A slight decline in the proportion of savings going into mutual savings bank time deposits has been projected for the latter half of the 1961-70 decade. It is assumed that the mutual savings banks will still be confined primarily to the northeastern part of the country and will not be able to share proportionately in the growth of consumer savings which will increase more rapidly in other faster growing parts of the country. Total time deposits are expected to account for about the same proportion of savings, however, since there is an offsetting influence in the projection of postal savings. A continuing negative trend with regard to postal savings has been projected through the first half of the decade, by which time the remaining postal savings in the System would have been about completely withdrawn, and in the last 5 years of the decade the Postal Savings System would be of no measurable consequence in the flow of funds. Net increases in commercial bank time deposits have been projected to account for a steady proportion of the annual net increase in savings throughout the decade.

The proportion of savings going into savings and loan association shares has been projected at about the level of recent years. The proportion going into credit union shares is increased during the first part of the decade, in line with the trend of recent years, but then the growth trend is expected to level off and the proportion is held constant in the latter years of the decade.

The continuance of a moderate net decrease in holdings of U.S. savings bonds is projected on the assumption that there will be no need for the Treasury to increase the relative attractiveness of these securities in the future, and a net annual liquidation of a minor proportion of the outstanding savings bonds probably will continue.

A trend of recent years toward a somewhat lower proportion of the total savings represented by private life insurance fund reserves has been continued in the projection. This was done in the expectation that term insurance will continue to become an increasing proportion of the total life insurance that is written. Term insurance requires relatively less reserves than long-term life insurance.

The relative share of consumer savings represented by private pension funds has been projected to represent an increased share of the total net acquisition of financial assets by the consumer and nonprofit organization sector in the sixties. The projection thus continues the trend of recent years, of relatively greater growth of private pension funds than other forms of savings. The relative share of savings going into private pension funds is leveled off in the last half of the decade, when the rate of increased coverage under such funds may moderate. The proportion of total savings for the consumer and nonprofit sector going into credit and equity market instruments are estimated to increase measurably over the decade. The data for recent years suggest that a relatively high proportion of savings is apt to be directly invested, and in the assumed absence of any economic depression this development would be likely to materialize.

The major change from previous experience among the direct investments by consumers and nonprofit organizations would be a great reduction in the relative share going into investment in Federal obligations. On the assumption of a balanced budget and no net increase in the total amount of Treasury obligations outstanding, the net increases in outstanding Federal obligations will consist primarily of

Federal agency issues which do not enter into the Federal budget (e.g., FNMA, FHLBB, etc.). It is expected that there will be some increase in the net investment in such securities by consumers and more by nonprofit organizations. This type of investment will continue to constitute a relatively small amount of total savings for this sector of the economy. On the other hand, there is expected to be some increase in the relative amount of savings by this sector of the economy that will be invested in State and local obligations, corporate and foreign bonds, corporate stocks and mortgages. These relative increases shown in the projection would come about because consumers and nonprofit organization investors would seek other direct investment outlets in lieu of investments in high-yield Federal obligations. Also, with rising incomes in an economy of stable growth there is apt to be more willingness to invest in securities, particularly in corporate stocks. The recent change in FHA regulations, to permit individuals to own FHA-insured mortgages, may help increase the relative share of direct investments by consumers in mortgages. The relative share of consumer and nonprofit organization net acquisition of assets going into currency and demand deposits is reduced over the decade in the projection. Since, in the assumed absence of recessions, no contractions are projected, it is reasonable to expect that a sufficient volume of currency and demand deposits will be built up even if the annual net increases are small.

Net flow of savings and other loanable funds

Based on the projected percentage distributions, the total amounts of net acquisitions of financial assets by the consumer and nonprofit organization sector which had been estimated 44 have been distributed (in table 21) in accordance with the projected distribution of the net acquisition of assets. The projected flow of these funds for each of the years 1961-70 was then combined (in table 22) with projections of the various types of investments made in the market by nonfinancial business sectors, by State and local governments, and by fire and casualty insurance companies, exclusive of any net increase in currency and demand deposits.45 There is also added to the projected net flow of loanable funds the projected net financial investments of the commercial banking system and of the nonbank financial institutions which includes the mutual savings banks, savings and loan associations, and life insurance companies. These annual amounts are net in the sense that they are the excess of the net increase in assets over the net increase in liabilities of these institutions. The net financial investments, thus, represent the investment of the current undistributed profits or net savings of the financial sectors of the economy.

44 See table 19.

45 The increase in demand deposits and currency is excluded from the total of savings and loanable funds that will be available to meet market credit requirements because it is believed such increases will serve primarily to meet the required increased use of money through currency or its closest substitute, demand deposits, which turn over as much as 100 times more in a year than time deposits. For further comments on this question see Roland I. Robinson, "The Impact of Monetary Policy on Residential Financing," Conference on Savings and Residential Financing, 1958, U.S. Savings and Loan League, pp. 125–139, particularly pp. 133-134. Also, in the same publication see Jules I. Bogen, "Trends in the Institutionalization of Savings," pp. 144-148, particularly pp. 156-157.

