOR

PUBLIICATION

IAbLE

(

IiJED)

OF BANK MUCH FIRMER POLICY

51Lt NUMBER ANSWERING QUESTION II

IIH-iLR

It & OVER

UNDER $1

TOTAL DEPOSITS IN BILLION S MODERATELY ESSENTIALLY MODERATELY EASIER UNCHANGED FIRMER POLICY POLICY POLICY UNDER 1I

$1 L OVER

I$ C OVER

OVER

VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS

100

INTENDED USE OF THE

100

',30

100

$1 & OVER

UNDER $1

$1 C OVER

UNDER Sl

RELATING TO APPLICANT

FACTORS

UNDER $1

MUCH EASIER POLICY

LOAN

LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: INTEREST

CHARGED

RATES

COMPENSATING OR

SUPPORTING

BALANCES

ENFORCEMENT OF BALANCE REQUIREMENTS

100

ESTABLISHING NEW OR LARGER

100

CREDIT LINES

NUMBER ANSWERING QUE ST ION

11 O OVER TO MAKE

WILLINGNESS TERM

LOANS

CONSUMER SINGLE

FAMILY

ALL OTHER

TYPES OF

MORTGAGE

LOANS BANKS

TO BROKERS

I1 E OVER

lri;Et S1

UNDER $1

MODERATELY LESS WILLING

ESSENTIALLY UNCHANGED

$1 & OVER

$1 C OVER

UNDER S1

UNDER $1

MODERATELY MORE WILLING $1 C OVER

UNDER $1

LO(u 100

LOANS

MORTGAGE

CONSIDERABLY LESS WILLING

LOANS

BUSINESSES

MORTGAGE

PARTICIPATION CORRESPONDENT LOANS

OTHER

INSTALMENT

MULTI-FAMILY

106

LOANS

100

LOANS

100

WITH

100 ioo

FIRMER MFANS THE FACTORS FOR THESE FACDOPS, CREDIT REQUESTS, AND EASIER MEANS THEY WERE

ioo o10

wERE LFSS

CONSIDERED MORE IMPORTANT.

IMPORTANT

MAKING DECISIONS

FOR APPROVING

CONSIDERABLY

MORE WILLING .

UNDER

OVER

NOT FOR

QUOTATION

PUBLICATION

TABLE 3

QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. STATUS OF POLICY ON NOVEMBER 15, 1976 COMPARED TO THREE MONTHS EARLIER (NUMBER OF BANKS)

BOSTON

ALL DSTS

NEW YORK TOTAL CITY OUTSIDE

PHILADEL.

CLEVE- RICHMOND LAND

ATLAN- CHICAGO TA

ST. LOUIS

MINNE- KANS. APOLIS CITY

DALLAS

SAN FRAN

STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TO 3 MONTHS AGO

121

MUCH STRONGER MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER MUCH WEAKER

1 23 81 15 1

ANTICIPATED DEMAND NEXT THREE MONTHS

121

MUCH STRONGER MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER MUCH WEAKER

0 43 69 9 0

0 1 7 0 0

O 2 12 2 0

0 1 6 1 0

O 1 6 1 0

O 2 3 1 0

0 1 9 1 0

0 3 7 1 1

0 1 6 3 0

0 2 11 2 0

0 2 6 1 0

0 0 3 0 0

1 3 3 2 0

O 2 5 2 0

O 4 9 0 0

0 3 5 0 0

0 5 11 0 0

0 2 6 0 0

0 3 5 0 0

0 4 2 0 0

0 2 9 0 0

0 5 5 2 0

0 4 5 1 0

0 5 9 1 0

0 2 7 0 0

0 1 2 0 0

0 4 2 3 0

0 2 5 2 0

0 6 7 0 0

0 0 4 4 0

0 0 9 7 0

0 0 4 4 0

0 0 5 3 0

0 0 4 Z 0

0 0 6 5 0

0 0 3 9 0

0 0 6 4 0

0 0 8 7 0

0 0 3 6 0

0 0 2 1 0

0 1 2 6 0

0 1 6 2 0

0 0 4 9 0

0 0 7 1 0

0 0 9 7 0

0 0 3 5 0

0 0 6 2 0

0 0 3 3 0

0 0 9 1 1

0 0 9 2 1

0 0 9 1 0

0 0 12 3 0

0 1 4 3 I

0 0 2 1 0

0 0 8 1 0

0 0 10 3 0

LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS INTEREST RATES

CHARGED

MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY COMPENSATING BALANCES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

1/ SURVEY OF LENDING PRACTICES AT AS OF NOVEMBER 15, 1976.

121 0 2 57 62 0 121 0 1 90 27 3

121

LARGE BANKS

REPORTING IN THE FEDERAL RESERVE

QUARTERLY

INTEREST

RATE SURVEY

NOT FOR

QUOTATION

PUBLICATION

TABLE 3

ALL DSTS

ATLANTA

CLEVE- RICHLAND MOND

PHILADEL.

