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) SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee March 17, 1972 By the Staff Board of Governors of the Federal Reserve System SUPPLEMENTAL NOTES The Domestic Economy Housing starts. Seasonally adjusted private housing starts rose to a record annual rate of 2.7 million units in February--8 per cent above the downward revised January rate. The sharp further rise in starts, which may have been heightened by seasonal adjustment problems,.was concentrated entirely in structures containing 2-or-morefamily units. Unlike starts, building permits held at a rate slightly below the advanced fourth quarter average. Given the unexpectedly high starts rate in February, the first quarter average is likely to be above the rate projected in the Greenbook. PRIVATE HOUSING STARTS AND PERMITS (Seasonally adjusted annual rate, in millions of units) 1971 Starts 1-family 2-or-more family Permits 1972 Jan.(p) Feb.(p) QII QIII QIV 2.00 2.11 2.24 2.47 2.68 1.14 .86 1.18 .94 1.25 .99 1.41 1.06 1.32 1.36 1.80 1.99 2.14 2.10 2.11 .53 .51 .55 n.a. n.a. MEMORANDUM: Mobile home shipments .49 .49 .53 .51 .55 -2Unit auto sales. Sales of new domestic-type autos in the first 10-day period of March were at an annual rate of 7.7 million units, down 6 per cent from a year ago. The decline from 1971 reflected both the ending last month of sales incentive programs by four major car-making divisions and the fact that last year GM cars were becoming more plentiful after the strike. In the first 7 report- ing periods of 1972, sales averaged 8.4 million units--only slightly above the 8.3 million rate over the same period of 1971. Personal income. Personal income increased nearly $5 billion in February to a seasonally adjusted rate of about $897 billion. The slowing from the $8 billion (revised) increase of January was concentrated in wages and salaries, with the rise in disbursements only half as large as in January. In January, government payrolls had been boosted by a pay increase for the military and for civilian workers, totaling $2 billion. The moderation of expansion in private industry payrolls in February reflected a much smaller increase in employment, with both employment and payrolls down in construction. In manufactur- ing, however, the $1.7 billion gain in payrolls was much larger than in January, reflecting mainly a rebound in hours of work. Aside from the continued increase in transfer payments, other components of nonwage income increased relatively little. -3PERSONAL INCOME (Seasonally adjusted, annual rates, billions of dollars) 1972 1972 Dec. Total Wage and salary disbursements Government Private Manufacturing Distributive Services Other Less: 1971 Jan. Feb. 883.9 892.0 896.9 4.9 594.8 602.1 605.8 3.7 128.8 131.8 .6 474.0 165.3 144.7 109.9 46.1 131.2 470.9 165.8 146.3 111.4 47.4 3.1 1.7 1.2 46.9 -.5 321.0 323.7 325.1 1.4 32.0 33.9 34.0 .1 466.0 Nonwage income Personal contributions for social insurance Industrial relations. Net Change Jan. 1972Feb. 1972 167.5 147.5 112.1 .7 The Pay Board on March 16, by a vote of 8 to 5, rejected the first-stage wage and benefit increase of 20.6 per cent provided by the West Coast longshoremen's settlement retroactive to December 25, 1971. In order to win the Pay Board's approval, the first-stage increase would have to be reduced to 14.9 per cent. The cut-back is in wage rates, which are permitted to increase 10 per cent. The remainder of the increase is in fringe benefits, pensions and life insurance. including The Pay Board also authorized its Chairman to approve the second-stage 7 per cent package increase scheduled to go into effect on July 1, 1972. -4- The Domestic Financial Situation Corporate profits. According to Bureau of Economic Analysis (Commerce) published estimates, corporate profits before tax in the fourth quarter of 1971 were at a seasonally adjusted annual rate of $86.2 billion, up $.4 billion from the preceding quarter and $14.6 billion above (20 per cent) a year earlier. For 1971 as a whole before tax profits totaled $85.5 billion, $10.1 billion (13.4 per cent) more than in the preceding year. Corporate profits originating in the rest of the world rose by $1 billion in the fourth quarter of 1971, and corporate profits before tax exclusive of these, were off $0.6 billion. Mainly because of liberalization of depreciation allowances and the restoration of the investment tax credit, after tax profits, including those originating in the rest of the world, rose $1.6 billion in the fourth quarter and were $10.6 billion (27 per cent) above a year earlier. In the fourth quarter, dividends did not rise seasonally because of cutbacks in year-end payments, and undistributed profits rose $2 billion to a rate $10.3 billion above a year earlier. Corporate cash flows net of dividends (domestic)--i.e., undistributed profits and capital consumption allowances (mainly depreciation allowances)-were up $3.2 billion in the fourth quarter and were $16.0 billion (23 per cent) above a year earlier. CORPORATE PROFITS 1971 - IV Billions of dollars Change from 71 - IV 71 - III 70 - IV 1971 Per cent change from 70 - IV Billions of dollars Change from 1970 Bill. $ Per cent Corporate profits before tax 86.2 .4 14.6 20.4 75.4 10.1 13.4 Corporate profits after tax 49.8 1.6 10.6 27.0 41.2 6.4 15.5 Undistributed profits 24.5 2.0 10.2 