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57th

TZeport
NL> 1970

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

J^etter of Transmittal

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington, May 21, 1971
THE 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 Fifty-Seventh Annual
Report of the Board of Governors of the
Federal Reserve System.
This report covers operations of the Board
during the calendar year 1970.
Yours respectfully,
Arthur F. Burns, Chairman.

Contents
Part 1—The U.S. Economy in
Transition
3
I-VH

INTRODUCTION
PRINCIPAL FEDERAL RESERVE POLICY ACTIONS, 1970:
DIGEST

1
7
11
13
16
17
20
24

MONETARY POLICY AND THE ECONOMY IN 1970
Demands for goods and services
Federal budget
Resource utilization and prices
Balance of payments
Instruments of monetary policy
Monetary aggregates
Interest rates and credit flows

WAGES, PRODUCTIVITY, AND PRICES

CONSUMER ATTITUDES AND BEHAVIOR

38
38
40

RESPONSIVENESS OF HOUSING AND STATE AND
LOCAL GOVERNMENTS
Housing
State and local governments

42
42
44

EASING IN CREDIT AVAILABILITY AT BANKS
Sources of funds
Bank credit

47
48
49
50
52

ADJUSTMENTS IN THE BUSINESS SECTOR
Business investment
Internal funds
External financing
Corporate liquidity

53
53
55
56

U.S. BALANCE OF PAYMENTS
Merchandise trade
Capital flows
Over-all balance

Part 2—Records, Operations, and
Organization
61

RECORD OF POLICY ACTIONS—BOARD OF GOVERNORS

RECORD OF POLICY ACTIONS—FEDERAL OPEN MARKET
COMMITTEE

178

FEDERAL RESERVE OPERATIONS IN
FOREIGN CURRENCIES

180

FOREIGN CREDIT RESTRAINT PROGRAM

184
184

LEGISLATION ENACTED
Direct purchases by Federal Reserve Banks of Government
obligations
Real estate and commercial building construction loans by
national banks
Defense production
Margin requirements; credit cards
Bank Holding Company Act Amendments of 1970
"Tender offers" with respect to securities of member State
banks
Securities Investor Protection Corporation
Financial Institutions Supervisory Act
Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970

184
184
185
185
185
186
186
186
187
187
187
188
188
189
189
189
190
190

LEGISLATIVE RECOMMENDATIONS
Lending authority of Federal Reserve Banks
"Par clearance"
Reserve requirements
Loans to bank examiners
Purchase of obligations of foreign governments by Federal
Reserve Banks
Interlocking bank relationships
Loan guarantees to business
Federal Reserve Bank branch buildings
Bank investments for community development

192
192
193
193

LITIGATION
Bank holding companies
Margin requirements on securities credit transactions
Truth in Lending

195
195
197
198
199
199
199
201
201
202
203
203

BANK SUPERVISION AND REGULATION BY THE FEDERAL
RESERVE SYSTEM
Examination of member banks
Federal Reserve membership
Bank mergers
Bank holding companies
Foreign branches of member banks
Acceptance powers of member banks
Foreign banking and financing corporations
Actions under delegation of authority
Bank Examination Schools
Truth in Lending
Bank Protection Act of 1968

204
204
204
205
205
206
207
208

FEDERAL RESERVE BANKS
Examination
Earnings and expenses
Holdings of loans and securities
Volume of operations
Loan guarantees for defense production
Foreign and international accounts
Bank premises

209
209
209

BOARD OF GOVERNORS
Building annex
Income and expenses

214
216
220
221
222
223
224

STATISTICAL TABLES:
1. Detailed statement of condition of all Federal Reserve
Banks combined, Dec. 31, 1970
2. Statement of condition of each Federal Reserve Bank,
Dec. 31, 1970 and 1969
3. Federal Reserve Bank holdings of U.S. Government
securities, Dec. 31, 1968-70
4. Federal Reserve Bank holdings of special short-term
Treasury certificates purchased directly from the
United States, 1954-70
5. Open market transactions of the Federal Reserve System
during 1970
6. Bank premises of Federal Reserve Banks and branches,
Dec. 31, 1970
7. Earnings and expenses of Federal Reserve Banks during
1970

STATISTICAL TABLES—Cont.
226
228
228
229
229
230
231
232
233
234
238
240
240
242

8. Earnings and expenses of Federal Reserve Banks, 191470
9. Volume of operations in principal departments of Federal Reserve Banks, 1967-70
10. Number and salaries of officers and employees of Federal Reserve Banks, Dec. 31, 1970
11. Fees and rates under Regulation V on loans guaranteed
pursuant to Defense Production Act of 1950, Dec. 31,
1970
12. Margin requirements
13. Member bank reserve requirements
14. Federal Reserve Bank discount rates, Dec. 31, 1970
15. Maximum interest rates payable on time and savings
deposits
16. Principal assets and liabilities, and number of commercial
and mutual savings banks, by class of bank, Dec. 31,
1970, and Dec. 31, 1969
17. Member bank reserves, Federal Reserve Bank credit, and
related items—end of year 1918-70 and end of month
1970
18. Changes in number of banking offices in the United States
during 1970
19. Number of par and nonpar banking offices, by Federal
Reserve district, Dec. 31, 1970
20. Number of par and nonpar banking offices, by State and
other area, Dec. 31, 1970
21. Description of each merger, consolidation, acquisition of
assets or assumption of liabilities approved by the Board
of Governors during 1970.

286

MAP OF FEDERAL RESERVE SYSTEM—DISTRICTS

288
290
291
292

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

316

INDEX

"Parti
The

. Economy irlTransitioii

Introduction
Economic and financial conditions in the United States during 1970
were in a difficult transitional stage. Real output was stagnant and
unemployment was rising, and at the same time prices continued upward under continued cost pressures. Meanwhile, the balance of payments was affected by adverse shifts in capital flows, as a sharp drop
in short-term interest rates in this country led to a reversal of the
very large inflow of short-term capital that had contributed to surpluses in the U.S. official settlements balance in the previous 2 years.
Substantial progress was made during 1970, however, in re-establishing the basis for sustainable economic expansion. Although wage
increases—particularly under collective bargaining agreements—continued to be large, resumption of growth in productivity after the
first quarter served to moderate the rate of increase in unit labor
costs. The gains in efficiency that were effected in the business sector
also worked toward an improvement in the international competitive
position of the United States.
The financial positions of key spending sectors also improved in
1970. The position of corporations generally was bolstered by further heavy long-term borrowing and some restructuring of balance
sheets in the direction of greater liquidity. As to consumers, their
savings in liquid forms were considerably enlarged, to some extent as
a result of their cautious spending behavior throughout the year; and
financial positions were also favorably affected later in the year as
the recovery in the stock market in the second half offset a large
part of the earlier price declines.
Financial markets too moved into a position more compatible with
sustainable, long-term economic growth. By early 1971 conditions in
these markets had eased substantially. Interest rates were considerably lower, banks and other financial institutions were more liquid,
and the volume of funds available to borrowers was much improved
as compared with the situation a year earlier. Part of this easing in
financial conditions reflected a moderation in private borrowing
needs stemming from slower growth in current-dollar gross national
product and a leveling off in the capital expenditures of business,
which earlier had been running far ahead of internally generated
funds.

But more important was the resumption in 1970 of growth at
moderately high rates in such monetary aggregates as the money
stock and bank credit—an expansion that became feasible and desirable because excess demand had been eliminated. Broader measures
of liquidity showed relatively more rapid growth than the narrowly
defined money stock (currency plus demand deposits other than interbank and U.S. Government). With yields on market securities declining, interest rates paid on time and savings deposits became progressively more attractive, and such deposits expanded sharply at
both commercial banks and at other savings institutions. For commercial banks, time deposit expansion was particularly rapid following the suspension at midyear of interest rate ceilings on large negotiable certificates of deposit (CD's) in the 30- to 89-day maturity
range. In total, the greater inflow of time and savings deposits considerably increased the availability of funds seeking investment in
mortgages, State and local government securities, and short-term
business and consumer loans.
Federal fiscal policy also turned more stimulative in 1970: (1)
The 10 per cent surcharge on income taxes was terminated in two
stages; (2) the first of the reductions contained in the Tax Reform
Act of 1969 became effective; and (3) a sharp increase occurred in
Federal expenditures—mainly through enlargement of grants-in-aid
to local governments and transfer payments to individuals. Even
though Federal purchases of goods and services declined slightly in
dollar terms as a result of an appreciable reduction in the defense
budget, the effect of fiscal policy was to increase consumer disposable income and to buttress State and local government expenditures.
Despite these measures, aggregate economic activity lagged
throughout 1970 and output fell increasingly below the Nation's expanding output potential. At the year-end the unemployment rate
was up to 6.2 per cent, as against 3.5 per cent a year earlier, and
manufacturing facilities generally were being operated at well under
preferred rates. In terms of real GNP, the shortfall in output of
goods and services below full employment levels at the year-end exceeded 5 per cent. At current prices, this represented a shortfall of
more than $50 billion at an annual rate.
In view of the gap that has developed in the economy's performance relative to potential, and of the accompanying unemployment
and under-utilization of the Nation's human resources, the emphasis

in public policy continues to be on the restimulation of economic activity. At the beginning of 1971, depreciation schedules on purchases
of business equipment were liberalized for tax purposes in order to
enhance the prospective return on, and thereby stimulate, such investment. The Federal budget proposed for fiscal year 1972 calls for
an increase in total expenditures of $16.2 billion—about the same as
is projected for the fiscal year 1971—and although balanced in
terms of the revenues that would be produced at full employment, it
will involve a substantial, realized deficit.
Monetary policy is also on an expansive course, as reflected not
only in the substantial growth in money, bank credit, and financial
flows, but also in marked declines in interest rates. In designing policies to help revitalize the economy, of course, care must be taken not
only to avoid encouraging a rebound that is so swift as to regenerate
inflationary pressures and expectations, jeopardizing the hard-won
progress that has been achieved in this area, but also to avoid weakening further the U.S. competitiveness in world markets.
It seems likely that an increasing number of sectors in our economy will contribute to economic expansion over the months ahead.
Residential construction has already achieved near-record levels, reflecting both large pent-up demands for housing and the marked improvement during 1970 in the availability of funds for mortgage lending. And a large and increasing volume of bond financing by State
and local governments points to a growing trend of expenditures for
public facilities.
The outlook for spending by businesses in the coming year is still
somewhat uncertain. Capital outlays are being adjusted downward in
many industries, following a long period of very heavy investment
spending. However, investment programs in some other industries—
notably the utilities—continue to indicate sharp growth in capital
outlays. Hence, the total dollar volume of capital spending, even
though it has leveled off, may well remain close to the peak rates
reached in 1970. Many businesses also worked during 1970 to trim
and balance their inventory positions. But the degree of inventory
adjustment was quite small by the standards of many other periods
of sluggish economic activity.
The key to the speed and extent of economic recovery in 1971
may well prove to be in the hand of the consumer. Total income
available for spending rose strongly during 1970—reflecting tax cuts,

higher social security and other Federal transfer payments, and further growth in aggregate wages and salaries. But spending was sluggish. It rose less in current dollars than in other recent years—and
little at all after adjustment for higher prices. Consumers were in a
cautious mood—responding to rising prices, increasing unemployment, extended strikes, reduced overtime pay, an uncertain and at
times sharply lower stock market, political and military tensions
abroad, and social disorders at home. As a result, they restrained
their buying and instead strengthened their financial positions
through accumulation of liquid financial assets and repayment of
debt.
An improvement in consumer sentiment now would serve to spur
consumer spending, just as the deterioration in confidence earlier
tended to restrict it. And stronger consumer markets would communicate strength to the business sector, would generate jobs and additional income, and would enlarge the tax revenues of governmental
units hard pressed by sharp increases in operating costs.
On balance, prospects seem good for a resumption of growth in
aggregate economic activity in 1971. Indeed, the recovery could
prove to be relatively vigorous if consumers become more confident
of future prospects and increase their propensity to spend accordingly. The prospects for sustaining economic expansion should be enhanced to the extent that such expansion is accompanied by increased efficiency in our economic processes through tighter
management. Continued moderation in inflation is also an important
pre-condition to lasting prosperity, and its achievement will require a
gradual subsidence in the cost pressures that lead to higher prices of
products and services.
The next section of this report describes monetary policy during
1970 in relation to broad financial and nonfinancial developments in
the economy. In order to help evaluate the positions of key areas in
early 1971, ensuing sections discuss recent trends in particular sectors or markets in terms of the types of adjustments made during the
year to, among other things, the abatement of aggregate demands
and the easing of monetary policy. A digest of the principal Federal
Reserve policy actions in 1970 appears on pages I-VII, following
page 8.
•

Principal Federal Reserve Policy Actions', 1970: Digest

Principal Federal Reserve Policy Actions, 1970: Digest
Period, or
announcement date

Action

Purpose

January

Directed that System open market operations be
conducted with a view to maintaining firm conditions
in the money market, while taking account of the desire of the Federal Open Market Committee to see
a modest growth in money and bank credit, with a
provision for modification of operations depending
on the course of money and bank credit developments.

To foster financial conditions conducive to the orderly reduction of inflationary pressures, with a view to
encouraging sustainable economic
growth and attaining reasonable
equilibrium in the country's balance
of payments.

January 20

Increased maximum interest rates payable by
member banks on time and savings deposits, effective January 21. This action, in combination with a
minor further amendment on February 26 (retroactive to January 21) bringing rates on multiplematurity deposits in line with those on single maturities, set the following maximum rates:
(1) Passbook savings, raised from 4 to 4.5 per
cent.
(2) Other types of consumer-type deposits—those
of less than $100,000—raised as follows:

To readjust the structure of maximum interest rates payable by member banks for deposits to bring it
somewhat more in line with going
yields on market securities and to
set the stage for renewed expansion of bank credit; to bring about
greater equity in the rates payable
on smaller savings balances, and
to encourage longer-term savings
within the framework of continued
over-all credit restraint.

February

Rate(%)
New Previous
Maturity
Multiple-maturity:
4.00
30-89 days
4.50
5.00
90 days to 1 year
5.00
Single-maturity:
5.00
5.00
30 days-1 year
Single- and multiple-maturity:
5.00
5.50
1 to 2 years
5.00
5.75
2 years or more
(3) Time deposits of $100,000 or more, raised as
follows:
Rate(%)
Maturity
New Previous
30-59 days
6.25
5.50
60-89 days
6.50
5.75
90-179 days
6.75
6.00
180 days to 1 year
7.00
6.25
1 year or more
7.50
6.25
Directed that System open market operations be
conducted with a view to moving gradually toward
somewhat less firm conditions in the money market,
taking account of the Committee's desire to see moderate growth in money and bank credit over the
months ahead, with a provision for modification
of operations depending on the course of money and
bank credit developments.

Principal Federal Reserve Policy Actions, 1970: Digest—Continued
Peyiod, OT
announcement date

Action

Furpose

March through late
May

Directed that System open market operations be
conducted with a view to maintaining money market
conditions consistent with the objective of moderate
growth in money and bank credit over the months
ahead, with a provision in effect during much of May
for modification of operations as needed to moderate
excessive pressures on financial markets, should they
develop.

To foster financial conditions conducive to orderly reduction in the
rate of inflation, while encouraging
the resumption of sustainable economic growth and the attainment of
reasonable equilibrium in the country's balance of payments.

May 6

Reduced the margin requirements on loans by
banks, brokers and dealers, and other lenders for
the purpose of purchasing or carrying registered
equity securities from 80 to 65 per cent.

To be less restrictive in view of
the sharp reduction in the use of
credit for stock purchases.

Reduced the margin requirements on such loans
by these lenders against securities convertible into
registered equity securities from 60 to 50 per cent.
Late May through
late July

Directed that System open market operations be
conducted with a view to moderating pressures on
financial markets while, to the extent compatible
therewith, maintaining bank reserves and money
market conditions consistent with the longer-run ob-

To foster financial conditions conducive to orderly reduction in the
rate of inflation, while encouraging
the resumption of sustainable economic growth and the attainment of

jective of moderate growth in money and bank credit,
with allowance after late June for a possible shift of
credit flows from market to banking channels.

reasonable equilibrium in the country's balance of payments.

June 24

Suspended limitations on the maximum rate of interest member banks may pay on single-maturity deposits of $100,000 or more that mature 30 days or
more but less than 90 days after date of deposit.

To facilitate meeting any unusual
demands upon commercial banks
for short-term credit accommodation that might occur as a consequence of serious current uncertainties in financial markets.

Late July through
mid-August

Directed that System open market operations be
conducted with a view to maintaining bank reserves
and money market conditions consistent with the objective of moderate growth in money and bank credit
over the months ahead, allowing for a possible continued shift of credit flows from market to banking
channels, with a provision for modification of operations as needed to counter excessive pressures on
financial markets, should they develop.

August 17

Reduced reserve requirements against time deposits in excess of $5 million at each member bank
from 6 to 5 per cent and applied a 5 per cent reserve
requirement on funds obtained by member banks
through the issuance of commercial paper by their
affiliates, both actions to become effective in the
reserve computation period beginning October 1 and
be applicable to such deposits and commercial paper
outstanding in the week beginning September 17.

To maintain the effectiveness of
the reserve requirements of Regulation D by applying those requirements to funds received by a member bank as the result of issuance of
obligations (commonly described as
commercial paper) by an affiliate,
and to provide a net release of reserves to the banking system.

Principal Federal Reserve Policy Actions, 1970: Digest—Continued
Period, or
announcement date

Action

Furpose

Mid-August
through
mid-September

Directed that System open market operations be
conducted with a view to maintaining bank reserves
and money market conditions consistent with the objectives of some easing of conditions in credit markets and of somewhat greater growth in money over
the months ahead than had occurred in the second
quarter, taking account of possible liquidity problems
and allowing bank credit growth to reflect any continued shift of credit flows from market to banking
channels.

Mid-September
through
mid-December

Directed that System open market operations be
conducted with a view to maintaining bank reserves
and money market conditions consistent with the
objectives of some easing of conditions in credit markets and of moderate growth in money and attendant
bank credit expansion over the months ahead, with
allowance in the latter part of the period for temporary shifts in money and credit demands related to
the auto strike.

November 10

Reduced discount rates from 6 to 5% per cent
at 6 Reserve Banks, effective November 11. (By No-

To bring the discount rate into
better alignment with short-term in-

November 30

Mid-December
through year-end

vember 16, the 53/4 per cent rate was in effect at all
Reserve Banks).

terest rates, in which reductions had
recently taken place.

Amended rules governing member bank reserves
(Regulation D) and foreign branches of member
banks (Regulation M), effective January 7, 1971, to
(1) raise from 10 to 20 per cent the reserve ratio
applicable to a member bank's Euro-dollar borrowings to the extent that they exceed a specified reservefree base and (2) apply an automatic downward adjustment feature to the minimum reserve-free bases
applicable to Euro-dollar borrowings.

To give banks an added inducement to retain Euro-dollar borrowings in order to preserve reserve-free
bases.

Reduced discount rates from 53A to SVi per cent
at 5 Reserve Banks, effective December 1. (By December 11, the 5 Vi per cent rate was in effect at all
Reserve Banks.)

To re-establish better alignment
between the discount rate and shortterm interest rates, in recognition of
further downward movements that
had recently taken place in the
latter.

Directed that System open market operations be
conducted with a view to maintaining the money
market conditions recently attained, provided that
the expected rates of growth in money and bank
credit were at least being achieved.

Monetary Policy and the
Economy in 1970
To help stimulate economic activity while at the same time guarding
against fueling inflation, monetary policy during 1970 shifted from
the posture of restraint that had prevailed during much of 1969 to a
posture designed to assure adequate expansion in monetary and
credit aggregates and an easing in over-all credit conditions. From
December 1969 to December 1970, the money stock grew at an annual rate of 5.4 per cent and bank credit (adjusted for loan sales to
affiliates) at a rate of 7.4 per cent, up 2.3 and 3.4 percentage points,
respectively, from the year before. Except for a brief period in the
second quarter, short-term interest rates declined sharply during
1970. On the other hand, long-term interest rates did not show significant net declines until the latter part of the year, because credit
demands in bond markets remained strong and it took time for the
inflationary expectations of investors and borrowers to begin abating.
Once the decline in long-term rates got under way, however, it proceeded with a speed unprecedented in recent financial history.
DEMANDS FOR GOODS AND SERVICES
The weakening of demands in 1970 was reflected in production cutbacks in many industries. Output of goods and services (GNP) rose
about 5 per cent from 1969 to 1970 in terms of current dollars. But
all of the increase reflected a rise in the average level of prices, and
in constant dollars GNP declined slightly. In goods-producing sectors, output dropped by 3 per cent from 1969 to 1970. The declines
in industrial production were concentrated in defense products, off
19 per cent; in consumer durable goods, down 7 per cent; and in
business equipment, off 4 per cent.
The weakness in the economy was exacerbated by the extended
strike at a major automobile manufacturer, which lasted from September 14 to November 23. This strike contributed to the greater
than 3 per cent decline (annual rate) in real economic activity in the
fourth quarter. Apart from the effects of this strike, real GNP would
probably have shown a further small increase in the last quarter of

1. CHANGE IN GNP

CONSTANT
DOLLARS „

1968

1969

1970

Dept. of Commerce data. Quarterly totals are at seasonally adjusted annual rates.

the year. Real GNP had shown small increases in the second and
third quarters, following a decline of almost 3 per cent at an annual
rate in the first quarter as businesses cut back substantially on their
inventory investment.
Inventory policies of business were not a significant drag on the
economy after the first quarter, however. Following the first-quarter
decline in the rate of such investment, and a similar drop in the
fourth quarter of 1969, inventory accumulation picked up somewhat,
although the rate was still lower than at any other time since 1961.
Altogether, the over-all adjustment of inventories was mild.
In the first half of 1970 consumer spending was bolstered by additions to disposable income resulting from a Federal pay raise, increases in social security benefits, and the first-stage reduction in the
income tax surcharge. Nevertheless, the increase in such spending
did not keep pace with the rise in income—as consumers resisted
high and rising prices and as uncertain economic prospects also appeared to contribute to an increase in the propensity to save. The
personal saving rate rose to 7.5 per cent by spring and changed little
from this advanced rate in the second half of the year.
Growth in consumption outlays slowed further in the second half
of the year, reflecting a much reduced increase in disposable personal

income—despite elimination of the surtax at midyear—as employment showed only minor gains and the workweek was cut further in
the third quarter. The smaller increase in spending resulted mainly
from an actual drop in outlays on consumer durable goods. This
drop became evident in the third quarter prior to the strike in the
auto industry, and it was accentuated in the fourth quarter when expenditures for autos were cut sharply. Strike effects also contributed
to a reduced rise in disposable personal income in the second half of
the year, especially in the fourth quarter when such income grew at
less than one-half of the third-quarter pace and at about one-fourth
of the average rate for the first half.
In the business sector the principal development in 1970 was the
ending of the long fixed investment boom, which had persisted with
only minor interruptions since the early 1960's. Business spending on
new fixed capital rose by only about 3 per cent from 1969 to 1970
TABLE 1: GROSS NATIONAL PRODUCT
Change from preceding period, in billions of dollars
1970
Item

1968

1969

1970
III

Gross national product

71.1

66.4

45.1

7.8

11.6

14.4

4.4

Personal consumption expenditures
Durable goods
Nondurable goods
Services

43.7
10.9
15.2
17.6

41.7
6.0
15.6
20.0

39.2
-.6
18.9
21.0

10.5
-1.7
6.8
5.4

11.3
2.8
3.8
4.7

7.7
-.7
3.2
5.2

4.9
-5.9
5.7
5.1
7.4

Addendum: Saving rate {per
cent)

6.8

6.0

7.3

6.7

7.5

7.6

Fixed investment
Residential structures
Nonresidential

10.5
5.2
5.4

12.5

-1.4

-.4
-.7
.2

1.5

10.6

.9
-2.3
3.3

Inventory change

-.6

Net exports of goods and services. - 2 . 7
4.4
Exports
Imports
7.1
Govt. purchases of goods and
services
Federal
Defense
Other
State and local

20.1
8.8
5.6
3.1
11.3

1.7

-1.3

3.0
-2.3

-5.0

-5.6

1.5

2.4

-.6
4.9
5.5

1.7
6.7
5.0

.9
2.3
1.4

.6
1.7
1.1

.1
.0
-.1

-1.6
-.8
.7

12.0
1.8

8.3
-1.6
-2.2
.5
10.1

3.3
.2
.5
-.3
3.2

-1.2
-2.6
-2.5

2.6
-1.1
-1.0
.0
3.7

2.2
-.4
-1.2
.6
2.6

1.1
10.1

l.*3

in current-dollar terms and actually declined after allowing for price
increases.
The leveling off of expenditures for plant and equipment appeared
to be in large part the product of developments cumulating over a
long period. The sharp expansion in plant and equipment outlays in
the second half of the 1960's ultimately gave rise to a drop in the
rate of plant capacity utilization in manufacturing, which by the end
of 1969 had declined to 83.7 per cent. In 1970, as defense production was reduced and consumer propensities to spend declined, capacity utilization rates dropped further—to 72 per cent by the end of
the year. With wage costs and the costs of external funds rising
sharply, business profits too came under pressure, and investment incentives were reduced. The weakening of investment incentives, however, was counterbalanced in part by the sharp drop in the cost of
capital—as represented by long-term interest rates—in late 1970 and
early 1971.
Other types of capital outlays were particularly responsive to
emerging tightness or ease in credit markets. Residential construction
expenditures, which had begun to decline in the second half of 1969,
continued to drop in the first half of 1970 in lagged response to the
reduced availability and higher cost of funds from private lenders.
The decline from mid-1969 to mid-1970 was less sharp than that
during the 1966-67 period of mortgage market tightness, however.
The fact that it was smaller reflected in part the expansion of Federal
support programs to provide more insulation of the housing market
from the effects of monetary tightness and in part a response to nonmonetary factors that sustained the demand for homes.
With the turn toward monetary ease in early 1970, availability of
funds in the mortgage market began to improve. The ensuing decline
in short-term market interest rates was accompanied by a sharp increase in the net inflow of funds to savings institutions as the public
diverted savings from market instruments to interest-bearing deposits.
Although mortgage interest rates showed little net decline until late
in the year, when they began to drop significantly, the increased
availability of funds led to a rise in housing starts from a seasonally
adjusted annual rate of 1.25 million units in the first quarter to an
average of 1.75 million units in the fourth quarter. And outlays for

residential construction turned up in the second half of the year. The
dollar rise in the fourth quarter was the largest in 3 years.
Purchases of State and local governments rose by only about the
same amount from 1969 to 1970 as they had the year before, despite a 20 per cent increase in Federal grants-in-aid from 1969 to
1970. Normally, increases in such purchases have tended to accelerate from year to year as the demand for public facilities and services
has expanded. But spending was held back in 1970 as a result of the
financing difficulties that many governments encountered in late 1969
and early 1970. Debt issues were difficult to place in view of the
tight position of commercial banks, which are principal buyers of
such issues; and in some cases governments were unable to issue
bonds because of restrictive interest rate ceilings imposed by State
regulations or public referenda. As 1970 progressed, however, the
easing in the availability of funds at banks helped to facilitate marketing of a larger volume of issues. Since there is a substantial lag
between financing and actual spending, State and local government
capital outlays by year-end had not yet risen appreciably.
FEDERAL BUDGET
Demands by the Federal Government for goods and services moderated in 1970. In fact, the total of such purchases, as measured in the
national income accounts, declined for the first time in 10 years. The
$2 billion year-over-year decline in defense spending reflected substantial reductions in real terms, including a reduction of 318,000
in the size of the Armed Forces and sizable cutbacks in orders and
deliveries of defense products. The budgetary reductions in defense
spending occurred despite a sizable increase in U.S. Government
compensation for military and civilian employees. Increases in purchases of nondefense goods and services were minor. On the other
hand, Federal expenditures other than purchases rose by about $16.5
billion from 1969 to 1970, a record increase. In addition to the
larger grants-in-aid to State and local governments already noted, social security payments rose—a 15 per cent increase in benefits was
enacted in April retroactive to the first of the year—and medicare
programs and unemployment compensation also entailed larger disbursements.

Total Federal receipts, as measured in the national income accounts, dropped by about $5 billion in 1970, reflecting principally
the effects of the elimination of the 10 per cent tax surcharge. In addition, however, growth in taxable income of businesses and consumers was considerably below normal.
With receipts dropping and total expenditures continuing to rise,
the Federal sector of the national income accounts showed a deficit
of $11 billion in 1970, following a $9 billion surplus in 1969. The
unified budget also shifted into sizable deficit during the year, and
the Federal Government once again became a large net borrower in
credit markets.
The extent of the swing from budgetary surplus in 1969 to deficit
in 1970 was, as noted above, strongly influenced by the sluggish
pace of economic activity. To that extent it was not reflective of a
more active fiscal policy. But in addition, certain discretionary
changes—such as the reduction in tax rates—were undertaken that
moved fiscal policy in a somewhat more expansive direction.
TABLE 2: FEDERAL GOVERNMENT RECEIPTS AND EXPENDITURES
In billions of dollars
Calendar year

1970

Item
1968

1969

1970

Federal Sector NIA basis
(Annual totals, or quarterly totals
at seasonally adjusted annual rates)
Receipts
Expenditures
Purchases of goods and services
Other
Surplus or deficit

175.4
181.6
99.5
82.1
-6.2

200. 6 ^195. 2
191. 3 ^206. 3
101. 3
v 99.7
90.0 ^106. 6
9.3 P - 1 1 . 1

195. 9
197. 7
102. 3
95.4
-1. 7

196 .7
210 .9
99 .7
111 .2
-14 .2

194.9 •193.3
206.7 ^209.9
^98.2
98.6
108.1 P i l l . 7
-11.8 e-16.6

Unified budget
(Annual totals, or quarterly totals not seasonally adjusted)
Receipts
Outlays
Budget surplus, or deficit
Net cash borrowing
e
v

169.4
185.5
-16.1
15.3

195 .7
190 .3
5.4
-2 .6

190. 5
201. 9
-11. 4

44.4
47.8
-3.5

11.8

2.0

58.6
49.8
8.7
-6. 4

46.5
54.3
-7. 8
7.4

41.1
49.9
-8.9
8.9

Estimate.
Preliminary.
NOTE.—The Federal sector in the national income accounts measures Federal receipts and expenditures as they directly affect private incomes in the national accounts. Thus it excludes all Federal lending, which affects private debt but not incomes. Also the timing in some transactions is on an accrual
basis; in others, on a delivery basis. Generally speaking, the unified budget includes lending by federally
owned agencies (but not that of federally sponsored corporations), and it records Federal transactions
on a cash basis.

A measure of the extent of the change in fiscal policy is provided
by the "full employment" budget. There are a number of different
ways of measuring expenditures and receipts under the full employment concept, but all show a decline in the full employment surplus
from 1969 to 1970. According to the measure calculated by the
Council of Economic Advisers, the drop in the full employment surplus was about $5 billion, but there was still a moderate surplus for
the calendar year 1970.
RESOURCE UTILIZATION AND PRICES
The weakening of aggregate demands for goods and services in 1970
was reflected, in turn, in reduced demands for labor. While reflecting
in part the effects of the auto strike, total civilian employment
showed practically no net change from the fourth quarter of 1969 to
the fourth quarter of 1970. Although growth was considerably less
than in 1969, the total labor force continued to expand substantially.
Growth in the civilian labor force was further raised by the reduction
in the size of the Armed Forces. The rate of unemployment rose
from an average of 3.6 per cent in the fourth quarter of 1969 to 5.9
per cent in the last quarter of 1970. For the year as a whole, it averaged 4.9 per cent.
In manufacturing industries, employment by the end of 1970 was
down sharply—by about 1.3 million workers—from a year earlier.
During the year employment demands diminished over a broad spectrum of manufacturing, including both defense activities and civilian
industries. Layoffs affected production workers for the most part.

2. UNEMPLOYMENT RATE

1968

1969

1970

Bureau of Labor Statistics data.

However, in view of the pressures on profit margins, businesses were
very sensitive to the need for reducing costs, and as a result employment of nonproduction workers too was cut substantially, especially
in the defense-products industry.
TABLE 3 : LABOR MARKET INDICATORS

Item

Change (in thousands of persons)
during year ending Q4:
1968

1969

1970

Total labor force
Armed Forces

1,031
73

2,339
-53

1,331
-444

Civilian labor force
Employed . . . .
Unemployed

958
1,312
-353

2,392
2,167
224

1,774
-1
1,775

Nonfarm employment (based on
payroll data):
Manufacturing
Production workers
Other
Private nonmanufacturing. . . .
Government
Federal
State and local

439
315
124
1,440
425
-23
448

184
55
129
1,502
341
5
336

-1,455
-1,265
-190
364
453
-66
518

Despite a weakening in demand for labor, upward wage pressures
continued strong, reflecting both the large number of union wage
contracts that came up for renewal and the attempts of both union
and nonunion workers to make up for previous—or to anticipate future—cost-of-living increases. Compensation per manhour in the private nonfarm sector of the economy increased by about 7 per cent
on the average in 1970, very little different from the increase in
1969, even though there was a reduction in overtime work.
In spite of the sizable further rise in compensation in 1970, unit
labor costs in the private nonfarm economy rose less than in 1969.
Output per manhour, after failing to show any improvement since
the first quarter of 1969, began to rise in the second quarter of
1970; the rise appears to have been interrupted in the fourth quarter, but this was apparently the result of a sharp drop in production
related to the auto strike. The moderate rebound in productivity and
the slowing of growth in unit labor costs tended to ease, to some degree, the pressures on profits resulting from the slackness in demands

for industrial output and for services; still, the general pressures on
profit margins caused businesses to raise prices further.
Progress toward containing the rate of inflation was slow. The rate
of increase in wholesale prices of industrial commodities diminished
somewhat, from an average annual rate of 3.8 per cent in the first
half of the year to 3.4 per cent in the second half. However, prices of
finished goods rose sharply in the fourth quarter in reflection of upward adjustments in passenger car prices. But nonfood crude materials, excluding fuels, declined in price during the last three quarters
of the year. The consumer price index rose somewhat more moderately in the second half of the year than it had in the first half,
largely as a result of an increase in food supplies, mainly meat.
Although the increase in average consumer prices moderated somewhat, there were a number of areas—such as construction costs—
in which price increases, reflecting the upward momentum gathered
over the past several years, continued to be very strong. Nevertheless,
as measured by the private GNP implicit deflator, the rate of price
increase over-all seems to have leveled off during the year, if rough
allowance is made for the technical effects of the auto strike on the
composition of fourth-quarter output and hence on the computation
of the deflator.
TABLE 4 : PRICE CHANGES
In per cent
Year

1970 annual rate*

Category

Wholesale prices, total
Industrial commodities
Crude materials 2
Finished goods
Farm products, processed
foods, and feeds

1967

1968

1969

1970

DecMar.

Mar.June

JuneSept.

Sept.Dec.

.9
1.9
1.0
2.4

2.8
2.6
-1.3
2.4

4.7
3.9
7.3
3.4

2.3
3.6
-1.2
4.3

4.0
3.1
9.5
2.8

1.1
4.5
-2.6
2.8

3.9
2.9
-7.3
2.8

.4
3.8
-3.8
8.8

-1.8

3.5

7.3

-1.2

6.8

-9.9

8.9

-9.2

Consumer prices, total
Food
Other commodities (less food).
Services

3.0
1.2
3.2
3.9

4.7
4.3
3.7
6.1

6.1
7.2
4.4
7.4

5.5
2.2
4.8
8.2

6.3
5.4
2.9
11.2

5.8
1.3
6.4
7.3

4.2
1.4
3.7
7.2

5.7
.9
6.4
7.0

GNP, private implicit deflator. .

3.0

3.8

4.7

5.0

5.3

4.1

4.7

5.8

1
2

Compounded.
Excludes foods, feeds, and fuels.
NOTE.—All data are seasonally adjusted except for crude materials and finished goods in wholesale
prices and services in consumer prices. Annual changes calculated December to December, except for
deflator for which quarterly data are used throughout.

BALANCE OF PAYMENTS
There were divergent trends in the current and capital accounts of
the U.S. balance of payments during 1970. In the first half of the
year the trade balance strengthened considerably, under the influence
of lessened demand pressures here and a high level of activity in
most industrial countries. However, the trade surplus declined after
midyear as imports rose further despite the growing slack in the U.S.
economy, while exports fell off somewhat in response to an easing of
the rate of expansion abroad. On the other hand, net outflows of
long-term capital were very large in the first half, as U.S. direct
investors placed large amounts abroad while foreign investors were
net sellers of U.S. corporate stocks. Foreign purchases of equity securities were resumed on a substantial scale in June, and the outflow
of funds from U.S. corporations for direct investment abroad appeared to be much less in the second half of the year.
In total, the liquidity measure of the U.S. balance of payments
showed a small improvement in 1970—registering a deficit of about
$5 billion, or $1 billion less than in 1969 (balances adjusted to exclude special transactions and, in 1970, the allocation of SDR's).
Gains in the liquidity balance reflected primarily an improvement in
TABLE 5: U.S. INTERNATIONAL TRANSACTIONS
In billions of dollars, seasonally adjusted
1970
Item

1969

Goods and services, net
Exports
Imports
Trade balance
Services, net
All other transactions
corresponding
liquidity basis l

1970*

Official settlements balance adjusted 1 , 2 . . .

IV «

1.1
10.7
-9.9

1.0
10.7
-10.0
,7
.3

.7
10.4
-10.3

- 1 .5

1.9
36.5
-35.8
.6
1 .3

3.6
42.0
-39.8
2.2
1.4

10.2
-9.7
.5
.3

-7.9

-8.5

-2.1

-3.2

- 1.7

-6.0

-4.9

-1.3

-2.1

-.7

9.2
-.5

-6.5
.3

-1.9

2.8

-11.0

-3.2

' Estimated.
Excludes special transactions.
Excludes SDR allocation.
Includes international organizations.
NOTE.—Details may not add to totals because of rounding.
SOURCK.—Survey of Current Business and Federal Reserve estimates.

III

Liquidity balance adjusted 1 , 2
Liquid liabilities to:
Foreign commercial banks
Other private foreigners3

1
2
3

-.1
.1
-2.1

-1.4
-.1

- 3 . 1

-2.1

-3.6

the trade balance from a slim $0.6 billion surplus in 1969 to a surplus of about $2.2 billion in 1970, plus somewhat larger net receipts
of investment income.
A major feature of the U.S. accounts in 1970 was a net reduction
of more than $6 billion in liabilities of U.S. banks to foreign commercial banks through their branches. These borrowings had been
built up mainly in 1969 when monetary restraint and the low level
of Regulation Q ceiling rates relative to domestic market rates had
limited the growth of bank liabilities to domestic holders. As funds
borrowed from abroad were returned to the Euro-dollar market, the
dollar holdings of foreign monetary authorities grew rapidly. Consequently, the balance on the official reserve transactions basis (excluding special transactions and the allocation of SDR's) registered a
deficit of $11 billion, reversing the $2.8 billion surplus of 1969.
INSTRUMENTS OF MONETARY POLICY
During 1970, as usual, the Federal Reserve relied mainly on open
market operations in encouraging growth in the monetary aggregates
and easier credit market conditions. But it also used other monetary
policy instruments as the stance of policy was adapted during the
year to emerging sectoral, liquidity, and balance of payments problems.
Early in the year the Board of Governors announced an acrossthe-board increase in the maximum interest rates payable by member
banks on time and savings deposits. The realignment was part of a
coordinated move on the part of the Board, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board that
involved general increases in ceiling rates on deposits at both banks
and nonbank thrift institutions. In addition to an upward scaling
of ceilings by maturity on both large time CD's and—for the first
time—consumer-type time certificates, maximum rates payable on
savings deposits at commercial banks were raised for the first time in
several years. This latter change reflected efforts to introduce greater
equity into rates payable for smaller savings balances.
More broadly, these actions were designed to bring rates payable
by banks and other savings institutions for deposits more into line
with rates prevailing at the time on competing market securities. It
was expected that the realignment of deposit rates with market rates

would help to generate the deposit funds needed to finance a moderate pick-up in the growth of credit flows through financial institutions.
In May and June, Federal Reserve authorities took several actions
to assure that the System would fulfill effectively the oldest and most
traditional central banking function—that of serving as lender of
last resort and of alleviating liquidity squeezes. In that period U.S.
money and capital markets were experiencing unusual strains.
Among the causes of these tensions were heavy corporate demands
for long-term credit, expectations of a large volume of borrowing by
the U.S. Treasury in the latter half of the year, concern that some
prominent firms were financially over-extended and might not be
able to refinance their short-term obligations, a sharp drop in stock
market prices, and unsettlement arising from the unexpected U.S. involvement in Cambodia. While anxieties in financial circles that a
general liquidity squeeze was emerging proved to be clearly exaggerated, it is true nonetheless that their net effect was to cause a sharp
increase in over-all demand for liquidity. In view of these market
uncertainties and liquidity strains, open market policy gave first priority in this period to moderating pressures on financial markets.
And in May the Board of Governors reduced margin requirements
on equities from 80 to 65 per cent, and on convertible bonds from
60 to 50 per cent.
In recognition that pressures might pyramid in the commercial
paper market after a major railroad filed for reorganization in midJune, the authorities supplemented their efforts to ameliorate market
strains through open market policy with other policy measures. It
was made clear that the Federal Reserve discount window would be
available to assist banks in meeting the needs of businesses unable
to roll over their maturing commercial paper. Also the Board of
Governors moved promptly to suspend maximum rate ceilings on
large-denomination CD's with maturities of 30 to 89 days.
This action enabled banks to obtain funds that investors had become reluctant to place in other markets and to rechannel these
funds to borrowers previously dependent on the issuance of commercial paper. Aided by these Board actions, banks responded effectively to the midyear shifts in demands for funds, and the widespread
concern that a lessening of investor participation in the commercial
paper market might trigger a series of business bankruptcies subsided.

In mid-August, after conditions in the commercial paper market
had calmed, the Board announced the application of a 5 per cent reserve requirement against funds obtained by member banks through
the issuance of commercial paper by their affiliates. This action was
designed to put bank-related commercial paper, which is typically issued in denominations of $100,000 or more, on a substantially equal
footing—in terms of reserve requirements—with large negotiable
time CD's. A somewhat similar proposal, with a higher reserve requirement, had been published for comment in January, but given
the interim course of economic and financial developments, circumstances were not appropriate for its adoption.
The extension of reserve requirements to bank-related commercial
paper was accompanied by a reduction from 6 to 5 per cent in the
reserves that member banks must hold against time deposits in excess of $5 million. These two actions, in combination, resulted in a
net reduction in required reserves of about $400 million for the
banking system as a whole. Most of the reduction in reserves affected banks that might be expected to be relatively active lenders in
markets for mortgages and State and local government securities.
An additional reserve requirement action, announced at the end of
November, was designed to have an effect on the balance of payments. In the closing months of the year further declines in U.S.
short-term interest rates were sharply increasing the relative costs for
major U.S. banks of borrowing Euro-dollars in lieu of domestic
short-term funds. This widening of rate spreads threatened to cause
large U.S. bank repayments of Euro-dollar borrowings, and a consequent deepening of the very large official settlements deficit in the
U.S. balance of payments.
Therefore, to temper Euro-dollar reflows, the Board of Governors amended Regulations D and M to increase—from 10 to 20
per cent—the reserve ratio required on Euro-dollar borrowings exceeding the average level that is reserve-free. This reserve-free base
declines as the average level of Euro-dollar borrowings is reduced
below a line established for the individual bank. The doubling of the
reserve ratio was expected to moderate further outflows of bank-held
Euro-dollars by enhancing the prospective value of existing reservefree bases.
After April 1969 market interest rates had moved well above the
discount rate, but by October 1970 declines in such rates had again

brought the discount rate about in line with the market. When
short-term market rates then dropped below the discount rate during
November, the Federal Reserve lowered the discount rate to bring it
into closer alignment with market rates. Effective November 11 and
December 1, the rate was reduced from 6 to 5Vi per cent. These
were the first changes in the discount rate since April 1969, and the
first cuts since a VA percentage point reduction in mid-August 1968,
and before that a V2 percentage point reduction in early April 1967.
Two further reductions of lA percentage point in the discount rate
were made in early 1971, as short-term market rates dropped further, and at the end of January 1971 the discount rate was 5 per
cent.
MONETARY AGGREGATES
In the latter half of 1969 growth of the narrowly defined money
stock had slowed to a virtual halt, and bank credit—as measured by
the adjusted bank credit proxy—had contracted slightly. In moving
from a restrictive to a more expansionary monetary policy in early
1970, the Federal Open Market Committee sought to achieve moderate growth in money and bank credit. To implement its policy of
encouraging more rapid growth in such aggregates, the Committee
placed somewhat greater emphasis on the monetary aggregates in the
operating instructions given to the System Account Manager for
guidance in the day-to-day conduct of open market operations. The
Committee did not decide to pursue fixed target rates of growth of
the monetary aggregates in any exclusive sense, however, and it continued to adjust its stance as required to meet other policy objectives—for example, the need already noted to cope temporarily with
liquidity strains and undue pressures in security markets.
Reflecting the diversity of operating targets, the large variations
often found in month-to-month deposit data, and what seemed to be
temporary but sharp shifts in the public's willingness to hold cash,
the growth rate of the narrowly defined money stock in 1970 sometimes fluctuated fairly widely. Over the year as a whole, however, the
money stock expanded by 5.4 per cent. During each of the first three
quarters of the year the annual rate of growth averaged close to 6 per
cent. Although the growth rate then dropped to about 2 per cent on
the average in October and November, when demands for money

TABLE 6: CHANGES IN SELECTED MONETARY AGGREGATES
1969
Item

1968

1969

1970
1st H

1970

2nd H

lstH

2ndH

In per cent; quarterly figures, at seasonally adjusted annual rates
Total reserves
Concepts of money:
M i (Currency plus demand
deposits i)
M2 (M 1 plus time deposits at
commercial banks other
than large time CD's)
M 3 (M 2 plus deposits at nonbank thrift institutions)....
Bank credit:
Bank credit proxy adjusted 2 . .
Loans and investments
of
commercial banks 3

7.8

-1.6

6.4

-3.9

-.2

13.0

7.8

3.1

5.4

5.1

1.2

5.9

4.8

9.4

2.4

8.2

5.1

-.4

5.9

10.2

8.4

2.8

7.9

5.1

5.3

10.2

9.8

8.3

1.6

-1.2

3.5

12.9

11.0

4.0

7.4

5.1

2.9

4.5

10.1

In billions of dollars
Memo items on short-term
market p ap er:
Large time CD's at banks . . . .
Euro-dollar borrowings
Bank-related commercial paper and other nondeposit
sources

2.9
2.6

-12.8
6.8

14.8
-6.0

-8.2
4.8

-4.6
2.0

2.0
-1.9

12.8
-4.1

«5.9

-2.4

«2.8

3.1

2.6

-5.0

« Estimated.
1
Currency held outside the Treasury, F. R. Banks, and the vaults of all commercial banks, plus
demand
deposits other than interbank and U.S. Government.
2
Total member bank deposits subject to reserve requirements, plus Euro-dollar borrowings, bankrelated commercial paper, and certain other nondeposit items. This series for deposits is referred to as
"the
adjusted bank credit proxy."
3
Based on month-end figures. Includes loans sold outright to affiliates and branches.

were temporarily affected by the dampening effect of the auto strike
on economic activity, in December it again moved up to 6.2 per
cent.
Broader measures of the money stock—which encompass various
types of time and savings deposits as well as private demand deposits
and currency, such as the M2 and M 3 concepts listed in the accompanying table—showed substantially more rapid growth in 1970 than
Mi (narrowly defined money stock). Moreover, the growth in these
aggregates accelerated in the second half of 1970. As already noted,
the stage had been set for expansion in these other measures when
ceiling rates of interest were increased in January for time and savings deposits at all types of thrift institutions.
As market interest rates moved down toward, and below, these

higher ceilings, savings inflows accelerated at both bank and nonbank thrift institutions. Although this pick-up began as early as February, the inflow gained momentum during the second quarter and
was most pronounced after midyear. The late June suspension of
ceiling rates on large short-maturity bank CD's triggered an abrupt
increase in such instruments during the third quarter. And for the
year as a whole the total growth in CD's more than offset the sharp
contraction that had occurred in 1969.
The expansion was not limited to CD's, however. Consumer-type
time and savings accounts at banks grew nearly as much as CD's in
the third quarter, and for the year as a whole their expansion was
substantially larger than that of CD's. A somewhat similar growth
pattern was evident at savings and loan associations and, with some
lag, at savings banks as well. Apparently consumers were encouraged
to add to liquidity in these forms by several factors: the dramatic
improvement of yields on such accounts relative to market rates; a
desire to maintain their financial asset holdings in risk-free form; and
a more conservative attitude on their part toward spending, as overtime hours of work dropped and unemployment widened.
To a considerable extent the rapid growth of large CD's indicated
that banks were using this less costly and more convenient means of
obtaining funds instead of borrowing through the Euro-dollar market
or issuing bank-related commercial paper. After the Board announced the extension of reserve requirements to bank-related commercial paper, the volume of such paper outstanding declined by
$5.2 billion through December. And over the full year, as domestic
markets for short-term funds became relatively more attractive, major
banks reduced their Euro-dollar borrowing by more than $6 billion.
Nevertheless, when bank funds from these sources are added to deposits, as in the adjusted bank credit proxy, the growth in this comprehensive measure was still sizable—more than 8 per cent for the
year, as compared with less than one-half of 1 per cent for 1969.
Moreover, growth in bank credit—like that in the broader measures
of money and liquidity—accelerated in the second half of 1970.
The total reserves that support aggregate member bank deposits
grew by 6.4 per cent in 1970; expansion was especially rapid in the
second half of the year. Nonborrowed reserves provided to banks
through open market operations rose more rapidly than the total, as
member banks reduced their borrowings at Federal Reserve Bank

discount windows from around $1 billion early in 1970 to a range of
$200 million to $300 million at the year-end. Over the same period
net borrowed reserves (excess reserves less borrowings) dropped
from around $800 million to virtually zero, with excess reserves rising modestly over the year as short-term interest rates—representing
the cost of holding excess reserves—declined sharply.
Part of the rapid expansion in bank credit in 1970 represented a
channeling of funds through the banking system, whereas in 1969
funds had been going directly into market securities. Perhaps the
most dramatic illustration of this rechanneling process occurred during the squeeze on the commercial paper market in late June and
July when outstanding nonbank commercial paper declined by more
than $2 billion in the course of a few weeks, while bank CD's and
loans to businesses and to finance companies showed a marked expansion.
Although movement of funds back into banks and into nonbank
savings institutions was an important aspect of credit flows in 1970,
there was also an increase in the over-all availability of credit and in
the actual amount of funds raised, as both institutions and direct
market participants became more willing lenders. Total funds raised
by nonfinancial sectors rose by about $14 billion (annual rate)—or
16 per cent—from the second half of 1969 to the second half of 1970,
TABLE 7: F U N D S RAISED BY NONFINANCIAL SECTORS
In billions of dollars; half-year figures, at seasonally adjusted annual rates
1969
Sector

1968

1969

1970

1st H

2nd H

1st H

2nd H
101.5

Total

97.4

88.2

96.1

88.8

87.8

89.1

U S. Government

13.4

-3.6

11.9

-9.3

2.0

8.7

13.6

Total, other nonfinan. sectors 1 ..
State and local govt. issues

84.1
10.2

91.9
8.9

84.2
12.6

98.1
10.0

85.8
6.9

80.4
10.1

87.9
15.1

Nonfinancial corporate business:
Bonds and stocks
Mortgages
Commercial paper
Bank loans

12.1
5.8
1.6
9 6

16.4
4.3
2.7
10 9

27.9
5.0
2.8

14.8
4.6
3.8
13 4

17.9
4.0
1.5
8 3

24.6
4.5
3.1
3 9

31.2
5.5
2.4
—3 9

Consumers:
Consumer instalment debt. . . .
Mortgages
.
.
. . .

9.0
16.0

8.3
17.4

3.0
13.0

8.9
18.0

7.9
16.7

4.3
13.5

1.7
14.6

1
Includes borrowing other than the types shown below.
NOTE.—Flow of funds data.

over a period when interest rates were showing substantial declines.
The increase in funds raised reflected larger borrowings by the U.S.
Government, while funds raised by other sectors were little changed
between the two periods.
INTEREST RATES AND CREDIT FLOWS
Declines in U.S. short-term market rates of interest in 1970 were the
most dramatic in absolute terms for any year in the postwar period.
The reductions ranged from about 3 to 4 percentage points, or from
about one-third to nearly one-half of their levels prevailing in December 1969. Declines in long-term market rates, while also large,
ranged only from about one-tenth to nearly one-fourth of their December 1969 levels, although this amounted to 1 to IVi percentage
points in yield. As a result of their much wider swing, short-term
rates generally moved from a position of historically wide spreads
above, to one of wide spreads below, long-term rates.
TABLE 8: CHANGES IN SELECTED INTEREST RATES,

1970

In basis points
Total,
Dec'69

Dec'69

Dec.'70

Mar.'70

spring
high

Short-term:
Federal funds
Treasury bills
Commercial paper
Euro-dollars.

-407
-295
-311
-384

-121
-119
i -78
-221

Long-term:
Corporate Aaa
U.S. Govt
State and local govt

-95

-126
-136

-15
-58
-79

Series

Mar.'7O

Oct.'70
to
Dec.'7O

+ 34

-130

+20

-104

i +23
+ 51

-112
-69

+ 51
+ 84

-83
-94
-93

+97

1
Periods used are December to April and April to the spring high,
since changes in this series lagged behind the changes in other shortterm rates.
NOTE.—Changes are calculated from monthly averages. Treasury
bills, 3-month market yield; commercial paper, 4-6 months; Eurodollars, 3-month; corporate Aaa, new issues, FRB series; U.S.
Govt., 10-year constant maturity; State and local govt., from the
Bond Buyer.

The pattern of change within the year was also somewhat different
for short- as compared with long-term rates, although rate declines
in both maturity sectors during the first quarter were generally typical of what might be expected at a cyclical downturn in rates. In the

second quarter, even though interest rates rose in both short- and
long-term markets, the size of the increase was much larger in longterm markets, where yields rose to new highs. By midsummer shortterm rates had generally dropped through the lows reached in the
first quarter, while long-term rates had declined considerably less. Indeed, most of the total decline in long-term market rates in 1970 occurred during the last 2 months of the year. In early 1971 both
short- and long-term rates declined considerably further.
This varied pattern of interest rate behavior in 1970 reflected the
interaction of shifting market expectations and actual credit flows.
During the first quarter, for example, as it became evident that real
GNP was declining and the Federal Reserve was promoting some
easing in credit market conditions, financial market sentiment
strengthened dramatically, particularly after banks lowered their
prime rate by Vi percentage point. But as often happens in financial
markets, evidence that emerged in the second quarter did not seem
to support the expectations that had helped to bring about the firstquarter rate declines. News concerning the economy seemed to indicate that the downturn in real GNP was about over. With progress
in controlling inflation also disappointing and the Cambodian incursion creating general unsettlement, question was raised whether further easing of monetary policy could be expected.
As short-term market rates rose, banks' access to funds through
CD's was again curtailed. In these circumstances the heavy forward
calendar of corporate and municipal borrowing, the large prospective
volume of U.S. deficit financing in the second half of the year, and
the growing concern that some major firms were financially overextended, all contributed to an abrupt weakening of market psychology. In the face of this sharply changed outlook, borrowers actually
coming to market had to pay substantially higher rates.
Accompanying the strains in security markets in the second quarter, depositary institutions generally experienced a noticeable improvement of deposit flows as consumers placed a greater premium
on risk-free financial assets. These flows permitted the commercial
banking system to add significantly to liquid asset positions. After
midyear, with the suspension of rate ceilings on short-maturity time
CD's and the relaxation of tensions in the commercial paper market,

3. SHORT- AND LONG-TERM INTEREST RATES

1968

1969

1970

1968

1969

1970

market interest rates turned down again, and deposit flows to banks
became much larger, as noted earlier. In addition to financing the
large volume of business and finance company borrowing transferred
from the commercial paper market to the banks, these enlarged deposit flows permitted a substantial further expansion in bank holdings of U.S. Government and of State and local government securities. In this way the heavy increases in borrowing by these two levels
of government during the second half of 1970 were financed at
generally declining rates.
During the summer months—perhaps because of the large amount
of refinancing by borrowers who were transferring out of the commercial paper market—banks generally presumed that underlying de-

mands for business loans were still strong. Hence, there was no significant relaxation of loan terms, even though bank liquidity
increased greatly. But by mid-September, when corporate tax payments became due, it became apparent that business borrowing at
banks had dropped off sharply, and shortly after that, banks cut the
prime rate by another Vi percentage point to IV2 per cent. Nevertheless, there was still considerable uncertainty about the underlying
strength of business loan demand, for the trend in such lending was
being obscured by the effects of the auto strike and also by the large
repayments of loans arising from the heavy volume of corporate
financing then under way in capital markets. In the expectation that
these two temporary drags on loan growth would soon end, bankers
tended to hold off on further reductions in the prime rate.
In November and December, however, with no sign of any significant pick-up in demand for loans and with plenty of liquidity, banks
reduced the prime rate further, in a series of lA percentage point
changes, from IV2 to 63A per cent by the year-end. The Federal
Reserve discount rate was also reduced in this period. And there
were further general declines in both short- and long-term market
rates, even though the volume of new corporate and municipal bond
offerings remained very large. Moreover, earlier accumulations of
savings flows, liquidity, and commitments at nonbank thrift institutions were finally reflected in widespread reductions in interest rates
on mortgages—including a cut, from 8V2 per cent to 8 per cent, in
the ceiling rate on federally underwritten mortgages.
These declines continued into 1971. The bank prime rate was cut
successively from 63A to 6 per cent; the Federal Reserve discount
rate was reduced further in two steps from 5Vi to 5 per cent; and
the FHA-VA mortgage rate ceiling was reduced in mid-January from
8 to IV2 per cent.
•

JVages, Productivity,
and Prices
In view of the sluggishness of the economy, the main thrust of monetary policy during 1970 was directed toward achieving financial conditions that would stimulate demands for goods and services. At the
same time, however, persisting inflationary pressures, generated
mainly from the cost side, remained a very serious problem for the
economy and a threat to the efficiency of its future performance.
Thus, the interrelationships among wages, productivity, and prices
that appear to be developing are critical factors in appraising the
progress being made toward setting the stage for sustainable, noninflationary economic growth.
In the latter half of the 1960's, excess demand persisted for an exceptionally long period, with the unemployment rate dropping and
remaining below 4 per cent. Strong demands for goods and services
exerted upward pressures on prices, and the associated competition
for labor resulted in sizable wage increases, which on the average exceeded gains in productivity. Price and wage increases became mutually reinforcing in an upward spiral.
During the latter half of 1969 and early 1970, the demand-pull
component of the inflationary spiral was broken. Total real output of
goods and services rose only moderately in 1969, and indeed had declined in the fourth quarter. In 1970 demands for goods and services
continued weak while productive capacity continued to expand; there
was a marked further reduction in the rate of capacity use in manufacturing and a considerable easing in labor markets. Under these
circumstances, the persistent increase in 1970 in the principal indexes of prices resulted, for the most part, from continued pressures
associated with costs. The dominating role of costs in the further
price increase is indicated by the sharp decline in the ratio of prices
to unit labor costs in manufacturing. This ratio, which had reached
a high of 105 (with 1957-59 as 100) in the strong demand-pull
inflation of 1965-66, had dropped to 97 by the end of 1969, and
then declined further to 95 by the end of 1970. Concurrently with
the decline in this ratio, after-tax profits per dollar of sales in

manufacturing declined in 1970 to levels near the lows reached in
the recessions of 1957-58 and 1960-61.
Nevertheless, some progress was made in 1970 toward moderating
cost pressures. For the private economy as a whole, the rise in overall unit labor costs was smaller from the third quarter of 1969 to the
third quarter of 1970 than over the preceding year—5.5 per cent as
compared with 7 per cent. To avoid the distorting influence of the
strike in the auto industry, Chart 4 shows changes between the third
quarters of 1969 and 1970, rather than between fourth quarters as
in preceding years. In the manufacturing sector, however, unit labor
costs apparently increased more in 1970 than in 1969.
4. OUTPUT PER MANHOUR AND RELATED DATA
PERCENTAGE CHANGE

OUTPUT
PER MANHOUR _

COMPENSATION
PER MANHOUR _/

UNIT LABOR COSTS
1966

1968

1970

Bureau of Labor Statistics data for the total private economy. Changes are from fourth
quarter to fourth quarter—except for 1970, which is from third to third.

The deceleration of the rise in unit labor costs in the private economy as a whole in 1970 was attributable to a resumption of productivity gains. After having shown little net change over 1969, output
per manhour—accompanying gains in real output—rose appreciably
in the second and third quarters of 1970; the annual rate of gain in

these two periods averaged about 4 per cent. Productivity in manufacturing also improved in that period, although the gain in output
per manhour was a little less for that sector of the economy. It is
difficult to evaluate the extent to which progress may have continued
in the fourth quarter because sharp cutbacks in output resulting
from the auto strike distorted the aggregate productivity figures at
that time.
The increase in productivity during the middle quarters of 1970 is
somewhat atypical since the largest gains in output per manhour are
usually achieved during periods of rapid growth in output. However,
the increase in real GNP was quite small in the second and third
quarters, and manufacturing output was declining. Nevertheless, productivity gains were achieved as the sluggishness of demands, coupled with continued advances in costs, induced management to adopt
unusually stringent economy measures. These measures included a
careful scrutiny of overhead costs and a paring of conventional management perquisites, in addition to an intensive review of labor force
needs.
There was, as part of such a review, a sizable reduction in the
number of salaried (nonproduction) workers in manufacturing—especially in defense-related industries—as well as a cyclical decline in
demands for production workers. In trade, finance, and services a
similar review seems to have been going on, since the increase in
employment in these industries in 1970 was substantially smaller
than in prior years. The efforts to keep costs under control seem
likely to persist; in any event, productivity typically increases faster
in periods of cyclical upswing than during periods of recession or of
sluggish aggregate demands.
While productivity has shown indications of a faster rate of gain,
strong cost pressures are still persisting as hourly labor compensation
(which includes wages, salaries, and fringe benefits) has continued
to increase rapidly for the private economy as a whole. But while the
increase in hourly compensation from the third quarter of 1969 to
the third quarter of 1970 was not much different from that over the
preceding year, it was smaller than during 1968. In the manufacturing sector, however, the aggregate increase in hourly compensation
during 1970 was larger than over the preceding year, even though
the rise was held down by reduced overtime pay resulting from a

shorter workweek and also by a shift away from the relatively highpay durable goods industries.
Large and widely distributed increases in wage rates in 1970 in
the face of declining employment and sharply rising unemployment
reflect in part a lagged response to past increases in consumer prices
and in part expectations of substantial future price increases—
expectations that have become well entrenched after the experience of the past several years. In recent years average advances
in compensation per manhour in the private economy—and in the
manufacturing sector—have been only a little in excess of increases
in consumer prices.
Despite the behavior of the averages cited above, wages in some
sectors have shown some response to slack demands and soft labor
markets. Thus, it appears that the average wage gain of nonunion
workers slowed in 1970. For such employees, wage adjustments are
commonly made each year rather than in the multiyear negotiations
that are typical of contracts involving unionized workers. In part because of this, wages in the nonunion sector appear to respond more
quickly to cyclical changes in the demand for labor.
Nonunion workers are heavily concentrated in retail trade, finance,
and other services. There was a marked slowing in 1970 in the advance of average hourly earnings in trade. On the other hand, the
rise in average hourly earnings of construction workers remained exceptionally large—with year-over-year increases averaging 9 per cent
in both 1969 and 1970. The substantial increase in earnings of this
group reflects mainly the extraordinarily large increases for union
workers. In manufacturing too, union workers received larger increases on the average in 1970 than did nonunion workers; furthermore, relatively more union than nonunion workers received wage
increases—two-thirds as compared with only about one-third.
There has been a substantial escalation since 1968 in the size of
wage increases negotiated in collective bargaining settlements—not
only for first-year wage increases but also for the life of the contract.
The increases provided in 1970 to cover the second and third contract years were well above the long-term trend of growth in productivity. Moreover, there has been some shift—after a lapse of many
years—toward the incorporation in long-term contracts of escalator
provisions based on the consumer price index and an insistence, as in

5. AVERAGE HOURLY EARNINGS
PERCENTAGE
CHANGE
ERC

PRIVATE NONFARM

MANUFACTURING

1970

Change from corresponding quarter a year earlier, calculated from Bureau of Labor
Statistics data, without seasonal adjustment.

recent contracts in the automobile industry, on an unlimited escalator. Since the amounts involved in such increases are, of course, unknown, they are not reflected in the data on the size of settlements
negotiated. Relatively few workers are covered by escalator clauses;
at the beginning of 1971 only about 3 million workers were covered
by cost-of-living clauses providing for adjustments in wage rates tied
to increases in the consumer price index.
In 1971 new wage agreements will be negotiated for nearly 5 million workers under major contracts in private nonfarm industries;
this will make 1971 the second successive year of heavy collective
bargaining activity. In the 1960's the largest number of workers covered by major contract settlements had been 4.6 million—in 1968.
Moreover, in 1971 another 5.3 million workers already covered by
multiyear contracts will receive deferred wage increases averaging
7.8 per cent—exclusive of cost-of-living increases—compared with
an average deferred wage increase of 5.6 per cent in 1970.
The persistence of strong upward wage pressures raises questions
concerning the extent to which market forces will moderate cost in-

TABLE 9: WAGE RATE ADJUSTMENTS IN MAJOR
COLLECTIVE BARGAINING SETTLEMENTS
Mean percentage increases
Item

1968

1969

1970

All private nonfarm industries:
Over life of contract
First year
2nd and 3rd year average.. .

5.9
7.4
5.2

7.6
9.2
6.8

8.9
11.9
7.4

Manufacturing:
Over life of contract
First year
2nd and 3rd year average...

5.2
7.0
4.3

6.0
7.9
5.1

6.0
8.1
5.0

Construction:
Over life of contract
First year
2nd and 3rd year average.. .

8.6
8.7
8.5

13.1
13.1
13.1

14.7
18.3
12.9

NOTE.—BLS data. Major settlements are those affecting
workers or more.

1,000

creases as economic recovery proceeds in 1971. It seems likely that
some cost abatement will develop, in part as a result of the business
economies already undertaken and in part because the widely anticipated upturn in aggregate output may be associated with gains in
productivity that are more rapid than those in recent years. But the
underlying strength of wage demands, if they persist well in excess of
likely gains in productivity, would pose a major threat to the containment of price inflation, not only for 1971 but also over the
longer run.
•

Consumer Attitudes
and Behavior
Consumers in 1970 slowed their rate of spending relative to income
and shifted their savings toward more liquid forms, particularly deposits with banks and nonbank savings institutions. While declining
yields on market securities were a major factor in the shift in the
form of consumer financial saving, the emphasis on liquidity and
risk-free assets was probably also an aspect of the development of
more cautious attitudes on the part of consumers over the course of
the year.
The bearishness of consumer sentiment in 1970 was indicated
both by actual behavior and by various attitudinal surveys taken during the year. Two factors in particular—high and rising prices and
job uncertainties—led to conservative spending behavior. In consequence, consumer spending increased less rapidly in 1970 than in the
previous year, even though gains in disposable personal income had
been relatively larger until the fourth quarter, when strike effects
6. CONSUMER INCOME AND EXPENDITURES
PERCENTAGE CHANGE

DISPOSABLE INCOME
CONSUMER EXPENDITURES:

1965

1966

1967

1968

1969

1970

Change from fourth quarter to fourth quarter- except for 1970, which is from third to
third—based on Dept. of Commerce data.

7. SAVING RATE

i
1968

1966
Dept. of Commerce data.

held down the income flow. In Chart 6, which shows changes in disposable income and consumer outlays, the changes for 1970 are
measured from the third quarter of 1969 to the third quarter of
1970 in order to avoid the effects of the auto strike.
In current-dollar terms the percentage increase was less for consumer outlays than for income in 1970—in contrast to the previous
2 years. The slowed pace of consumer spending was even more
marked in constant-dollar terms, as prices continued to rise rapidly.
As the advance in spending was curtailed, the rate of personal
saving rose. For the year 1970 as a whole, the saving rate averaged
7.3 per cent, as compared with 6 per cent in 1969. The rate for
1970 was high in terms of experience in most years since World War
II. In the past decade, that rate had been exceeded in only one calendar year—1967.
A number of influences contributed to the sharp increase in the
saving rate in 1970. The sharpest jump occurred in the second quarter when the rise in disposable income was exceptionally large because of retroactive social security benefits and a retroactive Federal
pay increase. A lag in adjusting spending to such a large and concentrated rise is to be expected, but other developments probably
also contributed to the rise. Prices of common stocks broke sharply
further in the early months of 1970, with the low reached in May.
Both market participants who had suffered substantial losses and
others who were concerned about what the break might mean for the
economy probably curtailed their spending on this account.

Adding to these uncertainties in the spring were the widely publicized difficulties of some well-known corporations. Social tensions
and crises abroad also were prevalent in the spring. Then as the year
progressed, there were growing uncertainties associated with weakness in the labor market—an increasing number of layoffs, shorter
workweeks, and a rise in unemployment. These, together with the
anxieties that they generated in many who were not directly affected,
may have served to keep the saving rate close to its spring peak. Finally, in the fourth quarter, shortages of new cars resulting from the
auto strike may have kept the over-all saving rate up despite slower
growth in disposable income.
A counterpart in 1970 of the high personal saving rate and the
large dollar volume of personal saving was a very sharp increase in
net financial investment by the consumer sector, as may be seen in
the table. A similar spurt had occurred in 1967, when the saving
rate also was relatively high.
The sharp increase in net financial investment in 1970—about
double the 1969 pace—took the form partly of a larger flow of
funds into financial assets, particularly interest-bearing deposit accounts. Much of the higher saving was also reflected in a lower rate
of borrowing, the lowest in the past 5 years. Thus, the increase in
outstanding consumer instalment credit was the smallest since 1961,
and home mortgage debt, constrained by the high cost and earlier restricted availability of such funds, increased at a somewhat slower
rate than in 1969.
TABLE 10: CONSUMER FINANCIAL INVESTMENT
In billions of dollars
Type

1966

1967

1968

1969

19701

Net financial investment

25.6

37.0

24.2

20.3

44.4

Net acquisition of financial assets
Demand deposits and currency.
Time deposits
Market instruments

49.3
3.1
19.1
11.9

60.7
11.4
32.5
-1.3

58.9
6.9
27.7
5.4

50.3
3.4
11.3
18.8

66.7
4.7
31.4
12.2

Net increase in liabilities
Consumer instalment credit
Mortgage debt
Other

23.6
6.2
13.6
3.8

23.7
3.4
11.7
8.6

34.6
9.0
16.0
9.6

30.0
8.3
17.4
4.3

20.0
3.0
13.0
4.0

1
Preliminary.
NOTE.—Flow of funds data for households, personal trusts, and nonprofit organizations.

The extent to which consumer spending will rebound in 1971 is a
critical question in appraising the likely speed of economic recovery.
This will depend not only on the extent of future increases in personal disposable income, but also on the confidence with which consumers view the future. Certainly the improvement in financial positions, taking into account the sharp recovery in stock prices over
recent months, should tend to make consumers more willing to increase spending and to reduce their rate of saving. Really vigorous
support for the economy from consumption, however, probably must
await progress in dampening fears that family budgets will continue
to be pressed by rapidly rising prices for the goods and services that
people must buy.
•

Responsiveness of Housing
and State and Local
Governments
The more expansive monetary policy followed during 1970 led to a
significant increase in flows of credit into markets for mortgages and
for State and local government securities. Outlays for residential construction began to expand after midyear, and by the final quarter private housing starts had risen to the highest annual rate in 20 years.
In contrast, construction expenditures by State and local government
units had not increased appreciably by the close of 1970. Easier
credit conditions, however, have led to heavy volumes of financing
by such units. Under these circumstances construction contracts and
actual outlays in this area are likely to increase in the months to
come.
HOUSING
As noted earlier, deposit inflows to savings and loan associations and
mutual savings banks increased sharply in 1970. By the fourth quarter these inflows had reached the highest rate since 1967 and were
permitting the thrift institutions to rebuild their depleted liquidity positions and to increase their lending on both new and existing residential properties.
At the year-end the thrift institutions had accumulated a substantial backlog of mortgage commitments. Such a backlog pointed
toward a continued, if not enlarged, flow of credit to the housing
market. Other lenders—including commercial banks—also appeared
to be showing more interest in residential mortgages, as yields on
such loans were declining less sharply than returns on other types of
capital market instruments, and hence were becoming relatively more
attractive. In addition, weaknesses in business loan demands made
more funds available to commercial banks for investment in mortgages.

