greenbooks · December 20, 1976

Greenbook/Tealbook

Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 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) CLASS II December 17, 1976 - FOMC SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS Prepared for the Federal Open Market Committee By the Staff Board of Governors of the Federal Reserve System TABL OF CONTENTS Page THE DOMESTIC NONFINANCIAL ECONOMY Industrial production..................................... Private housing starts.................................. Personal income......................................... Price of crude oil........ ................ . ............. 1 2 4 5 TABLES: Industrial production.................................... 2 Private housing starts and residential building permits............................ 3 Personal income....................................... 4 THE DOMESTIC FINANCIAL ECONOMY Mortgage market.......................................... 5 TABLES: Average rates and yields on new-home mortgages ........................... ........... ......... ...................... Interest rates .................... 6 7 INTERNATIONAL DEVELOPMENTS Deutsche Bundesbank announces 1977 central bank money growth target........................ 8 ERRATUM Part I.................................................... 9 APPENDICES Changes in bank lending practices ......................... Changes in offering terms of small time and savings deposits in response to declining market rates of interest..................................... A-1 B-1 Business loan expansion by industry....................... C-l U.K. economic package .................................... D- SUPPLEMENTAL NOTES The Domestic Nonfinancial Economy Industrial production increased by an estimated 1.2 per cent in November to 132.0 per cent of the 1967 average, fractionally above the record high of 131.9 per cent reached in June 1974. The increase followed declines in the index for both September and October. than half of the November increase resulted from More resumption of produc- tion following the settlement of strikes, but additional moderate increases were widespread among consumer goods, business equipment, and nondurable materials. PRODUCTS. Output of consumer goods advanced sharply in November primarily because of a post-strike rebound in motor vehicle production, but moderate increases occurred in other industries also. Auto assemblies, up 14 per cent, were at an 8.8 million unit annual rate and at their pre-strike level. indicate a further rise in December. Current production schedules Production of home goods last month increased moderately, as did output of consumer nondurables, including clothing and consumer staples. Business equipment produc- tion increased more than 2 per cent, the result mainly of the resolution of strikes affecting farm equipment and truck production. At 139.3 per cent of the 1967 average, business equipment remains 5 per cent below its 1974 high. increased somewhat. Output of construction and business supplies - 2 The production of durable materials rose sharply MATERIALS. in November, but this was mainly in the auto supplying industries. Output of other durable materials rose slightly. Production of non- durable materials advanced moderately. INDUSTRIAL PRODUCTION (Seasonally adjusted) Aug. 1976 Sept. Oct. Nov. Per cent changes Month Year QII to (P) (e) ago ago QIII 1.2 131.3 130.9 130.4 132.0 1.2 6.9 130.3 130.0 129.6 131.5 1.5 6.2 .9 128.3 137.5 143.7 134.9 137.7 127.5 136.2 138.5 135.3 137.6 127.3 136.5 138.1 135.8 136.4 129.5 138.9 144.6 136.6 139.3 1.7 1.8 4.7 .6 2.1 5.9 5.9 9.1 4.6 7.5 .6 -.2 -1.1 .2 2.1 Intermediate products 137.8 Construction supplies 134.1 139.0 138.3 139.2 134.3 133.9 134.9 .7 .7 7.7 9.6 2.1 2.8 132.4 131.7 133.0 1.0 8.0 1.7 Total Products, total Final products Consumer goods Durable goods Nondurable goods Business equipment Materials 133.0 p--preliminary e--esestimated Private housing starts declined 6 per cent further in November to a seasonally adjusted annual rate of 1.71 million units. Despite this decline, indications are that starts in the fourth quarter, as a whole, will average a tenth above the third quarter figure. the November decline was in the single-family sector. Most of Even so, at a - 3rate of 1.24 million units, such starts continued near the cyclical peak recorded in early 1973. Multifamily starts, which have been bolstered in recent months by federal subsidy programs, edged down 1 per cent in November. The decline in total starts was shared by three of the four Census regions. However, in the Northeast, where starts had been quite low for nearly 2 years, the rate jumped more than 50 per cent above the October figure. In contrast to housing starts, residential building permits rose 6 per cent in November to a seasonally adjusted annual rate of 1.59 million units--the highest rate in more than 3 years. Permits for all types of units increased. PRIVATE HOUSING STARTS AND RESIDENTIAL BUILDING PERMITS Sept. Nov. Oct. (r) (r) (Thousands of units, SAAR) Per cent October change from November 1975 I STARTS 1,840 1,813 1,735 1976 -6 1 - family 2 - or more - family 1,280 1,340 560 473 1,237 468 -8 -1 +18 +41 164 503 708 465 175 478 548 264 365 571 505 +51 -24 -7 -8 +51 +8 +7 +51 1,504 1,492 1,585 +6 441 1 - family 2-- or more - family 926 578 998 494 1,085 500 +9 +1 +33 +60 Northeast North Central South 164 395 478 467 185 381 429 497 163 361 452 609 -12 -5 +5 +23 +14 +25 +30 +75 269 244 -9 Northeast North Central South West PERMITS West MEMO: Mobile home shipments NOTE: NOTE: r == revised, r revised, 612 255 preliminary, p p -= preliminary, --- +24 means change is less than 1 per cent. means change is less than 1 per cent. -4 - Total personal income rose $14.9 billion at a seasonally adjusted annual rate in November compared to an upward revised increase of $11.2 billion in October. Wage and salary disbursements increased $10.2 billion in November, comsiderably more than in October. This reflected a $4.5 billion increase in manufacturing payrolls in November, compared to only $0.3 billion in October, as employment, average weekly hours, and average hourly earnings all increased. The largest increase was in the transportation equipment industry reflecting the first full month of operation since the Ford strike. Farm proprietors' income leveled out after having declined since mid-year. PERSONAL INCOME billions of dollars seasonally change, monthly (Average adjusted at an annual rate) Jully 75-* Jul ly 76 Total Personal Income ] 0.7 Labor and Nonfarm Proprietors' Income 8.8 7.5 .7 .7 Wage and Salary Disbursements Other Labor Income Nonfarm Proprietors' Income July 76Nov. 76p Sept. 76Oct. 76r Oct. 76Nov. 76p 11.2 14.9 8.5 9.0 11.8 7.2 .7 .6 7.8 .7 .5 10.2 -.9 -.1 9.3 -2.2 .8 .8 Farm Proprietors' Income -.2 Transfer Payments 1.2 1.4 1.5 2.3 Rents, Dividends, and Personal Interest 1.4 2.0 1.8 1.6 * July 1975 was the specific low for deflated wage and salary disbursements. p -r -- preliminary revised - 5 - An increase of 5 per cent in the price of crude oil was announced today (December 17) by Saudi Arabia and the United Emirates, who account for about one-third of OPEC production. The other 11 countries raised prices by 10 per cent and intend to add another 5 per cent in six months. the oil cartel. This is the first open break in ranks in Saudi Arabia's oil minister has announced that his country will lift its self-imposed limit on oil production in an effort to meet demands at the lower price level. The staff estimated a 15 per cent increase would have had