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FE D E R A L R ESER VE BANK
O F C H IC A G O
FIR ST A N N U A L REPORT
TO THE
Federal
R e s e r v e Bo a r d
t
D E C E M B E R 31. 1915
O FFIC E R S A N D D IR E C T O R S
F E D E R A L RESERVE BANK
O F C H IC A G O
D IS T R IC T N O . 7
D IR E C T O R S
C LA S S " A "
Term Expires
•George M* Reynolds. Chicago, 111.........* .December 31, 1918
Jas. B. Forgan......... Chicago, 111..*........December31, 1916
E. L. Johnson.......... Waterloo, la..........December 31, 1917
C LASS " B "
•A, H. V ogel... . . . . . . Milwaukee, Wis.,.December 31,1918
Henry B. Joy.',* . . . . .Detroit, Mich.... ♦.December 31,1916
M. B, Hutchison___Ottumwa, la.........December 31,1917
C LA S S “ C "
tE . T. M eredith......D es Moines, la...December 31,1918
C, H. Boaworth.........Chicago, 111........... December 31, 1916
W. F. McL*alleti........Columbia City, Ind., "
31,1917
<*Re-elected for three years.)
(tReappointed for three years.)
O F F IC E R S
C. H. BOS WORTH, Chairman of the Board and Federal
Reserve Agent
W, F. McLALLEN, Deputy Chairman, etc., and Secretary
JAS. B. McDOUGAL. Governor
C. R. McKAY, Deputy Governor
G. McCLOUD, Cashier
S. B. CRAMER, Acting Auditor
B,
MEM BER ADV ISOR Y CO UN CIL
JAS. B. FORGAN
F E D E R A L R ESER VE BOARD
W A S H IN G T O N
Ex*OfRcIo Members
W IL LIA M Q. McADOO
Secretary of the Treasury
Chairman
CHARLES S. HAMLIN, 8overnor
F R E D ER IC A. DELANO,
VlM*6overnor
PAUL M. WARBURG
W. P. G. HARDING
ADOLPH C. M ILLE R
JOHN SKELTON W IL L IA M S
Comptroller of the Currency
H. PAR KER W ILLIS, 8eer*tary
8HERMAN ALLEN. Ant. Secretary
Address Reply to
FEDERAL RESERV E BOARD
October 15, 1915.
Sir:
Some months ago the Federal Reserve Board
voted to ash each Federal Reserve Agent to pre
sent to it an annual report on the operations of his
office. * * *
* * * The main content of the report should
be a review from your standpoint as the Chairman
of the board of directors of your bank and the
official representative of the Federal Reserve
Board, of the bank's policies and the scope of its
operations for the year, the banking and credit
conditions and needs of your Federal Reserve dis
trict and the extent to which these have been met
by your bank, and a description in general terms
of the results of the year's operations, progress
made, prospects for the future, and the problems
presenting themselves for solution in your bank or
in your district. Attention should also be given
to any difficulties encountered in the administra
tion of the Federal Reserve Act or the Board*s
regulations, and to any amendments either to the
Federal Reserve Act or to the National Bank Act
which in your judgment or in the judgment of
your board of directors seem advisable. * * *
Respectfully,
IL PARKER W IL L IS ,
Secretary .
Mr. C. H. Bosworth,
Chairman, Board of Directors,
Federal Reserve Bank of Chicago.
F IR S T A N N U A L
REPORT
TO THE
FEDER AL RESERVE
T
BOARD
HE Federal Reserve Act was approved by
the President, December 23, 1913.
The Organization Committee proceeded prompt
ly to divide the countiy into districts and to con
duct the election of Class "A" and Class “B”
directors* In its circular of May 11, 1914, the
hope was expressed that the banks “may be or
ganized in ample time to elect officers and secure
banking quarters and be in actual operation by
August 1, 1914.”
It was very unfortunate that this hope was not
realized, so that the new system could have been
ready to take care of the emergency resulting from
the declaration of war in Europe. There was un
avoidable delay in the appointment of the Fed
eral Reserve Board and, again, in the appointment
by the Board of the Class “C” directors of the
banks.
The announcement of Class “C” directors of
the Federal Reserve Bank of Chicago was not
made until October 7 and they were immediately
summoned to Washington. The first meeting of
directors was held at the rooms of the Chicago
Clearing House Association on October 13,1914.
A meeting at Washington of all the directors of
all of the banks with the Federal Reserve Board
was called for October 20, and at that meeting it
was agreed that all the banks could open for busi
ness on November 16, although the time for or
ganization was necessarily short.
A call for the payment on November 2 of the
first installment of subscriptions to the capital
stock of the Federal Reserve Banks was issued by
the Federal Reserve Board, and on October 25
the Secretary of the Treasury stated that he had
determined to announce on November 16,1914, the
establishment of the Federal Reserve Banks in all
the Federal Reserve Districts, and on October 28
5
the Federal Reserve Board advised the member
banks to arrange to transfer the required reserves
to the new banks on that date. All the national
banks in this district except two became members.
Mr. F. A. Delano, Vice-Governor of the Federal
Reserve Board, was present at the first meeting
of the Board of Directors of the Federal Reserve
Bank of Chicago. At this meeting the directors
classified themselves into one, two and three year
terms and took up the selection of quarters and
the election of officers.
The full Board—with one exception—attended
the joint conference at Washington on October
20; on their return, the second meeting was held
on October 23, at which meeting a seal was se
lected, by-laws adopted, an Executive Committee
named, the Governor appointed, and the Executive
Committee ordered to canvass all available sites
for quarters for the bank.
Up to and including November 16, 1914, four
directors* meetings and eight executive commit
tee meetings were held, all officers appointed,
quarters selected and on the last-named date the
Federal Reserve Bank of Chicago opened, for busi
ness at Clark and Monroe streets.
The following telegrams were exchanged be
tween the Secretary of the Treasury and the bank :
“Washington, D. C., Nov, 16, 1914.
“C. H. Bosworth,
“Federal Reserve Agent,
“Chicago, 111.
“Please accept my cordial congratulations upon
the opening of the Federal Reserve Bank of your
district and my sincere commendation upon the ef
fective work you have done in preparing the hank
for business in the short time allowed for the open
ing. I am sure that the Federal Reserve Banks will
serve a great and beneficent purpose in the future
of our country and I am sure that this department
and the Federal Reserve Board may count upon your
loyal co-operation in the important work and duties
which have been confided to you. My hearty good
wishes for your success.
“ (S ig n e d )
W . G . M cA doo.”
“Chicago, Nov. 16, 1914.
“Hon. W.^ G. McAdoo,
“Chairman Federal Reserve Board,
“Washington, D. C.
“Allow us to extend our congratulations to you
and your associates on the Federal Reserve Board
6
upon the successful opening of the district banks.
We are pleased to announce that the Federal Re
serve Bank of Chicago opened on time at ten o'clock
this morning fully prepared to perform the functions
required of it. On hehalf of ourselves and all the
directors of this institution we have to say that you
may count upon our loyal co-operation in this im
portant work.
11(Signed) J . B. M cD ougal, Governor.
“ C. H . B oswobth , C h airm an .”
ACTIVITIES OF THE BOARD OF DIREOTOBS
When the bank was organizing, directors* meet
ings were frequent and held upon call of the
chairman. During 1915, however, the regular
monthly meeting has been found satisfactory, as
a very full report of executive committee proceed
ings is sent out to all directors every week. Since
organization, there haye been seventeen directors*
meetings and eighty executive committee meetings.
Upon different occasions members of the Fed
eral Reserve Board have visited the bank, and
a number of them have attended directors* meet
ings.
Four directors, residents of Chicago, with the
Governor as Chairman4, constitute the Executive
Committee. At the beginning this committee met
from three to four times a week. After January
8, 1915, two, and since June 25, 1915, one meet
ing a week has been sufficient. Occasionally one
or more of the out-of-town directors have met
with the committee.
The committee reviews the acts of the officers
in the matter of rediscounts for member banks
and the purchase of acceptances and other invest
ments and passes upon all current questions of
policy, methods and procedure, subject to ratifica
tion by the Board of Directors. The directors
approve or disapprove of the acts of the Executive
Committee, receive reports from the officers, de
termine interest and discount rates and, in gen
eral, perform the functions ordinarily exercised
by boards of directors.
BUSINESS AND BANKING CONDITIONS DURING THIS
PERIOD
The Federal Reserve Bank of Chicago was
opened just as business was beginning to recover
from the shock occasioned by the declaration of
7
war in Europe. After November 16, 1914, the
steadying and quieting influence of the Federal
Eeserve System began to be felt and a quick re
duction began in the high rates of interest then
prevailing.
Early in August, Aldrich-Vreeland currency had
been applied for by the currency associations lo
cated in this district to the amount of $38,198,490.
About the same time Detroit, Des Moines and
Chicago banks had issued clearing house certifi
cates. About the'time this bank was organized
the banks began to redeem their Aldrich-Vreeland
currency and to retire their clearing house cer
tificates.
By January 1,1915, a better tone was apparent.
At this time member banks were discounting with
the Reserve Bank to the extent of $3,000,000, al
most all of which was from large city banks. This
amount gradually dwindled to $760,000 on the
first of May, practically all being from smaller
country banks. There was a .plethora of money
in the banks, but business was still timid and
sensitive to war scares, and weather conditions
all over the United States were unusually unfavor
able to growing crops.
Between May and September crop prospects im
proved until there was a practical certainty of a
record production; so-called war orders began to
make themselves felt; railroads began necessary
betterment work and the buying of additional
equipment, and lumber and the building trades
began to take on life, except in Chicago, where
the strikes caused a complete tie-up in building
operations until July. During this third quarter
of the year bank deposits continued abnormally
high and interest rates unusually low.
The marketing of crops was delayed until well
into the last quarter of the year. A considerable
per cent of the com crop was damaged by early
frosts and is now being fed to stock, resulting in
increased loans to farmers by country banks and
in the member banks rediscounting with the Fed
eral Reserve Bank to the extent, at this date, of
a little over $3,000,000.
Illustrating the solid character of commercial
and manufacturing activities, advices from the
steel and iron trade show increasing demands, and
8
the output is almost all for domestic requirements.
Railroads are showing heavy increases in earnings.
General business conditions and seasonable weather
are favorable to a much greater volume of mer
chandising, both wholesale and retail, than a year
ago. Deposits in Chicago banks increased over
$40,000,000 between the Comptroller’s calls of
September 2 and November 10, 1915.
Confidence in the immediate future is evidenced
by the large expenditures being undertaken for the
purpose of enlarging outputs and the steady buy
ing of retailers to replace or enlarge depleted
stocks. Money rates are low and bank deposits are
still increasing.
CHARACTER OF DISCOUNTING
The first discounting with the Federal Reserve
Bank of Chicago by member banks was done by
several of the large Chicago banks and was largely
complimentary and for the purpose of blazing the
way and setting an example.
Later on, some discounting was for the purpose
of enabling the members borrowing to retire Aldrich-Vreeland currency.* From the latter part of
December, 1914, to March, 1915, much of the dis
counting was from Iowa, Illinois and Indiana
banks and was due to local emergencies caused by
the hoof and mouth disease. Latterly, in 1915,
some discounting has been occasioned by the poor
and unmarketable quality of the corn crop in cer
tain sections of the district. In addition to this
there has been more or less continuous discount
ing in a small way, due to the individual require
ments of a number of the country banks.
MEETINGS AND ORGANIZATION OF FEDERAL RESERVE
AGENTS
A conference of all the twelve Federal Reserve
Agents was called by the Board and was held in
the Treasury Building, Washington, February 1
to 6, 1915, at which many subjects were discussed,
A second conference was called and held at
Washington, November 4 to 6,1915. At both con
ferences jQint sessions with the Federal Reserve
Board were held.
At the November conference a permanent organ9
ization was effected and an executive committee
appointed.
The Executive Committee met in joint confer
ence with the Executive Committee of the Gov
ernors at Washington, November 17, 1915.
FEDERAL RESERVE NOTE-ISSUING CAPACITY AND
POLICY OF THE BANK
Taking the statement of the bank of December
1, 191£j, and after setting aside the required 35
per cent reserve against deposits, the bank had
left $27,697,106 gold reserve applicable to a Fed
eral Reserve note issue. The gold reserve re
quired by the Act against a note issue is 40 per
cent. This $27,697,106 would, therefore, sustain
a Federal Reserve note issue of $69,242,765.
The Federal Reserve 3oard is authorized to sus
pend this reserve requirement, and if the occasion
demanded it, undoubtedly would do so, and the
note-issuing capacity of the bank could readily be
extended to in excess of $100,000,000.
It is the policy of the bank to issue Federal Re
serve notes freely where conditions and circum*
stances make it necessary. Up to the present
time it has had no occasion to issue Federal Re
serve notes except for the purpose of familiariz
ing member banks and the public with the new
form of currency. While $4,380,000 in notes has
been* issued the issue was quickly covered with
gold of equal amount deposited with the Federal
Reserve Agent, thus producing no expansion.
If an amendment to the Federal Reserve Act
can be secured, under which the Federal Reserve
Banks will be permitted to issue notes directly
against deposits of gold and under which the gov
ernment will assume the responsibility of the ex
pense involved, it will then be the policy to issue
notes freely with a view to accumulating gold,,
which will stand available in case of need.
U. S. BOND-SECURED CURRENCY
Under the Act the Federal Reserve Banks are
authorized to deposit U. S. government bonds
having the circulating privilege, and to receive
from the Comptroller of the Currency circulating
notes, which shall be issued and redeemed under
the same terms and conditions as national b#nk
10
notes, except that they are not limited to the
amount of the capital stock of the bank issuing
them.
This bank has had printed $2,560,000. of such
bond-secured notes, ready for issue. None has
been issued up to date.
This currency is available, however, in case of
emergency. It would also be available in case of
rediscounting with us by another Federal Reserve
Bank, where currency shipment to the other bank
was necessaiy, as Federal Reserve notes could not
be used for this purpose, the law not allowing one
Federal Reserve Bank to pay out the Federal Re
serve notes issued by another bank, except under
a heavy penalty.
FEDERAL RESERVE BANK AS FISCAL AGENT OF THE
U. S. GOVERNMENT
On November 23, 1915, the Secretary of the
Treasury announced that he had determined to
appoint the Federal Reserve Banks to be deposit
aries and fiscal agents of the United States on
January 1, 1916. *
The deposits of all officers of the government in
the City of Chicago, now made with the national
banks of that city at present designated as United
States depositaries, will be made with the Federal
Reserve Bank, with the exception of post office
funds and the deposits to the credit of a United
States Court and its officers, and the Federal Re
serve Bank will be required to cash all government
warrants and checks drawn on the Treasurer of
the United States which may be presented to it In
the same manner and to the same extent as the
national bank depositaries are now required to
honor such checks.
The amount held by the national bank deposit
aries in Chicago to the credit of the Treasurer
of the United States at the close of business De
cember 31, 1915, will be transferred to the Federal
Reserve Bank; that amount is approximately
$1,000,000 at present.
ELECTION OF DIRECTORS
The terms of one Class “A” and one Class “B”
director expired on December 31, 1915. An elec
tion to choose their successors was held in Novem
11
ber, resulting in the re-election of both of the old
directors.
TRUSTEE POWERS TO NATIONAL BANKS
Up to December 1, 1915, special permits have
been granted by the Federal Reserve Board to
national banks in the Seventh District to act as
trustee, executor, etc., when not in contravention
of state laws, as follows:
To 20 national banks in Indiana.
To 8 national banks in Illinois.
To 11 national banks in Iowa.
To 8 national banks in Michigan.
To 4 national banks in Wisconsin.
MEMBERSHIP OF STATE BANKS
Recognizing that a unified banking system, em
bracing in its membership the well-managed banks
of the country, small and large, state and na
tional, is the aim of the Federal Reserve Act, the
Federal Reserve Board issued on June 7, 1915, its
Circular No. 14, providing for membership of
state banks in the system.
The regulations were made as liberal as pos
sible and even provided a method by which state
banks that joined might withdraw, a privilege
not accorded by the Act to the national banks.
Two state banks—the Bank of Wisconsin, Madi
son, Wis., and the Central Trust Company of Illi
nois, Chicago, 111., joined the system at its incep
tion.
Since then the following state banks have joined:
Commercial and Savings Bank, Albion, Mich.
Elmhurst State Bank, Elmhurst, 111.
Commercial Trust and Savings Bank, Joliet, 111.
Badger State Bank, Milwaukee, Wis.
Fruit Growers’ State Bank, Saugatuck, Mich.
THE INTERNAL ORGANIZATION AND PERSONNEL OF
THE BANK
The three classes of directors, being men of
wide experience, from the small as well as the
large cities, compose an able and efficient board,
fairly representing all interests, including bank
ing, commercial, industrial and agricultural.
The executive officers of the bank were taken
from the banking activities of the community,
12
where each has had years of practical experience.
The heads of the various departments and other
employes came from active positions in various
banks, where they received the practical training
essential to the best service. The various depart
ments are now fully organized and equipped and
in readiness for increasing activities, whatever
they may be.
RATES OP DISCOUNT
Discount rates naturally are influenced by pre
vailing conditions and in naming rates it is the
policy of the bank to carefully consider the gen
eral business situation. Should the demands be
sufficient to absorb a considerable amount of the
bank’s resources it is the policy of the Board of
Directors to immediately reconsider the established
rates with a view to advancing them if advisable.
On the other hand, should conditions be such as
to indicate that the established rates are excessive
due consideration will be given to a readjustment
downward.
DISCOUNTING
It is the policy of the bank to lend liberal as
sistance to deserving banks for seasonal or emer
gency purposes, and on the other hand to discour
age any tendency toward over-expansion.
Prom the outset, the officers have undertaken
by correspondence and by personal interview to
familiarize member banks with the procedure in
discounting, which has been made as simple and
expeditious as possible, all unnecessary formality
being eliminated.
OPEN-MABKET OPERATIONS TO DECEMBER 1, 1915
Open-market transactions to date have been con
fined to the purchase of government bonds, shorttime municipal warrants and bankers’ acceptances.
The total of bankers* acceptances purchased is
$4,773,465.72, represented by bills drawn against
exports or imports and accepted by banking institu
tions of known responsibility.
The total of municipal obligations purchased
is $7,108,748.76, represented by warrants and
bonds issued by municipalities in various states,
of maturities ranging from 16 days to 6 months.
13
The total of XL S. bonds purchased is $4,090,000,
all carrying the circulation privilege as follows:
$2,525,000 TL S. 2 per cent bonds and $1,565,000
3 per cent, the threes being due and payable in
1918.
THE CHECK-COLLECTION SYSTEM
On November 16, 1914, the date this bank
opened for business, it installed a collection sys
tem by taking from member banks for immediate
credit checks drawn by member banks on mem*
ber banks located in Chicago and the seven re
serve cities of this district.
On December 3, 1914, the collection service was
enlarged to include all items drawn on member
banks located in Chicago and the seven reserve
cities in this district.
On December 16, 1914, the bank began taking
checks drawn upon all of ' the Federal Reserve
Banks for immediate credit. This was a tem
porary arrangement and subject to revision at such
time as a permanent plan for clearing between
Federal Reserve Banks could be agreed upon.
On April 7, 1915, the member banks were
advised that a voluntary intra-district collection
system would be established and that items would
be received for immediate credit at par from such
banks as joined the collection system, provided
they were drawn upon banks which were members
of the collection system.
On June 10, 1915, the voluntary intra-district
collection system was put into effect.
On June 15, 1915, the bank began receiving
items on all the Chicago Clearing House banks
from member banks, whether they had joined the
collection system or not, and in addition checks
and drafts on Federal Reserve Banks located in
Boston, New York, Philadelphia and St. Louis
for immediate credit at par except when the
amounts exceeded $10,000, in which case it re
served the right at its option to receive the items
at the market rate for exchange on the cities men
tioned. Checks on other Federal Reserve Banks
which were previously received for immediate
credit at par were then received on a deferred
credit basis of from one to four days, in accord
ance with the schedule of deferred credits ap-
14
proved by the Federal Reserve Board. Besides
receiving the above items from member banks,
whether they had joined the collection system or
not, it began, on June 14, 1915, receiving from
member banks that are members of the collection
system checks and drafts on member banks lo
cated in Boston, New York, Philadelphia and St.
Louis for immediate credit at par, reserving the
right at its option to receive these items at the
market rate for exchange on these cities when the
amounts exceeded $10,000.
No further changes in the collection system have
been made up to date. The development of the
check-collecting function has proved the most dif
ficult problem confronting the management of the
bank.
OPERATION OF CHEC3K-C0LLECTI0N SYSTEM
From November 16, 1914, to December 3, 1914,
drafts drawn by member banks on Reserve and
Central Reserve city banks in District No. 7 were
cleared as shown below:
AVERAGE PER DAY
Number of Items
City
Country
Total
7
59
96
City
Amount
Country
Total
$ 125,000
$63,000
5188,000
From December 3 to December 16 all checks
drawn on member banks in Reserve and Central
Reserve Cities of District No. 7 were cleared as
shown below:
AVERAGE PER DAY
City
793
Number of Items
Country
Total
2,262
3,055
City
Amount
Country
Total
$820,000
1650,000
*1,470,000
From December 16, 1914, to June 10, 1915, all
checks drawn on member banks in Reserve and
Central Reserve Cities of District No. 7 and
checks drawn on all other Federal Reserve Banks
were cleared as follows:
15
AVERAGE PER DAT
Number of Items
December 1640....
January.............. .
February..............
March..................
April.....................
May.......
June 1-10...............
