Regional President Speech

POLICY IMPLICATIONS OF THE GROWTH OF U.S. MUTUAL FUNDS Comments By THOMAS M. HOENIG President Federal Reserve Bank of Kansas City Kansas City, Missouri Davos World Economic Forum Davos, Switzerland January 31, 1994 I. Introduction A. The U.S. financial system has undergone dramatic changes in recent years, and the rapid growth of mutual funds is one of the most significant of these changes. 1. The mutual fund industry has grown from relative obscurity two decades ago to the second-largest type of financial institution in the U.S. economy--only commercial banks have more assets than mutual funds. B. There is no doubt that the growth of mutual funds is good for the economy because it has greatly expanded the opportunities available to investors and borrowers. 1. Through mutual funds, small investors now have a low­ cost means for diversifying their investments across a broad range of financial assets, and they have access to professional money management services that were previously cost effective only for large investors. 2. From the borrowing side, mutual funds are in large part responsible for the growth of nonbank sources of credit, such as commercial paper, finance company loans, noninvestment-grade bonds, and mortgage-backed securities. C. While good for the economy, the growth of mutual funds raises several policy issues of concern to the Federal Reserve. They pertain to the effect of mutual funds on traditional guides to monetary policy, the fragility of the economy, and the role of commercial banks. II. The Effect of Mutual Funds on the Traditional Guides to Monetary Policy A. The growth of mutual funds has reduced the usefulness of the guides that monetary policymakers have traditionally used to assess the state of the economy. 1. Policymakers have traditionally relied on measures of money, which consist of various categories of bank deposits, to guide policy. a. Money has been a useful guide because it has had a close relationship to future levels of economic activity and prices. Over the past ten years or' so, the Federal Reserve has favored the M2 measure of money because it had the most stable relation­ ship with economic activity and prices. 2 2. In recent years, however, the stable relationship between M2 and the economy has broken down. Basically, given the relatively slow growth of M2, both the growth of real income and inflation are higher than we would expect based on historical relationships. 3. One of the major reasons for the breakdown is the growth of stock and bond mutual funds. a. Over the past few years, these funds have become attractive alternatives to deposits and money market funds. Also, the steepening of the—yield curve has made longer term investments more attractive. People have taken advantage of these changes by’ shifting their funds out of deposits and money market funds and into stock and bond mutual funds. Thus, rather than reflecting _changes in income, and prices, much of the recent slow growth of money simply reflects portfolio shifts from assets included in our definitions of money to assets that are not included. o Deposits and money market funds have fallen from 36 percent of household financial assets in 1980 to 22 percent today. Moreover, stock and bond mutual funds have risen from 1 per­ cent of household financial assets in 1980 to 9 percent today. B. The breakdown in the traditional relationship has made the conduct of monetary policy more difficult for the Federal Reserve. 1. The biggest problem is that if money no longer gives reliable signals about future income and prices, it cannot be a reliable guide for policymakers. 2. A related problem is that money sends misleading signals to the public about the stance of monetary policy. For example, from the perspective of both policymakers and the public, it is unclear whether a jump in money growth means the economy is strengthening and inflationary pressures are rising or if it simply means that people are shifting from mutual funds to deposits. C. Conclusion. As a result, the Federal Reserve indicated last year that M2 was being downgraded as a policy guide and that no single variable would take its place in the near term. Thus, the Fed now relies on a broad range of economic and financial information to conduct policy. 3 III. The Effect of Mutual Funds on the Fragility of the Economy A. A second consequence of the growth of mutual funds is that it may have raised the volatility of consumer spending and hence overall economic activity. 1. The reason, it is argued is that a larger share of household wealth is being held in the form of risky assets, such as stock and bond mutual funds, and a smaller share in safe assets, such as deposits. As a result, consumer spending could be more sensitive to financial calamities, such as a crash in the stock market or a jump in interest rates. o Since 1980,_ household investments in stock and bond mutual funds have risen from 1 percent of financial assets to 9 percent; and household holdings of deposits and money market funds have fallen from 36 percent of financial assets to 22 percent. o Since 1989, the percent of households that own stock and bond mutual fund shares has risen from 12 percent to 16 percent. 