an impact of 0.6 per cent on the fix-weighted price index for Gross Domestic Final Purchases. A 5 per cent increase thus would tend to raise these prices by 0.2 per cent in 1977. The Domestic Financial Economy Mortgage market. The average interest rate on new commit- ments for conventional new-home loans in the primary market was reported by HUD to be 8.85 per cent in November--down 5 basis points from the October rate. The rate spread between these mortgages and new issues of Aaa utility bonds is the largest since October 1973, reflecting the declining bond rates of recent weeks. The rate on new commitments for existing home loans remained at 9.00 per cent for the second consecutive week. In the private secondary market for FHA-insured new home mortgages, the yield declined to 8.45 per cent--its lowest level since July 1973. - 6 - AVERAGE RATES AND YIELDS ON NEW-HOME MORTGAGES (HUD-FHA Field Office Opinion Survey) Primary market Conventional loans Level 2/ Spread 4/ (per cent) (basis points) End of Month 1975-Low High 1976-Jan. Feb. Mar. Apr. May June July Aug. Sept Oct. Nov. I/ 2/ 3/ 4/ 8.90(Mar.) 9.25(Sept., Oct.) 9.05 9.00 8.95 8.90 9.00 9.05 9.05 9.05 9.00 9.00 8.95 Secondary market 1/ FHA-insured loans Level 3/ (per cent) -70 (Mar.) +15 (Jan.) 8.69 (Mar.) +39 442 +42 +32 +5 +35 +33 +58 +77 +71 +90 9.06 9.04 n.a. 8.82 9.03 9.74(Sept.) 9.05 8.99 8.93 8.82 8.55 8.45 Spread 4/ (basis points) Discounts (points) -91 (Mar.) +31 (Oct.) 2.4 (Dec.) 6.2 (Aug.) 440 -46 n.a. +24 +8 +35 2.4 2.2 n.a. 2.5 4.1 4.2 3.8 3.3 2.5 4.3 3.6 +27 +46 +59 +26 +40 Any gaps in data are due to periods of adjustment to changes in maximum permissible contract rates on FHA-insured loans. Average contract rates (excluding fees or points) on commitments for conventional first mortgage loans, rounded to the nearest 5 basis points. Average gross yield (before deducting servicing costs) to investors on 30-year minimum-downpayment FHA-insured first mortgages for immediate delivery in the private secondary market (excluding FNMA), assuming prepayment in 15 years. Average mortgage rate minus average yield on new issues of Aaa utility bonds in the last week of the month. -7INTEREST RATES (One day quotes - in per cent) 1976 Highs Lows Nov. 15 Dec. 16 Short-Term Rates Federal funds (wkly. avg.) 5.58(6/30) 4.67(12/8) 5.02(11/17) 4.68(12/14) 3-month Treasury bills (bid) Comm. paper (90-119 day) Bankers' acceptances Euro-dollars CD's (NYC) 90 days Most often quoted new 5.57(6/2) 6.00(6/15) 5.95(6/2) 6.81(6/1) 4.33(12/16) 4.63(12/14) 4.58(12/3) 4.90 5.13 4.33 4.81(12/8) 5.38 4.75 4.63 5.06 5.75(6/16) 4.50(12/15) 5.06(11/10) 4.50(12/15) 5.96(5/27) 6.00(6/22) 6.42(5/27) 4.49(12/10) 5.02 5.13 5.32 4.56 4.63(12/7) 4.82(12/10) 6.50(6/2) 4.60(12/15) 5.30(11/10) 4.60(12/15) 6.39(5/27) 6.86(5/28) 4.61(12/3) 5.12(12/10) 5.16 5.70 4.67 5.12(12/10) 6.75(6/16) 3.70(5/28) 4.80(12/15) 2.50(12/10) 5.50(11/10) 2.95(11/12) 4.80(12/15) 7.82(5/27) 8.20(5/21) 5.99(11/26) 7.30(12/10) 6.70 7.73 6.14(12/15) 7.34(12/15) 7.99(12/7) 9.01(12/15) 8.31 9.14 8.01(12/15) 9.01(12/15) 8.95(5/28) 7.93(12/10) 8.31(11/12) 7.95p(12/17) Municipal Bond Buyer Index 7.13(1/8) 5.95(12/16) 6.39(11/11) 5.95 Mortgage--average yield in FNMA auction 9.20(6/1) 8.51(12/13) 8.68 8.51(12/13) 6-month Treasury bills (bid) Comm. paper (4-6 mo.) Federal agencies CD's (NYC) 180 day Most often quoted new 1-year Treasury bills (bid) Federal agencies CD's (NYC) Most often quoted new Prime municipals 5.00 4.75 4.82(12/10) 2.50(12/10) Intermediate and Long-Term Treasury coupon issues 5-years 20-years Corporate Seasoned Aaa Baa New Issue Aaa Utility 8.66(1/2) 10.34(1/2) -8 - International Developments Deutsche Bundesbank announces 1977 central bank money growth target. On December 16 the Deutsche Bundesbank set a target of 8 per cent for the growth of central bank money (CBM), in annual average terms, during 1977.1/ This is the third year the Bundesbank has put forth a central bank money growth target, which on each occasion has been 8 per cent, and on the last two occasions average growth. has been stated in terms of annual The 8 per cent selected for 1977 is higher than the figure recently recommended by the major German economic institutes (6-1/2 per cent). Most observers also had expected the 1977 target to be somewhat lower because in 1976 central bank money will increase by about 9.2 per cent, overshooting this year's target. The Bundes- bank's choice of 8 per cent for 1977 thus appears to validate the excess CBM growth in 1976, and may be interpreted as a sign of continued monetary accommodation in the coming year. In its announcement on next year's growth target, the Bundesbank set out an additional guideline relating to CBM growth: that between the fourth quarter of 1976 and the fourth quarter of 1977 CBM should not grow by more than 6-7 per cent. This additional objec- tive suggests that during 1977 the Bundesbank will endeavor to keep monthly and quarterly CBM growth on a smoother path than has been the case during the past two years. 1/ Central bank money in Germany is defined as currency in circulation plus minimum reserves (at January 1974 reserve ratios) on banks' domestic liabilities. -9- Erratum Part I; Table: U.S. Net Exports and Related Items page 1-22, line 2, 1976p 19 77 p (6.5) (4.4) Net Exports of Goods and Services (GNP basis of net exports) 1/ A1 SUPPLEMENTAL APPENDIX A* CHANGES IN BANK LENDING PRACTICES The Survey of Changes in Bank Lending Practices for November 15, 1976, indicates that commercial and industrial loan demand at the responding banks was essentially unchanged as compared to three months earlier. Further, since the last survey, the respondents as a group have become considerably less optimistic about an upturn in loan demand over the near future. A large number of respondents report moderately easier policies on interest rates and compensating balance requirements while a somewhat smaller number relaxed other terms of lending. Finally, the number of respondents reporting an increased willingness to make various specified types of loans has increased further. Two-thirds of the 121 respondents reported that demand for commercial and industrial loans in mid-November was about unchanged as compared to three months earlier, while one-fifth reported a strengthening and the remainder a weakening in demand over the period. Looking ahead, optimism about an impending upturn in business loan demand apparently has waned somewhat since the previous survey. Only about 35 per cent of the banks now anticipate moderately stronger demand in the next three months, with most of the rest predicting unchanged demand. In contrast, about half of the banks in the August survey expected moderately stronger demand between then and mid-November.1/ The tendency for the respondents to overpredict the strength of loan demand is not uncommon as is illustrated in Chart 1, which shows that in every one of the past six surveys this has occurred. The respondents' evaluation of the strength of commercial and industrial demand in mid-November is similar to their mid-August evaluation. In both surveys about [80]per cent of the banks in the sample reported no upturn in demand, while approximately [20] per cent reported modest strengthening. For the most part the strength was at different banks in the two surveys. Further, slightly fewer banks reported weaker demands in the November survey. Taken together, the mid-August and mid-November surveys suggest that about 30 per cent of the sample experienced an unambiguous strengthening in demand over the 6-month period, while