MONTHLY REVIEW. f C r e d i t a n d B u s i n e s s C o n d i t i o n s F E D E R A L R E S E R V E B A N K O F N E W Y O R K MONEY MARKET IN JUNE

MONTHLY REVIEW O f C r e d i t a n d B u s i n e s s C o n d i t i o n s F E D E R A L R E S E R V E B A N K O F N E W Y O R K V o l u m e 38 J U L Y 1956 No. 7 P re s su re s o n m e m b e r b a n k re s e rv e p o sitio n s e a se d so m e w h a t d u rin g J u n e, h e lp in g to o ffset th e te n sio n a sso c ia te d w ith th e J u n e 15 ta x d a te, a n d as a re s u lt c o n d itio n s in th e m o n e y m a rk e t re m a in e d re la tiv e ly ste a d y th ro u g h o u t th e m o n th. A lth o u g h b u sin e ss lo a n d e m a n d s ro s e s h a rp ly a ro u n d th e m id d le o f th e m o n th, a v e ra g e m e m b e r b a n k b o rro w in g s fro m th e F e d e ra l R e s e rv e B a n k s a n d av e ra g e n e t b o rro w e d re se rv e s w e re b o th s u b s ta n tia lly lo w e r th a n m M a y. E v e n th o u g h th e effectiv e r a te fo r F e d e ra l fu n d s in N e w Y o rk C ity re m a in e d a lm o st s te a d ily a t 2 % p e r c e n t, fu n d s w e re m o re re a d ily a v a ila b le th a n in th e p r e c e d in g m o n th. T h e p ric e s o f m o s t in te rm e d ia te a n d lo n g e r- te rm G o v e rn m e n t b o n d s d e c lin e d m o d e ra te ly o v e r th e m o n th as a w h ole b u t sh o rter-term issues generally ad v a n c e d in p ric e. T re a s u ry b ill y ield s w e re re la tiv e ly s te a d y d u rin g m o s t o f J u n e b u t d e c lin e d to w a rd th e e n d o f th e m o n th. T h e d e clin e in a v e ra g e n e t b o rro w e d re serv e s fro m 5 2 8 m illio n d o lla rs in th e five w e ek s e n d e d M a y 3 0 to 2 1 2 m illio n d o lla rs in th e fo u r w e ek s e n d e d J u n e 2 7 re fle c te d in p a r t th e ea sin g o f b a n k re se rv e p o sitio n s th a t h a d a lre a d y ta k e n p la c e to w a rd th e e n d o f M a y. I n a d d itio n, h o w ev e r, a n u n e x p e c te d ly la rg e rise in flo at in th e m id d le o f th e m o n th, w h ic h m o re th a n o ffset s u b s ta n tia l in c re a se s in re q u ire d reserv es a sso c ia te d w ith ta x p e rio d b o rro w in g b y b u sin e ss, b ro u g h t a b o u t a d ro p in n e t b o rro w e d re se rv e s in th e w e e k e n d e d J u n e 2 0. T o w a rd th e e n d o f th e m o n th, as flo at re c e d e d, a v erag e n e t b o rro w e d re serv e s ro s e slig h tly, b u t re m a in e d w ell b e lo w th e lev els th a t p re v a ile d in M a y. F e d e r a l R e s e rv e S y stem o p e n m a rk e t o p e ra tio n s d u r in g J u n e s u p p lie d re serv e s to m e e t se a s o n a l re se rv e n e e d s a n d to p re v e n t th e d e v e lo p m e n t o f s tra in s d u rin g a n d a fte r th e J u n e ta x p e rio d. S y stem h o ld in g s o f T re a s u ry se c u rities in c re a s e d b y 1 2 6 m illio n d o lla rs d u rin g th e fo u r w eek s e n d e d J u n e 2 7, as n e t o u trig h t p u rc h a s e s to ta lin g 131 m illio n e x c e e d e d a n e t d e clin e o f 5 m illio n in o u ts ta n d in g re p u rc h a s e a g re e m e n ts. MONEY MARKET IN JUNE N e w c o rp o ra te a n d m u n ic ip a l issu es m e t w ith a m ix e d re c e p tio n th ro u g h o u t th e m o n th, as u n d e rw rite rs a tte m p te d to a v o id p ric e c o n c e ssio n s. T h e v o lu m e o f n e w m u n ic ip a l o fferin g s w a s la rg e w h ile b u y in g in te re s t w a s s p o ra d ic, le a d in g to a b u ild -u p o f d e a le rs in v e n to rie s d u rin g th e m o n th. Y ie ld s o n o u ts ta n d in g m u n ic ip a l issu es d e c lin e d o v e r th e p e rio d a s a w h o le, w h ile y ield s o n c o rp o ra te issues rem a in ed steady. R a te s o n b a n k e rs a c c e p ta n c e s w e re m a rk e d d o w n b y Vs p e r c e n t a fte r th e clo se o f b u sin e ss o n J u n e 18. T h is w as th e first c h a n g e sin ce A p ril w h e n a n a d v a n c e o f th e sa m e m a g n itu d e h a d ta k e n p la c e, a n d b ro u g h t th e d e a le rs o fferin g ra te o n u n in d o rs e d 9 0 -d a y a c c e p ta n c e s d o w n to 2 % p e r c e n t. M e m b e r B a n k R e s e r v e P o s i t i o n s N e t b o rro w e d re se rv e s a v e ra g e d 2 1 2 m illio n d o lla rs d u r in g th e fo u r s ta te m e n t w e ek s e n d e d J u n e 2 7, d o w n a b o u t 3 0 0 m illio n fro m th e a v e ra g e d u rin g M a y. M e m b e r b a n k b o rro w in g s fro m F e d e ra l R e s e rv e B a n k s also d e c lin e d s u b sta n tia lly, av e ra g in g 7 8 9 m illio n d o lla rs as c o m p a re d w ith a lm o st 1 b illio n d o lla rs in th e p re v io u s m o n th. T h e ch an g e s in b o th a v e ra g e n e t b o rro w e d re se rv e s a n d m e m b e r b a n k b o rro w in g s b e tw e e n M a y a n d J u n e b ro u g h t b o th b a c k to th e lev els th a t h a d p re v a ile d a t th e b e g in n in g o f C O N T E N T S M o n e y M a r k e t in J u n e... 89 I n te r n a tio n a l M o n e ta r y D e v e lo p m e n ts... 92 S av in g s a n d L o a n A s s o c ia tio n s i n th e M o rtg a g e M a r k e t... 94 R e c e n t T re n d s i n U n ite d S ta te s I m p o r t s... 97 B u sin e ss L o a n s a t S e c o n d D is tr ic t M e m b e r B a n k s : I n te r e s t R a te s a n d S ize o f B o r ro w e r 100 E a r n in g s a n d E x p e n s e s o f C o m m e rc ia l B a n k T r u s t D e p a r tm e n ts in N e w Y o rk a n d N e w J e r s e y... 104 S e le c te d E c o n o m ic I n d i c a t o r s... 104

90 MONTHLY REVIEW, JULY 1956 th e y e a r a n d clo se to th o se o f A u g u s t 1 9 5 5 (se e c h a r t). In th e final J u n e s ta te m e n t w e e k av e ra g e n e t b o rro w e d re serv e s, a t 171 m illio n d o lla rs, w e re m o re th a n 5 0 0 m illio n lo w e r th a n in th e w e e k e n d e d M a y 2 w h ic h h a d b e e n th e h ig h p o in t fo r 1 9 5 6. E a rly in th e m o n th th e c o m b in e d effect o f a re d u c tio n in T re a s u ry b a la n c e s a t F e d e r a l R e s e rv e B a n k s a n d a m o d e ra te rise in flo at a p p ro x im a te ly o ffset a la rg e o u tflo w o f c u rre n c y in to c irc u la tio n. T h u s, th e d e c lin e in a v erag e n e t b o rro w e d re serv e s s te m m e d a lm o st w h o lly fro m th e in c re a se in F e d e ra l R e s e rv e S y stem h o ld in g s o f G o v e rn m e n t secu ritie s, th e re s u lt o f b o th o u trig h t p u rc h a s e s a n d th e e x te n sio n o f re p u rc h a s e a g re e m e n ts to d e a le rs in G o v e rn m e n t se cu ritie s. S u b se q u e n tly, th e u s u a l m id m o n th e x p a n s io n o f flo at, a ttrib u ta b le in g re a t p a r t to th e c o m m o n b u sin e ss p ra c tic e o f p a y in g b ills o n th e te n th o f th e m o n th, w a s m a g n ified b y th e c o n c e n tra tio n o f d iv id e n d a n d ta x p a y m e n ts in m id - J u n e, w ith re su ltin g d e lay s in F e d e ra l R e se rv e co llectio n s as c le a rin g facilitie s b e c a m e o v e rb u rd e n e d. R e se rv e p re s su res e a se d c o n sid e ra b ly, a n d a v erag e n e t b o rro w e d r e serv es fo r th e w e e k e n d e d J u n e 2 0 fell to th e lo w est lev el sin ce m id -F e b ru a ry 1 9 5 6, d e sp ite a rise in re q u ire d r e serv es th a t s te m m e d fro m b u sin e ss b o rro w in g d u rin g th e ta x p e rio d, a n d a rise in T re a s u ry b a la n c e s a t F e d e ra l R e s e rv e B a n k s a t th a t tim e. T o w a rd th e e n d o f th e m o n th, as th e b a c k lo g o f u n c o l lected ch ecks w as g rad u ally being w o rk ed off, float d e clin ed, a n d th e a v e ra g e lev el o f T re a s u ry b a la n c e s a t F e d e ra l R e se rv e B a n k s ro s e still fu rth e r as ta x co llectio n s c o n tin u e d to b e la rg e. T h e o ffsettin g effects o f d eclin es in re q u ire d re serv es a n d in c u rre n c y in c irc u la tio n w e re su ch, h o w e v e r, as to p re v e n t m o re th a n a sm all in c re a se in a v e r age n et b o rro w ed reserves in th e final statem en t w eek. Table I C h a n g e s i n F a c t o r s T e n d i n g t o I n c r e a s e o r D e c r e a s e M e m b e r B a n k R e s e r v e s, J u n e 1 9 5 6 ( I n m i l l i o n s o f d o l l a r s ; ( + ) d e n o t e s i n c r e a s e, ( ) d e c r e a s e i n e x c e s s r e s e r v e s ) F a c t o r D a i l y a v e r a g e s w e e k e n d e d J u n e 6 J u n e 1 3 J u n e 2 0 J u n e 2 7 N e t c h a n g e s Operating transactions T r e a s u r y o p e r a t i o n s *... - f 8 0 + 3 6-1 3 2-4 2-5 8 F e d e r a l R e s e r v e f l o a t... + 7 1 + 6 4 + 5 3 7-1 3 8 + 5 3 4 C u r r e n c y i n c i r c u l a t i o n... - 1 7 8-3 7 + 1 + 5 6-1 5 8 G o l d a n d f o r e ig n a c c o u n t... + 3-1 3 + 3 + 3 5 + 2 8 O t h e r d e p o s i t s, e t c... + 1 9 + 1 2-3 4 + 2 5 + 2 2 T o t a l... - 4 + 6 3 + 3 7 6-6 6 + 3 6 9 Direct Federal Reserve credit transactions G o v e r n m e n t s e c u r i t ie s : D i r e c t m a r k e t p u r c h a s e s o r s a l e s.. H e l d u n d e r r e p u r c h a s e a g r e e m e n t s. L o a n s, d i s c o u n t s, a n d a d v a n c e s : M e m b e r b a n k b o r r o w i n g s... + 4 7 + 4 4 + 8 6-7 3-2 4-4 0 + 2 6 + 9 3-2 7 + 1 6 0-1 5 0 + 2 2-8 + 2 4 O t h e r... + 2 + 2-4 B a n k e r s a c c e p t a n c e s : B o u g h t o u t r i g h t... + 1-1 + 1 + 1 U n d e r r e p u r c h a s e a g r e e m e n t s... T o t a l... + 2 5 4-1 3 3-9 - 2 0 + 9 2 Total reserves... + 2 5 0-7 0 + 3 6 7-8 6 + 4 6 1 Effect of change in required reservesf + 7-23 - 2 7 2 + 65-2 2 3 Excess reservesf... + 2 5 7-9 3 + 9 5-2 1 + 2 3 8 D a i l y a v e r a g e l e v e l o f m e m b e r b a n k : B o r r o w i n g s f r o m R e s e r v e B a n k s.... E x c e s s r e s e r v e s t... 8 9 2 8 0 4 7 4 2 5 1 1 7 6 4 6 0 6 N o t e : B e c a u s e o f r o u n d i n g, f i g u r e s d o n o t n e c e s s a r i l y a d d t o t o t a ls. * I n c l u d e s c h a n g e s i n T r e a s u r y c u r r e n c y a n d c a s h, t T h e s e f i g u r e s a r e e s t im a t e d, j A v e r a g e f o r f o u r w e e k s e n d e d J u n e 2 7. 7 5 6 5 8 5 7 8 9 1 5 7 7 1 G o v e r n m e n t S e c u r i t i e s M a r k e t F o llo w in g th e s u s ta in e d p ric e a d v a n c e s d u rin g M a y, p rices o f m o s t G o v e rn m e n t n o te s a n d b o n d s te n d e d to d rift lo w e r in e a rly J u n e. M o s t m a rk e t o b s e rv e rs se e m e d to feel th a t th e e a rlie r a d v a n c e s h a d a lre a d y re fle c te d in fu ll th e p o ssib ility th a t m o n e ta ry p o lic y w o u ld b e c o m e n o m o re re stric tiv e a n d th a t so m e e a sin g m ig h t o c c u r. M o re o v e r, in v e sto rs w e re g e n e ra lly u n c e rta in o v e r th e a p p ro a c h o f th e J u n e 15 ta x d a te a n d th e p o ssib le p re s s u re s o n re se rv e s th a t m ig h t a rise a t th a t tim e. I n th is settin g, p ric e s a d v a n c e d o n ly m o d e ra te ly w h e n th e P re s id e n t s illn e ss w as a n n o u n c e d o n J u n e 8. H o w e v e r, b y J u n e 15 m o s t issu es h a d re g a in e d e a rlie r lo sses a n d h a d ex c e e d e d th e lev els re a c h e d a t th e e n d o f M a y. A fte r th e ta x d a te p ric e s m o v e d irre g u la rly, a n d to w a rd th e e n d o f th e m o n th in te rm e d ia te a n d lo n g e r-te rm issu es m o v e d d o w n w a rd, p a rtly u n d e r th e in flu en ce o f e x p e c ta tio n s th a t so m e p re s su res m ig h t b u ild u p w ith th e a p p ro a c h o f th e q u a rte rly s ta te m e n t d a te. O v e r th e m o n th as a w h o le, m o st issu es m a tu rin g fro m 1961 o n o u t d e c lin e d b y % 2 to 1% 2 o f a p o in t, a lth o u g h th e tw o lo n g e st b o n d s sh o w e d sm all g ain s. S h o rte r issu es g e n e ra lly ro s e b y b e tw e e n % 2 a n d 1% 2 - T ra d in g w as la rg e ly c o n c e n tra te d a t th e s h o rte r e n d o f th e list th ro u g h o u t th e m o n th. P re p a ra tio n s fo r th e ta x d a te g ave rise to a sizab le su p p ly o f n o te s a n d certificates early in th e m o n th. I n a d d itio n, th e ta x a n tic ip a tio n c e r tificates d u e J u n e 2 2 a n d th e 2 p e r c e n t T re a s u ry n o te s