NEW YORK BOSTON TOTAL CITY OUTSIDE

ST. CHICLOUIS AGO

MINNE- KANS. CITY APOLIS

DALLAS

SAN FRAN

LENDING TO NONFINANCIAL BUSINESSES TERMS

AND CONDITIONS

STANDARDS OF CREDIT WORTHINESS

121

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

1 1 117 2 0

MATURITY OF TERM LOANS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

0 1 7 0 0

0 0 16 0 0

0 0 8 0 0

0 0 7 1 0

0 0 15 1 0

0 0 7 1

0 0 8 0 0

0 O 8 0 0

0 0 12 4 0

0 0 5 3 0

0 0 7 1 0

0 0 12 4

0 0 6 0 0

0 0 11 0 0

0 0 11 1 0

1 0 8 1 0

0 0 15 0 0

00 0 9 0 0

0 3 0 0

0 0 9 0 0

00 0 9 0 0

0 0 13 0 0

0 0 6 0

0 0 10 1 0

0 0 9 3 0

0 0 9 1 0

0 0 14 1 0

0 0 5 4 0

0 0 3 0 0

0 1 b 2 0

0 1 5 3 0

0 0 11 2 0

0 0 7 1 0

0 0 4 2 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 3 0 0

0 1 7 1 0

0 0 7 2 0

0 0 13 0 0

0 0 5 3 0

0 0 7 1 00

0 0 6 0

0 0 9 2 0

0 0 11 1

1 1 8 0

0 0 13 2 0

0 1 6 2 0

0 0 2 1

0 1 U 0 0

0 0 8 1 0

0 0 13 0 0

0 0 7 1 0

0 0 8 0 0

0 0 5 1 0

0 0 10 1 0

0 0 11 1 0

0 0 3 0 0

0 1 7 1 0

0 0 e i 0

0 0 13 0 0

121 0 2 100 19 0

REVIEWING CRFOIT LINES OR LOANS ESTABLISHED CUSTOMERS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

0 2 105 14 0 121

NEW CUSTOMERS MUCH FIRMER MODERATELY ESSENTIALLY MODERATELY MUCH EASIER

121

POLICY FIRMER POLICY UNCHANGED POLICY EASIER POLICY POLICY

LOCAL SERVICE AREA

CUSTOMERS

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

1 3 103 14 0

121 0 2 112 7 0

0 0 8 0 0

0 0 15 1 0

0 0 10 0 0

0 0 14 1 0

0 1 6 0 0

FORQUOTATION OR NOT

TABLE .

PUBLICATION

ALL DSTS

BOSTON

NEW YORK TOTAL CITY OUTSIDE

4TINUED)

PHILADEL.

CLEVE- RICHMOND LAND

ATLAN- CHICAGO TA

ST. LOUIS

MINNE- KANS. CITY APOLIS

DALLAS

SAN FRAN

LENDING TO NONFINANCIAL BUSINESSES REVIEWING CREDIT LINES OR LOANS NONLOCAL

SERVICE AREA

CUST

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

121 2 5 103 11 0

0 0 7 1 0

0 0 15 1 0

0 0 7 1 0

0 0 8 0 0

0 0 5 1 0

0 1 9 1

0 0 11 1 0

1 1 8 0 0

0 0 13 2 0

0 1 7 1 U

0 0 3 0 0

1 1 7 0 0

0 0 7 2 O

0 1 11 1 O

0 0 8 0 0

0 2 11 3 0

0 0 6 2 0

0 2 5 1 0

0 1 5 0 0

0 0 9 2 0

0 0 11 1 0

0 2 8 0 0

0 2 12 1 0

0 0 6 3 0

0 0 3 0 0

0 3 6 0 0

0 0 7 2 0

0 0 12 1 0

0 0 7 1 0

0 0 13 3 0

0 0 6 2 0

0 7 1 0

0 6 0 0

0 11 0 0

0 0 12 0 0

0 0 10 0 0

0 14 1 0

0 0 8 1 0

0 3 0 0

0 1 7 1 0

0 0 8 1 0

0 0 9 4 0

0 13 2 0

0 8 1 0

0 3 0 0

0 6 3 0

1 7 1 0

0 8 5 0

FACTORS RELATING TO APPLICANT 2/ VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS 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 UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

LENDING FINANCE

121 0 10 98 13 0 121 O 1 10b 12 0

TO "NONCAPTIvE" COMPANIES

TERMS AND LONDITIONS INTEREST

RATES CHARGED

M'.H FIRMER POLICY MODERATELY FIRMtR POLICY ESSENTIALLY .IUNCHANGED POLICY MODERATELY EASIER POLICY P MUCH EASIF P'f! ICY

121 o

3 95 23

O 7 1 0

0 14 2

0 7 1 0

0 6 0 0

0 10 1

0 8 4 0

2 5 3 0

2/ FOR THESE FAC1ORS, FIRMER MEANS THE FACTORS WERE CONSIDERED MORE CREDIT REQUFIT*, fNO EASIER MEANS THEY WERE LESS IMPORTANT.

IMPORIANT IN MAKING DECISIONS

FOR APPROVING

NOT

FOR

QUOTATION OR

PUBLICATION

TABLE

ALL DSTS

NEW YORK BOSTON TOTAL CITY OUTSIDE

3 (CONTINUED)

PHILADEL.

CLEVELAND

RICHMOND

ST. ATLAN- CHICAGO LOUIS TA

MINNE- KANS. CITY APOLIS

DALLAS

SAN FRAN

LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: SIZE OF COMPENSATING

BALANCES

MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY ENFORCEMENT OF BALANCE REQUIREMENT MUCh FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY ESTABLISHING NEW OR LARGER CREDIT LINES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY

121 O 2 115 4 O

0 0 8 O 0

0 0 15 I 0

0 0 8 0 0

0 0 7 1 0

0 0 6 0 O

0 0 11 0 0

0 0 12 0 G

0 2 8 0 O

0 0 14 1 0

0 0 8 1 O

0 0 3 0 O

0 0 8 1 0

0 0 9 0 0

0 0 13 0 O

0 0 8 0 0

0 0 14 2 0

0 0 8 0 0

0 0 6 2 0

0 0 6 0 0

0 0 11 0 0

0 0 II 1 0

0 2 8 0 0

0 0 15 0 0

0 0 9 0 0

0 0 3 0 0

0 1 7 1 0

0 0 9 0 0

0 0 13 C 0

0 0 8 0 0

9 6 0

6 2 0

0 1 3 4 0

0 0 6 0 0

0 0 10 1 0

0 0 10 2 0

1 1 8 0 0

0 0 12 3 0

0 0 8 1 0

1 0 1 1 0

0 2 6 1 0

0 0 9 0 0

0 1 11 1 0

0 0 5 3 0

0 0 8 8 0

0 0 5 3 0

0 0 3 5 0

0 0 5 1

0 0 10 1 0

0 0 7 4 1

0 0 10 0 0

0 0 8 7 0

0 0 4 5 0

0 0 1 2 0

0 2 4 3 0

0 1 4 4 0

0 0 7 6 0

0 0 8 0 0

0 0 13 2 0

0 0 6 1 0

0 0 7 1 0

0 0 5 1 0

0 0 9 2 0

0 0 8 3 1

0 0 7 2 1

0 0 10 5 0

0 0 5 4 0

0 0 3 0 0

0 0 6 3 0

0 0 7 2 0

0 1 v 2 1

121 0 3 114 4 O

121 2 5 98 16 0

WILLINGNESS TO MAKE OTHER TYPES GF LOANS TERM LOANS TO BUSINESSES CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING CONSUMER

INSTALMENT LOANS

CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING

121 O 3 73 44 1 120 0 1 90 26 3

NOT FOR QUOTATION OR

PUBLICATION

TABLE 3 (CONTINUED)

ALL DSTS

BOSTON

NEW YORK TOTAL CITY OUTSIDE

PHILADEL.

CLEVE- RICHLAND MOND

ATLAN- CHICTA AGO

ST. LOUIS

MINNEAPOLIS

KANS. CITY

DALLAS

SAN FRAN

WILLINGNESS TO MAKE OTHER TYPES OF LOANS SINGLE FAMILY MORTGAGE LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING MULTIFAMILY MORTGAGE LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING ALL OTHER MORTGAGE

LOANS

CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING PARTICIPATION CORRESPONDENT

LOANS WITH BANKS

CONSIDERABLY 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 WILLING CONSIDERABLY MORE WILLING

NUMBER OF BANKS

120 0 4 98 16 2

1 11 3 0

0 0 6 1 0

0 1 5 2 0

0 0 4 1 1

0 0 10 1 0

0 1 10 1 0

0 0 10 0 0

0 0 13 2 0

0 0 9 0 0

0 0 3 0 0

0 1 6 2 0

0 0 8 1 0

0 1 8 3 1

0 0 8 0 0

0 0 15 0 0

0 0 7 0 0

0 0 8 0 0

0 0 6 0 0

0 0 11 0 0

0 0 12 0 0

0 0 10 0 0

0 0 15 0 O

0 0 9 0 O

0 0 3 0 O

0 1 8 0 C

0 0 9 0 O

0 1 11 1 O

0 0 8 0 0

0 0 13 2 0

0 0 7 0 0

0 0 6 2 0

0 0 6 0 0

0 0 11 0 0

0 0 11 1 0

0 0 9 0 0

0 0 13 2 0

0 0 8 1 0

0 0 3 0 0

0 1 h 0 0

0 0 9 0 O

0 1 V 3 0

0 0 5 3 0

0 0 11 5 0

0 0 7 1 0

0 0 4 4 0

0 0 6 0 0

0 0 10 1 0

0 0 9 1 2

1 0 6 2 0

0 0 14 1 0

0 0 4 5 0

0 0 3 0 0

0 0 8 1 0

0 0 4 5 0

0 0 11 2 0

0 0 7 0 1

0 0 13 3 0

0 0 7 1 0

0 0 6 2 0

0 0 6 0 0

0 0 10 1 0

0 0 10 0 2

1 0 8 1 0

0 0 14 1 0

0 0 7 2 0

0 0 2 1 0

0 0 6 3 0

0 0 7 2 0

0 1 10 2 0

0 0 6 2 0

120 0 2 117 1 0 119 0 2 108 9 0

120 1 0 91 26 2 121 1 1 100 16 3

121

NOT FOR QUOTATION OR

TABLE 4

PUBLICATION COMPARISON OF SELECTED

AUGUST

RESPONSES IN THE

AUG.

15,

1976

NUMBER OF BANKS

NOVEMBER

AND

NOVEMBER

15,

SURVEYS

1976

NUMBER OF BANKS STRONGER UNCHANGED

WEAKER

STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS COMPARED TO THREE MONTHS AGO STRONGER UNCHANGED WEAKER

24 73 24

6 15 3

15 51 15

3 7 6

ANTICIPATED DEMAND THREE MONTHS HENCE STRONGER UNCHANGED WEAKER

64 54 3

27 15

36 32 1

1 7 1

ANTICIPATED DEMAND THREE MONTHS HENCE STRONGER UNCHANGED WEAKER

b4 54 3

FIRMER

LENDING TO NONFINANCIAL BUSINESSES INTEREST

RATES CHARGED FIRMER UNCHANGED EASIER

COMPARED 16 7 1

10 THREE MONTHS AGO 42 6 38 9 1 1

UNCHANGED

EASIER

3 93 25

0 2 0

0 48 9

3 43 16

COMPENSATING OR SUPPORTING BALANCES FIRMER UNCHANGED EASIER

2 107 12

0 1 0

2 85 3

0 21 9

STANDARDS OF CREDIT WORTHINESS FIRMER UNCHANGED EASIER

4 117 0

0 2 0

4 113 0

0 2 0

MATURITY OF TERM LOANS FIRMER UNCHANGED EASIER

5 104 12

2 O 0

3 90 7

0 14 5

NOT FOR QUOTATION OR PUBLICATION

TABLE 4 (CONTINUED)

