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FIFTIETH

OF THE

BOARD OF GOVERNORS
of the Federal Reserve System

COVERING OPERATIONS FOR THE YEAR

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM,

Washington, March 31, 1964.
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 Fiftieth Annual Report of the Board of Governors
of the Federal Reserve System. This report covers operations for the year 1963.

Yours respectfully,
W M . M C C . MARTIN, JR.,

Chairman.

Part I—REVIEW OF 1963
Page
SUMMARY

DIGEST OF PRINCIPAL FEDERAL RESERVE POLICY ACTIONS,

1963

MONETARY POLICY

Reserves and discount operations
Operations in longer-term Government securities
Foreign exchange operations
Other actions
FINANCIAL DEVELOPMENTS

Consumer
finance
Corporate
finance
Government sector
Financial intermediaries
Commercial bank credit
Money supply and time deposits
Interest rates
BALANCE OF PAYMENTS

Private capital
Foreign trade

10
12
13
14
16
18
19
21
22
27
29
31

flows

32
34

Part II—RECORDS, OPERATIONS, AND ORGANIZATION
RECORD OF POLICY ACTIONS—BOARD OF GOVERNORS

RECORD OF POLICY ACTIONS—FEDERAL OPEN MARKET
COMMITTEE

Page
OPERATIONS OF THE SYSTEM O P E N MARKET ACCOUNT

126

Review of Open Market Operations in Domestic
Securities
129
Review of Open Market Operations in Foreign Currencies 171
BANK SUPERVISION BY THE FEDERAL RESERVE SYSTEM

Examination of Federal Reserve Banks
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
Bank Examination School
LEGISLATION ENACTED

198

Authority to issue $1 and $2 Federal Reserve notes
PROPOSED LEGISLATION

198
198

Lending authority of Federal Reserve Banks
Bank Holding Company Act of 1956
LITIGATION

198
199
201

First Oklahoma Bancorporation, Oklahoma City,
Oklahoma
Whitney Holding Corporation, New Orleans, Louisiana
First Wisconsin Bankshares Corporation, Milwaukee,
Wisconsin; The Marine Corporation, Milwaukee
Wm. D. Bryan v. Federal Open Market Committee, et al
RESERVE BANK OPERATIONS

201
201
202
202
202

Earnings and expenses
Holdings of loans and securities
Volume of operations
Loan guarantees for defense production
Foreign and international accounts
Bank premises
BOARD OF GOVERNORS—INCOME AND EXPENSES

191

191
191
192
193
194
195
196
196
197

202
205
205
205
206
207
207

Page
TABLES:

1. Statement of Condition of All Federal Reserve Banks
Combined (in detail), Dec. 31, 1963
2. Statement of Condition of Each Federal Reserve Bank,
Dec. 31, 1963 and 1962
3. Federal Reserve Holdings of U.S. Government Securities, Dec. 31, 1961-63
4. Federal Reserve Bank Holdings of Special Short-Term
Treasury Certificates Purchased Directly from the
United States, 1953-63
5. Open Market Transactions of the Federal Reserve
System During 1963
6. Bank Premises of Federal Reserve Banks and
Branches, Dec. 31, 1963
7. Earnings and Expenses of Federal Reserve Banks
During 1963
8. Earnings and Expenses of Federal Reserve Banks,
1914-63
9. Number and Salaries of Officers and Employees of
Federal Reserve Banks, Dec. 31, 1963
10. Volume of Operations in Principal Departments of
Federal Reserve Banks, 1960-63
11. Federal Reserve Bank Discount Rates, Dec. 31, 1963
12. Maximum Interest Rates Payable on Time and Savings
Deposits
13. Margin Requirements
14. Fees and Rates Under Regulation V on Loans Guaranteed Pursuant to Defense Production Act of
1950, Dec. 31, 1963
15. Member Bank Reserve Requirements
16. Member Bank Reserves, Federal Reserve Bank Credit,
and Related Items, End of Year 1918-63 and End
of Month 1963
17. Principal Assets and Liabilities, and Number of Commercial and Mutual Savings Banks, by Class of
Bank, Dec. 20, 1963 and Dec. 28, 1962
18. Member Bank Income, Expenses, and Dividends, by
Class of Bank, 1963 and 1962

212
214
218

219
220
221
222
224
226
226
227
227
228

228
229

230

232
233

Page
TABLES—Cont.