d u e A u g u s t 15 w e re a v a ila b le fro m in v e sto rs seek in g to sw itch o u t o f th e se issu es b e fo re m a tu rity. D e m a n d fo r s h o rte r n o te s a n d b o n d s w as stro n g, h o w ev e r, a n d d e sp ite ta x selling e a rly in th e m o n th p ric e s a d v a n c e d s u b s ta n tially. T ra d in g in in te rm e d ia te a n d lo n g e r-te rm issu es w as lig h t th ro u g h o u t th e m o n th a n d, a lth o u g h so m e sw itch in g fo r ta x lo ss p u rp o se s o c c u rre d, th is te n d e d to b e re s tra in e d b y th e re la tiv e ly h ig h lev el o f p ric e s as c o m p a re d w ith re c e n t m o n th s. T re a s u ry b ill y ields re m a in e d re m a rk a b ly ste a d y th ro u g h o u t th e first h a lf o f J u n e, d e sp ite p e rs is te n t m a rk e t ex p ectatio n s th a t sales of bills to m eet th e ta x an d divid e n d p a y m e n ts w o u ld d riv e y ield s u p w a rd. T h e b e h a v io r o f th e a v erag e issu in g ra te in th e first tw o T re a s u ry b ill a u c tio n s o f th e m o n th w as sy m p to m a tic ; fro m 2.5 7 3 p e r c e n t in th e la s t M a y a u c tio n, th e r a te m o v e d d o w n to 2.5 6 2 p e r c e n t o n J u n e 4 a n d u p to 2.5 8 1 p e r c e n t o n J u n e 11. O n e a c h o c casio n, b id d in g w as in itia lly c a u tio u s, b u t th e a p p e a ra n c e o f stro n g c u sto m e r in te re st in e a c h case le d to re -e v a lu a tio n s w h ic h k e p t th e av e ra g e issu in g ra te s ta b le fro m w e e k to w eek. T h e m a rk e t ra te o n th e lo n g e st o u ts ta n d in g issu es clo sed w ith in 3 b a sis-p o in ts o f 2.5 2 p e r c e n t ( b id ) o n e a c h d a y th ro u g h J u n e 15. I n g e n e ra l, th e m a rk e t w as s u rp rise d a t th e sm all size o f b ill liq u id a tio n s a n d b y th e stre n g th o f n o n b a n k d e m a n d. Im m e d ia te ly a fte r th e ta x d a te, b ill y ield s tu r n e d d o w n a n d th e m a rk e t w a s in c re a sin g ly d o m in a te d b y th e e x p e c ta tio n th a t th e re d e m p tio n o f ta x a n tic ip a tio n c e rtificates o n J u n e 2 2 w o u ld re s u lt in a f u rth e r u p s u rg e o f d e m a n d. T h e J u n e 18 a u c tio n re s u lte d in a n a v e ra g e issu in g ra te o f 2.4 3 0 p e r c e n t fo r th e bills d a te d J u n e 2 1. A lth o u g h th e issu in g ra te re b o u n d e d to 2.5 3 5 p e r c e n t in th e J u n e 2 5 a u c tio n, m a rk e t y ield s d e c lin e d a t th e clo se o f th e m o n th. B y J u n e 2 9, th e lo n g e st b ill w as b id a t 2.4 2 p e r cen t, d o w n 15 b a sis-p o in ts fro m th e e n d o f M a y. M o s t s h o rte r issu es d e c lin e d b y 3 to 10 b a sis -p o in ts d u rin g th e m o n th. O t h e r S e c u r it ie s M a r k e t s T h e m a rk e ts fo r c o rp o ra te a n d m u n ic ip a l b o n d s p r e s e n te d a so m e w h a t m ix e d p ic tu re in J u n e, fo llo w in g th e im p ro v e d to n e th a t h a d c h a ra c te riz e d M a y. In v e s to r in te r e s t in n e w issu es p ro v e d to b e h ig h ly selectiv e th ro u g h o u t m o s t o f th e m o n th, as u n d e rw rite rs a tte m p te d to d is trib u te n e w issu es w ith o u t m a k in g p ric e c o n cessio n s. A v e ra g e y ield s o n o u ts ta n d in g c o rp o ra te issu es, as reflecte d in M o o d y s A a a - ra te d c o rp o ra te b o n d in d e x, m o v e d sidew ise d u rin g J u n e. Y ie ld s o n sim ilarly r a te d lo n g -te rm m u n ic ip a l b o n d s sh o w e d a n e t d eclin e o v e r th e m o n th o f 8 b a sisp o in ts d e sp ite a rise in th e final w e ek. B y th e e n d o f th e m o n th th e a v e ra g e y ie ld o n A a a c o rp o ra te b o n d s a t 3.2 7 p e r c e n t w as 4 b a sis-p o in ts, a n d th a t o n A a a m u n ic ip a l b o n d s a t 2.3 4 p e r c e n t w a s 17 b a sis-p o in ts, b e lo w th e 1956 highs reac h ed in late A p ril, FEDERAL RESERVEBANK OFNEWYORK 91 T h e e s tim a te d v o lu m e o f p u b lic ly o ffered ta x -e x e m p t b o n d s in J u n e a m o u n te d to 6 1 5 m illio n d o lla rs, a b o u t 1 7 0 m illio n h ig h e r th a n in M a y, b rin g in g th e to ta l o f n e w issu es so fa r th is y e a r to a lm o st 2.6 b illio n d o lla rs, o r a b o u t 1 0 p e r c e n t a b o v e th e to ta l o fferin g s in th e first six m o n th s o f 1 9 5 5. T h e la rg e st flo ta tio n d u rin g th e m o n th w as a 1 6 6 m illio n d o lla r re v e n u e b o n d issu e w h ic h w a s w e ll re c e iv e d w h e n re o ffe re d a t a y ie ld o f 3.9 2 p e r c e n t. D e sp ite th e e n la rg e d v o lu m e o f o fferin g s in J u n e a n d h ig h e r d e a le r in v e n to rie s, y ie ld s o n n e w issu es sh o w e d little c h a n g e fro m M a y. T o w a rd th e e n d o f th e m o n th, th e P u b lic H o u sin g A d m in is tra tio n p la c e d a 9 0 m illio n d o lla r issu e o f A a a - ra te d lo c a l h o u sin g a u th o rity b o n d s a t a n e t in te re s t c o st o f 2.4 8 2 p e r c e n t, c o m p a re d w ith 2.3 5 4 7 p e r c e n t o n a sim ilar issue offered early in F eb ru ary. I n c o n tra s t to th e in c re a s e in n e w m u n ic ip a l issu es, p u b lic o fferings o f c o rp o ra te b o n d s fo r n ew c a p ita l d e c lin e d to a n e s tim a te d 2 6 0 m illio n d o lla rs fro m a n u n u su a lly h ig h 6 7 0 m illio n in M a y. F o r th e first six m o n th s o f th e y e a r, su ch offerin g s a m o u n te d to a b o u t 1.9 b illio n d o lla rs, 2 7 p e r c e n t h ig h e r th a n in th e first h a lf o f 1 9 5 5. A t th e b e g in n in g o f J u n e in v e sto rs te n d e d to h o ld off, b u t u n d e rw rite rs c o n tin u e d to b id ag gressively o n n e w issu es in th e e x p e c ta tio n th a t d e m a n d w o u ld rev iv e. S ev eral b o r ro w e rs, a p p a re n tly in flu e n c e d b y th e e x p e c ta tio n th a t m a r k e t c o n d itio n s w o u ld b e c o m e m o re fa v o ra b le, d e c id e d to p o s tp o n e offerin g s. S o m e issu es, h o w ev e r, n o ta b ly a 5 0 m illio n d o lla r issu e o ffe re d to y ield 4 p e r c e n t, m e t w ith fa v o ra b le in v e sto r re s p o n s e. L a te r in th e m o n th, a lth o u g h su p p ly ta p e re d off a n d th e u n c e rta in tie s c o n n e c te d w ith th e J u n e ta x d a te d is a p p e a re d, re sp o n se c o n tin u e d to b e m ix e d, p a rtly b e c a u s e in v e sto rs te n d e d to re sist c u rre n t ra te levels. I n a d d itio n to issu es o f d o m e stic c o rp o ra te a n d m u n ic i p a l b o n d s, a n u n u su a lly la rg e v o lu m e o f fo re ig n g o v e rn m e n t flo ta tio n s sw elled th e su p p ly o f b o n d o fferin g s d u rin g J u n e. P u b lic ly o ffered fo re ig n g o v e rn m e n t issu es a m o u n te d to o v e r 8 0 m illio n d o lla rs, ex c e e d in g flo ta tio n s in a n y p re v io u s m o n th th is y e a r. T h e la rg e st sin g le offerin g w as a 2 5 m illio n d o lla r issu e o f C o m m o n w e a lth o f A u s tra lia b o n d s w h ic h m e t w ith a g o o d re s p o n s e w h e n reoffered to yield 4.6 4 p e r cent. M e m b e r B a n k C r e d it T o ta l lo a n s a n d in v e stm e n ts o f w e ek ly re p o rtin g m e m b e r b a n k s in c re a s e d 1.2 b illio n d o lla rs d u rin g th e fo u r w'eeks e n d e d J u n e 2 0, as to ta l lo a n s ro se b y 1.1 b illio n. T h e b u lk o f th e lo a n e x p a n s io n w as a c c o u n te d fo r b y a n 8 3 8 m illio n d o lla r in c re a s e in c o m m e rc ia l a n d in d u s tria l lo a n s. T h e e x p a n s io n in c o m m e rc ia l a n d in d u s tria l lo a n s w a s c o n c e n tra te d in th e tw o w e ek s e n d e d J u n e 2 0 a n d p r e su m a b ly reflecte d, in p a rt, b o rro w in g to m e e t th e J u n e 15

92 MONTHLY REVIEW, JULY 1956 Table II W e e k l y C h a n g e s i n P r i n c i p a l A s s e t s a n d L i a b i l i t i e s o f t h e W e e k l y R e p o r t i n g M e m b e r B a n k s I t e m A s s e s s L o a n s a n d i n v e s t m e n t s : L o a n s : C o m m e r c i a l a n d i n d u s t r i a l ( I n m i l l i o n s o f d o l l a r s ) M a y 3 0 S t a t e m e n t w e e k s e n d e d J u n e 6 J u n e 1 3 J u n e 2 0 C h a n g e f r o m D e c. 2 8, 1 9 5 5 t o J u n e 2 0, 1 9 5 6 l o a n s... - 3 0 8 + 1 9 1 2 7 7 + 6 7 8 } + 2, 2 0 9 A g r i c u l t u r a l l o a n s... - 1 4 + 1 0 2 0 S e c u r i t y l o a n s... - 6 0 9 + 8 + 1 5 6-2 5 6 R e a l e s t a t e l o a n s... + 9 + 5 + 3 9 + 3 1 + 4 3 1 A l l o t h e r l o a n s ( l a r g e l y c o n s u m e r )... + 1 3 2 4 + 8 9 + 2 9 + 6 9 1 T o t a l l o a n s a d j u s t e d *.. - 3 4 3 + 1 6 0 + 4 2 3 + 8 7 1 + 2, 9 6 4 I n v e s t m e n t s : U. S. G o v e r n m e n t s e c u r i t ie s : T r e a s u r y b i l l s... + 4 5 5 0 + 2 2 + 1 4 5-7 3 9 O t h e r... - 4 9-1 0 4 + 4 + 1 6 5-2, 3 2 8 T o t a l... - 4 1 5 4 + 2 6 + 3 1 0-3, 0 6 7 O t h e r s e c u r i t i e s... - 4 4-4 + 6 1 8 1-2 9 7 T o t a l i n v e s t m e n t s... - 4 8-1 5 8 + 8 7 + 2 2 9-3, 3 6 4 T o t a l l o a n s a n d i n v e s t m e n t s a d j u s t e d *... - 3 9 1 + 2 + 5 1 0 + 1, 1 0 0-4 0 0 L o a n s t o b a n k s... + 2 3 + 1 2 6-9 3-8 1 + 1 5 4 L o a n s a d j u s t e d * a n d o t h e r s e c u r i t i e s... - 3 8 7 + 1 5 6 + 4 8 4 + 7 9 0 + 2, 6 6 7 Liabilities D e m a n d d e p o s i t s a d j u s t e d... + 7 7 + 1 2 0 4-1, 3 3 3 _ 6 9-1, 9 7 7 T i m e d e p o s i t s e x c e p t G o v e r n m e n t... - 3 + 1 2 2 + 4 5 + 8 3 + 2 7 3 U. S. G o v e r n m e n t d e p o s i t s... - 1 3 1-1, 0 5 6 4 2 5 + 9 2 7 + 8 5 0 I n t e r b a n k d e m a n d d e p o s i t s : D o m e s t i c... - 9 7 + 7 7 7 + 1 2 2 2 8-7 2 2 F o r e i g n... - 2 4 5 1 1 1 9-2 8 * Exclusive of loans to banks and after deduction of valuation reserves; figures for the individual loan classifications are shown gross and may not, therefore, add to the total shown. c o rp o ra te ta x p a y m e n ts. T h e to ta l in c re a s e in th e se tw o w eek s a m o u n te d to 9 5 5 m illio n d o lla rs, c o m p a re d w ith 1,2 6 3 m illio n d o lla rs in th e M a r c h ta x p e rio d. A s in M a rc h, th e e x p a n s io n in b o rro w in g d u rin g th e ta x p e rio d w a s p a rtic u la rly m a rk e d fo r lo a n s to m e ta ls a n d m e ta l p ro d u c ts c o m p a n ie s a n d to p u b lic u tilitie s, a lth o u g h in e a c h in s ta n c e s m a lle r th a n in th e e a rlie r p e rio d. T h e J u n e ta x p e rio d a lso sh o w e d a ris e in lo a n s to sales fin a n c e c o m p a n ie s, la rg e r th a n th e rise d u rin g th e M a rc h ta x p e rio d a n d a p p a re n tly re la te d to th e n e e d to p a y off sh o rt-te rm n o te s m a tu rin g o n J u n e 15 w h ic h h a d b e e n so ld to c o rp o ra tio n s seek in g a te m p o ra ry in v e stm e n t o f fu n d s to b e u s e d fo r ta x e s. I n a d d itio n to th e rise in c o m m e rc ia l a n d in d u stria l lo a n s o v e r th e fo u r w eek s e n d e d J u n e 2 0, c o n su m e r lo a n s, re a l e s ta te lo a n s, a n d se c u rity lo a n s c o n tin u e d to in c re a s e. C o n s u m e r lo a n s ro s e b y 1 0 7 m illio n d o lla rs, so m e w h a t less ra p id ly th a n in re c e n t m o n th s, a n d re a l e s ta te lo a n s in c re a s e d b y 8 4 m illio n d o lla rs, a t a b o u t th e sa m e r a te as e a rlie r in th e y e a r. S e c u rity lo a n s a d v a n c e d b y 9 5 m illio n d o lla rs, c o m p a re d w ith a 1 3 0 m illio n in c re a s e in th e fo u r w e ek s e n d e d M a y 2 3 a n d n e t d e c lin e s in th e p re c e d in g fo u r m o n th s. T h e in v e stm e n t p o rtfo lio s o f w e ek ly re p o rtin g b a n k s ro s e b y 1 1 0 m illio n d o lla rs o v e r th e fo u r w e e k s e n d e d J u n e 2 0. T h e rise w a s p rim a rily a ttrib u ta b le to a 1 6 2 m illion in crease in holdings o f T re a su ry bills, w h ich in co m b in a tio n w ith a sm all rise in h o ld in g s o f o th e r G o v e rn m e n t se c u ritie s m o re th a n o ffset a 6 8 m illio n d e c lin e in o th e r se c u rity h o ld in g s. INTERNATIONAL MONETARY DEVELOPMENTS M o n e t a r y T r e n d s a n d P o lic ie s T h e C e n tra l B a n k o f T u rk e y o n J u n e 6 ra is e d its d isc o u n t ra te fro m A V i to 6 p e r c e n t, th u s b rin g in g to e ig h t th e n u m b e r o f fo re ig n c o u n trie s th a t h a v e ra is e d th e ir d isc o u n t ra te s sin ce th e b e g in n in g o f th is y e a r (se e ta b le ). T h e p re v io u s r a te h a d b e e n in effect sin ce Ju n e 1 9 5 5 w h e n it w as in c re a s e d fro m 3 p e r c e n t. T h e la te st in c re a s e, w h ich ra is e d th e T u rk is h d is c o u n t r a te to th e h ig h e st lev el sin ce 1 9 3 3, su g g ests, in c o n n e c tio n w ith o th e r m e a su re s ta k e n d u rin g th e p a s t y e a r, th a t th e a u th o ritie s a re m o d i fyin g th e e x p a n s io n a ry p o lic ies o f re c e n t y e a rs. L a rg e - scale p u b lic in v e stm e n t, h ig h a g ric u ltu ra l p ric e s u p p o rts (fin a n c e d la rg e ly b y c e n tra l b a n k c r e d it), a n d e a sy b a n k c re d it to th e p riv a te s e c to r h a v e su ccessfu lly stim u la te d p h y sic a l o u tp u t, b u t m o u n tin g in fla tio n a ry p re s s u re s, in c re a sin g e c o n o m ic d is to rtio n s, a n d a serio u s e x te rn a l p a y m e n ts crisis h a v e b e e n a p ro b le m fo r so m e tim e. I n C a n a d a, J u n e m a rk e d th e first fu ll m o n th o f o p e ra tio n o f th e 15 p e r c e n t liq u id -a sse t ra tio (c a s h, T re a s u ry b ills, a n d d a y -to -d a y lo a n s ) a g a in st d e p o sits, in fo rm a lly a g re e d u p o n b e tw e e n th e B a n k o f C a n a d a a n d th e c h a r te re d b a n k s. A lth o u g h th is ra tio, as w ell as th e e x istin g s ta tu to ry 8 p e r c e n t c a sh re s e rv e w h ic h it in c o rp o ra te s, I n c r e a s e s i n F o r e i g n C e n t r a l B a n k D i s c o u n t R a t e s i n 1 9 5 6 C o u n t r y D a t e o f c h a n g e N e w r a t e I n p e r c e n t P r e v i o u s r a t e F e b. 7 3 2 H U n i t e d K i n g d o m... F e b. 1 6 5 H 4 W e s t G e r m a n y... M a r. 8 4 H 3 H A p r. 4 3 2 34 A p r. 1 9 6 M * 5 * M a y 1 1 0 9 W e s t G e r m a n y... M a y 1 9 5 H 4 y2 M a y 2 6 5 4 J u n e 6 6 4 ^ * M i n i m u m r a t e o f r a n g e, t R a t e c h a r g e d t o p r i v a t e n o n b a n k b o r r o w e r s.