2. Financial markets also might be more volatile. If new investors in mutual funds have short investment horizons, if they do not fully understand the risks of their investments, or if they are overly sensitive to changes in rates of return, they might alternate between mutual funds and bank deposits causing fluctu ations in stock prices. For example, if stock prices plunge,, households might move from mutual funds to bank deposits, driving market prices even lower. 3. A final concern is that a liquidity crisis in the mutual fund industry could put further downward pressure on stock and bond prices. If stock prices fall, investors could move out of a mutual fund if they are concerned the fund will not be able to cash them out or be able to sell assets without incurring substantial losses. In addition, problems at a par­ ticular mutual fund might lead to a liquidity crisis for the whole industry due to contagion effects. B. While there is some reason to believe potential economic X volatility may have increased, the arguments overstate the case. 4 1. First, although households have dramatically increased their holdings of stock and bond funds, such funds still represent a relatively small fraction of financial wealth--just 9 percent. 2. Second, while households have increased their holdings of stock and bond mutual funds, what matters is total holdings of stocks and bonds. Today, total holdings are about the same as in the 1960s. However, total holdings are much less risky than in earlier years because a much larger fraction of stocks and bonds is held indirectly through diversified mutual and pension funds. o Total holdings of stocks and bonds as a percent of household financial assets averaged _73 Percent in the 1960s, was 62 percent in 1980, and is 76 percent today. o Indirect holdings of stocks and bonds as a percent of total holdings of stocks and bonds averaged 29 percent in the 1960s, was 51 percent in 1980, and is 61 percent today. 3. Third, and very importantly,_ consumer-spending is not Very sensitive to changes in wealth. For example, after the 1987 stock market collapse, consumer spending continued to rise steadily even though stock prices fell 20 percent. 4. Fourth, there is no reason why households should be more skittish after a plunge in stock prices. For example, after the 1987 collapse, it was not households —but institutional investors--that were the main sellers of mutual funds. 5. Finally, while a liquidity crisis in the mutual fund industry is possible, it is very unlikely. a. Mutual funds are very liquid. o The SEC requires mutual funds to invest 85 percent of their assets in liquid assets-- defined as securities for which market prices are readily available. o The SEC can suspend redemptions for up to seven days in emergency situations. o Funds that emphasize less liquid assets also tend to hold a large amount of very liquid 5 assets, such as money market assets and liquid long-term securities, to meet redemptions. o Many funds have backup credit lines at commercial banks collateralized by the fund's securities. However, many of these backup lines are not contractual so they could be unavailable in a time of crisis. o The mutual fund industry did not suffer a liquidity crisis during the heavy liquida­ tions in October 1987. On the day of the largest redemptions, equity funds used core reserves to meet about two-thirds of the outflow. Some funds had to sell stocks to meet redemptions, but the market seemed to absorb the sales without difficulty. b. Investors are less likely to "run" on a mutual fund than on a bank because there is less incentive to run. Specifically, because mutual funds are marked to market on a daily basis, investors would not bear a disproportionate loss if they are not the first ones out of a fund. c. Contagion effects are not very likely in mutual funds. o If a particular fund has a problem, there is no reason to expect all other funds to have problems. Moreover, given the large number of stock and bond mutual funds--l,600 equity and 2,000 bond funds--most investors could easily move their assets to a similar fund not having a problem. o When a fund's losses are due to questionable investment decisions, investment advisors have an incentive to make up the losses in order to maintain their reputation. In fact, investment advisors have made up such losses on several occasions. o As a last resort, the Securities Investor Protection Corporation (SIPC) protects mutual fund investors who hold shares with an SEC­ registered broker against some kinds of losses, such as those from mismanagement or wrongdoing by the broker. 6 C. Conclusion. Whether mutual funds have made the economy more volatile is strictly a conjecture. 1. There is no empirical evidence that the economy has become more volatile. There are also several reasons why the economy might not be more volatile. In addition, the Federal Reserve _is aware of the issue, and we will continue to monitor the situation so that we can respond appropriately if the situation arises. IV. The Effect of Mutual Funds on the Role of Commercial Banks A. The growth of mutual funds also raises fundamental questions about the future structure of the U.S, financial system, and particularly about the future role of banks. 