8. THRIFT-INSTITUTION ACTIVITY;
HOUSING STARTS
BILLIONS OF DOLLARS

RATIO SCALES

MILLIONS OF UNITS

THRIFT INSTITUTIONS:

30-

" ^
- —
MORTGAGES CLOSED
20-

10-

1.0

1966

1968

1970

Quarterly averages of monthly data at seasonally adjusted annual rates. Thrift institutions include savings and loan associations and mutual savings banks (New York State
banks only for mortgages closed).
Sources: S&Ls, Federal Home Loan Bank Board; savings banks, National Association of
Mutual Savings Banks and Savings Banks Association of the State of New York; private
farm and nonfarm housing starts, Bureau of the Census.

As the availability of private credit expanded, market support
from the Federal National Mortgage Association and the Federal
home loan banks slackened in the latter months of 1970. Support
provided by these institutions had been an important factor limiting
the decline in housing starts in 1969 relative to 1966, even though
deposit growth at the thrift institutions—the dominant group that
lends on residential mortgages—dropped sharply in each of these
years. To finance this support, the two housing-related agencies together had borrowed a net of more than $7 billion in 1969. In 1970
they borrowed a similar amount. During 1971, however, these institutions are more likely to be net repayers of debt, in view of the expectation of some net repayment to the home loan banks of outstanding advances made to member savings and loan associations and
of a reduced volume of FNMA purchases in the secondary market.
In early 1971 the low rate of housing vacancies, the accelerated
pace of inflows of funds to thrift institutions, the high level of out-

standing mortgage commitments, and the increased momentum in
builder planning and activity all suggested that the pace of housing
starts would continue at advanced levels. The demand for housing in
1971, however, will be tested critically by consumer concern about
unemployment and by record levels of housing costs, prices, and
rents. Mortgage interest rates, though somewhat reduced, also continue at levels that are high by historical comparison. During 1970,
new home buyers were already tending to focus on smaller units that
carry lower average prices, and it also became more difficult for
owners of new apartments in the highest rent brackets to lease such
units. A sharply increased portion of the market for lower-priced or
lower-rent dwellings was aided in 1970 by Federal subsidies—a type
of support that appears likely to expand further in 1971.

STATE AND LOCAL GOVERNMENTS
By the final months of 1970, gross long-term borrowing by State and
local governments had risen to new highs. The increased volume of

9. STATE AND LOCAL GOVERNMENTS
BILLIONS OF DOLLARS

LONG-TERM BORROWING (GROSS)

1964

1966

1968

All figures for 1970 are preliminary. Borrowings: from Investment Bankers Association; quarterly data, at annual rates not seasonally adjusted. Construction outlays: Bureau
of the Census estimates; semiannual data, at annual rates seasonally adjusted.

such borrowing and the strong pace expected in 1971 reflect several
factors.
In 1970 many State and local governments took advantage of declining interest rates—and record purchases of tax-exempt bonds by
commercial banks—to market issues that had been postponed the
previous year. In 1969, according to Federal Reserve surveys, the
rapid increase of market interest rates had contributed directly and
indirectly to the first year-to-year declines in gross long-term borrowing by State and local governments since 1960. In addition, many
units had resorted to short-term financing to cover their most urgent
needs in 1969 and early 1970 and were under pressure to issue
long-term bonds as market interest rates declined in the second half
of 1970. Moreover, the ability of State and local units to borrow had
been improved since the fall of 1969, as the ceiling rates that many
units could pay on their securities had been increased or temporarily
suspended. Thus, by the end of 1970 many States and their subdivisions had a greater amount of flexibility to market new long-term
bond issues, particularly in view of the fact that interest rates on
such issues had declined substantially below their earlier peaks.
Construction outlays by State and local governments, which are
financed in large part by borrowing, had increased at an average annual rate of more than 9 per cent from 1962 to 1968. The shortfall
in their borrowing in 1969 restrained such expenditures, however,
and these outlays rose little further even in current dollars. Despite
the increased pace of borrowing in 1970, total outlays showed no
significant change—and actually declined in real terms—because of
the long lags between fund availability and expenditures. In view of
the increased borrowing undertaken since mid-1970, however, it appears likely that construction outlays in 1971 will move back toward
their earlier pattern of growth. Indeed, a period of unusual expansion in such outlays could well develop as shortfalls from previous
capital budget plans are made up.
•

Easing in Credit Availability
at Banks
Deposit inflows to, and the availability of credit from, commercial
banks improved progressively during 1970 as a result of the cumulative effects of the general easing in monetary policy, of bank regulatory changes, and of the broad decline in market rates of interest.
Because inflows of deposit funds were strong and loan demands were
relatively weak, banks reduced sharply their reliance on nondeposit
sources of funds after midyear and restored severely depleted liquidity positions. In light of these developments, banks by the end of
1970 were in a considerably better position to meet the credit needs
of an expanding economy.
SOURCES OF FUNDS
Total deposits at banks rose sharply in 1970, in contrast to the decline during 1969 when monetary policy was quite restrictive. While
demand deposits resumed their growth as market rates of interest declined and the public sought increased liquidity, the bulk of the increase in inflows at banks was attributable to the sharp rise in time
and savings deposits.
Time and savings deposits other than large-denomination CD's—
principally consumer-type time and savings deposits—grew rapidly
after the first quarter of 1970. Banks generally raised the interest
rates offered on these deposits shortly after the Board acted in January to liberalize ceiling rates under Regulation Q. Other authorities
raised interest rate ceilings for savings and loan associations and mutual savings banks at the same time, and all three types of depositary
institutions subsequently experienced increased rates of deposit inflow.
Growth in total time deposits surged after midyear when banks
became able to compete aggressively for large CD's. Even though
ceiling rates on large CD's had been raised in January, along with
rates on other time and savings deposits, banks could sell only limited volumes of CD's because interest rates on competing money

10. INTEREST-BEARING SOURCES OF
BANK FUNDS
BILLIONS OF DOLLARS

210
TIME AND SAVINGS OTHER THAN C0 f S>
190

I
1968

1969

1970

Seasonally adjusted monthly averages of daily figures for all commercial banks. Time and
savings deposits other than CD's exclude both those due to domestic commercial banks and
the U.S. Govt. and balances accumulated for repayment of personal loans. Nondeposit
sources include borrowings from foreign branches and * beginning June 1969, bank-related
commercial paper, loan repurchase agreements, and borrowings from foreign banks and
branches in U.S. territories and possessions.

market instruments remained significantly above the rates that banks
were permitted to offer. Following the suspension of the Regulation
Q ceilings on large 30- to 89-day CD's in late June, banks quickly
raised their offering rates on short-term CD's to competitive levels.
As a result banks were able to increase their outstanding CD's by
$4.9 billion during the month of July alone. There are indications
that part of these CD's were acquired by investors who did not want
to roll over their commercial paper in the wake of the substantial deterioration of confidence in such paper following the announced insolvency of a major railroad. In addition to CD inflows, banks during the summer used the Federal Reserve discount facility to meet
unusual loan demands from customers who were unable to refund
maturing issues in the commercial paper market.
But even after the pressures associated with the commercial paper
crisis subsided, banks continued to issue large CD's in volume. They
used a sizable portion of these inflows to restructure their liabilities,
with particular emphasis on repaying higher-cost Euro-dollar borrowings and bank-related commercial paper. Many banks had relied

heavily on such funds during 1969 and early 1970 to supplement the
funds they acquired through normal deposit channels. Repayments of
borrowings from nondeposit sources were accelerated in September,
when bank-related commercial paper was made subject to reserve requirements.
Total deposit inflows continued strong in late 1970. In view of the
continuing weakness in demands for loans and the substantial readjustment of portfolios already accomplished, banks made sharp reductions near the year-end in rates paid on large CD's to moderate
inflows of such deposits. By the year-end they had more than replaced the volume of CD's that had run off in 1969 and early 1970,
and outstanding CD's were at a seasonally adjusted monthly average
of $26.0 billion in December—a new peak.
BANK CREDIT
Bank credit developments in 1970 and early 1971 have reflected
principally the marked increase in fund availability and the lessening
of loan demands. Total loans and investments at all commercial
banks, including loans sold to bank affiliates or subsidiaries, increased by $30 billion in 1970, or nearly twice the increase over the
preceding year. A substantial portion of this growth represented
bank acquisitions of securities, which had registered a considerable
decline In 1969.
Participating heavily in U.S. Treasury financing operations, banks
acquired a net of more than $7 billion, seasonally adjusted, of U.S.
Government securities during the middle two quarters of 1970. And
throughout the year they increased sharply the rate of acquisition of
other securities—principally State and local government obligations
—after having maintained their holdings of such securities virtually
unchanged in 1969. In large measure, banks concentrated on acquiring shorter-term investments so as to restore their depleted liquidity
positions. The large rise in liquid assets along with concerted efforts
to reduce reliance on borrowed funds resulted in an appreciable improvement in over-all bank liquidity and contributed significantly to
banks' willingness to extend a larger volume of loans.
Although the substantial rebuilding of liquidity was in large part
desired, it also reflected the general weakness in demand for loans.
Total loans at all commercial banks, including loans held by affiliates

11. BANK CREDIT, 1969-70
CHANGE, BILLIONS OF DOLLARS

16
TOTAL
12-

1969

1970

Q2 Q3

1970

1969

1970

Seasonally adjusted data for all commercial banks. Beginning June 1969, loan items
have been adjusted to include loans sold to bank affiliates, subsidiaries, holding companies,
and foreign branches.

and subsidiaries, grew slowly in the first half of 1970, then rose by
$7 billion in the third quarter. During the latter period banks extended a large volume of credit to securities dealers as well as to
finance companies and other borrowers experiencing difficulty in the
commercial paper market. But in the fourth quarter loans at commercial banks declined on a seasonally adjusted basis.
The reduction in loans at banks in the fall reflected the general
weakness in economic activity and the associated decline in credit requirements, together with the effects of the auto strike in the fourth
quarter. In addition, banks have experienced substantial business
loan repayments out of the proceeds of capital market financings as
corporations placed considerable emphasis on lengthening their debt
structure and improving liquidity positions.

12. LIQUIDITY RATIO
Weekly reporting banks

1968

1969

1970

Monthly averages of Wednesday figures for all weekly reporting banks. Ratio of liquid
assets to total liabilities less capital accounts and valuation reserves. Liquid assets include
Federal funds, Treasury bills, Treasury certificates, Treasury notes and bonds maturing within
1 year, loans to brokers and dealers, loans to domestic commercial banks, balances with
domestic banks, bankers acceptances, and tax warrants and bond anticipation notes.

Other loan categories have also shown limited growth, particularly
consumer and mortgage loans. Demand for consumer credit was restrained by the weakness in sales of durable goods and in the fourth
quarter by the additional effects of the auto strike. Whereas banks
had sharply curtailed their extension of mortgage credit in 1969 and
early 1970, when their fund inflows were constrained, since the autumn they have indicated an increased willingness to extend mortgage credit. The increase in mortgage loan portfolios did not pick up
appreciably until late in the year, but this appears to reflect the long
lags between mortgage commitments and the actual takedown of
funds.
These changes in bank asset positions were an important factor in
the decline in the prime rate of interest from Wi per cent in early
1970 to 6 per cent in January 1971. Other loan terms and conditions also have been eased, and banks are now more willing to undertake loan commitments that they would not have made earlier, including extensions of term loans to business. However, with concern
over the quality of loan portfolios heightened by the well-publicized
difficulties of several major firms, banks reportedly are continuing to
emphasize quality standards.
Q

Adjustments in the
Business Sector
In the business area, financing problems had become much less acute
by early 1971. The increased availability and declining cost of
short-term credit, especially in the latter half of 1970, has made it
easier for businesses to finance the current level of activity and
should facilitate the return to a more normal rate of sales growth. In
addition, the flow of internal funds, after having remained stable for
several years, seems likely to increase in 1971, and this, together
with the anticipated leveling off in fixed investment expenditures and
the improved access to short-term credit, should moderate corporate
needs for capital market funds.
During 1970, in contrast, corporate financing operations in money
and capital markets were characterized by a large increase in new issues of long-term securities and by greatly reduced financing in
shorter-term markets. This pattern reflected several factors: the continued sharp rise in spending for plant and equipment by certain industries, the slow growth in current sales, and the funding of a portion of the large volume of short-term debt incurred in 1969.
In the closing months of 1970 business corporations floated a
record volume of long-term securities while apparently repaying
short-term debt on balance. Much of the year-end weakness in business demand for short-term credit, however, was attributable to the
continued influence of the auto strike. But by early 1971 the situation had changed considerably: The auto strike was over; plant and
equipment expenditures were expected to show little or no further
rise, but it seemed likely that inventory accumulation would resume;
and there would probably be some improvement in the flow of internal funds, in part because of the revised depreciation schedules that
became effective in early 1971.
Hence there should be increased needs for—and greater availability of—short-term credit and some reduction in corporate demands
on long-term capital markets in 1971. Some corporations may still
wish to lengthen the maturity of their debt or otherwise improve
their liquidity positions. But pressures to do so have subsided since

13. CORPORATE EXTERNAL FINANCING
BILLIONS OF DOLLARS

BONOS, STOCKS, MORTGAGES

OTHER BORROWING

n
1966

1968

1970

Flow of funds data for nonfinancial corporations. Quarterly data seasonally adjusted at
annual rates. "Other borrowing" comprises bank loans n.e.c, open market paper, and other
loans. Q4 1970 preliminary.

the easing of monetary policy has made renewal of maturing shortterm debt more manageable and additional liquidity more readily
available.
BUSINESS INVESTMENT
As of early 1971 business firms in the aggregate were planning almost no increase in spending for fixed assets during the year. This
weakness reflects mainly developments in manufacturing. With their
margin of unused capacity at the highest average level since early
1958, and with their profits greatly reduced, manufacturers were
planning reductions in capital outlays in 1971 for the second consecutive year. In the public utility and communications sectors, on the
other hand, present capacity is inadequate to meet demands
efficiently, and as in 1970 a further substantial increase in capital expenditures is scheduled for 1971. Since public utility and communications companies finance a large part of their capital outlays with
the proceeds of new bond and stock issues, the increased expenditures they have planned for 1971 are likely to be reflected in heavier
corporate demands on long-term securities markets than would otherwise be suggested by the expected minimal growth in over-all business fixed investment.

Inventory accumulation (GNP basis) by nonfarm businesses declined in 1970 to the lowest rate since 1961. Weakness in the growth
of final sales appears to have been a primary factor in the cutback,
but other influences also contributed to the reduced rate. These included the depletion of auto stocks in the fall as a result of the strike,
reluctance to incur additional short-term debt, the desire to conserve
available funds for more pressing needs and, as the year progressed,
some waning of inflationary expectations. Nevertheless, reflecting to
a considerable extent the sluggishness in sales, inventory/sales ratios
remained high by historical standards.
INTERNAL FUNDS
Although corporate profits declined less in 1970 than in most earlier
periods of economic slowdown, the over-all profits picture—especially with respect to undistributed profits—has been exceptionally
weak for some time. The profits share of income originating in nonfinancial corporate business has declined almost steadily in recent
years, from 20 per cent or more in 1965 and 1966 to 14 per cent in
1970. Profits retained after payment of taxes and dividends have declined more than 50 per cent since 1966. Offsetting this decline has
been a continued growth in capital consumption allowances. As a result, the total volume of internal funds has been static for several
years.
Weakness in profits has been evident particularly in the manufacturing sector where both the ratio of profits to sales and the rate of
return on net worth have declined to levels near the lowest since
World War II. The erosion in profit margins has paralleled the decline in the capacity utilization rate, and if one judges from past experience, profit margins are not likely to rise to any significant extent
until the utilization rate also rises sharply.
Nevertheless, trends within 1970 suggest a strengthening in profits
and internal funds that should carry over into 1971. Abstracting the
adverse developments in the fourth quarter because of the auto
strike, the decline in profit margins slowed as the year progressed,
reflecting efforts to reduce expenses and the faster growth in productivity; the share of profits in income, as well as total corporate profits
before taxes (and before inventory profits), changed little after the
first quarter; and total internal funds rose throughout the year from
their first-quarter low. With somewhat faster growth in sales volume,

14. CORPORATE PROFITS
•11122
:

llliiiili

i^^^^^s^^^^s^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^'
1962

1964

1966

1968

1970

Quarterly except 1962-68 return on net worth, which is semiannual. Share of income:
ratio of profits (before tax) and inventory valuation adjustment to income originating in
nonfinancial corporate business, which is sum of profits, compensation of employees, and
net interest paid; based on Dept. of Commerce seasonally adjusted data. Return on net
worth: ratio of profits after tax, at annual rate, to stockholders' equity; not seasonally
adjusted; source, FTC-SEC Quarterly Financial Report for Manufacturing Corporations.

and especially with the recent liberalization in depreciation schedules for tax purposes, the flow of internal funds to nonfinancial corporations in 1971 may show the first significant increase since 1966.
EXTERNAL FINANCING
The failure of internal funds to grow in the face of a continued rise
in spending for additions to fixed and working assets during recent
years has required increased reliance by nonfinancial corporations on
external sources of funds. In 1970 these businesses financed about
35 per cent of their total spending with funds raised in money and
capital markets. This was the same as the record proportion in 1969,
but the composition was quite different. Long-term financing in capital markets was three-fifths again as large as in 1969, whereas borrowing in short-term forms was the least since 1964.
The sharply reduced volume of borrowing by corporations from
banks and other short-term lenders in 1970 reflected only in part the
lower rate of inventory accumulation and the direct and indirect effects of the auto strike in the fourth quarter. An equally important

15. CAPITAL OUTLAYS AND INTERNAL
FUNDS
BILLIONS OF DOLLARS

I
1966

I
1968

0
1970

Flow of funds data for nonfinancial corporations, seasonally adjusted at annual rates.
"Outlays" comprise plant and equipment expenditures and change in inventories. "Funds"
are sum of capital consumption allowances and undistributed profits, which are after inventory valuation adjustment and inclusion of foreign branch profits. Q4 1970 preliminary.

factor was the desire to limit further expansion of short-term debt,
following the exceptionally large growth in such debt in 1969, and to
lighten the pressure of frequent maturities by repaying short-term
debt to the extent feasible.
Business demand for short-term credit remained weak through
1970. But the increased supply of such funds at declining cost, together with the return of confidence in financial markets, should result in a strengthening of credit demands in this area as sales prospects improve and inventory policies become more expansive.
Demands for long-term external funds, on the other hand, seem
likely to moderate somewhat although remaining large by historical
standards. A large share of the increase in long-term financing by
corporations in 1970 reflected the expanded needs of public utility
and communications companies, which rely heavily on such funds to
finance plant and equipment outlays, and which will need to sell a
substantial volume of security issues in 1971 too. But offerings by
manufacturing corporations may be below the unusually large 1970
volume. Real estate investment trusts, whose offerings helped to
swell the volume of new stock issues in 1970 to the largest total in

many years, may also do less financing in 1971 in view of the increasing availability of conventional mortgage financing. On the
other hand, financial corporations, which did little long-term financing in 1970, may step up their offerings in 1971.
CORPORATE LIQUIDITY
Corporations added moderately to their holdings of liquid assets in
1970, largely in the form of time deposits at commercial banks. The
ratio of liquid assets to total current liabilities rose somewhat in the
fourth quarter, but not enough to offset the declines that had occurred earlier in the year. Thus, despite the switch from short- to
long-term market financing, the over-all corporate liquidity ratio
reached a new end-of-year low in 1970, though the deterioration was
much less than in 1969. The ratio of total current assets to total current liabilities also declined to a new low, primarily because the
slowdown in economic activity resulted in an even slower growth in
accounts receivable than in total current liabilities.
•

U.S. Balance of Payments
Developments in U.S. transactions with the rest of the world in 1970
illustrated the tenacity and complexity of problems involved in
achieving a satisfactory over-all balance of payments position. There
was indeed some strengthening of the merchandise trade surplus and
of net receipts on international investments, but the cyclical situation,
both here and abroad, that led to such gains also resulted in adverse
shifts in capital flows. Meanwhile, other elements in the U.S. international accounts—notably military expenditures and U.S. Government
aid and private transfers to foreign countries—which are not so responsive to business conditions here and abroad, continued to cause
a large outflow of dollars.
MERCHANDISE TRADE
Events in 1970 underline the extent to which the traditional U.S.
trade surplus had weakened during the period of excess domestic demand in the latter half of the 1960's and also show the sensitivity of
trade flows to economic conditions in other industrial countries.
Studies of the effects on U.S. trade of the demand inflation of the
late 1960's, which followed an extended period of relative price stability, suggest that a large part—perhaps most—of the deterioration
in the trade balance from its 1964 peak was associated with strong
and sustained upward pressures on prices and wages in U.S. markets.
The adverse effects of such developments in the international competitive position of U.S. industry can be overcome only with the passage
of time.
In 1970 the U.S. trade balance with other countries responded
well through midyear to the slowing of domestic demand and to the
strong growth of demand in most other industrial countries. For
most of the year policy in most countries was directed toward reducing inflationary pressures, and only as the year ended—with production in many industrialized countries flattening out—was attention
abroad shifting to the problem of averting a general slowdown in
economic growth. This course of events was reflected in the U.S.
trade performance—leading to some erosion of the gains made in the
first half of the year as foreign demands weakened.

16. INDUSTRIAL PRODUCTION
1963=100

I l l l l l l l l l 160

1968
1969
Seasonally adjusted OECD quarterly data.

150

1970

U.S. exports in 1970 benefited from record shipments of agricultural products and a spurt in exports of large jet aircraft. The major
support for foreign sales, however, was the demand in industrial
countries for machinery and industrial materials. Even so, as the
year progressed, and some slack developed in supply capabilities
abroad, demand for these products decreased. New orders for machinery tended to level off, and easier supply conditions for steel
abroad not only reduced U.S. exports but also supported a renewed
surge of shipments from Europe and Japan to the United States.
The level of U.S. imports tended upward during the year, but it
appears that perhaps three-quarters of the rise was accounted for by
higher prices of imports. In the last quarter of the year, even though
there was a decline in real economic activity, imports rose somewhat,
reflecting especially strong demand for foreign steel, automobiles,
and petroleum.
These trends indicate the difficulty of restoring a reasonable trade
balance after a long period of domestic inflation, especially when
growth rates and domestic demands in countries abroad are slowing.
There were, however, some favorable indications in 1970 for the future of the trade balance. Import prices rose more rapidly than U.S.
export prices, and while this factor may reduce the trade surplus in

current-dollar terms over the short run, over the longer run it may
benefit the trade position as the relative advantage of foreign goods
is diminished. With improved economic performance in the United
States and resumption of stronger economic growth rates abroad, the
U.S. trade balance should make further gains over time.
CAPITAL FLOWS
Flows of capital between the United States and foreign countries also
respond to the cyclical situation. Indeed, the response may be so
large and rapid as to overmatch changes in the current account. This
is increasingly true of the immense stock of mobile funds that respond quickly to changes in interest rate levels in the important
monetary centers, utilizing the convenient mechanism of the Eurodollar market. Such flows of funds complicate the management of
monetary policy and result in sudden, large shifts of international reserves (largely dollar holdings) among central banks.
In 1970 the need for the United States to pursue a relatively expansionary monetary policy, while other countries did not move in
that direction until the closing months of the year, led to a return
flow to foreign commercial banks of some $6 billion of funds borrowed earlier by U.S. banks. This flow helped to restore needed reserves to some countries—notably the United Kingdom and France
—and added to the reserve gains of other countries with continued
strong basic positions—notably Germany.
These flows of liquid funds were not inspired—as were those of
other recent years—by financial crises and currency speculation, but
rather by market considerations. Under present-day conditions, when
investors and borrowers are free to seek the most advantageous market, such flows respond readily to changing interest differentials
among countries. These flows tend to be reversible as interest rate
relationships change, and they do not have the same significance for
the balance of payments as more deep-seated shifts in other transactions affecting reserves. A large part of the Euro-dollar reflows in
1970 represented a readjustment of the U.S. domestic banking system to its renewed regulatory and economic ability to compete for
funds in domestic money markets. As noted earlier, the Federal Reserve took steps to moderate the rate at which U.S. banks were repaying their borrowings, in order to help offset the unsettling effect
that might occur if large reflows continued over a short period.

Longer-term capital flows are also highly responsive to variations
in economic activity here and abroad, and also to corresponding variations in the cost of funds. The outflow of U.S. funds in response to
such variations remains inhibited by Government restraints, which
have been retained in 1971 because of the persistence of large deficits in the U.S. balance of payments. U.S. industrial firms have indicated that they plan to carry out major programs to expand their
foreign productive facilities in 1971. With domestic demand for
loans relatively weak, it is to be expected that U.S. banks would
wish to enlarge their foreign credits if there were no guidelines concerning foreign credit restraint. Though there was some increase in
the outflow of capital for these purposes in 1970, it was probably
much less than would have occurred without the restraint programs.
In the case of U.S. purchases of foreign securities, the outflows were
smaller than in other recent years, in part because of the restraints
but also because Canadian borrowers made more use of their own
capital markets.
The principal change in flows of foreign capital in response to
changes in the economic situation—apart from flows of liquid funds
—was in transactions in U.S. equity securities. Foreign investors
shifted from net sales of $0.2 billion in the first half to net purchases
of $0.8 billion in the second half, once the U.S. equity market began
to show basic strength again.
Taking U.S. and foreign private long-term investments together,
there appears to have been a net increase in outflows of some $1.5
billion from 1969 to 1970. Of course, the adverse shift in flows of
short-term funds was much greater. Looking ahead, it seems likely
that the outflow of LT.S. private capital will continue to be large in
1971, though the amount will be limited by the restraint programs.
However, with recovery in the U.S. economy, some increase in the
inflow of funds for investment in corporate securities would be expected. Also, there is much less scope for return flows of borrowed
private foreign short-term funds, after the attrition of 1970.
O V E R A L L BALANCE
The net result of divergent changes in the U.S. trade and capital accounts in 1970 was a moderate improvement in the liquidity balance

—apart from special transactions and the initial allocation of SDR's.
Over the years there has been a tendency for the current and capital
accounts of the U.S. balance of payments to move in opposite directions, as the cyclical conditions favoring improvement in the current
account have, at the same time, tended to encourage net capital outflows. Given the large dollar outflows that are not related to economic conditions, large liquidity deficits tend to persist. From another point of view, the desire of foreign governments and private
holders of assets to add to their liquid reserves, with the dollar a
principal vehicle for doing so, is a factor in the continuation of U.S.
balance of payments deficits.
17. U.S. BALANCE OF PAYMENTS
SEASONALLY ADJUSTED ANNUAL RATES
BILLIONS OF DOLLARS

SEASONALLY AOJUSTEO ANNUAL RATES
BILLIONS OF DOLLARS

LIQUIDITY BAtANCEMAJOR COMPONENTS

OVER-ALL BALANCES

• 5

1968

1969

1970

1968

1969

1970

Excludes special transactions with foreign governments and the SDR allocation.
2
Excludes SDR allocation.

The U.S. balance of payments reflects a great diversity of economic and political decisions here and abroad—a diversity that is
unique because of the pivotal role of the dollar in the world's monetary system. The large flow of dollars into foreign official accounts in
1970 was accommodated with relative smoothness, though not without concern that the continuation of such flows would disrupt the

progress being made toward an improved monetary system. Contributing to generally calm foreign exchange markets in 1970 were the
exchange rate adjustments accomplished in 1969, increased consultation and cooperation among national authorities, and the introduction of SDR's.
•

"Part 2
c

R^cordsy Operations, and
Organization

Record of Policy Actions of the
Board of Governors
J A N U A R Y 7, 1970
AMENDMENTS TO REGULATION D, RESERVES OF
MEMBER BANKS, AND REGULATION Q, INTEREST
ON DEPOSITS.
Effective February 12, 1970, the Board amended Regulations D and Q
to narrow the category of "Federal funds" transactions that are exempt from
the reserve requirements and interest rate limitations prescribed by these
regulations.
Votes for this action: Messrs. Martin, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
A Federal funds transaction is one involving the transfer of member
bank deposits at Federal Reserve Banks (or other immediately available
funds) for a brief period, usually one business day.
In September 1969 the Board had published for comment proposed
amendments to bring within the coverage of its regulations prescribing
reserve requirements and interest rate limitations such transactions with
any person other than a bank and its subsidiaries, various governmental
institutions, or a securities dealer in certain cases. The proposed amendments were published in light of indications that member banks were
conducting Federal funds transactions with various business customers,
thereby obtaining funds from such sources in avoidance of reserve requirements and interest rate limitations.
The comments received had to do principally with broadening the
definition of "bank" for purposes of the exemption from Regulations D
and Q. Upon consideration of those comments, a "bank" was defined
in the amendments now adopted to include a member bank, a nonmember commercial bank, a savings bank (mutual or stock), a building or
savings and loan association or cooperative bank, the Export-Import
Bank of the United States, or a foreign bank.

JANUARY 16, 1970
AMENDMENT TO REGULATION Q, INTEREST ON
DEPOSITS.
Effective January 16, 1970, the Board amended Regulation Q to make
clear that only foreign national governments and agencies thereof with national jurisdiction are exempt from the interest rate limitations prescribed in
that regulation.
Votes for this action: Messrs. Martin, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes against
this action: None. Absent and not voting: Mr.
Sherrill.
In 1969 the Board had amended Regulation Q to broaden the exemption from interest rate limitations for foreign governments and agencies
thereof, as well as for certain international institutions. Question arose
whether the 1969 amendments were intended to extend only to foreign
national governments as contrasted with foreign state, provincial, or
local government units. The current amendment clarified the Board's
intent.

J A N U A R Y 20, 1970
AMENDMENT TO REGULATION Q, INTEREST ON
DEPOSITS.
Effective January 21, 1970, the Board amended the Supplement to Regulation Q to change the maximum rates of interest payable by a member
bank on deposits. Specifically, the changes (1) raised from 4 to AV2 per
cent the maximum rate of interest permitted to be paid by a member bank
on savings deposits; (2) raised (i) from 5 to 5V2 per cent the maximum
rate on single-maturity time deposits of less than $100,000 with maturity of
1 year but less than 2 years, and (ii) from 5 to 5% per cent the maximum
rate on such deposits with a maturity of 2 years or more; and (3) raised (i)
from 6VA to IV2 per cent the maximum rate of interest on a single-maturity
time deposit of $100,000 or more with maturity of 1 year, and (ii) by 3A
per cent the maximum rate of interest on such deposits with maturities of
less than 1 year (30-59 days, from SVi to 6V4; 60-89 days, from 5% to
6x/2; 90-179 days, from 6 to 6%; and 180 days to 1 year, from 6V4 to 7
per cent).

Votes for this action: Messrs. Martin, Mitchell,
Daane, Maisel, and Brimmer. Vote against this action: Mr. Robertson. Absent and not voting: Mr.
Sherrill.
The increase in the maximum interest rates payable by member
banks on time and savings deposits was part of a coordinated move on
the part of the Board, the Federal Deposit Insurance Corporation, and
the Federal Home Loan Bank Board that involved general increases
in ceiling rates on deposits at both banks and nonbank thrift institutions. In addition to an upward scaling of ceilings on both largedenomination time certificates of deposit (CD's) and consumer-type
time certificates, maximum rates payable on savings deposits were
raised for the first time in several years, in an effort to introduce
greater equity into rates payable for smaller savings balances.
More broadly, these actions were designed to bring rates payable by
banks and other savings institutions more into line with rates prevailing on competing market securities, in expectation that this would help
to generate the deposit funds needed to finance a moderate pick-up in
credit flows through financial institutions and encourage longer-term
savings within the framework of continued over-all credit restraint.
The revisions in the ceiling rates were held to moderate size so as not
to foster sudden and large movements of funds into the banking system
that could cause distortions in traditional financial flows or lead to an
upsurge in the volume of bank lending.
In taking the actions, the Board expressed its belief that higher rates
paid to savers by institutions generally would increase the pool of savings for investment in mortgages.
The change in the maximum interest rates payable by member banks
on time deposits was the first since April 19, 1968, when maximum interest rates on deposits of $100,000 or more were increased. The change
in the maximum rate payable on passbook savings was the first since
November 24, 1964.
Governor Robertson dissented only from that part of the action raising the maximum rates payable on CD's of $100,000 or more. He
considered it imperative to avoid a premature, excessively rapid rate
of bank intermediation, lest the anti-inflationary benefits that the current level of restraint was producing be lost. While it was not clear that
the maximum-rate increase would enable banks to sell more large

CD's, neither was it clear that such action would not enable them to
gather in too large a volume of funds with which to expand bank
credit. Also, he foresaw a further upward ratcheting of interest rates if
the ceilings were raised sufficiently to do any good. In summary, he
believed caution was indicated in adjusting the rate ceilings, for no one
could accurately foresee the consequences.

F E B R U A R Y 26, 1970
AMENDMENT TO REGULATION Q, INTEREST ON
DEPOSITS.
Effective retroactively to January 21, 1970, the Board amended the Supplement to Regulation Q to authorize the same interest rate ceilings on 1and 2-year "consumer type" time certificates, with provision for automatic
renewal, as those prescribed for single-maturity certificates, that is, SVi and
53A per cent, respectively.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
The previous maximum rate had been 5 per cent on both types of
instruments. For multiple-maturity time deposits maturing in from 90
days to 1 year the maximum rate remained at 5 per cent.
This action was intended as an equitable adjustment to comparable
increases, announced on January 20 and effective on January 21, in the
maximum rates member banks could pay on single-maturity time deposits of 1 year or more. It was taken in view of the convenience to bank
customers of the automatic renewal feature of multiple-maturity deposits.

M A R C H 3, 1970
AMENDMENT TO REGULATION K, CORPORATIONS
ENGAGED IN FOREIGN BANKING AND FINANCING
UNDER T H E FEDERAL RESERVE ACT.
Effective immediately, the Board approved an amendment to Regulation
K regarding exemptions from its loan limits.

Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
The purpose of this amendment was to make clear that obligations
are exempt from the loan limits of the regulation to the extent that they
are insured against foreign political and credit risks by the Foreign
Credit Insurance Association, a joint enterprise of the Export-Import
Bank and a group of some 70 U.S. insurance companies.
M A R C H 12, 1970
AMENDMENT TO REGULATION Z, TRUTH IN LENDING.
Effective March 12, 1970, the Board approved an amendment to Regulation Z and adopted Supplement III to the regulation; both pertained to
States exempted from provisions of the regulation. In addition, effective
April 1, 1970, the State of Maine was granted exemption under the Federal
Truth in Lending Act.
Votes for this action: Messrs. Robertson, Mitchell,
Daane, Brimmer, and Sherrill. Votes against this
action: None. Absent and not voting: Messrs. Burns
and Maisel.
Section 123 of the Truth in Lending Act provides that the Board shall
exempt from the disclosure and rescission requirements of the Act any
class of transactions within a State if the State law provides requirements
substantially similar to those imposed by the Federal law, and if there
is adequate provision for enforcement.
The amendment to Regulation Z was designed to preserve the ability
of consumers to file civil actions under the Truth in Lending Act in Federal as well as in State courts after one or more classes of credit transactions within a State have been exempted by the Board from the applicable requirements of the Act. Supplement III to the regulation
listed each class of credit transaction within a specified State that would
be granted an exemption.
The State of Maine was granted the first State exemption from the
Act, applicable to all classes of credit transactions within the State
except those in which a federally chartered institution—such as a Federal credit union, Federal savings and loan association, or national bank
—is a creditor.

The Board later granted similar exemptions to the State of Oklahoma
effective June 1, 1970, the State of Massachusetts effective July 1, 1970,
and the State of Connecticut effective August 1, 1970.

M A R C H 17, 1970
AMENDMENTS TO FOREIGN CREDIT RESTRAINT
PROGRAM GUIDELINES.
Effective immediately, the guidelines covering foreign credits and investments by U.S. banks were amended in one specific respect.
Votes for this action: Messrs. Burns, Robertson,
Daane, Brimmer, and Sherrill. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Maisel.
The December 1969 revision of the voluntary foreign credit restraint
program guidelines had resulted in an inadvertent tightening in one
respect. The revised guidelines stated that a bank should not make new
term loans to residents of developed countries of continental Western
Europe except loans qualifying as "export term loans," whereas the
exception in the previous guidelines had applied to loans to finance
U.S. exports. Because "export term loans" were defined to exclude
loans of less than $250,000 each, the effect of the language of the revised guidelines was to prohibit, unintentionally, certain term loans to
Western Europe that had earlier been permissible. The action at this
time restored the language used previously in the special restraint for
Western Europe.
The foreign credit restraint guidelines were later amended in two
other respects:
The first amendment, effective May 13, generalized principles developed earlier in specific cases under which domestic subsidiaries of
U.S. banking institutions were allowed to offset certain foreign borrowings against the foreign assets that are subject to guideline restraint.
Under the amendments, domestic subsidiaries of Edge Act and agreement corporations of U.S. banks, in calculating their foreign assets
that are to be consolidated with those of their parents and thereby
made subject to guideline ceilings, were allowed to deduct any of the

subsidiaries' outstanding foreign borrowings with an original maturity
of 3 years or more.
The second amendment, made on September 16 effective with the
then-current monthly reporting period, permitted U.S. banks to count
export term loans of any size against their export-term-loan ceilings.
Previously, only such loans of $250,000 or more were to be counted.
The $250,000 floor had been carried over, along with other criteria,
from a Treasury Department reporting requirement that had been
adopted because it was already in wide use among banks when the
export-term-loan ceilings were created in 1969. The dropping of the
dollar floor was intended to provide some benefit for banks, particularly smaller banks, as well as for smaller exporters seeking to arrange
credits for their foreign customers.
M A R C H 26, 1970
EMERGENCY CREDIT FACILITIES FOR NONMEMBER
DEPOSITARY INSTITUTIONS.
The Board extended to August 1, 1970, its authorization to the Federal
Reserve Banks to provide, in accordance with certain specified principles,
emergency credit facilities to nonmember depositary institutions.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
As detailed on pages 92 and 93 of the Board's ANNUAL REPORT for
1969, on December 24, 1969, the Board authorized the Federal Reserve
Banks to provide emergency credit facilities, in accordance with specified principles, to nonmember depositary institutions that might be in
difficulty as to the adequacy of their liquidity reserves. The authority
was effective until April 1, 1970.
No extensions of credit had been necessary under the emergency
arrangements, and there appeared to be no strong prospect that any
would be required in the months ahead. However, it seemed desirable
that the Reserve Banks be able to respond quickly if any emergency
situation should arise. Accordingly, the authority granted in December
1969 was extended to August 1, 1970.
The authority was subsequently extended again to February 1,
1971.

A P R I L 9, 1970
AMENDMENT TO REGULATION A, ADVANCES AND
DISCOUNTS BY FEDERAL RESERVE BANKS.
Effective April 16, 1970, the Board amended Regulation A to eliminate
the regulatory requirement that paper offered by member banks to the Federal Reserve Banks for discount or as collateral for advances under Section
13 of the Federal Reserve Act must in all cases be negotiable.
Votes for this action: Messrs. Burns, Robertson,
Daane, Maisel, and Brimmer. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Sherrill.
The Federal Reserve Act does not require that paper offered by
member banks to the Federal Reserve Banks for discount or as collateral for advances under Section 13 of the Act must in all cases be negotiable. Under the Board's Regulation A, nonnegotiable paper had not
been permitted for discounts and advances under Section 13 of the
Act, but was permitted as collateral for advances under Section 10(b)
of the Act, although at a rate of interest higher than the regular Reserve
Bank rate.
This action recognized that it appeared unnecessary and undesirable to require for discounts and advances under Section 13 that paper
otherwise eligible and of good quality must in all instances meet technical requirements as to negotiability in order to be discounted or used
as collateral for advances at the regular discount rate. Elimination of
the regulatory requirement, however, did not preclude a Reserve Bank
in individual cases from declining to accept nonnegotiable paper for
discount or as collateral for advances.

A P R I L 9, 1970
AMENDMENT TO REGULATION T, CREDIT BY BROKERS
AND DEALERS.
Effective May 15, 1970, the Board amended Regulation T to permit life
insurance companies subject to registration with the Securities and Ex-

change Commission under Section 15 of the Securities Exchange Act of
1934 (because they offer or sell variable annuity contracts) to extend, maintain, or arrange for credit subject to Regulation G rather than to Regulation
T, where the securities credit they extend is unrelated to transactions involving a variable annuity or a general securities business.
Votes for this action: Messrs. Burns, Robertson,
Daane, Maisel, and Brimmer. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Sherrill.
When Regulation T was amended in 1969 to include over-the-counter
stock, its coverage was extended from brokers who were exchange
members, or did business through exchange members, to encompass all
stockbrokers registered with the Securities and Exchange Commission.
In an unrelated development in the securities field, large life insurance
companies had recently been determined in the courts to be brokers
because they offered certain equity products as part of their insurance
line. As a result, unless the Board provided relief, all lending activities
of such insurance companies could have been subject to Regulation T.
The strict rules of Regulation T cover many aspects of loans in addition to initial margin and are inappropriate for the conventional activities
involving portfolio investments of insurance companies. Nevertheless,
under the terms of the regulation, as they existed, such activities were
subject to those rules when credit to purchase or carry securities was
involved.
In the latter part of 1969 the Board had published for comments
a proposal to subject brokerage activities of insurance companies to
Regulation T and their conventional lending activities to Regulation G,
relating to securities credit extended by persons other than banks,
brokers, or dealers. No adverse comments had been received, and the
amendment now adopted reflected only technical changes from the original proposal. A temporary suspension of Regulation T as applied to
insurance companies, granted by the Board in July 1969, was extended
until the effective date of the amendment.

M A Y 1, 1970
AMENDMENTS TO REGULATION T, CREDIT BY
BROKERS AND DEALERS, AND REGULATION U,
CREDIT BY BANKS FOR THE PURPOSE OF
PURCHASING OR CARRYING MARGIN STOCKS.
Effective immediately, the Board amended Regulations T and U to permit arbitrage transactions without regard to margin requirements up to 180
days in certain circumstances.
Votes for this action: Messrs. Robertson, Daane,
Maisel, and Sherrill. Vote against this action: Mr.
Brimmer. Absent and not voting: Messrs. Burns and
Mitchell.
Transactions in a special arbitrage account are exempt from margin
requirements under certain conditions. One requirement for exemption had been that the security purchased must be exchangeable or
convertible within 90 days into the security sold in creating the arbitrage.
The effect of the amendments approved at this time was to permit a
180-day exchange or conversion period when the security purchased is
a due bill or other evidence of the right to receive the security sold,
and when the security sold is trading as a when-issued security.
The amendments had been proposed for consideration at this time
because of the unusual characteristics of the financing instrument being
offered currently by a utility company and the effect of deteriorating
market conditions on the likely success of the offering, which was the
largest in history. The Board concluded that the type of arbitrage transaction within the added exception was not of the type intended to be
restricted by the 90-day provision relating to arbitrage transactions when
that provision was adopted in 1961. It decided, therefore, that in the
circumstances the adoption of these limited technical amendments was
justified in the public interest.
Governor Brimmer voted against the amendments because he felt
it was inappropriate to take such an action if the specific effect would be
to minimize the risk of loss to a private corporation, especially when
certain options appeared to be available to the company.

M A Y 5, 1970
AMENDMENTS TO MARGIN REGULATIONS.
Effective May 6, 1970, the Board amended the Supplements to Regulation G, Securities Credit by Persons Other Than Banks, Brokers, or Dealers,
Regulation T, Credit by Brokers and Dealers, and Regulation U, Credit by
Banks for the Purpose of Purchasing or Carrying Margin Stocks, to lower
the margin requirement from 80 to 65 per cent for credit extended by
brokers, dealers, banks, and other lenders to finance the purchase or carrying of stocks and from 60 to 50 per cent for credit extended by such persons
to finance the purchase or carrying of convertible bonds. No change was
made in the 70 per cent retention requirement applicable to undermargined
accounts.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
In the Securities Exchange Act of 1934, Congress granted the Board
of Governors authority to impose margin requirements "for the purpose
of preventing the excessive use of credit for the purchase or carrying
of securities."
Since June 1968, when the margin requirements were increased from
70 to 80 per cent for stocks and from 50 to 60 per cent for convertible
bonds, margin credit extended by brokers had dropped from $6.7 billion
to $4.5 billion in March 1970, the latest month for which such information was available, and the number of margin accounts had dropped
from 940,000 to 820,000. Meanwhile, credit extended by banks for
purchasing or carrying securities had declined from a high of $2.8 billion
in February 1969 to $2.4 billion in March 1970. In view of the sharp
reduction in the use of credit for stock purchases, which reduction had
been accompanied by a rapid drop in stock prices in recent months, the
Board concluded that a move to less restrictive margin requirements
would be appropriate.
The action covered new extensions of credit by brokers and dealers
(Regulation T) and loans by banks and other lenders (Regulations U
and G, respectively) for the purpose of purchasing or carrying securities

registered on a national stock exchange or named in the Board's overthe-counter margin list.
No change was made in the 70 per cent "retention requirement"
applicable to undermargined accounts. That requirement specifies the
portion of the proceeds of a sale of securities from a margin account
that must be retained in the account if the equity in that account does
not match the margin requirements.

J U N E 4, 1970
AMENDMENT TO REGULATION V, LOAN GUARANTEES
FOR DEFENSE PRODUCTION.
Effective June 4, 1970, the Board amended the Supplement to Regulation
V to permit the governmental agency guaranteeing a loan under the Defense
Production Act of 1950, as amended, to prescribe from time to time a
higher interest rate than would otherwise be payable on such a loan if the
agency determines that such higher rate is necessary to obtain V-loan financing of a contract or other operation essential to the national defense.
Votes for this action: Messrs. Robertson, Mitchell,
Daane, Maisel, and Sherrill. Votes against this action:
None. Absent and not voting: Messrs. Burns and
Brimmer.
In 1969 the Supplement to Regulation V had been amended to provide that an agency guaranteeing a particular loan may from time to time
prescribe a rate higher than IVi per cent if it determines the loan to be
necessary in financing an essential defense production contract.
The current amendment was intended to make clear that the agency
guaranteeing a particular loan may from time to time prescribe a higher
rate if it determines the loan to be necessary for the purpose of financing
any contractor, subcontractor, or other person in connection with the
performance of any contract or other operation deemed by the guaranteeing agency to be necessary to expedite production and deliveries
or services under Government contracts for the procurement of materials or the performance of services for the national defense.

J U N E 12, 1970
AMENDMENTS TO REGULATION D, RESERVES OF
MEMBER BANKS, AND REGULATION Q, INTEREST
ON DEPOSITS.
Effective June 30, 1970, the Board amended Regulations D and Q to
narrow the category of member bank subordinated notes that are exempt
from reserve requirements and interest rate limitations.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
The effect of these amendments was to prescribe conditions that must
be met if subordinated notes or debentures issued by a member bank
are to be exempt from interest rate controls (Regulation Q) and
reserve requirements (Regulation D ) . The new conditions were designed to distinguish clearly between capital-type funds and deposit-type
funds.
The basic rule for new issues provided that, in order to be exempt
from Regulations Q and D, a subordinated note must have an original
maturity of 7 years or more and be in an amount of at least $500. Certain statements designed to assure that an investor in such notes would
understand the nature of his investment were required to be included in
each note, and the issuance of such notes had to be approved in advance by the member bank's primary Federal bank supervisor. In
exigent circumstances, the supervisor could permit the issuance of nondeposit subordinated notes with a maturity of less than 7 years.
Formerly, the exemption for subordinated notes had applied if the
maturity of the obligation was more than 2 years. The changes were
considered necessary in view of recent evidence that member banks
had been able to market such obligations to acquire deposit-type funds.
The changes were adopted following extensive consideration by the Interagency Coordinating Committee on Bank Regulation, which includes representatives of the three Federal bank supervisory agencies
and the Federal Home Loan Bank Board.

JUNE 23, 1970
AMENDMENT TO REGULATION Q, INTEREST ON
DEPOSITS.
Effective June 24, 1970, the Board amended the Supplement to Regulation Q to suspend the maximum limitations theretofore prescribed on the
rate of interest that member banks may pay on single-maturity deposits of
$100,000 or more that mature 30 days or more but less than 90 days after
the date of deposit. Prior to the amendment, such deposits maturing in
30-59 days had been subject to a maximum limitation of 6V4 per cent, and
those maturing in 60-89 days to a maximum limitation of 6V2 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Maisel, Brimmer, and Sherrill. Vote against
this action: Mr. Robertson.
The Board took this action in order to place member banks in a
better position to obtain funds with which to meet unusual demands
upon them for short-term credit accommodation as a consequence of
serious current uncertainties in financial markets.
Particular concern was centered in the market for commercial paper, which had been shaken by the insolvency proceedings instituted
over the preceding weekend by a major railroad corporation. Since it
appeared that pressures might pyramid in the commercial paper market, banks were assured promptly that the Federal Reserve discount
window would be available to assist them in meeting the needs of
businesses unable to roll over their maturing paper. The Regulation Q
action, taken shortly thereafter, was intended to enable banks to obtain
funds that investors had become reluctant to place in other markets
and to rechannel those funds to borrowers previously dependent upon
the issuance of commercial paper. Thus the resulting increases in bank
credit would not constitute an increase in total credit flows, to the extent that they represented simply a transfer of borrowings from other
financing avenues. Under such circumstances, appropriate accommodation through bank lending would be a constructive element in the
process of adjustment to changing financial conditions and would not
interfere with the continuing objective of curbing inflation.
The Board's action was taken after consultation with the Federal Deposit Insurance Corporation and the Federal Home Uoan Bank Board,
as required by law.

No change was made in the ceilings applicable to longer-term CD's
of $100,000 or more, which remained at 63A per cent for maturities of
90 to 179 days, 7 per cent for 180 days to 1 year, and IVi per cent for
1 year or more. Likewise, no change was made in the ceilings on savings
deposits or time deposits (including CD's) of less than $100,000, on
which the maximum rates payable ranged from Al/z to 5 3 4 per cent.
Governor Robertson's position was that the regulatory action should
not be taken until the circumstances that might impel it were clear, rather
than conjectured, and that its desirability should be weighed from the
broader standpoint of monetary policy and the struggle against inflation. Efforts by banks to sell CD's could generate unsettling pressures
in other domestic short-term markets, including the commercial paper
market, and if banks thereby gained loanable funds domestically, they
were likely to pay back their more expensive Euro-dollar borrowings,
thus aggravating the already adverse balance of payments situation. He
believed such developments would interfere substantially with the
broader objective of fostering only moderate growth in bank credit and
money in the interest of curbing inflation and encouraging an orderly
resumption of sustainable economic growth.

A U G U S T 17, 1970
AMENDMENTS TO REGULATION D, RESERVES OF
MEMBER BANKS.
Effective September 17, 1970, the Board amended Regulation D to apply
a 5 per cent reserve requirement against funds obtained by member banks
through the issuance of commercial paper by their affiliates. Effective October 1, 1970, it amended the Supplement to Regulation D to reduce from 6
to 5 per cent the reserves required to be maintained by member banks
against time deposits in excess of $5 million.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
In imposing reserve requirements against funds obtained by member
banks through the issuance of commercial paper or similar obligations
by their affiliates, the Board used for the first time the authority contained in the Act of December 23, 1969, which explicitly authorized

such action. In January the Board had published for comment a proposal to apply reserve requirements to such paper, but it subsequently
deferred action on the proposal in order to avoid additional stringency in
money and credit conditions.
The main purpose of the action now taken was to maintain the
effectiveness of the reserve requirement instrument. About $7.5 billion
of bank-related commercial paper was outstanding, the total having risen
by $5.5 billion during the preceding 12 months. The application of the
5 per cent reserve requirement to such paper was expected to increase
the required reserves of the affected member banks by roughly $350
million. Since most commercial paper is issued in denominations of
$100,000 or more, the extension of reserve requirements to bankrelated commercial paper served to put instruments of this kind on a
more nearly equal footing with negotiable CD's issued by banks.
The action to reduce reserve requirements against time deposits in
excess of $5 million, which coincided in terms of effective date with the
beginning of the fall period of seasonal expansion of deposits and required reserves, was expected to release reserves to the extent of about
$300 million at banks issuing commercial paper and in the amount of
about $400 million at other member banks.
Accordingly, the dual action was estimated to result in a reduction
in required reserves of about $350 million for the banking system as a
whole. The greater portion of the net reserves thus released would
become available to banks that in the current circumstances might be
expected to use a sizable share of the available funds in financing housing and State and local governments.

O C T O B E R 1, 1970
AMENDMENT TO REGULATION D, RESERVES OF
MEMBER BANKS.
Effective November 9, 1970, the Board amended the definition of the
term "savings deposit" contained in Regulation D.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, and Brimmer. Votes against this
action: None. Absent and not voting: Messrs. Maisel
and Sherrill.

The amendment was designed to prevent the use of funds deposited
by a trust department of a member bank in a savings deposit in the
commercial department of that bank in tandem with a checking account
so as to avoid the higher demand deposit reserve requirements. The
amendment, as adopted, was narrower in scope than a version that had
previously been published for comment. The effect of confining the
amendment to savings deposits was that the trust department of a
member bank could continue to classify a certain portion of the funds
on deposit in its commercial department as a time deposit, in accordance
with an interpretation issued by the Board in 1959.

O C T O B E R 23, 1970
AMENDMENT TO REGULATION Z, TRUTH IN LENDING.
Effective October 23, 1970, the Board amended Regulation Z to allow
creditors of open-end accounts to reduce the periodic rate or rates applicable to those accounts without the necessity of giving advance notice.
Votes for this action: Messrs. Burns, Robertson,
Daane, Maisel, and Sherrill. Votes against this action:
None. Absent and not voting: Messrs. Mitchell and
Brimmer.
Regulation Z provided that if any change was to be made in the terms
of an open-end credit account plan previously disclosed to the customer,
the creditor must give the customer written disclosure of such proposed
change not less than 30 days prior to the effective date of such change
or 30 days prior to the beginning of the billing cycle within which such
change would become effective, whichever date was earlier. Pursuant to
the amendment now adopted, no notice was necessary if the only change
was a reduction in the periodic rate or rates applicable to the account,
thereby benefiting the customer.

N O V E M B E R 10, 1970
REDUCTION IN RATES ON DISCOUNTS AND ADVANCES
BY FEDERAL RESERVE BANKS.
Effective November 11,1970, the Board approved actions that had been
taken by the boards of directors of the Federal Reserve Banks of Boston,

Richmond, Atlanta, St. Louis, Minneapolis, and San Francisco establishing
a rate of 53A per cent (rather than 6 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. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes
against this action: None.
The Board later approved similar actions by the directors of the
Federal Reserve Banks of New York, Cleveland, Chicago, Kansas City,
and Dallas effective November 13, and by the directors of the Federal
Reserve Bank of Philadelphia effective November 16, 1970.
Effective the same dates the Board approved for the respective Federal
Reserve Banks a rate of 6lA per cent (rather than 6*/2 per cent) on
advances to member banks under Section 10(b) of the Federal Reserve
Act. In addition the Board approved for most of the Banks reductions
in rates on advances to individuals, partnerships, and corporations other
than member banks under the last paragraph of Section 13 of the Act.
(In accordance with the provisions of the Federal Reserve Act, the
Federal Reserve Banks are required to establish rates on discounts for
and advances to member banks at least every 14 days and to submit such
rates to the Board for review and determination. Prior to this date the
most recent rate changes were made in April 1969, as described on pages
74-76 of the Board's ANNUAL REPORT for 1969.)
The reduction in the discount rate—the rate charged member banks
for borrowing from their district Reserve Banks—was made within the
general framework of the moderately expansive monetary policy that
had been initiated earlier in the year. More specifically, the action was
taken in recognition of the reductions that had occurred recently in
other short-term interest rates, including particularly the 3-month
Treasury bill rate, and was designed to bring the discount rate into
better alignment with short-term rates generally.
The action had the effect of assuring that the Federal Reserve did
not desire to resist the interest rate declines that were being manifested
in various markets, in an environment in which signs of economic weakness were becoming more apparent. Business spending was faltering,
and labor demand and consumer spending continued sluggish. In addition, recent evidence suggested that growth in bank credit and money

was falling short of monetary policy targets for the fourth quarter. On
the other hand, there was some reason to anticipate that the economy
would show more strength once the strike against a major automobile
manufacturer was settled, and inflationary attitudes remained a problem. A larger discount rate reduction would have increased the risk of
rekindling inflationary expectations at a time when it appeared that some
progress in dampening them was being made.
The current reduction in the discount rate was the first since August
1968, when the rate was lowered from 51/* to 5V4 per cent. Since then
the rate had been increased to 5V2 per cent in December 1968, and to
6 per cent in April 1969.

N O V E M B E R 22, 1970
AMENDMENTS TO REGULATION A, ADVANCES AND DISCOUNTS BY FEDERAL RESERVE BANKS.
Effective November 23, 1970, the Board amended Regulation A so as to
facilitate a simplification of procedures with respect to extensions of Reserve
Bank credit by elimination of regulatory language that implied that a formal
written application must be submitted by a member bank in connection with
each borrowing from a Reserve Bank and that a promissory note must be
executed in connection with each such borrowing.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes
against this action: None.
The amendments represented essentially procedural and technical
improvements and reflected no change in the Federal Reserve's general
monetary and credit policies. They were intended to facilitate the adoption by the Federal Reserve Banks of a uniform, continuing lending
agreement in lieu of formal applications and promissory notes, along
with procedures under which (1) the Reserve Banks would accrue interest on advances and collect such interest at the time of repayment
instead of computing and charging interest on a discount basis at the
time of the advance, and (2) all changes in the discount rate would be
made immediately applicable to outstanding loans. In order to provide
sufficient lead time for all concerned, including member banks, to
familiarize themselves with the new procedures, the Board, after con-

sultation with the Reserve Banks, expressed the view that February 4,
1971, would be an appropriate date for inauguration of the new procedures at all Reserve Banks.
N O V E M B E R 30, 1970
REDUCTION IN RATES ON DISCOUNTS AND ADVANCES
BY FEDERAL RESERVE BANKS.
Effective December 1, 1970, the Board approved actions that had been
taken by the boards of directors of the Federal Reserve Banks of Boston,
Cleveland, Atlanta, Minneapolis, and Dallas establishing a rate of 5Vi per
cent (rather than 5% 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. Burns, Robertson,
Daane, Maisel, Brimmer, and Sherrill. Votes against
this action: None. Absent and not voting: Mr.
Mitchell.
The Board later approved similar actions by the directors of the Federal Reserve Banks of New York, Philadelphia, and San Francisco
effective December 4, by the directors of the Federal Reserve Bank of
Kansas City effective December 10, and by the directors of the Federal
Reserve Banks of Richmond, Chicago, and St. Louis effective December
11,1970.
Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of 6 per cent (rather than 6V4 per cent) on
advances to member banks under Section 10(b) of the Federal Reserve
Act. In addition the Board approved for most of the Banks reductions
in rates on advances to individuals, partnerships, and corporations other
than member banks under the last paragraph of Section 13 of the Act.
The discount rates of the respective Federal Reserve Banks had
been reduced from 6 to 53A per cent effective during the week beginning
November 11. Since that time there had been a further downward trend
in short-term interest rates, against a background of sluggishness in
demands for money and in over-all economic activity. The further
reduction in the discount rate to 5Vi per cent was made in recognition
of the declining trend in short-term interest rates and was in keeping
with a desire to maintain a suitable alignment between the discount
rate and market rates.

N O V E M B E R 30, 1970
AMENDMENTS TO REGULATION D, RESERVES OF MEMBER BANKS, AND REGULATION M, FOREIGN ACTIVITIES
OF NATIONAL BANKS.
Effective January 7, 1971, the Board amended the Supplement to Regulation D and amended Regulation M for the purpose of strengthening the
inducement for U.S. banks to retain their Euro-dollar liabilities and thus
moderate the pace of repayment of Euro-dollar borrowings.
Votes for this action: Messrs. Burns, Robertson,
Daane, Maisel, Brimmer, and Sherrill. Votes against
this action: None. Absent and not voting: Mr.
Mitchell.
A matter of increasing concern was the deleterious effect on the U.S.
balance of payments of the repayment by U.S. banks of their Euro-dollar
borrowings. Such repayments had already assumed heavy proportions,
and pressure toward acceleration of that movement seemed certain to
intensify if U.S. short-term rates declined further and domestic demands
for credit continued to moderate. In the circumstances, the Board took
three interrelated actions designed to strengthen the inducement for U.S.
banks to retain their Euro-dollar liabilities.
First, the Board raised from 10 to 20 per cent the reserves required
to be maintained by member banks against Euro-dollar borrowings that
exceed the amounts that the banks are allowed as a reserve-free base.
The higher requirement was intended to give banks an added inducement to preserve their reserve-free bases against a time of future need
instead of allowing their bases to be lowered automatically by repaying
their Euro-dollar borrowings. The higher requirement became effective in the 4-week reserve computation period ending December 23,
1970.
In a second step, to assure that the higher marginal reserve requirement did not penalize banks that had Euro-dollar liabilities above their
reserve-free bases, the Board amended its regulations so as to make
the marginal reserve requirement applicable to borrowings above either
(1) the minimum base equal to a percentage of deposits, or (2) the
average level in the reserve computation period ended November 25,
1970, whichever was higher.
Third, the Board amended its regulations to discourage repayment
of Euro-dollar liabilities not only by banks that used an historically

determined reserve-free base originally related to their May 1969 borrowings but also by those banks that operated under a minimum base
equal to 3 per cent of their over-all deposits subject to reserve requirements. The amendment applied the automatic downward adjustment to
reserve-free bases of the latter kind as well as of the former. This particular amendment became effective with the reserve computation period
ending January 20,1971.
Although the steps announced were deliberately of modest scale, the
Board noted that it had under review other measures that might be
adopted for the purpose of tempering the repayment of Euro-dollars
while avoiding penalty to banks that operated so as to retain their
reserve-free bases.

D E C E M B E R 22, 1970
AMENDMENTS TO REGULATION Q, INTEREST ON
DEPOSITS.
Effective January 1, 1971, the Board amended Regulation Q to authorize
the use of a 360-day basis in computing simple daily interest on time and
savings deposits.
Votes for this action: Messrs. Robertson, Daane,
Maisel, Brimmer, and Sherrill. Votes against this
action: None. Absent and not voting: Messrs. Burns
and Mitchell.
The effect of the amendment was to permit, although not require,
member banks to pay simple daily interest at the applicable maximum
rate by using 360 rather than 365 as the denominator of a fraction in
which the numerator is the actual number of days the deposit earns
interest. The Board also changed an outstanding interpretation of Regulation Q so as to authorize the compounding of interest daily or continuously by use of a similar time factor.
The intent of the Board was to move in the direction of setting more
general regulatory standards for the payment of interest on deposits,
allowing reasonable flexibility thereunder for adaptation by banks to
accepted practices and competitive innovations.

Record of Policy Actions of the
Federal Open Market Committee
The record of policy actions of the Federal Open Market Committee
is presented in the ANNUAL REPORT of the Board of Governors pursuant to the requirements of Section 10 of the Federal Reserve Act.
That section provides that the Board shall keep a complete record of
the actions taken by the Board and by the Federal Open Market Committee on all questions of policy relating to open market operations,
that it shall record therein the votes taken in connection with the determination of open market policies and the reasons underlying each such
action, and that it shall include in its ANNUAL REPORT to the Congress
a full account of such actions.
In the pages that follow, there are entries with respect to the policy
actions taken at the meetings of the Federal Open Market Committee
held during the calendar year 1970, including the votes on the policy
decisions made at those meetings as well as a resume of the basis
for the decisions. The summary descriptions of economic and financial
conditions are based on the information that was available to the
Committee at the time of the meetings, rather than on data as they
may have been revised later.
It will be noted from the record of policy actions that in some
cases the decisions were by unanimous vote and that in other cases
dissents were recorded. The fact that a decision in favor of a general
policy was by a large majority, or even that it was by unanimous vote,
does not necessarily mean that all members of the Committee were
equally agreed as to the reasons for the particular decision or as to
the precise operations in the open market that were called for to implement the general policy.
Under the Committee's rules relating to the availability of information to the public, the policy record for each meeting is released
approximately 90 days following the date of the meeting and is subsequently published in the Federal Reserve Bulletin as well as in the
Board's ANNUAL REPORT.

Policy directives of the Federal Open Market Committee are 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. In the area of domestic open market activities the Federal
Reserve Bank of New York operates under two separate directives
from the Open Market Committee—a continuing authority directive
and a current economic policy directive. In the foreign currency area
it operates under an authorization for System foreign currency operations and a foreign currency directive. These four instruments are
shown below in the form in which they were in effect at the beginning
of 1970. No revisions were made in the foreign currency directive
during the year; changes in the other instruments are shown in the
records for the individual meetings.
CONTINUING AUTHORITY DIRECTIVE WITH RESPECT TO
DOMESTIC OPEN MARKET OPERATIONS
(in effect January 1,1970)
1. The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, to the extent necessary to carry out
the most recent current economic policy directive adopted at a meeting of
the Committee:
(a) To buy or sell U.S. Government securities in the open market,
from or to Government securities dealers and foreign and international
accounts maintained at the Federal Reserve Bank of New York, on a
cash, regular, or deferred delivery basis, for the System Open Market
Account at market prices and, for such Account, to exchange maturing
U.S. Government securities with the Treasury or allow them to mature
without replacement; provided that the aggregate amount of such securities held in such Account at the close of business on the day of a meeting of the Committee at which action is taken with respect to a current
economic policy directive shall not be increased or decreased by more
than $2.0 billion during the period commencing with the opening of
business on the day following such meeting and ending with the close
of business on the day of the next such meeting;
(b) To buy or sell prime bankers' acceptances of the kinds designated
in the Regulation of the Federal Open Market Committee in the open
market, from or to acceptance dealers and foreign accounts maintained
at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the account of the Federal Reserve Bank of
New York at market discount rates; provided that the aggregate amount

of bankers' acceptances held at any one time shall not exceed (1) $125
million or (2) 10 per cent of the total of bankers' acceptances outstanding as shown in the most recent acceptance survey conducted by the
Federal Reserve Bank of New York, whichever is the lower;
(c) To buy U.S. Government securities, obligations that are direct
obligations of, or fully guaranteed as to principal and interest by, any
agency of the United States, and prime bankers' acceptances with maturities of 6 months or less at the time of purchase, from nonbank dealers
for the account of the Federal Reserve Bank of New York und^r agreements for repurchase of such securities, obligations, or acceptances in
15 calendar days or less, at rates not less than (1) the discount rate of
the Federal Reserve Bank of New York at the time such agreement is
entered into, or (2) the average issuing rate on the most recent issue of
3-month Treasury bills, whichever is the lower; provided that in the
event Government securities or agency issues covered by any such agreement are not repurchased by the dealer pursuant to the agreement or
a renewal thereof, they shall be sold in the market or transferred to the
System Open Market Account; and provided further that in the event
bankers' acceptances covered by any such agreement are not repurchased
by the seller, they shall continue to be held by the Federal Reserve Bank
or shall be sold in the open market.
2. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York to purchase directly from the Treasury for
the account of the Federal Reserve Bank of New York, or, if the New
York Reserve Bank is closed, any other Reserve Bank for its own account
(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 rate charged
on such certificates shall be a rate XA of 1 per cent below the discount rate
of the Federal Reserve Bank of New York at the time of such purchases,
and provided further that the total amount of such certificates held at any
one time by the Federal Reserve Banks shall not exceed $1 billion.
3. In order to insure the effective conduct of open market operations, the
Federal Open Market Committee authorizes and directs the Federal Reserve Banks to lend U.S. Government securities held in the System Open
Market Account to Government securities dealers and to banks participating in Government securities clearing arrangements conducted through a
Federal Reserve Bank, under such instructions as the Committee may
specify from time to time.

CURRENT ECONOMIC POLICY DIRECTIVE
(in effect January 1,1970)
The information reviewed at this meeting indicates that real economic
activity has expanded only moderately in recent quarters and that a further
slowing of growth appears to be in process. Prices and costs, however, are
continuing to rise at a rapid pace. Most market interest rates have advanced
further in recent weeks partly as a result of expectational factors, including
concern about the outlook for fiscal policy. Bank credit rose rapidly in
November after declining on average in October, while the money supply
increased moderately over the 2-month period; in the third quarter, bank
credit had declined on balance and the money supply was about unchanged.
The net contraction of outstanding large-denomination CD's has slowed
markedly since late summer, apparently reflecting mainly an increase in
foreign official time deposits. However, flows of consumer-t)'pe time and
savings funds at banks and nonbank thrift institutions have remained weak,
and there is considerable market concern about the potential size of net
outflows expected around the year-end. In November the balance of payments deficit on the liquidity basis diminished further and the official settlements balance reverted to surplus, mainly as a result of return flows out of
the German mark and renewed borrowing by U.S. banks from their foreign
branches. In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive
to the reduction of inflationary pressures, with a view to encouraging sustainable economic growth and attaining reasonable equilibrium in the country's balance of payments.
To implement this policy, System open market operations until the next
meeting o:: the Committee shall be conducted with a view to maintaining
the prevailing firm conditions in the money market; provided, however,
that operations shall be modified if bank credit appears to be deviating significantly from current projections or if unusual liquidity pressures should
develop.
AUTHORIZATION FOR SYSTEM FOREIGN CURRENCY OPERATIONS
(in effect January 1,1970)
1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for System Open Market Account, to the
extent necessary to carry out the Committee's foreign currency directive
and express authorizations by the Committee pursuant thereto:
A. To purchase and sell the following foreign currencies in the form of
cable transfers through spot or forward transactions on the open market

at home and abroad, including transactions with the U.S. Stabilization
Fund established by Section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, and with the Bank for International Settlements:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kronor
Swiss francs
B. To hold foreign currencies listed in paragraph A above, up to the
following limits:
(1) Currencies purchased spot, including currencies purchased from
the Stabilization Fund, and sold forward to the Stabilization Fund, up to $1
billion equivalent;
(2) Currencies purchased spot or forward, up to the amounts necessary to fulfill other forward commitments;
(3) Additional currencies purchased spot or forward, up to the
amount necessary for System operations to exert a market influence but not
exceeding $250 million equivalent; and
(4) Sterling purchased on a covered or guaranteed basis in terms of
the dollar, under agreement with the Bank of England, up to $300 million
equivalent.
C. To have outstanding forward commitments undertaken under paragraph A above to deliver foreign currencies, up to the following limits:
(1) Commitments to deliver foreign currencies to the Stabilization
Fund, up to the limit specified in paragraph 1B(1) above;
(2) Commitments to deliver Italian lire, under special arrangements
with the Bank of Italy, up to $500 million equivalent; and
(3) Other forward commitments to deliver foreign currencies, up to
$550 million equivalent.
D. To draw foreign currencies and to permit foreign banks to draw
dollars under the reciprocal currency arrangements listed in paragraph 2

below, provided that drawings by either party to any such arrangement
shall be fully liquidated within 12 months after any amount outstanding at
that time was first drawn, unless the Committee, because of exceptional
circumstances, specifically authorizes a delay.
2. The Federal Open Market Committee directs the Federal Reserve
Bank of New York to maintain reciprocal currency arrangements ("swap"
arrangements) for System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among
those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks
and Bankers, and with the approval of the Committee to renew such
arrangements on maturity:

Foreign bank
Austrian National Bank
National Bank of Belgium
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements:
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs

Amount of
arrangement
(millions of
dollars equivalent)
200
500
1,000
200
2,000
1,000
1,000
1,000
1,000
130
300
200
250
600
600
1,000

3. Unless otherwise expressly authorized by the Committee, all transactions in foreign currencies undertaken under paragraph 1(A) above shall
be at prevailing market rates and no attempt shall be made to establish
rates that appear to be out of line with underlying market forces.