71.3 16.2 5.9 36.4 85.6 77.9 3.2 3.1 16.0 15.2 23.0 24.2 80.9 73.5 11.1 9.8 15.9 15.4 1/ Cash flow, net of dividends 1/ All corporations Nonfinancial corporations 1/ Excludes gross product originating in the rest of the world. Source: Bureau of Economic Analysis, Department of Commerce. -6- Bond markets. The Bond Buyer index of yields on long-term municipal bonds rose 14 basis points in the week ending March 17, dealer inventories of tax-exempt bonds still and in syndicate rose sharply. Apparently the recent moderation in bank acquisitions has had considerable impact on the municipal market. Yields on corporate new issues remained almost unchanged during the week, although there was some upward pressure on yields in the secondary market. - 7INTEREST RATES 1971 1972 Mar. 16 Highs Lows Feb. 14 5.73 (9/8) 3.29 (3/10) 3.25 (2/9) 3.88 (3/15) 3.22 (3/11) 4.25 (4/12) 3.63 (3/12) 4.94 (3/17) 3.00 3.88 (2/11) 3.50 3.90 4.25 (3/15) 4.12 5.04 5.30 3.62 (3/24) 3.80 (3/17) 3.63 (2/9) 3.70 (2/9) 4.13 (3/15) 3.54 4.30 4.38 4.58 Short-Term Rates Federal funds (wkly. avg.) 3-month (bid) Treasury bills 5.53 (7/19) day) Comm. paper (90-119 5.88 (8/18) Bankers' acceptances 5.62 (8/23) Euro-dollars 10.00 (8/17) CD's (prime NYC) Most often quoted new 5.75 (8/11) Secondary market 6.05 (8/18) 6-month Treasury bills (bid) Comm. paper (4-6 mo.) Federal agencies CD's (prime NYC) Most often quoted new Secondary market (3/11) (3/24) 3.98 5.84 (7/27) 5.88 (8/18) 6.20 (7/23) 3.35 4.00 3.67 (3/16) 4.00 3.84 6.00 (8/11) 4.00 (3/24) 3.70 (3/3) 4.13 (2/9) 3.95 (2/9) 4.38 (3/15) 6.40 (8/18) 6.01 (7/28) 3.45 (3/11) 6.56 (7/28) 3.93 (3/16) 3.94 4.39 4.54 4.90 6.25 (8/11) 3.60 (8/12) 4.25 (2/24) 2.15 (3/24) 4.75 (2/9) 2.60 (2/10) 4.88 (3/15) Treasury coupon issues 5-years 20-years 7.03 (8/10) 6.56 (6/15) 4.74 (3/22) 5.69 (3/23) 5.68 6.07 5.94 6.08 Corporate Seasoned Aaa Baa 7.71 (8/13) 8.93 (1/4) 7.05 (2/16) 8.33 (2/25) 7.30 8.23 7.22 8.24 8.23 (5/20) 6.76 (1/29) 7.30 (2/10) 7.14 Municipal Bond Buyer Index Moody's Aaa 6.23 (6/24) 5.90 (7/1) 4.97 (10/21) 4.65 (10/21) 5.27 (2/11) 5.00 (2/11) 5.32 5.00 Mortgage--implicit yield in FNMA auction 1/ 8.07 (7/26) 7.32 (4/12) 7.61 (2/7) 7.56 (3/6) 1-year Treasury bills (bid) Federal agencies CD's (prime NYC) Most often quoted new Prime municipals 4.50 2.80 (3/17) Intermediate and Long-Term New Issue Aaa 1/ Yield on short-term forward commitment after allowance for commitment fee and required purchase and holding of FNMA stock. Assumes discount on 30-year loan amortized over 15 years. A - 1 A-1 SUPPLEMENTAL APPENDIX A THE SURVEY OF CHANGES IN BANK LENDING PRACTICES * For the three month period ending February 15, the Quarterly Survey of Changes in Bank Lending Practices showed no marked alteration in nonprice terms of lending. However, reflecting prime rate reductions from 5-1/2% in mid-November, 1971, to a split rate of 4-1/2% and 4-3/4% as of mid-February, 1972, the Survey indicated interest rates have eased at about three-fourths of the respondent banks. (See Table 1.) This restructuring of interest rates has accompanied a readjustment of lending policies with banks more willing to make consumer loans and real estate loans. Bankers are somewhat more receptive to term lending to businesses and lending to brokers, and some respondents, as a result of increased bank liquidity and weak business loan demand, are seeking new borrowers outside their local service area. Despite the search for new credits, comments on the Survey reveal attempts to upgrade the quality of loan portfolios--most likely because of adverse loss experiences in 1970-71. As part of these efforts, some bankers state they are becoming more selective in designating "prime" customers. About a third of the respondents reported weakening in loan demand during the three months ending February 15, although nearly half of the respondents anticipate some improvement during the next three months.(Table 2.) Such expectations, however, probably should be discounted since bankers in the past have not For example, of the 38 banks in proved to be good forecasters. the November, 1971 Survey reporting expectations of stronger loan demands, only 12 actually experienced increased demands. Bankers had a similar poor forecasting record for the August Survey. Looking at data on regional information and by size of bank indicates that business loan demands were much weaker and lending terms were slightly easier both in the Cleveland and San Francisco Districts where unemployment has been severe. (Tables 2 and 3.) Throughout the entire country, it appears that smaller banks (with deposits less than $1 billion) have been more willing than larger banks to make consumer installment loans and single family mortgages. * Prepared by Marilyn Barron, Research Assistant, Banking Section, Division of Research and Statistics A - 2 NOT FOR QUOTATION OR PUBLICATION TABLE 1 QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. 1/ (STATUS OF POLICY ON FEBRUARY 15, 1972 COMPARED TO THREE MONTHS EARLIER) (NUMBER OF BANKS & PERCENT OF TOTAL BANKS REPORTING) MUCH STRONGER TOTAL 3ANKS PCT BANKS PCT MODERATELY STRONGFR BANKS PCT ESSENTIALLY UNCHANGED MODFRATFLY WFAKF BANKS BANKS PCT PCT MUCH WEAKER BANKS PCT STRENGTH OF DEMAhb FOR CCMMERCIAL AND INDUSTRIAL LCANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATIONI COMPARED TC THREE MONTHS AGO 125 100.0 23 18.4 61 48.R 39 31.2 1 0,8 ANTICIPATED DEMAND IN NEXT 3 MONTHS 125 100.0 57 45.6 52 41.6 14 11.2 0 0.0 ANSWERING QUESTION 3ANKS LENDING TO NONFINANCIAL PCT MUCH FIRMER POLICY BANKS PCT MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY FASIER POLICY BANKS BANKS BANKS PCT PCT PCT MUCH EASIER POLICY BANKS PCT BUSINESSES TERMS AND COND4TIONS: INTEREST RATES ChARGED 100.0 24.8 58.4 14.4 COMPENSATING OR SUPPORTING BALANCES 100.0 79.? 