1. Much of the growth of the mutual fund industry has come at the expense of the banking industry. a. ' At 21 percent of household financial assets, bank deposits are at an all-time low. On the asset side of the ledger, bank loans as a share of nonfinancial short-term business credit are also at an all-time low. The loss of traditional lines of business has squeezed bank profits, although the squeeze has been masked over the past two years by record profits due to a favorable interest rate environment. o Bank deposits as a share of household financial assets averaged 26 percent in the 1950s and 1960s, peaked at 37 percent in the second half of the 1970s, and has been on a downward trend since the late 1970s. o Bank loans as a share of nonfinancial corporation short-term credit have fallen from an average of 89 percent in the 1950s to 56 percent today. o Return on assets at U.S. commercial banks has fallen from an average of 82 basis points in the 1960s to an average of 48 basis points over the five-year period ending in 1991. 2. Faced with the decline in profits from traditional lines of business, many banks have searched for new sources of business, and some have moved aggressively into mutual funds. 7 3. Bank mutual fund activities have expanded at a rapid rate over the past few years. Most banks involved in mutual fund activities sell third-party funds, although more than 100 banks have set up their own proprietary funds. o Over 3,500 banks—one-third of the banking industry—sell mutual funds. Bank sales account for about 30 percent of all mutual fund sales and 15 percent’ of stock and bond mutual fund sales. o Assets at bank proprietary funds are about $200 billion and account for 10 percent of the mutual fund industry's assets. 4. Banks have become involved in mutual fund activities because they generate fee income that is independent of lending and deposit-taking activities. Moreover, mutual funds are a natural extension of a bank's traditional activities. a. Selling mutual funds allows banks to maintain relationships with customers that are shifting out of deposits. In addition, because banks are part of most people's everyday lives, they are familiar with and trust banks. As a result, most people are more comfortable dealing with a bank than with a securities broker or mutual fund sales agent. b. Mutual fund activities also allow banks to capitalize on other skills, such as investment advice, portfolio management, and information­ processing skills. o Due to recent regulatory rulings, banks can be involved in virtually all mutual fund activities except for underwriting. Banks that have proprietary funds must use an unaffiliated party to underwrite mutual fund shares, which primarily involves registering new shares with the SEC. Bank underwriting is prohibited by the Glass-Steagall Act. B. While good for banks, the growing involvement of banks in mutual funds raises important regulatory issues. 1. The primary concern of regulators is whether bank customers fully understand the risks involved with mutual funds. Specifically, do they understand that mutual funds are not insured, that their principal is at risk, and that the returns can be quite volatile? 8 2. A related issue is whether customers understand that the performance of a mutual fund sold by a bank is unrelated to the overall condition of the bank. In other words, would poor performance by a bank-related mutual fund create a liquidity crisis for the bank? C. In response to these issues, the federal bank regulatory agencies have issued guidelines for bank mutual fund sales. 1. The purpose of the guidelines is to ensure that customers understand the risks involved with mutual funds and that they do not misunderstand the relationship between a bank and the mutual funds that it sells. The response by the regulators is not due to abuses in the banking industry, but to prevent abuses from occurring. o Industry guidelines include: Full disclosure. Disclosures should clearly reveal that a mutual fund is not insured by the FDIC, that it is not an obligation of or guaranteed by the bank, that it involves investment risk, and that principal can be lost. The Fed requires banks that sell funds advised by the bank or its affiliate (proprietary funds) to explain the relationship to customers. Suitability. Banks should ensure the investment is suitable for the customer. Fund name. The fund should not be identical to the bank's name and should be different enough so that customers do not think the fund is insured. Sales personnel. Tellers cannot sell mutual funds. The Fed prohibits (OCC discourages) employees who assist customers in opening retail deposit accounts from selling mutual funds. The Fed requires (OCC encourages) mutual fund sales and deposit taking to occur at physically separate locations. D. The concern of the bank regulatory agencies is shared by both the banking industry and Congress. 