indicators trending upward, financial markets have adjusted accordingly. The United States 90-day Treasury bill that commanded an interest rate of 4.88 percent in February 1996 rose to 5.4 percent in November 1996.
The equity stock market has been in yet another run-up since before the general election. Thus far, there are no firm indications that the run-up will end any time soon. The Dow-Jones Industrials average has closed at record high levels on several occasions in November 1996.
All of the factors discussed support a scenario other than a static interest rate environment. Thus, the board of Directors should be prepared to consider changes in the bank's investment portfolio that will better position the bank to attain the objective of the suggested interest rate policy.
The selection of an interest rate strategy, however, also must consider the commercial banking environment in the United States. Despite the slower expansion of nominal spending this year, net borrowing by households and businesses has remained substantial. In fact, total private credit flows strengthened, offsetting slower growth of federal debt and an outright decline in state and local government debt. As a consequence, total domestic non-financial debt expanded at a 5.5 percent rate through the second-quarter of 1996. Credit supply conditions remain quite favorable, with banks continuing to ease terms and conditions of lending and with risk spreads in securities markets persisting at quite low levels. Household borrowing in has been a bit more subdued than in 1995 but still appreciable. Non-financial businesses have stepped up their borrowing considerably, a move reflecting a widening gap between capital expenditures (including inventory investment) and internally generated funds, and also reflecting th
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