Other
Federal
Reserve
Banks
Total
10
25
33
39
48
43
49
3,363
4,192
4,017
4,004
4,014
3,971
4,122
Country
Other
Federal
Reserve
Banks
Total
$ 700,000
1.315.000
1.144.000
1.430.000
1.064.000
962,000
1.395.000
$ 525,000
730.000
734.000
649.000
666.000
735,000
1.434,000
$2,217,000
3,049,000
3,121,000
3,754,000
3,166,000
3,074,000
4.283,000
Country
City
893 *
2,463
911
3,256
3,269
715
3,202
763
3,262
704
730
3,198
3,305
768
Aimount
City
December 16-30.... $ 992.000
January................ 1.004.000
February........... . 1.243.000
March.................. 1.675.000
April.. . . . . . . . . . . . . 1.436.000
May..................... 1.377.000
June 1-10............... 1.454.000
From June 10 to December 31 all checks drawn
on member banks of District No. 7 which have
joined the collection system, checks on members
of Chicago Clearing House Association, checks on
all other Federal Reserve Banks and checks on
member banks in Boston, New York, Philadelphia
and St Louis were cleared as follows:
AVERAGE PER DAT
Number of Items
'June 10-30.............
July......................
August..................
September............
October................
November............
December............
944
1,669
1,699
1,981
2,212
2,248
2,472
Other
Federal
Reserve
Banks
Total
50
61
64
82
94
95
108
5,947
7,445
7,458
8,540
10,058
10,304
10,964
Country
Other
Federal
Reserve
Banks
Total
$ 987,000
1.125.000
1.155.000
1.353.000
1.752.000
1.952.000
1.983.000
$ 958,000
721.000
515.000
1.225.000
1.212.000
1.509.000
2.037.000
$3,561,000
3.689.000
3.463.000
4.669.000
5.928.000
6.923.000
7.745.000
Country
City
4,953
5,715
5,695
6,477
7,752
7,916
8,384
Amount
City
June 10-30............. $1,616,000
July....................
1.843.000
August.................. 1.793.000
September............ 2.121.000
October................ 2.964.000
November........... 3.462.000
December............ 3.725.000
ITEMS AND AMOUNT HANDLED
From November 16,1914, to December 31, 1915,
the check-collection department has handled—with
out charge to the member banks—2,122,405 items,
the sum total amount of which is $1,303,629,563.43.
16
EXCHANGE AND COLLECTION CHARGES ON OHECES
IN THIS DISTRICT
Exchange charges in this district are not exces
sive, being rarely over $1 per $1,000. In Illinois
about 50 per cent of the member banks remit at
par. The rates of the banks which charge nm
from 25 cents to $1 per $1,000.
In Indiana possibly 15 per cent of the banks re
mit to their Chicago correspondents at par. The
rates of the banks which charge rnn from about
50 cents to $1 per $1,000, and in some instances
as high as $1.25 per $1,000.
In Iowa, about 25 per cent remit at par, the
remainder charging about $1 per $1,000
In Michigan and Wisconsin there are very few
par points, as nearly all the banks charge $1 per
$1,000.
Outside of the banks which have joined the col
lection system, very few reductions in exchange
charges have been made. There are a few banks,
however, that are agreeing to remit at the rate of
10 cents per letter regardless of the amount, but
there has been no reduction to any extent of ex
change charges by non-jnembers of the collection
system.
IMPORTANCE OF THE BANK TO THE COMMUNITY
Notwithstanding the almost negligible demands
on most of them for either credit or currency, the
Federal Reserve Banks have performed an impor
tant function in the creating of confidence and in
stabilizing the financial structure of the country.
During the several very critical periods this year
the system fully demonstrated its worth, inspiring
confidence and banishing fear, and forestalling
panic from the mere fact of its existence.
ATTITUDE TOWARD MEMBER BANKS
The Federal Reserve Bank of Chicago belongs
to its members. They have furnished the entire
capitalization and are the sole depositors, they
have elected six of the nine directors and the di
rectors in turn have elected all the officers of the
bank except the chairman of the Board. Further
more, the Federal Reserve Board has stated its
policy to be that it does not desire to interfere
with the management of the banks except to see
17
that the law is observed. Therefore, the attitude
toward member banks is one of cordial co-operation
for the purpose of securing for them and through
them for the business community and the public
every advantage intended and possible under the
Act.
CO-OPERATION BETWEEN FEDERAL RESERVE BANKS
Co-operation between the Federal Reserve Banks
has Ibeen evidenced by the organization of a con
ference of Governors for the purpose of considering
problems and questions that have arisen, and ex
changing views in order that all may have the
benefit of the views of each. The full conference
has held five meetings, each meeting lasting sev
eral days, in addition to which the Executive Com
mittee of the Conference of Governors has trans
acted such business as has been delegated to it by
the full conference. Also a number of joint meet
ings have been held between the Federal Reserve
Board and the full Conference of Governors, and
between the Board and the Governors* Executive
Committee.
Respectfully submitted,
C. H. B osw o r th ,
Chairman of the Board.
Chicago, 111., December 31, 1915.
18
FEDERAL RESERVE NOTES
Figures at Close of Business December 31, 1015
Total Federal Reserve Notes printed for this bank................ $60,000,000
Beld in Washington ready for shipment.............. 950,620,000
Held by Federal Reserve Agent (New Notes)__ 4,660,000
Issued to bank..................................................... 4,720,000 60,000,000
Outstanding in circulation, secured by deposit of gold with
Federal Reserve Agent...................................................
Returned by bank for cancellation and destruction...............
Notes of other Federal Reserve Banks redeemed and returned
to issuing bank...............................................................
Our notes returned to us by other Federal Reserve Banks....
4,380,000
340,000
834,875
148,460
RECORD OF DISCOUNT RATES
Effective
1914
Nov. 14................
Dec. 1................
Dec. 16................
1915
Jan,
1................
Jan. 23................
Dec. 1................
Dec. 11................
Maturities
up to
30 Days
Maturities Maturities Maturities
up to
up to
over
60 DAys
90 Days
90 Days
6%
54%
5%
6%
6%
6%
6%
51%
5%.
41%
51%
41%
% ) 4%
(No change
Special rat e of 31% on ten-day pap er.
6%
6%
6%
6%
5%
CAPITAL STOCK SUBSCRIPTIONS AS OF DECEMBER
31, 1915
Central Reserve City Banks............................................... $ 4,488,000.00
Reserve City Banks............................................................ 2,195,700.00
Country Banks.................................................................... 6,609,700.00
113,293,400.00
Table showing reserve required to be deposited with Federal Reserve
Bank of Chicago December 1, 1915, figured from the Comptroller’s call
of November 10* 1915, and compared with actual balances as shown by
books on December 1, 1915.
Reserves
Reserves
Required to be
Carried with Carried with
Federal
Federal
Reserve Bank. Reserve Bank.
Excess
Reserves.
Central Reserve City
Banka.................... $34,174,300.00
Reserve City Banks.. 5,568,700.00
Country Banks.......... 12,400,200.00
$31,777,500.00
6,031,900.00
11,956,500.00
$2,396,800.00
•463,200.00
443,700.00
$52,143,200.00
$49,765,900.00
$2,377,300.00
•Short of Required Reserves.
Id
I*
*3
h
r ft*
oS
It
3|
I 13
3o
H
$ 144,502,000.00
76,940,000,00
730,549,000 00
221,660,000.00
1,725,520,000.00
8,754,000.00
270,479,000.00
If
8888888
fr«
§§§§§§§
**»
?§
cfC
S*Go»«"00C*S
ao 3q ONNtOONCO
6 * BS'SRS'” *
— <o-f- -
■
tJ
*3
Ia
SSSSSS8
CO Os
£33
asgsg s
SSSS8SS
ssssg s
0
5 %1
W5
11
£ <5
h
ol
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•£«
3111=fr? &
H+f*£
efc
20
OF INVESTMENTS— SEMI-MONTHLY
COMPARATIVE
STATEMENT
ta
P
21
EARNINGS OF THE FEDERAL RESERVE BANK OF
CHICAGO FOR THE PERIOD FROM NOVEMBER
10, 1914, TO DECEMBER 31, 1915.
Earnings:
Discount...........r........................................................ *117,411.56
Interest on Bonds and Investments............................. 136,568.11
Sundry Profits............................................................ 14,905.32
$268,884.99
ChargedtoEarnings:
Current Expense..........................................................$200,306.98
Organization Expense.................................................. 39,947.56
Federal Reserve Notes Issued.................................... 5,328.88
Equipment.................................................................. 3,210.18
$248,793.60
Balance carried to Profit and Loss Account.............................$ 20,091.39
EXPENDITURES OF THE FEDERAL RESERVE BANK OF
CHICAGO FOR THE PERIOD FROM NOVEMBER 16,
1914, TO DECEMBER 31, 1915.
/.
CurrentExpenses:
Assessment to defray Expenses of Federal Reserve
Board, July 1st to December 31st, 1915................ $ 13,226.40
All other Expenses....................................................... 187,080.58
Total........................................................$200,306.98
2. Organization Expenses:
Expenses prior to November 16th, 1914.......................$ 16,640.51
Assessment to defray Expense of Federal Reserve
Board prior to June 30th, 1915............................... 23,307.05
Total........................................................$ 39,947.56
Coit ofFederalReserveNotes:
...................................................................................$ 65,708.94
Equipment:
Furniture and Fixtures................................................ I
Vaults.........................................................................
Machines.....................................................................
Other..........................................................................
9,351.50
6,960.00
7,363.53
2,535.15
Total........................................................$ 26,210.18
Total Expenditures........................................ $332,173.66
22
DISCOUNT DEPARTMENT OPERATIONS
November 16, 1914, to December 31, 1914.
116 applications for discount approved at 4% to 6% from 78 member
banks as follows:
COUNTRY
RESERVE CITIES
*7 banks
1 bank
1 bank
2 banks
$4,207,350.00
108,782.86
30,500.00
125,000.00
15 banks
17 tanks
29 banka
2 b^nks
4 banks
$142,126.42
224,891.09
358,169.32
150,295.50
62,700.00
11 banks
•Central Reserve City.
$4,471,632.86
67 banks
$938,182.33
Illinois.. .. .. ..
Indiana........
Iowa ........
Michigan........
Wisconsin.......
DISCOUNT DEPARTMENT OPERATIONS
January let to December 31st, 1915.
1,049 applications for rediscount approved at 4% to 6%from 139 member
banks as follows:
RESERVE CITIES
Illinois...........
Indiana.
Iowa..............
Michigan........
Wisconsin..
COUNTRY
•3 banks
$1,442,618.08
2 banka
155,000.00
33 banks
21 banks
76 banks
5 banks
3 banks
$1,631,207.28
1,328,478.32
4,260,295.65
208,570.82
209,701.96
5 banks
$1,600,618.68
139 banks
$7,638,254.03
23
property of
the H is to r y
the Federal Reserve Systea
The C om m ittee on
F e d er a l R eserve B a n k N o t es
SERIES OF 1915 AND 1918
(National Currency)
issued by the
F ed er a l R eserve B a n k
of
C h ic a g o
and by
TH E O TH ER ELEVEN DISTRICT BANKS
Received
FEB G1955
COMMITTEE ON THE HISTORY
___
OF THE
by
DONALD McDOUGAL
Hinsdale, Illinois
federal reserve system
FEDERAL RESERVE BAN K NOTES
(N at io na l C u r r e n c y )
S e r i e s of 1 915 and 1 91 8
T h e following s t o r y of the i s s u a n c e of F e d e r a l R e s e r v e
B a n k N o t e s of the S e r i e s of 1 9 1 5 and 1 9 1 8 h a s b e e n p r e p a r e d a s a
p a r t of the b i o g r a p h y of the life of J a m e s B . M c D o u g a l ( m y f a t h e r ) ,
who w a s G o v e r n o r of the F e d e r a l R e s e r v e B a n k of C h i c a g o f r o m 1 9 1 4
to 1 9 3 4 . It i s b a s e d on f a c t u a l i n f o r m a t i o n , w h i c h I ob ta in e d f r o m
s e v e r a l s o u r c e s , but m u c h of the m a t e r i a l w a s ta k e n d i r e c t l y f r o m
an a r t i c l e w r i t t e n by M r . W i l l i a m A . P h i l p o t t , J r . , S e c r e t a r y of the
T e x a s B an k ers A ssociation at D allas.
M r. Philpott's a r tic le was
published in the A u g u s t , 1951 i s s u e of " T h e N u m i s m a t i s t , " the o f f i
c i a l p u b li c a t i o n of the A m e r i c a n N u m i s m a t i c A s s o c i a t i o n .
I
a l s o a m in debted to M r . W a l t e r A . H o pk in s , V i c e P r e
dent of the F e d e r a l R e s e r v e B a n k of C h i c a g o , who w a s kind enou gh
to p e r m i t m e to b o r r o w the $ 2 0 and $ 5 0 b i l l s h e r e i n i l l u s t r a t e d . He
hel ped a l s o by s e c u r i n g c e r t a i n i n f o r m a t i o n th a t a p p e a r s in the t e x t .
Th e b i o g r a p h y r e f e r r e d to a b ov e w il l f o r m a p a r t of m y
book, " T H U S WAS OUR H E R I T A G E , Cl an n D ug ha ill and J a m e s , " a t
s u c h t i m e a s I a m a bl e to publish it.
DONALD McDOUGAL
October 6, 1953
EX H IB IT
Page
1
FEDERAL RESERVE BANK NOTES, SERIES 1915 - 1918
(The
Federal
published
Reserve
by
Treasury
Department,
whole
in
or
Bank N o te s
special
part
is
permission
Washington,
strictly
illustrated
of
D.C.
the
on
Chief,
Further
the
U.
following
S.
pages
Secret
reproduction
are
Service,
of
t he m i n
prohibited.)
T h e two s e r i e s , 1 91 5 and 1 9 1 8 , of o ld , l a r g e s i z e N a t i o n a l C u r r e n c y ,
a p p r o x i m a t e l y 3 3 / 1 6 " X 7 3 / 8 " and c o m m o n ly r e f e r r e d to a s F e d e r a l R e
s e r v e B a n k N o t e s , a r e of p a r t i c u l a r i n t e r e s t to c o l l e c t o r s of p a p e r m o n e y b e
c a u s e : T h e y c i r c u l a t e d c o m p a r a t i v e l y r e c e n t l y ; th e tw e lv e F e d e r a l R e s e r v e
b a n k s i s s u e d t h e m in v a r i o u s d e n o m in a t io n s and s i g n a t u r e c o m b i n a t i o n s ; an d ,
e a c h n o te i s u n i f o r m in d e s i g n w ith e v e r y o t h e r su c h n o te of l i k e d e n o m i n a
tio n , y e t they v a r y g r e a t l y b e c a u s e of d i f f e r e n t c i t i e s of i s s u e , n a m e s of
sig n in g o f f i c e r s , and F e d e r a l R e s e r v e D i s t r i c t s y m b o l s .
T h e r e w e r e 125 d i f f e r e n t n o t e s i s s u e d by the tw e lv e B a n k s ,
each
d e n o m in a t io n and e a c h s i g n a t u r e c o m b i n a t i o n c o m p r i s i n g a v a r i e t y . F o r e x
a m p l e : T h e r e w e r e 39 d i f f e r e n t $ l ' s i s s u e d and o n ly one $ 5 0 (S t. L o u i s , )
e t c , ; and, A t la n t a i s s u e d 16 d i f f e r e n t n o t e s w h ile R i c h m o n d i s s u e d but f o u r .
N o te s of a l l d e n o m in a t io n s p l a c e d in c i r c u l a t i o n by th e 12 B a n k s t o t a le d
$ 7 6 1 , 9 4 4 , 0 0 0 in f a c e v a lu e of w h ic h t o t a l but $ 2 , 1 0 9 , 9 2 2 w a s o u ts ta n d in g on
S e p t e m b e r 3 0 , 1 9 5 3 . No $ l ' s o r $ 2 ' s w e r e i s s u e d in the 19 15 s e r i e s . Only
the A t la n t a , C h i c a g o , K a n s a s C it y , D a l l a s and S a n F r a n c i s c o B a n k s i s s u e d
n o t e s of th a t s e r i e s . San F r a n c i s c o i s s u e d on ly $ 5 ' s of t h i s s e r i e s , the o t h e r
f o u r B a n k s , $ 5 ' s , $ 1 0 ' s , and $ 2 0 ' s . T h e R e s e r v e B a n k s ended t h e i r l i a b i l i t y
on t h e s e n o t e s by the end of 1922 and the T r e a s u r y D e p a r t m e n t i s r e m o v i n g
th e m f r o m c i r c u l a t i o n a s r a p i d l y a s th e y a r e p r e s e n t e d by th e R e s e r v e B a n k s .
A l l of t h e s e n o t e s c a r r i e d fo u r s i g n a t u r e s : T h o s e of th e R e g i s t e r of
the T r e a s u r y , th e T r e a s u r e r of the U n ited S t a t e s , and tw o o f f i c i a l s of the
b a n k of i s s u e . E a c h n o te c a r r i e d th e r e g i o n a l ( d i s t r i c t ) s y m b o l of the b a n k
of i s s u e , t h o s e of the S e v e n t h F e d e r a l R e s e r v e D i s t r i c t ( C h ic a g o ) B a n k b e in g
7 - G o r G - 7 (G b e in g th e s e v e n t h l e t t e r of the a l p h a b e t ) . T h e f a c e of a l l the
n o t e s e x c e p t t h o s e of S a n F r a n c i s c o c a r r i e d the d a t e of M a y 18, 1 9 1 4 , the
day on w h ic h the o r g a n i z a t i o n c e r t i f i c a t e s of the B a n k s w e r e e x e c u t e d b y the
l o c a l o r g a n i z a t i o n a l g r o u p s in e a c h c i t y .
The San F r a n c i s c o B a n k 's n otes
w e r e d a ted M a y 2 0 , 19 14 e x c e p t one g ro u p th a t w a s e n g r a v e d the 18th in
e r r o r . ( T h e r e b e in g no a i r m a i l s e r v i c e in 1 9 1 4 , th e S e c r e t a r y of the O r g a n
iz a t io n C o m m i t t e e in W a s h in g to n a llo w e d two e x t r a d a y s to the o r g a n i z a
tio n a l g ro u p in San F r a n c i s c o . )
N o t e s of the S e r i e s of 1915 w e r e s e c u r e d b y U n ited S t a t e s B o n d s
d e p o s it e d by th e i s s u i n g B a n k s with th e T r e a s u r e r of the U n ited S t a t e s . T h o s e
o f the S e r i e s of 1 91 8 w e r e s e c u r e d by U n ited S t a t e s C e r t i f i c a t e s of I n d e b t e d
n e s s o r U n ited S t a t e s O n e - Y e a r Gold N o t e s , s o d e p o s i t e d . C e r t a i n i s s u e s of
t h i s l a t e r s e r i e s w e r e b a c k e d by B o n d s , o r C e r t i f i c a t e s of I n d e b t e d n e s s , o r
O n e - Y e a r Gold N o t e s of th e U n ited S t a t e s .
FEDERAL RESERVE BANK NOTES
EX H IB IT
Page
2
ISSUED BY THE F E D E R A L R E S E R V E BANK OF CHICAGO
In 4 di fferent s i g n a t u r e c o mb i n a t i o n s and 5 d e n o mi n a t i o n s
a
GlA
S E R I E S of 1915 - Issu e d in $5, $10, and $20 denom inations only.
Signatures of Teehee & Burke, M c L a lle n & M cD ougal.
T il* l-MTEU STATES OKAMERICA
I
v
s
s
m
s
IU J.V O I8
m
*
H . I . I'A Y T O T H K I I K A U K H U N D E M A N D
*wifssyk«s%
GlA /3^ X-J- ^
FEIIEIIAL KCSKini: R1JWHNOTE
S E R I E S of 1918 - Issu e d in denom inations of $1, $2, $5, and $10.
Signatures of Teehee & Burke, M cCloud & M cD ou gal.
35333=553=3=
T H E I 'M T K I ) S T A T E S O F A M E R I C A
G4559399A
: C S I 2 IILLINOIS
S2333^>
W
IU.PAVTU I'llKOEAH
KROMU
EM
A
.M
I
'
G4559399A^,_
S E R I E S of 1918 - Issu e d in $1, $2, and $5 denom inations only.
Signatures of Teehee & Burke, Cramer & M cD ougal.
—
# £ * = & G41000057A
O 'X M ; I H H i L A H
S niiM
AXU
|
g7
Afiu.im
G41000057/U?^y ^ ,
G-7
/ *>
%
«nW l ' FKIIF.KALKKMKKVH K.1KK NOTK / |
S E R I E S of 1918 - Issu e d in $1 and $2 denom inations only.
Signatures of E llio tt & Burke, Cramer & M cD ougal.
,,,
FEDERAL RESERVE BANK NOTES
OTHER
DENOMINATIONS
G77047A
| « S H IE X S jS i
«r.u. ,.W -T.. t.Vk 'hk w.'r.. <»» „ K» v>,.
G77047A
------
1915 & 1918 • Atlanta, C hicago, St. L o u is , K a n s a s C ity , D a lla s only.
1918 - St. L o u is only - Teehee & Burke, Attebery & W ells
REVERSES
S E R I E S O F 1915 A N D 1918
EXH IBIT
Page
3
E X H IB IT
Page
4
FEDERAL RESERVE BANK NOTES
ISSUED B Y TH E F E D E R A L R E S E R V E BANK O F CHICAGO
T h e r e w e r e t w e l v e d i f f e r e n t n o t e s i s s u e d by the F e d e r a l
R e s e r v e B a n k of C h i c a g o ( 7 - G ) , t o t a l i n g $ 1 0 5 , 4 8 8 , 0 0 0 in f a c e v a l u e .