4. It shall be the practice to arrange with foreign central banks for the
coordination of foreign currency transactions. In making operating arrangements with foreign central banks on System holdings of foreign currencies,
the Federal Reserve Bank of New York shall not commit itself to maintain
any specific balance, unless authorized by the Federal Open Market Committee. Any agreements or understandings concerning the administration of
the accounts maintained by the Federal Reserve Bank of New York with
the foreign banks designated by the Board of Governors under Section
214.5 of Regulation N shall be referred for review and approval to the
Committee.
5. Foreign currency holdings shall be invested insofar as practicable,
considering needs for minimum working balances. Such investments shall
be in accordance with Section 14(e) of the Federal Reserve Act.
6. A Subcommittee consisting of the Chairman and the Vice Chairman
of the Committee and the Vice Chairman of the Board of Governors (or
in the absence of the Chairman or of the Vice Chairman of the Board of
Governors the members of the Board designated by the Chairman as alternates, and in the absence of the Vice Chairman of the Committee his
alternate) is authorized to act on behalf of the Committee when it is
necessary to enable the Federal Reserve Bank of New York to engage in
foreign currency operations before the Committee can be consulted. All
actions taken by the Subcommittee under this paragraph shall be reported
promptly to the Committee.
7. The Chairman (and in his absence the Vice Chairman of the Committee, and in the absence of both, the Vice Chairman of the Board of
Governors) is authorized:
A. With the approval of the Committee, to enter into any needed agreement or understanding with the Secretary of the Treasury about the division of responsibility for foreign currency operations between the System
and the Secretary;
B. To keep the Secretary of the Treasury fully advised concerning System foreign currency operations, and to consult with the Secretary on such
policy matters as may relate to the Secretary's responsibilities; and
C. From time to time, to transmit appropriate reports and information
to the National Advisory Council on International Monetary and Financial
Policies.
8. Staff officers of the Committee are authorized to transmit pertinent
information on System foreign currency operations to appropriate officials
of the Treasury Department.
9. All Federal Reserve Banks shall participate in the foreign currency
operations for System Account in accordance with paragraph 3 G ( l ) of the

Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944.
10. The Special Manager of the System Open Market Account for foreign currency operations shall keep the Committee informed on conditions
in foreign exchange markets and on transactions he has made and shall
render such reports as the Committee may specify.

FOREIGN CURRENCY DIRECTIVE
(in effect January 1, 1970)
1. The basic purposes of System operations in foreign currencies are:
A. To help safeguard the value of the dollar in international exchange
markets;
B. To aid in making the system of international payments more efficient;
C. To further monetary cooperation with central banks of other countries having convertible currencies, with the International Monetary Fund,
and with other international payments institutions;
D. To help insure that market movements in exchange rates, within the
limits stated in the International Monetary Fund Agreement or established
by central bank practices, reflect the interaction of underlying economic
forces and thus serve as efficient guides to current financial decisions,
private and public; and
E. To facilitate growth in international liquidity in accordance with the
needs of an expanding world economy.
2. Unless otherwise expressly authorized by the Federal Open Market
Committee, System operations in foreign currencies shall be undertaken
only when necessary:
A. To cushion or moderate fluctuations in the flows of international
payments, if such fluctuations (1) are deemed to reflect transitional market
unsettlement or other temporary forces and therefore are expected to be
reversed in the foreseeable future; and (2) are deemed to be disequilibrating or otherwise to have potentially destabilizing effects on U.S. or foreign
official reserves or on exchange markets, for example, by occasioning market anxieties, undesirable speculative activity, or excessive leads and lags
in international payments;
B. To temper and smooth out abrupt changes in spot exchange rates,
and to moderate forward premiums and discounts judged to be disequilibrating. Whenever supply or demand persists in influencing exchange rates
in one direction, System transactions should be modified or curtailed unless
upon review and reassessment of the situation the Committee directs otherwise;

C. To aid in avoiding disorderly conditions in exchange markets. Special
factors that might make for exchange market instabilities include (1) responses to short-run increases in international political tension, (2) differences in phasing of international economic activity that give rise to unusually large interest rate differentials between major markets, and (3)
market rumors of a character likely to stimulate speculative transactions.
Whenever exchange market instability threatens to produce disorderly conditions, System transactions may be undertaken if the Special Manager
reaches a judgment that they may help to re-establish supply and demand
balance at a level more consistent with the prevailing flow of underlying
payments. In such cases, the Special Manager shall consult as soon as
practicable with the Committee or, in an emergency, with the members
of the Subcommittee designated for that purpose in paragraph 6 of the
Authorization for System foreign currency operations; and
D. To adjust System balances within the limits established in the
Authorization for System foreign currency operations in light of probable
future needs for currencies.
3. System drawings under the swap arrangements are appropriate when
necessary to obtain foreign currencies for the purposes stated in paragraph
2 above.
4. Unless otherwise expressly authorized by the Committee, transactions
in forward exchange, either outright or in conjunction with spot transactions, may be undertaken only (i) to prevent forward premiums or discounts from giving rise to disequilibrating movements of short-term funds;
(ii) to minimize speculative disturbances; (iii) to supplement existing market supplies of forward cover, directly or indirectly, as a means of encouraging the retention or accumulation of dollar holdings by private
foreign holders; (iv) to allow greater flexibility in covering System or
Treasury commitments, including commitments under swap arrangements,
and to facilitate operations of the Stabilization Fund; (v) to facilitate the
use of one currency for the settlement of System or Treasury commitments
denominated in other currencies; and (vi) to provide cover for System
holdings of foreign currencies.

MEETING HELD ON JANUARY 15, 1970
Authority to effect transactions in System Account.

Growth in real gross national product came to a halt in the fourth
quarter of 1969, according to preliminary Commerce Department
estimates, but prices and costs were continuing to rise rapidly. Staff
projections suggested that there would be little change in real economic activity in early 1970. It appeared likely that upward pressures
on prices would persist, although perhaps moderating somewhat as
the year progressed.
Signs of weakness in the economy at the year-end were reflected
in various monthly economic series. Industrial production had declined in December for the fifth successive month. Although the unemployment rate remained at the low November level of 3.4 per cent,
nonfarm employment had edged down, and employment in manufacturing was reduced for the fourth month in a row. Retail sales were
about unchanged in December, and after adjustment for price increases, they remained below the level of a year earlier. Housing
starts and manufacturers' new orders for durable goods had continued
downward in November, the latest month for which data were available.
Average wholesale prices rose considerably further from midNovember to mid-December for both industrial commodities and farm
and food products. Among industrial commodities, advances were
particularly marked for nonferrous metals and for machinery and
equipment. The consumer price index again rose substantially in
November.
The Commerce Department figures for the fourth quarter indicated
that real GNP had leveled out primarily because of a reduction in
the rate of inventory accumulation by business; growth in final sales
slowed only moderately further. The staff projections for the first
half of 1970 suggested that the rate of inventory accumulation would
decline further and that growth in final sales would remain sluggish.
It appeared likely that Federal expenditures and residential construction outlays would decline in both the first and second quarters and
that growth in spending by State and local governments would remain
slow.

There were some elements of strength in the outlook, including
reported plans by businesses to increase outlays on new plant and
equipment substantially further in 1970. In addition, under recent
legislation the income tax surcharge had been reduced from 10 to 5
per cent as of January 1 (and would be eliminated as of July 1), and
social security benefits had been raised by 15 per cent as of January
1—with the higher payments, including a retroactive payment, to
begin in April. However, the stimulating effect of this legislation
on consumer spending was expected to be offset in part by other
factors tending to slow growth in personal income and by some rise
in the saving rate.
The small surplus in U.S. foreign trade that had been recorded in
the third quarter was maintained in the first 2 months of the fourth
quarter, as both exports and imports increased moderately. With
respect to the over-all payments balance, extremely heavy capital inflows in the final weeks of the year resulted in large surpluses in December and in the fourth quarter as a whole on both the "liquidity"
and "official reserve transactions" bases of calculation.1 It appeared
that the year-end inflow reflected further repatriations out of German
mark holdings together with the return of funds from various sources
by U.S. corporations partly in order to comply with U.S. Government controls on direct investments abroad. Some of the inflow was
reversed early in January.
The Treasury was expected to announce in late January the terms
on which it would refund bonds maturing in mid-February. It seemed
likely that the Treasury would decide to refund bonds maturing in
mid-March at the same time. About $6.7 billion of such securities
would mature on those two dates, of which $5.6 billion were held by
the public.
System open market operations since the mid-December meeting
of the Committee had been directed at maintaining the prevailing firm
x
The balance on the "liquidity" basis is measured by changes in U.S. reserves
and in liquid U.S. liabilities to all foreigners. The balance on the "official reserve
transactions" basis (sometimes referred to as the "official settlements" basis) is
measured by changes in U.S. reserves and in liquid and certain nonliquid liabilities
to foreign official agencies, mainly monetary authorities. The latter balance differs
from the former by (1) treating changes in liquid U.S. liabilities to foreigners
other than official agencies as ordinary capital flows, and (2) treating changes in
certain nonliquid liabilities to foreign monetary authorities as financing items
rather than ordinary capital flows.

conditions in the money market. When seasonal forces around the
turn of the year tended to produce considerable tautness in the money
market—as reflected in effective Federal funds rates of 9.5 and 9.75
per cent on a number of days—the pressure on marginal reserve positions of member banks was eased somewhat. The average rate on
Federal funds in the 4 weeks ending January 7 was slightly below 9
per cent, little changed from the preceding 3 weeks. Average member
bank borrowings declined by about $200 million, to approximately
$1.0 billion; average net borrowed reserves declined somewhat more
as a result of a seasonal increase in excess reserves at year-end.
In the opening weeks of 1970 interest rates moved down for
Treasury securities of all maturities and for new corporate and
municipal bonds. These reductions reflected in part the demands of
small investors who were employing funds that they had withdrav/n from
depositary institutions. For corporate and municipal bonds the reductions extended declines that had been under way since early and
mid-December, respectively. Yields on Treasury securities, however,
had remained under upward pressure until the end of 1969, for various reasons—including dealer efforts to hold down inventories in the
face of high financing costs; bank sales of coupon-bearing issues in
reaction to certain provisions of the newly enacted Tax Reform Act;
and sales of Treasury bills by foreign official institutions. Threemonth Treasury bill rates had reached record highs on December 29
—8.08 per cent for the market rate and 8.10 per cent for the average
auction rate. But by the day before this meeting the market rate on
3-month bills had fallen to 7.87 per cent, about the same as it had
been a month earlier. However, yields on Treasury notes and bonds
were still above their mid-December levels.
Both commercial banks and nonbank thrift institutions—savings
and loan associations and mutual savings banks—apparently had
experienced very heavy outflows of consumer-type time and savings
funds after year-end interest and dividend crediting. Earlier, in response to reduced net inflows of savings funds and pessimistic appraisals of the outlook, the thrift institutions had cut back their new
mortgage commitments substantially. With mortgage interest rates
continuing under upward pressure, the ceiling rate on federally underwritten home mortgages was raised from IV2 to SV2 per cent, effective
January 5.

In December total time and savings deposits of commercial banks
had increased for the first time in a year. Flows of consumer-type
deposits had remained weak in that month, and Holdings by domestic
depositors of large-denomination negotiable certificates of deposit
(CD's) had continued to contract. However, there was a sizable
further rise in foreign official time deposits. Over the fourth quarter
as a whole total time and savings deposits had been about unchanged.
Private demand deposits and the money stock declined during most
of December. However, they increased sharply in the final week of the
year—as a result in part of various technical factors and in part of
exceptionally large year-end money flows, apparently including the
repatriation of funds from abroad by corporations in compliance with
Government controls on foreign direct investments. The year-end
surge, which was believed likely to prove temporary, was sufficient to
cause the money stock to grow at an annual rate of about 2 per cent
from November to December and about 1 per cent over the fourth
quarter as a whole. In the third quarter the money stock had not
grown.
Bank credit, as measured by the proxy series—daily-average member bank deposits 2—declined from November to December at an
annual rate of 0.5 per cent. After adjustment for changes in the outstanding volume of funds obtained by banks from "nondeposit"
2
In recent years the Committee has been making use of daily-average statistics
on total member bank deposits as a "bank credit proxy"—that is, the best available measure, although indirect, of developing movements in bank credit. Because
the deposit figures are compiled on a daily basis with a very short lag, they are
more nearly current than available bank loan and investment data. Moreover,
average deposit figures for a calendar month are much less subject to the influence
of single-date fluctuations than are the available month-end data on total bank
credit, which represent estimates of loans and investments at all commercial banks
on one day—the last Wednesday—of each month. For statistics on daily-average
member bank deposits, see the table in the statistical section of the Federal Reserve
BULLETIN (p. A-17 of the January 1970 issue).
Some brief comments on the relation between the member bank deposit series
and the bank credit statistics are given in the note on p. 1460 of the BULLETIN for
October 1966. As indicated in that note, movements in total member bank deposits and in commercial bank credit can diverge for various reasons, including
changes in "nondeposit" liabilities of banks. Changes in U.S. bank liabilities to
foreign branches and, more recently, in funds raised by other means—particularly
the sale of commercial paper by bank affiliates—have become important sources
of such divergence. Accordingly, an "adjusted" proxy series, taking approximate
account of such changes, is also calculated for Committee use.

sources—including a reduction in the average level of their Eurodollar borrowings through foreign branches and a rise in the volume
of funds obtained through sales of commercial paper by bank affiliates—the proxy series increased at an annual rate of 1.5 per cent from
November to December. The adjusted bank credit proxy rose at a 2
per cent annual rate during the fourth quarter, following a decline
at a 4.3 per cent rate in the third quarter.
Staff projections suggested that the adjusted bank credit proxy
would decline over the first quarter and the money stock would change
little on balance, assuming maintenance of prevailing money market
conditions and no changes in maximum interest rates payable on
time and savings deposits under the Board's Regulation Q. The adjusted proxy series was projected to contract at annual rates of 1 to
4 per cent from December to January and 4 to 7 per cent from January to February, in large part because of anticipated net reductions
in time and savings deposits.
While taking note of the leveling off in real economic activity,
the Committee agreed that any marked relaxation of monetary restraint would be premature at present in light of the persistence of inflationary pressures and expectations. At the same time, considerable
concern was expressed about the prospect that in the first quarter
both bank credit and the money stock would continue to show no
significant growth if prevailing money market conditions and Regulation Q ceiling rates were maintained. In this connection it was reported that the Board of Governors planned shortly to consider increases in the Regulation Q ceilings.
In the discussion of open market policy, some members expressed
the view that the specific money market conditions sought—within the
range of conditions sufficiently firm to be consistent with a posture
of monetary restraint—should be those most likely to be conducive
to modest growth in bank credit and the money stock over the first
quarter. Other members thought that a slight lessening of pressures
on the money market might be accommodated, but they nevertheless
favored relying mainly on early action with respect to Regulation Q in
the effort to encourage some growth in bank credit. Still others indicated that on balance they were inclined toward maintaining the
prevailing conditions in the money market.
The Committee concluded that in the conduct of open market

operations increased stress should be placed on the objective of
achieving modest growth in the monetary aggregates, with about equal
weight being given to bank credit and the money stock. It was agreed
that operations should be directed at maintaining firm conditions in
the money market, but that they should be modified if it appeared that
the objective with respect to the aggregates was not being achieved.
It was also agreed that account should be taken of the forthcoming
Treasury refunding, and of the effects of any action by the Board
with respect to Regulation Q.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real economic activity leveled off in the fourth quarter of 1969 and that little
change is in prospect for the early part of 1970. Prices and costs,
however, are continuing to rise at a rapid pace. Most market interest
rates have receded from highs reached during December. Bank credit
and the money supply increased slightly on average in December and
also over the fourth quarter as a whole. Outstanding large-denomination CD's held by domestic depositors have continued to contract in
recent months while foreign official time deposits have expanded considerably. Flows of consumer-type time and savings funds at banks
and nonbank thrift institutions have remained weak, and there apparently were sizable net outflows after year-end interest crediting.
U.S. imports and exports have both grown further in recent months
but through November the trade balance showed little or no further
improvement from the third-quarter level. At the year-end the overall balance of payments statistics were buoyed by large temporary inflows of U.S. corporate funds. In light of the foregoing developments,
it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the orderly reduction of inflationary
pressures, with a view to encouraging sustainable economic growth
and attaining reasonable equilibrium in the country's balance of
payments.
To implement this policy, while taking account of the forthcoming
Treasury refunding, possible bank regulatory changes and the Committee's desire to see a modest growth in money and bank credit, System open market operations until the next meeting of the Committee
shall be conducted with a view to maintaining firm conditions in the
money market; provided, however, that operations shall be modified

if money and bank credit appear to be deviating significantly from
current projections.
Votes for this action: Messrs. Martin, Hayes, Bopp,
Brimmer, Clay, Coldwell, Daane, Maisel, Mitchell,
Robertson, Scanlon, and Sherrill. Votes against this
action: None.

MEETING HELD ON FEBRUARY 10, 1970
Authority to effect transactions in System Account.
According to information reviewed at this meeting, over-all economic
activity apparently was weakening further in early 1970 but prices and
costs were continuing to rise rapidly. Staff projections suggested that
real GNP, which had leveled off in the fourth quarter of 1969, would
decline slightly in the first half of 1970 but would begin growing again
in the second half. Some moderation in the rate of price advance was
expected over the course of the year.
Industrial production was tentatively estimated to have declined in
January for the sixth consecutive month. There were various indications that the demand for labor was continuing to ease: Total nonfarm
employment was about unchanged in January at the level reached 3
months earlier, the average length of the workweek in manufacturing
had declined sharply, and the over-all unemployment rate had risen to
3.9 per cent after 2 months at the (revised) level of 3.5 per cent. Retail
sales estimates for November and December had been revised downward to levels below October, and weekly sales data for January suggested only a slight advance in that month. Private housing starts declined again in December, reaching their lowest level since June 1967,
and the downtrend had apparently continued in January.
Average wholesale prices continued to rise at a rapid pace from midDecember to mid-January; the increase was exceptionally sharp for
farm products and foods. The consumer price index again advanced
rapidly in December.
Federal budget estimates recently released by the administration
showed small surpluses in both the 1970 and the 1971 fiscal years,
despite the reduction of the income tax surcharge from 10 to 5 per
cent on January 1, 1970, and its scheduled expiration on July 1. The
budget document implied tight controls over expenditures; it suggested
that Federal purchases of goods and services would decline over the
course of the 1970 calendar year, with substantial cutbacks in defense
expenditures. However, a sharp rise in transfer payments was in prospect for the second quarter, reflecting an, increase in social security
benefit payments—and a retroactive payment for the period since
January 1—under legislation that had been enacted earlier.

The staff's GNP projections for the first half of 1970 suggested further reductions in business inventory accumulation and in residential
construction outlays as well as in defense spending. Only moderate
increases in consumer spending were projected—despite the reduction
in the surtax in the first quarter and the anticipated increase in social
security benefit payments in the second—because it appeared likely
that smaller gains in employment and shorter workweeks would tend
to slow the growth in personal income and that the personal saving
rate would rise somewhat. It was expected, however, that business capital spending would increase substantially further in the first half.
The projections of resumed growth in real GNP in the second half
of 1970 were based in part on expectations of a recovery in residential
construction outlays, some step-up in spending by State and local
governments, an end to the reduction in business inventory accumulation, and the elimination of the income tax surcharge at midyear. However, the rate of increase in real GNP was expected to be held to moderate proportions by continuing declines in defense spending and by a
leveling off in business capital outlays.
The surplus in U.S. merchandise trade rose in December, as imports
declined more than exports. For the fourth quarter as a whole the
trade surplus was somewhat larger than in the preceding quarter. The
over-all payments balance reverted to deficit in January on both the
liquidity and official settlements bases, as a result of cessation (and
partial reversal) of the exceptionally large year-end inflow of funds that
had produced large surpluses in December and in the fourth quarter
as a whole.
In foreign exchange markets sterling strengthened significantly after
mid-January. The Italian lira was under considerable selling pressure
throughout the month. Euro-dollar rates declined more than seasonally
in January, in part because of reduced demands for Euro-dollars by
U.S. banks.
On January 28 the Treasury announced that, in exchange for bonds
maturing on February 15 and March 15, it would offer three new
notes having, respectively, maturities of 18 months, 3Vi years, and 7
years, and yields of 8%, 8Vs, and 8 per cent. The refunding was favorably received by the market, and according to preliminary estimates,
only about 15 per cent of the $5.6 billion of maturing securities held by
the public were turned in for cash.

100

Interest rates on new corporate and municipal bonds and on outstanding Treasury securities of all maturities had fluctuated over a
relatively wide range since the January 15 meeting of the Committee.
The rate declines that had been under way earlier in the month continued for a time after mid-January, against the background of additional reports indicating weakness in the economy. Subsequently, however, yields turned up under the pressure of a mounting volume of new
corporate and municipal issues and continued large-scale borrowing by
Federal agencies. Then, around the month-end, yields moved sharply
downward as market participants interpreted statements by various officials as suggesting that monetary restraint would be eased soon. On
the day before this meeting the market rate on 3-month Treasury bills
was 7.30 per cent, about 55 basis points below its mid-January level.
At both commercial banks and nonbank thrift institutions, outflows
of savings funds—which had been unusually heavy following year-end
interest and dividend crediting—continued at a significant rate throughout January. On January 20 the Board of Governors of the Federal
Reserve System announced moderate increases in maximum interest
rates payable by member banks on time and savings deposits.1 At about
the same time the Federal Deposit Insurance Corporation and the
Federal Home Loan Bank Board announced increases in maximum
rates payable by the banks and savings and loan associations over which
they have regulatory authority. Thus far these actions had had little
observable effect on flows of time and savings funds.
*By amendment to Regulation Q effective Jan. 21, 1970, the Board of Governors increased from 4 to AVi per cent the maximum rate payable on passbook
savings and on 30- to 89-day "consumer-type" time deposits—those of less than
$100,000—of multiple maturity. Maximum rates were increased from 5 per cent
to SVT. and 5% per cent, respectively, for 1-year and 2-year single-maturity
consumer-type deposits; for other consumer-type deposits (that is, multiple maturities of 90 days and over and single maturities of less than 1 year) the previous
maximum of 5 per cent was retained. In addition, the following changes were
made in maximum rates payable on time deposits of $100,000 or more:
Maturity
30-59 days
60-89 days
90-179 days
180 days to 1 year
1 year or more

New
Previous
maximum
maximum
(per cent)
6V4
5x/2
6V2
5%
6%
6
7
6YA
IV2
6V4

101

Private demand deposits and the money stock declined over the
course of January, following a sharp and sudden rise at the year-end,
and by early February they were below their average December levels.
However, the erosion of the year-end bulge in these series was slower
than expected, and from December to January on the average the money
stock increased at an annual rate of 9 per cent. Meanwhile, total time
and savings deposits contracted sharply—at an estimated annual rate of
12.5 per cent—because of the large outflow of consumer-type deposits.
Reflecting diverse movements among deposit categories, the bank
credit proxy—daily-average member bank deposits—declined from
December to January at an annual rate estimated at about 3.5 per cent.
A sharp increase in funds obtained through sales of commercial paper
by bank affiliates was nearly offset by a decline in the average level of
Euro-dollar borrowings through foreign branches. After taking into
account the net change in funds from these "nondeposit" sources, the
adjusted bank credit proxy was estimated to have declined at an annual
rate of about 3 per cent from December to January. In the fourth quarter of 1969 the money stock and the adjusted proxy series had increased
at annual rates of about 1.5 and 2 per cent, respectively.
Along with the amendment to Regulation Q, on January 20 the
Board of Governors published for comment a proposed rule applying
reserve requirements to certain types of bank-related commercial paper.
It was noted that the proposed action was of a type explicitly authorized
by legislation enacted December 23, 1969. Earlier—on October 29,
1969—the Board had announced that it was considering applying interest rate ceilings to certain bank-related commercial paper, but action
on that proposal subsequently was withheld while consideration was
being given to the application of reserve requirements to the same type
of paper.,
System open market operations since the preceding meeting of the
Committee had been directed at maintaining firm conditions in the
money market, with operations subject to modification if it appeared
that the Committee's objective of modest growth in the money stock
and bank credit over the first quarter was not being achieved. In fact,
not only had the average levels of two aggregates moved in opposite
directions from December to January—the money stock rising and the
bank credit proxy declining—but also, during the period since the
previous meeting, the projections for the first quarter had been revised

102

upward for the money stock and downward for the proxy series. In the
4 weeks ending February 4, the Federal funds rate averaged slightly
more than 9 per cent and member bank borrowings about $1 billion,
both relatively close to their averages in the preceding 4 weeks. Average
net borrowed reserves increased somewhat as excess reserves declined
from the seasonal high they had reached at the year-end.
The latest staff projections suggested that, if prevailing money market
conditions were maintained, the average level of the money stock would
decline from January to February and would rise by a roughly equal
amount from February to March; and that over the first quarter as a
whole the money stock would expand at an annual rate of 3 to 4 per
cent. The adjusted bank credit proxy, on the other hand, was projected
to decline over the quarter at an annual rate of 2 to 4 per cent. This projection reflected an expectation that time and savings deposits—particularly consumer-type deposits—would continue to contract for a time,
although there was some prospect that the decline would end in late
February or early March as the quarterly interest-crediting period
approached. It also seemed possible that by March large-denomination
CD's—particularly those of longer maturity—might become at least
marginally competitive with other market securities.
An alternative set of projections suggested that the money stock
would grow slightly more rapidly over the first quarter—at an annual
rate of 4 to 5 per cent—if money market conditions were eased somewhat at present. It was anticipated that with such a change time and
savings deposits would be stronger than otherwise in March; and that
the adjusted bank credit proxy might advance sufficiently in that month
to result in no net decline, or perhaps a slight rise, over the first quarter
as a whole. It was noted that any easing of money market conditions
would be expected to have a greater stimulative effect on bank credit
in the second quarter than in the first.
The Committee concluded that, in light of the latest economic developments and the current business outlook, it was appropriate to move
gradually toward somewhat less restraint at this time. In particular, the
Committee decided that money market conditions should be shaded in
the direction of less firmness, beginning immediately, with a view to
encouraging moderate growth in money and bank credit over the months
ahead. It was agreed that the shift toward less firm money market conditions should be implemented cautiously, with close attention to succes-

103

sive estimates of growth rates in the monetary and credit aggregates; and
that operations should be modified promptly if those aggregates appeared to be deviating significantly from a pattern of moderate growth.
Some members expressed the view that the longer any relaxation of
prevailing money market firmness was postponed the greater the likelihood that developments in the economy would necessitate an unduly
large and abrupt move toward monetary ease later on. At the same
time, some members noted that caution was needed to avoid creating
an exaggerated impression of the amount of relaxation contemplated,
since widespread misunderstanding on that score could stimulate a new
surge of inflationary expectations.
It was also agreed that in the conduct of open market operations
account should be taken of the current Treasury refunding and of any
regulatory action by the Board of Governors with respect to bankrelated commercial paper. The following current economic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real economic activity, which leveled off in the fourth quarter of 1969, may
be weakening further in early 1970. Prices and costs, however, are
continuing to rise at a rapid pace. Long-term market interest rates
recently have fluctuated under the competing influences of heavy demands for funds and shifts in investor attitudes regarding the outlook
for monetaiy policy. Bank credit declined in January but the money
supply increased substantially on average; both had risen slightly in
the fourth quarter. Flows of time and savings funds at banks and nonbank thrift institutions have remained generally weak since year-end,
and they apparently have been affected little thus far by the recent
increases in maximum rates payable for such funds. The U.S. foreign
trade balance improved somewhat in December, as imports fell off.
The over-all balance of payments has been in substantial deficit in
recent weeks. In light of the foregoing developments, it is the policy
of the Federal Open Market Committee to foster financial conditions
conducive to the orderly reduction of inflationary pressures, with a
view to encouraging sustainable economic growth and attaining reasonable equilibrium in the country's balance of payments.
To implement this policy, while taking account of the current
Treasury refunding, possible bank regulatory changes and the Committee's desire to see moderate growth in money and bank credit over
the months ahead, System open market operations until the next meet-

104

ing of the Committee shall be conducted with a view to moving
gradually toward somewhat less firm conditions in the money market;
provided, however, that operations shall be modified promptly to resist
any tendency for money and bank credit to deviate significantly from
a moderate growth pattern.
Votes for this action: Messrs. Burns, Bopp, Clay,
Daane, Maisel, Mitchell, Robertson, Scanlon, and
Sherrill. Votes against this action: Messrs. Hayes,
Brimmer, and Coldwell.
The members who dissented from the policy directive did so primarily because they felt that any overt move toward less firm money
market conditions was premature at this time and could strengthen
market expectations of substantial easing. While recognizing some
areas of weakness in the economy, they were impressed by the strength
of inflationary expectations, the continuing increases in prices and wages,
business plans for a large volume of capital spending, and the prospectively large balance of payments deficit. They were also concerned about
the prospects for adequate fiscal restraint, even though the budget called
for a small surplus. They agreed with the majority of the Committee
that some growth in the monetary and credit aggregates was called for,
but in their view this objective could have been covered adequately by a
directive similar to the one the Committee had adopted at its January
meeting. Thus, they preferred not to relax restraint at this time because
of the risk of encouraging resurgent growth in over-all demand before
inflationary pressures and expectations had been adequately dampened.

105

MEETING HELD ON MARCH 10, 1970
1. Authority to effect transactions in System Account.

The latest information lent support to the view that over-all economic
activity was weakening further in early 1970 after leveling off in the
fourth quarter of 1969. As before, staff projections suggested that real
GNP would decline somewhat in the first half of the current year, but
would then rise at a moderate rate in the second half. While prices
and costs were continuing to increase at a rapid pace, some slowing of
their advance was still expected over the course of the year.
In February, according to tentative estimates, industrial production
fell for the seventh consecutive month. Employment and hours of
work in manufacturing declined substantially. Total nonfarm employment was about unchanged, and the over-all rate of unemployment
rose further from 3.9 to 4.2 per cent, its highest level since October
1965. Incomplete weekly data suggested that retail sales, which had
declined in January, might have fallen further in February. Private
housing starts continued downward in January, reaching their lowest
level since April 1967, and new orders received by manufacturers of
durable goods dropped considerably after 3 months of moderate reductions.
Preliminary calculations indicated that wholesale prices of both industrial commodities and farm products and foods had risen further
from mid-January to mid-February but that the increases were less
than in the previous month. On a seasonally adjusted basis, the consumer price index continued to rise about as fast in January as in the
two preceding months.
According to the latest Commerce-SEC survey, taken in February,
businesses planned to increase their spending on new plant and equipment by about 10.5 per cent in the full year 1970 but at a slower rate
in the first half. However, it seemed unlikely that such spending would
accelerate in the second half, as implied by the survey—particularly
in view of recent declines in new orders for machinery and equipment
and a reported reduction in the fourth quarter of 1969 in manufacturers' appropriations for capital spending.
The staff projections still allowed for relatively rhjHd increases in
business fixed investment outlays in the first half and a leveling off in

106

such outlays later in the year. The projections also continued to suggest that the rate of inventory accumulation would decline further in
the first half and stabilize in the second; that residential construction
outlays would fall sharply further in the first half and then turn up;
and that defense spending would decline throughout the year. It was
expected that consumer spending would be stimulated somewhat in
the second quarter by the increase in social security benefit payments,
and in the third quarter by the elimination of the remaining 5 per cent
income tax surcharge at midyear. It appeared likely, however, that
growth in consumer spending would remain moderate in the year as
a whole as a result of both smaller gains in wage and salary income
and an increase in the saving rate.
U.S. imports rose more than exports in January, and the surplus
in U.S. merchandise trade narrowed. According to tentative estimates,
the over-all balance of payments—which had been in substantial deficit
in January on both the liquidity and official settlements bases—continued in deficit in February.
In foreign exchange markets, demand for sterling remained strong
during February. Inflows of funds to the United Kingdom became exceptionally large in early March, and on March 5 the Bank of England
reduced its discount rate to IVi per cent from the 8 per cent rate that
had been in effect for about a year. On March 6 the German monetary
authorities announced that certain credit-tightening measures, including
an increase in the discount rate of the German Federal Bank from 6
to IV2 per cent, were being taken in light of domestic inflationary
pressures and of the continued expansion in bank credit. The Italian
lira had remained under heavy selling pressure in recent weeks and—
also on March 6—the Bank of Italy announced that it was raising its
discount rate from 4 to 5Vi per cent.
In markets for domestic securities both long- and short-term interest
rates had declined considerably on balance since the beginning of
February, despite a very heavy calendar of new corporate bond offerings and a continuing sizable volume of municipal and Federal agency
issues. The rate declines reflected the increasing signs that the economy
was weakening and the growing belief among investors that monetary
restraint would shortly be—or had ^already been—relaxed. Treasury
bill rates fell steadily during much of February, but these rates tended
to stabilize later in the month when the Treasury followed its suc-

107

cessful refunding operation by a sale of $1.75 billion of additional taxanticipation bills due in April and by an increase in the size of its
regular auctions of 6-month and 1-year bills. On the day before this
meeting the market rate on 3-month bills, at about 6.85 per cent, was
45 basis points below its level 4 weeks earlier and about 85 basis
points below its early February level.
The outflows of time and savings funds at banks and at nonbank
thrift institutions, which had been very large in January, apparently
came to an end in February—as a consequence of both the declines
in yields on competing market instruments and the advances in rates
offered by these institutions under the new higher ceilings that became effective in late January. Preliminary figures indicated that there
were relatively small net inflows of funds to savings and loan associations and mutual savings banks in early February. In January net
acquisitions of mortgages by savings and loan associations were the
smallest for any month in nearly 3 years, and the volume of outstanding
commitments was at a 2-year low.
At commercial banks time and savings deposits expanded almost as
rapidly over the course of February as they had declined in January,
and their average level in February was only fractionally below that in
the previous month. There were net increases during February in
consumer-type deposits—particularly at country banks—and in the
volume of large-denomination CD's outstanding. It appeared that the
volume of CD's held by foreign official institutions had increased considerably.
In contrast to time deposits, the average levels of private demand
deposits and the money stock contracted sharply from January to
February—at estimated annual rates of about 15 and 10 per cent,
respectively. The bank credit proxy—daily-average member bank deposits—was estimated to have declined from January to February at
an annual rate of more than 9 per cent, and after adjustment for a net
increase in funds raised from nondeposit sources, at a rate of more
than 6 per cent.
System open market operations since the February 10 meeting of
the Committee had been directed at fostering somewhat less firm conditions in the money market, in accordance with the Committee's decision at that meeting and in light of the unfolding evidence of weakness
in both the money stock and the adjusted bank credit proxy. The

108

money market remained firm for a time as the effects of large-scale
reserve supplying operations were offset by such factors as unexpectedly
sharp declines in float, but market conditions subsequently eased.
Thus, in the latter part of February and early March the average
Federal funds rate fell below 8.50 per cent from levels well above 9
per cent earlier in February, and in the week ending March 5 member
bank borrowings averaged about $835 million, compared with average
weekly levels of more than $1 billion during February.
Staff projections suggested that money and bank credit would grow
at moderate rates over the months ahead if the somewhat less firm
conditions recently achieved in the money market were maintained.
Specifically, the projections suggested that the money stock would
rise on the average from February to March at an annual rate of 4
to 7 per cent, resulting in growth during the first quarter as a whole
at a rate of about 2 per cent; and that money would continue to expand in the second quarter, at a rate of about 3 per cent. The adjusted
bank credit proxy was projected to increase from February to March
at an annual rate of 8 to 11 per cent—resulting in a first-quarter growth
rate of 0.5 per cent—and at a rate of about 5 per cent in the second
quarter. The projections for the adjusted proxy series were influenced
to an important degree by the expectation that time and savings deposits
would continue to expand rapidly, but that this would be partly offset
by slower expansion and then some decline in bank use of nondeposit
funds.
The Committee agreed that growth of money and bank credit during
coming months at about the rates projected would be appropriate in
the current economic environment. Concern was expressed in the discussion about the risks of unduly large changes in money market conditions. Concern also was expressed about both the danger of excessive
growth in the aggregates and the risk of shortfalls from desirable growth
rates, which some members thought were particularly likely for the
money stock in a period of economic weakness such as the present.
In view of the importance attached to avoiding such extremes, the
Committee decided to convey in its directive the objective of achieving
growth in money and bank credit over the months ahead at about
the moderate rates indicated, and to call for maintenance of money
market conditions consistent with that objective.

109

The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real economic activity, which leveled off in the fourth quarter of 1969, is
weakening further in early 1970. Prices and costs, however, are
continuing to rise at a rapid pace. Market interest rates have declined
considerably in recent weeks, partly as a result of changing investor
attitudes regarding the outlook for economic activity and monetary
policy. Both bank credit and the money supply declined on average in
February, but both were tending upward in the latter part of the
month. Outflows of time and savings funds at banks and nonbank
thrift institutions, which had been sizable in January, apparently
ceased in February, reflecting advances in rates offered on such
funds following the recent increases in regulatory ceilings, together
with declines in short-term market interest rates. The U.S. foreign
trade surplus narrowed in January and the over-all balance of payments deficit has remained large in recent weeks. In light of the
foregoing developments, it is the policy of the Federal Open Market
Committee to foster financial conditions conducive to orderly reduction in the rate of inflation, while encouraging the resumption of
sustainable economic growth and the attainment of reasonable equilibrium in the country's balance of payments.
To implement this policy, the Committee desires to see moderate
growth in money and bank credit over the months ahead. System
open market operations until the next meeting of the Committee
shall be conducted with a view to maintaining money market conditions consistent with that objective.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Daane, Heflin, Hickman, Maisel, Mitchell,
Robertson, Sherrill, Swan, and Kimbrel. Votes
against this action: None.
Absent and not voting: Mr. Francis. (Mr. Kimbrel voted as his alternate.)
2. Amendment to continuing authority directive.

At its meeting on October 7, 1969, the Committee had modified paragraph 2 of the continuing authority directive regarding domestic open
market operations by adding language authorizing Reserve Banks other

110

than the New York Bank to purchase special short-term certificates of
indebtedness from the Treasury for their own account at times when
the New York Bank was closed. At this meeting the Committee amended
the language adopted at that time for purposes of clarification. After
this amendment, paragraph 2 read as follows:
The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, or, if the New York Reserve
Bank is closed, any other Federal Reserve Bank, to purchase directly
from the Treasury for its own account (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 rate
charged on such certificates shall be a rate VA of 1 per cent below
the discount rate of the Federal Reserve Bank of New York at the
time of such purchases, and provided further that the total amount
of such certificates held at any one time by the Federal Reserve Banks
shall not exceed $1 billion.
Votes for this action: Messrs. Burns, Hayes, Brimmer, Daane, Heflin, Hickman, Maisel, Mitchell,
Robertson, Sherrill, Swan, and Kimbrel. Votes
against this action: None.
Absent and not voting: Mr. Francis. (Mr. Kimbrel voted as his alternate.)
Another amendment to the continuing authority directive that had
been made on October 7, 1969, involved the addition of a paragraph 3
authorizing the Reserve Banks to engage in lending of U.S. Government securities held in the System Open Market Account, under such
instructions as the Committee might specify from time to time. That
action had been taken on the basis of a judgment by the Committee
that in the existing circumstances such lending of securities was reasonably necessary to the effective conduct of open market operations and
to the effectuation of open market policies, and on the understanding
that the authorization would be reviewed periodically. At this meeting
the Committee concurred in the judgment of the Manager of the System
Open Market Account that the lending activity in question remained
necessary and, accordingly, that the authorization should remain in
effect subject to periodic review.

Ill

The Committee also approved certain modifications that had been
recommended by the Manager, in light of the operating experience
to date, in the instructions it had issued in conjunction with this authorization. Among the more important of these were an increase from $75
million to $150 million in the dollar limit on the par value of securities
involved in outstanding loans to any individual dealer at any time; a
lengthening from three to five business days of the limit on the duration
of loans to dealers, with loans remaining subject to renewal; and
certain revisions in the rates to be charged on contracts renewed beyond
their initial maturity.

3. Amendment to authorization for System foreign currency
operations.

The Committee approved an increase from $1,000 million to $1,250
million equivalent in the System swap arrangement with the Bank of
Italy, and the corresponding amendment to paragraph 2 of the authorization for System foreign currency operations, subject to the understanding that the action would become effective upon a determination
by Chairman Burns that it was in the national interest. Chairman
Burns made the indicated determination later on the day of this
meeting. As a result of this action, paragraph 2 read as follows:
The Federal Open Market Committee directs the Federal Reserve
Bank of New York to maintain reciprocal currency arrangements
("swap" arrangements) for System Open Market Account for periods
up to a maximum of 12 months with the following foreign banks,
which are among those designated by the Board of Governors of the
Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the
Committee to renew such arrangements on maturity:

Foreign bank
Austrian National Bank
National Bank of Belgium
Bank of Canada

112

Amount of
arrangement
(millions of
dollars equivalent)
200
500
1,000

Foreign bank

Amount of
arrangement
(millions of
dollars equivalent)

200
National Bank of Denmark
Bank of England
2,000
Bank of France
1,000
German Federal Bank
1,000
1,250
Bank of Italy
Bank of Japan
1,000
130
Bank of Mexico
300
Netherlands Bank
200
Bank of Norway
Bank of Sweden
250
600
Swiss National Bank
Bank for International Settlements:
Dollars against Swiss francs
600
Dollars against authorized European currencies
other than Swiss francs
1,000
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Daane, Heflin, Hickman, Maisel, Mitchell,
Robertson, Sherrill, Swan, and Kimbrel. Votes
against this action: None.
Absent and not voting: Mr. Francis. (Mr. Kimbrel voted as his alternate.)
This action was taken on recommendation of the Special Manager,
who advised that it should prove helpful in providing against destabilizing short-run pressures on the lira. It was understood that the U.S.
Treasury would concurrently make available a $250 million swap
facility to the Bank of Italy.
4. Review of continuing authorizations.

This being the first meeting of the Federal Open Market Committee
following the election of new members from the Federal Reserve Banks
to serve for the year beginning March 1, 1970, and their assumption
of duties, the Committee followed its customary practice of reviewing

113

all of its continuing authorizations and directives. The actions taken
with respect to the continuing authority directive for domestic open
market operations and the authorization for System foreign currency
operations have been described in the preceding portions of the record
for this date. Except for the changes resulting from those actions, the
Committee reaffirmed the two instruments, and also the foreign currency directive, in the form in which they were outstanding at the
beginning of the year 1970.
Votes for these actions: Messrs. Burns, Hayes,
Brimmer, Daane, Heflin, Hickman, Maisel, Mitchell,
Robertson, Sherrill, Swan, and Kimbrel. Votes
against these actions: None.
Absent and not voting: Mr. Francis. (Mr. Kimbrel voted as his alternate.)

114

MEETING HELD ON APRIL 7, 1970
1.

Authority to effect transactions in System Account.

The available information continued to suggest that over-all economic
activity had weakened further in the first quarter of 1970 and that
prices and costs had continued to rise rapidly. Staff projections of real
GNP for the remainder of the year had been revised upward somewhat, chiefly in response to recent fiscal developments. However, it
was still expected that growth would be moderate and that the rate of
price advance would slow somewhat as the year progressed.
Partial data for March suggested that industrial production declined
a little further and that retail sales were about unchanged from February. The unemployment rate increased in March for the third consecutive month, to 4.4 per cent. On the other hand, both private housing starts and new orders received by manufacturers of durable goods
turned up in February, the latest month for which data were available.
Average wholesale prices of both industrial commodities and farm
products and foods rose further from mid-February to mid-March, but
the increases were smaller than in the previous month. On a seasonally
adjusted basis, the consumer price index advanced in February at
about the same rate as during the past year but a little less rapidly than
in immediately preceding months.
The staff projections, as revised, suggested that real GNP would
edge up, rather than decline slightly further, in the second quarter and
that expansion would be somewhat faster in the third and fourth quarters than had been thought earlier—although it would still be well
below the economy's growth potential. The major development that
led to the revisions in the projections was the announcement, in the
wake of the postal strike that occurred in mid-March, of proposed pay
increases for postal workers and other Federal civilian and military
employees, retroactive to the beginning of the year. It appeared that
the planned pay raise would add appreciably to consumer expenditures
during the 1970 calendar year and that the new revenue measures
concurrently proposed would have little impact before 1971. Also, a
sharp decline in total business inventories in January, together with
the increase in new orders for durable goods in February, suggested
that the inventory adjustment might have been proceeding faster than
expected and thus might come to an end sooner.

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The U.S. foreign trade surplus expanded sharply in February, as a
result of a steep rise in exports and some decline in imports. With
respect to the over-all balance of payments, tentative estimates for the
first quarter suggested that the deficit on the liquidity basis was at a
high rate comparable with the 1969 average. It appeared that a very
large deficit was incurred in the first quarter on the official settlements
basis—following the surpluses of 1969—as a result of large reductions
in liabilities of U.S. banks to their foreign branches.
In foreign exchange markets, pressures on the Italian lira had moderated substantially in recent weeks. Sterling and the Canadian dollar
were in strong demand, and most other major foreign currencies tended
to strengthen against the U.S. dollar.
On March 19 the U.S. Treasury had auctioned $1.75 billion of taxanticipation bills due in September. The Treasury was expected to announce in late April the terms on which it would refund securities maturing in mid-May, of which the public held about $5 billion.
Yields on long-term securities—which had declined considerably in
February—rose during the first part of March under the pressure of an
unusually heavy current and prospective volume of new issues, particularly of corporate bonds. In the latter part of the month, however,
long-term yields began moving down again as a result of indications of
some relaxation of monetary policy and of the reduction on March 25
in the prime lending rate of banks from 8V2 to 8 per cent. Short-term
interest rates had tended on balance to decline further in recent weeks.
For example, the market rate on 3-month Treasury bills, at about 6.40
per cent on the day before this meeting, was approximately 45 basis
points below its level 4 weeks earlier.
The continued decline in short-term rates enhanced the ability of
both banks and nonbank thrift institutions to compete for time and
savings funds, although the volume of net inflows to nonbank institutions apparently remained quite moderate in the first part of March.
At commercial banks, time and savings deposits expanded considerably
on the average from February to March; inflows of consumer-type deposits strengthened further, the volume of large-denomination CD's
held by individuals, partnerships, and corporations increased significantly for the first time since November 1968, and State and local
and foreign official holdings continued to grow rapidly.
Private demand deposits and the money stock changed little during

116

most of March, but in the final week of the month they increased
sharply. As in the last week of December, when there also had been a
sudden bulge in private demand deposits, the rise appeared to be due
in good part to technical factors—on this occasion reflecting the effects on financial clearings of the 4-day Easter holiday abroad, the
postal workers' strike, and the air traffic controllers' slowdown. Tentative estimates indicated that, on the average from February to March,
the money stock increased at an annual rate of about 11.5 per cent—
bringing the growth rate over the first quarter 1 to a little more than 3
per cent.
The bank credit proxy—daily-average member bank deposits—also
increased considerably on the average in March. However, banks reduced their reliance on funds from nondeposit sources, particularly
Euro-dollar borrowings. After adjustment for this development, the
proxy series expanded at an annual rate of about 10 per cent from
February to March, resulting in a growth rate over the first quarter of
about 0.5 per cent.
System open market operations since the March 10 meeting had
been directed primarily at maintaining money market conditions
consistent with the moderate growth rates in money and bank credit
desired by the Committee. Somewhat less firm conditions were sought
early in the period, when projections for March suggested that growth
in the monetary aggregates was falling short of the Committee's objectives for that month and for the first quarter. Subsequently, however,
the projections were revised upward on the basis of additional data,
and no further easing of conditions was sought. Since the previous
meeting the Federal funds rate had fluctuated mostly in a 7*4 to 8
per cent range, somewhat below the IVi to 8V2 per cent range of late
February and early March. Member bank borrowings averaged about
$900 million in the 4 weeks ending April 1, compared with about $1
billion in the previous 4 weeks.
Staff analysis suggested that, over the second quarter, annual growth
rates of about 3 per cent in the money stock and 5.5 per cent in the
adjusted bank credit proxy might be attained if money market conditions remained about the same as those prevailing recently. The indicated quarterly growth rate for the proxy series allowed for continued
1
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

117

rapid expansion in time and savings deposits and for a substantial decline in U.S. Government deposits. It appeared likely that in the
month of April the proxy series would rise considerably on the average.
The money stock was expected to fall rather sharply for a few weeks
after its end-of-March bulge before resuming growth, but it was expected to average moderately higher in April than in the previous
month.
In the Committee's discussion some members expressed the view that
recent developments had reduced the risk of a cumulative downswing
in economic activity but that they had increased the risk of a resurgence of inflationary expectations. Others stressed the belief that risks*
of both types remained significant. In any case, the members agreed
that continued moderate growth in money and bank credit over the
months ahead—at about the rates indicated in the analysis described
above—would be appropriate. It was noted during the discussion that
precise achievement of such objectives could not be expected, in part
because of the desirability of avoiding excessive fluctuations in money
market conditions and in part because of uncertainties regarding future
relationships among financial variables.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real economic activity weakened further in early 1970, while prices and costs
continued to rise at a rapid pace. Fiscal stimulus, of dimensions that
are still uncertain, will strengthen income expansion in the near
term. Most long-term interest rates backed up during much of March
under the pressure of heavy demands for funds, but then turned
down in response to indications of some relaxation of monetary
policy and to the reduction in the prime lending rate of banks. Shortterm rates declined further on balance in recent weeks, contributing
to the ability of banks and other thrift institutions to attract time and
savings funds. Both bank credit and the money supply rose on average in March; over the first quarter as a whole bank credit was about
unchanged on balance and the money supply increased somewhat.
The U.S. foreign trade surplus increased in February, but the over-all
balance of payments appears to have been in considerable deficit
during the first quarter. In light of the foregoing developments, it is
the policy of the Federal Open Market Committee to foster financial
conditions conducive to orderly reduction in the rate of inflation,

118

while encouraging the resumption of sustainable economic growth
and the attainment of reasonable equilibrium in the country's balance
of payments.
To implement this policy, the Committee desires to see moderate
growth in money and bank credit over the months ahead. System
open market operations until the next meeting of the Committee
shall be conducted with a view to maintaining money market conditions consistent with that objective, taking account of the forthcoming Treasury financing.
Votes for this action: Messrs. Burns, Hayes, Brimmer, Daane, Francis, Heflin, Hickman, Maisel,
Mitchell, Robertson, Sherrill, and Swan. Votes
against this action: None.
2.

Amendments to authorization for System foreign currency
operations.

At this meeting the Committee amended paragraph 1 of the authorization for System foreign currency operations in two respects. The limit
on System holdings of guaranteed sterling specified in paragraph IB (4)
was reduced from $300 million to $200 million, the level that had been
in effect prior to the increases of April and May, 1968; and the authority to have outstanding, under special arrangements with the Bank
of Italy, up to $500 million of forward commitments in Italian lire,
originally approved in November 1965 and contained in paragraph
1C(2), was removed by the deletion of that paragraph. With these
changes, and with the renumbering as 1C(2) of the paragraph previously numbered as 1C(3), paragraph 1 of the authorization read as
follows:
1. The Federal Open Market Committee authorizes and directs
the Federal Reserve Bank of New York, for System Open Market
Account, to the extent necessary to carry out the Committee's foreign currency directive and express authorizations by the Committee
pursuant thereto:
A. To purchase and sell the following foreign currencies in the
form of cable transfers through spot or forward transactions on the
open market at home and abroad, including transactions with the
U.S. Stabilization Fund established by Section 10 of the Gold Reserve

119

Act of 1934, with foreign monetary authorities, and with the Bank
for International Settlements:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kronor
Swiss francs
B. To hold foreign currencies listed in paragraph A above, up
to the following limits:
(1) Currencies purchased spot, including currencies purchased from the Stabilization Fund, and sold forward to the Stabilization Fund, up to $1 billion equivalent;
(2) Currencies purchased spot or forward, up to the amounts
necessary to fulfill other forward commitments;
(3) Additional currencies purchased spot or forward, up to
the amount necessary for System operations to exert a market influence but not exceeding $250 million equivalent; and
(4) Sterling purchased on a covered or guaranteed basis in
terms of the dollar, under agreement with the Bank of England, up
to $200 million equivalent.
C. To have outstanding forward commitments undertaken
under paragraph A above to deliver foreign currencies, up to the
following limits:
(1) Commitments to deliver foreign currencies to the Stabilization Fund, up to the limit specified in paragraph 1B(1) above; and
(2) Other forward commitments to deliver foreign currencies, up to $550 million equivalent.
D. To draw foreign currencies and to permit foreign banks to
draw dollars under the reciprocal currency arrangements listed in
paragraph 2 below, provided that drawings by either party to any
such arrangement shall be fully liquidated within 12 months after

120

any amount outstanding at that time was first drawn, unless the
Committee, because of exceptional circumstances, specifically authorizes a delay.
Votes for these actions: Messrs. Burns, Hayes,
Brimmer, Daane, Francis, Heflin, Hickman, Maisel,
Mitchell, Robertson, Sherrill, and Swan. Votes
against these actions: None.
These actions were taken on the recommendation of the Special
Manager, who advised that as a result of recent changes in circumstances
the need had passed for the enlarged authority to hold guaranteed
sterling and for the authority to have forward commitments in lire
under special arrangements with the Bank of Italy.

121

MEETING HELD ON MAY 5, 1970
1- Authority to effect transactions in System Account.

Preliminary estimates of the Commerce Department indicated that real
GNP had declined at an annual rate of 1.6 per cent in the first quarter
of 1970, after having edged down at a rate of 0.4 per cent in the preceding 3-month period. Staff projections suggested that real economic
activity would change little in the second quarter and would resume
growth at a moderate pace after midyear. Although prices and costs
in general were continuing to rise rapidly, some components of major
price indexes recently had shown moderating tendencies. Since early
April there had been a sharp, sustained decline in prices of common
stocks.
In April the unemployment rate rose for the fourth consecutive
month, to 4.8 per cent. Industrial production—which had edged up in
March after 7 months of contraction—was tentatively estimated to have
declined again, in part because of the effects of work stoppages in the
trucking industry. In March new orders for durable goods had dropped
appreciably, but private housing starts had risen sharply for the second
consecutive month. Retail sales had changed little, according to preliminary estimates. However, incomplete weekly figures for April suggested that sales might have risen a little in that month.
The preliminary wholesale price index declined from mid-March to
mid-April as a result of a reduction in prices of farm products and foods.
Average prices of industrial commodities increased at about the same
rate as in the previous month, which was somewhat less rapid than in
most other recent months. The pace of advance in the seasonally adjusted consumer price index slowed somewhat further in March, although it remained substantial.
According to the Commerce Department estimates, the decline in
real economic activity in the first quarter of 1970—as in the preceding
quarter—reflected a reduction in inventory investment; in both quarters
total final sales had advanced moderately. The staff projections suggested that inventory investment would fall a little further in the second
quarter and would then rise somewhat after midyear. It appeared likely
that consumer spending would be sustained in coming months by the
second-quarter increases in Federal pay and in social security benefits,
both of which were retroactive to the beginning of 1970, and by the

122

elimination at midyear of the remaining 5 per cent income tax surcharge.
Also, it was expected that residential construction activity would turn
up in the second half. On the other hand, the projections for the final
two quarters of the year allowed for a slowing of the rise in business
spending on plant and equipment and for a resumption of the decline
in Federal outlays on goods and services.
The surplus on U.S. foreign trade improved somewhat in the first
quarter, as exports rose more than imports. However, the over-all balance of payments was in considerable deficit on both the liquidity and
the official settlements bases. The deficit on the latter basis was particularly large because of the substantial decline, beginning in midJanuary, in outstanding Euro-dollar borrowings of U.S. banks through
their branches abroad.
In foreign exchange markets most major foreign currencies had remained in strong demand during recent weeks. Effective April 15, the
Bank of England reduced its discount rate from IVi to 7 per cent, the
second half-point reduction since early March.
On April 29 the Treasury announced the terms on which it would
refinance securities that matured in mid-May, including $4.9 billion
held by the public. In exchange for the maturing securities, holders were
offered the choice of two reopened issues—the 7% per cent notes of
May 1973 (priced to yield 7.98 per cent) and the 8 per cent notes of
February 1977 (priced at par). In addition, $3.5 billion of an 18-month,
7% per cent note (priced to yield 7.79 per cent) was offered to the
public for cash. Subscription books were open on May 5—the day of
this meeting—for the cash offering, and on May 4-6 for the exchange
offering.
Conditions in financial markets had been unsettled in recent weeks,
and interest rates on most types of market securities had advanced
rapidly. In long-term debt markets, yields on new corporate issues
and on Treasury bonds now exceeded their late-19 69 highs, and yields
on municipal securities were close to those peaks. The market rate on
3-month Treasury bills had risen since the previous meeting of the Committee by about 50 basis points—to 6.90 per cent on the day before
the meeting—and rates on 6-month and 1-year bills had moved up by
about 90 and 95 basis points, respectively.
Among the factors contributing to these rate increases, and to the
unsettlement in financial markets generally, were the concern about

123

prospects for the Government's anti-inflationary program—stimulated
in part by the Federal pay raise that followed the recent postal workers'
strike—and the uncertainties resulting from the President's announcement on April 30 of U.S. military operations in Cambodia. The rate increases also reflected the continuing very heavy volume of offerings in
capital markets; perhaps some increase in liquidity preferences; and the
disappointment of earlier expectations of further easing of conditions
in the money market. The bulk of the recent advances in Treasury bill
rates occurred during the last 10 days of April, after it had become
evident that the Federal Reserve was fostering somewhat firmer money
market conditions and that seasonal demands for bills were falling
short of dealers' prior expectations.
During the course of April the bank credit proxy (daily-average
member bank deposits) declined somewhat and the money stock receded from the peak to which it had suddenly risen—in good part because of technical factors—at the end of March. The bulge in money
proved to be even larger than had been estimated earlier and its erosion
during April was not so rapid as had been anticipated. In terms of
monthly average levels, both the money stock and the proxy series increased substantially from March to April. The money stock expanded
at an annual rate tentatively estimated at 12.5 per cent; the proxy series,
after adjustment for some further reduction in banks' use of funds from
nondeposit sources, rose at an estimated 14 per cent rate.
When it became apparent soon after the April 7 meeting that both
money and bank credit were expanding more rapidly on the average
than desired by the Committee, System open market operations were
directed at achieving somewhat firmer conditions in the money market.
Later, particularly when it appeared that the Treasury's cash financing
might be in jeopardy, it was found necessary first to moderate developing tendencies toward undue firmness and then to calm market unsettlement. In total, during the six business days preceding this meeting
the Federal Reserve purchased more than $1.7 billion of Treasury bills.
In the process the System supplied reserves more readily than it might
otherwise have done, although to a large extent these operations served
to offset reserve drains resulting from other factors. The effective rate
on Federal funds, which had fluctuated mostly in a range of IVi to 8
per cent in late March and early April, subsequently moved into an 8
to 8 ^ per cent range. In the 3 weeks ending April 29, member bank

124

borrowings averaged about $960 million, compared with an average in
March of slightly under $900 million.
Staff analysis suggested that annual rates of growth of about 4 per
cent for both the money stock and the adjusted bank credit proxy over
the second quarter1 might be attained with money market conditions
similar to or slightly firmer than those currently prevailing. The indicated growth rates—somewhat higher for the money stock and somewhat lower for the proxy series than those contemplated by the Committee at its previous meeting—took account of the likelihood that the
public's demand for money now was greater than had been thought
earlier and that, as a consequence of recent increases in short-term
market interest rates, the pace of expansion in time and savings deposits
would be considerably slower in May and June than previously anticipated. For May alone it was expected that the money stock would rise
on the average, although much less than it had in April, and that the
proxy series would decline.
The Committee agreed that growth in money and bank credit during
the second quarter at about the 4 per cent annual rates indicated above
would be appropriate to the underlying economic situation and outlook.
At the same time, however, the members agreed that account should be
taken of the current Treasury financing, and that operations directed at
attaining the targets for the aggregates should be modified if necessary
in light of "even keel" considerations. It was also agreed that operations should be modified to moderate unusual pressures in financial
markets, should they develop.
In considering the language of the second paragraph of the current
economic policy directive, the Committee decided that reference should
be made to "bank reserves" as well as to "money market conditions" in
the statement concerning open market operations. The purpose was to
clarify the Committee's intention that information regarding deviations
from the expected paths of various aggregative reserve measures was to
be used as a supplement to—but not as a substitute for—data reflecting
money market conditions in making decisions regarding possible System operations.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
1

Calculated on the basis of the daily-average levels in March and June.

125

The information reviewed at this meeting indicates that real economic activity weakened further in the first quarter of 1970. Growth
in personal income, however, is being stimulated in the second quarter
by the enlargement of social security benefit payments and the Federal
pay raise. Prices and costs generally are continuing to rise at a rapid
pace, although some components of major price indexes recently have
shown moderating tendencies. Most market interest rates have risen
sharply in recent weeks as a result of heavy demands for funds, possible shifts in liquidity preferences, and the disappointment of earlier
expectations regarding easing of credit market conditions. Prices of
common stocks have declined markedly since early April. Attitudes
in financial markets generally are being affected by the expansion of
military operations in Southeast Asia and by concern about the success of the Government's anti-inflationary program. Both bank credit
and the money supply rose substantially from March to April on
average, although during the course of April bank credit leveled off
and the money supply receded sharply from the end-of-March bulge.
The over-all balance of payments was in considerable deficit during
the first quarter. In light of the foregoing developments, it is the policy
of the Federal Open Market Committee to foster financial conditions
conducive to orderly reduction in the rate of inflation, while encouraging the resumption of sustainable economic growth and the attainment of reasonable equilibrium in the country's balance of payments.
To implement this policy, the Committee desires to see moderate
growth in money and bank credit over the months ahead. System open
market operations until the next meeting of the Committee shall be
conducted with a view to maintaining bank reserves and money market
conditions consistent with that objective, taking account of the current
Treasury financing; provided, however, that operations shall be modified as needed to moderate excessive pressures in financial markets,
should they develop.
Votes for this action: Messrs. Burns, Hayes, Brimmer, Daane, Heflin, Hickman, Maisel, Mitchell,
Robertson, Sherrill, and Swan. Vote against this action: Mr. Francis.
In dissenting from this action Mr. Francis expressed the view that
under present economic circumstances the target for growth in the
money stock during the second quarter should remain at the 3 per cent
annual rate favored by the Committee as a whole at recent meetings.

126

He noted that second-quarter growth at a 4 per cent annual rate would
imply a rise from February—the recent monthly low for the money
stock—to June at about a 6 per cent annual rate, which in his judgment
would be excessive for the period in question.
2. Action with respect to continuing authority directive.

At this meeting the Committee suspended, for the period from the opening of business May 5, 1970, until the close of business May 26, 1970,
the provision of paragraph l ( a ) of the continuing authority directive
limiting changes in System Account holdings of U.S. Government securities between meetings of the Committee to $2 billion.
Votes for this action: Messrs. Burns, Hayes, Brimmer, Daane, Francis, Heflin, Hickman, Maisel, Mitchell, Robertson, Sherrill, and Swan. Votes against
this action: None.
This action was taken on the recommendation of the System Account Manager, who advised that increased leeway for System purchases of Government securities might well be required during the
period in question, in view of the unsettled conditions in markets for
Government securities and of the uncertain prospects for the Treasury
financing now in process.

127

MEETING HELD ON MAY 26, 1970
Authority to effect transactions in System Account.

Revised Commerce Department estimates indicated that real GNP had
declined in the first quarter of 1970 at an annual rate of 3.0 per cent,
rather than at the 1.6 per cent rate estimated earlier. Staff projections
still suggested that real GNP would remain about unchanged in the
second quarter, and that it would begin to grow again in the second
half of the year. Prices and costs were generally continuing to rise at a
rapid pace, but recently there had been some indications of moderating
tendencies. Common stock prices had dropped sharply and continuously
since early April, with the composite index of stocks listed on the
New York Exchange down about one-fourth over that interval.
In April industrial production declined by about as much as it had
risen in March and was approximately 2.5 per cent below its July 1969
peak. Employment in manufacturing was down substantially from
March. Total nonf arm payroll employment also declined, in part because
of strikes, and the over-all unemployment rate rose to 4.8 from 4.4
per cent in March. Private housing starts fell substantially after 2 months
of strong advance. Retail sales increased in April, according to preliminary estimates, and weekly figures suggested that sales in early May
were holding at about the April level.
Average wholesale prices were now estimated to have remained unchanged from mid-March to mid-April, as a sharp decline in prices
of farm products and foods offset a further advance in prices of industrial commodities. The consumer price index rose considerably further
in April.
The downward revision in the official GNP figures for the first quarter
was attributable mainly to new information indicating that business
inventory investment had declined more than previously estimated.
As before, the staff projections suggested that inventory investment
would fall only a little further in the second quarter, and that it would
rise somewhat over the second half of the year—contributing to the
resumption of growth in real GNP anticipated then. It was still expected
that consumer spending would be sustained by the second-quarter
increases in Federal pay and social security benefits and by the elimination at midyear of the income tax surcharge; also that residential construction outlays would turn up in the second half. However, it now

128

appeared probable that the growth in business spending on new plant
and equipment would taper off somewhat more over the course of the
year than had been anticipated earlier. Largely for this reason, the staff
projection of the rise in real GNP in the second half had been reduced
somewhat.
The surplus on U.S. merchandise trade, which had improved somewhat in the first quarter, continued in April at about the first-quarter
rate. According to tentative estimates, the over-all balance of payments
remained in considerable deficit in April and early May.
In foreign exchange markets demands for most major foreign currencies had continued strong in recent weeks. Demands for the Canadian
dollar, which were particularly heavy, moderated only briefly after the
Bank of Canada reduced its discount rate from 8 to IV2 per cent on
May 12; and rumors of a possible upward adjustment in the exchange
rate for that currency began to circulate.
Conditions in domestic financial markets had remained highly unsettled in recent weeks amid mounting concern about a possible liquidity
crisis. Interest rates on long-term Treasury, corporate, and municipal
securities had risen further to new record highs, in part because of a
continuing heavy volume of offerings in capital markets and perhaps
some increase in liquidity preferences. In short-term markets, rates on
Treasury bills had fluctuated over a relatively wide range since early
May but had changed little on balance; the 3-month bill rate, at about
7 per cent on the day before this meeting, was 10 basis points above
its level of 3 weeks earlier. Attitudes in financial markets generally were
being influenced by uncertainties arising from U.S. military operations
in Cambodia and their domestic aftermath, including new uncertainties
about the prospects for the Government's anti-inflationary program.
In late April and early May, when it appeared that the disturbed
conditions in securities markets were jeopardizing the Treasury's May
financing, the System supplied reserves through open market operations
more readily than it might otherwise have done. The outcome of the
two-part financing remained in doubt until the financing had been completed. As it turned out, subscriptions to the cash offering of 18-month
notes—for which books were open May 5, the day of the preceding
meeting of the Committee—totaled only slightly more than the $3.5
billion offered. Consequently, these subscriptions were allotted in full,
in contrast to the usual partial allotments. However, in the exchange

129

offering—in which holders of securities maturing in mid-May were
offered notes of May 1973 or of February 1977—redemptions for cash
were much smaller than had been expected. As a result, in the financing
as a whole the Treasury raised about $2 billion of new money, considerably more than it had anticipated. For the exchange offering,
subscription books were open on May 4 - 6 ; and for both parts of the
financing, the settlement date was May 15.
System open market operations since the May 5 meeting had been
conditioned by "even keel" considerations during the final stages of the
financing and, more generally, by the desirability of calming market
unsettlement. Operations also were influenced by the fact that in May
both the money stock and bank credit appeared to be running significantly above levels consistent with the Committee's target growth rates
for the second quarter. However, in view of the very sensitive state of
the securities markets, no effort was made to attain the degree of firmness in money market conditions that might have been required to
restore the monetary aggregates to the targeted growth path. Since the
May 5 meeting the Federal funds rate had fluctuated mostly in a range
of 7% to 8V& per cent, compared with a range of 8 to %Vi per cent
in late April and early May. Member bank borrowings averaged about
$920 million in the 3 weeks ending May 20, a little below the $960
million average of the preceding 3 weeks.
Both the money stock and the bank credit proxy—daily-average
member bank deposits—increased substantially from March to April.
The money stock expanded at an annual rate now estimated at about
10.5 per cent; the proxy series, after adjustment for some reduction
in banks' use of funds from nondeposit sources, grew at a rate of about
13.5 per cent. According to tentative estimates for May, the money
stock was rising considerably more on the average than had been
expected earlier, and the adjusted bank credit proxy was declining
much less than had been anticipated.
Staff analysis suggested that if prevailing money market conditions
were maintained the money stock would increase slightly further from
May to June and the adjusted bank credit proxy would rise more
rapidly, although not so fast as in the previous month. The analysis
implied that, if these expectations were realized and if current estimates
for May were correct, both aggregates would increase at annual rates

130

of about 7 per cent over the second quarter.1 It appeared that somewhat firmer money market conditions than those currently prevailing
would be required if the second-quarter growth rates of about 4 per
cent—which the Committee earlier had concluded would be appropriate
to the underlying economic situation—were to be attained. Looking
forward to the third quarter, the analysis suggested that a 4 per cent
growth rate in the money stock probably would be associated with
more rapid growth in the adjusted proxy series—perhaps at a 7 per
cent rate—partly because the Treasury was expected to raise a large
volume of new money in July and August.
In its discussion of open market policy, the Committee considered
the implications both of the uncertainties and the strains that were
unsettling financial markets at present and of the underlying economic
situation and outlook. The members agreed that moderate growth in
money and bank credit remained the appropriate longer-run objective
of policy. They concluded, however, that it was necessary at present
to give priority to the objective of moderating pressures on financial
markets, recognizing that that might temporarily entail higher growth
rates in the monetary aggregates than were considered appropriate for
the longer run.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting indicates that real economic activity declined more than previously estimated in the first
quarter of 1970, but little further change is projected in the second
quarter. Prices and costs generally are continuing to rise at a rapid
pace, although some components of major price indexes recently have
shown moderating tendencies. Since early May most long-term interest
rates have remained under upward pressure, partly as a result of
continued heavy demands for funds and possible shifts in liquidity
preferences, and prices of common stocks have declined further. Attitudes in financial markets generally are being affected by the widespread uncertainties arising from recent international and domestic
events, including doubts about the success of the Government's antiinflationary program. Both bank credit and the money supply rose
substantially from March to April on average; in May bank credit
1
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

131

appears to be changing little while the money supply appears to be
expanding rapidly. The over-all balance of payments continued in
considerable deficit in April and early May. In light of the foregoing
developments, it is the policy of the Federal Open Market Committee
to foster financial conditions conducive to orderly reduction in the
rate of inflation, while encouraging the resumption of sustainable
economic growth and the attainment of reasonable equilibrium in the
country's balance of payments.
To implement this policy, in view of current market uncertainties
and liquidity strains, open market operations until the next meeting
of the Committee shall be conducted with a view to moderating pressures on financial markets, while, to the extent compatible therewith,
maintaining bank reserves and money market conditions consistent
with the Committee's longer-run objectives of moderate growth in
money and bank credit.
Votes for this action: Messrs. Burns, Hayes, Brimmer, Daane, Francis, Hickman, Maisel, Mitchell,
Robertson, Sherrill, Swan, and Morris. Votes against
this action: None.
Absent and not voting: Mr. Heflin. (Mr. Morris
voted as his alternate.)

