July 15, 1970
Views of head office board members and visiting branch board members were solicited prior to the July 9 board meeting in Dallas. The following conclusions emerged from our informal survey: (1) sales have been weakening for district businesses; (2) there is widespread evidence that merchandise is being sold below posted list prices; (3) the commercial paper market is regarded as relatively stable, but banks have accommodated and expect to further accommodate firms that have been borrowers in the commercial paper market; (4) large CD rates are up at some banks, with rates at a few small banks exceeding 9 percent; (5) corporate liquidity is still a major concern; and (6) loan demand remains strong, matching or exceeding seasonal expectations.
The nonbankers noted that sales appeared to weaken somewhat in their industries in recent weeks. Despite the trend in sales, most respondents noted that their inventory situation had remained satisfactory so that no change in inventory policy had been necessary. There was an indication (confirmed by aggregate data for the region) that petroleum inventories were too high at present, even though sales of the petroleum industry have remained strong. Recent reductions have been made in district petroleum production allowables, particularly in Texas, to curtail crude petroleum mining. The petroleum inventory situation may also improve because a shortage of tankers and reduced Libyan production has caused some strengthening of domestic demand.
The respondents were nearly unanimous in citing that
price-cutting
from posted list prices had occurred in their industries. It was
further indicated that this practice has been on the increase in
recent weeks. Price-cutting has probably been one response to the
weakening sales reported in several industries. One district banker
suggested that a form of price-cutting had been on the increase in
the banking industry. This was occurring through the use of gift
premiums, reducing the size of the minimum balance required to avoid
a checking account service charge, and other innovative promotions
to attract deposits.
A series of questions were asked pertaining to recent developments in the commercial paper market. Nonbankers who have been active in the commercial paper market, either as issuers or as buyers, reported no change in recent weeks in their activity or in their policies toward the commercial paper market. Several bankers in the area, however, noted that they had recently accommodated borrowers who were in the commercial paper market. Of particular note was the recent accommodation by one banker of finance companies that were known to utilize the commercial paper market. In addition, several bankers mentioned that they had outstanding lines of credit to companies that were in the commercial paper market and anticipated some additional activation of these lines of credit in the near future.
Banking respondents to our latest survey noted a generally strong loan demand. All reported loan demand to be either exceeding or matching seasonal expectations. The source of this loan demand is apparently from general business, but large real estate development projects were particularly singled out by one banker.
The recent change in Regulation Q rates for large denomination CD's with maturities of 30 to 89 days has brought mixed responses from district bankers. About half of our survey respondents reported that they had increased their offering rates (usually to the 7 1/2 - 8 percent range, but exceeding 9 percent at a few small banks) while half reported they had not changed their rates. Of the bankers who had increased rates on CD's, only one reported any reduced reliance on sources of borrowed funds, such as Eurodollars, commercial paper, or federal funds. To the extent that additional funds are being attracted to district banks by the higher CD rates, it appears these funds are being utilized to make new loan or investment commitments and not to reduce reliance on borrowed sources of funds. Some bankers indicated that the recent lifting of CD rate ceilings had given a psychological lift to the financial community. At the same time, however, corporate liquidity remains a major concern of the bankers surveyed. One banker expressed particular concern about the liquidity position of smaller, closely held corporations.