1958 1959 1960 1961 1962

1963 1964 1965 1966 1967 1968 1969 1970

Category of assets

Total

19. 1

23.5 24.8 23.6

29. 1

35.2 27.3 28.8 30.3

31.8 33.2 34.8 36.3 37.8 39.3

40.8 42.3

NOTE. Totals may not equal the sum of components due to rounding.

EXPLANATIONS

TABLE 22.—Projected net annual flow of funds into savings intermediaries by consumers and nonprofit organizations and net acquisition of financial assets in the market by sectors and components of the economy, 1961-70

Line 13: Consists of consumer credit and other loans, which are primarily finance company paper held by nonfinancial corporations. From appendix table III-E, col. 3.

Line 14: From appendix table III-E, col. 7.

Line 15: Includes direct foreign investments and time deposits. From appendix table III-E, col. 8.
Line 16: Consists of consumer credit. From appendix table III-G, col. 4.

Line 17: Consists primarily of acquisitions of corporate bonds and mortgages. From appendix table III-G, col. 5.

Line 18: Consists of about one-third in corporate bonds and stocks and about two-thirds in State and local obligations; from table III-G, col. 6.

Line 19: Consists of excess of net increase in assets over net increase in liabilities (representing funds from current surplus minus current capital expenditures) of commercial banks and monetary authorities and other financial institutions (savings banks, life insurance companies, etc.); from appendix table III-K, col. 1.

Line 20: Sum of lines 1, 12, 16, 17, 18, and 19.

The total amounts projected in table 22 represent the net annual flow of funds into saving intermediaries by the consumer and nonprofit organizations as well as the net acquisition of financial assets in the market by other sectors and components of the economy." In effect, the projected total annual amounts represent the estimated net annual amounts of loanable funds that will be available in a given

46 The only net increases in commercial bank time deposits included are those due to consumers which accounted for 91 percent of the 1954-59 net increase in commercial bank time deposits (see appendix table IV-D). Time deposits of foreigners are excluded because the "rest-of-the-world" net increases in liabilities is net of the net increase in assets of that sector in the projection of net foreign investment (in section II). Time deposits of State and local governments also are omitted here. All time deposits are included, however, in the estimates of the flow-of-funds through commercial banks underlying the projections of total loanable funds and mortgage funds available from commercial banks (in table 27).

year to meet the net credit requirements to be met in the market. The estimated annual net amounts of loanable funds would rise from $40.5 billion in 1961 to about $57 billion in 1970.

It should be noted, again, that the resultant distribution of the net increase in loanable funds, in effect, assumes an interest rate structure with interest rate differentials between different types of investments and savings about as they have been in recent years. This assumption will be continued for the time being to provide "model" estimates of the distribution of savings that flow into intermediary savings institutions by type of investment.47 The model will provide the basis for an analysis of changes that will affect the flow of funds.

IV. AVAILABILITY OF FUNDS FOR DIFFERENT TYPES OF INVESTMENTS

In part, the availability of funds for different types of investments has been projected in the preceding section insofar as projections have been made of specific types of direct investments by consumers and by other nonfinancial segments of the economy. The bulk of the net amount of funds available to meet credit requirements, however, will come from the savings that flow through financial institutions. The savings that flow through the financial institutions consist mainly of consumer savings and, in lesser part, of the net savings which accrue to the institution as undistributed surpluses or profits. Both types of savings are invested in various types of assets. The distribution of the net annual increase in assets (acquired with the savings funds) among various types of investments will depend upon the investment portfolio management policies of the savings institutions. Such policies are influenced by the structure of interest rates as well as by some desire for a balanced portfolio.

For the purposes of projecting an estimated "model" approximation of the distribution of institutional investment funds among different investments, it will be assumed for the time being that the structure of interest rates will be about the same as in recent years. A corollary assumption is that the trends in investment portfolio distributions indicated in recent years for the different types of institutions will continue over the next decade. (In each initial distribution of institutional assets, the mortgage segment includes farm and nonresidential, as well as residential mortgages. The latter will be estimated separately later in this section.)

Savings and loan associations projected funds available for net mortgage investment

The institutional savings assets that can be projected most readily and are most important from a mortgage investment viewpoint, are those of the savings and loan associations. The total assets of the savings and loan associations were projected in relation to the projected total amount of savings capital in such associations.48 In the years 1952-59, the savings capital as a percentage of total assets ranged between 84.7 and 87.1. In view of this comparatively narrow range for the last 8 years, the midpoint of 86 percent was used as a

47 The effects upon the interest rate structure that may result from the balance or imbalance of projected available savings and loanable funds compared with the net market credit requirements, and how such changes in interest rates may in turn affect the flow of funds as between different savings institutions and different types of investments, will be examined in the succeeding sections.

48 The total amount of savings capital shown in column 1 of table 23 was derived by adding to the total amount of savings capital at the end of the preceding year, the current year net increase in savings and loan savings capital shown in column 2 of table 23, which had previously been estimated in table 21.