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FORTY-FIFTH ANNUAL REPORT of the BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM COVERING OPERATIONS FOR THE YEAR LETTER OF TRANSMITTAL BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Washington, June 24, 1959 T H E SPEAKER OF THE HOUSE OF REPRESENTATIVES. Pursuant to the requirements of Section 10 of the Federal Reserve Act, as amended, I have the honor to submit the Forty-fifth Annual Report of the Board of Governors of the Federal Reserve System. This report covers operations for the year 1958. Yours respectfully, W M , M C C . MARTIN, JR., Chairman. CONTENTS TEXT OF REPORT Introduction Recession and Recovery Federal Reserve action to combat recession Broader effects of monetary action Changing expectations Moderation of Federal Reserve policy Regulation of margin requirements Situation at close of 1958 Changes in Gold Reserves Gold and the balance of international payments Gold and the United States monetary system Gold and Federal Reserve policy Demand and Supply of Funds in 1958 , Credit demands Government Business Consumers International capital transactions Credit supplies Consumer saving Institutional lenders Bank credit Digest of Principal Federal Reserve Policy Actions, 1958 Record of Policy Actions—Federal Open Market Committee Record of Policy Actions—Board of Governors Bank Supervision by the Federal Reserve System Examination of Federal Reserve Banks Examination of member banks Federal Reserve membership Bank holding companies Trust powers of national banks Acceptance powers of member banks Foreign branches and foreign banking and financing corporations Inter-Agency Bank Examination School Legislation Defense Production Act iii Page 1 1 3 4 6 8 10 10 11 13 15 16 17 18 18 21 22 24 25 26 27 27 30 32 72 89 89 89 90 90 91 91 92 93 94 94 Purchase of Government obligations by Federal Reserve Banks... Alaskan Statehood Real estate loans by national banks Small Business Investment Act Bank Holding Company Act Reserve Bank Operations Loan guarantees for defense production Volume of operations Earnings and expenses Holdings of loans and securities Foreign and international accounts Bank premises Board of Governors—Income and Expenses TABLES 1. Statement of Condition of the Federal Reserve Banks (in detail), Dec. 31, 1958 2. Statement of Condition of Each Federal Reserve Bank at End of 1958 and 1957 3. Holdings of United States Government Securities by Federal Reserve Banks, End of December 1956, 1957, and 1958 4. Federal Reserve Bank Holdings of Special Short-Term Treasury Certificates Purchased Directly from the United States, 1953-58 5. Volume of Operations in Principal Departments of Federal Reserve Banks, 1954-58 6. Earnings and Expenses of Federal Reserve Banks during 1958. . 7. Earnings and Expenses of Federal Reserve Banks, 1914-58 8. Member Bank Reserves, Reserve Bank Credit, and Related Items, End of Year 1918-58 and End of Month 1958 9. Bank Premises of Federal Reserve Banks and Branches, Dec. 31, 1958 10. Number and Salaries of Officers and Employees of Federal Reserve Banks, Dec. 31, 1958 11. Federal Reserve Bank Discount, Interest, and Commitment Rates (in effect Dec. 31, 1958) 12. Member Bank Reserve Requirements 13. Maximum Interest Rates Payable on Time Deposits 14. Margin Requirements 15. Fees and Rates Established under Regulation V on Loans Guaranteed Pursuant to Defense Production Act of 1950, Dec. 31, 1958 16. Principal Assets and Liabilities, and Number of All Banks, by Classes, Dec. 31, 1958 and 1957 iv Page 94 94 94 95 95 95 95 96 97 98 99 100 101 106 108 112 113 113 114 116 118 120 121 122 123 123 124 124 125 17. Member Bank Earnings, by Class of Bank, 1958 and 1957 18. Analysis of Changes in Number of Banking Offices during 1958 19. Number of Banking Offices on Federal Reserve Par List and Not on Par List, Dec. 31, 1958 20. Open Market Transactions of the Federal Reserve System during 1958 Page 126 127 128 129 FEDERAL RESERVE DIRECTORIES AND MEETINGS Board of Governors of the Federal Reserve System Federal Open Market Committee Federal Advisory Council Federal Reserve Banks and Branches 132 133 134 135 Map of Federal Reserve Districts Index 153 154 OF THE FEDERAL RESERVE SYSTEM The year 1958 brought vigorous recovery from a brief but sharp recession in economic activity in the United States. From a low point in early spring, output of goods and services rose rapidly and, by year-end, gross national product in current dollars exceeded and in real terms was close to earlier peaks. As is characteristic of early phases of recovery movements, employment rose less rapidly than output, and unemployment remained relatively high. Abroad, economic expansion was resumed at the end of 1958 after temporary interruptions in many countries. The Federal Reserve adapted its policies to the changing economic environment by fostering bank credit expansion during the recession early in the year and by moderating the availability of funds in the last five months as economic activity gained momentum. Demands for credit remained slack early in 1958 and interest rates continued to decline. In the last half of the year, when private and public demands for credit were rising, particularly those of the Federal Government to finance the large current deficit, interest rates rose sharply. Consumer and wholesale prices, after rising somewhat early in the year, were fairly stable during most of 1958. Stock prices, however, rose rapidly throughout the year. RECESSION AND RECOVERY At the beginning of 1958, economic activity in this country was receding. Contraction in output and employment was general, and unemployment was rising at a disturbing pace. No one could be sure how far the downward adjustment would go, or how long it would last. Even at that time, however, some were beginning to view the outlook more optimistically. In January, corporations, taking advantage of easier conditions and lower interest costs in financial 2 ANNUAL REPORT OF BOARD OF GOVERNORS markets, were offering an appreciable volume of new issues in anticipation of future needs for funds, and to refund shorter term debt. State and local governments were bringing to market bond issues that had been deferred earlier, and were stepping up the pace of bond offerings to provide for public works. SELECTED ECONOMIC INDICATORS 1947-49=100 INDUSTRIAL PRODUCTION 160 NONAGRICULTURAL EMPLOYMENT - 140 NONMANUFACTURING 140 - 120 MANUFACTURING^^ 120 - 100 v, 1 140 CONSUMER PRICES 1 1 WHOLESALE 1 1 .. MATERIALS S^y^sJ? 120 ^ 140 PRICES - 120 CS*'^'- FINISHED GOODS FOODS 100 ,. 1954 '56 '58 I I 1954 l l '56 100 I .. '58 NOTE.—Seasonally adjusted series, except for prices. Bureau of Labor Statistics data for employment and prices and Federal Reserve data for production. Farmers continued to foresee favorable output and price conditions in agriculture and were bidding up further the prices of farm land. Bankers, with slackened customer demand for credit and strengthened reserve positions, were bidding more aggressively for investments. By February, bankers were accelerating expansion of the FEDERAL RESERVE SYSTEM 3 assets and deposits of their institutions, thus increasing more rapidly the economy's stock of cash balances and raising its over-all liquidity. By the early part of the second quarter, personal income and consumer spending had ceased to decline and, in fact, were rising slightly. Production and employment turned upward soon after. Whether these developments, though encouraging, foreshadowed wide revival in activity was not known at the time; not until summer did the current flow of information and reports provide substantial confirmation that general economic recovery was under way. From that stage on, currently available data reflecting market trends, production, and employment showed that recovery was both broadly based and vigorous. At year-end, eight months after recovery had set in, total output approximated the peak of 1957 and it was growing with increasing momentum. FEDERAL RESERVE ACTION TO COMBAT RECESSION Federal Reserve policy began to move in a counter-recession direction in late October of 1957. At that time, the System began to shift its open market operations toward supplying reserves more liberally to the banking system. In November, it reduced the discount rates on member bank borrowings from the Reserve Banks. As the stream of factual information verified the emergence of recessionary trends, Federal Reserve actions and policies became more aggressive, and discount rate, open market, and reserve requirement instruments were actively applied in complementary fashion to foster ease in credit markets and encourage bank credit and monetary expansion. From late fall 1957 through April 1958, there were four reductions in Federal Reserve Bank discount rates, from 3^2 P e r c e n ^ to 1% per cent. Through continuing open market operations from late fall of 1957 to early summer of 1958, the Reserve System supplied the commercial banks with some $2 billion of reserve funds. Through three successive reserve requirement reductions in late winter and early spring of 1958, the System released for the use of member banks about $1.5 billion of their required reserves. The total amount of reserve funds supplied by the Federal Reserve System over the nine months November 1957-July 1958 was enough to enable member banks to reduce their discounts at the Reserve Banks from $800 million to about $100 million, to offset sales of 4 ANNUAL REPORT OF BOARD OF GOVERNORS gold to foreign countries amounting to about $1.5 billion, and to finance a commercial bank credit expansion of almost $8 billion. Monetary expansion from February through July stimulated by this Federal Reserve action was at an exceptionally rapid rate— at an annual rate of 13 per cent for all deposits, including time and demand deposits. For the active money supply, that is, demand deposits and currency, the rise was at an annual rate of 8 per cent. After the shift in Federal Reserve policy in the summer, expansion in the active money supply slackened, and for the year as a whole it amounted to about 4 per cent. BROADER EFFECTS OF MONETARY ACTION Although the immediate impact of Federal Reserve policy was on commercial banks, it clearly had broader effects upon the economy generally. For one thing, since commercial banks are direct participants in some degree in all important credit markets, expansion in bank lending and investing activities intensified competition among all lenders for the acquisition of the available supply of creditworthy loans and securities. This widened access of all potential borrowers to credit funds. It also worked to reduce the cost of financing to borrowers generally—businesses, farmers, consumers and home buyers, and all levels of government. Another effect of the credit ease was a greater willingness on the part of banks and other lenders to make new loans to business customers and to renew outstanding credits. This permitted the orderly run-off of excess business inventories accumulated in the preceding boom. It also facilitated the completion of business programs of plant and equipment expansion begun in that period. With a $6 billion reduction in business inventory holdings and a significant cutback in fixed investment programs during the recession, business loans outstanding declined only $1.5 billion in the year ending September 1958. The ability of businesses to maintain their bank borrowing and also to borrow more readily in capital markets not only cushioned downward pressures on investment spending but helped many companies to minimize cutbacks in their working force and payrolls, to maintain dividends, and to strengthen liquidity positions. In housing markets, the easier conditions broadened the avail- FEDERAL RESERVE SYSTEM 5 ability of mortgage funds. Discounts were reduced on FHA and VA mortgages subject to ceiling interest rates, and interest rates on new conventional mortgages fell. As bank credit expansion gained in momentum, banks participated in mortgage investment more actively than at any time since the boom housing year of 1955. The increased availability of mortgage funds at lower cost, together with the maintenance of personal income, was promptly reflected in a step-up of builder activity in constructing new houses. GROSS NATIONAL Billions of PRODUCT dollars, annual rates 500 300 TOTAL 260 460 CURRENT DOLLARS 420 I \r 1954 DOLLARS I I 220 I GOVERNMENT 380 - INVESTMENT <^-- 340 40 RESIDENTIAL 1 1 1954 300 '56 '58 I1954 CONSTRUCTION I I '56 '58 NOTE.—Department of Commerce quarterly estimates, adjusted for seasonal variation. "Investment" includes producers' durable equipment, private construction other than nonfarm residential, change in business inventories, and net exports of goods and services. In the consumer instalment credit area, the increased availability of funds made it possible for lenders to meet sound demands for credit more readily, thus bolstering lagging demand for consumer durable goods. On some transactions, terms were eased and, in addition, new credit plans were developed and extended. Easier 6 ANNUAL REPORT OF BOARD OF GOVERNORS credit conditions permitted lenders to be more liberal in granting renewals and extensions of time for repayment of outstanding credit. Thus, the volume of repossessions and credit losses was less than would otherwise have been the case, with benefits to both borrowers and lenders. Increased availability of funds also had an impact on State and local government financing. In some cases, the lower cost of financing encouraged States and municipalities to borrow in order to finance capital projects. Lower market rates also enabled certain State and local governments that had a ceiling on interest rates to return to the market. The increase in annual rate of spending by State and local governments from the summer of 1957 to the summer of 1958 was a billion dollars more than in the preceding year. These observable effects of easier monetary conditions which developed from efforts to combat recession were, of course, important and salutary. They are not to be overly stressed, however, for monetary action is always only one element in Government counterrecession policy. In turn, Government policy is always only one element in the total economic scene. Businesses, individuals, and State and local governments, in the light of their own circumstances, were taking actions to adjust and adapt their situations and to redirect their energies. Their actions undoubtedly shaped the recovery and gave it momentum. Restraint of inflationary pressures during the preceding boom undoubtedly contributed to an underlying economic situation favorable to recovery and made the economy responsive to these monetary and other anti-recession actions. CHANGING EXPECTATIONS Achievement of monetary ease to combat recession so promptly and amply was not without its problems. One of the most acute was the build-up of prices in the bond market as speculators counted on continuing business recession, credit ease, and still higher bond prices. Psychological reactions and expectations always play a role in swings in economic and financial developments, but they were of particular importance in financial markets in the summer of 1958 as the economic outlook rapidly changed from one of a continuing recession to one of early, vigorous recovery. At that time, the improved economic outlook led to a sharp FEDERAL RESERVE SYSTEM 7 change in expectations in regard to renewed inflationary pressures and a turnabout in the trend of interest rates. A much larger Federal deficit loomed up than had been estimated, as well as the crisis and threat of military action in the Middle East. Concern about the drain of gold from the nation's monetary reserves through sales of gold to the industrial nations of Europe was a further cause of uncertainty. The fact that the Canadian Government announced a major refunding operation at sharply higher interest rates was also a complicating factor. In these circumstances, heavy market sales by holders of United States Government securities in anticipation of higher interest rates sharply depressed bond prices. Initially, this selling stemmed from temporary holders who had bought in anticipation of a continued rise in Government securities prices. Some of these holdings had been acquired with funds borrowed on thin margins in connection with the Treasury's June financing operations. In this financing, investors had exchanged the major portion of maturing issues for 6%year bonds rather than for the 11-month certificates also included in the exchange offering. In many cases, selling was forced because the margins vanished as securities prices declined. Prices of Government securities continued to decline under pressure of steady liquidation and the reluctance of investors to purchase market offerings in view of changed prospects for credit demands and inflationary threats. During the period from June 19 through July 9, the Treasury purchased nearly $600 million of the bonds previously taken in the exchange, retiring about three-fourths of these and placing the remainder in Treasury investment funds. On July 18, the Federal Open Market Committee concluded that the market situation had become disorderly and decided to intervene temporarily in the medium- and long-term sectors of the Government securities market. This action was within the framework of the Committee's established operating rules. From July 18 to July 23 the System purchased $1.2 billion of securities involved in a Treasury refinancing, largely "when issued" securities, and a small amount of other notes and bonds. Thereafter, as market conditions became more orderly, no further Federal Reserve open market transactions were effected outside the usual area of short-term Government securities. During late July 8 ANNUAL REPORT OF BOARD OF GOVERNORS and early August, sales of Treasury bills by the System together with other factors affecting reserves more than absorbed the redundancy of reserves that threatened to result from Federal Reserve intervention in the Government bond market. MODERATION OF FEDERAL RESERVE POLICY By August, there was clear evidence in current statistics that recovery in economic activity and production had gained considerable momentum and was likely to go forward without serious setback. Moreover, in view of the strength of consumer demand, appreciable further decline in business inventory holdings and capital outlays was no longer likely. About this time, inflationary expectations began to spread. The abrupt upward shift of interest rate levels in central money markets, while precipitated by liquidation of speculative positions in Government securities, reflected in part investor demand for an interest premium to cover the risk of a depreciating purchasing power of invested funds. There was a large shift by investors, including institutional investors such as pension funds, in the allocation of newly available funds to common stocks instead of fixed interest obligations, with hedging against inflation a frequent explanation of the change in investor policy. Large current and prospective demands for credit by the Federal Government, State and local governments, and home purchasers also influenced the rising cost of borrowed funds. In the stock market, the volume of trading was expanding rapidly and the rise in stock prices reduced the yields on common stocks below the yields on high-grade corporate bonds. In the light of the rapidly changing economic situation, in most respects highly encouraging but with inflationary and speculative psychology spreading, the Federal Reserve, during the summer, began to move away from its anti-recession policy of low discount rates, high excess reserves, and reductions in reserve requirements. System open market operations after midsummer supplied only a portion of the reserves needed to meet rising credit demands and to offset the reserve drain of a continued gold outflow. As a result, member banks drew down their excess reserves somewhat and at the same time increased their borrowings from the Federal Reserve Banks. Such borrowing was made much more costly when Reserve FEDERAL RESERVE SYSTEM RESERVES AND BORROWINGS Billions of dollars 2.0 BORROWINGS A/ / r EXCESS RESERVES 1.0 1954 1956 1958 NOTE.—Monthly averages of daily figures for member banks. Net reserve position indicates excess reserves minus borrowings. Bank discount rates were raised in the late summer from 1% p e r cent to 2 per cent, and in midautumn to a level of iy2 p e ^ cent. From late summer through the end of the year, bank credit and the money supply continued to expand but at a rate much reduced from earlier in the year. Some seasonal expansion in business loans was supplemented by a rapid growth of real estate loans. On the other hand, bank holdings of short-term United States Government securities rose only moderately despite a substantial increase in the supply of such securities to finance the Treasury's deficit. With business sales and liquidity showing rapid rise, the higher interest rates that developed in the market helped to attract a substantial volume of funds of nonbank investors, especially business corporations, into the purchase of the new short-term Treasury issues. As a consequence, the Treasury was able to finance most of its deficit 10 ANNUAL REPORT OF BOARD OF GOVERNORS outside the banking system, and at the same time banks were able to meet private credit demands accompanying economic recovery, with only a moderate further growth in total bank credit and money. REGULATION OF MARGIN REQUIREMENTS In addition to its broader monetary responsibilities, the Federal Reserve is directed by law to prescribe margin requirements to guard against excessive use of credit for purchasing or carrying stock market securities. By providing a means of dealing directly with this volatile type of credit, margin requirements serve as a specialpurpose supplement to the general instruments of Federal Reserve action. Since the flow of credit into the stock market tends to fluctuate with general business conditions, changes in margin requirements are usually correlated with policy actions that affect general credit availability. Following the stock market decline in the early fall of 1957, total credit to customers for purchasing and carrying stock market securities declined by about 5 per cent and was back to about the level outstanding in mid-1955. With this indication of abatement of credit use in the stock market, the Board of Governors, early in January 1958, reduced the required margin from 70 to 50 per cent. With the increasing activity and rise in stock prices accompanying economic recovery, stock market credit rose sharply, reaching by July a level about 20 per cent above the volume at the beginning of the year. In view of the rapid rise in credit to finance trading in or temporary ownership of stocks, and the emerging investment psychology favoring purchase of stocks as an inflation hedge, the Board, early in August, restored the required margin to 70 per cent. As outstanding stock market credit continued to rise following this action, the Board, in mid-October, raised the required margin to 90 per cent. SITUATION AT CLOSE OF 1958 Monetary policy during the autumn aligned monetary conditions more closely with developments in the economy. Consumer spending on durable goods and housing continued to expand and was reflected in high levels of output of household durable goods, in a more than FEDERAL RESERVE SYSTEM 11 seasonal pickup in auto production, and in a rise in housing starts to the highest level in recent years. Business inventory policies were switching from liquidation toward accumulation, and there was a widespread, though small, upturn in capital expenditures. At the same time, Federal, as well as State and local government spending, was expanding rapidly in accordance with budgetary authorizations adopted earlier. In financial markets moderate curtailment of credit availability and higher interest rates helped to dampen speculative excesses then developing, to restrain and spread out the volume of new corporate and municipal securities financing, and to facilitate the financing of the large Federal deficit outside the banking system. The reduction of corporate and municipal securities financing followed some anticipatory borrowing by these issuers earlier in the year when long-term interest rates were lower. At the turn of the year, there was a large calendar of authorized but unissued State and local government securities. Total economic activity, measured in real terms, had nearly regained its earlier peak. The active money supply had risen about 3y2 per cent above its pre-recession level, and holdings of other liquid assets, including time deposits, were up sharply. The financial basis for further growth was established. CHANGES IN GOLD RESERVES Developments in international trade and finance in 1958, and especially the decline in United States gold reserves, brought to public attention the interdependence of events in free market economies here and abroad. At the end of the year, announcement by a dozen European countries of the restoration of external convertibility for their currencies testified to the postwar renewal of Europe's economic and financial strength. Unlike most components of domestic demand, external demand for United States exports failed to turn up during 1958. Exports of goods and services, which in the previous cyclical expansion had increased from $18 billion in 1954 to an annual rate of $27 billion in the first half of 1957, remained throughout 1958 at the level of $23 billion to which they had fallen early in the year. The position of the United States in world trade is unique, in that 12 ANNUAL REPORT OF BOARD OF GOVERNORS it is the leading exporter of manufactured products and at the same time the most important exporter of crude and semi-finished materials and fuels. Like other exporters of primary products, the United States was affected by worldwide recessions in steel and textile industries, which checked its previously swollen exports of coal, scrap metal, steel, and raw cotton. Like other exporters of manufactures, this country was affected by cyclical adjustments of demand, not only in other industrial countries, but also in the less industrialized countries whose international earnings had fallen. U . S . BALANCE OF PAYMENTS Billions of dollars - TOTAL PAYMENTS FROM U.S. EXPORTS OF GOODS / - AND SERVICES S^ _s«er-^/ -•»' S' N^/****—' / ry - / IMPORTS OF GOODS AND SERVICES -_ 4 ,,illl i Him li. nil 1 NET TRANSFERS OF GOLD AND DOLLARS 1 1 ! 1954 6 I 1956 3 1 I 1958 NOTE.—Department of Commerce seasonally adjusted quarterly data. Total payments from the United States include imports of goods and services, remittances, Government nonmilitary grants and loans, and net U. S. private capital outflow. Exports of goods and services exclude military transfers under aid programs. Net transfers of gold and dollars include gold purchases from the United States and net increases in foreign holdings of short-term assets in the United States and of U. S. Government long-term securities. Exports in first quarter of 1954 adjusted to include, and exports in second quarter to exclude, shipments delayed by port strike in March 1954. FEDERAL RESERVE SYSTEM 13 Moreover, United States export trade in manufactures became subject to increasingly effective competition from Europe and Japan, areas whose capacity for exporting had greatly increased. And while United States demand for imported raw materials was relatively low in 1958, demand for imported consumer goods continued to increase. One consequence of developments such as these was that the surplus of exports over imports of goods and services was much smaller than in 1957, and fell far short of matching the large continuing outflow of private loans and investments and of Government loans and grants. The export surplus was only moderately larger than in the years immediately preceding the 1956-57 upsurge, but the capital outflow was much larger. In its total balance of international payments—on current and capital account—the United States thus had an unusually large deficit in 1958. It is the purpose of this section of the Annual Report to indicate how gold movements were related, on the one hand, to this deficit, and, on the other hand, to the functioning of the United States monetary system. GOLD AND THE BALANCE OF INTERNATIONAL PAYMENTS A deficit in a country's balance of international payments (an excess of payments to foreigners over receipts from foreigners) involves the transfer of international means of payment from domestic to foreign holders. In relations between the United States and foreign countries or international institutions, two kinds of international means of payments are used: gold and liquid dollar assets. The United States Treasury sells gold to, and purchases gold from, foreign monetary authorities for the settlement of international transactions at the fixed price of $35 an ounce, plus or minus a commission charge of one-fourth of one per cent. Dollar assets are freely transferred between United States holders and foreign monetary authorities or (as far as foreign countries' exchange regulations permit) private persons. Liquid dollar assets held by foreigners include deposits with the Federal Reserve Banks and other banking institutions, holdings of Treasury bills and other United States Government securities, and, to a smaller extent, holdings of bankers' acceptances and other short-term dollar claims. In 1958, a major part of the $3.4 billion deficit in the United 14 ANNUAL REPORT OF BOARD OF GOVERNORS States balance of international payments was settled in the form of gold. The amount of net gold sales to foreigners during the year, $2.3 billion, was larger than in any other 12-month period with the exception of the period immediately following the outbreak of the Korean war in 1950. Some of the factors accounting for the large deficit in the United States balance of international payments have already been discussed. The reason why a large fraction of that deficit was settled in gold lies primarily in the regional distribution of the balanceof-payments surpluses of foreign countries. The practices of foreign monetary authorities vary widely in regard to the proportion of their reserves held in the form of gold on the one hand, or dollars or other foreign exchange on the other. Some countries, such as the United Kingdom, Belgium, the Netherlands, and Switzerland, have for many years held most of their official reserves in the form of gold, and have held liquid dollar assets only insofar as they were needed for working balances. Most other European nations also have held a substantial part of their reserves in gold. In 1958 the countries that experienced the greatest gain in reserves were highly industrialized countries, including many European countries. This development was the consequence of the slowdown in economic expansion throughout most of the free world and of the relatively greater decline in export earnings for rawmaterial producing countries than for industrial countries other than the United States. Sales of gold to the four countries that generally take practically all of their reserve gains in the form of gold (the United Kingdom, Belgium, the Netherlands, and Switzerland) accounted for threefourths of United States net gold sales in 1958; sales to three other industrial countries (Austria, Italy, and Japan) accounted for virtually all the rest. Within the year 1958, net gold sales were largest in the second quarter, and gradually declined during the third and fourth quarters. This decline in the gold component of balance-of-payments settlements did not reflect a decline in the balance-of-payments deficit itself. FEDERAL RESERVE SYSTEM 15 GOLD AND T H E UNITED STATES MONETARY SYSTEM A balance-of-payments deficit for the United States means, in the first instance, a transfer of liquid assets from domestic to foreign residents or monetary authorities. This transfer need not affect total bank assets or liabilities in the United States as long as the deficit is settled exclusively by transfers of dollar assets. For example, if a United States deficit is settled by the transfer of dollar deposits to residents of foreign countries and then to their monetary authorities, no change in total deposits with United States banks occurs. If foreign monetary authorities receiving dollars then invest in money market paper, such as United States Treasury bills, unless the bills are purchased from banks the effect generally will be simply a decrease in domestic nonbank holdings of bills accompanying the increase in foreign holdings, with the volume of bank deposits remaining unchanged. If transfers of dollar assets to foreign monetary authorities are followed by sales of gold to them, further monetary effects of a somewhat more complicated kind occur. Under the monetary system of the United States, gold is both a means of international payments and the ultimate reserve basis of the United States money supply. Movements of gold directly affect the money supply, the reserves of commercial banks, and the reserves of the Federal Reserve Banks. The great bulk of the gold holdings of the United States (at the end of 1958, $20.0 billion out of a total of $20.6 billion) is held in the Treasury as security against a corresponding amount of gold certificates issued to the Federal Reserve Banks. These gold certificates owned by the Reserve Banks, together with their holdings of United States Government securities, advances to member banks, and other assets, serve as backing for Reserve Bank liabilities. Under the Federal Reserve Act, holdings of gold certificates must be not less than 25 per cent of Federal Reserve note and deposit liabilities; actually the amounts held greatly exceed this minimum. Federal Reserve deposit liabilities represent primarily reserves that the member banks are required to hold against their own deposits. Member bank deposits in turn are a major component of the country's money supply. The way in which the money supply, member bank reserves, and 16 ANNUAL REPORT OF BOARD OF GOVERNORS Federal Reserve Bank reserves are affected by international transfers of gold may be explained by describing the consequences of a gold sale by the United States to a foreign monetary authority. (A sale of gold by a foreign monetary authority to the United States Treasury would have exactly the opposite effects on bank deposits, member bank reserves, and gold certificate holdings of the Federal Reserve Banks.) In preparing to buy gold, the foreign authority usually accumulates funds in its account with the Federal Reserve Bank of New York, either by selling money market paper or by transferring funds from deposits with commercial banks. In either case, the immediate effect is a reduction in commercial bank deposits, generally those of member banks, and along with this a reduction in member bank reserves. When the foreign authority purchases gold from the Treasury, it transfers funds from its foreign account with the Federal Reserve Bank of New York to the Treasury's account with the Federal Reserve Bank. (This is usually done through the intermediation of the Stabilization Fund of the Treasury, which handles these transactions through its fiscal agent, the Federal Reserve Bank of New York.) The Treasury in turn uses the proceeds in most cases to redeem a corresponding amount of gold certificates owned by the Reserve Banks. The effects of the transaction thus include, first, a reduction in money in the form of bank deposits; second, a drain on member bank reserves; and, third, a reduction in the gold certificate reserves of the Federal Reserve Banks. GOLD AND FEDERAL RESERVE POLICY Gold movements and the underlying developments in international trade and payments are among the elements of the economic situation constantly under review in the determination of monetary policy. In the administration of policy, the effects of gold movements upon member bank reserves are of immediate importance, since changes in member bank reserves usually have further multiple effects upon the money supply through bank credit contraction or expansion. The Federal Reserve takes into account the impact upon member bank reserves of gold transactions and of all other factors that affect those reserves, including changes in currency in circulation, movements in Treasury deposits at the Reserve Banks, and fluctuations FEDERAL RESERVE SYSTEM 17 in Federal Reserve float. When, as in early 1958, the combined effect of such factors on member bank reserves would be in a direction contrary to policy objectives, the Federal Reserve takes offsetting action. In the first seven months of the year, Federal Reserve policy was aimed at adding substantially to member bank reserves. Gold sales, however, were draining about $1.5 billion of reserves, and this drain was offset only in small part by other factors affecting reserves. In order to complete the offset, and in addition to ease reserve positions and provide for monetary expansion, member bank reserve requirement percentages were lowered, releasing $1.5 billion of reserves, and additional reserve funds were supplied through open market operations. In the latter part of the year, continued although reduced sales of gold further drained bank reserves. Also, the rise in currency in circulation drained more reserves than were supplied by the rise in Federal Reserve float. Since in this period the Federal Reserve was moderating the availability of reserves, only part of the contractive impact of these and other factors upon the reserves of member banks was offset through open market operations. Member banks provided the rest of the reserves needed for deposit expansion through borrowing from the Federal Reserve Banks. Over the year as a whole, the ratio of gold certificate reserves of the Federal Reserve Banks to their note and deposit liabilities dropped from 46.3 per cent to 42.1 per cent, but it remained well above the statutory minimum of 25 per cent. There was a moderate increase in liabilities for Federal Reserve notes in circulation. Deposit liabilities of the Reserve Banks declined; the increase in required reserves of member banks brought about by growth in their deposits was more than offset by the lowering of member bank reserve requirement percentages. DEMAND AND SUPPLY OF FUNDS IN 1958 Total public and private debt rose more in 1958 than in 1957, although much less than the record postwar growth in 1955. Record postwar expansion of commercial bank credit provided a large part of the funds to absorb this rise in debt, but funds available for investment from nonbank sources also rose. 18 ANNUAL REPORT OF BOARD OF GOVERNORS Availability of funds in relation to demand changed considerably over the year, mainly in response to shifts in the business outlook and in Federal Reserve policy. In the first half of 1958, when business and consumer demands for credit were slack and the availability of bank reserves increased, funds seeking outlets pressed against demand and interest rates declined. Total bank credit rose contraseasonally as banks increased their holdings of securities. In the last half, when the availability of bank reserves was more restricted, vigorous economic recovery, together with a large Federal Government deficit, generated additions to demands for financing and interest rates rose sharply. Expectations of still more active credit demands and of possible creeping inflation tended to make lenders reluctant to invest in fixed interest obligations, especially on longer term, and accentuated the rise in interest rates. The channeling of an increased volume of available funds into stocks, also in response to expectations of inflation, was a further factor of upward pressure on interest rates. CREDIT DEMANDS Credit growth in 1958 reflected mainly increased borrowing by all levels of government. Rising Federal expenditures and reduced tax revenues resulted in a large cash deficit, in contrast with a small surplus in the previous year. State and local governments increased their outstanding debt more than in 1957. Private debt expanded further, but the annual rate of growth continued the downtrend that had prevailed since 1955. Business borrowing fell off substantially, reflecting reduced plant and equipment outlays and heavy inventory liquidation. Consumer indebtedness for the purchase of goods and services declined during the year, reflecting principally a decrease in automobile purchases. Mortgage financing of residential properties, however, showed an accelerated increase. Outstanding farm mortgage debt also continued to rise and other loans to farmers by banks went up nearly one-fourth. Government. The Federal Government had a cash deficit of $7.3 billion in calendar year 1958, a sharp change from the surplus of $1.2 billion in 1957 and of $5.5 billion in the preceding year. Federal expenditures were about $6 billion higher in 1958 than in 1957 and cash receipts nearly $3 billion lower. The decline in revenue, mainly FEDERAL RESERVE SYSTEM 19 in corporate and individual income taxes, reflected the impact of recession on corporate profits and personal incomes. Increased Federal spending was concentrated in the second half of the year when outlays rose substantially. About $4 billion of the 1958 increase was in unemployment benefits and other social security payments, but military, highway, and agricultural expenditures also rose. As a result of Treasury borrowing to cover the deficit, outstanding public debt rose $8 billion in 1958, the largest calendar year increase since World War II. A small part of this increase occurred in the first half of 1958, when the Treasury used the proceeds of this borrowing, together with its seasonal cash surplus, to build up its cash balance in anticipation of a larger than seasonal deficit later in the year. In the last half of 1958, the Treasury financed its $12.6 billion cash deficit through net cash borrowing of $7.7 billion and a reduction in the Treasury balance of $4.9 billion. Marketable debt rose $11.4 billion, or $3.4 billion more than total public debt, offsetting a decline of that amount in nonmarketable issues. About two-thirds of the marketable debt increase was in issues maturing in five years or more. A $14.5 billion increase in these issues in the first half of the year, mainly in connection with refunding operations, was offset in part by a $7.2 billion decline in the last half as the passage of time carried some issues into shorter maturity ranges. Net redemptions of savings bonds continued, but were in much smaller volume than in 1957. The volume of special issues to Government funds and other nonmarketable debt also declined in large part because of payments in excess of receipts in the old-age and survivors insurance and unemployment trust funds. State and local governments continued to increase their expenditures, as in previous years. Their needs for long-term funds, primarily to finance schools, highways, and other public works, were increasing, and these governments sold a record volume of bonds to obtain new capital. The volume of financing was heaviest during the first half of the year when State and local governments responded to the lower level of interest rates by accelerating the financing of construction programs, funding shorter term debts, and undertaking some financing deferred in 1957. Despite a record volume of bond sales, amounting to $7.7 billion, the backlog of authorized but unsold bond issues increased during the year. 20 ANNUAL REPORT OF BOARD OF GOVERNORS INTEREST RATES Per cent H "I , ' 1954 J COMMERCIAL PAPER , OPEN MARKET 1956 , 1958 NOTE.