16.8 0.0 STANDARDS CF CREDIT WORTHINESS 100.0 4.0 0.0 MATURITY OF TERM LOANS 100.0 86.4 10.4 1.6 ESTABLISHED CUSTOMERS 100.0 81.6 14.4 2.4 NEW CUSTOMERS 100.0 75.2 21.6 1.6 LOCAL SERVICE AREA CUSTOMERS 100.0 84.8 12,0 2.4 NONLOCAL SERVICE AREA CUSTOMERS 100.0 80.0 13.6 1.6 REVIEWING CREDIT LINES OR LGAN APPLICATIONS 1/ SURVEY OF LENDING PRACTICES AS OF FEBRUARY 15. 1972. AT 125 LARGE BANKS REPORTING IN THE FEDERAL RESERVE OUARTERLY INTEREST RATE SURVEY A - 3 NOT FOR QUOTATION OR PUBLICATION TABLE 1 (CONTINUED) MUCH FIRMER POLICY ANSWERING QUESTION BANKS PCT BANKS PCT MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY BANKS BANKS PCT PCT MODERATELY FASIER POLICY PCT BANKS MUCH EASIER POLICY BANKS PCT FACTORS RELATING TO APPLICANT 2/ VALUE AS DEPCSITCR OR SOURCE OF COLLATERAL BUSINESS 125 100.0 INTENDED USE OF THE LOAN 125 100.0 t11 88.8 INTEREST RATES CHARGED 100.0 56.0 34.8 COMPENSATING CR SUPPORTING BALANCES 100.0 94.4 4.8 ENFORCEMENT OF BALANCE REQUIREMENTS 100.0 92.0 6.4 ESTABLISHING NEW OR LARGER CREDIT LINES 100.0 6a.6 25.6 102 11.2 81.6 7.2 LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: ANSWERING QUESTION BANKS PCT CONSIDFRABLY LESS WILLING BANKS PCT MnOERATFLY MODERATELY LESS WILLING ESSENTIALLY UNCHANGED BANKS BANKS PCT PCT WILLING PCT BANKS WILLINGNESS TO MAKE OTHER TYPES CF LOANS 2/ TERM LOANS TO BUSINESSES 100.0 65.6 30.4 CONSUMER 100.0 57.2 35.5 SINGLE FAMILY MORTGAGE LOANS 100.0 f7.3 31.1 MULTI-FAMILY MORTGAGE LOANS 100.0 qR.7 14.0 ALL CTHER MORTGAGE LOANS 100.0 72.3 24.4 INSTALMENT LCANS PARTICIPATION LOANS WITH CORRESPONDENT BANKS 123 100.0 76.5 21.1 LOANS TO BROKERS 123 100.0 80.s 17.1 FIRMER MEANS THE FACTORS WERE CONSIDERED FOR THESE FACTORS, AND EASIER MEANS THEY WERE LESS IMPORTANT. CREDIT REQUESTS. MORE IMPORTANT IN MAKING DECISIONS FTO AoPROVING CONSIDERARLY MORE WILLING BANKS PCT A - 4 NOT FOR QUOTATION OR PUBLICATION TABLE 2 COMPARISON OF QUARTERLY CHANGES IN BANK LENDING PRACTICES AT BANKS GROUPED BY SIZE OF TOTAL DEPOSITS (STATUS OF POLICY ON FEBRUARY 15, 1972, COMPARED TO THREE MONTHS EARLIER) (NUMBER OF BANKS IN EACH COLUMN AS PER CENT OF TOTAL BANKS ANSWERING QUESTION) SIZE TOTAL $1 OVER NDER $1 OF BANK -- TOTAL DEPOSITS IN BILLIONS MODERATELY STRONGER MUCH STRONGER 1/ ESSENTIALLY UNCHANGED UNDER OVER $1 UNDER St OVER $1 UNDER $1 OVER MODERATFLY WFAKER $1 St E OVER N UNDER $1 MUCH WFAKFR $1 8 rVFR UNDFR $I STRENGTH OF CEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TC THREE MONTHS AGO 100 100 0 1 11 24 S2 47 35 28 ANTICIPATED DEMAND IN NEXT 3 MONTHS 100 100 0 3 43 48 46 38 11 11 TOTAL MUCH FIRMER MODERATELY FIRMER ESSENTIALLY UNCHANGED MODERATELY EASIER $1 & OVER $1 E OVER 1S 6 OVER UNDER $1 7 0 MUCH EASIER $1 E OVER $1 E OVER UNDER $1 INTEREST RATES CHARGED 100 100 2 0 0 3 27 22 56 61 15 14 COMPENSATING OR SUPPORTING BALANCES 100 100 0 1 2 4 83 77 15 18 0 0 STANDARDS OF CREDIT WORTHINESS 100 100 2 0 0 4 94 92 4 4 0 0 MATURITY OF TERM LOANS 100 100 0 0 2 1 87 86 11 10 0 3 ESTABLISHED CUSTOMERS 100 100 0 0 2 1 81 82 11 17 6 0 NEW CUSTOMERS 100 100 2 0 0 1 79 73 17 25 2 1 100 100 0 0 2 0 81 87 11 13 6 0 100 100 0 1 4 4 79 1 15 13 ? 1 $I & OVER UNDER $1 UNDER $1 UNDER $1 UNOFR $1 LENDING TO NGNFINANCIAL BUSINESSES TERMS AND CONDITIONS: REVIEWING CREDIT LINES CR LCAN APPLICATIONS LOCAL SERVICE AREA CUSTOMERS NONLOCAL SERVICE AREA CUSTOMERS 1/ SURVEY OF LENDING PRACTICES AT 54 LARGE BANKS (DEPOSITS OF $1 BILLION OR MORE) AND 71 SMALL BANKS (DFPOSITS OF LESS THAN sl BILLIONI REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS OF FEBRUARY 15. 1972. A - 5 NOT FOR QUOTATION OR PUBLICATION TABLE 2 (CONTINUED) OF BANK MUCH FIRMER POLICY SIZE NUMBER ANSWERING QUESTION $1 & OVER FACTORS RELATING TO UNDER $1 $1 6 OVER UNDER St 100 100 2 1 INTENDED 100 100 4 1 LENDING OF TOTAL DEPOSITS IN BILLIONS MODERATFLY ESSNTIALLY EASTFR IUNCHANGEI POLICY POLICY MODERATELY FIRMER POLICY $1 & OVER UNDER $1 St & OVER UNDER St 11 & OVER UNDER SL MUCH FASI R POLICY $1 & OVER UNDER $1 APPLICANT 2/ VALUE AS DEPCSITOR OR SOURCE OF CCLLATERAL BUSINESS USE -- THE LOAN TO "NCNCAPTIVE" FINANCE COMPANIES TERMS ANC CdhOITIONS: INTEREST RATES CHARGED COMPENSATING CR ENFORCEMENT OF SUPPORTING BALANCES BALANCE REQUIREMENTS ESTABLISHING NEW OR LARGER CREDIT LINES NUMBER ANSWERING QUESTION SI C OVER TO MAKE WILLINGNESS TERM LOANS CONSUMER SINGLE INSTALMENT CTMER MORTGAGE MtRTGAGE PARTltIPATIC CORRESPONOENT 2/ Sl & OVER UNDER $1 $1 & OVER UNDER $1 MODERATELY MORE WILLING S$ & OVFR UNDEQ $1 100 100 LOANS 100 LCANS 100 LOANS LOANS WITH BANKS LOANS TC BRCKERS UNDER $1 ESSENTIALLY UNCHANGED 100 LCANS MULTI-FAMILY NCRTGAGE ALL $1 & OVER MODERATELY LESS WILLING CTHER TYPES GF LOANS TC BUSINESSES FAMILY UNDER $1 CONSIDERABLY LESS WILLING 100 100 100 100 FOR THESE FALTORS. FIRMER MEANS THE FACTORS WERE CCNSIDERED CREDIT REQUESTS, AND EASIER MEANS THEY WERE LESS IMPORTANT. MORE IMPORTANT IN MAKING DECISIONS FOR APPCOVING CONSIDERABLY MIRE WILLING St F, nV=R UNDER $t