1. Six banking-industry trade associations will soon issue guidelines for bank mutual fund sales. In addition, several bills have been introduced in Congress to ensure bank customers are not confused when buying mutual funds at a bank. 9 o Neal Bill. The bill requires banks to give written notice that mutual funds are not insured. All advertisements should contain similar disclaimers. o Gonzalez-Schumer Bill. This bill basically codifies into law the guidelines issued by the bank regulatory agencies. It requires banks to make certain customers understand that mutual funds are not insured by the FDIC and that they involve investment risks. Also, it requires banks to sell mutual funds in a space that is physically separated from teller positions at which deposits business is conducted. The bill prohibits a bank from selling mutual funds with names similar to the bank's name. o Dingell-Markey Bill. This bill goes farther than the other two bills by making banks subject to the securities laws. Banks involved in securi­ ties activities would have to conduct them in a separate affiliate registered with the SEC as a broker-dealer. It would repeal bank exemptions from SEC registration and reporting. The securi­ ties affiliate would be subject to the same securities laws and regulation as any other participant in the securities business. E. Conclusion. Bank involvement in mutual fund activities is a natural response to the changing structure of U.S. financial markets. As long as banks' mutual fund customers understand what they are buying, both the banking industry and the public will be better served. V. Conclusion A. The growth of mutual funds has raised important issues that affect the appropriate conduct of monetary and bank regulatory policy. 1. The mutual fund boom has reduced the reliability of measures of money, making it necessary to reduce their role in policy decisions. 2. It has changed the role of banks in the intermediation process and led to their increased involvement in mutual fund activities. 3. It has caused concern about the fragility of the economy; but these concerns appear to be overstated. 10 B. The benefit that financial innovation brings to the eco­ nomic process should not be overlooked amid these and other concerns. 1. On balance, the growth of mutual funds is a financial market development that makes the intermediation process more efficient, both nationally and globally. 2. Such a development is clearly a healthy phenomenon in a dynamic market economy. Variable definitions 1. Household financial assets: a. Deposits(H) b. Money market mutual funds(H) c. Securities and debt(H) d. Corporate equities(H) e. Stock and bond mutual fund shares(H) f. Life insurance reserves g. Pension fund reserves h. Bank personal trusts i. Security Credit (credit owed by broker/dealers) j. Miscellaneous 2. Direct holdings of debt and equity: (1c) Securities and debt(H) (Id) Corporate equities(H) 3. Indirect holdings of debt and equity: (le) Stock and bond mutual fund shares(H) (If) Lite insurance reserves (1g) Pension fund reserves (Ih) Bank personal trusts 4. Stock and bond mutual fund shares (le) Direct holdings of stock and bond mutual fund shares (H) Indirect holdings of stock and bond mutual fund shares through life insurance companies, pensions funds, and bank personal trusts. Notes: 1. (H) indicates data used by David Hale. 2. All data are from the Flow of Funds. The data for indirect holdings of stock and bond mutual fund shares through life insurance companies, pensions funds, and bank personal trusts are from each sector's balance sheet. All other data are from the household sector's balance sheet. 3. Household financial assets are the Flow of Funds definition less equity in noncorporate business. 2 Household Portfolio Composition (percent of household financial assets) I960 1965 1970 1975 1980 1985 1990 1993,Q3 Total holdings of stocks and bonds 74 73 71 62 62 64 69 76 Direct 54 53 42 31 30 27 28 30 Indirect 20 21 28 31 32 36 41 46 Deposits 25 26 28 36 34 32 25 19 Deposits and MMMFs 25 26 28 36 36 34 28 22 Stock and bond mutual funds 2 2 2 2 1 3 5 9 Source: Board of Governors, Flow of Funds. Notes: In the text and in the above table, the variables were calculated as: Total holdings of stocks and bonds: (2) + (3) divided by (1). Direct holdings of stocks and bonds: (2) divided by (1). Indirect holdings of stocks and bonds: (3) divided by (1). Deposits: (la) divided by (1). Deposits and MMMFs: (la) + (lb) divided by (1). Stock and bond mutual funds: (4) divided by (1). Financial Services Industry Assets (billions of dollars) 1989 1990 1991 1992 1993,Q3 Commercial banks 3,229 3,334 3,440 3,642 3,787 Life insurance companies 1,260 1,367 1,505 1,614 1,754 Mutual funds (stock, bond, and money market) 994 1,101 1,354 1,594 1,908 Source: Board of Governors, Flow of Funds. SEPTEMBER 1995 Housoho Ids Households L.100 Households and Nonprofit Organizations YEAR-END OUTSTANDINGS YEAR-ENO outstandings 1989 1990 1991 1992 1 Total Financial assets 154090005 13723.7 13901.1 15380.1 16334.8 I 2 3 Dap D . e po & s i c t r s . mkt. instr. 1 1 1 5 5 5 4 3 4 0 0 0 0 2 00 0 3 0 0 2 0 0 0 5 5 5 4432.3 4702.9 4 u k 6 C7 0 j 3 a - . 4 1 46 7 5 T 2 Z .7 A 2 4 Checkable dep. & curr. 153031005 1994.6 2056. 1 2024.J 5 Small time & svgs. dep. 153035005 23 0.7 252.4 6 7 Large M t on i e m y e m d ar e k p e o t s i Fu t n s d shares 153034005 368.0 412.7 8 Credit market Instruments 154004005 1326.3 1454.6 1380.0 1426.1 3 1 11 0 9 U.S T . r e S a a g s v o u v i t r n , y g s se b c o u n r ds ities 3 1 1 1 1 5 5 5 3 3 3 3 1 0 0 0 6 6 6 6 1 1 1 1 4 5 1 0 0 0 0 0 3 5 5 5 4 2 1 1 8 1 6 3 7 7 6 4 . . . . 