—Market yields, weekly averages of daily figures. Treasury bills, market yields on 90-day bills. Long-term U. S. Government, yields on bonds maturing or callable in 10 years or more. Commercial paper, rate on prime 4- to 6-month open market paper. Yields on corporate and State and local government bonds, from Moody's Investors Service. Market rates of interest on United States Government and State and local securities declined further in the early months of 1958 following a sharp drop in the fall of 1957. Rates on Treasury bills and intermediate-term issues fell much more than rates on bonds, and the spread between short- and long-term Treasury issues reached a postwar record around midyear. The smaller drop in long-term rates resulted in part from the continuation of a substantial volume FEDERAL RESERVE SYSTEM 21 of bond issues by corporations and State and local governments, as well as by the Federal Government. During the summer, rates rose sharply from their spring lows, reflecting the rapid economic turnaround and the growing realization that the Federal cash deficit would be large, together with a mounting fear of inflation. After early October, rates on Treasury issues were relatively stable despite substantial Federal net cash borrowing. Rates on State and local securities fell off somewhat in late 1958, owing in large part to the small volume of new issues, and at year-end were about one-third of a percentage point below their 1957 peaks. Business. The decline in business investment that began late in 1957 continued through the first three quarters of 1958. Outlays for new plant and equipment fell one-fifth over this period and inventory liquidation was substantial. In the fourth quarter of the year, spending for fixed capital edged upward and liquidation of business inventories ceased. For 1958 as a whole, total business investment was one-fourth smaller than in 1957. Funds available to business corporations from current operations took a sharp drop in the first half of 1958. While depreciation allowances continued to rise, retained earnings fell almost twothirds. In the last half of the year, corporate profits rose sharply and in the fourth quarter the volume of funds available from retained earnings and depreciation allowances reached a new peak. For the year as a whole, these internal funds were only 7 per cent smaller than in 1957. The volume of external financing by business was considerably smaller in 1958 than in any of the previous three years of business expansion although much larger than in the recession year 1954. Growth in outstanding securities of corporations was one-tenth less than in 1957 but more than in any previous year. Business loans at commercial banks, however, declined slightly in contrast with increases of roughly $2 billion in the previous year and $6 billion in 1956 and 1955. The pronounced shift in external financing from banks to securities markets evident in 1957 continued in 1958, induced in part by the somewhat reduced level of long-term interest rates that prevailed in the first half of the year. In the last quarter, following 22 ANNUAL REPORT OF BOARD OF GOVERNORS the onset of vigorous recovery and a sharp rise in interest rates, securities market financing fell off and demands for bank loans strengthened. Most of the decline in new securities financing was in issues of manufacturing and sales finance companies. Capital outlays of manufacturing corporations were at greatly reduced levels, and sales finance companies had less need for new funds in view of the decline in borrowing on automobiles by consumers and dealers. Public utility and communication companies reduced their expenditures for plant and equipment and their securities financing only moderately. A sizable increase in new issues by investment companies reflected in part the establishment of new investment companies. Business loans at commercial banks fell off more than usual during the first seven months of the year, mainly in response to inventory liquidation and the funding of some short-term loans through sale of long-term securities in the capital market. Business loans rose over the remainder of the year, mainly because of seasonal borrowing and renewed borrowing by public utilities, which had reduced bank indebtedness over most of the first three quarters. Outstanding mortgage debt on multi-family and commercial construction, part of which represents borrowing for business purposes, rose more in 1958 than in any other recent year. A large part of this increase, however, was for construction of apartment buildings. With funds from current operations and external financing reduced less than total spending for fixed capital and inventories in 1958, corporations added to their holdings of cash and United States Government securities. Most of the additions were in the last quarter, when a sharp rise in corporate profits brought them close to pre-recession highs. At year-end, corporate liquidity, as measured by the ratio of these liquid assets to total current liabilities, was higher than at any time since the end of 1955. Consumers. The pace of growth in consumer indebtedness slackened in 1958. The increase for the year in residential mortgage and consumer credit totaled $10.7 billion, about the same as in 1954 but much below the $18.9 billion rise in 1955. Almost all the 1958 increase was in residential mortgages, which expanded one-fifth more than in 1957. Outstanding consumer credit for the purchase of goods FEDERAL RESERVE SYSTEM 23 and services changed little in 1958, as liquidation of debt early in the year was about offset by later expansion. Housing starts, which were at a reduced level in the first quarter of 1958, rose at a rapid rate over the remainder of the year, reaching a seasonally adjusted annual rate of 1.4 million in the last quarter. Of the 1.2 million starts for the year, privately financed units totaled more than 1.1 million, 15 per cent more than in 1957 and the largest number since 1955. Apartment units accounted for a larger proportion of the starts in 1958 than in other recent years. Reflecting the large number of sales of existing houses as well as of new houses, mortgage debt outstanding on nonfarm 1- to 4-family houses rose about $10.2 billion to almost $118 billion in 1958 compared with an increase of $8.6 billion in 1957. Nearly three-fourths of the increase was in conventional mortgages and the remainder in FHA-insured mortgages; both types rose much more than in any previous year. VA-guaranteed mortgage debt declined for the first time on record, reflecting for the most part a further drop in volume of new loans to the lowest level since 1949. Yields on home mortgages declined along with other market rates of interest in the first half of 1958. In late 1957, when yields on competitive capital market investments were declining sharply, mortgage yields had shown little change. These mortgages continued to be attractive to investors. The emergency housing legislation enacted in the spring of 1958 provided additional stimulus to home mortgage financing by authorizing the Federal National Mortgage Association to buy $1 billion of FHA-insured and VA-guaranteed mortgages on new low-cost housing, by eliminating discount controls on Government underwritten mortgages, and by raising the interest rate ceiling on VA-guaranteed mortgages from 4^2 to 4% per cent. After midyear, when other market rates of interest rose sharply, mortgage yields rose only moderately. Reflecting these and other developments, seasonally adjusted applications for FHA insurance and requests for VA appraisals on new homes began to mount in April, reached a peak in September, and then fell off. FHA applications for the year were the highest since 1950, and VA appraisal requests were up nearly 50 per cent from the low level of 1957. Outstanding short- and intermediate-term consumer debt changed 24 ANNUAL REPORT OF BOARD OF GOVERNORS little in 1958, after increasing in every earlier postwar year. A marked decline in instalment debt on automobiles in 1958 was offset by increases in other types of instalment debt and in noninstalment debt. Extensions of credit on sales of new cars were far below the levels of other recent years. Extensions of personal loans and other consumer goods credit, after a downturn early in the year, increased gradually to levels above those prevailing at the end of 1957. Extensions of automobile credit also rose in the last quarter of 1958 but remained below 1957 levels. Repayments of instalment debt were stable throughout the year. Instalment credit terms on some transactions were eased and new credit plans were developed and extended. International capital transactions. The net outflow of United States private capital in all forms was about $300 million less in 1958 than in 1957, but this moderate decline was accompanied by substantial shifts in composition of the flows of investments and loans. The outflow for direct investment in affiliates abroad was about half the 1957 amount, a decline of more than $900 million, reflecting in part the completion of certain large capital expenditure programs. Net new security issues in the United States by foreign and international borrowers, however, reached a postwar record level of $900 million in 1958, twice as much as in 1957. Offerings by Canadian corporations and local governments and by the International Bank for Reconstruction and Development were unusually large, particularly in the first half of the year when interest rates in the United States were relatively low, and the volume of other foreign issues also was at a record level. The net outflow of bank loans and commercial credits was little changed; persistence of foreign credit demands was associated in part with balance-of-payments difficulties in some of the less industrialized countries. These and other capital transactions, together with current transactions between the United States and the rest of the world, enabled foreign monetary authorities to acquire $2.3 billion of gold from the United States while foreign holdings of liquid dollar assets increased by $1 billion. Most of this increase was in time deposits of foreign banks at United States commercial banks. Foreign holdings of Treasury securities showed no net change. They declined during the first half of the year, when bill yields fell below the 25 FEDERAL RESERVE SYSTEM time deposit interest rate, but rose in the last half when the trend of interest rates was reversed. CREDIT SUPPLIES The flow of loanable funds rose in 1958 following declines in 1956 and 1957. The bulk of the increase was in commercial bank credit, which expanded in response to increased availability of bank reserves by the postwar record amount of $15 billion. A major component of the growth in loanable funds was a postwar record rise in commercial bank time deposits. Individuals also continued to accumulate savings in other financial forms at a high rate. Activation of idle cash balances, which had occurred in other recent years, when interest rates were rising, apparently did not continue in 1958. BANK LOANS AND INVESTMENTS ALL COMMERCIAL BANKS Billions of dollars 180 TOTAL 160 140 100 LOANS 1954 1956 AAJ 1958 NOTE.—Figures are partly estimated. Data exclude interbank loans and are for last Wednesday of month, except for June and December call dates. 26 ANNUAL REPORT OF BOARD OF GOVERNORS Consumer saving. Saving by consumers in financial form—the increase in their financial assets less the increase in their indebtedness—continued at a high level during 1958 after rising substantially in the previous two years. Consumer accumulation of funds through savings institutions and banks was at record rates, while saving through the acquisition of marketable securities was at a much lower rate than in 1957. Indebtedness of individuals to purchase securities, however, rose sharply in 1958, while that for the purchase of residential real estate and goods and services, discussed earlier in this report, rose by a moderate amount. Deposits in mutual savings banks and shares in savings and loan associations, which had been increasing by relatively stable amounts in the past few years, grew at a more rapid pace in 1958. The total of savings and time deposits at commercial banks also rose more than in other recent years, although growth in the last half of the year was much below the rapid rate of the first half. This change in rate of growth was due in large part to a shift of business and State and local government funds out of Treasury bills and other liquid assets into time deposits in the first half and a reversal of that flow in the second half in response to movements in market rates of interest on these alternative investments. Growth in savings deposits at commercial banks is estimated to have remained above the high 1957 rate over most of the year, though dropping off toward the year-end. Individuals supplied funds to other financial intermediaries, such as life insurance companies and pension funds, at a somewhat higher rate in 1958 than in the previous year. Individuals accumulated securities at a much lower rate in 1958 than in the previous two years. They made smaller net purchases of State and local government securities and corporate bonds, and they also reduced their holdings of United States Government securities. Net redemptions of United States savings bonds were at a much slower pace than in the previous year, but the decline in holdings of other Treasury issues offset the previous year's rise. Consumer net borrowing to purchase securities showed a marked rise of about $1 billion in 1958 in contrast with a decline of about $500 million in the previous year. Most of the increase was in customer debit balances with New York Stock Exchange member FEDERAL RESERVE SYSTEM 27 firms covering the purchase of corporate stocks. There was also considerable borrowing for speculative purchases of United States Government securities in connection with the June Treasury financing, but these loans were rapidly liquidated following the sharp decline in bond prices in midsummer. Institutional lenders. The flow of funds to institutional lenders increased in 1958. Growth in assets of life insurance companies was nearly one-sixth more than in 1957, but savings capital of savings and loan associations rose one-fourth more and deposits at mutual savings banks two-fifths more than in 1957. Reflecting the increased demand for mortgage loans and the relatively high yield on mortgages in relation to other investments over much of 1958, institutions increased their holdings of mortgages substantially more in 1958 than in 1957, while their holdings of business securities rose less. The growth in mortgage holdings of mutual savings banks in 1958 was $670 million larger than in 1957, while the rise in business securities was $200 million less. Savings and loan associations, which invest primarily in mortgages, increased their holdings over $1.3 billion more in 1958 than in 1957. Life insurance companies, whose new investments largely reflect previous forward commitments, increased their commitments for mortgages sharply during the year, but their acquisitions of mortgages did not rise until late in the year. Mortgage portfolios of these companies expanded $400 million less than in 1957. Their holdings of business securities rose about as much as a year earlier, and, for the first time since 1946, their holdings of United States Government securities rose, contrasting with substantial reductions in other recent years. Bank credit. Loans and investments at commercial banks rose $15 billion in 1958, about half again as much as the previous postwar record growth in 1954. In response to a continued policy of credit ease, almost three-fifths of the increase occurred during the first half of the year, a period when bank credit usually declines. About $1.5 billion of the increase in this period was a direct offset to reductions in reserve requirements. In the latter part of the year, as economic recovery gained momentum and reserve availability was restricted, bank credit expanded at little more than the usual seasonal rate. With loan demands generally slack throughout the year, most of 28 ANNUAL REPORT OF BOARD OF GOVERNORS the credit growth was in holdings of United States Government securities, which rose by a postwar record amount of $8 billion. Investments in other securities, mainly State and local government issues, also rose by a record $2.5 billion. Loan growth in 1958 totaled only $4.3 billion, slightly more than in 1957 but much less than in most other postwar years. Real estate loans, which rose in record volume in the last half of the year, accounted for about half of the total loan growth. Agricultural loans also showed a large increase. As already indicated, business loans declined a little over the year, although growth in the last quarter was about in line with seasonal expectations. Deposits at commercial banks rose by a postwar record amount DEPOSITS ALL COMMERCIAL BANKS Billions of dollars DEMAND SEASONALLY 60 50 40 1954 1958 NOTE.—Last-Wednesday-of-month figures partly estimated by Federal Reserve, except for time deposits in June and December, which are call report data. Demand deposits exclude collection items, and both series exclude interbank and U. S. Government deposits. Demand deposits are for all banks in the United States. FEDERAL RESERVE SYSTEM 29 of $12.6 billion, more than twice as much as in 1957. Time deposits accounted for almost three-fifths of this total, with a record growth of $7.0 billion. Demand deposits adjusted, which went down by a small amount in the previous year, also rose substantially. Treasury deposits, however, rose only slightly. The active money supply—demand deposits and currency held by the public—rose about 4 per cent in 1958, the largest increase since 1951. On a seasonally adjusted basis, most of the increase occurred between the end of January and the end of July, when bank credit was expanding at a rapid rate. Turnover of demand deposits declined in the first half of 1958 and rose in the last half to a level approaching the postwar peak reached in the third quarter of 1957. Reserve positions of member banks over the year reflected the course of Federal Reserve policy, easing in the first half and tightening in the last half, but changed little on balance. There were, however, substantial changes in several major factors affecting reserves. Required reserves declined about $500 million, as deposit growth absorbed about $1 billion of the $1.5 billion of funds released through reductions in reserve requirements early in the year. System acquisitions of United States Government securities also supplied about $2.1 billion of reserves. Reserves were absorbed over the year mainly by a $2.2 billion gold outflow and a $500 million increase in currency in circulation. The principal Federal Reserve policy actions during the year are summarized on the following pages, and are described more fully in the records of policy actions of the Board of Governors and of the Federal Open Market Committee appearing elsewhere in this report. 30 ANNUAL REPORT OF BOARD OF GOVERNORS DIGEST O F PRINCIPAL FEDERAL RESERVE POLICY ACTIONS, 1958 Action Purpose of action January Limited net reduction in holdings of U. S. Government securities to $900 million, more than half of which represented securities held under repurchase agreement at end of year. Member bank borrowings declined to an average of $450 million. To ease reserve positions by absorbing only part of the reserves made available by seasonal factors affecting bank reserve positions. Tanuary Reduced margin requirements on loans for purchasing or carrying listed securities from 70 to 50 per cent of market value of securities. To recognize that dangers of excessive use of credit for stock market speculation had subsided, since stock prices and the volume of credit in the stock market had declined to levels near or below those prevailing at the time of the previous increase in requirements. JanuaryFebruary Reduced discount rates from 3 to 2% per cent at 11 Reserve Banks. February Reduced reserve requirements on demand deposits from 20 to 19V2 per cent at central reserve city banks; from 18 to 17^2 per cent at reserve city banks; and from 12 to IIV2 per cent at country banks, thus freeing an estimated $500 million of reserves. Period March Reduced discount rates from 2% to 2 lA per centl at 11 Reserve Banks and from 3 to 2 A per cent at one Reserve Bank. March Reduced reserve requirements on demand deposits from 19V2 to 19 per cent at central reserve city banks; from 17% to 17 per cent at reserve city banks; and from 11% to 11 per cent at country banks, thus freeing an additional $500 million of reserves. FebruaryMid-April Purchased about $450 million of U. S. Government securities. Member bank borrowings declined further to an average of about $180 million. April Reduced reserve requirements on demand deposits from 19 to 18 per cent (in two stages) at central reserve city banks and from 17 to I6V2 per cent at reserve city banks, thus freeing a total of about $450 million of reserves. April-May Reducedc ediscount rates from 2lA to 1% P e r n t at all Reserve Banks. Mid-April-June Purchased outright about $1.7 billion net of U. S. Government securities. Member bank borrowings declined further to an average of $100 million at the end of June. To reduce further the cost of borrowing from the Reserve Banks and increase further the availability of bank reserves in order to encourage bank credit and monetary expansion conducive to resumed growth in economic activity. To supplement reserve requirement actions in further increasing the availability of bank reserves. To supplement previous actions to encourage bank credit and monetary expansion and resumed growth in economic activity and to offset current gold outflow. 31 FEDERAL RESERVE SYSTEM Period Action Purpose of action Julyearly August Bought a small volume of U. S. Gov- To correct disorderly condiernment securities other than short- tions in the Government securities market, to facilitate term issues and a large amount of securities involved in a Treasury re- the Treasury refinancing, financing. Promptly thereafter reduced and then to recapture the bank reserves created by the Treasury bill holdings substantially. earlier securities purchases. August Raised margin requirements on loans for purchasing or carrying listed securities from 50 to 70 per cent of market value of securities. To help prevent an excessive use of credit for purchasing or carrying securities. The volume of credit in the stock market and stock prices were advancing sharply and were at or near the highest levels since World War II. August-early September Made little change in holdings of U. S. Government securities. Member bank borrowings increased to an average of more than $400 million in early September. Open market action not taken to offset drains on reserve funds reflecting bank credit and monetary expansion resulting from seasonal factors and the sharp upturn in economic activity. AugustSeptember Raised discount rates from l3/4 to 2 per cent at all Reserve Banks. To keep discount rates in an appropriate relationship with market rates and to increase the cost of borrowing by individual banks from the Reserve Banks in case of increasing demands for bank credit. October Raised margin requirements on loans for purchasing or carrying listed securities from 70 to 90 per cent of market value of securities. To help prevent an excessive use of credit for purchasing or carrying securities. Late Octoberearly November Raised discount rates from 2 to 2lh per cent at all Reserve Banks. To bring discount rates into closer alignment with open market rates. Mid-NovemberDecember Increased system holdings of U. S. Government securities about $900 million, including securities held under repurchase agreement. Member bank borrowings rose to average of $560 million in December. To meet part of reserve needs associated with seasonal factors and a further moderate outflow of gold. 32 ANNUAL REPORT OF BOARD OF GOVERNORS RECORD OF POLICY ACTIONS FEDERAL OPEN MARKET COMMITTEE The record of policy actions of the Federal Open Market Committee is presented in this report pursuant to the requirements of Section 10 of the Federal Reserve Act. That section provides that the Board of Governors of the Federal Reserve System shall keep a complete record of the actions taken by the Board and by the Federal Open Market Committee upon all questions of policy relating to open market operations and shall record therein the votes taken in connection with the determination of open market policies and the reasons underlying the actions of the Board and the Committee in each instance. Section 10 also provides that the Board shall include in its Annual Report to the Congress a full account of the actions taken during the preceding year, both by the Board and by the Federal Open Market Committee, with respect to open market policies and operations and with respect to the policies determined by the Board. The record of policy actions of the Federal Open Market Committee is prepared on the basis of the minutes of the meetings of that Committee, as approved by the Committee, and sets forth the policy decisions reached together with a resume of the reasons therefor. Many policy decisions are by unanimous vote of the Committee members, but the emphasis on specific reasons for preferring a particular line of policy may vary from individual to individual. There are times when individual members of the Committee may concur in a concept of policy action formed by a majority because it moves generally in the direction that they believe to be called for, even though their views may differ considerably from those of other members of the Committee as to the degree of movement that is desirable. When a member records a dissent from an action of the majority of the Committee, the dissent may reflect a variety of factors, such as a fundamental disagreement with the direction of policy action as indicated in the directive, or a fundamental disagreement with the emphasis attached to a particular objective as indicated in the directive. It should be noted that the policy directive adopted at a meeting of the Federal Open Market Committee is usually in general terms FEDERAL RESERVE SYSTEM 33 and that, without changing the wording of the directive, the Committee may from time to time modify considerably the emphasis to be placed on operations designed to implement the general policy. The shadings of opinion that enter into the formation of a policy decision provide the Manager of the System Open Market Account (who attends the meetings of the Committee) with a guide to be used in the conduct of open market operations within the framework of the policy directive adopted at that meeting. * * * The policy directive of the Federal Open Market Committee that was in effect at the beginning of 1958 was the one that had been approved at the meeting on December 17, 1957. This directive called for open market operations with a view, among other things, to cushioning adjustments and mitigating recessionary tendencies in the economy. It was issued to the Federal Reserve Bank of New York as the Bank selected by the Committee to execute transactions for the System Open Market Account and directed that Bank: (1) To make such purchases, sales, or exchanges (including replacement of maturing securities, and allowing maturities to run off without replacement) for the System Open Market Account in the open market or, in the case of maturing securities, by direct exchange with the Treasury, as may be necessary in the light of current and prospective economic conditions and the general credit situation of the country, with a view (a) to relating the supply of funds in the market to the needs of commerce and business, (b) to cushioning adjustments and mitigating recessionary tendencies in the economy, and (c) to the practical administration of the Account; provided that the aggregate amount of securities held in the System Account (including commitments for the purchase or sale of securities for the Account) at the close of this date, other than special short-term certificates of indebtedness purchased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; (2) To purchase direct from the Treasury for the account of the Federal Reserve Bank of New York (with discretion, in cases where it seems desirable, to issue participations to one or more Federal Reserve Banks) such amounts of special short-term certificates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury, provided that the total amount of such certificates held at any one time by the Federal Reserve Banks shall not exceed in the aggregate $500 million. (3) To sell direct to the Treasury from the System Account for gold 34 ANNUAL REPORT OF BOARD OF GOVERNORS certificates such amounts of Treasury securities maturing within one year as may be necessary from time to time for the accommodation of the Treasury; provided that the total amount of such securities so sold shall not exceed in the aggregate $500 million face amount, and such sales shall be made as nearly as may be practicable at the prices currently quoted in the open market. The Federal Open Market Committee met 31 times during 1958. Of these meetings, 19 were held in Washington and 12 were held by means of telephone conference arrangements in which some members were located outside Washington. In five of the meetings held by telephone conference, policy decisions were reached, while the other seven telephone conference meetings did not involve proposals for new policy actions but were for the purpose of discussing operations being conducted within the limits of policy actions previously taken. The policy actions taken by the Committee during the year are set forth in the following pages by date of meeting. January 7, 1958 Authority to effect transactions in System Account. No change was made in the Committee's policy directive that specified that operations should be with a view, among other things, "to cushioning adjustments and mitigating recessionary tendencies in the economy." Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Allen, Balderston, Bryan, Leedy, Mills, Robertson, Shepardson, Szymczak, and Williams. Votes against this action: none. Domestic economic activity continued to be characterized by general cyclical recession, with contraction in output at a pace comparable to that experienced in the 1948-49 and 1953-54 recessions. Gross national product in the fourth quarter of 1957 had decreased about $6 billion, annual rate, largely associated with inventory liquidation, while industrial production for December was estimated at 137, seasonally adjusted, compared with 147 a year earlier and with the narrow range of 143-146 that prevailed during the period from January through September 1957. The market for new automobiles had been disappointing to producers, with sales off sig- FEDERAL RESERVE SYSTEM 35 nificantly from a year earlier, while repossessions on instalment sales had reached high ground and still seemed to be edging upward. However, other sales at retail picked up sharply in the latter half of December, after having started the month slowly, and department store sales, seasonally adjusted, reached a new high in that month. Construction activity in December continued at record levels, with increases in residential construction again offsetting declines in the industrial area, but unemployment rose further in that month to around 5 per cent of the total labor force. Wholesale prices showed little change in December, remaining at about the average that had prevailed since midyear, while consumer prices were reflecting advances in services and meat prices. In the financial area, two developments had occurred since the reduction in Federal Reserve Bank discount rates in November. One of these was a sharp decline in interest rates and the other was some seasonal increase in bank loans and investments, which represented a turnaround from the contra-seasonal decreases shown for October and November. The Federal Reserve System had supplied over $1 billion of reserves to the banking system during the six weeks prior to the end of the calendar year, and those reserves had contributed to credit expansion as well as currency expansion a little in excess of seasonal estimates. In brief, recent policies designed to cushion adjustments and mitigate recessionary tendencies in the economy had established the basis for maintaining the privately owned money supply. Analysis of the data on economic activity indicated that the current recession was attributable largely to a decline in business plant and equipment expenditures, aggravated by an inventory cycle. It was not apparent, however, whether those influences were likely to spread to consumer spending and thus produce a cumulative recession. There was uncertainty as to the probable speed of inventory adjustment, particularly by manufacturers, and there was also uncertainty as to the amount and timing of the expected increase in defense spending, although it did not seem probable that this would be a significant factor for several months. In view of the wide range of possible ways in which the recession might develop, it seemed prudent to assume that the next upturn might be a fairly long way off, to be preceded either by a continuing gradual 36 ANNUAL REPORT OF BOARD OF GOVERNORS decline or perhaps by a sideways movement after the current decline had run its course. The shift in System credit policy in the fall of 1957 had made it clear that open market operations were being directed toward assuring an adequate volume of credit for all potential borrowers with economically sound credit needs, but on the other hand System policy had not gone to the point of trying to bring about an excessive volume of free reserves. In concluding that no change should be made in the policy directive, the Committee agreed that a slight easing in the reserve positions of banks would be desirable and that operations in the System Open Market Account should be conducted with sufficient latitude to permit this development to take place within the limits of the directive. January 28, 1958 Authority to effect transactions in System Account. The Committee made no change at this meeting in the wording of the directive to the Federal Reserve Bank of New York, which called for operations in the System Open Market Account directed toward cushioning adjustments and mitigating recessionary tendencies in the economy. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Allen, Balderston, Bryan, Leedy, Mills, Robertson, Shepardson, Szymczak, and Williams. Votes against this action: none. Economic decline had acquired a definite momentum at the time of this meeting, and further decreases in production, employment, and other measures of activity were in prospect. It appeared that the industrial production index for January would show a decline of 2 or 3 percentage points from December, which would put it about 8 per cent below the early 1957 level, and unemployment claims were continuing to increase. The declines in activity during recent months had been traceable primarily to adjustments in the capital goods area, and it was pointed out that readjustments in this particular area might take FEDERAL RESERVE SYSTEM 37 considerable time. Installation of much new capacity during the past few years had eased the supply situation enough so that for some time there had been less incentive for buyers to maintain inventories and, at this time, they were being reduced. While inventory adjustments could occur fairly quickly, the rapidity of adjustment in both the inventory and capital goods areas would partly depend on changes in other demands, including consumer demands, State and local government demands, defense demands, and foreign demands. The free reserve position attained thus far by member banks had been of moderate size, and monetary expansion, which had paused in the latter part of 1957, had not yet been resumed. Demand for bank loans now appeared to be showing a slackening drift, reflecting a larger than seasonal decline in business loans and also liquidation of dealers' positions in Government securities financed with bank credit in December. A large Treasury financing operation was expected shortly, and, although there were prospects that reserve availability would expand in coming weeks owing to further seasonal decline in deposits and to a reduction in Treasury cash balances, it was suggested that it would be desirable to continue through open market operations at least the present degree of reserve availability until indications of monetary expansion appeared. Some members suggested a more aggressive easing immediately, believing that could be done without disturbance to the forthcoming Treasury financing. Such a policy would be consistent with the reduction in discount rates to the 2% per cent level that had been made at several of the Federal Reserve Banks just prior to this meeting. In all the circumstances, the Committee concluded that, even though the level of economic activity was continuing to decline, there should be no change at this meeting in the policy of supplying reserve funds in a manner that would cushion adjustments and mitigate recessionary tendencies in the economy and that, in view of the desirability of having an "even keel" during the period of the Treasury financing, open market operations should be directed toward maintaining approximately the same condition in the money market that had existed immediately prior to this meeting. 38 ANNUAL REPORT OF BOARD OF GOVERNORS February 11, 1958 Authority to effect transactions in System Account. The Committee again renewed without change the policy directive that placed emphasis upon operations in the System Account with a view to cushioning adjustments and mitigating recessionary tendencies in the economy. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Allen, Balderston, Bryan, Leedy, Mills, Robertson, Shepardson, Szymczak, and Williams. Votes against this action: none. Recession in general activity had continued during the month of January and signs of leveling out were not yet at hand. The declines were again general, but they were greatest in durable goods and related industries. The length of the work week had fallen to the lowest level of the postwar period, and by mid-January unemployment had risen close to the postwar peak of 4.7 million that prevailed in February 1950. Manufacturers' new orders for December showed a 2 per cent drop from November and were down I1/} per cent over the year, with new orders for durable goods running a fifth below the previous year. Business inventory liquidation had continued in December, mainly concentrated in durable goods manufacturing, but despite such liquidation the stock-sales ratio rose further to the highest level in a decade. January retail deliveries of new automobiles were some 20 per cent lower than deliveries in the previous month or in January 1957. Preliminary estimates suggested a further decline in gross national product for the first quarter of 1958 of from $4 to $5 billion, annual rate, putting total product back to the level of the first quarter of 1957. Exports in December were down sharply after two months of stability. Favorable factors included total construction activity, which continued at close to record levels in January, and total retail sales including those at department stores. While business loans at city banks were liquidated in a recordbreaking amount during January, the banks had increased their holdings of securities since the end of November. As a result, total loans and investments rose more in December and decreased less after the turn of the year than they did in 1957 or 1956. Time de- FEDERAL RESERVE SYSTEM 39 posits at city banks advanced even more sharply in January 1958 than in the same month of the previous year. New security issues by State and local governments were proceeding in record-breaking volume, with some issues which were deferred in 1957 now being brought to the market. Short-term interest rates had declined to the lowest levels since early 1955, while long-term rates had been somewhat firmer during the past two or three weeks. Reserves to cover credit demands had been abundantly supplied through market factors and System operations. Additions to System holdings of Government securities had been much larger in December than usual, while the January decline was smaller than usual. The result was that the reserve position of member banks had shifted from net borrowed reserves of over $300 million during the last week of November to free reserves of over $200 million in the past two weeks. Projections indicated that free reserves might fluctuate around this level during February and increase sharply, though temporarily, in the first half of March unless offset by System operations. It was the view of the Committee that the policy that it had been following had resulted in placing the System in a quite appropriate posture. If later on there were clear indications that the recession was spiraling, more drastic action might be required. Accordingly, for the present it was felt that the Committee should continue to follow an "even keel policy tipped on the side of ease." In these circumstances, no change was made in the existing policy directive. March 4, 1958 1. Review of continuing authorities or statements of policy. This being the first meeting of the Federal Open Market Committee after the new members elected by the Federal Reserve Banks for the year beginning March 1, 1958 had assumed their duties, the Committee reviewed and reaffirmed all continuing statements of policy and authorities for operations. These included the following: a. It is not now the policy of the Committee to support any pattern of prices and yields in the Government securities market, and intervention in the Government securities market is solely to effectuate the objectives of monetary and credit policy (including correction of disorderly markets). 40 ANNUAL REPORT OF BOARD OF GOVERNORS Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Shepardson, Szymczak, and Vardaman. Votes against this action: none. b. Operations for the System Account in the open market, other than repurchase agreements, shall be confined to short-term securities (except in the correction of disorderly markets), and during a period of Treasury financing there shall be no purchases of (1) maturing issues for which an exchange is being offered, (2) when-issued securities, or (3) outstanding issues of comparable maturities to those being offered for exchange; these policies to be followed until such time as they may be superseded or modified by further action of the Federal Open Market Committee. Votes for this action: Messrs. Martin, Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Shepardson, Szymczak, and Vardaman. Vote against this action: Mr. Hayes, Vice Chairman. Mr. Hayes stated that he would vote to approve the statement if the qualifying phrase, "as a general rule," were inserted after "shall" in the second and fourth lines. c. Transactions for the System Account in the open market shall be entered into solely for the purpose of providing or absorbing reserves (except in the correction of disorderly markets), and shall not include offsetting purchases and sales of securities for the purpose of altering the maturity pattern of the System's portfolio; such policy to be followed until such time as it may be superseded or modified by further action of the Federal Open Market Committee. Votes for this action: Messrs. Martin, Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Shepardson, Szymczak, and Vardaman. Vote against this action: Mr. Hayes, Vice Chairman. Mr. Hayes stated that he would vote to approve the action if the word "solely" were deleted from the second line and "primarily" substituted therefor, and if the phrase "as a general rule" were inserted after "shall" in line three. 2. Authority to efEect transactions in System Account. Clause (b) of paragraph (1) of the directive was changed at this FEDERAL RESERVE SYSTEM 41 meeting to provide that, among other things, open market transactions would be with a view "to contributing further by monetary ease to resumption of stable growth of the economy/' The Committee also deleted from the directive the paragraph authorizing the sale direct to the Treasury from the System Open Market Account for gold certificates of such amounts of Treasury securities maturing within one year as might be necessary from time to time for the accommodation of the Treasury up to an aggregate amount of $500 million face amount. Votes for these actions: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Shepardson, Szymczak, and Vardaman. Votes against these actions: none. During recent weeks, business activity had shown indications of deepening recession. A further decline during February indicated that the Board's index of industrial production for that month would be about 10 per cent under the mid-1957 high. Employment had continued to decline and unemployment to rise. Preliminary data from a survey of plans for plant and equipment expenditures during 1958 pointed to a decrease for the year of 10 per cent, whereas a similar survey made in the fall of 1957 indicated a decline of 7 per cent. Although the housing market appeared to be holding fairly strong, the over-all summary of economic conditions at the time of this meeting was described as one of little cheer. The volume of free reserves had increased during late February, reflecting among other factors a reduction in reserve requirements ordered by the Board of Governors of the Federal Reserve System. At the same time the Committee authorized by telegram the maintenance of a somewhat higher level of free reserves than had been contemplated at the February 11 meeting. In the market, an expansion in the total volume of bank credit had taken place during February. Business borrowing had been sharply reduced in the past 90 days, but the banks, supplied with ample reserves, had expanded holdings of securities and loans on securities, particularly in February, in contrast with the customary seasonal reduction at that time. The Committee's discussion of the situation disclosed considerable 42 ANNUAL REPORT OF BOARD OF GOVERNORS feeling that the policy directive should reflect a more positive approach to recovery than was embodied in the wording calling for "cushioning adjustments and mitigating recessionary tendencies in the economy." Agreement was reached on the change indicated, namely, that during the period following this meeting open market operations should be with a view to "contributing further by monetary ease to resumption of stable growth of the economy." The Committee also discussed whether the discount rates at the Federal Reserve Banks should be reduced further from the prevailing level of 2% per cent, concluding that the matter should take its course at the respective Federal Reserve Banks. Elimination from the directive of the third paragraph authorizing the sale direct to the Treasury from the System Open Market Account for gold certificates of Treasury securities up to an aggregate of $500 million resulted from the belief that under current circumstances, including the action taken by the Congress to increase the national debt limit from $275 to $280 billion, such an authorization was not likely to be used. March 25, 1958 Authority to effect transactions in System Account. The Committee renewed without change the directive approved at the meeting on March 4, 1958, which called for transactions in the System Open Market Account with a view, among other things, to contributing further by monetary ease to resumption of stable growth of the economy. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, Szymczak, and Vardaman. Votes against this action: none. Economic information presented to the Committee indicated a likelihood that industrial production during March would fall below the rate for February, which was 130 per cent of the 1947-49 average. The February figure represented a decline from 135 in December 1957 and 145 last August, which meant that in the six months from August to February industrial production had declined a little more rapidly than in the corresponding periods of early recession in 1948- FEDERAL RESERVE SYSTEM 43 49 and 1953-54. Employment had continued to decline in both manufacturing and nonmanufacturing lines, with the decrease particularly marked in durable goods industries. Unemployment had risen sharply to 5.2 million in February, the number of workers on part time had increased further, and the number working overtime had continued to decline. Meanwhile, however, both consumer and wholesale prices were appreciably higher in February than in December, reflecting principally higher prices of food products and higher charges for services. Inventory liquidation was proceeding at a rather rapid pace, while business outlays for plant and equipment were continuing downward, with no turning point yet in sight. Although consumer buying had been well sustained, the February figures on retail sales were below the same month last year and it appeared that this trend might be continuing in March. In the securities markets, stock prices had moved up irregularly and high-grade corporate bond prices had declined slightly since late January. A more than seasonal reduction in bank loans to business had accompanied declines in economic activity and business inventories, but the banks had been increasing their investments since late in the fall of 1957 and total bank credit outstanding had increased at a season when a decrease is usual. Corporations had obtained large amounts of new capital, and borrowing by the Treasury and other Government entities had been large. There had been a fair degree of stability in activity abroad. Although the leveling off in activity overseas had had a disproportionate impact on exports from this country, the major part of the downward adjustment in exports appeared to have been completed. Thus far, the recession in the United States had had only a limited impact on the industrialized European countries. The record of free reserves and short-term interest rates since the last Committee meeting suggested that the degree of ease desired by the Committee had been achieved. However, there was at the same time an occasional tendency for a feeling of relative tightness to develop temporarily in the money centers. The commercial banks, generally speaking, seemed to have adequate reserves at their disposal for the expansion of credit, but it appeared that the reduced level of liquidity which came about in the late stages of the 1955-57 boom might still be exerting some dulling effect on their attitudes toward 44 ANNUAL REPORT OF BOARD OF GOVERNORS lending. Accordingly, it was regarded by some as questionable whether the commercial banking system would be an active instrument in fostering recovery until it had attained substantially greater liquidity. In the last 130 days the System had moved on a broad front to establish a condition of credit ease. Aside from open market operations making reserves more readily available, the discount rates of the Federal Reserve Banks had been reduced in several steps from 3^2 per cent to 2% per cent, the latest reduction having been effected in the period since the last meeting of the Committee. In addition, there had been two reductions totaling one percentage point in member bank reserve requirements against demand deposits, the more recent of which became effective for central reserve and reserve city banks on March 20, 1958, and would become effective for other member banks on April 1, 1958. The present posture of Federal Reserve policy was one of ease and it was the view of the Committee that it should continue to be such. Discussion brought out the comment that, although further discount rate reductions might possibly seem logical in view of the level of the Treasury bill and other money market rates, a change on the eve of a Treasury financing might incite undesirable speculation in the Government securities market. While making no change in the existing policy directive, the Committee concluded that operations in the System Account should be directed toward maintaining a slightly larger volume of free reserves and money market conditions slightly easier than had been achieved since the last meeting of the Committee. April 15, 1958 Authority to effect transactions in System Account. This meeting of the Committee resulted in a decision to continue without change the policy directive calling for operations designed to contribute further by monetary ease to resumption of stable growth of the economy. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Robertson, Shepardson, and Szymczak. Votes against this action: none. Data available to the Committee indicated some slowing down in FEDERAL RESERVE SYSTEM 45 the pace of decline for total output and employment, some leveling out in trade, and maintenance of construction activity at close to record levels in value terms. In contrast, there were some developments of an expansive character in finance. While the picture domestically therefore appeared as one of more diversity or crosscurrents than earlier in the year, the over-all drift of the economy nevertheless was still plainly downward. Current statistics offered only slight basis for the hope that the saucering-out phase of the recession was at hand. After allowances for seasonal influences, the labor market continued to show further weakening, while surveys of business plans for plant and equipment expenditures reflected a further substantial projected cutback for 1958 as compared with 1957. The industrial production index for March was estimated to have declined two points further to 128, and preliminary April information indicated further output curtailment, much along the lines of the March pattern but with the possibility of some slowing. Retail trade, seasonally adjusted, was estimated to have been off another one per cent in March, manufacturers* sales and orders continued to show declines, with the fall-off much sharper in durable goods than in nondurable goods lines, and business inventory liquidation was believed to have continued in March at quite a sharp rate. At the same time, prices at wholesale and in consumer markets had risen further to late March, putting the indices a full one per cent above the December 1957 level. In the financial area, total credit extended by commercial banks had apparently continued to expand during recent weeks, mostly in the form of short-term liquid assets. Savings of consumers held in financial form seemed to be increasing, while consumer debt had been decreasing. Business loans at banks had increased less than at this time in other recent years but corporate issues for new capital continued at a high level, as did new issues of State and local governments, and the Federal Government had become a net borrower. Deposits at banks had increased, on a seasonally adjusted basis. Shortand medium-term interest rates had shown further declines with wide variations, reflecting changes in liquidity, while long-term rates, under the influence of continued heavy borrowing in capital markets, remained firm. Nearly $1 billion of reserves had been released by reductions in 46 ANNUAL REPORT OF BOARD OF GOVERNORS reserve requirements of member banks since February 26 and an additional $250 million had been supplied by System open market operations through April 9. Reserves had been absorbed by an increase in required reserves of about $200 million resulting from growth in deposits, a rise in currency in circulation, foreign operations, consisting principally of gold withdrawals amounting to about $400 million, and changes in float and other factors. Free reserves in the aggregate had averaged somewhat in excess of $500 million. Although country banks appeared to be well supplied with reserves, banks in New York and Chicago, and probably in some other cities, had experienced wide fluctuations in their reserve positions and had borrowed heavily in the Federal funds market. It appeared that a substantial amount of additional reserves might need to be supplied by the Federal Reserve System in the next few weeks in order to maintain a condition of ease conducive to further credit and monetary expansion. Reports at this meeting indicated that the directors of some of the Federal Reserve Banks had been giving serious consideration to the establishment of a discount rate lower than the existing 2*4 per cent rate. With the recent Treasury financing now completed, it appeared that those Reserve Banks might act to establish a lower rate rather quickly. A further reduction in the reserve requirements of member banks was seen as a possible means of providing the additional reserves that would otherwise have to be supplied by open market operations during the next few weeks in order to maintain the present level of free reserves. If the reduction were concentrated at central reserve and reserve city banks, it would also have a tendency to relieve pressure that occasionally developed in the money centers. Taken together, it was suggested that such actions on the discount rate and reserve requirements would clearly confirm the current easing posture of monetary policy and reinforce the policy objective of assisting the recovery of the economy. The Committee was of the view that there was no reason to change its policy directive at this time. Free reserves had averaged slightly higher during the period since the last meeting of the Committee than during the preceding three-week period, and it was agreed that this general level should be maintained. It was noted, however, that if action should be taken in the near future on both the discount FEDERAL RESERVE SYSTEM 47 rate and reserve requirements, the level of free reserves would tend to become relatively incidental, as long as the free reserve position did not decrease to an extent that might make it appear as though the System was reversing policy. May 6, 1958 Authority to effect transactions in System Account. The policy directive calling for operations to contribute further by monetary ease to resumption of stable growth of the economy was again renewed at this meeting. Votes for this action: Messrs. Martin, Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, Szymczak, Vardaman, and Treiber. Votes against this action: none. Although some statistical evidence suggestive of a slowing of economic decline had been accumulating, most of the information available to the Committee at the time of this meeting indicated that the recession was still deepening and that a bottom was yet to be established. Among other things, the index of industrial production was estimated to have dropped another two points to 126 in April, manufacturers' sales and new orders were off again in March to about the same extent as in February, business inventory liquidation in March was found to have amounted to a further $700 or $800 million, seasonally adjusted, and estimates of new construction outlays had recently been revised downward due to lower private expenditures. Unemployment in April decreased less than seasonally, initial claims for unemployment insurance were still running at quite high levels, and the number of continued claims of those unemployed for 15 weeks or more was double that recorded in earlier postwar recessions. At the same time, the average of wholesale prices was holding stable and the average of consumer prices was still rising. Since the preceding meeting of the Committee, there had been a further reduction to 1% per cent in the discount rates of most of the Federal Reserve Banks along with a further reduction of one-half percentage point in reserve requirements against demand deposits at central reserve and reserve city banks, while open market operations had been such as to maintain free reserves generally exceeding $500 48 ANNUAL REPORT OF BOARD OF GOVERNORS million. Financial developments during this period were influenced by the additional availability of bank reserves and by the activities of banks in endeavoring to put their available funds to use. Demands on capital markets continued heavy. In the five weeks ended April 30, banks in leading cities showed a further increase of over $2.5 billion in total loans and investments, and it appeared that during the five months since the end of November, a period in which bank credit usually declines, total loans and investments of all commercial banks may have increased by $7 billion or more. The increase in April reflected almost wholly additions to holdings of United States Government securities, particularly the new Treasury five-year notes. Demand deposits adjusted at city banks increased during the five weeks prior to April 30 by about $1,200 million, compared with a growth of $750 million in the same period of 1957, while time deposits continued to increase at a much faster pace than the previous year. The pattern of economic and financial developments caused the Committee to conclude that the prevailing policy of ease should be continued and that no change should be made in the outstanding policy directive. May 27, 1958 Authority to effect transactions in System Account. The Committee again continued without change the policy directive providing for operations in the System Account with a view to contributing further by monetary ease to resumption of stable growth of the economy. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Fulton, Irons, Leach, Robertson, Shepardson, Szymczak, Vardaman, and Deming. Votes against this action: none. The composite of current economic indicators reported at this meeting suggested that the recession in economic activity had been leveling off and that a bottom to the decline might be in the making. The decline in industrial production, over all, seemed to have been checked in May, and a number of other indicators, including retail sales, personal income, residential building, and new orders received by durable goods manufacturers, likewise appeared to have stopped FEDERAL RESERVE SYSTEM 49 receding or to have risen slightly. While inventory liquidation had probably been continuing in the aggregate, some key material markets suggested a lessening in such liquidation. Also, although initial and continued unemployment compensation claims were still very high, the trend was indicative of a little firmer labor market. March figures for exports had risen from February, while imports continued to be well maintained at the moderately reduced level of the first two months of the year. In agriculture, the income outlook was quite favorable. Capital market activity had been well sustained and banking developments were in the direction of a strengthening of business and individual liquidity positions. As to prices, a degree of flexibility in the area of industrial commodities seemed to be emerging gradually, especially at the wholesale level. The Committee recognized that each of the favorable factors needed qualification and that a number of other factors in the current situation raised questions about the imminence of recovery. Furthermore, there were reports of a substantial speculative interest in the Treasury issues maturing in June, a factor that suggested the need for close attention in view of the forthcoming Treasury refunding operation. On balance, therefore, it seemed prudent to view the forthcoming period as one of gradual testing, with the realization that on the basis of past cyclical patterns the period of testing might last for some time. Short-term interest rates recently had declined to new low levels while long-term rates, after declining somewhat in April, rose slightly in early May. New security financing by corporations and by State and local governments continued in large volume. Recent figures showed that total loans and investments of all commercial banks increased by about $4 billion in April—a larger growth than had previously been estimated—thus bringing the total increase since the end of November 1957 to above $8 billion. Marked increases occurred during April in both loans and investments at country banks and in holdings of investments by city banks, where declines in business loans were offset by increases in loans on securities. In May, the decline in total loans and investments at city banks had been smaller than usual at that time. Demand deposits adjusted and currency outside banks showed a seasonally adjusted increase of $900 million in April following similar increases in February and March, 50 ANNUAL REPORT OF BOARD OF GOVERNORS with the result that the total at the end of April was the largest since July 1957 and was equal to the total at the end of April 1957. Time deposits, other than interbank, were about $7 billion larger than at the same time in 1957, while interbank and United States Government deposits had also risen to higher levels than a year earlier. In addition to the growth in the volume of deposits, the rate of turnover of demand deposits had increased in April, contrary to the usual seasonal trend, and was about the same as in April 1957. Free reserves held close to $500 million during May, substantial drains on reserves attributable to the continued gold outflow and to a larger than seasonal increase in currency in circulation having been largely offset by additional reserves supplied through open market operations and other factors. Estimates presented to the Committee indicated that reserve needs would be rather large in June and the first half of July, arising in part from seasonal factors and from a larger than usual increase in Treasury deposits at banks. Therefore, in the absence of System action free reserves might generally average much less than the levels that had prevailed recently. In the light of these estimates and related factors, including the imminent and sizable Treasury financing operation, the Committee considered how best to implement and maintain the current posture of monetary ease without further depressing Treasury bill rates. It was the consensus that no change should be made in the language of the policy directive and that operations in the System Account should be directed toward maintaining an even keel over the ensuing period. In terms of approach, this contemplated that the Account Management would place emphasis on the tone and action of the market and the course of credit developments. June 17, 1958 Authority to effect transactions in System Account. The directive was renewed without change, continuing the policy of contributing further by monetary ease to resumption of stable growth of the economy. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Fulton, Irons, Leach, Mangels, Mills, Robertson, and Szymczak. Votes against this action: none. FEDERAL RESERVE SYSTEM 51 Economic information available for this meeting was generally on the encouraging side and was confirmatory of the report at the May 27 meeting that bottoming out of recession was in fact occurring. However, analysis of the data suggested that the haze obscuring the outlook had not suddenly lifted, and that it was the better part of wisdom not to conclude as yet that a recovery pattern had definitely taken form. On the other hand, it could not be denied that there was a possibility that an accelerating recovery movement was now shaping up. High levels of consumer and Government demands seemed to be roughly offsetting recessionary forces generated in the investment area of the economy. Heavy demands on capital markets, including a Treasury bond offering for cash, had been met in part by substantial expansion in bank holdings of securities and loans on securities. Additional reserves had been supplied by System purchases of securities, but on balance free reserves had been somewhat lower than in May. The money market had continued relatively easy until the week of this meeting, but with the mid-June needs for funds for taxes, dividends, and other payments, and with settlement for the recent Treasury offering of securities, it seemed clear that substantial financing needs would have to be met by the banking system during the next two or three weeks which would include the July 4 holiday demand for currency. Despite the encouragement expressed by most Committee members regarding the business outlook, it did not appear that the time had arrived for backing away from the Committee policy of outright monetary ease or for creating a public impression that the Committee might be backing away from it. There was general agreement that over-all Federal Reserve credit policy should not be changed at this time and that, during the next three weeks, the System should stay about where it was. However, a minority suggested that, apart from open market operations, it might be desirable for some of the need for additional reserves during the immediate future to be met by a further reduction in reserve requirements for member banks. Another and contrasting variation from the general view was that reserves had been supplied in over-generous amounts during the past two months and that further injections to maintain the recent level of around 52 ANNUAL REPORT OF BOARD OF GOVERNORS $500 million of free reserves would abet speculation in the Government securities market and create excessive liquidity. Consideration of the foregoing factors resulted in a decision that at this meeting the Committee should make no change in Federal Reserve credit policy and that for the next three weeks no action should be taken to cause the tone of the market to get materially easier or tighter. July 8, 1958 Authority to effect transactions in System Account. No change was made at this meeting in the Committee's directive calling for open market operations with a view, among other things, to contributing further by monetary ease to resumption of stable growth of the economy. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, Szymczak, and Vardaman. Votes against this action: none. A summary of the economic data presented at this meeting was that performance of the economy in May and June had been better than had been anticipated. The index of industrial production over those two months had risen two points, and final data might show the rise to be three points. Gross national product for the second quarter was currently estimated to be at least moderately higher than in the first quarter. Whether an abrupt turnabout of activity was taking place or whether the extended improvement merely reflected a temporary rebound of production that had been far below consumption was yet to be determined. However, the odds seemed to favor more than a rebound improvement. An important feature of the recent strengthening was that it represented a composite of small improvements over a wide range of activities, rather than dominant activity in one or two areas. One big uncertainty in the situation was the possibility of cyclical downturn in European business activity and of a new surge in inflationary forces in the Latin American and Far Eastern countries. However, the evidence at this time did not warrant the inference that European recession was likely to become a force affecting adversely United FEDERAL RESERVE SYSTEM 53 States and world trade developments, although it was apparent that developments in those markets would require close observation in the months ahead. On the financial side, the most striking development since the June 17 meeting had been severe pressure on the Treasury bond market. The underlying feature had been the large commitments in Treasury bonds made by temporary holders, many for pure speculation, induced by expectations of further declines in interest rates, and the attempt to close out those commitments at a time when the money market was under adverse pressure because of exceptionally heavy seasonal liquidity demands. This had called for exceptional amounts of Federal Reserve credit, and the increase in required reserves in the five weeks ending July 2 had been one of the largest on record for a period of that length. System open market operations had supplied $1.4 billion of additional reserve funds, and purchases of Government securities for Treasury investment accounts had been made, notwithstanding which interest rates rose. The Treasury bond market had been notably weak under the influence of the closing out of speculative commitments, and yields on such securities had risen sharply. In addition to the present disturbed atmosphere of the Government bond market, it was noted that important Treasury financing operations were in prospect between this and the next meeting of the Committee. While some members of the Committee felt that the likelihood of a rapid upturn in economic activity argued for less ease, the Committee reached the conclusion that, on balance, there should be no change in policy at this time and that the directive should be renewed in its existing form calling for continued monetary ease. July 18, 1958 Authority to effect transactions in System Account. The Federal Open Market Committee authorized the Federal Reserve Bank of New York to purchase for the System Open Market Account in the open market this afternoon $50 million or less of Government securities at the discretion of the Manager of the System Open Market Account on scale wherever the Manager deemed it appropriate in order to steady the market. 54 ANNUAL REPORT OF BOARD OF GOVERNORS Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Shepardson, and Szymczak. Mr. Vardaman, who was not present at the meeting, when informed of the action stated that he concurred. Votes against this action: Messrs. Mills and Robertson. Authority was granted to the Federal Reserve Bank of New York to purchase for the System Open Market Account in the open market, without limitation, Government securities in addition to short-term Government securities. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mills, Robertson, Shepardson and Szymczak. Mr. Vardaman, who was not present at the meeting, when informed of the action stated that he concurred. Votes against this action: none. The action set forth in the first paragraph of this entry was taken at a meeting of the Federal Open Market Committee, held by telephone conference in the early afternoon of July 18, and was based on a report by the Manager of the System Open Market Account that a condition was developing in the Government securities market which, in his judgment, was close to a disorderly condition although it had not yet actually reached that point. His recommendation was that purchases of securities during the afternoon of $50 million or less be authorized for the purpose of steadying the market. After considering the recommendation in the light of the existing conditions in the market and of the Committee's continuing operating policy providing that open market operations shall be "solely to effectuate the objectives of monetary and credit policy (including correction of disorderly markets)," the Committee authorized the purchase of Government securities as indicated. Messrs. Mills and Robertson voted against this authorization on the ground that at this time no one contended the market was disorderly and therefore there was no basis for intervention. In addition, they felt that the proposal to enter the market on a limited basis (as distinguished from action sufficiently massive to do the job) was unwise and would do very little to restore confidence in the market. Furthermore, they felt that if later there should be a disorderly market, the correction of it would have been seriously handicapped by FEDERAL RESERVE SYSTEM 55 temporizing and fluttering around the edges of the market with minor purchases at this time. As the System Account was starting to put this authorization into effect, further developments in the market caused the Manager of the Account to report (again by telephone conference) that he would now have to call the market disorderly. After consideration of the Manager's detailed report covering these developments, the Committee approved by unanimous vote the action set forth in the second paragraph of this entry, which authorized the purchase of Government securities in the open market, without limitation. It was understood that the authorization was made for the purpose of correcting a disorderly market and included the purchase of "rights" and when-issued securities, purchase of which was precluded during a period of Treasury financing under one of the Committee's continuing policies, last renewed at the meeting on March 4, 1958. In taking this action, the Committee also authorized the immediate release of an announcement reading as follows: In view of conditions in the United States Government securities market, the Federal Open Market Committee has instructed the Manager of the Open Market Account to purchase Government securities in addition to short-term Government securities. July 23, 1958 Authority to effect transactions in System Account. The Committee authorized the Federal Reserve Bank of New York to engage in a transaction that would include an offsetting purchase and sale of securities in the amount of $30 million for the purpose of altering the maturity pattern of the System's portfolio. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, Szymczak, and Vardaman. Votes against this action: none. The purpose of this action, taken during a telephone conference meeting, was to permit the System Account to complete a specific transaction for a foreign account in a manner that would result in adding to the amount of System Account holdings of Treasury bills that would mature on July 31, 1959. Thus, the Committee would be 56 ANNUAL REPORT OF BOARD OF GOVERNORS in position to let these bills run off at that time and to help absorb the large volume of reserves that would be released to the market on August 1 because of purchases for System Account on a when-issued basis of new Treasury certificates due to be issued on that date. These purchases had been made under authorization by the Committee on July 18 of purchases for the purpose of correcting a disorderly market. The foregoing action was recognized as a departure from the Committee rule, in effect since December 1953, prohibiting "swap" transactions. It was authorized only because of the unusual circumstances of the past few days and because it was deemed desirable to have as large a runoff of bills as possible within the next few days when large amounts of reserves would be released to the market. July 24, 1958 Authority to effect transactions in System Account. The Committee terminated the authority given to the Federal Reserve Bank of New York on July 18, 1958 to purchase for the System Open Market Account in the open market, without limitation, Government securities in addition to short-term Government securities. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, Szymczak, and Vardaman. Votes against this action: none. The Government securities market had steadied in the period since July 18, when, because of disorderly conditions then existing in the market, the Committee had authorized the purchase of Government securities in addition to short-term securities. Accordingly, at this telephone conference meeting, the July 18 authorization was terminated with the understanding that, if conditions in the market should seem to require it, another meeting of the Federal Open Market Committee would be called to consider what, if any, further action should be taken. FEDERAL RESERVE SYSTEM 57 July 29, 1958 Authority to effect transactions in System Account. The wording of the Committee's directive was changed at this meeting to delete the clause that had been in effect since March 4, 1958, and which called for operations that would contribute further by monetary ease to resumption of stable growth of the economy, and to replace that clause with an instruction to the Federal Reserve Bank of New York that operations for the System Account were to be with a view, among other things, to recapturing redundant reserves. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, and Vardaman. Votes against this action: none. At this meeting reports of economic developments made it reasonably clear that April had marked the recession trough and May the first month of revival in economic activity. Evidences accumulating for June and July confirmed the broad range of increased industrial output that had been reported at the July 8 meeting of the Committee. In addition to the statistical data, indications of improvement in business sentiment suggested that an uptrend in economic activity might now be under way. The growing evidences of business improvement, together with the possibility that the degree of monetary ease prevailing in recent months might produce a very rapid expansion in bank credit and the money supply, raised the question whether the Committee should consider some modification of the degree of ease that had developed in recent months. During the two weeks preceding this meeting, System operations had been largely concerned with correcting disorderly developments in the Government securities market, rather than with current economic and credit needs. This was in accordance with the authorization given by the Committee at a special meeting on July 18 to purchase Government securities without limitation for the purpose of correcting a disorderly market. In the five-day period from July 18 to July 23, the System Account had purchased $1.2 billion of securities, largely when-issued securities involved in the Treasury financing, but also a small volume of other notes and bonds. These purchases had been made under the 58 ANNUAL REPORT OF BOARD OF GOVERNORS specific authorization given on July 18 and within the general framework of the Committee's continuing operating policies that had been in effect since 1953, and which were last reaffirmed on March 4, 1958. Payment for the securities involved in the Treasury financing would result in a substantial rise in the volume of member bank reserves on August 1, over and above the level that had been maintained during the past seven or eight months, and the Committee gave consideration to what would be the effect of such a substantial increase in the availability of reserves. In light of the evidence of improvement in the economic situation, which suggested that the directive that had been in effect since March 4 was no longer appropriate, and in view of the decision of July 24 that the need for action to correct a disorderly condition in the Government securities market had passed, the conclusion was reached that for the next three weeks the problem for the Committee would be one of absorbing the redundant reserves that would be entering the market, in so far as that could be done consistently with an orderly market in Government securities. Thus, the Committee modified its directive in the manner indicated to require that operations be conducted with a view to recapturing redundant reserves that were expected to be released to the market on August 1. August 4, 1959 Authority to effect transactions in System Account. The Committee agreed that for the present, having recaptured redundant reserves, the policy to be followed with respect to operations for the System Open Market Account should be one of keeping from having redundant reserves. Votes for this action: Messrs. Martin, Chairman, Balderston, Irons, Leach, Mangels, Mills, Shepardson, Vardaman, Allen, and Treiber. Votes against this action: none. The recapture of redundant reserves having been effected, pursuant to the policy directive issued at the meeting on July 29, 1958, this action (taken in a meeting held by telephone conference) was for the purpose of giving the Federal Reserve Bank of New York and the Manager of the System Open Market Account an indication as FEDERAL RESERVE SYSTEM 59 to general policy to be followed until the next meeting of the Committee. August 19, 1958 Authority to effect transactions in System Account. The policy directive of the Federal Open Market Committee was changed at this meeting by adopting wording for clause (b) of paragraph ( l ) to provide that, among other things, transactions be with a view "to fostering conditions in the money market conducive to balanced economic recovery." This wording superseded that adopted at the meeting on July 29, which called for operations with a view "to recapturing redundant reserves" and which was supplemented by the action taken on August 4 designed to keep from having redundant reserves return. Votes for this action: Messrs. Martin, Chairman, Balderston, Fulton, Irons, Leach, Mangels, Shepardson, Vardaman, and Treiber. Votes against this action: none. Information presented at this meeting showed that vigorous revival in domestic economic activity was taking place. Similarly, in Canada revival appeared to be under way. In Europe, production trends had been mixed, with contractions, where occurring, apparently associated with inventory adjustment. In the United States the Board's index of industrial production through July had risen at least seven points or 6 per cent, from April, and it seemed possible that late data might raise the amount of advance. Regional reports bore out the national trend, although some important areas of the country were still not experiencing much recovery and the total number of unemployed persons nationally remained disturbingly large. Domestic financial developments since late July included further expansion in bank credit, which had risen by $7 billion in the first seven months of the year. Financial markets had been influenced by the stream of economic data and corporation reports indicating that vigorous recovery was under way; by indications and rumors that Federal Reserve policy might be shifting away from ease (the Board of Governors of the Federal Reserve System had increased margin requirements for purchasing and carrying listed securities from 50 60 ANNUAL REPORT OF BOARD OF GOVERNORS per cent to 70 per cent, effective August 5, 1958); and by a flow of banking, monetary, and Treasury deficit data pointing to a sharp increase in the cash balance position of the economy. In considering policy, the Committee was faced with the fact that the large Federal Government deficit would have to be financed during a period characterized by broadly spread revival of productive activity and incomes and an abnormal expansion in privately held cash balances, and by the emergence of an inflationary psychology in the stock market and other financial markets that could easily spill over into commodity and real estate markets. Notwithstanding the substantial numbers of unemployed persons, the data presented indicated that the rate of expansion in the money supply in the immediate future should be tempered and that operations for the System Open Market Account should move in the direction of lower free reserves without seriously disrupting the Government securities market. The fact that seasonal influences would be working in this direction through the Labor Day week end suggested that, without too much pressure, the System Account might be able to move in the direction of the elimination of free reserves by the time of the next meeting. In terms of the policy directive, the objectives sought by the Federal Open Market Committee were encompassed in the amended wording of clause (b) to provide that operations should be with a view, among other things, "to fostering conditions in the money market conducive to balanced economic recovery." This wording of the directive may be compared with that in effect from the March 4, 1958 meeting until July 29, which called for open market operations "contributing further by monetary ease to resumption of stable growth of the economy/' and which had been temporarily inoperative from July 18 to July 24 in view of the special authority to make purchases for the purpose of correcting a disorderly condition in the Government securities market. In its discussions of the policy directive the Committee also considered the market structure of interest rates, noting that the discount rate of the Federal Reserve Bank of San Francisco had been increased from 1% per cent to 2 per cent effective August 15, 1958. The reasons for this rate increase, which are presented in the section of this report dealing with policy actions of the Board of Governors of the Federal Reserve System, were reviewed at this meeting, and the FEDERAL RESERVE SYSTEM 6l rate increase was considered to be consistent with the action taken by the Open Market Committee in deciding to move toward reduced reserve availability. September 9, 1958 Authority to effect transactions in System Account. The directive of the Committee was renewed without change, continuing the policy of fostering conditions in the money market conducive to balanced economic recovery. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, Szymczak, and Vardaman. Votes against this action: none. Since the August 19 meeting of the Committee, reserve availability had declined steadily with a minimum of disturbances in the Government securities market. Despite the reduction in reserve availability, the market had been more calm during the past few days than at any time since June. A better tone also had developed in the market for corporate and municipal bonds. Economic data presented showed that domestic recovery in output, income, and consumption had been vigorous and that it held promise of continuing to be vigorous over the period ahead. The August index of industrial production was estimated to have moved up two points further, with the widespread gains in output extending through durable goods and nondurable goods lines. Financial developments of recent weeks had included those associated with an upward adjustment of interest rates—long-term, medium-term, and short-term. Several Federal Reserve Banks had brought their discount rates up to the 2 per cent level made effective at the Federal Reserve Bank of San Francisco on August 15. It was difficult to judge the extent to which the rise in interest rate levels reflected a basic shift in credit demands relative to supply of savings, and the extent to which they reflected the influence of the recent shift in System policy to less availability of reserves, but each had exerted an influence. The aggregate amount of credit supplied during the year had been large and prospects pointed to an increase in private borrowing along with the heavy Treasury deficit. 62 ANNUAL REPORT OF BOARD OF GOVERNORS Discussion of recent developments showed differences of views as to the certainty of continued economic recovery and as to the degree to which credit policy should move toward further limitation of reserve availability over the next several weeks. There was general agreement, however, that for the immediate future, during which another Treasury financing operation would occur, operations for the System Account should aim at maintaining substantially the same tone in the money market as prevailed at the time of this meeting. This objective could be sought within the wording of the directive that had been adopted at the meeting on August 19, which called for operations fostering conditions in the money market conducive to balanced economic recovery, and the directive was thus renewed without change. September 30, 1958 Authority to effect transactions in System Account. At this meeting, the directive was again renewed without change, thus continuing the policy adopted on August 19, 1958, of fostering conditions in the money market conducive to balanced economic recovery. Votes for this action: Messrs. Martin, Chairman, Balderston, Fulton, Irons, Mangels, Mills, Robertson, Shepardson, Szymczak, Erickson, and Treiber. Votes against this action: none. Since the preceding meeting of the Committee, discount rates at additional Federal Reserve Banks had been raised to a uniform level of 2 per cent. An even situation had been maintained in the money market, which had been generally firm. At the same time, financial markets appeared to be discounting possible inflationary developments. Thus, with re-emergence of inflationary expectations, stock and bond yields developed a relationship similar to that which prevailed for a brief period in mid-1957, when a psychology of creeping inflation was also dominant in financial markets. At this meeting, the Committee considered in detail the currently developing economic situation, with its rapid expansion in industrial production while unemployment figures remained relatively high. In the face of uncertainties as to whether the recovery would be sustainable, monetary policy was discussed in terms of the recent sharp rise FEDERAL RESERVE SYSTEM 63 in interest rates, which some considered to be excessive in view of the basic supply and demand factors in the credit market. Considering the importance of curbing inflationary and speculative developments before they gained headway, attention was focused on the extent to which expansion of the money supply should be limited at this time as a means of carrying out the Federal Reserve's responsibility for maintaining in a growing economy reasonable stability of the value of the dollar as well as in employment. One suggestion was that the appropriate course would be to permit further expansion of credit and the money supply only on terms that would indicate the System's continuing awareness of potential inflationary risks and its determination to prevent them from stimulating speculative excesses in the use of credit. The conclusion reached by the Committee was that operations in the immediate future should try to maintain an even keel in the market and that no change in the policy directive was necessary. This was based on the view that no further increase at this time in the degree of restraint was favored, nor on the other hand was there a desire to ease the market from its present position. October 21, 1958 Authority to effect transactions in System Account. No change was made at this meeting in the Committee's directive that policy should be directed toward fostering conditions in the money market conducive to balanced economic recovery. Votes for this action: Messrs. Balderston, Chairman pro tern, Fulton, Irons, Leach, Mangels, Mills, Shepardson, Szymczak, and Treiber. Votes against this action: none. Continuing economic recovery was reported at this meeting. Gross national product for the third quarter was estimated at $440 billion, up $11 billion from the second quarter. Industrial production into October was rising further and broadly, new construction activity in September had been close to record levels, employment was rising and unemployment declining, and personal incomes were rising. Wholesale price averages had been stable for several months with easing of farm product prices offsetting strengthening tendencies in industrial materials and rises in some fabricated items. Latest news from abroad indicated some extension of recession in the principal 64 ANNUAL REPORT OF BOARD OF GOVERNORS industrial countries with, however, activity still fairly high in most such areas. Bank credit expansion in recent weeks had been larger than in the corresponding period of 1957 but less than in some other years. In capital markets, a shift from fixed return assets to equities seemed to be continuing. Margin requirements on listed securities had been increased effective October 16, 1958. Slackened monetary expansion along with Treasury deficit financing and general economic recovery had been possible because of previously accumulated liquidity. Further monetary expansion other than seasonal had not been needed to finance economic recovery. However, the total of economic events and the prospective borrowing needs of the Federal Government indicated a likelihood of growing credit demands in the near future. In addition, an outflow of gold was persisting. It was estimated on the basis of customary seasonal currency and deposit growth, and with some allowance for a further gold outflow, that from the time of this meeting to the end of 1958 there would be a need for additional bank reserves totaling about $1.3 billion, a need that could be met mainly through open market operations without varying the degree of restraint on credit expansion. At this meeting, the Committee reviewed in detail the level and structure of interest rates and considered the credit actions that would help keep investment and saving in balance. The discount rates of the Federal Reserve Banks currently were out of line with market rates, and the suggestion was made that an increase in discount rates would be desirable in order to remove the incentive for member banks to obtain reserves by borrowing at the Reserve Banks instead of by selling securities in the market. The conclusion of the Committee was that in present circumstances it would be undesirable to aim toward a greater degree of restraint on reserve availability through open market operations, especially if an increase in discount rates at the Federal Reserve Banks were to be made at the same time. The directive was, accordingly, again renewed with its provision for open market operations that would foster conditions in the money market conducive to balanced economic recovery. FEDERAL RESERVE SYSTEM 65 November 10, 1958 Authority to effect transactions in System Account. The Committee again reaffirmed its policy of fostering conditions in the money market conducive to balanced economic recovery. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, and Szymczak. Votes against this action: none. During the three weeks preceding this meeting, in which seasonal demands for credit were present, the System Open Market Account had been fairly active in supplying reserve funds to the market with a view to achieving the objectives agreed upon by the Committee at the meeting on October 21, namely, the maintenance of about the same degree of restrictive pressure in the market that had existed at the time of that meeting. Free reserves had averaged somewhat less than $100 million, and the money market atmosphere had been generally firm. During this period, the discount rates of all Federal Reserve Banks had been increased from the 2 per cent level to 2 ^ per cent—a rise that conformed to the prevailing money market rate structure and appeared to have caused no further adjustment in the market. Economic indicators at the time of this meeting were still rising, although there was more diversity than had been shown in late summer and early autumn and the over-all rate of rise seemed to have slowed somewhat. The October industrial production index was estimated to have risen one index point, a smaller rise than had been projected earlier. On the other hand, construction activity had gone up in October to an all-time high, with advances shown in all major categories of private construction as well as public construction. Data for United States exports during September had shown a sharp fall, but imports had risen. Stability to modest recession in activity in Europe was reported, along with a leveling out in Canadian recovery. The unevenness shown by economic indicators in recent weeks was occasioning in various quarters re-appraisals of the outlook, with some toning down of optimistic projections because of inability to foresee forces that would convert recovery into a period of expansionary boom. However, the more moderate rate of rise was believed by 66 ANNUAL REPORT OF BOARD OF GOVERNORS some to provide a better basis for expansion than if the rapid autumn rise had continued. Sharp increases that had occurred in productivity during the past three months were being reflected in corporate profits and not in lowered industrial prices, and they thus provided support to demands for wage increases. There appeared to be little prospect for abatement of the persistent upward pressures on industrial prices notwithstanding the existence of unused resources, including considerable plant capacity not being utilized and substantial numbers of unemployed persons. Under these circumstances, a monetary policy on the side of restraint appeared to be appropriate and it did not appear that such restraint would retard sound recovery and growth in the economy. The conclusion of the Committee was that the System Account should seek during the period immediately ahead to maintain conditions in the market about as they were at present, believing that the moderate degree of restraint that had existed for the past several weeks was appropriate under the circumstances and that it could be applied within the terms of the directive to the Federal Reserve Bank of New York that had been in effect since August 19. December 2, 1958 Authority to effect transactions in System Account. The Committee made no change at this meeting in the directive that had been in effect since August 19, 1958, which contemplated a policy directed toward fostering conditions in the money market conducive to balanced economic recovery. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, and Szymczak. Votes against this action: none. During the three weeks preceding this meeting, the System Account had provided additional reserves to the market and member bank borrowing from the Federal Reserve Banks had risen on some days in the past week to more than $1 billion. These supplies of reserve funds had been sufficient to meet seasonal growth in currency and an increase in required reserves, although free reserves had declined to a nominal level. FEDERAL RESERVE SYSTEM 67 Recovery in domestic economic activity was continuing on a broad basis although, as indicated at the November 10 meeting, there recently had been indication of a slowing in the rate of expansion. The weight of statistical evidence continued on the side of fairly well sustained momentum upward. More recently, some indication of improvement in the unemployment situation had been evident, and the number of labor market areas classified as substantial surplus areas had been reduced during November. Over all, it was apparent that the domestic recovery that had shown up during the summer months had now gone far enough to be on the verge of a new expansion period, with the possibility that the rise in activity would carry major indexes of activity into new high ground. Developments in the financial area had shown no particularly striking features during the past month, although gyrations in the stock market had continued. Bond yields had declined somewhat in November, while short-term money rates had continued to rise. Although expansionary forces in the credit area had not been vigorous during recent weeks, the basis for renewed expansion continued to exist in the broadening economic recovery and the continuing Government deficit. The policy discussion by the Committee pointed to some increase in the degree of restraint that should be exerted, with the proviso that due consideration must be given to the financing problems of the Treasury. It was suggested that there was enough flexibility within the Committee's general policy to allow seasonal forces to exert an influence in the direction of some further reduction in reserve availability, perhaps moving in the direction of net borrowed reserves. The Committee's conclusion contemplated letting market developments tend to increase restraint within limits consistent with the policy directive which, as renewed at this meeting, continued to provide for open market operations "fostering conditions in the money market conducive to balanced economic recovery." December 16, 1958 Authority to effect transactions in System Account. The Federal Open Market Committee changed its policy directive at this meeting by adopting wording for clause (b) of paragraph 68 ANNUAL REPORT OF BOARD OF GOVERNORS ( l ) to provide that, among other things, transactions be with a view "to fostering conditions in the money market conducive to sustainable economic growth and stability." It was the Committee's view that at this time the emphasis should be on preventing expansion at an unsustainable rate. Votes for this action: Messrs. Martin, Chairman, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, and Szymczak. Votes against this action: Mr. Hayes, Vice Chairman. Since the recession's low in April 1958, recovery in economic activity had been remarkably good. Gross national product, personal income, retail trade, residential construction activity, manufacturers' new orders, industrial production, freight carloadings, and various other economic indicators had increased about as much in that sevenmonth period as in the corresponding seven-month periods of cyclical recoveries following earlier postwar contractions. The decline had been somewhat deeper during the recent recession than in the preceding two recessions, but it had been briefer and the subsequent recovery more rapid than in other postwar and prewar cycles. Even though peak activity levels had not been re-attained at the time of this meeting, they were sufficiently close at hand to direct attention to the problems to be considered in a period of renewed economic expansion. Money and credit markets had been calm during the month preceding this meeting in the face of the vigorous economic recovery, the rather heavy financing operations of the Treasury, the liquidity demands customary at this season of the year, and a moderate tightening of bank reserve positions. Interest rates had fluctuated moderately, close to the increased levels reached earlier in the autumn. Firming of rates during the two weeks immediately preceding this meeting had not been as great as customary in December. In the first half of 1958, when reserves were freely available, total loans and investments of member banks had expanded sharply. Since midyear, a period in which availability of reserves had been reduced, loans and investments of New York City banks had declined, those of reserve city banks had increased only slightly, and those of country banks had expanded by much larger amounts than in the corresponding period of either of the two preceding years. In total, bank credit FEDERAL RESERVE SYSTEM 69 since midyear had shown further expansion and by a greater than seasonal amount. Reserves to provide the basis for this credit had been largely supplied through System open market operations since August, when the volume of free reserves had been reduced sharply. The discussion at this meeting of economic and financial developments indicated a consensus favoring a move in open market operations towards somewhat greater restraint, but a very moderate move in that direction. A majority of the Committee also felt that the policy directive that had been adopted at the meeting on August 19, and which had continued in effect since that time without modification, should be changed to delete the word ''recovery" and to put emphasis on preventing expansion at an unsustainable rate. Specifically, it was felt by a majority of the Committee that the instruction to conduct System Account operations "conducive to balanced economic recovery" was somewhat out of date, and there was agreement on a modification in clause (b) of the first paragraph of the directive to provide for operations with a view "to fostering conditions in the money market conducive to sustainable economic growth and stability." Within this wording, it was believed that a move toward somewhat greater restraint on the availability of reserves would be appropriate. In voting against the change in wording of the directive, Mr. Hayes expressed himself as feeling that a move toward further restraint was premature at this stage of the recovery and might suggest to the public a policy of progressive tightening and set off an exaggerated market reaction. Apart from questioning the desirability of further restraint at this time, Mr. Hayes suggested that, if the Committee believed that policy should be more concerned with a developing threat of inflation than with recovery and that it should make a major effort to prevent such inflation by credit restraint, the directive should be made clear on that particular point. The Open Market Committee's directive in effect at the beginning of 1958 called for operations with a view to cushioning adjustments and mitigating recessionary tendencies in the economy. This was changed at the March 4 meeting to provide that transactions should be with a view to contributing further by monetary ease to resump- 70 ANNUAL REPORT OF BOARD OF GOVERNORS tion of stable growth of the economy. The next change in the directive was made on July 29, but during the period July 18 to July 24 the terms of the instruction adopted March 4 were temporarily superseded when the Committee gave a special authorization for the System Account to purchase Government securities, without limitation as to amount or maturity, for the purpose of correcting a disorderly condition in the Government securities market. That special authority having been terminated on July 24, the directive was modified at the meeting on July 29 to specify that operations should be with a view to recapturing redundant reserves that were expected to be released to the market August 1. A further instruction adopted on August 4, by which time the redundant reserves had been recaptured, called for keeping from having redundant reserves return. At the August 19 meeting, the directive was changed to provide for operations fostering conditions in the money market conducive to balanced economic recovery. This wording remained unchanged until the meeting on December 16, when it was modified to an instruction that operations be with a view to fostering conditions in the money market conducive to sustainable economic growth and stability. The form in which the directive was in effect at the end of 1958 provided an instruction to the Federal Reserve Bank of New York, until otherwise directed by the Committee; (1) To make such purchases, sales, or exchanges (including replacement of maturing securities, and allowing maturities to run off without replacement) for the System Open Market Account in the open market or, in the case of maturing securities, by direct exchange with the Treasury, as may be necessary in the light of current and prospective economic conditions and the general credit situation of the country, with a view (a) to relating the supply of funds in the market to the needs of commerce and business, (b) to fostering conditions in the money market conducive to sustainable economic growth and stability, and (c) to the practical administration of the Account; provided that the aggregate amount of securities held in the System Account (including commitments for the purchase or sale of securities for the Account) at the close of this date, other than special short-term certificates of indebtedness purchased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; (2) To purchase direct from the Treasury for the account of the Federal Reserve Bank of New York (with discretion, in cases where it seems de- FEDERAL RESERVE SYSTEM 71 sirable, to issue participations to one or more Federal Reserve Banks) such amounts of special short-term certificates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the total amount of such certificates held at any one time by the Federal Reserve Banks shall not exceed in the aggregate $500 million. 72 ANNUAL REPORT OF BOARD OF GOVERNORS RECORD OF POLICY ACTIONS BOARD OF GOVERNORS January 15, 1958 Reduction in margin requirements. Effective January 16, 1958, the supplements to Regulation T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Exchanges, and Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange, were amended to reduce the margin requirements from 70 per cent to 50 per cent, these requirements to be applicable both to purchases of securities and to short sales. Votes for this action: Messrs. Martin, Balderston, Szymczak, Mills, Robertson, and Shepardson. Votes against this action: none. For several months prior to this date common stock prices had been moving within a narrow range at a level approximately onesixth below the peak reached in July 1957, and at this lower range the yields on stocks were restored to a point below those available on high-grade corporate bonds. The price movement was accompanied by a substantial reduction in stock market credit outstanding which, at the end of 1957, was estimated at about $3.6 billion, 10 per cent less than in mid-1957 and 5 per cent less than in April 1955 when the margin requirements were raised to 70 per cent. With the downward trend of general economic developments resulting in a series of rather discouraging business and financial reports, stock market behavior reflected a psychology of caution. Although the historical record suggested the probability of some increase in customer debit balances following a margin reduction, it did not appear that such action at this time would be any great stimulant to stock market activity. Instead, the reaction of investors seemed likely to depend largely on their appraisal of the over-all economic situation. In these circumstances, a 70 per cent margin requirement could no longer be justified on the grounds given when that level was placed in effect, namely, potential excessive speculative activity and potential undue use of credit to finance such activity. FEDERAL RESERVE SYSTEM 73 January 21, 1958 Reduction in rates on discounts and advances by Federal Reserve Banks. Effective January 22, 1958, the Board approved action by the Board of Directors of the Federal Reserve Bank of Philadelphia establishing a rate of 2% per cent (a reduction from 3 per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Martin, Balderston, Mills, and Shepardson. Votes against this action: Messrs. Szymczak and Robertson. Pursuant to the policy established by this action, the Board subsequently approved, effective on the dates indicated, the same rate for the following Federal Reserve Banks: New York Cleveland Richmond Chicago St. Louis Kansas City Boston Atlanta Minneapolis Dallas January January January January January January January January February Februarv 24, 24, 24, 24, 24, 24, 28, 28, 7, 14, 1958 1958 1958 1958 1958 1958 1958 1958 1958 1958 Effective the same dates, the Board approved for the respective Federal Reserve Banks a rate of 3^4 per cent on advances to member banks under Section 10 (b) of the Federal Reserve Act. In addition, the Board approved changes at some of the Banks in rates on advances to individuals, partnerships, and corporations under the last paragraph of Section 13 of the Act and on industrial loans and commitments under Section 13b. (In accordance with the provisions of the Federal Reserve Act, the Federal Reserve Banks establish, subject to review and determination of the Board of Governors, rates on discounts and advances to member banks at least every 14 days and submit such rates to the Board for consideration. Prior to this date, no changes involving new policy had been made in these rates since those referred to on pages 68-70 of the Board's Annual Report for 1957.) Factual information available to the System by mid-January verified the emergence and progression of recessionary trends. Industrial production and employment continued to decline, while unem- 74 ANNUAL REPORT OF BOARD OF GOVERNORS ployment was rising at a disturbing pace. Declining gross national product was associated closely with a reduction in business plant and equipment expenditures aggravated by inventory liquidation, despite which manufacturers' stock-sales ratios were rising significantly. Federal Reserve policy had started to shift in a counter-recessionary direction in late October and early November 1957 when open market operations began to supply reserves more liberally to the banking system. In mid-November the discount rate was reduced from 3 ^ to 3 per cent. The response of the financial area to the shift in policy was reflected in a sharp decline in interest rates and a substantial increase in bank credit. The interest rate decline, which extended to yields on securities and open market paper but was not yet pronounced in bank loan or mortgage rates, occurred most markedly in yields on securities issues that previously had risen most, particularly medium-term Treasury issues and State and local government issues. With the accumulating evidence of recessionary tendencies, a further decrease in the discount rate was deemed an appropriate step in the execution of System policy designed to encourage credit and monetary expansion. In addition to placing the rate in closer alignment with rates on short-term market instruments, including the Treasury bill, the move had the effect of encouraging member banks to make any temporary reserve adjustments through borrowing rather than through credit liquidation. Governor Szymczak's negative vote reflected administrative rather than economic or financial considerations. With the discount rate reduction in November 1957 having been announced just before the announcement of a Treasury refunding operation, he was apprehensive that a second such occurrence might create the impression of a pattern likely to be followed. Accordingly, he would have preferred to relax through the medium of open market operations for the time being and to defer a discount rate change until after completion of the forthcoming Treasury financing operation. Governor Robertson's negative vote reflected his view that, with the country having passed only recently through a period of strong inflationary pressures which resulted in a substantial increase in wholesale and consumer prices from which there had as yet been FEDERAL RESERVE SYSTEM 75 no general downward readjustment, a move to ease too rapidly might place a floor under existing price levels. As he saw it, a reduction of the discount rate at this time would have no advantage by way of creating more employment or a higher volume of production through the utilization of more bank credit. Instead, it might tend to accentuate fears of a serious recession, or even depression, and thereby actually contribute to bringing about such a situation. While the lower discount rate would affect interest rates, he noted that it would not necessarily make additional reserves available. February 19, 1958 Reduction in reserve requirements of member banks. The supplement to Regulation D, Reserves of Member Banks, was amended to reduce reserve requirements with respect to net demand deposits of member banks of the Federal Reserve System as follows: Effective February 27, 1958 February 27, 1958 March 1, 1958 For Central reserve city banks Reserve city banks Banks not in central reserve or reserve cities Per cent From 20 to 19^2 From 18 to 171/? From 12 to l i y 2 Votes for this action: Messrs. Martin, Balderston, Szymczak, Vardaman, Mills, and Shepardson. Votes against this action: none. This action released to member banks about $500 million from required reserves. For central reserve city banks, about $125 million of reserves were released, while for reserve city and country banks the amounts were in the neighborhood of $195 million and $180 million, respectively. At the time this action was under consideration, industrial production, employment, income, and retail sales were continuing on a downward trend, while unemployment, on a seasonally adjusted basis, had risen further. Although total bank loans and investments had increased, this reflected principally larger holdings of Government securities. Business loans had continued to decline. The reduction of reserve requirements was complementary to steps being taken actively by the Federal Reserve System through 76 ANNUAL REPORT OF BOARD OF GOVERNORS the use of other policy instruments to foster conditions of credit ease during a period of deepening recession and thus to increase the willingness and ability of the banking system to expand credit. The freeing of reserves tended in the direction of reducing the cost of financing to borrowers and widened the access of potential borrowers to credit funds. March 6, 1958 Reduction in rates on discounts and advances by Federal Reserve Banks. Effective March 7, 1958, the Board approved action by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, and Chicago establishing a rate of 2 ^ pe*" cent (a reduction from 2% per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Martin, Balderston, Szymczak, Vardaman, Mills, and Shepardson. Votes against this action: none. Pursuant to the policy established by this action, the Board subsequently approved, effective on the dates indicated, the same rate for the following Federal Reserve Banks: Atlanta Boston San Francisco Cleveland Richmond St. Louis Kansas City Dallas Minneapolis March 10, 1958 March 11, 1958 March 13, 19581 March 14, 1958 March 14, 1958 March 14, 1958 March 14, 1958 March 14, 1958 March 21, 1958 Effective the same dates, the Board approved for the respective Federal Reserve Banks a rate of 2% per cent on advances to member banks under Section 10 (b) of the Federal Reserve Act. In addition, the Board approved changes at some of the Banks in rates on advances to individuals, partnerships, and corporations under the last paragraph of Section 13 of the Act and on industrial loans and commitments under Section 13b. deduction from 3 per cent. FEDERAL RESERVE SYSTEM 77 In early March economic activity was continuing to recede. The decline in industrial production had by this time carried to a point 10 per cent below the peak reached in the summer of 1957, inventory liquidation continued to be substantial, particularly in durable goods lines, and retail trade had worsened perceptibly. With substantial cancellations of previously approved appropriations reported, the prospective level of business plant and equipment expenditures for 1958 was around 10 per cent lower than expenditures during 1957. Unemployment on a seasonally adjusted basis was estimated to be running at about 6.7 per cent of the labor force, a rate comparable to that reached in 1949. The composite of available economic information suggested the possibility that the current recession might develop to be less moderate in extent or duration than either the 1948-49 or the 1953-54 recessions. Reflecting to a large extent Federal Reserve policy of providing a generous supply of reserves, member banks had been able not only to get substantially out of debt at the Reserve Banks but also to expand credit contrary to usual seasonal trends. In the face of a net liquidation of business loans, this expansion was being accomplished by placement of funds in securities and in loans on securities. Bank purchases of securities were providing funds directly or indirectly to the United States Treasury to meet the growing deficit incidental to the recession, as well as to State and local governments and corporations borrowing in capital markets and to borrowers on home mortgages. Due to the easier reserve position of banks and the resulting increase in the availability of lendable funds relative to current demands, there was a sharp further decline in short-term interest rates and the rate on Treasury bills had fallen to around per cent. In these circumstances, the action to reduce the discount rate to per cent was not of particular immediate significance from the standpoint of member bank borrowing. However, it brought the discount rate into better alignment with short-term interest rates, reflected the general attitude of System policy at this stage of the recession, and tended toward a position that would afford the System greater flexibility of adjustment to future developments. 