Word: cds
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...financial troubles of New York's Franklin National Bank (see following story), commercial banks are in no real danger. They have raised their prime rate on business loans as high as 11½%, and they are paying between 11% and 11 ⅜% on large-volume certificates of deposit (CDs) in order to attract funds. But the situation is different at "thrift institutions"-savings and loans and savings banks, which make mostly mortgage loans. Their income is held down by loans made years ago at relatively low interest, so they cannot pay anywhere near as much to attract deposits...
More important, it has started an unintended flood of money out of S and Ls and savings banks; depositors are pulling cash out of passbook accounts that pay only 5¼% annual interest and buying Treasury bills, bank certificates of deposit (CDs) and other investments that sometimes yield more than 9%. Through early 1973, S and Ls were taking in savings at an average net rate of more than $1 billion a month, but they suffered a net outflow in July; in August a staggering $1.2 billion was withdrawn, the third largest monthly loss on record. Since then, the situation...
...coincidence, the outflow began when Washington granted financial institutions permission to sell so-called "wild card" CDs. The wild cards, sold to savers who will keep at least $1,000 on deposit for at least four years, yield interest at whatever rate the issuer chooses to pay; Manhattan's First National City Bank last week was offering CDs yielding 9.59% for this quarter. S and Ls can and do sell wild cards, but their ability to do so is severely limited by a rule specifying that the total amount of wild cards an institution offers cannot equal more than...
Some banks are luring deposits by offering CDs with variable rates that could go higher still. First National City in New York, for example, came out with a plan under which $1,000 deposited for four years will earn interest each quarter at a rate of a half-point below what the bank had to pay the previous quarter to attract $100,000 CDs. The rate this quarter is 8.11%; it can go either up or down from there, but never below the 5% passbook rate. Philadelphia's First Pennsylvania Banking and Trust Co. offers an "inflation-proof...
...interest rates that banks and S and Ls can pay to savers. The savings institutions could then pay, even on ordinary passbook accounts, any rate that they thought necessary to attract money. They can do this now only on $100,000 certificates of deposit, or $1,000 CDs running four years or longer...