Federal Reserve District, 8th ; Bank deposits

Clifton B. Luttrell

William E. Pettigrew

English

Research Papers in Economics

Bank Deposit Growth
in the Eighth Federal Reserve District
SUBSTANTIAL VARIATION EXISTS in the growth
rate of bank deposits among regions as well as among
individual banks within a region. This article reviews
the growth trends of banks in the Eighth Federal
Reserve District since 1950. Deposit growth rates are
presented for all insured banks in each metropolitan
area, for the nonmetropolitan areas of the district, and
for each individual bank with over $25 million in
deposits. Possible reasons for the variation in growth
trends are examined,
Total deposits of member banks in the Eighth
Federal Reserve District rose 5.3 per cent during the
past year. Member bank deposits in the nation rose
5.4 per cent, while deposits of all commercial banks
rose about 6 per cent. Commercial bank deposits both
in the Eighth District and in the nation grew some-
whatless than in most other recent years. District bank
deposits rose at an average rate of 3.8 per cent per
year during the 1950-60 period and at an 8 per cent
rate from mid-1960 to mid-1966. Commercial bank
deposits in the nation rose at average rates of 3.9 per
cent and 8 per cent, respectively, during the two
periods.
The volume of demand deposits nationally is largely
determined by Federal Reserve actions in providing
reserves to support these deposits. Using reserves as
a base, the banking system creates deposits through
the addition of loans and investments to bank assets.1
‘Proceeds of loans and investments are credited to customers’
deposit accounts and remain as deposits until the loan is re-
paid even though they are spent, unless some holder to
which the funds have passed converts them to time csr sav-
ings deposits or withdraws them as cash. This process of lend-
ing and investing and of deposit creation, in the banking
system as a whole, can continue as long as hank rcserves are
sufficient to meet legal reserve requirements.
Holders of demand deposits may convert them to time or
savings deposits, which have lower legal reserve require-
ments. In this ease, banks will find that tlsey have excess
reserves and can create additional deposits. On the other
hand, if time and savings deposit holders choose to convert
their deposits to demand deposits or transfer them to other
During the first half of the 1960’s time and savings
deposits at commercial banks grew rapidly. Time
deposits in the district rose at a 16 per cent rate from
mid-1960 to mid-1966 after increasing at a 7 per cent
rate in the 1950-60 period. In the nation time deposits
increased at a 15 per cent rate during the 1960-66
period compared with an annual growth rate of 6
per cent in the 1950’s. The substantial growth in time
and savings accounts in tIse more recent period is the
result of increased aggressiveness by commercial banks
in seeking funds to meet a rising demand for credit.
Reflecting this increased competition for funds were
more liberal interest rates paid on time and savings
deposits and the issue of unsecured notes, subordi-
nated debentures, and an increasing variety of cer-
tificates of deposit.
Demand deposits have grown less rapidly than time
and savings deposits. Demand deposits at district
banks increased at a 2.8 per cent annual rate during
the 1950-60 period and at a 3.6 per cent rate from 1960
to 1966. In the nation demand deposits rose at rates of
2.7 and 3.7 per cent, respectively.
I)eposit Growth Among Distrfrt States
Differences in the growth rates of deposits iii
various areas are influenced by numerous economic
forces including income, saving, interhank competi-
tion, and competition between banks and other finan-
cial institutions. Demand deposits are generally held
as a convenient means for settling day-to-day trans-
financial institutions, commercial banks will be short of re-
serves assd mssst reduce their assets in order to bring deposits
hack to levels consistent with reserves.
Legal reserves of Federal Reserve member banks include
cash in the vault plus deposits at the Federal Reserve Bank.
Reserve requirements were as follows as of December 31,
1966: 16½per cerst on net demand deposits at reserve city
banks, 12 per cent on net demand deposits at country banks,
4 per cent on savings deposits and on other time deposits
up to $5 million, and 6 per cent on time deposits in excess of
$5 million.