78 ANNUAL REPORT OF BOARD OF GOVERNORS March 18, 1958 Reduction in reserve requirements of member banks. The supplement to Regulation D, Reserves of Member Banks, was amended to reduce reserve requirements with respect to net demand deposits of member banks of the Federal Reserve System as follows: Effective March 20, 1958 March 20, 1958 April 1, 1958 For Central reserve city banks Reserve city banks Banks not in central reserve or reserve cities Per cent From 19V2 t o *9 From 17*/2 to 17 From Hl/2 to 11 Votes for this action: Messrs. Martin, Balderston, Vardaman, Mills, Robertson, and Shepardson. Votes against this action: none. This action released about $490 million from required reserves, with the pattern of distribution approximately as follows: central reserve city banks $125 million; reserve city banks $190 million; and country banks $175 million. This second reduction of reserve requirements, viewed in association with earlier discount rate changes and the provision of reserves through open market operations, reflected furtherance of a System policy designed in its over-all aspects to foster ease in credit markets as the course of recession carried major business indices to lower levels. Taken together, the succeeding steps of Federal Reserve policy enabled member banks further to reduce their discounts at the Reserve Banks, served to offset the reserve drain involved in a continuing outflow of gold from the United States, and offered the means of financing a substantial commercial bank credit expansion. With the release of required reserves, member banks were able not only to meet seasonal loan demands but at the same time to continue adding to their holdings of United States Government securities. April 17, 1958 Reduction in reserve requirements of member banks. The supplement to Regulation D, Reserves of Member Banks, was amended to reduce reserve requirements with respect to net demand deposits of member banks of the Federal Reserve System as follows: FEDERAL RESERVE SYSTEM Effective April 17, 1958 April 24, 1958 April 24, 1958 For Central reserve city banks Central reserve city banks Reserve city banks 79 Per cent From 19 to 18l/2 From 18y2 to 18 From 17 to l6l/ 2 Votes for this action: Messrs. Martin, Szymczak, Mills, Robertson, and Shepardson. Votes against this action: none. The effect of this action, the third in a series of reductions in reserve requirements, was to release about $450 million from required reserves. For central reserve city banks the reduction which became effective April 17 released about $130 million of reserves, and the reduction effective April 24 released approximately the same amount. For reserve city banks, the effect was to free about $190 million of required reserves. Nearly $1 billion of reserves had been released by the two preceding reductions in reserve requirements, and additional reserves had been supplied by System open market operations during the past several weeks. However, a substantial part of the reserves thus provided had been absorbed by increased requirements resulting from a contra-seasonal growth in bank deposits, a larger than seasonal increase in currency in circulation, foreign operations (principally gold withdrawals), and float and other factors. In addition, free reserves of member banks had increased to a level deemed consistent with Federal Reserve policy objectives at this particular stage and depth of the recession. In view of the likelihood of a further gold drain, a prospective increase in required reserves resulting from payment by banks for a new Treasury issue, and an indicated increase in demand deposits of at least seasonal magnitude, it was estimated that some $300 million additional reserves would have to be supplied within the near future to maintain a condition of ease conducive to further credit and monetary expansion. This action was taken in recognition of the prospective need for additional reserves and to relieve pressures that were appearing on the reserve positions of central reserve and, to a somewhat lesser extent, reserve city banks. Some members felt that the existing situation afforded an opportunity to reduce the level of reserve requirements at a time when such action was consistent with credit policy 80 ANNUAL REPORT OF BOARD OF GOVERNORS and at the same time further to enlarge the area of flexibility for System action should it become necessary at some future date to institute a policy of credit restraint in the light of changed economic conditions. April 17, 1958 Reduction in rates on discounts and advances by Federal Reserve Banks. Effective April 18, 1958, the Board approved actions by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Chicago, St. Louis, and Minneapolis establishing a rate of 1% per cent (a reduction from 2^4 p e r cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Martin, Szymczak, Mills, Robertson, and Shepardson. Votes against this action: none. Pursuant to the policy established by this action, the Board subsequently approved, effective on the dates indicated, the same rate for the following Federal Reserve Banks: Boston Atlanta Cleveland Richmond Kansas City San Francisco Dallas April April April April April May May 22, 22, 25, 25, 25, 1, 9, 1958 1958 1958 1958 1958 1958 1958 Effective the same dates, the Board approved for the respective Federal Reserve Banks' a rate of 2 ^ p e r c e n t on advances to member banks under Section 10 (b) of the Federal Reserve Act. In addition, the Board approved changes at some of the Banks in rates on advances to individuals, partnerships, and corporations under the last paragraph of Section 13 of the Act and on industrial loans and commitments under Section 13b. By mid-April, data becoming available to the System suggested some slowing in the pace of decline of output and employment. There were, in fact, developments in certain segments of the economy such as to create the impression of more diversity of trends than had been the case earlier. Nevertheless, the sum of statistical evidence indicated that the general movement continued to be one FEDERAL RESERVE SYSTEM 81 of downward drift. In reflection of a System policy of ease, there had been a rapid expansion of bank credit while short- and mediumterm interest rates had declined further and reached their lowest levels since early 1955. This further action served to narrow the discrepancy between the discount rate and money market rates, including the Treasury bill rate, and provided assurance to member banks of a ready availability of funds at the lower rate in the event of need. The concurrent actions on the discount rate and on reserve requirements placed monetary policy clearly in the posture of doing everything possible to assist in the turnaround and recovery of the economy. August 4, 1958 Increase in margin requirements. Effective August 5, 1958, the supplements to Regulation T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Exchanges, and Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange, were amended to increase the margin requirements from 50 per cent to 70 per cent, these requirements to be applicable both to purchases of securities and to short sales. Votes for this action: Messrs. Martin, Balderston, Vardaman, Mills, and Shepardson. Votes against this action: none. By this date there was clear statistical evidence that recovery in economic activity and production had gained considerable momentum and was likely to go forward. The recovery was accompanied by a rise in stock prices sufficient to carry common stock yields below yields on bonds of the same companies, and by a sharp increase in the volume of stock market credit which by July had reached a level some 20 per cent higher than at the beginning of the year. In view of this rapid rise in credit and the re-emergence of an investment psychology favoring the purchase of stocks as a hedge against potential inflation, which would be a particular inducement to borrowing for the purpose, the margin requirements were restored to the 70 per cent level that had prevailed prior to the middle of January. 82 ANNUAL REPORT OF BOARD OF GOVERNORS August 14, 1958 Increase in rates on discounts and advances by Federal Reserve Banks. Effective August 15, 1958, the Board approved action by the Board of Directors of the Federal Reserve Bank of San Francisco establishing a rate of 2 per cent (an increase from 1% per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Martin, Balderston, Vardaman, and Shepardson. Votes against this action: none. Pursuant to the policy established by this action, the Board subsequently approved, effective on the dates indicated, the same rate for the following Federal Reserve Banks: Dallas Atlanta Kansas City Chicago Minneapolis New York Cleveland Richmond St. Louis Philadelphia Boston August August August September September September September September September September September 22, 1958 26, 1958 29, 1958 5, 1958 5, 1958 12, 1958 12, 1958 12, 1958 12, 1958 19, 1958 23, 1958 Effective the same dates, the Board approved for the respective Federal Reserve Banks a rate of 2l/2 per cent on advances to member banks under Section 10 (b) of the Federal Reserve Act. In addition, the Board approved changes at some of the Banks in rates on advances to individuals, partnerships, and corporations under the last paragraph of Section 13 of the Act and on industrial loans and commitments under Section 13b. Increasing evidence of vigorous economic recovery on a broad front was visible by the early part of August. By July, the seasonally adjusted index of industrial production had risen six points from the low of 128 reached in April, with the improvement in output diffused through durable and nondurable goods industries. Construction activity, already quite strong, increased further in July as private housing starts rose for the fifth successive month and attained a seasonally adjusted rate close to 1.2 million units, almost 15 per cent higher than the rate a year earlier. Personal income in June was back FEDERAL RESERVE SYSTEM 83 nearly to the level of August 1957, and it was estimated to have reached further ahead in July. In the first six months of the year, farm income had attained its highest level since 1953, and on the basis of crop and marketing prospects it seemed likely to rise further in the months ahead. Wholesale prices, advancing since mid-June, had by August exceeded the peak reached in March 1958, and consumer demand was strong. The improved economic outlook and the prospect of a large Federal deficit for the current fiscal year led to a sharpening of expectations with regard to a renewal of inflationary pressures and to a reversal in the trend of interest rates. The yield on Treasury bills rebounded strongly from the low point reached in June and by the first part of August was in the neighborhood of 11/2 per cent. In view of these developments, System open market operations had been modified so as to supply only a portion of the reserves needed to meet rising credit demands and offset the reserve drain of a continued gold outflow. As a result, member banks were obliged to draw down their excess reserves and to begin to increase their borrowings at the Federal Reserve Banks. The discount rate adjustment made such borrowings more costly. October 15, 1958 Increase in margin requirements. Effective October 16, 1958, the supplements to Regulation T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Exchanges, and Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange, were amended to increase the margin requirements from 70 per cent to 90 per cent, these requirements to be applicable to both purchases and short sales. Votes for this action: Messrs. Balderston, Szymczak, Mills, and Shepardson. Votes against this action: Mr. Robertson. Following the increase in margin requirements from 50 per cent to 70 per cent early in August, common stock prices continued their upward climb in a heavy volume of trading activity and had now registered a further advance of about 8 per cent. By October this price movement had carried common stock yields to a level more than half a percentage point below the average yield on high-grade 84 ANNUAL REPORT OF BOARD OF GOVERNORS corporate bonds. After a pause in August, stock market credit likewise resumed its upward thrust and latest estimates placed the volume of total customer credit at above $4.3 billion. In addition, the number of open margin accounts was reported to have increased considerably from June to September. Prevalent psychology, favoring equities, including those of a speculative character, as a medium of investment in preference to fixedincome obligations, appeared to reflect not only growing public confidence in continued business improvement but apprehension as to an intensification of inflationary pressures. In light of the developments in the market, the margin requirements were increased to 90 per cent at this time pursuant to the Board's statutory responsibility for administering those requirements with a view to preventing the excessive use of credit for purchasing or carrying registered stocks. Governor Robertson voted against this action for the following reasons: (1) Under withdrawal and substitution rules in effect at that time, a customer selling securities in a margin account was free to purchase an equal market value of securities or to withdraw the margin currently required on such a purchase. Thus, if he sold $1,000 of securities, he could replace them with a $1,000 purchase of securities, or he could withdraw $700 in cash under a 70 per cent margin requirement or $900 under a 90 per cent margin requirement. Consequently, Governor Robertson felt, the increased margin requirements would apply in practice only to new extensions of credit and not to the turnover of credit already in the market. It would fail, he believed, to reach the most important aspect at that time of the "excessive use of credit" and would therefore be a relatively futile and ineffective action, the psychological effect of which might be the reverse of that intended. (2) Also because of the then existing withdrawal and substitution rules, the increased margin requirements would unjustifiably enlarge the inequity as between customers who could continue to trade on lower margins and new customers subject to higher margins. (3) The higher margin requirements, coupled with the existing withdrawal and substitution rules, would tend to encourage a weakening of margin accounts and create dangers of cumulative forced selling in undermargined accounts if stock prices should fall. FEDERAL RESERVE SYSTEM 85 October 23, 1958 Increase in rates on discounts and advances by Federal Reserve Banks. Effective October 24, 1958, the Board approved action by the Boards of Directors of the Federal Reserve Banks of Philadelphia, Richmond, St. Louis, Minneapolis, and Dallas establishing a rate of 2 ^ p e r cent (an increase from 2 per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act. Votes for this action: Messrs. Balderston, Szymczak, Robertson, and Shepardson. Votes against this action: none. Pursuant to the policy established by this action, the Board subsequently approved, effective on the dates indicated, the same rate for the following Federal Reserve Banks: Atlanta Cleveland Chicago Boston Kansas City San Francisco New York October 28, October 30, October 31, November 4, November 4, November 6, November 7, 1958 1958 1958 1958 1958 1958 1958 Effective the same dates, the Board approved for the respective Federal Reserve Banks a rate of 3 per cent on advances to member banks under Section 10 (b) of the Federal Reserve Act. In addition, the Board approved changes at some of the Banks in rates on advances to individuals, partnerships, and corporations under the last paragraph of Section 13 of the Act and on industrial loans and commitments under Section 13b. During the period since the previous discount rate increase in August, the economy had continued its trend toward recovery, with further advances in industrial production, construction activity, retail sales, and personal income. Although average wholesale prices showed stability, prices of basic industrial materials were moving upward. Currency in circulation, bank credit, and deposits each reflected a seasonal rise. Short-term interest rates, which began to advance rapidly after midyear, continued that trend, reflecting in part substantial cash borrowing on the part of the Treasury in the form of short-term securities and also anticipation of further growth in credit demands. By the middle of October, the yield on three-month 86 ANNUAL REPORT OF BOARD OF GOVERNORS Treasury bills had risen to a level around 2% per cent. Seasonal monetary needs were estimated to require a further growth of over $4 billion in total bank credit by the end of the calendar year, while the Treasury was scheduled to undertake shortly a series of financing operations that would involve, through the end of the year, borrowing additional cash of around $4 billion and refunding some $12 billion of outstanding securities. Other pressures also tending to influence the trend toward a higher structure of interest rates included growing apprehension concerning potential inflationary developments and a continued tendency to shift from fixed-return assets to equities. With the discount rate having fallen substantially out of line with short-term money market rates, and with influences present such as to suggest the probability of a further distortion of the normal relationship, the increase in the rate served to produce a better alignment and at the same time recognized existing trends in the money market and the economy generally. November 12, 1958 Amendment to Regulation K, Corporations Doing Foreign Banking or Other Foreign Financing under the Federal Reserve Act. Effective November 12, 1958, Regulation K was amended by deleting Section 10 (c) (2) and the reference thereto contained in Section 3(b). Votes for this action: Messrs. Martin, Balderston, Szymczak, Mills, Robertson, and Shepardson. Votes against this action: none. Section 10 (c) of Regulation K, as revised January 15, 1957, contained a provision that "no Financing Corporation hereafter organized shall have a name which is similar to the name of, or identifies the Corporation with, any bank in the United States with which such Financing Corporation is affiliated." Section 3(b), relating to names of corporations organized under Section 25 (a) of the Federal Reserve Act, contained a reference to the aforementioned provision of Section 10 (c). In the light of experience with the administration of the revised Regulation K, the Board concluded that the provision in question was unduly restrictive and unnecessary in the public interest. Pursuant to Section 3(b), the name of any corporation organized under Section FEDERAL RESERVE SYSTEM 87 25 (a) continued to be subject to the approval of the Board of Governors. Further, the same section also provides that in no case shall the name of such a corporation resemble the name of any other corporation to an extent that might result in misleading or deceiving the public as to the corporation's identity, purpose, connections, or affiliations. In addition, the name of any corporation organized under Section 25 (a) shall, so far as practicable, indicate the nature of the business contemplated and shall include the word "international," "foreign," "overseas," or some similar word. No financing corporation is permitted to have the word "bank" or "banking," or any similar word, as part of its name. December 18, 1958 Actions incident to admission of Alaska to Statehood. Effective upon issuance by the President of the United States of a proclamation admitting Alaska to Statehood, which proclamation subsequently was issued on January 3, 1959, the Board readjusted the Federal Reserve districts so as to include the State of Alaska in the Twelfth District, and within that District included Alaska in the Territory of the Seattle Branch of the Federal Reserve Bank of San Francisco. Effective the same date, certain amendments were made to several regulations of the Board to correct language rendered inappropriate by the admission of Alaska to Statehood. Votes for this action: Messrs. Martin, Szymczak, Mills, and Robertson. Votes against this action: none. Section 2 of the Federal Reserve Act provides that the Federal Reserve districts, as created originally by the Reserve Bank Organization Committee, may be readjusted from time to time by the Board of Governors of the Federal Reserve System, not to exceed 12 in all. Section 19 of the Alaska Statehood Act amended the aforesaid Section 2 to provide that "when the State of Alaska is hereafter admitted to the Union the Federal Reserve districts shall be readjusted by the Board of Governors of the Federal Reserve System in such manner as to include such State/' In anticipation of a Presidential proclamation admitting Alaska to Statehood, the Board therefore took action to include Alaska in the Twelfth Federal Reserve District coincident with the date of the proclamation. 88 ANNUAL REPORT OF BOARD OF GOVERNORS Regulations relating to branches of Federal Reserve Banks, which are prescribed under the authority of Section 3 of the Federal Reserve Act, provide that no change shall be made by any Federal Reserve Bank in the territory included within the district served by any of its branches except with the prior approval or upon the direction of the Board of Governors. Pursuant to these regulations, the Board provided that the State of Alaska, upon admission to the Union, be included in the territory of the Seattle Branch of the Federal Reserve Bank of San Francisco. Certain technical changes in a number of Board regulations were made, effective the same date, because the admission of Alaska to Statehood rendered the existing language inappropriate. The regulations affected included G, Collection of Noncash Items; H, Membership of State Banking Institutions in the Federal Reserve System; J, Check Clearing and Collection; and U, Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange. FEDERAL RESERVE SYSTEM 89 BANK SUPERVISION BY THE FEDERAL RESERVE SYSTEM Examination of Federal Reserve Banks, The Board's Division of Examinations examined each of the 12 Federal Reserve Banks and their 24 branches during the year as required by law. In conjunction with their annual examination of the Federal Reserve Bank of New York, the Board's examiners also made a detailed audit of the accounts and holdings of the System Open Market Account maintained at that Bank, and rendered a report thereon to the Federal Open Market Committee. The techniques and procedures employed by the Board's examiners were surveyed and appraised by a private firm of certified public accountants during the course of the examination of a Federal Reserve Bank of its selection. Examination of member banks. Although authorized to examine all member banks, both State and national, as a matter of practice neither the Federal Reserve Banks nor the Board of Governors examines national banks since the Comptroller of the Currency is directly charged with that responsibility by law. Reports of examinations made by the Comptroller are furnished the respective Federal Reserve Banks and made available to the Board of Governors. Likewise, because all member banks are insured, the Federal Deposit Insurance Corporation is empowered to make special examinations of national banks and State member banks. However, such examinations have been rare and have been made only in anticipation of financial assistance by the Corporation in a rehabilitation program or where a member bank desired to continue as an insured bank after withdrawal from membership in the System. Reports of examination of both national banks and State member banks are made available to the Federal Deposit Insurance Corporation. State member banks are subject to examinations made by direction of the Board of Governors or of the Federal Reserve Banks by examiners selected or approved by the Board of Governors. The established policy is to conduct at least one regular examination of each State member bank, including its trust department, during each calendar year, by examiners for the Reserve Bank of the district in which the bank is situated, with additional examinations if considered desirable. Here again, in order to avoid duplication and to minimize inconvenience to the banks examined, wherever practicable joint examinations are made in cooperation with the State banking au- 90 ANNUAL REPORT OF BOARD OF GOVERNORS thorities or alternate examinations are made by agreement with State authorities. The 1958 program for the examination of State member banks was practically completed, since only 9 of the 1,734 banks were not examined during the calendar year. Federal Reserve membership. The 6,312 banks that were members of the Federal Reserve System at the end of 1958 accounted for 47 per cent of the number and held 85 per cent of the deposits of all commercial banks in the United States. State member banks accounted for 20 per cent of the number of all State commercial banks and held 66 per cent of the deposits of these banks. The 4,578 national and 1,734 State member banks comprising Federal Reserve membership reflected declines of 42 and 39, respectively, from the previous year-end. This continuing decline was largely due to consolidations and mergers; other reductions include 15 State member banks that withdrew from membership, and one national bank that became a nonmember bank. The decrease was partly offset by 19 newly established national and two newly established State member banks, the admission of seven nonmember banks to membership, and the conversion of three nonmember banks into national banks. The total number of member bank offices increased as a result of both the conversion of merged banks into branches and the establishment of de novo branches. At the end of the year member banks were operating 6,700 branches, 535 more than at the close of 1957. Detailed figures on changes in the banking structure for the year 1958 are shown in Table 18 on page 127. Bank holding companies. During 1958, pursuant to Section 3 ( a ) ( l ) of the Bank Holding Company Act of 1956, the Board approved one application for prior approval of action to become a bank holding company, and denied three such applications, the latter three being involved in a proposal that would have resulted in one continuing bank holding company. Pursuant to Section 3 (a) (2) of the Act, the Board approved the acquisition by three bank holding companies of voting shares of four banks and denied one application for such acquisition with respect to one bank. Under Section 4 ( c ) ( 6 ) of the Act, the Board, after a hearing, denied a request for a determination that certain subsidiaries of a bank holding company were so closely related to the banking activities of the FEDERAL RESERVE SYSTEM 91 holding company system as to be a proper incident thereto and as to make it unnecessary for the prohibitions of Section 4 to apply in order to carry out the purposes of the Act; one such request was approved. During the year the Board issued four certifications in accordance with the tax provisions of the Act (Internal Revenue Code, Sections 1101 and 1103). To provide necessary current information, annual reports for the year 1957 were obtained from registered bank holding companies. During 1958, pursuant to the Banking Act of 1933, the Board authorized the issuance of five voting permits for general purposes and 13 permits for limited purposes to holding company affiliates of member banks. In accordance with established practice, a number of holding company affiliates were examined during the year by examiners for the Federal Reserve Banks in whose districts the principal offices of the holding companies are located. Section 301 of the Banking Act of 1935 provides that the term "holding company affiliate" shall not include, except for the purposes of Section 23A of the Federal Reserve Act, any organization which is determined by the Board not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies. During the year the Board made such determinations with respect to seven organizations. Trust powers of national banks. During 1958, 42 national banks were granted authority by the Board to exercise one or more trust powers under the provisions of Section 11 (k) of the Federal Reserve Act. This number includes the grant of additional powers to five banks which previously had been granted certain trust powers. One additional national bank acquired trust powers as a result of consolidation. Trust powers of 31 national banks were terminated by voluntary liquidation, consolidation, merger, or conversion. At the end of 1958, there were 1,722 national banks holding permits to exercise trust powers. Acceptance powers of member banks. During the year the Board approved applications of two member banks, pursuant to the provisions of Section 13 of the Federal Reserve Act, for increased acceptance powers. One member bank was granted permission to accept commercial drafts or bills of exchange to an amount not 92 ANNUAL REPORT OF BOARD OF GOVERNORS exceeding at any time, in the aggregate, 100 per cent of its paid-up and unimpaired capital stock and surplus, and the application of one member bank was approved for limited permission to accept drafts or bills of exchange drawn for the purpose of furnishing dollar exchange as required by the usages of trade in Brazil. Foreign branches and foreign banking and financing corporations. Under the provisions of Section 25 of the Federal Reserve Act, the Board approved during 1958 seven applications made by member banks for permission to establish branches in foreign countries and overseas areas of the United States. One member bank opened a branch in Bayamon, Puerto Rico; and another opened branches in Asuncion, Paraguay, and Valencia, Venezuela. The Valencia branch had been authorized by the Board in 1957. One member bank closed one of its branches in London. At the end of 1958, seven member banks had in active operation a total of 119 branches in 27 foreign countries and overseas areas of the United States. Of the 119 branches, three national banks were operating 93 and four State member banks were operating 26. The branches were distributed geographically as follows: Latin America Argentina Brazil Chile Colombia Cuba Mexico Panama Paraguay Peru Uruguay Venezuela Continental Europe Belgium France Germany England 62 10 10 2 4 21 3 5 1 1 1 4 5 1 3 1 10 Near East Egypt Lebanon Saudi Arabia Far East Hon g Kon£ India a an J P Philippines Singapore Thailand United States Overseas Areas. Canal Zone Guam Puerto Rico Total 4 1 2 1 20 1 2 10 5 1 1 18 4 1 13 119 There was no change in 1958 in the list of corporations organized under State laws which operate under agreements with the Board pursuant to Section 25 of the Federal Reserve Act relating to investment by member banks in the stock of corporations engaged FEDERAL RESERVE SYSTEM 93 principally in international or foreign banking. The head offices in New York of the three "agreement" corporations were examined in 1958 by examiners for the Board of Governors. One corporation operates a branch in France; one has an English fiduciary affiliate; and one operates two agencies at the New York International Airport, has a branch in England, owns all the stock of a bank organized under the laws of, and operating in, Liberia, and owns all the stock of a bank organized under the laws of, and operating in, the Union of South Africa. The investment in the latter bank was authorized by the Board and the bank opened in Johannesburg in 1958. During 1958 one corporation was chartered by the Board under the provisions of Section 25 (a) of the Federal Reserve Act to engage in international or foreign financing, making a total of five corporations engaged in international or foreign banking or financing in active operation at the end of the year, two of which are regarded as "Banking Corporations" and three as "Financing Corporations." The home offices of these five corporations are located in New York City, and four were examined during the year by examiners for the Board of Governors. Three corporations have no subsidiaries or foreign branches; one has a branch in France and an English fiduciary affiliate which has a branch in Canada; and one operates branches in France, Germany, Guatemala, Lebanon, and Singapore (with branches in Hong Kong and the Federation of Malaya authorized by the Board in 1958 but not opened by the end of the year)', and owns substantially all of the stock of a bank organized under the laws of, and operating in, Italy. In 1958, examiners for the Board of Governors examined the Singapore, Colony of Singapore, and Beirut, Lebanon, branches of a foreign banking corporation, and the Japanese and Beirut, Lebanon, branches of a State member bank. The London branches of another State member bank were surveyed at the head office of the bank in New York by examiners for the Board of Governors. Inter-Agency Bank Examination School. During 1958, two sessions of the School for Examiners and four sessions of the School for Assistant Examiners were held. The Inter-Agency Bank Examination School is conducted in Washington by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. 94 ANNUAL REPORT OF BOARD OF GOVERNORS Since the Inter-Agency School was established in 1952, the various sessions have been attended by 1,064 men, representing the three Federal bank supervisory agencies, the State Banking Departments of California, Connecticut, Indiana, Louisiana, Maine, Michigan, Mississippi, Montana, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, and Virginia, the Treasury Department of the Commonwealth of Puerto Rico, and one foreign country. LEGISLATION Defense Production Act. The Defense Production Act of 1950, Section 301 of which is the basis for guarantees of loans for defense production, which would have expired June 30, 1958, was amended and continued in force until the close of June 30, I960, by the Act of June 28, 1958. Purchase of Government obligations by Federal Reserve Banks. The authority of the Federal Reserve Banks under Section 14 (b) of the Federal Reserve Act to purchase and sell direct or fully guaranteed obligations of the United States directly from or to the United States, which would have expired on June 30, 1958, was extended until June 30, I960, by the Act of June 30, 1958. Alaskan Statehood. The Alaskan Statehood Act of July 7, 1958 amended Section 2 of the Federal Reserve Act to provide that upon admission of Alaska to Statehood the Federal Reserve districts should be readjusted so as to include such State, and to require national banks in any new State to become members of the Federal Reserve System within 90 days after admission of such State into the Union. Pursuant to the requirements of this amendment, the Board subsequently readjusted the Federal Reserve districts so as to include the State of Alaska in the Twelfth Federal Reserve District effective January 3, 1959. Real estate loans by national banks. Section 24 of the Federal Reserve Act was amended by the Act of July 18, 1958 so as to make the limitations and restrictions of that section on real estate loans by national banks inapplicable to loans made to established industrial or commercial businesses in which the Small Business Administration cooperates through agreements to participate on an immediate or deferred basis. FEDERAL RESERVE SYSTEM 95 Small Business Investment Act. Section 13b of the Federal Reserve Act, authorizing working capital loans and commitments by the Federal Reserve Banks for industrial or commercial businesses, was repealed by the Small Business Investment Act of 1958, approved August 21, 1958, to become effective one year after the date of enactment of that Act. The same Act provided for payment by the Federal Reserve Banks to the United States within 60 days after the date of its enactment of amounts previously paid by the Secretary of the Treasury to the Federal Reserve Banks under the provisions of Section 13b of the Federal Reserve Act. In addition, the Act of August 21, 1958 made stock of small business investment companies organized under that Act eligible for purchase by national banks and by other member banks and nonmember insured banks to the extent permitted by State law, subject to certain limitations. Bank Holding Company Act. The Board is required by Section 5(d) of the Bank Holding Company Act of 1956 to include in its annual report to Congress any recommendations for changes in that Act which, in the opinion of the Board, would be desirable. In a special report submitted to Congress on May 7, 1958 the Board recommended a number of amendments to the Bank Holding Company Act which would tend to clarify ambiguities in the law and facilitate its administration. The Board continues to urge favorable consideration of those amendments. RESERVE BANK OPERATIONS Loan guarantees for defense production. Under the provisions of the Defense Production Act of 1950 as amended and the implementing Executive Orders, certain designated procurement agencies of the Government are authorized to guarantee loans made by commercial banks and other private financing institutions to finance and expedite production for national defense and to finance contractors and subcontractors in connection with or in contemplation of termination of their defense contracts. The guaranteeing agencies are the Departments of the Army, Navy, Air Force, Commerce, Interior, and Agriculture, the General Services Administration, and the Atomic Energy Commission. The present program is a reactivation of the V-loan program 96 ANNUAL REPORT OF BOARD OF GOVERNORS utilized during World War II. In the making of guarantees, the Federal Reserve Banks are authorized to act, on behalf of the guaranteeing agencies, as fiscal agents of the United States, subject to the supervision of the Board of Governors of the Federal Reserve System; and the Board is authorized, after consultation with the guaranteeing agencies, to prescribe rates and fees and forms and procedures. The schedule of rates and fees was reviewed from time to time by the Board and guaranteeing agencies but developments during 1958 did not indicate the need for any changes. During 1958, the guaranteeing agencies authorized the issuance of 40 guarantee agreements amounting to $193 million. On December 31, 1958, guarantee agreements outstanding covered credits totaling $478 million, of which amount $310 million represented actual loans outstanding and $168 million was available to borrowers under guarantee agreements in force. Of the total credit available to borrowers, including loans outstanding, 74 per cent on the average was guaranteed. During the year, approximately $728 million was advanced on V-loans, most of which are revolving credits. From the beginning of the program in September 1950 through December 31, 1958, 1,543 V-loans totaling $3,105 million were authorized by the procurement agencies which may guarantee such loans under the Defense Production Act of 1950. Of the total loans authorized, 56 per cent of the number and 6 per cent of the amount were less than $500,000 and 72 per cent of the number and 12 per cent of the amount were less than $1 million. Forty-two per cent of the number and 7 per cent of the amount of loans authorized were to borrowers having assets of less than $500,000; 57 per cent of the number and 12 per cent of the amount were to borrowers having assets of less than $1 million. Seventy-three per cent of the number and 19 per cent of the amount of loans authorized were to borrowers having less than 500 employees. Under the law as amended by the Defense Production Act amendments of 1958, authority for the V-loan program, unless further extended, will terminate on June 30, I960. Volume of operations. Table 5 on page 113 shows the volume of operations in the principal departments of the Federal Reserve Banks for the years 1954-58. Changes from 1957 were mixed, with 97 FEDERAL RESERVE SYSTEM some activities decreasing and others increasing. Discounts and advances and currency received and counted declined. On the other hand, checks (other than Government checks and Postal money orders), coin, and transfers of funds increased and reached new peaks; checks handled, however, increased less than in recent years. Earnings and expenses. Current earnings, current expenses, and the distribution of net earnings of each Federal Reserve Bank during 1958 are shown in detail in Table 6 on pages 114-15, and a condensed historical statement is shown in Table 7 on pages 116-17. The table below summarizes the earnings and expenses and the distribution of net earnings for 1958 and 1957. EARNINGS, EXPENSES, AND DISTRIBUTION OF N E T EARNINGS FEDERAL RESERVE BANKS, 1958 AND 1957 OF [In thousands of dollars] Item 1958 Current earnings. Current expenses. 