Mutual Savings Banks Research Articles

Mutual savings bank membership in the FHLBS: Motivations behind recent membership growth

Mutual savings bank membership in the Federal Home Loan Bank System increased sharply during 1974–1976. Motivations behind this upsurge in System membership are explored using a financial model of savings bank behavior. Hypotheses regarding the balance sheet structure of banks that joined the System during the period are developed and tested using multiple regression analysis. Empirical results for banks that joined the System in 1975 indicate that the joining banks were aggressive, risk-taking organizations that were attracted to membership in order to have a standby source of ready liquidity. Results for banks joining in other years are weaker, though still generally consistent with the 1975 results.

Mortgage Lending Determinants in a Major Metropolitan Area

The purpose of this paper is twofold. First, the paper analyzes the determinants of mortgage lending terms at a commercial bank and at a mutual savings bank in a major metropolitan area. Secondly, the paper addresses the question whether the clientele of the institutions differ with respect to the mortgage applications. The data set consists of observations on mortgage lending terms and borrower and property characteristics for mortgage loan applications from each of the financial institutions. The survey was conducted from January 1978 to June 1978. The coefficients from the estimated equations are tested for statistical significance. The estimated equations include the following variables. The loan terms are amount requested, percentage down payment, years to maturity, and interest rate. Although it is recognized that those terms may be interdependent, that particular problem is not considered here. Indeed, interdependence of loan terms exists given that the market for mortgages is not cleared solely by the movement of interest rates. That is due either to the inflexibility of mortgage rates because of political constraints such as usury ceilings or the willingness of the applicant and institution to trade off among the various terms. 1 In particular, a lower interest rate may be offered the applicant provided a higher down payment is forthcoming. Thus, to clear the market for mortgages, the rationing of credit is accomplished through an interaction of the entire package of loan terms rather than simply via movements in the mortgage interest rate. Moreover, in the case of mortgage applications, the determination of the willingness of the financial institution to grant the application will depend on the creditworthiness of the borrower. The functions used in this paper include as measures of creditworthiness ratio of monthly hous

Explaining Disintermediation at Mutual Savings Banks

(1980). Explaining Disintermediation at Mutual Savings Banks. Financial Analysts Journal: Vol. 36, No. 3, pp. 71-76.

Further Evidence on the Value of a Priori Information

IN A 1976 PAPER in this Journal, William Brainard and I reported the results of applying a mixed estimation procedure to the asset demand equations of savings and loan associations and mutual savings banks. In each sector, the least squares estimates were both implausible and receptive to a priori information. Even with the simplifying assumptions of normality and exchangeability, the incorporation of prior information through a mixed estimation technique yielded estimates which predicted reasonable asset responses to a wide variety of experiments. Actual root mean square errors for one to eight quarter ahead predictions were also calculated within and outside the sample period used for estimation. For savings and loans, the least squares estimates, mixed estimates and even our pure priors (using prior means for all parameters other than the intercept) forecast out of sample about equally well. Although their overall records were roughly comparable, there were some differences in forecasting particular variables a specific number of quarters ahead. Surprisingly often, one method would forecast better than another method one quarter ahead but not as well as eight quarters ahead. For mutual savings banks, the pure priors outforecast the pure data for five of the six assets in the one quarter ahead tests and were roughly comparable to least squares in the farther ahead tests. The mixed predictions were more accurate than least squares in every case but one, short term bonds one quarter ahead. For both sectors, naive autoregressive forecasts had an impressive accuracy one quarter ahead that declined dramatically as the forecasting period lengthened. A number of developments may now have made these results obsolete. The Federal Reserve Board's flow of funds data have been revised and, with the passage of time, there are now more data available. In addition, the orthogonalization routine in the computer program that we used has been changed. Computational accuracy has been a continuing concern because of the need to invert fairly large moment matrices for highly intercorrelated variables. In the Kim Peck version of TSP which we originally used there were two orthogonalization options. The routine we utilized was advertised as providing extra precision, and did seem to give more stable estimates during a variety of tests we conducted involving transformations of the data base. These two program options have now been replaced by a presumably even more accurate algorithm. In the present paper I have reestimated the asset demand equations using the current TSP orthogonalization routine and the revised and enlarged data base. The prior probability distributions are identical to those used in the earlier paper.