AUG. 15,

1976

NUMBER OF BANKS

NOVEMBER

15,

1976

NUMBER OF BANKS FIRMER UNCHANGED

EASIER

REVIEWING CREDIT LINES OR LOAN APPLICATION ESTABLISHED CUSTOMERS FIRMER UNCHANGED EASIER

2 112 7

0 2 0

2 98 5

0 12 2

FIRMER UNCHANGED EASIER

6 111 4

1 3 0

5 96 2

0 12 2

AREA CUSTOMERS FIRMER UNCHANGED EASIER

3 112 6

0 2 0

3 105 4

0 5 2

5 109 7

1 6 0

4 95 4

0 8 3

VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS FIRMER UNCHANGED EASIER

10 105 6

5 5 0

5 91 2

0 9 4

INTENDED USE OF THE LOAN FIRMER UNCHANGED EASIER

4 109 8

1 0 0

2 102 4

1 7 4

8 108 5

1 2 0

4 91 0

3 15 5

4 116 1

1 1 0

3 111 1

0 4 0

NEW CUSTOMERS

LOCAL SERVICE

NONLOCAL SERVICE AREA CUSTOMERS FIRMER UNCHANGED EASIER

FACTORS RELATING TO APPLICANT

LENDING TO "NONCAPTIVE"

FINANCE COMPANIES

TERMS AND CONDITIONS: INTEREST

RATES CHARGED FIRMER UNCHANGED EASIER

COMPENSATING OR SUPPORTING BALANCES FIRMER UNCHANGED EASIER

FOR NOT

QUOTATION OR

PUBLICATION

TABL

AUG.

ONTINUED)

15,

1976

NUMBER OF BANKS

NOVEMBER 15, 1976 NUMBER OF BANKS EASIER UNCHANGED FIRMER

LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: ENFORCEMENT OF BALANCE REQUIREMENTS FIRMER UNCHANGED EASIER

7 113 I

ESTABLISHING NEW OR LARGER CREDIT FIRMER UNCHANGED EASIER

8 105 8

LINES

WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES LESS UNCHANGED MORE CONSUMER

INSTALMENT LOANS LESS UNCHANGED MORE

LESS

5 87 29

1 85 34

SINGLE FAMILY MORTGAGE LOANS LESS UNCHANGED MORE

3 102 15

MULTI-FAMILY MORTGAGE LOANS LESS UNCHANGED MORE

I 114 4

ALL OTHER MORTGAGE LOANS LESS UNCHANGED MORE

2 108 10

PARTICIPATION LOANS WITH CORRESPONDENT BANKS LtSS 3 96 UNCHANGED MORE 22 LOANS TO BROKERS LESS

IINCHA'-. FD MORE

UNCHANGED

NOT FOR QUOTATION OR

PUBLICATION

TABLE 5 CROSS-CLASSIFICATION OF SELECTED RESPONSES

NOV.

15,

1976

NUMBER OF BANKS

IN THE

NOVEMBER SURVEY

NOVEMBER

15,

1976

NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED EASIER

LENDING TO NONFINANCIAL BUSINESSES INTEREST RATES CHARGED FIRMER ESSENTIALLY UNCHANGED EASIER

COMPENSATING OR SUPPORTING BALANCES O 2 0 1 50 b 24 38 0

NEW CUSTOMERS

ESTABLISHED CUSTOMERS 3 1 96 1 0 6

0 6 8

INTENDED USE OF THE 9 1 0 91 O 8

0 7 5

FIRMER ESSENTIALLY UNCHANGED EASIER VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS FIRMER ESSENTIALLY UNCHANGED EASIER

LOAN

LENDING TO "NONCAPTIVE" FINANCE COMPANIES INTEREST

RATES CHARGED FIRMER ESSENTIALLY UNCHANGED EASIER

COMPENSATING OR SUPPORTING BALANCES 0 1 2 O 93 2 O 21 2

COMPENSATING OR SUPPORTING BALANCES FIRMER ESSENTIALLY UNCHANGED EASIER

ENFORCEMENT OF BALANCE REQUIREMENTS 2 0 0 1 112 2 2 2 O

COMPENSATING OR SUPPORTING BALANCES FIRMER ESSENTIALLY UNCHANGED EASIER

ESTABLISHING NEW OR LARGER CREDIT LINES 2 0 0 5 98 12 4 0 0

NOT

FOR QUOTATION OR

PUBLICATION

TABLE 5 (CONTINUED) CROSS-CLASSIFICATION OF

SELECTED RESPONSES

NOV.