19. Changes in Number of Banking Offices in the United
States During 1963
20. Number of Par and Nonpar Banking Offices, Dec. 31,
1963
21. Description of Each Merger, Consolidation, Acquisition of Assets or Assumption of Liabilities Approved by the Board of Governors During 1963

234
235

237

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

272
274
275
276

MAP OF FEDERAL RESERVE DISTRICTS

299

INDEX

301

viu

PART I
Review of 1963

1 Q A ^ was another year of expansion in domestic economic
A J/\J*D activity and of broad stability in commodity prices.
Business and consumer incomes rose further and were at new
high levels. The deficit in the U.S. balance of payments was reduced somewhat, reflecting a marked improvement in the last
half of the year, and during this period the position of the dollar
in foreign exchange markets strengthened.
There also was a large expansion of credit and a further substantial growth in financial savings, particularly in liquid form.
The money supply—demand deposits and currency in the hands
of the public—rose by nearly 4 per cent, and time and savings
deposits at commercial banks by 15 per cent. Despite large supplies of funds, most types of interest rates increased, particularly
in the short-term area. Although the increases were moderate,
they contributed to the improvement in the balance of payments.
The performance of the economy during the year was marred
by the persistence of high unemployment. There was also lessthan-optimum utilization of a steadily expanding industrial
capacity. Although employment increased considerably, the rise
was only enough to absorb the growth in the civilian labor force.
As a result, the rate of unemployment continued within the
range of 5.5 to 6 per cent of the civilian labor force.
It was of continuing concern that the number of persons out
of work for 15 weeks or longer was only slightly smaller than a
year earlier and that unemployment among young workers increased further. On the other hand, along with the increases in
industrial employment there was some decline in unemployment
among adult males, and the number of major geographical areas
with substantial labor surpluses declined.
Gross national product in the fourth quarter advanced to an
annual rate of $600 billion, 6 per cent higher than a year earlier.

ANNUAL REPORT OF BOARD OF GOVERNORS

In constant dollars the rise was just over 4 per cent;. Industrial
production also rose substantially, with most of the gain concentrated in the first half of the year. In December, production
was nearly 7 per cent higher than at the end of 1962.
Increases in expenditures in 1963 were widespread and well
balanced, with no exceptionally large increases in any of the
major sectors. Business inventory investment, often a source of
disruptive swings in the economy, followed a relatively stable
course, despite the large fluctuations in steel stocks growing out
of the threat of a steel strike in the first half. Total inventories
accumulated at a somewhat faster rate in the fourth quarter, but
stock-sales ratios continued low by historical standards.
Business outlays for fixed capital increased moderately to a
new high late in the year, stimulated by expanding sales, widespread confidence in the business outlook, and growing expectations of a general reduction in taxes. New high levels of corporate
profits and large retained earnings facilitated the increased outlays. The investment tax credit and the Treasury's revised depreciation guidelines, effective in 1962, were also stimulating influences. Stock prices rose to a new high at the year-end.
Utilization of capacity at less-than-optimum rates in many
manufacturing industries tended to limit capital expansion programs to moderate proportions and helped to maintain active
competition and general price stability. In contrast to the 195557 period of marked expansion in capacity, such programs in
1963 were not outrunning growth in the economy. Technological
developments and strong competitive pressures for modernization and replacement of productive facilities continued to be important factors in industrial investment.
Residential construction activity increased considerably in
1963 as multifamily building continued to rise. New housing units
started during the year reached a near-record 1.6 million, nearly
a tenth more than in 1962. Mortgage funds were readily available
at rates below those of a year earlier.
Consumer purchases of goods and services increased about in

FEDERAL RESERVE SYSTEM

line with disposable income, which rose 5 per cent from the
fourth quarter of 1962. Purchases of durable goods were especially strong, with those of new automobiles at a new high. This
high, however, must be considered in the light of the substantial
rise in population and income since the previous automobile sales
record in 1955.
Along with the increase in sales of automobiles and other
durable goods, there was a large expansion in consumer instalment credit, but this was not accelerated by any marked lengthening in automobile contract maturities, as in 1955. The proportion
of consumer income devoted to repayments on instalment debt
rose to a new high, but there was little evidence of rising delinquencies or of other signs of over-commitment.
Government demands again contributed importantly to increased economic activity during 1963. State and local government expenditures accounted for most of the increased demands,
as payrolls and highway and other construction expenditures expanded further. Federal purchases of goods and services continued to rise rapidly in the first quarter, then leveled off.
Wage increases in 1963 generally continued moderate and
about in line with average gains in output per manhour in manufacturing. The productivity advances were unusually large for the
third year of a cyclical expansion. Reflecting the net effect of the
changes in earnings and productivity, total labor costs per unit
of output continued to show little change. Average hourly earnings of production workers in manufacturing rose about 3 per
cent over the 1962 average. Despite some severe tests, industrial
relations were relatively peaceful, and time lost because of labor
disputes was not greatly above the postwar low in 1961.
Moderate wage settlements, along with the sustained gains
in productivity, ample industrial capacity, and active competition
from at home and abroad, were reflected in continuing stability
in most broad measures of prices. Such increases in wholesale
prices as did occur reflected developments in particular markets
more than the general pressures of aggregate demand. The in-