Managerial Perceptions of Career Planning Information

Mutual savings bank managers reported their perceptions regarding the adequacy of information they possess in nine different career planning areas. Differences in perceptions emerged across a number of information areas. In addition, managers' career salience was positively related to perceptions of adequate information regarding self and family issues, and self-esteem was positively related to information regarding self. Although organizational tenure was not related to career planning information, the amount and diversity of prior work experience were related to information in several areas.

DISINTERMEDIATION AND ITS EFFECT ON THE STABILITY OF SAVINGS CAPITAL AT FINANCIAL INSTITUTIONS

THE CAUSES AND EFFECTS OF DISINTERMEDIATION Disintermediation is a relatively new term on the financial scene in America. The term was first coined in mid‐1966 and has since, to the dismay of many, become part of the daily vocabulary of bankers and economists. Originally, it sprang up to describe the outflow of funds from deposits at financial intermediaries (commercial banks, savings and loan associations and mutual savings banks) to investments yielding a higher return. Since that time, disintermediation, has taken on several additional forms such as fractional disintermediation, which addresses differences between the maximum interest rate that can be paid on a time deposit with a specified maturity at a financial intermediary and the interest rates prevailing on the similar instruments in the open market. Another new form of savings outflow is passbook disintermediation which will be discussed later. No matter which form of disintermediation is addressed, the same difficulty exists for the depository institutions — how to remain competitive when interest rates rise above the maximum ceiling rates allowed by law.

Time Series Analysis and Portfolio Selection: An Application to Mutual Savings Banks

A complete understanding of the mechanism by which monetary policy instruments affect real goods and the level of economic activity depends critically upon an adequate explanation of the behavior of financial institutions. A seemingly fruitful framework of analysis for the portfolio behavior of financial institutions has been put forward by several authors including Parkin [12]; Parkin, Gray, and Barrett [13]; I. Sharpe [16; 17]; W. F. Sharpe [18]; and Swan [20]. A typical decision maker is assumed to maximize expected utility of his portfolio return (profit) by choosing an optimum portfolio. In this study, we adopt an unconventional approach for testing the appropriateness of such a model. As the previously mentioned studies suggest, we shall divide the assets (liabilities are treated as negative assets) in a typical portfolio of a financial institution into a choice set and an exogenous set. The decision maker chooses the levels of the assets in the choice set and has no control over the levels of

The Currency Ratio and the Subterranean Economy

o Since 1961, the ratio of currency in circulation to demand deposits has been rising. In the November/December 1977Financial Analysts Journal Peter Gutmann attributed this rise to growth in the subterranean economy. But, while the per capita value of currency in circulation -$381 at the end of 1976 may seem surprisingly high compared with what most of us carry in our pockets, economic models have been predicting it successfully since the 1950s. Professor Garcia asserts that a shortfall in demand deposits, rather than an increase in holdings of cash, has caused the currency ratio to rise. She cites among the reasons for the shortfall corporations' growing use of repurchase agreements and consumers' growing use of negotiable order of withdrawal (NOW) accounts, telephone transfers between savings and checking accounts, savings deposits, checking accounts at mutual savings banks, money market mutual funds and bank credit cards. An adjustment for these reductions in the use of demand deposits produces a currency ratio comparable to that of the early 1950s and late 1960s. Changes in the ratio thus provide no information from which to estimate the magnitude of the subterranean economy. , AS Figure A shows, the ratio of currency in circulation to demand deposits (the currency, or cash, ratio) fell from abnormally high levels during World War II to a postwar low in 1961. Since then it has been rising, recently at an accelerated rate. In the November/December 1977 issue of Financial Analysts Journal, Peter Gutmann attributes this rise to growth in the subterranean economy, estimating the amount of currency held for illegal purposes as the difference between the high value of the ratio (0.334) in 1976 and the low value (0.217) in 1937-41. While the per capita value of currency in circulation$381 at the end of 1976-might seem surprisingly high in comparison with the amount most of us carry in our pockets, it comes as no surprise to forecasters of currency demand. Since the 1950s, the amount of currency in circulation has in fact approximated the predictions of economic theorists and macroeconomic forecasters. Peter Gutmann's inference that the currency ratio has been growing abnormally fast is not borne out by the facts. Figure A: The Ratio of Currency to Demand Deposits

Alan L. Olmstead. <italic>New York City Mutual Savings Banks, 1819–1861</italic>. Chapel Hill: University of North Carolina Press. 1976. Pp. xiv, 236. $15.95