15,

1976

NUMBER OF BANKS

IN THE

NOVEMBER SURVEY

NOVEMBER

15, 1976

NUMBER OF BANKS ESSENTIALLY UNCHANGED LESS

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

MATURITY OF TERM LOANS 2 1 68 0 0 31

SINGLE FAMILY MORTGAGE LOANS LESS ESSENTIALLY UNCHANGED MORE

MULTI-FAMILY MORTGAGE LOANS 2 2 0 0 98 O 0 17 1

SINGLE FAMILY

MORTGAGE LOANS LESS ESSENTIALLY UNCHANGED MORE

0 5 14

ALL OTHER MORTGAGE LOANS 0 2 2 5 92 0 4 14 0

TERM

LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED MORE

CONSUMER O 0 1

TERM

LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED MORE

PARTICIPATION LOANS WITH CORRESPONDENT BANKS 0 2 1 1 66 5 0 23 22

TERM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED MORE

INSTALMENT LOANS 2 1 61 11 17 27

LOANS TO BROKERS 0 2 2 68 O 30

1 3 15

NOT FOR QUOTATION OR PUBLICATION

TABLE 5 (CONTINUED) CROSS-CLASSIFICATION OF SELECTED RESPONSES IN THE

NOV. 15,

1976

NUMBER OF BANKS

NOVEMBER SURVEY

NOVEMBER

15,

1976

NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED

EASIER

STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS

COMPARED

TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

INTEREST RATES CHARGED TO NONFINANCIAL BUSINESSES 2 13 9 0 38 43 0 6 10

COMPARED

TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

COMPENSATING 0 1 0

OR SUPPORTING BALANCES 18 6 20 60 12 4

THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

STANDARDS OF O 1 1

CREDIT WORTHINESS 23 1 0 80 1 14

COMPARED TO

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

MATURITY 2 0 0

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

NEW

OF TERM LOANS 17 70 13

5 11 3

CUSTOMERS I 2 1

22 68 13

I II 2

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

I"NONCAPTIVE FINANCE COMPANIES") ENFORCEMENT OF BALANCE REQUIREMENTS 0 23 I 1 78 2 2 13 1

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

("NONCAPTIVE ESTABLISHING 2 4 1

FINANCE COMPANIES") NEW OR LARGER CREDIT LINES 20 2 66 11 12 3

NOT FOR

QUOTATION OR

PUBLICATION

TABLE 5 (CONTINUED)

A CROSS-CLASSIFICATION OF SELECTED RESPONSES

NOV.

15,

1976

NUMBER OF BANKS

IN THE

NOVEMBER SURVEY

NOVEMBER 15, 1976 NUMBER OF BANKS ESSENTIALLY LESS UNCHANGED

STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

WILLINGNESS TO MAKE TERM LOANS TO BUSINESSES 14 3 O 51 0 8

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

WILLINGNESS TO MAKE CONSUMER INSTALMENT LOANS 0 19 5 19 60 1 11 0 5

COMPARED TO

THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

WILLINGNESS TO MAKE SINGLE FAMILY MORTGAGE LOANS 2 19 3

WILLINGNESS TO MAKE MULTI-FAMILY MORTGAGE LOANS 21 1 2 80 0 0

THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

WILLINGNESS TO MAKE ALL OTHER MORTGAGE LOANS 20 2 74 0 14 0

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

WILLINGNESS TO MAKE PARTICIPATION LOANS WITH CORRESPONDENT BANKS 0 17 0 65 1 9

COMPARED TO

COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER

WILLINGNESS TO MAKE LOANS TO BROKERS 17 1 0 72

NOT FOR QUOTATION OR

PUBLICATION

TABLE 5 (CONTINUED) CROSS-CLASSIFICATION OF SELECTED RESPONSES

NOV.

15,

1976

NUMBER OF BANKS

IN THE

SURVEY

NOVEMBER

15,

1976

NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED

EASIER

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

COMPENSATING OR SUPPORTING BALANCES 0 34 9 20 48 1 0 8 1

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

STANDARDS OF CREDIT WORTHINESS 1 41 1 1 68 0 1 8 0

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

MATURITY OF TERM LOANS 35 2 0 59 0 6

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

NEW CUSTOMERS 2 37 1 59 1 7

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

ESTABLISHING 4 2 1

("NUNCAPTIVE

LESS

ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER

b 10 3

4 9 1

FINANCE COMPANIES") NEW OR LARGER CREDIT 34 5 58 9 6 2

ESSENTIALLY UNCHANGED

WILLINGNESS TO MAKE TERM LOANS TO BUSINESSES 3 20 20 0 48 21 0 5 4

LINES

CHART 1:

of Commercial and Industrial Loan Demand*

Anticipated versus Realized Stre.

6100

490

- 80

SI F1

ri1

Realized

Strength

Nov -

Feb

Feb -

May

1975

May - Aug

1975

Aug - Nov 1975

I--

Nov - Feb 75 76

- ---Feb - May 1976

May -

Aug

1976

Aug -

Nov

1976

* On each survey, respondents provide their expectations about the strength of commercial and industrial loan demand over th' next three months. "Anticipated strength" is defined here as the percentage of respondctcs expecting stronger demand. The succeeding survey provides "realized strength" which is defined here as the percentage of the sample reporting stronger demand.

-- 4 0 Nov-Feb 76 77

CHART 2:

Policy Regarding Compensating Balances An Index of the Net Change in (% of Respondents Reporting Firmer Policy Minus % Reporting Easier Policy)

+(Net:Firmer) 100 -

75 -

25-

Aug 15 1974 25 1-

50 -

75 -

100 -(Net:Easier)

H 77 F-1 ' ---- '~ Nov 15 1974

Feb 15 1975

S Fi

F-1

May 15 1975

I ug 15 1975

Nov 15 1975

Feb 15 1976

May 15 1976-

Aug 15 1976

Nov 15 1976

APPENDIX B* Changes in Offering Terms of Small Time and Savings Deposits in Response to Declining Market Rates of Interest With the approval of the FDIC and the FHLBB, staffs of all Reserve Banks were asked in mid-November to contact a number of commercial banks (CB's), savings and loan associations (S&L's), and mutual savings banks (MSB's) in their Districts to determine whether depository institutions had begun to lower offering rates on deposits subject to Federal ceilings in response to declining market rates of interest. Institutions were asked if they had cut rates on any such deposits or planned to cut rates in the next 60 days and if they had eliminated any type of deposits from their schedule of offerings. Officials at the institutions also were asked whether they had reduced promotional activity to attract deposits. The results of the survey were received at the Board by December 3, and the table summarizes the principal findings.1/ Both rate cutting and dropping of certain maturities of time deposits are indeed evident at banks and thrift institutions, but, as shown by item 2 in the table, such activity was found to be more common at thrift institutions than at banks. About 20 per cent of the banks contacted reported that they had either cut rates or ceased offering selected maturities of time deposits, compared to half of the S&L's and three-fourths of the MSB's. The pattern of heavier rate cutting and withdrawing of maturities of time deposits by thrift institutions was found throughout the country, although somewhat more of this activity was noted in the Southeast, and less in the Northeast than prevailed elsewhere.