On O c t o b e r 3 0 , 1 9 4 4 , $ 3 2 2 , 106 r e m a i n e d o u t s ta n d in g . F i v e d e n o m
i n a t i o n s w e r e i s s u e d in f ou r d i f f e r e n t s i g n a t u r e c o m b i n a t i o n s which
w e r e as follows:
Serie s
Si g n a t u r e s
1915
T eeh ee & B u rk e, M c L a lle n * & McDougal
1 918
Teehee
1 918
T eeh ee & B u rk e, C r a m e r * & McDougal
1 91 8
Elliott & Burke,
8*
*N0TE:
Denominations
Burke, McCloud*
Walter
8i
$5,
McDougal
$1,
$10,
$2,
$1,
F.
Bentley
McLallen,
G.
Sterling
Cashier
Cramer,
Cashier
$5
$2
( S u c c e e d e d McCl oud)
The r a r e s t C h i c a g o no t e i s the $ 5 ,
C r a m e r & McDougal.
OBVERSE
$ 1,
$10
Secretary
McCloud,
B.
$5,
$2,
C r a m e r & McDougal
$20
1918,
Teehee
Burke,
PLATES
The o b v e r s e p l a t e s , t h o s e u s e d f o r the f r o n t s of the n o t e s
(the sid e b e a r i n g the h e a d s ) , a r e p r i n t e d in b l a c k . The s e a l s and
s e r i a l n u m b e r s a r e o v e r p r i n t e d in bl u e.
REVERSES
The b a c k s o r r e v e r s e s of t h e s e n o t e s a r e u n i f o r m f o r e a c h
d e n o m i n a t i o n in the S e r i e s of 19 1 5 and 1 9 1 8 and do not v a r y one bank
f r o m a n o t h e r . The ink on the b a c k s i s g r e e n .
NOTE:
A
subsequent
Reserve
the
Series
Governor
with
him
series
Bank
of
in
1929.
McDougal’ s
the
2
5/8"
United
was
Deputy
and
the
by
and
of
also
known
Federal
the
Otto
Governor.
1 / 8 " ',
States.
by
issued
signature
x 6
Currency,
issued
Those
as A s s i s t a n t
approximately
tion
of National
Notes",
Chicago
J.
Bank
notes
size
were
now
in
Banks,
carried
Netterstrom
These
the
as " F e d e r a l
Reserve
signed
smaller,
circula
EXHIBIT
Page
5
FEDERAL RESERVE B A N K NOTES
D EN O MI NA TI O NS ISSUED B Y E A C H B A N K
- I s s u e d by e a c h of the t w e l ve B a n k s . A l l a r e s e r i e s of
1 9 1 8 . T o t a l i s s u e d $ 4 7 8 , 8 9 2 , 0 0 0 ; t o t a l o u t s ta n d in g on
S e p t e m b e r 3 0, 1 9 5 3 , $ 1 , 5 0 1 , 2 2 5 . S c a r c e s t $ l ' s , a s of
J a n u a r y 17, 1 9 5 1 , w e r e t h o s e of the M i n n e a p o l i s B a n k .
R e v e r s e , u n i f o r m f o r a l l t w e l v e B a n k s , sh owing flying
e a g l e c a r r y i n g h a l f - f u r l e d U . S . f la g in i t s t a l o n s .
O N E 'S -
-
TWO'S
- -
F I V E 'S
The Richm ond
- - I s s u e d by e l e v e n of the t w e l v e B a n k s .
B a n k i s s u e d only $ l ' s and $ 2 ' s .
Th e $ 5 ' s w e r e s e r i e s
of 1 9 1 5 and 1 9 1 8 .
Total issued $ 1 2 1 , 4 6 0 , 0 0 0 ; total
ou t s ta n d in g S e p t e m b e r 3 0 , 1 9 5 3 , $ 2 0 2 , 9 6 2 . 5 0 .
Scarc
e s t $ 5 ' s on J a n u a r y 17, 1 9 5 1 , w e r e t h o s e of the B o s t o n
B a n k . R e v e r s e , u n i f o r m f o r the e l e v e n B a n k s , sh owing
C o lu m b u s sig ht in g land and L a n d i n g of the P i l g r i m s .
T E N 'S -
-
I s s u e d by e a c h of the t w e l v e B a n k s . A ll a r e s e r i e s of
1918.
T o t a l i s s u e d $ 1 3 5 , 1 9 2 , 0 0 0 ; t o t a l o u t s ta n d in g
Septem ber 30,
1953,
$343,000.
S c a r c e s t $ 2 ' s on
J a n u a r y 17, 1 9 5 1 , w e r e t h o s e of the D a l l a s B a n k . R e
v e r s e , u n i f o r m f o r a l l t w e l v e B a n k s , sh owing U . S .
battleship.
- I s s u e d by the B a n k s in New Y o r k , A t l a n t a , C h i c a g o ,
St. L o u i s , K a n s a s C i t y , and D a l l a s , onl y.
S e r i e s of
1 9 1 5 and 1 9 1 8 .
Total issued $ 1 6 , 4 4 0 , 0 0 0 ; total o u t
stand ing on S e p t e m b e r 3 0 , 1 9 5 3 , $ 3 5 , 7 9 5 .
Scarcest
$ 1 0 ' s on J a n u a r y 17, 1 9 5 1 , w e r e t h o s e of the St. L o u i s
B a n k , when only 2 3 7 w e r e o u t s t a n d i n g . R e v e r s e , u n i
f o r m f o r the s i x B a n k s , sh ow in g h a r v e s t i n g s c e n e and
m an u factu rin g plant.
T W E N T Y ' S - I s s u e d by B a n k s in A t l a n t a , C h i c a g o , St. L o u i s , K a n
s a s C it y, and D a l l a s , onl y. S e r i e s of 1 9 1 5 and 1 9 1 8 .
T o t a l i s s u e d , $ 9 , 7 6 0 , 0 0 0 ; t o t a l o u t s ta n d in g on S e p t e m
b e r 3 0, 1 9 5 3 , $ 2 3 , 8 9 0 .
S c a r c e s t $ 2 0 ' s on J a n u a r y 17,
1951 w e r e t h o s e of St. L o u i s - only 93 o u t s t a n d i n g . R e
v e r s e , u n i f o r m f o r the five B a n k s , showing t r a n s p o r t a
tion by r a i l r o a d , s t e a m s h i p , a u t o m o b i l e , and a irp lan e. ^
F IFT Y 'S -
- I s s u e d by the St. L o u i s B a n k on ly .
Total issued,
$ 2 0 0 , 0 0 0 ; t o t a l o u t s ta n d in g S e p t e m b e r 3 0 , 1 9 5 3 , $ 3 , 0 5 0 .
o r 61 p i e c e s . T h is note i s r a r e . R e v e r s e , s y m b o l i c
f i g u r e d r a p e d in U . S . f l a g , r e p r e s e n t i n g the P a n a m a
Canal e n te r p r is e .
E X H IB IT
Page
6
FEDERAL RESERVE BANK NOTES, SERIES 1915 - 1918
L A W S P R O V ID IN G F O R T H E I R IS S U A N C E
AND
R E D E M P T IO N
W ith r e s p e c t to th e law b eh in d t h e s e n o t e s , th e F e d e r a l R e s e r v e A c t
( D e c e m b e r 2 3 , 1 9 13 ) a u t h o r i z e d the i s s u a n c e of c i r c u l a t i n g n o t e s by F e d e r a l
R e s e r v e B a n k s a g a i n s t the d e p o s i t of U n ited S t a t e s b o n d s , the n o t e s to be of
th e s a m e t e n o r and e f f e c t a s n a t i o n a l b a n k n o t e s , th e n p r o v id e d by la w . T h e s e
w e r e t o b e i s s u e d and r e d e e m e d u n d e r the s a m e t e r m s and c o n d it io n s a s
n a t i o n a l b a n k n o t e s , e x c e p t t h a t the a m o u n t i s s u a b l e w a s n ot li m i t e d to the
c a p i t a l s t o c k of th e i s s u i n g F e d e r a l R e s e r v e B a n k (a s w a s the c a s e with
n a t i o n a l b a n k s ) . T h e o r i g i n a l p u r p o s e of t h e s e p r o v i s i o n s w a s to p r e v e n t a
c u r r e n c y s t r i n g e n c y , r e s u l t i n g f r o m the w i th d r a w a l of any n a t i o n a l b a n k n o t e s
w h ic h m ig h t be r e t i r e d .
The d esig n atio n "n a tio n a l c u r r e n c y " w as c a r r ie d
o v e r to F e d e r a l R e s e r v e B a n k N o t e s , t o g e t h e r w ith o t h e r c h a r a c t e r i s t i c s of
n a t i o n a l b a n k n o t e s . T h e f i r s t i s s u e w a s m a d e in F e b r u a r y , 1 91 6 ( s e r i e s of
1 9 1 5 ) , and a d d it io n a l i s s u e s of s e r i e s of 1 91 5 w e r e m a d e f r o m t i m e to t im e
u n t il the h ig h p oin t w a s r e a c h e d a t th e end of O c t o b e r , 1 9 1 7 , w h en t h e r e w e r e
$ 1 2 , 9 7 0 , 4 2 5 o u ts ta n d in g .
T h e A c t of A p r i l 2 3 , 19 18 ( P i t t m a n A c t ) , p ro v id e d f o r the i s s u a n c e
o f F e d e r a l R e s e r v e B a n k N o t e s in p l a c e of s i l v e r c e r t i f i c a t e s r e t i r e d , and,
a s s e c u r i t y , a u t h o r i z e d the u s e of c e r t i f i c a t e s of i n d e b t e d n e s s , a s p e c i a l
s e r i e s of w h ic h w a s m a d e a v a i l a b l e . T h i s r e s u l t e d in the s e r i e s of 1918 and
a l l tw e lv e b a n k s i s s u e d the n o t e s to the t o t a l of m a n y m i l l i o n s of d o l l a r s . T h e
h i g h e s t a m o u n t of F e d e r a l R e s e r v e B a n k N o t e s in c i r c u l a t i o n a t the b eg in n in g
of an y m o n th d u r in g t h i s p e r i o d w a s $ 2 3 6 , 5 9 7 , 5 7 0 on J a n u a r y 1, 1 9 2 1 . F o l
lo w in g th e r e s t o r a t i o n to c i r c u l a t i o n of the s i l v e r c e r t i f i c a t e s , w ith d ra w n
f r o m c i r c u l a t i o n u n d e r the P i t t m a n A c t , a p p r o p r i a t e s t e p s w e r e t a k e n f o r the
r e t i r e m e n t of the o u ts ta n d in g F e d e r a l R e s e r v e B a n k N o t e s , and m a n y m i l l i o n s
w e r e s p e e d il y r e d e e m e d .
B y th e end of 1 9 2 2 , the F e d e r a l R e s e r v e B a n k s had ended t h e i r l i a
b i l i t y on t h e s e i s s u e s of F e d e r a l R e s e r v e B a n k N o t e s (in a c c o r d a n c e with the
p r o v i s i o n s of the law ) b y d e p o s it in g w ith the T r e a s u r e r of the U n ited S t a t e s
la w fu l m o n e y to the a m o u n t of t h o s e n o t e s th e n o u ts ta n d in g , and b e c a u s e of
t h i s " l i q u i d i t y " b eh in d t h e s e n o t e s the g r e a t e r p a r t of t h e m w e r e v e r y q u ic k ly
re tir e d fro m circu la tio n .
S i n c e O c t o b e r 3 0 , 1 9 4 4 , th e r e d e m p t i o n d e p a r t m e n t of the T r e a s u r y
h a s n ot s e g r e g a t e d o u ts ta n d in g n o t e s a s to th e d i f f e r e n t B a n k s - k e e p in g only
the o u ts ta n d in g f i g u r e s a s to d e n o m i n a t i o n s . S o , to d ay we know how m a n y of
the s e v e r a l d e n o m in a t io n s a r e o u ts ta n d in g , but the f i g u r e s a r e n o t b r o k e n
down f o r any p a r t i c u l a r one of the tw e lv e i s s u i n g b a n k s .
BANK OF (CinCAeO
The Detroit Branch occupies
the approximate center of the
area inclu ded in th is fo rt
Artist’s conception o f F o rt Lernoult
The site chosen for the Detroit Branch has played an im portant
building. F o rt Lernoult was surrendered to the Americans, July 11,
part in American history. D etroit, the oldest city in Midwestern
1796, but the British regained possession during the war o f 1812.
United States, was founded July 24, 1701, when Antoine de la
A fter Perry’s victory on Lake Erie in 1813, the fort was no longer
M othe Cadillac built F o rt Pontchartrain at this strategic location.
tenable, and the American troops, under General W illiam Henry
It was held by the French until 1761 at which time the British
Harrison, took possession o f D etroit. With the return to American
took possession. When the Americans erected a fort ninety miles
control, the fort was named Shelby. By 1826, the fort had served
south o f Sandusky, Ohio, the British became alarmed and built
its purpose, and the section was subdivided into fifty-foot lots.
a new fort on the crest o f a hill overlooking the D etroit River.
Oliver Newberry, a shipping magnate o f the day, bought lots
The fort was completed and occupied by troops under Captain
thirteen and fourteen where the Branch building now stands.
Richard B. Lernoult in February, 1778, and the fort was named
The property has changed hands many times. In 1921, these lots
for him. The walls o f this fort embraced an area larger than a city
were purchased by the Federal Reserve Bank o f Chicago which
block. T he intersection o f F ort and Shelby Streets is the approxi
sold the easterly twenty-five feet to the N ational Bank o f Com
m ate center o f the old fort and is the site o f the present Branch
merce and, in 1927, constructed a banking house for the Branch.
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in the
The original Detroit Branch
building occupies the site of
th is h i s t o r i c o ld h o u se
N ew berry-W alker H ouse
This building served the needs o f the area very well for some
from M ichigan’s upper peninsula, and sturdy steamers from
time, but with the growth o f banking in D etroit, additional space
foreign shores. W ho could have believed that this spot where
was needed. Accordingly, in 1943, the twenty-five feet o f frontage
Cadillac and his few followers were alone in the wilderness would
which had been sold to the National Bank o f Commerce was
today be one o f the greatest cities in the world with a population
repurchased. During 1945 and 1946, two other parcels were
approaching two million, and with a gross-value o f m anufac
acquired, giving the branch all o f the land on which the fully
tured products in excess o f eight billion dollars. D etroit is a
enlarged facility now stands. The selection o f D etroit for the site
financial giant among giants with total bank deposits well in
o f the Branch has been more than justified, but the phenomenal
excess o f three billion dollars. The magnificent addition to the
growth o f the city could not be foreseen, and the facilities
D etroit Branch o f the Federal Reserve Bank gives silent testi
originally provided soon proved inadequate. History may show
mony, in these troubled times, to the faith which America has in
that even present planning has underestimated future needs. This
our institution o f freedom. The building, rising on the site o f the
city is really dynamic, but who could have foreseen that the river
fort where first the American flag rose over the city, is a trib
which once carried rough canoes piled high with fur pelts would
ute in steel and stone to the accomplishments o f the past and
one day be moving grain boats from the Northwest, ore ships
expresses faith in an even better future.
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The Detroit Branch opened
in th is b u ild in g in 1 9 1 8
Congress Building
2 )etro it d^ranch f e d e r a l R eserve i^ an h oj? C^hicafyo
Although the Federal Reserve A ct permitted the organization
o f branches by Federal Reserve Banks, none was authorized in
the Seventh District until November 27 ,1 9 1 7 , when it was dem on
strated that there was need for one in D etroit. T he D etroit area
transacted business with all sections o f the country and since it
was necessary to clear many checks, make all transfers, and
obtain all rediscounts from Chicago, unnecessary time was con
sumed. Michigan bankers, realizing the seriousness o f the situ
ation, held a meeting in Lansing to arouse interest in a branch.
Action was prompt and the D etroit Branch o f the Federal Reserve
Bank o f Chicago was formally opened, M arch 18, 1918.
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The directors were R obert B. Locke, Manager; Emory W. Clark,
President o f the First and Old D etroit National Bank; Julius
Haass, President o f the Wayne County and Home Savings Bank;
John Ballantyne, President, Merchants National Bank; and
Charles H. Hodges, President, Detroit Lubricator Company.
W. R. Cation was Cashier, J. B. Dew was Assistant Cashier, and
J. G . Baskin was Assistant Federal Reserve Agent.
The operations o f the Branch were carried on at three locations.
The cash department was located in the First and Old D etroit
National Bank, securities were kept in vaults at the Wayne County
and Home Savings Bank, and other operations were conducted
on the first floor o f the Congress Building at 36 Congress Street.
The total staff was twenty-five. The operations were not housed
under one roof until December 19, 1927, when a new building
at Fort and Shelby Streets was ready for occupancy.
When the Branch opened for business, its territory consisted o f
the City o f D etroit and Highland Park. There were fourteen
member banks. Three o f these members were national banks with
total capital and surplus o f $10,500,000, and eleven were “ nonnational” banks with capital and surplus o f $23,710,000.
M em ber banks carried their required reserve balances at the
E a r ly S t a f f D e t r o it B ra n ch
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Head Office and the proceeds o f rediscounts and deposits o f
currency with the Branch were immediately available as reserves.
The United States Treasury carried no deposits at the Branch.
Nevertheless, certificates were redeemed and Government checks
were paid there, but settlements were made on the books at the
Head Office.
As originally established, the Branch was a local office o f the
parent bank and exercised only those functions specifically dele
gated to it. The convenience o f the Branch was soon demonstrated
to D etroit Bankers, who increased the use o f its facilities to such
an extent that in 1920 the Branch was given permission to carry
on central banking functions. Today, it is fully autonomous.
Although size is not necessarily synonymous with importance,
volume o f transactions handled by a bank does indicate the need
for its services. It is, therefore, o f interest to note the growth in
activity o f some o f the more im portant functions carried on by the
D etroit Branch. When the Branch was established, the clearing
o f checks was limited to items drawn on D etroit Banks, but even
then the daily volume was 5,100 items. During 1952, the Branch
handled 68,272,000 items. Growth in demand for service has been
equally great in all departments with the result that the enlarged
quarters have been provided.
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FO R M E R D IR E C T O R S O F T H E D E T R O IT BRANCH FED ERA L R E S E R V E BANK O F CHICAGO
W . R . C a t io n
A.
C. M a r s h a ll
R o bert B. L ocke
C h a r le s
T. F i s h e r , J r .
Ja m e s
T. K e e n a
C h a r l e s H . H odges
J u l iu s H . H aass
P r e n t is s M . B ro w n
C h a r le s
W
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A.
K a n te r
. J . G ray
f,
N.
P. H u ll
R. H. Buss
P
E m o ry
W. C l a r k
G eo rg e B . M o r ley
FO RM ER
D IR E C T O R S O F T H E
H a r r y L . P ie r s o n
L. W
h it n e y
W a t k in s
J a m e s E . D a v id so n
B en R . M a r s h
D E T R O IT
BR A N C H
FED ERA L
D a v id M c M o rra n
W a l t e r M cL ucas
E r n e s t G il b e r t
W il s o n W . M i l l s
J ohn B a lla n tyn e
RESERV E
B A N K O F C H ICA G O
R . E . R e ic h e r t
H a r la n J . C h a l f o n t
J o se p h M . D odce
J a m e s I n g l is
Jo h n
W. S t a l e y
C la r e n c e
W. A v e r y
John S. C olem an
chairman
Chairman of the Board of Directors
of Federal Reserve Bank of Chicago
C. S. Y o u n g
President
President of the Federal Reserve Bank
of Chicago and Chief Executive Officer
John A. H annah Chairman
Chairman, Board of Directors
of the Detroit Branch of the
Federal Reserve Bank of Chicago
E. C. HARRIS
First Vice President
First Vice President of the Federal
Reserve Bank of Chicago and Formerly
Vice President at the Detroit Branch
H a r la n J. ChALFONT Vice President
Vice President, Federal Reserve Bank
of Chicago and at the Detroit Branch
BOARD O F D IRECTO RS O F FE D E R A L
R ESER V E BANK O F CHICAGO
J o h n S . C o l e m a n , President
Burroughs Adding Machine Company
Detroit, Michigan
Chairman
B. R. P r a l l , President
Butler Brothers
Chicago, Illinois
Deputy Chairman
W a l t e r J . C u m m in g s , Chairman
Continental Illinois National Bank
and Trust Company of Chicago
Chicago, Illinois
W i l l ia m J . G r e d e , President
Grede Foundries, Inc.
Milwaukee, Wisconsin
W a l t e r E. H a w k in s o n , V ice President
in charge of Finance, and Secretary
Allis-Chalmers Mfg. Co.
Milwaukee, Wisconsin
V iv ia n W. J o h n s o n , President
First National Bank
Cedar Falls, Iowa
A ll a n B. K l i n e , President
American Farm Bureau Federation
Chicago, Illinois
N u g e n t R. O b e r w o r t m a n n , President
The North Shore National Bank of Chicago
Chicago, Illinois
Meeting of Directors of Head Office
Left to right: E. C . H a r r is , N . R. O b e r w o r t m a n n , C . S .
Y o u n g , W. E. H a w k in s o n , W. J . G r e d e , N . B. D a w e s ,
B. R. P r a l l , A. B. K l i n e , J . S . C o l e m a n , W. R. S in c l a ir ,
W. J. C u m m in g s , and V. W. J o h n s o n
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W i l l ia m R. S in c l a ir , Chairman of the Board
Kingan and Co.