A -6 NOT FOR QUOTATION OR PUBLICATION TABLE 3 QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. STATUS OF POLICY ON FEBRUARY 15, 1972 COMPARED TO THREE MONTHS EARLIER (NUMBER OF BANKS) ALL DSTS BOSNEW YORK TON TOTAL CITY OUTSIDE PHILADEL. CLEVE- RICHLAND MONO ATLAN- CHICST. TA AGO LOUIS 1/ MINNF- KANS. APOLIS CITY DALLAS SAN FRAN STRENGTH OF CEMAND FCR LLMMERCIAL ANC INDUSTRIAL LCANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TC 3 MONTHS AGC MUCH STRCNGER MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER MUCH WEAKER 125 1 23 61 39 1 ANTICIPATED REMAND NEXT THREE MONTHS 125 MUCH STRCNGER MODERATELY STRONGER ESSEKTIALLY UNCHANGEC MODERATELY WEAKER MUCH WEAKER 2 57 52 14 0 0 0 4 4 0 0 5 7 8 0 0 1 3 5 0 0 4 4 3 0 0 1 4 1 0 0 0 7 3 1 0 5 5 2 0 1 2 5 2 0 0 1 6 R 0 0 1 0 3 2 3 0 1 10 8 1 0 0 5 4 0 0 1 5 4 1 0 0 4 2 0 0 0 4 5 2 0 7 5 0 0 1 5 2 2 0 0 6 7 2 0 0 3 0 0 0 7 1 0 1 8 9 2 0 0 5 3 1 0 1 3 6 1 0 0 0 6 0 0 0 3 6 2 0 C 1 8 3 0 1 3 6 0 0 0 6 2 0 1 0 17 2 0 0 0 8 1 0 1 0 9 1 0 0 0 3 3 0 0 0 10 1 0 0 C 8 4 0 0 2 7 1 O 0 C 2 1 0 0 7 4 3 0 0 3 4 2 0 0 0 C 0 0 2 1 0 0 3 5 I 0 0 4 4 1 0 0 8 4 1 0 1 0 6 6 2 0 0 3 4 2 0 0 0 3 0 0 0 1 7 1 0 0 2 5 2 0 6 3 0 2 11 2 0 0 0 6 3 0 0 0 3 0 0 0 0 R 1 0 0 0 8 1 0 0 0 12 1 0 5 3 0 6 0 3 LENDING TO NCKFINANCIAL BUSINESSES TERMS AhN CCNDITIONS INTEREST RATES CHARGED MUCH FIRMER POLICY MODERATELY FIRMER PCLICY ESSENTIALLY UNCHANGEC POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY COMPENSATING BALANCES MUCH FIRMER POLICY MODERATELY FIRMER PCLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 125 1 2 31 73 18 125 1 4 99 21 0 I1 SURVEY OF LENDING PRACTICES AT 125 LARGE BANKS REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS OF FEBRUARY 15. 1972. A - 7 NOT FOR QUOTATION OR PUBLICATION TABLE 3 (CONTINUED) ALL DSTS BOSTON NEW YORK TOTAL CITY OUTSIDE PHILADEL. CLEVELAND RICHMOD ATLANTA CHICAGO ST. LOUIS 0 1 9 0 0 1 1 11 2 0 0 9 0 3 MINNEAPOLIS KANS. CITY DAtLAS SAN FRAN 0 0 9 0 0 0 0 9 0 0 0 0 13 0 0 ' 0 7 2 0 0 0 9 0 0 0 0 11 2 0 LENDING TO NCNFINANCIAL BUSINESSES TERMS AND CCNDITICNS STANDARDS CF CREDIT WCKTHINESS 125 MUCH FIRMER POLICY MODERATELY FIRMER PCLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER PCLICY MUCH EASIER POLICY 1 3 1ib 5 0 MATURITY OF TERM LOANS MUCH FIRMER POLICY MODERATELY FIRtMR POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 0 C 0 7 1 0 0 1 18 1 0 0 0 9 0 C 0 1 9 1 0 0 0 6 0 0 0 0 1I 0 0 0 0 11 1 0 0 7 1 0 C 0 17 2 1 0 0 A 1 0 0 0 9 1 0 0 5 1 C 0 0 11 0 O0 0 0 11 1 0 0 1 8 1 0 n 1 12 2 0 0 0 7 1 1 0 0 0 0 6 2 0 O 0 17 3 0 0 0 8 1 0 0 0 9 2 0 0 0 6 0 0 0 0 8 2 1 0 0 9 2 1 0 0 9 1 0 0 2 11 1 1 0 0 7 2 0 0 0 2 1 0 0 3 6 3 0 0 0 9 0 0 0 0 12 1 0 0 0 6 2 0 0 0 13 7 0 0 0 8 1 0 0 0 5 6 0 0 0 5 1 0 0 0 8 2 1 0 0 8 4 0 0 1 8 1 0 1 0 10 4 0 0 0 1 1 1 0 n 0 0 7 1 0 0 0 0 9 3 0 0 0 11 2 0 0 0 6 2 0 0 0 18 2 0 0 0 9 0 0 0 0 9 2 0 0 0 6 0 0 0 0 8 2 1 0 0 9 2 1 0 0 9 1 12 0 0 A 1 0 0 0 2 1 0 0 0 A 1 0 0 0 9 0 0 0 0 11 2 0 0 0 3 0 0 125 0 2 108 13 2 3 0 REVIEWING CREDIT LINES UR LOANS ESTABLIShEC CUSTCMERS MULH FIRIVER POLICY MODERATELY FIRMER PCLILY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIEW POLICY MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH FASIER POLICY SERVICE AREA 0 2 102 18 3 125 NEW CUSTCPERS LOCAL 125 CUSTOMERS MUCH FIRMER POLICY MODERATELY FIRfER PCLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER PCLICY MUCH EASIER POLICY 1 1 94 27 2 125 0 1 106 15 3 1 0 1 A - 8 NOT FOR QUOTATION OR PUBLICATION TABLE 3 (CONTINUED) ALL DSTS LENGIN, G 4USINCSSES BOSNEW YORK TON TOTAL CITY OUTSIDE PHILADEL. CLEVE- RICHLAND MONO ATLAN- CHICST. TA AGO LOUIS MINNE- KANS. APOLIS CITY DALLAS SAN FRAN CNF\%ANCIAL REVIEwING CREOIT LINES CR LOANS NCNLCCAL SERVICE AREA CLST MUCH FIRQER POLICY MGCERATELY FIRMER PCLICY ESSENTIALLY UNCHANGeD PCLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 125 1 5 100 17 2 0 0 6 2 0 0 0 18 2 0 0 0 9 0 0 0 0 9 2 0 0 0 6 0 0 0 0 8 2 1 0 0 8 4 C 1 1 8 0 0 0 1 10 2 0 0 0 7 1 0 0 2 17 1 0 0 0 9 0 0 0 2 8 1 0 0 0 5 1 0 0 0 9 2 0 0 0 11 1 0 1 0 8 1 0 0 0 7 1 0 0 0 20 0 0 0 0 9 0 0 0 0 11 0 0 0 0 5 1 0 0 0 11 0 0 0 0 10 2 0 0 8 1t 0 0 0 2 5 1 0 C 13 6 1 0 0 7 1 1 0 0 6 5 0 0 0 5 1 0 0 0 4 5 2 0 0 6 6 0 7 0 1 0 0 2 1 0 0 0 7 2 0 0 0 8 1 0 0 0 12 1 0 1 1 11 2 0 0 0 7 2 0 0 1 1 1 0 0 1 8 0 0 0 0 P 1 0 0 2 10 1 0 1 0 13 0 0 2 1 0 0 0 9 0 0 0 0 9 0 0 0 7 1 1 0 1 1 10 1 0 0 0 10 4 1 0 0 5 2 ? 0 0 1 2 0 0 0 4 0 0 5 3 1 0 0 8 4 1 0 i FACTORS PELATINb TO APPLICANT 2/ VALUE AS DEPCSITCR GR SOURCE Oc CCLLATERAL BUSINESS MUC4 FIRMER POLICY MCCERATELY FIRMER PCLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY INTENDED USE CF LOAN MLCH FIRWER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER PCLICY MUCH EASIER POLICY 125 2 7 102 14 0 125 3 1 111 9 1 1 LENDING TO "hNCAPTI.'E" FINANCE COMPANIES TERMS ANh CCNDITIONS INTEREST RATES CHARGEC MUCA FIRMER POLICY MODERATELY FIRMER PCLICY ESSENTIALLY UNCHANGEC POLICY MODERATELY tASIER POLICY MUCH EASIER POLICY 125 0 0 70 46 9 0 0 7 3 0 2/ FOR THESE FACTORS. FIRMEA MEANS THE FACTORS MERE CONSIDERED MORE IMPORTANT IN MAKING DECISIONS FOR APPROVING CREDIT REGUESTS. AND EASIER MEANS THEY MERE LESS IMPORTANT. 