w as e x c e e d e d th ro u g h o u t th e m o n th, th e c h a rte re d a n d sav ings b a n k s b e g a n ag ain to b o rro w fro m th e B a n k o f C a n a d a d u rin g th e la s t s ta te m e n t w e e k in M a y a n d r e m a in e d in d e b te d to it th ro u g h o u t m o s t o f J u n e. S ecu rity y ields w e re g e n e ra lly lo w e r in J u n e, w ith th e th re e m o n th s T re a s u ry b ill te n d e r ra te d e c lin in g o n J u n e 2 8 to 2.5 2 p e r ce n t, th e lo w est lev el sin ce F e b ru a ry. A t th e sam e tim e, b u sin e ss lo a n s b y th e c h a rte re d b a n k s h a v e c o n tin u e d th e ir u p w a rd m o v e m e n t, a n d o n J u n e 13 w e re 2 9 p e r c e n t above a y ear earlier. I n th e U n ite d K in g d o m, th e C h a n c e llo r o f th e E x c h e q u e r d e c la re d th a t so m e m o d e s t b u t u n m is ta k a b le g a in s h a d b e e n w o n in th e b a ttle a g a in st in fla tio n. T h e a m o u n t o f h ire -p u rc h a s e d e b t o u ts ta n d in g w ith re ta ile rs is e s tim a te d to h a v e d e c lin e d b y 8 p e r c e n t sin ce th e e n d o f la s t y e a r. O n th e o th e r h a n d, th e la te st q u a rte rly an aly sis o f a d v a n c e s b y m e m b e rs o f th e B ritis h B a n k e rs A s s o c ia tio n sh o w s th a t, in th e q u a rte r e n d e d in m id -M a y, a d v a n c e s ro se slightly, since in creased b o rro w in g by th e n atio n alized in d u strie s m o re th a n o ffset a n e t d e c lin e in b o rro w in g b y all o th e rs. T h is m a rk s th e first q u a rte rly in c re a se sin ce th e b a n k s w e re re q u e ste d la s t J u ly to re d u c e th e ir le n d in g ; h o w ev e r, to ta l a d v a n c e s o u ts ta n d in g in M a y still w e re a lm o st 10 p e r c e n t b e lo w a y e a r e a rlie r. Y ie ld s o f g ilte d g e d se c u ritie s ro s e su b sta n tia lly e a rly in J u n e ; th e y ie ld o f 2 V i p e r c e n t C o n so ls re a c h e d 4.8 4 p e r c e n t o n J u n e 4 th e h ig h e st lev el sin ce th e e a rly th irtie s b u t clo se d a t 4.7 8 o n J u n e 2 9. T h e a v e ra g e r a te fo r th re e m o n th s T re a s u ry bills, w h ich h a d sto o d a t 4.9 5 p e r c e n t th ro u g h o u t M a y, h a d rise n to 5.0 8 a t th e fo u rth J u n e te n d e r. T h e R e se rv e B a n k o f N e w Z e a la n d, im p le m e n tin g re c o m m e n d a tio n s o f th e R o y a l C o m m issio n o n M o n e ta ry, B an k in g, a n d C re d it S y stem s, a m e n d e d th e tra d in g b a n k s c a sh re se rv e ra tio s to p e rm it in c lu sio n o f th e b a n k s v a u lt c a sh. A t th e sam e tim e, h o w e v e r, th e ra tio s w e re ra is e d to 32 p e r c e n t o f d e m a n d a n d 10 p e r c e n t o f tim e lia b ilities so th a t th e b a n k s a re b e in g fo rc e d to in c re a s e th e ir b o rro w in g fro m th e R e s e rv e B a n k a t th e p re v a ilin g 7 p e r c e n t d is c o u n t ra te. A V i p e r c e n t in c re a s e in th e ra te s p a id b y th e b a n k s o n d e p o sits also w a s a n n o u n c e d, th e new ra te s ra n g in g fro m 2 to 3 p e r c e n t; th is fo llo w s a n e a rlie r in c re a se in F e b ru a r y a n d th e a b o litio n a t th a t tim e o f th e fixed m in im u m a n d m a x im u m ra te s c h a rg e a b le b y th e b a n k s o n o v e rd ra fts. I n F in la n d, th e c a sh re se rv e a g re e m e n t c o n c lu d e d in 1 95 5 b e tw e e n th e c e n tra l b a n k a n d c o m m e rc ia l b a n k s, u n d e r w h ic h th e la tte r h a d h e ld w ith th e fo rm e r a specified p ro p o rtio n o f in c re a ses in th e ir d e p o sits, w as n o t re n e w e d la s t m o n th. (S im u lta n e o u sly, th e c a sh -d e p o s it re q u ire m e n t fo r im p o rte rs w as lo w e re d fro m 2 0 p e r c e n t to th e fo rm e r 10 p e r cent.) T h e B a n k o f F in la n d, h o w ev e r, h a s w a rn e d th e b a n k s th a t th e fu n d s re le a se d th ro u g h te rm in a tio n o f th e c a sh -re se rv e a g re e m e n t s h o u ld b e u s e d FEDERAL RESERVEBANK OFNEWYORK 93 to re d u c e th e b a n k s re d is c o u n ts w ith th e c e n tra l b a n k, w h ich in c re a s e d b y o v e r 35 p e r c e n t d u rin g A p ril-m a y, a n d n o t to in c re a s e th e ir le n d in g. I n fa c t, th e B a n k of F in la n d h a s e m p h a s iz e d th a t, fa ilin g su c h re d u c tio n s, it m a y ra is e in O c to b e r th e p e n a lty r a te o n d isc o u n ts in ex cess o f a c e rta in s tip u la te d ceilin g to 5 p e r c e n t ab o v e th e b a n k s o w n lo a n ra te s fro m th e p re s e n t 3 p e r cent. E x c h a n g e R a t e s T h e w e a k e n in g o f sterlin g th a t h a d b e g u n in la te M a y c o n tin u e d e a rly in J u n e, w ith A m e ric a n -a c c o u n t sterlin g d ro p p in g as lo w as $ 2.8 0 % 2 o n J u n e 5. T h e a n n o u n c e m e n t th a t B rita in s g o ld a n d d o lla r re se rv e s h a d rise n 41 m illio n d o lla rs in M a y w ith so m e th re e q u a rte rs o f th e rise re s u ltin g fro m B rita in s re c e ip ts in s e ttle m e n t o f its A p ril E P U su rp lu s w a s so m e w h a t d is a p p o in tin g to th e m a rk e t a n d a d d e d to th e e a rlie r w e a k n e ss w h ic h ste m m e d in p a r t fro m th e u n s e ttle d la b o r situ a tio n. B e tw e e n J u n e 6 a n d 13, h o w e v e r, ste rlin g stre n g th e n e d, reflectin g g o o d c o m m e rc ia l d e m a n d, p a rtic u la rly o n th e p a r t o f oil c o m p a n ie s; th e p u b lic a tio n o f B rita in s tr a d e fig ures fo r M a y, a lo n g w ith th e a n n o u n c e m e n t o f th e p ro p o s e d sale o f th e T rin id a d O il C o m p a n y to th e T e x a s C o m p a n y, le n t so m e fu rth e r e n c o u ra g e m e n t to th e m a rk e t. A m e ric a n - a c c o u n t ste rlin g a c c o rd in g ly ro s e as h ig h as $ 2.8 0 2 % 2 o n J u n e 13. A fte r th e m id m o n th, h o w ev e r, se a so n a l p re s s u re s o n sterlin g b e c a m e in c re a sin g ly n o tic e a b le, a n d w ith a risin g c o m m e rc ia l d e m a n d fo r d o lla rs in L o n d o n ( p a r tic u la rly o n th e p a r t o f o il a n d to b a c c o b u y e r s ), th e r a te a g a in w e a k e n e d, fallin g as lo w a s $ 2.7 9 % 6 o n J u n e 2 7 a n d clo s in g o n J u n e 2 9 a t $ 2.7 9 2 % 2. S terlin g fo r th re e a n d six m o n th s d e liv e ry m o v e d to la rg e r d isc o u n ts a ro u n d th e m id d le o f th e m o n th, b u t g e n e ra lly w as q u o te d a t a b o u t l 15/32 a n d 2 2% 2 c e n ts b e lo w th e r a te fo r s p o t ste rlin g. T ra n s fe ra b le ste rlin g fo r th e m o s t p a r t fo llo w e d m o v e m e n ts in th e r a te fo r A m e ric a n a c c o u n t; h o w e v e r, it w a s so m e w h a t firm e r e a rly in th e m o n th o n s tre n g th o rig in a tin g in fo re ig n m a rk e ts, a n d th e n w e a k e n e d to clo se a t $ 2.7 7 3 5 o n J u n e 2 9. S ecurities s te r ling, reflectin g a g e n e ra l la c k o f in te re s t in L o n d o n sto ck s, fell d u rin g th e m o n th fro m $ 2.7 6 to $ 2.7 1 V2. T h e C a n a d ia n d o lla r g e n e ra lly a p p re c ia te d th ro u g h o u t th e m o n th, g ra d u a lly risin g fro m $ 1.0 1 % 2 to $ 1.0 2 % 2, th u s c o n tin u in g to re fle c t in v e stm e n t d e m a n d, p a rtic u la rly o n th e p a r t o f B ritis h a n d C o n tin e n ta l in te re sts, as w ell as su s ta in e d c o m m e rc ia l d e m a n d. T h e c a p ita l m a rk, u s e d b y n o n re sid e n ts fo r in v e stin g in G e rm a n y, c o n tin u e d in lim ite d su p p ly a n d g o o d d e m a n d ; as a re s u lt, th e q u o ta tio n ro s e as h ig h as 2 4.3 5 c e n ts. A t th is lev el, th e c a p ita l m a rk w a s b e in g q u o te d a t a r a te w ell a b o v e th e u p p e r s u p p o rt lim it o f th e official D e u ts c h e m a rk ; th e G e rm a n a u th o ritie s, h o w e v e r, d o n o t in te rv e n e in th e m a rk e t fo r c a p ita l m a rk s.

