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January 18, 2013

Historical Echoes: The Whimsical Side of Banking circa 1960

Megan Cohen

Modern-day banks provide many services to their customers: checking and savings accounts, mortgages, investment advice, and the like. On occasion, visitors might receive a pen or a travel mug, children a lollipop or a coloring book. However, the generous customer rewards of yore have all but disappeared.

     Flipping through the pages of the May 9, 1960, issue of Life magazine, we see how much times have changed . . . as well as how much they’d changed from decades prior. In “Our Flashy, Lovable, Open-Handed Banks,” scenes of bank lobby ice shows and dog shows, and bankers driving miniature “clown cars” illustrate the new, lighter side of banking—alongside stories of special types of checks, savings accounts, and giveaways.

As explained in the article, there was a method behind the madness:

     Savings and loan associations have increased prodigiously since 1932, taking a good deal of business away from commercial and savings banks. Because of this new competition many banks of all three types have begun luring the customer with every wile and enticement at their command. In the last 10 years, promotion and advertising budgets of commercial banks have increased more than 300%.

     Banks may have been forced to compete by “wile and enticement” by the deposit rate ceilings in place back then. When those ceilings were binding (meaning actual rates were at the ceiling), banks had no choice but to compete by other means, for example, with entertainment value or giveaways. Those ceilings were eliminated by the Depository Institutions Deregulation and Decontrol Act in 1981, after which banks began to compete by more traditional means: when banks offered better deposit rates, their demand for deposits was high.

The Life article goes on to elaborate on the logic of banks’ lending strategy:

     It may seem strange that banks are actually looking for people to lend to when money is supposed to be “tight,” or scarce, but from the banks’ point of view it makes very good sense. After all, when money is tight, interest rates go up. This means when a bank does lend somebody money, its income is bigger than ever. In addition, banks know that today’s borrower may well be tomorrow’s depositor, who will eventually give the bank more of the “raw material” it needs for business.

     Read Life’s “Our Flashy, Lovable, Open-Handed Banks”  for more tales of special marketing to children, “premium collectors,” and the early days of line-of-credit checking.


Disclaimer
The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.





Cohen_megan
Megan Cohen is a research librarian in the New York Fed's Research and Statistics Group.


Posted by Blog Author at 07:00:00 AM in Historical Echoes
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