Indianapolis, Indiana
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BOARD OF D IRECTO RS
D ET R O IT BRANCH
J
A. H a n n a h , President
Michigan State College
East Lansing, Michigan
Chairman
ohn
W i l l i a m M. D a y , Vice President and General Manager
Michigan Bell Telephone Company
Detroit, Michigan
H o w a r d P. P a r s h a l l , President
Commonwealth Bank
Detroit, Michigan
R a y m o n d T. P e r r in g , President
The Detroit Bank
Detroit, Michigan
J o h n A . S t e w a r t , Vice President and Cashier
Second National Bank and Trust Company of Saginaw
Saginaw, Michigan
Meeting of Directors of Detroit Branch
Left to right: J . A. S t e w a r t , W . M. D a y , J . A. H a n n a h ,
R . T . P e r r in g , H . P . P a r s h a l l
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H en ry B . J
oy
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S . T . C rapo
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C la ren ce W . A very
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The story o f the check department is volume— never ending, ever
present volume— today, yesterday, and tomorrow. The continual
pressure o f the incoming work is staggering. This stream o f items
flows into and out o f the D etroit Branch by train and plane,
night and day, to keep pace with the modern tempo o f business.
Each day’s paper mountain must be attacked to clear the way for
the avalanche that is sure to com e tomorrow. Lights in the Check
Department burn constantly. The individual clacking o f each
proof machine merges into a perpetual acoustically subdued
clam or— background music for the daily performance o f “ Beat
the C lock.” During 1952, more than sixty-eight million checks
with a dollar value o f twenty-nine billion had to be processed.
I—
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M oney is the life blood o f com m erce; it keeps the wheels o f
industry turning. Keeping the flow o f money adjusted to the
rhythm o f business is one o f the principal functions o f the Federal
Reserve System. All currency and coin gets into circulation
through a Federal Reserve Bank. As the tempo o f business in
creases, business needs more currency to finance its transactions.
When the tempo decreases, the demand for money declines. The
volume o f currency received and disbursed by the D etroit Branch
in a year reaches unbelievable proportions. During 1952, these
shipments and receipts established all-tim e peaks as to dollar
amount and number o f pieces. This flow, in and out o f the
1,200 -
MILLIONS
D etroit Branch, was well in excess o f two billion dollars.
900
600
DOLLAR VALUE OF CURRENCY HANDLED
□
300
R E C E IP T S
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S H IP M E N T S
1948
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Many and varied are the functions performed by the Government
Bond Department for the United States Treasury, for member
and nonmember banks, and for individuals. The tremendous
increase in the public debt, resulting principally from this coun
try’s participation in two world wars, imposed a large number o f
new fiscal agency duties upon the Federal Reserve Banks. The
dollar amounts are tremendous, but the services are o f unmeasur
able value to everyone. If securities are to be sold, provision must
be made for their redemption, exchange, reissue, and transfer.
All o f these services are performed at the Detroit Branch. The
sale and redemption o f securities, during 1952, reached a total in
excess o f three billion dollars. Telegraphic transfers accounted
for more than two billion.
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SAVINGS BONDS SOLD AND REDEEMED
M A T U R IT Y
200
VALUE
|
S A L E S OF E BONDS
IOO
R E D E M P T IO N S O F A -E B O N D S
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Protection o f the assets, and properties o f a banking institution
is a m ajor undertaking which calls for mammoth vaults, skillful
organization, and diligent supervision by a well-trained staff.
The D etroit Branch has all o f these safeguards surrounding the
Vault Door Stronger Than a Fortress
billions o f dollars which flow through it in the course o f a year.
Deep underground are the most modern vaults known today.
Impregnable walls o f concrete and arm or plate, which will with
stand every known attack, are watched night and day by uni
formed guards and electronic devices. An instantaneous signal
system keeps constant vigilance that “All is well” throughout the
Bank. The building is as fireproof as modern science can devise,
and a system o f controls insures that only properly authorized
persons may have access to the assets.
The Heart of the Protection System
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<
Protecting the health o f employees is an essential part o f personnel
administration in modern-day banking. The Medical Department
performs this function. The physician in charge makes examina
Section of Medical Department
tions o f new employes and periodically checks the physical fitness
o f the members o f the staff-. The Department renders first aid,
dispenses medicines, and gives advice on health problems.
Equipment is maintained to handle emergency cases, and quiet
room s, equipped with beds, are available to employees receiving
medical care. In addition to looking after the com fort and health
o f employees, the Medical Department serves the additional
purpose o f increasing the efficiency o f the staff and o f cutting
down on the number o f days lost due to illness.
Reporting to Medical
R
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P a y r o l l D iv is io n
N o n -C a s h C o l l e c t i o n
A u d it D e p a r t m e n t
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and
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W o m e n ’s L o u n g e
S a f e k e e p in g D e p a r t m e n t
here th e
D ir e c t o r s M e e t
Federal Reserve Building, Washington, D. C.
Experience has clarified and emphasized certain basic principles
lying behind the idea o f a central bank. While time has dimmed
the memory o f conditions which impelled the adoption o f the
Federal Reserve Act, it has strengthened the structure created
and provided the nation with a banking system widely approved
by the business men o f America, and o f the world. In fact, the
idea o f the Federal Reserve System developed out o f a “ grass
roots” demand for some mechanism to smooth out the swings o f
the business cycle, and to create an economic atmosphere that
would encourage the development o f a better standard o f living.
Long and bitter experience demonstrated the need for a central
banking system that would have a responsibility to the entire
economy, that would function in the interests o f sound credit
conditions, and that would have statutory powers over the
money supply.
The Federal Reserve A ct created such a system. It consists o f a
Board o f Governors, the twelve Federal Reserve Banks and
their twenty-four branches, the member banks, the Federal Open
M arket Com mittee, and the Federal Advisory Council. The
members o f the Board o f Governors are appointed by the Presi
dent o f the United States and confirmed by the Senate. The
Board is the coordinating power o f the System and gives direc
tion to its operations. The Federal Reserve Banks are owned by
the member banks. The Reserve Banks have statutory powers
not possessed by other banks. When they lend or invest they
create reserve funds for the com m ercial banks.
In the exercise o f its powers over the money supply, the System
uses several tools, chief o f which are: the discount rate; required
reserves; and open market operations— the purchase and sale o f
securities. This function is carried on by the Federal Open
M arket Com m ittee which consists o f the seven members o f the
Board o f G overnors and five o f the twelve presidents o f the
Federal Reserve Banks.
The Federal Advisory Council consists o f twelve men. One
representative is appointed by the board o f directors o f each
Federal Reserve Bank. This council exercises advisory powers.
Leased W ire System
W ic liiy a n W e m b er dSanb
Peoples State Bank of Bronson
Bronson
Brown City Savings Bank
Adrian State Savings Bank
Adrian
The Commercial Savings Bank
Adrian
Bay City Bank
Peoples National Bank of Bay City
Bay City
Peoples State Bank of Belleville
Belleville
The Commercial & Savings Bank
of Albion
Albion
Charlevoix
Eaton County Savings Bank
Charlotte
Bay City
Lenawee County Savings Bank
Adrian
Brown City
The Charlevoix County State Bank
Farmers and Merchants National
Bank in Benton Harbor
The First National Bank
of Burr Oak
Burr Oak
The Byron Center State Bank
Byron Center
State Bank of Caledonia
Caledonia
The First National Bank
of Charlotte
Charlotte
The Citizens National Bank
of Cheboygan
Cheboygan
Chelsea State Bank
Chelsea
Benton Harbor
The Algonac Savings Bank
Algonac
Allegan State Bank
Capac State Savings Bank
The Berrien Springs State Bank
The Cass City State Bank
Big Rapids Savings Bank
The Armada State Bank
Armada
Security National Bank
of Battle Creek
Battle Creek
The Citizens State Bank of Clare
Clare
Cass City
Clarkston State Bank
Clarkston
Birmingham
Ann A rbor
A nn A rbor
Cass City
The Pinney State Bank
The Birmingham National Bank
State Savings Bank of Ann Arbor
Chesaning
Big Rapids
Alto
Ann Arbor Bank
Chesaning State Bank
Berrien Springs
Allegan
Farm ers State Bank of Alto
Capac
The Cass County State Bank
The Blanchard State Bank
Cassopolis
Coldwater
Blanchard
The Blissfield State Bank
Blissfield
Farmers State Bank of Breckenridge
Breckenridge
The Southern Michigan National
Bank of Coldwater
The First National Bank
of Cassopolis
Cassopolis
Centreville State Bank
Centreville
The State Bank of Coloma
Coloma
Coopersville State Bank
Coopersville
The Old Corunna State Bank
Corunna
State Bank of Croswell
Cro swell
Davison State Bank
Davison
First State Bank of Decatur
Decatur
Monroe County Bank
D undee
The Shiawassee County Bank
Durand
Peoples State Bank of East Tawas
East Tawas
Genesee County Savings Bank
Flint
Merchants and Mechanics Bank
Flint
Peoples State Bank of Flushing
Flushing
Detroit
Bank o f the Commonwealth
Detroit
The Detroit Bank
Detroit
Eaton Rapids
Detroit
The Manufacturers National Bank
of Detroit
Old Kent Bank
Grand Rapids
Peoples National Bank
of Grand Rapids
Fountain State Bank
Edm ore
The First National Bank of Evart
Union Bank of Michigan
Grand Rapids
State Bank of Edmore
State Savings Bank, Frankfort,
Mich.
Frankfort
The Grant State Bank
Grant
Evart
The Fremont State Bank
The Farm ington State Bank
F remont
Commercial State Savings Bank
Greenville
Farmington
The Old State Bank of Fremont
Industrial National Bank— Detroit
Grand Rapids
Grand Rapids
The National Bank of Eaton Rapids
F ountain
City Bank
Central Bank
The Old State Bank
Fremont
F irst State Bank of Greenville
Greenville
FennviUe
State Savings Bank of Fenton
Fenton
The State Savings Bank
of Gagetown
Grosse Pointe Bank
Gagetown
Grosse Pointe
Gaylord State Bank
The Liberty State Bank
of Hamtramck
Detroit
Ferndale National Bank
National Bank of Detroit
Ferndale
Gaylord
Hamtramck
Detroit
The D exter Savings Bank
Dexter
The Dowagiac National Bank
Dowagiac
The State Savings Bank
of Flat Rock
Grand Haven State Bank
Grand Haven
Flat Rock
Citizens Commercial & Savings Bank
Flint
State Bank o f H arbor Beach
H arbor Beach
The Peoples Savings Bank
of Grand Haven
Grand Haven
The Emmet County State Bank
H arbor Springs
National Bank of Hastings
Hastings
The Hillsdale County National Bank
of Hillsdale
Hillsdale
Hillsdale State Savings Bank
Hillsdale
First National Bank of Holland
Holland
The Peoples State Bank of Holland
Holland
First National Bank in Howell
Howell
Imlay City State Bank
The American National Bank
and Trust Company
of Kalamazoo
Security Bank
The First National Bank and Trust
Company of Kalamazoo
Kalamazoo
Lincoln Park
State Savings Bank
Lowell
Farmers State Bank of Middleville
Middleville
The Chemical State Savings Bank
Midland
The Midland National Bank
Midland
Industrial State Bank of Kalamazoo
Kalamazoo
Ludington State Bank
Ludington
Milan State Bank
Milan
The Kingston State Bank
Kingston
The National Bank of Ludington
Ludington
The First National Bank of Monroe
Monroe
Bank of Lakeview
Lakeview
American State Bank
Lansing
Bank of Lansing
Ionia
Leslie
Kalamazoo
Imlay City
The Ionia County National Bank
of Ionia
The Peoples Bank of Leslie
The Peoples Bank
Manchester
Union Savings Bank of Manchester
Manchester
Lansing
The Manistee County Savings Bank
Michigan National Bank
Manistee
Montague State Bank
Montague
The Morrice State Bank
Morrice
First National Bank
in Mount Clemens
Mount Clemens
Lansing
The Commercial National Bank
of Ithaca
Ithaca
G. W. Jones Exchange Bank
The First National Bank of Lapeer
Marcellus
Jackson
The National Bank of Jackson
Jackson
The Grosvenor Savings Bank
Jonesville
Mount Clemens
Lapeer
The Dart National Bank of Mason
Jackson City Bank and Trust
Company
The Mount Clemens Savings Bank
Lapeer Savings Bank
Mason
Exchange Savings Bank
Mount Pleasant
Lapeer
The Farmers Bank of Mason
The Home State Bank of Lawrence
Mason
Isabella County State Bank
Mount Pleasant
Lawrence
The First National Bank of Lawton
Lawton
The Farmers and Merchants State
Bank of Merrill
Merrill
The Hackley Union National Bank
of Muskegon
Muskegon
The National Lumberman’s Bank
of Muskegon
Muskegon
Citizens State Savings Bank
New Baltimore
The Peoples State Bank
New Boston
New Haven Savings Bank
New Haven
Community National Bank
of Pontiac
Saline Savings Bank
Saline
Niles
Pioneer Bank
North Branch
The Onsted State Bank
Onsted
Oxford Savings Bank
Oxford
The First National Bank of Quincy
Quincy
Macomb County Savings Bank
Richmond
The National Bank of Richmond
The Fruit Growers State Bank
of Saugatuck, Mich.
Saugatuck
Farmers & Merchants State Bank
of Sebewaing, Mich.
Bank of South Haven
South Haven
Richmond
River Rouge Savings Bank
Sparta
River Rouge
The Rochester National Bank
The Spring Lake State Bank
Spring Lake
Saginaw
Petoskey
The First State Bank of Petoskey
Petoskey
The Pigeon State Bank
Pigeon
Pinconning State Bank
Pinconning
The Commercial and Savings Bank
of St. Clair
St. Clair
The St. Johns National Bank
St. Johns
The State Bank of St. Johns
St. Johns
The Citizens Bank of Saline
Saline
The State Bank of Vassar
Vassar
The First National Bank
of Watervliet
Watervliet
The State Savings Bank
of West Branch
The State Bank of Whitehall
Whitehall
The Springport State Savings Bank
Springport
Peoples State Bank
W illiamston
Romeo
Second National Bank and Trust
Company of Saginaw
U tica
West Branch
Rochester
The Romeo Savings Bank
The Utica National Bank
Sebewaing
The Citizens State Bank
Sturgis
The National Bank of Wyandotte
Wyandotte
First National Bank
Sturgis
The First National Bank of Petoskey
Union City
Pontiac
Sparta State Bank
First National Bank of Niles
The Union City National Bank
Wyandotte Savings Bank
Wyandotte
The First National Bank
of Three Rivers
Three Rivers
First-Peoples State Bank
Traverse City
Traverse City State Bank
Traverse City
Trenton State Bank
Trenton
Yale State Bank
Yale
The National Bank of Ypsilanti
Ypsilanti
Ypsilanti Savings Bank
Ypsilanti
Zeeland State Bank
Zeeland
The 39th
Annual Report
of the President
to Mem ber Banks
Federal Reserve Bank of Chicago
1953
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Contents
5
The year in brief
7
The industrial sector — production achievement
meets defense and civilian needs
13
Agriculture — a "soft" spot; there were signs
of stability at year-end
16
A good year for consumers
24
Credit markets and credit policy
28
Midwest banking — a contrast between
large and small centers
32
Bank operations reflect high-level activity
36
Financial statements
39
Directors and Officers
The Seventh Federal Reserve District
1953 in Review
The y e a r in brief
In 1953, for the first time since 1948, economic
activity underwent a transition from expansion
to decline. The year was divided rather clearly
into two parts — a gradual rise characterized the
first half and a moderate decline the second. This
change of pace within the year has tended to
overshadow the fact that the year as a whole
took its place at the top of a procession of four
record years.
A listing of the accomplishments of the Amer
ican economy in 1953 becomes almost a monoto
nous recitation of new record highs. Over-all the
year witnessed an increase from 1952 of about
5 per cent in total output of goods and services.
Personal income rose by a slightly higher pro
portion, and virtually all groups excepting the
farmer participated. Moreover, these gains rep
resent changes in real volume, as the general
level of prices showed great stability.
In the fourth quarter of 1953 total business
volume remained above the year-earlier level,
but factory output was noticeably lower. More
over, virtually all business categories reported
sales, orders, and inventories in the fourth quar
ter below peak levels set earlier in the year. Evi
dence of this generalized slackening of activity
continued to accumulate as the most prosperous
year in history drew to a close.
In the credit sector the cleavage between
trends in the first and second halves was marked.
In the early months of 1953, booming busi
ness kept credit demands strong. Interest rates
climbed as a result of a substantial rise in con
sumer and mortgage credit, a large volume of
security issues, and an absence of the usual sea
sonal decline in business loans. Credit extensions
continued heavy into the second quarter, but in
midsummer the pressure of demand for bor
rowed funds began to ease noticeably in one
segment after another.
The usual fall upsurge in the demand for
credit was tardy in appearing and lacked the
vigor of earlier years. This change of pace was
striking considering the fact that business activity
had fallen but little from early summer peaks.
Interest rates on virtually all types of borrowings
began to recede after reaching levels well above
those of other recent years.
In the spring, the Federal Reserve System took
steps to ease the supply of funds. Treasury bills
were purchased in May and June, and reserve
requirements of member banks were cut at«midyear. In the second half of the year, reserve funds
continued to be supplied in a volume sufficient to
provide for the normal seasonal needs of public
and private borrowers.
Developments in the monetary field reflected
the moderate slowing of business investment
and a slackening toward year-end in credit buy
ing of consumer durables, particularly automo
biles. Business inventories began to decline in
the fourth quarter after a substantial rise from
the start of the year, and plant and equipment
expenditures finally reached the crest of a long
climb at about the same time.
The four-year boom , 1949-53, was based
largely upon rising Government expenditures for
defense and rising business outlays for capital
expansion. Both of these factors reached highwater marks last year.
In 1953, for the first time since 1950, Govern
ment expenditures were lower in the second half
than in the first. Nevertheless, the Federal sector
provided a strong expansive influence for 1953
as a whole. Total cash expenditures rose by over
5 per cent from the previous year, to almost 77
billion dollars. Moreover, for the first time since
World War II, the Treasury spent substantially
more than it took in.
Despite continued high-level activity, easier
5
E xp ansion has keynoted economic trends over the past four years
billio n d o lla rs
6
p«r ce n t, 1 9 4 7 - 4 9 - 1 0 0
money, and a large Federal deficit, it is apparent
that the last half of 1953 saw the beginning of
the second period in the postwar years in which
the resistance of the American economy to
downward pressures would be tested. The first
came in 1948-49 when an “inventory recession,”
concentrated in soft goods, failed to spread de
spite apprehension that the long-awaited postwar
depression was at hand. In retrospect, it is ap
parent that the effects of the working down of
inventories in 1949 were offset largely by a con
tinued strong demand for automobiles and hous
ing coupled with a substantial rise in Govern
ment spending and a cut in income taxes.
At the end of 1953, after six months of
gradual decline, personal income was still very
close to the record levels of midyear. Industrial
production, however, had fallen 7 per cent from
the peak, and nonfarm employment was off by
one million. Retail sales were slower in the last
five months and probably failed to equal yearago results in the fourth quarter. Meanwhile,
consumers and business had added another thick
layer of possessions to their eight-year postwar
accumulation. As a result, their immediate
needs for goods of all kinds had been satisfied
so well as to still all talk of shortages.
The picture at year-end was brightened by the
knowledge that tax cuts would go into effect on
January 1. The financial health of business
firms, farmers, and consumers remained excel
lent. Liquid asset holdings had risen further dur
ing the year, and an ample supply of loanable
funds was available. Unemployment compensa
tion and farm price supports were helping to
cushion the moderate downturn in earned in
come. Finally, prices of goods and services con
tinued firm in the face of slowing business, an
indication that speculative activity had been re
strained during the upswing.
A factor of strength hard to evaluate but pres
ent nonetheless was the reservoir of confidence
in the future. Informed businessmen had been
generally aware at the start of 1953 that the
uptrend was nearing its peak. The eventual rec
ognition that an adjustment was in process did
not, therefore, surprise policy makers.
Many business executives were proposing ag
gressive selling campaigns featuring improved
products as an antidote to lagging demand, while
Government spokesmen had indicated that they
saw nothing alarming in the business outlook and
had pledged vigorous use of monetary and other
measures to stabilize the economy.
The industrial sector — production achievem ent
m eets defense a n d civilian needs.
In mid-1953 an uneasy truce ended three years
of hot war on the Korean peninsula. At about
the same time, the drive to achieve industrial
capacity equal to the task of supplying civilian
needs while meeting defense requirements was
largely realized. With an abundance of goods be
ing turned out, any lingering fears of continuing
general price inflation gave way to consideration
of the perils of deflation.
New production records were achieved in vir
tually all basic industries in 1953. Total factory
output exceeded the previous high year by about
8 per cent. In the spring an improvement in raw
material supplies permitted virtually all remain
ing controls over wages, prices, and materials to
be stripped away. These developments coupled
with the absence of major work stoppages con
tributed heavily to the swift upward surge of in
dustrial activity in the first half of 1953, follow
ing the ending of the steel strike in the late
summer of the previous year. During this period,
total output rose by nearly 20 per cent, and in
dividual industries such as automobiles and elec
trical machinery increased by much larger pro
portions.
In the peak weeks of the spring of 1953, steel
7
Midwest centers lead nation
in growth in checkbook spending
-•
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1 cfto n g t, 19 5 3 from l » 9 t
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h r e e - f o u r t h s of the Seventh District’s
thirty-two metropolitan areas reported a
1953 increase in checkbook spending which
was greater than the 7.2 per cent national
average. Since more than 90 per cent of all
money transactions are carried out by check,
the dollar amount of charges to checking ac
counts provides a comprehensive indicator
of changes in over-all activity in local com
munities.