742,068 137,722 1 Deductions from current net earnings Net additions or deductions (—) Net earnings before payments to U. S. Treasury. 763,348 131,814 604,346 Current net earnings. Additions to current net earnings 1957 631,534 454 330 2 1,580 8,721 124 -7,141 604,470 624,393 524,059 542,708 Paid U. S. Treasury (interest on F. R. notes) 21,197 20,081 59,214 61,604 Dividends paid Transferred to surplus 1 Includes net profits of $157,000 in 1958 and $167,000 in 1957 on sales of U. S. Government securities. 2 Includes a payment of $8,335,000 to Federal Reserve retirement system representing adjustment for revised benefits. Current earnings of $742 million in 1958 were 3 per cent less than in 1957, largely because lower discount rates coupled with fewer borrowings resulted in a $20 million decrease in earnings from this source. Earnings from United States Government securities were $1 million less than in the year before, reflecting a lower average yield offset in part by a slight increase in average holdings. Current expenses of $138 million were about 4 per cent above 1957. 98 ANNUAL REPORT OF BOARD OF GOVERNORS Current net earnings amounted to $604 million, a decrease of 4 per cent from 1957. The effect of profit and loss additions and deductions was minor, leaving net earnings before payments to the United States Treasury at about $604 million, a decrease of 3 per cent from 1957. Statutory dividends to member banks amounted to $21 million, or a rise of about $1 million over 1957, reflecting increases in capital and surplus of member banks with attendant increases in the paid-in capital of the Federal Reserve Banks. Payments to the United States Treasury as interest on Federal Reserve notes amounted to $524 million in 1958. This was 90 per cent of net earnings after dividends and allowance for building up surplus to 100 per cent of subscribed capital where surplus was below that amount. This allowance is consistent with the provisions of the franchise tax when it was in effect; for 1958 the allowance for bringing surplus up to subscribed capital was $986,000 for two Banks and for 1957 the total was $1,303,000 for one Bank. Total payments to the Treasury as interest on Federal Reserve notes since the policy of making such payments was begun in 1947 have amounted to $3,517 million. Net earnings of $59 million remaining after dividends and payments to the United States Treasury were added to surplus account. On September 2, 1958, the Federal Reserve Banks repaid to the Secretary of the Treasury the aggregate of $27,546,310.97 pursuant to the provisions of Section 602 (a) of the Small Business Investment Act of 1958. This resulted in the elimination of Section 13b surplus in the amount of $27,542,653.50; the net difference of $3,657.47 was charged to Section 7 surplus. The amounts repaid had been advanced by the Secretary of the Treasury under the provisions of Section 13b of the Federal Reserve Act. Holdings of loans and securities. Average daily holdings of loans and securities during 1958 amounted to $24,983 million, $761 million more than during 1957; holdings of discounts and advances decreased $555 million and holdings of United States Government securities increased $1,302 million. The average rate of interest earned on discounts and advances declined from 3.15 to 2.28 per cent, reflecting the net effect of three reductions in the discount rate in the first half of the year to a low of 1% per cent, and two subse- 99 FEDERAL RESERVE SYSTEM quent increases resulting in a rate of 2 ^ per cent for the last two months of the year. The average rate on Government securities declined from 3.15 to 2.98 per cent. The accompanying table shows holdings, earnings, and average interest rates on loans and securities held by the Federal Reserve Banks during the past three years. RESERVE BANK EARNINGS ON LOANS AND SECURITIES, 1956-58 [Dollar amounts in thousands] Item and year Total Average daily holdings :x 1956 $24,563,390 1957 24,222,331 1958 24,983,185 Discounts and advances Industrial loans Acceptances U.S. Government securities $833,297 850,097 295,250 $837 686 415 $20,662 25,142 38,904 $23,708,594 23,346,406 24,648,616 36 30 18 547 848 806 571,788 735,371 734,212 Earnings: 1956 1957 1958 595,396 763,041 741,781 23,025 26,792 6,745 Average rate of interest (per cent): 1956 1957 1958 2.42 3.15 2.97 2.76 3.15 2.28 1 4.26 4.37 4.45 2.65 3.37 2.07 2.41 3.15 2.98 Based on holdings at opening of business Foreign and international accounts. Gold and dollar assets held for foreign account at the Federal Reserve Banks increased $2,189 million in 1958, reflecting almost entirely net purchases of gold from the United States by foreign monetary authorities. At the end of the year holdings amounted to $12,115 million, representing $7,668 million of earmarked gold, $3,695 million of United States Government securities (largely Treasury bills), $272 million in dollar deposits, $68 million of bankers' acceptances purchased through Federal Reserve Banks, and $412 million of miscellaneous assets. The latter item includes mainly dollar bonds issued by foreign countries and international institutions. The aggregate gold and dollar assets held for the International Bank for Reconstruction and Development, the International Finance 100 ANNUAL REPORT OF BOARD OF GOVERNORS Corporation, and the International Monetary Fund increased $508 million in 1958. Accounts were opened for two central banks in Africa. As in 1957, loans secured by gold collateral were of relatively minor importance. A loan of $5 million outstanding at the beginning of 1958 was repaid in January. New arrangements amounted to a total of $43.3 million, of which $17.9 million was outstanding at the end of the year. Loans on gold are ordinarily made to foreign monetary authorities to assist them in meeting their dollar requirements for temporary needs. The Federal Reserve Bank of New York, as depositary and fiscal agent, continued to perform various services for the international institutions mentioned above. As fiscal agent of the United States, the Bank continued to operate the United States Exchange Stabilization Fund pursuant to authorization and instructions of the Treasury Department. Also on behalf of the Treasury Department it continued the administration of foreign assets control regulations pertaining to assets in the United States of, and transactions with, Communist China and North Korea and their nationals, and, until revocation on May 1, of regulations involving certain assets of the Egyptian Government and the Suez Canal Company. Bank premises. During the year the Board authorized the construction of an addition to and alteration of the Federal Reserve Bank building in Dallas. This program is planned to extend over several years. With the approval of the Board, properties adjacent to the present locations of the Federal Reserve Bank of Kansas City and the Oklahoma City Branch were acquired for future expansion; an annex building was purchased by the Federal Reserve Bank of San Francisco; and a site for a new building was acquired for the New Orleans Branch. The Board also authorized the acquisition of property adjacent to the Little Rock Branch for future expansion. FEDERAL RESERVE SYSTEM 101 BOARD OF GOVERNORS—INCOME AND EXPENSES The accounts of the Board for the year 1958 were audited by the public accounting firm of Price Waterhouse & Co., whose certificate follows: To the Board of Governors of the Federal Reserve System In our opinion, the accompanying financial statements present fairly the assets, liabilities and fund balances of the operating fund and the property and equipment fund of the Board of Governors of the Federal Reserve System as of December 31, 1958, and the related assessments and expenditures for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Our examination of the financial statements was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary. Price Waterhouse & Co. Washington 5, D. C, February 6, 1959. 102 ANNUAL REPORT OF BOARD OF GOVERNORS ASSETS, LIABILITIES AND FUND BALANCES DECEMBER 31, 1958 ASSETS Cash, exclusive of $173,898 representing withheld taxes Miscellaneous receivables and travel advances Stockroom and cafeteria inventories, at cost $ 630,571 15,790 18,623 Total assets of operating fund 664,984 Property and equipment, at cost: Land and improvements Building Furniture and equipment 792,852 3,878,710 561,758 Total assets of property and equipment fund 5,233,320 Total assets $5,898,304 LIABILITIES AND F U N D BALANCES Accounts payable and accrued expense Fund balances: Operating fund— Balance December 31, 1957 Excess of expenditures over assessments for the year . . Property and equipment fund— Balance December 31, 1957 Expenditures for additions Excess of cost of assets disposed of over trade-in allowances Total liabilities and fund balances $ 336,628 $ 329,503 1,147 328,356 5,149,575 87,961 (4,216) 5,233,320 $5,898,304 FEDERAL RESERVE SYSTEM 103 ASSESSMENTS AND EXPENDITURES YEAR ENDED DECEMBER 31, 1958 ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS: For Board expenses and additions to property and equipment For expenditures made on behalf of the Federal Reserve Banks Total assessments $ 5,917,200 4,769,500 $10,686,700 EXPENDITURES: For printing, issue and redemption of Federal Reserve Notes, paid on behalf of the Federal Reserve Banks $ 4,769,500 For expenses of the Board: Salaries $3,937,185 Retirement and insurance contributions 512,961 Traveling expenses 305,691 Professional and contractual services: Economic surveys 294,140 Legal, consultant and audit fees 125,313 Other 17,631 Printing and binding 175,450 Telephone and telegraph 86,319 Postage and expressage 66,191 Equipment and other rentals 66,062 Operation of cafeteria, net 51,119 Heat, light and power 49,776 Stationery and office and other supplies 48,927 Repairs, maintenance and alterations 45,908 Books and subscriptions 16,940 Insurance 7,833 Miscellaneous, net 22,940 5,830,386 For property and equipment Total expenditures EXCESS OF EXPENDITURES OVER ASSESSMENTS FOR THE YEAR 87,961 $10,687,847 $ 1,147 The Board's expenses for 1958 include (1) an expenditure of $107,946 incurred in connection with the continuation of the Small Business Financing Study which was undertaken in 1957 for the information of the Federal Reserve System, the interested committees of the Congress, and the public generally; (2) an expenditure of $15,255 for Consumer Buying Intentions surveys requested by the Bureau of the Budget and the Council of Economic Advisers on November 21, 1957, and (3) an expenditure of $45,122 as a result of the assignment to the Board of certain responsibilities under The National Plan for Civil and Defense Mobilization and Defense Mobilization Order 1-20. TABLES 106 ANNUAL REPORT OF BOARD OF GOVERNORS NO. 1—STATEMENT OF CONDITION OF THE FEDERAL RESERVE BANKS (IN DETAIL) DECEMBER 31, 1958 [Amounts in boldface type are those shown in the Board's weekly statement. In thousands of dollars] ASSETS Gold certificates on hand: Held by Federal Reserve Banks Held by Federal Reserve Agents Gold certificates due from U. S. Treasury: Interdistrict Settlement Fund Federal Reserve Agents' Fund 1,015,555 1,800,000 6,924,338 9,273,000 Redemption fund for Federal Reserve notes 937,919 Total gold certificate reserves Federal Reserve notes of other Federal Reserve Banks Other cash: United States notes Silver certificates Standard silver dollars National bank notes and Federal Reserve Bank notes Subsidiary silver, nickels, and cents Total other cash Discounts and advances secured by U. S. Govt. securities: Discounted for member banks Discounted for others Other discounts and advances: Discounted for member banks Foreign loans on gold Total discounts and advances Industrial loans Acceptances: Bought outright Held under repurchase agreement U. S. Government securities: Bought outright— Bills Certificates Notes Bonds 19,950,812 476,993 30,678 243,540 7,401 630 54,225 336,474 45,963 100 17,900 2,250,450 18,649,726 2,867,565 2,483,771 26,251,512 95,000 Total U. S. Government securities Total loans and securities Due from foreign banks Uncollected cash items: Transit items Exchanges for clearing house Other cash items Total uncollected cash items Bank premises: Land Buildings (including vaults) Fixed machinery and equipment Total buildings Less depreciation allowances Total bank premises Other assets: Miscellaneous assets acquired account industrial loans.. Less valuation allowances Net Reimbursable expenses and other items receivable. Interest accrued Premium on securities Deferred charges Real estate acquired for banking house purposes.. . Suspense account All other 18,000 43,290 5,799 Total bought outright Total assets 45,963 63,963 336 Held under repurchase agreement Total other assets 19,012,893 26,346,512 . 26,459,900 15 5,320,702 201,404 108,578 5,630,684 92,284 39,428 131,712 60,987 22,911 70,725 93,636 25 25 2 ,941 136 ,756 1 ,656 1 ,726 2 ,297 625 640 146,641 53,095,155 FEDERAL RESERVE SYSTEM 107 NO. 1—STATEMENT OF CONDITION OF THE FEDERAL RESERVE BANKS (IN DETAIL) —Continued LIABILITIES Federal Reserve notes: Outstanding (issued to Federal Reserve Banks) 29,057,573 Less: Held by issuing Federal Reserve Banks 1,011,229 Forwarded for redemption 174,321 1,185,550 Federal Reserve notes, net (includes notes held by U. S. Treasury and by Federal Reserve Banks other than issuing Bank) 27,872,023 Deposits: Member bank reserves 18,503,991 U. S. Treasurer—general account 358,364 Foreign 272,485 Other deposits: Nonmember bank—clearing accounts 71,457 Officers' and certified checks 8,839 Federal Reserve exchange drafts 280 Reserves of corporations doing foreign banking or financing 16,503 1 International organizations 43,424 Allother 250,348 Total other deposits 390,851 Total deposits Deferred availability cash items Other liabilities: Accrued dividends unpaid Unearned discount Discount on securities Sundry items payable Suspense account All other 19,525,691 4,335,126 123 17,301 4,012 79 168 Total other liabilities 21,683 Total liabilities CAPITAL ACCOUNTS Capital paid in Surplus* Other capital accounts: Reserves for contingencies: Reserves for registered mail losses Allother 51,754,523 363,098 868,410 11,124 98,000 Total other capital accounts8 109,124 Total liabilities and capital accounts 53,095,155 Contingent liability on acceptances purchased for foreign correspondents 67,799 Industrial loan commitments 975 1 Includes International Bank for Reconstruction and Development, International Monetary Fund, and International Finance Corporation. 3 8 Surplus (Sec. 13b) eliminated Sept. 2, 1958; see text, p. 98. During the year this item includes the net of earnings, expenses, profits, etc., which are closed out on December 31; see Table 6, pp. 114-115. NO. 2—STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK AT END OF 1958 AND 1957 [In thousands of dollars] Total Item 1958 ASSETS Gold certificate account Redemption fund for Federal Reserve notes Total gold certificate reserves. . . Federal Reserve notes of other Banks. . Other cash i«i O 00 Discounts and advances: Secured by U.S. Govt. securities... Other Industrial loans Acceptances: Bought outright Held under repurchase agreement. . U.S. Government securities: Bought outright Held under repurchase agreement. . Total loans and securities Due from foreign banks Uncollected cash items Bank premises Other assets Total assets 1 1957 19,012,893 21,215,392 937,919 869,249 19,950,812 22,084,641 1958 1957 1958 888,156 1 ,010,595 5,277,367 56,043 198,412 943,827 1,066,638 5,475,779 55,671 Philadelphia 1957 1958 1957 Cleveland 1958 Richmond 1957 1958 1957 5,522,298 1,037,847 1,182,730 1,443,593 1,943,736 1 ,033,459 1,347,887 182,497 60,195 60,901 87,750 79,558 85,803 73,569 5,704,795 1,098,042 1,243,631 1,531,343 2,023,294 1,119,262 1,421,456 476,993 336,474 443,288 338,622 41,061 19,758 31,701 19,863 83,865 60,901 95,949 66,417 47,991 16,950 38,556 15,056 29,107 28,071 28,480 22,701 57,452 22,112 45,902 25,618 45,963 18,000 336 50,364 5,000 482 200 1,020 327 450 290 285 6,520 5,048 3,290 1,405 5,485 1,235 5,140 350 173 2,775 1,593 3,750 450 1,575 913 4,010 255 43,290 5,799 42,337 23,351 43,290 5,799 42,337 23,351 26,251,512 23,718,935 1,429,342 1,293,773 519,350 95,000 6,619,791 5,931,655 1,509,042 1,384,545 2,323,915 2,083,424 1,708,764 1,515,474 95,000 519,350 26,459,900 24,359,819 1,430,889 1,294,798 6,775,448 6,521,388 1,515,762 1,390,208 2,328,283 2,087,624 1,711,252 1,519,739 14 14 1 1,215,353 1,173,568 332,939 345,425 543,121 490,271 433,573 421,538 10,313 10,664 4,245 4,514 9,432 9,678; 6,654 6,996 36,477 55,349 8,181 12,740 12,768 19,340 9,479 14,058 15 15 5,630,684 5,494,735 83,763 93,636 223,584 146,641 405,506 4,705 7,884 467,096 5,010 11,971 53,095,155 53,028,467 2,853,631 2,897,078 13,658,140 13,628,134 3,024,111 After deducting $11,000 participations of other Federal Reserve Banks. New York Boston 3,050,131 4,482,126 4,681,389 3,359,785 3,455,308 LIABILITIES 27,872,023 27,534,791 1,630,425 1,638,156 6,512,632 6,500,863 1,751,391 1,738,756 2,571,638 2,624,653 2,135,757 2,188,221 Federal Reserve notes Deposits: 771,057 777,422 5,570,787 5,716,993 863,417 874,741 1,344,045 1,486,691 764,580 801,083 Member bank reserves , 18,503,991 19,033,795 30,221 4,656 45,778 29,422 68,734 22,996 47,161 358,364 480,810 21,009 U.S. Treasurer—general account.. 38,077 35,306 23,870 20,915 30,690 11,985 17,391 272,485 356,342 13,395 16,215 Foreign 19,778 2 103,755 2 111,163 12,954 5,054 5,483 4,635 150,963 5,156 Other , 390,851 246,284 2,202 4,013 3,106 307,036 Total deposits Deferred availability cash items. Other liabilities 19,525,691 20,117,231 4,335,126 4,070,844 21,683 14,948 807,663 338,324 1,069 838,383 6,016,884 6,047,853 717,766 344,347 755,659 5,367 549 5,376 906,641 275,287 1,253 941,786 1 374,670 1 ,568,642 279,334 413,145 371,626 1,484 1,853 623 810,622 343,293 1,130 870,791 327,773 587 51,754,523 51,737,814 2,777,481 2,821,435 13,290,551 13,271,849 2,934,572 2,960,499 4,361,306 4,566,405 3,290,802 3,387,372 Total liabilities CAPITAL ACCOUNTS Capital paid in Surplus (Sec. 7) Surplus (Sec. 13b)s Other capital accounts.. Total liabilities accounts 363,098 868,410 109,124 and capital Ratio of gold certificate reserves to deposit and F. R. note liabilities combined Contingent liability on acceptances purchased for foreign correspondents. Industrial loan commitments 345,106 809,198 27,543 108,806 18,121 50,116 7,913 17,742 47,013 3,011 7,877 105,850 238,902 22,837 102,215 223,963 7,319 22,788 21,894 59,607 "8*, 038 21,192 55,923 4,489 8,028 34,246 76,643 9,931 32,514 71,550 1,006 9,914 16,439 44,846 7,698 15,695 41,236 3,349 7,656 53,095,155 53,028,467 2,853,631 2,897,078 13,658,140 13,628,134 3,024,111 3,050,131 4,482,126 4,681,389 3,359,785 3,455,308 42.1% 46.3% 38.7% 43.1% 67,799 975 76,114 1,109 3,864 4,414 45.5% 43.7% 4 19,119 4 41.3% 46.4% 38.8% 48.3% 38.0% 46.5% 21,398 4,678 5,327 26 6,034 35 6,849 77 3,458 3,881 FEDERAL RESERVE NOTE STATEMENT Federal Reserve notes: Issued to Federal Reserve Bank by Federal Reserve Agent and outstanding 29,057, 573 28 ,643,286 1,703,455 1,702,333 6,827,935 6,795,945 1,815,156 1,800,791 2,645,549 2 ,700,128 2 ,223, 439 2,266,546 Less held by issuing Bank, and 75,475 78,325 62,035 forwarded for redemption 315,303 295,082 73,030 64,177 87,682 73,911 63,765 1,185,550 1,108,495 Federal Reserve notes, net5 27,872,023 27,534,791 1,630,425 1,638,156 6,512,632 6,500,863 1,751,391 1,738,756 2,571,638 2,624,653 2,135,757 2,188,221 Collateral held by Federal Reserve Agent for notes issued to Bank: Gold certificate account 11,073,000 12, 273,000 650,000 700,000 2,920,000 3,270,000 640,000 640,000 920,000 1,130,000 725,000 945,000 5,140 5,285 25,393 12,299 Eligible paper 18,615,000 17, 165,000 1,150,000 1,150,000 4,000,000 3,600,000 1 ,200,000 1 ,200,000 1,750,000 1,600,000 1,530,000 1,350,000 U.S. Government securities Total collateral. 2 29,713,393 29,450,299 1,800,000 1,850,000 6,920,000 6,870,000 1,845,285 1,845,140 2,670,000 2,730,000 2,255,000 2,295,000 After deducting $168,730,000 participations of other Federal Reserve Banks on Dec. 31, 1958, and $245,179,000 on Dec. 31, 1957. 8 Eliminated Sept. 2, 1958; see text, p. 98. After deducting $48,680,000 participations of other Federal Reserve Banks on Dec. 31, 1958, and $54,716,000 on Dec. 31, 1957. Includes Federal Reserve notes held by U.S. Treasury and by Federal Reserve Banks other than the issuing Bank. 4 6 NO. 2—STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK AT END OF 1958 AND 1957—Continued [In thousands of dollars] Item Atlanta Chicago 1958 Minneapolis St. Louis 1958 1957 1957 1958 Gold certificate account Redemption fund for Federal Reserve notes 864,742 830,921 3,326,227 3,805,144 753,490 167,634 157,090 44,661 Total gold certificate reserves. Federal Reserve notes of other Banks. Other cash 921,779 53,143 26,560 879,840 3,493,861 3,962,234 40,267 56,404 37,731 58,734 24,744 56,959 Discounts and advances: Secured by U.S. Govt. securities. Other Industrial loans 4,765 805 1957 Kansas City 1958 1957 1958 908,740 458,383 390,876 748,339 43,349 22,463 22,171 43,533 798,151 23,287 26,513 952,089 17,588 25,649 480,846 17,588 8,664 413,047 23,008 8,359 1,600 662 250 185 430 9 120 24 1957 Dallas San Francisco 1958 1957 843,470 721,519 808,001 2,459,771 2,620,994 41,597 29,845 791,872 11,317 14,662 885,067 10,162 12,492 751,364 28,333 14,687 18,408 798 6,909 190 750 931 1958 1957 ASSETS 57,037 48,919 3,050 225 3,885 2,560 8,750 710 28,495 84,915 75,060 836,496 2,544,686 2,696,054 21,148 43,582 36,659 12,829 38,862 47,935 14,565 260 2,005 200 560 Acceptances: Bought outright Held under repurchase agreement U.S. Government securities: 1,335,756 1,228,570 4,585,614 4,140,164 1,070,904 Bought outright Held under repurchase agreement 980,896 552,253 511,855 1,120,493 1,018,325 1,028,298 929,521 2,967,340 2,700,733 Total loans and securities.... 1,341,326 1,231,845 4,592,059 4,149,624 1,073,166 981,331 552,692 511,999 1,139,699 1,025,424 1,029,979 944,346 2,969,345 2,701,493 Due from foreign banks. Uncollected cash items.. Bank premises Other assets Total assets. 6 Less than $500. 453,214 9,294 8,470 1 466,237 6,497 11,657 2 902,999 11,824 24,838 2 887,537 6,823 40,656 1 232,399 6,862 5,917 1 188,651 6,138 9,041 1 () 145,320 136,191 254,995 5,307 4,799 5,193 4,779 7,130 3,076 (6) 1 238,904 4,903 9,493 1 242,747 7,786 5,917 223,368 6,260 9,345 468,518 12,529 16,504 455,949 10,973 25,155 2,813,787 2,677,225 9,124,584 9,141,566 2,166,296 2,180,488 1,213,379 1,102,690 2,224,475 2,186,446 2,080,814 2,053,793 6,094,027 5,974,219 LIABILITIES 1,476,020 1,305,420 5,302,681 5,334,243 1,238,269 1,226,564 Federal Reserve notes Deposits: 846,398 851,881 2,809,518 2,905,986 669,057 699,440 Member bank reserves 41,231 48,619 62,021 19,283 25,982 U.S. Treasurer—general account 32,479 15,345 48,422 8,695 12,617 10,575 33,605 Foreign 3,974 10,423 3,141 2,560 2,347 8,404 Other Total deposits Deferred availability cash items Other liabilities Total liabilities 891,799 380,576 1,080 912,431 2,900,146 3,026,852 398,917 721,508 594,080 492 3,967 2,475 700,176 174,787 792 740,599 163,043 439 598,279 494,826 1,101,081 1,077,385 798,613 748,184 2,755,237 2,657,520 419,895 24,459 5,640 961 433,491 18,515 8,184 1,336 817,730 38,271 9,165 3,279 804,111 41,690 12,958 3,436 969,769 30,630 12,220 2,778 996,223 2,657,738 2,685,733 51,234 30,532 30,868 26,320 38,192 17,732 47,001 44,726 2,167 450,955 129,777 933 461,526 113,263 628 868,445 200,590 862,195 1,015,397 1,046,990 2,782,293 2,799,183 195,229 196,451 190,958 405,729 374,508 480 572 2,672 1,252 710 2,749,475 2,617,260 8,928,302 8,957,650 2,114,024 2,130,645 1,179,944 1,070,243 2,170,964 2,135,289 2,011,171 1,986,704 5,945,931 5,832,463 CAPITAL ACCOUNTS Capital paid in Surplus (Sec. 7) 8 Surplus (Sec. 13b) Other capital accounts.. 18,371 39,474 16,562 36,192 49,665 132,159 762 6,467 6,449 ' '14,458 46,570 121,504 1,429 14,413 12,348 33,746 ' *6,i78 11,577 31,586 521 6,159 8,387 20,785 " 4,263 7,426 19,697 1,073 4,251 14,848 32,935 5,728 13,781 30,533 1,137 5,706 20,684 43,436 5,523 19,405 40,871 1,307 5,506 42,245 95,761 10,090 40,427 89,130 2,140 10,059 Total liabilities and capital accounts 2,813,787 2,677,225 9,124,584 9,141,566 2,166,296 2,180,488 1,213,379 1,102,690 2,224,475 2,186,446 2,080,814 2,053,793 6,094,027 5,974,219 Ratio of gold certificate reserves to deposit and F. R. note liabilities combined Contingent liability on acceptances purchased for foreign correspondents Industrial loan commitments 39.7% 42.6% 47.4% 41.2% 48.4% 45.8% 43.2% 40.2% 45.6% 41.4% 46.6% 46.0% 49.4% 10,806 66 2,509 2,816 1,627 1,826 2,644 940 2,892 940 3,526 3,957 7,594 8,523 Federal Reserve notes: Issued to Federal Reserve Bank by Federal Reserve Agent and outstanding 1,556,710 1,374,708 5,474,313 5,472,919 1,296,838 1,280,689 Less held by issuing Bank, and forwarded for redemption 80,690 69,288 171,632 138,676 54,125 58,569 614,338 534,419 1,137,662 1,109,605 849,075 32,220 50,462 Federal Reserve notes, net 5 ... 1,476,020 1,305,420 5,302,681 5,334,243 1,238,269 1,226,564 598,279 494,826 1,101,081 1,077,385 798,613 748,184 2,755,237 2,657,520 300,000 18,508 850,000 283,000 1,300,000 1,500,000 38.9% 3,051 3,425 9,695 FEDERAL RESERVE NOTE STATEMENT Collateral held by Federal Reserve Agent for notes issued to Bank: Gold certificate account 475,000 425,000 2,200,000 2,500,000 430,000 450,000 250 1,600 Eligible paper. 1,100,000 1,000,000 3,400,000 3,100,000 935,000 895,000 U.S. Government securities Total collateral. 1,575,000 1,425,000 5,600,000 5,600,000 1,366,600 1,345,250 8 6 16,059 39,593 36,581 44,684 157,866 154,815 200,000 130,000 425,000 300,000 6,909 820,000 313,000 425,000 575,000 525,000 1,700,000 1,500,000 625,000 555,000 1,168,508 1,126,909 888,000 808,000 3,000,000 3,000,000 Eliminated Sept. 2, 1958; see text, p. 98. Includes Federal Reserve notes held by U.S. Treasury and by Federal Reserve Banks other than the issuing Bank. 792,868 2,913,103 2,812,335 NO. 3—HOLDINGS OF UNITED STATES GOVERNMENT SECURITIES BY FEDERAL RESERVE BANKS, END OF DECEMBER 1956, 1957, AND 1958 [In thousands of dollars] Type of issue Rate of interest (per cent) Treasury bonds: 1956-58 1958 June 1958 Dec 1957 59 1956-59 1960 Nov 1961 Sept 1961 Nov 1959-62 June 1959-62 Dec 1963 Aug 1964 Feb 1965 Feb 1960-651 1966 Aug 1962 67 1963-68 1964-69 June 1964-69 Dec 1965-70 1966-71 1967-72 June 1967-72 Sept 1967-72 Dec 1969 Oct 1974 Nov 1978-83 1985 May 1990 Feb 1995 Feb 2V2 2% 2V2 2% 2M 2Vs 2% 2H 2M 3 2V8 2% 2XA 2XA 2Y2 2XA 2~A 2Y2 2% 2XA 2Y2 4 3% 3M 3K 3V2 3 Total certificates.. .. Treasury bills Repurchase agreements Total holdings 1958 12,493 339,096 21,690 -339,096 -21,690 319,849 693,765 1957 -12,493 339,096 21,690 319,849 693,765 12,493 319,849 693,765 20,300 7,000 56,610 122,585 203,890 266,999 521,490 132,707 49,266 2,552 58,758 56,610 122,585 203,890 266,999 521,490 132,707 49,266 2,552 58,758 56,610 122,585 203,890 266,999 521,490 132,707 49,266 2,552 58,758 +20,300 +7,000 +5,200 +22,800 5,200 22,800 2% -317,979 500,000 -500,000 2M 7,940,065 -7,940,065 13^ 713,848 -713,848 1H i y& 2 \y \y2 3y2 33J 2,857,565 +2,857,565 10,000 +10,000 2,867,565 3% 4 9,153,913 +2,867,565 -9,153,913 5,012,000 5,920,699 -5,012,000 -5,920,699 3% ip 2V8 2% 4 8 3% iy5 2 1A 3Vs *5,506*, 993 8,142,733 5,000,000 5,494,500 6,581,547 7,857,565 18,649,726 19,933,612 10,932,69 -5,494,500 +5,494,500 -6,581,547 +6,581,547 -7,857,565 +7,857,565 +5,506,993 +8,142,733 +5,000,000 -1,283,88 +9,000,913 +1,266,87 -737,697 305,10 -424,35 +214,250 26,346,512 24,238,285 24,914,73 +2,108,22 -676,447 2,250,450 95,000 983,573 1,721,27 519,350 * Partly tax-exempt. Change during 1956 2,483,771 2,801,750 2,801,750 Total Treasury notes. Certificates: Feb. 15, 1957 Oct. 1, 1957 Feb. 14, 1958 Aug. 1,1958 Dec. 1, 1958 Feb. 14, 1959 Aug. 1,1959 Nov. 15, 1959 1957 2 Total Treasury bonds. Treasury notes: Mar. 15, 1957-A Apr. 1, 1957-EA.... May 15, 1957-B Aug. 1, 1957-D Aug. 15, 1957-C Oct. 1, 1957-EO.... Apr. 1, 1958-EA.... June 1, 1958-A Oct. 1, 1958-EO.... Feb. 15, 1959-A Apr. 1, 1959-EA.... Oct. 1, 1959-EO.... Nov. 15, 1959-B Apr. 1, 1960-EA May 15, 1960-A Oct. 1, 1960-EO.... Apr. 1, 1961-EA May 15, 1961-B Aug. 1, 1961-A Oct. 1, 1961-EO.... Feb. 15, 1962-A Apr. 1, 1962-EA.... Aug. 15, 1962-B Oct. 1, 1962-EO.... Nov. 15, 1962-C Feb. 15, 1963-A Apr. 1, 1963-EA... Oct. 1, 1963-EO... December 31 1958 112 NO. 4—FEDERAL RESERVE BANK HOLDINGS OF SPECIAL SHORT-TERM TREASURY CERTIFICATES PURCHASED DIRECTLY FROM THE UNITED STATES, 1953-581 [r millions of dollars] II Amount Date 1953-Mar. 18 19 20 21 *22 23 24 25 26 June 5 6 *7 8 Date Date Amount 110 1953—June 9 104 10 189 11 189 12 189 13 333 *14 186 15 63 16 49 17 196 18 196 19 196 20 374 *21 Date Amount 491 1953—June 22 451 23 358 24 506 1954—Jan. 14 506 15 506 16 999 *17 1,172 18 823 19 364 20 992 21 992 22 992 23 908 608 296 22 169 169 169 323 424 323 306 283 283 Amount 1954—Jan. *24 25 26 Mar. 15 16 283 203 3 134 190 1955) 1956 > no transactions • 1957 ) 1958—Mar. 17 18 143 207 * Sunday or holiday. 1 Under authority of Section 14(b) of the Federal Reserve Act. On November 9, 1953, the Reserve Banks sold directly to the U. S. Treasury $500 million of Treasury notes; this is the only use that has been made under the same authority to sell U. S. Government securities directly to the United States. NOTE.—Interest rate M per cent through Dec. 3, 1957, and M per cent below prevailing discount rate of Federal Reserve Bank of New York thereafter. Actual rate for 1958 purchases, 2 per cent. For data for prior years beginning with 1942, see previous Annual Reports. No holdings on dates not shown. NO. 5—VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS OF FEDERAL RESERVE BANKS, 1954-58 [Number in thousands; amounts in thousands of dollars] 1957 1958 1956 1955 1954 NUMBER OF PIECES 1 HANDLED Discounts and advances: 2 Notes discounted and advances made Currency received and counted Coin received and counted... Checks handled: U. S. Govt. checks Postal money orders All other 3 Collection items handled: U. S. Govt. coupons paid... All other Issues, redemptions, and exchanges of U. S. Govt. securities Transfers of funds 14 25 23 21 4,547,668 9,574,474 388,541 295,350 3,085,185 4,631,676 9,089,460 4,466,739 8,610,821 4,282,562 8,430,796 4,384,270 8,382,024 469,158 324,161 2,974,940 539,359 342,313 2,822,589 503,516 347,351 2,643,549 481,408 354,368 2,512,985 13,564 20,429 12,546 19,308 11,997 17,813 12,301 16,368 12,753 15,443 193,665 2,426 207,246 2,302 198,519 2,123 191,922 1,960 191,112 1,808 10 AMOUNTS HANDLED 88,436,422 Discounts and advances 2 . . . . 41,306,072 114,469,820 109,665,475 22,871,449 Currency received and 29,596,570 29,104,496 27,461,048 29,926,319 counted 28,482,428 922,742 956,235 887,418 862,022 Coin received and counted... 810,278 Checks handled: 99,942,372 102,062,972 114,173,132 123,215,681 141,037,495 U. S. Govt. checks 5,796,279 5,297,341 5,941,097 5,814,754 Postal money orders 5,943,178 1,044,984,066 1 ,044,553,457 1,003,202,371 927,648,399 845,365,275 Allother 3 Collection items handled: 3,032,805 3,695,458 2,563,075 2,595,305 U. S. Govt. coupons paid.. 2,209,045 5,663,684 5,758,976 5,495,317 Allother 5,354,604 5,085,695 Issues, redemptions, and exchanges of U. S. Govt. 526,037,271 493,391,267 421,612,394 429,701,960 469,247,400 securities 1,643,532,069 1,345,185,037 1,233,509,550 1,091,608,891 1,038,100,606 Transfers of funds 1 2 8 Two or more checks, coupons, etc., handled as a single item are counted as one "piece." Exclusive of industrial loans. Exclusive of checks drawn on the Federal Reserve Banks. 113 NO. 6—EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1958 Item Total Boston New York Philadelphia Cleveland Richmond Atlanta Chicago Minneapolis Kansas City Dallas $159,214 $607,852 $168,847 813 St. Louis 2,621 San Francisco CURRENT EARNINGS Discounts and advances.... $6,744,474 Industrial loans and com21,843 mitments 805,781 Acceptances U.S. Government securities. 734,211,830 284,220 All other Total current earnings. . 742,068,150 14,696 $321,990 $840,189 3,002 $340,549 $1,592,055 $365,807 $667,053 $1,219,562 630 $243,498 79 $217,859 805,781 39,932,739 185,595,281 42,316,962 64,755,386 47,475,124 37,483,117 128,023,207 30,016,564 15,530,096 31,338,905 28,717,892 83,026,558 66,135 16,303 15,700 21,390 14,559 23,327 41,191 9,131 10,036 25,014 15,807 25,630 40,303,684 188,059,252 42,658,257 65,617,595 47,855,490 38,173,496 129,284,039 30,269,193 15,700,159 31,974,392 28,902,546 83,270,047 CURRENT EXPENSES Salaries: Officers , Employees Directors' and other fees .. , Retirement contributions.. Traveling expenses Postage and expressage Telephone and telegraph.. Printing, stationery, and supplies Insurance Taxes on real estate Depreciation (building) Light, heat, power, and water Repairs and alterations , Rent , Furniture and equipment: Purchases , Rentals All other Interbank expenses Subtotal Federal Reserve currency.. . Assessment for expenses of Board of Governors Total. Less reimbursement for certain fiscal agency and other expenses Net expenses. 6,269,242 80,500,913 489,666 9,627,916 1,682,279 16,401,104 1,291,235 354,203 1,135,974 379,282 543,267 494,312 510,557 659,698 440,238 330,209 472,159 422,235 527,108 4,952,887 17,965,149 4,364,639 7,196,012 5,256,306 5,081,209 12,466,159 4,613,400 2,491,036 4,140,157 3,754,226 8,219,733 24,148 24,545 51,540 24,926 72,949 30,022 33,163 32,465 49,647 62,537 37,367 46,357 581,072 2,025,616 524,928 864,509 649,205 633,757 1,493,184 554,998 296,937 532,199 486,395 985,116 105,415 73,401 146,435 137,221 134,922 212,915 108,412 87,636 103,345 280,614 113,151 178,812 853,702 1,346,178 1,597,083 1,425,438 2,205,310 883,894 584,007 972,052 1,347,593 2,375,805 852,477 1,957,565 60,385 131,088 147,066 74,673 46,452 73,336 69,514 270,122 109,238 98,228 85,715 125,418 6,264,484 1,295,512 3,778,905 4,032,079 479,923 86,092 599,850 414,858 1,190,373 224,187 739,798 419,598 316,444 53,043 141,126 268,149 489,153 123,603 338,953 561,243 423,161 100,133 173,644 480,855 463,688 78,903 170,448 163,835 1,003,803 179,040 470,956 355,415 422,898 95,264 130,163 170,854 177,629 57,861 281,752 175,378 365,583 92,540 162,514 142,854 310,981 75,547 154,479 237,786 620,848 129,299 415,222 641,254 1,531,275 1,281,246 218,223 111,950 36,121 5,663 257,727 184,370 6,062 99,360 68,935 7,186 170,087 430,291 17,603 146,178 41,373 2,506 80,449 34,137 14,707 173,838 36,707 95,497 109,331 63,461 2,285 78,162 200,523 202 110,883 88,787 177 80,714 11,361 54,394 112,596 85,180 11,941 3,171,942 5,578,023 1,915,955 90,716 458,911 99,195 38,486 710,565 755,162 358,882 -452,014 71,372 360,508 91,776 46,112 252,288 445,216 367,904 60,898 135,984 399,243 100,702 -9,352 541,278 394,271 127,446 33,844 202,657 891,557 238,773 97,191 392,354 307,431 85,297 26,581 208,842 191,669 91,513 16,626 215,608 316,595 122,232 28,320 116,050 310,481 109,513 36,429 234,228 746,979 122,722 76,880 145,330,000 5,973,240 5,917,200 9,856,597 28,510,527 7,804,893 13,514,418 10,251,708 10,092,926 20,959,788 8,514,697 5,348,899 7,988,988 7,249,301 15,237,258 209,817 454,982 580,121 369,309 170,769 1,412,956 303,608 92,861 207,187 559,751 374,512 1,237,367 338,400 1,667,300 408,000 526,100 301,300 269,200 851,000 218,800 142,400 228,100 308,700 657,900 157,220,440 10,569,509 31,415,194 8,422,710 14,495,500 11,133,129 10,731,435 23,223,744 9,037,105 5,584,160 8,387,857 7,765,18816,454,909 19,498,784 137,721,655 1,044,022 3,276,185 994,319 1,879,716 1,083,025 1,456,523 3,266,108 1,218,556 604,932 1,395,922 1,137,382 2,142,094 9,525,487 28,139,009 7,428,391 12,615,784 10,050,104 9,274,911 19,957,636 7,818,549 4,979,227 6,991,936 6,627,80614,312,815 PROFIT AND LOSS Current net earnings Additions to current net earnings: Profits on sales of U.S. Government securities (net) All other Total additions Deductions from current net earnings: Reserves for contingencies All other Total deductions Net additions 604,346,495 30,778,197 159,920,243 35,229,866 53,001,811 37,805,386 28,898,585 109,326,403 22,450,644 10,720,932 24,982,456 22,274,740 68,957,232 156,596 297,047 9,137 291 38,538 12,063 9,524 218 13,848 18,656 9,795 1,719 8,448 27,739 26,380 26,960 6,933 139,600 3,949 401 6,664 810 6,490 63,295 16,890 5,297 453,643 9,428 50,601 9,742 32,503 11,513 36,187 53,340 146,533 4,350 7,474 69,785 22,186 316,526 12,941 35,312 1,280 49,260 523 9,551 1,449 17,393 558 42,636 2,080 18,506 2,328 44,771 622 18,436 671 11,816 1,230 21,479 35 16,870 855 30,497 1,311 329,467 36,591 49,783 11,000 17,951 44,716 20,834 45,392 19,107 13,046 21,514 17,725 31,808 124,176 -27,164 819 -1,258 14,553 -33,203 15,353 7,948 127,425 -8,696 — 14,040 52,060 -9,621 Net earnings before payments to U.S. Treasury. . 604,470,670 30,751,033 159,921,062 35,228,608 53,016,364 37,772,183 28,913,937 109,334,351 22,578,070 10,712,236 24,968,416 22,326,80068,947,610 Paid U.S. Treasury (interest 5,551 33,129,772 24,584,472 95,789,048 19,675,908 9,212,206 21,696,020 18,620,110 59,832,314 on F. R. notes) 524,058,650 26,710,224 138,349,233 30,540,793 45,918 715,956 961,325 1,052,929 2,902,076 Dividends paid 21,197,452 1,073,009 6,199,722 1,294,403 1,995,760 861,731 1,196,810 2,467,275 476,455 Transferred to surplus (Sec. 59,214,569 2,967,800 15,372,107 3,393,412 5,102,053 3,681,086 3,276,536 10,643,227 2,186,206 1,023,576 2,410,665 2,509,879 6,648,022 Surplus (Sec. 7) Jan. 1.'.' .''. '. 809,197,680 47,012,677 223,963,199 55,922 ,772 71,550,353 41,236,411 36,192,075 121,503,625 31,586,344 19,696,549 30,532,901 40,871,083 89,129,690 Transferred from surplus 5,491 (Sec. 13b) 11,682 -26,515 64,874 -8,674 55,337 -17,089 135,411 -433,413 -9,906 -71,517 -3,657 290,661 Surplus (Sec. 7) Dec. 31 868,408,591 50,115,888 238,901,893 59,606,846 76,642,500 44,845,980 39,474,103 132,158,534 33,746,035 20,785,000 32,934,892 43,436,29995,760,623 NOTE.—Details may not add to totals because of rounding. NO. 7—EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, 1914-58 Current earnings Bank and period All Federal Reserve Banks, by years: 1914-15 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 $ Current expenses Net earnings before payments to U. S. Treasury1 Dividends paid Franchise tax paid to U. S. Treasury Paid to U. S. Treasury (Sec. 13b) 2,173,252 $ 2,320,586 $ -141,459 $ 217,463 5,217,998 2,273,999 2,750,998 1,742,774 16,128,339 5,159,727 9,582,067 6,804,186 $ 1,134,234 67,584,417 10,959,533 52,716,310 5,540,684 102,380,583 19,339,633 78,367,504 5,011,832 2,703,894 181,296,711 149,294,774 28,258,030 60,724,742 5,654,018 122,865,866 34,463,845 59,974,466 82,087,225 6,119,673 50,498,699 29,559,049 10,850,605 16,497,736 6,307,035 50,708,566 29,764,173 3,613,056 12,711,286 6,552,717 38,340,449 28,431,126 113,646 3,718,180 6,682,496 41,800,706 27,528,163 9,449,066 59,300 6,915,958 47,599,595 27,350,182 818,150 16,611,745 7,329,169 43,024,484 27,518,443 249,591 13,048,249 7,754,539 64,052,860 26,904,810 2,584,659 32,122,021 8,458,463 70,955,496 29,691,113 4,283,231 36,402,741 9,583,913 36,424,044 28,342,726 7,988,182 17,308 10,268 598 29,701,279 27,040,664 2,972,066 10,029,760 50,018,817 26,291,381 2,011,418 22,314,244 9,282,244 49,487,318 29,222,837 7,957,407 8,874,262 48,902,813 29,241,396 15,231,409 8,781 661 42,751,959 31,577,443 9,437,758 8,504,974 $ 37,900,639 29,874,023 8,512 433 7 829 581 41,233,135 28,800,614 10,801,247 7,940,966 36,261,428 28,911,608 9,581,954 8,019,137 38,500,665 28,646,855 12,243,365 8,110,462 43,537,805 29,165,477 25,860,025 8,214,971 32,963,150 41,380,095 9,137,581 8,429,936 52,662,704 38,624,044 12,470,451 8,669 076 69,305,715 43,545,564 49,528,433 8,911,342 104,391,829 49,175,921 58,437,788 9,500,126 48,717,271 142,209,546 10,182,851 92,662,268 150,385,033 57,235,107 92,523,935 10,962,160 65,392,975 158,655,566 95,235,592 11,523,047 304,160,818 72,710,188 197,132,683 11,919,809 316,536,930 77,477,676 226,936,980 12,329,373 Paid to U. S. Treasury (interest on F. R. notes) Transferred to surplus (Sec. 13b) Transferred to surplus (Sec. 7) $ 1,134,234 48 334 341 70 651 778 82 916 15 993 —659 2 545 —3 077 2 473 8 464 5 044 21 078 22,535 $ 297,667 227 448 176,625 119,524 24,579 82,152 141,465 197 672 244,726 326 717 247 659 67,054 35,605 $ 75,223,818 166 690 356 193,145,837 _60 323 014 086 904 513 962 808 426 119 899 597 —2 297 —7 057 11 020 —916 6 510 724 694 582 855 071 27,695 102 880 67,304 —419,140 -425,653 607,422 352 524 2,616,352 1 862 433 4,533,977 -54,456 —4 333 49 602 135,003 201 150 17,617,358 570 513 3 554 101 40 237 362 48 409 795 262 133 27 708 86,772 81 969 625 81 467 013 8,366,350 18 522 518 21,461,770 1950 1951 1952 1953 1954 275,838,994 394,656,072 456,060,260 513,037,237 438,486,040 80,571,771 95,469,086 104,694,091 113,515,020 109,732,931 231,561,340 297,059,097 352,950,157 398,463,224 328,619,468 13,082,992 13,864,750 14,681,788 15,558,377 16,442,236 196,628,858 254,873,588 291,934,634 342,567,985 276,289,457 21,849,490 28,320,759 46,333,735 40,336,862 35,887,775 1955 1956 1957 1958 412,487,931 595,649,092 763,347,530 742,068,150 110,060,023 121,182,496 131,814,003 137,721,655 302,162,452 474,443,160 624,392,613 604,470,670 17,711,937 18,904,897 20,080,527 21,197,452 251,740,721 401,555,581 542,708,405 524,058,650 32,709,794 53,982,682 61,603,682 59,214,569 Total 1914-58... 