Page 20actions and as a means of storing wealth. Although
changes in these deposits in the nation are largely
I
determined by the Federal Reserve in supplying re-
serves to the banking system, growth of demand de-
posits in a local area is likely to be related to the
growth of both income and wealth of the community.
Time and savings deposits, in addition to their
relationship to income and wealth, ore perhaps as-
I sociated with the convenience and competitive features of banks relative to other savings mediums. Thus,
such deposit growth in an area may be associated with
r the number of banking offices, rates of interest paid b banks relative to other financial intermediaries, and other alternative opportunities for investing savings.
[ All areas of the district have had sizable gains in -~ total deposits since 1950. In the portions of states
within the Eighth District,2 the rate of increase during
I the 1950-60 period ranged from 3.1 per cent per year in Indiana to 5.2 per cent in Mississippi (Table I). During the 1960-66 period Arkansas had the most
rapid increase, with total deposits rising at a rate of
10 per cent per year, while Illinois, with a rate of 7 - per cent, had the lowest rate of gain. In every state
of the district growth of time and savings deposits
was considerably more rapid than that of demand
deposits. Also, variation among states in the rate of
growth of time and savings deposits was greater than
for demand deposits.
As indicated earlier, growth of time and savings de-
posits is influenced by rates of interest paid. Four
states in the district—Arkansas, Indiana, Mississippi, and Tennessee—limit rates paid on such accounts.
Maximum rates payable in these states in recent
years have generally been below the national Regula- tion 9 limits.3 Furthermore, many banks pay consider-
Table I
DEPOSIT GROWTH
AT EIGHTH DISTRICT INSURED BANKS
Annual Rates of Increase
Tatal Depasits Time Deposits’ Demand Deposits’
1950-60 1960-66 1950-60 1960-66 1950-60 1960-66
State portions,
Arkansas 4.4 9.9 11.2 17.1
Illinais 3.7 6.9 5.2 11.9
Indiana 3.1 8.9 3.9 14.5
Kentucky 4.0 7.5 7.7 18.9
Mississippi 5.2 8.4 12.6 17.0
Missauri 3.4 7.3 5.6 15.8
Tennessee 4.3 9,3 9.4 14.7
Eighth District 3.8 8.0 6.8 15.5
Deposits of individuals, partnerships, and corporations.
ably less than the maximum rates permitted. At midyear
1966 one-fourth of all insured commercial banks ill the
district were paying less than 3 per cent interest on
regular savings accounts, and one-eighth of the banks
were paying less than that amount on other time de-
posits (Table II). About one-tes~thof the banks paid
less than 3 per cent on both savings and time deposits.
On the other hand, almost one-third of the banks were
paying the maximum of 4 per cent on regular savings
accounts. Nearly half of the banks were paying be-
tween 4.5 and 4.9 per cent on other time deposits,
while one-eighth of the banks paid 5 per cent or more
on these accounts. These data indicate that for
many banks in the district the opportunity may exist
for attracting additional funds by increasing the rates
paid on time and savings deposits.
Apparently, interest rate limitations did not ad-
versely affect deposit growth during much of the
1950-65 period in those states which have such reg-
ulations. While time and savings deposits in the
Indiana portion of the district grew more slowly
2
The Eighth District includes all of Arkansas, all of Missouri except the western tier of counties, the southern
third of Illinois, the southern fourth of
I
Indiana, the western half of Kentucky,
the western third of Tennessee, and the
northern half of Mississippi.