1/ It should be cautioned that though an attempt was made to contact a cross-section of institutions by size, the survey was informal and was not a scientific sample of banks and thrift institutions. Consequently, inferences about the comparative rate cutting and other activities of the various classes of institutions or by institutions in various regions can only be made in the broadest terms.

*Prepared by Paul Boltz, Banking Section, Division of Research and Statistics

B - 2 Preliminary tabulations have just become available this week from the universe survey of offering rates at S&L's taken in early October by the Federal Home Loan Bank Board and they indicate that relatively little rate cutting or dropping of maturities of deposits had occurred by that time. This is not inconsistent with the results of our informal survey which shows that more than half of the rate cutting and dropping of maturities at S&L's occurred after the FHLBB survey date. The practice of rate cutting thus appeared to be accelerating in November and probably by now has spread to many more institutions than is suggested by our survey. Indeed, many officers of S&L's,as well as of MSB's and CB's who did not have firm plans for lowering rates, nonetheless reported that they were watching the course of market rates closely and would take action if rates declined further. Items 3 and 4 of the table show that rate cutting has been more prevalent in the longer-term certificate accounts (with maturities 4 years and over) at thrift institutions than in shorter-term time deposits. Although some institutions reported paying below the ceiling rate on savings deposits, rate cutting on savings accounts is not shown separately because no institution of any type contacted reported that it had cut its savings deposit rate in the preceding six months. Unlike the thrift institutions, banks reported more rate cutting on short as opposed to longer-term time deposits, but relatively few banks reported any rate cutting of time deposits. Rate cutting was not the method preferred by thrift institutions for slowing inflows of longer-term time deposits, as shown in item 5. In the last six months, almost one-half of the mutual savings banks contacted and almost one-third of the S&L's have ceased offering longer term time accounts with an original maturity of four years or more. In contrast, only 1 in 10 banks stopped offering such maturities during the same period. Relatively few institutions reported that they had reduced advertising and other promotional activity in the preceding six months, as shown by item 6. Indeed, some have increased year-end advertising in an effort to attract IRA and Keogh accounts. On the other hand, some of the bank and thrift institution executives reported that advertising had been cut back more than six months ago, as market rates edged down to and fell below offering rates on their deposits.

B - 3 The more widespread rate cutting by thrift institutions may reflect the fact that the initial offering rates at such institutions generally exceeded rates offered by commercial banks by one-fourth of one per cent--the Congressionally mandated differential--and the effects of declining rates of interest may have been felt more promptly by thrift institutions than by banks. The rate cutting by thrift institutions reduces or eliminates the advantage of the differential as long as competing banks elect to pay ceiling rates. These developments clearly have a long-run importance in any discussion of the rate differential accorded thrift institutions. In recent years, banks have increased their market share of savings deposits and shorter- term time deposits, while their market share of long-term deposits has declined. On balance, the banks' share of total small deposits has been stable. The differing patterns of rate cutting at CB's and thrifts found in the survey may reflect their reluctance to lower offering rates on deposits where there has not been much growth. Banks and thrifts generally have cut rates in those maturities where they have enjoyed the most success and already have the strongest market position: short-term time deposits for banks and long-term time deposits for thrifts.

RESULTS OF INFORMAL SURVEY OF OFFERING RATES AND PROMOTIONAL ACTIVITY ON SMALL (under $100,000) TIME AND SAVINGS DEPOSITS November 1976 All Districts Number

% of Total

Northeast (Districts 1,2,3) Number

% of Total

Southeast (Districts 5,6) Number

% of Total

Upper Midwest (Districts 4,7,9) Number

% of Total

Lower Midwest (Districts 8,10,11) Number

West (District 12)

% of Total IN umber

% of Total

1. Institutions contacted

CBs MSBs S&Ls 2. Dropped maturities or cut offering rates in last 6 momths CBs 25 6.7 20.7 2 MSBs 25 73.5 15 63.0 S&Ls 50 3 20.0 48.5 3. Reduced offering rates on short-term time deposits in last 6 months CBs 11 9.1 0 0.0

40.0 100.0 76.2 2

MSBs

11.8

8.3

S&Ls

6.8

0.0

10.0 0.0 14.3

13.3 100.0 40.0

23.3

6.7 0.0 3.3

13.3

4. Reduced offering rates on long-term (4 years and over) time deposits in ]ast 6 months CBs 3 2.5 1 3.3 1 5.0 MSBs 9 26.5 5 20.8 0 0.0 S&Ls 17 16.5 1 6.7 8 38.1

0.0 60.0 13.3

5. Stopped offering some maturityI/of deposit in last 6 months CBs 12 9.9 1 3.3 MSBs 15 44.1 8 33.3 S&Ls 31 30.0 2 13.3

6.7 60.0 23.3

6. Reduced CBs MSBs S&Ls

6 3 9

30.0 100.0 42.9

60.0

8.0

3.3 12.0

6.7 40.0

36.4 100.0 33.3 27.3 100.0 8.3 0.0 50.0 8.3

9.1 50.0 25.0

promotional activity to attract deposits in last 6 months 12 3 14

9.9 8.8 13.6

1 1 1

3.3 4.2 6.7

0 0 2

7. Began directing depositors away from long-term deposits in last 6 months CBs 8 6.6 1 3.3 0

MSBs

5.9

0.0

S&Ls

17.5

6.7

0.0 0.0 9.5

6.7 40.0 3.3

23.3

0.0 0.0 4.8

20.0 40.0

3.3

33.3

24.0

1/ In nearly all cases, the maturities of deposits withdrawn were the 4 year and over time deposit accounts.