7,290,667,465 2,137,240,408 5,096,306,434 430,484,212 149,138,300 152,423,577 296,775,403 478,460,584 1,381,677,841 143,402,176 336,825,931 197,099,010 454,540,038 140,092,135 293,740,235 118,543,553 251,612,569 299,672,903 829,293,388 117,440,862 211,215,314 72,211,504 127,580,626 115,323,102 213,462,848 97,073,850 194,268,704 205,497,152 505,313,536 27,237,886 141,938,107 34,963,745 42,423,567 18,550,484 16,810,537 52,729,477 14,862,779 10,088,105 15,279,567 16,991,022 38,608,934 7,111,395 68,006,262 5,558,901 4,842,447 6,200,189 8,950,561 25,313,526 2,755,629 5,202,900 6,939,100 560,049 7,697,341 7,290,667,465 2,137,240,408 5,096,306,434 430,484,212 149,138,300 Aggregate for each Federal Reserve Bank, 1914-58: Boston 451,967,149 New York 1,864,727,623 481,030,355 Philadelphia 658,534,350 Cleveland 437,868,817 Richmond 375,948,311 Atlanta 1,140,290,111 Chicago 334,241,001 St. Louis 201,789,760 Minneapolis 332,667,298 Kansas City 294,935,811 Dallas. . 716,666,880 San Francisco Total B 1 2 2 2,188,893 3,517,417,892 B-3,657 201,799,152 895,639,303 221,353,150 317,324,708 218,162,797 181,026,072 603,600,369 154,750,293 87,506,923 154,113,800 128,846,435 353,294,890 B+135,411 B-17,089 60,210,713 276,158,464 73,937,068 89,876,293 50,725,788 44,740,643 147,487,288 38,865,663 24,662,213 37,074,842 47,713,777 105,628,040 2,188,893 3,517,417,892 B-3,657 997,080,793 280,843 369,116 722,406 82,930 172,493 79,264 151,045 7,464 55,615 64,213 102,083 101,421 -433,413 +290,661 B—9,906 B-71,517 +5,491 B+11,682 B-26,515 B+64,874 -8,674 B+55,337 997,O8O,793 Revised. Current earnings less current expenses, plus and minus profit and loss additions and deductions. The $997,080,793 transferred to surplus was reduced by direct charges of $139,299,557 for contributions to capital of the Federal Deposit Insurance Corporation, $500,000 for charge-off on bank premises and $3,657 net upon elimination of surplus (Sec. 13b), and was increased by $11,131,013 transferred from reserves for contingencies, leaving a balance of $868,408,591 on Dec. 31, 1958. NOTE.—Details may not add to totals because of rounding. NO. 8—MEMBER BANK RESERVES, RESERVE BANK CREDIT, AND RELATED ITEMS—END OF YEAR 1918-58 AND END OF MONTH 1958 [In millions of dollars] Reserve Bank credit outstanding End of year or month U.S. Government securities Total DisAll Held counts under and Float other* Bought repuradoutchase vances right agreement 239 300 1918.. . 1919... I-* »-* 00 239 300 1920.. . 1921.. . 1922. . . 1923... 1924... 287 234 436 134 540 1925... 1926. . . 1927. . . 1928. . . 1929... 375 315 617 228 511 1930.. . 1931.. . 1932... 1933.. . 1934... 729 817 1,855 2,437 2,430 686 775 1,851 2,435 2,430 43 42 4 2 1935... 1936... 1937.. . 1938.. . 1939... 2,431 2,430 2,564 2,564 2,484 2,430 2,430 2,564 2,564 2,484 1 1940.. . 2,184 1 9 4 1 . . . 2,254 1 9 4 2 . . . 6,189 1 9 4 3 . . . 11,543 1944.. . 18,846 2,184 2,254 6,189 11,543 18,846 1,766 2,215 287 2,687 234 1,144 436 618 80 ' " 5 4 ' 723 536 320 4 367 8 643 312 637 3 560 582 57 197 31 1,056 632 488 23 199 201 Total Gold stock2 Deposits, other than member bank reserves, with F. R. Banks Treasury currency outstanding8 Currency in circulation Treasury cash holdings4 ForTreaseign Other ury deposits deposits deposits Other Federal Reserve accounts 5 Member bank reserves Total 2,498 3,292 2,873 2,707 1,795 1,707 4,951 5,091 288 385 51 31 96 73 25 28 118 208 L.636 L,890 119 40 78 27 52 294 575 262 146 273 355 390 3,355 1,563 1,405 1,238 1,302 2,639 3,373 3,642 3,957 4,212 1,709 1,842 1,958 2,009 2,025 5,325 4,403 4,530 4,757 4,760 218 214 225 213 211 57 96 11 38 51 5 12 3 4 19 18 15 26 19 20 298 285 276 275 258 1,781 L,753 L,934 L,898 2,220 63 45 63 24 34 378 384 393 500 405 1,459 1,381 1,655 1,809 1,583 4,112 4,205 4,092 3,854 3,997 1,977 1,991 2,006 2,012 2,022 4,817 4,808 4,716 4,686 4,578 203 201 208 202 216 16 17 18 23 29 8 46 5 6 6 21 19 21 21 24 272 293 301 348 393 251 638 235 98 7 21 20 14 15 5 372 378 41 137 21 1,373 1,853 2,145 2,688 2,463 4,306 4,173 4,226 4,036 8,238 2,027 2,035 2,204 2,303 2,511 4,603 5,360 5,388 5,519 5,536 211 222 272 284 3,029 19 54 8 3 121 6 79 19 4 20 22 31 24 128 169 5 3 10 4 7 12 39 19 17 91 38 28 19 16 11 2,486 2,500 2,612 2,601 2,593 10,125 11,258 12,760 14,512 17,644 2,476 2,532 2,637 2,798 2,963 5,882 6,543 6,550 6,856 7,598 2,566 2,376 3,619 2,706 2,409 544 244 142 923 634 29 99 172 199 397 3 3 6 5 80 80 94 471 681 815 8 10 14 10 4 2,274 2,361 6,679 12,239 19,745 21,995 22,737 22,726 21,938 20,619 3,087 3,247 3,648 4,094 4,131 8,732 11,160 15,410 20,449 25,307 2,213 2,215 2,193 2,303 2,375 368 867 799 579 440 1,133 774 793 1,360 1,204 Required 6 Excess8 1,585 1,822 51 68 1,654 99 1,884 2,161 14 59 2,212 2,194 2,487 2,389 2,355 2,256 2,250 2,424 2,430 2,428 -44 -56 63 -41 -73 375 354 355 360 241 2,471 L.961 2,509 2,729 11,096 2,375 1,994 1,933 1,870 2,282 96 -33 576 859 1,814 226 160 235 242 256 253 261 263 260 251 5,587 3,606 1,027 I5,724 11 L,653 2,743 4,622 5,815 5,519 6,444 2,844 1,984 1,212 3,205 5,209 599 586 485 356 394 284 291 256 339 402 V t,026 12>,450 i: 5,117 i: ',886 Ut,373 7,411 9,365 11,129 11,650 12,748 6,615 3,085 1,988 1,236 1,625 1945.. . 24,262 1946... 23,350 1947.. . 22,559 1948. . . 23,333 1949. .. 18,885 1950... 20,778 1951. . . 23,801 1952. . . 24,697 1953. . . 25,916 1954.. . 24,932 20,725 23,605 24,034 25,318 24,888 1955. . .24,785 1956. . . 24,915 1957. . .24,238 24,391 24,610 23,719 1958— Jan.. Feb. , Mar., Apr. May, June July. Aug., Sep.. Oct.. Nov., Dec., 23,331 23,240 23,628 23,681 24,162 25,438 24,480 25,346 24,986 25,373 26,069 26,252 578 580 535 541 534 2 1 1 1 2 25,091 24,093 23,181 24,097 19,499 20,065 20,529 22,754 24,244 24,427 4,339 4,562 4,562 4,589 4,598 28,515 28,952 28,868 28,224 27,600 2,287 2,272 1,336 1,325 1,312 977 393 870 1,123 821 862 508 392 642 767 446 314 569 547 750 495 607 563 590 706 15,915 16,139 17,899 20,479 16,568 14,457 15,577 16,400 19,277 15,550 1,458 562 1,499 1,202 1,018 53 196 663 598 44 67 1,368 19 1,184 156 967 28 935 143 808 3 5 4 2 1 22,216 25,009 25,825 26,880 25,885 22,706 22,695 23,187 22,030 21,713 4,636 4,709 4,812 4,894 4,985 27,741 29,206 30,433 30,781 30,509 1,293 1,270 1,270 761 796 668 247 389 346 563 895 526 550 423 490 565 363 455 493 441 714 746 777 839 907 17,681 20,056 19,950 20,160 18,876 16,509 19,667 20,520 19,397 18,618 1,172 389 -570 763 258 394 305 519 108 1,585 50 1,665 55 1,424 29 70 66 26,507 26,699 25,784 21,690 21,949 22,781 5,008 5,066 5,146 31,158 31,790 31,834 767 775 761 394 441 481 402 322 356 554 426 246 925 901 998 19,005 19,059 19,034 18,903 19,089 19,091 102 -30 -57 70 160 95 217 763 122 924 137 765 156 797 965 144 758 41 868 94 805 555 860 255 788 407 1,026 717 64 1,296 24,352 24,330 24,570 24,672 25,313 26,283 25,477 26,739 26,130 26,675 28,006 27,755 22,784 22,686 22,394 21,996 21,594 21,356 21,210 21,011 20,874 20,690 20,609 20,534 ,158 ,169 ,183 ,196 ,201 ,203 ,207 5,211 5,219 5,222 5,228 5,234 30,576 30,554 30,666 30,565 30,994 31,172 31,171 31,371 31,245 31,386 32,036 32,193 771 695 722 734 703 692 685 684 684 674 694 683 469 516 474 594 382 410 617 540 371 363 424 358 249 265 266 257 234 269 288 313 258 288 226 272 279 336 378 411 624 420 329 332 395 335 430 391 990 ,151 ,108 ,050 994 ,096 ,039 ,184 ,122 ,079 ,038 ,122 18,958 18,667 18,532 18,254 18,176 18,784 17,764 18,538 18,147 18,462 18,994 18,504 18,543 18,186 17,857 17,686 17,543 18,158 17,801 17,860 17,785 18,009 18,217 18,574 415 481 675 568 633 626 -37 678 362 453 777 -70 24,262 23,350 22,559 23,333 18,885 23,331 23,240 23,628 23,681 24,162 25,438 24,480 25,346 24,986 25,443 26,229 26,347 1 2 8 249 163 85 223 78 Comprises acceptances and industrial loans. Prior to Jan. 30, 1934, included gold held by Federal Reserve Banks and in circulation. The stock of currency, other than gold, for which the Treasury is primarily responsible—silver bullion at monetary value and standard silver dollars, subsidiary silver and minor coin, and United States notes; also, Federal Reserve Bank notes and national bank notes for the retirement of which lawful money has been deposited with the Treasurer of the United States. Includes currency of these kinds held in the Treasury and the Federal Reserve Banks as well as that in circulation. 4 Gold other than that held against gold certificates and gold certificate credits, including the reserve against United States notes and Treasury notes of 1890, monetary silver other than that held against silver certificates and Treasury notes of 1890, and the following coin and paper currency held in the Treasury: subsidiary silver and minor coin,5United States notes, Federal Reserve notes, Federal Reserve Bank notes, and national bank notes. The total of Federal Reserve Bank capital paid in, surplus, other capital accounts, and other liabilities and accrued dividends, less the sum of bank premises and other assets. 8 These figures are estimated. Available only on call dates prior to 1929 (in 1920 and 1922, the call dates were December 29). NOTE.—For description of figures and discussion of their significance, see Banking and Monetary Statistics, Sec. 10, pp. 360-66. NO. 9—BANK PREMISES OF FEDERAL RESERVE BANKS AND BRANCHES DECEMBER 31, 1958 Cost Federal Reserve Bank or branch Net book value Land Building (including vault) 1 Fixed machinery and equipment Total , $1,628,132 $5,929,169 $2,977,084 $10,534,385 $4,704,692 , , 5,215,656 592,679 401,864 12,183,528 1,661,680 2,519,310 4,886,521 562,181 1,559,393 22,285,705 2,816,540 4,480,567 4,951,992 1,018,051 4,343,016 Philadelphia 1,884,357 4,839,506 2,130,561 8,854,424 4,245,333 Cleveland Cincinnati Pittsburgh 1,295,490 400,891 1,189,941 6,566,360 1,573,005 4,954,701 2,990,665 999,107 689,889 10,852,515 2,973,003 6,834,531 2,633,805 1,628,337 5,170,002 469,944 250,487 117,479 4,269,441 2,009,381 1,065,485 2,094,952 1,062,747 607,294 6,834,337 3,322,615 1,790,258 2,896,937 2,298,981 1,458,549 633,387 93,931 328,997 164,004 422,577 277,078 1,722,115 137,100 2,715,054 1,686,250 2,384,089 762,456 362,731 103,867 70,511 694,291 1,145,991 311,989 2,698,473 1,935,304 265,700 2,718,233 334,898 3,114,562 2,544,545 2,806,666 1,305,234 6,019,757 1,147,734 9,983,797 2,837,712 2,743,155 1,214,162 18,746,709 5,199,608 8,264,886 3,558,749 1,675,780 85,007 523,353 128,542 3,225,466 264,604 2,859,819 287,469 1,994,738 194,115 1,003,708 152,627 6,895,984 543,726 4,386,880 568,638 2,095,991 180,911 4,314,491 270,813 Minneapolis.. . Helena 600,521 15,709 4,579,206 126,401 2,404,514 62,977 7,584,241 205,087 5,107,518 85,373 Kansas City... Denver Oklahoma City Omaha 545,764 592,271 65,021 445,663 3,521,181 523,041 421,252 1,491,117 1,316,319 86,910 97,588 718,041 5,383,264 1,202,222 583,861 2,654,821 1,363,967 765,516 166,294 2,503,399 Dallas El Paso Houston San Antonio... 686,243 262,477 629,768 448,596 2,019,797 787,728 2,218,557 1,400,390 466,692 393,301 570,847 3,172,732 1,443,506 2,848,325 2,419,833 1,373,037 1,388,422 2,775,083 2,249,906 San Francisco. Annex Los Angeles. . . Portland Salt Lake City. Seattle 476,768 247,201 736,867 207,380 555,723 274,772 3,783,530 124,000 4,074,380 1,678,512 2,428,860 1,891,564 1,458,028 30,000 1,491,100 630,920 84,814 642,240 5,718,326 401,201 6,302,347 2,516,812 3,069,397 2,808,576 1,370,460 401,201 4,304,320 1,775,735 2,684,807 1,992,134 31,737,811 107,507,013 39,814,290 179,059,114 93,636,449 Boston New York Annex Buffalo Richmond Baltimore Charlotte , Atlanta Annex Birmingham Jacksonville.. . Nashville New Orleans. . Chicago Detroit St. Louis Little Rock Louisville Memphis Total.. . 2,806,666 395,318 OTHER REAL ESTATE ACQUIRED FOR BANKING HOUSE PURPOSES Buffalo Richmond New Orleans Kansas City Oklahoma City Houston Los Angeles Total 255,000 146,550 465,707 497,850 78,812 40,747 317,336 29,464 112,111 2,166,228 812,507 112,111 2 751,O5O 2 396,219 2 720,707 146,550 751,050 396,219 497,850 508,259 70,211 333,431 146,550 751,050 396,219 497,850 101,416 70,211 3,090,846 2,296,727 1 Includes expenditures incident to construction programs carried in unallocated accounts pending completion of programs and subsequent allocation of costs to appropriate accounts. 2 Includes cost of building on property. 120 NO. 10—NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF FEDERAL RESERVE BANKS [December 31, 1958] Boston New York Philadelphia. Cleveland Total 1 . Number . . Includes 697 part-time employees. .... ... 23 61 25 37 $323,500 1,091,750 333,000 509,056 1,284 3,774 1,002 1,598 $4,917,528 17,210,537 4,232,403 6,777,823 1,308 3,836 1,028 1,636 $5,276,028 18,362,287 4,595,403 7,321,879 35,000 35,000 50,000 35,000 ... Number $35,000 60,000 30,000 35,000 . Minneapolis Kansas City. Dallas San Francisco Total Annual salary .. Richmond Atlanta Chicago St. Louis Employees 1 Other officers President Federal Reserve Bank (including branches) 35 37 41 32 459,400 473,400 592,950 413,900 1,350 1,382 2,792 1,106 5,132,649 5,004,215 11,962,093 4,357,352 1,386 1,420 2,834 1,139 5,627,049 5,512,615 12,605,043 4,806,252 35,000 35,000 35,000 35,000 22 33 631 1,043 987 1,932 2,413,878 4,025,473 3,729,064 7,909,486 654 29 39 283,750 439,400 368,900 482,000 1,077 1,017 1,972 2,732,628 4,499,873 4,132,964 8,426,486 $455,000 414 $5,771,006 18,881 $77,672,501 19,307 $83,898,507 Annual salaries Number Annual salaries Annual salaries NO. 11—FEDERAL RESERVE BANK DISCOUNT, INTEREST, AND COMMITMENT RATES In effect December 31, 1958. For changes during the year, see "Record of Policy Actions of Board of Governors.'* [Per cent per annum] Type of transaction Boston Discounts for and advances to member banks: Advances secured by Government obligations and discounts of and advances secured by eligible paper (Sees. 13 and 13a of the Federal Reserve Act) Other secured advances (Sec. 10(b) of the Federal Reserve Act) New York Philadelphia Cleveland 2Y2 2Y2 3 3 Richmond Chicago 2Y2 2Y2 2Y2 2Y2 3 3 3 Discounts for and purchases from financing institutions under Sec. 13b of the Federal Reserve Act: On portion for which institution is obligated On remaining portion Commitments to make loans under Sec. 13b of the Federal Reserve Act: To industrial or commercial businesses To financing institutions 1 2 3 4 5 3Y2 4-6 4-6 4-6 0 (3) Y2-IY2 Y2-W2 Minneapolis Kansas City Dallas 2Y2 2Y2 2Y2 2Y2 3 3 3 4-6 4r-6 4-6 3 Advances to individuals, partnerships, or corporations other than member banks secured by direct obligations of the United States (last paragraph of Sec. 13 of the Federal Reserve Act) Loans to industrial or commercial businesses under Sec. 13b of the Federal Reserve Act, direct or in participation with financing institutions 3V2-6 St. Louis Atlanta 4-1} 4n 3^-5^ 0) (3) 0) Y2-1} San Francisco 3 2%-SM }4 3Y2-6 4-6 4-6 4-6 0) (3) (*) (8) 0) (8) 4-1} 4-1} 4-1} 4-1} 4-1} Y2-1Y2 Y2-1Y2 Y2-1Y2 Y2-1Y2 Rate charged borrower by financing institution less commitment rate. Rate charged borrower but not to exceed 1 per cent above the discount rate. Rate charged borrower. Twenty-five per cent of loan rate on disbursed portion; }4 per cent per annum on undisbursed portion. Rate on disbursed portion; M per cent per annum on undisbursed portion of loan. NOTE.—Maximum maturities. Discounts for and advances to member banks: 90 days for discounts and advances under Sections 13 and 13a of the Federal Reserve Act except that discounts of certain bankers' acceptances and of agricultural paper may have maturities not exceeding 6 months and 9 months, respectively, and advances secured by obligations of Federal intermediate credit banks maturing within 6 months are limited to maximum maturities of 15 days; 4 months for advances under Section 10(b). Advances to individuals, partnerships, or corporations under the last paragraph of Section 13: 90 days. Industrial loans and commitments under Section 13b: 5 years. NO. 12—MEMBER BANK RESERVE REQUIREMENTS [Per cent of deposits] Net demand deposits1 Effective date of change 1917—June 21 1936—Aug. 1937—Mar. May 1938—Apr. 16 1 1 16 Central reserve city banks Reserve city banks Time deposits Country banks 13 10 193^ 22M 26 22M 15 17^ 20 173^ 20 22 21 20 19K 19 183^ 18 19 20 19 13 14 13 18 12 1941—Nov. 1 1942—Aug. 20 Sept. 14 Oct. 3 26 24 22 20 1948—Feb. 27 June 11 Sept. 16, 24* 1949—May 1,5* June 30, July 1* Aug. 1, 11* Aug. 16, 18* Aug. 25 Sept. 1 1951—Jan. 11. 16* Jan. 25, Feb. 1* 1953—July 1,9* 1954—June 16, 24* July 29, Aug. 1* 22 24 26 24 ""23y2"" 23 22y2 22 23 24 22 21 20 1958—Feb. 27, Mar. 1* Mar. 20, Apr. 1* Apr. 17 Apr. 24 19^ 19 183^ 18 In effect Jan. 1, 1959 13 26 Country banks 3 3 ioy2 12M 14 12 4^ 5M 6 5 ±y2 6 5 14 6 6 16 15 14 13 12 18 Present legal requirements: Minimum Maximum 7 Central reserve and reserve city banks 7^ 7H 6 5 6 5 6 6 5 5 11 5 5 7 14 3 6 3 6 113^ 11 ioy2 10 20 1 Demand de*. eposits subject to reserve requirements which, beginning Aug. 23, 1935, have been total demand deposits minus cash items in process of collection and demand balances due from domestic deposit banks (also minus war loan and Series E bond accounts during the period Apr. 13, 1943-June 30, 1947). * First-of-month or midmonth dates are changes at country banks, and other dates (usually Thurs.) are at central reserve or reserve city banks. NO. 13—MAXIMUM INTEREST RATES PAYABLE ON TIME DEPOSITS 1 [Per cent per annum] Type of deposit Nov. 1, 1933— Jan. 31, 1935 Feb. 1, 1935— Dec. 31, 1935 Savings deposits Jan. 1, 1936— Dec. 31, 1956 Effective Jan. 1, 1957 23^ Postal savings deposits. Other time deposits payable: In 6 months or more In 90 days to 6 months. In less than 90 d a y s . . . . i Maximum permissible rates for member banks established by Board of Governors in Regulation Q which provides that rate paid by a member bank may not exceed maximum rate payable by State banks or trust companies on like deposits under laws of State in which member bank is located Since Feb. 1, 1936, maximum rates established by Federal Deposit Insurance Corporation for insured nonmember banks, under authority of the Banking Act of 1935, have been the same as those in effect for member banks. 123 NO. 14—MARGIN REQUIREMENTS* Prescribed by Board of Governors of the Federal Reserve System in accordance with Securities Exchange Act of 1934 [Per cent of market value] Jan. 17, 1951Feb. 20, 1953 Regulation T: For extension of credit by brokers and dealers on listed securities For short sales Regulation U: For loans by banks on stocks Feb. 20, 1953Jan. 4, 1955 1955Apr. 22, 1955 Jan. 4, Apr. 23, 1955Jan. 15, 1958 Jan. 16, 1958Aug. 4, 1958 Aug. 5, 1958Oct. 15, 1958 Effective Oct. 16, 1958 75 75 50 50 60 60 70 70 50 50 70 70 90 90 75 50 60 70 50 70 90 1 Regulations T and U limit the amount of credit that may be extended on a security by prescribing a maximum loan value, which is a specified percentage of its market value at the time of the extension; the "margin requirements" shown in this table are the difference between the market value (100 per cent) and the maximum loan value. Changes on Feb. 20, 1953 and Jan. 4, 1955 were effective after the close of business on these dates. NOTE.—For earlier data, see Banking and Monetary Statistics, Table 145, p. 504, and Annual Report of the Board of Governors for 1948, p. 77, and for 1953, p. 76. NO. 15—FEES AND RATES ESTABLISHED UNDER REGULATION V ON LOANS GUARANTEED PURSUANT TO DEFENSE PRODUCTION ACT OF 1950 [In effect December 31, 1958] Fees Payable to Guaranteeing Agency by Financing Institution on Guaranteed Portion of Loan Guarantee fee (percentage of interest payable by borrower) 70 or less... 75 80 85 90 95 Over 9 5 . . . Percentage of any commitment fee charged borrower 10 15 20 25 30 35 40-50 Percentage of loan guaranteed 10 15 20 25 30 35 40-50 Maximum Rates Financing Institution May Charge Borrower [Per cent per annum] Interest rate Commitment rate. 124 NO* 16—PRINCIPAL ASSETS AND LIABILITIES, AND NUMBER OF ALL BANKS, BY CLASSES, DECEMBER 31, 1958 AND 19571 [In millions of dollars] Mutual savings banks Commercial banks All banks Item Member banks Total2 Total National State Insured nonmember Noninsured Total Insured Noninsured 28,980 19,180 9,800 5,215 4,585 7,341 4,177 3,163 2,050 1,113 December 31, 1958 Loans and investments, total . Investments U. S. Govt. obligations . . Other securities . .. Cash assets Deposits, total Other demand Other time Total capital accounts Number of banks.. ... 221,485 121,571 99,914 73,641 26,273 49,911 250,057 18,174 134,385 97,498 21,705 185,165 98,214 86,951 66,376 20,575 48,990 216,017 18,171 134,353 63,493 18,486 154,865 84,061 70,804 54,299 16,504 43,188 182,816 17,414 114,270 51,132 15,460 99,277 52,627 46,650 35,714 10,936 26,781 116,714 9,802 72,100 34,812 9,643 55,588 31,435 24,153 18,585 5,568 16,407 66,102 7,612 42,170 16,320 5,817 28,759 13,682 15,077 11,381 3,696 5,504 31,696 1,568 484 1,084 707 377 301 36,320 23,357 12,963 7,265 5,698 921 752 169 1,532 34,040 27,277 6,763 448 309 898 3 32 2 31 325 332 34,006 3,219 27,243 2,473 6,762 746 14,020 13,501 6,312 4,578 1,734 6,793 399 519 241 278 19,185 12,063 2,696 1 December 31, 1957 Loans and investments, total.. Loans ... Investments U. S. Govt. obligations.. . Other securities Cash assets 203,849 115,115 88,734 65,792 22,943 49,318 170,068 93,899 76,169 58,239 17,930 48,428 142,353 80,950 61,403 47,079 14,324 42,746 91,201 50,350 40,851 31,234 9,617 26,786 51,152 30,600 20,552 15,846 4,707 15,960 26,268 12,493 13,775 10,512 3,264 5,383 1,473 468 1,004 660 345 301 33,782 21,216 12,565 7,552 5,013 890 26,535 17,194 9,341 5,404 3,937 719 7,246 4,022 3,224 2,148 1,076 171 Deposits, total Interbank. Other demand... . Other time Total capital accounts 233,020 17,022 127,895 88,102 20,428 201,326 17,021 127,865 56,440 17,368 170,637 16,328 109,018 45,290 14,554 109,091 9,475 68,712 30,904 9,070 61,545 6,853 40,306 14,386 5,483 29,266 425 17,968 10,873 2,500 1,449 268 879 303 317 31,695 2 31 31,662 3,059 25,022 2 29 24,991 2,309 6,672 14,090 13,568 6,393 4,620 1,773 6,753 425 522 239 283 Number of banks 1 2 .... All banks in the United States, and one in Alaska and one in the Virgin Islands that became national members in 1954 and 1957 respectively. Total for commercial banks excludes three member mutual savings banks. 1 6,671 751 NO. 17—MEMBER BANK EARNINGS, BY CLASS OF BANK, 1958 AND 1957 [Dollar amounts in millions] Central reserve city banks Total Reserve city banks New York Item 1958 1957 1958 1957 Earnings $7,127 $6,771 $1,164 $1,136 On U. S. Govt. securi170 137 ties 1,266 1,168 47 411 61 339 On other securities 727 699 On loans 4,326 4,208 234 All other 225 1,123 1,056 Country banks Chicago 1958 $272 1957 1958 1957 1958 1957 $274 $2,835 $2,664 $2,856 $2,697 58 17 157 40 46 15 172 41 560 183 558 149 1,759 1,694 1,712 1,615 478 151 447 426 128 415 401 374 4,617 4,222 Salaries and wages 1,981 1,877 927 Interest on d e p o s i t s . . . . 1,123 All other 1,512 1,418 636 300 110 227 592 293 80 220 142 68 25 49 136 65 23 49 1,823 1,666 2,016 1,827 777 474 572 731 398 537 836 515 664 788 427 613 Net current earnings before income taxes. . 2,510 2,549 Expenses 528 544 130 137 1,012 998 840 870 754 315 160 468 112 25 24 97 55 21 11 25 325 113 61 166 262 157 64 180 342 177 39 29 25 30 171 43 108 75 Profits before income 2 606 2,063 taxes 895 Taxes on net income. . . 1,148 576 276 442 209 140 69 93 41 1 053 849 490 385 837 313 679 260 1,457 1,169 300 233 71 53 563 464 524 419 646 604 160 152 26 24 258 242 202 186 16.6 1.32 18.1 1.42 9.7 .77 8.3 .65 9.3 .88 7.8 .73 9.9 .82 7.9 .64 2.45 5.35 2.53 5.32 2.39 4.40 2.46 4.54 2.37 4.47 2.36 4.56 Recoveries and profits1. . . Losses and charge-offs2. . . Net addition to valuation reserves Net profits Gash dividends declared3 (Per cent) Ratios: Net current earnings before income taxes toAverage total capital accounts Average total assets.. Net profits to— Average total capital accounts Average total assets.. Average return on U. S. Govt. securities Average return on loans. . 1 2 8 16.4 18.2 1.55 1.70 Includes recoveries credited to valuation reserves. Includes losses charged to valuation reserves. Includes interest on capital notes and debentures. 126 18.4 20.6 18.1 19.2 1.51 1.65 1.35 1.42 15.0 16.5 1.16 1.26 .75 8.9 .66 9 4 8 0 2.45 5.39 2.53 5.30 2.49 5.94 2.57 5.91 10 1 .72 .61 NO. 18—ANALYSIS OF CHANGES IN NUMBER OF BANKING OFFICES DURING 19581 Commercial and stock savings banks and nondeposit trust companies All banks Member banks Total Number of banks, Dec. 31,1957R 14,090 13,568 Changes during 1958 New b a n k s ' Suspensions Consolidations and absorptions: Banks converted into branches. Other Liquidations:4 Voluntary Other Conversions: National into State . ... State into national Federal Reserve Membership: 5 Admissions of State banks Withdrawals of State banks Federal Deposit insurance: 6 Admissions of State banks Net increase or decrease +97 -8 -129 -25 -4 -1 Mutual savings banks Nonmember banks National 1 State member 2 Insured 4,620 1,773 6,753 425 +19 +2 +63 +13 -25 -5 -43 -10 -2 -1 +97 -8 -1 -126 -25 -56 -9 2 —3 -4 -1 NonIninsured 2 sured 2 239 Noninsured 283 -3 -i -1 —1 +6 -3 +1 -3 +7 -6 -1 -42 -39 +15 +28 +40 -28 -26 +5 +2 -5 Number of banks, Dec. 31,1958 14,020 13,501 4,578 1,734 6,793 399 241 278 Number of branches and additional offices, Dec. 31,1957 7 . . 8,373 7,968 3,993 2,173 1,765 37 296 109 Changes during 1958 De novo branches Banks converted into branches.. . Discontinued Interclass changes—net ^ Net increase +113 +39 -12 +47 + 187 +120 +20 -2 -30 +108 +1 +1 +14 +3 y +13 -15 -70 +567 +129 -31 +665 -67 +306 +66 -16 +9 -8 +645 +348 +540 +126 -30 Number of branches and additional offices, Dec. 31,1958 7 .. 9,038 8,613 Number of banking facilities, Dec. 31, 1957 9 Changes during 1958 Established Discontinued Interclass change Net increase ... Number of banking facilities, Dec 31 1958 9 +9 4,341 2,360 1,873 c -2 + 11 120 39 305 236 236 185 27 24 + 15 -3 + 15 -3 +11 -3 +2 +12 +12 +8 +2 +1 +3 248 248 193 30 25 R 1 -1 +1 Revised. Excludes banks and branches in United States territories and possessions except one national bank in Alaska with no branches, and one in the Virgin Islands with one branch. 2 State member bank figures and insured mutual savings bank figures both include 3 member mutual savings banks, not included in the total for "commercial banks." State member bank figures also include one noninsured trust company without deposits. 8 Exclusive of new banks organized to succeed operating banks. 4 Exclusive of liquidations incident to the succession, conversion, and absorption of banks. 5 Exclusive of conversions of State member banks into national banks. 6 Exclusive of insured nonmember banks converted into national banks or admitted to Federal Reserve membership, and vice versa. 7 Except banking facilities which are shown separately; see note 9. 8 For details of interclass branch changes, see Federal Reserve Bulletin, February 1959. 9 Banking facilities (other than branches) that are provided at military and other Government establishments through arrangements made by the Treasury Department. 127 NO. 19—NUMBER OF BANKING OFFICES ON FEDERAL RESERVE PAR LIST AND NOT ON PAR LIST, DECEMBER 31, 19581 On par list Total 2 Federal Reserve District, State, or other area DISTRICT Boston New York 2 .. . Philadelphia.. Cleveland.... Richmond.... Atlanta Chicago St. Louis Minneapolis. . Kansas City.. Dallas San Francisco2 Member Total Not on par list (nonmember) Nonmember Banks Branches Banks Branches Banks Branches Banks Branches Banks Branches & offices & offices & offices & offices & offices 422 630 672 964 963 1,323 2,473 1,467 1,293 1,763 1,097 659 1,674 568 823 1,042 445 986 280 129 64 125 422 630 672 964 806 757 2,473 1,174 694 1,757 1,014 659 1,674 568 823 892 399 986 206 85 64 513 589 455 401 1,018 489 476 749 532 1,463 466 718 583 330 586 133 39 45 136 100 159 375 351 356 1,455 685 218 1,008 127 211 102 105 309 69 157 566 150 46 73 46 19 293 599 6 74 44 400 2,240 631 169 82 359 1,960 383 190 31 280 83 15 12 7 9,042 11,722 8,709 6,306 6,937 5,416 1,772 1,719 333 62 138 35 1,462 6 160 44 60 13 76 81 4 149 7 128 119 158 75 27 13 227 134 28 942 61 138 15 1,462 6 160 44 60 12 74 81 4 93 4 75 71 94 41 9 9 115 65 17 524 59 116 12 1,318 5 126 19 49 10 64 75 4 56 3 53 48 64 34 18 4 112 69 11 418 2 22 3 144 1 34 25 11 2 10 6 458 669 591 360 79 54 142 169 393 285 53 555 114 417 6 74 259 53 430 106 57 606 380 54 248 163 14 116 129 118 208 323 493 6 59 4 1 2 232 168 212 108 52 35 65 129 225 209 35 172 85 140 165 5 10 79 104 79 126 273 409 6 33 4 1 2 226 501 379 252 27 19 77 40 168 76 18 383 29 277 83 1 4 74 259 53 430 193 155 606 386 54 248 163 14 116 156 118 208 323 493 6 124 4 1 2 33 3 367 43 1,230 412 27 551 15 165 3 367 43 1,230 268 8 551 15 165 52 222 35 375 47 40 385 224 17 2 333 21 1,163 150 2 484 13 147 22 37 18 55 59 17 221 156 37 1 34 22 67 118 6 67 2 18 Pennsylvania. Rhode Island. S. Carolina.. . S. D a k o t a . . . . Tennessee. .. . 737 9 144 172 296 969 671 85 128 54 183 23 737 9 76 71 214 933 671 85 122 29 167 23 563 5 31 60 83 575 582 66 93 24 123 23 174 4 45 11 131 358 89 19 29 5 44 Vermont Virginia Washington. . West Virginia. Wisconsin. .. . Wyoming. . . . Alaska 22 Hawaii Puerto Rico 2 . V I 2 312 89 183 551 52 18 5 10 2 Arkansas California.... Colorado Connecticut. . Delaware Dist of Col... Florida .... Georgia Illinois Iowa, • • Kentucky.... Louisiana. . . . Ivlaine Maryland. .. . Michigan Minnesota Mississippi. . . Missouri . . . Montana Nebraska.... Nevada N. Hampshire New Jersey. New Mexico.. New York . N. Carolina... N. Dakota. . . Ohio Oklahoma Oregon Texas Utah 2,247 13,441 Total STATE Alabama . . . . 374 239 7 237 119 158 75 27 13 271 410 28 943 458 669 593 360 186 54 142 169 393 685 194 609 114 417 6 49 57 68 30 49 57 234 253 311 89 182 551 52 3 5 10 2 152 1 18 67 108 4 113 286 530 33 68 30 234 253 152 1 11 67 108 4 5 20 33 202 35 112 160 39 1 1 1 29 59 20 165 246 24 1 13 1 29 24 109 54 70 391 13 2 5 10 1 90 1 i()9 20 44 276 1 2 1 158 4 37 25 39 82 50 2 107 27 400 141 54 65 87 98 144 19 84 26 6 68 101 82 36 6 25 16 9 10 69 7 1 1 128 11 67 95 3 15 7 Comprises all commercial banking offices on which checks are drawn, including 248 banking facilities. Number of banks and branches differs from Table 18 because of banks and trust companies on which no checks are drawn, 3 mutual savings member banks, and banks in Alaska, Hawaii, Puerto Rico, and the Virgin Islands. 2 Alaska and Hawaii, assigned to the San Francisco District for check clearing and collection purposes; Puerto Rico and the Virgin Islands assigned to the New York District. 128 NO. 20—OPEN MARKET TRANSACTIONS OF THE FEDERAL RESERVE SYSTEM DURING 1958 [In millions of dollars] U. S. Government securities Net change in holdings U.S. Government securities and acceptances U.S. Government securities January February.... March April May June July August September.. . October November. . . December -932 -89 +385 +51 +485 +1,280 -969 +865 -364 +464 +784 +133 Total, 1958 +2,092 Month Outright transactions Repurchase agreements Gross market purchases Gross market sales Cash redemptions -908 -91 +388 +53 +481 +1,276 -958 +866 -360 +456 +786 +118 100 185 472 204 627 1,276 300 1,534 167 584 996 309 317 86 60 26 171 190 24 125 147 502 668 512 54 289 119 756 +2,108 6,754 2,633 1,590 129 Gross purchases 14 144 11 7 Gross sales 989 1,509 370 370 265 265 308 308 312 NOTE.—Details may not add to totals because of rounding. Bankers' acceptances 312 Net outright Net repurchases -1 -23 +2 -2 +4 67 67 305 514 500 234 424 565 +8 +9 +6 3,630 4,054 +1 -18 A FEDERAL RESERVE DIRECTORIES AND MEETINGS BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [December 31, 1958] W M . MCC. MARTIN, JR., of New York, Chairman C. CANBY BALDERSTON of Pennsylvania, Vice Chairman M. S. SZYMCZAK of Illinois A. L. MILLS, JR., of Oregon J. L. ROBERTSON of Nebraska CHAS. N. SHEPARDSON of Texas ELLIOTT THURSTON, Assistant to the Board WINFIELD W. RIEFLER, Assistant to the Chairman Term Expires January 31, 1970 January 31, 1966 January 31, 1962 January 31, 1972 January 31, 1964 January 31, 1968 WOODLIEF THOMAS, Economic Adviser to the Board JEROME W. SHAY, Legislative Counsel CHARLES MOLONY, Special Assistant to the Board MERRITT SHERMAN, Secretary KENNETH A. KENYON, Assistant Secretary CLARKE L. FAUVER, Assistant Secretary HOWARD H. HACKLEY, General Counsel FREDERIC SOLOMON, Assistant General Counsel DAVID B. HEXTER, Assistant General Counsel G. HOWLAND CHASE, Assistant General Counsel THOMAS J. O'CONNELL, Assistant General Counsel RALPH A. YOUNG, Director, Division of Research and Statistics FRANK R. GARFIELD, Adviser, Division of Research and Statistics GUY E. NOYES, Adviser, Division of Research and Statistics ROLAND I. ROBINSON, Adviser, Division of Research and Statistics SUSAN S. BURR, Associate Adviser, Division of Research and Statistics ALBERT R. KOCH, Associate Adviser, Division of Research and Statistics KENNETH B. WILLIAMS, Associate Adviser, Division of Research and Statistics LEWIS N. DEMBITZ, Research Associate, Division of Research and Statistics ARTHUR W. MARGET, Director, Division of International Finance J. HERBERT FURTH, Associate Adviser, Division of International Finance A. B. HERSEY, Associate Adviser, Division of International Finance ROBERT L. SAMMONS, Associate Adviser, Division of International Finance ROBERT F. LEONARD, Director, Division of Bank Operations JOHN R. FARRELL, Associate Director, Division of Bank Operations GERALD M. CONKLING, Assistant Director, Division of Bank Operations M. B. DANIELS, Assistant Director, Division of Bank Operations ROBERT C. MASTERS, Director, Division of Examinations C. C. HOSTRUP, Assistant Director, Division of Examinations FRED A. NELSON, Assistant Director, Division of Examinations GLENN M. GOODMAN, Assistant Director, Division of Examinations HENRY BENNER, Assistant Director, Division of Examinations JAMES C. SMITH, Assistant Director, Division of Examinations LLOYD M. SCHAEFFER, Chief Federal Reserve Examiner, Division of Examinations EDWIN J. JOHNSON, Director, Division of Personnel Administration H. FRANKLIN SPRECHER, JR., Assistant Director, Division of Personnel Administration JOSEPH E. KELLEHER, Director, Division of Administrative Services GARDNER L. BOOTHE, II, Administrator, Office of Defense Loans J. J. CONNELL, Controller, Office of the Controller SAMPSON H. BASS, Assistant Controller, Office of the Controller INNIS D. HARRIS, Coordinator, Office of Defense Planning 132 FEDERAL OPEN MARKET COMMITTEE [December 31, 1958} MEMBERS WM. MCC. MARTIN, JR., Chamnan (Board of Governors) ALFRED HAYES, Vice Chairman (Elected by Federal Reserve Bank of New York) C. CANBY BALDERSTON (Board of Governors) W. D. FULTON (Elected by Federal Reserve Banks of Cleveland and Chicago) W. H. IRONS (Elected by Federal Reserve Banks of Atlanta, St. Louis, and Dallas) HUGH LEACH (Elected by Federal Reserve Banks of Boston, Philadelphia, and Richmond) H. N. MANGELS (Elected by Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco) A. L. MILLS, JR. (Board of Governors) J. L. ROBERTSON (Board of Governors) CHAS. N. SHEPARDSON (Board of Governors) M. S. SZYMCZAK (Board of Governors) OFFICERS WINFIELD W. RIEFLER, Secretary ELLIOTT THURSTON, Assistant Secretary MERRITT SHERMAN, Assistant Secretary HOWARD H. HACKLEY, General Counsel FREDERIC SOLOMON, Assistant General Counsel J. DEWEY DAANE, Associate Economist L. MERLE HOSTETLER, Associate Economist ARTHUR W. MARGET, Associate Economist H. V. ROELSE, Associate Economist CHARLS E. WALKER, Associate Economist OLIVER P. WHEELER, Associate Economist WOODLIEF THOMAS, Economist RALPH A. YOUNG, Associate Economist AGENT FEDERAL RESERVE BANK OF NEW YORK ROBERT G. ROUSE, Manager of System Open Market Account During 1958 the Federal Open Market Committee met at least every three weeks, as indicated in the Record of Policy Actions taken by the Committee (see pages 32-71 of this report). 133 FEDERAL ADVISORY COUNCIL [December 31, 1958] MEMBERS District No. 1—LLOYD D. BRACE, President, The First National Bank of Boston, Boston, Massachusetts. District No. 2—ADRIAN M. MASSIE, Chairman of the Board, The New York Trust Company, New York, New York. District No. 3—CASIMIR A. SIENKIEWICZ, President, Central-Penn National Bank of Philadelphia, Philadelphia, Pennsylvania. District No. 4—FRANK R. DENTON, Vice Chairman of the Board, Mellon National Bank and Trust Company, Pittsburgh, Pennsylvania. District No. 5—JOHN S. ALFRIEND, Chairman of the Board and President, National Bank of Commerce, Norfolk, Virginia. District No. 6—JOHN A. SIBLEY, Chairman of the Board, Trust Company of Georgia, Atlanta, Georgia. District No. 7—HOMER J. LIVINGSTON, President, The First National Bank of Chicago, Chicago, Illinois. District No. 8—WILLIAM A. MCDONNELL, Chairman of the Board, First National Bank in St. Louis, St. Louis, Missouri. District No. 9—GORDON MURRAY, President, First National Bank of Minneapolis, Minneapolis, Minnesota. District No. 10—R. CROSBY KEMPER, Chairman of the Board and President, The City National Bank and Trust Company of Kansas City, Kansas City, Missouri. District No. 11—WALTER B. JACOBS, President, The First National Bank of Shreveport, Shreveport, Louisiana. District No. 12—FRANK L. KING, President, California Bank, Los Angeles, California. EXECUTIVE COMMITTEE FRANK R. DENTON, ex officio LLOYD D. BRACE HOMER J. LIVINGSTON, ex officio ADRIAN M. MASSIE CASIMIR A. SIENKIEWICZ OFFICERS President, FRANK R. DENTON Vice President, HOMER J. LIVINGSTON Secretary, HERBERT V. PROCHNOW Assistant Secretary, WILLIAM J. KORSVIK Meetings of the Federal Advisory Council were held on February 17-18, May 19-20, September 15-16, and November 17-18, 1958. The Board of Governors met with the Council on February 18, May 20, September 16, and November 18. The Council is required by law to meet in Washington at least four times each year and is authorized by the Federal Reserve Act to consult with and advise the Board on all matters within the jurisdiction of the Board. 134 FEDERAL RESERVE BANKS AND BRANCHES [December 31, 1958] CHAIRMEN AND DEPUTY CHAIRMEN OP BOARDS OF DIRECTORS Federal Reserve Bank of— Chairman and Federal Reserve Agent Deputy Chairman Boston Robert C. Sprague Harvey P. Hood New York John E. Bierwirth Forrest F. Hill Philadelphia Henderson Supplee, Jr Lester V. Chandler Cleveland Arthur B. Van Buskirk Joseph H. Thompson Richmond John B. Woodward, Jr.. . . Alonzo G. Decker, Jr. Atlanta Walter M. Mitchell Harllee Branch, Jr. Chicago Bert R. Prall J. Stuart Russell St. Louis Pierre B. McBride J. H. Longwell Minneapolis Leslie N. Perrin O. B. Jesness Kansas City Raymond W. Hall Joe W. Seacrest Dallas Robert J. Smith Hal Bogle San Francisco A. H. Brawner Y. Frank Freeman CONFERENCE OF CHAIRMEN The Chairmen of the Federal Reserve Banks are organized into a Conference of Chairmen which meets from time to time to consider matters of common interest and to consult and advise the Board of Governors. A meeting of the Conference of Chairmen was held on December 4-5, 1958, and was attended by members of the Board of Governors, and also by the Deputy Chairmen of the Federal Reserve Banks. Mr. Hall, Chairman of the Federal Reserve Bank of Kansas City, was elected Chairman of the Conference and of the Executive Committee in December 1957. Mr. Smith, Chairman of the Federal Reserve Bank of Dallas, and Mr. Mitchell, Chairman of the Federal Reserve Bank of Atlanta, served with Mr. Hall as members of the Executive Committee, Mr. Smith also serving as Vice Chairman of the Conference. At the meeting held in December 1958, Mr. Smith was elected Chairman of the Conference and of the Executive Committee. Mr. Mitchell was elected Vice Chairman and a member of the Executive Committee, and Mr. Perrin, Chairman of the Federal Reserve Bank of Minneapolis, was elected as the other member of the Executive Committee. 