1 7 7 4 5 2 1 1 5 9 2 7 0 6 2 a . . . . 9 2 2 4 4 2 1 4 1 3 H 5 1 8 . . . . 1 7 3 7 4 1 1 5 5 8 7 2 8 . . . 3 3 2 1 ll 0 9 12 13 Other T A r g e e a n s cy ury 153061705 202.7. 252.6 253.9 14 Tax-exempt securities 153062005 442.2 468.9 503-8 509.4 14 1 1 1 6 5 7 M C Op o o e r r n p t o g r a m a g a t e r e s k et a nd p ap F e g r n. bonds 1 1 1 5 5 5 3 3 3 0 0 0 6 6 6 3 5 9 0 0 1 0 0 7 5 5 5 - 1 . 5 5 8 9 2 6 . . . 0 2 4 1 1 9 7 6 4 0 9 . . . 9 4 5 1 1 1 6 5 1/ 0 1 . . . 9 9 8 1 1 1 1 6 8 1 8 4 . . . 1 5 8 1 16 7 18 Mutual fund share 153064205 433.7 451.7 590.6 773.Q 18 19 Corporate equities 153064105 1331 - 2 1738.7 Zoo^. -* 2 2 2 1 0 2 L P I e n i v n f . s e io i i n n n s b u F a r u n a nd n k ce r p e e s r r e s e , r s v e e r t v s r e u s s ts 6 1 1 0 5 5 4 3 3 0 0 0 9 5 4 0 0 0 0 0 0 0 0 0 6 5 5 3 5 3 3 5 3 5 6 3 4 . . . 1 2 3 34 3 5 8 0 0 0 9 0 . . . 0 9 3 4 5 0 4 9 5 0 6 6 5 . . . 7 7 5 44 4 6 3 1 2 4 9 0 . . . 1 1 2 2 2 2 1 0 2 2 2 2 3 4 5 M E S i q e s c u c i u e r t l y it l y a i n n e c o r n u e o s d n i c t o a r s p s . e ts business 1 1 1 5 5 5 3 3 3 0 0 0 8 6 9 0 7 0 0 0 0 1 0 0 5 5 5 25 2 0 0 5 8 6 3 . . . 1 2 2 24 2 4 6 1 0 4 2 . . . 6 8 4 2 2 3 8 1 4 7 2 4 . . . 0 3 6 2 2 2 2 6 7 6 6 9 . . . 1 2 1 2 2 2 5 3 4 26 Total liabilities 154190005 3481.7 3706.2 3896.6 4114.0 26 27 Credit market instruments 154102005 3371.4 3594.8 3762.7 3976.3 27 153165105 2225.3 2419.4 Z58O.Z 28 2 3 9 0 Home O I t n m h s o e t r a r l t l c g m o a e n n g s t u e m s e c r o ns c , r ed c i r t edit 1 1 5 5 3 3 1 1 6 6 6 6 1 2 0 0 0 0 73 5 6 3 . . 3 2 75 60 2 . . 9 1 50.9 1 7 5 5 2 0 . .7 3 30 31 Tax-exempt debt 153162005 31.9 86.0 94.8 101.0 31 32 Other mortgages 1 15 53 31 16 6 5 3 5 0 0 0 3 5 1 4 2 2 2. . 6 9 13 33 3 . . 5 1 1 2 44 3 . . / 1 33 34 Bank O t l h o er a n l s o a n ns .o.c. 153169005 98.6 109.8 119.9 3 36 5 S T e ra c d u e r it c y r ed c i r t e dit 1 1 5 53 31 17 6 0 7 0 2 0 0 3 5 42. . 5 4 38.8 55. 1 53.3 35 37 Def I e n r s r u e r d a nc a e n d pr u e n m p i a u i m d s life 543077003 16.4 16.5 BILLIONS OF DOLLARS SEPTEMBER m3 Banking System Banking System L.llO-L.lll Monetary Authority and Commercial Banking YEAR-END OUTSTANDINGS YEAR-END OUTSTANDINGS 1989 1990 199 1 1992 L. 110 Monetary Author ity 1 Total financial assets 714090005 314. 7 342. 6 364.9 381.8 I 2 Gold and foreign exchange 713011005 42.9 43.6 38.6 32.5 2 3 Treasury currency 713012003 19.4 20.4 21.1 21.5 3 4 SDR certif Icates 713014003 3.5 10.0 10.0 3.0 4 5 Federal Reserve float 713022003 1 . 1 Z.6 1 . 0 3.4 5 6 F.R. loans to domestic banks 713068003 0.5 0.2 0.2 0 - 7 6 . 7 Security RPs 712050000 . 2. 1 18.4 15.9 8.1 7 ■ 8 Credit market instruments 714002105 233.3 241.4 272.5 300.4 a 9 U.S. government securities 713061005 233.3 241.4 272.5 300.4 9 10 Treasury 713061100 226.3 235. 1 266.5 295.0 10 11 Agency 713061703 6.5 6.3 6.0 5.4 11 12 Acceptances 713069603 - - - - 12 13 Bank loans n.e.c. 713063103 - - - - 13 14 Miscellaneous assets 713093005 6.7 6.0 5.6 7.3 14 15 Total liabilities 714190005 314.7 342.6 364.9 381.8 IS 16 Depository Inst, reserves 713113000 35.6 38.7 29.4 32.1 16 17 Vault cash or comm, banks 723025000 23.7 32.6 33.6 31.9 17 18 Checkable dep. and currency 713120005 239.1 264.3 293-5 311.1 18 19 Due to U.S. government 713123105 6.7 9.5 18.3 3.0 19 20 Oue to fore Lgn ' 713122605 0.6 0.4 1.0 0.2 20 21 Currency outside banks 713125005 231.3 254.4 274.2 302.9 21 22 Miscellaneous liabilities 713190005 ‘ 11.4 7.1 8.4 6.7 22 Cov^tMtuTCVO- ^ j^L Assafs L.lll Commercial Banking (1) 764090005 3229.4 3334.1 3440.0 3642.1 I 2 Checkable dep. and currency 743020003 2.6 2.5 1.8 1.3 2 3 Total bank credit 764005005 2637.1 2767.3 2376.5 3016.1 3 4 U.S. government securities 763061005 395.8 456.9 568.2 670.3 4 5 Treasury 763061105 166 . 1 172.9 233.4 294.4 5 6 Agency 763061705 229.7 284.0 334.8 376.4 6 7 Tax-exempt securities 763062005 133.3 117.4 103.2 97.5 7 8 Corporate 3 foreign bonds 763063005 84. 1 88.7 96.3 95.9 3 9 Total loans 764035605 2016.6 2100.2 2100.5 2143.6 9 10 Mortgages 763065005 763.5 849.3 881.5 399.3 10 11 Consumer credit 723066005 382.0 383.7 370.0 362.2 1 1 12 Bank loans n.e.c. 763068005 823.0 818.3 791.7 734.5 12 13 Open market paper 763069175 9.9 12.7 10.6 9.2 13 14 Security credit 763067005 38.2 36.2 46.8 88.0 14 15 Mutual Fund shares 723064203 2. 2 1 . 9 3.7 3.4 15 16 Corporate equities 763064105 4.7 2.2 4.5 4.9 16 17 Cust. Liaos, on acceptances 293169605 55.4 45.5 35.3 31.7 17 18 Vault casn 723025000 28.7 32.6 33.6 31.9 18 19 Reserves at F.R. 763013005 31.1 35.3 26.5 29.9 19 20 Miscellaneous assets 763090005 474.5 450.9 466.4 531.2 20 21 Total liabilities 764190005 3119.4 3219.7 3331.6 3517.2 21 22 Checkable deposits 763120005 556.2 578.2 616.1 7 08.4 22 23 U.S. government 723123105 25.6 30.9 36.4 30.6 23 24 Fore lgn 763122605 21.9 21 .8 19.8 22.1 24 25 Private domestic 763129705 508.7 525.5 559.8 655.3 25 26 Small time 8 savings dep. 763131005 1177.7 1298.6 1378.5 1380.3 26 27 Large time deposits 763135005 438.7 414.5 391.5 324,3 27 28 Fed. funds 8 security RPs 762150005 274.5 248.8 229.6 272.0 28 29 Net Interbank claims 764110005 -31.3 -7.3 2.2 52.3 29 30 fa monetary authority 714010005 1.6 2.3 1.2 4.0 30 31 To domestic banks (2) 904010005 -31 . 