According to this measure of business ac
tivity, the region’s chief automobile manu
facturing centers led the parade in 1953.
In terms of percentage gain in checkbook
spending over 1952, the top five Midwest
metropolitan areas were located in the Mich
igan automotive complex.
In more diversified cities, the contrast be
tween 1952 and 1953 levels of activity was
less sharp. Among Illinois and Iowa metro
politan centers, for example, only Springfield
and Des Moines reported debits increases of
as much as 10 per cent. Smallest increases
appeared in those centers which most directly
serve agricultural areas.
Bank debits, although a very comprehen
sive measure, are not a perfect indicator of
current local business activity since some
checks are drawn in order to complete out-of
city transactions or to effect financial opera
tions such as the purchase of securities or the
transfer of funds. For example, Sioux City
reported the only 1953 decline in debits
among Midwest centers chiefly because of
lower prices paid for cattle sold in its market.
The smaller dollar volume of cattle payments
moving through the banks meant smaller
incomes, but primarily for the cattle growers
rather than the residents of Sioux City.
T
was poured at a rate equal to 120 million tons
per year, passenger cars were assembled at a 7.8
million yearly pace, and television sets were
turned out at a 10 million annual rate. These
production rates were far in excess of consumer
takings in any one year, and it was generally
understood at the time that they would not be
maintained for long.
Heavy output added to inventories at all levels
of business in spite of record sales and caused
many firms to embark upon a policy of liquida
tion. Attempts to run down inventories were
primarily responsible for the midyear turnabout
in industrial production and the continuing slide
in the second half of the year. The decline was
augmented by order cancellations and a cutback
in new commitments for military goods. In the
fourth quarter, national security expenditures
were running about 4.2 billion dollars per month
compared with a high of 4.6 billion in the second
quarter.
One of the most remarkable aspects of the
gradual downtrend in industrial activity after
the summer of 1953 was its universality. In the
final months of the year, every major manufac
turing category was operating at lower rates,
seasonally adjusted, than the highs for the year.
Most types of activity had hit top rates by the
end of the second quarter, but for a few lines
such as paper products and crude oil the peak
was reached in the late summer or early fall.
Durables m ark d ow nturn in M idw est
In part, the second-half decline in industrial
production could be explained in terms of the
changing seasonal patterns in such important
Midwest industries as automobiles and farm
machinery. But this was only a part of the story.
The edge of demand for most goods had been
dulled by the addition to the large output in
earlier postwar years of the record first-half vol
ume. In addition, optimistic production sched
ules in the early fall in such lines as automobiles,
appliances, and petroleum products resulted in
a further pile-up of stocks.
For the most part, the industries which ex
perienced the greatest declines in output in the
second half of 1953 were those which had en
joyed the swiftest rise from the previous year. In
general, these were the durable goods lines —
products which are long lasting and the purchase
of which may be postponed or accelerated as
conditions warrant. Included, in addition to the
major consumer items — automobiles, appli
ances, and furniture — are the machinery and
equipment purchased by business firms. These
industries characteristically show greater fluctu
ations than the total of all goods and services.
In the past few years, strong civilian demand
for durables has been supplemented by heavy
dependence of the armed services upon Mid
west factories for aircraft engines, ordnance,
military vehicles, and other supplies.
The Midwest has a very large share of the
metal-using, hard goods industries. This pre-emi
nence is built upon a reservoir of skilled work
men, central locations, and excellent transpor
tation facilities leading to raw materials and
markets. Although the five states of the Seventh
District include only 16 per cent of the nation's
population, they account for more than onefourth of U. S. production of durable goods.
Machinery, electrical goods, and transporta
tion equipment are particularly important cate
gories of manufacturing employment in the
Midwest. In Indiana, these classes accounted for
over 40 per cent of manufacturing employment
last spring; in Illinois and Wisconsin, it was 50
per cent; in Michigan, almost two-thirds. For
the nation as a whole, employment in these in
dustries amounted to about 28 per cent of the
total for manufacturing. The region includes
two-thirds of all automotive industry employ
ment and three-fourths of the farm implement
workers.
Autom obiles: During 1953, the important
automobile industry produced 6.1 million pas
senger cars and 1.2 million trucks — altogether
7.3 million vehicles. This was second only to the
8 million produced in 1950 and was 30 per cent
above the 5.6 million turned out in 1952.
In the first half of 1953, output of passenger
9
cars exceeded the same period in 1952 by 50 per
cent. Moreover, work on military contracts had
expanded substantially with the result that the
automobile cities — Detroit, Lansing, Flint,
South Bend, Kenosha, and certain other centers
— witnessed booming activity. This picture was
altered drastically in the second half as a result
of heavy dealer inventories and cutbacks in de
fense contracts. In November and December car
output fell to the lowest point since the steel
strike, about 70 per cent of the October rate,
partly as a result of model change-overs.
In the spring of 1953 a number of newly com
pleted Michigan plants designed for the produc
tion of tanks and aircraft engines were diverted
to other uses as contracts were scaled down
or transferred to other producers. Produc
tion of tactical vehicles was declining in the sec
ond half of the year, and all outstanding con
tracts were expected to be completed by the
middle of 1954.
Steel: The nation's steel capacity rose by al
most 7 million tons in 1953 to over 124 million.
Not all of this capacity was required toward
year-end as operating rates dropped well below
100 per cent. During the year 112 million tons
of steel were produced, well above the 1951
high of 105 million and 20 per cent more than
the 93 million for 1952.
The Chicago area's share of last year's pro
duction tonnage was 20.7 million, more than the
Pittsburgh metropolitan area. Despite gains in
steel capacity, the area surrounding Chicago and
Detroit continues to consume more steel than it
produces. Thus, operating rates in these cities
held closer to capacity than was the case for
older producing areas. In fact, very substantial
projects for increasing steel capacity in the De
troit area have been announced, mainly for the
production of types of steel used in large volume
by the automotive industry.
Electrical goods: Chicago, Milwaukee, and
Indianapolis along with some smaller Midwest
centers have an important stake in the electrical
goods industry. Until the final months of the
year, these firms continued to expand operations.
10
principally because of heavy defense orders and
the desire to stockpile sufficient television sets for
the fall market. Electronics constitute too vital a
component of modern military equipment to
allow much reduction in demand from that
source, but slow TV sales caused extensive lay
offs toward year-end. In the year, however, over
7 million TV sets were produced, compared with
6 million in 1952.
Farm machinery: Production of farm imple
ments in 1953 fell 7 per cent below the previous
year which, in turn, had failed to match record
1951. Production workers in the industry num
bered only 110,000 in late 1953 — 30,000 less
than a year earlier and 50,000 below the 1951
peak. Defense work and production of civilian
goods in other lines helped maintain employ
ment of some of the agricultural equipment
producers.
Inventories turn the corner
It is apparent that gains in output which are
based upon inventory growth can not be main
tained for long. The rise in inventories continued
into the third quarter, but a fairly rapid liquida
tion began in the fourth.
October was the first month to register an
over-all drop in business inventories, after a rise
of almost 5 billion dollars from the start of 1953.
By that time most appliance and TV set makers,
automotive and farm implement firms, and other
hard goods producers had been forced to cut
production as a result of accumulations of
stocks.
At year-end, dealers possessed over one-half
million new cars compared with about 300,000
on January 1. Dealers, distributors, and manu
facturers were reported to have two million T V
sets in stock, almost double the previous year-end
total. In the soft goods lines, apparel stores were
troubled during the fall with bulging stocks re
sulting from overenthusiastic sales projections
and the effects of warm weather on consumer
buying. Commissions in oil-producing states had
ordered reductions in allowable crude produc
tion because of large above-ground stocks.
H ard g o o d s show
largest output gains
p«r CMl chon9« , |»53 from 193*
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nond u ra b le go o d s
=□
in d u s tria l m a ch in ery
U
te x tile s
u
fo o d
1
1
ID
coal m in in g
fa rm
m a chin ery
ance in short-run business trends. When stocks
are building, demand exceeds purchases by final
users; when liquidation is under way, the reverse
holds true. As production falls, the process may
become cumulative because weekly hours are
reduced, layoffs occur, and consumer income de
clines. In addition the effects spread quickly to
nonmanufacturing activity. In the fourth quar
ter, railroads, for example, reported freight carloadings to be running 10 per cent below the
1952 period.
Inventories of hard goods manufacturers at
year-end appeared to be especially burdensome.
Holdings of these firms amounted to 57 per cent
of all manufacturers’ inventories in November
of 1953 compared with 49 per cent in June 1950.
It was in the durables lines also that the new
orders decline was most noticeable.
Department stores in large Midwest cities
ended 1953 with inventories 4 per cent higher
than at the beginning of the year, partly because
December sales did not match the 1952 figure.
Thus sales-stocks ratios declined despite very
cautious ordering throughout the fall. Larger
stocks were particularly marked in the apparel
and furniture departments.
G ro w th in plant capacity
From July on, manufacturers’ sales declined
on a seasonally adjusted basis until by November
they were 7 per cent below the spring peak. Although the rate was still higher than in previous
years, an ominous note had been introduced by
the fall slump in new orders which continued to
run 10 per cent below the reduced level of sales
from August through November.
Even firms which did not consider inventories
“too high” in relation to sales were tempted to
reduce their investment in stocks as a result of
growing expectations of price concessions and
the ready availability of supplies. Deliveries had
accelerated to the point that many orders were
ready for shipment ahead of schedule, and firms
which had been buying 60 to 90 days or more
ahead could revert to a 30-day basis.
Inventory movements are of special import
Expenditures of business firms on new plant
and equipment reached a new record high in
1953 for the fourth successive year. The year’s
28 billion dollar outlay brought the total for the
1950-53 period to 100 billion dollars—almost 43
billion of which was for manufacturing facilities.
Steel ingot capacity rose from 100 to 124 mil
lion tons during this period and surpassed the
original goals set in 1950 when the enlarged de
fense program was launched. Petroleum product
capacity increased by over 20 per cent, and
electric power capacity rose to 90 million kilo
watts from 66 million in 1950. Virtually all
other producers of raw materials reported sub
stantial gains.
Most industries were slowing capital outlays
in the fourth quarter of 1953, thus ending the
continuous upward sweep since 1950, and sur11
O rder backlogs declined as sales
of durable goods producers
outran new business
Mllkoo dollar*
billion dollar*
veys indicated a moderately reduced level of
capital outlays for the early months of 1954.
Construction contract awards for commercial
and manufacturing buildings in the Midwest
were at a high level in the second half of 1953,
and public utility and commercial expenditures,
buoyed up principally by electric power and new
shopping centers, appeared likely to expand
further. But the much larger segments — manu
facturing, mining, and transportation — doubt
less had passed their peaks.
Unfilled orders for various types of capital
equipment had largely melted away by year-end.
Machine tool backlogs which amounted to 23
months of sales at their peak in 1951 were down
to less than six months. New orders for machin
ery of all types fell by one-third between April
and November. Almost 70,000 freight cars had
been on order early in 1953, but by October this
figure had been worked down to 31,000.
Prices steady, profit margins narrow
Throughout 1953, the general level of
prices showed continued stability despite pro
nounced movements in other measures of eco
nomic change. There were, of course, declines
12
in some sectors which were offset by increases
elsewhere, but sharp changes were relatively
rare. Only a few significant price increases
were posted after the ending of controls in the
spring of 1953, indicating the degree to which
supplies had improved relative to demand.
Average wholesale prices closed the year at
almost exactly the same level as at the start,
although there were diverse trends within the
aggregate. Farm products had slipped about 6
per cent, while most manufactured goods had
risen slightly under the influence of high-level
demand and the steady push of rising labor
costs. By the fall of 1953, prices received by
farmers were back to the pre-Korea level
and were showing signs of stability due in part
to the effects of Government programs on sup
ported commodities.
Consumer prices were slightly higher than in
1952, but the over-all picture continued to be
one of stability as in the past two years. Food
costs were down a little, but rents increased
substantially in areas such as Detroit and Chi
cago which were recently decontrolled.
Prices of manufactured goods did not
weaken appreciably in the fall despite overample supplies of many items. Raw materials
The price level showed great
stability through the year
or co at, 194 7 -4 9* 100
p
for industrial use which had spurted so sharply
after the beginning of the Korean war were
substantially deflated before 1953 began, al
though steel scrap, natural rubber, and most
nonferrous metals experienced substantial de
clines during the year.
Some reduction in production costs were
realized as 1953 drew to a close. Some firms
were benefiting from the cessation of pur
chases of premium-priced foreign or “conver
sion” steel. Others were able to withdraw aged,
high-cost equipment from use as orders de
clined. Unit costs in most manufacturing lines
were reduced as a result of less overtime and
the elimination of marginal workers.
Profit margins were already narrowing in the
third quarter either because of price conces
sions or, more often, reductions in volume.
Nevertheless, corporate profits before taxes
for 1953 were estimated to have been close to
the record total of 43.7 billion dollars in 1951
which was about 10 per cent above the 1952
figure. After taxes, profits of almost 20 billion
dollars were not far from record totals.
Agriculture — a " s o f t " spot, but there w ere sign s
of sta b ility a t year-end
W h i l e m o st seg m en ts o f th e e co n o m y co n tin u ed
to set new re c o rd s w ell in to th e y ea r, a g ricu ltu re
w as e x p e rie n c in g fu rth e r d ow nw ard a d ju stm en ts
in
p rice s
and
re a c h e d in
1951.
in c o m e
fo llo w in g
th e
p eak s
A t th e c lo s e o f th e y e a r, farm
p ro d u ct p rice s w ere o ff 6 p er c e n t fro m a y e a r
e a rlie r, and la rg e su p p lies co n tin u ed to w eigh
h ea v ily o n c o m m o d ity m a rk e ts.
Many farmers had reduced their spending for
machinery and new buildings from the high
levels o f other recent years. Land values, which
had turned down about mid-1952, continued a
slow steady decline throughout 1953, and the
value of cattle on farms had declined sharply.
Despite reduced capital expenditures and a
shrinkage in value of land and some other assets,
farm debts showed a further moderate increase.
Thus, the financial position o f agriculture deteri
orated somewhat in
but still remained
generally strong at year-end. Farm product
prices had dropped to
per cent of parity for
the first time since
Farmers’ realized net
income, about
billion dollars, was
per
cent below the 1951 peak and approximated the
and
levels.
The downtrend in prices came to an end, at
least temporarily, in the closing months o f the
year and gave rise to hopeful suggestions that
1953,
12.5
1945
90
1940.
1950
15
the readjustment of agriculture to a “peacetime"
economy had been largely completed. But with
over 5 billion dollars of agricultural commodi
ties owned by the Commodity Credit Corpora
tion or under price support loans, agriculture
geared to a large volume of production, foreign
markets showing only very limited signs of re
covery, and some indications that domestic de
mand might weaken, there was still considerable
concern in many rural communities.
M idw est in favo re d position
The adjustments taking place in agriculture,
however, promised to be less severe in the Mid
west than in a number of other areas. The rural
economy of this region is oriented primarily to
the production o f livestock commodities which,
for the most part, are sold on the domestic mar
ket. The key factor, therefore, is the buying
power of American consumers, and this had re
mained strong throughout the postwar years.
The nation’s farmers grossed about 30 billion
dollars from sales of farm products in 1953, 7
per cent less than in the previous year. Both
crops and livestock provided less income than
in
Midwest farmers fared relatively a little
better. Grossing nearly 6.9 billion, they came
within
per cent of equaling their previous
1952.
5
13
Prices of most Midwest
farm commodities moved to
lower levels in 1953
JO-
p«r c«nt chong*, docom bor 1 952 »o dtcem ber 1953
_________ » I0
T“
-= P -
c a lv e s
b e e f c a ttle
b a rle y
la m b s
sheep
m ilk
o a ts
co rn
b u tte r f o t
•heat
fa rm c h ic k e n s
beans, d ry e d ib le
tu rk e y s
wool
soybeans
eggs
ho gs
year’s sales. Their share of the national total,
nearly 23 per cent, showed a modest increase
over that of the previous year. This relatively
favorable showing occurred despite the heavy
decline in prices of cattle, which are second only
to hogs as a source of farm income in the Dis
trict.
A further favorable factor in District agricul
ture, as compared with several other areas last
year, was the weather. Whereas drouth visited a
number of important agricultural regions during
the growing season, it did not call on the Mid
west until most crops were ready for harvest.
Adjustm ent in cattle
The nation’s total output of agricultural com
modities in 1953 was maintained at the record
rate set in the previous year — about 45 per cent
above the prewar, 1935-39, average. In the Mid
west, however, total production was slightly
smaller than in the preceding year.
14
The major source of adjustment in Midwest
agriculture in 1953 was in the cattle business.
Farmers and ranchers marketed cattle in record
volume. Total slaughter was large enough to
bring to a halt the rapid build-up in herds which
had been under way since 1949. With about
one-fourth more cattle slaughtered than in 1952,
prices were down sharply. And as prices of
slaughter stock slipped, expected profits from
cattle feeding evaporated, and losses were
chalked up by many farmers on this phase of
their business.
Illinois cattle feeders, for example, recovered
less than half of the value of feed used in their
1952-53 cattle-feeding activities. Normaliy farm
ers must have a return of about $1.20 for each
dollar of feed if all costs are to be covered. As a
result of losses experienced in the past two years,
farmers have purchased fewer cattle for the
1953-54 feeding season. The number on feed at
year-end was down 9 per cent from a year earlier
in the nation and 15 per cent in Iowa—the lead
ing state.
Hogs, the major source of farm income in Illi
nois, Indiana, and Iowa, provide a different
story. Prices averaged well above the 1952 level
and, although the number raised was down
about 10 per cent from the previous year, in
come from sales of hogs increased. Under the
stimulus of high prices, farmers were expanding
hog production at year-end.
Another bright spot in the picture was pro
vided by poultry and eggs. Prices of these com
modities generally ranged about equal to or
above year-ago levels and, with lower feed costs,
returns were generally favorable. Eggs and
chickens were produced in record volume, but
the turkey crop was smaller than in the previous
year.
Milk production was increased moderately
as farmers added to their dairy herds, but since
prices averaged well below 1952, income from
dairy products declined.
Crops usually provide less than one-third of
fanners’ cash receipts in District sales and gen
erally were sold at lower prices than in the
previous year. A large volume of marketings,
including part of the previous year’s large har
vests, was instrumental in maintaining receipts
at about the 1952 level.
Production of crops in District states is im
portant primarily as a source of raw materials
for the livestock industry. In this respect, of
course, corn is king. Although grown on nearly
every District farm, corn provides cash income
on less than 30 per cent of them. Its relative un
importance as a cash crop, nevertheless, does not
diminish its significance to the area.
The 1953 harvest totaled 3,177 million bush
els and was moderately smaller than in the
previous year. But with fewer hogs and cattle
being fed, part of the crop will be placed under
CCC price support loan. The Commodity Credit
Corporation owned or had under loan more
than half a billion bushels at the end of Novem
ber, and stocks continued to accumulate.
The soybean and wheat harvests, although
making “good” yields, nevertheless turned in a
smaller total volume than in the previous year.
Here again, however, stocks are large, prices are
off, and the price support program is playing an
important role.
C a sh receipts from farm
marketings d ropped below the 1952
level in all District states
b illio n d o llars
Agricultural exports in 1952-53 were off
nearly one-third from the record volume of the
previous year, wheat and cotton bearing the
brunt of the decline. In part, the sharp drop in
exports was due to good crops throughout the
world’s major producing areas. The abundance
of supply erased concern about inventories for
future needs, with the result that there was a
willingness to draw down previously accumu
lated stocks in some parts of the world. The
sharp drop in U. S. exports reflected also the
high level of domestic price supports which
tended to price our commodities out of world
markets.
Although exports do not account for a large
part of District agricultural commodities, except
for soybeans and lard, and to a lesser extent,
com. Midwest agriculture feels repercussions
from any contraction in demand for commodi
ties produced in other areas. This may be ex
pected to show with even greater force as wheat
and cotton acreages are cut back and land in
others areas is diverted to soybeans, feed crops,
and livestock.
Land values slip
After moving up about 25 per cent from mid1950 to mid-1951, under the speculative upsurge
associated with Korea, land values held about
steady until mid-1952, when a decline began
which continued through 1953.
Mid-1930
to
Korea peak
Korea peak
to
November 1953
(per cent change)
Illinois ............... ........ + 3 2
-8
Indiana ...................... + 3 3
—7
Io w a .................. ........ + 2 5
—8
Michigan ..................... + 2 6
—3
Witconiin ........... ........ + ' 8
—7
U. S. ................. ........ + 2 7
-6
The descent thus far has been rather gentle.
While there is no indication that land values will
decline as rapidly as they advanced in the initial
part of the recent upsurge, there is every indica
tion that the direction of movement will continue
downward at least until the decline in farm
product prices and income has run its course.
Farm mortgage debt continued its postwar
uptrend in 1953 and, along with developments in
credit markets generally, is carrying a somewhat
higher interest rate than in other recent years.
Although real estate transactions typically in
volved more credit relative to sales value in 1953
than at any time in the postwar period, the farm
mortgage debt situation continues generally
favorable. Total mortgage debt is still at a low
level relative to either land values or the current
level of farm income and even in drouth-affected
areas continues to be serviced with only very
few delinquencies. Farm mortgage foreclosures
remain almost nonexistent across the country
side.