Journal Article Alan L. Olmstead. New York City Mutual Savings Banks, 1819–1861. Chapel Hill: University of North Carolina Press. 1976. Pp. xiv, 236. $15.95 Get access Olmstead Alan L.. New York City Mutual Savings Banks, 1819–1861. Chapel Hill: University of North Carolina Press. 1976. Pp. xiv, 236. $15.95. Henry Cohen Henry Cohen Loyola University, Chicago Search for other works by this author on: Oxford Academic Google Scholar The American Historical Review, Volume 82, Issue 3, June 1977, Page 743, https://doi.org/10.1086/ahr/82.3.743 Published: 01 June 1977

The Value of a Priori Information in Estimating a Financial Model

THIS PAPER REPORTS our initial efforts to use an explicitly Bayesian approach in estimating the asset demands of mutual savings banks and savings and loan associations. This is a part of a larger effort to construct and estimate a model of financial markets using flow of funds data. The general strategy followed in the construction of this model is somewhat different from that used in the design of most existing models. Each sector's allocation of its financial wealth among a variety of assets and liabilities is fully specified; the demand equations explicitly take into account the fact that a decision to hold funds in a particular form is simultaneously a decision to not hold these funds in an alternative form. Typically, the demand equations for a given sector include, as explanatory variables, rates of return on all assets held by the sector, and it is assumed that the assets are less than perfect substitutes. In contrast, most financial models focus attention on a subset of asset demands, the excluded assets being relegated to a residual category, and replace some of the markets by rate structure equations. Elsewhere, we have argued that specification of a complete set of sectoral demand and supply equations is a valuable safeguard against inadvertent use of inconsistent or nonsensical behavioral equations. Likewise, we have argued that for some of the policy questions being explored in large scale financial models, it is undesirable to assume the perfect substitution implied by rate structure equations. However, there is a major problem with the strategy we have advocated: it widens the already large gap between the number of parameters appearing in financial models and the number that can be reliably estimated from aggregate time series data. Indeed, it is undoubtedly the inadequacy of time series data which has led to the simplifications we find objectionable, and to the tireless search for the right combination of explanatory variables that will yield correctly signed and statistically significant coefficients. It has seemed to us that an attractive alternative to the simplification of structure and deletion of variables is the use of a priori information. In principle, this information could come from a variety of sources: theoretical calculation, crosssection studies, previous time series studies on different data, or even practical experience. The procedure we have followed in arriving at our priors is informal and subjective; we have tried to exploit ex ante the same information which gives rise to that almost inevitable disappointment one feels when confronted with a

Price Regulation and Quality Rivalry In a Profit-Maximizing Model: The Case of Bank Branching

Since the 1930s commercial banks have been under the Federal Reserve's Regulation Q with respect to the price they can pay to attract deposits. More recently, savings and loan associations (S&L's) and mutual savings banks (MSB's) have been subject to similar price regulation. Facing this kind of price regulation, firms are likely to turn to nonprice or quality variables on which they can compete for business (see [12, 19, 20] ). Indeed, casual observation indicates that banks and other financial institutions in some markets have engaged in a good deal of nonprice competition or rivalry. This takes the form of free gifts for new deposits, longer banking hours for depositing or withdrawing money, and other extra conveniences.l Unfortunately, the absence of speciflc data on these kinds of services and expenditures forecloses a rigorous test of whether the provisions of these extra features and services are a response to competitive pressures, i.e., whether market structure influences the quality level.2 There is one type of quality variable, however, for which good data are available: the extent of branch banking. Increased numbers of banking offices are likely to

Money & Banking:

Reference materials in the area of money and banking have ordinarily been lumped under the category of general reference books in economics and business. This is understandable because most of the required data can be obtained from books dealing with the latter. There are, however, numerous government and private sources which deal exclusively with banking and monetary statistics. This, coupled with their highly specialized character, justifies a separate treatment. We may being by examining a few directories, among which, Moody's Bank and Finance Manual is one of the better known and most widely used. Its coverage extends to banks, insurance and real estate companies, real estate investment trusts and miscellaneous financial enterprises. The section on banks gives the latest available accounts of nearly 3000 banks, with the history of the institution from the date of the charter, absorptions, capital history, dividend payments and price ranges. More than 3000 smaller banks are listed with essential details. The manual includes information on the chartered banks of Canada, the principal banks of England, Europe, Africa, Asia, Australia and South America. The insurance section covers all phases of insurance business, like underwriting and investment, assets and liabilities, gains and losses, and types of business written. Federal credit regulatory agencies such as the Federal Reserve System, Federal Deposit Insurance Corporation, Federal National Mortgage Association, Federal Home Loan Bank Board and others are treated in considerable detail. As with the other Moody's manuals, the center section contains composite banking and monetary data such as a ten‐year range of banking stocks and bonds and lists of 300 largest banks, 100 largest mutual savings banks, 100 largest life insurance companies and 100 largest savings and loan associations. Also included are stock averages and distribution of assets and investments of insurance companies.