0 -32.0 -4.2 -8.4 31 32 To foreign banks 744116005 -2.5 22.0 5.1 57.2 32 33 Credit market debt 764104005 219.9 191.5 177.3 188.4 33 34 Corporate bonds 763163005 113.7 108.9 113.2 127.6 34 35 Open market paper 763169005 106.1 82.2 62. 1 54.4 35 36 red. Home Loan Banks Laans 723169203 - 0.4 2.0 6.4 36 37 Taxes payable 723178003 0.3 0.6 0.5 0.7 37 38 Miscellaneous liabilities 763190005 483.6 494.8 536.0 589.7 38 39 Memo: Cred. mkt. funds adv.(3) 764004005 2647.4 2772.5 2856.8 2951.6 39 (1) U.S.-chartered commercial banks, foreign banking offices In U.S., bank holding companies, and banks in U.S.-aff 11 lated areas. IBFs are excluded From domestic banking and treated Like branches in foreign countries. (2) Floats and discrepancies In Interbank deposits and loans. (3) Total bank credit (line 3) less security credit (line 14) less mutual Fund snares (line 15) Less corporate equities (line 14) plus customer liabilities on acceptances (line 17). BILLIONS OF DOLLARS SEPTEMBER 1995 Insurance and Pension Funds L.L2I-1.126 Insurance and Pension Funds YEAR-END OUTSTANDINGS YEAR-END OUTSTANDINGS 1939 1990 1991 1992 L.L21 Life Insurance Comoan les 1 Total Financial assets 544090005 1260.2 1367.4 1505.3 1614.3 I 2 Checkable dap. and currency 543020000 5.0 4.9 5.5 5.6 2 3 Money mkt- Fund shares 543034003 6.2 18.1 25.0 27.1 3 Mutual Fund shares 543064203 19.1 30.7 46.7 57.3 4 '5 Corporate equities 543064105 106.5 97.9 117.9 134.6 5 6 Credit market Instruments 544004005 1022.0 11 16-5 1199.6 1282.0 6 7 U.S. government securities 543061005 153.3 130.2 241.9 281.3 7 3 Treasury 543061100 52.9 59.2 77.3 88.3 3 9 Agency 543061703 100.3 121 . 0 164.2 193.0 9 10 Tax-exempt securities 543062003 9.0 12.3 10.2 11.4 1 0 11 Corporate 8 Foreign bonds 543063005 511. J 566.9 595 . 1 653.9 1 1 12 Mortgages 543065005 25 4.2 267 . 9 265.3 246.7 12 13 Open market paper 543069105 36.6 27.7 20.3 16. 1 13 1^ Policy loans 543069403 57.4 6 1.6 66.4 72.1 14 15 Miscellaneous assets 543090003 101.3 99.4 110.7 107.3 15 16 Total liabilities 544190005 1135-4 1290.3 1412.7 1517.a 16 17 LIFa Insurance reserves 543140003 342.3 368.1 393.3 422.6 17 ia Pension Fund reserves 543150003 699.7 784.1 865.2 930.0 13 19 Fed. Home Loan Banks loans 543169203 - - - 19 20 Taxes payable 543173003 0 .3 0.3 0.7 0.3 20 21 Miscellaneous liabilities 543190005 142.0 137.7 153.0 164.3 21 L.122 Other Insuranc• Campan les 1 TW^al Financial assets 514090005 503.0 533.3 576.3 597.1 1 2 Checkable dap. and currency 513020003 6.0 6.5 5.3 5.6 2 3 Security RPs 512050003 27.3 31.0 25.9 32.2 3 4 Corporate equities 513064003 34,0 79.9 94.1 97.3 4 5 Credit market instruments 514004005 317.5 344.0 376.3 389.0 5 6 U.S. government securities 513061005 97.0 111.0 146.2 151.4 6 7 Treasury 513061103 71.3 79.0 104. 0 108.7 7 a Agency 513061703 26.0 32.0 42. 1 42.6 3 9 Tax-exempt securities 513062003 134.3 136.9 126,3 134.3 9 1 0 Corporate 3 Foreign bonds 513063003 79.3 39.2 97.2 97.9 10 1 1 Commercial mortgages 513065503 . 6.5 6.9 6.2 5.4 I 1 12 Trade credit 513070003 45.3 47.2 50.1 49.0 12 13 Miscellaneous assets 513092003 22.4 24.7 25. 1 24.0 13 14 Total Liabilities 514190005 370.1 397.3 415.6 438.9 14 15 Taxes payable 513178003 0.2 0.4 0.5 0.3 15 16 Miscellaneous liabilities 513190005 36 9-9 396.9 415.i 438.7 16 L.123 Private Pension Funds Cl) 1 Total Financial assets 574090005 1705.6 1629 . 1 2055.5 2231.7 I 2 Checkable dap. and currency 573020003 5.8 5.8 4.7 4.7 2 3 Small time 3 svgs. deposits 573031003 143.3 134.0 173.7 189.6 3 4 Large time deposits 573035003 44.2 41.6 55.4 60.6 4 5 Money mkt. Fund shares 573034003 17.3 17.8 13.8 20.1 5 $ Mutual Fund snares 573064203 41.6 45.4 64.4 70. 9 6 Corporate acuities 573064105 734.7 657.6 333.5 982. 4 7 a Credit market instruments 574004005 590.2 607.4 692.7 731.5 3 9 U.S. government securities 573061005 311.2 321 .3 362.3 384. 1 9 10 Treasury 573061105 208.9 220.3 253.9 274.0 10 11 Agency 573061703 102.3 100.9 I 08.3 110.1 11 - 12 Tax-exempt securities 573062003 1.4 I . 4 1.6 1.7 12 13 Corporate 8 Foreign bonds 573063005 226.1 235.5 275,7 293. 1 13 14 Mortgages 573065003 25.1 23.8 31.3 34.5 14 15 Open market paper 573069103 26.3 24.9 20.8 18. 1 15 16 Miscellaneous assets 573090005 127.6 119.6 157.3 171.9 16 (1) Includes the Federal Employees' Retirement System ThriFt Savings Plan. L.124 State and Local Government Employee Retirement Funds 1 Total Financial assets 224090005 721.9 736.5 859.7 955.0 1 2 Checkable dap. and currency 223020003 2.4 3.9 4.2 6.7 2 3 Time deposits 223035005 17.4 14. 1 11.6 9.3 3 4 Corporate equities 223064075 300.1 296.1 38 6.6 448.9 4 5 Credit market instruments 224004005 390.9 405.9 439.4 471.6 5 6 U.S. government securities 223061005 198.2 219.8 242.J 275.5 6 7 Treasury 223061103 128.1 141.3 155.0 173.3 7 8 Agency 223061703 70.0 73.5 87.0 102.2 8 9 Tax-exempt securities 223062003 0.5 0.7 0.8 0.9 9 10 Corporate S Foreign bonds 223063005 158.4 147.1 150.3 151.4 10 11 Mortgages 223065005 15.3 16.1 ’.6.9 13.6 11 12 Open market paper 223069103 18.6 22.3 29.4 30.2 12 13 Miscellaneous assets 223093003 11.0 16.5 17.9 18.5 13 3ILLI0NS OF DOLLARS SEPTEMBER 1993 Other Flninct, Continued Other Finance, Continued L. 130-L.133 Other Financial Institutions, Cant Inued YEAR-END OUTSTANDINGS YEAR-END OUTSTANDINGS 1989 1990 1991 1992 L. 130 Real estate Investment Trusts 1 Total Financial assets 644090005 11.6 11.2 11.1 13.7 2 Home mortgages 643065103 0.4 0.4 0.4 0.3 2 3 Commercial mortgages 643065505 5.4 5.0 4.2 1.3 3 $ Multifamily mortgages 643065403 2.5 2.3 2.2 4.3 4 5 Miscellaneous assets 643093005 3-3 3.5 4.3 6.3 5 6 Total liabilities 644190005 11.5 12.4 14. 