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Setting Rates on Deposit Accounts |
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In late 1963, the environment within which the savings and loan industry functioned in California was changing rapidly. Competing institutions were aggressively seeking to expand market share, and interest rates, along with loan criteria were the major tactical tools being employed. For a prudent financial manager, lowering loan qualification criteria would not be desirable. Therefore, the manipulation of interest rates would provide the tactical focus in efforts to expand market share. Savings and loan institutions had to develop sources of funds before that could make loans. At the time of the case, the generation of additional funds through additional capital contributions did not appear to be a feasible option. The options available to the institutions were (1) stimulating savings account activity (the primary option), and (2) increasing borrowings from the Federal Home Loan Bank Board (the secondary option). Generating additional loanable capital through the stimulation of savings account activity depended largely on the competitive interest rate structure for savings accounts. An increase in the interest (or dividend) rate paid on savings accounts would presumably lead to increased savings account activity. Increasing the rate paid on savings accounts, however, also had a downside. First, the increased rate paid on savings accounts would cause the rates charged on loans to increase if existing interest rate margins were to be maintained. Increasing the rate
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titutions were volatile in their movements. Citizens Federal Savings and Loan was the most conservative of the eight institutions with respect to both interest rate levels and the frequency of changes in interest rates paid on savings accounts. Throughout this 18 month period, Citizens Federal Savings and Loan maintained its position as the second largest savings account depository among the eight savings and loan institutions. Pioneer Investors (the largest savings account depository among the eight institutions) and Berkeley Savings and Loan (one of the smaller savings account depositories among the eight institutions) were only slightly less conservative in their interest rate policies than was Citizens Federal Savings & Loan. Lytton Savings (the smallest savings account depository among the eight institutions) was the most aggressive of the institutions with respect to interest rates paid on savings accounts. The remaining four institutions were middle of the road among the eight institutions with respect to interest rates paid on savings accounts.
Two types of assessment of the effects of interest rates on savings account levels are appropriate in this analysis of the competitive environment within which Citizens Saving
Category: Economics - S
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Bank Board, Savings Loan, Loan Association, Lytton Savings, , Rate Policy, Account Levels , Pioneer Investors, savings loan, savings account, savings accounts, Board Actual, federal savings, citizens federal savings, Citizens Federal, federal savings loan, citizens federal, savings loan association, loan association, paid savings, paid savings accounts, eight institutions, market share, federal home loan, bank board,
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 = 6 (250 words per page)
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