Growth of Financial Institutions

Commercial bank assets increased $16.1 billion during 1958 as compared to $5.4 billion in 1957 and $6.8 billion in 1956. The increase of 7.2 percent in 1958 was the largest increase for any year during the past decade which had an average annual growth of commercial bank assets of 5.4 percent per year. The growth of financial institutions during the past 10-year period was at a rapid rate, with the most rapid growth occurring in savings and loan associations and mutual savings banks which have been in a position to offer more attractive savings interest rates because of their favorable tax status and lower liquidity requirements. Relative growth by classes during the past 10-year period is presented in the following table.

The number of operating national banks was reduced during 1958 from 4,627 at the close of 1957 to 4,585, a net change of 42. This compares with reductions of 32 in 1957, 41 in 1956, 96 in 1955, 68 in 1954, and 52 in 1953. The total assets of the national banking system continued upward in 1958 to $128.8 billion compared with $120.5 billion at the close of 1957, a gain of $8.3 billion or 6.9 percent. The system absorbed 45 state banks in 1958 which had total assets of $1.1 billion, through consolidations, mergers, purchases, and conversions; State systems absorbed by the same routes 25 national banks with resources of $484 million. A net gain of $609 million in assets accrued from these sources for the national banking system. Thus, the substantial gain in total assets for the system in 1958 occurred almost wholly through normal deposit growth.

Based upon managerial competence, asset soundness, adequacy of capital funds and reserves, and earning capacity as the fundamental considerations, the national banking system continues in excellent condition, the only exceptions being a few small banks which require and are receiving close and effective supervisory attention.

Deposits

During the year 1958 the national banking system showed the most significant gain in deposits for many years reaching a new high of $117

The gain in time deposits of $4.2 billion in the same period accounted for a little more than 55 percent of the total upswing.

The total deposits of national banks and the average effective interest rate paid on time and savings deposits are set forth below for the years 1955 through 1958.

The national banking system, at the end of 1958, held net loans of $52.8 billion after deducting reserves for bad debts and valuation reserves of $1.1 billion. The increase in net loans during 1958 amounted to $2.3 billion or 4.54 percent. As in the past, loans to commercial and industrial type borrowers continue to make up the major segment of the composite portfolio and constitute $22.4 billion or nearly 42 percent of $53.9 billion gross loans held by national banks. The increase in such loans during the year was relatively slight at $194 million or 0.88 percent.

New construction activity continued to rise though less spectacularly in 1958 and the aggregate of all types was valued at $49 billion, a gain of $865 million. Private activity of this kind was valued at $33.9 billion, practically unchanged from 1957. Permanent nonfarm dwelling units started during 1958 totalled 1,209 thousand in number, an increase of 167 thousand compared to a 76 thousand decrease in

1957.

The Nation's mortgage debt on nonfarm one to four-family properties continued to rise. A total of $118 billion was reached by the close of 1958, a gain of $10.4 billion over $107.6 billion reported in 1957. Conventional loans still make up the largest portion at 57 percent and aggregate $67.8 billion. Farm mortgage debt in the nation stood at $11.2 billion at the year end, up $700 million over 1957 or an increase of 6.7 percent.

By law, each national bank must restrict its aggregate investment in real estate mortgage loans, with the exception of those which are insured or guaranteed to the extent of not less than 20 percent by the Veterans' Administration, to an amount not in excess of 60 percent of its time and savings deposits or 100 percent of its capital and surplus, whichever is the greater. The $11.7 billion of real estate mortgage loans which are subject to this limitation equal 32.8 percent of the $35.7 billion of time and savings deposits held by the

National banks held loans secured by real estate at the end of the years 1957 and 1958 as follows:

At the close of 1958 commercial bank mortgage loan holdings aggregated $25.5 billion; up $2.2 billion from the $23.3 billion at the 1957 year end. In relation to all commercial banks, national banks held nearly 54 percent of such loans with their total of $13.7 billion, a gain of 10 percent or $1.2 billion over the $12.5 billion held at the end of 1957. Such loans held by all national banks constituted 25.4 percent of their gross loans. Of the Nation's $171.2 billion total mortgage debt, national banks held 8 percent and they accounted for close to 8.2 percent of the national increase in such debt in 1958.