0 14.3 6 7 Credit market instruments 644104005 11.4 12.4 14.0 14. 1 7 3 Mortgages 643165003 4.0 4.3 5 . 1 5. 1 a 9 Corporate bonds 643163003 2.9 3. 1 3.0 3. 4 9 10 Bank Ioans n . a . c . 643168003 3.4 4. 0 4.9 4.6 10 1 I Open market paper 643169103 I . 1 0.9 1.0 0.9 11 12 Miscellaneous liabilities 643193005 0.1 4 v 0.3 12 L. 131 Security Brokers and Dealers I Total Financial assets 664090005 236.6 262.1 332.5 372.1 I 2 Checkable dap. and currency 663020003 9.8 10.2 10.2 10.3 2 3 Corporate equities 663064003 14. 1 9.6 14.3 14.3 3 4 Credit market Instruments 664004005 142.9 177.9 226.9 267.1 4 5 Treasury securities 663061005 85.2 122.7 162.6 193.3 5 6 Tax-exempt securities 663062003 7.1 7.9 9.4 11.3 6 7 Corporate bonds 663063003 32.9 23.9 40.9 50.9 7 3 Open market paper 663069103 17.8 13.4 14.0 11.6 a 9 Security credit 663067203 42.5 33.8 55.1 53.3 9 10 Miscellaneous assets 663090005 27.2 25.5 26.1 26.6 10 11 Total liabilities 664190005 213.2 239.2 307.4 348.0 11 12 Security RPs (net) 662150005 64.2 81.0 106.7 98.8 ‘.2 13 Security credit 663167005 91.4 98.6 133.3 164. 1 13 14 From banks 763067105 38.2 36.2 46.3 38.0 14 15 Customer credit balances 663167203 53.2 62.4 37.0 76.1 15 16 Trade debt 663170003 13.3 15.3 10 . 0 21.7 16 17 Taxes payable 663178003 0.6 0.7 0.9 0.3 17 18 Miscellaneous Liaollltias 663190005 43.2 43.6 56.1 62.6 18 19 Fgn . direct Invest, in US 663192005 8-3 3.3 4.5 4.2 19 20 Oue to affiliates 663194005 55.3 45.5 35.2 45.7 20 21 Other 563193005 -18.4 -5.6 16.3 12.7 21 L.132 Issuers of Asset-Backed Securities (ABSsJ 1 Total Financial assets 674190005 227.3 278.3 329.4 380.4 I 2 Agency securities (1) 673081705 113.7 125.4 111 .5 78.2 2 3 Mortgages (2) 673065005 48.3 59.2 94.2 153.5 3 4 Home 673065103 43.3 53.3 84.0 132.0 4 5 Multifamily 673065403 0.5 0.7 3.7 6.3 5 6 Commerclai 673065503 4.5 5.2 6.5 15.2 6 7 Consumer credit 673066003 50.2 79.0 103.6 120.4 a Loans to business 673069503 2.0 5.5 3.3 14.6 3 9 Trade credit 673070003 8.0 9.2 ll .3 13.7 9 10 Total Liabilities 674190005 227.3 273.3 329.4 380.4 10 11 Corporate bonds 673153005 211.5 246.9 290.7 333.5 1 I 12 Commercial paper 673169103 15.7 31.4 38.7 46.9 12 (1) Includes Federally related uortgas# pool securities Sacking privately Issued CMOS. (2) Includes .nor tgag as Sac Xing privately issued pool securities and privately Issued CMOS. 1.133 Bank Personal Trusts (3) 1 Total Financial assets 604090005 503.2 509.9 596.7 619.1 I 2 Deposits 604000005 39.3 43. 2 42.3 37.2 2 3 Checkable dep. 8 curr. 603020003 0.8 0.9 I .0 0.8 3 4 Small time 3 svgs.oep. 603031003 - 3.0 3.0 2.3 1.5 4 5 Large time deposits 603035003 15-5 15.8 12. 0 7.9 5 6 Money mkt. Fund snares 603034003 19.9 23.5 27.1 27.0 6 7 Credit nkr. Instruments 604004035 198.0 212.9 223.3 231.2 7 8 U.S- government securities 603061005 63.0 70.4 73.5 71.6 3 9 Treasury 603061103 34.7 39.0 40.8 39.8 9 10 Agency 603061703 28.3 31.4 32.7 31.a 10 11 Tax-examoc securities 603062003 75. 1 32.5 91.6 97.6 11 12 Corporate 3 Foreign bonds 603063003 27.2 27.3 30.8 36.8 12 13 Mortgages 603065103 3.8 3.9 3.7 3.6 13 14 Ooen market paper 803069103 29.0 28.9 23.3 21.7 14 15 Mutual Fund shares 603064203 57.9 62.7 95.4 128. 1 15 16 Corporate equities 603064125 200.2 183.2 228.3 210.9 16 17 Miscellaneous assets 603093003 7.3 7.9 9.5 il .7 17 "(3) Includes personal trusts administered by nondepasit nan insured trust companies. 31LLI0NS OF DOLLARS SEPTEMBER 1993 Other finance Other Finance L.12S-L.129 Other Financial Institutions YEAR-END OUTSTANDINGS YEAR-END OUTSTANDINGS 1939 1990 1991 1992 L.125 Finance Companies (1) 1 Total Financial assets 614030005 571.2 610.9 633.9 637.2 I 2 Checkable dap. and currency 613020003 3.3 9.4 10.6 11.9 2 3 Credit market instruments 614002005 463-6 497.0 484.9 486.6 3 4 Mortgages 613065003 53.3 65.5 65.3 68. 4 4 5 Consumer credit 6 1 3066 1 05 144.6 138.0 126.3 121.7 5 6 Other loans (to business) 613069500 270.2 293.6 292.9 296.5 6 7 Miscellaneous assets 613090005 94.3 104.5 138.4 138.7 7 3 Total liabilities 614190005 503.3 534.5 556.5 556.7 3 9 Credit market Instruments 614102005 350.4 374.4 393.0 389.4 9 10 Corporate bonds 613163003 162.7 173.2 191.3 195.3 10 I I Bank loans n.a.c. 613163000 27.0 31 . 0 42.3 37.6 1 1 12 Open market paper 613169103 160.7 165.3 159.5 156.4 12 13 Taxes payable 613173003 0.4 0.6 0.7 0.9 13 14 Miscellaneous liabilities 613190005 152.5 159.5 162.7 166.5 14 15 Fgn. dlr. invest, in US 613192003 9.3 4.6 6.2 6.7 15 16 Investment by parent 613194003 35-2 37.5 34.5 37.3 16 17 Other 613193005 107.9 117.4 122. 1 121.9 17 Ci) Includes retail captive Finance companies. L.12S Mortgage Companies 1 Total Financial assets 623065003 22.6 14.6 25.9 26.1 I 2 Home mortgages 623065105 20.3 13.1 23.3 22.9 2 3 MultlFamliy mortgages 6230654G3 1.1 0.7 1.3 1.6 3 4 Commercial mortgages 623065503 1.1 0.7 1.3 1.6 4 5 Total liabilities 624190005 22.6 14.6 25.9 26.1 5 6 Bank loans n.e.c. 623163003 11.3 7.3 13.0 13.0 6 7 Investment by parent 623194735 11.3 7.3 13.0 13.0 7 L.127 Mutual Funds (21 654090005 566.2 602. 