132

MEETING HELD ON JUNE 23, 1970
Authority to effect transactions in System Account.

Information reviewed at this meeting suggested that real economic
activity was changing little in the second quarter of 1970 after having
declined at a 3 per cent annual rate in the first quarter. Prices and
costs generally were continuing to rise at a rapid pace, although some
important components of major price indexes recently had shown
moderating tendencies. Staff projections suggested that growth in
real GNP would resume after midyear—although the increase
projected for the second half had again been revised downward
somewhat—and that the rate of price advance would slow as the
year progressed.
Retail sales edged down in May, according to advance estimates,
after rising substantially in April. Industrial production declined
appreciably in May, and was about 3 per cent below its July 1969
peak. The labor market continued to weaken: the unemployment rate
rose to 5.0 per cent, its highest level in more than 5 years; nonfarm
payroll employment declined significantly; and the factory workweek
was shortened slightly further. Some of the recent reductions in
output and employment were attributable to the effects of strikes in
the trucking industry and elsewhere.
Average wholesale prices increased somewhat from mid-April
to mid-May, following no change in the month ending in mid-April.
In both months prices of industrial commodities advanced and prices
of farm products and foods declined. The consumer price index
continued to rise at a rapid rate in May.
The staff estimate that real GNP would change little in the second
quarter was based mainly on the expectation that inventory investment would level out following the substantial reduction earlier in
the year. It now appeared that growth in consumer spending in the
second quarter would remain close to the first-quarter rate, and that
the unusually large rise in disposable income resulting from retroactive increases in Federal pay and social security benefits would be
reflected in a sharply higher rate of personal saving.
With respect to the outlook for the second half of the year, the
increases projected earlier for both inventory investment and final
sales had been revised downward somewhat. Among major categories

133

of final sales, it was now expected that State and local government
outlays would rise somewhat less than earlier projections had suggested and that business fixed investment would turn down in the
fourth quarter instead of leveling off. It was still anticipated that
Federal expenditures would decline further, that consumer spending
would continue upward at a moderate rate, and that residential
construction outlays would turn up later in the year.
The U.S. balance of payments was in very heavy deficit in April
and May, according to preliminary data. Because there was a net
increase in Euro-dollar borrowings by U.S. banks over these 2
months, the deficit on the official settlements basis was not quite
so large as that on the liquidity basis.
In foreign exchange markets the major development in recent
weeks had been the decision by the Canadian Government, effective
June 1, to allow the exchange rate for the Canadian dollar to float
temporarily. This action, which was coupled with a reduction in the
Bank of Canada's discount rate from IV2 to 7 per cent, followed
very strong gains in Canadian reserves since the beginning of the
year. Reaction to the Canadian move tended to add to demands for
certain other currencies, including the German mark—which was
already in strong demand partly as a consequence of tightness in
German credit markets. Tight credit conditions in Germany also were
exerting upward pressure on Euro-dollar interest rates in June.
Conditions in domestic financial markets had been highly unsettled at the time of the May 26 meeting of the Committee. During
the following v/eek they calmed considerably, and yields on long-term
Treasury, corporate, and municipal bonds moved down from their
late-May peaks. Contributing to the improvement were: the partial
recovery of common stock prices following the sharp, sustained decline that had been under way since early April; the sizable volume
of Treasury notes and bonds, as well as bills, purchased by the
Federal Reserve; and some temporary abatement of the heavy flow
of new corporate and municipal security offerings, partly as a result
of cancellations and postponements of previously scheduled issues.
The calendar of new offerings was still substantial, however, and a
resumption of upward pressures on long-term interest rates carried
corporate yields to new peaks in mid-June. Market conditions re-

134

mained sensitive throughout the period, and the prevailing uncertainties were aggravated a few days before this meeting when a
major railroad corporation indicated that it was insolvent and was
unable to pay off maturing commercial paper.
In short-term markets, interest rates on commercial paper had
advanced somewhat recently, and investors in such paper reportedly
were becoming increasingly selective. However, most other shortterm rates had declined in recent weeks. The market rate on 3-month
Treasury bills, at about 6.55 per cent on the day before this meeting,
was approximately 45 basis points below its level of 4 weeks earlier.
System open market operations since the preceding meeting had
been directed mainly at moderating pressures in financial markets.
For this purpose the System provided reserves actively, buying
Treasury securities or arranging repurchase agreements on most days
in the interval. The effective rate on Federal funds was held for the
most part at 8 per cent or below. Average member bank borrowings
varied over a wide range, from a high $1.2 billion in the statement
week ending June 3 to a low of $650 million 2 weeks later.
Earlier on the day of this meeting the Board of Governors had
amended Regulation Q, effective the next day, to suspend interest
rate ceilings on CD's and other single-maturity time deposits in
denominations of $100,000 and over with maturities of 30 through
89 days.1 This action was taken in recognition of the possibility that
current uncertainties in financial markets, including the commercial
paper market, could result in unusual demands upon commercial
banks for short-term credit accommodation.
During the course of May the outstanding volume of large-denomination CD's of all maturities had declined slightly. Growth in
such CD's had been substantial from early February through midApril, but had slowed considerably in the latter part of April when
increases in interest rates on competitive short-term securities reduced the relative attractiveness of CD's offered at then-prevailing
ceiling rates. Inflows of other types of time and savings funds at
banks—and at nonbank thrift institutions—had remained sizable
in May.
1
The ceiling rates on such deposits had been 6VA and 6V2 per cent for
maturities of 30-59 days and 60-89 days, respectively.

135

The annual rate of increase in the money stock from April to
May was about 4 per cent—less than half the rate estimated at the
time of the May 26 meeting and even further below the rapid rates
experienced in March and April. According to tentative estimates,
the money stock was declining slightly on the average in June. These
estimates implied that the annual rate of growth of money over the
second quarter 2 would be about 4.5 per cent, compared with 3.8
per cent in the first quarter.
The bank credit proxy—daily-average member bank deposits—
was about unchanged on the average in May after adjustment for an
increase in banks' use of funds from nondeposit sources. In March
and April the adjusted proxy series had risen considerably. Tentative estimates suggested that the adjusted proxy series was expanding
at a substantial rate in June; and that its growth over the second
quarter would be at an annual rate of about 7 per cent, following
the 0.5 per cent increase of the first quarter.
Staff analysis suggested that if prevailing money market conditions
were maintained the money stock would increase at an annual rate
of about 5 per cent over the third quarter—growing somewhat faster
than this from June to July and then slowing as the quarter progressed. It was expected that growth in time deposits—and, consequently, in the bank credit proxy—would be stimulated by the
Board's suspension of Regulation Q ceiling rates on large-denomination CD's of less than 90 days maturity. According to a rough
estimate presented at the meeting, the adjusted proxy series might
grow in the third quarter at an annual rate of about 9 per cent. It
was noted, however, that any such estimates were highly uncertain
in part because of the difficulties of foreseeing the extent to which
credit flows would be shifted to banking channels from the market.
The Committee concluded that uncertainties and strains in financial markets remained sufficiently great to warrant giving continued
priority in open market operations to the objective of moderating
pressures in those markets. The members also decided that, to the
extent compatible with that course, operations should be directed at
fostering moderate growth in money and bank credit in the longer
2

Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

136

run—including growth in money over the third quarter at about the
5 per cent annual rate indicated by the analysis noted above. It was
agreed that more rapid growth in bank credit than contemplated
earlier would not necessarily be inconsistent with the Committee's
longer-run objective; to the extent that the Board's Regulation Q
action resulted simply in a shift of credit flows from market to banking channels, it would not involve an increase in over-all credit flows.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real economic activity is changing little in the current quarter after declining
appreciably earlier in the year. Prices and costs generally are continuing to rise at a rapid pace, although some components of major
price indexes recently have shown moderating tendencies. Since late
May market interest rates have shown mixed changes following earlier
sharp advances, and prices of common stocks have recovered part
of the large decline of preceding weeks. Attitudes in financial markets continue to be affected by uncertainties and conditions remain
sensitive, particularly in light of the insolvency of a major railroad.
In May bank credit changed little and the money supply rose moderately on average, following substantial increases in both measures
in March and April. Inflows of consumer-type time and savings
funds at banks and nonbank thrift institutions have been sizable in
recent months, but the brief spring upturn in large-denomination
CD's outstanding at banks has ceased. The over-all balance of payments was in heavy deficit in April and May. In light of the foregoing developments, it is the policy of the Federal Open Market
Committee to foster financial conditions conducive to orderly reduction in the rate of inflation, while encouraging the resumption of
sustainable economic growth and the attainment of reasonable equilibrium in the country's balance of payments.
To implement this policy, in view of persisting market uncertainties
and liquidity strains, open market operations until the next meeting
of the Committee shall continue to be conducted with a view to
moderating pressures on financial markets. To the extent compatible
therewith, the bank reserves and money market conditions maintained shall be consistent with the Committee's longer-run objective
of moderate growth in money and bank credit, taking account of the
Board's regulatory action effective June 24 and some possible consequent shifting of credit flows from market to banking channels.

137

Votes for this action: Messrs. Burns, Brimmer,
Daane, Francis, Heflin, Hickman, Maisel, Mitchell,
Robertson, Sherrill, Swan, and Treiber. Votes against
this action: None.
Absent and not voting: Mr. Hayes. (Mr. Treiber
voted as his alternate.)

138

MEETING HELD ON JULY 2 1 , 1970
1. Authority to effect transactions in System Account.

Preliminary estimates of the Commerce Department indicated that real
GNP had edged up at an annual rate of 0.3 per cent in the second
quarter, after declining at rates of 3.0 per cent in the first quarter and
0.9 per cent in the fourth quarter of 1969. Staff projections suggested
that the rate of increase in real GNP would pick up somewhat in the
third and fourth quarters, but that it would remain well below the economy's growth potential. Prices and wage rates generally were continuing
to rise at a rapid pace, but it appeared that improvements in productivity
were slowing the rise in costs, and some major price measures were
showing moderating tendencies.
Available data for June offered a mixed picture of economic developments. Industrial production declined further, but less than in other
recent months. Retail sales increased slightly, according to advance
estimates, and private housing starts rose sharply. Although the unemployment rate declined to 4.7 from 5.0 per cent in May, continued
weakness in the demand for labor was reflected in a further sizable reduction in nonfarm payroll employment.
Average wholesale prices of industrial commodities rose further from
mid-May to mid-June, but advances were less widespread than earlier
and prices of nonferrous metals and a number of other materials were
under downward pressure. Prices of farm products and foods declined
for the third consecutive month, after allowance for seasonal influences.
According to the Commerce Department figures, inventory accumulation increased somewhat in the second quarter after having declined
substantially in the two preceding quarters. The rate of growth in consumer spending rose only a little, despite an unusually large advance in
disposable income resulting from retroactive increases in Federal pay
and social security benefits. Among other major categories of final purchases, Federal expenditures for goods and services declined and the
rate of expansion in State and local government outlays slackened.
Business spending for fixed investment remained about unchanged in
the second quarter and—according to revised figures—in the first
quarter also.
The projection of moderately faster growth in real GNP in the
second half was based largely on expectations of a recovery in residential

139

construction and more rapid advances in outlays by State and local
governments. Expansion in consumer spending was expected to remain
relatively strong. At the same time, it appeared likely that declines in
defense outlays and, later in the year, in business fixed investment
would hold down the over-all rate of growth.
The surplus on U.S. foreign trade expanded further in May—continuing the improvement that had been under way since mid-1969.
Nevertheless, because of large outflows of private capital the over-all
balance of payments remained in heavy deficit in the second quarter on
both the liquidity and the official settlements bases.
In foreign exchange markets, selling pressure on the Italian lira developed following the resignation of the Rumor Government on July
6. The mark remained in demand, reflecting chiefly the tight monetary
conditions in Germany. Early in July the German Government
announced proposed measures to increase fiscal restraint. This was
followed by some easing of monetary policy, including a reduction in
the discount rate of the German Federal Bank from IV2 to 7 per cent
effective July 16.
Pressures in domestic financial markets had abated in recent weeks
from the peaks that had been reached in the latter part of June, after a
major railroad corporation indicated that it was insolvent and unable to
pay off maturing commercial paper. Uncertainties and strains persisted,
however—particularly in the market for commercial paper, the outstanding volume of which contracted sharply following the indication of
the railroad's insolvency. It appeared that a large proportion of the
funds so freed were being rechanneled through the banking system;
there had been sharp increases recently both in bank loans to businesses
and finance companies and in the outstanding volume of large-denomination CD's of short maturity, for which Regulation Q rate ceilings had
been suspended effective June 24. The massive readjustment under way
was facilitated by Federal Reserve assurances to member banks that
the discount window was available to assist them in meeting the needs
of businesses unable to replace maturing commercial paper.
Since the previous meeting of the Committee average prices of common stocks had continued to fluctuate in a range somewhat above the
lows of late May. Interest rates on long-term bonds had declined
considerably on balance, despite a continuing heavy volume of new
corporate offerings. The reductions in bond yields reflected the abate-

140

ment of general pressures in financial markets, including some lessening
of inflationary expectations and a growing belief that monetary policy
would become more expansive.
In the corporate bond market the spread between yields on Aaa and
Baa offerings had widened recently, however, suggesting that investors
had become more concerned about credit risks in this market as well
as in the market for commercial paper. There also were indications that
the desire to reduce credit risks had enhanced the relative attractiveness
of Treasury and Federal agency securities. For example, market rates
on Treasury bills had declined in recent weeks—substantially, in the
case of longer-term bills—even though the Treasury had auctioned
$2.5 billion of tax-anticipation bills due in March 1971 on July 2 and
$2.25 billion of such bills due in April 1971 on July 16.
The Treasury was expected to announce in late July the terms on
which it would refund securities maturing in mid-August, including
$5.6 billion held by the public. It was considered likely that the
Treasury would also undertake some cash borrowing in August, perhaps
in connection with the refunding.
System open market operations since the preceding meeting of the
Committee had been directed mainly at maintaining money market
conditions conducive to stability in financial markets generally, amid
the churning occasioned by developments in the commercial paper
market. Member bank borrowings rose sharply during the period—
from an average of less than $900 million in the statement week ending
June 24 to nearly $1.7 billion in the July 15 statement week. The increase was in large part a consequence of special discount window
accommodation of banks lending to firms that were finding it difficult
to roll over maturing commercial paper. For the most part the Federal
funds rate remained in a 7 to IVs per cent range, somewhat below the
range prevailing before the June 23 meeting, and for much of the period
the open market operations found necessary were quite limited. However, the System undertook a large volume of repurchase agreements
late in the period when reserve drains from market factors proved to be
much heavier than anticipated and the Federal funds rate came under
some upward pressure.
Average interest rates on conventional new-home mortgages remained unchanged in June at about the levels that had prevailed since
the beginning of the year. Net inflows of savings funds to nonbank thrift

141

institutions were relatively strong during the month, and outflows immediately after midyear interest and dividend crediting were quite
small. In view of such experience, it appeared likely that these institutions would step up the rate at which they were making new mortgage
commitments.
Following the Board's action on Regulation Q in late June, major
commercial banks acted quickly to raise their offering rates on largedenomination CD's of less than 90 days' maturity—generally into a range
of IV2 to 8 per cent, in contrast to the previous ceiling rates of 6VA and
61/£ per cent for maturities of 30 to 59 and 60 to 89 days, respectively.
The subsequent influx of funds was very large; in the 3 weeks ending
July 15, large-denomination CD's outstanding at weekly reporting
banks increased by about $3 billion, the most rapid advance on record.
Private demand deposits also expanded sharply in early July.
The latest staff analysis suggested that both the money stock and the
bank credit proxy—daily-average member bank deposits—would rise
considerably on the average from June to July. However, assuming that
prevailing money market conditions were maintained, growth in the
money stock was expected to slow sharply in the two succeeding
months and to be at an annual rate of about 5 per cent over the third
quarter.1 It appeared likely that the rate of expansion in large-denomination CD's would moderate after banks completed their initial adjustments to the Regulation Q action and were no longer faced with large
loan demands from firms experiencing run-offs of outstanding commercial paper. However, the annual rate of growth in the proxy series over
the third quarter was still expected to be high—about 14 per cent,
after adjustment for an anticipated reduction in banks' use of funds
from nondeposit sources.
The Committee decided that pressures in financial markets had
abated sufficiently to warrant reducing the special emphasis recently
given in open market operations to moderating such pressures, and increasing the emphasis placed on achieving the longer-run growth rates
in the monetary aggregates that were considered appropriate to the
underlying economic situation. At the same time, the Committee decided that account should be taken of the uncertainties and strains that
1

Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

142

did persist in financial markets, as well as of the "even keel" considerations associated with the forthcoming Treasury financing.
While there were some differences in the members' assessment of
the economic outlook, they agreed that moderate growth in the monetary aggregates—including growth in the money stock at about a 5
per cent annual rate in the third quarter—would be desirable. A majority also concurred in the view that, if moderate deviations from that
growth rate should develop, it would be preferable if they were in an
upward direction.
With respect to bank credit, it was noted that a relatively rapid rate of
expansion in the third quarter need not be disturbing in light of the shift
of credit flows from market to banking channels that was under way.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting indicates that real economic activity changed little in the second quarter after declining appreciably earlier in the year. Prices and wage rates generally are continuing to rise at a rapid pace. However, improvements in productivity
appear to be slowing the rise in costs, and some major price measures
are showing moderating tendencies. Since mid-June long-term interest
rates have declined considerably, and prices of common stocks have
fluctuated above their recent lows. Although conditions in financial
markets have improved in recent weeks uncertainties persist, particularly in the commercial paper market where the volume of outstanding
paper has contracted sharply. A large proportion of the funds so freed
apparently was rechanneled through the banking system, as suggested
by sharp increases in bank loans and in large-denomination CD's of
short maturity—for which rate ceilings were suspended in late June.
Consequently, in early July bank credit grew rapidly; there was also a
sharp increase in the money supply. Over the second quarter as a
whole both bank credit and money supply rose moderately. The overall balance of payments remained in heavy deficit in the second
quarter. In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to orderly reduction in the rate of inflation, while encouraging
the resumption of sustainable economic growth and the attainment of
reasonable equilibrium in the country's balance of payments.
To implement this policy, while taking account of persisting market
uncertainties, liquidity strains, and the forthcoming Treasury financing,

143

the Committee seeks to promote moderate growth in money and bank
credit over the months ahead, allowing for a possible continued shift
of credit flows from market to banking channels. System open market
operations until the next meeting of the Committee shall be conducted
with a view to maintaining bank reserves and money market conditions
consistent with that objective; provided, however, that operations shall
be modified as needed to counter excessive pressures in financial markets should they develop.
Votes for this action: Messrs. Burns, Brimmer,
Daane, Francis, Heflin, Hickman, Maisel, Robertson,
Sherrill, Swan, and Treiber. Votes against this action:
None.
Absent and not voting: Messrs. Hayes and Mitchell.
(Mr. Treiber voted as Mr. Hayes' alternate.)
2. Authority to purchase securities directly from the Treasury.

Paragraph 2 of the Committee's continuing authority directive, as most
recently amended on March 10, 1970, authorizes the Federal Reserve
Bank of New York (and, under certain circumstances, other Reserve
Banks) to purchase special short-term certificates of indebtedness directly from the Treasury, subject to certain conditions. This authorization is, in turn, based on a provision of Section 14(b) of the Federal
Reserve Act authorizing the Federal Reserve Banks to buy and sell
obligations of specified types "directly from or to the United States,"
subject to certain conditions.
It was noted at this meeting that the statutory authority in question
had expired on June 30, 1970, and that paragraph 2 of the continuing
authority directive had accordingly been in a state of de facto suspension
since that date; and that the paragraph would remain in suspension until
pending legislation, which would extend the authority until July 1, 1971,
was enacted. (Such legislation was enacted on July 31, 1970.)

144

MEETING HELD ON AUGUST 18, 1970
Authority to effect transactions in System Account.

According to revised estimates of the Commerce Department, real
GNP had edged up at an annual rate of 0.6 per cent in the second
quarter of 1970—slightly more than preliminary estimates had indicated—after having declined appreciably in the first quarter. Prices
and wage rates generally were continuing to rise at a rapid pace, but
there were some indications that upward pressures on prices were
moderating. Staff projections still suggested that growth in real GNP
would pick up somewhat in the third and fourth quarters but would
remain well below the economy's potential; also that the rate of price
advance would slow as the year progressed.
In July industrial production increased slightly—about offsetting its
decline in June—and was approximately 3 per cent below the peak
that had been reached a year earlier. Retail sales also rose, according
to advance estimates. On the other hand, the labor market continued to
ease: nonfarm payroll employment dropped for the fourth successive
month, and the unemployment rate moved back up to the 5 per cent
level of May, after having declined in June to 4.7 per cent.
Average wholesale prices rose sharply from mid-June to mid-July,
mainly because of an upsurge in prices of farm products and foods; the
increase for industrial commodities was somewhat below the average
for the first half of the year. Although the consumer price index continued to rise at a rapid rate in June, after seasonal adjustment it
advanced less over the second quarter as a whole than it had over the
first. The increase in unit labor costs in the private nonfarm sector
slowed substantially during the second quarter, largely because of
improvements in productivity.
The staff's GNP projections for the second half assumed that there
would not be an extended strike in the automobile industry when
current wage contracts expired in mid-September. The expectation
that over-all activity would expand somewhat further depended importantly on a fairly sharp recovery in residential construction activity
and on some acceleration in expenditures of State and local governments. It was anticipated that consumer spending would continue to
rise at about the average pace of the first half. On the other hand,

145

business outlays on fixed investment were expected to turn down and
defense spending to continue declining.
The surplus on U.S. foreign trade increased sharply further in June.
Preliminary indications were that the over-all balance of payments,
which had been in heavy deficit during the second quarter, had improved somewhat in July on the liquidity basis. On the other hand,
it appeared that the official settlements deficit had remained heavy,
reflecting substantial reductions in outstanding liabilities of U.S. banks
to their foreign branches following the June 24 suspension of Regulation Q ceilings on large-denomination CD's with maturities of less
than 90 days.
In foreign exchange markets, demand had been heavy in recent weeks
for the Canadian dollar, the exchange rate for which remained on a
floating basis. There also were strong demands for the German mark
and some other European currencies, especially the Dutch guilder. On
August 12 the German Federal Bank, acting to offset the effects on
bank liquidity of the large amounts of foreign exchange it had acquired,
imposed high marginal reserve requirements on commercial banks.
In domestic securities markets demands for funds had remained
heavy in recent weeks, and some uncertainties persisted, especially
in the market for commercial paper, which had been most directly
affected by the insolvency of a major railroad in the latter part of June.
The volume of commercial paper outstanding had contracted further—
although most recently it appeared to be stabilizing—and investors
remained highly selective and cautious about investing in less than
prime-grade issues in this market or in lower-grade securities in other
markets. Long-term interest rates—which had declined considerably in
late June and early July—subsequently showed mixed changes: municipal yields continued downward, but yields on Treasury and new corporate bonds edged up. Treasury bill rates also had been under some
upward pressure in recent weeks. On the day before this meeting the
market rate on 3-month bills, at 6.53 per cent, was about 15 basis
points above its level of 4 weeks earlier.
In July interest rates on new-home mortgages remained close to the
high levels that had prevailed since the beginning of the year. However,
the availability of funds to the mortgage market appeared to be increasing as a result of continued heavy savings inflows to thrift institutions.
In late July the Treasury announced the terms on which it would

146

refinance securities maturing in mid-August, including about $5.6
billion held by the public. Holders of the maturing issues were offered
the choice of two new 13A per cent notes—a 3 Vi -year note priced at
par and a 7-year note priced to yield 7.80 per cent. In addition, the
Treasury indicated that it would sell for cash about $2.75 billion of a
new 18-month, IV2 per cent note (priced to yield 7.54 per cent).
The volume of subscriptions received in the cash offering was very
large, and the Treasury accepted somewhat more than originally
planned. According to estimates at the time of this meeting, the financing yielded more than $2 billion of new cash after allowance had been
made for attrition in the exchange offering.
On the day before this meeting, the Board of Governors had announced that it was amending Regulation D to apply regular time and
demand deposit reserve requirements to funds obtained by member
banks through the issuance of commercial paper by their affiliates, and
at the same time to reduce from 6 to 5 per cent the reserves that
member banks must hold against time deposits in excess of $5 million.
The actions would become effective in the reserve computation period
beginning October 1 and would be applicable to affected deposits and
commercial paper outstanding in the week beginning September 17.
It was expected that the net result for all member banks would be a
reduction in required reserves of about $350 million.
Private demand deposits and the money stock expanded moderately
on the average from June to July. The money stock rose at an annual
rate of 4.1 per cent—considerably less than had been expected at the
time of the preceding meeting of the Committee and almost the same as
the 4.2 per cent rate of growth recorded over the second quarter.1
There was an unusually large increase in commercial bank time and
savings deposits in July. As at nonbank thrift institutions, inflows of
savings funds to banks were heavy, but the bulk of the rise in total time
and savings deposits was attributable to the sharp expansion that had
occurred in the outstanding volume of large-denomination CD's after
the Board acted in late June to suspend rate ceilings on such CD's of
30 to 89 days maturity. The rise in CD's outstanding appeared to be
slowing somewhat in early August.
1

Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

147

Because of the strength in time and savings deposits, the bank credit
proxy—daily-average member bank deposits—increased substantially
from June to July; growth was at an annual rate of 18 per cent, after
adjustment for some decline in banks' reliance on funds from nondeposit sources. Banks added considerably to their holdings of shortterm Government securities, mainly by investment in tax-anticipation
bills auctioned by the Treasury on July 2 and 16. They also expanded
sharply their loans to finance companies, particularly in the early weeks
of the month when some finance companies were encountering difficulty
in rolling over maturing commercial paper.
System open market operations since the preceding meeting of the
Committee had been directed at fostering money market conditions
that were favorable to stable financial markets and that were consistent
with a moderate rate of growth in the money stock. Money market
conditions were permitted to ease somewhat during the period when
it began to appear that the money stock was falling below a path consistent with growth over the third quarter at the 5 per cent annual rate
favored by the Committee. Thus, the Federal funds rate fluctuated
mostly in a range of 6Vi to 7 per cent, compared with a 7 to 15A>> per
cent range in the preceding interval between meetings. Average member bank borrowings in the period remained quite high—about $1.2
billion—chiefly as a result of special accommodation at the discount
window for banks lending to firms that were encountering difficulties
in rolling over maturing commercial paper. However, during the period
such borrowings declined somewhat as pressures in the commercial
paper market moderated.
Staff analysis suggested that if prevailing money market conditions
were maintained the money stock would grow at an annual rate of
about 4 per cent over the third quarter and into the fourth; and that
some further easing of money market conditions would be required if
money were to grow at a 5 per cent rate. Within the third quarter it was
expected that the growth rate of money would increase somewhat from
July to August and then slacken moderately in September. The analysis
suggested that a 5 per cent growth rate for the money stock over the
third quarter would be associated with a 16.5 per cent rate of expansion in the adjusted credit proxy—reflecting a high but slowing rate
of growth in time deposits.
In the Committee's discussion it was noted that expectations of

148

continuing inflation had abated considerably in recent months, even
though prices were still advancing at an undesirably rapid rate. It was
the consensus of the Committee that monetary policy at present should
be sufficiently stimulative to foster moderate growth in real economic
activity, but not so stimulative as to risk a resurgence of inflationary
expectations. Considerable stress was placed on the need to encourage
an adequate flow of credit to the housing industry and to State and
local governments if a satisfactory rate of growth in over-all activity
were to be achieved.
Against this background, the Committee decided that open market
operations should be directed at promoting some easing of conditions
in credit markets and growth in the money stock at a rate somewhat
greater than that of the second quarter. In the latter connection most
members continued to believe, as they had at the preceding meeting,
that an appropriate target rate of growth for the money stock over the
period ahead would be an annual rate of about 5 per cent; and should
moderate deviations from that growth rate develop, they preferably
should be in an upward rather than a downward direction.
As to bank credit, the Committee took note of the reintermediation
process now under way and decided that the growth rate should be
allowed to reflect any continued shift of credit flows from market to
banking channels. It also directed that account be taken of possible
liquidity problems, if they should emerge in the coming period, and
of the effect of the Board's actions with respect to Regulation D.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real economic activity, which edged up slightly in the second quarter after
declining appreciably earlier in the year, may be expanding somewhat further. Prices and wage rates generally are continuing to rise
at a rapid pace. However, improvements in productivity appear to
be slowing the rise in costs, and some major price measures are
showing moderating tendencies. Credit demands in securities markets
have continued heavy, and interest rates have shown mixed changes
since mid-July after declining considerably in preceding weeks. Some
uncertainties persist in financial markets, particularly in connection
with market instruments of less than prime grade. In July the money
supply rose moderately on average and bank credit expanded sub-

149

stantially. Banks increased holdings of securities and loans to finance
companies, some of which were experiencing difficulty in refinancing
maturing commercial paper. Banks sharply expanded their outstanding large-denomination CD's of short maturity, for which rate
ceilings had been suspended in late June, and both banks and nonbank thrift institutions experienced large net inflows of consumertype time and savings funds. The over-all balance of payments
remained in heavy deficit in the second quarter, despite a sizable
increase in the export surplus. In July the official settlements deficit
continued large, but there apparently was a marked shrinkage in the
liquidity deficit. In light of the foregoing developments, it is the
policy of the Federal Open Market Committee to foster financial
conditions conducive to orderly reduction in the rate of inflation,
while encouraging the resumption of sustainable economic growth
and the attainment of reasonable equilibrium in the country's balance of payments.
To implement this policy, the Committee seeks to promote some
easing of conditions in credit markets and somewhat greater growth
in money over the months ahead than occurred in the second
quarter, while taking account of possible liquidity problems and
allowing bank credit growth to reflect any continued shift of credit
flows from market to banking channels. System open market operations until the next meeting of the Committee shall be conducted
with a view to maintaining bank reserves and money market conditions consistent with that objective, taking account of the effects of
other monetary policy actions.
Votes for this action: Messrs. Burns, Daane,
Heflin, Hickman, Maisel, Mitchell, Robertson, Sherrill, and Swan. Votes against this action: Messrs.
Hayes, Brimmer, and Francis.
Messrs. Hayes, Brimmer, and Francis believed that it was appropriate for money to grow at a moderate rate at present. They dissented
from this directive primarily because they were opposed to the promotion of "some easing of conditions in credit markets" as a specific
objective of Committee policy at this time. In their judgment such
easing was not presently required for the purpose of encouraging a
satisfactory rate of expansion in economic activity, and it would involve
an unduly large risk of rekindling inflationary expectations.
The views of the dissenting members regarding bank credit differed.

150

Mr. Brimmer indicated that he was deeply troubled by the rapid recent
and projected growth rates in bank credit, and that he favored fostering growth at only a modest rate. Mr. Hayes thought that a sizable
increase in bank credit in the last month or two had been appropriate,
in view of the shrinkage in commercial paper following the insolvency
of a major railroad corporation. However, he observed that he would
be troubled by continued rapid growth in bank credit now that the
commercial paper market seemed to be stabilizing. Mr. Francis expressed the view that bank credit was likely to be misleading as a
proximate guide to policy because of the reintermediation in process,
and that the Committee accordingly should focus on the growth rate
in money.

151

MEETING HELD ON SEPTEMBER 15, 1970
Authority to effect transactions in System Account.

Information reviewed at this meeting suggested that real GNP, which
had edged up in the second quarter, was expanding somewhat further
in the third. Wage rates generally were continuing to increase at a rapid
pace, but improvements in productivity appeared to be slowing the
rise in costs and some major price measures were advancing less
rapidly than before.
In August industrial production declined slightly; on balance production had changed little since May. Retail sales also moved down a
little in August, according to advance estimates, and were only moderately above their average level in the second quarter. The labor market
eased slightly further: nonfarm payroll employment declined and the
unemployment rate edged up to 5.1 from 5.0 per cent in July. On the
other hand, the latest data for private housing starts indicated that such
starts had risen sharply in July after increasing appreciably in June.
Average wholesale prices declined from mid-July to mid-August as
a result of a reduction in prices of farm products and foods; this volatile series had risen sharply in the previous month. At the same time
the advance in prices of industrial commodities slowed further. In July
the rate of increase in the seasonally adjusted consumer price index was
below that of June and was significantly below the average monthly rise
in the first half of the year.
According to the latest staff estimates, the advance in real GNP
expected for the third quarter was to an important extent attributable
to the recovery of residential construction activity. Also, growth in
State and local government outlays had stepped up from the low
second-quarter pace, and consumer spending was expanding at a
rate close to that of the first half—although not so rapidly as had
been projected earlier. On the other hand, the estimates suggested that
business capital outlays were beginning to edge down and that defense
spending was continuing to decline.
The economic outlook was clouded by uncertainty regarding the
duration of a strike, which had begun on the day of this meeting, at a
major automobile manufacturer. Staff projections suggested that, apart
from possible effects of the strike, real GNP would pick up somewhat
in the fourth quarter of 1970 and would expand further in the first two

152

quarters of 1971, but would still remain well below the economy's
potential. However, it was noted that the rise in real GNP projected for
the fourth quarter was not likely to be realized if the automobile strike
continued well into that quarter. At the same time, it appeared that
much of the loss of output and income that would result from such
an extended strike would probably be made up in the first quarter of
1971.
With respect to the U.S. balance of payments, the deficit on the
liquidity basis in July and August—while still large—was considerably
smaller than earlier in the year. A major part of the recent improvement had occurred in private capital flows. In addition, in July both
exports and imports declined about equally and the foreign trade
surplus remained at the high level to which it had risen in June. On
the official settlements basis the deficit continued very high after midyear as a result of repayments of Euro-dollar borrowings by U.S. banks.
In foreign exchange markets sterling had been under selling
pressure recently, particularly in early September. The Italian lira had
strengthened significantly in the latter part of August. On August 27
the Bank of France reduced its discount rate from 8 to IVi per cent,
and on September 1 the Bank of Canada cut its rate from 7 to 6V2
per cent.
System open market operations since the August 18 meeting had
been directed at promoting some easing of conditions in credit markets
and moderate growth in the money supply. Reserves had been provided
liberally during the period, first to foster somewhat easier money market conditions and later to resist a persistent tendency toward firmness
that developed. In the latter part of August Federal funds traded
mostly in a range of 61/s to 6% per cent, well below the 6V2 to 7 per
cent range generally prevailing earlier in the month. In the first half of
September, however, the funds rate rose to levels above 6V^ per cent
largely as a result of a shift in the distribution of reserves away from
the major money centers. Member bank borrowings averaged about
$690 million in the 4 weeks ending September 9, down sharply from
the $1.2 billion average of the previous 4 weeks. However, part of
this decline reflected a further reduction in special accommodations at
the discount window for banks lending to firms that were encountering difficulties in rolling over maturing commercial paper.
Most short- and long-term interest rates declined in the latter part

153

of August, to a large extent because of growing expectations among
investors of a significant near-term easing of monetary policy. These
expectations were stimulated in part by the announcement of the Board
of Governors on the day before the August 18 meeting of a reduction
in reserve requirements on time and savings deposits x and by the easing of money market conditions following that meeting. Most yields
turned up in early September, however, against the background of the
firmer money market conditions that developed then and of the continuing heavy volume of new offerings in capital markets.
On balance, yields on corporate and municipal bonds had changed
little since mid-August, but yields on Treasury notes and bonds and on
most types of short-term securities had declined somewhat. On the day
before this meeting the market rate on 3-month Treasury bills was 6.33
per cent, 20 basis points below its level 4 weeks earlier. The relationships among yields on market securities of different grades suggested
that investors continued to be highly concerned about credit quality.
At commercial banks growth in the outstanding volume of largedenomination CD's was relatively rapid in August—although it moderated considerably from the unusually rapid pace that had been recorded in July following the suspension in late June of rate ceilings on
such CD's maturing in 30 to 89 days. Inflows of consumer-type time
and savings deposits also remained substantial in August, although not
so large as in July. As a result of these gains in time and savings deposits and a marked increase in private demand deposits, the bank
credit proxy—daily-average member bank deposits—rose sharply further from July to August. During the month banks reduced their reliance on funds obtained through the issuance of commercial paper by
their affiliates, in anticipation of the application of reserve requirements
to such funds. After adjustment for this development and for repayments of Euro-dollar borrowings by U.S. banks, the bank credit proxy
increased at an annual rate of about 24 per cent from July to August.
x
The Board reduced from 6 to 5 per cent the reserves that member banks
must hold against time and savings deposits in excess of $5 million. At the
same time, it applied regular time and demand deposit reserve requirements on
funds obtained by member banks through the issuance of commercial paper by
their affiliates. The Board announced that both actions would become effective
in the reserve computation period beginning October 1 and would be applicable
on such deposits and commercial paper outstanding in the week beginning
September 17.

154

Growth of the adjusted proxy series appeared to be slowing considerably in September.
The money stock, according to the latest published statistics, rose
sharply in the first part of August but then moved down through early
September. On the average in August, the published measure showed
an increase at an annual rate of about 11 per cent—compared with
annual rates of about 4 per cent in July and close to 4 per cent over
each of the first two quarters of the year.2 Including a projection for
the rest of September, growth over the third quarter was estimated at
about a 4.5 per cent annual rate.
It was noted at the meeting, however, that the rates of growth calculated for money would be somewhat different if adjustments were
made for biases that had developed in the data because of the accounting procedures employed in connection with certain types of international transactions. It was reported that work was now in process on
statistical revisions, including not only adjustments for these biases but
also benchmark corrections and revisions of seasonal factors. Although
the final revisions were not expected to be available until late autumn,
tentative calculations based on the preliminary information now available suggested that the adjustments for biases due to these types of
international transactions might in themselves raise the growth rates
for the first two quarters by about 1 or 2 percentage points and might
lower the rate for the third quarter by about 1 percentage point.
Staff analysis suggested that some easing of currently prevailing
money market conditions probably would be required if the money
stock series, adjusted for bias, were to grow at an annual rate of about
5 per cent over the fourth quarter. The analysis also suggested that
such a growth rate for money would be associated with a 10 per cent
rate of expansion in the adjusted bank credit proxy. The anticipation
of marked slowing in bank credit growth—from a third-quarter rate
tentatively estimated at 17.5 per cent—reflected in part expectations
that the rate of increase of time deposits would slacken as banks completed their adjustments to the suspension of rate ceilings on largedenomination CD's of shorter term. Also, it appeared likely that there
would be a considerable abatement in the shift of credit flows from
market to banking channels that had followed earlier pressures in the
2
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

155

commercial paper market and that had contributed importantly to the
rapid growth of the bank credit proxy in the third quarter.
The Committee agreed that some easing of conditions in credit markets and moderate growth in the money stock—at an annual rate of
about 5 per cent in the fourth quarter—remained appropriate as the
objectives of monetary policy at this time, although a few members
felt that somewhat faster expansion of money would be preferable. A
few members also expressed the view that it would be desirable to place
less emphasis on a specific growth rate for the money stock, particularly in light of present data uncertainties.
It was noted in the discussion that prospects for a satisfactory rate
of economic growth depended importantly on continued recovery in
residential construction outlays and State and local government expenditures. In view of the sensitivity of these types of spending to
interest rates, some members stressed the desirability of fostering somewhat lower levels of interest rates over the months ahead.
There was some sentiment in the Committee for increasing the
weight given to developments in bank credit in day-to-day decisions
regarding open market operations, now that the period of rapid reintermediation appeared to be drawing to a close. The Committee concluded, however, that for the time being the practice should be continued of giving preponderant weight to the money stock in assaying
the implications of the behavior of financial aggregates for System
operating decisions.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real economic activity, which edged up slightly in the second quarter, is
expanding somewhat further in the third quarter, led by an upturn in
residential construction. Wage rates generally are continuing to rise
at a rapid pace, but improvements in productivity appear to be slowing the rise in costs, and some major price measures are rising less
rapidly than before. Interest rates declined in the last half of August,
but most yields turned up in early September, as credit demands in
securities markets have continued heavy; existing yield spreads continue to suggest concern with credit quality. The money supply rose
rapidly in the first half of August but moved back down through
early September. Bank credit expanded sharply further in August as

156

banks continued to issue large-denomination CD's at a relatively
rapid rate, while reducing their reliance on the commercial paper
market after the Board of Governors acted to impose reserve requirements on bank funds obtained from that source. The balance of payments deficit on the liquidity basis diminished somewhat in July and
August from the very large second-quarter rate, but the deficit on the
official settlements basis remained high as banks repaid Euro-dollar
liabilities. In light of the foregoing developments, it is the policy of
the Federal Open Market Committee to foster financial conditions
conducive to orderly reduction in the rate of inflation, while encouraging the resumption of sustainable economic growth and the
attainment of reasonable equilibrium in the country's balance of
payments.
To implement this policy, the Committee seeks to promote some
easing of conditions in credit markets and moderate growth in money
and attendant bank credit expansion over the months ahead. System
open market operations until the next meeting of the Committee
shall be conducted with a view to maintaining bank reserves and
money market conditions consistent with that objective.
Votes for this action: Messrs. Burns, Brimmer,
Daane, Francis, Heflin, Hickman, Maisel, Robertson, Sherrill, and Swan. Vote against this action:
Mr. Hayes.
Absent and not voting: Mr. Mitchell.
In dissenting from this action, Mr. Hayes indicated that he was
concerned about again calling in the directive for an easing of conditions in credit markets. Short-term interest rates had declined since
the last Committee meeting and he was not convinced that further
easing would be required to achieve the objective, which he favored, of
moderate growth in money and bank credit. He feared the possible
inflationary effects of a policy calling for progressive easing of credit
conditions.

157

MEETING HELD ON OCTOBER 20, 1970
Authority to effect transactions in System Account.

Preliminary estimates of the Commerce Department indicated that real
output of goods and services had risen at an annual rate of 1.4 per
cent in the third quarter, compared with a 0.6 per cent rate of growth
in the second. Nonfarm payroll employment declined on the average
in the third quarter and the unemployment rate rose further. Wage
rates generally were continuing to increase at a rapid pace, but it appeared that gains in productivity were slowing the advance in costs
and some major price measures were rising less rapidly than earlier. A
strike at a major automobile manufacturer that had begun in midSeptember was retarding current economic activity and clouding the
near-term outlook.
Industrial production, which had been declining irregularly since
July 1969, fell considerably in September; much of the reduction in
that month was directly attributable to the strike in the automobile industry. Retail sales were about unchanged from August, and in the
third quarter as a whole sales rose less than in any of the three preceding quarters. Nonfarm payroll employment leveled off in September, following earlier declines, but the unemployment rate advanced
sharply from 5.1 to 5.5 per cent. Private housing starts, on the other
hand, increased substantially in the third quarter.
The wholesale price index rose considerably from mid-August to
mid-September after having declined in the previous month; to a
large extent these fluctuations reflected the volatile behavior of prices
of farm products and foods. Average prices of industrial commodities
continued upward in September, but in the third quarter as a whole
the rate of advance was somewhat slower than in the second quarter.
In August the increase in the consumer price index was smaller than
in any other month since December 1968. It appeared that output per
manhour in the private nonfarm sector of the economy had increased
appreciably in both the second and third quarters, contributing to a
significant slowing of the rise in unit labor costs.
Staff projections suggested that real GNP might edge up in the
fourth quarter at about the same pace as in the third if the strike in
the automobile industry were settled by the end of October. On this
assumption it appeared likely that the main effects of the strike on

158

business activity would be to hold down inventory accumulation and
to keep consumer spending from accelerating very much from the low
rate of expansion recorded in the third quarter.
With respect to other sectors, the projections for the fourth quarter
contemplated an acceleration of the advance in residential construction outlays that had begun in the third quarter, continued growth in
State and local government expenditures at a rather rapid rate, and
declines in business capital investment and defense outlays. Some rebound in over-all economic activity was expected in the first quarter
of 1971, but it was anticipated that the rate of expansion would
moderate in the second quarter when it was assumed that production
and sales lost by the strike would have been largely made up.
The surplus on U.S. foreign trade fell substantially in August from
the unusually high level of the previous 2 months. Preliminary estimates indicated that the over-all balance of payments deficit had declined markedly on the liquidity basis from the second to the third
quarters—reflecting mainly improvements in private capital flows. On
the official settlements basis, however, the deficit remained close to its
high second-quarter level as U.S. banks made sizable repayments of
their Euro-dollar liabilities to foreign branches. By mid-October several
large banks had reduced, or had announced intentions to reduce, such
Euro-dollar liabilities by amounts large enough to lower their "reserve-free" bases.1
In foreign exchange markets, sterling had strengthened recently,
after having been under selling pressure in early September. The rate
for the Canadian dollar had declined sharply from its mid-September
peak. On the day of this meeting the Bank of France reduced its discount rate from IVz to 7 per cent.
On October 15 the Treasury auctioned a $2.5 billion issue of taxanticipation bills due to mature in June 1971. The Treasury was expected to announce on October 22 the terms on which it would refund
1

Amendments by the Board to its Regulations D and M, effective September 4, 1969, had (among other things) placed a 10 per cent reserve requirement on borrowings by member banks from their foreign branches, to the
extent that these borrowings exceeded the daily-average amounts outstanding
in the 4 weeks ending May 28, 1969. At the same time the Board had provided that the reserve-free base so established would be reduced when and to
the extent that the liabilities of any bank to its foreign branches dropped
below the original base in any subsequent period used to compute the reserve
requirement.

159

$7.7 billion of notes maturing November 16. It was anticipated that
the Treasury would offer intermediate-term notes in exchange for the
maturing securities and that it would engage in a subsequent cash financing to cover attrition and perhaps to raise additional new cash.
System open market operations since the September 15 meeting
of the Committee had been directed at promoting some easing of conditions in credit markets and moderate growth in the money stock. Money
market conditions varied considerably—tending toward ease in the
latter part of September and toward firmness in early October—as a
result of unexpectedly wide swings in market factors affecting reserves;
but on balance such conditions eased somewhat. Thus, the average
rate on Federal funds since the preceding meeting was about 6Vs per
cent, compared with 6 ^ per cent in the previous intermeeting period;
and member bank borrowings in the 5 weeks ending October 14
averaged about $490 million, $200 million below the average of the
previous 4 weeks.
Interest rates on short-term securities and on Treasury notes and
bonds also had declined on balance since mid-September, in reflection
of the easing of money market conditions, indications of sluggishness
in the economy, and the reduction in the prime lending rate of banks—
from 8 to 714 per cent—in the latter part of September. On the
day before this meeting the market rate on 3-month Treasury bills was
5.94 per cent, about 40 basis points below its level 5 weeks earlier.
Yields on corporate and municipal bonds had changed little over the
period, however, in the face of a continuing very heavy flow of new
issues.
In September secondary market yields on federally insured residential mortgages again edged down, and the average contract interest rate
on new-home mortgages declined for the first time in 2 years. The
availability of mortgage funds had continued to improve recently as
savings inflows to nonbank thrift institutions remained substantial.
At commercial banks also, inflows of consumer-type time and savings deposits remained substantial in September. Outstanding largedenomination CD's continued to expand at a relatively rapid pace
despite reductions in the interest rates offered by banks for such deposits. Private demand deposits and the money stock had increased
slightly from August to September, according to the latest published
statistics. Growth in the money stock over the third quarter was now

160

estimated to have been at an annual rate of about 5 per cent,2 after a
tentative allowance for the biases resulting from the accounting procedures employed in connection with certain types of international
transactions.
There was a sharp decline during September in business loans at
banks, adjusted to include loans that had been sold to affiliates. Growth
in bank holdings of U.S. Government securities moderated substantially, but holdings of municipal and Federal agency securities increased
markedly further. Banks continued to reduce their reliance on funds
obtained from nondeposit sources—both Euro-dollar borrowings and
funds obtained through the sale of commercial paper by bank affiliates.
The bank credit proxy—daily-average member bank deposits—
increased at an annual rate of about 10 per cent in September, after
adjustment for changes in nondeposit funds. Over the third quarter the
adjusted proxy series expanded at an annual rate of about 17 per cent.
Staff analysis suggested that if money market conditions similar to
those recently prevailing were maintained the money stock series,
roughly adjusted for the biases related to international transactions,
would grow at annual rates of about 4.5 per cent in October and about
5 per cent over the fourth quarter. It appeared that such growth rates
for money would be associated with expansion in the adjusted bank
credit proxy at an annual rate of about 9 per cent in the quarter.
In the Committee's discussion considerable concern was expressed
about the indications of actual and prospective weakness in economic
activity, apart from the effects of the auto strike, and about the level
to which the unemployment rate had risen. Concern also was voiced
about the continuing advances in prices and costs, although some members expressed the view that progress was being made toward controlling inflation.
The Committee agreed that some easing of conditions in credit
markets and moderate growth in the money stock—at an annual rate
of about 5 per cent in the fourth quarter—remained appropriate as the
objectives of policy. As at the previous meeting, some members advocated a somewhat faster growth rate for the money stock, and a few
observed that data uncertainties argued for reducing the emphasis
placed on a specific growth rate for money. Several members again
2
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

161

stressed the desirability of fostering declines in interest rates over
coming months in order to encourage needed recovery in residential
construction outlays and State and local government spending. It was
noted that in the weeks immediately ahead account would have to be
taken of "even keel" considerations arising from the forthcoming
Treasury financings.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services increased slightly further in the third quarter
but that employment declined and unemployment continued to rise;
activity in the current quarter is being adversely affected by a major
strike in the automobile industry. Wage rates generally are continuing
to rise at a rapid pace, but improvements in productivity appear to be
slowing the increase in costs, and some major price measures are
rising less rapidly than before. Most interest rates have declined since
mid-September, although yields on corporate and municipal bonds
have been sustained by the continuing heavy demands for funds in
capital markets. The money supply rose slightly on average in September and increased moderately over the third quarter as a whole.
Bank credit expanded further in September but at a rate considerably
less than the fast pace of the two preceding months. Banks continued
to issue large-denomination CD's at a relatively rapid rate and experienced heavy inflows of consumer-type time and savings funds,
while making substantial further reductions in their use of nondeposit
sources of funds. The balance of payments deficit on the liquidity
basis diminished in the third quarter from the very large secondquarter rate, but the deficit on the official settlements basis remained
high as banks repaid Euro-dollar liabilities. In light of the foregoing
developments, it is the policy of the Federal Open Market Committee
to foster financial conditions conducive to orderly reduction in the rate
of inflation, while encouraging the resumption of sustainable economic
growth and the attainment of reasonable equilibrium in the country's
balance of payments.
To implement this policy, the Committee seeks to promote some
easing of conditions in credit markets and moderate growth in money
and attendant bank credit expansion over the months ahead. System
open market operations until the next meeting of the Committee shall

162

be conducted with a view to maintaining bank reserves and money
market conditions consistent with those objectives, taking account of
the forthcoming Treasury financings.
Votes for this action: Messrs. Burns, Brimmer,
Francis, Hickman, Maisel, Mitchell, Robertson,
Sherrill, Swan, and Morris. Vote against this action:
Mr. Hayes.
Absent and not voting: Messrs. Daane and Heflin.
(Mr. Morris voted as Mr. Heflin's alternate.)
In dissenting from this action, Mr. Hayes said that he favored moderate growth in the monetary aggregates—including expansion in
money and bank credit at annual rates of about 5 and 9 per cent,
respectively, in the fourth quarter—and that he would have no objection to some easing of credit market conditions if that was the natural
result of demand factors under such a policy course. As at the two
preceding meetings, however, he was concerned about the directive
language reading "the Committee seeks to promote some easing of
conditions in credit markets," because it implied to him that a persistent push toward lower interest rates was intended, irrespective of
market forces. Such a course, in his view, would involve undue risks
of rekindling inflationary expectations and of weakening the international position of the dollar.

163

MEETING HELD ON NOVEMBER 17, 1970
Authority to effect transactions in System Account.

Information reviewed at this meeting suggested that real output of
goods and services, which had risen at an annual rate of 1.4 per cent
in the third quarter, was changing little in the current quarter. Part
but not all of the weakness in over-all activity was attributable to a
strike at a major automobile manufacturer, which had begun in midSeptember and which apparently was now coming to an end. Although
recent movements in major price measures had been erratic, the general tendency in these measures had been toward a slower rate of
increase.
In October retail sales, industrial production, and nonfarm payroll
employment all declined and the unemployment rate edged up to 5.6
from 5.5 per cent in September. Sales fell sharply at automobile
dealers, but they increased at other types of retail establishments
after having changed little since April. Production was cut back
further in October in the motor vehicle and supplier industries and
also in industries that make business and defense equipment and many
types of industrial materials. Although payroll employment rose
moderately in the nonmanufacturing sector, it declined in manufacturing even apart from the effects of the automobile shutdown.
Average wholesale prices of industrial commodities advanced
sharply from mid-September to mid-October after some slowing in
the third quarter. Wholesale prices of farm products and foods declined about as much in October as they had risen in the previous
month. The consumer price index rose considerably in September,
but over the third quarter as a whole it had increased less than in
either of the two preceding quarters.
Wage rates were continuing to advance at a rapid pace; the increases provided by contract settlements concluded during the third
quarter, while somewhat smaller than the second-quarter increases,
were significantly larger than those of 1968 and 1969. However, output per manhour in the private nonfarm sector had risen considerably
further in the third quarter, and the rate of advance in unit labor
costs in the second and third quarters taken together was the lowest
since mid-1967.

164

According to the latest staff projections—in which it was assumed
that the automobile industry would be back in full production by
early December—real GNP would remain about unchanged in the
fourth quarter, partly because of the effects of the strike in curtailing
business inventory investment and growth in consumer spending. It
appeared likely that over-all economic activity would rebound sharply
in the first quarter of 1971 in the aftermath of the strike; but that the
pace of expansion would moderate considerably in the second quarter, when automobile output and sales were expected to fall back from
their earlier post-strike surge.
Over the three quarters ending with the second quarter of 1971 the
average rate of growth in real GNP was expected to be relatively low.
The projections for that period contemplated further sizable advances
in residential construction expenditures and State and local government outlays. However, it was anticipated that consumer expenditures
would increase only moderately on balance, and that business capital
investment and defense outlays would decline. The rate of advance
in prices was still expected to slow, but by less than had appeared
likely earlier.
The surplus on U.S. foreign trade declined further in September;
for the third quarter as a whole the surplus was slightly below the
high second-quarter rate. The over-all balance of payments on the
liquidity basis improved markedly from the second to the third quarter, largely because of a reversal of flows involved in U.S. bank lending to foreigners and a renewal of foreign buying of U.S. stocks. The
deficit on the official settlements basis remained near the high level of
the second quarter as a result of substantial repayments of Euro-dollar
borrowings by U.S. banks.
Preliminary estimates for October suggested that on both bases the
over-all payments deficit was remaining at about the third-quarter
rate. Repayments of Euro-dollar borrowings by U.S. banks appeared
to be continuing at a fairly steady pace; although Euro-dollar interest
rates had declined markedly during October, they were still considerably above comparable U.S. interest rates.
In the foreign exchange markets, most currencies had strengthened
against the dollar recently. Abroad, discount rates were reduced by the
National Bank of Belgium, from IV2 to 7 per cent, on October 22; by
the Bank of Japan, from 6% to 6 per cent, on October 28; and by the

165

Bank of Canada, from 6V2 to 6 per cent, on November 12. These
actions followed indications of easing of demand in the respective
domestic economies. The German Federal Bank cut its discount rate
from 7 to 6 ^ per cent on the day of this meeting.
On October 22 the Treasury announced the terms on which it
would refund securities maturing in mid-November, including $6
billion held by the public. Holders of the maturing obligations were
offered the choice of a new IVA per cent, 3Vi-year note priced at par
or a reopened IV2 per cent, 53/4-year note priced to yield 7.39 per
cent. The offering was very well received by the market; redemptions
for cash were smaller than had been expected and the notes traded at
substantial premiums on a "when-issued" basis. Near the end of
October, when it announced the results of the refunding, the Treasury
also announced that on November 5 it would auction $2 billion of a
6% per cent, 18-month note, employing methods similar to those
normally used in Treasury bill auctions. This financing also was highly
successful; the average issuing rate in the auction was 6.21 per cent,
well below expectations.
Short-term interest rates had declined substantially further since
the October 20 meeting of the Committee. For example, the market
rate on 3-month Treasury bills, at 5.30 per cent on the day before this
meeting, was about 65 basis points below its level 4 weeks earlier and
lower than at any time in the preceding 2 years. The recent rate declines reflected a reduction in demands for short-term credit as a
result of the prolonged strike in the automobile industry and the
general sluggishness in the economy; the reinvestment in short-term
securities of the proceeds of the continuing heavy volume of capital
market issues; and widespread expectations among investors of imminent reductions in Federal Reserve discount rates and the prime lending rate of commercial banks. On November 11 and succeeding days
Federal Reserve Bank discount rates were reduced to 5% per cent
from the 6 per cent level that had been in effect since early April 1969.
On November 12 the prime lending rate—which had been cut from 8
to IV2 per cent in the latter part of September—was lowered to IVA
per cent.
In October some further easing of conditions in markets for residential mortgages was reflected in an additional slight decline in secondary market yields on federally insured loans. Inflows of savings

166

funds to nonbank thrift institutions were again substantial, and it
appeared that the volume of mortgage loans and of new commitments
for such loans—both of which had increased considerably in the third
quarter—had continued large.
At commercial banks the rate of growth in total time and savings
deposits from September to October was below the very high thirdquarter rate, although the expansion remained substantial for both
consumer-type deposits and large-denomination CD's. The money
stock changed little from September to October—declining slightly
according to the published statistical series, and rising slightly after
a tentative allowance was made for the biases resulting from the accounting procedures employed in connection with certain types of
international transactions. On both bases the money stock had increased only slightly in September, but over the third quarter as a
whole it had grown at an annual rate of about 5 per cent.1
The lack of significant growth in the money stock in October contrasted with expectations at the time of the preceding Committee
meeting of expansion in that month at about a 4.5 per cent rate. The
shortfall appeared to be associated with the weakness in demands for
short-term credit; business loans at banks (adjusted to include loans
that had been sold to affiliates) declined even more sharply in October
than in the preceding month. Growth in the bank credit proxy—dailyaverage member bank deposits—also fell considerably short of expectations. After adjustment for a further marked reduction in bank
reliance on funds obtained from nondeposit sources, the proxy series
increased at an annual rate of less than 1 per cent, compared with
growth rates of about 10 per cent in September and more than 17
per cent in the third quarter as a whole.
System open market operations had been directed at achieving a
slight easing of money market conditions early in the period following
the October 20 meeting of the Committee, when current estimates
indicated that the monetary aggregates were growing at rates moderately below those desired. Somewhat greater easing had been sought
later in the period, when revised data indicated that the shortfall in
the aggregates was greater than had been thought earlier and when
1
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

167

conditions associated with the Treasury financings were such that
"even keel" considerations offered less of a constraint on operations.
Most recently, the Federal funds rate had been fluctuating in a range
around 534 per cent, compared with the range above 6 per cent that
had prevailed shortly before the October 20 meeting. In the 4 weeks
ending November 11 member bank borrowings averaged about $475
million, down slightly from the average in the preceding 5 weeks.
Staff analysis suggested that, in light of the current weakness in
demands for money and credit, attainment of even a 4 per cent annual
rate of growth for money over the fourth quarter probably would
necessitate some easing of prevailing money market conditions. The
analysis suggested, however, that if subsequently there were no further substantial change in money market conditions, money growth
would step up in the first quarter of 1971, when demands for money
and credit were expected to strengthen temporarily in connection
with the bulge in GNP anticipated in the aftermath of the auto strike.
It appeared that growth in the money stock at an annual rate of 4
per cent in the fourth quarter might be associated with expansion in
the adjusted bank credit proxy at a rate of about 4.5 per cent.
The Committee agreed that, in light of the current and prospective
economic situation, some easing of conditions in credit markets and
moderate growth in money remained appropriate as objectives of
monetary policy. Concern was expressed about the shortfalls from
expected growth rates for the monetary aggregates that had been
experienced in October, and the members decided that an easing of
money market conditions would be desirable at present for the purpose of stimulating more substantial growth in the aggregates.
As at other recent meetings, there were some differences of view
with respect to the emphasis that should be placed on the growth rate
of money relative to other indicators of policy, and with respect to
the specific growth rate for money that should be sought. The Committee decided that it would be undesirable to "whipsaw" money and
credit market conditions to the extent that might be required to attain
a 5 per cent money growth rate in the fourth and first quarters individually. In particular, the Committee agreed that a 4 per cent growth
rate in the fourth quarter would be acceptable if the results of operating experience over coming weeks bore out the indication of the
staff analysis that attainment of a 5 per cent rate would require a
sharp easing of money market conditions. This judgment was reached
168

in light of the expectation that money growth would pick up in the
first quarter if there were no further substantial change in money
market conditions. At the same time, it was noted that the policy
objectives for the first quarter and subsequent periods would, of
course, be considered by the Committee at future meetings.
During the discussion the Committee considered the degree to
which money market conditions should be eased in coming weeks in
pursuing the longer-run objectives for the monetary aggregates, in
light of the possibility that a marked easing might substantially accelerate the currently large outflows of short-term capital from the
United States. The Committee decided that, if it was found in the
course of operations that easing sufficient to reduce the Federal funds
rate to around 5 per cent was still not producing an adequate response
in terms of growth rates in the aggregates, members' views regarding
appropriate further operations should be ascertained. It was noted in
this connection that the Board of Governors was prepared to consider
measures to moderate the pace of repayments of Euro-dollar borrowings by U.S. banks if those repayments threatened to exceed
tolerable limits.
The Committee also considered a proposal for making somewhat
more use than was customary at this time of the year of open market
purchases of longer-term Treasury securities in meeting reserve needs.
Most members thought that a moderate volume of such purchases, if
practicable, could serve a constructive purpose.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services is changing little in the current quarter and
that unemployment has increased. Part but not all of the weakness in
over-all activity is attributable to the strike in the automobile industry which apparently is now coming to an end. Wage rates generally
are continuing to rise at a rapid pace, but gains in productivity
appear to be slowing the increase in unit labor costs. Recent movements in major price measures have been erratic but the general
pace of advance in these measures has tended to slow. Most interest
rates declined considerably in the past few weeks, and Federal Reserve discount rates were reduced by one-quarter of a percentage
point in the week of November 9. Demands for funds in capital
markets have continued heavy, but business loan demands at banks

169

have weakened. The money supply changed little on average in
October for the second consecutive month; bank credit also was
about unchanged, following a slowing of growth in September. The
balance of payments deficit on the liquidity basis was at a lower
rate in the third quarter and in October than the very high secondquarter rate, but the deficit on the official settlements basis remained
high as banks repaid Euro-dollar liabilities. In light of the foregoing
developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to orderly reduction in
the rate of inflation, while encouraging the resumption of sustainable
economic growth and the attainment of reasonable equilibrium in
the country's balance of payments.
To implement this policy, the Committee seeks to promote some
easing of conditions in credit markets and moderate growth in money
and attendant bank credit expansion over the months ahead, with
allowance for temporary shifts in money and credit demands related
to the auto strike. System open market operations until the next
meeting of the Committee shall be conducted with a view to maintaining bank reserves and money market conditions consistent with
those objectives.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Daane, Francis, Heflin, Hickman, Mitchell, Robertson, Sherrill, and Swan. Vote against this
action: Mr. Maisel.
Mr. Maisel dissented from this action because he believed that the
objectives for growth in money and credit favored by the majority
were unsatisfactory. He favored seeking a growth rate for money in
the fourth quarter at least as high as the rate that had prevailed on
the average in the first three quarters of the year. Indeed, he thought
the information developed at this and prior meetings on the state of
the economy and its prospects should have led the Committee to reconsider and change the policies it had previously pursued. The monetary conditions sought under this directive would, he believed, increase
the probabilities that output and employment would continue on a
path that was too far below the economy's potential. In his judgment
the gap between actual and potential output and the consequent lost
production, income, and jobs would be greater than could be justified
on the basis of the needs of the economy, demand pressures on prices,
or the balance of payments.

170

MEETING HELD ON DECEMBER 15, 1970
Authority to effect transactions in System Account.

The information reviewed at this meeting suggested that real output
of goods and services had declined in the fourth quarter of 1970,
largely because of the strike in the automobile industry that had extended from mid-September until late November. A bulge in activity
was in prospect for the first quarter of 1971, in connection with the
resumption of higher production and sales of automobiles.
In November retail sales, industrial production, and nonfarm payroll
employment continued to decline and the unemployment rate rose
further—to 5.8 from 5.6 per cent in October. The weakness in economic activity appeared to extend to areas well beyond those affected
by the strike. While the decline in total retail sales was attributable to
another sharp reduction at automobile dealers, sales at other types of
retail establishments increased relatively little. Within the manufacturing sector, the cutbacks that occurred in production and employment were centered in industries making business and defense
equipment and various types of industrial materials, as well as automobile parts and supplies; automobile assemblies were maintained at
the reduced October rate. In the nonmanufacturing sector payroll
employment changed little. On the other hand, private housing starts
rose further in October, the latest month for which data were available.
Major price measures had behaved in a diverse manner recently.
Average wholesale prices of industrial commodities leveled off from
mid-October to mid-November after rising sharply in the previous
month. Prices of farm products and foods declined further, and the
total wholesale price index edged down. In contrast, the consumer
price index continued upward in October at the accelerated rate recorded in September.
Staff projections had been revised since the previous Committee
meeting to indicate a decline in real GNP in the fourth quarter, rather
than little change; and a rebound in the first quarter, in the aftermath
of the strike, somewhat greater than had been anticipated earlier. The
projections still suggested that the pace of expansion would moderate
considerably in the second quarter and that the average rate of growth
in real GNP over the three quarters ending in mid-1971 would be

171

relatively low. It was noted that the projections made no allowance
for any unusual accumulation of steel inventories as a precaution
against a possible steel strike when current wage contracts expired
on July 31.
The surplus on U.S. foreign trade declined slightly further in October; in September and October together it was smaller than in any
other 2-month period in 1970. With respect to the over-all balance of
payments, the deficit on the liquidity basis in October and November
remained at about the third-quarter rate despite the shrinkage in the
trade surplus. The official settlements deficit, on the other hand, continued very large as a result of further repayments of Euro-dollar
borrowings by U.S. banks.
On November 30 the Board of Governors announced certain measures to moderate the pace of repayments of such Euro-dollar borrowings, including an increase from 10 to 20 per cent in the reserves
required from member banks against Euro-dollar borrowings in excess
of the amounts allowed as a "reserve-free" base. The higher requirement was intended to give banks an added inducement to preserve
their reserve-free bases against possible future need. At the same time
the Board announced that discount rates at five Federal Reserve
Banks had been lowered to 5Vi per cent from the level of 53A per
cent to which they had been reduced earlier in the month.
Since late November Euro-dollar interest rates had risen considerably and the dollar had strengthened against most major European
currencies. These developments appeared to reflect the combined influence of year-end adjustments in the Euro-dollar market and the
response of U.S. banks to the Board's actions to moderate Euro-dollar
repayments. In addition, the strength of the dollar reflected declines
in domestic interest rates in some European financial markets. Discount rates were reduced by the German Federal Bank, from 6V2 to
6 per cent, on December 3; and by the National Bank of Belgium,
from 7 to 6V2 per cent, on December 10. In each country similar
reductions of V2 percentage point had been made only recently—on
October 22 in Belgium and on November 17 in Germany.
System open market operations since the November 17 meeting
of the Committee had been directed at fostering some easing of money
market conditions, for the purposes of promoting easier conditions in
credit markets generally and of achieving expansion in the money

172

stock at a moderate rate. A substantial volume of reserves was supplied during the interval, in part through purchases of intermediateand long-term Treasury securities. The effective rate on Federal funds,
which had been around 5% per cent shortly before the mid-November
meeting, subsequently fluctuated for the most part in a range from
SV2 per cent down to about 5 per cent. Most recently, however, the
funds rate had moved below that range on a number of days and had
averaged about 5 per cent. In the 4 weeks ending December 9 member bank borrowings had averaged about $375 million, approximately
$100 million below the average of the preceding 4 weeks.
Both short- and long-term market interest rates had declined substantially in recent weeks. With respect to short-term securities, the
market rate on 3-month Treasury bills was 4.80 per cent on the day
before this meeting, 50 basis points below its level 4 weeks earlier. In
capital markets, where an extended rally had begun around the end
of October, yields had fallen to their lowest levels in well over a year
despite a continuing very heavy volume of new corporate and municipal offerings.
Contributing to these declines in interest rates were the cumulating
evidence of weakness in economic activity, a growing belief that demands for funds in capital markets might moderate after the turn of
the year, and widespread market expectations that an expansionary
monetary policy would be pursued. A reduction on November 23 in
the prime lending rate of commercial banks from IVA to 7 per cent—
the third cut in the prime rate since the end of the summer—helped
to sustain the rally, as did the recent reduction in Federal Reserve
Bank discount rates.
Yields on residential mortgages declined further in November in
secondary markets for federally insured loans, and the ceiling rate on
such loans was lowered by administrative action from 8V2 to 8 per
cent, effective December 1. This was the first reduction in the ceiling
rate in nearly a decade. According to preliminary indications, both the
inflows of savings funds to nonbank thrift institutions and the volume
of new mortgage commitments by those institutions had continued
large in November.
At commercial banks, business loans (adjusted to include loans
that had been sold to affiliates) declined sharply in November for the
third successive month. The recent weakness in loan demands re-

173

fleeted the effects of the automobile strike and the general sluggishness of economic activity, and also the use by corporations of some
proceeds of capital market offerings to repay bank debt. Banks continued to acquire securities—particularly municipal issues—at a rapid
rate, and they were less aggressive than earlier in seeking funds
through issues of large-denomination CD's. Although the rate of
growth in total time and savings deposits remained substantial, it
was somewhat below that of October and only about half the exceptionally high rate of the summer.
According to preliminary estimates, both the bank credit proxy—
daily-average member bank deposits—and the money stock increased
somewhat more rapidly on the average in November than had been
anticipated at the time of the previous meeting. After adjustment for
a further reduction in bank reliance on funds from nondeposit sources,
the proxy series expanded at an annual rate of about 8 per cent, compared with rates of about 1 per cent in October and 17 per cent over
the third quarter. 1 Preliminary calculations for the money stock, based
on the newly revised statistical series,2 indicated that growth in November was at an annual rate of 4.5 per cent. While this was above
the 1 per cent growth rate recorded in October, it was below the
increases—at annual rates of about 6 per cent—now indicated for
each of the first three quarters of the year.
It was noted that the outlook for the monetary aggregates was particularly uncertain at this time, both because of the difficulties of
assessing the precise impact on financial markets of the surge in
activity expected in the aftermath of the automobile strike and because
of the churning in those markets that is typical of the period around
the year-end. Staff analysis suggested that the money stock would tend
to increase relatively rapidly in December and January, in part as a
result of the expected bulge in economic activity. According to the
analysis, if money market conditions were about the same as those
1
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.
2
The revised series, published by the Board of Governors on November 27,
1970, incorporated the usual annual revisions of seasonal factors and benchmark adjustments for nonmember bank data. It also reflected the use of newly
collected information to correct downward biases resulting from the accounting
procedures employed in connection with certain types of international transactions.