32.0

18.2 0.0 16.6 0.0 0.0 0.0

APPENDIX C* BUSINESS LOAN EXPANSION BY INDUSTRY As noted in the Greenbook, business loans have increased over the last three months, even after exclusion of large acquisitions of bankers' acceptances by a few of the leading banks.1/ This recent loan expansion is in marked contrast to reductions in business loans in the first eight months of the year. Examination of the distribution of business loans reveals that the increase in loans was concentrated at large banks and widespread among industries. In this appendix, some preliminary results of a staff study of loans by industry are presented. Industry breakdowns of business loans are reported currently by about 160 of the largest weekly reporting banks. The seasonal adjustments employed in this analysis are preliminary. Table I provides an indication that the recent loan expansion reflects not only temporary increases in holdings of bankers' acceptances, but also major shifts in the trend of loans in most industry categories. As shown by the figures in parenthesis in the upper portion of the table, there was a substantial increase in business loans other than acceptances in the latest three months, in contrast to a net contraction earlier in the year. The smaller banks have experienced relatively steady loan growth throughout the year. Thus, the shift from a 3.5 per cent annual rate of decline to an 8.6 per cent rate of expansion (excluding bankers' acceptances) reflects mainly a reversal of trend at the large weekly reporting banks. These banks usually dominate trends in business loans, as they account for about two-thirds of total business loans at commercial banks. Nearly all industry categories--8 of the 10 major groupings shown in Table 1--contributed to the recent turnaround in business loans at large banks. Some major groupings, such as durable goods manufacturing services, and loans not elsewhere classified turned from conttaction in outstandings to expansion. Nondurable goods manufacturing, mining, and foreign business loans all extended earlier growth at accelerated rates;

1/ A few banks have increased their acceptance holdings sharply since August in order to expand their loan portfolios and provide for greater It is expected that loan loss allowances for tax purposes at year end. this increase in acceptance holdings will be reversed early in 1977, following a similar pattern in 1975-76. *Prepared by Edward R. Fry, Senior Economist, Banking Section, Division of Research and Statistics

C-

while the sharp contraction in loans to the construction industry abated.

Two categories--trade and the transportation, communications, and other public utilities group--continued about on the paths observed earlier in the year, with trade firms still borrowing relatively heavily and the latter group further reducing bank borrowings sharply. As was noted in the Greenbook, this general improvement in bank lending to businesses may reflect some inventory financing, perhaps involuntary, and some abatement of balance sheet restructuring, as well as increasing interest by banks in expanding loan portfolios. The latest information on inventories indicates substantial inventory expansion in October, suggesting a possible explanation for renewed loan growth. Also, long-term financing by leading firms that have access to the public market has been relatively small in recent months, as corporate liquidity has improved considerably, especially in manufacturing industries. Table 2 focuses on business loans in the manufacturing industries Most manufacturing industries for which current business loan data are available have contributed heavily to the recent turnaround. Only the transportation equipment and food, liquor, and tobacco groups have reduced their borrowings at banks in recent months. The metals group shows a dramatic shift from reduction to expansion in bank borrowings. These industries also experienced substantial inventory accumulation in September and October. Among nondurable goods manufacturing industries, the most rapid loan expansion also was in industries that experienced relatively large inventory investment. The petroleum refining industry stands out as the leading borrower in this period, probably reflecting heavy imports and stockpiling of petroleum products in anticipation of expected price increases. Manufacturers of chemicals and rubber also increased their bank borrowing while experiencing inventory accumulation. Increases in loans to the trade group (total shown in Table 1) also may reflect inventory investment to some extent. Wholesale firms have borrowed more heavily than retail firms from banks throughout this year, and wholesale inventories also have increased more than retail. Most recently, retail sales have strengthened and retail inventories have declined. The acceleration in loan extensions to mining firms (also shown in Table 1) probably reflects stepped-up exploration and mining of energyrelated resources, especially crude petroleum.

C-

Table 1 Distribution of Business Loans by Major Industry Groups--1976 Seasonally Adjusted Changes (% annual rate) Outstanding nding Latest 3 First 8 ($ mil Lions)

mos. 1976 C&I loans, all commercial banks Large Banks Other banks C&I loans by industry (selected large banks) Durable goods manufacturing

mos. 1976

11/2 4/76

13.3(8.6)*

-4.3(-3.5)*

17( 5,700

17.1(9.8)*

-10.6(-9.8)*

11 5,976

6.4

9.3

6(),724

18.7

-10.7

95,830

5.8

-22.2

14,414

Nondurable goods manufacturing

12.4

Mining

37.5

22.2

7,343

Trade

11.2

13.7

14,357

Transportation, communication, and other public utilities Construction Services

0.9

13,764

-17.4

-19.6

12,151

-2.7

-30.1

4,096

3.3

-2.9

10,511

279.8

-34.1

5,428

Foreign C&I loans

25.7

7.0

5,939

Not elsewhere classified

43.2

-45.4

7,959

7.3

-5.6

19,973

Bankers acceptances

C&I loans of large banks not classifying loans

* Figures in parentheses reflect growth rates in business loans other than bankers acceptances.