0 A - 9 NOT FOR QUOTATION OR PUBLICATION TABLE 3 (CONTINUED) ALL OSTS BOSTON NEW YORK TOTAL CITY OUTSIDE PHILADEL. CLEVE- RICHMONO LAND ST. ATLAN- CHICTA AGO LOUIS MITNE- KANS. CITY DALLAS SAN FRAN 0 0 8 1 0 0 0 9 0 0 0 0 13 0 0 0 0 0 8 1 0 0 0 9 0 0 0 6 13 0 0 1 6 2 0 0 0 9 0 1 R 9 0 5 4 0 APOLIS LENDING TC "NCNCAPTIVE" FINANCE COMPANIES TERMS ANC CChOITIONS: SIZE OF COMPENSATING BALANCES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MObERATELY EASIER POLICY MUCH EASIER POLICY ENFCRCEMENT OF BALANCE HECUIREMENT MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSFNTIALLY UNCHANGEC POLICY EASIER POLICY MODERATELY MUCH EASIER POLICY ESTABLISHIG NEW OR LAIGER CRECIT LINES PUCH FIRMER POLICY MOGEkATELY FIRMER PCLICY ESSFNTIALLY UNCHANGED PGLICY EASIER PCLICY MODERATELY MUCH EASIER POLICY 125 O 1 118 6 0 0 0 7 1 0 0 0 19 1 C 0 0 9 0 C 0 0 10 1 0 0 0 6 0 0 0 0 10 1 0 C 0 11 1 0 0 0 10 0 0 0 1 13 1 0 0 C 6 2 0 0 0 19 1 0 C 0 9 0 0 0 0 10 1 0 0 0 6 0 0 0 0 10 1 0 0 0 11 1 0 0 0 10 0 0 0 1 12 2 0 0 1 0 C 1 5 2 0 C 0 14 6 0 0 0 8 1 0 0 0 6 5 0 0 0 4 2 0 0 0 8 2 1 0 0 8 4 0 0 0 9 1 0 1 0 0 9 4 0 5 ? 0 C 7 1 0 0 0 13 6 1 0 C 7 2 0 0 0 6 4 1 0 0 3 3 0 0 L 7 3 0 0 0 9 3 0 0 1 6 3 0 0 0 13 2 0 0 0 4 4 1 0 0 1 2 0 0 C 7 1 0 0 0 13 4 2 0 0 8 0 0 0 0 5 4 2 0 0 3 3 0 0 0 0 5 6 1 0 O 0 5 3 2 n 0 0 r ? 0 9 0 0 0 n 0 3 0 0 125 0 2 115 8 0 0 125 I 4 87 32 L 1 0 0 0 WILLINGNESS TC MAKE LTHER TYPES CF LCANS TERM LCAS T1 BUSIFESSES CCNSIOERABLY LESS WILLING LESS WILLING MODERATELY ESSENTIALLY UNCHANGEC MGGFRATELY MORE WILLING CCNSIDERASLY MORE WILLING CONSUMER IKSTALMENT LCANS CGNSTDERABLY LESS WILLING LESS WILLING MODERATELY ESSENTIALLY UNCHANGEC MLCEPATELY MORE WILLING CuViDERAbLY MCkE wILLING 125 0 3 82 38 2 0 6 0 1 A 4 0 124 0 0 71 44 9 7 4 0 0 9 4 2 9 0 0 1 0 0 0 6 7 5 1 2 O B- 1 SUPPLEMENTAL APPENDIX B QUARTERLY SURVEY OF BANK LOAN COMMITMENTS* The most recent survey of bank loan commitments, for the three months ending January 31, indicates a strong increase in the volume of unused commitments at the 42 reporting banks.(See Table 1.) This upsurge in commitments seems to be connected with marketing efforts on the part of commercial banks attempting to stimulate business borrowing. In addition, the increase is related to the continued vigor of construction activity. The change in commitments to commercial and industrial (C&I) firms, as usual, dominated movements in total commitments. The reported large increase in C&I unused commitments, in turn, was mainly determined by the expansion in confirmed lines of credit; such commitments typically arise as bankers early in the new year extend lines without charging a fee in order to attract and hold customers. Other categories of C&I commitments, however, were not strong. Although new commitments for term loans rose markedly, unused commitments fell sharply from the record peaks achieved in the previous quarter. Unused revolving credits, meanwhile, rose only modestly. A vigorous rate of construction activity strongly affected the other commitments. The growth in unused and new commitments for real estate mortgages was high--as were takedowns for this purpose. Data on construction loans showed large takedowns as well as strong growth in new and unused commitments. Turning to nonbank financial institutions, the Survey shows a Underlying this increase was a buildlarge growth in unused commitments. up in unused commitments to finance companies and a large growth in unused commitments to other nonbank financial institutions--including mortgage and insurance companies, savings and loan associations, and mutual savings banks. * Prepared by Marilyn Barron, Research Assistant, Banking Section, Division of Research and Statistics. B-2 Financing of mortgage warehousing, moreover, was heavy as takedowns were the highest since the Survey began in the first quarter of 1969. According to information available to the staff, some of these takedowns were by mortgage bankers who were expecting lower mortgage rates in the future and hence were accumulating mortgages that they expected to resell at a profit. As commercial banks have maintained ample liquidity in the face of modest business loan demands, respondents eased commitment policies further. (See Table 2.) No bank in the Survey, in fact, has become more restrictive in the last six months. QUARTERLY SURVEY OF BANK LOAN COMMITMENTS AT SELECTED LARGE U.S. January 31, 1972 Table 1: BANKS 1/ NEW AND UNUSED COMMITMENTS (Billions of dollars, not seasonally adjusted) New commitments made durin 3-month endin Juiv 31. IOct. 5TJan. 31 Grand total commitments Total-Comm. & Industrial Total-Nonbank Financial Institutions Total-Real Estate Mortgages MEMO- Construction Loans (included above) r g Total-Comm. & Industrial Term "Loans S Revolving Credits Total Term & Revolving 2/ Confirmed Lines of Credit Other Commitments Takedowns wns, expirations ----and can cellations during Change during 3-months 3-mo nths ending I ending K I3 Ian. Julv 31 [Oct. 3.1i.Julv 31 .Oct. 31Jan. 31 31 1jan. 3. 11 ruly -1 [ -= 35.0 21.2 23.4 32.0 19.3 20.1 27.4 16.8 18.2 24.8 15.6 16.2 3.3 70.3 2.5. 1.2 2.0 53.2 0.5 0.2 0.8 0.5 13.0 4.1 0.3 3.2 2.9 1.5 3.6 1.6 5.2 2.0 2.4 1.3 0.4 1.4 1.0 1.1 1.2 1.0 0.2 1.9 2.2 3.8 2.0 4.4 1.7 6.4 1.8 3.5 2.1 6.8 6.5 9.9 1.7 8.4 13.4 3.0 5.6 9.0 1.0 1.7 0.9 1.0 3.4 0.7 1.0 1.3 8.9 14.9 3.5 on Januar.y 3 1.9 5.5 2.1 3/ 3/ 0.1 0.4 9.4 0.3 6.3 8.2 1.6 0.5 1.5 0.6 0.5 0.5 0.1 1.2 0.9 0.7 0.1 0.2 0.1 0.4 0.1 4.0 Y--- Outstanding -0.2 0.4 2.1 14.0 0.2 1.7 Q.1 16.7 32.7 3.8 0.4 0.1 0.3 8.1 1.9 3.0 Total-Nonbank Financial Institutions Finance Companies 3.5 1.7 For Mortgage Warehousing 0.9 0.5 All Other 1.1 0.7 0.5 0.7 3/ Total-Real Estate Mortgages Residential 0.9 0.8 0.8 0.8 0.6 0.5 0.1 0.2 0.2 Other 1.2 0.8 0.8 1.3 0.7 0.5 -0.1 0.1 0.3 1/ Participants in Quarterly Interest Rate Survey with total deposits of more than $1 billion (42 banks). 