174

most recently attained, over the fourth quarter the money stock and
the adjusted bank credit proxy would expand at annual rates of about
5 and 9 per cent, respectively. For both aggregates somewhat faster
growth was anticipated over the first quarter of 1971.
In light of the uncertainties affecting the weeks immediately ahead,
a number of Committee members suggested that it would be appropriate, in making decisions on open market operations in this period, to
give somewhat greater weight than previously to money market conditions relative to the weight given to reported statistics on the monetary
aggregates. A few members expressed the view that such a shift in
emphasis was desirable on more general grounds, apart from present
uncertainties.
With respect to the monetary aggregates, some members drew attention to the significance of the behavior of aggregates other than
the narrowly defined money stock—private demand deposits plus
currency in circulation, the so-called "Mi." Reference was made in
this connection both to bank credit and to money on various definitions that are broader than M x .
There were some differences in the views expressed regarding the
rates of expansion in money and bank credit that might be considered
desirable or acceptable in the coming period. In the course of the discussion, and against the background of present expectations regarding
growth rates in the fourth quarter, it was suggested that the monetary
aggregates should expand in the weeks immediately ahead by at least
the amounts that appeared to be consistent with the somewhat faster
growth rates anticipated for the first quarter. The Committee agreed
that money market conditions should be eased if it appeared that
shortfalls from those growth paths were developing, but that otherwise operations should be directed at maintaining the conditions most
recently attained.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services has declined since the third quarter, largely as
a consequence of the recent strike in the automobile industry, and
that unemployment has increased. Resumption of higher automobile
production is expected to result in a bulge in activity in early 1971.

175

Wage rates generally are continuing to rise at a rapid pace, but gains
in productivity appear to be slowing the increase in unit labor costs.
Movements in major price measures have been diverse; most recently, wholesale prices have shown little change while consumer
prices have advanced substantially. Market interest rates declined
considerably further in the past few weeks, and Federal Reserve discount rates were reduced by an additional one-quarter of a percentage point. Demands for funds in capital markets have continued
heavy, but business loan demands at banks have been weak. Growth
in the money supply was somewhat more rapid on average in November than in October, although it remained below the rate prevailing in the first three quarters of the year. Banks acquired a
substantial volume of securities in November, and bank credit increased moderately after changing little in October. The foreign
trade balance in September and October was smaller than in any
other 2-month period this year/ The over-all balance of payments
deficit on the liquidity basis remained in October and November at
about its third-quarter rate. The deficit on the official settlements
basis was very large as banks continued to repay Euro-dollar liabilities. In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to orderly reduction in the rate of inflation, while encouraging the resumption of sustainable economic growth and the attainment of reasonable equilibrium in the country's balance of payments.
To implement this policy, System open market operations shall be
conducted with a view to maintaining the recently attained money
market conditions until the next meeting of the Committee, provided
that the expected rates of growth in money and bank credit will at
least be achieved.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Daane, Heflin, Maisel, Mitchell, Robertson, Sherrill, Swan, and Mayo. Vote against this
action: Mr. Francis. (Mr. Mayo voted as alternate
for the late Mr. Hickman.)

Mr. Francis dissented from this action both because he favored
increasing, rather than reducing, the emphasis on M± relative to that
on money market conditions in making System operating decisions,
and because he favored maintaining growth in the money stock at the
recently prevailing annual rate of 5 per cent. In the latter connection,

176

he believed that continued growth in money at a 5 per cent rate was
likely to assure steady progress toward moderating price increases,
along with a gradually increasing pace of expansion in real output.
In his judgment a faster growth rate for money would result in higher
real output in 1971, but at a disproportionate cost in terms of prolonging inflation and perhaps intensifying it after 1971.

177

Federal Reserve Operations
in Foreign Currencies
In 1970, as in earlier years, operations in foreign currencies by the
Federal Reserve System contributed to the orderly functioning of the
international monetary system. There was less occasion than in many
other years for operations to deal with potentially disturbing balance
of payments deficits of other countries, and before the end of the year
all outstanding indebtedness to the Federal Reserve under swap drawings initiated by foreign central banks had been liquidated. Supplementing the use of monetary reserves by the United States to meet our
very large adverse balance of payments, repeated drawings by the Federal Reserve were made on some of the swap lines with foreign central
banks. 1
Drawings on the swap lines were made early in the year by the
central banks of France ($100 million) and Italy ($800 million).
These were entirely repaid by February and July, respectively. Strength
in Britain's balance of payments enabled the Bank of England to make
large repayments of official short-term debt, including a complete
liquidation before the end of February of its drawings on the swap line
with the Federal Reserve. In September, when unfavorable seasonal
factors and temporary movements of private funds out of sterling put
pressure on the pound, the Bank of England reactivated the swap line
by drawing $400 million. This drawing was repaid over the following
2 months.2
Drawings were made by the Federal Reserve in 1970 on the swap
lines with the central banks of Switzerland, the Netherlands, and
Belgium. At the beginning of the year outstanding balances on earlier
drawings totaled $330 million. Liquidations of this indebtedness and
of some subsequent drawings on the swap lines were facilitated by U.S.
drawings on the International Monetary Fund and sales of gold and
1

See pp. 16 and 17 and 53-58 for a discussion of the balance of payments.
A full discussion of these and other developments is given in articles by
Charles A. Coombs, the Special Manager, System Open Market Account, published in the Federal Reserve Bulletin for March and September 1970 and
March 1971.
3

178

Special Drawing Rights (SDR's) by the U.S. Treasury. However, additional drawings were found necessary in the course of the year, and
at the end of 1970 outstanding balances on these swap lines totaled
$810 million.
The aggregate increase in net official reserves of foreign countries
during 1970 was extremely large, exceeding $20 billion according to
tentative estimates. Apart from the allocation of SDR's at the beginning
of the year ($2.5 billion to other countries, besides $0.9 billion to the
United States), the sum of other countries' monetary holdings of gold
and SDR's, of their official foreign exchange assets less their liabilities
to reserve holders, and of their net reserve or credit positions in the
IMF apparently increased by about $18 billion.
Though a full explanation of this large figure cannot be given, it is
evident that $10.7 billion was the counterpart of the U.S. official settlements deficit, while $0.3 billion resulted from net monetization of gold
(over three-fourths of the year's new gold production having gone into
private uses). A major additional source of reserve gains was the increase
in deposit claims on commercial banks in Europe acquired by some
central banks, either directly or indirectly through the Bank for International Settlements. Such placements with commercial banks, ordinarily by using U.S. dollars, facilitated additional lending of dollars
outside the United States. Such lending added to official reserve gains
in the countries to which the funds moved, while no corresponding
reduction occurred in the total dollar assets of the central banks from
which the funds came.
•

179

Foreign Credit Restraint
Program
The Voluntary Foreign Credit Restraint (VFCR) Program, initiated
in early 1965 as part of an over-all U.S. Government effort to restrain
capital outflows, was continued through 1970 with only minor changes
in the degree of restraint requested of banks and nonbank financial
institutions in their foreign lending and investments abroad. In accordance with revisions announced December 17, 1969, and described in
the ANNUAL REPORT for 1969, banks were expected to observe a
General Ceiling and an Export-Term-Loan Ceiling, aggregating approximately $11.4 billion, and nonbank financial institutions, a single
ceiling, aggregating $2.0 billion.
The bank section of the Foreign Credit Restraint Guidelines was
amended three times during the year; the nonbank section was not
amended. On March 17, 1970, language was restored that, until the
December 1969 revision, had exempted any export loans of over1-year maturity from a special restraint against making new term loans
to residents of the developed countries of continental Western Europe.
Between the time of the December revision and the March amendment,
export term loans of less than $250,000 each to residents of those countries were subject to the special restraint. On May 13 "Delaware subsidiaries" or other domestically chartered subsidiaries of Edge Act (or
agreement) corporations of banks were given the opportunity to deduct
from foreign assets subject to ceilings the amount of outstanding borrowings from foreigners having an original maturity of 3 years or more. On
September 16 export term loans were redefined so that banks could
count against their Export-Term-Loan Ceiling any term export loan
rather than only those amounting to $250,000 or more.
During 1970, assets subject to the bank ceilings increased $123
million to a total of $9,537 million. Export term loans accounted for all
of the increase; loans and investments subject to the General Ceiling
declined over that period.
At the end of 1970, banks were utilizing only 13 per cent of the
aggregate Export-Term-Loan Ceiling. Utilization was brought up to
that level as the result of an increase over the year of $171 million in

180

foreign assets under this ceiling. However, because there were repayments in 1970 of $130 million in export term loans granted before
December 1969 (which would have been subject to the General
Ceiling), the level of outstanding export term loans subject to VFCR
ceilings increased during 1970 by only $40 million.
Increased use was made of the Guideline exemptions. Credits
exempted because they were related to certain financing programs of
the Export-Import Bank or the Department of Defense or because they
were extended to residents of Canada (Canada having been excluded
from the restraints since early 1968) increased by $371 million.
Toward the end of the year, the Board of Governors undertook a survey of the possible effect in 1970 of the Guidelines on export financing
and on exports. The survey was developed with the cooperation of the
Department of Commerce and was conducted with the assistance of the
Federal Reserve Banks. Commercial banks subject to the restraints and
selected U.S. exporters were queried. The results of the survey indicated that the Guidelines had no significant, limiting effect on exports
during the year.
Another study was undertaken late in the year to determine the
share of export credits among total foreign loans made by U.S. banks.
This survey showed that in late 1970 about 17 per cent of the outstandFOREIGN ASSETS OF U.S. BANKS
End of year

1970

Item
1966
Number of reporting banks..

148

1967
151

1968
161

1969
169

Mar.
31

June
30

172

Sept.
30
167

Dec.
31
173

Millions of dollars
General Ceiling
Aggregate ceiling
Assets under ceiling
Change from previous date
Apparent leeway
Export-Term-Loan (ETL) Ceiling
Aggregate ceiling
Assets under ceiling
Change from previous date
Apparent leeway
Total General and ETL Ceilings
Aggregate ceiling
Assets under ceiling
Change from previous date
Apparent leeway

10,407 11,069 9,729 10,092 10,049 10,000 9,979 9,956
9,496 9,865 9,253 9,398 9,055 9,042 8,701 9,350
-156 +369 -612 + 145 -343
- 1 3 -341 +649
911 1,204
694
476
994
958 1,278
606
1,264 1,297
16
59

+43

1,248
10,407 11,069

1,238

1,345
105
+46
1,240

9,729 11,356 11,346 11,345
9,496 9,865 9,253 9,414 9,114 9,147
-156 +369 -612 + 161 -300 +33
911 1,204
476 1,942 2,232 2,198

1,372
139
+34
1,232

1,423
187
+48
1,236

11,351 11,379
8,840 9,537
-307 +697
2,511 1,842

181

FOREIGN ASSETS OF U.S. NONBANK FINANCIAL INSTITUTIONS AND
NONPROFIT ORGANIZATIONS
Amounts shown in millions of dollars

Item

Amount
Dec. 31,
1970

Change from Dec. 31,
1969
Amount

Per cent

+ 10

+41.4
-11.3

ASSETS SUBJECT TO GUIDELINE

Deposits and money market instruments, foreign countries except
Canada
Short and intermediate credits, foreign countries except Canada 1 .
Long-term investments, developed countries
except Canada:
Investment in financial businesses2 2
Investment in nonfinancial businesses
Long-term bonds and credits
Stocks3
TOTAL holdings of assets subject to guideline
Adjusted base-date holdings 4

35
181

-23

-6
-71
-131

+4.3
-46.1
-10.4
-19.6

1,513

-214

-12.4

1,916

-108

-5.4

153
156
555
49
8,670
1,388
1,041

-51

-25.2

143
7

610
538

ASSETS NOT SUBJECT TO GUIDELINE

Investments in Canada:
Deposits and money market instruments
1
Short- and intermediate-term credits
Investment in financial businesses2 2
Investment in nonfinancial businesses
Long-term bonds and credits
Stocks
.
Bonds of international institutions, all maturities
Long-term investments in the developing
countries:
Investment in financial businesses2 2
Investment in nonfinancial businesses
Long-term bonds and credits
Stocks
Stocks, developed countries except Canada6
TOTAL holdings of assets not subject to guideline.
MEMO: Total holdings of all foreign assets
1
2

-10

+4
+400
+63
+38

13,749

_+6
+ 114
-29
+ 123
+662

15,262

+448

32
9
774
108
815

+3.2
-1.7
+ 10.0
+4.8
+4.7
+3.9
+21.3
-4.3

+17.2
-21.0
+ 17.7

+5.1
+3.0

Bonds and credits with final maturities of 10 years or less at date of acquisition.
Net investment in foreign branches, subsidiaries, or affiliates in which the U.S. institution has an
ownership
interest of 10 per cent or more.
3
Except those acquired after Sept. 30,1965, in U.S. markets from U.S. investors.
4
Base-date holdings of assets subject to Guideline, less carrying value of equities included therein but
since
sold, plus proceeds of such sales to foreigners.
s
Less than $500,000.
6
If acquired after Sept. 30,1965, in U.S. markets from U.S. investors.

182

ing loans to foreigners under the VFCR Ceilings financed U.S. exports.
(Revised Guidelines were issued on January 7, 1971, and the results
of the two surveys were released in January and March, 1971.)
Nonbank financial institutions continued throughout 1970 to reduce
their total holdings of foreign assets subject to their Guideline ceilings.
For the year as a whole, the reductions totaled $214 million. Holdings
of covered assets amounted to $1.5 billion on December 31, 1970,
compared with aggregate Guideline ceilings of $1.9 billion. Foreign
assets not subject to the ceiling, primarily investments in Canada, were
increased by $662 million in 1970 to a total of $13.7 billion at the
year-end.
•

183

Legislation Enacted
Direct purchases by Federal Reserve Banks of Government
obligations. An Act of Congress approved July 31, 1970 (Public
Law 91-360), extended through June 30, 1971, 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.

Real estate and commercial building construction loans by
national banks. The Emergency Home Finance Act of 1970, approved July 24, 1970 (Public Law 91-351), and the Housing and
Urban Development Act of 1970, approved December 31, 1970
(Public Law 91-609), among other things, amended various laws
relating to housing and urban development. A provision of the Act of
July 24, 1970, amended Section 24 of the Federal Reserve Act relating
to the powers of national banks (a) to modify the authority of such
banks with respect to first mortgage real estate loans (1) to increase
the permissible amount of such loans from 80 per cent to 90 per cent
of the appraised value of the real estate offered as security and (2)
to extend the permissible term of such loans from 25 years to 30 years;
and (b) to extend from 36 months to 60 months the permissible maturity of loans by such banks to finance commercial building construction.
The Act of December 31, 1970, expanded the powers of national
banks by amending Section 24 of the Federal Reserve Act to authorize
such banks to make loans or purchase obligations for land development under the portion of the Act described as Part B of the Urban
Growth and New Community Development Act of 1970.
Defense production. 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, 1970, was amended (1)
by Joint Resolutions approved by Congress (a) June 30, 1970 (Public
Law 91-300), so as to continue in force through July 30, 1970, and
(b) August 1, 1970 (Public Law 91-371), so as to continue in force
through August 15, 1970; and (2) by Act of Congress approved
August 15, 1970 (Public Law 91-379), so as to continue in force
through June 30, 1972.

184

Public Law 91-379, among other things, amended Section 301 of
the Defense Production Act by setting a limit of $20 million on the
guaranteeing agencies with respect to loan guarantees.

Margin requirements;

credit cards. An Act of Congress ap-

proved October 26, 1970 (Public Law 91-508), extended the applicability of Federal Reserve margin requirements to certain foreign
transactions involving extensions of credit to purchase or carry securities, and amended the Truth in Lending Act to authorize the Board to
establish regulations governing the issuance of credit cards and liabilities for their unauthorized use. In addition, the Act established rules
regarding (1) retention of records by insured banks and other financial institutions, (2) reports by those institutions of foreign and
domestic currency transactions and exports and imports of monetary
instruments, and (3) fair credit reporting.

Bank Holding Company Act Amendments

of 1970. An Act of

Congress approved December 31, 1970 (Public Law 91-607), expanded the coverage of the Bank Holding Company Act of 1956 to include a company that controls only one bank. Other major provisions
of the 1970 legislation include (1) a revision of Section 4 ( c ) ( 8 ) of
the Holding Company Act, under which bank holding companies may
acquire interests in nonbanking activities subject to certain restrictions
and upon certain conditions, (2) an expansion of the Board's authority
to determine that a company controls a bank, (3) a revision of the
rules and expansion of the Board's authority with respect to foreign
activities of domestic-based holding companies and domestic activities
of foreign-based holding companies, and (4) a prohibition against
any bank extending services to a customer upon certain conditions,
commonly described as tie-in arrangements.

"Tender offers9' with respect to securities of member State
banks. An Act of Congress approved December 22, 1970 (Public
Law 91-567), among other things, amended the Securities Exchange
Act of 1934 to require disclosure of certain information concerning
acquisitions of more than 5 per cent of a class of equity securities registered pursuant to the 1934 Act (rather than 10 per cent, as formerly).
The provisions of the Act are applicable with respect to securities of
member State banks registered under the Board's Regulation F, "Securities of Member State Banks."

185

Securities Investor Protection Corporation. An Act of Congress approved December 30, 1970 (Public Law 91-598), established
the Securities Investor Protection Corporation to protect customers of
a broker-dealer in the event of his insolvency. The Corporation will
have a seven-man Board of Directors, one of whom is appointed by
the Board of Governors of the Federal Reserve System from among
its officers and employees.

Financial Institutions Supervisory Act. An Act of Congress
approved December 31, 1970 (Public Law 91-609), among other
things, made permanent the provisions of Titles I and II of the Act
of October 16, 1966 (Public Law 89-695), known as the Financial
Institutions Supervisory Act of 1966. Titles I and II, which were originally made effective only through June 30, 1972, strengthened the
authority of the Federal agencies that supervise and regulate banks and
savings and loan associations by authorizing such agencies to institute
"cease and desist" proceedings and proceedings directed at .the removal from office, in prescribed circumstances, of directors or officers
of institutions under their supervision.

Uniform Relocation Assistance and Real Property

Acquisi-

tion Policies Act of 1970. By Act of Congress approved January 2,
1971 (Public Law 91-646), Congress provided for uniform and
equitable policies regarding land acquisition and treatment of persons
displaced from their homes, businesses, or farms by Federal agencies
or by federally assisted programs. For the purposes of the Act, "Federal agency" includes the Federal Reserve Banks and branches thereof.

186

Legislative Recommendations
Lending authority of Federal Reserve Banks. Under present
law, when a member bank borrows from its Reserve Bank on collateral
other than obligations that are eligible for purchase by Reserve "Banks
(mainly U.S. Government obligations) or short-term promissory
notes of the member bank's customers that meet certain "eligibility"
requirements, it must pay interest at a rate not less than V2 of 1 percentage point higher than the Reserve Bank's basic discount rate. For
several years the Board of Governors has urged legislation that would
permit a member bank, subject only to regulations by the Board, to
borrow on any security satisfactory to its Reserve Bank without the
necessity of paying a higher rate of interest simply because the security
is not of a specified type.
The need for enactment of such legislation has increased as member
banks have reduced their holdings of U.S. Government securities and
broadened the scope of their lending in order to meet the expanding
credit demands of their customers. Many of these loans cannot qualify
as security for Federal Reserve advances except at the "penalty" rate
of interest, although their quality may be equal to that of presently
"eligible" paper.
To enable the Federal Reserve System always to be in a position to
carry out promptly and efficiently one of its principal responsibilities
—the extension of credit assistance to enable the banking system to
meet the legitimate needs of the economy—and to avoid penalizing
those uses of credit that generate sound paper that is not "eligible"
under existing law, the Board again urges legislation that would
authorize the Reserve Banks to extend credit on any sound collateral
at a uniform rate of interest.
"Par clearance." Most banks pay the face amount of all checks
presented to them for payment; this practice is frequently described
as "par clearance." In a few areas of the country, however, many small
banks deduct a so-called "exchange charge" from the face amount of
checks presented by mail and remit only the balance. In such circumstances the drawee bank shifts all or a portion of the expense incurred
by it in connection with the collection process to the payee of the
check or to an indorsee. In the Board's view there is no justification

187

for the increased costs, delays, and inefficiencies that result when banks
do not pay all checks at their face amount.
The trend of State legislation has been toward requiring banks to
pay the face amount of checks drawn on them. After July 1, 1971,
the only States in which nonpar banks will be located are Alabama,
Arkansas, Louisiana, North and South Carolina, and Texas. Despite
this progress at the State level, the Board favors enactment by the Congress of a requirement that all federally insured banks pay at par all
checks drawn on them.
Reserve requirements.
For several years the Board has recommended legislation that would make Federal Reserve reserve requirements applicable to all federally insured banks, rather than to member
banks only. The reasons for that change in the structure of reserve
requirements have become stronger with the passage of time, and the
Board now believes that those requirements should apply to demand
deposits in all institutions that accept deposits subject to withdrawal
by check (demand deposits).
Because demand deposits held by any institution are part of the country's money supply just as are those in member banks, applying the
same demand-deposit reserve requirements to all such institutions would
facilitate the effective implementation of monetary policy. The most
rational and equitable system of reserve requirements for this purpose
would be based on the amount of an institution's deposits, without regard to the location of the institution.
Also as a matter of rational and equitable application of the law, the
Board believes that any institution that is subject to Federal Reserve
reserve requirements should be granted access to Federal Reserve credit
on the same terms as member banks.
Accordingly, the Board recommends that legislation be enacted (1)
to authorize a more flexible system of graduated reserve requirements,
(2) to apply such requirements to the demand deposits of all depositary institutions that accept deposits subject to withdrawal by check,
and (3) to authorize the Reserve Banks to extend credit to such
institutions on the same basis as they extend credit to member banks.
Loans to bank examiners. Title 18 of the U.S. Code, "Crimes
and Criminal Procedure," prohibits loans to a bank examiner by any
bank that the examiner is authorized to examine. For several years the

188

Board has favored modification of this prohibition to permit a federally
insured bank to make a home mortgage loan to a bank examiner under
appropriate statutory safeguards. The Board again recommends that
modification.

Purchase of obligations of foreign governments by Federal
Reserve Banks. Under present law, balances that the Reserve Banks
acquire in foreign central banks in connection with the System's foreign
currency operations may be invested in prescribed kinds of bills of
exchange and acceptances. On occasion these investment media have
not been conveniently available. To facilitate economic use of such
balances, for several years the Board has favored enactment of legislation that would permit Reserve Banks, subject to regulation of the
Board, to invest in obligations of foreign governments or monetary
authorities that will mature within 12 months and are payable in a
convertible currency. The Board again recommends such legislation.

Interlocking bank relationships. Section 8 of the Clayton Act
generally prohibits interlocking relationships between a member bank
and any other bank located in the same or an adjacent community.
During 1970 the Federal Reserve System made an extensive review of
interlocking bank relationships and concluded that Section 8 should be
amended in several respects to protect the public against situations
arising in which the risk of abuse of an interlocking relationship outweighs the likelihood of benefit. The major extension favored by the
Board would apply the prohibition to interlocks between any depositary institutions in the same or an adjacent community, with an appropriate delay to permit a gradual phasing out of prohibited relationships.
In one respect the Board considers that the present law is unnecessarily restrictive. The law presently prohibits interlocking service as a
"director, officer, or employee". The Board believes that the purpose
of the law would be better served by limiting the applicability of the
prohibition to service as a "director or an officer or an employee with
management functions".
Loan guarantees to business. The performance of financial
markets in the United States in 1970 demonstrated their ability to
withstand severe strains. Nevertheless, at midyear there was widespread concern that the Nation might find itself in the grip of a
liquidity crisis—a situation in which creditworthy borrowers could not

189

raise funds in the money and capital markets to meet legitmate needs
for credit. Fortunately, no such breakdown occurred; the markets
proved equal to the challenge. Nonetheless the Board urges that action
be taken now to permit assistance in the event of a possible future
emergency.
The Board favors enactment of standby authority, within prescribed
limits, for Government guarantees of private loans to basically sound
firms when such assistance appears to be the only practical way of
avoiding a national financial crisis or of enabling such firms to continue activities essential in the national interest. The authority should
be vested in a Loan Guarantee Board composed of the Secretary of the
Treasury, as chairman, the Secretary of Commerce, and the Chairman
of the Board of Governors. Since the authority is needed only to cope
with emergency situations, it could be administered with a small staff
assigned temporarily for that purpose if the need arose. In each instance, the Congress should be informed before a guarantee is issued.

Federal Reserve Bank branch buildings. Under Section 10 of
the Federal Reserve Act, the aggregate of costs incurred by the Reserve
Banks for the construction of branch buildings after July 30, 1947,
is limited to $60 million. This amount has been almost fully utilized,
and the remaining amount is insufficient to permit construction of
facilities necessary to continue to provide services that are necessary
to keep the Federal Reserve responsive to the needs of the public. The
Board believes that the dollar limitation on the cost for construction
of Federal Reserve Bank branch buildings is unnecessary and recommends that it be repealed.
The Reserve Banks would still need the Board's approval of their
branch-building programs, under the third paragraph of Section 3 of
the Federal Reserve Act. The Board would continue to consider each
proposed construction or improvement in the light of the needs of the
branch, the type of proposed construction, the reasonableness of the
costs, and whether the proposal is generally in keeping with the prevailing economic situation.

Bank investments for community development. As leading institutions in their communities, banks are expected to participate in
programs for the improvement of the community. In some cases this
responsibility can be fulfilled by contributing funds or services. In

190

others, the appropriate form of participation is an investment in stock
of a corporation established for a particular purpose, such as to promote the economic rehabilitation and development of low-income
areas. In the Board's judgment, limited investments in such corporations are in the public interest and should be encouraged by appropriate* legislation.
Accordingly, as a method of encouragement, the Board recommends
legislation expressly to authorize national banks to invest in community
corporations established by them or by other local organizations. Such
legislation would not itself authorize State member banks to invest in
such corporations, because the corporate powers of a State-chartered
bank are a matter of State law. Nonetheless, it would encourage investments by banks in those States that do not prohibit banks from making
such investments. It should also encourage States that do prohibit such
investments to re-examine their position.
To assure that the investments do not have an adverse effect on the
soundness of our Nation's banks, the Comptroller of the Currency and
the Board of Governors should be authorized to impose limitations on
the nature and scope of those investments by national banks and State
member banks under their respective jurisdictions.
•

191

Litigation
Bank holding companies. During 1970 the U.S. Department of
Justice acted to prevent the consummation of four bank acquisitions
by registered bank holding companies. In each case the complaint
alleges that the effect of the proposed acquisition will be substantially
to lessen competition, or to tend to create a monopoly in violation of
Section 7 of the Clayton Act (15 U.S.C. 18). Three of the four cases
involve banks in Colorado. The caption of each case and certain other
identifying details are as follows:
United States v. United Virginia Bankshares Incorporated, et al.,
filed February 1970, U.S.D.C. Eastern District of Virginia, relating
to the acquisition of 80 per cent or more of the voting shares of Manassas Bank, N.A., Manassas, Virginia, a proposed new bank into which
would be merged The Peoples National Bank of Manassas under the
charter of the former and the title of United Virginia Bank/Peoples
National; Order and Statement by the Board approving the acquisition
are set forth in the Federal Reserve Bulletin, February 1970, page 166.
United States v. First National Bancorporation, Inc., et al, filed
July 1970, U.S.D.C. Colorado, relating to the acquisition of 80 per
cent or more of the voting shares of The First National Bank of
Greeley, Greeley, Colorado; Order and Statement by the Board approving the acquisition are set forth in the Federal Reserve Bulletin, June
1970, page 539.
United States v. United Banks of Colorado, Inc., et al., filed November 1970, U.S.D.C. Colorado, relating to the acquisition of at least
80 per cent of the voting shares of The Colorado Springs National
Bank, Colorado Springs, Colorado; Order and Statement by the Board
approving the acquisition are set forth in the Federal Reserve Bulletin,
November 1970, page 845.
United States v. First National Bancorporation, Inc., et ah, filed
December 1970, U.S.D.C. Colorado, relating to the acquisition of
80 per cent or more of the voting shares of The Security State Bank
of Sterling, Sterling, Colorado; Order and Statement by the Board
approving the acquisition are set forth in the Federal Reserve Bulletin,
November 1970, page 855.

192

One case brought by the U.S. Department of Justice under Section
7 of the Clayton Act (15 U.S.C. 18) was settled by consent decree. In
United States v. First at Orlando Corporation, et al. (see ANNUAL
REPORT for 1969, page 307) by Order entered August 27, 1970, First
at Orlando Corporation is permitted to consummate its acquisition of
the three banks involved, but is prohibited further acquisitions for a
period of 8 years in a four-county area of central Florida.
One civil action raising questions under the Bank Holding Company
Act was commenced. In The Commercial National Bank of Little Rock,
et al v. Board of Governors, filed October 1970, U.S.C.A. Eighth Circuit, plaintiff asked the court to review and set aside an Order by the
Board granting the application of First Arkansas Bankstock Corporation to become Arkansas' first registered bank holding company through
the acquisition of 80 per cent or more of the voting shares of Arkansas
First National Bank of Hot Springs. The Corporation already owned 99
per cent of the voting shares of Worthen Bank and Trust Company,
Little Rock. The Board's Order and Statement approving the acquisition are set forth in the Federal Reserve Bulletin of October 1970,
page 778.

Margin requirements on securities credit transactions. In
Gordon & Co., Inc., et al. v. Board of Governors, filed May 1970,
U.S.D.C. Massachusetts, plaintiff alleges that the Board's interpretation,
"Deep in the money put and call options as extensions of credit" (12
CFR § 220.122) exceeds the Board's authority to promulgate rules
under the Securities Exchange Act of 1934 (15 U.S.C. 78(g)) and
the Board's Regulations G and T issued pursuant thereto (12 CFR
Parts 207 and 220). The complaint further alleges that the Board's
action is arbitrary and vague and was taken without complying with
the notice provisions of the law of administrative procedure (5 U.S.C.
553). On September 29, 1970, the court denied cross motions for summary judgment (317 F. Supp. 1045).
Truth in Lending. Three actions were commenced against the
Board raising issues involving the Board's Regulation Z, "Truth in
Lending".
Two of the actions contain identical allegations. In N. C. Freed Company, Inc., et al. v. Board of Governors, et ah, filed February 1970,
U.S.D.C. Western District of New York, and in Gardner and North

193

Roofing and Siding Corp. v. Board of Governors, et ah, filed February
1970, U.S.D.C. District of Columbia, plaintiffs allege that they are home
improvement contractors that take no consensual liens on their customers' property. The complaints state that by virtue of Sections 226.9
and 226.2(z) of Regulation Z (12 CFR Part 226), plaintiffs are
required to give a customer notice of a right to rescind his contract
within 3 days merely because mechanics' and materialmen's liens might
arise. Plaintiffs contend that the Truth in Lending Act authorizes such
a regulatory requirement and rescission right only with respect to
consensual liens and, therefore, the Board's regulation is invalid to
the extent it exceeds that authority. Plaintiffs ask for declaratory judgment and an injunction against enforcement of the regulation in this
respect by the responsible governmental agencies. On January 6, 1971,
summary judgment, without opinion, was granted in favor of the Board
in the Gardner and North Roofing case.
In the other action, Continental Oil Company v. Board of Governors,
et cd., filed June 1970, U.S.D.C. Delaware, plaintiff alleges that the
Board's "late charge" interpretation under Regulation Z (12 CFR
§ 226.401) is actually a legislative rule as to which the Board failed
to give notice and opportunity for public comment in accordance with
the requirements of the law of administrative procedure (5 U.S.C. 553).
Plaintiff asked for declaratory judgment and an injunction against enforcement of the rule by the responsible governmental agencies. On
September 15, 1970, summary judgment was granted in favor of the
Board. The court concluded that the interpretation was in fact an
interpretative rule and as such was lawfully promulgated without publication for comment (317 F. Supp. 194).
•

194

Bank Supervision and Regulation
by the Federal Reserve System
Examination of member banks. Each State member bank is subject to examinations made by direction of the Board of Governors or
the Federal Reserve Bank of the district in which it is located by
examiners selected or approved by the Board. The established policy
is for the Federal Reserve Bank to conduct at least one regular examination of each State member bank, including its trust department,
during each calendar year, with additional examinations if considered
desirable. In most States concurrent examinations are made in cooperation with the State banking authorities, while in others alternate
independent examinations are made. All but 17 of the 1,147 State
member banks were examined during 1970.
National banks, all of which are members of the Federal Reserve
System, are subject to examination by direction of the Board of Governors or the Federal Reserve Banks. However, as a matter of practice
they are not examined by either, because the law charges the Comptroller of the Currency directly with that responsibility. The Comptroller provides reports of examination of national banks to the Board
upon request, and each Federal Reserve Bank purchases from the
Comptroller copies of reports of examination of national banks in its
district.
The Board of Governors makes its reports of examination of State
member banks available to the Federal Deposit Insurance Corporation,
and the Corporation in turn makes its reports of insured nonmember
State banks available to the Board upon request. Also, upon request,
reports of examination of State member banks are made available to
the Comptroller of the Currency.
In its supervision of State member banks, the Board receives, reviews, and analyzes reports of examination of State member banks and
coordinates and evaluates the examination and supervisory functions
of the System. It passes on applications for admission of State banks
to membership in the System; administers the disclosure requirements
of the Securities Exchange Act of 1934 with respect to equity securities of State member banks within its jurisdiction under the 1934 Act;

195

and under provisions of the Federal Reserve Act and other statutes,
passes on applications for permission, among other things, to (1)
merge banks, (2) form or expand bank holding companies, (3) establish domestic and foreign branches, (4) exercise expanded powers
to create bank acceptances, (5) establish foreign banking and financing corporations, and (6) invest in bank premises an amount in excess
of 100 per cent of a bank's capital stock.
By Act of Congress approved September 12, 1964 (Public Law
88-593), insured banks are required to inform the appropriate Federal
banking agency of any changes in control of management of such banks
and of any loans by them secured by 25 per cent or more of the voting stock of any insured bank. In 1970, 33 such changes in ownership
LOANS TO EXECUTIVE OFFICERS

Total loans to
executive officers

Period covered
(condition report
dates)

Number
Oct. 22, 1969—
Dec. 31, 1969...
Jan. 1, 1970—
Apr. 30, 1 9 7 0 . . .
May 1, 1970—
June 30, 1970...
July 1, 1970—
Oct. 28, 1 9 7 0 . . .
Oct. 29, 1970—
Dec. 31, 1970
1

Ranges of
interest rate
charged (per cent)

Amount (dollars)

6,943

16,572,130

0-18

9,103

22,021,729

1-18

7,100

17,874,723

1-18

8,871

27,290,712

1/2-19.39

C1)

Compilation of data for condition report of Dec. 31, 1970, has not been completed.

of the outstanding voting stock of State member banks were reported
to the Reserve Banks as changes in control of these member banks.
Arrangements continue among the three Federal supervisory agencies
for appropriate exchanges of reports received by them pursuant to the
Act. The Reserve Banks send copies of all reports they receive to the
appropriate district office of the Federal Deposit Insurance Corporation, the Regional Administrator of National Banks (Comptroller of
the Currency), and the State bank supervisor.

196

Upon receipt of reports involving changes in control of State member banks, the Reserve Banks are under instructions to forward such
reports promptly to the Board, together with a statement (1) that the
new owner and management are known and acceptable to the Reserve
Bank or (2) that they are not known and that an investigation is
being made. The findings of any investigation and the Reserve Bank's
conclusions based on such findings are forwarded to the Board.
By Act of Congress approved July 3, 1967 (Public Law 90-44),
each member bank of the Federal Reserve System is required to include with (but not as part of) each report of condition and copy
thereof a report of all loans to its executive officers since the date of
submission of its previous report of condition. Since the Board's 1969
ANNUAL REPORT was released, member banks have submitted, as required by law, the data that appear in the table on the preceding page.

Federal Reserve membership. As of December 31, 1970, member banks accounted for 42 per cent of the number of all commercial
banks in the United States and for 75 per cent of all commercial banking offices, and they held approximately 80 per cent of the total deposits
in such banks; these figures compare with 43 per cent, 62 per cent, and
81 per cent, respectively, at the end of 1969. State member banks accounted for 13 per cent of the number of all State commercial banks
and 40 per cent of the banking offices, and they held 51 per cent of
total deposits in State commercial banks.
Of the 5,767 banks that were members of the Federal Reserve
System at the end of 1970, there were 4,620 national banks and 1,147
State banks. During the year there were net declines of 48 national
and 55 State member banks. The decline in the number of national
banks reflected 53 conversions to branches incident to mergers and
absorptions and 39 conversions to nonmember banks. The decline was
offset in part by the organization of 40 new national banks and the
conversion of 5 nonmember banks to national banks. The decrease in
State member banks reflected mainly 38 withdrawals from membership
and 15 conversions to branches incident to mergers and absorptions.
At the end of 1970 member banks were operating 16,191 branches,
987 more than at the close of 1969; this included 937 de nova establishments.
Detailed figures on changes in the banking structure during 1970
are shown in Table 18, pages 238 and 239.

197

Bank mergers. Under Section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828 ( c ) ) , the prior written consent of the Board
of Governors of the Federal Reserve System must be obtained before
a bank may merge, consolidate, or acquire the assets and assume the
liabilities of another bank if the acquiring, assuming, or resulting bank
is to be a State member bank.
In deciding whether to approve an application, the Board is required
by Section 18(c) to consider the impact of the proposed transaction
on competition, the financial and managerial resources and prospects of
the existing and proposed institution, and the convenience and needs
of the community to be served. The Board is precluded from approving
"any proposed merger transaction which would result in a monopoly,
or which would be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any
part of the United States." A proposed transaction "whose effect in any
section of the country may be substantially to lessen competition, or to
tend to create a monopoly, or which in any other manner would be in
restraint of trade," may be approved only if the Board of Governors is
able to find that the anticompetitive effects of the transaction would
be clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the community
to be served.
Before acting on each application the Board must request reports
from the Attorney General, the Comptroller of the Currency, and the
Federal Deposit Insurance Corporation on the competitive factors involved in each transaction. The Board in turn responds to requests by
the Comptroller or the Corporation for reports on competitive factors
involved when the acquiring, assuming, or resulting bank is to be a
national bank or an insured nonmember State bank.
During 1970 the Board disapproved two and approved 29 of these
applications, and it submitted 96 reports on competitive factors to the
Comptroller of the Currency and 76 to the Federal Deposit Insurance
Corporation. As required by Section 18(c) of the Federal Deposit Insurance Act, a description of each of the 29 applications approved by
the Board, together with other pertinent information, is shown in Table
21, pages 242-85.
Statements and/or orders of the Board with respect to all bank
merger applications, whether approved or disapproved, are released

198

immediately to the press and the public and are published in the Federal Reserve Bulletin. These statements and/or orders set forth the
factors considered, the conclusions reached, and the vote of each
Board member present.
Bank holding companies. During 1970, pursuant to Section 3 (a)
(1) of the Bank Holding Company Act of 1956, the Board approved
31 applications for prior approval to become a bank holding company.
Pursuant to the provisions of Section 3(a) (3) of the Act, the Board
approved 113 applications by bank holding companies, and denied 9
applications. To provide necessary current information, annual reports
for 1969 were obtained from all registered bank holding companies
pursuant to the provisions of Section 5(c) of the Act. At the end of
1970, there were 121 multibank holding companies in operation.
Statements and/or orders of the Board with respect to applications
to form or expand bank holding companies, whether approved or disapproved, are released immediately to the press and the public and
are published in the Federal Reserve Bulletin. These statements and/or
orders set forth the factors considered, the conclusions reached, and
the vote of each Board member present.
On December 31, 1970, the Bank Holding Company Act of 1956
was amended by Public Law 91-607 (84 Stat. 1760). This legislation,
which subjects approximately 1,200 one-bank holding companies to
the requirements of the Act, is known as the "Bank Holding Company
Act Amendments of 1970."

Foreign branches of member banks. At the end of 1970, 79
member banks had in active operation a total of 532 branches in 66
foreign countries and overseas areas of the United States; 56 national
banks were operating 492 of these branches, and 23 State member
banks were operating 40 such branches. The number and location of
these foreign branches were as shown in the tabulation on page 200.
Under the provisions of the Federal Reserve Act (Section 25 as to
national banks and Sections 9 and 25 as to State member banks), the
Board of Governors during the year 1970 approved 81 applications
made by member banks for permission to establish branches in foreign
countries and overseas areas of the United States. During the year,
member banks opened 77 branches overseas.

Acceptance powers of member banks. During the year the
Board approved the application of one member bank, pursuant to the
provisions of Section 13 of the Federal Reserve Act, for increased

199

[Tabulation referred to on preceding page.]

Abu Dhabi
Argentina
Austria
Bahamas
Bahrain
Barbados
Belgium
Bolivia
Brazil
Canal Zone
Chile
Colombia
Dominican Republic
Dubai
Ecuador
El Salvador
Fiji Islands
France
Germany
Greece
Guam
Guatemala
Guyana
Honduras
Hong Kong
India
Indonesia
Ireland
Israel
Italy
Jamaica
Japan
Korea
Lebanon
Liberia
JLx. wXCiJLi.V*

200

1
38
1
60
1
3
10
5
16
2
17
26
12
2
12
1

Luxembourg
Malaysia
Mariana Islands
Marshall Islands
Mexico
Netherlands
Netherlands Antilles
Nicaragua
Okinawa
Pakistan
Panama
Paraguay
Peru
Philippines
Puerto Rico
Qatar
1 Saudi Arabia
12 Singapore
21 Switzerland
9 Taiwan
3 Thailand
3 Trinidad and Tobago
1 Trucial State of Sharjah
3 Truk Islands
13 United Kingdom
11 Uruguay
6 Venezuela
3 Vietnam
1 Virgin Islands (U.S.)
4 Virgin Islands (British)

1
5
1
1
5
7
2
3
2
4

29
6
8
4
19
1
2

11
7
2
2

6
1
1

41
4
4
2

16
3

13
3
3
2

Other (West Indies)
Total

7
532

acceptance powers; it granted the bank permission to accept commercial drafts or bills up to 100 per cent of paid-up and unimpaired capital
stock and surplus.

Foreign banking and financing corporations. At the end of 1970
there were five corporations operating 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
principally in international or foreign banking. Three of these "agreement" corporations have head offices in New York, and one has its
head office in Miami, Florida. The four corporations were examined
during the year by examiners for the Board of Governors. The fifth
agreement corporation is a national bank in the Virgin Islands and is
owned by a State member bank in Philadelphia.
During 1970, under the provisions of Section 25 (a) of the Federal
Reserve Act, the Board issued final permits to eight corporations to
engage in international or foreign banking or other international or
foreign financial operations, and seven corporations commenced operations. At the end of the year there were 70 corporations in active
operation under Section 25(a); 36 have home offices in New York
City; five in Philadelphia; four each in San Francisco and Los Angeles;
three each in Boston, Chicago, and Detroit; two each in Dallas and
Seattle; and one each in Pittsburgh, Norfolk, Richmond, WinstonSalem, Atlanta, Miami, St. Louis, and Portland, Oregon. One of the
corporations with headquarters in Seattle has five branches in Hong
Kong; one of the corporations in Philadelphia and one in New York
operate branches in London; one New York corporation and one
Detroit corporation operate branches in Nassau; and one New York
corporation operates a branch in Luxembourg. Examiners for the
Board of Governors examined 60 of these corporations during 1970.

Actions under delegation of authority. Pursuant to the provisions of Section l l ( k ) of the Federal Reserve Act, the Board of Governors has delegated to the Reserve Banks (1) authority to approve,
on behalf of the Board, certain applications of State member banks to
establish domestic branches, to invest in bank premises, to declare certain dividends, and to grant a waiver of 6 months' notice by a bank
of its intention to withdraw from membership in the Federal Reserve
System, and (2) certain other less frequently used authorities. Under
authority granted in (1) above, the Reserve Banks approved 197

201

branch applications, 52 investments in bank premises, and 25 waivers
of notice of intention to withdraw from membership in the Federal Reserve System. Under authority granted in (2) above, the Reserve
Banks approved 163 applications.
The Board has delegated to the Director or Acting Director of the
Division of Supervision and Regulation authority to approve certain
applications to establish domestic branches and various other authorities. Under this authority 13 branches and 67 applications of other
kinds were approved. In addition, the Director or Acting Director of the
Division of Supervision and Regulation is authorized under Section
18(c)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1828(c)
( 4 ) ) , to furnish to the Comptroller of the Currency and the Federal
Deposit Insurance Corporation reports on competitive factors involved
in a bank merger required to be approved by one of those agencies if
each of the appropriate departments or divisions of the appropriate
Federal Reserve Bank and the Board of Governors is of the view that
the proposed merger either would have no adverse competitive effects
or would have only slightly adverse competitive effects, and if no member of the Board has indicated an objection prior to the forwarding of
the report to the appropriate agency. Under this authority 89 competitive factor reports were approved.
Bank Examination
Schools. In 1970 the Bank Examination
School conducted three sessions of the School for Examiners, four
sessions of the School for Assistant Examiners, and one session of the
School for Trust Examiners. The Bank Examination School was established in 1952 by the three Federal bank supervisory agencies, and
since 1962 it has been conducted jointly by the Federal Reserve System
and the Federal Deposit Insurance Corporation.
Since the establishment of this program, 4,450 persons have attended the various sessions. This number includes representatives of the
Federal bank supervisory agencies; the State Banking Departments of
Arkansas, Arizona, California, Connecticut, Florida, Idaho, Indiana,
Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico,
New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont,
Virginia, Washington, and Wyoming; the Treasury Department of the
Commonwealth of Puerto Rico; and 19 foreign countries.

202

Truth in Lending. A report entitled Annual Report to Congress on
Truth in Lending for the Year 1970 was submitted separately, pursuant
to the Truth in Lending Act (Title I of the Consumer Protection Act
(Public Law 9 0 - 3 2 1 ) ) .
Bank Protection Act of 1968. A joint report of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, and the Federal Home
Loan Bank Board was submitted to the Congress on July 7, 1970,
pursuant to Section 4 of the Bank Protection Act of 1968 (Public
Law 90-389). The report contained the results of consultations of
the Federal supervisory agencies with insurers and State insurance
regulators to determine the feasibility and desirability of premium rate
differentials based on the installation, maintenance, and operation of
security devices and procedures by banks.
•

203

Federal Reserve Banks
Examination of Federal Reserve Banks. The Board's Division
of Federal Reserve Bank Operations examined the 12 Federal Reserve
Banks and their 24 branches during the year, as required by Section
21 of the Federal Reserve Act. In conjunction with the examination
of the Federal Reserve Bank of New York, the Board's examiners also
audited the accounts and holdings related to the System Open Market
Account and foreign currency operations conducted by that Bank in
accordance with policies formulated by the Federal Open Market Committee, and rendered reports thereon to the Committee. The procedures
followed by the Board's examiners were surveyed and appraised by a
private firm of certified public accountants, pursuant to the policy of
having such reviews made on an annual basis.
Earnings and expenses. The accompanying table summarizes the
earnings, expenses, and distribution of net earnings of the Federal
Reserve Banks for 1970 and 1969.
EARNINGS, EXPENSES, AND DISTRIBUTION OF N E T EARNINGS
OF FEDERAL RESERVE BANKS, 1970 AND 1969
In thousands of dollars

Item

1970

1969

3,877,218
321,373
3,555,845

3,373,360
274,973
3,098,387

11,442

-557

Net earnings before payments to U.S. Treasury

3,567,287

3,097,830

Dividends paid
Payments to U.S. Treasury (interest on F.R. notes). .

41,136
3,493,571

39,237
3,019,161

32,580

39,432

Current earnings
Current expenses
Current net earnings
Net addition to or deduction from (—) current net
earnings

Transferred to surplus

Current earnings of $3,877 million in 1970 were 15 per cent higher
than in 1969. The principal changes in earnings were as follows: on

204

U.S. Government securities, an increase of $591 million; on foreign
currencies, a decrease of $73 million; and on discounts and advances,
a decrease of $15 million.
Current expenses were $46 million more than in 1969, or 17 per
cent. Statutory dividends to member banks amounted to $41 million,
an increase of $2 million from 1969. This rise in dividends reflected
an increase in capital and surplus of member banks and a consequent increase in the paid-in capital stock of the Federal Reserve
Banks.
Payments to the Treasury as interest on Federal Reserve notes
totaled $3,493 million for the year, compared with $3,019 million in
1969. This amount consists of all net earnings after dividends and the
amount necessary to bring surplus to the level of paid-in capital.
Expenses of the Federal Reserve Banks also included costs of
$290.19 for six regional meetings incident to the Treasury Department
savings bond program.
A detailed statement of earnings and expenses of each Federal Reserve Bank during 1970 is shown in Table 7 on pages 224 and 225,
and a condensed historical statement in Table 8 on pages 226 and 227.

Holdings of loans and securities. The table on page 206 shows
holdings, earnings, and average interest rates on loans and securities of
the Federal Reserve Banks during the past 3 years.
Average daily holdings of loans and securities during 1970
amounted to $59,072 million—an increase of $3,874 million over
1969. Holdings of U.S. Government securities increased by $4,152
million, whereas there were decreases of $276 million in discounts and
advances and $2 million in acceptances.
The average rates of interest on holdings were up from 5.93 per
cent to 6.13 per cent on discounts and advances, from 7.01 per cent
to 7.23 per cent on acceptances, and from 5.89 per cent to 6.48 per
cent on U.S. Government securities.
Volume of operations. Table 9 on page 228 shows the volume
of operations in the principal departments of the Federal Reserve
Banks for 1967-70.
Discounts and advances declined in both number and dollar
amount, as the number of banks borrowing dropped from 1,714 to
1,416.
The number and amount of food stamps redeemed rose sharply,

205

RESERVE BANK EARNINGS ON LOANS AND SECURITIES, 1968-70

Item and year

Total

Discounts
and
advances

Acceptances

U.S.
Govt.
securities1

In millions of dollars
Average daily holdings:
1968
1969
1970

Earnings:
1968
1969
1970

51,935
55,198
59,072
2,687.4
3,250.8
3,827.1

569
1,102
826
29.7
65.3
50.6

73
67
65
4.2
4.7
4.7

51,293
54,029
58,181
2,653.5
3,180.8
3,771.8

In peir cent
Average rate of interest:
1968
1969
1970
1
2

5.17
5.89
6.48

5.22
5.93
6.13

5.75
7.01
7.23

5.17
5.89
6.48

Includes Federal agency obligations.
Based on holdings at opening of business.

reflecting a marked expansion of the program. On the other hand,
the number of transactions in U.S. Government securities decreased
slightly, while the amount increased significantly. Volume was again
higher in most of the other operations, particularly in transfers of
funds and checks handled. Of the total checks handled, 169,684,000
items, or 2.4 per cent, were processed by the Washington/Baltimore
Regional Clearing Center, which began operations at the beginning
of the year.

Loan guarantees for defense production. Under the Defense
Production Act of 1950, the Departments of the Army, Navy, and
Air Force, the Defense Supply Agency of the Department of Defense,
the Departments of Commerce, Interior, and Agriculture, the General
Services Administration, the National Aeronautics and Space Administration, and the Atomic Energy Commission are authorized to guarantee loans for defense production made by commercial banks and
other private financing institutions. The Federal Reserve Banks act

206

as fiscal agents of the guaranteeing agencies under the Board's Regulation V.
During 1970 the guaranteeing agencies did not authorize the issuance of any new guarantee agreements. Loan authorizations outstanding on December 31, 1970, totaled $65 million, of which $60 million
represented outstanding loans and $5 million additional credit available to borrowers. Of total loans outstanding, 20 per cent on the
average was guaranteed. During the year approximately $11 million
was disbursed on guaranteed loans, most of which' are revolving
credits.
Authority for the V-loan program, unless extended, will terminate
on June 30, 1972.
Table 11 on page 229 shows guarantee fees and maximum interest
rates applicable to Regulation V loans.

Foreign and international accounts. Assets held for account of
foreign countries at the Federal Reserve Banks increased $9,073 million in 1970. At the end of the year they amounted to $28,290 million:
$10,032 million of earmarked gold; $16,226 million of U.S. Government securities (including securities payable in foreign currencies);
$148 million in dollar deposits; $250 million of bankers' acceptances
purchased through Federal Reserve Banks; and $1,634 million of
miscellaneous assets. The latter item consists mainly of dollar bonds
issued by foreign countries and international organizations. Assets
held for international and regional organizations, including IMF gold
deposits, increased $2,865 million to $10,022 million.
In 1970 new accounts were opened in the names of The Bank of
Korea and Muscat Currency Authority.
New gold collateral loan arrangements amounted to $140 million
in 1970. All drawings during the year under these loan arrangements
were repaid by the end of the year. Loans on gold are made to foreign monetary authorities to help them meet dollar requirements of a
temporary nature.
The Federal Reserve Bank of New York continued to act as depositary and fiscal agent for international and regional organizations. As
fiscal agent of the United States, the Bank continued to operate the
Exchange Stabilization Fund pursuant to authorization and instructions
of the Secretary of the Treasury. Also on behalf of the Treasury Department, it administered foreign assets control regulations pertaining

207

to assets in the United States of North Vietnam, Cuba, Communist
China, and North Korea, and their nationals, and to transactions with
those countries and their nationals.
Bank premises. With the approval of the Board, sites were obtained for new buildings for the Boston, Philadelphia, and Richmond
Banks, and properties adjacent to the Charlotte and Helena Branches
were acquired for future expansion.
Table 6 on page 223 shows the cost and book value of bank
premises owned and occupied by the Federal Reserve Banks and of
real estate acquired for banking-house purposes.
•

208

Board of Governors
Building annex. Ending a postponement announced in April 1969,
the Board of Governors in December 1970 invited competitive bids for
construction of an annex to its present building. Plans for the annex,
authorized by the Board in 1967, were approved by the Fine Arts
Commission in 1967 and the National Capital Planning Commission in
1968. Construction is scheduled for completion during 1973.
Income and expenses. The accounts of the Board for the year 1970
were audited by the public accounting firm of Lybrand, Ross Bros. &
Montgomery.
ACCOUNTANTS' OPINION

Board of Governors of the
Federal Reserve System:
We have examined the balance sheet of the Board of Governors of the
Federal Reserve System as of December 31, 1970, and the related statement
of assessments and expenses for the year then ended. Our examination 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 in the circumstances.
In our opinion, the balance sheet and related statement of assessments
and expenses present fairly the financial position of the Board of Governors
of the Federal Reserve System at December 31, 1970 and the results of its
operations for the year then ended, in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
year.
Lybrand, Ross Bros. & Montgomery
Washington, D.C.
February 5, 1971

209

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
BALANCE SHEET
DECEMBER 31,

1970

ASSETS
OPERATING F U N D :

Cash
Miscellaneous receivables and advances
Stockroom and cafeteria inventories at first-in, first-out cost
Total operating fund

$ 2,442,916
157,596
31,265
2,631,777

PROPERTY FUND:

Land and improvements
Building
Furniture and equipment
Construction in progress

792,852
4,277,275
1,359,157
2,438,822

Total property fund

8,868,106
$11,499,883

LIABILITIES AND FUND BALANCES
OPERATING FUND:

Current liabilities:
Accounts payable and accrued expenses
Income taxes withheld
Accrued payroll
Fund balance:
Balance, January 1, 1970
Excess of assessments over expenses for the year
ended December 31, 1970

$1,052,184
224,193
234,854

$ 1,511,231

(218,285)
1,338,831
1,120,546

Total operating fund

2,631,777

PROPERTY FUND:

Fund balance:
Balance, January 1, 1970
Additions
Property adjustments and disposals
Total property fund

8,082,750
888,477
(103,121)
8,868,106
$11,499,883

The accompanying notes are an integral part of the financial statements.
[See page 212 for notes.]

210

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

STATEMENT OF ASSESSMENTS AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1970

ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS:

For Board expenses and additions to property
For expenditures made on behalf of the Federal Reserve Banks..
Total assessments

$21,227,800
21,918,699
43,146,499

EXPENSES:

Expenditures for printing, issue and redemption of Federal Reserve
Notes, paid on behalf of the Federal Reserve Banks
For the Board:
Salaries
$12,329,766
Retirement and insurance contributions
2,001,388
Travel expenses
615,951
Legal, consultant and audit fees
364,394
Contractual services
522,872
Printing and binding—net
505,113
Equipment and other rentals
1,626,396
Telephone and telegraph
213,469
Postage and expressage
197,342
Stationery, office and other supplies
158,520
Heat, light and power
73,389
Operation of cafeteria—net
110,582
Repairs, maintenance and alterations
211,483
Books and subscriptions
48,243
System membership, Center for Latin American
Monetary Studies
27,000
Miscellaneous—net
97,705

21,918,699

19,103,613
785,356

For property additions
Total expenses

41,807,668

EXCESS OF ASSESSMENTS OVER EXPENSES

$ 1,338,831

The accompanying notes are an integral part of the financial statements.

[See page 212 for notes.]

211

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
NOTES TO FINANCIAL STATEMENTS

ACCOUNTING METHODS

The Board has consistently followed the practice of not providing for depreciation on fixed assets. Acquistions are charged to expense and proceeds from sales of
fixed assets are recorded as income. The property accounts are increased or reduced
at full cost, with corresponding increases or decreases in the property fund balance
when property is acquired or sold.
Assessments and expenditures made on behalf of the Federal Reserve Banks
for the printing, issuance and redemption of Federal Reserve Notes are recorded on
the cash basis and produce results which are not materially different from those which
would have been produced on the accrual basis of accounting.
LONG-TERM LEASES

The Board leases outside office space at an annual rental of $398,978 under
leases expiring in 1972. These leases may be terminated with six months notice.
RETIREMENT PLAN

There are two contributory retirement programs for employees of the Board.
About 75% of the employees are covered by the Federal Reserve Board Plan. All
new members of the staff who do not come directly from a position in the Government are covered by this plan. The second, the Civil Service Retirement Plan, covers
all new employees who come directly from Government service. Employee contributions and benefits are the same under both plans and are based upon the Civil Service
Plan.
Under the Civil Service Plan, Board contributions match employee payroll
deductions while under the Federal Reserve Plan, Board contributions are actuarially
determined annually.
Additionally, employees of the Board have been authorized to participate in
the Federal Reserve System's Thrift Plan. Under this plan, the Board adds a fixed
percentage to allowable employee savings.
Total Board contributions to these plans in 1970 totaled $1,916,162 including
$25,921 required to fund cost of living allowances to annuitants under the Federal
Reserve Plan. There are no unfunded prior service costs under either plan.
CONSTRUCTION

After postponement since April, 1969, the Board in December, 1970 invited
competitive bids for construction of the Martin Building and North Garage.
Estimated cost is $39,400,000, a portion of which will be recovered from the
Department of Interior under an agreement whereby the Board will build the
North Garage (including the above ground park). The garage will be for the use
of both Federal Reserve and Department of Interior employees.

212

Statistical Tables

1. DETAILED STATEMENT OF CONDITION OF ALL FEDERAL RESERVE BANKS
COMBINED, DECEMBER 31, 1970
(In thousands of dollars)

ASSETS
Gold certificates on hand
Gold certificates due from U.S. Treasury:
Interdistrict settlement fund
F.R. Agents' fund

1,278
7,126,114
3,330,000

Total gold certificate account
Special Drawing Rights certificate account
F.R. notes of other F.R. Banks
Other cash:
United States notes
Silver certificates
National bank notes and F.R. Bank notes
Coin

10,457,392
400,000
1,064,790
351
33
98
220,411

Total other cash
Discounts and advances secured by U.S. Govt. obligations:
Discounted for member banks
Discounted for others
Other discounts and advances:
Discounted for member banks
Foreign loans on gold
Total discounts and advances
Acceptances:
Bought outright
Held under repurchase agreement
Federal agency obligations:
Held under repurchase agreement
U.S. Govt. securities:
Bought outright:
Bills
Certificates
Notes
Bonds

220,893
22,760

312,375

57,446

25,964,854
33,210,667
2,966,007
62,141,528
62,141,528

Total loans and securities
Cash items in process of collection:
Transit items.
Exchanges for clearing house
Other cash items
Total cash items in process of collection
Bank premises:
Land
Buildings (including vaults)
Fixed machinery and equipment
Construction account

62,534,109
13,437,314
268,743
542,007
14,248,064
114,125
71,700
26,830

Total buildings
212,655
Less depreciation allowances
119,041
Total bank premises
Other assets :
Claims account closed banks
Denominated in foreign currencies
Gold due from U.S. Treasury for account International Monetary Fund
Reimbursable expenses and other items receivable
Interest accrued
Premium on securities
Deferred charges
Real estate acquired for banking-house purposes
Suspense account
All other

Total assets

214

312,375
335,135

Total bought outright
Held under repurchase agreement
Total U.S. Govt. securities

Total other assets

22,760

34,589

93,614
128,203
257,276
165,900
4,337
515,601
14,587
3,225
15,436
12,779
3,843
992,984
90,046,435

1.—CONTINUED

LIABILITIES
F.R. notes:
Outstanding (issued to F.R. Banks)
Less: Held by issuing F.R. Banks
Forwarded for redemption
F.R. notes, net (includes notes held by U.S. Treasury
and by F.R. Banks other than issuing Bank)
Deposits:
Member bank reserves
U.S. Treasurer—General account
Foreign
Other deposits:
Nonmember bank—Clearing accounts
Officers' and certified checks
Reserves of corporations doing foreign banking or
financing
International organizations
Secretary of Treasury special account
All other

53,744,743
2,342,784
15,598

2,358,382
51,386,361
24,040,481
1,156,171
148,232

40,937
9,338
76,276
275,358
264,860
565,828

Total other deposits

1,232,597

Total deposits
Deferred availability cash items

26,577,481
10,097,970

Other liabilities:
Accrued dividends unpaid
Unearned discount
Discount on securities
Sundry items payable
Suspense accounts
All other

549
565 ,197
9 ,492
5 ,811
12

Total other liabilities

581,061

Total liabilities

88,642,873
CAPITAL ACCOUNTS

Capital paid in
Surplus
Other capital accounts 1
Total liabilities and capital accounts
Contingent liability on acceptances purchased for foreign correspondents

701,781
701,781
90,046,435
250,067

During the year this item includes the net of earnings, expenses, profit and loss items, and accrued
dividends, which are closed out on Dec. 31; see Table 7, pp. 224 and 225.
NOTE.—Amounts in boldface type indicate items shown in the Board's weekly statement of condition
of the F.R. Banks

215

2. STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1970 AND 1969
(In millions of dollars)
Total

N e w York

Boston

Philadelphia

Richmond

Cleveland

Item
1970

1969

570
76
5

1,942

2,325

187

159

16
88

47
5

2,899

15,844

13,921

3,261

3,072

4,848

4,431

4,626

4,273

3,040

2,901

16,005

14,037

3,261

3,073

4,848

4,435

4,626

4,285

780
2
12

786
2
94

2,810
8

2,494
9

694

912
12

870
6

996
11

1,070

500
219
109

730
2
102

175

102

19,860

4,815

4,495

7,058

6,461

6,867

6,505

1970

1969

10 457
1,063
221
400

10,036

22
312

130
53

162,142

57,154

3,040

Total loans and securities

62,533

57,401

Cash items in process of collection
Rank oremises
Other assets:

14,249
128

12,883
116

257
166
572

1,967
219
441

90,046

83,944

1970

1969

1970

1969

1970

1969

ASSETS
Gold certificate account
F R notes of other F R Banks
Other cash

....

Discounts and advances:
Other
Acceptances:
Boueht outright

771

110

591
131

10
23

20
93

721
60

526
35

10
23

1 095
67

25
33

862
68

1,044
83

13
36

927
68
6

Federal agency obligations held under repurchase
U.S. Govt. securities:
Bought outrisht
Held under repurchase agreements

All other
Total assets

68
166
145

4,631

4,462

21,444

LIABILITIES
F.R. notes
Deposits:
Member bank reserves
U.S. Treasurer—General account.
Foreign
Other:
IMF gold deposits 2
All other

4,198

3,953

4,604

4,327

1,813
76
11

1,551
94
12

1,307
39
7

1,090
131
7

51,386

48,244

2,919

2,755

12,196

11,264

2,934

24,039
1,156
148

21,979
1,312
134

875
52
6

834
65
6

6,162
337
56

5,826
303
37

1,163
64
6

166
1,067

219
588

166
571

219
320

Total deposits.

26,576

24,232

948

921

7,292

6,705

1,250

1,082

1,924

1,681

1,382

1,257

Deferred availability cash items.
Other liabilities

10,098
582
88,642

9,549
581

669
29

693
29

1,439
147

1,398
139

529
30

557
31

764
46

663
44

767
42

809
44

82,606

4,565

4,398

21,074

19,506

4,743

4,427

6,932

6,341

6,795

6,437

702
702

669
669

185
185

177
177

63
63

60
60

36
36

34
34

90,046

83,944

4,631

21,444

19,860

4,815

7,058

6,461

6,867

6,505

250

146

53,745

50,412

3,055

2,875

12,811

11,793

3,003

2,829

4,368

4,200

4,741

2,359

2,168

136

120

615

529

170

247

137

129

51,386

48,244

2,919

2,755

12,196

11,264

2,934

2,757

4,198

3,953

4,604

4,327

3,330
51,415

3,222
48,152

250
2,840

500
12,400

500
11,400

300
2,800

300
2,620

510
3,900

545
3,955

51,374

3,090

12,900

11,900

3,100

2,920

4,410

510
3,750
4,260

610
4,160

54,745

180
2,717
2,897

4,770

4,500

Total liabilities

986
71
7

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts.
Total liabilities and capital accounts
Contingent liability on acceptances purchased for
foreign correspondents

4,462

4,495

F.R. NOTE STATEMENT
F.R. notes:
Issued to F.R. Bank by F.R. Agent and outstanding
Less held by issuing Bank, and forwarded for
redemption
F.R. notes, net 3 .
Collateral held by F.R. Agent for notes issued to
Bank:
Gold certificate account
U.S. Govt. securities
Total collateral
For notes see end of table.

4,456

2. S T A T E M E N T O F C O N D I T I O N OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1970 AND 1969—Continued
(In millions of dollars)
Chicago

Atlanta

St. Louis

Minneapolis

Kansas City

Dallas

San Francisco

Item
1970

1969

494
91
15

2,210
60
32
70

1,468
49
14

469
32
12
15

345
29
10

161
31
6
7

131
21
3

424
37
17
15

424
44
7

6
33

3
224

5
10

17
1

3,229

3,188

9,786

9,499

2,279

2,106

1,219

1,150

2,427

2,231

2,814

2,458

8,769

7,926

3,229

3,227

10,013

9,518

2,279

2,121

1,219

1,153

2,430

2,249

2,814

2,475

8,769

7,927

1,456
17

1,119
18

2,327
17

2,187
17

671
12

622
10

467
12

432
6

929
18

882
18

874
8

714
8

1,333
8

977
9

126

291

112

266

5,576

5,113

14,853

13,614

3,519

3,221

1,919

1,801

3,902

3,725

4,002

3,689

11,460

10,998

1970

1969

1970

1969

1970

1969

1970

1969

1970

1969

1970

1969

1,046
113
32
49

1,640
102
19

ASSETS
Gold certificate account
F.R. notes of other F.R. Banks
Other cash
Special Drawing Rights certif. acct

555
222
30
22

Discounts and advances:
Secured by U S Govt securities
Other

199
40
14
14

324
29
8

14
3

Acceptances:
Bought outright .
. . . .
Held under repurchase agreements
Federal agency obligations held under repurchase agreements
.
U.S. Govt. securities:
Boueht outright
Held under repurchase agreements
Total loans and securities
Cash items in process of collection
Bank premises
Other assets:
Denominated in foreign currencies
I M F sold deDOsited^
All other
Total assets

LIABILITIES
F.R. notes
Deposits :
Member bank reserves
U.S. Treasurer—General account
Foreign
Other:
IMF sold, deoosits^
All other
Total deposits
Deferred availability cash items
Other liabilities
Total liabilities

645

-> 642

q 003

458

951

1 797

875

819

606
79
8

1 322
96
8

T, 430

950
108
19

885
74
4

824
68
4

623
49
3

538
49
3

103
19

878
]

104
96
5

775

1 ,946

1 ,747

6 ,237

5,950

056
128
6

1 ,257
57
7

1 ,222
81
7

,814

3,780

130
16

118
18

,205

1 ,336

1 ,323

4 ,031

3,982

724

666

617

520

930

807
85

1,771

3 ,842

3 ,669

3 ,924

3 ,615

11 ,284

10,824

87
87

3 ,221

1,919

1,801

3 ,902

3 ,725

4 ,002

3 ,689

11 ,460

10,998

8 ,793

2 ,037

1 ,876

911

844

1 ,956

1 ,841

2 ,061

1 ,863

6 ,605

6,244

335

115

116

368

294

9 ,003

8 ,458

1 ,951

1 ,797

875

819

1 ,878

1 ,775

1 ,946

1 ,747

6 ,237

5,950

2 ,850

1 000
8 ,450

1 000
7 ,950

155
1 ,930

155
1 ,780

930

27
825

1 ,975

1 ,875

5
2 ,130

5
1 ,930

7 ,000

6,500

2 ,850

9 ,450

8 ,950

2 ,085

1 ,935

930

852

1 ,975

1 ,875

2 ,135

1 ,935

7 ,000

6,500

282

1 ,708

1 ,444

3 ,834

3 ,128

974

908

680

596

100

909

1 714

1 734

525

449

320

344

5 ,482

5 ,027

14 ,643

13 ,416

3 ,471

3 ,175

1,887

105

5 ,576

5 ,113

14 ,853

13 ,614

3 ,519

2 ,857

2 ,798

9 ,340

212

156

337

2 ,645

2 ,642

2 ,900
2 ,900

12
1

,217

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts
Total liabilities and capital accounts..
Contingent liability on acceptances purchased
for foreign correspondents
F.R. NOTE STATEMENT
F.R. notes:
Issued to F.R. Bank by F.R. Agent and
outstanding
Less held by issuing Bank, and forwarded
for redemption
F.R notes net 3

...

Collateral held by F.R. Agent for notes issued
to Bank:
Gold certificate account
U.S. Govt. securities
Total collateral
to

*1 Less than $500,000.
Includes securities loaned—fully secured by U.S. Govt. securities pledged with
Federal Reserve Banks.
2 Gold deposited by the IMF to mitigate the impact on the U.S. gold stock of pur-

chases by foreign countries for gold subscriptions on in ere; ised IMF quotas. The United
States has a corresponding gold liability to the IMF.
3 Includes F.R. notes held by U.S. Treasury and by F.R Banks other than the issuing
bank.