Table It
Rate of Interest on Other Time Depositsm
3.0- 3.9 4.0 - 4.4 4.5 . 4.9 5.0- 5.4 — 9.14 5.78 0.61
4.57 6.66 10.89 5.92
— 2.29 10.49
19.71 6.52
46.87 13.05
2.9 5.7
2.7 3.3
2.3 4.9
3.3 3.2
2S 5.3
2.8 2.3
2.5 5.0
2.8 3.6
INTEREST PAID ON TIME AND SAYINGS ACCOUNTS
EIGHTH DISTRICT INSURED BANKS
June 30, 1966
Percentage Distribution at Banks
3At the end of 1966, Regulation Q spec-
ified that the maximum interest that any
member bank could pay was 4 per cent
on savings deposits and all multiple-
maturity time deposits of less than 90
days, 5 per cent on single-maturity time
deposits of less than $100,000 and all
multiple-maturity deposits of 90 days or
more, and 5½per cent on single-matu-
rity time deposits of $100,000 and over.
Maximum rates payable by nonmember insured commercial banks, established by the Federal Deposit Insurance Cor- poration, were the same as the above.
3.0 - 3.4
3.5 - 3.9
4.0
Total
Rate af Interest
on Regular Savings —~ _____________
Deposits _________ Under 3.0
Under 3.0 9.62
1.95
0.13
— 0.27 5.45
11.70 4.84 23.54
Total
25.15
29.99
12.91
3 I .95
100.00
‘Rates paid are not necessarily the highest, but are the most common, rates paid.
Source: 1966 Agricultural Loan 5urvey conducted by the Federal Reserve 5ystem.
Page 21than in most other areas during the 1950’s, Arkansas,
Mississippi, and Tennessee showed the most rapid
time deposit gains in the district. Since 1960 the
rate of time deposit growth in these states has
approximated that of the entire district. The market
rate of interest during much of the period ex-
amined was below the rates banks in these states
‘were permitted to pay. Under such a situation, banks
can effectively compete for time and savings deposits.
When market rates moved above pennitted bank rates,
however, a greater share of funds flowed into other
intermediaries or into the credit and equity markets.
As a result, growth in bank deposits was hampered.
Interest rates are not the only factor affecting
time deposit growth. Growth in incomes and alter-
native opportunities for investing savings have also
been important determinants of deposit growth. How-
ever, in much of the period since 1960 bank deposits
have increased more rapidly than incomes and sav-
ings. Stated somewhat differently, banks have been
successful, during most of the period examined, in
obtaining a greater share of the public’s savings.
I)eposir GrOif’tIl Ill ]Itetropoll (0(1 (171(1
I\on inetropolt tan Areas
Since 1950 bank deposits have
rapidly at banks located in non-
metropolitan areas than at metro-
politan banks. Total deposits at
banks in the smaller cities and rural
areas of the district rose at an annu-
al rate of 9 per cent during the
1960-66 period compared with a 7
per cent rate at metropolitan banks
(Table III). During the 1950’s total
deposits at nonmetropolitan banks
increased at a 4 per cent rate, and
at metropolitan area banks, at a3
per cent rate.
From 1960 to 1966 time deposits
of nonmetropolitan area banks in-
creased at a 16 per cent rate, and
those of metropolitan area banks
rose at a 15 per cent rate. During
the 1950-60 period time deposits
rose at an average rate of 10 per
cent at nonmetropolitan banks com-
pared with an average rate of 5 per
cent at metropolitan banks. Except
for the Indiana and Illinois portions
of the district, nonmetropolitan
areas showed an increase in time
deposits in excess of the growth
Page 22
of such deposits in any of the district metropolitan
areas (Table III). While the growth was slower in
Indiana and Illinois than in other district states dur-
ing the 1950’s, it was slightly above the average in-
crease in all metropolitan areas of the district.
The rate of growth of demand deposits at met-
ropolitan banks during the 1950-60 period was slightly
greater than at nonmetropolitan banks, 3.0 per cent
annually compared with 2.6 per cent. However, since
1960 this situation has reversed, with demand de-
posits in smaller centers increasing at a rate of 4.5
per cent annually compared with 2.7 per cent for
larger city banks.
