Greenbook/Tealbook

Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optical character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. Content last modified 6/05/2009. CONFIDENTIAL (FR) SUPPLEiENT CURRENT ECONOMIC AND FINAUCIAL CONDITIONS Prepared for the Federal Open Narket Committee By the Staff Board of Governors of the Federal Reserve System July 9, 1965 SA - SUPPLEMENTAL APPENDIX A: 1 SURVEY OF BANK LENDING PRACTICES. JUNE 1965 The results of the fourth quarterly survey of changes in bank lending practices are summarized in tables. the following paragraphs and accompanying Reports were received from the 81 banks included in the quarterly interest rate survey. Three-fifths of the respondents (49 out of 81 banks) reported that demand for commercial and industrial loans had strengthened in the second quarter. Over half of these had indicated greater loan demand in 1965 as well. the first quarter of The widespread and sustained nature of the loan demand is dicated by the fact that only a sixth of the banks in in- the survey failed to show stronger loan demand in at least one of the past four quarters and about the same proportion reported stronger demand in all four quarters. Accompanying the heavy demand for loans, many banks firmed their lending policies in various ways. In the second quarter, half of the banks raised interest rates to business borrowers (presumably by reducing the number of firms eligible for the prime rate as well by raising rates to borrowers in the non-prime category), the first quarter. but this was a somewhat smaller proportion than in More than half of the banks raising rates also firmed their compensating balance requirements. Another 6 per cent firmed compensating balance requirements but made no change in interest rates. Fewer banks reported firmer policies with respect to other terms and conditions of the loan than for interest rates and compensating balances. Higher standards of credit-worthiness were imposed on business borrowers by one-fourth of the banks while about one-sixth of the total instituted firmer policies on collateral and maturity of loans. In each of these categories the SA - 2 the proportions were appreciably higher than in the first quarter. Compared to a year ago, fifths of the survey banks, interest rates were firmed by nearly four- with 12 per cent of the total firming rates in all four quarters and another 10 per cent in addition, three of the quarters. In two-thirds of the banks that firmed interest rates also tightened compensating balance requirements over the past year. The magnitudes of the increases in rates and in balance requirements and the proportions of borrowers affected, however, are not revealed by the Survey. Some classes of borrowers were affected more than others by the tightening of lending standards in the second quarter of this year. In re- viewing lines of credit or loan applications nearly half of the survey banks (two-thirds more than in the first quarter) had established firmer policies for new business borrowers and most of these had also firmed their policies with respect to loans to non-local service area customers. As in previous surveys, few banks indicated that they had firmed policies for established customers, As a result of the increased demand for loans, one bank commented that it had found it necessary to reserve loanable funds for seasonal borrowers and regular customers, while another had needed to turn down some good quality applications. Several banks commented on the influence on lending policies of the high level of their loan-deposit ratios, and one of the largest banks in the country indicated that it had tightened its lending standards because it did not wish to go beyond its present ratio. Two-fifths of the banks--half again as many as in the March Survey-reported that the applicant's value to the bank as a depositor or source of SA - 3 collateral business was a more important consideration than earlier. By contrast, only one-fifth of the banks--somewhat fewer than in March--stated that the applicant's intended use of the loan proceeds was more important than formerly. A fifth of the banks reported that they were less aggressive than formerly in seeking new loans (a higher percentage than in any previous survey) and nearly all of these were banks that had experienced strengthened mand in two or more quarters of the past year. Likewise, loan de- a sixth reported less willingness to make term loans and nearly all of these indicated strengthened loan demand in the second quarter and many in earlier quarters as well. As reported in previous surveys, finance companies were less affect- ed by firming of lending standards than non-financial businesses. Only 12 per cent of the banks had firmed their policies on interest rates and on size of compensating balance requirements for finance companies in the second quarter and only one-fourth had done so over the past year. These changes are be- lieved to have affected principally the smaller finance companies. Interest rates and size of compensating balance requirements applicable to large finance companies operating on a nation-wide basis presumably are determined for the most part by the big money market banks, which have reported few changes in these terms. However, in enforcing balance requirements and granting new or larger credit lines to finance companies, where smaller banks appear to have somewhat more leeway, the number of banks with firmer policies in the second quarter was greater--about one-fourth and one-third of the total respectively. for quotation or publication July 2, 1965. U. S. Total 81 Large Banks Survey of Changes in Bank Lending Practices March-June 1965 and June 1964-June 1965 (Numbers of banks) Lending to Nonfinancial Businesses COMPARED TO 3 MOS. Stronger 1. Strength of loan demand 49 Greater 2. 3. Aggressiveness of bank in seeking new loans 5 Factors considered in deciding whether to approve credit requests: More important Weaker AGO COMPARED TO 1 YRL Unchanged Stronger Weaker 28 4 Less 60 Less importaint Unchanged 14 Unchanged 16 AGO Unchanged Greater 16 Unchanged Less 41 24 More Less important important Unchanged' Applicant's value to the bank as a depositor or source of collateral business 48 51 2 28 Applicant's intended use of loan proceeds 4. 50 Practices with respect to reviewing lines of credit or loan applications of: Firmer Established customers 4 New customers 36 Local service area customer s 8 Nonlocal service area customers 5. Terms and conditions of loans: Firmer Interest rates Compensating or supporting balances Standards of credit-worthiness Type and amount of collateral Maturity 40 28 22 12 1-, Easier 1 - Easier Unchanged 77 44 72 Unchanged Unchanged Firmer Easier 15 50 18 I 3 65 28 62 36 1 41 Easier Unchanged Firmer 63 - 18 - 2- COMPARED TO 3 MOS. AGO 6. Term loans More willing Willingness to make Less willing 13 Longer Shorter COMPARED TO 1 YR. AGO Unchanged More willing 67 6 24 Longer Shorter Unchanged Less willing Unchanged 50 Unchanged Maximum maturity bank will approve Years Number of banks 3 5 6 7 8 10 5 41 1 11 5 5 13 n. a. Lending to Finance Companies Firmer Interest rates Size of compensating or supporting balances required Enforcement of balance requirements Establishing new or larger credit lines Source: Easier Unchanged Firmer Easier Unchanged 59 21 5 29 4 Survey of Lending Practices at Large Banks in the Federal Reserve Quarterly Interest Rate Survey conducted as of June 15, 1965. 54 

Federal Reserve (1965, July 12). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19650713_part1

@misc{wtfs_greenbook_19650713_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1965},
  month = {Jul},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19650713_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}