3. FEDERAL RESERVE BANK HOLDINGS OF U.S. GOVERNMENT SECURITIES,
DECEMBER 31, 1968-70
(In thousands of dollars)

Type of issue
and date

Rate of
interest
(per cent)
1970

Treasury bonds:
1964-69 June
1964-69 Dec
1965-70
1966-71
1967-72 June
1967-72 Sept
1967-72 Dec
1969 Feb
1969 Oct
1970 Feb
1970 Aug
1971 Aug
1971 Nov
1972 Feb
1972 Aug
1973 Aug
1973 Nov
1974 Feb
1974 May
1974 Nov
1975-85
1978-83
1980 Feb
1980 Nov
1985 May
1987-92
1988-93
1989-94
1990 Feb
1995 Feb
1998 Nov
Total
Treasury notes:
Feb. 15, 1969—A...
May 15, 1969—B. . .
Aug. 15, 1969—C. . .
May 15, 1970—B. . .
May 15, 1970—C. . .
Aug. 15, 1970—D...
Nov. 15, 1970—A.. ..
Feb. 15, 1971—C. . .
Feb. 15, 1971—D...
May 15, 1971—A. ..
May 15, 1971—E. . .
Aug. 15, 1971— F. . .
Nov. 15, 1971—B. . .
Nov. 15, 1971—G
Feb. 15, 1972—A. ..
Feb. 15, 1972—C...
Apr. 1,1972—EA..
May 15, 1972—B. . .
May 15, 1972—D. ..
May 15, 1973—A. ..
Aug. 15, 1973—B. . .
Feb. 15, 1974—C...
May 15, 1974—D...
Aug. 15, 1974—B. . .
Nov. 15, 1974—A. ..
Feb. 15, 1975—A. ..
May 15, 1975—B. . .
Feb. 15, 1976—A. ..
May 15, 1976—B. . .
Aug. 15, 1976—C. . .
Feb. 15, 1977—A...
Aug. 15, 1977—B. . .
Total

220

1
2Vi

1969

4VA
37/8

4V4
3%
4

IB
4V4
4
4V8

31/2
31/2

"'i55i667'
58,066
88,652
125,358

188,400
259,650
196,650
125,950
199,150
312,400
140,900
254,450
52,700
98,740
18,750
73,200
40,950
31,300
337,900
23,500
45,350
80,450
2,100
30,750

107,850
169,750
184,400
255,900
165,650
120,050
179,150
295,350
123,650
239,650
46,700
90,340
6,250
66,200
33,850
27,800
285,200
23,500
42,350
74,450
2,100
25,750

307,840
358,199
573,540
145,007
54,566
46,552
95,858
1,140,500
310,750
102,850
150,400
181,900
249,900
158,650
117,150
176,250
292,450
116,150
238,450
46,700
82,340
6,250
53,550
32,850
27,800
246,900
23,500
37,350
72,450
2,100
25,750

2,940,323

3,496,413

5,474,502

6 8
5%
6%
5
5%
7%
5VA

8
8*4
734

4*4

m
Wi

4V4
6Y4
734
8%
7%
7*4
55/8
534
5%
6
614
6V1
8
7%

1968

573,540
154,007
55,566
47,552
99,858

2Vz

4
4
4
4
4
3%
4
4
4
41/s
41/8

Increase or decrease (—)
during—

December 31

""73,596'
63,400
1,577,650
455,799
285,890
80,650
7 232 950
137,300
224,990
1,800
2,370,610
111,500
2,607,793
201,500
180,750
888,250
5,005,282
1,103,150
994,550
3,707,297
2,506,000
307,600
608,700
2,292,350
217,000

5,297,750
6,123,543
305,590
1,179,250
70,590
46,400
1,571,850
435,599
79,650
119,300
1,800
2,357,660
130,500

4,938,382
1,092,050
954,650
3,692,297
2,506,000
292,100
196,900

1970

-573,540
1,000
2,500
41,100
25,500
-107,850
-169,750
4,000
3,750
31,000
5,900
20,000
17,050
17,250
14,800
6,000
8,400
12,500
7,000
7,100
3,500
52,700
3,000
6,000

1969

-307,840
-358,199
9,000
1,000
1,000
4,000
-1,140,500
-310,750
5,000
19,350
2,500
6,000
7,000
2,900
2,900
2,900
7,500
1,200
8 * 666 *
12,650
1,000
38,300
5,000
2,000

5,000
-556,090

-1,978,089

-7,441,343
7,441,343
-148,050
148,050
-40,500
40,500
4,300
5,293,450 -5,297,750
-6,123,543 6,123,543
305,590
-305,590
51,100
1,128,150 -1,179,250
6,000
3,000
64,590
46,400
17,000
14,500
5,800
1,557,350
435,599
20,200
285,890
1,000
62,650
17,000
7,232,950
18,000
94,850
24,450
224,990
1,800
12,950
25,850
2,331,810
111,500
2,477,293
130,500
201,500
180,750
888,250
66,900
73,500
4,864,882
11,100
38,800
1,053,250
39,900
20,500
934,150
15,000
3,000
3,689,297
2,506,000
292,100
15,500
196,900
411,800
2,292,350
217,000

33,236,351 31,391,861 28,706,122

1,844,490

2,685,739

3. —CONTINUED

Type of issue
and date

Rate of
interest
(per cent)

Increase or decrease ( —)
during—

December 31
1970

1968

1969

1970

1969

Treasury bills:
Tax anticipation.
Other due—
Within 3 mos..
3-6 mos
After 6 mos

453,400

144,750

153,100

14,128,084 12,522,479 10,890,298
7,740,070 6,679,301 5,379,095
3,345,450 2,456,956 2,033,412

1,605,605
1,060,769
888,494

1,632,181
1,300,206
423,544

Total.

25,964,854 22,265,236 18,756,205

3,699,618

3,509,031

Total holdings

62,141,528 57,153,510 52,936,829

4,988,018

4,216,681

Maturing—
Within 90 days
91 days to 1 year
Over 1 year to 5 years.
Over 5 years to 10 yrs.
Over 10 years

14,670,481 13,315,369 19,584,141
21,667,359 22,707,140 8,919,246
19,089,048 12,811,264 12,879,723
6,045,800 7,641,947 10,942,879
610,840
668,840
677,790

1,355,112 -6,268,772
-1,039,781 13,787,894
6,277,784
-68,459
-1,596,147 -3,300,932
66,950
-8,950

751,250

606,500

Repurchase agreements.

4. FEDERAL RESERVE BANK HOLDINGS OF SPECIAL SHORT-TERM TREASURY
CERTIFICATES PURCHASED DIRECTLY FROM THE UNITED STATES, 1954-70
(In millions of dollars)
Date

Jan.

Amount

1954
14

22
169
169
169
323
424
323
306
283
283
283
203
3
134
190

15
16
17*
18
19
20
21
22
23
24*
25
26
Mar.

16
1955
1956
1957
1958
Mar.
17

]
\ none

Date
1959
1960
1961
1962
1963
1964
1965

1966
Dec. 9

10
11*

June 15
Sept. 8

143
207

)

Date
1968
Sept. 9
Dec. 10

\ none

12
13
14
15*
16
17

9
10*

Amount

87
92
45
430
430
430
447
596

169
169
169
1969
Apr. 8

1967
Mar. 10

11
12*

Amount

149
149
149
87
153
153
153

9
10
11
12
13*
14
15
16

Date
1969
Sept. 5

6
7*
8
9
10
11
12
13
14*
15
16
1970

Amount

322
322
322
653
830
1,102

862
759
759
759
513
972
none

151
519
490
976
976
976
514
502
627

* Sunday or holiday.
NOTE.—Under authority of Section 14(b) of the Federal Reserve Act. On Nov. 9, 1953, the F.R.
Banks sold directly to the Treasury $500 million of Treasury notes; this is the only use that has been
made under the same authority to sell U.S. Govt. securities directly to the United States.
Interest rate VA per cent through Dec. 3, 1957, and V4 per cent below prevailing discount rate of
F.R. Bank of New York thereafter. Rate on purchases in 1958 was 2 per cent. For data for prior years
beginning with 1942, see previous ANNUAL REPORTS. N O holdings on dates not shown.

221

5. OPEN MARKET TRANSACTIONS OF THE FEDERAL RESERVE SYSTEM
DURING 1970
(In millions of dollars)
Outright transactions in U.S. Govt. securities by maturity
Treasury bills

Total

Other within 1 year

Month
Gross
purchases

Gross
sales

January
February.. . .
March
April
May
June
July
August
September...
October
November...
December...

3,133
801
2,657
1,124
2,225
2,659
1,626
1,127
2,657
245
2,871
3,414

4,154
395
2,577
747
835
1,612
744
106
2,367
183
1,391
2,280

Total. . .

24,539

17,391

Redemptions

615
100
119
244
641
308
134

2,160

Gross
purchases

3,133
801
2,657
1,124
2,017
2,449
1,626
1,127
2,474
245
2,715
2,883

4,154
395
2,577
747
835
1,612
744
106
2,367
183
1,391
2,280

23,251

17,391

Gross
sales

Redemptions

Gross
purchases

Exch.
or
maturity
shifts

Gross
purchases

Gross
sales

Exch.,
maturity
shifts,
or
redemp.

615
100
119

-564
154

244
641

17
23

308
134

-9,414
-21

2,160

5-10 years

1-5 years

Gross
purchases

Gross
sales

37
5

6,362

-3,483

Over 10 years
Exch.
or
maturity
shifts

Gross
purchases

Gross
sales

-688

Exch.
or
maturity
shifts

February.. . .
March
April
May
June
July
. .
August
September...
October
November...
December...

80
365

-6,712

23
113

386

16
48

-36

Total. . .

848

5,430

249

-1,845

-102

1,319
-154
167
146

a, io6

-1,692

16
37

-129
90

9
4

150
16

Repurchase
agreements
(U.S. Govt. securities)
Gross
purchases

-66

Gross
sales

Net
change
in U.S.
Govt.
securities

January
February.. . .
March
April
May
June
July
August
September...
October
November...
December. . .

1,201
4,407
1,176
3,685
953
905
2,008
3,181
3,906
3,465
3,863
5.; 109

1,009
4,599
1,176
3,338
1,299
905
2,008
2,852
3,861
3,353
4,125
5,334

-1,444
114
-38
723
799
407
882
1,351
28
40
1,218
908

Total. . .

33,859

4,988

Federal
agency
obligations
(net repurchase
agreements)
30
-30
34
-34
31
50
8
-27
-61

Bankers' acceptances
Net
changei
Net
outright
-7
—4
6
-15
— 10
5
-4
3
1
21
—6

Net repurchases
26
-26
49
-49
30
21
-14
13
-50

-1,395
57
-43
811
702
397
887
1,407
101
34
1,204
819
4,982

i Net change in U.S. Govt. securities, Federal agency obligations, and bankers' acceptances.
NOTE.—Sales, redemptions, and negative figures reduce System holdings; all other figures increase
such holdings.

222

6. BANK PREMISES OF FEDERAL RESERVE BANKS AND BRANCHES,
DECEMBER 31, 1970
(In dollars)
Cost
F.R. Bank
or branch

Land

Buildings
(including
vaults) i

Fixed machinery and
equipment

Net
book value
Total

Boston

1,628,132

5,929,169

2,943,179

10,500,480

2,328,023

New York
Annex
Buffalo

5,215,656
592,679
673,076

12,831,433
1,491,116
2,562,224

7,605,129
716,472
1,565,400

25,652,218
2,800,267
4,800,700

5,107,999
490,763
2,588,778

Philadelphia....

1,884,357

5,169,131

2,154,452

9,207,940

2,533,186

Cleveland
Cincinnati
Pittsburgh

1,295,490
1,332,541
1,667,994

6,625,960
7,99'4,797
3,041,685

3,571,958
1,587,495
2,525,243

11,493,408
10,914,833
7,234,922

1,006,582
8,115,416
3,111,353

513,524
146,875
102,760
801,779
347,071

4,207,163
256,000
6,609,270
2,009,381
1,069,026

2,497,936
2,313
1,097,455
625,121

7,218,623
405,188
6,712,030
3,908,615
2,041,218

1,529,409
251,408
6,712,030
1,826,974
1,098,118

Atlanta
Birmingham
Jacksonville
Annex
Nashville
New Orleans... .

1,304,755
410,775
164,004
107,925
592,342
1,557,663

5,804,778
2,000,619
1,706,794
76,236
1,474,678
2,754,271

3,558,580
1,019,618
778,871
15,842
1,098,924
1,448,181

10,668,113
3,431,012
2,649,669
200,003
3,165,944
5,760,115

7,012,468
1,801,539
1,320,296
179,536
1,713,098
4,843,890

Chicago
Detroit

6,275,490
1,147,734

17,763,934
3,036,377

10,211,489
1,580,801

34,250,913
5,764,912

14,223,047
2,664,397

St. Louis
Little Rock
Louisville
Memphis

1,675,780
800,104
700,075
731,122

3,171,719
1,963,152
2,859,819
4,122,832

2,589,232
965,202
1,056,659
218,883

7,436,731
3,728,458
4,616,553
5,072,837

1,413,592
3,275,674
2,847,291
4,588,352

958,535
15,709

13,225,500
126,401

2,688,921
62,977

16,872,956
205,087

11,453,667
49,771

Kansas City
Denver
Oklahoma City..
Omaha

1,340,561
2,900,049
647,685
996,489

7,231,967
3,300,633
1,511,600
1,551,742

2,986,528
2,233,403
853,051
731,925

11,559,056
8,434,085
3,012,336
3,280,156

5,951,952
7,896,679
1,986,268
2,070,024

Dallas
El Paso
Houston
San Antonio. . . .

713,302
262,477
695,615
448,596

4,826,831
787,728
1,426,017
1,406,420

3,570,804
393,301
714,187
570,847

9,110,937
1,443,506
2,835,819
2,425,863

3,842,121
845,396
1,762,446
1,462,907

San Francisco.. .
Annex
Los Angles
Portland
Salt Lake City. .
Seattle

684,339
247,201
777,614
207,380
480,222
274,772

3,783,530
124,000
4,103,844
1,678,512
1,878,238
1,890,966

1,801,463
30,000
1,608,576
649,432
707,575
1,049,264

6,269,332
401,201
6,490,034
2,535,324
3,066,035
3,215,002

799,239
341,441
2,610,075
1,225,678
1,907,683
1,414,460

Total

43,320,249

155,385,493

72,086,689 270,792,431

128,203,026

Richmond
Annex 1
Annex 2
Baltimore
Charlotte

Minneapolis
Helena

OTHER REAL ESTATE ACQUIRED FOR BANKING-HOUSE PURPOSES
Boston
Philadelphia
Cleveland
Richmond
Charlotte
Helena
Los Angeles
Total
1

10 ,998,360
369 997
395,875
,088,202
193,000
18,322
245,082
15 ,308,838

381 ,000

10,998,360
1,369,997
776,875
2 088 202
193,000
18,322
245,082

10 ,998,360
1 ,369,997
522,875
">088 202
193,000
18,322
245,082

15,689,838

15 ,435,838

Includes expenditures for construction at some offices pending allocation to appropriate accounts.

223

7. EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1970
(In dollars)
Item

New
York

Total

Philadelphia

Cleveland

mond

Atlanta

Chicago

St. Louis

Minneapolis

Kansas
City

Dallas

San
Francisco

CURRENT EARNINGS
Discounts and advances
Acceptances
U.S. Govt. securities. . .
Foreign currencies
All other

50,737,919 3,497,819 12,883,134 1,548,387 2,508,266 2,086,333 2,173,989 14,933,619
831,685 1,387,356 1,986,813 2,263,363 4,637,155
4,730,465
4,730,465
3.771,788,164 189,039,121 956,260,942 194,105,935 293,561,717 281,255,061 200,162,777 614,380,420 136,206,294 74,457,250 144,432,674 163,444,145 524,481 ,828
48,786,279 2,338,626 12,821,481 2,488,871 4,336,184 2,488,231 3,162,786 7,276,478 1,660,614 1,075,946 2,050,380 2,732,476 6',3 54,206
80,747
57,764
39,754
1,175,617
43,001
445,823
27,121
37,585
74,812
171,248
51,762
80,731
65,269

Total

3,877,218,444 194,918,567 987,141,845 198,170,314 300,486,898 285,867,210 205,574,364 636,761,765 138,738,347 76,972,314 148,535,136 168,497,748 535,553,936
CURRENT EXPENSES

Salaries:
Officers
Employees
Retirement and other benefits . .
Fees—Directors and others
Traveling expenses
Postage and expressage
Telephone and telegraph
Printing and supplies
Insurance
Taxes on real estate
Depreciation (buildings)
Light, heat, power, and water. . ,
Repairs and alterations
Rent
Furniture and equipment:
Purchases
Rentals
All other
Inter-Bank expenses
Subtotal
F.R. currency
Assessment for expenses
Board of Governors

13,009,400
154,724,505
33,823,807
2,937,394
3,918,261
34,511,561
5,245,778
13,353,491
526,355
7,119,718
5,231,410
2,881,022
1,569,529
690,482

803,572 2,596,519
9,893,700 39,448,320
2,227,758 8,068,623
103,181 1,186,798
238,580
581,185
2,220.733 3,957,278
248,987 1,246,080
884,976 2,519,922
38,243
97,763
844,436 1,265,606
131,093
909,285
167,135
461,405
73,085
276,491
206,907
349,159

904,056
7,066,332
1,611,024
96,413
132,215
1,340,498
215,582
681,914
20,175
179,904
76,596
112,295
53,497
12,519

5,840,669
14,802,581
5,576,872

278,408 1,688,877
879,386 1,555,029
306,174 1,290,386
105,058 -1,387,427

192,881
820,513
360,239
107,623

1,103,389
810,370
977,281 1,213,267
9,877,373 11,704,549 10,929,387 21,327,018
2,201,306 2,594,180 2,407,748 4,418,317
118,488
96,004
349,020
225,201
257,656
326,036
405,430
495,806
3,049,454 4,251,169 3,293,859 4,267,837
364,184
401,623
676,841
526,278
876,219 1,245,691 1,113,604 1,869,911
46,634
37,551
48,619
46,551
464,149
288,926
445,481 1,291,428
549,982
229,348
160,473
780,811
298,610
270,106
379,609
248,055
103,780
142,543
240,266
87,283
38,069
6,861
59,633
4,850
555,467
649,923
483,106
189,167

464,264
1,631,500
246,891
-100,568

651,384
1,111,279
338,865
145,849

602,673
2,523,251
1,029,624
316,049

1,082,857

8,564,546
1,979,365
102,000
252,592
2,281,350
277,216
925,408
38,102
281,885
508,957
203,201
102,021
4,119
371,589
1,075,055
244,622
77,692

64,894
1,721

948,896
9,143,097
2,105,024
101,528
281,974
2,361,627
311,263
988,793
42,338
547,439
849,765
302,822
143,438
3,834

204,007
735,109
250,565
50,328

233,676
1,769,173
392,570
95,231

744,432
5,882,671
1,323,741
208,014
306,166
1,427,962
191,915
496,480
20,075
430,818
75,145
115,353

762,423 1,062,338
6,971,946 13,915,566
1,595,420 3,291,301
150,737
200,010
388,318
252,303
2,092,135 3,967,659
477,464
308,345
598,160 1,152,413
63,020
27,284
724,443
355,203
437,703
522,252
170,667
151,764
130,496
151,735
1,611
1,199
225,995
894,162
397,075
123,108

371,448
1,158,201
236,755
276,591

305,761,536 19,651,412 66,111,299 13,984,276 20,613,303 24,871,188 23,865,083 41,533,264 18,372,577 12,529,396 20,622,488 15,630,519 27,976,731
869,245
415,133 1,163,297 1,165,582 2,930,825
23,573,710 1,390,809 4,159,961 1,195,804 1,462,454 2,815,300 2,050,161 3,955,139
of

Total

21,227,800

1,009,500

5,614,400

1,078,100

1,896,900

1,084,700

1,377,500

3,137,100

724,700

476,800

897,900

1,186,300

2,743,900

350,563,046 22,051,721 75,885,660 16,258,180 23,972,657 28,771,188 27,292,744 48,625,503 19,966,522 13,421,329 22,683,685 17,982,401 33,651,456

Less reimbursement for certain
fiscal agency and other expenses
Net expenses

29,189,660

1,491,906

6,037,914

1,353,140

2,741,252

1,581,759

2,170,279

5,319,490

1,718,143

863,575

1,941,235

1,024,944

2,946,023

321,373,386 20,559,815 69,847,746 14,905,040 21,231,405 27,189,429 25,122,465 43,306,013 18,248,379 12,557,754 20,742,450 16,957,457 30,705,433
PROFIT AND LOSS

Current net earnings

3,555,845,058 174,358,752 917,294,099 183,265,274 279,255,493 258,677,781 180,451,899 593,455,752 120,489,968 64,414,560 127,792,686 151,540,291 504,848,503

Additions to current net earnings:
Profits on sales of U.S.
Govt. securities
Profits on foreign exchange
transactions
Allother
Total additions
Deductions from
earnings
Net addition
earnings

current

net

to current

net

8,260,326

414,588

2,072,992

424,448

649,168

616,332

434,020

1,347,366

299,178

165,029

318,647

363,538

1,155,020

3,474,814
274,680

166,791
34,089

917,351
20,283

177,215
11,467

309,258
18,920

177,216
73,937

225,863
592

514,272
17,728

118,144
5,772

76,446
8,297

145,942
47,230

194,590
18,843

451,726
17,522

12,009,821

615,468

3,010,626

613,130

977,346

867,485

660,475

1,879,367

423,094

249,772

511,819

576,971

1,624,268

567,990

53,619

93,655

14,591

121,109

58,110

25,644

27,211

7,065

3,971

12,231

27,495

123,289

11,441,829

561,849

2,916,971

598,539

856,237

809,375

634,831

1,852,156

416,029

245,801

499,588

549,475

1,500,978

Net earnings before payments to
U.S. Treasury

3,567,286,887 174,920,601 920,211,071 183,863,812 280,111,730 259,487,156 181,086,729 595,307,909 120,905,996 64,660,361 128,292,274 152,089,766 506,349,481

Dividends paid
Payments to U.S. Treasury (interest on F.R. notes)

3,493,570,636 172,129,591 901,017,113 179,826,771 273,227,057 255,889,469 174,728,793 582,782,779 118,297,901 62,925,367 125,073,163 147,989,985 499,682,646

41,136,551

1,938,260 10,953,058

2,082,392

3,666,823

2,100,487

2,706,936

6,065,780

1,406,095

929,243

1,741,861

2,304,631

5,240,985

Transferred to surplus
Surplus, January 1

32,579,700
805,750 1,477,250 1,795,150 1,425,850
852,750 8,240,900 1,954,650 3,217,850 1,497,200 3,651,000 6,459,350
1,202,000
669,201,100 31,924,600 176,548,750 34,017,000 59,891,800 34,203,350 43,214,800 98,996,250 22,840,500 14,992,250 28,264,900 37,349,700 86,957,200

Surplus, December 31

701,780,800 32,777,350 184,789,650 35,971,650 63,109,650 35,700,550 46,865,800 105,455,600 24,042,500 15,798,000 29,742,150 39,144,850 88,383,050

NOTE.—Details may not add to totals because of rounding.

EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, 1914-70
(In dollars)

to
to
Period or Bank

Current
earnings

Current
expenses

Net earnings
before payments to
U.S. Treasury i

Payments to U.S. Treasury
Dividends
paid
Franchise tax

Under
Sec. 13b

Interest on
F.R. notes

Transferred
to surplus
(Sec. 13 b)

Transferred
to surplus
(Sec. 7)

All F.R. Banks,
by years:
1914-15.
1916
1917
1918
1919

2,173,252
5,217,998
16,128,339
67,584,417
102,380,583

2,320,586
2,273,999
5,159,727
10,959,533
19,339,633

-141,459
2,750,998
9,582,067
52,716,310
78,367,504

217,463
1,742,774
6,804,186
5,540,684
5,011,832

2,703,894

1,134,234
48,334,341
70,651,778

1920....
1921
1922
1923....
1924....

181,296,711
122,865,866
50,498,699
50,708,566
38,340,449

28,258,030
34,463,845
29,559,049
29,764,173
28,431,126

149,294,774
82,087,225
16,497,736
12,711,286
3,718,180

5,654,018
6,119,673
6,307,035
6,552,717
6,682,496

60,724,742
59,974,466
10,850,605
3,613,056
113,646

82,916,014
15,993,086
-659,904
2,545,513
-3,077,962

1925....
1926
1927
1928....
1929....

41,800,706
47,599,595
43,024,484
64,052,860
70,955,496

27,528,163
27,350,182
27,518,443
26,904,810
29,691,113

9,449,066
16,611,745
13,048,249
32,122,021
36,402,741

6,915,958
7,329,169
7,754,539
8,458,463
9,583,911

59,300
818,150
249,591
2,584,659
4,283,231

2,473,808
8,464,426
5,044,119
21,078,899
22,535,597

1930....
1931....
1932....
1933....
1934....

36,424,044
29,701,279
50,018,817
49,487,318
48,902,813

28,342,726
27,040,664
26,291,381
29,222,837
29,241,396

7,988,182
2,972,066
22,314,244
7,957,407
15,231,409

10,268,598
10,029,760
9,282,244
8,874,262
8,781,661

17,308

-60,323

-2,297,724
-7,057,694
11,020,582
-916,855
6,510,071

1935....
1936....
1937....
1938....
1939....

42,751,959
37,900,639
41,233,135
36,261,428
38,500,665

31,577,443
29,874,023
28,800,614
28,911,600
28,646,855

9,437,758
8,512,433
10,801,247
9,581,954
12,243,365

8,504,974
7,829,581
7,940,966
8,019,137
8,110,462

297,667
227,448
176,625
119,524
24,579

27,695
102,880
67,304
-419,140
-425,653

607,422
352,524
2,616,352
1,862,433
4,533,977

1940....
1941....
1942....
1943....
1944....

43,537,805
41,380,095
52,662,704
69,305,715
104,391,829

29,165,477
32,963,150
38,624,044
43,545,564
49,175,921

25,860,025
9,137,581
12,470,451
49,528,433
58,437,788

8,214,971
8,429,936
8,669,076
8,911,342
9,500,126

82,152
141,465
197,672
244,726
326,717

-54,456
-4,333
49,602
135,003
201,150

17,617,358

1945....
1946....
1947....
1948....
1949....

142,209,546
150,385,033
158,655,566
304,160,818
316,536,930

48,717,271
57,235,107
65,392,975
72,710,188
77,477,676

92,662,268
92,523,935
95,235,592
197,132,683
226,936,980

10,182,851
10,962,160
11,523,047
11,919,809
12,329,373

247,659
67,054
35,605

1,134,234

75,223,818
166,690,356
193,145,837

262,133
27,708
86,772

570,513

3,554,101
40,237,362
48,409,795
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
1959

412,487,931
595,649,092
763,347,530
742,068,150
886,226,116

110,060,023
121,182,496
131,814,003
137,721,655
144,702,706

302,162,452
474,443,160
624,392,613
604,470,670
839,770,663

17,711,937
18,904,897
20,080,527
21,197,452
22,721,687

251,740,721
401,555,581
542,708,405
524,058,650
910,649,768

32,709,794
53,982,682
61,603,682
59,214,569
-93,600,791

1960
1961
1962
1963
1964

1,103,385,257
941,648,170
,048,508,335
,151,120,060
,343,747,303

963,377,684
153,882,275
783,855,223
161,274,575
872,316,422
176,136,134
964,461,538
187,273,357
1,147,077,362
197,395,889

23,948,225
25,569,541
27,412,241
28,912,019
30,781,548

896,816,359
687,393,382
799,365,981
879,685,219
,582,118,614

42,613,100
70,892,300
45,538,200
55,864,300
-465,822,800

1965
1966
1967
1968
1969
1970

,559,484,027
,908,499,896
2,190,403,752
2,764,445,943
3,373,360,559
3,877,218,444

204,290,186
207,401,126
220,120,846
242,350,370
274,973,320
321,373,386

32,351,602
33,696,336
35,027,312
36,959,336
39,236,599
41,136,551

,296,810,053
1,649,455,164
1,907,498,270

27,053,800
18,943,500
29,851,200
30,027,250
39,432,450
32,579,700

Total 1914-70

29,438,715,327 4,628,414,578 24,893,584,699

2,188,893 23,103,570,956

-3,657

830,452,999

1,194,765,528
5,954,383,061
1,370,979,575
1,880,835,572
1,575,853,714
,176,791,286

135,411
-433,413
290,661
-9,906
-71,517
5,491

42,872,175
222,046,221
50,301,872
76,343,443
41,580,358
52,132,340

25,313,526
2,755,629
5,202,900
6,939,100
560,049
7,697,341

151,045 3,923,881,379
7,464
835,721,251
55,615
452,457,846
64,213
891,117,876
102,083
909,685,916
101,421 3,036,997,952

11,682
-26,515
64,874
-8,674
55,337
-17,089

120,784,354
29,162,128
19,675,213
33,882,100
43,422,328
98,250,467

149,138,300

2,188,893 23,103,570,956

-3,657

2 830,452,999

149,138,300

,290,523,596
6,487,028,034
1,383,469,708
2,038,778,097
1,660,966,321
1,277,212,349

45,358,243
242,656,784
55,513,293
76,683,613
37,231,080
39,253,406

7,111,395
68,006,262
5,558,901
4,842,447
6,200,189
8,950,561

280,843
369,116
722,406
82,930
172,493
79,264

652,946,363 4,177,116,541
255,569,866
895,404,230
163,720,502
496,291,227
259,387,469
963,571,776
225,836,891
992,511,318
468,259,513
230,711.502

106,974,556
27,784,274
18,834,783
31,577,162
38,685,602
87,681,411
808,237,207

1,595,816,568
7,456,320,012
1,643,129,411
2,425,004,978
1,986,323,646
1,579,002,641

311,715,742
995,163,248
268,580,765
391,716,588
330,713,470
304,804,161

Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

4,821,820,270
1,149,331,273
656,993,287
1,220,161,255
1,214,798,001
3,690,013,985

29,438,715,327 4,628,414,578

24,893,584,699

1
Current earnings less current expenses, plus or minus adjustment for profit and loss
items.
2 The $830,452,999 transferred to surplus was reduced by direct charges of $500,000
for charge-off on bank premises (1927); $139,299,557 for contributions to capital of the
Federal Deposit Insurance Corporation (1934); and $3,657 net upon elimination of

2,463,628,983
3,019,160,638
3,493,570,636

808,237,207

Aggregate for each
F.R. Bank, 1914-70:
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta

Total

1,356,215,455
1,702,095,000
1,972,376,782
2,530,615,569
3,097,829,686
3,567,286,887

Sec. 13b surplus (1958), and was increased by $11,131,013 transferred from reserves for
contingencies (1945), leaving a balance of $701,780,800 on Dec. 31, 1970.
NOTE.—Details may not add to totals because of rounding.

9. VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS OF FEDERAL
RESERVE BANKS, 1967-70
(Number in thousands; amounts in thousands of dollars)
Operation

1969

1970

1968

1967

NUMBER OF PIECES
HANDLED 1
Discounts and advances
Currency received and counted
Coin received and counted
Checks handled:
U.S. Govt. checks
Postal money
orders
All other 2
Collection items handled:
U.S. Govt. coupons paid
All other
Issues, redemptions, and exchanges
of U.S. Govt. securities
Transfers of funds
Food stamps redeemed

13
6,030,685
13,387,665

23
'5,720,499
' 12,873,277

11
5,561,500
10,957,259

6
5,338,781
10,958,606

622,144
183,574
7,158,276

575,118
187,123
'6,503,449

554,813
195,871
5,904,929

540,065
205,343
5,419,583

14,184
27,355

'13,118
'27,895

13,255
26,299

14,355
25,203

276,098
7,363
1,258,474

'283,175
'6,662
'519,595

267,826
5,894
384,763

246,289
5,444
273,983

AMOUNTS HANDLED
30,968,332
84,525,110
129,578,588
154,305,388
Discounts and advances
38,410,969
45,718,990
40,585,320
'43,273,577
Currency received and counted
1,184,616
1,533,972
1,173,761
'1,432,623
Coin received and counted
Checks handled:
175,068,179
208,858,062
208,155,031
190,653,523
U.S. Govt.. checks
4,860,925
4,736,564
4,640,992
4,603,938
Postal money
orders
3,331,733,021 '2,774,422,163 2,350,761,951 2,043,772,112
All other 2
Collection items handled:
6,693,383
6,765,295
5,702,894
6,849,373
U.S. Govt. coupons paid
15,299,519
19,865,950
21,022,409
19,782,240
All other
Issues, redemptions, and exchanges
820,283,379
1,432,972,919 '1,151,579,538 1,055,426,914
of U.S. Govt. securities
12,332,001,386 9,800,324,538 7,727,430,821 6,565,594,328
Transfers of funds
368,569
694,394
513,618
1,798,416
Food stamps redeemed
' Revised.
1 Packaged items handled as a single item are counted as one piece.
2 Exclusive of checks drawn on the F.R. Banks.

10. NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF
FEDERAL RESERVE BANKS, DECEMBER 31, 1970
Other officers

President
Federal Reserve
Bank (including
branches)

Boston
New York
Philadelphia

Annual
salary
$ 50,000
85,000
45,000

Number

Annual
salaries

33
49
47

750,400 1 ,328
873
1 061,900
949,000 1 ,720

9,841,662 1, 361
11,988,005 1 873
11,172,071 1, 768

10, 592 ,062
13 094 905
12, 166 ,071

1,140,000 3 007
1,046,500 1 348
780
683,000

21,023,433 3, 054
8,942,962 1, 396
5,897,600
811

22, 223 ,433
10, 039 ,462
6, 630 600

857,800 1 363
088
714,400
1,016,100 1 ,965

406
9,003,382
173
7,343,983
13,853,560 2 015

8 106 ,383
14, 929 ,660

Chicago
St Louis
Minneapolis

60,000
50,000
50,000

Kansas Citv
Dallas
San Francisco

50,000
48 000
60,000

$588,000

547

30
34
49

1
Includes 1,173 part-time employees.
2 Presidency vacant on Dsc. 31, 1970.

228

Annual
salaries

Total

45 000
45,000

Number

399 $ 10,293,980 u 433 $ 11, 087 ,980
744,000
2,676,500 4 694 40,561,845 4 , 788 4 3 , 323 ,345
859,900 1 ,011
7,278,726 1, 051
8, 183 ,626

33
93

Cleveland
Richmond
Atlanta

Total

Annual
salaries

Number

Employees

9 911 ,187

$12,499,500 21 ,521 $157,201,209 22 079 $170 288 709

11. FEES AND RATES UNDER REGULATION V ON LOANS
GUARANTEED PURSUANT TO DEFENSE PRODUCTION ACT OF 1950,
DECEMBER 31, 1970
Fees Payable to Guaranteeing Agency by Financing Institution on Guaranteed Portion of Loan

Percentage of loan guaranteed

Guarantee fee
(percentage of
interest payable
by borrower)

Percentage of
any commitment
fee charged
borrower

10
15
20
25
30
35

40-50

70 or less
75
80
85
90
95
Over 95

Maximum Rates Financing Institution May Charge Borrower
7J/2 per
cent per annum
Vi P e r cent per annum

Interest rate
Commitment rate

1
Except that the agency guaranteeing a particular loan may from time to time prescribe a higher rate
if it determines the loan to be necessary in financing any contract or other operation deemed by such
agency to be essential to the national defense.

NOTE.—In any case in which the rate of interest on the loan is in excess of 6 per cent, the guarantee
fee shall be computed as though the interest rate were 6 per cent.
12. MARGIN REQUIREMENTS
(Per cent of market value)
Period

For credit extended under Regulations T (brokers and dealers),
U (banks), and G (others than brokers, dealers, or banks)
On margin stocks

Beginning
date
1937_Nov.
1945—Feb.
July
1946—Jan.
1947—Feb.
1949—Mar.
1951—Jan.
1953—Feb.
1955—Jan.
Apr.
1958—Jan.
Aug.
Oct.
I960—July
1962—July
1963—Nov.

Ending
date
1
5
5
21
1
30
17
20
4
23
16
5
16
28
10
6

1945—Feb.
July
1946—Jan.
1947—Jan.
1949—Mar.
1951—Jan.
1953_Feb.
1955—Jan.
Apr.
1958—Jan.
Aug.
Oct.
1960—July
1962—July
1963—Nov.
1968—Mar.

4
4
20
31
29
16
19
3
22
15
4
15
27
9
5
10

1968—Mar. 11
June
June 8 1970_May
Effective May 6, 1970

7
5

On convertible bonds
T

1
|

On short sales
(T)

40
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70

G
50
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70

70
80
65

50
60
50

70
80
65

corresponding regulation.
Regulation G and special margin requirements for bonds convertible into stocks were adopted by
the Board of Governors effective Mar. 11, 1968.
For earlier data, see Banking and Monetary Statistics, 1943, Table 145, p. 504.

229

13. MEMBER BANK RESERVE REQUIREMENTS
(Per cent of deposits)
Through July 13, 1966

Net demand deposits
Effective date

Central reserve Reserve city
city banks
banks
1917—j u n e
1936 Aue
1937 Mar
May
1938 Apr
1941 Nov.
1942 Aue
Sept.
Oct.
1948_Feb.
June
Sept.
1949 May
June
Aug
Aug.
Aug.
Aug.
Sept
1951—Jan.
Jan.
1953—July
1954—June
July
1958—Feb.
Mar.
Apr
Apr
I960 Sept
Nov
Dec
1962—July
Oct

21
16
1
1
16
1
20
14
3
27
11
24,
5,
30
1
11,
18
25
1
11,
25,
9,
24,
29,
27,
20,
17
24
1
24
1
28
25

13
191/2
223/4
26
2234
26
24
22
20
22
24
26
24

16
1
Julv 1
16

16
Feb.
1
16
Aug.
Mar.
Apr.

1
1
1

Time deposits
(all classes
of banks)

10
15
Hi/2
20
171/2
20

7
IOI/2
I21/4
14
12
14

3
41/2
514
6
5
6

22
21
20

16
15
14
13
12

71/2

13
14
13

191/2
19
181/2
18
19
20
19

23
24
22
21
20
191/2
19
I8I/2
18
171/2

Country
banks

6
5

12
IH/2
11

.7*
161/2

12
I6I/2
(3)

Nov 1

Beginning July 14, 1966
Time deposits 4 . 5
(all classes of banks)

Net demand
deposits 2 . 4

Effective date 1

Reserve
city banks

Country
banks

Other
time deposits

Savings
Under
Under
Over
Over
depos$5 mil- $5 mil- $5 mil- $5 milits
lion
lion
lion
lion
1966

July 14 21
Sept 8 15

612

•16%

1967—Mar. 2
Mar 16
1968—Jan

1969

Apr 17

1970

Oct

16i/ 2

12i/i

171/2

I21/2

171/2

I21/2

Under
Over
$5 mil- $5 million
lion
64

31/2

3
10

In effect Dec. 31, 1970
Legal requirements—Dec. 31, 1970:
Minimum
Maximum

For notes see opposite page.

230

5
6

10
22

7
14

14. FEDERAL RESERVE BANK DISCOUNT RATES, DECEMBER 31, 1970
(Per cent per annum)
Discounts for and advances to member banks
Federal Reserve
Bank

Advances to all others
under last par. Sec. 13 3

Advances and
discounts under
Sees. 13 and 13a 1

Advances under
Sec. 10(b) 2

Boston
New York
Philadelphia

6
6
6

Cleveland
Richmond
Atlanta

6
6
6

7
7V4
IVi

51/2

6
6
6

5 1 /!
51/2

6
6
6

1
7
7

Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

5%
5%

IVi

1
Discounts of eligible paper and advances secured by such paper or by U.S. Govt. obligations or
any other obligations eligible for Federal Reserve Bank purchase. Maximum maturity: 90 days except
that discounts of certain bankers' acceptances and of agricultural paper may have maturities not over
6 months
and 9 months, respectively.
2
Advances secured to the satisfaction of the F.R. Bank. Maximum maturity: 4 months.
3
Advances to individuals, partnerships, or corporations other than member banks secured by direct
obligations of, or obligations fully guaranteed as to principal and interest by, the U.S. Govt. or any
agency thereof. Maximum maturity: 90 days.

Notes to Table 13 on opposite page.
1
When two dates are shown, the first applies to the change at central reserve or reserve city banks
and2 the second to the change at country banks.
Demand deposits subject to reserve requirements, which beginning with Aug. 23, 1935, have been
total demand deposits minus cash items in process of collection and demand balances due from domestic
banks (also minus war loan and Series E bond accounts during the period Apr. 13, 1943—June 30,
3
Authority of the Board of Governors to classify or reclassify cities as central reserve cities was
terminated effective July 28, 1962.
4
Since Oct. 16, 1969, member banks have been required under Regulation M to maintain reserves
against balances above a specified base due from domestic offices to their foreign branches. Until
Jan. 7, 1971, the applicable reserve percentage was 10 per cent; effective that date it became 20 per cent.
Regulation D imposes a similar reserve requirement on borrowings above a specified base from foreign
banks by domestic offices of a member bank. For details concerning these requirements, see amendments to Regulations D and M as described in "Record of Policy Actions of the Board of Governors,"

ANNUAL REPORTS for 1969, p. 85, and for 1970, p. 81.

5 Effective Jan. 5, 1967, time deposits such as Christmas and vacation club accounts became subject
to same requirements as savings deposits.
<* See columns above for earliest effective date of this rate.
NOTE.—All required reserves were held on deposit with F.R. Banks, June 21, 1917, until late 1959.
Since then, member banks have also been allowed to count vault cash as reserves, as follows: country
banks—in excess of 4 and 2V2 per cent of net demand deposits effective Dec. 1, 1959, and Aug. 25,
1960, respectively; central reserve city and reserve city banks—in excess of 2 and 1 per cent effective
Dec. 3, 1959, and Sept. 1, 1960, respectively; all member banks were allowed to count all vault cash
as reserves effective Nov. 24, 1960.

231

15. MAXIMUM INTEREST RATES PAYABLE ON TIME AND SAVINGS DEPOSITS
(Per cent per annum)
Rates beginning July 20, 1966

Rates Nov. 1, 1933—July 19, 1966
Effective date
Type of deposit

Saving deposits :
12 months or more
Less than 12 months
Postal savings deposits: 1
12 months or more
Less than 12 months

Other time deposits: 2
12 months or more
6 months to 12 months
90 days to 6 months
Less than 90 days
(30-89 days)

Effective date
Type of deposit

Nov. 1,
1933

}

Feb. 1,
1935

21/2

2i/ 2

Jan. 1,
1936

21/2

2i/ 2

21/2

2
1

Jan. 1,
1962

Jan. 1,
1957

J 4
I 3i/2

July 17, Nov. 24, Dec. 6,
1965
1963
1964

4
3i/2

31/2

3i/2

3i/ 2
21/2

1 Closing date for the Postal Savings System was Mar. 28, 1966.
2 For exceptions with respect to foreign time deposits, see ANNUAL REPORTS for
1962, p. 129; 1965, p. 233; and 1968, p. 69.
3 Multiple-maturity time deposits include deposits that are automatically renewable
at maturity without action by the depositor and deposits that are payable after written
notice of withdrawal.

}*
}*
41/2

5i/ 2

July 20, Sept. 26, Apr. 19, Jan.21,
1966
1970
1966
1968
Savings deposits
Other time deposits: 23
Multiple maturity:
30-89 days
90 days-1 year
1 year to 2 years
2 years and over
Single maturity:
Less than $100,000:
30 days to 1 year
1 year to 2 years
2 years and over
$100,000 and over:
30-59 days
60-89 days
90-179 days
180 days to 1 y e a r . . . .
1 year or more

41/2

)•
1 5i/ 2

I 51/2
I 53/ 4

)

(4)
(4)
63 /4

51/2
5i/ 2

5i/2

5%
6

}tyA

71/2

NOTE.—Maximum rates that may be paid by member banks as established by the
Board of Governors under provisions of Regulation Q; however, a member bank may
not pay a rate in excess of the maximum rate payable by State banks or trust companies
on like deposits under the laws of the State in which the member bank is located. Beginning Feb. 1, 1936, maximum rates that may be paid by nonmember insured commercial banks, as established by the FDIC, have been the same as those in effect for
member banks.

16. PRINCIPAL ASSETS AND LIABILITIES, AND NUMBER OF COMMERCIAL AND MUTUAL SAVINGS BANKS, BY CLASS OF BANK,
DECEMBER 31, 1970, AND DECEMBER 31, 1969
(Asset and liability items shown in millions of dollars)
Mutual savings banks

Commercial banks
Item

All
banks

Nonmember banks

Member banks

Total
Total

National

Total
Total

State

nsured

Insured

Noninsured

December 31, 19701
n.a.

n.a.

Loans and investments, total
Loans
Investments
U.S. Treasury securities,
Other securities
Cash assets

540,929
377,196
163,732
64,310
99,422
88,347

465,119
317,296
147,822
61,100
86,722
87,177

367,578
256,301
111,277
45,054
66,223
76,993

97,541
60,995
36,546
16,046
20,500
10,184

Deposits, total
Interbank
Other demand
Other time
Total capital accounts

543,528
29,504
212,689
301,335
48,229

472,708
29,504
212,599
230,605
42,499

377,543
28,047
171,167
178,329
33,806

n.a.

95,165
1,457
41,432
52,276
8,693

n.a.

90
70,730
5,730

n.a.

14,181

13,688

5,767

4,620

,147

7,921

7,736

185

493

328

165

Number of banks

75,810
59,900
15,910
3,210
12,700
1,170
70,820

December 31, 1969
Loans and investments, total
Loans
Investments
U.S. Treasury securities
Other securities
Cash assets

495,114
354,754
140,360
56,685
83,675
90,875

422,728
296,679
126,049
53,441
72,608
89,984

337,613
242,995
94,618
38,589
56,029
79,034

247,526
177,435
70,091
28,806
41,285
54,721

90,088
65,560
24,528
9,783
14,745
24,313

85,115
53,683
31,431
14,852
16,579
10,950

82,133
51,643
30,490
14,542
15,948
10,056

2,982
2,041
942
310
632
895

72,385
58,075
14,309
3,243
11,066
891

62,873
50,947
11,927
2,459
9,468
780

9,512
7,129
2,383
785
1,598

Deposits, total
Interbank
Other demand
Other time
Total capital accounts

504,245
26,726
215,609
261,911
45,499

436,708
26,724
215,051
194,933
39,978

350,759
25,443
174,841
150,475
32,047

256,314
16,267
125,146
114,901
23,248

94,445
9,176
49,694
35,575
8,800

85,949
1,281
40,211
44,457
7,931

83,380
1,062
38,525
43,793
7,403

2,570
220
1,686
664
528

58,864
534
58,329
4,697

8,673
2
24
8,649
824

14,157

13,661

5,869

4,668

1,201

7,792

7,595

197

67,537
2
558
66,978
5,521
496

330

166

Number of banks
n.a. Not available,
i Estimated.

NOTE.—All banks in the United States.

17. MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT, AND
RELATED ITEMS—END OF YEAR 1918-70 AND END OF MONTH 1970
(In millions of dollars)
Factors supplying reserve funds
F.R. Bank credit outstanding
Period

U.S. Govt. securities1

Total

Bought
outright

DisHeld counts
and
under
adrepurchase vances
agreements

Float

Other
All
F.R.
other assets

Gold
stock
Total

SDR
certif.
acct.

Treasury
currency
outstanding
6

1918
1919

239
300

1,766
2,215

199
201

294
575

2,498
3,292

2,873
2,707

1,795
" ,707

1920
1921
1922
1923
1924

287
234
436
134
540

287
234
436
80
536

2,687
1,144
618
723
320

119
40
78
27
52

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

,709
,842
,958
2,009
2,025

1925
1926
1927
1928
1929

375
315
617
228
511

367
312
560
197
488

643
637
582
1,056
632

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

1930
1931
1932
1933
1934

729
817
1,855
2,437
2,430

686
775
1,851
2,435
2,430

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

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

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

1940
1941.
1942
1943
1944

2,184 2,184
2,254 2,254
6,189 6,189
11,543 11,543
18,846 18,846

3
3
6
5
80

80
94
471
681
815

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

1945
1946
1947
1948
1949

24,262
23,350
22,559
23,333
18,885

249
163
85
223
78

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

1950
1951
1952
1953
1954

20,778
23,801
24,697
25,916
24,932

20,725
23,605
24,034
25,318
24,888

53
196
663
598
44

67
19
156
28
143

,368
,184
967
935
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

1955.
1956.
1957.
1958.
1959.

24,785
24,915
24,238
26,347
26,648

24,391
24,610
23,719
26,252
26,607

394
305
519
95
41

108
50
55
64
458

,585
,665
,424
,296
,590

29
70
66
49
75

26,507
26,699
25,784
27,755
28,771

21,690
21,949
22,781
20,534
19,456

5,008
5,066
5,146
5,234
5,311

1960.
1961.
1962.
1963.
1964.

27,384
28,881
30,820
33,593
37,044

26,984
28,722
30,478
33,582
36,506

400
159
342
11
538

33
130
38
63
186

1,847
2,300
2,903
600
606

74
51
110
162
94

29,338
31,362
33,871
36,418
39,930

17,767
16,889
15,978
15,513
15,388

5,398
5,585
5,567
5,578
5,405

1965.
1966.
1967.
1968.
1969.
1970.

40,768
44,316
49,150
52,937
57,154
62,142

40,478
43,655
48,980
52,937
1057,154
1062,142

290
661
170

137
173
141
186
183
335

,248
,495
,576

43,340
187
47,177
193
52,031
164
56,624
58
64 2,743 63,584
57 1,123 67,918

13,733
13,159
11,982
10,367
10,367
10,732

5,575
6,317
6,784
6,795
6,852
400 7,149

For notes see last two pages of table.

234

3,443
3,440
4,261

17.—CONTINUED

Factors absorbing reserve funds

Currency
in
circulation

Treasury
cash
hold-7
ings

Deposits, other
than member bank
reserves,
with F.R. Banks

Treas-

ury

Foreign

Other
F.R.
Other
F.R.
liaac- 4 bilities
counts
and 4
capital
Other 4

Member bank
reserves

With
F.R.
Banks

4,951
5,091

288
385

51
31

96
73

25
28

118
208

1,636
1,890

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
1,753
1,934
1,898
2,220

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

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

5,882
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

8,732
11,160
15,410
20,449
25,307

2,213
2,215
2,193
2,303

368
867
799
579
440

1,133

28,515
28,952
28,868
28,224
27,600

2,287
2,272
',336
,325
,312

977
393
870

27,741
29,206
30,433
30,781
30,509

,293
,270
,270
761
796

31,158
31,790
31,834
32,193
32,591

Currency
and
coin»

Required 9

Excess 9

1,585
1,822

51
68

1,654

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
1,961
2,509
2,729
4,096

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
6,606
7,027
8,724
11,653

2,743
4,622
5,815
5,519
6,444

2,844
1,984
1,212
3,205
5,209

1,360
1,204

599
586
485
356
394

284
291
256
339
402

14,026
12,450
13,117
12,886
14,373

7,411
9,365
11,129
11,650
12,748

6,615
3,085
1,988
1,236
1,625

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

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

767
775
761
683
391

394
441
481
358
504

402
322
356
272
345

554
426
246
391
694

925
901
998
1,122
841

19,005
19,059
19,034
18,504
18,174

310

18,903
19,089
19,091
18,574
18,619

102
-30
-57
-70
-135

32,869
33,918
35,338
37,692
39,619

377
422
380
361
612

485
465
597
880
820

217
279
247
171
229

533
320
393
291
321

941
1,044
1,007
1,065
1,036

17,081
17,387
17,454
17,049
18,086

2,544
2,823
3,262
4,099
4,151

18,988
20,114
20,071
20,677
21,663

637
96
645
471
574

42,056
44,663
47,226
50,961
r
53,950
57,093

760
,176
,344
695
'596
431

668
416

150
174
135
216
134
148

355
588
653
747
807
,233

211
-147
-773
-1,353

18,447
19,779
21,092
21,818
22,085
24,150

4,163
4,310
4,631
4,921
5,187
5,423

22,848
24,321
25,905
27,439
28,173
30,033

-238
-232
-182
-700
-901
-460

2,375

1,123

703
1,312
1,156

774
793

1,919
1,986

For notes see last two pages of table.

235

17. MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT, AND RELATED
ITEMS—END OF YEAR 1918-70 AND END OF MONTH 1970—CONTINUED
(In millions of dollars)

Factors supplying reserve funds
F.R. Bank credit outstanding

Period

1970—
Jan
Feb
Mar
Apr
May....
June....
July
Aug
Sept.. . .
Oct
Nov
Dec

U.S. Govt. securities i

Total

Bought
outright

55,739
55,823
55,785
56,542
57,307
57,714
58,597
59,978
60,055
60,103
61,294
62,142

1155,517
55,823
1055,785
1056,162
57,307
1057,714
58,597
1059,618
1059,600
1059,528
1061,008
1062,142

DisHeld counts
under
and
repuradchase vances
agreements

222
380

360
455
575
286

1,565
1,148
684
545
1,451
420
1,292
538
852
428
300
335

All

Float

other

Other
F.R.
assets

Total

Gold
stock
5

SDR
certif.
acct.

2,544
2,568
2,827
3,536
2,883
2,562
2,485
1,510
2,313
2,956
1,987
4,261

83 ,929 61,860 11,367
56 ,977 61,572 11,367
52 2,139 61,487 11,367
106 >,239 62,968 11,367
42 ,184 62,867 11,367
32 1,556 62,284 11,367
37 ,343 63,754 11,367
63 ,124 63,213 11,367
87 ,678 64,985 11,117
73 ,591 65,151 11,117
87
928 64,596 11,117
57 ,123 67,918 10,732

Treasury
currency
outstanding

200
300
400
400
400
400
400
400
400
400
400
400

6,859
6,881
6,911
6,944
6,970
6,986
7,011
7,045
7,074
7,104
7,126
7,149

1 U.S. Govt. securities include Federal agency obligations.
2
Beginning with 1960 reflects a minor change in concept; see Feb. 1961 Federal Reserve Bulletin,
p. 3164.
Principally acceptances and industrial loans; authority for industrial loans expired Aug. 21, 1959.
4 The total of F.R. Bank capital paid in, surplus, other capital accounts, and other liabilities and
accrued dividends, less the sum of bank premises and other assets. Beginning Apr. 16, 1969, "Other
F.R. assets," and "Other F.R. liabilities and capital" are shown separately; formerly, they were netted
together and reported as "Other F.R. accounts."
5 Before Jan. 30, 1934, included gold held by F.R. 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, F.R. 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
the7 Treasury and the F.R. Banks as well as that in circulation.
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

236

17.—CONTINUED

Factors absorbing reserve funds

Currency
in
circulation

51,901
52,032
52,701
53,034
53,665
54,351
54,473
54,669
54,792
55,021
56,381
57,093

Deposits, other
than member bank
reserves,
with F.R. Banks
Treasury
cash
hold-7
ings

617
580
566
546
512
439
462
468
447
462
453
431

Treasury

,127
915
,192
,784
,198
,005
,200
1,056
1,238
920
587
1,156

Foreign

152
313
200
204
128
168
199
173
136
142
136
148

Other
F.R.
accounts 4
Other 4

692
776
839
825
788
806
782
750
725
739
692
1,233

Other
F.R.
liabilities
and 4
capital

2,163
2,156
2,172
2,204
2,271
2,275
2,343
2,352
2,301
2,277
2,302
1,986

Member bank
reserves

With
F.R.
Banks

Currency
and
coins

Required 9

Excess 9

23,637
23,344
22,495
23,082
23,041
21,991
23,072
22,557
23,938
24,206
22,689
24,150

5,055
4,824
4,706
4,901
4,898
4,999
5,081
5,017
5,333
5,182
5,220
5,423

28,203
27,266
27,469
28,242
27,432
27,554
27,956
28,181
28,762
28,338
28,462
30,033

489
902
-268
-259
507
-564
197
-607
509
1,050
-553
-460

silver certificates and Treasury notes of 1890, and the following coin and paper currency heid in the
Treasury: subsidiary silver and minor coin, United States notes, F.R. notes, F.R. Bank notes, and
national bank notes.
8 Part allowed as reserves Dec. 1, 1959-Nov. 23, i960; all allowed thereafter. Beginning with Jan.
1963, figures are estimated. Beginning Sept. 12, 1968, amount is based on close-of-business figures for
reserve period 2 weeks previous to report date.
9 These figures are estimated through 1958. Before 1929 available only on call dates (in 1920 and 1922,
the call dates were Dec. 29). Beginning Sept. 12, 1968, amount is based on close-of-business figures for
reserve
period 2 weeks previous to report date.
1
o Includes securities loaned—fully secured by U.S. Govt. securities pledged with F.R. Banks.
1
*• Includes securities sold, and scheduled to be bought back, under matched sale/purchase transactions.
NOTE.—For description of figures and discussion of their significance, see "Member Bank Reserves
and Related Items," Section 10 of Supplement to Banking and Monetary Statistics, Jan. 1962.

237

18. CHANGES IN NUMBER OF BANKING OFFICES IN THE
UNITED STATES DURING 1970 1

Commercial banks (incl. stock savings
banks and nondeposit trust companies)
Type of office
and change

All
banks

Member

Nonmember

Total
National i

Total

Number of banks,
Dec. 31, 1969

14,158

13,662

5,871

4,669

Mutual
savings
banks

Insured

State

1,202

7,595

Noninsured

Insured

196

330

166

Changes during 1970
New banks 2
Suspensions
Consolidations and absorptions :
Banks converted into
branches
Other
Voluntary liquidations 3
Interclass changes:
Nonmember to
national
State member to—
National . . . .
Nonmember
National to
Nonmember
Noninsured to insured
.
....
Net change

186
-1

185
-1

-129
-25
-8

-127
-23
-8

48
1

-68
-10

40
-1

130

-53
-7

-15
-3

-58
-11
4

-2
4

5
7

— 38
— 39

-2

•

-5
-7
-38

38
39

— 39

-103

-48

-55

11
140

-11
-11

14,181

13,688

5,768

4,621

1,147

7,735

185

328

165

Number of branches and
additional offices,
Dec. 31, 19694
21,196 20,208

15,204

11,727

3,477

4,957

810

178

3
1
-3

85
2
-4

-2

Number of banks
Dec. 31, 1970

Changes during 1970
Dc novo
Banks converted
Discontinued 4
Interclass changes:
Nonmember to—
National
State member to—
National
Nonmember
National to—
State member
Nonmember
Other
Facilities reclassifled as
branches

1,493
129
-80

1,395
127
-76

937
99
-56

735
79
-34

50
12

202
20
-22

455
27
-17

-50
-12

-38
-14

— 14

-15

— 46
1

-15
— 46
-2

1,531

1,435

987

Number of branches and
additional offices,
Dec. 31, 19704
22,727

21,643

Net change

For notes see end of table.

238

46
-16

809

178

447

16,191 12,536

3,655

5,404

891

193

18.—CONTINUED
Commercial b a n k s (incl. stock savings
banks and nondeposit trust companies)

Type of office
and change

Member

All
banks

Total

National 1

Total

Number of banking facilities Dec. 31, 19695

223

189

111

Nonmember

State

Insured

Noninsured

Mutual
savings
banks

Insured

Noninsured

Changes during 1970

Established
Discontinued
Facilities reclassified as
branches .
.

3
-3
-4

-4

Net change

—5

—4

—3

Number of banking facilities, Dec. 3 1 , 1970

219

186

174

3
_2
A

3
-2
-4

1
Includes a national bank (7 branches) in the Virgin Islands; other banks or branches located in the
possessions
are excluded.
2
Exclusive
of new banks organized to succeed operating banks.
3
Exclusive
of liquidations incident to succession, conversion, and absorption of banks.
4
Excludes
banking
facilities.
5
Provided at military and other Government establishments through arrangements made by the
Treasury.

239

19. NUMBER OF PAR AND NONPAR BANKING OFFICES,
BY FEDERAL RESERVE DISTRICT, DECEMBER 31, 1970
Par

Total

F.R. district

Total

Member

Nonmember

Nonpar
(nonmember)

Branches
Branches
Branches
Branches
Banks Branches
& offices Banks & offices Banks & offices Banks & offices Banks & offices
DISTRICT
1,604
3,470
1,564

376
476
456

1,604
3,470
1,564

231
352
321

1,186
3,064
1,127

145
124
135

418
406
437

794
733
1,652

1,966
794
2,996
694
1,428 1,531

1,966
2,973
1,360

470
361
546

1,626
1,839
920

324
333
985

340
1,134
440

39
121

23
68

2,563
1,511
1,365

2,326 2,563
865 1,407
281 1,187

2,326
848
226

943
459
489

1,528 1,620
465
948
131
698

798
383
95

104
178

17
55

1,952
Kansas
Dallas
1,333
San Francisco.
390

284 1,952
248 1,274
4,816
390

284
233
4,816

807
635
155

181 1,145
128
639
4,032
235

103
105 " " 59
784

21,670 5,768

16,227 7,331

Boston
New Y o r k . . . .
Philadelphia...

376
476
456

Cleveland
Richmond....
Atlanta
Chicago
St. Louis
Minneapolis...

Total

13,600

21,848 13,099

5,443

501

178

20. NUMBER OF PAR AND NONPAR BANKING OFFICES,
BY STATE AND OTHER AREA, DECEMBER 31, 1970
Par

Total
State, or
other area

Total

Member

Nonmember

Nonpar
(nonmember)

Branches
Branches
Branches
Branches
Banks Branches
& offices Banks & offices Banks & offices Banks & offices Banks & offices
STATE
Alabama, . . . .
Alaska
Arizona
Arkansas
California
Colorado
Connecticut. .
Delaware
District of
Columbia. ,.
Florida
Georgia
Hawaii'
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine

272
12
249
144
227
58
18

272
62
325
164
3,034
18
436
86

14
495

441
7
24
1,106
406
»
665
601
343
231
39

For notes see end of table.

240

211
12
181
144
227
58
18

258
62
325
154
3,034
18
436
86

109
5
4
81
69
139
30
7

206
55
238
102
2,696
15
339
42

102
6
8
100
75
88
28
11

52
7
87
52
338
3
97
44

14
105
495
33
292
441
142
7
156
24
98 1,106
633
406
319
665
69
601
328
343
394
137
226
39

105
33
292
142
156
98
633
319
69
328
326
226

12
224
72
1
13
492
185
149
203
94
59
25

98
13

2
271

7
20

205
9
137
67
403
82
41
196
219
167

369
6
11
614
221
516
398
249
78
14

87
133
19
31
230
237
28
132
107 " " 9 4
59

20.—CONTINUED

Par
Nonpar
(nonmember)

State, or
other area

Total

Member

Nonmember

Banks Branches Banks Branches Banks Branches Banks Branches Banks Branches
& offices
& offices
& offices
& offices
& offices
STATE—
Cont.
Maryland
Massachusetts.
Michigan
Minnesota....
Mississippi....
Missouri
Montana.
Nebraska
Nevada
New Hampshire

115
162
330
728
182
668
139
437
8
73

New Jersey....
New Mexico. .
New Y o r k . . . .
North
Carolina....
North
Dakota
Ohio
Oklahoma....
Oregon
Pennsylvania..
Rhode Island..

215
66
305

1,015
129
2 437

215
66
305

1,015
129
2 437

1,123

1,103

168
516
433
49
467
13

71
1 300
59
336
1,726
170

77
516
433
49
467
13

38
1 300
59
336
1,726
170

South
Carolina....
South Dakota.
Tennessee
Texas
Utah
Vermont
Virginia
Washington.. .
West Virginia..
Wisconsin....
Wyoming

102
161
307
1,191
48
42
233
90
200
605
70

415
85
74
98
266
490
74 1 171
139
48
86
42
233
824
556
90
5
200
271
605
2
70

412
76
482
74
139
86
824
556
5
271
2

180

525
744
1,209
11
348
93
41
86

115
162
330
728
182
668
139
437
8

525
744
1,209
11
348
93
41
86

49
101
204
223
44
169
90
136
5

328
586
995
6
157
41
4
25
75

66
61
126
505
138
499
49
301
3

162
39
245

884
78
2 300

53
27
60

131
51
i 137

556

547

46
337
222
10
322
5

14
1 090
45
251
1,289
93

31
179
211
39
145
8

24
210
14
85
437
77

25
58
90
581
16
26
143
33
120
167
54

244
62
312
26
106
49
611
484
2
85
1

60
16
176
590
32
16
90
57
80
438
16

168
14
170
48
33
37
213
72
3
186
1

17
87
41
20

3
22
8

161

197
158
214
191
52
1
16
11

OTHER
AREA
Puerto Rico 2..
Virgin
Islands 2

Includes 14 New York City branches of 3 insured nonmember Puerto Rican banks.
Puerto Rico and the Virgin Islands assigned to the New York District for check clearing and collection purposes. All member branches in Puerto Rico and all except 8 in the Virgin Islands are branches
of New York City banks. Certain branches of Canadian banks (2 in Puerto Rico and 1 in the Virgin
Islands) are included above as nonmember banks; and nonmember branches in Puerto Rico include
8 other branches of Canadian banks.
2

KS are drawn, including 219 banking
19 because this table includes banks
*• companies on which no checks are

241

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 1970

CONTENTS

APPLICANT BANK

OTHER BANK

Page

American Bank and Trust Company,
Lansing, Mich.

National Bank of Eaton Rapids,
Eaton Rapids, Mich.

280

Bank of Delaware, Wilmington, Del.

Millsboro Trust Company, Millsboro, Del.

272
255

Bank of New Jersey, Camden, N.J.

[Garden State Bank, Cinnaminson, N.J.
jTradesmens B a n k a n d Trust C o m .
pany of Vineland, Vineland,
N.J.

Bank of New Orleans and Trust Company, New Orleans, La.

Bank and Trust Company of
Greater New Orleans, New
Orleans, La.

262

Bankers Trust Company of Rochester, Rochester, N.Y.

Central Trust Company, Rochester, N.Y.

257

Bordentown Banking Company, Bordentown Township, N.J.

First National Bank in New Egypt,
New Egypt, N.J.

271

Georgia Railroad Bank & Trust Company, Augusta, Ga.

[Richmond County Bank, Augusta,
I Ga.
I Metropolitan State Bank, Au[ gusta, Ga.

2 52

279

Girard Trust Bank, Philadelphia, Pa.

City Bank of Philadelphia, Philadelphia, Pa.

270

Grace Street Bank, Richmond, Va.

Southern Bank and Trust Company, Richmond, Va.

260

Houston Bank & Trust Company,
Houston, Tex.

Citizens Bank, Houston, Tex.

275

Isabella County State Bank, Mount
Pleasant, Mich.

Weidman State Bank, Weidman,
Mich.

266

[Bank of Westbury Trust Comj P a n y ' W e s t b u r y , N.Y.
Seaside Bank, Westhampton
1 Beach, N.Y.

277

Long Island Trust Company, Garden
City, N.Y.

242

282

21.—CONTINUED

CONTENTS—Continued

APPLICANT BANK

Page

OTHER BANK

Marine Midland Grace Trust Company of New York, New York,
N.Y.

Community
N.Y.

Lynbrook,

268

Marine Midland Trust Company of
Central New York, Syracuse, N.Y.

Marine Midland Trust of the Mohawk Valley, Utica, N.Y.

284

New Citizens Bank, Poquoson, Va.

Citizens Bank of Poquoson, Poquoson, Va.

283

Peoples-Liberty Bank and Trust Company, Covington, Ky.

Bank of Independence, Independence, Ky.

245

Fort Lee Trust Company, Fort
Lee, N.J.

248

Peoples National Bank of Hackettstown, Hackettstown, N.J.

263

Sayings & Trust Company of Indiana,
Indiana, Pa.

Farmers* & Miners' Trust Company, Punxsutawney, Pa.

247

Seattle Trust and Savings Bank, Seattle, Wash.

Cle Elum State Bank, Cle Elum,
Wash.

244

Security Trust Company of Rochester,
Rochester, N.Y.

Cohocton State Bank, Cohocton,
N.Y.

273

Severn Bank and Trust Company,
Annapolis, Md.

Annapolis Banking and Trust Company, Annapolis, Md.

267

Union Bank, Los Angeles, Calif.

Commonwealth National
San Francisco, Calif.

Bank,

260

Union Bank and Savings Company,
Bellevue, Ohio

Farmers and Citizens Banking
Company, Monroeville, Ohio

251

Union Bank and Trust Company, Ottumwa, Iowa

Union State Bank, Richland, Iowa

265

Union Trust Company of Maryland,
Baltimore, Md.

Metropolitan National Bank of
Maryland, Wheaton, Md.

274

Peoples Trust of New Jersey, Hackensack, N.J.

Bank,

243

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 19701—CONTINUED
Name of bank, and type of transaction2
(in chronological order of determination)

No. 1—Seattle Trust and Savings Bank,
Seattle, Wash.,
to merge with
Cle Elum State Bank,
Cle Elum, Wash.

Resources
(in millions
of dollars)

Banking offices
In
operation

159.0

5.0

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL (12-3-69)

The closest office of Seattle Trust, at Crossroads, is approximately 75
miles from Cle Elum. Therefore, the merger would not appear to eliminate
any significant degree of existing competition between the 2 banks.
Washington law prevents any banks from establishing a de novo branch
in any additional city or town where any other bank regularly transacts
business (although it does permit statewide expansion by acquisition,
merger, or branching into towns without banks). Accordingly, the only way
in which Seattle Trust might enter Cle Elum or Roslyn is by means of a
merger with an existing bank. However, Seattle Trust might be able to open
an office in one of the smaller communities in the Cle Elum area which
does not presently have a banking office and thus become a direct competitor of State Bank.
As of June 1968, State Bank was the smaller of 2 banks operating, in Cle
Elum, and the other bank is a branch of the largest bank in the State. State
Bank is also the fourth largest of 5 banks in Kittitas County. Three statewide banks dominate the county.
Seattle Trust is the ninth largest commercial bank headquartered in the
State of Washington. Therefore, although it is a likely potential entrant into
the Cle Elum area, 7 larger banks, several many times its size, are also
potential entrants into that area; and 5 larger banks are potential entrants
into Kittitas County as a whole. Hence, the over-all competitive effect of
this merger is not likely to be adverse.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-7-70)

Seattle Trust operates 18 offices, 15 of which are in the metropolitan
Seattle area and 3 in the Olympia area, about 60 miles southwest of Seattle.
State Bank operates its head office in Cle Elum and 1 branch in Roslyn, 4
miles from Cle Elum. Cle Elum is situated about 80 miles southeast of
Seattle. The economy of Cle Elum (population 1,800) is dependent primarily on the lumber industry and recreation. Roslyn, the site of State Bank's
only branch, has a population of 1,200.
For notes see p. 285.

244

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

The nearest offices of the 2 banks involved in this proposal are 75 miles
apart, and there would appear to be no competition existing between them.
Under Washington law, a bank could establish a de novo branch outside
of the county in which it is headquartered only in incorporated but unbanked communities. There is only one incorporated but unbanked community in State Bank's service area, and this community has a population
of about 400; thus, the possibility of Seattle Bank entering State Bank's
service area through de novo branching seems remote.
The only other banking facility in State Bank's service area is the Cle
Elum branch of Seattle First National Bank, the largest bank in the State.
Other banking facilities are 25 or more miles from offices of State Bank.
Consummation of the proposed merger would enhance the convenience
and needs of the Cle Elum area with no adverse competitive effects.
No. 2—The Peoples-Liberty Bank and Trust
Company,

40.5

Covington, Ky.,
to merge with
Bank of Independence,

Independence, Ky.

5.8

SUMMARY REPORT BY THE ATTORNEY GENERAL (11-26-69)

The closest offices of these 2 banks are only about 9 miles apart. However, Bank of Independence is located in a valley with few good access
roads. The application states that each bank derives only a small percentage
of its deposits and loans from the service area of the other. However,
Peoples-Liberty has authority to establish a branch office only 2 miles from
Independence. This branch would offer substantial competition to Bank of
Independence.
On June 30, 1968, 8 banks operated 16 banking offices in Kenton County
(1960 population 120,700). Peoples-Liberty had about 34 per cent of the
total county commercial bank deposits; Bank of Independence had about 4.5
per cent of such deposits.
Thus, as a result of this merger Peoples-Liberty's share of the commercial
banking deposits in Kenton County will be increased to 38.5 per cent. This
represents a substantial increase in an already concentrated banking market.
Thus the proposed merger would have an adverse effect on competition.
For notes see p. 285.