94 MONTHLY REVIEW, JULY 1956 SAVINGS AND LOAN ASSOCIATIONS IN THE MORTGAGE MARKET B e c a u se o f th e ir sp e c ia liz e d ro le as h o m e -fin a n c in g in stitu tio n s, sav in g s a n d lo a n a sso c ia tio n s h a v e b e e n in a fa v o ra b le p o s itio n to b e n e fit fro m th e stro n g d e m a n d fo r m o rtg a g e fu n d s in th e p o s tw a r p e rio d. T h e e x iste n c e o f a m p le a n d re la tiv e ly p ro fita b le in v e stm e n t o p p o rtu n itie s in m o rtg a g e s h a s p e rm itte d th e a sso c ia tio n s to in c re a se th e r e tu r n p a id o n m e m b e rs sh a re s a n d h a s e n c o u ra g e d th e m to ta k e o th e r step s to a ttr a c t a la rg e r p ro p o rtio n o f th e p u b lic s savin g s. A s a re s u lt, th e p a s t d e c a d e h a s b e e n a p e rio d o f e x ceed in g ly ra p id g ro w th fo r th e asso c ia tio n s. S ta rtin g fro m 7 b illio n d o lla rs a t th e e n d o f 1 9 4 5, th e sav in g s c a p ita l o f th e a sso c ia tio n s ro se to 3 2 b illio n d o lla rs a t th e e n d o f 1 9 5 5. D u rin g th is sam e p e rio d th e a sso c ia tio n s s h a re o f to ta l in s titu tio n a l savin g s (d e fin e d h e re as th e su m o f sh a re s in sav in g s a n d lo a n a sso ciatio n s, o f tim e a n d sav in g s d e p o sits w ith c o m m e rc ia l a n d m u tu a l saving s b a n k s, a n d o f re serv e s o f life in s u ra n c e c o m p a n ie s) in creased fro m 8 p e r cen t to 18 p e r cent. T h e g ro w th in th e sav in g s c a p ita l o f th e a sso c ia tio n s h a s b e e n a c c o m p a n ie d b y a n a lm o st p a ra lle l rise in th e ir m o rtg a g e le n d in g (se e C h a r t I ). A t th e e n d o f 1 9 5 5 th e asso c ia tio n s a c c o u n te d fo r a b o u t o n e fo u rth o f th e to ta l n o n fa rm m o rtg a g e d e b t a n d fo r a b o u t o n e th ird o f th e p o rtio n o f th a t d e b t h e ld b y th e fo u r m a jo r ty p e s o f in v e stin g in stitu tio n s. T h e s e p ro p o rtio n s a re th e h ig h e st in th e asso ciatio n s history. S o u r c e s o f F u n d s S av ings a n d l o a n a sso c ia tio n s (k n o w n in v a rio u s p a rts o f th e c o u n try as c o o p e ra tiv e b a n k s, b u ild in g a n d lo a n a s s o c ia tio n s, a n d h o m e s te a d a s s o c ia tio n s ) a re m u tu a l th r if t a sso c ia tio n s c h a rte re d b y th e F e d e ra l o r a S ta te G o v e rn m e n t. T h e savin g s o f th e ir m e m b e rs, w h ic h c o m p rise th e a s s o c ia tio n s sav ings c a p ita l, c o n stitu te th e a sso c ia tio n s p rin c ip a l so u rce o f fu n d s. L e g a lly, th e sav in g s c a p i ta l o f th e asso c ia tio n s co n sists o f sh a re in te re sts r a th e r th a n d e p o sits, a n d sh a re h o ld e rs a re c o n sid e re d p a r t o w n e rs o f th e a sso c ia tio n s ra th e r th a n p re fe rre d c re d ito rs. S trictly sp e a k in g, a w ith d ra w a l is a re p u rc h a s e o f th e m e m b e rs sh a re s w h ic h th e a sso c ia tio n s a re u n d e r n o leg al o b lig a tio n to m a k e if re a s o n a b le n o tic e is n o t g iv e n o r if th e w ith d ra w a l w o u ld im p a ir th e ir fin a n c ia l p o sitio n. A t th e p re s e n t tim e, h o w ev e r, w ith d ra w a l re q u e sts g e n e ra lly a re m e t o n d e m a n d, a fe a tu re w h ic h im p ro v e s th e a s s o c ia tio n s a b ility to c o m p e te su cce ssfu lly w ith o th e r in s titu tio n s fo r sav in g s. M o s t sh a re a c c o u n ts a re in a s s o c ia tio n s a ffo rd ed in s u ra n c e p ro te c tio n ( u p to a m a x im u m a m o u n t of $ 1 0,0 0 0 p e r a c c o u n t) b y th e F e d e r a l S av in gs a n d L o a n In s u ra n c e C o rp o ra tio n ( F S L I C ). A ll F e d e ra lly c h a rte re d a sso c ia tio n s a n d a b o u t th re e fifths o f th o s e w ith S ta te c h a rte rs a re m e m b e rs o f th e F e d e ra l H o m e L o a n B a n k S y stem ( F H L B S ). A t th e e n d o f 1 9 5 4 m e m b e r asso c ia tio n s a c c o u n te d fo r 9 5 p e r c e n t o f th e assets o f all sav in g s a n d lo a n a sso c ia tio n s a n d fo r 7 0 p e r c e n t o f th e to ta l n u m b e r o f a sso c ia tio n s. T h e F H L B S, w h ich co n sists o f ele v en re g io n a l H o m e L o a n B a n k s a n d a c e n tra l g o v e rn in g a u th o rity, th e F e d e ra l H o m e L o a n B a n k B o a rd, w a s o rg a n iz e d in 1 9 3 2 in o rd e r to p ro v id e a so u rc e o f c re d it fo r h o m e -fin a n c in g in s titu tio n s. T o a su b s ta n tia l ex tent, such cred it is u sed by th e associations to su p p lem e n t th e ir savings c a p ita l.1 I n th e p o s tw a r p e rio d th e n u m b e r o f a sso c ia tio n s in d e b t to th e F e d e ra l H o m e L o a n B a n k s a t a n y o n e tim e h a s v a rie d fro m a b o u t o n e th ird to th re e fifth s o f to ta l m e m b e rs h ip. F H L B lo a n s m a y b e u se d to e x p a n d m e m b e rs p e rm a n e n t le n d in g p o w e r as w ell as to m e e t s e a so n a l a n d e m e rg e n c y n e e d s. A s s o c ia tio n s a re lim ite d in th e a m o u n ts th e y c a n b o rro w b y s ta t u te, ru le s a n d re g u la tio n s o f th e F e d e ra l H o m e L o a n B a n k B o a rd a n d F S L IC, a n d b y lin es o f c re d it set b y th e F e d e ra l H o m e L o a n B a n k s. T h e s e B a n k s o b ta in fu n d s fro m th e ir m e m b e rs th ro u g h s to c k su b s c rip tio n s a n d d e p o sits a n d also sell securities in th e cap ital m a rk et. B e c a u se o f th e s te a d y in c re a s e in th e ir savin g s c a p i t a l, a s so c ia tio n s h a v e e n c o u n te re d few em e rg e n c y n e e d s fo r 1 The associations also borrow small amounts from commercial banks. Such loans amounted to 146 million dollars at the end of 1955, compared with FHLB advances of 1,412 million dollars. Chart I SAVINGS CAPITAL AND MORTGAGE LOANS Billions OF SAVINGS AND LOAN ASSOCIATIONS Biilions of dollars of douars Sources: Federal Home Loan Bank Board; Board of Governors of the Federal Reserve System; Morton, J. E., Urban Mortgage lending: Comparative Markets and Experience, Princeton University Press, 1956.

S o u r c e s a n d U s e s o f F u n d s o f S a v i n g s a n d L o a n A s s o c i a t i o n s, S e l e c t e d Y e a r s (Amounts in billions of dollars) S o u rc e or use 1946 1950 195 5 S o u r c e s o f f u n d s t o t a l... l. S 2. 1 6. 0 N e t i n f l o w o f s a v i n g s c a p i t a l... 1. 2 1. 5 5. 0 R e s e r v e s a n d u n d i v i d e d p r o f i t s... 0. 1 0. 2 0. 4 F H L B a d v a n c e s a n d o t h e r b o r r o w i n g s... 0. 1 0. 4 0. 6 L i q u i d a t i o n o f U. S. G o v e r n m e n t o b l i g a t i o n s... 0. 4 t 0. 1 0. 1 FEDERAL RESERVEBANK OFNEWYORK 95 1. 8 2. 1 6. 0 N e t in c r e a s e i n m o r t g a g e s t... 1. 7 1. 9 5. 3 I n c r e a s e i n U. S. G o v e r n m e n t o b l i g a t i o n s... 0. 4 I n c r e a s e i n c a s h... 0. 1 t 0. 1 In c r e a s e i n o t h e r a s s e t s... t 0. 2 0. 3 M e m o r a n d u m ( e n d o f y e a r ) C a s h a n d U. S. G o v e r n m e n t o b l i g a t i o n s a s p e r c e n t o f t o t a l a s s e t s... 2 4. 9 1 4. 3 1 1. 8 F H L B a d v a n c e s a n d o t h e r b o r r o w i n g s a s p e r c e n t o f 3. 9 5. 3 4. 1 N o t e : B e c a u s e o f r o u n d i n g, d e t a i l s m a y n o t a d d t o t o t a ls. * I n c l u d e s r e s i d u a l e r r o r s, t L e s s t h a n 5 0 m i l l i o n d o l l a r s. t A d j u s t e d f o r m o r t g a g e - p l e d g e d s h a r e s a n d f o r l o a n s i n p r o c e s s. S o u r c e : C o m p i l e d f r o m d a t a p u b l i s h e d b y t h e F e d e r a l H o m e L o a n B a n k B o a r d fu n d s d u rin g th e p o s tw a r p e rio d. A t v a rio u s tim e s, h o w ev er, th e asso c ia tio n s h a v e b e e n u n d e r p re s s u re to e x p a n d th e ir lo a n s b e y o n d th e lim its im p o se d b y th e ir n e t inflow o f savings c a p ita l. T h e d e c lin in g liq u id ity p o s itio n o f th e a s s o c ia tio n s in re c e n t y e a rs h a s c o m p e lle d th e m to re s o rt in c re a sin g ly to F H L B S fu n d s in o rd e r to m e e t su ch d e m a n d s. I n 1 9 4 6, fo r e x a m p le, th e a s so c ia tio n s satisfied a d e m a n d fo r m o rtg a g e fu n d s th a t su b s ta n tia lly ex c e e d e d th e ir n e t inflow o f sav in g s c a p ita l m a in ly b y liq u id a tin g U n ite d S tate s G o v e rn m e n t secu ritie s (se e ta b le ). B etw e en 1 9 4 6 a n d 1 9 5 0, th e c o n tin u e d liq u id a tio n o f G o v e rn m e n ts a c c o m p a n ie d b y th e a c q u isitio n o f a s u b s ta n tia l v o lu m e o f m o rtg a g e s re d u c e d th e a s s o c ia tio n s liq u id ity ra tio (h o ld in g s o f c a sh a n d U n ite d S ta te s G o v e rn m e n t o b lig a tio n s as a p ro p o rtio n o f to ta l a s s e ts ) fro m 2 4.9 p e r c e n t to 14.3 p e r cen t. A s a re s u lt, w h e n th e d e m a n d fo r m o rtg age fu n d s ro se to a n u n u su a lly h ig h lev el in 1 9 5 0, th e a sso c ia tio n s b o rro w e d h e av ily fro m th e F e d e ra l H o m e L o a n B a n k s w h ile th e ir h o ld in g s o f G o v e rn m e n ts w e re v irtu a lly u n c h a n g e d. I n s u b s e q u e n t y e a rs, th e liq u id a tio n o f G o v e rn m e n ts c e a sed b u t th e a sso c ia tio n s liq u id ity ra tio c o n tin u e d to d e clin e, re a c h in g 1 1.8 p e r c e n t in 1 9 5 5. D u rin g th a t y e a r, th e v o lu m e o f m o rtg a g e le n d in g re a c h e d a re c o rd -b re a k in g lev el, a n d th e asso c ia tio n s a g a in fo u n d it n e c e s sa ry to b o rro w fro m th e F e d e ra l H o m e L o a n B a n k s. H o w e v e r, th e a sso c ia tio n s also a d d e d s u b sta n tia lly to th e ir h o ld in g s o f U n ite d S ta te s G o v e rn m e n t o b lig a tio n s in 19 5 5.2 T h e in c re a s e d re s o rt to th e fa cilitie s o f th e F e d e ra l H o m e L o a n B a n k s h a s stre n g th e n e d th e p o s itio n o f th e 2 The rise in United States Government bond yields during 1955 probably was responsible in part for the associations decision to acquire more Governments. F H L B S in in flu en cin g th e to ta l v o lu m e o f lo a n a b le fu n d s m a d e av a ila b le b y th e asso c ia tio n s. A t th e sam e tim e, th e policies of th e F H L B S w ith resp ect to co ntro lling th e volu m e o f su ch fu n d s h a v e b e c o m e m o re flexible a n d m o re re sp o n siv e to g e n e ra l e c o n o m ic a n d c re d it co n d itio n s. T h is c h a n g e in th e fo c u s o f p o lic y w a s p a rtic u la rly e v id e n t in th e second h alf of 1 95 5, w h en special restra in ts w ere im p o s e d o n b o rro w in g b y th e asso c ia tio n s b e c a u se o f th e in fla tio n a ry c o n d itio n s th e n p rev a ilin g. U s e s o f F u n d s B y law a n d tr a d itio n sav in g s a n d lo a n asso c ia tio n s a re re la tiv e ly sp e c ia liz e d in s titu tio n s. T h e in v e stm e n ts o f F e d e ra lly c h a rte re d a sso c ia tio n s, fo r e x a m p le, a re lim ite d to first m o rtg a g e lo a n s, p ro p e rty im p ro v e m e n t lo a n s, U n ite d S tate s G o v e rn m e n t securitie s, a n d th e sto c k o f F e d e ra l H o m e L o a n B a n k s.3 T h e g e o g ra p h ic a l sco p e o f th e ir o p e ra tio n s also is q u ite lim ite d. F o r th e m o s t p a rt, th e ir m o rtg a g e lo a n s a re o n p ro p e rtie s lo c a te d in th e lo c a l a re a w h e re m o s t o f th e ir m e m b e rs re sid e. O n ly a sm a ll n u m b e r o f asso c ia tio n s h a v e b ra n c h e s. A t th e e n d o f 1 9 5 5 m o rtg a g e s o n n o n fa rm p ro p e rty c o m p rise d 83 p e r c e n t o f th e a s s o c ia tio n s to ta l a sse ts.4 In c o n tra s t, fo r m u tu a l sav in g s b a n k s, life in s u ra n c e c o m p a n ie s, a n d c o m m e rc ia l b a n k s, n o n fa rm m o rtg a g e s c o n stitu te d, resp ec tiv ely, 5 6 p e r c e n t, 3 0 p e r c e n t, a n d 9 p e r cen t of to ta l assets. C o n v e n tio n a l as o p p o s e d to F e d e ra lly u n d e rw ritte n m o rtg a g e s a re re la tiv e ly m o re im p o rta n t in th e m o rtg a g e p o rtfo lio s o f th e a s s o c ia tio n s th a n in th e p o rtfo lio s o f th e o th e r m a jo r fin an c ial in s titu tio n s. A b o u t 7 7 p e r c e n t o f all n o n fa rm m o rtg a g e s h e ld b y th e a sso c ia tio n s a re o f th is ty p e, c o m p a re d w ith 4 3 p e r c e n t, 5 4 p e r c e n t, a n d 5 8 p e r c e n t fo r m u tu a l sav in g s b a n k s, life in s u ra n c e c o m p a n ie s, a n d c o m m e rc ia l b a n k s, re s p e c tiv e ly.5 T h is c o n c e n tra tio n o n c o n v e n tio n a l-ty p e m o rtg a g e s c a n b e a ttrib u te d to th e d iffe re n t p u rp o se s fo r w h ic h th e se m o rtg a g e s a re u se d as w ell as to leg al a n d p o rtfo lio c o n sid e ra tio n s. I n th e first place, such m ortgages gen erally involve a d irect relatio n sh ip b e tw e e n le n d e r a n d b o rro w e r, sin ce th e le n d e r m u s t b e in a p o s itio n to e x a m in e th e in d iv id u a l c re d it ra tin g o f e a c h a p p lic a n t as w ell as th e in d iv id u a l p a rc e l o f p ro p e rty secu rin g th e m o rtg a g e.6 C o n v e n tio n a l len d in g, th e re fo re, is m o s t fe a sib le w h e re it is re la tiv e ly e a sy to e sta b lish d ire c t, p e rs o n a l c o n ta c t w ith p o te n tia l m o rtg a g e b o rro w e rs. 3 The investment activities of State-chartered associations generally are subject to comparable restrictions, although the scope and severity of these restrictions vary from State to State. 4 The historical high was 91 per cent reached in 1925. 5 The balance of the associations holdings are mostly VA-guaranteed mortgages. 6 In the cas of Federally underwritten loans, this function is to a great extent performed by the underwriting agencies.