!nthtidnal Ban!; Gr~s,i’t I,
While some areas of the district have shown more
rapid deposit growth than others since 1950, an even
greater variability appears when individual banks are
compared. Deposit growth at banks with deposits of
$25 million and over in 1966 was quite rapid at a very
few banks in each of the large metropolitan areas. In
Little Rock, Louisville, and Memphis a single bank
gresv two to three tisnes as rapidly as any other bank
in the particular area during the 1950-60 period (Table
IV). Since 1960 the magnitude of growth variation
I
I
I
increased more
Table III
DEPOSIT GROWTH AT METROPOLITAN
AND NONMETROPOLITAN AREA BANKS IN EIGHTH DISTRICT
Annual Rates at Increase
Metropalitan areas,
Total Depasits
1950-60 1960-66
Time Deposits’ Demand Depasits’
1950.60 1960-66 1950-60 1960-66 I
I
I
St. tauis 3.1 6.8 4.1 14.0 2.7 1.8
Lauisville 4.0 7.3 3.9 20.1 4.3 2.5
Memphis 4.1 9.3 8.4 14.8 2.8 4.9
Little Rack 4.9 8.8 8.5 16.4 4.3 4,9
Evansville 1.7 7.2 1.1 13.0 1.7 3.5
Springfield 4.2 8.9 6.3 21.0 3.7 4.3
Fart Smith 2.5 9.1 4.8 15.5 2.2 6.0
Pine Bluff 3,4 9.8 5.2 13.4 2.3 4.7
Total 3.4 7.4 4.7 14.9 3.0 2.7
Nanmetrapalitan areas
in district,
Arkansas 4.5 10.3 13.6 17.6 2.6 5.8
lllinais 3.9 7.5 6.8 12.6 2.3 3.7
Indiana 3.7 9.9 5.8 15.2 2.3 5.8
Kentucky 4.1 7.9 13,6 17.4 2.4 4.1
Mississippi 5.2 8.4 12.6 17.0 2.9 5.3
Missouri 4.3 8.1 11,1 18.8 3.5 3.3
Tennessee 4.8 9.5 12.9 14.8 2.0 5.7
Total 4.3 8,6 10.5 16.2 2.6 4.5
‘Deposits of individusis, psrtnerslsips, and carparatians.among individual banks in these areas has lessened fastest growing in the more recent period. In most
slightly. In the St. Louis area three banks showed cases the rapidly growing banks in each of the met-
extremely rapid growth (over 10 per cent yearly), ropolitan areas were relatively small institutions in
while six banks grew at quite modest rates of under 2 1950, generally not more than one-tenth the size of
per cent annually during the 1950-60 period, the largest banks in the area. None of these rapidly
With few exceptions the most rapidly growing growing banks had attained the position of largest
banks during the 1950-60 period have also been the hank in its particular area in 1966, although the gap
able IV
DEPOSIT GROWTH OF INDIVIDUAL BANKS IN EIGHTH DISTRICT’
Annual Rates at Increase
METROPOLITAN AREAS NONMETROPOLITAN AREAS
1950-60 1960-66 1950-60 1960-66 1050-60 1960-66
St. Louis, Missouri-Illinois
Deposits $100 million and over Deposits aver $25 million Deposits aver $25 million
Bank A 8.4 8.2 Little Rack Arkansas
Bank B 2.1 7.2 Bank A 10.6 9.5 Bank A 50 13,3
Bank C 3.0 5.9 Bank B 3.7 9.4 Bank B 44 11.6
Bank D 2.9 5.4 Bank C 1.1 7.5 Bank C 3.9 11.4
Bank E 0.9 5.2 Bank 0 3.8 6.8 Bank D 3.9 9.5
Bank F 1.3 4.4 Bank E 2.0 8.1
ank C 2.7 0.8 i.auisville Bank F 2.0 7.6 Bank G 1.9 5.2
Deposits $5O-$100 million Bank A 11.4 16.4 -
Bank B 3.1 7.9 r BankA 12.8 15.1 Bank C 3.4 6.9 lllinais and Indiana
BankB 10.1 12.0 BankD 30 62
Bank C 3.1 8.3 Bank E 36 Bank A 2.5 8.5
Bank D 8.6 7.8 -. Bank B 2.3 7.2
Bank E 6.0 7.1 . Bank C 1.1 6.1
Memphis Bank D 3.8 5.!