Competition for Savings Deposits in the U.S.: 1936-1966

The growing sensitivity of savings deposits to flow in response to changes in interest rate differentials has become so commonplace in the past decade that the term “disintermediation†has become a part of the economists' vocabulary. It is a major conclusion of this paper that the volatility of savings deposits began to increase as early as 1950 for savings and loan associations and credit unions and as early as 1945 for mutual savings banks. As an indication of this, we proxy changes in the competitive environment for savings deposits by making yearly estimates of the elasticity of savings deposits with respect to deposit rates at savings and loan associations, mutual savings banks, and credit unions.

A FACTOR ANALYTIC APPROACH TO AN EMPIRICAL DEFINITION OF MONEY

IN RECENT YEARS, several attempts have been made to develop an empirical definition of money. Not only have different methodologies been employed in arriving at the empirical definitions of money, but the definitions vary widely from study to study. Friedman and Meiselman [6] define money to be that set of financial assets which best explains nominal income. Friedman and Meiselman [6, p. 181] employ two criteria in determining the set of assets which defines the money supply. The first criterion is that the sum of the assets should have the highest correlation with income. The second criterion is that the sum of the assets should have a higher correlation with income than any of the components taken separately. Using these criteria, Friedman and Meiselman conclude that a proper empirical definition of money is the sum of currency, demand deposits, and time deposits at commercial banks. Using the same dual criteria, Timberlake and Fortson [13] argue that time deposits have insignificant explanatory power in predicting income, and Kaufman [10] argues that the definition of money changes depending upon whether financial assets are related to income in preceding, concurrent, or later periods. Another approach to defining money empirically is the employment of elasticities of substitution among financial assets [3], [5]. For example, Chetty [3, p. 278] estimates elasticities of substitution and uses these elasticities to take into account Gurley's [7] suggestion that financial assets be weighted by their corresponding degree of moneyness in defining the money supply. Chetty concludes that the money supply should be a weighted sum of currency, demand desposits, time deposits, deposits in mutual savings banks, and liabilities of savings and loan associations. In this paper, a methodological and statistical approach different from the studies previously cited is employed. The analysis involves a twostage procedure. In the first stage, a set of financial assets is considered simultaneously to determine relationships among the assets within the set. The dimension of the set of assets is then reduced by the multivariate statistical technique of factor analysis. In the second stage of the analysis, the Friedman-Meiselman dual criteria are applied to the factor analytic results to determine an empirical definition of money. It will be seen that the money supply is defined to be a weighted arithmetic average of the assets considered. The factor analysis model is presented in section I, and estimated results are presented in section II of this paper. In

The Effectiveness of Recent Policies to Maintain Thrift-Deposit Flows

The topic of financial disintermediation has received a great deal of attention since 1966, when severe monetary restraint led to a sharp decrease in the rate of growth of deposits at filnancial institutions, particularly at savings and loan associations and mutual savings banks. The 1966 experience led to fears of widespread insolvency among thrift institutions and to the development of new regulations, or reinforcement of existing regulatory powers, designed to protect thrift institutions. Chief among these changes were the shift in the rationale for the Federal Reserve System's power to establish maximum rates payable on commercial-bank time deposits (Regulation Q) and the extension of deposit-rate ceilings to member institutions of the Federal Home Loan Bank Board and the Federal Deposit Insurance Corporation. The new rationale for Regulation Q was as a means of protecting the deposit inflows of thrift institutions (particularly weak ones) from commercial-bank competition in periods of monetary restraint, when in the absence of such restrictions commercial banks would raise their rates offered more rapidly than would thrift institutions.l The extension of deposit-rate ceilings to thrift institutions in The Interest Rate Regulation Act of 1966 was at least partially motivated by a desire to limit interest rate competition among thrift institutions.2