96 MONTHLY REVIEW, JULY 1956 T h e 6,0 0 0 in d iv id u a l sav ings a n d lo a n a sso c ia tio n s, w ell d is p e rs e d th ro u g h o u t th e c o u n try, a re in a fa v o ra b le p o s i tio n to d e v e lo p su c h c o n ta c ts. L ife in s u ra n c e c o m p a n ie s a n d th e la rg e r m u tu a l sav in g s b a n k s so m etim es fin d it diffic u lt to e s ta b lis h th e c o n ta c ts n e e d e d to in v e st in c o n v e n tio n a l m o rtg a g e s u n le ss th e y m a in ta in b ra n c h offices o u ts id e th e ir lo c a l c o m m u n itie s.7 O n th e o th e r h a n d, su ch in stitu tio n s are relativ ely m o re active th a n are th e associatio n s in th e p e rm a n e n t fin an c in g o f n e w c o n stru c tio n, p a r tic u la rly o f la rg e tr a c t o p e ra tio n s w h ich a re o fte n in a re a s c o n sid e ra b ly d is ta n t fro m th e in s titu tio n s h o m e offices. F e d e ra l in s u ra n c e o r g u a ra n ty g e n e ra lly is c o n sid e re d im p o rta n t in s u c h u n d e rta k in g s b e c a u se o f th e ir m o re im p e rs o n a l n a tu re a n d th e le n d e rs in a b ility to ex ercise clo se su rv e illa n c e o v e r th e p ro p e rty a n d th e in d iv id u a l b o rro w e rs. I n a d d itio n to c o n sid e ra tio n s o f size a n d s tru c tu re, th e a sso c ia tio n s also a re less a ttra c te d th a n a re m o s t o th e r le n d e rs to th e g re a te r liq u id ity a tta c h in g to F e d e ra lly u n d e rw ritte n as o p p o s e d to c o n v e n tio n a l m o rtg a g e s. M o re o v e r, th e m a x im u m le n d in g te rm s se t b y F e d e ra l a n d S ta te s ta tu te s o n c o n v e n tio n a l lo a n s a re g e n e ra lly m o re lib e ra l fo r th e a s s o c ia tio n s th a n fo r o th e r le n d e rs. F in a lly, c o m m e rc ia l b a n k s, life in s u ra n c e c o m p a n ie s, a n d m u tu a l sav in g s b a n k s g e n e ra lly h a v e leg al lim ita tio n s o n th e p r o p o rtio n o f th e ir assets w h ic h c a n b e h e ld in th e fo rm o f c o n v e n tio n a l m o rtg a g e s, a lth o u g h in m o s t case s th e n o w -e x istin g p ro p o rtio n s a re still w e ll b e lo w th e leg al m a x im u m s. C h a n g in g I m p o r t a n c e in t h e M o r t g a g e M a r k e t A s sh o w n in C h a r t I I, th e a s s o c ia tio n s s h a re o f in s titu tio n a l sav in g s a n d th e ir s h a re o f b o th to ta l a n d in s titu tio n a lly h e ld n o n fa rm m o rtg a g e d e b t w e re h ig h e r a t th e e n d o f 1 9 5 5 th a n a t a n y tim e s u b s e q u e n t to 1 9 2 0. I n g e n e ra l, th e se in d e x e s o f th e re la tiv e im p o rta n c e o f th e a sso c ia tio n s h a v e in c re a s e d a n d d e c re a s e d to g e th e r sin ce 1 9 2 0 b e c a u s e o f th e te n d e n c y o f th e a sso c ia tio n s to p la c e th e b u lk o f th e ir assets in m o rtg a g e s w h e n e v e r th a t h a s b e e n p o ssib le. T h is h a s n o t alw ay s b e e n th e case, h o w ev e r. T h u s, d u rin g th e first h a lf o f th e p o s t-w o rld W a r I I p e rio d, th e a s s o c ia tio n s sh a re o f to ta l in s titu tio n a l sav in g s in c re a se d w h ile th e ir s h a re o f in s titu tio n a lly h e ld n o n fa rm m o rtg a g e d e b t d e c lin e d slig h tly. T h is re fle c te d th e te n d e n c y o f o th e r in s titu tio n a l in v e sto rs to p la c e a la rg e r p ro p o rtio n o f th e ir a sse ts in m o rtg a g e s. I n p a rtic u la r, 7 The commercial banking system also has many individual institutions dispersed throughout the country, and the banks hold a larger proportion of conventional loans *han do the mutual savings banks and life insurance companies; however, the banks are more attracted to the greater liquidity of Federally underwritten mortgages than are the associations. Chart II INDEXES OF RELATIVE IMPORTANCE OF SAVINGS AND LOANS ASSOCIATIONS p Sources: Same as Chart I. c o m m e rc ia l b a n k s w e re e x tre m e ly ac tiv e d u rin g 1 9 4 6-4 8,8 w h ile in s u ra n c e c o m p a n ie s w e re th e m o s t im p o rta n t m o r t gage le n d e rs d u rin g 1 9 4 8-5 0. T h e ex ten siv e p a rtic ip a tio n b y life in s u ra n c e c o m p a n ie s a n d c o m m e rc ia l b a n k s d u rin g 1 9 4 6-5 0 re fle c te d a n u m b e r o f sp e c ia l fa c to rs, in c lu d in g th e e x te n d e d c o v e ra g e a n d lib e ra liz a tio n o f th e F H A p ro g ra m o f m o rtg a g e in s u ra n c e a n d th e d e v e lo p m e n t a n d g ro w th o f a n e w p ro g ra m o f h o m e lo a n g u a ra n tie s fo r v e te ra n s. M a in ly b y s ta n d a rd iz in g th e m o rtg a g e in s tru m e n t a n d m a k in g it m o re liq u id, th e se p ro g ra m s e n c o u ra g e d in c re a s e d p a rtic ip a tio n in th e m o rtg a g e m a rk e t o n th e p a r t o f all in s titu tio n a l in v e sto rs, b u t th e im p a c t o n th e a s s o c ia tio n s w as less th a n o n o th e r in v e sto rs. M o re o v e r, th e y ield s o n in s tru m e n ts c o m p e titiv e w ith m o rtg a g e s w e re re la tiv e ly lo w d u rin g th e se y e a rs, a c o n sid e ra tio n o f im p o rta n c e to o th e r in s titu tio n s b u t of lesser significance to th e associatio ns. D u rin g th e p e rio d 1951 to 1 9 5 5, sav in g s a n d lo a n a sso c ia tio n s in c re a s e d th e ir s h a re o f in s titu tio n a l saving s e v en m o re ra p id ly th a n in p re v io u s y e a rs. T h e a sso c ia tio n s a c c o u n te d fo r 3 2 p e r c e n t o f th e n e t in c re a s e in in s titu tio n a l sav in g s in 1 9 5 1-5 5, c o m p a re d w ith 2 0 p e r c e n t in 1 9 4 6-5 0. M a in ly as a re s u lt o f th is d e v e lo p m e n t th e ir sh a re o f in s titu tio n a lly h e ld n o n fa rm m o rtg a g e d e b t ro se stead ily. O th e r d e v e lo p m e n ts d u rin g th is p e rio d a lso te n d e d a t c e rta in tim e s to d isc o u ra g e o r r e ta r d th e acq u isitio n o f m o rtg a g e s b y o th e r in s titu tio n s. W ith th e rise in in te re s t ra te s fo llo w in g th e e n d o f th e p o lic y o f p e g g in g th e p ric e s o f U n ite d S tate s G o v e rn m e n t se c u ritie s in 8 See 'Commercial Banks in the Mortgage Market, Monthly Review, April 1956.

M a rc h 1 9 5 1, F e d e ra lly u n d e rw ritte n m o rtg a g e s (o n w h ich th e in te re s t r a te w as fixed) b e c a m e less a ttra c tiv e to m o st in v e sto rs. S av in g s a n d lo a n a sso c ia tio n s w e re little a ffe c te d b y th is d e v e lo p m e n t, h o w e v e r, b o th b e c a u s e th e ir a lte rn a tiv e in v e stm e n t o p p o rtu n itie s a re lim ite d a n d b e c a u s e m o s t o f th e ir m o rtg a g e lo a n s a re o f th e c o n v e n tio n a l ty p e o n w h ic h in te re s t ra te s c a n b e a d ju s te d m o re easily. T h e a s s o c ia tio n s c o n c e n tra tio n o n c o n v e n tio n a l m o r t g ag es a lso m a d e th e m less sen sitiv e th a n o th e r le n d e rs to th e effects o f R e g u la tio n X, w h ic h w a s in fo rc e fro m O c to b e r 1 9 5 0 to J u n e 1 9 5 2.9 T h e c h a n g e s in d o w n p a y m e n ts a n d m a tu ritie s effected b y R e g u la tio n X w e re m o re se v e re in th e c a se o f F e d e ra lly u n d e rw ritte n th a n in th e c a se o f c o n v e n tio n a l m o rtg a g e s. C o n c l u s io n A lth o u g h th e to ta l re s o u rc e s o f sav in g s a n d lo a n a sso c ia tio n s a re m u c h sm a lle r th a n th o s e o f o th e r fin an c ial in s titu tio n s, s u c h as c o m m e rc ia l b a n k s o r in s u ra n c e c o m p a n ie s, th e a s s o c ia tio n s n e v e rth e le ss o c c u p y a n im p o rta n t p o s itio n in th e re s id e n tia l m o rtg a g e m a rk e t. B e c a u se o f th e c o n c e n tra tio n o f th e ir in v e stm e n t ac tiv ities in m o rtg a g e s, th e a sso c ia tio n s te n d to g ro w in re la tiv e im p o rta n c e d u rin g p e rio d s w h e n m o rtg a g e fu n d s a re in h e a v y d e m a n d. T h is h a s b e e n e sp e c ia lly tr u e d u rin g th e p o s tw a r d e c a d e w h en th e associatio n s succeeded in a ttrac tin g a steadily in c re asin g s h a re o f to ta l in s titu tio n a l sav in g s. T h e a s so c ia tio n s 9 Terms on Federally underwritten mortgages were not restored to their pre-regulation X levels until April 1953. FEDERAL RESERVEBANK OFNEWYORK 97 h a v e also a u g m e n te d th e ir re s o u rc e s b y b o rro w in g fro m th e F H L B S ; a t th e e n d o f 1 9 5 5 su c h b o rro w in g, to g e th e r w ith a sm a ll a m o u n t o f lo a n s fro m c o m m e rc ia l b a n k s, re p re s e n te d 4.1 p e r c e n t o f th e to ta l assets o f th e associatio ns. T h e a s s o c ia tio n s te n d to sp e c ia liz e in first m o rtg a g e lo a n s o n sm a ll h o m e s lo c a te d in th e im m e d ia te lo c al c o m m u n ity. F o r th e m o s t p a rt, th e a s s o c ia tio n s in v e st in c o n v e n tio n a l as o p p o s e d to F e d e ra lly u n d e rw ritte n m o r t gages. T h e s e in v e stm e n t p re fe re n c e s c a n b e e x p la in e d la rg e ly in te rm s o f th e re la tiv e ly sm all size o f th e a v erag e a s s o c ia tio n a n d th e su cce ss w h ic h th e a sso c ia tio n s h a v e h a d in d e v elo p in g d ire c t p e rs o n a l c o n ta c ts w ith b o rro w e rs. D e sp ite th e ir p re d o m in a n tly lo c a l c h a ra c te r a n d th e sp e c ia liz e d n a tu re o f th e ir activ ities, th e a sso c ia tio n s a re an in te g ra l p a r t o f th e n a tio n s sav in g s a n d in v e stm e n t m a rk e ts. I t is a p p a re n t, fo r e x a m p le, th a t th e asso c ia tio n s a re in clo se c o m p e titio n w ith o th e r fin a n c ia l in s titu tio n s fo r m o rtg a g e s a n d fo r sav in g s. S o m e a sso c ia tio n s in th e fa s te r g ro w in g sectio n s o f th e c o u n try ac tiv ely so licit fu n d s in o th e r a re a s. M o re o v e r, th e a sso c ia tio n s a re affecte d b y in te re s t ra te s p re v a ilin g in n a tio n a l secu rity m a rk e ts b o th b e c a u s e th e y h o ld U n ite d S ta te s G o v e rn m e n t secu ritie s as a liq u id ity re s e rv e a n d b e c a u s e th e co st o f th e ir b o rro w in g fro m th e F e d e ra l H o m e L o a n B a n k s h in g es o n th e ra te s w h ic h th e la tte r p a y in th e c a p ita l m a rk e t. F in a lly, th e re g u la to ry a c tiv itie s o f th e F H L B S a n d th e F S L IC a re a so u rc e o f o v e r-a ll p o lic y c o n tro l o v e r th e a s s o c ia tio n s o p e ra tio n s. RECENT TRENDS IN UNITED STATES IMPORTS U n ite d S ta te s im p o rts ro s e to a re c o rd h ig h o f o v e r 1 1.3 b illio n d o lla rs in 1 9 5 5, a rise o f m o re th a n 1 0 p e r c e n t a b o v e th e re c e ss io n y e a r o f 1 9 5 4 a n d a b o u t 5 p e r c e n t ab ove 1953. T his sizable in crease gains fu rth e r signific a n c e in th e lig h t o f th e s h a rp u p w a rd tr e n d th a t h a s c h a r a c te riz e d A m e ric a n im p o rts sin ce th e e n d o f th e w a r. I n th e la s t te n y e a rs, U n ite d S tate s im p o rts h a v e rise n 1 7 7 p e r c e n t fro m th e 1 9 4 5 lev el o f 4.1 b illio n d o lla rs; a n d in th e la s t five y e a rs sin ce 1 9 5 0 a y e a r a lre a d y affecte d b y e m erg en c y im p o rts a fte r th e o u tb re a k o f h o stilitie s in K o re a im p o rts h a v e in c re a s e d n e a rly 3 0 p e r c e n t in v alu e. T h is risin g tr e n d o f im p o rts b y th e la rg e st b u y e r in w o rld m a rk e ts is o f g re a t im p o rta n c e to th e re s t o f th e w orld, first of all, b ecau se o u r p u rch ases influence significantly th e level of econom ic activity in m an y foreig n co u n tries, esp ecially ra w -m a te ria l-p ro d u c in g c o u n trie s w h ich a re h e av ily d e p e n d e n t o n e x p o rts. S eco n d ly, a n d p e rh a p s eq u a lly im p o rta n t, d o lla r p ro c e e d s d e riv e d fro m U n ite d S tate s im p o rts a re th e p rin c ip a l so u rc e o f fu n d s w ith w h ich fo re ig n c o u n trie s fin an c e th e ir p u rc h a s e s fro m th is co u n try. O fte n in th e p a s t, fe a rs h a v e b e e n e x p re ss e d th a t th e re s t o f th e w o rld w o u ld n o t b e a b le to b e n e fit fu lly fro m th e g ro w th o f th e A m e ric a n e c o n o m y b e c a u s e o u r im p o rts, to m a n y a n a ly sts, seem e d to g ro w a t a slo w e r r a te th a n o u r n a tio n a l ec o n o m y. I t is th e re fo re re le v a n t to n o te th a t sin ce 1 9 4 8 th e b e g in n in g o f th e M a rs h a ll P la n th e v a lu e o f U n ite d S ta te s im p o rts h a s in c re a s e d 6 0 p e r c e n t, c o m p a re d w ith a 5 0 p e r c e n t rise in g ro ss n a tio n a l p ro d u c t. O v e r th e la s t six y e a rs im p o rts h a v e b e e n su b je c te d to so m e d ra m a tic c h a n g e s as a re s u lt o f d o m e stic a n d in te r n a tio n a l ev en ts. T h e K o re a n em e rg e n c y b ro u g h t a b o u t a ste e p rise in im p o rt v o lu m e a n d p ric e s. T h e re c e ssio n of 1 9 5 3-5 4 c a u se d a d ro p in v o lu m e b u t, in c o n tra s t to e a rlie r recessio n s, p ric e s o f im p o rte d g o o d s h e ld u p w ell u n d e r th e su sta in in g in flu en ce o f s tro n g E u r o p e a n d e m a n d. W h ile in th e re c o v e ry fro m th e 1 9 5 3-5 4 re c e ssio n im p o rts seem ed to la g s o m e w h a t b e h in d th e g ro w th o f n a tio n a l in c o m e, a re n e w e d s p u rt in 1 9 5 5 c a rrie d im p o rts u p ag ain, a n d in th e six m o n th s N o v e m b e r 1 9 5 5 -A p ril 1 9 5 6 th e y w e re r u n