Reflecting the heavy load of short-term in
debtedness which some farmers had accumu
lated in recent years, there was a nominal volume
of refinancing of short-term debts into longerterm farm mortgage debt in 1953. This barom
eter of financial stringency in agriculture, how
ever, gave no positive storm warning in Corn
Belt states.
Short-term debts of farmers declined moder
ately over the past year. The decline reflected
primarily the trend of cattle prices and the vol
ume of feeder cattle purchased in areas where
cattle feeding is an important activity. Iowa and
Illinois farmers, for example, reduced their
short-term bank borrowings about 27 and 23 per
cent, respectively. A related factor, no doubt,
was the reduction in purchases of new farm ma
chinery in 1953. In other Midwest states, how
ever, where cattle feeding is less important,
farmers are using about the same amount of
short-term credit as a year ago. Delinquencies on
short-term farm loans have increased somewhat,
as indicated by a rise in the number of renewals
and extensions. The financial position of farm
ers, nevertheless, remained generally strong at
year-end.
A go o d year for consumers
Wages and salaries rose by about 8 per cent
nationally between 1952 and 1953, a consider
ably larger relative gain than that shown by
other types of personal income. The decline in
farmers’ net income offset to a large extent
higher returns from dividends, unincorporated
businesses and other nonwage sources.
The largest income rise was posted by man
ufacturing workers because of a 5 per cent
increase in average weekly earnings and a
similar rise in the number of workers employed.
Mainly, these increases were concentrated in
the durable goods lines. As a result most Mid
west cities enjoyed an even larger year-to-year
incbme gain than did the nation as a whole.
Employment joined the long list of new rec
ords. Unemployment, moreover, averaged the
lowest in the entire postwar period. But the situ
ation was changing rapidly at year-end.
In September and October, unemployment
16
was estimated nationally at only 1.2 million in
spite of the widely held belief that 2 million
represented a virtually irreducible peacetime
minimum. In December, however, the number
had jumped to 1.9 million despite increased
seasonal hirings by trade and service firms.
Unemployment compensation claims dropped
to a low ebb in June, but a substantial rise oc
curred in the second half. District states reported
insured unemployment to be up more sharply
than was the case for the nation as a whole.
Decem ber 27, Jun e 27, Decem ber 26,
1952
1953
1953
(In thousands)
United States
Illinois
Indiana
Iowa
M ichigan
Wisconsin
1,005
43
16
5
26
14
S O U R C E : U . S. D epartm ent o f Labor.
852
53
16
4
20
10
1,711
92
47
15
93
42
In August manufacturing employment in the
nation stood at a peacetime high of 17.3 million.
By December this number had fallen over 5 per
cent, and layoffs continued. During this period
manufacturing wages and salaries dropped by
almost 6 per cent.
The increase in unemployment in the late
months of 1953 was largely confined to un
skilled factory workers in durable goods indus
tries, but some skills formerly in short supply
were no longer so classified. In most centers,
even those in which layoffs were important,
office workers continued to be hard to recruit.
Midwest centers had been among the tightest
labor markets in the nation in the first half of
1953, but this position was relinquished as the
year wore on. Manufacturing employment in
durable goods lines was particularly strong.
Michigan cities recorded the greatest gains from
1952, as manufacturing employment in that
state rose by over 16 per cent in the spring
over the same months in 1952 when allocations
had cut auto output.
By September, Detroit reported one of the
highest unemployment rates in the nation. The
number of jobless had moved up from 20,000
in the spring to 75,000 in the fall — about 5
per cent of the labor force. There was no fur
ther rise to year-end, however.
Cities specializing in farm machinery such
as the Davenport — Rock Island — Moline
area and Racine, together with some smaller
centers, encountered rising rates of unemploy
ment as production was cut back to reduce
swollen inventories.
Milwaukee manufacturing employment
dropped to 10,000 below the year-ago figure in
November and unemployment rose from 6,000
to 16,000. The dependence of this city on capital
goods industries and motor vehicles caused ap
preciable loosening of the labor market after
the summer peak in jobs.
Chicago, because of its diversified indus
tries, remained one of the tightest major labor
markets in the country. Even in Chicago, how
ever, there was a general, if moderate, softening
at the end of 1953. Unemployment compensa
tion and relief claims moved up as layoffs
occurred in farm machinery, television, and
other hard goods lines.
Indianapolis, like Chicago, continued to ex
perience an active demand for workers. Manu
facturing employment in November equaled the
year-ago figure.
Unemployment totals remained lower than
might have been indicated by reports of fac
tory output cutbacks. Some of those laid off
found jobs readily in fields which had been
understaffed. Of considerable importance also
in mitigating unemployment was the shorten
ing of work weeks in manufacturing.
The average week nationally declined to
about 40 hours from 41 hours earlier in the
year. The result was that average weekly earn
ings in the fall were the lowest for the year
despite a continuing rise in basic wage rates.
“Overtime” which had added significantly to
factory workers’ take-home pay was rapidly dis
appearing. In Midwest states the amount of
overtime work had been greater than in the
nation generally. The work week had averaged
42 hours; consequently, the reduction to 40
hours or less had a proportionately greater im
pact on take-home pay.
Autos pace retail trade
The volume of retail trade in most lines and
in virtually all District centers broke all rec
ords last year. Nationally, total retail sales
topped the 1952 volume by 4 per cent. Reasons
for this are not hard to find. Consumer income
was substantially higher than in 1952, prices
were relatively stable, and the selection of all
kinds of merchandise was the widest ever.
Although new sales records were common
last year, gains from 1952 were generally
modest in both soft goods and durable lines.
Automobile dealers, whose sales volume rose
sharply on the crest of a spectacular increase
in new car purchases, were the main exception
to this pattern. Nationally, 1953 sales and the
per cent change from the previous year for
17
selected kinds of retail stores were as follows:
1953
(b illion d ollars)
Autom otive g ro u p
Ga solin e stations
Food g ro u p
Hom efurnishings stores
G e n e ra l m erchandise
stores
D ru g stores
Lum ber a n d h a rd w a re g ro u p
A p p a re l stores
P e rcen t
change
33.5
10.5
40.9
9.1
-1-18.2
+ 5 .7
+ 2 .8
+ 1 .9
19.0
4.8
13.5
10.3
+ 1.5
+ 1.4
— 1.5
-3 .0
Sales of general merchandise did moderately
better in most District centers than in the na
tion, reflecting the generally larger increases in
employment and income in the Midwest last
year. Judging from department store volume,
however, changes in sales varied substantially
among individual centers (see chart). Led by
the 18 per cent larger volume in Flint, Mich
igan cities showed by far the largest year-toyear sales gains. Seven of the ten largest
increases in the District occurred in Michigan
centers. Sharp increases in wage and salary in
come, resulting from the upsurge in auto out
put, obviously were responsible for this
favorable showing.
Other cities showing larger than average
gains in department store trade were Fort
Wayne, South Bend, and Indianapolis — all
heavily industrialized centers. Despite substan
tially higher personal income payments, sales
volume in the Chicago and Milwaukee areas
increased only slightly in 1953. The continued
trend toward suburban shopping and aggres
sive competition from specialty stores, how
ever, may have adversely affected department
store trade in these and other major metropol
itan areas.
In most Iowa cities, department store sales
were no better than in 1952, reflecting the
decline in farm incomes and the relatively
greater dependence of these areas upon agricul
ture. Manufacturing layoffs and uncertainties
concerning the job outlook contributed to a 4
per cent decline in the Quad Cities area—where
industrial activity is heavily concentrated in pro
18
duction of farm machinery and equipment.
Autom obile soles jumped sharply in all
areas last year, however, and this probably ex
plains the modest advance in general mer
chandise sales relative to personal income.
Nationally, new car registrations from January
through November ran 42 per cent ahead of
the same period in 1952. For the year they
totaled about 5.8 million units, second only to
the 6.3 million new cars purchased in 1950.
Unit sales of used cars were also well ahead
of 1952, but because of sharply lower prices,
dollar volume was probably about the same
as in the previous year. Despite the lagging
used car volume, the gain in sales o f automobile
dealers nationally accounted fo r about threefourths o f the rise in total retail sales last year.
Thus, much of the increase in consumer buying
power was channeled into the automobile mar
ket rather than the general merchandise lines.
The upsurge in new car purchases in most
District centers was even sharper than in the
nation generally. All metropolitan areas showed
substantial gains, and in three-fourths of the
District cities the percentage increase was
larger than the national average (see chart).
The pattern of relative changes less clearly
distinguishes between the different types of cen
ters than was the case with department store
sales. In part this results from the fact that
the percentage gains in all but four of the
areas fell within a rather narrow range — from
40 to 55 per cent.
The uniformity of gains in new car registra
tions in all areas points up the fact that sales
were limited because of inadequate supplies in
1952. Nevertheless, the expansion last year
represented considerably more than a recovery
from the artificially depressed level of the pre
vious year. Nationally, new car registrations
in 1953 were about one-eighth larger than in
1951 — when new cars were generally in good
supply — and all District centers except South
Bend, Racine, Waterloo, and Cedar Rapids
showed sizable increases from the 1951 unit
volume. Substantially higher incomes, the ab-
Retail sales topped previous year
Department stores showed gains
in most District cities
New car registrations increased
sharply in all metropolitan areas
p«r cent chonge, 1 953 from 1 9 3 2
1933 fro m 1952
_±i2___ ±15___ ±*Q
------------
4£-----y ------------»?
Flint
F o rt Woyne
S a g in a w
In d ia n a p o lis
D e tro it
Q u a d C ities
L o o s in g
Grand R a p id s
S ou th B e nd
P e o ria
Ja ck s o n
De s M oin e s
C h ic ag o
S io u x C it y
R o ck fo rd
Te rre H a u te
M ilw a u k e e
K a la m a zo o
an„Msr0,M
C ed a r R a p id s
J
____ ______ _________________
Madison
W a te rlo o
S p rin g fie ld
_
~~
|
SOURCE: R. L. Polk & Com pany
19
sence of Federal restrictions on credit terms,
and the intervening year of relatively light pur
chases contributed to this increased level of
sales. In addition, many dealers, hard pressed
to move mounting stocks of cars, turned to in
creasingly aggresive sales techniques and at
tractive trade-in allowances or cash discounts
as the year progressed.
Instalment debt continues to mount
Extension of credit plays an important part
in the sale of most consumer durable goods.
Well over half the new cars, two-thirds of the
used cars, and a major share of the furniture,
“big ticket” appliances, and television sets
bought in 1952 were financed in part through
the use of credit. Therefore, considering the
sharp rise in new car sales and the moderate
increase in sales of most other types of dur
able goods which occurred last year, it is not
surprising that total consumer instalment debt
continued to mount.
By the end of 1953, consumer instalment
debt totaled about 22 billion dollars. This was
more than 3 billion dollars larger than a year
earlier, and about 7 billion greater than at
the time Regulation W was suspended in May
1952. The increase in 1953 was considerably
smaller than in the previous year, however,
despite the greater dollar volume of durable
goods sales. Although automobile credit ex
panded more than in 1952, the growth in all
other types of instalment debt was smaller (see
chart). Moreover, the increase in debt during
the second half of 1953 was sharply lower
than during the first half and amounted to
only a third of the gain in the same period a
year earlier.
In part, the slower rate of growth in re
cent months reflects a falling off in the use of
credit in financing purchases of durable goods.
In the latter part of 1953, credit extended on
consumer durables other than cars was an
eighth lower than a year earlier, although total
sales of such goods were maintained at about
the same level. Automobile credit extensions
20
in the July-November period were 5 per cent
greater than in the same months of 1952. Since
sales of automobile dealers jumped 22 per cent
in the same period, it is clear that a smaller
proportion of consumer expenditures for cars
involved credit. Stiffer credit standards on the
part of many lenders may have played a part
in this development.
Equally important in the smaller credit ex
pansion since midsummer has been the rising
trend in the volume of repayments. During the
fall, repayments were running 12 per cent
larger than a year earlier on automobile debt
and 8 per cent higher on debt incurred for the
purchase of other consumer goods. Reasons
for the rise in repayments are twofold. First,
monthly servicing charges on instalment con
tracts have expanded with the rapid growth in
total indebtedness since the spring of 1952.
Second, the marked relaxation of credit terms
which occurred following the suspension of
Regulation W has extended the length of time
before final repayments are made on contracts
written since then.
Based upon instalment contracts written in
the past, repayment volume changes more
slowly than does the volume of new credit exInstalm ent debt on automobiles
expanded more last year than in 1952
m illion d
+ 2 ,4 0 0 '
tensions. Thus, the level o f repayments has
lagged behind new credit extensions during the
past period of rapidly rising indebtedness but,
by the same token, would continue in heavy
volume for some time after new credit exten
sions have fallen off. The main economic sig
nificance of this is that credit provides
additional purchasing power to consumers —
mainly for purchase of durable goods — while
indebtedness is rising, but diverts a portion of
current income to contractual repayments when
indebtedness turns downward.
H om e -b u ild in g activity varies
w id ely, but most District centers
gain over 1952
-3 0
per cent change in number of perm its issued,
jonuary-novem ber, 1953 from 1932
-2 0
-10
0
+10
+20
+30
L a n s in g
F l i n t 11
G ra nd R a p id s *
C h ic a g o
H om e building Holds in high volum e
Des M cnnes*
Residential construction continued at a fast
pace in most communities last year. Nationally,
work was begun on 1.1 million new dwellings
— the fifth consecutive year in which housing
starts exceeded the million mark. The 1953
total was 25,000 units less than in the pre
vious year due to a sharp drop in public
housing. Private starts numbered about the
same as in the year before, and expenditures
for private residential construction, at 11.9
billion dollars, were 7 per cent higher than in
1952.
Changes in the volume o f private home
building, as evidenced by the number of resi
dential building permits issued, varied widely
among D istrict centers. In 11 o f 20 Midwest
metropolitan areas, housing starts increased
substantially last year. These included all but
one o f the reporting Michigan cities and the
major District centers — Chicago, Detroit,
Milwaukee, Indianapolis, and Des Moines. In
Kenosha and the Quad Cities area, on the other
hand, home-building activity dropped sharply
as local employment conditions worsened dur
ing the year. Starts in four other areas were
also down moderately, while little change oc
curred in Fort Wayne, South Bend, and Sag
inaw.
Significant differences in the pace o f build
ing among areas are to be expected, since both
the demand for and supply of housing are es
sentially local in character. Moreover, the long
D e tro it
In d ia n a p o lis
K a la m a z o o *
M ilw aukee
G re e n
B ay*
C e d a r R o p id s *
Fo rt W a yn e *
Sou th Bend
U n ite d S t a t e s (p riv a te ho usin g s to rts )
S a g in a w *
M a d is o n *
S io u x
C it y *
W a te rlo o *
R a c in e *
Quad C it ie s *
Kenosha*
‘ E x clu d es som e o u tly in g p laces in the m e tro p o lita n a re a fo r
w h ic h b u ild in g p e rm it d a ta a re n ot a v a ila b le .
21
useful life of most types of housing means
that new building in any one year is a relatively
minor proportion of the total housing supply.
Thus, small changes in the demand for housing
may result in large fluctuations in new con
struction.
The fast pace of business activity obviously
contributed to and was an essential ingredient
in the favorable showing of home building in
most District centers last year. In addition,
however, construction activity is influenced by
a variety of other local factors, such as inmigration of families, the level of building in
earlier years, and the character, location, and
condition of the area’s housing inventory.
Thus, although the population of the Chi
cago metropolitan area is nearly twice that of
the Detroit area, housing starts in the two
centers have been about equal during the post
war years. In large part, this reflects the much
heavier in-migration of workers to the Mich
igan city. On the other hand, Chicago has been
one of the strongest major housing markets in
the nation in the past year, as the demand for
new and better housing on the part of its
resident population continued strong. In ad
dition to the relatively small proportion of new
housing added since the War, recent strength
in the Chicago market reflects the movement
from congested areas to the suburbs and from
rental to purchased dwellings, as well as the
older character of its existing housing inven
tory.
Mortgage credit: It seems clear that the
marked relaxation of credit terms on new
housing, which followed the suspension of Reg
ulation X and comparable restrictions on VAand FHA-insured loans in September 1952,
contributed importantly to the maintenance of
a large volume of home building last year.
Down payment requirements were generally
reduced appreciably for both conventional and
insured loans, and secondary borrowing to
finance down payments was again permitted.
At a later date, in the spring of 1953, contract
maturities on Federally-aided loans were ex
22
tended from 20 to 25 and in some cases to
30 years. As a result, the number of prospec
tive buyers entering the market for new houses
increased.
Reflecting the rise in interest rates on all
types of investments, most lenders increased
rates on conventional mortgages in late 1952
or early 1953, generally by
per cent.
Many lenders also took the opportunity af
forded by the plethora of investment outlets
to tighten credit standards on mortgage loans.
More rigorous tests regarding both the finan
cial capacity of prospective borrowers and the
character of property offered as collateral were
commonly adopted.
As interest rates advanced, fixed rate FHA
and VA loans became progressively less at
tractive to lenders as compared with conven
tional mortgages and other investment outlets.
Consequently, the proportion of total new hous
ing starts financed with these types of mort
gages dropped steadily through the winter and
spring. Moreover, many project builders com
plained that commitments for future FHA and
VA loans on proposed construction had be
come difficult to obtain, even at substantial
discounts from face value of the mortgages.
In May, interest rates were increased Yi per
cent on the 4 per cent VA loans and lA per
cent on the 414 per cent FHA loans. The pro
portion of housing starts financed with in
sured loans promptly increased to about its
earlier level, although such loans are reported
to have continued to sell at discounts through
most of the year.
Beginning in early fall, mortgage funds be
came easier to obtain in most District centers.
The principal factors accounting for this
change have been a continuing heavy inflow
of savings to financial institutions, a moderate
falling off in the volume of mortgage loan
closings, and a decline in the amounts of cor
porate and municipal security flotations. In
terest rates on corporate, municipal, and Gov
ernment securities have declined moderately,
while mortgage rates have remained at the
higher level established early in the year. Thus,
at year-end, the increased attractiveness of
mortgage yields and the reduced demand for
credit generally pointed to prospects fo r an
ample supply o f mortgage funds to meet the
needs o f Midwest home builders and buyers.
Savings g ro w th accelerated
Despite higher retail sales and moderately
larger expenditures for new housing, individuals
added considerably more to their savings bal
ances last year than in 1952 or any other postwar
year. Savings accounts in Seventh District mem
ber banks and in insured savings and loan associ
ations in the five-state area increased by over
900 million dollars in the first 11 months of
1953, 11 per cent more than in the same period
of the preceding year. The gain was larger than
in 1952 in every District state, with Iowa show
ing the largest and Illinois the smallest increase
relative to total balances.
As in the nation, however, additions to share
account holdings bulked larger than time deposit
gains. In fact, the inflow of savings to insured
associations in this region increased by nearly
one-fourth, while time deposits of member banks
grew moderately less than in the previous year.
The greater success of savings and loan associa
tions in attracting new savings is vividly illus
trated in Chicago, where insured associations,
holding only two-thirds as much in savings bal
ances as do banks, experienced a savings inflow
twice as great.
N e t savings inflow
Per cent
1952
1953
change
A ll C h ic a g o Banks
C o o k C o u n ty insured
savings a n d loans
(m illion d ollars)
130
110
200
243
-1 5
-|-2 2
Nationally, net new savings in the form o f time
deposits at commercial and mutual savings
banks, savings and loan association share ac
cou n ts, and G ov ern m en t secu rity holdings
amounted to about 10 billion dollars last year,
up from 7.7 billion in 1952. In addition, equities
in life insurance policies increased about 4 bil
lion dollars, m oderate
additions were made to
holdings o f cu rren cy
S a v in g s g ro w th exceeded earlier years in 1953
and dem and deposits,
and a near-record vol
ume of corporate and
municipal securities was
purchased by individu
: |
19 52
als, pension funds, and
□
1 9 5 3 (e s tim a te d )
nonprofit institutions.
All major types o f fi
nancial institutions ex
perienced a larger sav
ings inflow than in ear
lier years (see ch art).
By far the most striking
change in trend, how
ever, occurred in G ov
ernment security hold
ings. In d iv id u als in
creased their holdings
by about 1.7 billion dol
g o ve rn m e n t
life insurance
co m m e rc ia l bank
savin gs and lo on
m u tu a l savings
equities
tim e deposits
securities
bank deposits
shore accou n ts
lars, the first sizable gain
23
S a v in g s account h o ld in gs increased
more in 1953 than in the previous year
N e t increase
first 11 months of
1952
1953
Estimated
total holdings
D ecem ber 1953
343
383
4,800
.....................
222
243
2,720
........................
112
127
1,370
...............
107
113
1,250
Io w a ..........................
43
54
530
827
920
10,670
365
347
6,830
462
573
3,840
Illinois
..........................
M ichig a n
In d ia na
Wisconsin
To ta l:
............................
M e m b er banks . . .
Insured savings and
lo an associations
N o t* : S a v in g s occount h o ld in g s include tim e deposits of S e v
enth District m em be r b an ks a n d share accounts o f insured
sa vin g s a n d lo o n associations.
since 1949. In part the expansion resulted from
an improvement in the savings bond program.
In the E and H bonds, sales volume increased
substantially more than redemptions last year,
reflecting greater participation in the payroll
savings plan, increased limits on the maximum
purchase permitted in any one year, and the in
troduction of moderately higher yields in mid
1952.
Individuals reduced their holdings of F and
G bonds again in 1953 as large blocks purchased
during the War reached maturity. Most of these
bonds were held by large investors, however, and
it seems probable that much of the proceeds have
been reinvested in marketable Government se
cu rities— especially the new 3 Vi per cent 30year bond issued last spring. Substantially higher
yields and increased uncertainty concerning the
future course o f stock prices also may have con
tributed to a sharp gain in individual holdings of
marketables during the year.