about 23 per cent 1/ Of these previously optimistic banks, a majority (37 of 64) are no longer predicting an upturn in commercial and industrial loan demand in the near future. This perhaps reflects the fact that only 25 per cent of these previously optimistic banks actually reported any strength in loan demand in the November survey. * Prepared by John Scott, Economist, Banking Section, Division of Research and Statistics. A-2 found unambiguous weakening.2/ Respondents to the November survey report further modest concessions on the terms of lending to nonfinancial businesses. A majority of the banks report moderately easier policy with regard to interest rates.3/ There has also been an increase in the number of banks making moderate concessions on compensating balance requirements. In the August survey, about 10 per cent (12 banks) reported moderately easier policy. The November survey shows that 9 of these same banks report further modest concessions on balances and that 20 per cent of those reporting no change in policy in August had initiated a moderately easier policy on such balances. Considering the August and November surveys together, slightly over one-fourth of the respondents have eased their compensating balance requirements. Chart 2 provides a longer run perspective of the gradual move toward easier policy on compensating balances since August 1975. Over 80 per cent of the respondents reported no change in policy on all other price and nonprice terms of lending to nonfinancial businesses. The prolonged weakness of business loan demand may explain much of the increased willingness of banks to make other types of loans included in the survey. The respondents were particularly interested in making consumer instalment loans, and participation loans with correspondent banks. With regard to commercial and industrial loans, they expressed increased willingness to make term loans. For the two most recent surveys together, 45 per cent of the respondents reported an increased willingness to make term loans to business, 35 per cent were more willing to make consumer instalment loans, and 29 per cent were more willing to make participation loans. The essentially unchanged loan demand indicated by the November survey is somewhat surprising in view of observed increases in commercial and industrial loan volume since August. Comparison of the survey responses 2/ Unambiguous strength (weakness) means that strengthening (weakening) demands were reported in either or both periods and that no weakening (strengthening) was reported. 3/ Comments from the survey forms indicate that many respondents equate the recent cuts in the prime rate with easier policy while others do not, apparently believing that lowering the prime rate along with market rates implies no change in policy. A-3 of respondents with their weekly outstandings for commercial and industrial loans shows that for some respondents outstandings increased while their survey responses indicated weaker or unchanged demands. Since the increase in outstandings resulted largely from increases in holdings of bankers' acceptances, some respondents probably are not considering such acceptances when assessing the strength of loan demand.4/ 4/ Of course, it is possible that demand weakened somewhat or remained unchanged while banks' willingness to supply funds increased. If this occurred, we would observe an increase in outstanding loans and lower rates. NOT FOR QUOTATION OR PUBLICATION (STATUS OF TABLE 1 QUARTERLY SURVEY OF CHANGES IN BANK LENDING PRACTICES AT SELECTED LARGE BANKS IN THE U.S. 1/ NOVEMBER 15, 1976 COMPARED TO THREE MONTHS EARLIER) POLICY ON (NUMBER OF BANKS & PERCENT OF TOTAL BANKS REPORTING) MUCH STRONGER TOTAL BANKS PCT BANKS PCT MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER BANKS BANKS BANKS PCT PCT PCT MUCH WEAKER BANKS PCT STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TO THREE MONTHS AGO 121 100.0 23 19.0 81 67.0 15 12.4 1 0.8 ANTICIPATED DEMAND 121 100.0 43 35.5 69 57.1 9 7.4 0 0.0 IN NEXT 3 MONTHS ANSWERING QUESTION BANKS PCT MUCH FIRMER POLICY BANKS PCT MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY BANKS BANKS BANKS PCT PCT PCT MUCH EASIER POLICY BANKS PC LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS: INTEREST RATES CHARGED 121 100.0 0 0.0 2 1.7 57 47.1 62 51.2 0 0.0 COMPENSATING OR SUPPORTING BALANCES 121 100.0 0 0.0 1 0.B 90 74.4 27 22.3 3 2.5 STANDARDS OF 121 100.0 1 0.8 1 0.t 117 196.7 2 1.7 0 0.0 121 100.0 0 0.0 2 1.7 100 82.6 19 15.7 0 0.0 ESTABLISHED CUSTOMERS 121 100.0 0 0.0 2 1.7 105 86.7 14 11.6 0 0.0 NEW CUSTOMERS 121 100.0 1 0.8 3 2.5 103 85.1 14 11.6 0 0.0 LOCAL 121 100.0 0 0.0 2 1.7 112 92.5 7 5.8 0 0.0 121 100.0 2 1.7 5 4.1 103 85.1 9.1 0 0.0 MATURITY OF REVIEWING CREDIT WORTHINESS TERM LOANS CREDIT LINES OR LOAN APPLICATIONS SERVICE AREA CUSTOMERS NONLOCAL SERVICE AREA CUSTOMERS 1/ SURVEY OF LENDING PRACTICES AT 121 AS OF NOVEMBER 15, 1976. LARGE BANKS REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST 11 RATE SURVEY NOT QUOTATION FOR OR PUBLICATION TABLE ANSWERING QUESTION BANKS PCT ITINUED) MUCH FIRMER POLICY BANKS MODERATELY FIRMER POLICY PCT BANKS PCT ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY BANKS BANKS PCT PCT MUCH EASIER POLICY BANKS PCT FACTORS RELATING TO APPLICANT 2/ VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS 121 100.0 98 81.0 10.7 INTENDED USE OF THE LOAN 121 100.0 106 89.3 9.9 INTEREST RATES CHARGED 100.0 95 78.5 19.0 COMPENSATING OR SUPPORTING BALANCES 100.0 115 95.0 3.3 ENFORCEMENT OF BALANCE REQUIREMENTS 100.0 114 94.2 3.3 ESTABLISHING NEW OR LARGER CREDIT LINES 100.0 96 81.0 LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: ANSWERING QUESTION BANKS PCT CONSIDERABLY LESS WILLING BANKS PCT 13.2 MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING BANKS BANKS BANKS PCT PCT PCT WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES 100.0 73 60.3 36.4 CONSUMER INSTALMENT LOANS 100.0 90 75.0 21.7 SINGLE 100.0 98 81.7 13.3 MULTI-FAMILY MORTGAGE LOANS 100.0 117 97.5 0.8 ALL OTHER MORTGAGE 100.0 108 90.7 7.6 FAMILY MORTGAGE LOANS LOANS PARTICIPATION LOANS WITH CORRESPONDENT BANKS 120 100.0 91 75.8 21.7 LOANS TO BROKERS 121 100.0 100 82.7 13.2 2/ FOR THESE FACTORS, FIRMER MEANS THE FACTORS WERE CONSIDERED MORE CREDIT REQUESTS, AND EASIER MEANS THEY WERE LESS IMPORTANT. IMPORTANT IN MAKING DECISIONS FOR APPROVING CONSIDERABLY MORE WILLING BANKS PCT NOT FOR QUOTATION OR PUBLICATION COMPARISON TABLE 2 QUARTERLY CHANGES IN BANK LENDING PRACTICES AT BANKS GROUPED BY SIZE OF TOTAL DEPOSITS NOVEMBER 15, 1976, COMPARED TO THREE MONTHS EARLIER) (STATUS OF POLICY ON (NUMBER OF BANKS IN EACH COLUMN AS PER CENT OF TOTAL BANKS ANSWERING QUESTION) OF SIZE TOTAL STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFIER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TO THREE ANTICIPATED MONTHS DFMAND TOTAL DEPOSITS IN BILLIONS -- MODERATELY STRONGER MUCH STRONGER $1 E OVER UNOERk I ESSENTIALLY UNCHANGED 11 .iVER UNDER I1 MODERATELY WEAKER $1 C OVER UNDER $1 MUCH WEAKER $1 L OVER UNDER $1 t$ (L OViR NDEH 21 oo 10t0 0 1 19 19 73 63 8 16 0 1 100 100 0 (I 37 35 61 53 2 12 0 0 AGO IN NEXT OF BANK 1/ 3 MONTHS TOTAL $I i; OVER UNDER ''.l MUCH FIRMER MODERATELY FIRMER ESSENTIALLY UNCHANGED MODERATELY EASIER II L OVER UNDER $1 s1 E OVER $1 £ OVER MUCH EASIER a 11 E OVkR LENDING TO NONFINANCIAL IUJDER $1 $I1 & OVER uNDR $1 UNDER $1 UNDER $1 $1 £ OVER UNDER $1 BUSINESSES TERMS AND CONDIIIOIS: INTEREST RATES LIARGED 100 100 O 0 2 1 48 47 50 52 0 0 COMPENSATING OR SUPPORTING BALANCLS 100 100 0 0 0 1 67 81 33 14 0 4 