98 MONTHLY REVIEW, JULY 1956 n in g a t a n a n n u a l ra te o f so m e 1 2.4 b illio n d o lla rs. T h e s e d e v e lo p m e n ts a n d th e ir b a c k g ro u n d w ill b e e x p lo re d in g rea ter d etail in th e follow ing sections. T h e O v e r - A l l P a t t e r n o f I m p o r t s A t th e o u tb re a k o f th e K o re a n co n flict in 1 9 5 0, th e U n ited S tates econom y w as reco vering fro m th e 1949 re cessio n, a n d p ro d u c tio n a n d c o n su m p tio n w e re e x p a n d in g ra p id ly. T h is e x p a n s io n w a s reflecte d in a s u b s ta n tia l in c re a se in U n ite d S ta te s d e m a n d fo r im p o rts, p a rtic u la rly in d u stria l ra w m a te ria ls a n d se m im a n u fa c tu re s. A fte r th e o u tb re a k o f h o stilitie s in K o re a, th e risin g tre n d in im p o rt v o lu m e a n d p ric e s w a s a c c e le ra te d c o n sid e ra b ly as c o n su m ers, b u sin e ss, a n d th e G o v e rn m e n t so u g h t to a c c u m u la te in v e n to rie s as a h e d g e a g a in st p o ssib le s h o rta g e s. A s a re su lt, th e v a lu e o f U n ite d S tate s im p o rts s o a re d to 8.7 b illio n d o lla rs in 1 9 5 0, c o m p a re d w ith 6.6 b illio n in 1 9 4 9. I n 1 9 5 1, u n d e r th e p re s s u re o f g re a te r m ilita ry a n d civ ilian d e m a n d, c o n tin u e d G o v e rn m e n t sto ck p ilin g, a n d a c e rta in am o u n t of speculative buying, U n ited States im p o rts in c re a se d ev en fu rth e r to a th e n -re c o rd lev el o f 10.8 b illio n d o lla rs. I n 1 9 5 2 im p o rts re m a in e d v irtu a lly u n c h a n g e d a l t h o u g h t h e f e a r o f m a te ria l sh o rta g e s h a d p a sse d. W ith th e l e v e i i n g - o f f in d e m a n d h e re a n d a b ro a d, th e w o rld p ric e o f m a n y c o m m o d i t i e s b e g a n to f a l l, slow ly a t first, b u t m o r e ra p id ly as th e y e a r p ro g re s s e d. H o w e v e r, th e im p e t u s o f d e m a n d th a t h a d o rig in a te d in th e K o re a n e m e r g e n c y, a n d a g e n e ra l e x p a n s io n o f b u sin e ss a c tiv ity c a rrie d th e v o l u m e o f im p o rts u p w a rd. D u r i n g 1 953 th is e x p a n s io n c o n tin u e d, a n d in th e e a rlie r m o n t h s o f th e y e a r s tim u la te d p u rc h a s e s o f a lm o st all c l a s s e s o f c o m m o d itie s. L a te r, th e d o w n sw in g in in d u stria l p ro d u c tio n th a t b e g a n in A u g u s t w as re sp o n sib le fo r a d ro p in p u rc h a s e s o f ra w m a te ria ls th a t c o n tin u e d in to th e e a rly m o n th s of th e fo llo w in g y e a r. A s a re s u lt o f th e se d iv e rg e n t m o v e m e n ts, im p o rts in 1 9 5 3 to ta le d 10.8 b illio n do llars v irtually th e sam e as in th e preced in g y ear. A s th e re c e ssio n c a rrie d o v e r in to th e n e x t y e a r, its im p a c t o n im p o rts c a u se d th e to ta l fo r 1 9 5 4 to d e clin e to 1 0.2 b illio n d o lla rs a lth o u g h a tre n d o f re c o v e ry a lre a d y b e c a m e n o tic e a b le in th e la tte r m o n th s o f th a t y e a r. W h ile th e rise o f im p o rts g a in e d m o m e n tu m, th e re w a s so m e ev i d ence of a lag relativ e to th e in crease in th e ra te of in d u s tria l p ro d u c tio n in c o n tra s t to th e 1 9 4 9-5 0 re c o v e ry w h e n im p o rts re s p o n d e d ra th e r q u ic ld y to th e p ic k u p in b u sin e ss ac tiv ity a n d o u tp u t. L a te r in 1 9 5 5, h o w e v e r, th e r a te o f im p o rts a c c e le ra te d, a n d th is tre n d h a s th u s fa r c o n tin u e d in to 1 9 5 6. W h ile in 1 9 5 5 im p o rts to ta le d 11.3 b illio n d o lla rs, th e a n n u a l ra te d u rin g th e first fo u r m o n th s of 195 6 w as 1.1 billion high er. T h e o v e r-a ll p ic tu re o f U n ite d S ta te s im p o rts o v e r th e last several years, as illu strated by T ab le I, is o ne of a b ro a d a d v a n c e in te rru p te d b y a p e rio d o f c o n so lid a tio n fro m th e u n u su a lly ra p id s p u rt fo llo w in g th e K o re a n e m e r g ency. P ric e a n d v o lu m e w e re b o th re sp o n sib le fo r th e rise in im p o rt v a lu es, b u t to a d iffe re n t e x te n t. P ric e s ro s e s h a rp ly th ro u g h 1951 b u t th e n d e c lin e d as th e p re s s u re o f u n u su a l d e m a n d su b sid e d. T h e in c re a se in v o lu m e w a s e v e n m o re sig n ifican t. I n th e la s t sev en y e a rs th e v o lu m e o f im p o rts h a s rise n n e a rly o n e th ird, a g re a te r in c re a s e th a n th a t e x p e rie n c e d th ro u g h o u t th e e n tire d e c a d e o f th e fo rtie s. O n th e w h o le, th e re fo re, U n ite d S tate s im p o rts in th e p o s tw a r p e rio d h a v e b e e n c h a ra c te riz e d b y s u b s ta n tia l g ro w th, n o tw ith s ta n d in g c o n sid e ra b le d iv e rg en c ies in th e ir co m m odity an d reg io n al co m position. Y e a r T a b l e I U n i t e d S t a t e s I m p o r t s, 1 9 4 8-5 5 * V a l u e o f i m p o r t s ( in m i l l i o n s o f d o l l a r s ) I n d e x e s o f v a l u e, v o l u m e, a n d u n i t v a l u e o f i m p o r t s ( 1 9 3 6-3 8 = 1 0 0 ) V a l u e V o l u m e U n i t v a l u e 1 9 4 8... 7, 0 9 5 2 8 8 1 2 3 2 3 5 1 9 4 9... 6, 5 9 4 2 6 8 1 2 0 2 2 4 1 9 5 0... 8, 7 4 3 3 5 5 1 4 6 2 4 3 1 9 5 1... 1 0, 8 1 7 4 4 0 1 4 4 3 0 5 1 9 5 2... 1 0, 7 4 7 4 3 7 1 5 1 2 8 9 1 9 5 3... 1 0, 7 7 9 4 3 8 1 5 8 2 7 6 1 9 5 4... 1 0, 2 4 0 4 1 6 1 4 7 2 8 3 1 1, 3 3 4 4 6 1 1 6 3 p 2 8 2 p * I m p o r t s f o r c o n s u m p t i o n. p P r e l i m i n a r y. S o u r c e : U. S. D e p a r t m e n t o f C o m m e r c e, Total Export and Import Trade of the United States, January-December 1955. T h e C o m m o d i t y C o m p o s i t i o n o f I m p o r t s T h is o v e r-a ll im p re ssio n o f d y n a m ic a d v a n c e ra ise s th e q u e stio n o f w h a t c a u se d U n ite d S tate s im p o rts to rise so d ra m a tic a lly. A b re a k d o w n b y c o m m o d ity g ro u p s in T a b le I I in d ic a te s th a t ra w m a te ria ls h a v e a c c o u n te d fo r a b o u t o n e h a lf o f th e sizab le in c re a s e in im p o rts th a t h a s ta k e n p la c e sin ce 1 9 4 9, th e y e a r p re c e d in g th e p e rio d o f m o st ra p id a d v a n c e. T h is d e v e lo p m e n t is in lin e w ith a fu n d a m e n ta l sh ift in th is c o u n try s tr a d e s tru c tu re fro m a p o s itio n o f a n e x p o rte r to th a t o f a n e t im p o rte r o f c e r ta in ty p e s o f m a te ria ls. T h u s, fo r in sta n c e, im p o rts o f p e tro le u m a n d p ro d u c ts in creased fro m 4 78 m illion d o llars in 1949 to m o re th a n T a b l e I I U n i t e d S t a t e s I m p o r t s b y M a j o r C o m m o d i t y G r o u p s ( I n m i l l i o n s o f d o l l a r s ) I m p o r t s f o r c o n s u m p t i o n 1 9 4 9 1 9 5 5 P e r c e n t a g e in c r e a s e R a w m a t e r i a l s... 3, 2 7 4 5, 6 2 4 7 2 C r u d e m a t e r i a l s... 1, 8 5 6 2, 8 5 0 5 4 S e m i m a n u f a c t u r e s... 1, 4 1 8 2, 7 7 4 9 6 2, 0 7 4 3, 1 1 3 0 C r u d e f o o d s t u f f s... 1, 3 3 3 1, 9 9 7 5 0 M a n u f a c t u r e d f o o d s t u f f s... 7 4 1 1, 1 1 6 5 1 F i n i s h e d m a n u f a c t u r e s... 1, 2 4 6 2, 5 9 7 1 0 8 T o t a l... 6, 5 9 4 1 1, 3 3 4 7 2 S o u r c e : U. S. D e p a r t m e n t o f C o m m e r c e, Total Export and Import Trade of the United States, January-December 1955.

a b illio n in 1 9 5 5, a rise o f w ell o v e r 1 0 0 p e r cent. Im p o rts o f iro n o re d isp la y e d a n e v e n m o re ra p id ra te o f g ro w th sin ce th e y m o re th a n q u a d ru p le d in six y e a rs; th e d y n a m ic im p o rt tre n d fo r th is p a rtic u la r c o m m o d ity is illu s tra te d b y th e fa c t th a t th e g re a te s t in c re a s e b y fa r to o k p la c e d u r in g 1 9 5 5, a n d f u rth e r la rg e rise s a re c le a rly in sto re. Im p o rts o f c o p p e r d o u b le d in th e s ix -y e a r p e rio d u n d e r d iscussio n ; th o s e o f n ic k e l a n d a lu m in u m n e a rly tre b le d, w hile th e g ro u p o f n o n fe rro u s o re s a n d m e ta ls as a w h o le g rew b y a b o u t 7 0 p e r c e n t in v a lu e. L e d b y g re a te r c o n su m p tio n o f lu m b e r a n d n e w sp rin t, im p o rts o f w o o d a n d p a p e r p ro d u c ts in c re a s e d n e a rly 8 0 p e r c e n t. I n so m e in sta n c e s, n o ta b ly r u b b e r a n d c o p p e r, v irtu a lly th e e n tire in c re a s e in th e v a lu e o f im p o rts w as a ttrib u ta b le to s h a rp p ric e in c re a ses. I n g e n eral, h o w ev e r, v o lu m e ro se m o re th a n p ric e s. A m e ric a n c a p ita l p la y e d a p ro m in e n t ro le in d e v e lo p in g a b ro a d a d d itio n a l so u rces o f v ita l ra w m a te ria l im p o rts. W ith re g a rd to fo o d stu ffs a r a th e r d iffe re n t p a tte r n o f d e v e lo p m e n t c a n b e o b serv e d. A c c o rd in g to T a b le I I, c ru d e a n d m a n u fa c tu re d fo o d s w e re re s p o n s ib le fo r 2 2 p e r c e n t o f th e in c re a se in im p o rt v a lu e b e tw e e n 1 9 4 9 a n d 1 9 5 5, a b o u t tw o th ird s b e in g c o n trib u te d b y c ru d e fo o d s. T h e re is, h o w e v e r, a m a jo r s tru c tu ra l d ifferen c e w ith in th e fo o d g ro u p : b y f a r th e la rg e st p a r t o f th e in c re a se in th e im p o rt v a lu e o f c ru d e fo o d s is a c c o u n te d fo r b y ju s t tw o p ro d u c ts, co ffee a n d c o c o a ; o n th e o th e r h a n d, th e g ro w th o f m a n u fa c tu re d fo o d s a p p e a rs to b e s p re a d o v e r a w ide ran g e o f different item s. S ignificantly, th e im p o rt v o lu m e o f c ru d e fo o d s h a s n o t rise n sin ce 1 9 4 9 b u t d e c lin e d slig htly. T h is is in sh a rp c o n tra s t to all o th e r im p o rt c a te g o rie s; h e n c e, p ric e a d v a n c e s alo n e w e re re s p o n s ib le fo r th e in c re a s e o f 5 0 p e r c e n t in th e im p o rt v a lu e o f c ru d e fo o d s. S in ce co ffee a n d c o c o a a c c o u n t fo r su ch a la rg e p o rtio n o f o u r fo o d im p o rts, th e e x p la n a tio n fo r th e d iv e rg e n t b e h a v io r o f v o lu m e a n d p rices m a y b e so u g h t in th e m a rk e t d e v e lo p m e n ts o f th e se tw o c o m m o d itie s. I n fa c t, as o n e w o u ld su sp e c t, th e in c re a se in p ric e a n d th e sh rin k a g e in v o lu m e w e re closely related. C offee, o u r la rg e st single im p o rt, h a s a lo n g h is to ry o f so m e w h a t e rra tic p ric e m o v e m e n ts. B e tw e e n 1 9 5 2 a n d 1 9 5 4, fo r ex am p le, as a re s u lt o f ste e p p ric e in c re a ses, th e v a lu e o f co ffee im p o rts w e n t u p b y 8 p e r c e n t d e sp ite a 16 p e r c e n t fa ll in v o lu m e. I n 1 9 5 5, a fte r co ffee p ric e s c o lla p se d, th e re v e rse h a p p e n e d, w ith th e v a lu e o f im p o rts d o w n 9 p e r c e n t fro m th e p re v io u s y e a r a lth o u g h v o lu m e h a d rise n b y 15 p e r c e n t. I n th e case o f c o c o a im p o rts, v o lu m e h a s d e c lin e d ste a d ily sin ce 1 9 5 0 b u t a s h a rp p ric e rise in 1 9 5 4 p u s h e d th e ir v a lu e to 2 5 2 m illio n d o lla rs. W h e n th e p ric e d e c lin e d th e fo llo w in g y e a r, im p o rts d e creased to 185 m illion dollars. FEDERAL RESERVEBANK OFNEWYORK 99 T h e tre n d o f v o lu m e a n d p ric e s o f m a n u fa c tu re d fo o d stuffs w as v e ry d iffe re n t fro m th a t o f th e c ru d e fo o d s ju st d iscu ssed. T h e ir u n it p ric e s in c re a s e d fro m 1 9 4 9 to 1 9 5 5 o n ly v e ry little, less th a n 10 p e r c e n t, w h ile th e ir v o lu m e in c re a s e d a b o u t 4 0 p e r c e n t. I t d o e s n o t a p p e a r feasib le to a ttrib u te th is d e v e lo p m e n t to a n y o n e c o m m o d ity, a n d a tre n d to g re a te r c o n su m p tio n o f im p o rte d fo o d sp ecia lties o f m a n y k in d s a p p e a rs la rg e ly re s p o n s ib le. A d v a n c e s in fre ezin g te c h n iq u e s a n d facilitie s w e re p e rh a p s also a m a jo r c o n trib u tin g fa c to r, a n d o u r im p o rts o f fish, in c lu d in g sh ellfish, grew significantly, especially in th e la st tw o y ears. F in a lly, fin ish ed m a n u fa c tu re s a c c o u n te d fo r m o re th a n o n e fo u rth o f th e in c re a s e in im p o rts fro m 1 9 4 9 to 1 9 5 5, a n d th e ir v a lu e m o re th a n d o u b le d in th is tim e p e rio d. M o s t o f th is rise is d u e to a n in c re a s e in v o lu m e sin ce u n it v a lu es ro s e less th a n 10 p e r c e n t. I n p a rt, th is steep ly risin g tre n d reflects th e re c o v e ry o f E u r o p e s a n d J a p a n s c a p a c ity to p ro d u c e fro m a ra th e r lo w p o s tw a r lev el; to a c e rta in e x te n t, it m a y fo rm p a r t o f a lo n g -te rm tre n d re la te d to h ig h e r in c o m e s in th e U n ite d S ta te s a n d to th e effects o f lo w e r tariffs. I n a n y e v e n t, to g e th e r w ith th e ris in g tr e n d o f ra w m a te ria l im p o rts, th is in c re a s e o f im p o rts o f m a n u fa c tu re s c o n stitu te s a sig n ifican t d e v e lo p m e n t in th e s tru c tu re o f o u r im p o rts in th e p o s tw a r p e rio d. T h e G e o g r a p h i c D i s t r i b u t i o n o f I m p o r t s T h e 1 9 5 0 s h a v e w itn e sse d a re m a rk a b le sh ift in th e g e o g ra p h ic a l d is trib u tio n o f U n ite d S ta te s im p o rts ( T a b le I I I ). W e ste rn E u ro p e, so m e tim e s c o n sid e re d a s e c o n d a ry s u p p lie r as c o m p a re d w ith C a n a d a a n d L a tin A m e ric a, h a s b e e n th e m a in b e n e fic ia ry o f th e sizab le e x p a n s io n in o u r p u rc h a s e s a b ro a d. O f th e 4.8 b illio n d o lla r in c re a se in to ta l im p o rts th a t h a s o c c u rre d in th e la s t six y e a rs, 1.5 b illio n d o lla rs, a lm o st o n e th ir d o f th e o v e r-a ll rise, h a s a c c ru e d to th e c o u n trie s o f W e ste rn E u ro p e, e sp ecially su c h in d u stria liz e d c o u n trie s as th e B e n e lu x n a tio n s, F ra n c e, W est G e rm a n y, a n d th e U n ite d K in g d o m. T h e ra p id ly g ro w in g im p o rta n c e o f W e ste rn E u r o p e as a fo re m o s t su p p lie r to th e U n ite d S ta te s m a rk e t reflects th e su b - T a b l e I I I U n i t e d S t a t e s I m p o r t s b y S e l e c t e d A r e a s * ( I n m i l l i o n s o f d o l l a r s ) A r e a 1 9 4 9 1 9 5 5 G r o w t h ( p e r c e n t ) S h a r e in t o t a l i n c r e a s e ( p e r c e n t ) 1, 5 5 1 2, 6 5 2 7 1 2 3 L a t i n A m e r i c a n R e p u b l i c s 2, 3 0 1 3, 3 3 4 4 5 2 2 W e s t e r n E u r o p e t... 9 0 9 2, 3 9 2 1 6 3 3 1 A s i a a n d O c e a n i a... 1, 3 0 9 2, 0 4 5 5 6 1 5 3 3 8 6 1 9 8 3 6 O t h e r a r e a s +... 2 1 4 3 4 0 5 9 3 T o t a l... 6, 6 2 2 1 1, 3 8 2 7 2 1 0 0 * G e n e r a l i m p o r t s, f I n c l u d i n g Y u g o s l a v i a. t E u r o p e a n d e p e n d e n c ie s i n t h e W e s t e r n H e m i s p h e r e a n d t h e S o v i e t - b l o c c o u n t r i e s. S o u r c e : U. S. D e p a r t m e n t o f C o m m e r c e, Total Export and Import Trade of the United States, January-December 1955.