1/ This item may exceed sum of previous two items because some banks report combined total only. 3/ Less than $50 million. NOTE: Figures may not add to total due to rounding. 1.6 2.6 BTable 2: 4 VIEWS ON COMMITMENT POLICY Total number of banks responding: Apr. 30 1970 July 31 1970 Oct. 31 1970 Jan. 31 1971 Apr. 30 1971 July 31 1971 Oct. 31 1971 Jan. 31 1972 48 48 48 47 48 48 48 48 Unused commitments in the past three months have: Risen rapidly Risen moderately Remained unchanged Declined moderately Declined rapidly Takedowns in the next three months should: Rise rapidly Rise moderately Remain unchanged Decline moderately Decline rapidly Commitment policy compared to three months ago is: Much more restrictive Somewhat more restrictive Unchanged Less restrictive Much less restrictive Table 3: EXPLANATION OF RECENT CHANGE IN NEW COMMITMENT POLICIES AS INDICATED IN THE CURRENT SURVEY Reasons for Change Indicated Change Number of Banks Indicating Change (Number Increased Loan Demand of Banks) Reduced Availability of Funds Both Demand And Funds Decreased Loan Demand 0 Increased Availability of Funds 0 Both Demand And Funds More restrictive Less restrictive 14 3 2 C- 1 SUPPLEMENTAL APPENDIX C RECENT DEVELOPMENTS IN DEMAND DEPOSIT OWNERSHIP* The failure of the demand deposit component of M1 to increase (on a seasonally adjusted basis) during the fourth quarter of 1971 appears attributable to changes in deposit balances owned by depositors other than Individuals, Partnerships, and Corporations (IPC). As may be seen by examining the seasonally unadjusted data in Table 1, growth in the estimated combined category of certified and officers' checks and State and local government deposits (line 6) during the fourth quarter of last year fell considerably short of the increase recorded in the same period of 1970. In addition, it is estimated that deposit balances held by foreign commercial banks (line 4) declined rather sharply last quarter, probably reflecting efforts of such institutions to reduce their holdings of dollars. In contrast, balances held by IPC depositors (line 7) increased at a significantly faster pace in the fourth quarter of 1971 than in the same period of 1970.1/ As may be seen in the bottom portion of Table 1, data obtained in the Demand Deposit Ownership Survey indicate that growth in gross demand deposits held by both categories of business depositors and by depositors in the "all other (IPC)" category (mainly nonprofit institutions and bank trust departments maintaining balances with their own banks) exceeded that recorded in the same period of 1970. Last year's fourth quarter gain in consumer deposits, on the other hand, fell' substantially short of the gain recorded in the fourth quarter of 1970. Reference to the experience of only one earlier year is at best a very weak basis for judging whether a change is or is not stronger * Prepared by Frederick M. Struble, Economist, Banking Section, Division of Research and Statistics. 1/ The estimate for the combined category of Certified and Officers' Checks and State and Local Government deposits was derived on a residual basis by subtracting the estimated level of gross IPC deposits based on data from the Demand Deposit Ownership Survey from the "All Other Deposit" category (line 5 of Table 1). Thus the estimate for the combined category is subject to two types of estimation error. First, the estimates for the "All Other Deposit" category were obtained by using data employed in the calculation of the money stock together with the estimates for cash items in process of (continued on page 2). C- 2 than seasonal. And, given that the fourth quarter of 1970 was significantly influenced by a major strike in the auto industry, it may easily be the case that the changes recorded in that year are not at all "normal." With these caveats, the shifts in patterns of ownership suggested by the data do not appear unreasonable. It seems quite possible that consumer demands for precautionary balances could have been reduced because of a favorable acceptance of the President's economic program and that demands by businesses and others could have strengthened in response to the decline in interest rates recorded after mid-August and the pickup in business activity. Preliminary estimates of IPC demand deposit ownership at weekly reporting banks for January 1972 (Table 2) suggest that, at large banks, consumer demands for deposits continued to fall below those recorded during the comparable period of a year ago. In addition, growth in financial business balances fell somewhat below the gains recorded a year ago, while non-financial business deposits declined sufficiently to just match the 1970 drop in these balances. 