STANDARDS OF CRELIT WORTIIINESS 100 1 0 1 0 1 98 97 2 1 0 0 100 100 0 0 2 1 86 80 12 19 0 0 100U 100ii 0 0 3 BB 85 12 12 0 0 1o)0 lt 0 1 0 4 92 81 8 14 0 0 100 100 0 0 94 91 6 6 0 0 100 100 0 3 90 81 10 9 0 0 MATURITY OF TERM LOANS REVIEWING CREDIT LINES OR ESTABLISHED LOAN APPLICATIONS CUSIOMERS NEW CUSTOMERS LOCAL SERVICE AREA CUSTOMES NONLOCAL SERVICE AREA CUSTOMERS 0 a 0 7 1/ SURVEY OF LENDING PRACTICES AT 52 LARGE BANKS (UEPOSITS OF I1 BILLION OR MORE) AND 69 SMALL BANKS (DEPOSITS OF LESS THAN $1 BILLION) REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY AS OF NOVEMBER 15, 1976. NOT QUOTATION OR FOR PUBLIICATION 2 IAbLE ( IiJED) OF BANK MUCH FIRMER POLICY 51Lt NUMBER ANSWERING QUESTION II i IIH-iLR It & OVER UNDER $1 TOTAL DEPOSITS IN BILLION S MODERATELY ESSENTIALLY MODERATELY EASIER UNCHANGED FIRMER POLICY POLICY POLICY UNDER 1I $1 L OVER I$ C OVER OVER $1 VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS 100 100 12 63 INTENDED USE OF THE 100 ',30 1 85 100 100 $1 & OVER UNDER $1 $1 C OVER UNDER Sl 2/ RELATING TO APPLICANT FACTORS UNDER $1 MUCH EASIER POLICY LOAN LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: INTEREST CHARGED RATES COMPENSATING OR SUPPORTING BALANCES 3 0 3 ENFORCEMENT OF BALANCE REQUIREMENTS 100 100 0 4 ESTABLISHING NEW OR LARGER 100 100 2 6 CREDIT LINES NUMBER ANSWERING QUE ST ION 11 O OVER TO MAKE WILLINGNESS TERM LOANS CONSUMER SINGLE TO FAMILY ALL OTHER TYPES OF MORTGAGE LOANS BANKS TO BROKERS I1 E OVER lri;Et S1 UNDER $1 MODERATELY LESS WILLING ESSENTIALLY UNCHANGED $1 & OVER $1 C OVER UNDER S1 UNDER $1 MODERATELY MORE WILLING $1 C OVER UNDER $1 LO(u 100 LOANS MORTGAGE CONSIDERABLY LESS WILLING LOANS BUSINESSES MORTGAGE PARTICIPATION CORRESPONDENT LOANS OTHER INSTALMENT MULTI-FAMILY 2/ 2 106 LOANS 100 LOANS LOANS 100 WITH 100 ioo FIRMER MFANS THE FACTORS FOR THESE FACDOPS, CREDIT REQUESTS, AND EASIER MEANS THEY WERE ioo o10 wERE LFSS 0 1 0 85 0 1 1 87 CONSIDERED MORE IMPORTANT. IMPORTANT IN MAKING DECISIONS FOR APPROVING CONSIDERABLY MORE WILLING . UNDER OVER $1 $1 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 NOVEMBER 15, 1976 COMPARED TO THREE MONTHS EARLIER (NUMBER OF BANKS) BOSTON ALL DSTS NEW YORK TOTAL CITY OUTSIDE PHILADEL. CLEVE- RICHMOND LAND ATLAN- CHICAGO TA ST. LOUIS 1/ MINNE- KANS. APOLIS CITY DALLAS SAN FRAN STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS (AFTER ALLOWANCE FOR BANK'S USUAL SEASONAL VARIATION) COMPARED TO 3 MONTHS AGO 121 MUCH STRONGER MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER MUCH WEAKER 1 23 81 15 1 ANTICIPATED DEMAND NEXT THREE MONTHS 121 MUCH STRONGER MODERATELY STRONGER ESSENTIALLY UNCHANGED MODERATELY WEAKER MUCH WEAKER 0 43 69 9 0 0 1 7 0 0 O 2 12 2 0 0 1 6 1 0 O 1 6 1 0 O 2 3 1 0 0 1 9 1 0 0 3 7 1 1 0 1 6 3 0 0 2 11 2 0 0 2 6 1 0 0 0 3 0 0 1 3 3 2 0 O 2 5 2 0 O 4 9 0 0 0 3 5 0 0 0 5 11 0 0 0 2 6 0 0 0 3 5 0 0 0 4 2 0 0 0 2 9 0 0 0 5 5 2 0 0 4 5 1 0 0 5 9 1 0 0 2 7 0 0 0 1 2 0 0 0 4 2 3 0 0 2 5 2 0 0 6 7 0 0 0 0 4 4 0 0 0 9 7 0 0 0 4 4 0 0 0 5 3 0 0 0 4 Z 0 0 0 6 5 0 0 0 3 9 0 0 0 6 4 0 0 0 8 7 0 0 0 3 6 0 0 0 2 1 0 0 1 2 6 0 0 1 6 2 0 0 0 4 9 0 0 0 7 1 0 0 0 9 7 0 0 0 3 5 0 0 0 6 2 0 0 0 3 3 0 0 0 9 1 1 0 0 9 2 1 0 0 9 1 0 0 0 12 3 0 0 1 4 3 I 0 0 2 1 0 0 0 8 1 0 0 0 8 1 0 0 0 10 3 0 LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS INTEREST RATES CHARGED MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY COMPENSATING BALANCES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 1/ SURVEY OF LENDING PRACTICES AT AS OF NOVEMBER 15, 1976. 121 0 2 57 62 0 121 0 1 90 27 3 121 LARGE BANKS REPORTING IN THE FEDERAL RESERVE QUARTERLY INTEREST RATE SURVEY NOT FOR QUOTATION OR PUBLICATION TABLE 3 ALL DSTS (C ATLANTA CLEVE- RICHLAND MOND PHILADEL. NEW YORK BOSTON TOTAL CITY OUTSIDE ST. CHICLOUIS AGO MINNE- KANS. CITY APOLIS DALLAS SAN FRAN LENDING TO NONFINANCIAL BUSINESSES TERMS AND CONDITIONS STANDARDS OF CREDIT WORTHINESS 121 MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 1 1 117 2 0 MATURITY OF TERM LOANS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 0 1 7 0 0 0 0 16 0 0 0 0 8 0 0 0 0 8 0 0 0 0 7 1 0 0 0 15 1 0 0 0 7 1 0 0 8 0 0 0 O 8 0 0 0 0 12 4 0 0 0 5 3 0 0 0 7 1 0 0 0 12 4 0 0 6 0 0 0 0 11 0 0 0 0 11 1 0 1 0 8 1 0 0 0 15 0 0 00 0 9 0 0 0 3 0 0 0 0 9 0 0 00 0 9 0 0 0 0 13 0 0 0 0 6 0 0 0 10 1 0 0 0 9 3 0 0 0 9 1 0 0 0 14 1 0 0 0 5 4 0 0 0 3 0 0 0 1 b 2 0 0 1 5 3 0 0 0 11 2 0 0 0 7 1 0 0 0 4 2 0 0 0 10 1 0 0 0 11 1 0 0 0 9 1 0 0 0 14 1 0 0 1 7 1 0 0 0 3 0 0 0 1 7 1 0 0 0 7 2 0 0 0 13 0 0 0 0 5 3 0 0 0 7 1 00 0 0 6 0 0 0 9 2 0 0 0 11 1 1 1 8 0 0 0 13 2 0 0 1 6 2 0 0 0 2 1 0 1 U 0 0 0 0 8 1 0 0 0 13 0 0 0 0 7 1 0 0 0 8 0 0 0 0 5 1 0 0 0 10 1 0 0 0 11 1 0 0 0 3 0 0 0 1 7 1 0 0 0 e i 0 0 0 13 0 0 121 0 2 100 19 0 0 0 REVIEWING CRFOIT LINES OR LOANS ESTABLISHED CUSTOMERS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 0 2 105 14 0 121 NEW CUSTOMERS MUCH FIRMER MODERATELY ESSENTIALLY MODERATELY MUCH EASIER 121 POLICY FIRMER POLICY UNCHANGED POLICY EASIER POLICY POLICY LOCAL SERVICE AREA CUSTOMERS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 1 3 103 14 0 0 0 0 0 121 0 2 112 7 0 0 0 8 0 0 0 0 15 1 0 0 0 10 0 0 0 0 14 1 0 0 1 6 0 0 FORQUOTATION OR NOT TABLE . PUBLICATION ALL DSTS BOSTON NEW YORK TOTAL CITY OUTSIDE 4TINUED) PHILADEL. CLEVE- RICHMOND LAND ATLAN- CHICAGO TA ST. LOUIS MINNE- KANS. CITY APOLIS DALLAS SAN FRAN LENDING TO NONFINANCIAL BUSINESSES REVIEWING CREDIT LINES OR LOANS NONLOCAL SERVICE AREA CUST MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 121 2 5 103 11 0 0 0 7 1 0 0 0 15 1 0 0 0 7 1 0 0 0 8 0 0 0 0 5 1 0 0 1 9 1 0 0 11 1 0 1 1 8 0 0 0 0 13 2 0 0 1 7 1 U 0 0 3 0 0 1 1 7 0 0 0 0 7 2 O 0 1 11 1 O 0 0 8 0 0 0 2 11 3 0 0 0 6 2 0 0 2 5 1 0 0 1 5 0 0 0 0 9 2 0 0 0 11 1 0 0 2 8 0 0 0 2 12 1 0 0 0 6 3 0 0 0 3 0 0 0 3 6 0 0 0 0 7 2 0 0 0 12 1 0 0 0 7 1 0 0 0 13 3 0 0 0 6 2 0 0 7 1 0 0 6 0 0 0 11 0 0 0 0 12 0 0 0 0 10 0 0 0 14 1 0 0 0 8 1 0 0 3 0 0 0 1 7 1 0 0 0 8 1 0 0 0 9 4 0 0 0 0 0 c i 0 13 2 0 0 8 1 0 0 3 0 0 0 6 3 0 1 7 1 0 0 8 5 0 FACTORS RELATING TO APPLICANT 2/ VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY INTENDED USE OF LOAN MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY LENDING FINANCE 121 0 10 98 13 0 121 O 1 10b 12 0 TO "NONCAPTIvE" COMPANIES TERMS AND LONDITIONS INTEREST RATES CHARGED M'.H FIRMER POLICY MODERATELY FIRMtR POLICY ESSENTIALLY .IUNCHANGED POLICY MODERATELY EASIER POLICY P MUCH EASIF P'f! ICY 121 o U 0 C 0 O 0 0 0 3 95 23 O 7 1 0 0 14 2 0 7 1 0 0 7 1 0 0 6 0 0 0 10 1 0 8 4 0 2 5 3 0 0 2/ FOR THESE FAC1ORS, FIRMER MEANS THE FACTORS WERE CONSIDERED MORE CREDIT REQUFIT*, fNO EASIER MEANS THEY WERE LESS IMPORTANT. IMPORIANT IN MAKING DECISIONS FOR APPROVING NOT FOR QUOTATION OR PUBLICATION TABLE ALL DSTS NEW YORK BOSTON TOTAL CITY OUTSIDE 3 (CONTINUED) PHILADEL. CLEVELAND RICHMOND ST. ATLAN- CHICAGO LOUIS TA MINNE- KANS. CITY APOLIS DALLAS SAN FRAN LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: SIZE OF COMPENSATING BALANCES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY ENFORCEMENT OF BALANCE REQUIREMENT MUCh FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY ESTABLISHING NEW OR LARGER CREDIT LINES MUCH FIRMER POLICY MODERATELY FIRMER POLICY ESSENTIALLY UNCHANGED POLICY MODERATELY EASIER POLICY MUCH EASIER POLICY 121 O 2 115 4 O 0 0 8 O 0 0 0 15 I 0 0 0 8 0 0 0 0 7 1 0 0 0 6 0 O 0 0 11 0 0 0 0 12 0 G 0 2 8 0 O 0 0 14 1 0 0 0 8 1 O 0 0 3 0 O 0 0 8 1 0 0 0 9 0 0 0 0 13 0 O 0 0 8 0 0 0 0 14 2 0 0 0 8 0 0 0 0 6 2 0 0 0 6 0 0 0 0 11 0 0 0 0 II 1 0 0 2 8 0 0 0 0 15 0 0 0 0 9 0 0 0 0 3 0 0 0 1 7 1 0 0 0 9 0 0 0 0 13 C 0 0 0 8 0 0 0 0 9 6 0 6 2 0 0 1 3 4 0 0 