135 136 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. DIRECTORS Class A and Class B directors are elected by the member banks of the district. Class C directors are appointed by the Board of Governors of the Federal Reserve System. The Class A directors are chosen as representatives of member banks and, as a matter of practice, are active officers of member banks. The Class B directors may not, under the law, be officers, directors, or employees of banks. At the time of their election they must be actively engaged in their district in commerce, agriculture, or some other industrial pursuit. The Class C directors may not, under the law, be officers, directors, employees, or stockholders of banks. They are appointed by the Board of Governors as representatives not of any particular group or interest, but of the public interest as a whole. Federal Reserve Bank branches have either five or seven directors, of whom a majority are appointed by the Board of Directors of the parent Federal Reserve Bank and the others are appointed by the Board of Governors of the Federal Reserve System. District 1—Boston Term Expires DIRECTORS Class A: Oliver B. Ellsworth William D. Ireland Arthur F. Maxwell Class B.Harry E. Umphrey Milton P. Higgins Stanley M. Cooper Class C: Harvey P. Hood Nils Y. Wessell Robert C. Sprague Dec. 31 President, Riverside Trust Company, Hartford, Conn 1958 President, Second Bank-State Street Trust Company, Boston, Mass 1959 President, The First National Bank of Biddeford, Biddeford, Maine I960 President, Aroostook Potato Growers, Inc., Presque Isle, Maine 1958 President, Norton Company, Worcester, Mass. 1959 Chairman of the Board, The Fafnir Bearing Company, New Britain, Conn I960 President, H. P. Hood & Sons, Inc., Boston, Mass 1958 President, Tufts University, Medford, Mass.. . 1959 Chairman and Treasurer, Sprague Electric Company, North Adams, Mass I960 District 2—New York Class A: Howard C. Sheperd Charles W. Bitzer Cyrus M. Higley Chairman of the Board, The First National City Bank of New York, New York, N. Y. 1958 President, City Trust Company, Bridgeport, Conn 1959 President and Trust Officer, The Chenango County National Bank and Trust Company of Norwich, Norwich, N. Y I960 FEDERAL RESERVE SYSTEM 137 FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. DIRECTORS—Cont. Class B: Clarence Francis Lansing P. Shield Augustus C. Long Class C: Franz Schneider John E. Bierwirth Forrest F. Hill Term Expires Dec.31 Director, General Foods Corporation, New York, N. Y 1958 President, The Grand Union Company, East Paterson, N. J 1959 Chairman of the Board, The Texas Company, New York, N. Y I960 Consultant to Newmont Mining Corporation, New York, N. Y 1958 Chairman, National Distillers and Chemical Corporation, New York, N. Y 1959 Vice President, The Ford Foundation, New York, N. Y I960 Buffalo Branch Appointed by Federal Reserve Bank: John W. Remington President, Lincoln Rochester Trust Company, Rochester, N. Y 1958 Leland B. Bryan President, First National Bank and Trust Company, Corning, N. Y 1958 Vernon Alexander President, The National Bank of Geneva, Geneva, N. Y 1959 E. Perry Spink President, Liberty Bank of Buffalo, Buffalo, N. Y 1960 Appointed by Board of Governors: Ralph F. Peo Chairman and President, Houdaille Industries, Inc., Buffalo, N. Y 1958 Raymond E. Olson President, Taylor Instrument Companies, Rochester, N. Y 1959 Daniel M. Dalrymple Partner and Manager, Pomona Fruit Farms, Appleton, N. Y I960 District 3—Philadelphia Class A: Lindley S. Hurff Geoffrey S. Smith William B. Brosius Class B: Charles E. Oakes R. Russell Pippin President and Trust Officer, The First National Bank of Milton, Milton, Pa 1958 President, Girard Trust Corn Exchange Bank, Philadelphia, Pa 1959 President, National Bank of Chester County and Trust Company, West Chester, Pa I960 Chairman of the Board, Pennsylvania Power and Light Company, Allentown, Pa 1958 Treasurer, E. I. du Pont de Nemours & Company, Wilmington, Del 1959 FEDERAL RESERVE SYSTEM 139 FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Anthony Haswell W. Bay Irvine Dec. 31 President, The Dayton Malleable Iron Company, Dayton, Ohio 1959 President, Marietta College, Marietta, Ohio.. I960 Pittsburgh Branch Appointed by Federal Reserve Bank: Sumner E. Nichols President, Security-Peoples Trust Company, Erie, Pa 1958 Frank C. Irvine President, First National Bank in Tarentum, Tarentum, Pa 1959 Lawrence O. Hotchkiss President, The First National Bank of Mercer, Mercer, Pa I960 Irving W. Wilson Chairman of the Board, Aluminum Company of America, Pittsburgh, Pa I960 Appointed by Board of Governors: Douglas M. Moorhead Farmer, North East, Pa 1958 John T. Ryan, Jr President, Mine Safety Appliances Company, Pittsburgh, Pa 1959 John C. Warner President, Carnegie Institute of Technology, Pittsburgh, Pa I960 District 5—Richmond Class A: (Vacancy) Robert Gage Denver L. Morgan Class B: L. Vinton Hershey Wm. A. L. Sibley Robert O. Huffman Class C: John B. Woodward, Jr Alonzo G. Decker, Jr D. W. Colvard 1958 President, The Commercial Bank, Chester, S. C 1959 Executive Vice President and Cashier, The Charleston National Bank, Charleston, W. Va I960 President, Hagerstown Shoe Company, Hagerstown, Md 1958 Vice President and Treasurer, Monarch Mills, Union, S. C 1959 President, Drexel Furniture Company, Drexel, N. C I960 Chairman of the Board, Newport News Shipbuilding & Dry Dock Company, Newport News, Va 1958 Executive Vice President, The Black & Decker Manufacturing Company, Towson, Md 1959 Dean of Agriculture, North Carolina State College of Agriculture and Engineering, Raleigh, N. C I960 138 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Bayard L. England Class C: Henderson Supplee, Jr Lester V. Chandler Walter E. Hoadley, Jr Dec. 31 President, Atlantic City Electric Company, Atlantic City, N. J 1960 President, The Atlantic Refining Company, Philadelphia, Pa 1958 Professor of Economics, Princeton University, Princeton, N. J 1959 Treasurer, Armstrong Cork Company, Lancaster, Pa I960 District 4—Cleveland Class A: King E. Fauver John A. Byerly Paul A. Warner Class B: Charles Z. Hardwick George P. MacNichol, Jr Joseph B. Hall Class C: Arthur B. Van Buskirk Joseph H. Thompson Aubrey J. Brown Director, The Savings Deposit Bank and Trust Company, Elyria, Ohio 1958 President, Fidelity Trust Company, Pittsburgh, Pa 1959 President, The Oberlin Savings Bank Company, Oberlin, Ohio I960 Executive Vice President, The Ohio Oil Company, Findlay, Ohio 1958 President, Libbey • Owens • Ford Glass Company, Toledo, Ohio 1959 President, The Kroger Co., Cincinnati, Ohio I960 Vice President and Governor, T. Mellon and Sons, Pittsburgh, Pa 1958 President, The M. A. Hanna Company, Cleveland, Ohio 1959 Professor of Agricultural Marketing and Head of Department of Agricultural Economics, University of Kentucky, Lexington, Ky I960 Cincinnati Branch Appointed by Federal Reserve Bank: William A. Mitchell President, The Central Trust Company, Cincinnati, Ohio Franklin A. McCracken Executive Vice President and Trust Officer, The Newport National Bank, Newport, Ky. Roger Drackett President, The Drackett Company, Cincinnati, Ohio Thomas M. Wolfe President, The Athens National Bank, Athens, Ohio Appointed by Board of Governors: Ivan Jett Farmer, Georgetown, Ky 1958 1959 1960 1960 1958 140 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 Baltimore Branch Appointed by Federal Reserve Bank: Stanley B. Trott President, Maryland Trust Company, Baltimore, Md John W. Stout President, The Parkersburg National Bank, Parkersburg, W. Va James W. McElroy President, First National Bank of Baltimore, Baltimore, Md J. N. Shumate President, The Farmers National Bank of Annapolis, Annapolis, Md Appointed by Board of Governors: Wm. Purnell Hall President, Maryland Shipbuilding and Drydock Company, Inc., Baltimore, Md Gordon M. Cairns Dean of Agriculture, University of Maryland, College Park, Md Clarence R. Zarfoss Vice President, Western Maryland Railway Company, Baltimore, Md 1958 1958 1959 I960 1958 1959 I960 Charlotte Branch Appointed by Federal Reserve Bank: I. W. Stewart Chairman of the Board, American Commercial Bank, Charlotte, N. C G. G. Watts President, The Merchants & Planters National Bank, Gaffney, S. C Charles D. Parker Vice Chairman of the Board and First Executive Vice President, First Union National Bank of North Carolina, Charlotte, N. C . . Ernest Patton Chairman of the Board, The Peoples National Bank of Greenville, Greenville, S. C Appointed by Board of Governors: T. Henry Wilson President and Treasurer, Henredon Furniture Industries, Inc., Morganton, N. C William H. Grier Executive Vice President, Rock Hill Printing & Finishing Company, Rock Hill, S. C George H. Aull Agricultural Economist, Clemson College, Clemson, S. C 1958 1958 1959 I960 1958 1959 I960 District 6-Atlanta Class A: William C. Carter Roland L. Adams W. C. Bowman Class B.Donald Comer Joseph T. Lykes Chairman and President, Gulf National Bank, Gulfport, Miss 1958 President, Bank of York, York, Ala.. 1959 Chairman of the Board, The First National Bank of Montgomery, Montgomery, Ala... I960 Chairman of the Board, Avondale Mills, Birmingham, Ala 1958 Chairman and Director, Lykes Bros. Steamship Company, Inc., Tampa, Fla 1959 FEDERAL RESERVE SYSTEM l4l FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Pollard Turman Class C: Walter M. Mitchell Harllee Branch, Jr Henry G. Chalkley, Jr Dec, 51 President, J. M. Tull Metal & Supply Company, Inc., Atlanta, Ga I960 Vice President, The Draper Corporation, Atlanta, Ga 1958 President, The Southern Company, Atlanta, Ga 1959 President, The Sweet Lake Land & Oil Company, Lake Charles, La I960 Birmingham Branch Appointed by Federal Reserve Bank: Robert M. Cleckler President, First National Bank of Childersburg, Childersburg, Ala E. W. McLeod Chairman, First National Bank of Decatur, Decatur, Ala R. J. Murphy Vice President, Citizens-Farmers & Merchants Bank, Brewton, Ala John C. Persons Chairman of the Board, The First National Bank of Birmingham, Birmingham, Ala.... Appointed by Board of Governors: John E. Urquhart Chairman, Woodward Iron Company, Woodward, Ala Adolph Weil, Sr President, Weil Brothers-Cotton, Inc., Montgomery, Ala Selden Sheffield Cattleman, Greensboro, Ala 1958 1958 1959 I960 1958 1959 I960 Jacksonville Branch Appointed by Federal Reserve Bank: Linton E. Allen Chairman, The First National Bank at Orlando, Orlando, Fla W. E. Ellis Chairman and President, The Commercial Bank and Trust Company, Ocala, Fla James G. Garner President and Chairman, Little River Bank and Trust Company, Miami, Fla C. B. McLeod President, Bank of Crestview, Crestview, Fla. Appointed by Board of Governors: Harry M. Smith President and Manager, Winter Garden Ornamental Nursery, Inc., Winter Garden, Fla. McGregor Smith Chairman of the Board, Florida Power and Light Company, Miami, Fla J. Wayne Reitz President, University of Florida, Gainesville, Fla 1958 1958 1959 I960 1958 1959 I960 Nashville Branch Appointed by Federal Reserve Bank: Stewart Campbell President, The Harpeth National Bank of Franklin, Franklin, Tenn 1958 142 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 C. L. Wilson Chairman and President, The Cleveland National Bank, Cleveland, Tenn Jo H. Anderson President, Park National Bank of Knoxville, Knoxville, Tenn P. D. Houston, Jr President, First American National Bank, Nashville, Tenn Appointed by Board of Governors: V. S. Johnson, Jr Chairman of the Board and President, Aladdin Industries, Inc., Nashville, Tenn Frank B. Ward Dean, College of Business Administration, University of Tennessee, Knoxville, Tenn. W. N. Krauth President and General Manager, Colonial Baking Company of Nashville, Nashville, Tenn. 1958 1959 I960 1958 1959 I960 New Orleans Branch Appointed by Federal Reserve Bank: H. A. Pharr President, The First National Bank of Mobile, Mobile, Ala (Vacancy) J. Spencer Jones President, The Citizens National Bank in Hammond, Hammond, La D. U. Maddox President, The Commercial National Bank and Trust Company of Laurel, Laurel, Miss Appointed by Board of Governors: G. H. King, Jr President, King Lumber Industries, Canton, Miss E. E. Wild Rice grower, Midland, La Frank A. Godchaux, III Vice President, Louisiana State Rice Milling Company, Inc., Abbeville, La 1958 1958 1959 I960 1958 1959 I960 District 7—Chicago Class A: Nugent R. Oberwortmann Vivian W. Johnson Walter J. Cummings Class B: William J. Grede William A. Hanley G. F. Langenohl President, The North Shore National Bank of Chicago, Chicago, 111 1958 President, First National Bank, Cedar Falls, Iowa 1959 Chairman, Continental Illinois National Bank and Trust Company of Chicago, Chicago, 111 1960 President, Grede Foundries, Inc., Milwaukee, Wis 1958 Director, Eli Lilly and Company, Indianapolis, Ind 1959 Treasurer and Assistant Secretary, AllisChalmers Manufacturing Company, Milwaukee, Wis I960 FEDERAL RESERVE SYSTEM 143 FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Class C.Robert P. Briggs J. Stuart Russell Bert R. Prall Dec. 31 Executive Vice President, Consumers Power Company, Jackson, Mich 1958 Farm Editor, The Des Moines Register & Tribune, Des Moines, Iowa 1959 Winnetka, 111 I960 Detroit Branch Appointed by Federal Reserve Bank: Raymond T. Perring President, The Detroit Bank and Trust Company, Detroit, Mich Ira A. Moore General Vice President, Old Kent Bank and Trust Company, Grand Rapids, Mich William A. Mayberry President, Manufacturers National Bank of Detroit, Detroit, Mich Ernest W. Potter President, Citizens Commercial & Savings Bank, Flint, Mich Appointed by Board of Governors: C. V. Patterson Executive Vice President, The Upjohn Company, Kalamazoo, Mich J. Thomas Smith President, Detroit Harvester Company, Detroit, Mich John A. Hannah President, Michigan State University, East Lansing, Mich 1958 1959 I960 I960 1958 1959 I960 District 8—St. Louis Class A: J. E. Etherton Kenton R. Cravens H. Lee Cooper Class B: S. J. Beauchamp, Jr Harold O. McCutchan Leo J. Wieck Class C: J. H. Longwell Pierre B. McBride Jesse D. Wooten President, The Carbondale National Bank, Carbondale, 111 1958 President, Mercantile Trust Company, St. Louis, Mo 1959 President, Ohio Valley National Bank of Henderson, Henderson, Ky I960 President, Terminal Warehouse Co., Little Rock, Ark 1958 Executive Vice President, Mead Johnson & Company, Evansville, Ind 1959 Vice President and Treasurer, The May Department Stores Co., St. Louis, Mo I960 Director, Division of Agricultural Sciences, University of Missouri, Columbia, Mo 1958 President, Porcelain Metals Corporation, Louisville, Ky 1959 Executive Vice President, Mid-South Chemical Corporation, Memphis, Tenn I960 144 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 Little Rock Branch Appointed by Federal Reserve Bank: J. V. Satterfield, Jr Chairman of the Board, The First National Bank in Little Rock, Little Rock, Ark Donald Barger President, Peoples Exchange Bank, Russellville, Ark J. W. Bellamy, Jr President, National Bank of Commerce of Pine Bluff, Pine Bluff, Ark E. C. Benton President, Fordyce Bank and Trust Company, Fordyce, Ark Appointed by Board of Governors: Waldo E. Tiller President, Tiller Tie and Lumber Company, Inc., Little Rock, Ark T. Winfred Bell President, Bush-Caldwell Company, Little Rock, Ark Robert H. Alexander Owner-operator, Land's End Plantation, Scott, Ark 1958 1959 I960 I960 1958 1959 I960 Louisville Branch Appointed by Federal Reserve Bank: Magnus J. Kreisle President, The Tell City National Bank, Tell City, Ind Merle E. Robertson Chairman of the Board and President, Liberty National Bank and Trust Company of Louisville, Louisville, Ky W. Scott Mclntosh President, State Bank of Hardinsburg, Hardinsburg, Ind John G. Russell President, The Peoples First National Bank & Trust Company of Paducah, Paducah, Ky.. . Appointed by Board of Governors: J. D. Monin, Jr Farmer, Oakland, Ky David F. Cocks Vice President and Treasurer, Standard Oil Company (Kentucky), Louisville, Ky Philip Davidson President, University of Louisville, Louisville, Ky 1958 1959 I960 I960 1958 1959 I960 Memphis Branch Appointed by Federal Reserve Bank: J. H. Harris President, The First National Bank of Wynne, Wynne, Ark John K. Wilson President, The First National Bank of West Point, West Point, Miss John E. Brown President, Union Planters National Bank of Memphis, Memphis, Tenn Simpson Russell President, The National Bank of Commerce of Jackson, Jackson, Tenn 1958 1959 I960 I960 FEDERAL RESERVE SYSTEM 145 FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 Appointed by Board of Governors: Frank Lee Wesson President, Wesson Farms, Inc., Victoria, Ark. 1958 John D. Williams Chancellor, The University of Mississippi, University, Miss 1959 S. L. Kopald, Jr Executive Vice President, HumKo Division, National Dairy Products Corporation, Memphis, Tenn I960 District 9—Minneapolis Class A: John A. Moorhead Harold N. Thomson Harold C. Refling Class B: T. G. Harrison J. E. Corette Ray C. Lange Class C: John H. Warden Leslie N. Perrin O. B. Jesness President, Northwestern National Bank of Minneapolis, Minneapolis, Minn 1958 Vice President, Farmers & Merchants Bank, Presho, S. D 1959 Cashier, First National Bank in Bottineau, Bottineau, N. D I960 Chairman of the Board, Super Valu Stores, Inc., Hopkins, Minn 1958 President and General Manager, Montana Power Company, Butte, Mont 1959 President, Chippewa Canning Company, Inc., Chippewa Falls, Wis I960 President, Upper Peninsula Power Company, Houghton, Mich Director, General Mills, Inc., Minneapolis, Minn Agricultural Economist, St. Paul, Minn 1958 1959 I960 Helena Branch Appointed by Federal Reserve Bank: J. Willard Johnson Financial Vice President and Treasurer, Western Life Insurance Company, Helena, Mont Geo. N. Lund Chairman of the Board and President, The First National Bank of Reserve, Reserve, Mont O. M. Jorgenson Chairman, Security Trust and Savings Bank, Billings, Mont Appointed by Board of Governors: Carl McFarland Missoula, Mont John M. Otten Farmer and rancher, Lewistown, Mont 1958 1958 1959 1958 1959 146 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 District 10—Kansas City Class A: W. S. Kennedy W. L. Bunten Harold Kountze Class B: E. M. Dodds K. S. Adams Max A. Miller Class C: Raymond W. Hall Oliver S. Willham Joe W. Seacrest President and Chairman of the Board, The First National Bank of Junction City, Junction City, Kans 1958 President, Goodland State Bank, Goodland, Kans 1959 Chairman of the Board, The Colorado National Bank of Denver, Denver, Colo I960 Chairman of the Board, United States Cold Storage Corporation, Kansas City, Mo 1958 Chairman of the Board, Phillips Petroleum Company, Bartlesville, Okla 1959 Livestock rancher, Omaha, Neb I960 Counsel, Gage, Hillix, Moore & Park, Attorneys, Kansas City, Mo 1958 President, Oklahoma State University, Stillwater, Okla 1959 President, State Journal Company, Lincoln, Neb 1960 Denver Branch Appointed by Federal Reserve Bank: Ralph S. Newcomer Executive Vice President, First National Bank in Boulder, Boulder, Colo 1958 Arthur Johnson President, First National Bank in Raton, Raton, N. Mex 1958 Stewart Cosgriff President, The Denver National Bank, Denver, Colo 1959 Appointed by Board of Governors: Ray Reynolds Cattle feeder and farmer, Longmont, Colo 1958 Aksel Nielsen President, The Title Guaranty Company, Denver, Colo 1959 Oklahoma City Branch Appointed by Federal Reserve Bank: R. Otis McClintock Chairman of the Board, The First National Bank and Trust Company of Tulsa, Tulsa, Okla 1958 C. L. Priddy President, The National Bank of McAlester, McAlester, Okla 1958 C. P. Stuart President, The Fidelity National Bank & Trust Company, Oklahoma City, Okla 1959 FEDERAL RESERVE SYSTEM 147 FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 Appointed by Board of Governors: Phil H. Lowery Owner, Lowery Hereford Ranch, Loco, Okla... 1958 Davis D. Bovaird President, The Bovaird Supply Company, Tulsa, Okla 1959 Omaha Branch Appointed by Federal Reserve Bank: William N. Mitten Chairman of the Board, First National Bank of Fremont, Fremont, Neb George J. Forbes Chairman of the Board and President, Bank of Laramie, Laramie, Wyo C. Wheaton Battey President, The Continental National Bank of Lincoln, Lincoln, Neb Appointed by Board of Governors: Manville Kendrick Rancher, Sheridan, Wyo James L. Paxton, Jr President, Paxton-Mitchell Company, Omaha, Neb 1958 1959 1959 1958 1959 District 11—Dallas Class A: J. Edd McLaughlin John M. Griffith Sam D. Young Class B: J. B. Thomas John R. Alford D. A. Hulcy Class C: Lamar Fleming, Jr Hal Bogle Robert J. Smith President, Security State Bank & Trust Company, Rails, Tex 1958 President, The City National Bank of Taylor, Taylor, Tex 1959 President, El Paso National Bank, El Paso, Tex. I960 President and General Manager and Director, Texas Electric Service Company, Fort Worth, Tex 1958 Industrialist and farmer, Henderson, Tex 1959 Chairman of the Board, Lone Star Gas Company, Dallas, Tex I960 Chairman of the Board, Anderson, Clayton & Co., Inc., Houston, Tex 1958 Rancher and feeder, Dexter, N. Mex 1959 President, Pioneer Hydrotex Industries, Inc., Dallas, Tex I960 El Paso Branch Appointed by Federal Reserve Bank: Thomas C. Patterson Vice President, El Paso National Bank, El Paso, Tex F. W. Barton President, The Marfa National Bank, Marfa, Tex John P. Butler President, The First National Bank of Midland, Midland, Tex Floyd Childress Vice President, The First National Bank of Roswell, Roswell, N. Mex 1958 1959 I960 I960 148 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 Appointed by Board of Governors: E. J. Workman President, and Director of Research and Development Division, New Mexico Institute of Mining and Technology, Socorro, N. Mex.. . 1958 D. F. Stahmann Chairman of the Board and Treasurer, Stahmann Farms, Inc., Las Cruces, N. Mex 1959 William R. Mathews Editor and Publisher, The Arizona Daily Star, Tucson, Ariz I960 Houston Branch Appointed by Federal Reserve Bank: S. Marcus Greer Vice Chairman of the Board, First City National Bank of Houston, Houston, Tex I. F. Betts President, The American National Bank of Beaumont, Beaumont, Tex W. B. Callan President, The Victoria National Bank, Victoria, Tex L. R. Bryan, Jr Vice Chairman of the Board and Chairman of the Executive Committee, Bank of the Southwest National Association, Houston, Houston, Tex Appointed by Board of Governors: Tyrus R. Timm Head, Department of Agricultural Economics and Sociology, A. & M. College of Texas, College Station, Tex A. E. Cudlipp Vice President and Director, Lufkin Foundry and Machine Company, Lufkin, Tex John C. Flanagan Vice President and General Manager, Texas Distribution Division, United Gas Corporation, Houston, Tex 1958 1959 I960 I960 1958 1959 I960 San Antonio Branch Appointed by Federal Reserve Bank: Burton Dunn Chairman of the Executive Committee, Corpus Christi State National Bank, Corpus Christi, Tex 1958 E. C. Breedlove President, The First National Bank of Harlingen, Harlingen, Tex 1959 J. W. Beretta President, First National Bank of San Antonio, San Antonio, Tex I960 Donald D. James Vice President, The Austin National Bank, Austin, Tex 1960 Appointed by Board of Governors: Harold Vagtborg President, Southwest Research Institute, San Antonio, Tex 1958 Clarence E. Ayres Professor of Economics, The University of Texas, Austin, Tex 1959 FEDERAL RESERVE SYSTEM 149 FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. DIRECTORS—Cont. Alex R. Thomas Term Expires Dec.31 Vice President, Geo. C. Vaugban & Sons, San Antonio, Tex I960 District 12—San Francisco Class A: John A. Schoonover M. Vilas Hubbard Carroll F. Byrd Class B: Walter S. Johnson N. Loyall McLaren Reese H. Taylor Class C: Y. Frank Freeman A. H. Brawner Philip I. Welk President, The Idaho First National Bank, Boise, Idaho 1958 President and Chairman of the Board, Citizens Commercial Trust and Savings Bank of Pasadena, Pasadena, Calif 1959 Chairman of the Board and President, The First National Bank of Willows, Willows, Calif. I960 Chairman of the Board, American Forest Products Corporation, San Francisco, Calif 1958 Partner, Haskins & Sells, San Francisco, Calif. 1959 Chairman of the Board, Union Oil Company of California, Los Angeles, Calif I960 Vice President, Paramount Pictures Corporation, Hollywood, Calif 1958 Chairman of the Board, W. P. Fuller & Co., San Francisco, Calif 1959 Vice President, Centennial Mills, Inc., Portland, Ore 1960 Los Angeles Branch Appointed by Federal Reserve Bank: Anderson Borthwick President, The First National Trust and Savings Bank of San Diego, San Diego, Calif... James E. Shelton Chairman, Security-First National Bank of Los Angeles, Los Angeles, Calif Joe D. Paxton Chairman of the Board, County National Bank and Trust Company of Santa Barbara, Santa Barbara, Calif Appointed by Board of Governors: Leonard K. Firestone President, Firestone Tire and Rubber Company of California, Los Angeles, Calif Robert J. Cannon President, Cannon Electric Company, Los Angeles, Calif 1958 1958 1959 1958 1959 Portland Branch Appointed by Federal Reserve Bank: John B. Rogers President, The First National Bank of Baker, Baker, Ore J. H. McNally President, The First National Bank of Bonners Ferry, Bonners Ferry, Idaho C. B. Stephenson President, The First National Bank of Oregon, Portland, Portland, Ore 1958 1958 1959 150 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. Term Expires DIRECTORS—Cont. Dec. 31 Appointed by Board of Governors: William H. Steiwer, Sr Livestock and farming, Fossil, Ore Warren W. Braley Partner, Braley and Graham Buick, Portland, Ore 1958 1959 Salt Lake City Branch Appointed by Federal Reserve Bank: Russell S. Hanson Executive Vice President, The First National Bank of Logan, Logan, Utah 1958 George S. Eccles President, First Security Bank of Utah, National Association, Salt Lake City, Utah 1958 Oscar Hiller President, Butte County Bank, Arco, Idaho 1959 Appointed by Board of Governors: Geo. W. Watkins President, Snake River Equipment Company, Idaho Falls, Idaho 1958 Joseph Rosenblatt President, The Eimco Corporation, Salt Lake City, Utah 1959 Seattle Branch Appointed by Federal Reserve Bank: S. B. Lafromboise President, The First National Bank of Enumclaw, Enumclaw, Wash 1958 James Brennan President, First National Bank in Spokane, Spokane, Wash 1958 Joshua Green, Jr President, Peoples National Bank of Washington, Seattle, Wash 1959 Appointed by Board of Governors: Lyman J. Bunting President, Rainier Fruit Company, Yakima, Wash Henry N. Anderson President, Twin Harbors Lumber Company, Aberdeen, Wash 1958 1959 FEDERAL RESERVE SYSTEM 151 FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. PRESIDENTS AND VICE PRESIDENTS Federal Reserve Bank of— President First Vice President Boston J. A. Erickson E. O. Latham New York Alfred Hayes William F. Treiber Philadelphia . . . Karl R. Bopp Robert N. Hilkert Cleveland W. D. Fulton Donald S. Thompson Richmond Hugh Leach Edw. A. Wayne Atlanta Malcolm Bryan Lewis M. Clark Chicago Carl E. Allen E. C. Harris St. Louis Delos C. Johns Guy S. Freutel Minneapolis . . . Frederick L. Deming A. W. Mills Kansas City . . . . H. G. Leedy Henry O. Koppang Dallas Watrous H. Irons W. D. Gentry San Francisco .. H. N. Mangels Eliot J. Swan Vice Presidents D. H. Angney Benjamin F. Groot Dana D. Sawyer Ansgar R. Berge O. A. Schlaikjer George H. Ellis Robert G. Rouse H. A. Bilby Walter H.Rozell J r . John Exter T. G. Tiebout M. A. Harris V. Willis H. H. Kimball R. B. Wiltse H. V. Roelse Robert V. Roosa Joseph R. Campbell P. M. Poorman J. V. Vergari W. M. Catanach David P. Eastburn Richard G. Wilgus Murdoch K. Goodwin Dwight L. Allen Martin Morrison H. E. J. Smith Roger R. Clouse Paul C. Stetzelberget C. Harrell L. Merle Hostetler J. M. Nowlan N. L. Armistead James M. Slay J. Dewey Daane Thomas I. Storrs Aubrey N. Heflin C. B. Strathy Upton S. Martin J. E. Denmark L. B. Raisty John L. Liles, Jr. Earle L. Rauber J. E. McCorvey S. P. Schuessler Harold T. Patterson Neil B. Dawes C. T. Laibly W. R. Diercks George W. Mitchell A. M. Gustavson H. J. Newman H. J. Helmer A. L. Olson Paul C. Hodge Homer Jones H. H. Weigel Geo. E. Kroner J. C. Wotawa Dale M. Lewis C. W. Groth H. G. McConnell M. B. Holmgren M. H. Strothman, Jr. A. W. Johnson E. U. Sherman John T. Boysen Clarence W. Tow George H. Clay Joseph S. Handford D. W. Woolley T. A. Hardin Morgan H. Rice G. R. Murff Harry A. Shuf ord T. W. Plant C. E. Walker L. G. Pondrom John A. O'Kane A. B. Merritt O. P. Wheeler E. R. Millard R. H. Morrill 152 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE BANKS AND BRANCHES, Dec. 31, 1958—Cont. VICE PRESIDENTS IN CHARGE OP BRANCHES Federal Reserve Bank of— New York .. Cleveland .. Richmond . . Atlanta Chicago . . . . St. Louis . .. Minneapolis . Kansas City . Dallas San Francisco Chief Officer Buffalo Cincinnati Pittsburgh Baltimore Charlotte Birmingham Jacksonville Nashville New Orleans Detroit Little Rock Louisville Memphis Helena Denver Oklahoma City Omaha El Paso Houston San Antonio Los Angeles Portland Salt Lake City Seattle I. B. Smith R. G. Johnson J. W. Kossin D. F. Hagner R. L. Cherry H. C. Frazer T. A. Lanford R. E. Moody, Jr. M. L. Shaw R. A. Swaney Fred Burton Donald L. Henry Darryl R. Francis Kyle K. Fossum Cecil Puckett R. L. Mathes P. A. Debus Howard Carrithers J. L. Cook W. E. Eagle W. F. Volberg J. A. Randall E. R. Barglebaugh J. M. Leisner CONFERENCE OF PRESIDENTS The Presidents of the Federal Reserve Banks are organized into a Conference of Presidents which meets from time to time to consider matters of common interest and to consult with and advise the Board of Governors. Mr. Leedy, President of the Federal Reserve Bank of Kansas City, and Mr. Erickson, President of the Federal Reserve Bank of Boston, who were elected Chairman of the Conference and Vice Chairman, respectively, in January 1956, were re-elected as such in March 1957 and continued to serve until the meeting in February 1958. At this meeting Mr. Erickson was elected Chairman of the Conference and Mr. Johns, President of the Federal Reserve Bank of St. Louis, was elected Vice Chairman. Mr. John T. Boysen, Vice President and Cashier of the Federal Reserve Bank of Kansas City, served as Secretary of the Conference from May 1956 to February 1958. Mr. Loring C. Nye, Assistant Cashier of the Federal Reserve Bank of Boston, was appointed as Secretary of the Conference at the meeting in February 1958. FEDERAL RESERVE SYSTEM BOUNDARIES OF FEDERAL RESERVE DISTRICTS AND THEIR BRANCH TERRITORIES = = BOUNDARIES OF FEDERAL RESERVE DISTRICTS BOUNDARIES OF FEDERAL RESERVE BRANCH TERRITORIES ^ BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ® FEDERAL RESERVE BANK CITIES • FEDERAL RESERVE BRANCH CITIES NOTE.—For a description of the Federal Reserve districts and branch territories, see the Annual Report of the Board of Governors for 1953, pp. 124-34; for later changes in branch territory lines, see p. 57 of the 1954 Annual Report. Page Acceptance powers granted member banks 91 Acceptances, bankers': Federal Reserve Bank holdings 99, 106, 108, 110 Open market transactions during 1958 129 Alaska Statehood Act: Actions by Board of Governors incident to 87 Federal Reserve districts, readjustment to include Alaska 87, 94 National banks, membership in Federal Reserve System 94 Assets and liabilities: Banks, by classes 125 Board of Governors 102 Federal Reserve Banks 106-111 Balance of international payments 13 Bank credit, supplies of 25, 27 Bank holding companies 90 Bank Holding Company Act of 1956, report to Congress under 95 Bank premises, Federal Reserve Banks and branches 100, 106, 108, 110, 120 Bank supervision by Federal Reserve System 89 Banking offices: Changes in number 127 On, and not on, Par List, number 128 Board of Governors: Accounts audited 101 Bank Holding Company Act of 1956, report to Congress under. . . . 95 Income and expenses 101-103 Members and officers 132 Policy actions 72-88 Regulations (See Regulations) Branch banks: Domestic, changes in number 127 Federal Reserve (See Federal Reserve Banks) Foreign 92 Business finance 21 Capital accounts: Banks, by classes 125 Federal Reserve Banks 107, 109, 111 Chairmen of Federal Reserve Banks 135 Charts: Bank loans and investments 25 Deposits of commercial banks 28 Economic indicators, selected 2 Gross national product 5 Interest rates 20 Reserves and borrowings, member banks 9 U. S. balance of payments 12 Commercial banks: Assets and liabilities 125 Banking offices, changes in number 127 154 INDEX 155 Page Commercial banks—Continued Deposits 28, 125 Loans and investments 27, 125 Number, by classes 125 Condition statement of Federal Reserve Banks 106-111 Consumer finance 22, 26 Credit demands and supplies 18, 25 Defense Production Act of 1950, amendment of 94 Defense production loans 95, 124 Deposits: Banks, by classes 125 Commercial banks 28, 125 Federal Reserve Banks 107, 109, 111, 118 Savings and other time deposits, maximum rates 123 Deputy Chairmen of Federal Reserve Banks 135 Directors, Federal Reserve Banks and branches 136 Discount rates at Federal Reserve Banks: Increases in 9, 82, 85 Reductions in 3, 73, 76, 80 Table of 122 Discounts and advances by Federal Reserve Banks 99, 106, 108, 110, 113, 114, 118 Dividends: Federal Reserve Banks 97, 98, 115, 116 Member banks 126 Dollar exchange, permission granted member bank to accept drafts or bills drawn for purpose of furnishing 92 Earnings: Federal Reserve Banks 97, 114, 116 Member banks 126 Economic review 1-11 Examinations: Federal Reserve Banks 89 Foreign banking and financing corporations 93 Holding company affiliates 91 Member banks 89 State member banks and foreign branches 89, 93 Expenses: Board of Governors 101-103 Federal Reserve Banks 97, 114, 116 Member banks 126 Federal Advisory Council: Meetings 134 Members and officers 134 Federal Open Market Committee: Meetings 34, 133 Members and officers 133 Policy actions 32-71 Review of continuing authorities or statements of policy 39 Special actions incident to disorderly market in Government securities 7, 53 156 INDEX Page Federal Reserve Act: Section 2, amendment relating to readjustment of Federal Reserve districts to include Alaska 94 Section 13b, repeal of, and return of surplus to Treasury 95, 98 Section I4(b), amendment extending authority of Federal Reserve Banks to purchase and sell Government obligations directly from or to the U. S 94 Section 24, amendment relating to national bank loans participated in by Small Business Administration 94 Federal Reserve Banks: Assessments for expenses of Board of Governors 103, 114 Authority to purchase and sell Government obligations directly from or to the U. S., extension of 94 Bank premises 100, 106, 108, 110, 120 Branches: Bank premises 100, 120 Directors 136 Vice Presidents in charge of 152 Capital accounts 107, 109, 111 Chairmen and Deputy Chairmen 135 Condition statement 106-111 Directors 136 Discount rates: Increases in 9, 82, 85 Reductions in 3, 73, 76, 80 Table of 122 Dividends 97, 98, 115, 116 Earnings and expenses 97, 114, 116 Examination of 89 Foreign and international accounts 99 Officers and employees, number and salaries 114, 121 Presidents and other officers 151 Profit and loss 115 Section 13b loan authority, repeal of, and return of surplus to Treasury 95, 98 Special certificates purchased direct from Treasury, holdings of. . . . 113 U. S. Government securities: Holdings of 98, 106, 108, 110, 112, 113, 118 Open market transactions during 1958 129 Volume of operations 96, 113 Federal Reserve districts: Readjustment to include Alaska 87, 94 Twelfth District, readjustment to include Alaska in territory of Seattle Branch 87 Federal Reserve notes: Condition statement data 106-111 Cost of printing, issue, and redemption 103 Interest paid to Treasury 97, 98, 115, 116 Federal Reserve policy: Actions to combat recession 3 Digest of principal policy actions 30 INDEX 157 Page Federal Reserve policy—Continued Gold movements and Federal Reserve policy 16 Record of policy actions: Board of Governors 72-88 Federal Open Market Committee 32-71 Federal Reserve System: Bank supervision by 89 Map of 153 Membership: Changes in 90 National banks in Alaska 94 Foreign banking and financing corporations: Examination of 93 Operations of 92 Titles of foreign financing corporations, amendment of Regulation K 86 Foreign branches 92 Gold certificate reserves of Federal Reserve Banks 106, 108, 110 Gold movements in 1958, relation to balance of international payments and U. S. monetary system 11 Government finance 18 Government securities (See U. S. Government securities) Holding company affiliates 91 Industrial loans by Federal Reserve Banks: Condition statement data 106, 108, 110 Earnings on 99, 114 Rates on 122 Section 13b loan authority, repeal of, and return of surplus to Treasury 95, 98 Insured commercial banks 125, 127 Inter-Agency Bank Examination School 93 Interest rates: Discount rates at Federal Reserve Banks: Increases in 9, 82, 85 Reductions in 3, 73, 76, 80 Table of 122 Federal Reserve rates, table of 122 Regulation V loans 124 Savings and other time deposits, maximum rates 123 International capital transactions 24 Investments (See also specific types of investments) : Banks, by classes 125 Commercial banks 27, 125 Federal Reserve Banks 106, 108, 110 Member banks 125 Legislation: Alaska Statehood Act 94 Bank Holding Company Act of 1956, report to Congress under.... 95 Defense Production Act of 1950, amendment of 94 158 INDEX Page Legislation—Continued Federal Reserve Act: Section 2, amendment relating to readjustment of Federal Reserve districts to include Alaska Section 13b, repeal of Section 14(b), amendment extending authority of Federal Reserve Banks to purchase and sell Government obligations directly from or to the U. S Section 24, amendment relating to national bank real estate loans participated in by Small Business Administration Small Business Investment Act of 1958. 95, Loans (See also specific types of loans) : Banks, by classes Commercial banks 27, Federal Reserve Banks 98, 106, 108, 110, 118, Member banks National bank real estate loans participated in by Small Business Administration, amendment of Section 24 of Federal Reserve Act Margin requirements: Increases in 10, 81, Reduction in 10, Table of Meetings: Chairmen of Federal Reserve Banks Federal Advisory Council Federal Open Market Committee 34, Presidents of Federal Reserve Banks Member banks: Acceptance powers Assets, liabilities, and capital accounts Banking offices, changes in number Earnings, expenses, and dividends Examination of Foreign branches, number in operation Number 90, Reserve requirements: Reductions in 3, 75, Table of Reserves and related items Membership in Federal Reserve System: Changes in National banks in Alaska Mutual savings banks 125, National banks: Alaskan banks, membership in Federal Reserve System Assets and liabilities Banking offices, changes in number Foreign branches, number in operation Number 90, 94 95 94 94 98 125 125 122 125 94 83 72 124 135 134 133 152 91 125 127 126 89 92 125 78 123 118 90 94 127 9A 125 127 92 125 INDEX 159 Page National banks—Continued Real estate loans participated in by Small Business Administration, amendment of Section 24 of Federal Reserve Act 94 Trust powers 91 Nonmember banks 125, 127, 128 Open Market operations 32-71, 129 Par List, banking offices on, and not on, number 128 Policy actions, Board of Governors: Alaskan Statehood, actions incident to 87 Discount rates at Federal Reserve Banks: Increases in 82, 85 Reductions in 73, 76, 80 Margin requirements: Increases in 81, 83 Reduction in 72 Regulation K, Corporations Doing Foreign Banking or Other Foreign Financing under the Federal Reserve Act, amendment of Sections 3(b) and 10(c) (2) 86 Reserve requirements of member banks, reductions in 75, 78 Policy actions, Federal Open Market Committee: Authority to effect transactions in System Account 32-71 Review of continuing authorities or statements of policy 39 Special actions incident to disorderly market in Government securities 53 Presidents of Federal Reserve Banks: Conference of 152 List of 151 Meetings 152 Salaries 121 Real estate loans: National bank loans participated in by Small Business Administration, amendment of Section 24 of Federal Reserve A c t . . . . 94 Recession and recovery 1 Regulations, Board of Governors: Amendments incident to admission of Alaska to Statehood 87 D, Reserves of Member Banks: Reserve requirements, reductions in 3, 75, 78 K, Corporations Doing Foreign Banking or Other Foreign Financing under the Federal Reserve Act: Amendment of Sections 3(b) and 10(c) (2) 86 T, Extension and Maintenance of Credit by Brokers, Dealers, and Members of National Securities Exchanges: Margin requirements: Increases in 10, 81, 83 Reduction in 10, 72 U, Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on a National Securities Exchange: Margin requirements: Increases in 10, 81, 83 Reduction in 10, 72 160 INDEX Page Regulations, Board of Governors—Continued V, Loan Guarantees for Defense Production 95, 124 Repurchase agreements: Bankers' acceptances 106, 108, 110, 129 U. S. Government securities 106, 108, 110, 118, 129 Reserve requirements, member banks: Reductions in 3, 75, 78 Table of 123 Reserves: Federal Reserve Banks 106-111 Member banks 118 Salaries: Board of Governors 103 Federal Reserve Banks 114, 121 Savings 26 Savings deposits (See Deposits) Small Business Administration: Real estate loans participated in by, amendment of Section 24 of Federal Reserve Act 94 Small business financing study 103 Small Business Investment Act of 1958 95, 98 State member banks: Assets and liabilities 125 Banking offices, changes in number 127 Examination of, and foreign branches 89, 93 Foreign branches, number in operation 92 Number 90, 125 System Open Market Account: Audit of 89 Authority to effect transactions in 32-71 Territory of Federal Reserve Banks and branches: Seattle Branch territory, inclusion of Alaska in 87 Time deposits (See Deposits) Treasury finance 18 Trust powers of national banks 91 U. S. Government securities: Authority of Federal Reserve Banks to purchase and sell directly from or to the U. S., extension of 94 Bank holdings, by class of bank 125 Commercial bank holdings 28, 125 Federal Reserve Bank holdings 98, 106, 108, 110, 112, 113, 118 Open market operations 32-71, 129 Special certificates purchased direct from Treasury 113 V-loans 95, 124 Voting permits issued to holding company affiliates 91