Deposits $25.50 million Bank A 23.3 15.8
Bank B 4.4 11.7 Kenlucky
Bank A 3.0 14.4
Bank C 3.6 7.9
ank B 7.9 14.3 Bank D 37 7 Bank A 2.9 8.2
Bank C 9.9 11.1 Bank 8 3.4 6.4 Bank B 6.4 7.8
Bank D 8.9 8.4 Bank C 7.6 7.5
BankE 51 Dl . BankD 6.0 7.3 Fart Smith [ Bank F 8.7 75 Bank E 2.9 6.3
Bank C 6.8 74 Bank A 6.5 14.2
Bank H 2.4 7,3 Bank B 1.7 8.5 Mississippi
Bank I 6.3 6.8 Bank C 0.9 6.0
t Bank J 2.9 6.1 Bank A 6.9 13.0
Bank K 2.0 6.0 Pine Bluff Bank B 7.9 11.2
Bank C 5.8 8.0
Bank L &5 5.9 BankA 64 95
Bank D 1.2 7.7
Bank M 29.5 5.8 Bank B 1.8 9.5
Bank N 1.0 5.8
Bank 0 1.2 5.6 Evansville Missouri
Bank p 4•7 4,9 Bank A 08 85 Bank A 1.4 12.6
Bank Q 7.8 4.8 Bank B 1’S 66 Bank B 3.2 9.4
Bank R 4.2 4.4 .. Bank C 3.3 0.9
anks 7.2 4.2 Bank C 2.3 6.4
Bank T 2.7 3.9
Bank U 4.0 33 Springfield Tennessee
Bank V 0.7 2.2 Bank A 6.9 77 Bank A 4.5 9.3
Bank W 1,9 2.1 Bank B 2.8 6.0 Bank B 2.9 7.7
1 liscliiclic all banlcc in tie district witis totaL dcpa~itsaf $25 rnillinn and over an June 30, 1966, except thr~ banks of this site not in c’xistence in
lOoO. lar banks which merged during tlst’ 1930—60 and 1960—66 period the total deposits of the separaLe banks in 10.51) and 1960 were romlunc-ci
and treated ns If the nscrgc-rhad oceanc-cI at the beginning of the respective periods. - -
Page 23between the rapidly growing banks and their larger
competitors closed considerably during the period
examined.
These data indicate that small, well-managed, ag-
gressive institutions have been able to attract an in-
creasing proportion of the banking business of a
comlnunity. While growth does not necessaril in-
sure competition or profits, these smaller but rapidly
growing banks must he providing new or improved
services sought by banks’customers or meeting these
demands at lower costs. Through such innovations
they may exert a considerable competitive impact on
other banks in the metropolitan area.
Banks in St. Louis with over $100 million of deposits
in 1966 have grown less rapidly than similar banks
in other metropolitan areas of the district. Deposits
of such banks in the St. Louis area have grown 5 per
cent annually since 1960 compared with average rates
of 9 per cent in Memphis and 8 per cent in Little
Rock and in Louisville. During the 1950-60 period
major St. Louis banks grew at an average annual rate
of 1.7 per cent, while major banks in these other cities
rose at about a 4 per cent rate.
One probable explanation for the less rapid growth
of large St. Louis banks is their limited opportunity
for providing banking services to the rapidly growing
suburban communities. Banks in most other metropoli-
tan areas of the district can provide such services
through branches and additional offices, while banks
in St. Louis are largely confined to their existing
\VILLIAM E. PETTIGnEw
CUT-TON B. LUTTEELL
L
I
I
‘-C
location.

Bank deposit growth in the Eighth Federal Reserve District

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Bank deposit growth in the Eighth Federal Reserve District

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