0 6 0 0 0 0 10 1 0 0 0 10 2 0 1 1 8 0 0 0 0 12 3 0 0 0 8 1 0 1 0 1 1 0 0 2 6 1 0 0 0 9 0 0 0 1 11 1 0 0 0 5 3 0 0 0 8 8 0 0 0 5 3 0 0 0 3 5 0 0 0 5 1 0 0 0 10 1 0 0 0 7 4 1 0 0 10 0 0 0 0 8 7 0 0 0 4 5 0 0 0 1 2 0 0 2 4 3 0 0 1 4 4 0 0 0 7 6 0 0 0 8 0 0 0 0 13 2 0 0 0 6 1 0 0 0 7 1 0 0 0 5 1 0 0 0 9 2 0 0 0 8 3 1 0 0 7 2 1 0 0 10 5 0 0 0 5 4 0 0 0 3 0 0 0 0 6 3 0 0 0 7 2 0 0 1 v 2 1 121 0 3 114 4 O 121 2 5 98 16 0 1 WILLINGNESS TO MAKE OTHER TYPES GF LOANS TERM LOANS TO BUSINESSES CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING CONSUMER INSTALMENT LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING 121 O 3 73 44 1 120 0 1 90 26 3 NOT FOR QUOTATION OR PUBLICATION TABLE 3 (CONTINUED) ALL DSTS BOSTON NEW YORK TOTAL CITY OUTSIDE PHILADEL. CLEVE- RICHLAND MOND ATLAN- CHICTA AGO ST. LOUIS MINNEAPOLIS KANS. CITY DALLAS SAN FRAN WILLINGNESS TO MAKE OTHER TYPES OF LOANS SINGLE FAMILY MORTGAGE LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING MULTIFAMILY MORTGAGE LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING ALL OTHER MORTGAGE LOANS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING PARTICIPATION CORRESPONDENT LOANS WITH BANKS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING LOANS TO BROKERS CONSIDERABLY LESS WILLING MODERATELY LESS WILLING ESSENTIALLY UNCHANGED MODERATELY MORE WILLING CONSIDERABLY MORE WILLING NUMBER OF BANKS 120 0 4 98 16 2 1 11 3 0 0 0 6 1 0 0 1 5 2 0 0 0 4 1 1 0 0 10 1 0 0 1 10 1 0 0 0 10 0 0 0 0 13 2 0 0 0 9 0 0 0 0 3 0 0 0 1 6 2 0 0 0 8 1 0 0 1 8 3 1 0 0 8 0 0 0 0 15 0 0 0 0 7 0 0 0 0 8 0 0 0 0 6 0 0 0 0 11 0 0 0 0 12 0 0 0 0 10 0 0 0 0 15 0 O 0 0 9 0 O 0 0 3 0 O 0 1 8 0 C 0 0 9 0 O 0 1 11 1 O 0 0 8 0 0 0 0 13 2 0 0 0 7 0 0 0 0 6 2 0 0 0 6 0 0 0 0 11 0 0 0 0 11 1 0 0 0 9 0 0 0 0 13 2 0 0 0 8 1 0 0 0 3 0 0 0 1 h 0 0 0 0 9 0 O 0 1 V 3 0 0 0 5 3 0 0 0 11 5 0 0 0 7 1 0 0 0 4 4 0 0 0 6 0 0 0 0 10 1 0 0 0 9 1 2 1 0 6 2 0 0 0 14 1 0 0 0 4 5 0 0 0 3 0 0 0 0 8 1 0 0 0 4 5 0 0 0 11 2 0 0 0 7 0 1 0 0 13 3 0 0 0 7 1 0 0 0 6 2 0 0 0 6 0 0 0 0 10 1 0 0 0 10 0 2 1 0 8 1 0 0 0 14 1 0 0 0 7 2 0 0 0 2 1 0 0 0 6 3 0 0 0 7 2 0 0 1 10 2 0 0 0 6 2 0 0 0 120 0 2 117 1 0 119 0 2 108 9 0 120 1 0 91 26 2 121 1 1 100 16 3 121 NOT FOR QUOTATION OR TABLE 4 PUBLICATION COMPARISON OF SELECTED AUGUST RESPONSES IN THE AUG. 15, 1976 NUMBER OF BANKS NOVEMBER AND NOVEMBER 15, SURVEYS 1976 NUMBER OF BANKS STRONGER UNCHANGED WEAKER STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS COMPARED TO THREE MONTHS AGO STRONGER UNCHANGED WEAKER 24 73 24 6 15 3 15 51 15 3 7 6 ANTICIPATED DEMAND THREE MONTHS HENCE STRONGER UNCHANGED WEAKER 64 54 3 27 15 36 32 1 1 7 1 ANTICIPATED DEMAND THREE MONTHS HENCE STRONGER UNCHANGED WEAKER b4 54 3 FIRMER LENDING TO NONFINANCIAL BUSINESSES INTEREST RATES CHARGED FIRMER UNCHANGED EASIER COMPARED 16 7 1 10 THREE MONTHS AGO 42 6 38 9 1 1 UNCHANGED EASIER 3 93 25 0 2 0 0 48 9 3 43 16 COMPENSATING OR SUPPORTING BALANCES FIRMER UNCHANGED EASIER 2 107 12 0 1 0 2 85 3 0 21 9 STANDARDS OF CREDIT WORTHINESS FIRMER UNCHANGED EASIER 4 117 0 0 2 0 4 113 0 0 2 0 MATURITY OF TERM LOANS FIRMER UNCHANGED EASIER 5 104 12 2 O 0 3 90 7 0 14 5 NOT FOR QUOTATION OR PUBLICATION TABLE 4 (CONTINUED) AUG. 15, 1976 NUMBER OF BANKS NOVEMBER 15, 1976 NUMBER OF BANKS FIRMER UNCHANGED EASIER REVIEWING CREDIT LINES OR LOAN APPLICATION ESTABLISHED CUSTOMERS FIRMER UNCHANGED EASIER 2 112 7 0 2 0 2 98 5 0 12 2 FIRMER UNCHANGED EASIER 6 111 4 1 3 0 5 96 2 0 12 2 AREA CUSTOMERS FIRMER UNCHANGED EASIER 3 112 6 0 2 0 3 105 4 0 5 2 5 109 7 1 6 0 4 95 4 0 8 3 VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS FIRMER UNCHANGED EASIER 10 105 6 5 5 0 5 91 2 0 9 4 INTENDED USE OF THE LOAN FIRMER UNCHANGED EASIER 4 109 8 1 0 0 2 102 4 1 7 4 8 108 5 1 2 0 4 91 0 3 15 5 4 116 1 1 1 0 3 111 1 0 4 0 NEW CUSTOMERS LOCAL SERVICE NONLOCAL SERVICE AREA CUSTOMERS FIRMER UNCHANGED EASIER FACTORS RELATING TO APPLICANT LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: INTEREST RATES CHARGED FIRMER UNCHANGED EASIER COMPENSATING OR SUPPORTING BALANCES FIRMER UNCHANGED EASIER FOR NOT QUOTATION OR PUBLICATION TABL AUG. ONTINUED) 15, 1976 NUMBER OF BANKS NOVEMBER 15, 1976 NUMBER OF BANKS EASIER UNCHANGED FIRMER LENDING TO "NONCAPTIVE" FINANCE COMPANIES TERMS AND CONDITIONS: ENFORCEMENT OF BALANCE REQUIREMENTS FIRMER UNCHANGED EASIER 7 113 I ESTABLISHING NEW OR LARGER CREDIT FIRMER UNCHANGED EASIER 8 105 8 LINES WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES LESS UNCHANGED MORE CONSUMER INSTALMENT LOANS LESS UNCHANGED MORE LESS 5 87 29 1 85 34 SINGLE FAMILY MORTGAGE LOANS LESS UNCHANGED MORE 3 102 15 MULTI-FAMILY MORTGAGE LOANS LESS UNCHANGED MORE I 114 4 ALL OTHER MORTGAGE LOANS LESS UNCHANGED MORE 2 108 10 PARTICIPATION LOANS WITH CORRESPONDENT BANKS LtSS 3 96 UNCHANGED MORE 22 LOANS TO BROKERS LESS IINCHA'-. FD MORE UNCHANGED MORE NOT FOR QUOTATION OR PUBLICATION TABLE 5 CROSS-CLASSIFICATION OF SELECTED RESPONSES NOV. 15, 1976 NUMBER OF BANKS IN THE NOVEMBER SURVEY NOVEMBER 15, 1976 NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED EASIER LENDING TO NONFINANCIAL BUSINESSES INTEREST RATES CHARGED FIRMER ESSENTIALLY UNCHANGED EASIER COMPENSATING OR SUPPORTING BALANCES O 2 0 1 50 b 24 38 0 NEW CUSTOMERS ESTABLISHED CUSTOMERS 3 1 96 1 0 6 0 6 8 INTENDED USE OF THE 9 1 0 91 O 8 0 7 5 FIRMER ESSENTIALLY UNCHANGED EASIER VALUE AS DEPOSITOR OR SOURCE OF COLLATERAL BUSINESS FIRMER ESSENTIALLY UNCHANGED EASIER LOAN LENDING TO "NONCAPTIVE" FINANCE COMPANIES INTEREST RATES CHARGED FIRMER ESSENTIALLY UNCHANGED EASIER COMPENSATING OR SUPPORTING BALANCES 0 1 2 O 93 2 O 21 2 COMPENSATING OR SUPPORTING BALANCES FIRMER ESSENTIALLY UNCHANGED EASIER ENFORCEMENT OF BALANCE REQUIREMENTS 2 0 0 1 112 2 2 2 O COMPENSATING OR SUPPORTING BALANCES FIRMER ESSENTIALLY UNCHANGED EASIER ESTABLISHING NEW OR LARGER CREDIT LINES 2 0 0 5 98 12 4 0 0 NOT FOR QUOTATION OR PUBLICATION TABLE 5 (CONTINUED) CROSS-CLASSIFICATION OF SELECTED RESPONSES NOV. 15, 1976 NUMBER OF BANKS IN THE NOVEMBER SURVEY NOVEMBER 15, 1976 NUMBER OF BANKS ESSENTIALLY UNCHANGED LESS MORE WILLINGNESS TO MAKE OTHER TYPES OF LOANS TERM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED MORE MATURITY OF TERM LOANS 2 1 68 0 0 31 SINGLE FAMILY MORTGAGE LOANS LESS ESSENTIALLY UNCHANGED MORE MULTI-FAMILY MORTGAGE LOANS 2 2 0 0 98 O 0 17 1 SINGLE FAMILY MORTGAGE LOANS LESS ESSENTIALLY UNCHANGED MORE 0 5 14 ALL OTHER MORTGAGE LOANS 0 2 2 5 92 0 4 14 0 TERM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED MORE CONSUMER O 0 1 TERM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED MORE PARTICIPATION LOANS WITH CORRESPONDENT BANKS 0 2 1 1 66 5 0 23 22 TERM LOANS TO BUSINESSES LESS ESSENTIALLY UNCHANGED MORE INSTALMENT LOANS 2 1 61 11 17 27 LOANS TO BROKERS 0 2 2 68 O 30 1 3 15 NOT FOR QUOTATION OR PUBLICATION TABLE 5 (CONTINUED) CROSS-CLASSIFICATION OF SELECTED RESPONSES IN THE NOV. 15, 1976 NUMBER OF BANKS NOVEMBER SURVEY NOVEMBER 15, 1976 NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED EASIER STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER INTEREST RATES CHARGED TO NONFINANCIAL BUSINESSES 2 13 9 0 38 43 0 6 10 COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER COMPENSATING 0 1 0 OR SUPPORTING BALANCES 18 6 20 60 12 4 THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER STANDARDS OF O 1 1 CREDIT WORTHINESS 23 1 0 80 1 14 COMPARED TO COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER MATURITY 2 0 0 COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER NEW OF TERM LOANS 17 70 13 5 11 3 CUSTOMERS I 2 1 22 68 13 I II 2 COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER I"NONCAPTIVE FINANCE COMPANIES") ENFORCEMENT OF BALANCE REQUIREMENTS 0 23 I 1 78 2 2 13 1 COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER ("NONCAPTIVE ESTABLISHING 2 4 1 FINANCE COMPANIES") NEW OR LARGER CREDIT LINES 20 2 66 11 12 3 NOT FOR QUOTATION OR PUBLICATION TABLE 5 (CONTINUED) A CROSS-CLASSIFICATION OF SELECTED RESPONSES NOV. 15, 1976 NUMBER OF BANKS IN THE NOVEMBER SURVEY NOVEMBER 15, 1976 NUMBER OF BANKS ESSENTIALLY LESS UNCHANGED MORE STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER WILLINGNESS TO MAKE TERM LOANS TO BUSINESSES 14 3 O 51 0 8 COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER WILLINGNESS TO MAKE CONSUMER INSTALMENT LOANS 0 19 5 19 60 1 11 0 5 COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER WILLINGNESS TO MAKE SINGLE FAMILY MORTGAGE LOANS 2 19 3 WILLINGNESS TO MAKE MULTI-FAMILY MORTGAGE LOANS 21 1 2 80 0 0 0 THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER WILLINGNESS TO MAKE ALL OTHER MORTGAGE LOANS 20 2 74 0 14 0 COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER WILLINGNESS TO MAKE PARTICIPATION LOANS WITH CORRESPONDENT BANKS 0 17 0 65 1 9 COMPARED TO COMPARED TO THREE MONTHS AGO STRONGER ESSENTIALLY UNCHANGED WEAKER WILLINGNESS TO MAKE LOANS TO BROKERS 17 1 0 72 NOT FOR QUOTATION OR PUBLICATION TABLE 5 (CONTINUED) CROSS-CLASSIFICATION OF SELECTED RESPONSES NOV. 15, 1976 NUMBER OF BANKS IN THE SURVEY NOVEMBER NOVEMBER 15, 1976 NUMBER OF BANKS ESSENTIALLY FIRMER UNCHANGED EASIER STRENGTH OF DEMAND FOR COMMERCIAL AND INDUSTRIAL LOANS ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER COMPENSATING OR SUPPORTING BALANCES 0 34 9 20 48 1 0 8 1 ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER STANDARDS OF CREDIT WORTHINESS 1 41 1 1 68 0 1 8 0 ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER MATURITY OF TERM LOANS 35 2 0 59 0 6 ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER NEW CUSTOMERS 2 37 1 59 1 7 ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER ESTABLISHING 4 2 1 ("NUNCAPTIVE LESS ANTICIPATED DEMAND IN NEXT 3 MONTHS STRONGER ESSENTIALLY UNCHANGED WEAKER b 10 3 4 9 1 FINANCE COMPANIES") NEW OR LARGER CREDIT 34 5 58 9 6 2 ESSENTIALLY UNCHANGED MORE WILLINGNESS TO MAKE TERM LOANS TO BUSINESSES 3 20 20 0 48 21 0 5 4 LINES CHART 1: of Commercial and Industrial Loan Demand* Anticipated versus Realized Stre. 6100 490 - 80 SI F1 ri1 n1 Realized I Strength I Nov - 74 Feb 75 Feb - May 1975 May - Aug 1975 Aug - Nov 1975 I-- Nov - Feb 75 76 I ' I I II I 47 - ---Feb - May 1976 May - Aug 1976 Aug - Nov 1976 * On each survey, respondents provide their expectations about the strength of commercial and industrial loan demand over th' next three months. "Anticipated strength" is defined here as the percentage of respondctcs expecting stronger demand. The succeeding survey provides "realized strength" which is defined here as the percentage of the sample reporting stronger demand. -- 4 0 Nov-Feb 76 77 CHART 2: Policy Regarding Compensating Balances An Index of the Net Change in (% of Respondents Reporting Firmer Policy Minus % Reporting Easier Policy) +(Net:Firmer) 100 - 75 - 50 25- Aug 15 1974 25 1- 50 - 75 - 100 -(Net:Easier) - H 77 F-1 ' ---- '~ Nov 15 1974 Feb 15 1975 S Fi F-1 May 15 1975 I ug 15 1975 Nov 15 1975 Feb 15 1976 May 15 1976- Aug 15 1976 Nov 15 1976 APPENDIX B* Changes in Offering Terms of Small Time and Savings Deposits in Response to Declining Market Rates of Interest With the approval of the FDIC and the FHLBB, staffs of all Reserve Banks were asked in mid-November to contact a number of commercial banks (CB's), savings and loan associations (S&L's), and mutual savings banks (MSB's) in their Districts to determine whether depository institutions had begun to lower offering rates on deposits subject to Federal ceilings in response to declining market rates of interest. Institutions were asked if they had cut rates on any such deposits or planned to cut rates in the next 60 days and if they had eliminated any type of deposits from their schedule of offerings. Officials at the institutions also were asked whether they had reduced promotional activity to attract deposits. The results of the survey were received at the Board by December 3, and the table summarizes the principal findings.1/ Both rate cutting and dropping of certain maturities of time deposits are indeed evident at banks and thrift institutions, but, as shown by item 2 in the table, such activity was found to be more common at thrift institutions than at banks. About 20 per cent of the banks contacted reported that they had either cut rates or ceased offering selected maturities of time deposits, compared to half of the S&L's and three-fourths of the MSB's. The pattern of heavier rate cutting and withdrawing of maturities of time deposits by thrift institutions was found throughout the country, although somewhat more of this activity was noted in the Southeast, and less in the Northeast than prevailed elsewhere. 1/ It should be cautioned that though an attempt was made to contact a cross-section of institutions by size, the survey was informal and was not a scientific sample of banks and thrift institutions. Consequently, inferences about the comparative rate cutting and other activities of the various classes of institutions or by institutions in various regions can only be made in the broadest terms. *Prepared by Paul Boltz, Banking Section, Division of Research and Statistics B - 2 Preliminary tabulations have just become available this week from the universe survey of offering rates at S&L's taken in early October by the Federal Home Loan Bank Board and they indicate that relatively little rate cutting or dropping of maturities of deposits had occurred by that time. This is not inconsistent with the results of our informal survey which shows that more than half of the rate cutting and dropping of maturities at S&L's occurred after the FHLBB survey date. The practice of rate cutting thus appeared to be accelerating in November and probably by now has spread to many more institutions than is suggested by our survey. Indeed, many officers of S&L's,as well as of MSB's and CB's who did not have firm plans for lowering rates, nonetheless reported that they were watching the course of market rates closely and would take action if rates declined further. Items 3 and 4 of the table show that rate cutting has been more prevalent in the longer-term certificate accounts (with maturities 4 years and over) at thrift institutions than in shorter-term time deposits. Although some institutions reported paying below the ceiling rate on savings deposits, rate cutting on savings accounts is not shown separately because no institution of any type contacted reported that it had cut its savings deposit rate in the preceding six months. Unlike the thrift institutions, banks reported more rate cutting on short as opposed to longer-term time deposits, but relatively few banks reported any rate cutting of time deposits. Rate cutting was not the method preferred by thrift institutions for slowing inflows of longer-term time deposits, as shown in item 5. In the last six months, almost one-half of the mutual savings banks contacted and almost one-third of the S&L's have ceased offering longer term time accounts with an original maturity of four years or more. In contrast, only 1 in 10 banks stopped offering such maturities during the same period. Relatively few institutions reported that they had reduced advertising and other promotional activity in the preceding six months, as shown by item 6. Indeed, some have increased