By the end o f 1953, personal holdings o f
liquid assets in the form o f demand deposits,
time deposits, share accounts, and Government
securities totaled in excess o f 200 billion dollars.
This is four times the amount o f such balances
in 1939 and one-third larger than in 1946.
Many regard these tremendous liquid asset
balances as a potential source o f purchasing
power which can be tapped to help sustain re
tail sales volume if personal incomes decline.
While there is no question but that such holdings
strengthen the over-all financial position o f con
sumers, their influence in supporting current
levels of expenditure may be exaggerated.
In the first place, liquid asset balances are
highly concentrated. Over 90 per cent of all such
liquid assets were held by the top 30 per cent of
the nation’s spending units at the beginning of
1953, according to findings o f the Survey of
Consumer Finances. Second, relatively few of
the workers most likely to suffer loss of their jobs
or significant reductions in weekly pay during
any business downturn hold sizable liquid asset
balances. Only about one-fifth o f the unskilled
and service workers and one-third o f all skilled
and sem iskilled w orkers rep orted holdings
amounting to $500 or more in early 1953. F i
nally, uncertainties as to job security probably
would lead many families to strive to reduce
spending and add to their savings in periods of
business recession.
Credit m arkets a n d credit policy
T h e v a s t f l o w s o f s a v in g s into 1953’s finan
cial markets were matched by equally striking
totals of demands for investible funds. State and
municipal authorities floated the largest volume
of new offerings on record, up more than onethird from 1952. Well over one billion o f the 5.5
24
billion total was in the form o f revenue bonds
to finance toll road and toll bridge construction.
Corporate security issues for new money climbed
to a figure challenging the peak total of 1952.
A halving o f new offerings by manufacturers
and railroads was nearly offset by moderate in
creases in commercial, communication, and
utilities issues and a trebling of offerings by
financial concerns desirous o f bolstering work
ing capital positions.
The Federal Government, too, was making
heavy net demands. The Treasury in 1953 initi
ated more new cash offerings than at any time
since the days o f World W ar II finance. Un
avoidable borrowing needs were created by the
smaller than expected volume of receipts in the
first half of 1953 and by the 8.1 billion seasonal
deficit that materialized as anticipated in the
fall. Such borrowing took on increased signifi
cance under the Treasury policy of lengthening
the maturity o f its debt whenever such action
seemed practicable.
Added to all the above demands for longerterm funds was the total of residential mortgage
requests that flowed into lending institutions
without interruption as the year progressed. Indi
vidual demands also impinged upon the shorterterm credit market in the form of applications
for instalment credit.
Agricultural credit needs continued to grow,
due almost entirely to direct or indirect bank
acquisition of price support loans guaranteed by
the Commodity Credit Corporation. The only
m ajor type of credit which did not evince sub
stantial growth was short-term credit to business.
The need for fle x ib ility
The funneling o f all these credit demands into
the financial markets did not proceed evenly.
There was little automatic conformity with the
regular inflow of nonbank investible funds and
with the seasonal changes in bank lending
ability. Resolving such differences required flexi
bility and responsiveness in the market forces of
supply and demand. The objective of the Federal
Reserve System was to assure that such responses
were not in conflict with the basic interests of
economic stability and growth.
Federal Reserve policy operations in 1953
were complicated by three related developments.
The balance o f demands for and supplies of
credit appeared to shift during the year, from a
N et reserve position of the
banking system improved m arkedly
as 1953 progressed
tendency for demands to outrun available funds
to the reverse. Changing market expectations,
discounting a continuation of first one condition
and then the other, accentuated oscillations in
interest rates and credit availability. Finally, the
basic economic situation itself was shifting from
a cresting business boom to a mild easing. Adap
tation to these sometimes conflicting trends re
quired that Federal Reserve operations exhibit
a high degree of flexibility.
Reserve shifts: Moving into 1953 credit and
capital demands were strong, and bank loan
totals remained unseasonally high. T o carry the
substantial increase of the previous fall in earn
ing assets and currency demand, member banks
had borrowed heavily from Federal Reserve
Banks and entered the new year more than 1.5
billion in debt. A tone o f mild restraint was evi
dent in the money markets as banks used some
seasonally freed funds to pay down a portion of
their indebtedness.
This tone was preserved by a substantial re
duction of Government security dealer repur
chase agreements with the Federal Reserve Sys
tem, by some liquidation o f direct System hold
ings of Treasury bills, and by a gold outflow
25
ernmental and private borrowers late in the year.
which absorbed most of the reserves freed by
the seasonal return of currency from circulation.
The discounting of such developments led to
Bank repayment of indebtedness was encour
repeated markdowns on outstanding securities.
aged by a January increase in Federal Reserve
Some prospective borrowers hesitated to ac
discount rates from 1% to 2 per cent, a level
cept the costs involved in entering such a securi
more in line with Treasury bill yields.
ties market, at the same time many investors
Despite the various reserve-draining opera
grew increasingly reluctant to take investment
tions, however, short-term Government securi
action in the prevailing environment. Such
ties yields remained fairly stable aside from the
trends reached their climax with a sharp jump
usual tax influenced March fluctuations.
upward in money market rates on June 1. The
Rotes climb: Beginning in early April, a
yields on longest Treasury bills closed at 2.47
combination of events and expectations induced
bid, and on the recently issued 3 Vi per cent
jagged upward movements in all market interest
bonds touched 3.32.
rates. The Treasury announced a cash offering
Turn in g points
of 3 Vi per cent bonds maturing in 1983, in what
was believed to be the first of a succession of
In this hypersensitive situation, continuation
steps to place more Federal debt in the long-term
of the Federal Reserve bill buying program re
area. In the meantime, long-term offerings of
versed market rate trends on the following day.
corporate and municipal funds were appearing
A series of moves by Treasury and Federal Re
in heavy volume. Short-term credit demand re
serve authorities in the ensuing weeks completed
mained strong, and, in recognition, leading
the turnabout of investor and borrower expecta
banks across the country announced the first
tions. The System stepped up its bill purchases,
increase in over a year in the rate charged prime
and the Treasury further eased the market by
commercial borrowers. Reserve drains continued
temporary borrowing from the Federal Reserve
as the Treasury drew in funds and banks con
over the June tax period. Banks used the reserves
tinued to repay borrow
ings. Privately owned
Federal Reserve factors affecting
demand deposit totals
member bank reserves
dropped more than sea
sonally as banks moved
more cautiously on loan
extensions and sold
short-term Governments
to nonbank investors in
substantial volume.
Early in May the Fed
eral Reserve System be
gan a program of bill
purchases designed to
moderate reserve pres
sures. Market partici
pants, however, ex
pressed growing concern
over the prospects for
heavy borrowing de
mands by both the gov
26
thus released in rapid repayment of practically
all remaining indebtedness to Reserve Banks.
The Treasury also clarified market prospects
by announcing a cash offering of tax anticipation
certificates to be dated July 15, in total large
enough to cover the bulk o f its second-half
deficit. Coordinately, the Board of Governors
announced reductions in reserve requirements
effective early in July. The official announce
ment stated:
“This step was taken in pursuance of
Federal Reserve policy, designed to make
available the reserve funds necessary to
meet the essential needs o f the economy
and to help maintain stability o f the dol
lar. The reduction, releasing an estimated
$1,156,000,000 o f reserves, was made in
anticipation o f the exceptionally heavy de
mands on bank reserves which will de
velop in the near future when seasonal re
quirements o f the economy will expand
and Treasury financing in large volume is
inescapable. The action is intended to pro
vide assurance that these needs will be met
without undue strain on the economy and
is in conformity with System policy of
contributing to the objective o f sustaining
economic equilibrium at high levels of
production and employment.”
Because o f the absorption o f reverses in re
quirements against deposits created in purchas
ing the new Treasury issues, as well as the re
serve drains from the reversal o f temporary
technical influences operating in June, no pro
tracted reserve and market ease resulted. Rates
were stable over the remainder o f the summer,
with Treasury bill yields around the level o f the
early months o f the year.
As the months progressed, private credit de
mands in both the long-term and short-term
market slackened slightly, with the most marked
slowdown appearing in consumer credit.
Fall ease: Events in September provided a
second concentrated shift in market atmosphere,
this time in the direction o f sharp declines in
yields. In preparation for forthcoming seasonal
reserve needs, moderate Federal Reserve pur
chases o f Treasury bills were effected during
much of that month. At mid-month, a combina
tion o f technical ease o f reserve funds and re
duction in foreign central bank rates led to a
sharp bidding down o f short-term yields. The
movement was reinforced by nonbank demand
for short-term securities, particularly after the
Treasury ceased the sale o f nonmarketable tax
savings notes on demand. Demands for short
term credit were clearly lagging behind their
usual seasonal pattern, and this also was true of
the reserve drain from currency withdrawals.
Investor willingness to commit funds in longerterm instruments increased, and the market
readily absorbed corporate and municipal offer
ings in sizes and at rates that would not have
been accepted four months earlier.
The tone o f eased credit availability which
was established in this period prevailed through
the remainder of the year. Long-term rates con
tinued to ease gently, despite the Treasury issu
ance o f intermediate term bonds both on ex
change and in a modest cash offering. Slackening
in loan demand persisted, and the volume o f pri
vate securities offerings fell below the earlier
pace.
Short-term rates exhibited considerable fluc
tuation, declining through mid-October and then
rising gradually to the day before Christmas.
Drains of reserves as deposit increases and cur
rency withdrawals progressed were moderated
by System purchases of Treasury bills around
the first of November and through much o f De
cember. In total, such purchases added 500
million to bank reserves. In addition, the usual
December pressures were moderated by System
acquisitions of Governments from dealers under
repurchase agreements, which by December 29
aggregated nearly 700 million dollars.
M o n e y at ye a r-e n d
At year-end, the pertinent questions in finan
cial circles were concentrated on the prospects
for credit demands. An adequate supply o f loan
able funds was assured for the period which lay
27
ahead. Member banks on December 29 held
almost exactly the same 20 billion total of re
serves which they had a year earlier, but some
important differences existed. Bank indebtedness
to the Reserve System was negligible, and tem
porary dealer repurchase agreements with the
System totaled less than half the bank indebted
ness at the end of 1952. Required reserves were
down, excess reserves were correspondingly
higher, and lower percentage reserve require
ments gave each reserve dollar more expansion
potential.
In its operations for the year, the banking sys
tem as a whole effected a 5 billion expansion in
total deposits and currency, less than half the
1952 increase. The smaller amount of deposit
creation in 1953 stemmed directly from the
smaller dollar growth in bank loans outstanding.
Most of the deposit increase which did occur
was placed by the public in time deposits, ex
panding these accounts by exactly the same per
centage as the year before. As a result, main
tained savings and slackening loan demand com
bined to hold the 1953 increase in the spendable
money supply—demand deposits and currency
outside banks—to less than 1 per cent.
M id w e st b a n k in g — a contrast between la rg e a n d sm a ll centers
B a n k s t h r o u g h o u t t h e M i d w e s t were
full participants in most of the significant na
tional credit developments which characterized
1953. With few exceptions, changes in over
all Midwest banking figures were a mirror of
the changes in banks the country over. Credit
demands, after continuing strong through the
early months, dropped appreciably below their
usual pace as the year grew older. Over-all
increases by year-end were substantial in both
deposits and earning assets but somewhat be
low the gains which 1952 had brought.
Within the Midwest, most outstanding dif
ferences in trend occurred between banks of
major cities and those in smaller centers.
After moving ahead more or less together in
1952, banks in the leading cities — Chicago,
Des Moines, Detroit, Indianapolis, and Mil
waukee — fell distinctly behind the country
bank rate of growth last year. In terms of loan
totals alone, this difference seemed likely to
continue, for large city banks were more heavily
concentrated in those loans which showed the
greatest tendency to lag by year-end.
Loan dem and slows
Over 1953 as a whole, loans outstanding at
Midwest member banks moved up some 7 per
cent, to a total of nearly 8 billion dollars.
Loans to business, however, dropped frac
tionally for the first year since 1949 — both
here and around the nation. This net decline
was in sharp contrast to the record of the in
tervening years, which under the pressures of
the post-Korean boom had chalked up more
than a 65 per cent increase in business loans.
Being closely related to the tempo of business
activity, last year’s business loan dip gave con
firmation, if any was needed, of the turnaround
in Midwest business.
In the early months of the year, there were
few indications of the slackening to come later.
Rising business activity held credit demands
high. Even the usual spring paydowns of credit
lines by such seasonal borrowers as food pro
cessors and sales finance companies were slow
in appearing, although less so in the Midwest
than elsewhere. For these and other business
lines, inventory build-ups and extensions of
trade and consumer credit helped to maintain
demand for funds. At midyear, the larger
banks, which hold the bulk of the business
loans, reported a first-half seasonal decline even
smaller than in 1952.
One distinction among borrowers was ap
parent. Sustained demand for bank credit was
originating primarily from firms engaged in the
distribution of goods. Public utilities and man
ufacturers — particularly of hard goods —
were paring down their new loan requests.
Needs for funds by these firms apparently were
stabilizing, and actions to fund some bank debt
into longer-term obligations were numerous.
With the capital markets becoming easier
after June, firms in other lines also chose to
refinance bank loans. Sales finance companies
were active in open market financings. With a
developing lag in their net expansion of instal
ment credit, they were able to employ much of
the proceeds of new issues to reduce bank
lines.
The sharpest contrast to the pattern of the
past emerged in the fall, when business loans
actually declined moderately in place of the
usual substantial seasonal rise. Behind this trend
were the same dampening factors discerned
earlier in the year, but their influence became
more marked in the late months. Net seasonal
borrowing from banks by sales finance com
panies was negligible, and metals producers ef
fected their largest loan repayments in several
years. The usual post-harvest rise in loans to
firms handling agricultural products was cur
tailed by lower agricultural prices and the
higher proportions of some crops which were
held out of private distribution channels by the
Federal farm price support program.
In many businesses, the supply of funds be
coming available from internal sources was
catching up with working capital needs. Under
such circumstances, repayment of bank loans
was to be expected. The reduction in business
loans around year-end, however, apparently re
flected more than the changing tempo of
business activity. Under the Mills Plan, cor
porations have been paying a steadily increas
ing proportion of their Federal income taxes
during the first six months of the year. Thus
third- and fourth-quarter cash drains through
taxes are dwindling. Furthermore, as the end
of 1953 approached, some bank loans may
have been retired in anticipation of the demise
of the excess profits tax, with its allowance of
capital credit for borrowed funds.
During 1953, no other bank credits appeared
as sensitive as business loans to the changing
tempo of over-all activity.
Consumer instalment loans of Midwest
banks rose rapidly in the early months of 1953.
By midyear retail automobile paper in the
portfolios of District banks outside Chicago
was 40 per cent or more above year-ago levels.
Increases of only moderately smaller propor
tions occurred in loans to finance other dur
able goods and to repair and modernize hous
ing.
Moving into the third quarter, the pace of
consumer borrowing began to slow consider
ably, and, aside from seasonal movements, this
trend continued to the end of the year. Auto
mobile loans showed the first and sharpest
slackening; in Chicago, for example, this type of
bank credit actually declined fractionally dur
ing the summer months. In total, however, con
sumer loans outstanding continued to mount
slowly over the last half of 1953. By year-end,
the total 1953 increase in Midwest banks
amounted to 18 per cent, somewhat larger than
the 1952 gain.
Loans at District member banks
29
R eal estate lo an holdings of Midwest banks
reflected a steady parade o f borrowing requests
during the past year and by year-end had ex
panded by 8 per cent, a shade less than the
increase in the previous year. Spurring mort
gage loan expansion was the high level of new
home construction.
The expansion in mortgage holdings pro
ceeded most rapidly in banks in the less populous
centers. Both there and elsewhere, roughly half
o f the net increase was in the form o f F H A insured obligations. Acquisitions of these fixedrate loans in banks outside large cities pro
ceeded rather evenly through the year. On the
other hand, VA-insured mortgages, carrying a
still lower fixed rate, found little acceptance in
Midwest banks. Only leading city banks reported
any net increases over the year, and these gains
were small and concentrated in the last three
months.
A g ricu ltu ra l cred it was the one major area
in which loan trends displayed weakness from
the beginning of 1953. Expansion o f farm real
estate loans, for example, was substantially
slowed, with most net increases in this region
centering in Wisconsin banks. Apparently de
clining farm prices and incomes bred increas
ing caution in prospective purchasers o f farm
land.
Working capital loans to farmers continued
the downward trend begun in 1952 in the heavy
credit-using cattle-feeding areas of Illinois and
Iowa. In large part this decline was a reflection
o f lower prices paid for livestock. Short-term
loans to farmers in other areas and for other
purposes recorded some minor advances. In
general, recent developments have tended to
introduce more conservatism on the part of
both farmers and their bankers.
The only increases o f consequence in agri
cultural credit were those fostered by the
swelling farm price support program o f the
Commodity Credit Corporation. Lower prices
and bigger harvests led farmers to divert a
large volume o f last year’s crops to sealed stor
age, securing loans guaranteed by the C C C .
30
A s early as the end o f September, such C C C
loans in Midwest banks were running 20 mil
lion dollars ahead o f a year ago, and the
margin widened very rapidly as 1953 drew to
a close. One factor assuring substantial bank
participation in price support loans was the
introduction o f large-scale offerings o f certifi
cates of interest in price support loans in C C C
hands. Such instruments appealed to many
urban banks which ordinarily do not actively
participate in agricultural financing. Chicago
banks alone acquired close to 160 million o f the
total 810 million of certificates issued nationally
in October and December.
Investm ent additions v a ry
Despite the smaller size o f 1953 loan expan
sion, such accommodation left most Midwest
banks with relatively few additional resources
for investment in securities. On the average,
the 1953 increase in investments was a scanty
2 per cent, compared with a 7 per cent rise
the year before. Such an average, however, con
ceals sizable differences in experience among
institutions in and outside the region’s leading
cities. Milwaukee banks, facing unusually strong
loan demands, found it necessary to cut Govern
ment securities holdings. Detroit and Chicago
institutions managed to end 1953 with approxi
mately the same total o f Governments with
which they had opened the year. In Iowa, and
particularly in Des Moines, on the other hand,
lagging loan demand facilitated large net invest
ment in Governments over the year as a whole.
The net additions to Midwest Government
holdings were made chiefly in the period of
rising security market prices and declining
yields after early June. During the tight money
market o f spring, most banks were liquidating
short-term securities more or less in line with
usual seasonal needs to meet reserve drains.
But by mid-July, the Treasury cash offering of
a tax anticipation certificate was able to find a
good many willing subscribers in banks around
the Midwest. Most succeeding months brought
still further acquisitions.
City banks trail in 1953 growth
which slowly and steadily dropped behind the
increase in outlying areas as the year pro
gressed. By year-end, the time deposit increase
in Chicago averaged 4 per cent, exactly half
the 1952 rate for both city and country banks.
In outlying areas, meanwhile, savers continued
to match their 1952 rate of time deposit ad
ditions throughout 1953. With this rate of
deposit accruals, country bank managers had
the resources at hand to expand both loans
and investments at a faster rate than could the
larger city institutions.
of District member banks
leading city
other
Profits up
0
+3%
-HO* 0
+5%
+10*
In general, banks in outlying areas increased
their portfolio o f Governments by an average of
5 per cent during the year, while banks in the
leading cities reduced their holdings slightly.
Similarly, although banks in both groups added
to their stock o f state and local obligations dur
ing the year, the 9 per cent gain in outlying
banks was more than double the percentage
growth at banks in the leading cities.
Deposits fa re better at country banks
Behind this variation in investments lay a
clear divergence in deposit trends. Rural banks
continued to enjoy deposit gains comparable
in magnitude to 1952’s over-all 8 per cent rise.
In Chicago, in contrast, 1953 brought a slight
deposit loss. Most other large Midwest centers
fared only slightly better for the year as a
whole.
The lagging pace of city bank deposits be
came apparent before 1953 was well advanced.
Early seasonal dips in demand deposits pro
ceeded further than in 1952, and the eventual
recovery was slower to appear. The city bank
lag was confirmed in the trend of time deposits.
The shifting financial tides of 1953 had their
repercussions on the earnings position of banks.
The base of total earning assets was expanded
moderately over the year, and a good portion
of that expansion was centered in comparative
ly high-yielding types o f assets such as con
sumer instalment and real estate loans. Mar
ket interest rates on both loans and securities
moved higher in the early months, but the
opportunity to obtain higher yields on invest
ment portfolios was fleeting, since securities
yields, within a few months, had returned to
the lowest levels in four years.
Operating in this environment, Midwest
banks in 1953 raised their gross operating
earnings by 13 per cent. Cutting into this in
come were higher operating expenses, taxes,
and in some cases reserve provisions. N one
theless, a new record high o f 124 million
dollars in net profits after taxes could be re
ported. This represented an increase o f 5 per
cent over their 1952 profits.
Here again, leading city banks and outlying
banks revealed contrasting trends. Net profits
for the former were up but 2 per cent over
1952, compared to nearly a 10 per cent rise
for the latter. In good part, however, these
differences were more apparent than real, stem
ming from heavy reserve deductions in out
lying banks in 1952, and in 1953 in some lead
ing city banks. On a gross earnings basis, the two
groups reported fairly comparable gains.
31
Bank operations reflect high-level activity
In 1 9 5 3 , the volume o f operations of the Fed
eral Reserve Bank o f Chicago and the Detroit
Branch continued to increase, reflecting the
record levels o f business activity and the con
tinued rise in deposits and deposit activity at
District member banks.