Prospects for Selling Life Insurance through Retail Banking Outlets

This is a study of Virginia bank officers' interest in having their institutions offer the various forms of life insurance services to their customers over the counter should the regulatory agencies permit. There is much discussion concerning future concentrations of financial services. Many predict dramatic changes in the marketing strategies of consumer financial services. Certainly, change is a pervasive characteristic of the business environment. As American financial institutions have evolved to adapt to this dynamic environment, the distinctions among the markets that the financial institutions serve have tended to become less precise. For many years, for instance, there have existed formal and informal overlaps between the insurance and banking industries. Sometimes, particularly in smaller communities, the chief operating officers of the local bank have owned or been closely associated with a local insurance agency. In other instances, banking institutions have sought to protect themselves and their loan customers by marketing various types of credit life insurance, mortgage insurance or health insurance designed to provide funds to meet the debtor's obligation to the bank if he becomes disabled or dies. Gradually banking institutions have offered other types of insurance services incidental to their banking functions. An accidental death policy offered by a bank to an institution's demand depositors or term life insurance offered to a bank holding company's leasing customers are two examples of such services. Probably the most extensive overlap between the insurance and banking industries is the savings bank life insurance systems of New York, Connecticut, and Massachusetts. In these states mutual savings banks (which are analogous in function to Virginia's savings and loan associations) are authorized by their states to issue to residents a variety of life insurance policies which are very similar to those sold by commercial insurers. Recognizing the changing nature of the business environment in which financial institutions operate and the involvement of banking institutions in certain aspects of the insurance industry, especially in life insurance, an Harvey W. Rubin, Ph.D., is Assistant Professor of Insurance at Virginia Commonwealth University. Peter A. Zuger, M.S., is a manager in a commercial bank's operations. This paper was submitted in January 1974.

Mutual Savings Bank Depositors in New York

Contrary to their traditional image as institutions operated exclusively for “frugal workers,” mutual savings banks in New York were also a haven for the savings of many middle and upper class persons, whose accounts comprised a substantial proportion of the banks' funds. Thus these intermediaries presumably improved the efficiency of the savings and investment process, allowing middle class people to allocate their resources between fixed and liquid assets better than would otherwise have been possible.

New York City Mutual Savings Bank Portfolio Management and Trustee Objectives

This article addresses the issue of what made early mutual savings bank trustees tick. It explores two hypotheses: (1) trustees were trying to maximize their depositors’ “well-being” by maximizing the real rate of return on their banks’ portfolios given legal constraints; (2) trustees were trying to profit from their positions. These two hypotheses are tested using investment data drawn from the archives of several of New York's oldest mutuals. Besides offering insights into the objectives of early trustees, the analysis of mutual portfolios will also shed light on several broader issues dealing with capital market efficiency and the effect of legal constraints on resource allocation.

Thrift Institution Competition with Commercial Banks: Empirical Evidence

Several banking law changes have been proposed to increase competition between commercial banks (CB), mutual savings banks (MSB), and savings and loans associations (SLA).

The Effects of Control Status on Commercial Bank Profitability

In this study, an attempt is made to determine whether the profitability of a commercial bank is related to the bank's ownership-control status. Affiliated and unaffiliated commercial banks in the sample are found to be equiprofitable. Affiliation with a mutual savings bank does not generate differences in profits, total current operating revenues, or total current operating expenses between the two groups of commercial banks. Furthermore, the marginal net earnings or returns on the individual deposit types are the same for the two groups of banks.The two groups of banks have extreme differences in their holdings of time and savings deposits and real estate loans. These differences between equiprofitable banks require further analysis. The affiliated commercial banks have significantly larger percentages of their total assets in nonearning assets and lower proportions in loans. The affiliated banks also have larger proportions of their deposits in the less costly demand deposits than do the unaffiliated banks. These results indicate that affiliated banks would have both lower revenues and expenses than do unaffiliated commercial banks, ceteris paribus. However, affiliated banks have larger proportions of their portfolios in the greater income-producing consumer and commercial loans.In conclusion, profitability of the commercial banks in the sample is not affected by the banks' control status. The commercial banks controlled by mutual savings banks are as profitable as banks controlled by management or “independent” owners. However, the control status does effect significant differences in the balance sheet and income statement accounts. While many of these distinctions may result from differences in the banks' deposit structures, these differences themselves are consequences of affiliation.