year-end advertising in an effort to attract IRA and Keogh accounts. On the other hand, some of the bank and thrift institution executives reported that advertising had been cut back more than six months ago, as market rates edged down to and fell below offering rates on their deposits. B - 3 The more widespread rate cutting by thrift institutions may reflect the fact that the initial offering rates at such institutions generally exceeded rates offered by commercial banks by one-fourth of one per cent--the Congressionally mandated differential--and the effects of declining rates of interest may have been felt more promptly by thrift institutions than by banks. The rate cutting by thrift institutions reduces or eliminates the advantage of the differential as long as competing banks elect to pay ceiling rates. These developments clearly have a long-run importance in any discussion of the rate differential accorded thrift institutions. In recent years, banks have increased their market share of savings deposits and shorter- term time deposits, while their market share of long-term deposits has declined. On balance, the banks' share of total small deposits has been stable. The differing patterns of rate cutting at CB's and thrifts found in the survey may reflect their reluctance to lower offering rates on deposits where there has not been much growth. Banks and thrifts generally have cut rates in those maturities where they have enjoyed the most success and already have the strongest market position: short-term time deposits for banks and long-term time deposits for thrifts. RESULTS OF INFORMAL SURVEY OF OFFERING RATES AND PROMOTIONAL ACTIVITY ON SMALL (under $100,000) TIME AND SAVINGS DEPOSITS November 1976 All Districts Number % of Total Northeast (Districts 1,2,3) Number % of Total Southeast (Districts 5,6) Number % of Total Upper Midwest (Districts 4,7,9) Number % of Total Lower Midwest (Districts 8,10,11) Number West (District 12) % of Total IN umber % of Total 1. Institutions contacted CBs MSBs S&Ls 2. Dropped maturities or cut offering rates in last 6 momths CBs 25 6.7 20.7 2 MSBs 25 73.5 15 63.0 S&Ls 50 3 20.0 48.5 3. Reduced offering rates on short-term time deposits in last 6 months CBs 11 9.1 0 0.0 40.0 100.0 76.2 2 MSBs 4 11.8 2 8.3 0 S&Ls 7 6.8 0 0.0 3 10.0 0.0 14.3 13.3 100.0 40.0 23.3 6.7 0.0 3.3 13.3 4. Reduced offering rates on long-term (4 years and over) time deposits in ]ast 6 months CBs 3 2.5 1 3.3 1 5.0 MSBs 9 26.5 5 20.8 0 0.0 S&Ls 17 16.5 1 6.7 8 38.1 0.0 60.0 13.3 5. Stopped offering some maturityI/of deposit in last 6 months CBs 12 9.9 1 3.3 MSBs 15 44.1 8 33.3 S&Ls 31 30.0 2 13.3 6.7 60.0 23.3 6. Reduced CBs MSBs S&Ls 6 3 9 30.0 100.0 42.9 60.0 8.0 3.3 12.0 6.7 40.0 36.4 100.0 33.3 27.3 100.0 8.3 0.0 50.0 8.3 9.1 50.0 25.0 promotional activity to attract deposits in last 6 months 12 3 14 9.9 8.8 13.6 1 1 1 3.3 4.2 6.7 0 0 2 7. Began directing depositors away from long-term deposits in last 6 months CBs 8 6.6 1 3.3 0 MSBs 2 5.9 0 0.0 0 S&Ls 18 17.5 1 6.7 1 0.0 0.0 9.5 6.7 40.0 3.3 23.3 0.0 0.0 4.8 20.0 40.0 3.3 33.3 24.0 1/ In nearly all cases, the maturities of deposits withdrawn were the 4 year and over time deposit accounts. 32.0 18.2 0.0 16.6 0.0 0.0 0.0 APPENDIX C* BUSINESS LOAN EXPANSION BY INDUSTRY As noted in the Greenbook, business loans have increased over the last three months, even after exclusion of large acquisitions of bankers' acceptances by a few of the leading banks.1/ This recent loan expansion is in marked contrast to reductions in business loans in the first eight months of the year. Examination of the distribution of business loans reveals that the increase in loans was concentrated at large banks and widespread among industries. In this appendix, some preliminary results of a staff study of loans by industry are presented. Industry breakdowns of business loans are reported currently by about 160 of the largest weekly reporting banks. The seasonal adjustments employed in this analysis are preliminary. Table I provides an indication that the recent loan expansion reflects not only temporary increases in holdings of bankers' acceptances, but also major shifts in the trend of loans in most industry categories. As shown by the figures in parenthesis in the upper portion of the table, there was a substantial increase in business loans other than acceptances in the latest three months, in contrast to a net contraction earlier in the year. The smaller banks have experienced relatively steady loan growth throughout the year. Thus, the shift from a 3.5 per cent annual rate of decline to an 8.6 per cent rate of expansion (excluding bankers' acceptances) reflects mainly a reversal of trend at the large weekly reporting banks. These banks usually dominate trends in business loans, as they account for about two-thirds of total business loans at commercial banks. Nearly all industry categories--8 of the 10 major groupings shown in Table 1--contributed to the recent turnaround in business loans at large banks. Some major groupings, such as durable goods manufacturing services, and loans not elsewhere classified turned from conttaction in outstandings to expansion. Nondurable goods manufacturing, mining, and foreign business loans all extended earlier growth at accelerated rates; 1/ A few banks have increased their acceptance holdings sharply since August in order to expand their loan portfolios and provide for greater It is expected that loan loss allowances for tax purposes at year end. this increase in acceptance holdings will be reversed early in 1977, following a similar pattern in 1975-76. *Prepared by Edward R. Fry, Senior Economist, Banking Section, Division of Research and Statistics C- 2 while the sharp contraction in loans to the construction industry abated. Two categories--trade and the transportation, communications, and other public utilities group--continued about on the paths observed earlier in the year, with trade firms still borrowing relatively heavily and the latter group further reducing bank borrowings sharply. As was noted in the Greenbook, this general improvement in bank lending to businesses may reflect some inventory financing, perhaps involuntary, and some abatement of balance sheet restructuring, as well as increasing interest by banks in expanding loan portfolios. The latest information on inventories indicates substantial inventory expansion in October, suggesting a possible explanation for renewed loan growth. Also, long-term financing by leading firms that have access to the public market has been relatively small in recent months, as corporate liquidity has improved considerably, especially in manufacturing industries. Table 2 focuses on business loans in the manufacturing industries Most manufacturing industries for which current business loan data are available have contributed heavily to the recent turnaround. Only the transportation equipment and food, liquor, and tobacco groups have reduced their borrowings at banks in recent months. The metals group shows a dramatic shift from reduction to expansion in bank borrowings. These industries also experienced substantial inventory accumulation in September and October. Among nondurable goods manufacturing industries, the most rapid loan expansion also was in industries that experienced relatively large inventory investment. The petroleum refining industry stands out as the leading borrower in this period, probably reflecting heavy imports and stockpiling of petroleum products in anticipation of expected price increases. Manufacturers of chemicals and