100 MONTHLY REVIEW, JULY 1956 Stantial rise in our imports of finished goods and processed foodstuffs, the principal export products of the area. Latin Am erica, while in value terms still this country s largest source of supply, did not participate in the expansion of our imports to the same extent as Western Europe, primarily because of the special factors affecting crude foodstuffs, mostly coffee. Latin Am erican sales in this market in the last six years rose slightly more than a billion dollars, approximately 2 2 per cent of the aggregate increase in United States imports. The aftermath of the sharp price rise in the coffee market in 1 9 5 4 adversely affected our imports from this area, particularly from Brazil, as Am erican importers curtailed their purchases. This development tended to obscure the favorable effects on imports from Latin Am erica of the growing demand here for petroleum, iron ore, nonferrous metals, and other industrial raw materials. In any event, during the last half year most imports from Latin Am erica displayed a rising trend. The share of Canada in the increase in total United States imports was only slightly greater than that of Latin Am erica. Since 19 4 9, our imports from Canada have risen 1. 1 billion dollars, equivalent to 2 3 per cent of the total increase in our imports. Even during the 1 9 5 3-5 4 recession some compensating tendencies prevented any pronounced decline in Canadian sales to the Am erican market; as our imports of Canadian mineral products fell, our purchases of Canadian wood products were well maintained. The countries of A sia and Oceania accounted for about 1 5 per cent of the expansion in United States imports in this period. Fluctuations in United States demand for rubber, tin, and wool, our principal imports from this area, tended to limit that area s participation in the import rise. C o n c l u d in g R e m a r k s The rise in United States imports since the immediate postwar years has approximated, if not surpassed, expectations. While setbacks have not been altogether absent, the over-all development m ay to some extent allay doubts abroad about the long-run benefits to the rest of the world of an expansion of the Am erican economy. It points up the increasing reliance of this country on foreign suppliers for many commodities essential to our economic growth; this is clearly reflected in a change of the commodity structure and geographic distribution of our import trade. Imports of petroleum, iron ore, nonferrous metals, and other raw materials have risen substantially as the rise in domestic production failed to keep up with demand. Higher incomes and changing consumption patterns have stimulated larger imports of finished goods and manufactured foodstuffs. Crude foods have not fared quite so well, primarily because of special developments affecting the price and quantity of coffee and cocoa imports. Western Europe has been the largest beneficiary of the import rise, but Canada has well maintained its position as a supplier of the United States throughout the postwar period, and the countries of Latin Am erica and other areas also have shared substantially in the growth of this country s import trade. BUSINESS LOANS AT SECOND INTEREST RATES AND The survey of commercial and industrial loans of member banks of the Federal Reserve System, conducted last autumn, obtained information on various characteristics of business loans outstanding on October 5, 1 9 5 5. The M ay and June issues of this Review included articles which described the purpose and methodology of the survey and the postwar trends in business loans at Second District member banks. They also discussed some of the characteristics of the loans outstanding on October 5, 1 9 5 5 and analyzed the changes since November 20, 19 4 6, the previous survey date, in the number and dollar amount of loans classified by business of borrower, by size of bank, and by maturity of loan. The present article summarizes the findings of the survey with respect to the changes in loans outstanding classified by assets of borrower and changes in interest rates charged. DISTRICT MEMBER BANKS: SIZE OF BORROW ER The number and dollar amount of loans made by Second District member banks to all size-groups of business enterprises increased between 19 4 6 and 1 9 5 5. There was a relatively larger increase in loans to businesses with assets of $50,0 0 0 to 5 million dollars but a relative decline in importance of loans to those with assets of under $50,0 0 0. These shifts probably reflect in part an increase in the number of intermediate-sized businesses as many smaller firms have grown in size over the decade. Rates charged on all types of business loans at banks in this District increased between 19 4 6 and 1 9 5 5, along with interest rates in general, although average rates in the Second District continued to be somewhat lower than those in the country as a whole for each industry group. Fo r the Second District the average rate on loans outstanding on the survey date in 19 4 6 was 2.3 per cent;

FEDERAL RESERVE BANK OF NEW YORK 101 in 1 9 5 5 it was 3.8 per cent. The survey also indicated that between November 19 4 6 and October 1 9 5 5 there was a narrowing of the spread between rates for shortterm and long-term loans,1 primarily as a result of a marked increase in rates charged large businesses for short-term loans. The survey further indicated a continuing inverse correlation between interest rates and the size of borrower and the size of bank.2 C h a n g e s in L o a n s b y A s s e t Siz e o f B o r r o w e r Loans made by Second District member banks to businesses of all size-groups increased both in number of loans and in dollar amount between 19 4 6 and 1 9 5 5. However, as shown in the accompanying chart, the largest relative increases occurred in loans to businesses with assets of $ 2 5 0,0 0 0 to 5 million dollars. In 19 4 6 loans to businesses of this size accounted for 18 per cent of the total dollar amount of loans outstanding and for 8 per cent of the total number of loans; in 1 9 5 5 they accounted for 2 4 per cent of the dollar amount and 1 2 per cent of the number. The proportion of total loans made to businesses in the larger- sized group showed little change in either dollar amount or number. The smallest asset size-group (under $50,0 0 0 ) accounted for almost two thirds of the total number of loans outstanding in 19 4 6, but in 1 9 5 5 it accounted for not much more than half the total number. Dollarwise, loans to these companies accounted for 5 per cent of the total in 19 4 6 and 3 per cent in 1 9 5 5. The decline in importance of bank loans to this size-group reflects in part the probable decline in the relative number of businesses with assets of less than $50,0 0 0. This decline in turn reflects not only the merger movement but the price rise in the interval between surveys and the resulting upward evaluation of business assets as depreciated equipment and other assets were replaced or newly acquired at higher prices. Some of the business borrowers classified in this group in 19 4 6 have most likely shifted to the next higher asset size-group. The percentage of total outstanding loans to the latter group increased from 2 2 per cent in 19 4 6 to 3 2 per cent in 19 5 5, although on both survey dates the amount of loans to these businesses represented about 8 per cent of the total dollar volume. The businesses with assets of 5 million dollars or more continued to account for almost two thirds of the total dollar volume of funds loaned by member banks in the District to industry, and for approximately 3 per cent of the total number of such loans. 1 Long-term loans are defined as loans with an original maturity of more than one year. 2 Collateral is undoubtedly also a factor in determining interest rates, but the information derived from the survey on collateral has not yet been tabulated. It will be discussed in a future article. The trend of interest rates between 19 4 6 and 1 9 5 5 generally was upward, and the spread between yields on short-term open market paper and long-term securities narrowed. The upward trend was interrupted briefly during the recession period of 19 4 9-5 0 and to a more important degree in 1 9 5 3-5 4, but toward the end of 1 9 5 4 interest rates began to rise again and by the fall of 1 9 5 5 were in most cases approaching the highs reached in the first half of 1 9 5 3. Interest rates charged by Second District banks on business loans apparently underwent similar changes between the two loan surveys. C h a n g e s i n I n t e r e s t R a t e s The average interest rate on all business loans outstanding on November 20, 19 4 6 was 2.3 per cent, with short-term loans carrying an average charge of 2.1 per cent and long-term loans, 2.5 per cent. B y October 5, 1 9 5 5 the average rates for long and shortterm business loans outstanding at Second District member banks both had risen to 3.8 per cent. Since the survey covered outstanding loans, rather than new loans extended, the average interest rate figures derived from the survey do not reflect precisely the prevailing interest rate structure and the differentials among rates for various types of loans as of October 5, 1 9 5 5. If interest rates had been stable for a relatively long period o f time, the current rate structure and the average rates on outstanding loans would be almost identical; but, when rates rise, average long-term rates are slower than short- PERCENTAGE INCREASES IN BUSINESS LOANS BETWEEN 1946 AND 1955 AT SECOND DISTRICT MEMBER BANKS Asse ts of borrower In thousands Under$50 $50 to $250 $250 to $5,000 $5,000 and over All borrowers* Under $50 $50 to $250 $250 to $5,000 $5,000 and over All borrowers * W////A W/////M/////M Dollar amount of loans WM//////////M,% % Number of loans 50 100 150 2 0 0 2 5 0 Percentage increase * Includes a small amount of loans not classified by asset size of borrower.

102 MONTHLY REVIEW, JULY 1956 term rates to reflect the higher current levels. F o r almost a decade before the 19 4 6 loan survey, the banks prime loan rate had been steady, but in August 1 9 5 5, just two months prior to the survey date, the prime rate was raised from 3 to 3 ^ per cent. Although there probably was some lag in the increase shown in the average long-term rate as indicated by the survey, there is little doubt that the differential between long and short-term bank rates narrowed between the survey dates. Changes in yields on commercial paper and corporate bonds for the same period reflect a similar trend. The prime 4-to-6 months commercial paper rate was 1.4 percentage points higher on the average in 1 9 5 5 than in 19 4 6, but M oody s corporate bond yields rose by only 0.5 percentage points. I n t e r e s t R a t e s b y A sse ts o f B o r r o w e r Average interest rates by assets of borrower and term of loan for the 19 4 6 and 1 9 5 5 survey dates are shown in Table I. A n inverse correlation between size of borrower and rate is evident in both years. The table also indicates, however, that the relative increase in the average rate for both long and short-term loans was greater for loans to the larger borrowers. In fact, for the group of businesses with assets of 5 million dollars or more, the average rate for all loans nearly doubled, rising from 1.8 to 3.4 per cent. M oreover, the narrowing in the difference in rates charged on long and short-term loans, mentioned previously, also is evident in a greater rise in short-term rates than in long-term rates for all borrowers except those with assets of less than $50,000. In Table II the structure of rates on October 5, 1 9 5 5 by size of bank as well as by assets of borrower is shown. It indicates that in general there is an inverse correlation between size of bank and interest rate as well as between size of borrower and interest rate. This correlation between interest rates and size of bank does not, however, Table I Average Interest Rates Charged on Business Loans Outstanding on November 20, 1946 and October 5, 1955 at Member Banks in the Second Federal Reserve District by Size of Borrower and Maturity of Loan (Per cent per annum) Assets of borrower (in thousands) All loans Short-term loans Long-term loans 1946 1955 1946 1955 1946 1955 Less than $50... 4.5 5.8 4.3 5.4 4.7 6.2 $50 to $250... 3.9 4.9 3.6 4.8 4.1 5.2 $250 to $5,000... 2.8 4.2 2.6 4.1 3.1 4.4 $5,000 and over... 1.8 3.4 1.6 3.4 2.0 3.4 Total, all borrowers*. 2.3 3.8 2.1 3.8 2.5 3.8 Note: Short-term loans are demand loans and those with an original maturity of one year or less. Long-term loans are those with an original maturity of more than one year. * Includes a small number of loans not classified by asset size of borrower. hold in all cases. In fact, for the smaller size-groups of borrowers, those with assets of less than $50,0 0 0 and from $50,0 0 0 to $2 5 0,0 0 0 long-term rates showed an opposite tendency and were usually higher at the largest banks than at the smaller banks. This anomaly probably arises from the fact that at the very large banks loans to small businesses are frequently instalment credits which are carried in consumer loan departments or treated like consumer loans. A somewhat higher rate usually prevails on this type of long-term accommodation than on regular business loans. Furthermore, of all long-term loans made by Second District member banks to businesses with assets of less than $50,0 0 0, over half, averaging $2,0 0 0 each, were made by banks with deposits of 1 billion dollars or more. I n t e r e s t R a t e s b y M a t u r it y o f L o a n a n d b y Siz e a n d B u sin e ss o f B o r r o w e r Average interest rates on outstanding loans to each of the major business categories in the Second District and the country as a whole are compared in Table H I. The average rates for each type of business on both long-term Table II Average Interest Rates Charged on Business Loans at Member Banks in the Second Federal Reserve District by Maturity of Loan, Size of Borrower, and Size of Bank, October 5, 1955 (Per cent per annum) Assets of borrower (in thousands) All member banks Banks 'with total deposits, in millions, as of June 30, 1955 Under $10 $10 to $50 $50 to $100 $100 to $500 $500 to $1,000 $1,000 and over Less than $50... 5.4 6.2 5.7 5.7 5.5 5.5 5.2 6.8 5.5 7.1 5.5 5.7 5.1 6.2 $50 to $ 2 5 0... 4.8 5.2 5.3 5.2 4.9 5.0 4.9 5.3 4.9 5.5 5.1 4.8 4.6 5.3 $250 to $1,000... 4.4 4.7 5.1 5.0 4.7 5.0 4 7 4.7 4.5 4.8 4.8 4.5 4.2 4.6 $1,000 to $5,000... 3.9 4.2 4.0 >i< 4.3 4.7 4^3 4.6 4.1 4.8 4.1 4.1 3.8 4.1 $5,000 to $25,000... 3.6 3.9 * * 3.7 4.0 3.9 4.0 3.8 4.1 3.6 3.8 3.6 3.9 $25,000 to $100,000... 3.4 3.5 * 3.5 3.7 * 3.4 2.9 3.2 3.4 3.4 3.5 $100,000 and over... 3.2 3.1 * 3.7 3.3 * 3.3 4.1 3.2 3.1 3.2 3.1 3.2 3.1 Total, all borrowersf... 3.8 3.8 5.3 5.4 4.8 5.1 4.6 5.2 4.2 4.6 3.6 3.6 3.6 3.6 Note: Short-term loans are demand loans and those with an original maturity of one year or less. Long-term loans are those with an original maturity of more than one year. * Too few loans reported to yield a representative interest rate for the group; these are included in the relevant group averages, however, f Includes a small number of loans not classified by asset size of borrower.