245

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-13-70)

All of the offices of both of the banks are in Kenton County, Kentucky
(population about 127,000), a part of the Cincinnati, Ohio, metropolitan
area. Covington, the location of Peoples Bank's head office and 2 branches,
has a population of about 60,000 and is situated directly across the Ohio
River from Cincinnati. The bank's other branch is southwest of Covington,
in Elsmere, near the boundary between Kenton and Boone Counties.
Independence, the location of the main office of Bank of Independence
(hereinafter Independence Bank), has a population of about 500 and is
situated about MVi miles south of Covington. The bank's only branch is at
Taylor Mill, a community 3 miles northeast of Independence.
Between the nearest offices of Peoples Bank and Independence Bank are
offices of other banks, including 2 branches of The First National Bank of
Covington, which is second in size to Peoples Bank in the 3-county area.
There is little, if any, direct competition existing between Peoples Bank and
Independence Bank. Under Kentucky law, a bank may establish de novo
branches only within the county in which its head office is located, except
that it may not establish a branch in a community where another bank has
its main office.
In terms of deposits, Peoples Bank is the largest of the 23 banks located
in the 3 northern Kentucky counties of Kenton, Boone, and Campbell.
Consummation of the proposal would increase Peoples Bank's share of the
total deposits of these banks from about 18 per cent to 21 per cent. The 3
northern Kentucky counties are within the Cincinnati metropolitan area.
Cincinnati has been a predominating influence with respect to the 3 counties, due not only to its proximity but to its labor opportunities. Approximately 60 per cent of the employable work force in the northern Kentucky
area is said to commute to Cincinnati. Definite interaction occurs between
banks in Cincinnati and banks in the 3 northern Kentucky counties, and
the Cincinnati banks provide important competition to the banks headquartered in the counties. If the 5 Cincinnati banks with deposits ranging
from $78 million to $582 million were combined with the 23 banks located
within the 3 northern Kentucky counties, the bank resulting from the proposed merger would have only about 2 per cent of the total deposits held
by the 28 institutions.
The proposed merger would benefit the present and expected banking
needs and convenience in the area served by Independence Bank. In the
Board's judgment, these benefits would offset the slightly adverse effect of
the proposal on banking competition.
For notes see p. 285.

246

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

No. 3—The Savings & Trust Company of
Indiana, Indiana, Pa.,
to merge with
Farmers' & Miners' Trust Company,

Punxsutawney, Pa.

Resources
(in millions
of dollars)

Banking offices
In
operation

33.7

22.2

To be
operated

i
4

SUMMARY REPORT BY THE ATTORNEY GENERAL (11-26-69)

The main offices of the merging banks, which are their closest offices,
are approximately 28 miles apart. Three competitive banks operate in
Indiana and 1 competitive bank operates in Punxsutawney; 2 other small
banks are located in the intervening area. The merging banks hold only
minor amounts of deposits originating in each other's service area. The
proposed merger would therefore not appear to eliminate any significant
direct competition.
Pennsylvania law permits a bank to branch de novo in its home county
and in contiguous counties. While there are other substantially larger
potential entrants into Indiana County, Savings is one of the larger banks
legally eligible to enter Jefferson County. The proposed merger would eliminate the possibility of potential competition between the banks should
Savings follow this course.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-16-70)

Indiana Bank operates its main office and a suburban branch at Indiana
(estimated population 14,000) and a branch at Saltsburg, 21 miles to the
southwest. Punxsutawney Bank's sole office in Punxsutawney (estimated
population 8,800) is 28 miles north of Indiana Bank's main office, which
is the latter institution's nearest office to Punxsutawney. While there is no
meaningful competition between the 2 banks, there is some potential for
the development of increased competition between them. However, it does
not appear likely that de novo offices would be established in the foreseeable future because of the present sufficiency of banking offices in the areas
in relation to the number of industries and inhabitants of the respective
communities. The proposed acquisition would not have significant adverse
effects on banking competition in the area presently served by either bank.
Broader banking services would be available at the Punxsutawney office of
the resulting bank, and the merger would furnish needed depth to management, which would also benefit the community.
For notes see p. 285.

247

No. A—Peoples Trust of New Jersey,

Hackensack, N.J.,
to merge with
Fort Lee Trust Company,

Fort Lee, N.J.

Resources
(in millions
of dollars)

Banking offices
In
operation

557.7

33.9

To be
operated
)
23

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-20-69)

Peoples Trust, which operates 4 offices in Hackensack and an additional
15 branches throughout Bergen County, is by far the largest bank in Bergen
County and is the fourth largest bank in the newly created First Banking
District, covering Bergen, Essex, Sussex, Hudson, Morris, Passaic, and
Warren Counties in northern New Jersey.
Fort Lee Trust is 1 of only 2 banks in Fort Lee. The closest branches
of Peoples Trust to Fort Lee Trust are located in the adjacent communities
of Englewood Cliffs and South Englewood, some 2.3 and 2.6 miles, respectively, from Fort Lee. Nine additional offices of Peoples Trust lie within 6
miles of Fort Lee (4 in Hackensack and 1 each in Englewood, Teaneck,
South Hackensack, Hasbruck Heights, and Lodi). While several intervening
banks lie between Peoples Trust's offices in Hackensack and Fort Lee Trust,
only 1 other banking office separates the South Englewood and Englewood
Cliffs offices of Peoples Trust from Fort Lee Trust. Both of these offices,
plus several other offices of Peoples Trust, derive a substantial amount of
deposit and loan business from the Fort Lee area. It is clear, therefore, that
the proposed transaction will eliminate direct competition between the merging banks in an important and growing market.
As of June 30, 1968, the 5 largest of the 26 commercial banks operating
in Bergen County controlled nearly 72 per cent of that county's IPC 3 demand deposits and nearly 70 per cent of total county commercial
bank
deposits. Peoples Trust, with about 30 per cent of county IPC 3 demand
deposits and 27.5 per cent of county total deposits is by far the largest
bank in Bergen County. Fort 3Lee Trust, as of the same date, held about 1.5
per cent of both county IPC demand deposits and total deposits, and no
doubt had a higher proportion of deposits in Fort Lee and the immediately
adjacent communities.
The resulting bank would thus control about 31.5 per
cent of county IPC 3 demand deposits and 29 per cent of total deposits in
Bergen County.
Hence, the proposed merger will have the serious effects of eliminating
direct competition, increasing concentration in a highly concentrated market,
and further entrenching the dominant position now held by Peoples Trust in
Bergen County. For these reasons, we conclude that the proposed merger
will have a significantly adverse effect on competition in Bergen County.
For notes see p. 285.

248

21. CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-19-70)

Except for 2 recently opened branches of Peoples Trust (in Essex and
Morris Counties) all of Peoples Trust's 21 offices and both offices of Fort
Lee Bank are in Bergen County. Peoples Trust has 1 branch within 2.3
miles of Fort Lee and 4 other branches within 4 miles. The only other
banking office in Fort Lee is the single office of First National Bank, an
institution with $29 million in deposits. Application for a State charter for
a new bank to be headquartered in Fort Lee is pending. The home-officeprotection feature of State law precludes Peoples Trust from entering Fort
Lee by de novo branching. However, the bank derives some business from
the community, and the proposed merger would eliminate competition between the 2 banks. The success of Peoples Trust in generating business in
Fort Lee must be attributed in no small part, however, to the lack of competitive effort by Fort Lee Bank and its failure to provide a reasonable
range of banking services. For example, Fort Lee Bank has only three trust
accounts, and its lending, particularly consumer lending, is confined generally to present depositors. Although located in an important residential
area, nearly 15 per cent of loans consist of loans to brokers and only 2 per
cent of portfolio is devoted to consumer instalment loans. It is noteworthy
in assessing competitive effects of the proposal that about three-fourths of
the working population of Fort Lee commutes to New York City and thus
has many convenient banking options.
Peoples Trust is the largest of 25 commercial banks operating in Bergen
County, holding 27.4 per cent of commercial bank deposits. The 5 largest
banks in the county hold 69.8 per cent. Fort Lee Bank ranks 10th, with
1.7 per cent of county commercial bank deposits. The concentration of
banking resources in the county is somewhat high, but the significance of
this is reduced markedly, in the Board's judgment, by the recent changes in
New Jersey law. These modified somewhat the home-office-protection features with respect to branching and removed the previous restriction upon
branching across the county line, permitting instead de novo branching in
the banking district in which a bank is headquartered, subject to certain
home-office and branch-protection features.
Both subject banks are situated in the First Banking District, comprised
of 7 counties, including Bergen and Passaic. There are 7 banks in Passaic
County and over 50 banks in the other 5 counties which, together with
Bergen County, make up the First Banking District. Many of these banks
are large and aggressive enough to be likely potential entrants into Bergen
County by de novo branching, and some such applications have been
approved; others are pending.
In view of the economic nexus of Bergen and Passaic Counties and in
the light of changes in branching law in New Jersey, the Board concludes
these 2 counties form the most realistic market for gauging the competitive
For notes see p. 285.

249

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 1970 *—CONTINUED
Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

effects of the proposal. Peoples Trust, with 16.6 per cent of deposits, is the
largest of 32 commercial banks in the market; Fort Lee Bank holds about 1
per cent of deposits and ranks 16th. The 5 largest banks in the market hold
61 per cent of total commercial bank deposits. The effect of the merger
would be adverse, but not substantially adverse.
Except for capital, banking factors at Peoples Trust are generally satisfactory; the bank is fully capable of increasing its capital and is expected to
do so in the near future.
The banking factors at Fort Lee Bank are reasonably satisfactory except
for the bank's serious management succession problem, the resolution of
which is made exceedingly difficult by wrangling among stockholders. The
bank has been plagued for several years by stockholder dissension, which
has resulted in proxy fights and litigation. The attendant publicity has been
harmful to the bank, particularly with respect to hiring and retaining able
management personnel. The bank has had four chief executives since
January 1964, and the incumbent president accepted the post temporarily
in 1966; he has done a creditable job in trying circumstances but is 72
years old and will resign if the merger is not approved.
Both the Federal Reserve and the State banking authorities have endeavored to impress on the directors of Fort Lee Bank the need for resolving the bank's problems. The Board concludes that, because of the dissension surrounding Fort Lee Bank, it is extremely unlikely that a capable
chief executive officer could be hired and retained; further, if the merger
proposal were disapproved, stockholder dissension and revival of pending
litigation would make meaningful merger negotiation with other banks
virtually impossible. In the Board's judgment, the effect on competition
would be adverse, but this effect would be offset by the effect of the transaction in resolving the management problem at Fort Lee Bank, a problem
that the Board regards as serious and, in the light of the history of stockholder dissension, a problem that cannot readily be resolved except through
merger. Although there are a number of banks in the First Banking District with which Fort Lee Bank might merge with little or no adverse effects
on competition, the Board believes the prospects for agreement on such a
merger in the near future are poor.
For notes see p. 285.

250

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

No. 5—The Union Bank and Savings Company,
Bellevue, Ohio,
to acquire the assets and assume
the deposit liabilities of
The Farmers and Citizens Banking
Company,

Resources
(in millions
of dollars)

Banking offices
In
operation

24.0

6.3

To be
operated

Monroeville, Ohio

SUMMARY REPORT BY THE ATTORNEY GENERAL (12-15-69)

Union Bank is the largest of 2 banks in Bellevue. Farmers Bank, the
only bank in Monroeville, is located 9 miles east of Union Bank. There
are no banks in the area between Bellevue and Monroeville. The merger
would therefore remove substantial direct competition between Union Bank
and Farmers Bank.
Eight banks operate in Huron County—the 3 largest banks held 58 per
cent of deposits in county banking offices on June 30, 1968. Union Bank,
the third largest bank in Huron County, held 16.3 per cent of county
deposits, and Farmers Bank, the smallest bank in Huron County, held 4.2
per cent of county deposits. The resulting bank would hold 20.5 per cent
of county deposits and would rank second among banks in the county.
This would be a substantial increase in concentration of banking in Huron
County. We, therefore, conclude that the proposed merger would have an
adverse effect upon competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-19-70)

The Union Bank and Savings Company (hereinafter Union Bank) proposes to acquire the assets and assume the liabilities of The Farmers and
Citizens Banking Company (hereinafter Farmers Bank) and to operate its
sole office as a branch. Union Bank is situated in Bellevue, Ohio, a town
of about 9,400, located 65 miles west of Cleveland in the north-central part
For notes see p. 285.

251

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 1970 *— CONTINUED
Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

of the State. Monroeville, site of Farmers Bank's only office, is located 9
miles east of Bellevue and is linked to the latter by a good highway. Monroeville has a population of about 1,400, which amount represents virtually
no growth over the 1960 figure.
Union Bank and Farmers Bank draw the preponderance of their business
from different areas, but there is some competition between them. Although
Ohio law permits countywide de novo branching, the potential for greater
competition between the 2 banks is limited by the small size of Farmers
Bank and of the community it serves.
Six banks operate 12 offices in the combined service areas of Union Bank
and Farmers Bank. Union Bank, with 21 per cent of the deposits, ranks
second in size among these banks; Farmers Bank, with about 6 per cent of
the deposits, is the smallest. The largest bank in the area holds about 30
per cent of the deposits. Union Bank, with 16 per cent of the deposits, ranks
third in size among the 8 banks that operate in Huron County; Farmers
Bank, with 4.4 per cent of the deposits, is the smallest bank in the county.
Following the acquisition of Farmers Bank, Union Bank would be the
second largest bank in the county in terms of deposits; the largest bank in
the county holds 23.7 per cent of the deposits, and the bank presently
ranking second holds 17.4 per cent of the deposits.
In the judgment of the Board, the proposed transaction would have only
a slightly adverse effect on competition, which would be offset by the benefit
to the banking convenience of the Monroeville community.

No. 6—The Bank of New Jersey,
Camden, N.J.,
to merge with
The Tradesmens Bank and Trust
Company of Vineland,

282.0

36.0

Vineland, N J .

SUMMARY REPORT BY THE ATTORNEY GENERAL (11-26-69)

No significant competition presently exists between the banks proposing
to merge, primarily because of the geographic distance between them.
Camden Trust's [The Bank of New Jersey] opportunities for de novo entry
into Cumberland County appear somewhat limited, but it is also a source of
potential competition through acquisition of one of the county's smaller banks.
For notes see p. 285.

252

21.—CONTINUED

Name of bank, and type of transaction 2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

Merger with one of the smaller banks in the county could increase the
level of competition therein as well as afford Camden Trust the entry it
seeks. We note that each of the 3 smallest county banks operates an office
in one of the county's three large cities, the county's most desirable local
banking markets. Camden Trust is clearly a powerful potential competitor
in whatever market it seeks to enter; should it be permitted to acquire a
substantial bank with a leading share of local deposits, such as Tradesmens
Bank, there would be a likelihood of permanent entrenchment of its position
as one of the area's dominant banks. This undesirable effect is more probable where State branch-banking law offers protection against de novo
entry by outside banking institutions, thereby reducing still further the
possibility that market forces will lead to deconcentration and increased
competition for entrenched, leading banks in a market. Thus, it is particularly important that leading potential entrants such as Camden Trust enter
by acquiring one of the smaller banks in the county, rather than the larger
ones, and thereby offer potential new competition to the county's largest
and ablest banks.
Acquisition of Tradesmens Bank by Camden Trust could also adversely
affect potential competition in the Third Banking District generally. Under
the new banking laws, with their greatly broadened sphere of permissible
branching activity, the largest banks in the district are in a position to
substantially increase their share of its banking markets. Camden Trust, the
largest of some 74 commercial banks operating in the district, controls
about 11 per cent of total deposits in district commercial banks. The 5
largest of these banks control about 42 per cent of such deposits. Major
merger activity by the largest banks could significantly increase this percentage and possibly result in dominance of district commercial banking
by a few very large institutions, whose development would preempt the
growth of a larger number of able, districtwide competitors. Such an
entrenched market structure, once achieved, would tend to be self-perpetuating, particularly in the context of continued home- and branch-office
protection.
Acquisition of substantial independent banks with leading shares of their
local markets would give undue impetus to the development of such a
market structure (i) by eliminating banks most able to compete with the
district's largest banks in these local markets; and (ii) by eliminating the
possibility that these leading local banks might become primary components
of new banking organizations capable of competing with the district's
largest banks for both large and small customers, either through affiliation
with one another or with bank holding companies controlling banks in other
districts. Thus, Camden Trust's acquisition of Tradesmens Bank (the 12th
largest bank in the Third District) would eliminate the latter as a possible
For notes see p. 285.

25?

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

major participant in a banking institution capable of competing with Camden
Trust and the other largest Third District banks in Vineland and Cumberland County, and other relevant local markets in the Third District. Such
elimination is, as already noted, particularly undesirable in the context of
continued home- and branch-office protection against de novo entry.
The proposed merger would eliminate Camden Trust, the leading commercial bank in the Third District, as one of the most probable potential
entrants into Vineland and Cumberland County through acquisition of a
smaller bank, thereby enabling it to challenge (rather than entrench)
Tradesmens' leading position in these markets. In addition, Tradesmens
Bank would be eliminated as a potential major element in a medium-sized
bank competing generally in the Third District. For these reasons, we conclude that the proposed merger would have an adverse effect on potential
competition in Vineland, Cumberland County, and the Third District
generally.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (2-26-70)

Camden Bank operates 21 offices in Camden County and has received
approval to establish 4 additional branches, 2 in Camden County and 2 in
contiguous Gloucester County (all in the Philadelphia Standard Metropolitan Statistical Area). Vineland Bank operates its head office and 2 branches
in Vineland (population 47,000), which is in Cumberland County and
about 30 miles south of Camden. Vineland Bank has received approval to
establish 2 additional branches, 1 in Vineland and 1 in Hammonton, about
15 miles northeast of Vineland. The nearest offices of the 2 banks are 25
miles apart, and once the branch office in Hammonton is established the
banks' nearest offices would be about 13 miles apart.
While the influence of Camden Bank, one of the largest area banks, is
felt throughout the Third Banking District (consisting of 8 counties in
southern New Jersey), the 2 banks involved in this proposal essentially
serve different market areas, and there is virtually no competition between
them. Under New Jersey law, the 2 banks are precluded from establishing
de novo branches in the head office community of the other, and de novo
branching is otherwise limited because of branch-office protection in communities with populations under 7,500. While the movement of South Jersey
National Bank, Camden, into Cumberland County (by merger with Millville National Bank) will offer a broader range of banking services to the
area served by Vineland Bank, the convenience of added services in the area
would be enhanced by subject proposal and at the same time increase
competition in this area for South Jersey National Bank. The additional
For notes see p. 285.

254

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

resources gained by Camden Bank would not greatly affect the competitive
picture in the Third Banking District. This is especially true when considering the proximity of Camden to Philadelphia. In the judgment of the Board,
the effect of the merger on competition would not be adverse, and the
transaction would result in benefits for the banking convenience and needs
of the Vineland community and environs.

No. 7—The Bank of New Jersey,

Camden, N.J.,
to merge with
Garden State Bank,

Cinnaminson, N J .

282.0

35.0

SUMMARY REPORT BY THE ATTORNEY GENERAL (11-26-69)

All of the offices of State Bank are located in a northeasterly direction
from, and within 8 miles of, downtown Camden. The closest offices of the
merging banks are about 6 miles apart (Camden Trust's [The Bank of New
Jersey] Cherry Hill Branch and State Bank's Colonial Square office in Cinnaminson). Several banks operate offices in the intervening area, including South
Jersey National Bank (total deposits $232 million) and the Burlington County
Trust Company (total deposits $67 million). Although Cinnaminson, Palmyra,
and Riverton are among the closest Burlington County communities to Camden, Camden Trust apparently draws only a small amount of deposits from
them. This existing competition would, of course, be eliminated [by] the
proposed merger.
The proposed merger would increase Camden Trust's 27 per cent share
of commercial bank deposits in the greater Camden area (within a 12-mile
radius of the city of Camden) to over 30 per cent.
Under recently enacted New Jersey legislation, commercial banks may
now operate branches anywhere in the newly created banking district in
which they are located. Camden Trust is the largest bank in the Third
District, which encompasses both Camden and Burlington Counties, as well
as six other counties in southern New Jersey.
The proposal before the Board is essentially a market extension merger
through which Camden Trust seeks entry into that part of Burlington
County closest to Camden. State Bank serves much of this area. Its service
area includes parts of the communities of Cherry Hill, Moorestown,
For notes see p. 285.

255

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

Willingboro, Riverside, and Delran, as well as the three communities in
which its offices are physically located. Camden Trust's opportunities for
de novo expansion into this area are somewhat limited by New Jersey
law, which imparts complete home-office protection and branch-office protection to communities of less than 7,500 population. Palmyra and Delran,
however, have recently grown to exceed 7,500 population (the latter by a
68 per cent growth since 1960), and would appear to represent existing
opportunities for de novo expansion by Camden Trust. Should State Bank
merge with another commercial bank, perhaps a distant but capable bank
seeking entry into the greater Camden area, the fast growing town of
Cinnaminson would also be open to Camden Trust. Cinnaminson (population 15,500; up 86 per cent since 1960) is presently served only by the 2
offices of State Bank and would be a most attractive area for new entry
by Camden Trust.
In view of the leading position of Camden Trust in the greater Camden
area, the opportunities for de novo expansion into the service area of State
Bank, and the proximity of State Bank's service area to that part of the
greater Camden area already served by Camden Trust, we conclude that
the proposed merger would have an adverse effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (2-26-70)

Both Camden (population 126,000) and Cinnaminson (population
15,000) are in the Philadelphia Standard Metropolitan Statistical Area
(1960 population 4,343,000). Camden Bank operates 21 offices in Camden
County and has received approval to establish 4 additional branches, 2 in
Camden County and 2 in contiguous Gloucester County. Cinnaminson
Bank operates its head office and 1 branch in Cinnaminson, and 1 branch
each in Riverton and Palmyra. All offices of Cinnaminson Bank are in
Burlington County, which lies just north of Camden County. The nearest
offices of the 2 banks are 6 miles apart, and there are 5 commercial banks
operating a total of 11 offices within the area separating these 2 offices.
Consummation of the proposed merger would eliminate the modest
amount of existing competition between the 2 banks and limited potential
for increased competition. The effect of increased concentration in the area
would be mitigated to a large extent by the proximity of both Camden
Bank and Cinnaminson Bank to Philadelphia, where a considerable number
of residents of both areas commute for employment. Consummation of the
proposal would open the Cinnaminson area to de novo branching by the
elimination of the home-office-protection feature under New Jersey law,
and 2 banks, including 1 of the other large Third District banks, have alFor notes see p. 285.

256

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

ready applied for branch sites in this area. This influx of banks into the
Cinnaminson area would have the effect of increasing competition in this
area. While both Philadelphia and Camden are convenient to the residents
and businesses of the Cinnaminson area, it is felt that the convenience and
needs aspects would be enhanced to some extent. In the judgment of the
Board, the slightly adverse effect of the proposed merger on competition
would be outweighed by the benefits for the banking convenience and needs
of the Cinnaminson, Riverton, and Palmyra communities.

No. 8—Bankers Trust Company of
Rochester,

4.5

(Newly organized bank;
not in operation.)

Rochester, N.Y.,
to acquire most of the assets and
all of the deposit liabilities of 4
branch offices of
Central Trust Company Rochester,
N.Y.,

39.1

Rochester, N.Y.

SUMMARY REPORT BY THE ATTORNEY GENERAL (2-13-70)

Pending before the Board of Governors of the Federal Reserve System
is the amended application of Charter New York Corporation (hereinafter
Charter) for prior approval of its acquisition of Central Trust Company
(hereinafter Central), Rochester, New York.
Charter first attempted to acquire Central in 1966. On October 28, 1968,
the Board denied that application.
In this amended application, Charter has stated that upon acquisition of
Central, it would divest Central of a part of its assets to form a new bank
(hereinafter New Bank) that would become a subsidiary of Bankers Trust
New York Corporation (hereinafter BTNY), New York, New York. The
proposed new subsidiary of BTNY formed by divestiture of present Central
assets would be composed of 3 of Central's Rochester branches and its
Williamson branch in Wayne County. As of June 30, 1969, these 4 branches
had assets of $39.1 million, deposits of $38.4 million (including demand
deposits of $15.9 million), and net loans of $16.4 million. The aggregate
1968 net earnings of these 4 offices were approximately $375,000. AccordFor notes see p. 285.

257

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

ing to the amended application, New Bank would be the fifth largest bank
in both Rochester and in the Eighth Banking District.
The new proposal in Charter's amended application would not appear to
eliminate the serious competitive considerations which caused the Board to
reject the original application. Central remains the fourth largest bank in
Rochester and the Eighth District, and would still be so after creation of
the proposed New Bank. The dominance of the very large banking institutions in upstate New York's major banking markets would not be decreased
but rather increased. While the proposed spin-off would add a new competitor in Rochester, this would not, in our opinion, outweigh the other
adverse competitive effects of the acquisition. In view of BTNY's competitive strength and its own incentives to enter the Rochester area, it is one
of the most likely potential entrants into Rochester in any event. Moreover,
the entry of both Charter and BTNY on the scale contemplated by Charter's application would significantly increase barriers to entry into
Rochester and the Eighth District by any other banking organization.
Since its original application to acquire Central, Charter has demonstrated the desire and ability to enter new retail banking markets. Its recent
moves into the Third, Fourth, and Ninth Districts have been through acquisition of intermediate-sized competitors, rather than through the acquisition
of the largest independent banks therein. It would not appear unreasonable
to require Charter to enter the Eighth District in a similar manner.
In view of the developing pattern of holding company competition
throughout New York, and particularly in the State's upstate areas, we
consider it particularly important that the small number of remaining large
independent banks not be incorporated into existing systems which hold
leading shares in many important banking markets and are patently capable
of effecting procompetitive entry into others. In taking this position, we
support recent decisions of the Board which have sought to preserve the
possibility of the development of new upstate-oriented holding companies,
capable of competing with existing institutions on a regional and perhaps
statewide basis, by preserving the independence of significant banks located
in upstate New York.
Under Charter's proposal, Central would be eliminated as a potential
participant in a new banking institution of substantial competitive ability.
As a result, the objective sought to be served by the Board's recent decisions
would be undermined.
We suggest that no evidence has been produced which would warrant a
conclusion different from that reached by the Board with respect to the
original application:
For notes see p. 285.

258

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

" . . . affiliation of one of the few remaining large independent banks in
upstate New York, and the only such bank in the highly concentrated
Rochester area, with one of the largest bank holding companies presently
in operation in the State, would tend toward that concentration of banking
resources which is what Congress purposes to avoid."
For the reasons above stated we conclude that the amended application,
if approved, would have an adverse effect on potential competition in
Rochester, the Eighth District, and in other areas of upstate New York.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-3-70)

Bankers Trust Company of Rochester, an organizing bank, proposes to
acquire most of the assets and all of the deposit liabilities of 4 operating
branch offices of Central Trust Company, Rochester, having aggregate
deposits of approximately $38.4 million.
The 4 offices are being acquired under an agreement between Bankers
Trust Company New York Corporation, a registered bank holding company; Charter New York Corporation, a registered bank holding company;
and Central Trust Company, whereby Charter New York would acquire
Central Trust with the understanding that the 4 branches would be "spun
off" to Bankers Rochester.
Bankers Rochester would be a wholly owned subsidiary of Bankers
Trust New York Corporation and would represent this holding company's
first entry into the Eighth Banking District, as well as into Rochester, long
dominated by 3 large banks, which hold in the aggregate about 87 per cent
of deposits in this district.
The subject proposal would result in 6 banks being located in Rochester,
and would create a new competitor, which would be the fifth largest in
the entire Eighth Banking District. The market share of the 3 largest banks
would not immediately be affected; the share of area deposits held by the
4 largest, however, would be decreased from 95 per cent to 93 per cent.
More important than this, however, the new bank, which would become
the area's fifth largest, would likely possess a competitive capability much
greater than that reflected by its $38 million of deposits and 2 per cent
market share.
Bankers Rochester would provide all of the services now offered by the
4 offices of Central Trust, and in addition, would have the potential for
offering expanded services in competition not only with the 3 largest banks
in Rochester, but also with Central Trust. Its establishment as an affiliate
of Bankers Trust would create a new and competitive source of quality
banking services in the Rochester area.
For notes see p. 285.

259

No. 9—Grace Street Bank,
Richmond, Va.,
to merge with
Southern Bank and Trust Company,
Richmond, Va.

Resources
(in millions
of dollars)

0.2

Banking offices
In
operation

To be
operated

(Newly organized bank;
not in operation)

107.5

SUMMARY REPORT BY THE ATTORNEY GENERAL (2-11-70)

The proposed merger is part of a transaction which will result in Southern
Bank and Trust Company becoming a wholly owned subsidiary of a onebank holding company. Thus, this merger is merely part of a corporate
reorganization and as such will have no effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-17-70)

The proposed merger is one step in a plan of corporate reorganization
whereby Southern Bankshares, Inc. would become a one-bank holding
company. Applicant is a wholly owned subsidiary of Southern Bankshares,
Inc. Upon the merger of Southern Bank with applicant, stock of Southern
Bankshares, Inc. would be exchanged for stock of Southern Bank. Use of
a merger transaction in the plan to form a one-bank holding company
would assure Southern Bankshares, Inc. that the resulting bank would be
its wholly owned subsidiary. The proposed merger of Southern Bank and
applicant—the latter being a bank with no operating history, formed solely
to facilitate the corporate reorganization plan described above—would itself
have no effect on competition or on banking convenience and needs. The
financial and managerial resources and prospects of Southern Bank are satisfactory, as they would be with respect to the resulting bank.

No. 10—Union Bank,
Los Angeles, Calif.,
to merge with
Commonwealth National Bank,
San Francisco, Calif.

1,808.0

68.1

SUMMARY REPORT BY THE ATTORNEY GENERAL (2-6-70)

Union Bank, which is based in southern California, operates 1 office in
Oakland in northern California. The Oakland office is 12 miles from
For notes see p. 285.

260

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

Commonwealth's offices in San Francisco, and separated from those offices
by San Francisco Bay. The merging banks are each minor factors in the
San Francisco-Oakland area, and do not derive significant business from
the area served by the other. Therefore, the proposed merger would not
have an adverse effect upon existing competition.
Commonwealth is one of the smaller of 18 banks in San Francisco. As
of June 30, 1968, it held less than 1 per cent of commercial bank deposits
in the city of San Francisco.
Union Bank is the seventh largest bank in California, and the largest
bank having no offices in San Francisco. Under California law Union Bank
could establish de novo branches in San Francisco. Union Bank has expressed the desire to enter San Francisco in order to become a statewide
bank, and it definitely has the resources to establish de novo offices there.
San Francisco banking is presently highly concentrated.
The proposed merger would therefore eliminate potential for independent
entry by Union Bank into San Francisco. However, given the relatively
small market share of the bank to be acquired, the proposed merger is not
likely to have an adverse effect upon competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-19-70)

Union Bank operates its head office in Los Angeles, 16 regional branch
offices in southern California, and 1 northern California regional branch
office in the city of Oakland, Alameda County. Union Bank ranks as the
seventh largest bank in California and holds approximately 3.1 per cent
of the State's total commercial bank deposits. Commonwealth Bank operates its main office and 3 branches in San Francisco, 2 branch offices in
the San Francisco Bay Area in Pleasant Hill (Contra Costa County) and
San Rafael (Marin County), and a seventh branch office in Santa Rosa
(Sonoma County), 52 miles north of San Francisco. It holds 0.1 per cent
of the total commercial bank deposits in California and ranks as the 33 rd
largest bank in the State. The resulting bank would control 3.2 per cent of
the State's total deposits, would remain its seventh largest bank, and would
operate 25 of the more than 2,900 banking offices in the State.
The principal effect of the merger would be felt in the city and county
of San Francisco wherein Union Bank has no present representation. Commonwealth Bank holds approximately 0.6 per cent of the total deposits for
this area and is the 12th largest of 19 banks.
The nearest office of Union Bank to Commonwealth Bank is its sole
office in northern California, located in Oakland, 12 miles east of Commonwealth Bank's main office in San Francisco. The 2 offices, separated by San
Francisco Bay, serve separate areas, and there is no significant competition
between them. Union Bank holds only 4.0 per cent of the total deposits for
For notes see p. 285.

261

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

the Oakland area, and Commonwealth Bank holds less than 0.1 per cent
of such deposits.
Under California law, Union Bank, with supervisory approval, could
establish a de novo branch in San Francisco or in any of the other areas
served by Commonwealth. Likewise, Commonwealth Bank could establish
a de novo branch in Los Angeles or in any of the other areas served by
Union Bank. Consequently, there is some potential for direct competition
between the banks through branching, which would be eliminated by consummation of this proposal.
The slightly adverse effect of this acquisition on competition would be
offset by the assistance it would provide in alleviating the problems of
Commonwealth Bank and by its benefit to the banking convenience and
needs of the area served by Commonwealth Bank.

No. 11—The Bank of New Orleans and
Trust Company,

New Orleans, La.,
to merge with
The Bank and Trust Company of
Greater New Orleans,

189.7
0.1
(Newly organized bank;
not in operation)

New Orleans, La.

SUMMARY REPORT BY THE ATTORNEY GENERAL (3-12-70)

The proposed merger is part of a transaction which will result in Bank
of New Orleans and Trust Company becoming a wholly owned subsidiary
of a one-bank holding company. Thus, this merger is merely part of a
corporate reorganization and as such will have no effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-9-70)

The proposed merger is one step in a plan of corporate reorganization
whereby New Orleans Bancshares, Inc., New Orleans, Louisiana, would
become a one-bank holding company. New Orleans Bancshares, Inc. presently owns all of the stock of Greater New Orleans Bank; upon the
merger of applicant with Greater New Orleans Bank, stock of New Orleans
Bancshares, Inc. will be exchanged for stock of applicant.
For notes see p. 285.

262

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

The major purpose for the use of a merger transaction in applicant's plan
to form a one-bank holding company is to assure that New Orleans Baneshares, Inc. will be able to acquire, except for directors' qualifying shares,
all of the outstanding stock of the banking subsidiary.
From the record before the Board, it appears that the merger of applicant and the Greater New Orleans Bank—the latter being a bank with no
operating history, formed solely to facilitate the corporate reorganization
plan described above—would itself have no effect on either competition
or the banking convenience and needs of the relevant area. Further, it
does not appear that the proposal would have any adverse consequences
relative to the financial and managerial resources and prospects of the banks
involved.

No. 12—Peoples Trust of New Jersey,

Hackensack, N.J.,
to merge with
The Peoples National Bank of
Hackettstown,

597.0

23.7

Hackettstown, N J .

SUMMARY REPORT BY THE ATTORNEY GENERAL (4-8-70)

The nearest offices of Peoples Trust and Hackettstown Bank are 26 miles
apart, with a number of banks in the intervening area. It would appear
that the proposed merger would not eliminate any significant existing competition between the 2 banks.
Recent legislation in New Jersey broadens geographic areas for bank
expansion beyond the former limits of county lines by dividing the State
into three banking districts. Under this law, banks may branch within an
entire district. However, the law retains communitywide home-office protection against de novo branching and provides branch-office protection in
communities of less than 7,500 persons.
Hackettstown Bank serves primarily eastern Warren County, including
the populous Hackettstown and Washington areas; western Morris County,
and small sections of Sussex County to the north and Hunterdon County
to the south. Warren, Sussex, and Morris Counties are in the First Banking
District; accordingly, Peoples Trust could be permitted to open de novo
For notes see p. 285.

263

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 19701—CONTINUED

Name of bank, and type of transaction 2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

offices in those counties in communities that are not closed by home- or
branch-office protection. Hackettstown itself is closed to de novo [branching] by commercial banks (if the proposed merger is approved, it will be
open until such time as any new bank is chartered therein) as is Washington. Nearby areas of Warren County are comparatively low in population,
and, according to the application, presently unattractive de novo branch
sites. Washington and Mt. Olive Townships in Morris County, which
border Hackettstown to the east, are also protected by branch offices of
other commercial banks; these two townships, however, have experienced
considerable growth in the last decade, and may exceed the 7,500 population figure in the not-too-far-distant future. At present, however, de novo
opportunities for Peoples Trust in the area served by Hackettstown Bank
are limited.
Hackettstown Bank is a significant local competitor. It is the third largest
of 8 banks headquartered in Warren County. The county's largest bank,
Warren County National (presently the only other bank in Hackettstown),
has recently announced its proposed affiliation with a large bank in Newark
through the medium of a registered bank holding company. The second
largest bank in the county, Phillipsburg National, is presently party to an
antitrust action before the Supreme Court, challenging its merger with
another bank in Phillipsburg.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-21-70)

Peoples Trust is the fourth largest bank in New Jersey's First Banking
District and in the State. The bank operates its head office and 23 branches
in Bergen County; it also operates a branch in Essex County and in
Morris County. It has received approval to establish 2 additional branches
in Bergen County and a second branch in Morris County.
Hackettstown Bank operates its head office in Hackettstown, in northeastern Warren County, and has received approval to establish an in-town
branch; the bank operates 2 branches in the county, both of which are
within 5 miles of its head offices. The nearest offices of Hackettstown Bank
and Peoples Trust are 26 miles apart, and there are a number of offices
of other banks in the intervening area. There is no meaningful competition
existing between the merger proponents.
Hackettstown Bank is located in a market that is comprised of most of
Warren County, plus the Townships of Mount Olive and Washington,
which are located in adjoining Morris County. There ar.e 21 banking offices
in this area, 19 of which are operated in Warren County by 9 banks.
Hackettstown Bank, with 12 per cent of area deposits, ranks third in this
For notes see p. 285.

264

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

respect. Warren County National Bank, largest of the 8 banks that are
headquartered in Warren County, is a proposed bank holding company
affiliate of New Jersey's largest bank; the State's second largest bank
operates 3 branches in Warren County.
Hackettstown Bank, largely because of its size, does not appear to be a
likely entrant into the area now served by Peoples Trust. Because of limited
economic development in municipalities open to entry by de novo branching, it seems unlikely that Peoples Trust would find it economically feasible
to branch into Warren County now or in the near future.
The replacement of Hackettstown Bank by an office of Peoples Trust
would provide a convenient alternative source of full-banking services for
the residents of the area now served by Hackettstown Bank and would
remove home-office protection in the case of the Hackettstown community.
A bank headquartered in Morris County has already filed an application
to establish a de novo branch in Hackettstown.
In summary, the slightly adverse effect of the proposed merger on competition would be outweighed by the benefits for the banking convenience
and needs of the Hackettstown community and environs.

No. 13—Union Bank and Trust Company,

Ottumwa, Iowa,
to acquire the assets and assume
the deposit liabilities of
Union State Bank,

46.8

2.0

Richland, Iowa
SUMMARY REPORT BY THE ATTORNEY GENERAL (4-15-70)

The merger would not appear to eliminate any substantial direct competition between the merging banks. The closest offices of the banks are
32 miles apart; there are 2 competing banking offices in the intervening
area.
State Bank, the seventh largest of 9 banks in Keokuk County, as of
June 30, 1968, held 4.7 per cent of total county commercial bank deposits.
The 3 largest banks in the county held 59.5 per cent of such deposits.
Union Bank, the largest of 4 banks in Wapello County, as of June 30,
1968, held 55.3 per cent of total county deposits. It is also the largest bank
operating in the area encompassing Keokuk County and all six surrounding
counties. However, under Iowa law, Union Bank may not open a de novo
For notes see p. 285.

265

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 19701—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

branch in Richland. It could, however, expand by organizing a holding
company and chartering new banks; but even if it did, Richland is unlikely to be a community in which bank expansion would be feasible.
The merger would, therefore, not appear to eliminate any significant
potential competition between the merging banks.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-21-70)

Richland Bank's sole office in Richland (population 500), Keokuk
County, competes with 4 offices of 3 banks with deposits ranging from $2
million to $10 million. Ottumwa Bank has no office in Keokuk County; its
closest office to Richland is at Agency, 32 miles to the southwest. There is
no competition existing between the 2 banks, and due to State branching
laws there is no potential for competition between them. The effect of the
proposal on competition would not be adverse, and it would benefit the
banking convenience and needs of the Richland community.

No. 14—Isabella County State Bank,
Mount Pleasant, Mich.,
to consolidate with
Weidman State Bank,
Weidman, Mich.

24.9
2.9

SUMMARY REPORT BY THE ATTORNEY GENERAL (4-28-70)

The 2 banks are about 15 miles apart with no intervening banks. Weidman Bank and Isabella Bank obtain the same dollar amounts of IPC 3 deposits from each other's service area (circa $600,000). The merger will,
therefore, eliminate direct competition between the 2 banks especially in
the area around Beal City, between Weidman and Mount Pleasant.
The merger will combine the smallest and largest of the 5 banks now
headquartered in Isabella County. In addition, 1 bank in neighboring Clare
County maintains a small branch in Isabella County. The merger will raise
the share of bank deposits in Isabella County held by the Isabella Bank
from 41 per cent to 45 per cent.
Since the merger will eliminate competition, increase concentration, and
enhance the dominant position of Isabella Bank in that county, we conclude
it will probably have an adverse effect upon competition.
For notes see p. 285.

266

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (5-26-70)

Both banks are located in Isabella County (population 39,000), in the
central portion of the State, and they are 14 miles apart. While there is
some present competition between the proponent banks, the potential for
future competition between them is limited by the home-office-protection
feature of Michigan law and by the small size and relatively ineffective
competitive posture of Weidman Bank. The resulting bank would be the
largest bank in the area by a slight margin, with approximately 31 per cent
of area deposits. A number of banking alternatives would remain, and the
over-all competitive effect of the proposed transaction would be no more
than slightly adverse.
Weidman is in an area of productive farmland and is on the verge of
developing into a resort area because of the six lakes within a radius of 6
miles. The resulting bank, with a higher legal lending limit, would benefit
the convenience and needs of the Weidman community. In the judgment
of the Board, the effect of the proposed consolidation on competition would
be no more than slightly adverse and would be offset by the benefits to the
banking convenience and needs of the Weidman area.

No. 15—Severn Bank and Trust Company,

Annapolis, Md.,
to merge with
The Annapolis Banking and Trust
Company,

0.2

(Newly organized bank;
not in operation)

33.9

Annapolis, Md.

SUMMARY REPORT BY THE ATTORNEY GENERAL (2-16-70)

The proposed merger is part of a plan under which Mercantile Bankshares Corporation, a proposed registered bank holding company, proposes
to acquire all of the voting shares of Severn Bank and Trust Company, a
nonoperating institution and as a contemporaneous transaction, to effect
the merger of Severn Bank and Trust Company and Annapolis Banking
and Trust Company. The effect of these transactions will be to transfer
control of an existing bank to a registered bank holding company. In and
of itself, however, the proposed merger would merely combine an existing
bank with a nonoperating institution; as such, and without regard to acquisition of the surviving bank by Mercantile Bankshares Corporation, the proposed merger would have no effect on competition.
For notes see p. 285.

267

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 19701—CONTINUED

Name of bank, and type of transaction 2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (7-7-70)

The sole purpose of the proposed merger will be to facilitate the acquisition of The Annapolis Banking and Trust Company by Mercantile Bankshares Corporation, Baltimore, Maryland, which would own all of the
capital stock of Annapolis Bank. Mercantile Bankshares is presently a
one-bank holding company, owning over 95 per cent of the outstanding
shares of Bel Air National Bank, Bowie, Maryland; however, there is
presently before the Board a proposal for Mercantile Bankshares to become
a registered bank holding company and to acquire the voting stock of the
successor by merger to Mercantile-Safe Deposit and Trust Company, Baltimore, Maryland, and The Annapolis Banking and Trust Company. Severn
Bank will conduct no operations except upon merger with Annapolis Bank.
The merger proposal, as such, would not have an effect on banking
competition, and there would be no effect on the convenience and needs
of the area. The banking factors are regarded as satisfactory.

No. 16—Marine Midland Grace Trust Company of New York, New York, N.Y.,
to merge with
The Community Bank,
Lynbrook, N.Y.

2,376.4

25.9

SUMMARY REPORT BY THE ATTORNEY GENERAL (6-14-70)

Marine Grace's closest offices to the service area of Community are its
offices in Jericho and in central Queens County, which are 12 and 9 miles,
respectively, from the nearest office of Community. Numerous banking
alternatives intervene.
At present, Marine Grace does not draw substantial loans or deposits
from Community's service area. It is unlikely that the proposed merger
will eliminate a significant amount of direct competition.
New York banking law permits de novo entry into Nassau County by
New York City-based commercial banks. New York's home-office protection precludes, however, a consideration of Marine Grace as a potential
entrant into Lynbrook.
Marine Grace's new Carle Place office will be 5 miles from Community's
West Hempstead branch but, however, still outside Community's service
area. According to the application, this new branch is not expected to
draw substantial business from Community's service area.
For notes see p. 285.

268

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

Community is among the smallest banks operating offices in Nassau
County and more particularly in its service area. It operates 2 of the 69
commercial banking offices in its service area, and competes with 11 other
banks, including most of the largest banks in the New York metropolitan
area.
Although the proposed merger would add slightly to the position of one
of the general area's most powerful banks, we do not believe that it would
have a significantly adverse effect on potential competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (8-17-70)

Marine Grace, the largest of 12 bank subsidiaries of Marine Midland
Banks, Inc., Buffalo, New York, a registered bank holding company,
operates its head office and 16 branches in New York City; the bank also
operates a branch in Jericho, Nassau County, and has received approval
to open a branch in Carle Place, also in Nassau County. Marine Grace is
the eighth largest bank in New York City. The 12 banks controlled by
Marine Midland hold 6 per cent of the total bank deposits in the State,
making the holding company the State's seventh largest banking organization. With the exception or Marine Grace and Marine Midland Tinker
National Bank, East Setauket, Suffolk County, Marine Midland's bank
subsidiaries are located in upstate New York.
Community Bank operates its head office and a drive-in branch in Lynbrook and a branch in West Hempstead; the bank derives the bulk of its
business from these communities and from East Rockaway, Rockville
Centre, Malverne, and Valley Stream, all of which are in southwestern
Nassau County. Community Bank, with 7.5 per cent of the deposits, is the
smallest of 9 banks that operate 19 offices in this area; 5 of the other banks
are large New York City-based institutions.
The nearest offices of Marine Grace to Community Bank are its branches
in central Queens County and in Jericho, which are, respectively, 12 and 9
miles distant; numerous banking alternatives intervene. The proposed Carle
Place branch of Marine Grace will be 5 miles northeast of West Hempstead and separated from the latter by a congested residential and commercial region. The nearest office of Marine Tinker to an office of Community Bank is at Brentwood, 30 miles east of Lynbrook.
The proposed merger would not eliminate any meaningful existing competition. State law permits de novo entry into Nassau County by New York
City-based banks, but the home-office-protection feature of State law precludes Marine Grace from establishing a new branch in Lynbrook. The
proposed merger would open Lynbrook to de novo entry by other banks.
For notes see p. 285.

269

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

In the judgment of the Board, the effect of the proposed merger on
competition would be no more than slightly adverse and would be offset
by benefits to the banking convenience and needs of the area served by
Community Bank.
No. 17—Girard Trust Bank,
Philadelphia, Pa.,
to acquire the assets and assume
the deposit liabilities of
City Bank of Philadelphia,
Philadelphia, Pa.

2,000.0

65
66

11.9

SUMMARY REPORT BY THE ATTORNEY GENERAL

No report received. City Bank was closed for insolvency by Pennsylvania
State banking authorities and requests for reports on the competitive factors
were dispensed with as authorized by the Bank Merger Act to permit the
Board to act immediately in order to safeguard depositors of City Bank.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9-11-70)

City Bank's only banking office was closed for insolvency by Pennsylvania State banking authorities and is under receivership of the Secretary
of Banking of the State of Pennsylvania. On the basis of information before
it, including communications with the Secretary of Banking and the Federal
Deposit Insurance Corporation, the Board finds that an emergency situation
exists, which the present application is intended to remedy in order to
safeguard depositors of City Bank.
The Board has considered all relevant material contained in the record
in the light of the factors set forth in the Bank Merger Act, and concludes
that such anticompetitive effects as may be attributable to consummation
of the transaction would be clearly outweighed in the public interest by
the considerations supporting and requiring the aforementioned finding.
Any disposition of the application other than its approval on a basis that
will not delay its consummation would be inconsistent with the best interests
of depositors of City Bank.
For notes see p. 285.

270

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

No. 18—Bordentown Banking Company,

Banking offices
Resources
(in millions
of dollars)

In
operation

31.6

8.2

To be
operated

Bordentown Township, N.J.,

to merge with
The First National Bank in New
Egypt,

New Egypt, N J .

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-14-70)

While not coextensive, the service areas of the merging banks overlap,
primarily in the area between Bordentown Bank's Chesterfield branch and
New Egypt Bank, a distance of some 8 miles. According to the application,
Bordentown Bank's Chesterfield office derives about $700,000 in deposits
and $300,000 in loans from the area served by New Egypt Bank, while
New Egypt Bank draws about $800,000 in deposits and $500,000 in loans
from Bordentown Bank's service area. Thus, some direct competition will
be eliminated by the proposed merger. The home-office-protection provision of New Jersey law would prevent Bordentown Bank from opening a
de novo office in New Egypt.
A number of other, larger commercial banks operate offices in the area
served by New Egypt Bank, including the Central Jersey Bank and Trust
Company (total deposits $129 million) and The First National Bank of
Toms River (total deposits $125 million). Clearly the strongest position
in the area is held by the Mechanics National Bank of Burlington County
(total deposits $57 million), which operates several offices near the
populous military installations.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9-14-70)

New Egypt Bank's sole office in New Egypt, Ocean County, competes
with offices of 4 other banks, all of which have larger deposit totals than
the resulting bank. Bordentown Bank has no office in Ocean County and
its closest office, 7 miles from New Egypt, is the only one which competes
to any extent with New Egypt Bank. Under New Jersey statutes, neither
bank could branch de novo into the communities served by the other. The
effect of the proposed merger on competition would be slightly adverse;
this would be outweighed by the benefits for the banking convenience and
needs of the area served by New Egypt Bank.
For notes see p. 285.

271

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 1970 1 -CONTINUED
Name of bank, and type of transaction2
(in chronological order of determination)

No. 19—Bank of Delaware,

Wilmington, Del.,
to merge with
Millsboro Trust Company,

Millsboro, Del.

Banking offices
Resources
(in millions
of dollars)

In
operation

268.5

11.8

To be
operated

1
18

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-7-70)

Bank of Delaware is primarily located in northern Delaware. It does
operate 2 branch offices in Seaford, some 20 miles from,Millsboro. There
does not appear to be a significant amount of competition between these
offices and Millsboro. The two largest banks in the State (Farmers Bank of
Delaware and Wilmington Trust) maintain between them 3 branches
within a radius of 10 miles of Millsboro. It would appear that only a very
limited amount of direct competition would be eliminated by the proposed
merger.
Under Delaware law, Bank of Delaware could establish a de novo branch
in Millsboro. Furthermore, because it is the third largest bank in the State,
it would appear to be one of the most likely entrants into the Millsboro
market. However, a statewide bank (Delaware Trust) and a countywide
bank (Sussex Trust) have already applied for authority to open de novo
offices within 1 mile of Millsboro. It would appear that the proposed merger
would eliminate some potential competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9-14-70)

Bank of Delaware (deposits $232 million) is the third largest of 19 commercial banks in Delaware, and controls about 19 per cent of total deposits
in the State. Millsboro Trust Company (deposits $10 million) is the only
bank in Millsboro (population 1,000), and the fifth largest of 6 banks
competing in southeast Sussex County. The nearest office of Bank of Delaware is 20 miles from Millsboro Trust Company, and no significant competition exists between the 2 banks. While Bank of Delaware is permitted
by State law to branch into the area served by Millsboro Trust Company,
such de novo entry is considered unlikely because of the size of the community and the number of banks presently serving that market. The substitution of an aggressive full-service bank for a relatively small unit bank
would likely increase competition in southeast Sussex County, without
undue adverse effects on competing banks.
Based upon the foregoing, the Board concludes that consummation of the
proposal would not have an adverse effect on competition in any relevant
For notes see p. 285.

272

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

area. Considerations relating to the financial and managerial resources and
future prospects of both of the proponents are regarded as satisfactory. The
merger would have no significant effect on customers presently served by
Bank of Delaware, but will make possible expansion and improvement of
banking and trust services offered by Millsboro Trust Company; the
greater lending ability of the merged bank would assist in meeting the
expanding credit needs of the area, which is now undergoing economic
development. It is the Board's judgment that consummation of the proposal
would be in the public interest.

No. 20—Security Trust Company
of Rochester, Rochester, N.Y.,
to merge with
The Cohocton State Bank,
Cohocton, N.Y.

365.7

3.2

SUMMARY REPORT BY THE ATTORNEY GENERAL (7-16-70)

The closest office of Security to Cohocton Bank is located in Naples,
some 10 miles northeast of the town of Cohocton. Security also operates
branches at Dansville, 13 miles to the northwest, and at Bath, 16 miles to
the south. However, 3 other commercial banks are located in the intervening areas. Security does only a limited amount of banking business in the
general vicinity of Cohocton and very little in Cohocton itself. The proposed merger would not eliminate substantial direct competition.
In view of the small size of the city of Cohocton, its stable population,
and its limited economic growth potential, it is unlikely that Security could
branch de novo into this small town, even in the absence of home-office
protection.
Because of these factors, and the small size of Cohocton Bank, we
conclude that the proposed merger would be unlikely to have a significantly
adverse effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9-17-70)

Cohocton Bank's sole office in Cohocton, Steuben County, is the only
banking office in the area it serves. Three other banks, 2 of which are larger
For notes see p. 285.

273

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 1970x—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

than Cohocton Bank, are located 5-8 miles from Cohocton. Security's
nearest offices to Cohocton Bank are 10, 13, and 16 miles from Cohocton,
with an office of another bank intervening in each instance. An insubstantial
amount of competition exists between proponents, and there is little potential for increased competition between them. The effect of the merger on
competition would be no more than slightly adverse; this would be outweighed by the benefits for the banking convenience and needs of Cohocton
and environs.

N o . 21—Union Trust Company of Maryland,

480.6

Baltimore, Md.,
to merge with
Metropolitan National Bank of
Maryland,

55
14.7

Wheaton, Md.

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-7-70)

The closest offices of the merging banks are about 20 miles apart.
Neither does substantial banking business in the other's service area. Therefore, the proposed merger will not eliminate any significant existing competition.
Maryland law permits banks to branch anywhere in the State. As the
largest Maryland bank not operating in the Maryland suburbs of Washington, D.C., Union Trust must be considered the most significant potential
entrant into that area, including Montgomery County. However, considering
the size and market position of Metropolitan National and the fact that
Union Trust may be expected to compete actively to increase that market
share, we conclude that the proposed merger is not likely to have a significantly adverse effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9-17-70)

Union Trust, the fifth largest bank in Maryland, holds 8.5 per cent of
commercial bank deposits in the State and operates 49 offices, 42 of which
are in the Baltimore area. Metropolitan, with 0.3 per cent of commercial
For notes see p. 285.

274

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

bank deposits in the State, operates 5 banking offices in Montgomery
County and 1 office in Prince George's County, all within the Washington,
D.C. metropolitan area. The closest offices of Union Trust and Metropolitan
are more than 20 miles apart, and there is no significant present competition
between them. Maryland law permits statewide branching, but de novo
entry by Metropolitan into the area served by Union Trust is considered
unlikely because of Metropolitan's limited size and the distance from its
present office. While de novo entry by Union Trust into the Washington
area is perhaps more feasible, in view of the number of large banks in the
area and the limited size of Metropolitan, the method of entry proposed
does not appear anticompetitive.
Consummation of the merger would provide needed management depth
to Metropolitan and a wider variety of lending and fiduciary service to
Metropolitan's customers. It is the Board's judgment that consummation
of the proposal would be in the public interest.
No. 22—Houston Bank & Trust Company,

Houston, Tex.,
to merge with
Citizens Bank,

Houston, Tex.

132.0
86.1

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-31-70)

The offices of both banks are located in downtown Houston. It is, therefore, evident that if the proposed merger is approved, a not insignificant
amount of existing competition between the banks for both deposits and
loans, especially commercial and industrial loans, will be eliminated.
Texas law prohibits branching. According to the application, the 4
largest banks in Houston and in Harris County controlled 59.6 per cent of
total county deposits and 55.8 per cent of total county loans, as of December 31, 1969. This understates the level of concentration since most major
banks have affiliates located in suburban areas. Houston Bank & Trust
Company, the county's sixth largest bank, has 2.3 per cent of the county's
commercial deposits. The merged bank would become the county's fifth
largest bank, with less than 4 per cent of deposits in the county. Sixteen
banks operate in downtown Houston. Houston Bank & Trust Company has
3 per cent of the deposits in such banks and Citizens has 2 per cent. The
resulting banks would, therefore, have 5 per cent of such deposits.
For notes see p. 285.

275

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 1970x—CONTINUED

Name of bank, and type of transaction 2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

A number .of new banks, some of which are not affiliated with existing
banks, have been organized in Houston and Harris County in the past two
decades. These banks have contributed to some deconcentration of control
over bank deposits. Approval of this merger could encourage similar mergers among other middle-sized banks, thereby lessening competition and
increasing concentration.
Since the proposed merger would eliminate direct competition for loans
and deposits between the banks and might encourage mergers between
other medium-sized banks, thereby increasing concentration, we conclude
that the proposed merger would have some adverse effect on banking
competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9-22-70)

Although Houston Bank and Citizens Bank are located only about 1 mile
apart in the business section of downtown Houston, there are 15 other
banks in the downtown area, 12 of which are situated in the intervening
area. These 17 downtown banks are among 95 banks in Harris County,
which encompasses Houston and portions of its suburban periphery. Houston Bank and Citizens Bank rank sixth and 12th, respectively, and the
resulting institution would rank fifth in deposit size. The president of
Houston Bank recently acquired a controlling interest in Citizens Bank;
even in the absence of this relationship, it does not appear that the merger
would reduce competition significantly, especially in view of the relative
size of the merging banks and the large number of alternative sources of
banking services in the relevant area.
The resulting bank's larger size would permit it to meet a greater portion
of the credit needs of the area and to provide a more effective alternative
to the 4 larger banks, which range in deposit size from $266 million to $1
billion. Because of the statutory prohibition against branching, Citizens
Bank's single office would be. closed; however, it does not appear that
customers in its immediate area would be inconvenienced seriously because
of the other readily accessible alternatives. Some support for approval of
the merger is found in the banking factors, in that the combination would
assure a permanent solution to the financial difficulties encountered by
Citizens Bank prior to its recent change in ownership. In the judgment of
the Board, consummation of the proposal would be in the public interest.
For notes see p. 285.

276

21.—CONTINUED

Name of bank, and type of transaction 2
(in chronological order of determination)

No. 23—Long Island Trust Company,

Garden City, N.Y.,
to merge with
Bank of Westbury Trust Company,

Westbury, N.Y.

Resources
(in millions
of dollars)

Banking offices
In
operation

280.5

41.8

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL (11-25-69)

Long Island Trust operates 13 offices in Nassau County; Bank of Westbury operates 4 offices in the county. The merging banks' main offices are
about 3.5 miles apart; their closest offices are 1.1 miles apart. Five offices
of Long Island Trust and all 4 offices of Westbury Bank are within a 6-mile
diameter area in central Nassau County. The application indicates that each
of the merging banks derives substantial deposit and loan accounts from
the service area of the other. It would, therefore, appear that the proposed
merger would eliminate substantial direct competition between these 2
banks.
As of lune 30, 1968, there were 14 commercial banks, with 209 branch
offices in Nassau County. Long Island Trust and Bank of Westbury held
7.4 per cent and 1.4 per cent, respectively, of total county commercial bank
deposits. However, these figures substantially understate the anticompetitive
effects of the proposed merger, as the elimination of competition will have
its primary effect in a more limited geographic area. For example, in a
central Nassau County market encompassing an area slightly larger than
the combined self-designated service areas of the 2 banks' competing offices,
Long Island Trust and Bank of Westbury held market shares of 23 per cent
and 7 per cent, respectively. If this merger were consummated, the resulting
bank would hold approximately 30 per cent of deposits in the market.
The proposed merger would eliminate an independent locally oriented
bank through merger with a leading areawide institution. Although it would
open Westbury to de novo branching, the merger would combine 2 banks
which may be in substantial competition with one other. We conclude that
the proposed merger may have a serious adverse effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (9-22-70)

Long Island Trust (total deposits $235 million) and Westbury Bank
(total deposits $38 million) are both headquartered in Nassau County,
which forms a part of the New York metropolitan area. Long Island Trust
For notes see p. 285.

277

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES
APPROVED
BY THE BOARD OF GOVERNORS DURING 1970x—CONTINUED
Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

operates its head office and 3 of its 12 Nassau County branches in Garden
City (population 25,000). Its remaining 7 branches are located in Suffolk
County. Westbury Bank operates a main office and 2 branches in Westbury
Village (population 15,000), and 1 in Williston Park, approximately 4
miles west of its head office. The main offices of Long Island Trust and
Westbury Bank are 3.5 miles apart; their nearest offices are approximately
1 mile apart; and the main office of Long Island Trust, 3 of its branch
offices, and the 4 offices of Westbury Bank are all located within the central
Nassau County area. The bulk of Westbury Bank's business is derived from
that area, as is a significant portion of Long Island Trust's business.
Premised upon a survey of central Nassau County residents and businesses, it is established that banks located outside the central Nassau County
area have a substantial impact on competition within that area, and constitute a convenient alternative source of banking services for customers,
large and small, within the area. While immediate and direct competition
between Long Island Trust and Westbury Bank occurs in central Nassau
County, use of this market in measuring the total present and potential
competitive consequences would ignore major market forces that bear on
the question of the significance of the elimination of such competition. New
York City banks are permitted to branch throughout the metropolitan New
York area, and the Nassau and Westchester County banks may also branch
into New York City. In major respects, Nassau County banks are significantly influenced in their service rates and terms by those set by the New
York City banks. A large majority of the working population of central
Nassau County responding to the survey work outside that area; of this
group, a large proportion commute daily to New York City. These commuters tend to utilize banking services convenient to their places of business; even noncommuters tend to use to some extent either banks outside
the area or banks within that have offices in New York City. A majority of
the central Nassau County survey respondents depend on New York City
banking offices for credit accommodations, particularly mortgage credit.
It is clear that the metropolitan New York area is an appropriate market
with respect to which the competitive consequences of this proposal
should be determined.
Within the metropolitan New York area, 54 commercial banks hold
aggregate total deposits of $63 billion. Of those banks, Long Island Trust
ranks 19th in total deposits; following consummation of the proposed
merger, the resulting bank would rank 17th in size, holding less than 0.4
per cent of the area deposits.
While the proposed merger would eliminate present and potential competition between Long Island Trust and Westbury Bank, it would remove
For notes see p. 285.

278

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

home-office protection from the Village of Westbury and open that community to de novo branching. Considering the large number of banking
alternatives available to the homeowners and to businesses in the central
Nassau County area, the loss of one alternative through this merger is
not viewed as a significantly adverse competitive consequence, and the
over-all effect of the proposal upon competition would be no more than
slightly adverse.
In the judgment of the Board, the proposed merger would have but
slightly adverse competitive consequences, which would be offset by benefits
to the banking convenience and needs of the Westbury area. Accordingly,
the Board concludes that the application should be approved.

No. 24 and 25—Georgia Railroad Bank
& Trust Company,

162.3

Augusta, Ga.,
to merge with
Richmond County Bank,

Augusta, Ga.,

6.7

and with

Metropolitan State Bank,
Augusta, Ga.

4.8

SUMMARY REPORT BY THE ATTORNEY GENERAL (9-18-70)

Richmond County Bank (hereinafter Richmond Bank) was chartered in
1955. Georgia Railroad Bank & Trust Company (hereinafter Georgia
Bank) was the moving force in chartering Richmond Bank and has provided it with officers, employees, and management assistance. With the
exception of its Ft. Gordon facility, all of Georgia Bank's offices are
located within 5 miles of both of Richmond Bank's offices. Richmond Bank
has always been operated as an affiliate of Georgia Bank, however, and
has never represented an independent competitive force in Richmond
County. Thus, this proposed transaction will not have an adverse effect on
competition.
Metropolitan State Bank (hereinafter Metropolitan Bank) was chartered
in 1963. Georgia Railroad Bank & Trust Company (Georgia Bank) was
the moving force in chartering Richmond Bank and has provided it with
For notes see p. 285.

279

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 1970 *—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

officers, employees, and management assistance. With the exception of
its Ft. Gordon facility, all of Georgia Bank's offices are located within 5
miles of Metropolitan Bank. Metropolitan Bank has always been operated
as an affiliate of Georgia Bank, however, and has never represented an
independent competitive force in Richmond County. Thus, this proposed
transaction will not have an adverse effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-27-70)

Railroad Bank was instrumental in organizing Richmond County Bank
(hereinafter RCB) and Metropolitan State Bank (hereinafter MSB) in
1955 and 1963, respectively, in communities immediately outside the city
limits of Augusta (population 58,500) and has had a strong degree of
influence over them since they opened for business. It seems clear that were
it not for the restrictions placed on branching under Georgia statutes at
the time RCB and MSB were organized, Railroad Bank would have
established branches at such locations. Effective January 1, 1971, countywide branching will be permitted in Georgia; Railroad Bank will operate
branches at the present offices of RCB and MSB. There is no effective
competition existing among proponents, and there is little likelihood of
potential competition developing among them due to their longstanding
close relationship. The banking and convenience and needs factors are
consistent with approval.
No. 26—American Bank and Trust Company,

171.0

Lansing, Mich.,
to consolidate with
The National Bank of Eaton
Rapids,

10.2

Eaton Rapids, Mich.
SUMMARY REPORT BY THE ATTORNEY GENERAL (8-18-70)

The closest offices of the merging banks are approximately 6 miles
apart, with 2 banks in the intervening area. National Bank's branch office
at Dimondale is approximately 2 miles from the city of Lansing.
American Bank is the second largest bank in the city of Lansing and in
Ingham County, with about 23 per cent of total county deposits. Although
For notes see p. 285.

280

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

American Bank has no branches in Eaton County and, under Michigan law,
cannot establish de novo branches there, there appears to be some direct
competition between the merging banks for those banking customers who
reside in Eaton Rapids and work in Lansing. The application indicates
that there is some overlap of deposit and loan accounts between the service
areas of the 2 banks. Around 1.5 per cent of National Bank's demand
deposit accounts originate in the American Bank service area. Approximately 3.4 per cent of National Bank's instalment loan accounts and 1.5
per cent of its commercial and industrial loan accounts originate in American Bank's service area.
The overlap of competition is confirmed by the fact that approximately
1.2 per cent of American Bank's IPC3 demand deposit accounts originate
in the service area of National Bank. American Bank also gets approximately 2 per cent of its commercial and industrial loan accounts and 2.3
per cent of instalment loan accounts from National Bank's service area.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-9-70)

Both banks maintain all of their offices in the Lansing Standard Metropolitan Statistical Area (SMSA), consisting of Clinton, Eaton, and Ingham
Counties. American Bank is the second largest of 16 banks in this area,
holding about 19 per cent of commercial bank deposits. The largest area
bank—The Michigan National Bank—has total deposits in excess of $1
billion, $297 million of which are derived from the Lansing SMSA; this
represents 44 per cent of area deposits. Eaton Rapids Bank is the 11th
largest bank in the Lansing SMSA, controlling about 1 per cent of area
deposits. The main offices of the 2 banks are approximately 17 miles apart,
and the nearest offices are 6V^ miles apart. While some existing competition
between the 2 banks would be eliminated by consummation of the proposed
consolidation, in view of the number and size of other alternatives available,
the anticompetitive effect of the elimination of such competition as presently
exists between the 2 merging banks is regarded as minimal. The potential
for increased future competition between the 2 institutions would seem
to be somewhat limited by the size of Eaton Rapids Bank and by the
office-protection features of Michigan branch-banking laws.
American Bank, the area's second largest bank, would offer a greater
variety of services than Eaton Rapids Bank now provides. Although these
services are already available from the larger Lansing banks, the addition
of a convenient alternative source of full-banking services would benefit the
convenience and needs of the Eaton Rapids area and Dimondale area (site
of Eaton Rapids Bank's branch office). As previously indicated, American
For notes see p. 285.

281

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

Bank is precluded by restrictions of State law from branching de novo
into these two areas.
In the judgment of the Board, any anticompetitive effects of the proposed consolidation would be slight and would be outweighed by the
benefits to the banking convenience and needs of the Eaton Rapids and
Dimondale communities.

N o . 27—Long Island Trust Company,

Garden City, N.Y.,
to merge with
Seaside Bank,

Westhampton Beach, N.Y.

322.3

12.5

SUMMARY REPORT BY THE ATTORNEY GENERAL (10-1-70)

The main offices of Long Island Trust and Seaside are 61 road miles apart.
The nearest open branch office of Long Island Trust, located in Hauppague, is approximately 31 miles from Seaside. There are numerous commercial banks operating in the intervening area. An approved but unopened branch of Long Island Trust, located in Bohemia, will be 26
miles from Seaside. There are also many commercial banks located in
this intervening area. With 95 per cent of Seaside's deposits originating
within a 5-mile radius of its place of business, there does not appear to be
any significant direct competition between the merging banks.
As of June 30, 1968, Long Island Trust's Suffolk County deposits
totaled $40.8 million, representing 2.6 per cent of the county's total deposits.
As of the same date, Seaside had $10.1 million in total deposits, representing 0.7 per cent of Suffolk County's total deposits. A merger between these
2 institutions would not significantly increase concentration in Suffolk
County.
New York State law prohibits de novo branching into a community
wherein is located the home office of another bank. Accordingly, Long
Island Trust could not open a new branch in Westhampton Beach. If the
proposed merger is consummated, this community will be open to de novo
branching by other banks; the application indicates that, in anticipation
of the subject merger, two applications for the establishment of new
branches have been filed by other banks.
We conclude that the proposed merger would be unlikely to have a
significantly adverse effect on competition.
For notes see p. 285.

282

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-12-70)

Long Island Trust is the second largest of 11 banks headquartered in
Nassau County, where it operates 13 branch offices; its remaining 7 operating offices (one branch has been approved but is unopened) are situated
in Suffolk County. Seaside Bank operates its only office in Westhampton
Beach, Suffolk County. In terms of deposits held, it ranks 15th of 16 banks
located in the county. The closest offices of Long Island Trust and Seaside
Bank are about 30 miles apart, and there is no significant competition existing between them. It appears that no substantial amount of potential competition would be foreclosed by the merger because of the size of Seaside Bank and due to the restrictions placed on branching by State laws.
Consummation of the proposed transaction would not result in concentration levels being significantly increased on a local or statewide basis.
Consummation of the merger would provide customers of Seaside Bank
with more convenient access to certain banking services, which are now
made available to them by banks located several miles from Westhampton
Beach; these considerations lend weight toward approval of the transaction.
Considerations relating to the financial condition, management, and prospects of Long Island Trust, Seaside Bank, and the resulting bank are consistent with approval of the application. It is the Board's judgment that consummation of the proposal would be in the public interest, and that the
action should be approved.

No. 28—New Citizens Bank,

Poquoson, Va.,
to merge with
Citizens Bank of Poquoson,

Poquoson, Va.

0.2

(Newly organized bank;
not in operation)

7.6

SUMMARY REPORT BY THE ATTORNEY GENERAL (10-1-70)

The proposed merger is part of a plan under which First Virginia Bankshares Corporation, a registered bank holding company, proposes to acquire
all of the voting snares of New Citizens Bank, a nonoperating institution,
and as a contemporaneous transaction, to effect the merger of New Citizens
Bank and Citizens Bank of Poquoson. The effect of these transactions will
be to transfer control of an existing bank to a registered bank holding company. In and of itself, however, the proposed merger would merely combine
For notes see p. 285.