rubber also increased their bank borrowing while experiencing inventory accumulation. Increases in loans to the trade group (total shown in Table 1) also may reflect inventory investment to some extent. Wholesale firms have borrowed more heavily than retail firms from banks throughout this year, and wholesale inventories also have increased more than retail. Most recently, retail sales have strengthened and retail inventories have declined. The acceleration in loan extensions to mining firms (also shown in Table 1) probably reflects stepped-up exploration and mining of energyrelated resources, especially crude petroleum. C- 3 Table 1 Distribution of Business Loans by Major Industry Groups--1976 Seasonally Adjusted Changes (% annual rate) Outstanding nding Latest 3 First 8 ($ mil Lions) mos. 1976 C&I loans, all commercial banks Large Banks Other banks C&I loans by industry (selected large banks) Durable goods manufacturing mos. 1976 11/2 4/76 13.3(8.6)* -4.3(-3.5)* 17( 5,700 17.1(9.8)* -10.6(-9.8)* 11 5,976 6.4 9.3 6(),724 18.7 -10.7 95,830 5.8 -22.2 14,414 Nondurable goods manufacturing 12.4 Mining 37.5 22.2 7,343 Trade 11.2 13.7 14,357 Transportation, communication, and other public utilities Construction Services 0.9 13,764 -17.4 -19.6 12,151 -2.7 -30.1 4,096 3.3 -2.9 10,511 279.8 -34.1 5,428 Foreign C&I loans 25.7 7.0 5,939 Not elsewhere classified 43.2 -45.4 7,959 7.3 -5.6 19,973 Bankers acceptances C&I loans of large banks not classifying loans * Figures in parentheses reflect growth rates in business loans other than bankers acceptances. C -4 Table 2 Distribution of Business Loans to Manufacturing Industries-- 1976 Seasonally Adjusted Changes (% annual rate Outstanding .ng Latest 3 First 8 ($ millio ns) mos. 1976 mos. 1976 11/24/7 6 DDurable goods manufacturing 5.8 -22.2 14,414 Primary metals 29.6 -8.1 2,132 Machinery 11.9 -31.2 4,818 -36.0 -29.2 2,224 22.2 -28.6 1,768 5.5 -8.1 3,444 12.4 0.9 13,764 Transportation equipment Other fabricated metal products Other durable goods Nondurable goods manufacturing Food, liquor, and tobacco Textiles, apparel, and leather -44.5 11.7 3,246 8.8 15.3 3,355 Petroleum refining 94.6 -13.1 2,603 Chemicals and rubber 21.0 -12.9 2,663 Other nondurable goods 20.6 3.6 1,960 APPENDIX D* U.K. ECONOMIC PACKAGE On December 15, the U.K. government announced policy measures in connection with its application to the IMF for a $3.9 billion loan. Chancellor of the Exchequer Denis Healey announced reductions in public spending plans (in 1976 prices) of £1 billion in fiscal 1977/78 (U.K. fiscal years begin April 1) and 1.5 billion in fiscal 1978/79. These cuts, supplemented by a 10 per cent increase in duties on tobacco and alcoholic drinks and some sales of government-held shares of British Petroleum, are expected to help reduce the public sector borrowing requirement from its present (1976/77) estimated level of [£11.2 billion -- 9 per cent of GDP -- to -8 .7 billion in 1977/78 and about £8.6 billion] in 1978/79 -- 6 per cent and 5.25 per cent of GDP, respectively. The Chancellor indicated that income taxes may be cut next year if a satisfactory agreement is worked out on the next phase of the pay policy. The Chancellor also indicated that if forecasts available at the time when fiscal policy for 1978/79 is being formulated show that real GDP for 1978 and 1979 is likely to grow at an average rate of more than 3.5 per cent per year, the budget deficit will be cut further by up to £ billion. The Chancellor also announced targets for domestic credit expansion (DCE) and made it clear that hitting such targets, rather than money supply targets, will be the main goal of monetary policy in the foreseeable future. Roughly, DCE in the United Kingdom equals the change in M3 plus the external deficit. The DCE targets are: £9 billion for 1976/773/; £7.7 billion for 1977/78; and £6 billion for 1978/79. Using reasonable estimates of what the external deficits are likely to be suggests that the DCE targets announced are roughly equivalent to an annual growth rate of M3 of around 12 per cent during the next two fiscal years. (For the current fiscal year the target for M3 growth is 12 per cent). DCE targets are a standard feature in IMF credit agreements. The Chancellor's Letter of Intent to the IMF sets out a schedule of quarterly limits to the sizes of both DCE and the public sector borrowing requirement in order to help ensure that the fiscal year targets for those two variables will be achieved. Chancellor Healey stated that Johannes Witteveen, IMF Managing Director, supports the U.K. measures and is prepared to recommend IMF approval of the U.K.'s request for the $3.9 billion standby arrangement. The IMF is expected to approve Britain's loan application in early January. Britain will then be able to draw $1.15 billion immediately and another $1 billion before the end of 1977. The availability of a $500 million swap with the United States ($250 million each * Prepared by David H. Howard, Economist, World Payments and Economic Activity Section, Division of International Finance. D- 2 with the Federal Reserve System and the U.S. Treasury) and a $350 million standby with the Bundesbank were also announced. Any drawings on the U.S. and German facilities are to be repaid during the course of 1977. The Chancellor also said that he believes that there will be an agreement on the sterling balance problem "before long." The specific measures announced include: Public expenditure. Public sector spending reductions of £1 billion for fiscal 1977/78 and £1.5 billion for 1978/79 (both in 1976 prices) were announced. The areas affected by the cuts include central and local government capital expenditure, acquisitions under the Community Land Act, food subsidies, defense, foreign aid, civil service staff, public service pensions, the regional employment premium, and the refinancing by government of fixed-rate export credit. Although full details are not yet available, preliminary reports indicate that cuts in construction programs will be £270 million in 1977/78 and £300 million in 1978/79, cuts in housing programs will save £300 million in 1978/79, acceleration of the phasing-out of food subsidies will save £60 million in 1977/78, and defense will be cut £100 million in 1977/78 and £ 2 0 0 million in 1978/79 (about 2 per cent and 4 per cent of the 1976/77 defense budget, respectively). Taxation. A 10 per cent increase in the revenue duty on imported leaf tobacco was imposed as of midnight, December 15, and a similar increase in the duty on other tobacco products and alcoholic liquor is to go into effect on January 1. These taxes should increase revenue in the current 1976/77 fiscal year by £50 million and in a full year by 280 million. These tax increases are intended to finance measures to aid employment and investment involving some £200 million in each of the next two fiscal years. Sale of British Petroleum shares. The U.K. government will sell part of its holding of British Petroleum shares, which should yield some £500 million. The government intends to retain a majority of the outstanding shares, however.

Cite this document

APA

Federal Reserve (1976, December 20). Greenbook/Tealbook. Greenbooks, Federal Reserve. https://whenthefedspeaks.com/doc/greenbook_19761221_part2

BibTeX

@misc{wtfs_greenbook_19761221_part2,
  author = {Federal Reserve},
  title = {Greenbook/Tealbook},
  year = {1976},
  month = {Dec},
  howpublished = {Greenbooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/greenbook_19761221_part2},
  note = {Retrieved via When the Fed Speaks corpus}
}