and short-term credits were lower in the Second District than in the country as a whole, but the rate differential between the averages was in most cases 0.5 percentage points or less. A significant portion of the loans of Second District banks are made to large, national corporations who are usually prime risks and borrow relatively large amounts. This is an important factor in bringing this District s average loan rate below that for the country as a whole. Fo r all member banks, the average rate on both long-term and short-term business loans outstanding on October 5, 1 9 5 5 was 4.2 per cent, compared with 3.8 per cent in the Second District. The range of variation among average interest rates for the various business categories was somewhat wider on long-term loans than on short-term credits.3 FEDERAL RESERVE BANK OF NEW YORK 103 The lowest average interest charge on short-term loans at Second District banks was the 3.3 per cent charged to sales finance companies and the highest was 4.6 per cent paid by construction companies, a difference of 1.3 percentage points. F o r long-term loans the lowest average was 3.5 per cent (for food, liquor, and tobacco, and petroleum, coal, chemical, and rubber companies, and for commodity dealers and transportation, communication, and other public utilities firms) and the highest was 5.3 per cent for construction firms, a difference of 1.8 percentage points. 3 These rates do not take into account the effect of any compensating balance requirements on actual interest costs. Table III Average Interest Rates Charged on Member Bank Business Loans in the United States and in the Second District by Business of Borrower and Maturity of Loan, October 5, 1955 (Per cent per annum) Business of borrower United States All loans Short-term loans Long-term loans Second District United States Second District United States Second District Manufacturing and mining total.. 4.0 3.7 4.1 3.8 4.0 3.6 Food, liquor, and tobacco... 3.8 3.5 3.8 3.5 3.9 3.5 Textiles, apparel, and leather... Metal and metal products*... 4.0 4.1 3.8 3.7 3.9 4.1 3.8 3.8 4.0 4-1 3.8 3.7 Petroleum, coal, chemicals, and rubber... 3.9 3.5 4.2 3.6 3.8 3.5 All other manufacturing and 4.3 3.9 4.4 4.1 4.1 3.6 4.6 4.3 4.6 4.3 4.8 4 3 Wholesale trade... 4.5 4.3 4.5 4.2 4.8 4.4. Retail trade... 4.7 4.3 4.7 4.3 4.8 4.3 4.2 3.8 4.2 3.8 4.3 3.9 Commodity dealers... 3.7 3.5 3.7 3.5 4.3 3.5 Sales finance companies t... 3.6 3.4 3.5 3.9 3.7 Transportation, communication, and other public utilities... 3.6 3.4 3.6 3.4 3.7 3.5 Construction (including operative builders)... 5.0 4.8 4.8 4.6 5.7 5.3 Real estate... 4.5 4.2 4.5 4.1 4.5 4.4 Service firms#... 5.1 4.6 4.8 4.4 5.3 4.8 All other borrowers... 4.3 4.0 4.2 3.9 4.6 4.2 Total, all borrowers... 4.2 3.8 4.2 3.8 4.2 3.8 Note: Short-term loans are demand loans and those with an original maturity of one year or less. Long-term loans are those with an original maturity of more than one year. * Includes iron, steel, and nonferrous metals and their products; electrical and other machinery; and automobiles and other transportation equipment and parts, t Includes lumber, furniture, paper, printing and publishing, and stone, clay, and glass, j Firms primarily engaged in financing retail sales made on the instalment plan. Includes real estate operators, owners, agents, brokers, and subdividers and developers of real property. Includes hotels, repair services, amusements, personal and domestic services, and medical, legal, and other professional services. Table IV Average Interest Rates Charged on Business Loans at Member Banks in the Second Federal Reserve District by Business of Borrower, Assets of Borrower, and Maturity of Loan, October 5, 1955 (Per cent per annum) Assets of borrower, in thousands Business of borrower All borrowers Less than $50 $50 to $250 $250 to $1,000 $1,000 to $5,000 $5,000 to $25,000 $25,000 to $100,000 $100,000 and over Manufacturing and mining total. 3.8 3.6 5.3 6.1 4.8 5.3 4.4 4.9 3.9 4.2 3.6 3.9 3.4 3.5 3.2 3.2 Food, liquor, and tobacco.. 3.5 3.5 5.5 6.2 4.8 5.1 4.6 4.6 4.0 4.4 3.5 3.6 3.3 3.7 3.2 3.0 Textiles, apparel, and leather... 3.8 3.8 5.1 6.1 4.7 5.2 4.2 4.9 3.7 4.2 3.4 3.9 3.4 3.6 3.3 3.3 Metal and metal products*. 3.8 3.7 5.5 6.2 5.1 5.4 4.7 5.0 4.1 4.4 3.6 3.7 3.6 3.2 3.2 3.6 Petroleum, coal, chemicals, and rubber... 3.6 3.5 5.7 4.9 5.2 5.1 4.3 4.4 4.0 4.1 3.8 4.0 3.3 3.6 3.2 2.9 All other manufacturing and mining f... 4.1 * * 3.6 5.5 6.2 5.0 5.3 4.5 5.2 3.9 4.0 3.7 3.6 3.3 3.3 3.3 3.0 Trade total... 4.3 4.3 5.5 6.3 4.9 5.2 4.5 4.9 4.0 3.8 3.6 3.7 3.3 3.1 3.2 2.9 Wholesale trade... 4.2 4.4 5.3 6.7 4.8 5.6 4.4 5.0 4.0 3.8 3.5 4.0 3.3 3.7 3.1 3.6 Retail trade... 4.3 4.3 5.5 6.2 4.9 5.1 4.5 4.8 3.9 3.9 3.6 3.7 3.3 2.6 3.2 2.9 Other total... 3.8 3.9 5.4 6.2 4.8 5.2 4.4 4.6 3.9 4.4 3.6 4.0 3.4 3.5 3.2 3.1 Commodity dealers... 3.5 3.5 5.1 t t 4.6 t t 3.7 t t 3.5 3.4 3.4 t t 3.4 t t Sales finance companies^... 3.3 3.7 4.7 t t 4.4 4.9 4.5 t t 4.1 Transportation, communication, 3.6 3.6 3.2 t t 3.2 3.3 and other public utilities... 3.4 3.5 5.8 6.6 4.8 5.1 4.8 4.3 3.7 4.1 3.5 4.0 3.3 3.4 3.2 3.0 Construction (including operative builders)... 4.6 5.3 5.6 8.1 5.1 5.8 4.7 5.6 4.4 5.1 4.0 4.4 t t 4.3 3.9 Real estate... 4.1 4.4 4.9 5.6 4.5 4.9 4.3 4.6 3.9 4.4 4.0 3.9 4.2 t t t t 4.2 Service firms#... 4.4 4.8 5.5 6.1 4.9 5.3 4.4 5.2 3.7 4.9 3.4 4.0 3.4 3.7 3.3 3.5 All other borrowers... 3.9 4.2 5.3 5.7 4.5 5.2 4.4 4.0 3.9 4.0 3.3 4.0 3.2 3.8 t t t t Total, all borrowers... 3.8 * * 3.8 5.4 6.2 4.8 5.2 4.4 4.7 3.9 4.2 3.6 3.9 3.4 3.5 3.2 3.1 Note: For other footnotes, see Table III. ** Includes a small number of loans not classified by asset size of borrower. f t Too few loans reported to yield a representative interest rate for the category; these are included in the relevant group averages, however.

104 MONTHLY REVIEW, JULY 1956 Within each industry category (Table I V ), the inverse relationship between asset size and rate was evident, but the difference between rates charged small and large businesses was less on short-term loans than on long-term loans. The smallest spread between rates for short-term loans, 1 percentage point, occurred in real estate, and the widest spread, 2.6 percentage points, was in the transportation, communication, and other public utilities category. On long-term loans, the narrowest spread in borrowing rates among asset size-groups was for the sales finance companies and was 1.6 percentage points. Construction firms were subject to the widest variation in rate between small and large enterprises, 3.8 percentage points. Within each assets group, manufacturing and mining firms were charged the same or higher rates for long-term as for short-term loans. Fo r these borrowers as a group, however, average rates on long-term loans were slightly below those on short-term loans because of the greater weight in the average of long-term, low-interest loans to large borrowers. EARNINGS AND EXPENSES OF COMMERCIAL BANK TRUST DEPARTMENTS IN NEW YORK AND NEW JERSEY A survey of trust department earnings and expenses of commercial banks in N ew Y o rk and N ew Jersey in 1 9 5 5 has been prepared by the Federal Reserve Bank of N ew Y o rk. The results of the survey are available on request from the Bank Examinations Department of this Bank. SELECTED ECONOMIC INDICATORS United States and Second Federal Reserve District Item Unit 1956 1955 M ay April March M ay Percentage change Latest month Latest month from previous from year month earlier U N IT E D ST A T E S Production and trade _ Industrial production*... 1947-49 - 100 142p 143 141 138-1 + 3 Electric power output*... 1947-49 = 100 217 215 215 194 + 1 + 12 Ton-miles of railway freight*... Manufacturers' sales*... Manufacturers inventories*... 1947-49 = 100 113p 106 106 + 7 + 13 billions of $ 27.7 v 27.2 27.1 26.7 + 2 + 4 billions of $ 4 8.6p 48.0 47.4 43.5 + 1 + 12 Manufacturers new orders, total*... billions of $ 2 8.7 p 2 7.8 26.9 27.7 + 3 + 4 Manufacturers new orders, durable goods*... billions of $ 14.7 p 14.1 13.3 14.3 + 4 + 3 Retail sales*... billions of $ 1 5.5p 15.7 1 5.4-1 + 1 Residential construction contracts*... 1947-49 = 100 301p 315 317 280-4 + 8 Nonresidential construction contracts*... 1947-49 =* 100 234p 252 267 221-7 + 0 Prices, wages, and employment Basic commodity pricesf... 1947-49 = 100 9 0.4 9 1.8 8 9.7 8 9.2-2 + 1 Wholesale pricest... 1947-49= 100 1 1 4.3p 113.6 112.8 109.9 + 1 + 4 Consumer pricesf... 1947-49= 100 115.4 114.9 114.7 114.2 # + 1 Personal income (annual rate)*... billions of $ 3 1 7.Ip 3 1 5.2 3 0 1.4 + 1 + 6 Composite index of wages and salaries*... 1947-49= 100 147p 146 141 + 1 + 5 Nonagricultural em ploym ent*!... thousands 5 1,256p 51,281p 51,057 49,748 + 3 Manufacturing employment*j... thousands 1 6,834p 1 6,906p 16,804 16,527 # + 2 Average hours worked per week, manufacturingf... hours 40. Op 4 0.3 4 0.4 4 0.8-1 - 2 Unemployment... thousands 2,608 2,564 2,834 2,489 + 2 + 5 Banking and finance Total investments of all commercial banks... millions of S 73,570p 74,700p 7 5,180p 81,720-2 - 3 0 Total loans of all commercial banks... millions of $ 8 6,030p 8 5,340p 84,730p 73,850 + 1 + 16 Total demand deposits adjusted... millions of $ 1 0 4,190p 1 0 6,llOp 1 0 4,360p 103,330 ~ 2 + 1 Currency outside the Treasury and Federal Reserve Banks*. millions of $ 30,628p 30,551 30,531 30,163 # + 2 Bank debits (337 centers)*... millions of $ 79,756 75,548 73,517 71,065r + 6 + 12 Velocity of demand deposits (337 centers)*... 1947-49= 100 138.1 138.8 130.6 131.3-1 + 5 28,260 27,964 + 2 0 Consumer instalment credit outstandingf... millions of $ 24,149 + 1 United States Government finance (other than borrowing) Cash income... millions of $ 6,879 4,3 6 8 12,351 5,547 + 5 7 + 24 Cash outgo... millions of $ 6,2 0 0 5,428 6,149 6,278 + 1 4-1 National defense expenditures... millions of $ 3,444 3,009 3,396 3, 245r + 14 + 6 SE C O N D F E D E R A L R E SE R V E D IS T R IC T Electric power output (New York and New Jersey)*... 1947-49= 100 153 157 156 144-3 + 6 Residential construction contracts*... 1947-49= 100 284 275 212 + 3 + 2 6 Nonresidential construction contracts*... 1947-49= 100 270 34S 249 22 + 2 1 Consumer prices (New York C ity )f... 1947-49= 100 113.0 112.3 112.2 111.8 + 1 + 1 Nonagricultural employment*... thousands 7,7 0 5.6 p 7,6 7 8.2 7,6 4 9.5 7,5 8 9. 5r # + 2 Manufacturing employment*... thousands 2,6 7 9.5 p 2,670.0 2,649.2 2,6 5 9.6r # + 1 Bank debits (New York C ity)*... millions of $ 70,869 65,715 69,070 63,481 + 8 + 12 Bank debits (Second District excluding New York City )*... millions of $ 5,170 5,072 4,795 4,606 + 2 + 12 Velocity of demand deposits (New York C ity)*... 1947-49= 100 180.2 176.0 175.6 167.2 + 2 + 8 1947-49= 100 110 104 107 104 + 6 + 6 Department store stocks*... 1947-49 = 100 123 124 122 113r - 1 + 9 Note: Latest data available as of noon, June 29, 1956. p Preliminary. r Revised. t Revised series. Back data available from U. S. Bureau cf Labor Statistics. * Adjusted for seasonal variation. # Change of less than 0.5 per cent, t Seasonal variations believed to be minor; no adjustment made. Seasonal factors revised back through 1938. Source: A description of these series and their sources is available from the Domestic Research Division, Federal Reserve Bank of New York, on request.