Sales of new savings certificates, with higher interest rates linked to Treasury bill yields, have fallen off dramatically since they were first offered June 1, despite rising interest rates.
The six-months savings instruments, which have a $10,000 minimum, are keyed to average 26-month Treasury bill discount rates. This week's rate is 7,477 percent, up from 7.16 initially.
During the first week of sales, savings and loan associations, which can offer 1/4 point more than banks, issued $1.09 billion in money market certificates, according to Federal Home Loan Bank board survey of 247 large S&Ls. The amount fell 37 percent to $687 million during the June 820 period.
The National Association of Mutual Savings Banks reported that the first week's sales of $793 million fell off to an estimated $282 million the second week. The Federal Reserve's survey of 522 banks put initial sales at $780 million; no sub-equent figures are available.
The amount of new money funds that were not transferred from existing savings accounts, paying lower interest averaged 46 percent during the first week and 41 percent during the second at S&Ls across the country. At mutual savings banks, it was just 28 percent.
In the Washington area, bank and thrift institution officials reported moderate to slow sales after the original surge, with anywhere from 25 to 50 percent new money coming in. Most spokesmen said money market certificate sales had had little impact thus far on their mortgage lending activity.
Boyd Steward, assistant vice president of Government Services S&L in Bethesda, was among enthusiastic of those questioned about the new certificates. Although his association has been offering them only for two weeks, he estimated they represented nearly a quarter of the S&L's available funds. "The fact we are still in the lending market can be attributed in significatn part to (money market certificates).
At the other extreme, a Riggs National Bank spokesman said the bank is not pushing them an sells very few. Besides, he added, "Smart people know they get more with Treasury bills anyway."
Money market certificates were expected at the outset to pump about $6 million into the S&L mortgage market during 1978, according to FHLBB chairman Robert McKinney. But even if they do not meet their goal as an offensive weapon against the credit crunch, they also serve as defensive against the phenomenon called disintermediation - a net outflow of funds as depositors withdraw their money to put it into investments paying higher interest rates, such as Treasury bills, as was the case during the 1974-75 recession.
"Whether we would have had disintermediation this time is anybody's guess," said Bill Switt, Executive vice president of Washington & Lee Savings and Loan Association in McLean. Sales of $4.5 million in money market certificates during the first month amounted to 40 percent new funds for Washington & Lee. The higher interest rates may increase mortgage rates a bit, Swift added, but the new funds will allow us to stay in the market longer than we would have otherwise."
Charles Daniel, president of Union First National Bank spoke for most of his colleagues when he called money market certificates "usefull" in the current market, but of no great consequence. Columbia Federal Savings & Loan Association vice president Roland Brown observed they would probably have more of an impact on the national rather than the local scene. Columbia's percentage of new money Columbia's percentage of new money during the first three weeks was only 26.5 percent.
Finally, there was this assessment from Tim Holland of the American Security Bank, which had a similarly small inflow of new money. "At least it hasn't had a negative impact (on lending) yet."