C -4

Table 2 Distribution of Business Loans to Manufacturing Industries-- 1976 Seasonally Adjusted Changes (% annual rate Outstanding .ng Latest 3 First 8 ($ millio ns) mos. 1976 mos. 1976 11/24/7 6 DDurable goods manufacturing

5.8

-22.2

14,414

Primary metals

29.6

-8.1

2,132

Machinery

11.9

-31.2

4,818

-36.0

-29.2

2,224

22.2

-28.6

1,768

5.5

-8.1

3,444

12.4

0.9

13,764

Transportation equipment Other fabricated metal products Other durable goods

Nondurable goods manufacturing Food, liquor, and tobacco Textiles, apparel, and leather

-44.5

11.7

3,246

8.8

15.3

3,355

Petroleum refining

94.6

-13.1

2,603

Chemicals and rubber

21.0

-12.9

2,663

Other nondurable goods

20.6

3.6

1,960

APPENDIX D* U.K. ECONOMIC PACKAGE On December 15, the U.K. government announced policy measures in connection with its application to the IMF for a $3.9 billion loan. Chancellor of the Exchequer Denis Healey announced reductions in public spending plans (in 1976 prices) of £1 billion in fiscal 1977/78 (U.K. fiscal years begin April 1) and 1.5 billion in fiscal 1978/79. These cuts, supplemented by a 10 per cent increase in duties on tobacco and alcoholic drinks and some sales of government-held shares of British Petroleum, are expected to help reduce the public sector borrowing requirement from its present (1976/77) estimated level of [£11.2 billion -- 9 per cent of GDP -- to -8 .7 billion in 1977/78 and about £8.6 billion] in 1978/79 -- 6 per cent and 5.25 per cent of GDP, respectively. The Chancellor indicated that income taxes may be cut next year if a satisfactory agreement is worked out on the next phase of the pay policy. The Chancellor also indicated that if forecasts available at the time when fiscal policy for 1978/79 is being formulated show that real GDP for 1978 and 1979 is likely to grow at an average rate of more than 3.5 per cent per year, the budget deficit will be cut further by up to £ billion. The Chancellor also announced targets for domestic credit expansion (DCE) and made it clear that hitting such targets, rather than money supply targets, will be the main goal of monetary policy in the foreseeable future. Roughly, DCE in the United Kingdom equals the change in M3 plus the external deficit. The DCE targets are: £9 billion for 1976/773/; £7.7 billion for 1977/78; and £6 billion for 1978/79. Using reasonable estimates of what the external deficits are likely to be suggests that the DCE targets announced are roughly equivalent to an annual growth rate of M3 of around 12 per cent during the next two fiscal years. (For the current fiscal year the target for M3 growth is 12 per cent). DCE targets are a standard feature in IMF credit agreements. The Chancellor's Letter of Intent to the IMF sets out a schedule of quarterly limits to the sizes of both DCE and the public sector borrowing requirement in order to help ensure that the fiscal year targets for those two variables will be achieved. Chancellor Healey stated that Johannes Witteveen, IMF Managing Director, supports the U.K. measures and is prepared to recommend IMF approval of the U.K.'s request for the $3.9 billion standby arrangement. The IMF is expected to approve Britain's loan application in early January. Britain will then be able to draw $1.15 billion immediately and another $1 billion before the end of 1977. The availability of a $500 million swap with the United States ($250 million each *

Prepared by David H. Howard, Economist, World Payments and Economic Activity Section, Division of International Finance.

D- 2

with the Federal Reserve System and the U.S. Treasury) and a $350 million standby with the Bundesbank were also announced. Any drawings on the U.S. and German facilities are to be repaid during the course of 1977. The Chancellor also said that he believes that there will be an agreement on the sterling balance problem "before long." The specific measures announced include: Public expenditure. Public sector spending reductions of £1 billion for fiscal 1977/78 and £1.5 billion for 1978/79 (both in 1976 prices) were announced. The areas affected by the cuts include central and local government capital expenditure, acquisitions under the Community Land Act, food subsidies, defense, foreign aid, civil service staff, public service pensions, the regional employment premium, and the refinancing by government of fixed-rate export credit. Although full details are not yet available, preliminary reports indicate that cuts in construction programs will be £270 million in 1977/78 and £300 million in 1978/79, cuts in housing programs will save £300 million in 1978/79, acceleration of the phasing-out of food subsidies will save £60 million in 1977/78, and defense will be cut £100 million in 1977/78 and £ 2 0 0 million in 1978/79 (about 2 per cent and 4 per cent of the 1976/77 defense budget, respectively). Taxation. A 10 per cent increase in the revenue duty on imported leaf tobacco was imposed as of midnight, December 15, and a similar increase in the duty on other tobacco products and alcoholic liquor is to go into effect on January 1. These taxes should increase revenue in the current 1976/77 fiscal year by £50 million and in a full year by 280 million. These tax increases are intended to finance measures to aid employment and investment involving some £200 million in each of the next two fiscal years. Sale of British Petroleum shares. The U.K. government will sell part of its holding of British Petroleum shares, which should yield some £500 million. The government intends to retain a majority of the outstanding shares, however.

Cite this document

APA

Federal Reserve (1976, December 20). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19761221_part3

BibTeX

@misc{wtfs_greenbook_19761221_part3,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1976},
  month = {Dec},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19761221_part3},
  note = {Retrieved via When the Fed Speaks corpus}
}