Typifying economic growth in the state of
Michigan, facilities o f the Detroit Branch were
expanded by the addition o f a newly con
structed building. When opened in April, the
modern eight-story annex more than tripled
the Branch’s working area. The enlarged ca
pacity made it possible for Detroit to serve all
Seventh District member banks in the state.
Accordingly, at year-end the Branch area was
expanded to include banks in the entire lower
peninsula for most Federal Reserve trans
actions.
Procedures for the destruction o f worn-out
currency were streamlined during the year.
Since last summer, each Federal Reserve Bank
has been destroying all Treasury-issued cur
rency unfit for further circulation rather than
forwarding it to the Treasury for redemption
as had been done previously. Substantial sav
ings are effected as a result o f eliminated ship
ping costs. During the last half o f the year,
the Bank burned 83 million pieces — 110 mil
lion dollars worth of silver certificates and 9
million dollars o f United States notes.
A second operating improvement, involving
a new leased wire system of communication for
the entire Federal Reserve System, was put into
effect in July. The change included transfer of
the main teletype switching center from the
Chicago Bank to Richmond and elimination of
the minor switching centers on the East and
West coasts. Transmission facilities were also
modified to enable wires to be sent directly to
each Reserve Bank Branch, instead o f first pass
ing through their main office.
Services to the Com m odity Credit Corpora
tion were expanded sharply. In July, the C C C
32
transferred to the Federal Reserve Bank of C hi
cago the custodian activities previously handled
for the eastern section of the country by the
Federal Reserve Bank o f N ew York. In Octo
ber, the Chicago Bank, as Fiscal Agent and
Custodian for the Commodity Credit Corpora
tion, began the issuance, transfer, and redemp
tion o f Certificates of Interest in a pool o f C C C
loans on commodities other than cotton. Sub
sequently another pool was established for cot
ton loans, and by the end o f the year this Bank
had issued over five thousand such certificates of
interest having a total value in excess of 800
million dollars.
The number of commercial bank checks
cleared at Chicago and the Detroit Branch was
some 20 million greater than in the previous
year, and the value of checks handled increased
by almost 10 billion dollars to a total o f 152
billion. The value of Government checks and
postal money orders processed also rose sharp
ly above the preceding year, but there was little
change in the number. On the other hand,
despite an increase in number, the total dollar
value o f acceptances, drafts, and securities col
lected was less than in 1952.
Wire transfers of funds rose from 103 billion
dollars to 108 billion at Chicago and from 26
billion to 32 billion at the Detroit Branch.
Circulation o f Seventh District Federal Re
serve notes increased 3 per cent during the
year, reaching a new high o f 5,143 million dol
lars in December. However, the growth in the
Midwest, as elsewhere, was somewhat less than
the 1952 rise o f about 4 per cent.
Over one billion dollars of unfit currency
were withdrawn from circulation in the Seventh
District during the year. About one-third o f the
worn bills, representing 14 per cent of the dol
lar volume, were destroyed at the Chicago and
Detroit Banks.
Member banks made a greater use o f the
Bank’s discount facilities than in the previous
»
Collections m ade through the Federal Reserve Bank
1953
Per cent change
from 1952
Detroit
Chicago
Branch
Chicago
Detroit
Branch
Dollar volume (millions)
Commercial bank checks. ...................... ..
Government checks' ..................................
O ther items ...................................................
123,751
11,499
1,130
27,896
4,028
140
+6
+22
—4
+ 8
+30
—9
Pieces (millions)
Commercial bank checks................. ..
Government checks' ..................................
O ther it e m s ...................................................
320
111
1
57
15
*
+6
+ 1
+7
+7
•
+ u
•Less th an 500,000 or less than .5 p er cent.
11ncluding P ostal M oney O rd e rs.
Cash departm ent operations
1953
Dollar volume (millions)
Currency paid to b a n k s'...........................
Coin paid to b a n k s'.....................................
Unfit currency withdrawn
from circulation .....................................
Pieces (millions)
Currency paid to b a n k s'...........................
Coin paid to banks’ ..................................
Coin w rapped ............................................
Unfit currency withdrawn
from circulation ................. ..................
Per cent change
from 1952
Detroit
Chicago
Branch
Chicago
Detroit
Branch
3,670
120
84
1,153
18
9
+ 5 .3
- 3 .4
+ 2J
+ 7 .3
+ 2 0 .8
+ 2 4 .0
833
189
+ 6 .0
+ 3 3 .0
623
1,331
1,012
178
207
107
+ 4 .3
- 0 .3
+ 6 .8
+ 5 .6
+ 17.6
+ 2 6 .1
204
52
- 2 .9
+ 5 0 .8
’ Excluding other Federal Reserve Banks.
Safekeeping of securities
1953
Chicago
Detroit
Branch
Dollar volume (millions)
Securities received .....................................
Securities released .....................................
Coupons detached .....................................
9,306
8,661
110
5,558
5,342
14
Pieces (thousands)
Securities received .....................................
Securities released .....................................
Coupons detached .....................................
305
293
1,270
102
83
191
* le s s th an .5 per cent.
Per cent change
from 1952
Detroit
Chicago
Branch
•
-8
+ 10
+ 15
+ 10
+3
— II
— 12
+31
+<
-9
+4
year. Chiefly because of
su b stan tial cred it re
quests in the first half,
total borrowings for the
y e a r a m o u n t e d to
IS ,141 million dollars,
about 800 million more
than in 19S2.
The volume o f invest
ments made for member
bank a cco u n ts con tin
ued to grow. Purchases
increased over one-third
in Detroit and almost
on e-sixth in C h ica g o ,
w h ile sales rose o n ly
slightly.
Measured by number
of items handled, 1953
brought an increase in
w ork load con n ected
with the safekeeping of
secu rities fo r m em ber
b an ks and the p u b lic.
T h e d o lla r vo lu m e o f
the secu rities handled,
however, decreased be
c au se o f a red u ction
in the a verage d o llar
amount.
R e f le c t i n g th e in
creased volume o f serv
ices to member banks,
the amount of mail han
dled at Chicago and D e
troit rose slightly to 7.5
million pieces, while the
number o f telegrams in
creased to over 300,000,
a gain o f 12 per cent.
The average total num
ber o f em p lo yees d e
clin ed slig h tly — from
3,018 in 1952 to 2,985
last year.
33
Services
to T r e a s u r y
Department
Per Cent Change
from 1952
Detroit
Chicago
Branch
1953
Chicago
Detroit
Branch
12,146,372
12,100,729
13,447,899
2,435,809
1,737,085
3,369,013
+ 1 .1
+ 2 4 .1
+ 6 .6
+ 2 3 1 .2
+ 3 2 .2
+ 3 6 .8
Exchanges and transfers .......................................
216
263
303
18
25
26
+ 6 3 .6
+ 3 6 .6
+ 16.9
+ 6 4 .0
+ 4 5 .1
+ 3 4 .5
Handling of savings bonds and notes
Dollar volume (thousands)
New issues at maturity value .............................
Redemptions at redemption value* .................
1,562,357
1,756,977
596,230
895,668
+ 2 3 .5
+ 2 4 .7
+ 4 1 .7
+ 5 .0
Pieces (thousands)
New issues .................................................................
Redemptions* .............................................................
10,575
11,669
5,216
4.881
+ 7 .7
+ 4 .3
+ 15.1
+ 9 .7
Handling of marketable securities
Dollar volume (thousands)
New issues at par v a l u e .......................................
Redemptions at maturity value ........................ ..
Exchanges and transfers .......................................
Pieces (thousands)
New is s u e s ..........................................................
Collections of Federal taxes (thousands)
Dollar volume of receipts processed......................
Number of receipts processed ........................ ..
4,229,157
1,045
+ 7 .7
+ 2 3 .5
* Includes Armed Forces Leave Bonds.
Securities issued and redeemed, after a postwar dip, have climbed consistently
1946
1947
□
securitie s issued
□
secu ritie s redeemed
1948
1949
1950
1951
1952
M a rk e ta b le a n d sa v in g s securitie s ha n d led through the Fed eral R eserve B a n k o f C h ic a g o and its D etro it B ran ch .
34
A s with services to member banks, the fiscal
agency operations o f the Bank were also char
acterized by increased activity. The table on
the facing page illustrates the substantial rise in
number o f items processed as compared with
the previous year.
One important change in 1953 announced at
midyear was that banks authorized as deposi
taries could receive Federal excise taxes along
with Social Security contributions and withheld
income taxes.
Note circulation of the Chicago
Reserve Bank has paralleled the
national total of new currency
Oo II o m
M I i m dollar.
Changes in m em ber banks
In 1953 the following Seventh District banks
became members o f the Federal Reserve Sys
tem:
National Bank o f Albany Park
Chicago, Illinois
Ottawa National Bank
Ottawa, Illinois
First State Bank
Green, Iowa
Security Savings Bank
Marshalltown, Iowa
St. Ansgar Citizens State Bank
St. Ansgar, Iowa
West Liberty State Bank
West Liberty, Iowa
Bank o f Dearborn
Dearborn, Michigan
Bank o f Sturgeon Bay
Sturgeon Bay, Wisconsin
Since one bank withdrew from membership
and one underwent voluntary liquidation, there
was a net increase o f six member banks, bring
ing the District total to 1,014. The resources o f
four additional banks were brought into the
System through mergers with member banks.
Changes in officers
During 1953 the following promotions were
made at the Federal Reserve Bank of Chicago
and the Detroit Branch:
Russel A. Swaney, to V ice President
Bruce L. Smyth, to Assistant V ice President
LeRoy A . Davis, to Assistant Cashier
Fred H. Grimm, to Assistant Cashier
Harry S. Schultz, to Assistant Cashier
Hugh J. Helmer, to Assistant C hief Examiner
Charles J. Scanlon, to Assistant C hief
Examiner
The following officers, each with many years
service at the Bank, were retired:
Harlan J. Chalfont, V ice President
F. L. Purrington, Assistant V ice President
Herbert H. Conklin, Assistant Cashier
C . M. Saltnes, Assistant Cashier
35
Comparative Statement of Condition
Asset*
D ec. 3 1 , 1953
G old Certificates on Hand and Due from U. S. Treasury
.
D ec. 3 1 , 1952
.
3,743,997,013.55
4,430,854,137.32
Redemption Fund — Federal Reserve N o t e s .............................
151,495,190.00
119,452,700.00
Other C a s h ...............................................................................................
62,521,459.80
54,784,083.66
Total C a s h .........................................................................
3,958.013,663.35
4,605,090,920.98
Discounts and A d v a n c e s ..................................................................
3,055,000.00
7,360,500.00
U. S. Government S e c u r i t i e s ..........................................................
4,375,704,000.00
3,437,028,000.00
Total Bills and S e c u r it ie s ............................................
4,378,759,000.00
3,444,388,500.00
Bank P r e m i s e s .......................................................................................
6,448,254.79
6,680,636.02
Federal Reserve Notes of Other B a n k s ............................................
27,163,500.00
23,133,000.00
Uncollected I t e m s ................................................................................
Other A s s e ts ...............................................................................................
Total A s s e t s ..................................................................
719,839,031.18
25,934,569.76
704,039,961.48
________ 22,954,908.03
9,116,158,019.08
8,806,287,926.51
5,111,406,285.00
4,971,415,290.00
Member Bank — Reserve A c c o u n t .....................................
3,250,620,029.36
3,066,257,823.23
U. S. Treasurer — G eneral A c c o u n t .....................................
30,188,768.35
28,709,863.68
Other D e p o s i t s .........................................................................
73,835,665.01
85,944,791.80
Total D e p o s its ..................................................................
3,354,644,462.72
3,180,912,478.71
Deferred Availability Ite m s ..................................................................
505,627,999.92
519,439,776.68
Other L ia b ilitie s........................................................................................
3,016,988.44
1,962,285.84
Total L i a b i l i t i e s ...................................................
8,974,695,736.08
8,673,729,831.23
Liabilities
Federal Reserve Notes in Actual C ir c u la t i o n .............................
Deposits:
C a p ita l Accounts
C apital Paid I n ........................................................................................
35,000,850.00
32,341,950.00
Surplus (Section 7 ) .................................................................................
90,791,917.69
84,628,184.18
Surplus (Section 1 3 b ) .........................................................................
1,429,383.78
1,429,383.78
Other C ap ital A c c o u n t s ..................................................................
14,240,131.53
14,158,577.32
9,116,158,019.08
8,806,287,926.51
Total Liabilities and Capital Accounts
36
Comparative Statement of Earnings and Expenses
1953
1952
E a r n in g s ......................................................................................................
80,692,341.94
67,492,987.62
Expenses:
Operating E x p e n s e s .................................................................
13,981,511.54
13,227,178.27
Assessment for Board o f'G o v e r n o r s .....................................
561,000.00
572,900.00
Cost of Federal Reserve C u r r e n c y ....................................
2,413,367.33
1,755,196.48
Total Current E x p e n s e s ............................................
J6,955,878.87
15,555,274.75
Current Net E a r n in g s ....................................
63,736,463.07
51,937,712.87
.
292,476.79
293,142.06
Other A d d it io n s .........................................................................
123.39
6,171.30
.
292,600.18
2997313 36
Total Current Net Earnings and Additions .
64,029,063.25
52,237,026.23
Additions to Current Net Earnings:
Profit on Sales of U. S. Government Securities
.
.
Total Additions to Current Net Earnings .
Deductions from Current Net Earnings:
Retirement System (Increased Benefits to Members) .
299,518.18
87,338.89
77.357.86
.
386,857.07
77.357.86
Net E a r n i n g s ...................................................
63,642,206.18
52,159,668.37
55,473,065.89
45,238,680.03
.
8,169,140.29
6,920,988.34
Dividends P a i d ........................................................................................
2,005,406.78
1,894,010.38
Transferred to Surplus (Section 7 ) ...................................................
6,163,733.51
5,026,977.96
.................................................................................
84,628,184.18
79,601,206.22
Transferred to Surplus — as a b o v e ...................................................
6,163,733.51
5,026,977.96
90,791,917.69
84,628,184.18
Other D ed u ctio n s.........................................................................
Total Deductions from Current Net Earnings .
Paid United States Treasury (Interest on Federal Reserve Notes)
Net Earnings After Payments to United States Treasury
Surplus
.
Account
( S e c t i o n 7)
Surplus January 1
Surplus December 31
.........................................................................
37
S t a t e m e n t o f D i s p o s i t i o n of N e t E a r n i n g s
Y ear
Net
Dividends
Earnings
Paid
Paid
19 U. S.
Treasury
Transferred
to Capital
Accounts
Net
Dividends
Earnings
Paid
Year
(in thousands)
1914-15
20
1916
403
361
1917
1,232
862
1918
6,805
605
1919
8,576
701
1920
25,876
1921
1922
1923
1924
216
(in thousands)
827
Transferret
to Capital
Accounts
20
1940
2,608
42
1941
1,024
897
27
100
1942
1,197
956
4
238
1943
5,759
994
154
6,200
...
Paid
to U. S.
Treasury
7,875
13,430
1,215
3
13,361
1,312
1947
12,789
1,380
10,250
1,139
1948
27,718
1,472
23,621
2,625
1949
33,425
1,556
28,681
3,187
3,317
2,075
1945
-6 5 7
1946
14,505
854
11,576
1,405
876
1,186
1,178
904
247
27
909
909
4,766
1,115
7,831
10,394
1,770
6
1944
793
11
6,710
14,689
1925
1,121
934
187
1926
2,254
986
1,268
12,212
12,049
1927
1,928
1,030
898
1950
34,833
1,671
29,846
1928
4,763
1,100
3,664
1951
44,326
1,773
38,298
4,256
1929
5,425
1,170
1952
52,160
1,894
45,239
5,027
1930
1,054
1,211
603
3,651
-
157
1931
610
1,170
1932
2,243
1,030
1933
1,790
858
932
1934
1,404
761
643
-5 6 1
1,092
Total
55,473
6,164
256,872
106,144
Adjustm ents
la
1935
771
754
18
1936
932
726
28
178
1937
1,688
763
28
896
1938
1,091
791
21
279
4
1939
983
820
5
158
Total
-
-
19,749
19,749
19,749
19,749
2
1,418
1,418
3
- 3,208
- 3,208
Notes on ad ju stm ents
1. F .D .I.C . Stock:
a ) 1934—Purchase
b) 1947—Retirem ent (proceeds to T re a su ry ).
2 . Paym ents from U . S. T re a su ry, Section 13b lo a n s, 1934 and 1935.
3 . T ran sfe rre d from Su rp lus to Reserves fo r C o n tin g en cie s, 1940, 1942, and 1943.
4 . T ran sfe rre d to Su rp lus (Section 7 ) from R eserves fo r C o n tin g en cie s, 1945.
D etoils m ay not ad d to to ta ls because of ro und ing .
2,005
40,037
121
lb
38
63,642
403,052
1953
7,616
7,616
408,878
40,037
276,621
92,221
Directors and Officers
Director*
JOHN S. COLEM AN , President
Burroughs Corporation
Detroit, Michigan
BERT R. PRALL, President
Butler Brothers
Chicago, Illinois
Chairman
Deputy Chairman
V IV IA N W. JOHNSON, President
First National Bank
C edar Falls, Iowa
WALTER J. CUM MINGS, Chairman
Continental Illinois National Bank
and Trust Company of Chicago
Chicago, Illinois
ALLAN B. KLINE, President
American Farm Bureau Federation
Chicago, Illinois
WILLIAM J. GREDE, President
G red e Foundries, Inc.
Milwaukee, Wisconsin
NUGENT R. OBERWORTMANN, President
The North Shore National Bank of Chicago
Chicago, Illinois
WALTER E. H AW KIN SON , Vice President
in charge of Finance and Secretary
Allis-Chalmers Mfg. Co.
Milwaukee, Wisconsin
WILLIAM R. SINCLAIR. Chairman of the Board
Kingan and Co.
Indianapolis, Indiana
Officers
CLIFFORD S. Y O U N G . President
ERNEST C. HARRIS, First Vice President
GEO RGE W. MITCHELL, Vice President
NEIL B. DAWES, Vice President and Secretary
ARTHUR I. OLSON. Vice President
W ILFORD R. DIERCKS, Vice President
ALFRED T. SIHLER, Vice President
WALTER A. HOPKINS, Vice President
RUSSEL A. SW AN EY, Vice President
LOUIS G . M EYER, Vice President
WILLIAM W. TURNER, Vice President
LAURENCE
ERNEST T. BAUGHM AN, Assistant Vice President
H. JO N ES. Cashier
FRANK A. LINDSTEN, Assistant Vice President
PHIL C. CARROLL, Assistant Vice President
HAROLD J. NEWMAN, Assistant Vice President
CLARENCE T. LAIBLY, Assistant Vice President
INGOLF J. PETERSEN, Assistant Vice President
MARK A. LIES, Assistant Vice President
BRUCE L. SMYTH, Assistant Vice President
H. FRED W ILSON, Assistant Vice President
EDWARD D. BRISTOW, Assistant Cashier
HARRY S. SCHULTZ, Assistant Cashier
LEROY A . DAVIS, Assistant Cashier
ELMER P. SHIREY, Assistant Cashier
FRED H. GRIMM, Assistant Cashier
GEO RGE T. TUCKER, Assistant Cashier
EDWARD A. HEATH, Assistant Cashier and Assistant Secretary
PAUL C. HODGE, G eneral Counsel
ARTHUR M. GUSTAVSON , Assistant G eneral Auditor
ORVILLE C. BARTON, Assistant General Counsel
and Assistant Secretary
C. PAUL V AN ZANTE, Chief Examiner
JO H N J. ENDRES, G eneral Auditor
CHARLES J. SCANLO N, Assistant Chief Examiner
HUGH J. HELMER, Assistant Chief Examiner
39
Directors and Officers
Continued
Member of Federal Advisory Council
EDWARD E. BROW N, Chairman of the Board
The First National Bank of Chicago
Chicago, Illinois
Members of Industrial Advisory Committee
EDWARD J. DOYLE
EDWARD M. KERW IN, Vice President
Wilmette, Illinois
E. J. Brach and Sons
Chicago, Illinois
WALTER HARNISCHFEGER, President
G. BARRET M O XLEY, President
Harnischfeger Corporation
Kiefer-Stewart Company
Milwaukee, Wisconsin
Indianapolis, Indiana
JAM ES L. PALMER, President
M arshall Field & Company
Chicago, Illinois
Detroit Branch
Directors
WILLIAM M. DA Y, Vice President and General M anager
CLIFFORD M. HARDIN, Dean, School of Agriculture
Michigan Bell Telephone Company
Michigan State College
Detroit, Michigan
East Lansing, Michigan
RAYM ON D T. PERRING, President
H OW ARD P. PARSHALL, President
The Detroit Bank
Bank of the Commonwealth
Detroit, Michigan
Detroit, Michigan
JOHN A. STEWART, Vice President and Cashier
Second National Bank and Trust Company of Saginaw
Saginaw , Michigan
Officers
RUS5EL A. SW A N EY, Vice President
JOSEPH J. SRP, JR., Assistant Cashier
RICHARD W . BLOOMFIELD, Assistant Vic* President
ARTHUR J. W IEG AN DT, Assistant Cashier
HAROLD I . DIEHL, Cashier
G O RDO N W. LAMPHERE, Assistant G eneral Counsel
40
This document contains internal or confidential information and has
been removed.
Author(s): Federal Reserve Bank of Chicago
Title: The Commentator
Date: November 1954
Page Numbers:
OFFICIAL ORGANIZATION
FEDERAL RESERVE BANK OF CHICAGO
Septem ber 2, 1055
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