1/ Continued: collection at nonmember banks, deposits of mutual savings banks and deposits of foreign governments and official institutions. Each of these latter items are of relatively small magnitude, do not appear to be subject to sharp fluctuation and appear to be estimated accurately. Nevertheless, the "All Other Deposit" category may be subject to some estimating error. A second and more important consideration is that the estimate of gross IPC deposits based on DDOS data is, of course, subject to sampling error. Examination of these data suggest that if these estimates are in error, it is most likely that they tend to overstate the 1971 increase and understate the 1970 increase. Consequently, the 1971 change in IPC deposits may not have been as relatively strong--and that for certified and officers' checks and State and local government may not have been as relatively weak-as is indicated by the data. However, even if generous allowance is made for this possibility, the generalization offered in the text still appears to hold. C- 3 TABLE 1 CHANGES IN DEMAND DEPOSIT COMPONENT OF M1 AND IN DEPOSITS COMPRISING THIS COMPONENT ($ billion, not seasonally adjusted) Fourth Quarter 1970 (1) Demand Deposit Component of M 1 (2) Plus: Cash Items in Process of Collection and Federal Reserve Float, Adjusted 1 / (3) Gross Deposits in M 1 (4) (Total) Less: M1 Type Balances at Agencies and Branches of Foreign Banks 1971 8.1 7.2 1.5 1.9 9.6 9.1 -.1 -.1 Foreign Deposits with the Federal Reserve Banks -- Foreign Commercial Bank Deposits 2/ .1 Foreign Government and Official Institution Deposits 3/ .1 -. 5 .1 (5) All Other Deposits (Total) 9.5 9.5 (6) Less Certified and Officers' Checks and State and local Government Deposits 4/ 2.2 .6 (7) Gross IPC Demand Deposits 5/ 7.3 8.9 Financial Business Nonfinancial Business Consumers Foreign All Other .3 4.6 2.2 -.1 .3 1.0 5.7 1.2 .1 1.0 1/ Adjusted for transactions of Edge Act Corporations and Agencies of foreign banks. 2/ An estimate of deposits held by mutual savings banks deducted from the category, foreign commercial and mutual savings bank deposits, to obtain this estimate. 3/ Estimated using data from weekly Condition Reports and from semiannual call reports. 4/ Calculated by deducting DDOS estimate of: Gross IPC deposits from all other deposits (total). 5/ Estimate based on data from Demand Deposit Ownership Surveys. C - 4 TABLE 2 CHANGE IN OWNERSHIP OF GROSS IPC DEPOSITS AT WEEKLY REPORTING BANKS (Not seasonally adjusted, $ billions)* January 1971 .4 Financial Businesses Nonfinancial Businesses -1.7 January 1972 .1 -1.7 Consumers Foreign -- All Other Total IPC Deposits -. 4 -1.2 * Sum of ownership categories may not equal total because of rounding. CONFIDENTIAL (FR) SUPPLEMENTAL APPENDIX D SURVEY OF STATE AND LOCAL-LONG TERM BORROWING ANTICIPATIONS AND REALIZATIONS: FOURTH QUARTER, 1971* State and local governments borrowed $4.6 billion as planned and another $1.2 billion in excess of previously reported long-term borrowing plans during the final quarter of 1971. Results projected from the FRB-Census Survey of State and Local Long-term Borrowing Anticipations and Realizations indicate, however, that some State and local units experienced borrowing shortfalls of $1.5 billion. These shortfalls led to a postponement or cancellation of $275 million in capital spending. Alternative financial expedients were substituted for $550 million of the unfulfilled planned borrowing while another $725 million in shortfalls represented money not currently needed. 1/ Table 1 LONG TERM BORROWING ANTICIPATIONS AND REALIZATIONS OF STATE AND LOCAL GOVERNMENTS 4th Quarter, 1971 (Billions of dollars) Unit Type State State colleges Counties Cities and Towns Anticipations Borrowed as planned Borrowed above plans Borrowing Shortfalls 2.3 1.9 .5 .4 .4 .1 .1 1.2 .1 .4 .5 1.7 Special districts .9 .7 .2 .2 School districts .8 .4 .3 .4 6.2 4.6 1.2 1.6 100.0 100.0 77.5 74.9 Totals Memo: Per cent of Anticipations 3rd quarter 4th quarter NOTE: 22.4 19.9 22.5 25.1 Totals may not add due to rounding, (Footnote 1 on next page) * Prepared by Paul Schneiderman, Economist, Capital Markets Section, Division of Research and Statistics. D-2 Results compiled from survey responses show that interest rate levels and changes induced a net long-term borrowing of almost $240 million above planned levels. More than $500 million in borrowing above plans came to market as a result of favorable yields, while, on the other hand, $270 million of planned financing was postponed, mostly in expectation of even lower rates. Project postponements induced by borrowing shortfalls associated with interest rate behavior were insignificant. State and local responses to the survey place long-term borrowing plans at $6.3 billion for the first quarter of 1972 and $5.1 billion for the second quarter of 1972. While borrowing plans usually tend to be somewhat understated for future quarters, past survey experience and other information suggests that borrowing in the first half of 1972 will fall short of that issued during the latter half of last year. Long-term Borrowing Shortfalls Over $1.5 billion of State and local long-term borrowing plans went unrealized during the fourth quarter of 1971, as compared with $1.3 billion in quarter 3. However, more than 60 per cent of such shortfalls had been rescheduled for the January through December, 1972 period. As shown in Table 2, administrative and legal delays were responsible for over two-fifths of the borrowing shortfalls with delays in the progress of the projects themselves responsible for about 55 per cent of the reported $680 million. Litigation involving the current state of property tax based financing may be responsible for