283

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

an existing bank with a nonoperating institution; as such, and without regard
to acquisition of the surviving bank by First Virginia Bankshares Corporation, the proposed merger would have no effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-24-70)

New Citizens Bank, Poquoson, Virginia, an organizing bank applying
concurrently for membership in the Federal Reserve System, has requested
prior written consent of the Board of Governors to merge with Citizens
Bank of Poquoson, Poquoson, Virginia, under the charter of New Citizens
Bank, and with the title Citizens Bank of Poquoson. Citizens Bank of
Poquoson operates 1 office and has total deposits of about $7 million.
The proposed merger is merely a transaction to facilitate the acquisition
of Citizens Bank of Poquoson by First Virginia Bankshares Corporation,
Arlington, Virginia, a registered bank holding company.
The proposed merger would, in itself, have no adverse competitive effects.
The banking factors and the convenience and needs factors are consistent
with approval of the application.

No. 29—Marine Midland Trust Company
of Central New York,
Syracuse, N.Y.,
to merge with
Marine Midland Trust of the Mohawk Valley,
Utica, N.Y.

307.6

233.0

SUMMARY REPORT BY THE ATTORNEY GENERAL (11-3-70)

The head offices of the merging banks are some 50 miles from each
other, and their closest offices are about 35 miles apart, with many banks
in the intervening area. Thus, it does not appear that the merging banks
compete in the same banking market.
Moreover, the longstanding common ownership of the 2 banks by
Marine Midland Banks, Inc. indicates that the proposed transaction is
primarily an internal reorganization, which would have little or no adverse
effects on actual or potential competition.
For notes see p. 285.

284

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (12-10-70)

Marine Midland-Syracuse (deposits $251 million) and Marine MidlandUtica (deposits $196 million) are subsidiaries of Marine Midland Banks,
Inc., Buffalo, New York, a registered bank holding company, which owns
approximately 99 per cent of the outstanding stock of each bank. The
holding company acquired control of Marine Midland-Syracuse in 1951
and of Marine Midland-Utica in 1954. The banks serve separate markets,
their main offices are 50 miles apart, and their closest offices are situated
approximately 35 miles from each other. The proposed merger represents
an internal reorganization of the banks undertaken to effect economies in
their operations and to alleviate personnel shortages.
The merger of Marine Midland-Syracuse and Marine Midland-Utica
would not eliminate existing or potential competition. The financial and
managerial resources and prospects of the merging banks and the resulting
bank are satisfactory and consistent with approval of the application. Consummation of the proposed merger would enable the resulting bank to
better serve customers in the Syracuse and Utica markets by making
available to them increased lending limits and more convenient access to
international banking services. Convenience and needs considerations are,
therefore, consistent with approval of the application. It is the Board's
judgment that consummation of the proposal would be in the public
interest and that the application should be approved.
1
During 1970 the Board disapproved 2 merger applications. However, under Section
18 (c) of the Federal Deposit Insurance Act, only those transactions approved by the
Board
must be described in its ANNUAL REPORT to Congress.
2
Each transaction was proposed to be effected under the charter of the first-named
bank.
3
The abbreviation "IPC" designates deposits of individuals, partnerships, and corporations.

285

N
00

THE

FEDERAL RESERVE

SYSTEM

BOUNDARIES OF FEDERAL RESERVE DISTRICTS AND THEIR BRANCH TERRITORIES

HAWAII

October 16, 1969

Legend
' 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 complete description of each Federal Reserve district see Description of Federal Reserve
Districts—Territorial Composition of Each Head Office and Branch, Including Population and Land Area,
a pamphlet published in April 1966. This pamphlet is available upon request from the Division of Administrative Services, Board of Governors of the Federal Reserve System, Washington, D.C. 20551.

Federal Reserve
Directories and Meetings

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
(December 31, 1970)
ARTHUR F. BURNS of New York, Chairman
J. L. ROBERTSON of Nebraska, Vice Chairman
GEORGE W. MITCHELL of Illinois
J. DEWEY DAANE of Virginia
SHERMAN J. MAISEL of California
ANDREW F. BRIMMER of Pennsylvania
WILLIAM W. SHERRILL of Texas
ROBERT C. HOLLAND, Secretary of the Board
J. CHARLES PARTEE, Adviser to the Board
ROBERT SOLOMON, Adviser to the Board
HOWARD H. HACKLEY, Assistant to the Board
CHARLES MOLONY, Assistant to the Board
ROBERT L. CARDON, Assistant to the Board
DAVID B. HEXTER, Assistant to the Board

Term expires
January 31, 1984
January 31, 1978
January
January
January
January
January

31,
31,
31,
31,
31,

JOSEPH R. COYNE, Special Assistant to the Board
FRANK O'BRIEN, JR., Special Assistant to the Board
OFFICE OF THE SECRETARY
ROBERT C. HOLLAND, Secretary

KENNETH A. KENYON, Deputy Secretary
ELIZABETH L. CARMICHAEL, Assistant Secretary
ARTHUR L. BROIDA, Assistant Secretary
NORMAND R. V. BERNARD, Assistant Secretary

GORDON B. GRIMWOOD, Defense Planning Coordinator and Assistant
Secretary
* EUGENE A. LEONARD, Assistant Secretary

LEGAL DIVISION
THOMAS J. O'CONNELL, General Counsel

ROBERT F. SANDERS, Assistant General Counsel
LAWRENCE F. NOBLE, Assistant General Counsel
PAULINE B. HELLER, Adviser

DIVISION OF RESEARCH AND STATISTICS
J. CHARLES PARTEE, Director

STEPHEN H. AXILROD, Associate Director
LYLE E. GRAMLEY, Associate Director
STANLEY J. SIGEL, Adviser
MURRAY S. WERNICK, Adviser
KENNETH B. WILLIAMS, Adviser

PETER M. KEIR, Associate Adviser
JAMES B. ECKERT, Assistant Adviser
JAMES L. PIERCE, Assistant Adviser
STEPHEN P. TAYLOR, Assistant Adviser

Louis WEINER, Assistant Adviser
JOSEPH S. ZEISEL, Assistant Adviser
LEVON H. GARABEDIAN, Assistant Director
* On leave from the Federal Reserve Bank of St. Louis.

288

1976
1974
1972
1980
1982

DIVISION OF INTERNATIONAL FINANCE
ROBERT SOLOMON, Director
tROBERT L. SAMMONS, Associate Director
JOHN E. REYNOLDS, Associate Director
JOHN F. L. GHIARDI, Adviser
A. B. HERSEY, Adviser
REED J. IRVINE, Adviser
SAMUEL I. KATZ, Adviser
BERNARD NORWOOD, Adviser
RALPH C. WOOD, Adviser
RALPH C. BRYANT, Associate Adviser
ROBERT F. GEMMILL, Associate Adviser
SAMUEL PIZER, Associate Adviser

DIVISION OF FEDERAL RESERVE BANK OPERATIONS
JOHN R. FARRELL, Director
JOHN N. KILEY, JR., Associate Director
JAMES A. MCINTOSH, Assistant Director
P. D. RING, Assistant Director
CHARLES C. WALCUTT, Assistant Director
LLOYD M. SCHAEFFER, Chief Federal Reserve Examiner

DIVISION OF SUPERVISION AND REGULATION
FREDERIC SOLOMON, Director

ttBRENTON C. LEAVITT, Deputy Director
FREDERICK R. DAHL, Assistant Director
JACK M. EGERTSON, Assistant Director
JANET O. HART, Assistant Director
JOHN N. LYON, Assistant Director
JOHN T. MCCLINTOCK, Assistant Director
THOMAS A. SIDMAN, Assistant Director
TYNAN SMITH, Assistant Director

DIVISION OF PERSONNEL

ADMINISTRATION

EDWIN J. JOHNSON, Director
JOHN J. HART, Assistant Director

DIVISION OF ADMINISTRATIVE SERVICES
JOSEPH E. KELLEHER, Director
DONALD D. ANDERSON, Assistant Director
JOHN D. SMITH, Assistant Director

OFFICE OF THE CONTROLLER
JOHN KAKALEC, Controller
HARRY J. HALLEY, Assistant Controller

DIVISION OF DATA PROCESSING
JEROLD E. SLOCUM, Director
JOHN P. SINGLETON, Associate Director
GLENN L. CUMMINS, Assistant Director
JOE M. JACKSON, Assistant Director
HENRY W. MEETZE, Assistant Director
RICHARD S. WATT, Assistant Director
f On leave of absence.
t t Currently serving also as Program Director for Banking Structure in the Office of the
Secretary.

289

FEDERAL OPEN MARKET COMMITTEE
(December 31, 1970)

MEMBERS
ARTHUR F. BURNS, Chairman (Board of Governors)
ALFRED HAYES, Vice Chairman (Elected by the Federal Reserve Bank of New
York)
ANDREW F. BRIMMER (Board of Governors)
J. DEWEY DAANE (Board of Governors)

DARRYL R. FRANCIS (Elected by the Federal Reserve Banks of Atlanta, St.
Louis, and Dallas)
AUBREY N. HEFLIN (Elected by the Federal Reserve Banks of Boston, Philadelphia, and Richmond)
SHERMAN J. MAISEL (Board of Governors)
GEORGE W. MITCHELL (Board of Governors)

J. L. ROBERTSON (Board of Governors)
WILLIAM W. SHERRILL (Board of Governors)

ELIOT J. SWAN (Elected by the Federal Reserve Banks of Minneapolis, Kansas
City, and San Francisco)
Vacancy (Member to be elected by the Federal Reserve Banks of Cleveland and
Chicago)

OFFICERS
ROBERT C. HOLLAND, Secretary
ARTHUR L. BROIDA,

Deputy Secretary
KENNETH A. KENYON,

Assistant Secretary
CHARLES MOLONY,

Assistant Secretary
HOWARD H. HACKLEY,

General Counsel
DAVID B. HEXTER,

Assistant General Counsel
J. CHARLES PARTEE,

Economist
STEPHEN H. AXILROD,

Associate Economist
J. HOWARD CRAVEN,

Associate Economist

GEORGE GARVY,

Associate Economist
LYLE E. GRAMLEY,

Associate Economist
A. B. HERSEY,

Associate Economist
WILLIAM J. HOCTER,

Associate Economist
HOMER JONES,

Associate Economist
JAMES PARTHEMOS,

Associate Economist
JOHN E. REYNOLDS,

Associate Economist
ROBERT SOLOMON,

Associate Economist

ALAN R. HOLMES, Manager, System Open Market Account
CHARLES A. COOMBS, Special Manager, System Open Market Account
During 1970 the Federal Open Market Committee met on the dates shown
in the Record of Policy Actions taken by the Committee (see pp. 83-177 of
this Report).

290

FEDERAL ADVISORY COUNCIL
(December 31, 1970)

MEMBERS
District No. 1—Mark C. Wheeler, President, New England Merchants National
Bank of Boston, Boston, Mass.
District No. 2—John M. Meyer, Jr., Chairman of the Board, Morgan Guaranty
Trust Company of New York, New York, N.Y.
District No. 3—George H. Brown, Jr., Chairman of the Board, Girard Trust
Bank, Philadelphia, Pa.
District No. 4—John A. Mayer, Chairman of the Board and Chief Executive
Officer, Mellon National Bank and Trust Company, Pittsburgh, Pa.
District No. 5—Robert D. H. Harvey, Chairman and Chief Executive Officer,
Maryland National Bank, Baltimore, Md.
District No. 6—George S. Craft, Chairman of the Board, Trust Company of
Georgia, Atlanta, Ga.
District No. 7—Donald M. Graham, Chairman of the Board, Continental Illinois National Bank and Trust Company, Chicago, 111.
District No. 8—Allen Morgan, Chairman of the Board, The First National
Bank of Memphis, Memphis, Tenn.
District No. 9—Philip H. Nason, President, First National Bank, St. Paul, Minn.
District No. 10—Jack T. Conn, Chairman of the Board, The Fidelity National
Bank and Trust Company of Oklahoma City, Oklahoma City, Okla.
District No. 11—John E. Gray, Chairman of the Board and Chief Executive
Officer, First Security National Bank of Beaumont, Beaumont, Tex.
District No. 12—A. W. Clausen, President and Chief Executive Officer, Bank
of America National Trust and Savings Association, San Francisco, Calif.

OFFICERS
PHILIP H. NASON, President

JACK T. CONN, Vice President

HERBERT Y. PROCHNOW, Secretary

WILLIAM J. KORSVIK, Assistant Secretary

EXECUTIVE COMMITTEE
PHILIP H. NASON, ex officio
JOHN A. MAYER

JACK T. CONN, ex officio
GEORGE S. CRAFT
DONALD M. GRAHAM

Meetings of the Federal Advisory Council were held on February 5-6, April
30-May 1, September 3-4, and November 5-6, 1970. The Board of Governors met with the Council on February 6, May 1, September 4, and November
6. 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 matters within the jurisdiction of the Board.

291

FEDERAL RESERVE BANKS AND
BRANCHES
(December 31, 1970)

CHAIRMEN AND DEPUTY CHAIRMEN OF
BOARDS OF DIRECTORS
Federal Reserve
Bank of—
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Chairman and
Federal Reserve Agent

Deputy Chairman

James S. Duesenberry
Albert L. Nickerson
Willis J. Winn
Albert G. Clay
Wilson H. Elkins
Edwin I. Hatch
Emerson G. Higdon
Frederic M. Peirce
(Vacancy)
Dolph Simons
Carl J. Thomsen
O. Meredith Wilson

John M. Fox
James M. Hester
Bayard L. England
J. Ward Keener
Robert W. Lawson, Jr.
John C. Wilson
William H. Franklin
Smith D. Broadbent, Jr.
David M. Lilly
Willard D. Hosford, Jr.
Chas. F. Jones
S. Alfred Halgren

CONFERENCE OF CHAIRMEN
The Chairmen of the Federal Reserve Banks are organized into a Conference
of Chairmen that meets from time to time to consider matters of common interest and to consult with and advise the Board of Governors. Such a meeting,
attended also by Deputy Chairmen of the Reserve Banks, was held in Washington on December 3-4, 1970.
Mr. Winn, Chairman of the Federal Reserve Bank of Philadelphia, who was
elected Chairman of the Conference and of its Executive Committee in December 1969, served in that capacity until the close of the 1970 meeting. Mr. Clay,
Chairman of the Federal Reserve Bank of Cleveland, and Mr. Nickerson,
Chairman of the Federal Reserve Bank of New York, served with Mr. Winn as
members of the Executive Committee; Mr. Clay also served as Vice Chairman
of the Conference.
On December 4, 1970, Mr. Clay was elected Chairman of the Conference
and of its Executive Committee to serve for the succeeding year; Mr. Nickerson was elected Vice Chairman of the Conference and a member of the Executive Committee; and Mr. Wilson, Chairman of the Federal Reserve Bank of
San Francisco, was elected as the other member of the Executive Committee.

292

F.R. BANKS AND BRANCHES—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.
Term
expires
DIRECTORS

District 1—BOSTON

Dec. 31

Class A:

William R. Kennedy
John Simmen
Tucker H. David

President, Merrimack Valley National Bank,
Andover, Mass
1970
Chairman of the Board and Chief Executive
Officer, Industrial National Bank of Rhode
Island, Providence, R.I
1971
Executive Vice President, The Deep River National Bank, Deep River, Conn
1972

Class B:
James R. Carter

Chairman of the Board, Nashua Corporation,
Nashua, N.H
1970
W. Gordon Robertson. .General Trustee, Bangor Punta Corporation,
Bangor, Maine
1971
F. Ray Keyser, Jr
Vice President, Vermont Marble Company,
Proctor, Vt
1972

Class C.John M. Fox

President, United Fruit Company, Boston,
Mass
1970
James S. Duesenberry...Professor of Economics, Harvard University,
Cambridge, Mass
1971
Louis W. Cabot
Chairman of the Board, Cabot Corporation,
Boston, Mass
1972

293

F.R. BANKS AND BRANCHES—Cont.

DIRECTORS—Cont.
Class A:
R. E. McNeill, Jr
C. E. Treman, Jr
Arthur S. Hamlin

District 2—NEW YORK

Term
expires
Dec. 31

Chairman of the Board, Manufacturers Hanover Trust Company, New York, N Y
1970
President, Tompkins County Trust Company,
Ithaca, N Y
1971
President, The Canandaigua National Bank
and Trust Company, Canandaigua, N Y
1972

Class B:
William D. Eberle

President and Chief Executive Officer, American
Standard Inc., New York, N Y
1970
Milton C. Mumford.... Chairman of the Board, Lever Brothers Company, New York, N Y
1971
Maurice R. Forman
Chairman of the Board, B. Forman Co.,
Rochester, N Y
1972

Class C:
James M. Hester

President, New York University, New York,
NY
1970
Roswell L. Gilpatric
Partner, Cravath, Swaine and Moore, Attorneys, New York, N Y
1971
Albert L. Nickerson.... Former Chairman of the Board, Mobil Oil
Corporation, New York, N.Y
1972
BUFFALO BRANCH

Appointed by Federal Reserve Bank:
Wilmot R. Craig
Chairman of the Board, Lincoln Rochester
Trust Company, Rochester, N Y
Charles L. Hughes
President, The Silver Creek National Bank,
Silver Creek, N Y
James I. Wyckoff
President, The National Bank of Geneva, N.Y.
David J. Laub
President, Marine Midland Trust Company of
Western New York, Buffalo, N Y

1970
1970
1971
1972

Appointed by Board of Governors:
Robert S. Bennett
Former General Manager, Lackawanna Plant,
Bethlehem Steel Corporation, Buffalo, N Y.. 1970
Norman F. Beach
Vice President, Eastman Kodak Company,
Rochester, N Y
1971
Morton Adams
General Manager, Pro-Fac Cooperative Inc.,
Rochester, N.Y
1972

294

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Cont.
Class A:
H. Lyle Duffey
Harold F. Still, Jr
William R. Cosby

District 3—PHILADELPHIA

Term
expires
Dec. 31

Executive Vice President, The First National
Bank, McConnellsburg, Pa
1970
President, Central Penn National Bank of Philadelphia, Pa
1971
Chairman of the Board, Princeton Bank and
Trust Company, Princeton, N J
1972

Class B:
Philip H. Glatfelter, III..Chairman of the Board and President, P.H.
Glatfelter Co., Spring Grove, Pa
1970
Henry A. Thouron
Chairman of the Board, Hercules Incorporated,
Wilmington, Del
1971
Edward J. Dwyer
President, ESB Incorporated, Philadelphia, Pa. 1972
Class C.Willis J. Winn

Dean, Wharton School of Finance and Commerce, University of Pennsylvania, Philadelphia, Pa
1970
D. Robert Yarnall, Jr.. .President, Yarway Corporation, Blue Bell, Pa.. 1971
Bayard L. England
Chairman of the Board, Atlantic City Electric
Company, Atlantic City, N J
1972

District 4—CLEVELAND
Class A :
Seward D. Schooler. . . .President, Coshocton National Bank, Coshocton, Ohio
1970
George F. Karch
Chairman of the Board and Chief Executive
Officer, The Cleveland Trust Company,
Cleveland, Ohio
1971
David L. Brumback, Jr.. President, Van Wert National Bank, Van Wert,
Ohio
1972
Class B:
John L. Gushman

President and Chief Executive Officer, Anchor
Hocking Corporation, Lancaster, Ohio
1970
J. William Henderson, Jr. Henderson & Associates, Columbus, Ohio
1971
R. Stanley Laing
President, The National Cash Register Company, Dayton, Ohio
1972

295

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Com.
Class C:
J. Ward Keener

Horace A. Shepard
Albert G. Clay

District 4—CLEVELAND—Gont.

Term
expires
Dec. 31

Chairman of the Board and Chief Executive
Officer, The B.F. Goodrich Company, Akron, Ohio
1970
Chairman of the Board and Chief Executive
Officer, TRW, Inc., Cleveland, Ohio
1971
President, Clay Tobacco Company, Mt. Sterling, Ky
1972
CINCINNATI BRANCH

Appointed by Federal Reserve Bank:
Fletcher E. Nyce
Chairman of the Board and Chief Executive
Officer, The Central Trust Company, Cincinnati, Ohio
Robert B. Johnson
President, Pikeville National Bank & Trust
Company, Pikeville, Ky
Edward W. Barker
President, First National Bank of Middletown,
Ohio
(Vacancy)

1970
1971
1972
1972

Appointed by Board of Governors:
Orin E. Atkins
President, Ashland Oil, Inc., Ashland, Ky
1970
Graham E. Marx
President and General Manager, The G.A.
Gray Company, Cincinnati, Ohio
1971
Phillip R. Shriver
President, Miami University, Oxford, Ohio... 1972
PITTSBURGH BRANCH

Appointed by Federal Reserve Bank:
George S. Cook
President, Somerset Trust Company, Somerset,
Pa
Charles H. Bracken
President, Marine National Bank, Erie, Pa
Robinson F. Barker.... Chairman of the Board and Chief Executive
Officer, PPG Industries, Pittsburgh, Pa
J. W. Bingham
President, The Merchants & Manufacturers
National Bank, Sharon, Pa

296

1970
1971
1972
1972

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Cont. District 4—CLEVELAND—Gont.

Term
expires
Dec. 31

PITTSBURGH BRANCH—Cont.

Appointed by Board of Governors:
B. R. Dorsey
President, Gulf Oil Corporation, Pittsburgh,
Pa
1970
Richard M. Cyert
Dean, Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Pa
1971
Lawrence E. Walkley.. .President and Chief Executive Officer, Westinghouse Air Brake Company, Pittsburgh,
Pa
1972
District 5—RICHMOND
Class A:
Giles H. Miller, Jr

President, The Culpeper National Bank, Culpeper, Va
1970
Douglas D. Monroe, Jr..President, Chesapeake National Bank, Kilmarnock, Va
1971
Hugh A. Curry
President, The Kanawha Valley Bank, Charleston, W. Va
1972

Class B:
H. Dail Holderness
Charles D. Lyon
Robert S. Small

President, Carolina Telephone and Telegraph
Company, Tarboro, N.C
1970
Former President, The Potomac Edison Company, Hagerstown, Md
1971
President,Dan River Mills Incorporated, Greenville, S.C
1972

Class C.Stuart Shumate

President, Richmond, Fredericksburg, and Potomac Railroad Company, Richmond, Va... 1970
Wilson H. Elkins
President, University of Maryland, College
Park, Md
1971
Robert W. Lawson, Jr... Managing Partner of Charleston Office, Steptoe
& Johnson, Attorneys at Law, Charleston,
W. Va
1972

297

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Com.

District 5—RICHMOND—Gont.

Term
expires
Dec. 31

BALTIMORE BRANCH

Appointed by Federal Reserve Bank:
Adrian L. McCardell.. .Chairman of the Board, First National Bank
of Maryland, Baltimore, Md
James J. Robinson
Executive Vice President, Bank of Ripley,
W. Va
Tilton H. Dobbin
President and Chairman of the Executive Committee, Maryland National Bank, Baltimore,
Md
J. R. Chaffinch, Jr
Executive Vice President, The Denton National
Bank, Denton, Md

1970
1970
1971
1972

Appointed by Board of Governors:
John H. Fetting, Jr
President, A. H. Fetting Company, Baltimore,
Md
1970
James M. Jarvis
Chairman of the Board, Jarvis, Downing &
Emch, Inc., Clarksburg, W. Va
1971
Arnold J. Kleff, Jr
Manager, Baltimore Refinery, American Smelting and Refining Company, Baltimore, Md... 1972

CHARLOTTE BRANCH

Appointed by Federal Reserve Bank:
C. C. Cameron
Chairman of the Board and President, First
Union National Bank of North Carolina,
Charlotte, N.C
H. Phelps Brooks, Jr
President, The Peoples National Bank, Chester, S.C
L. D. Coltrane, III
President, The Concord National Bank, Concord, N.C
J. Willis Cantey
President, The Citizens and Southern National
Bank of South Carolina, Columbia, S.C

1970
1970
1971
1972

Appointed by Board of Governors:
William B. McGuire
President, Duke Power Company, Charlotte,
N.C
1970
John L. Fraley
President, Carolina Freight Carriers Corporation, Cherryville, N.C
1971
E. Craig Wall, Sr
Chairman of the Board, Canal Industries, Inc.,
Conway, S.C
1972

298

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Cont.
Class A:
A. L. Ellis
John W. Gay
William B. Mills

District 6 — A T L A N T A

Term
expires
Dec. 31

Chairman of the Board, First National Bank,
Tarpon Springs, Fla
1970
President, The First National Bank of Scottsboro, Ala
1971
President, The Florida National Bank, Jacksonville, Fla
1972

Class B:
Hoskins A. Shadow. . . .President, Tennessee Valley Nursery, Inc., Winchester, Tenn
1970
Owen Cooper
President, Mississippi Chemical Corporation
and Coastal Chemical Corporation, Yazoo
City, Miss
1971
Philip J. Lee
Vice President, Tropicana Products, Inc.,
Tampa, Fla
1972
Class C.John C. Wilson
Edwin I. Hatch
F. Evans Farwell

President, Home-Wilson, Inc., Atlanta, Ga
1970
President, Georgia Power Company, Atlanta,
Ga
1971
President, Milliken and Farwell, Inc., New
Orleans, La
1972
BIRMINGHAM BRANCH

Appointed by Federal Reserve Bank :

Arthur L. Johnson

President, Camden National Bank, Camden,
Ala
George A. LeMaistre.. .President, City National Bank, Tuscaloosa,
Ala
K. M. Varner, Jr
President, The First National Bank of Auburn,
Ala
Harvey Terrell
Chairman of the Board, The First National
Bank of Birmingham, Ala

1970
1970
1971
1972

Appointed by Board of Governors:

Caldwell Marks
W. Cecil Bauer
E. Stanley Robbins

Chairman of the Board, Motion Industries, Inc.,
Birmingham, Ala
1970
President, South Central Bell Telephone Company, Birmingham, Ala
1971
President, National Floor Products Company,
Inc., Florence, Ala
1972

299

F.R. BANKS A N D BRANCHES—Cont.

DIRECTORS—Com.

District 6 — A T L A N T A — G o n t .

Term
expires
Dec. 31

JACKSONVILLE BRANCH

Appointed by Federal Reserve Bank:
Harry Hood Bassett
Chairman of the Board, The First National
Bank, Miami, Fla
.
John Y. Humphress... .Executive Vice President, Capital City First
National Bank, Tallahassee, Fla
Edward W. Lane, Jr... .President, The Atlantic National Bank, Jacksonville, Fla
James G. Richardson.. .Chairman of the Board and President, The
Commercial Bank and Trust Company of
Ocala, Fla
Appointed by Board of Governors:
Henry Cragg
Vice President, Coca-Cola Company Foods
Division, Orlando, Fla
Castle W. Jordan
President, AO Industries, Inc., Coral Gables,
Fla
Henry K. Stanford
President, University of Miami, Coral Gables,
Fla

1970
1970
1971

1972

1970
1971
1972

NASHVILLE BRANCH

Appointed by Federal Reserve Bank:
Hubert A. Crouch, Jr.. .Executive Vice President, Third National Bank
in Nashville, Tenn
W. H. Swain
President, First National Bank, Oneida, Tenn..
Hugh M. Willson
President, Citizens National Bank, Athens,
Tenn
Edward C. Huffman
Chairman of the Board and President, First
National Bank, Shelbyville, Tenn
Appointed by Board of Governors:
Robert M. Williams
President, ARO Inc., Tullahoma, Tenn
Edward J. Boling
President, The University of Tennessee, Knoxville, Tenn
Roy J. Fisher
Manager, Tennessee Operations, Aluminum
Company of America, Alcoa, Tenn

300

1970
1970
1971
1972

1970
1971
1972

F.R. BANKS AND BRANCHES-Cont.

DIRECTORS—Com.

District 6—ATLANTA—Cont.

Term
expires
Dec. 31

NEW ORLEANS BRANCH

Appointed by Federal Reserve Bank:
Lucien J. Hebert, Jr
Executive Vice President, Lafourche National
Bank of Thibodaux, La
Morgan Whitney
Senior Vice President, Whitney National Bank
of New Orleans, La
E. W. Haining
President, The First National Bank of Vicksburg, Miss
H. P. Heidelberg, Jr
President, Pascagoula-Moss Point Bank, Pascagoula, Miss

1970
1970
1971
1972

Appointed by Board of Governors:
Robert H. Radcliff, Jr...President, Southern Industries Corporation,
Mobile, Ala
1970
Frank G. Smith
Vice President, Mississippi Power & Light
Company, Jackson, Miss
1971
D. Ben Kleinpeter
Wholesale Manager, Kleinpeter Farms Dairy,
Inc., Baton Rouge, La
1972
District 7—CHICAGO
Class A:
Melvin C. Lockard
Floyd F. Whitmore

President, First National Bank, Mattoon, 111... 1970
President, The Okey-Vernon National Bank,
Corning, Iowa
1971
Edward Byron Smith.. .Chairman of the Board, The Northern Trust
Company, Chicago, 111
1972

Class B:
Howard M. Packard

Vice Chairman, S. C. Johnson & Son, Inc.,
Racine, Wis
1970
Joseph O. Waymire
Former Vice President for Finance and Treasurer, Eli Lilly Company, Indianapolis, Ind... 1971
William H. Davidson.. .President, Harley-Davidson Motor Co., Inc.,
Milwaukee, Wis
1972

Class C:
Franklin J. Lunding

Chairman of the Finance Committee, Jewel
Companies, Inc., Melrose Park, 111
1970
William H. Franklin... .President, Caterpillar Tractor Co., Peoria, 111.. 1971
Emerson G. Higdon
President, The Maytag Company, Newton,
Iowa
1972

301

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Cont.

District 7—CHICAGO—Cont.

Term
expires
Dec. 31

DETROIT BRANCH

Appointed by Federal Reserve Bank:
Raymond T. Perring
Chairman of the Board, The Detroit Bank and
Trust Company, Detroit, Mich
B. P. Sherwood, Jr
President, Security First Bank & Trust Company, Grand Haven, Mich
George L. Whyel
President, Genesee Merchants Bank & Trust
Company, Flint, Mich
Roland A. Mewhort... .Chairman of the Board, Manufacturers National Bank of Detroit, Mich

1970
1971
1972
1972

Appointed by Board of Governors:
L. Wm. Seidman
Resident Partner, Seidman & Seidman, Grand
Rapids, Mich
1970
Peter B. Clark
Chairman of the Board and President, The
Evening News Association, Detroit, Mich... 1971
W. M. Defoe
Chairman of the Board, Defoe Shipbuilding
Company, Bay City, Mich
1972

District 8—ST. LOUIS
Class A:
Bradford Brett
James P. Hickok
Cecil W. Cupp, Jr
Class B:
Mark Townsend
Sherwood J. Smith
Edward J. Schnuck

President, The First National Bank of Mexico,
Mo
1970
Chairman of the Executive Committee, First
National Bank in St. Louis, Mo
1971
President, Arkansas Bank & Trust Company,
Hot Springs, Ark
1972
Chairman of the Board, Townsend Lumber
Company, Inc., Stuttgart, Ark
1970
Chairman and President, D/P Computer Services, Inc., Evansville, Ind
1971
Chairman of the Board, Schnuck Markets, Inc.,
St. Louis, Mo
1972

Class C:
Smith D. Broadbent, Jr..Broadbent Hybrid Seed Co., Cadiz, Ky
1970
Frederic M. Peirce
Chairman of the Board and Chief Executive
Officer, General American Life Insurance
Company, St. Louis, Mo
1971
Sam Cooper
President, HumKo Products, Division of
Kraftco Corporation, Memphis, Tenn
1972

302

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS-Com.

District 8—ST. LOUIS—Gont.

Term
expires
Dec. 31

LITTLE ROCK BRANCH

Appointed by Federal Reserve Bank:
Edward M. Penick
President and Chief Executive Officer, Worthen Bank & Trust Company, Little Rock,
Ark
Louis E. Hurley
Chairman of the Board, The Exchange Bank &
Trust Company, El Dorado, Ark
Ellis E. Shelton
President, The First National Bank of Fayetteville, Ark
Wayne A. Stone
Chairman of the Board and Chief Executive
Officer, Simmons First National Bank of
Pine Bluff, Ark

1970
1971
1972
1972

Appointed by Board of Governors:
Fred I. Brown, Jr
President, Arkansas Foundry Company, Little Rock, Ark
1970
Al Pollard
President, Brooks-Pollard Company, Little
Rock, Ark
1971
Jake Hartz, Jr
President, Jacob Hartz Seed Co., Inc., Stuttgart, Ark
1972

LOUISVILLE BRANCH

Appointed by Federal Reserve Bank:
J. E. Miller
Executive Vice President, Sellersburg State
Bank, Sellersburg, Ind
Hugh M. Shwab
Vice Chairman of the Board, First National
Bank of Louisville, Ky
Paul Chase
President, The Bedford National Bank, Bedford, Ind
James C. Zimmerman.. .Executive Vice President, The Owensboro National Bank, Owensboro, Ky

1970
1971
1972
1972

Appointed by Board of Governors:
Harry M. Young, J r . . . . Melrose Farms, Herndon, Ky
1970
Ronald E. Reitmeier
President, Catalysts and Chemicals Inc., Louisville, Ky
1971
John G. Beam
President, Thomas Industries Inc., Louisville,
Ky
1972

303

F.R. BANKS AND BRANCHES—Cont.

DIRECTORS—Com.

District 8—ST. LOUIS—Gont.

Term
expires
Dec. 31

MEMPHIS BRANCH

Appointed by Federal Reserve Bank:
J. J. White
President, Helena National Bank, Helena, Ark.
Wade W. Hollowell... .President, The First National Bank of Greenville, Miss,
James R. Fitzhugh
Executive Vice President, Bank of Ripley, Tenn.
Wayne W. Pyeatt
President, National Bank of Commerce, Memphis, Tenn

1970
1971
1972
1972

Appointed by Board of Governors:
Alvin Huffman, Jr
President, Huffman Brothers Incorporated,
Blytheville, Ark
1970
C. Whitney Brown
President, S. C. Toof & Company, Memphis,
Tenn
1971
William L. Giles
President, Mississippi State University, State
College, Miss
1972

District 9—MINNEAPOLIS
Class A:
Warren F. Vaughan... .President, Security Trust & Savings Bank, Billings, Mont
1970
G. A. Dahlen
President, First National Bank of Ironwood,
Mich
1971
John Bosshard
Executive Vice President, First National Bank
of Bangor, Wis
1972
Class B:
Dale V. Andersen
John H. Bailey
David M. Heskett
Class C.Byron W. Reeve
(Vacancy)
David M. Lilly

304

President, Mitchell Packing Company, Inc.,
Mitchell, S.D
1970
President, The Cretex Companies, Inc., Elk
River, Minn
1971
President, Montana-Dakota Utilities Company,
Bismarck, N.D
1972
President, Lake Shore, Inc., Iron Mountain,
Mich
1970
1971
Chairman of the Board, Toro Manufacturing
Corporation, Minneapolis, Minn
1972

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS-Cont.

District 9—MINNEAPOLIS—Cent.

Term
expires
Dec. 31

HELENA BRANCH

Appointed by Federal Reserve Bank:
Charles H. Brocksmith.. President, First Security Bank of Glasgow,
N. A., Glasgow, Mont
1970
Glenn H. Larson
President, First State Bank of Thompson Falls,
Mont
1970
Richard D. Rubie
President, Missoula Bank of Montana, Missoula, Mont
1971
Appointed by Board of Governors:
Warren B. Jones
Secretary-Treasurer, Two-Dot Land and Livestock Company, Harlowton, Mont.
1970
William A. Cordingley..Publisher, Great Falls Tribune, Great Falls,
Mont
1971

District 10—KANSAS CITY
Class A:
C. M. Miller

President, The Farmers and Merchants State
Bank, Colby, Kan
1970
John A. O'Leary
Chairman of the Board, The Peoples State
Bank, Luray, Kan
1971
Roger D. Knight, Jr.. . .Chairman of the Board, United Banks of Colorado, Inc., Denver, Colo
1972

Class B:
Alfred E. Jordan
Stanley Learned
Cecil O. Emrich

Vice President, Trans World Airlines, Kansas
City, Mo
1970
Phillips Petroleum Company, Bartlesville, Okla. 1971
Manager,Norfolk Livestock Market, Inc., Norfolk, Nebr
1972

Class C.
Dolph Simons
Robert W. Wagstaff

Editor, Journal-World, Lawrence, Kan
1970
President, Kansas City Coca-Cola Bottling
Company, Kansas City, Mo
1971
Willard D. Hosford, Jr..Vice President and General Manager, John
Deere Company, Omaha, Nebr
1972

305

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Com.

District 10—KANSAS CITY—Gont.

Term
expires
Dec. 31

DENVER BRANCH

Appointed by Federal Reserve Bank:
Theodore D. Brown
Executive Vice President, The First National
Bank of Denver, Colo
1970
Robert L. Tripp
President, Albuquerque National Bank, Albuquerque, N. Mex
1970
Armin B. Barney
Chairman of the Board, The Colorado Springs
National Bank, Colorado Springs, Colo
1971
Appointed by Board of Governors:
David R. C. Brown
President, The Aspen Skiing Corporation, Aspen, Colo
1970
Cris Dobbins
Chairman of the Board and President, Ideal
Basic Industries, Inc., Denver, Colo
1971
OKLAHOMA CITY BRANCH

Appointed by Federal Reserve Bank:
Charley M. Crawford.. .President, First National Bank in Frederick,
Okla
1970
Marvin Millard
Chairman of the Board, National Bank of
Tulsa, Okla
1970
W. H. McDonald
Chairman of the Executive Committee, The
First National Bank and Trust Company of
Oklahoma City, Okla
1971
Appointed by Board of Governors:
F. W. Zaloudek
Manager, J. I. Case Implements, Kremlin,
Okla
1970
C. W. Flint, Jr
Chairman of the Board, Flint Steel Corporation, Tulsa, Okla
1971

OMAHA BRANCH

Appointed by Federal Reserve Bank:
Edward W. Lyman
President, The United States National Bank of
Omaha, Nebr
1970
John W. Hay, Jr
President, Rock Springs National Bank, Rock
Springs, Wyo
1971
S. N. Wolbach
President, The First National Bank of Grand
Island, Nebr
1971

306

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS-Cont.

District 10—KANSAS CITY—Gont.

Term
expires
Dec. 31

OMAHA BRANCH—Cont.

Appointed by Board of Governors:
Henry Y. Kleinkauf
President, Natkin & Company, Omaha, Nebr.. 1970
A. James Ebel
Vice President and General Manager, Cornhusker Television Corporation, Lincoln,
Nebr
1971

District 11—DALLAS
Class A:
J. V. Kelly
A. W. Riter, Jr
Murray Kyger

Class B:
Carl D. Newton
Hugh F. Steen
C. A. Tatum, Jr
Class C.Carl J. Thomsen
Chas. F. Jones
Philip G. Hoffman

President, The Peoples National Bank of Belton, Tex
1970
President, The Peoples National Bank of Tyler,
Tex
1971
Chairman of the Board, The First National
Bank of Fort Worth, Tex
1972

Chairman of the Board, Fox-Stanley Photo
Products, Inc., San Antonio, Tex
1970
President, El Paso Natural Gas Company, El
Paso, Tex
1971
President and Chief Executive Officer, Texas
Utilities Company, Dallas, Tex
1972
Senior Vice President, Texas Instruments Incorporated, Dallas, Tex
1970
Vice Chairman of the Board, Humble Oil &
Refining Company, Houston, Tex
1971
President, University of Houston, Tex
1972
EL PASO BRANCH

Appointed by Federal Reserve Bank:
Cullen J. Kelly
President, The First National Bank of Midland, Tex
Joe B. Sisler
President, The Clovis National Bank, Clovis,
N. Mex
Archie B. Scott
President, The Security State Bank of Pecos,
Tex
Sam D. Young, Jr
President, El Paso National Bank, El Paso,
Tex

1970
1971
1972
1972

307

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS—Com.

District 11—DALLAS—Gont.

Term
expires
Dec. 31

EL PASO BRANCH—Cont.

Appointed by Board of Governors:
Gordon W. Foster
Vice President, Farah Manufacturing Company, Inc., El Paso, Tex
1970
Joseph M. Ray
Benedict Professor of Political Science, The
University of Texas at El Paso, Tex
1971
Allan B. Bowman
President and General Manager, Banner Mining Company, Tucson, Ariz
1972
HOUSTON BRANCH

Appointed by Federal Reserve Bank:
A. G. McNeese, Jr
Chairman of the Board and Chief Executive
Officer, Bank of the Southwest National Association, Houston, Tex
Henry B. Clay
President, First Bank & Trust, Bryan, Tex
W. G. Thornell
President, The First National Bank of Port
Arthur, Tex
John E. Whitmore
Chairman of the Board, Texas Commerce Bank
National Association, Houston, Tex

1970
1971
1972
1972

Appointed by Board of Governors:
M. Steele Wright, Jr
Chairman of the Board, Texas Farm Products
Company, Nacogdoches, Tex
1970
R. M. Buckley
President, Eastex Incorporated, Silsbee, Tex... 1971
Geo. T. Morse, Jr
Vice Chairman of the Board and Chief Operating Officer, Peden Industries, Inc., Houston,
Tex
1972
SAN ANTONIO BRANCH

Appointed by Federal Reserve Bank:
Ray M. Keck, Jr
President, Union National Bank of Laredo,
Tex
James T. Denton, J r . . . . President, Corpus Christi Bank and Trust,
Corpus Christi, Tex
T. C. Frost, Jr
President, The Frost National Bank of San
Antonio, Tex
W. O. Roberson
President, First National Bank at Brownsville,
Tex

308

1970
1971
1972
1972

F.R. BANKS AND BRANCHES—Cont.

DIRECTORS—Com.

District 11—DALLAS—Gont.

Term
expires
Dec. 31

SAN ANTONIO BRANCH—Cont.

Appointed by Board of Governors:
Lloyd M. Knowlton
General Manager, Knowlton's Creamery, San
Antonio, Tex
1970
Francis B. May
Professor of Business Statistics, The University of Texas, Austin, Tex
1971
W. A. Belcher
Veterinarian and Rancher, Brackettville, Tex... 1972

District 12—SAN FRANCISCO
Class A:
Charles F. Frankland.. .Chairman of the Board, The Pacific National
Bank of Washington, Seattle, Wash
1970
Ralph V. Arnold
Chairman of the Board and Chief Executive
Officer, First National Bank and Trust Company, Ontario, Calif
1971
Carroll F. Byrd
President, The First National Bank of Willows,
Calif.
1972
Class B:
Marron Kendrick

Chairman of the Board and President, Schlage
Lock Company, San Francisco, Calif.
1970
Herbert D. Armstrong. .Treasurer, Standard Oil Company of California, San Francisco, Calif.
1971
Joseph Rosenblatt
Honorary Chairman of the Board, The Eimco
Corporation, Salt Lake City, Utah
1972

Class C:
O. Meredith Wilson. .. .President and Director, Center for Advanced
Study in the Behavioral Sciences, Stanford,
Calif.
1970
Bernard T. Rocca, Jr
Chairman of the Board, Pacific Vegetable Oil
Corporation, San Francisco, Calif.
1971
S. Alfred Halgren
Senior Vice President, Carnation Company,
Los Angeles, Calif.
1972

309

F.R. BANKS AND BRANCHES—Cont.
DIRECTORS-Cont. District 12—SAN FRANCISCO—Cont.

Term
expires
Dec. 31

LOS ANGELES BRANCH

Appointed by Federal Reserve Bank:
Harry J. Volk
Chairman of the Board and Chief Executive
Officer, Union Bank, Los Angeles, Calif.
Carl E. Schroeder
President, The First National Bank of Orange
County, Orange, Calif.
Linus E. Southwick
President, Valley National Bank, Glendale,
Calif
Sherman Hazeltine
Chairman of the Board and Chief Executive
Officer, First National Bank of Arizona,
Phoenix, Ariz

1970
1970
1970
1971

Appointed by Board of Governors:
Norman B. Houston
Director and Consultant, Golden State Mutual
Life Insurance Company, Los Angeles, Calif. 1970
J. Leland Atwood
Senior Consultant, North American Rockwell
Corporation, Los Angeles, Calif.
1971
Leland D. Pratt
President, Kelco Company, San Diego, Calif... 1972
PORTLAND BRANCH

Appointed by Federal Reserve Bank:
E. W. Firstenburg
Chairman of the Board and President, First
Independent Bank, Vancouver, Wash
1970
James H. Stanard
Vice President, First National Bank of McMinnville, Oreg
1970
Ralph J. Voss
President, First National Bank of Oregon,
Portland, Oreg
1971
Appointed by Board of Governors:
Robert F. Dwyer
Dwyer Forest Products Company, Portland,
Oreg
1970
Frank Anderson
Farmer, Heppner, Oreg
1971
SALT LAKE CITY BRANCH

Appointed by Federal Reserve Bank:
Roy W. Simmons
President and Chairman of the Executive Committee, Zions First National Bank, Salt
Lake City, Utah
1970
Roderick H. Browning. .President, Bank of Utah, Ogden, Utah
1970
William E. Irvin
Chairman of the Board, The Idaho First National Bank, Boise, Idaho
1971

310

F.R. BANKS AND BRANCHES—Cont.

DIRECTORS—Com. District 12—SAN FRANCISCO—Gont.

Term
expires
Dec. 31

SALT LAKE CITY BRANCH—Cont.

Appointed by Board of Governors:
Peter E. Marble
Rancher, Deeth, Nev
1970
Royden G. Derrick
President and General Manager, Western
Steel Company, Salt Lake City, Utah
1971
SEATTLE BRANCH

Appointed by Federal Reserve Bank:
A. E. Saunders
President, Puget Sound National Bank, Tacoma, Wash
1970
Philip H. Stanton
President, Washington Trust Bank, Spokane,
Wash
1970
Joseph C. Baillargeon.. .Chairman of the Board, Seattle Trust & Savings Bank, Seattle, Wash
1971
Appointed by Board of Governors:
C. Henry Bacon, Jr
Vice Chairman of the Board, Simpson Timber
Company, Seattle, Wash
1970
Francis G. Crane
Manager, Crane and Crane Orchards and Cold
Storage, Brewster, Wash
1971

311

F.R. BANKS AND BRANCHES—Cont.

PRESIDENTS AND VICE PRESIDENTS
(December 31, 1970)
Federal
Reserve
Bank

President
First Vice President

Vice Presidents

or branch
Boston

Frank E. Morris
E. O. Latham

New York... Alfred Hayes

William F. Treiber

Buffalo
Philadelphia. David P. Eastburn

David C. Melnicoff

Cleveland. . . (Temporarily vacant)

W. H. MacDonald

Cincinnati
Pittsburgh
Richmond. . . Aubrey N. Heflin

Robert P. Black

Baltimore
Charlotte

312

D. Harry Angney
Daniel Aquilino
Lee J. Aubrey
Ansgar R. Berge
R. W. Eisenmenger Luther M. Hoyle, Jr.
Donald A. Pelletier Maurice P. Shea, III
Laurence H. Stone Jarvis M. Thayer, Jr.
James T. Timberlake5 Richard A. Walker
Parker B. Willis
David E. Bodner
W. H. Braun, Jr.
John J. Clarke
Charles A. Coombs
Richard A. Debs
Peter Fousek
Edward G. Guy
Marcus A. Harris
Alan R. Holmes
John T. Keane
Robert G. Link
Fred W. Piderit, Jr.
Everett B. Post
Peter D. Sternlight
T. M. Timlen, Jr.
Thomas O. Waage
Angus A. Maclnnes, Jr.
Edward A. Aff
Joseph R. Campbell
Norman G. Dash
William A. James
L. C. Murdoch

Hugh Barrie
Joseph M. Case
Ralph E. Haas
G. William Metz
James V. Vergari

George E. Booth, Jr Paul Breidenbach
Roger R. Clouse
Elmer F. Fricek
R. Joseph Ginnane W. H. Hendricks
William J. Hocter
John J. Hoy
Harry W. Huning
Frederick S. Kelly
Clifford G. Miller
Fred O. Kiel
Clyde E. Harrell
J. G. Dicker son, Jr.
John G. Deitrick
Welford S. Farmer William C. Glover
Upton S. Martin
Arthur V. Myers, Jr.
John L. Nosker
James Parthemos
John F. Rand
R. E. Sanders, Jr.
Aubrey N. Snellings William F. Upshaw
H. Lee Boatwright, III
A. A. Stewart, Jr.
Stuart P. Fishburne
Jimmie R. Vlonhollon

F.R. BANKS AND BRANCHES—Cont.
PRESIDENTS AND VICE PRESIDENTS—Cont.

Federal
Reserve
Bank

President
First Vice President

Vice Presidents

or branch
Atlanta

Monroe Kimbrel
Kyle K. Fossum

Birmingham
Jacksonville
Nashville
New
Orleans
Chicago

Dan L. Hendley
E. C. Rainey
Jeffrey J. Wells
Arthur H. Kantner
Robert P. Mayo
Ernest T. Baughman

Carl E. Bierbauer
George W. Cloos
LeRoy A. Davis
Elbert O. Fults
A. M. Gustavson
Edward A. Heath
Ward J. Larson
James R. Morrison
Richard A. Moffatt R. M. Scheider
Karl A. Scheld
Harry S. Schultz
Bruce L. Smyth
Joseph J. Srp
Lynn A. Stiles
Jack P. Thompson
Allen G. Wolkey
Daniel M. Doyle
Gordon W. Lamphere

Darryl R. Francis
Dale M. Lewis

Leonall C. Andersen
Gerald T. Dunne
Homer Jones
Stephen Koptis
F. G. Russell, Jr.
Howard H. Weigel

Detroit
St. Louis

Little
Rock
Louisville
Memphis

Marvin L. Bennett
W. W. Gilmore
Jerry L. Jordan
John W. Menges
Harold E. Uthoff
Joseph C. Wotawa

John F. Breen
Donald L. Henry
Laurence T. Britt
Eugene A. Leonard

Minneapolis. Hugh D. Galusha, Jr.

M. H. Strothman, Jr.

Helena
1

Harry Brandt
J. E. McCorvey
W. M. Davis1
Robert P. Forrestal
George H. Gaffney Billy H. Hargett
Robert E. Moody, Jr. Brown R. Rawlings
Richard A. Sanders R. M. Stephenson
Charles T. Taylor

Frederick J. Cramer
L. W. Fernelius
Ronald D. Graham
John A. MacDonald
Clarence W. Nelson
C. A. Van Nice
Howard L.

Ralph J. Dreitzler
Lester G. Gable
Douglas R. Hellweg
David R. McDonald
John P. Olin
R. W. Worcester
Knous

Located in Miami.

313

F.R. BANKS AND BRANCHES—Cont.

PRESIDENTS AND VICE PRESIDENTS—Cont.

Federal
Reserve
Bank

President
First Vice President

Vice Presidents

or branch
Kansas City. George H. Clay
John T. Boysen
Denver
Oklahoma
City
Omaha
Dallas

W. T. Billington
Raymond J. Doll
Joseph R. Euans
Carl F. Griswold
Wayne W. Martin M. L. Mothersead
Robert E. Thomas Clarence W. Tow
John W. Snider
Howard W. Pritz
George C. Rankin

Philip E. Coldwell
T. W. Plant

El Paso
Houston
San
Antonio
San
Francisco.. Eliot J. Swan
A. B. Merritt
Los
Angeles
Portland
Salt Lake
City
Seattle

314

Robert H. Boykin
Leon W. Cowan
James A. Parker
Tony J. Salvaggio
E. W. Vorlop
Fredric W.
J. L. Cook

James L. Cauthen
Ralph T. Green
W. M. Pritchett
Thomas R. Sullivan
Reed

Carl H. Moore
J. Howard Craven
Irwin L. Jennings
E. J. Martens
Rix Maurer, Jr.

D. M. Davenport
G. R. Kelly
D. V. Masten
J. B. Williams

P. W. Cavan
W. G. DeVries
W. M. Brown
A. L. Price
W. R. Sandstrom

F.R. BANKS AND BRANCHES—Cont.

CONFERENCE OF PRESIDENTS
The Presidents of the Federal Reserve Banks are organized into a Conference
of Presidents that meets from time to time to consider matters of common
interest and to consult with and advise the Board of Governors. Mr. Hickman,
President of the Federal Reserve Bank of Cleveland, and Mr. Galusha, President of the Federal Reserve Bank of Minneapolis, were elected Chairman of
the Conference and Vice Chairman, respectively, in March 1970. Mr. Hickman
served as Chairman until his death on November 28, 1970. At the December
14, 1970, meeting, Mr. Galusha and Mr. Francis, President of the Federal
Reserve Bank of St. Louis, were elected Chairman and Vice Chairman, respectively, for the remainder of the current Conference year and the forthcoming
Conference year, ending with the March 1972 meeting.
Mr. Lester M. Selby of the Federal Reserve Bank of Cleveland and Mr.
Melvin L. Burstein of the Federal Reserve Bank of Minneapolis were appointed
Secretary of the Conference and Assistant Secretary, respectively, in March
1970. Mr. Selby served through the December 14, 1970, meeting. Mr. Burstein
and Mr. Joseph P. Garbarini of the Federal Reserve Bank of St. Louis were
appointed Secretary and Assistant Secretary, respectively, at the December 14,
1970, meeting.

CONFERENCE OF FIRST VICE PRESIDENTS
In 1969 a Conference of First Vice Presidents was organized to meet from
time to time, primarily for the consideration of operational matters. Mr.
Helmer, First Vice President of the Federal Reserve Bank of Chicago, and Mr.
MacDonald, First Vice President of the Federal Reserve Bank of Cleveland,
were selected as Chairman of the Conference and Vice Chairman, respectively.
Mr. Arthur G. Stone and Mr. Lester M. Selby were appointed Secretary of the
Conference and Assistant Secretary, respectively.
Effective March 11, 1970, Mr. MacDonald and Mr. Strothman, First Vice
President of the Federal Reserve Bank of Minneapolis, were elected Chairman
and First Vice Chairman of the Conference. Mr. Selby and Mr. Melvin L.
Burstein were appointed Secretary and Assistant Secretary, respectively.

315

Index
Page

Acceptance powers of member banks
199
Acceptances, bankers':
Authority to purchase and enter into repurchase agreements
84-85
Federal Reserve Bank holdings
205, 206, 214, 216, 218
Federal Reserve earnings on
206, 224
Open market transactions during 1970
222
Arbitrage transactions, margin requirements for, amendment of Regulations
TandU..70
Assets and liabilities:
Banks, by classes
233
Board of Governors
210
Federal Reserve Banks
214-19
Balance of payments (See U.S. balance of payments)
Bank Examination Schools
202
Bank examiners, home mortgage loans to, legislative recommendation. . . 188
Bank holding companies:
Board actions with respect to
199
Litigation
192
Bank Holding Company Act Amendments of 1970
185
Bank mergers and consolidations
198, 242-85
Bank premises, Federal Reserve Banks and branches. . .208, 214, 216, 218, 223
Bank Protection Act of 1968, joint report submitted to Congress pursuant to 203
Bank supervision and regulation by the Federal Reserve System
195-203
Banking offices:
Number, changes
238
Par and nonpar, number
240
Board of Governors:
Audit of accounts
209
Building annex
209
Delegation of authority, actions under
201
Foreign credit restraint program
66, 180-83
Income and expenses
209-12
Legislative recommendations
187-91
Litigation
192-94
Members and officers
288
Policy actions
61-82
Regulations (See Regulations)
Reports to Congress
203

316

INDEX
Page
Board of Governors—Continued
Salaries
Truth in Lending {See Truth in Lending)
Branch banks:
Banks, by classes, changes in number
Federal Reserve:
Bank premises
Branch buildings, legislative recommendation
Directors
Vice Presidents in charge
Foreign branches of member banks, number and location
Business sector adjustments

211
238
208, 223
190
293-311
312-14
199, 200
47-52

Capital accounts:
Banks, by classes
233
Federal Reserve Banks
215, 217, 219
Chairmen and Deputy Chairmen of Federal Reserve Banks
292
Clearing and collection:
Par clearance, legislative recommendation
187
Volume of operations
228
Commercial banks:
Assets and liabilities
233
Banking offices, changes in number
238
Foreign credit restraint program
66, 180-83
Number, by class of bank
233
Par clearance, legislative recommendation
187
Commercial paper of member banks, interest rate limitations and reserve
requirements, amendment of Regulations D and Q
73, 75
Condition statement of Federal Reserve Banks
214-19
Consumer attitudes and behavior
34-37
Credit:
Availability at banks, easing
42-46
Cards, issuance and liabilities for their unauthorized use, legislation. . . . 185
Emergency:
Facilities for nonmember depositary institutions, extensions
67
Loan guarantees to business, legislative recommendation
189
Insurance companies, certain credit by, subject to Regulation G rather
than T
68
Reporting and retention of records, legislation
185
Stock market credit {See Stock market credit)
Truth in Lending {See Truth in Lending)
Currency, foreign and domestic transactions, legislation
185

317

INDEX
Page
Defense Production Act, amendment and extensions
184
Defense production loans
72, 206, 229
Deposits:
Banks, by classes
233
Federal funds transactions as, amendment of Regulations D and Q
61
Federal Reserve Banks
215, 217, 219, 235, 237
Obligations (so-called commercial paper) issued by affiliate or member
bank as, amendment of Regulations D and Q
73, 75
Reserve requirements {See Reserve requirements)
Time and savings deposits:
Computation of interest on, amendment of Regulation Q
82
Foreign {See Foreign time deposits)
Maximum interest rates on:
Increases
62, 64
Table
232
Suspension of short-term ceilings on certain single-maturity time
deposits, amendment of Regulation Q
74
Deputy Chairmen of Federal Reserve Banks
292
Directors, Federal Reserve Banks and branches
293-311
Discount rates at Federal Reserve Banks:
Approvals of reductions
77, 80
Table of rates
231
Discounts and advances by Federal Reserve Banks:
Holdings and earnings on
205, 206, 224
Volume
205, 214, 216, 218, 228, 234, 236
Dividends, Federal Reserve Banks
204, 225, 226
Earnings, Federal Reserve Banks
204, 224, 226
Euro-dollar borrowings
55, 81
Examinations:
Federal Reserve Banks
204
Foreign banking and financing corporations
201
Member banks
195
State member banks
195
Executive officers of member banks, loans to, reporting requirements
196
Expenses:
Board of Governors
209-12
Federal Reserve Banks
204, 224, 226
Federal Advisory Council
291
Federal agency obligations:
Federal Reserve Bank holdings and earnings
205, 206, 214, 216, 218
Open market transactions of Federal Reserve System during 1970 . .
222

318

INDEX
Page
Federal funds transactions as deposits, amendment of
Regulations D and Q
61
Federal Open Market Committee:
Audit of System Account
204
Continuing authorizations
113
Foreign currency operations, review
178
Meetings
83
Members and officers
290
Policy actions
83-177
Federal Reserve Agents
204
Federal Reserve Banks:
Advances by:
Amendment of Regulation A regarding negotiability of paper offered
by member banks and procedural and technical changes
68, 79
Assessment for expenses of Board of Governors
211, 224
Authority to purchase Govt. obligations directly from U.S., extension
of law
184
Bank premises
208, 214, 216, 218, 223
Branches (See Branch banks, Federal Reserve)
Capital accounts
215, 217, 219
Chairmen and Deputy Chairmen
292
Condition statement
214-19
Directors
293-311
Discount rates, reductions
77, 80
Dividends
204, 225, 226
Earnings and expenses
204, 224, 226
Emergency credit facilities for nonmember depositary institutions,
extensions
67
Examination
204
Federal agency obligations (See Federal agency obligations)
Foreign and international accounts
207
Lending authority, legislative recommendation
187
Officers and employees, number and salaries
228
Presidents and Vice Presidents
312-14
Profit and loss
225
Purchase of obligations of foreign govts., legislative recommendation. . . 189
U.S. Govt. securities (See U.S. Govt. securities)
Volume of operations
205, 228
Federal Reserve notes:
Condition statement data
214-19
Cost of printing, issue, and redemption
211
Interest paid to Treasury
204, 225, 226

319

INDEX
Page
Federal Reserve System:
Barik supervision and regulation by
. . . .195-203
Foreign credit restraint program
.66, 180-83
Foreign currency operations {See Foreign currency operations)
Map of Federal Reserve districts
286
Membership
197
202
Training activities
186
Financial Institutions Supervisory Act
207
Foreign and international accounts of Federal Reserve Banks . .
Foreign banking and financing corporations:
Amendment of Regulation K
64
Examination and operation
201
Foreign branches of member banks, number and location
. 199, 200
Foreign credit restraint program
.66, 180-83
Foreign currency operations:
Authorization and directive
84, 86-91, 112, 113, 119
Federal Reserve earnings on foreign currencies
224
Investment of Reserve Banks' foreign currencies in obligations of
foreign govts., legislative recommendation
189
Review
178
Foreign time deposits, exemption of certain deposits from interest
rate limitations
62
Foreign transactions, legislation
185
Gold:
Tables showing gold certificate accounts of Reserve Banks and
gold stock
214, 216, 217, 218, 219, 234, 236
Housing, responsiveness to monetary policy
Insurance companies, certain credit by, subject to Regulation G
rather than T
Insured commercial banks:
Assets and liabilities
Banking offices, changes in number
Graduated reserve requirements on deposits of, legislative
recommendation
Par clearance, legislative recommendation
Interest on deposits:
Computation, on time and savings deposits, amendment,
Regulation Q
Federal funds transactions as deposits, amendment of Regulations
D and Q
Foreign time deposits, exemption of certain deposits from interest
rate limitations

320

38-40
68
233
238
188
187

82
61
62

INDEX
Page
Interest on deposits—Continued
Maximum permissible rates:
Suspension of short-term ceilings on certain single-maturity time
deposits, amendment of Regulation Q
74
Time and savings deposits, increases
62, 64
Subordinated notes of member banks, changes in exemption from rate
limitations, amendment of Regulations D and Q
73
Interest rates (See also Interest on deposits):
Defense production loans
72, 206, 229
Discount rates at Federal Reserve Banks, reductions
77, 80
Maximum permissible rates on time and savings deposits, table
232
Interlocking bank relationships, legislative recommendation
189
Investments:
Bank investments for community development, legislative
recommendation
190
Banks, by classes
233
Federal Reserve Banks
214, 216, 218
Legislation:
Bank Holding Company Act Amendments of 1970
185
Bank investments for community development, legislative
recommendation
190
Credit cards, issuance and liabilities for their unauthorized use
185
Credit reporting, fair
185
Currency and foreign transactions, reports
185
Defense Production Act, amendment and extensions
184
Federal Reserve Banks:
Authority to buy Govt. obligations directly from U.S., extension
184
Branch buildings, legislative recommendation
190
Lending authority of, legislative recommendation
187
Purchase of obligations of foreign govts., legislative recommendation 189
Financial Institutions Supervisory Act
186
Interlocking bank relationships, legislative recommendation
189
Loan guarantees to business, legislative recommendation
189
Margin requirements, application to certain foreign transactions
185
Par clearance, legislative recommendation
187
Real estate:
Bank examiners, home mortgage loans to, legislative recommendation 188
Loans for, and commercial building construction, by national banks. . 184
Uniform Relocation Assistance and Real Property Acquisition
Policies Act of 1970
186
Recordkeeping,
financial
185
Reserve requirements, graduated, on deposits, legislative recommendation 188
Securities Investor Protection Corporation
186
Tender offers with respect to securities of member State banks . .
185

321

INDEX
Page
Litigation:
Bank holding companies
Margin requirements on securities credit transactions
Truth in Lending
Loans:
Advances by Reserve Banks {See Federal Reserve Banks)
Banks, by classes
Defense production loans
72, 184, 206,
Emergency loan guarantees to business, legislative recommendation . . . .
Euro-dollar borrowings
Executive officers of member banks, loans to, reporting requirements . .
Home mortgage loans to bank examiners, legislative recommendation
Real estate and commercial building construction, legislation
Stock market credit {See Stock market credit)

192
193
193
233
229
189
55
196
188
184

Margin requirements:
Application to certain foreign transactions, legislation
185
Arbitrage transactions, amendment of Regulations T and U
70
Litigation concerning securities credit transactions
193
Stocks and convertible bonds, reduction in requirements, amendment
of Regulations G, T, and U
71
Table
229
Member banks:
Acceptance powers
199
Advances by Reserve Banks, legislative recommendation
187
Assets, liabilities, and capital accounts
233
Banking offices, changes in number
238
Commercial paper {See Commercial paper)
Examination
195
Executive officers of, loans to, reporting requirements
196
Foreign branches, number
199, 200
Interlocking relationships, legislative recommendation
189
Number
197, 233
Par clearance, legislative recommendation
187
Reserve requirements {See Reserve requirements)
Reserves and related items
234-37
Tender offers with respect to securities of member State banks,
legislation
185
Membership in Federal Reserve System
197
Mergers and consolidations
198, 242-85
Monetary policy:
Digest of principal policy actions
I-VII (facing page 8)
Review of 1970
7-58
Mutual savings banks
233, 238

322

INDEX
Page
National banks:
Assets and liabilities
233
Banking offices, changes in number
238
Euro-dollar borrowings, amendment of Regulation M
81
Foreign branches, number
199, 200
Investments for community development, legislative recommendation . . 190
Number
197, 233
Real estate and commercial building construction loans, legislation . . . . 184
Nonmember banks:
Assets and liabilities
233
Banking offices, changes in number
238
Emergency credit facilities for, extensions
67
Par and nonpar banking offices, number
240
Par clearance, legislative recommendation
187
Policy actions, Board of Governors:
Discount rates at Federal Reserve Banks, reductions
77, 80
Emergency credit facilities for nonmember depositary institutions,
extensions
67
Foreign credit restraint program guidelines, amendment
66
Regulations (for details of Board actions, see Regulations,
Board of Governors)
Policy actions, digest of principal
Federal Reserve actions
I-VII (facing page 8)
Policy actions, Federal Open Market Committee:
Authority to effect transactions in System Account, including
current economic policy directive
83-177
Continuing authority directive on domestic operations . . . .84, 110, 127, 144
Continuing authorizations
113
Foreign currency operations, authorization
and directive
84, 86-91, 112, 113, 119
Presidents and Vice Presidents of Federal Reserve Banks:
Conference of Presidents and Conference of First Vice Presidents
315
List
312-14
Salaries of Presidents
228
Prices—wages, productivity and
28-33
Profit and loss, Federal Reserve Banks
225
Real estate:
Bank examiners, home mortgage loans to, legislative recommendation . .
Commercial building construction and real estate loans by
national banks, legislation
Uniform Relocation Assistance and Real Property Acquisition
Policies Act of 1970
Record of policy actions {See Policy actions)

188
184
186

323

INDEX

Page
Regulations, Board of Governors:
A, Advances and Discounts by Federal Reserve Banks:
Amendments regarding negotiability of paper offered by member
banks and procedural and technical changes
D. Reserves of Member Banks:
Euro-dollar borrowings, amendment
Federal funds transactions as deposits, amendment
Obligations (so-called commercial paper) issued by
affiliate or member bank, amendments
Savings deposit, definition, amendment
Time deposits in excess of $5 million, decrease in requirements

68, 79
81
61
73, 75
76
75

G, Securities Credit by Persons Other Than Banks, Brokers, or Dealers:
Insurance companies, certain credit by, subject to Regulation G
rather than T, amendment
Stocks and convertible bonds, reduction in margin requirements,
amendment

68
71

K, Corporations Engaged in Foreign Banking and Financing Under the
Federal Reserve Act:
Amendment regarding exemptions from loan limits

M, Foreign Activities of National Banks:
Euro-dollar borrowings, amendment

Q, Interest on Deposits:
Computation of interest on time and savings deposits, amendment. . .
Federal funds transactions as deposits, amendment
Foreign time deposits, exemption of certain deposits from interest
rate limitations, amendment
Maximum permissible rates on time and savings deposits, increases. . 62,
Obligations (so-called commercial paper) issued by member bank,
amendment
Suspension of short-term ceilings on certain single-maturity time
deposits, amendment
T, Credit by Brokers and Dealers:
Arbitrage transactions, amendment
Insurance companies, certain credit by, amendment
Stocks and convertible bonds, reduction in margin requirements,
amendment
U, Credit by Banks for the Purpose of Purchasing or Carrying
Margin Stocks:
Arbitrage transactions, amendment
Stocks and convertible bonds, reduction in margin requirements, amendment

324

82
61
62
64
73
74
70
68
71

70
71

INDEX
Page
Regulations, Board of Governors—Continued
V, Loan Guarantees for Defense Production:
Amendment regarding interest rate
72
Z, Truth in Lending:
Amendment of regulation and Truth in Lending Act
65, 77, 185
Litigation
193
Repurchase agreements:
Bankers' acceptances
85, 214, 216, 218, 222
Federal agency obligations
214, 216, 218, 222
U.S. Govt. securities
85, 214, 216, 218, 221, 222, 234, 236
Reserve requirements:
Graduated, on demand deposits, legislative recommendation
188
Member banks:
Euro-dollar borrowings, amendment of Regulations D and M
81
Federal funds transactions as deposits, amendment of
Regulations D and Q
61
Obligations (so-called commercial paper) issued by, or affiliate,
amendment of Regulations D and Q
73, 75
Savings deposit, definition, amendment of Regulation D
76
Table
230
Time deposits in excess of $5 million, decrease in reserves
against, amendment of Regulation D
75
Reserves:
Member banks:
Reserve requirements (See Reserve requirements)
Reserves and related items
234-37
Salaries:
Board of Governors
211
Federal Reserve Banks
228
Savings bond meetings
205
Securities (See also U.S. Govt. securities):
Application of margin requirements to certain foreign
transactions
185
Eligible for advances by Reserve Banks (See Federal Reserve Banks)
Federal agency obligations (See Federal agency obligations)
State and local govts., responsiveness to monetary policy
40-41
Stocks and bonds (See Stock market credit)
Tender offers with respect to securities of member State
banks, legislation
'
185
Securities Investor Protection Corporation, legislation
186
Special Drawing Rights
16, 17, 57, 58, 214, 216, 218, 234, 236
State and local govt. securities, responsiveness to monetary
policy
40-41

325

INDEX
Page
State member banks:
Assets and liabilities
Banking offices, changes in number
Changes in control, reporting requirements
Examination
Foreign branches, number
Mergers and consolidations
Number
Tender offers with respect to securities of, legislation
Stock market credit:
Arbitrage transactions, margin requirements for
Stocks and convertible bonds, margin requirements
System Open Market Account:
Audit
Authority to effect transactions in
Foreign currencies, review of operations
Training activities
Truth in Lending:
Amendment of regulation and Act
Litigation
Report to Congress

233
238
196
195
199, 200
198, 242-85
197, 233
185
70
71
204
83-177
178
202
65, 77, 185
193
203

U.S. balance of payments:
Euro-dollar borrowings, amendment of Regulations D and M
55, 81
Foreign credit restraint program
66, 180-83
Review
16, 53-58
U.S. Govt. securities:
Authority of Reserve Banks to purchase directly from
U.S., extension of law
184
Bank holdings, by class of bank
233
Federal Reserve Bank earnings on
205, 206, 224
Federal Reserve Bank holdings
206, 214, 216, 218, 220, 234, 236
Open market operations
83-177, 222
Repurchase agreements
85, 214, 216, 221, 222, 234, 236
Special certificates purchased directly from the United States
221
U.S. Govt. agency obligations {See Federal agency obligations)
V loans
Wages, productivity, and prices

326

206, 229
28-33

Full text of Annual Report of the Board of Governors of the Federal Reserve System : 1970

FRASER