In late November 1958, the Comptroller of the Currency was informed that the Federal Housing Administration was approaching its statutory limitation on insurance in force and outstanding commitments and had adopted a new procedure which contemplates that firm commitments will continue to be issued in cases where there is a buyer at hand, but that with respect to commitments in the name of mortgagors who are not home buyers the Administration would henceforth issue an agreement to insure instead of a firm commitment. The agreement to insure obligates the Administration to issue its usual commitment, but it will be conditioned upon the availability of authorization at the time a lender holding the agreement requests its conversion to a commitment. The Commissioner informed the Comptroller of his belief that in all respects agreements to insure are valid and binding obligations upon the Administration and it is legally obligated to honor the agreements. The new procedure was conceived as a workable plan to meet temporary problems which the Federal Housing Administration anticipated would be promptly cured by Congress and the Commissioner asked the Comptroller to rule that agreements to insure should be treated by national bank examiners as the equivalent of an FHA firm commitment. It has been the position of the Comptroller of the Currency that when FHA has issued its firm commitment to insure, the loan covered thereby is exempt from the maturity and percentage limitations of the first

After careful consideration of the factors involved, on November 4, 1958, the Comptroller of the Currency issued instructions to national bank examiners to treat FHA Agreements to Insure already made and to be made during the next 120 days as the equivalent of firm commitments to insure for the purposes of Section 24 of the Federal Reserve Act. On March 9, 1959, and in response to a further request from the Commissioner, these instructions were extended for an additional 90 days.

The first reduction in instalment debt since 1943 permitted the year 1958 to close with a total less than that of the prior year. The modest reduction of $230 million from the 1957 total of $34.1 billion ended 1958 with the aggregate standing at $33.9 billion. However, the Nation's consumer debt (instalment debt plus noninstalment debt in the form of single payment loans for the purchase of consumer goods, charge accounts, and debt incurred for the payment of services rendered) continued to rise to a new high of $45.1 billion at the year end, a gain of $291 million over the $44.8 billion at the close of 1957. Instalment loans to finance the purchase of automobiles continue as the largest segment of instalment credit. Such loans decreased by $1,278 million from $15.4 billion in 1957 to $14.1 billion at the close of 1958. All other types of instalment credit increased slightly over 1957 levels.

Instalment type personal and consumer loans held by the national banking system aggregated $8.1 billion at the close of 1958, practically the same amount held at the 1957 year end. This level of instalment loans constitutes 28 percent of the $28.9 billion of such loans held by financial institutions and 63.8 percent of the $12.7 billion of such loans held by commercial banks at the end of 1958. Included in the instalment loan holdings of national banks at the year end was $3.8 billion of automobile loans, decreased $99 million from the previous year's close. Of the total instalment type personal and consumer loans held by national banks, automobile paper constitutes 47 percent as compared to 48.1 percent in 1957.

Loan delinquencies of 90 or more days duration shown in reports of examination made in 1958 increased slightly. This observation is based upon data accumulated as of the respective dates of examination. In the following table the total unpaid balances of such delinquent loans is expressed as a percentage of the total outstandings of the group of national banks which segregate instalment loans in loan portfolios or hold such paper in an aggregate amount equal to

Because of the rapid expansion in instalment credit which reached significant proportions in the early fifties, the increasing number of national banks engaged in this type of lending, and the need for better information as to lending practices and experience, a special section dealing with instalment credit was added to the report of examination in August 1955. For several years detailed schedules have been incorporated in annual reports showing the policies and range of terms followed by national banks in making and servicing instalment loans. It appears clear on the basis of the studies previously made that, generally, national banks are following sound policies in making and servicing these loans. The study made in 1958 supports the same conclusion although there has been a slight increase in the number of banks that now lend on 36 months' maturity on new and late-model used automobiles. In 1957, 18 percent of all national banks in the study made such loans up to 36 months; in 1958 the number was up to 23 percent. Other terms remain fairly constant.

The following schedule divided into three size groups was prepared on the basis of the most recent report of examination in 1958 and shows the details of the down payment and maturity policies of the 4,113 national banks examined which segregate instalment paper in their loan portfolios or hold such paper in an aggregate amount equal to 10 percent or more of their loan accounts.