a substantial portion of the delay since school bonds are often backed by revenues from this source. Additional delays have arisen in some cases because of delays in release of pollution control revenue bond guidelines by the Treasury. Expectations of lower interest rates in the future led to over $200 million of postponements of long-term borrowing. This represented a rise in such postponements from the quarter earlier and coincide with the sizable decline in rates following the administrations New Economic Program. As would be expected, shortfalls attributed to rate levels declined. (Footnote 1 from previous page.) 1/ The survey is administered by the Governments Division of the U.S. Bureau of the Census. The 80 per cent response rate on the 97 per cent of the long-term Realizations Survey captured borrowing completed during that quarter. The Anticipations Survey had a response rate of 74 per cent. It is assumed that nonrespondents to the Anticipations Survey had no borrowing plans to report. No information is available about the behavior of nonrespondents responsibile for the unreported $200 million of the $6.06 billion borrowed during the fourth quarter. D-3 Table 2 STATE AND LOCAL GOVERNMENT SHORTFALLS FROM LONG-TERM BORROWING PLANS 3rd and 4th Quarters, 1971 Reason for Borrowing Shortfall 3rd Quarter Millions of Per dollars Cent Authorization not obtained Administrative and legal delays 90 851 1/ 6.7 63.2 4th Quarter Millions of Per dollars Cent 227 14.6 678 2/ 43.6 Interest rate ceiling 94 7.0 9 0.6 Interest rate too high 55 4.1 47 3.0 32 2.4 213 13.7 224 16.6 379 24.4 1,346 100.0 1,553 100.0 Interest rates expected to fall Other Totals 1/ Of this total,$404 million represents delays not necessarily related to financing. 2/ Of this total, $298 million represents delays not necessarily related to financing. Effects of Borrowing Setbacks Responses to the survey inquiry indicate that some of the long-term borrowing shortfalls resulted in capital outlay cutbacks of more than $275 million, or 18 per cent of all shortfalls. About three fourths of these capital spending adjustments were considered temporary, and long-term borrowing to finance such outlays has been rescheduled over the next year. D-4 Table 3 EFFECTS OF LONG-TERM BORROWING SHORTFALLS 4th Quarter, 1971 (Millions of dollars) Total Permanent Temporary Short-term borrowing 24 190 214 Use of liquid assets 13 106 119 Postpone other outlays 69 86 155 Other methods 44 17 61 Money not needed now 175 550 725 74 204 278 399 1,153 1,552 25.7 74.3 100.0 Used alternative financing Capital outlays cutback Total Per cent Where long-term financing suspensions did not force the cancellation of projects, funds were not needed immediately or an alternative financing source was utilized. Errors of judgment as to timing of need or amount, as well as other delays in the projects themselves are generally the circumstances under which funds are not currently required. Short-term borrowing in lieu of suspended long-term issues provided almost 40 per cent of the alternatively sought financing. As indicated in Table 3, current plans call for all but 10 per cent of the $214 million to be refinanced in the long-term markets. A reevaluation of projects was apparently also undertaken by some units as $155 million of alternative financing came from funds originally allocated to other projects. Long-term Borrowing Above Planned Levels As in the third quarter of 1972, State and local authorities expanded their borrowing by $1.2 billion dollars above planned levels previously reported. More than 40 per cent of this long-term borrowing was brought to market in response to lower interest costs. In addition an appreciable number of reporting units indicated that the purpose of their borrowing above previously planned levels was to prerefund issues marketed in 1969 at higher costs. Anticipated Long-term Offerings Projected anticipations for long-term borrowing for the first and second quarters of 1972 are shown in Table 4. It appears that, governments could fall short of long-term borrowing expectations by as much as 15 per cent of $6.3 billion planned for the January through March period, given the staffs monthly estimates of municipal volume. In part the shortfalls may be attributed to continued administrative and legal delays that have anterrupted borrowing plans for some time. Anticipations for the second quarter may be expected to increase from those reported at year end 1971. Some of the probable increase could reflect the typical problem of uncertain borrowing plans not reported at the time of the survey, and its also possible that prerefunding and pollution control bonds will grow in importance. However, the sharp drop in such plans from the first quarter level is unlikely to be made up entirely in view of past survey experience. Table 4 LONG-TERM BORROWING ANTICIPATIONS OF STATE AND LOCAL GOVERNMENTS As of December 31, 1971 January through March Authorized Unauthorized Total April through June 5.37 3.34 .96 1.75 6.33 5.09 

Federal Reserve (1972, March 20). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19720321_part1

@misc{wtfs_greenbook_19720321_part1,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1972},
  month = {Mar},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19720321_part1},
  note = {Retrieved via When the Fed Speaks corpus}
}