1 813.9 1050.2 I 2 Checkable dec. and currency 653020003 8.5 3.7 12.3 16.1 2 3 Corporate acuities 653064000 250.5 233.2 351.1 451.2 3 4 Credit market Instruments 654004005 307.2 36 0.2 450.5 582.3 4 5 U.S. government securities 653061003 120.0 137.5 191.4 251.3 5 6 Treasury 653061105 86.3 101.0 143. 1 185.3 6 7 Agency 653061703 33.2 36.5 48.3 56.5 7 a Tax-exempt securities 653062005 93.6 109.1 137. t 172.9 3 9 Corporate 2 Foreign bends 653063003 74. 1 87.6 100.5 128.9 9 10 Open market paper 653069705 19.6 25.9 21.5 29.3 10 u Total snares outstanding 654090005 566.2 602. 1 313.9 1050.2 11 (2)i Includes only open-end Investment companles. L.128 Closed-End Funds L Total Financial assets 554090005 52.4 51.8 71.9 84.5 I 2 Corporate equities 553064103 15.3 14.7 19.6 19.3 2 3 Credit market Instruments 554004005 37.1 37. 1 52.4 64.6 3 4 U.S. government securities 553061103 8.6 8.5 11.6 10.1 4 5 Tax-exempt securities 553062003 12.2 14. 0 26. 1 39 . 9 5 6 Corporate £ Foreign bonds 553063003 16.3 14.6 12. 7 14.6 6 L-129 Money Market Mutual Funos 1 Total Financial assets 634000005 428. 1 498.4 539.6 543.6 I 2 Checkable dap. and currency 633020003 G. 1 11.4 -.2 -2. 7 2 3 TUne deposits 633035003 41.2 21.0 33.0 30.9 3 4 Secur 11y RPs 632050000 54.9 59.0 66.2 67.1 5 Foreign deposits 633091003 26.4 27.1 21.6 20.5 5 6 Credit market instruments 634002005 291.3 372.7 402.7 404. 1 6 7 U.S. government securities 633061005 35.3 82.4 120.9 134.6 7 3 Treasury 633061100 14.3 45.5 79.6 79.7 8 g Agency 633061703 21 - 0 36.9 41.3 54.3 9 10 Tax-exempt securities 653062440 69.4 . 33.6 89.9 94.J 10 11 Open market paper 633069175 136.6 206.7 191.9 174.7 ll 12 Miscellaneous 633093005 . 13.7 7.3 14.2 23.7 12 13 Total shares outstanding 634000005 428.1 498.4 539.5 543.6 13 3ILLICNS CF DOLLARS SEPTEMBER 1993 Hou sehoIds HousehoIds L.100 Households and Nonprofit Organizations YEAR-END OUTSTANDINGS YEAR-END OUTSTANDINGS 1989 1990 1991 1992 I Total financial assets 154090005 13728.7 13901.1 15380.1 16^34.8 1 2 Dap. a cr. mkt. Instr. 154003205 4482.8 4702.9 4603.4 4652.7 2 4 3 De C p h o e s c it k s able dep. a curr. 1 1 5 53 40 02 00 00 00 05 5 3 5 1 1 5 2 6 . .0 7 3 5 2 2 4 7 8 . . 1 3 3 5 2 7 2 8 3 . . 1 4 3 7 2 1 2 4 6 . . 6 6 4 3 5 Small time 3 svgs. dep. 153031005 1994.6 2056.1 2024.3 1952.7 5 6 7 M La o r n g e e y m tim ar e k e d t e f p u o n s d i ts shares 1 1 5 5 3 3 0 0 3 3 5 4 0 0 0 0 5 5 3 2 6 8 8 0 . . 0 7 2 41 5 2 2 . . 7 4 4 1 3 8 7 3 . .8 2 4 1 3 2 3 6. . 0 3 6 7 8 Credit market Instruments 154004005 1326.8 1454.6 1 380.0 1426.1 8 9 U.S. govt, securities 153061005 487.1 550.9 445.7 452.2 9 10 Treasury 153061505 284.4 298.4 211.8 188.3 1 0 1 1 Savings bonds 313161403 117.7 126.2 138.1 157.3 1 1 1 13 2 Ag O en th cy er Treasury 1 1 5 5 3 3 0 0 6 6 1 11 7 0 0 5 5 2 16 0 6 2 . . 7 7 . 1 25 7 2 2 . . 6 2 23 7 3 3 . .7 9 2 3 6 1 4 . . 0 0 1 1 2 3 14 Tax-exempt securities 153062005 442.2 468.9 503.a 509.4 14 1 1 6 5 C M o o r rt p g o a r g a e te s and fgn. bonds 1 1 5 5 3 3 0 0 6 6 3 5 0 0 0 0 5 5 1 5 8 2 6 . . 0 4 1 9 7 4 0 . . 9 4 1 1 1 6 7 0 . . 8 9 1 1 1 6 1 8 . . 1 5 1 1 5 6 17 Open market paper 153069175 159.2 169.5 151.9 184.8 17 1 1 9 8 C M o u r t p ua o l r at f e un d e q s u h i a ti r e e s s lx ' .^15 ■1 3 5 0 3 6 0 4 64 2 1 0 0 5 5 1 4 3 3 3 3 1 . . 7 2 1 4 7 5 3 1 8 . . 7 7 2 5 48 9 2 0 . . 8 6 2 7 8 7 6 3 4 . . 4 0 1 1 8 9 2 21 0 L Pe if n e s io I n n su fu ra nd n ce re s re e s rv e e rv s es .' .. 1 1 5 5 3 3 0 0 4 5 0 00 0 0 0 5 5 33 3 5 5 6 4 . . 1 3 3 3 4 8 0 0 0 . . 0 3 4 4 0 0 5 5 6 - .5 7 44 4 3 20 4 ' . . - 1 2 } । 2 2 1 0 22 Inv. in bank pens, trusts 604090005 503.2 509.9 596.7 6 19.1 22 2 23 4 S : ec . u t rity in c n re on d - i o t rp. business 1 1 5 5 3 3 0 0 8 6 0 7 0 0 1 0 5 5 25 5 08 3 . . 1 2 24 6 4 2 0. . 6 4 23 8 4 7 4 . .6 0 22 7 6 6 9 . . 1 2 2 2 3 4 25 Miscellaneous assets 153090005 206.2 214.6 212.8 226 . 1 25 26 Total liabilities 154190005 3481.7 3706.2 3896.6 4114.0 26 2 2 7 8 Cr H e o d m i e t m m o a r r t k g e a t g e in s struments 1 1 5 5 4 3 1 1 0 6 2 51 0 0 0 5 5 3 2 3 2 7 2 1 5 . . 4 8 3 2 5 4 9 1 4 9 . . 8 4 3 2 7 5 6 8 2 0 . . 7 2 2 39 74 76 8. .0 5 2 2 7 8 2 3 9 0 O In t s h t e a r llm co e ns n u t m c e o r n c s, r e c d r i e t dit 1 1 5 5 3 3 1 1 6 6 6 6 1 2 0 0 0 0 7 6 3 3 6 . . 2 3 7 6 5 0 2 . . 1 9 74 5 9 0 . . 9 1 7 5 5 2 6. . 9 3 3 2 0 9 31 Tax-exempt debt 153162005 81.9 86.0 94.8 I 01 . 0 31 32 Otner mortgages 153165503 122.6 133.5 144. 1 153.8 32 33 Bank loans n.a.c. 153168005 42.9 33. 1 23.7 35.5 33 34 Other Loans 153169005 93.6 109.8 119.9 127.9 34 35 Security credit 153167205 42.5 38.8 55.1 53.3 35 36 Trade credit 153170003 51.4 56.2 60.7 65.1 36 Deferred and unpaid Life 37 Insurance premiums 543077003 16.4 16.5 13.2 19.6 37 BILLIONS OF DOLLARS

Thomas M. Hoenig (1994, January 30). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19940131_thomas_m_hoenig

@misc{wtfs_regional_speeche_19940131_thomas_m_hoenig,
  author = {Thomas M. Hoenig},
  title = {Regional President Speech},
  year = {1994},
  month = {Jan},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19940131_thomas_m_hoenig},
  note = {Retrieved via When the Fed Speaks corpus}
}