ANNUAL REPORT OF BOARD OF GOVERNORS

dustrial price average rose fractionally between spring and the
year-end, but was still nearly 1 per cent below early 1960. Consumer prices continued to edge up at about the rate of other recent years. At the end of 1963 the combined index was 1.7 per
cent higher than it was a year earlier. Prices of services showed a
somewhat larger advance; prices of nonfood commodities a
somewhat smaller one.
The money supply increased by 3.8 per cent during the
year. This was a substantially faster rate of growth than in 1962,
but less than the increase in GNP. Turnover of money increased
further. At the same time there was a substantial growth in other
liquid assets. Public holdings of all liquid assets rose faster than
GNP, and the ratio of these holdings to GNP—already high—
increased further instead of declining as it usually does in an
extended period of business expansion.
Net funds raised in credit markets in 1963 amounted to $61
billion, eclipsing the record of $58 billion in 1962. The increase
in outstanding security issues of corporations, both domestic and
foreign, and of State and local governments combined was somewhat larger than in 1962. The major growth in borrowing, however, occurred in mortgages, which increased by a record $30
billion or about $4.5 billion more than in 1962, and in short-term
loans of consumers, foreigners, and businesses.
To finance a cash deficit of $4.6 billion during the calendar
year—a somewhat smaller deficit than in 1962—the U.S. Government undertook net new cash borrowings of nearly this
amount, to a large extent in the form of Treasury bills. The
Treasury also refunded existing and maturing debt into longerterm issues, with the result that the average maturity of the debt
lengthened somewhat, to the longest term since 1958.
Commercial bank credit increased by 8 per cent during the
year, a little less than in 1962 and about the same as in 1961.
There was another marked increase in loans, with growth in
business loans accelerating after midyear. Investments increased
only moderately, as commercial banks liquidated U.S. Govern-

FEDERAL RESERVE SYSTEM

ment securities while continuing to acquire record amounts of
State and local government obligations.
Expansion of bank credit during the year reflected a generally
stimulative monetary policy, but one that became somewhat less
so during the first 9 months of the year. In July the discount rate
was raised from 3 to 3Vi per cent, in an effort to help reduce the
large deficit in the U.S. balance of payments. Total reserves continued to rise over the year, but banks were under a little more
reserve pressure in the latter part than they were in the earlier
part, and they obtained more reserves by borrowing at Federal
Reserve Banks. Free reserves tended lower and in the fourth quarter averaged a little over $100 million as compared with almost
$400 million a year earlier.
There was substantial progress during the year in working
down the large deficit in the balance of payments. As compared
with a deficit of $3.6 billion in 1962, the deficit for the full year
1963 was $3.3 billion, excluding special transactions. But in the
second half it was substantially lower. Part of the improvement
reflected increased exports and a larger trade surplus. But much
of the improvement in the second half was traceable to the return flow of short-term liquid funds and, even more, to the reduced outflow of long-term capital. The rise in domestic shortterm interest rates and the proposed interest equalization tax
contributed importantly to the reduction in the capital outflows.
The financing of the balance of payments deficit involved a
much smaller drain on U.S. gold reserves than in earlier years.
Gold stocks declined by $460 million, only about half as much
as in 1962 or 1961. A large proportion of the deficit was financed
by increased foreign holdings of dollars and by Treasury shortand medium-term borrowings of foreign currencies. In spite of
the continued large U.S. payments deficit and such shocks as the
rejection of Britain's entry into the Common Market and the
assassination of President Kennedy, the international monetary
system remained safe from significant speculative attack, thanks
in part to the cooperation of monetary authorities.

FBBERAL

Period

Description

Januarymid-May

Reduced System holdings of U.S. Government securities and then increased them in line with seasonal
and moderate growth needs of the economy. Total
holdings rose about $470 million on balance, owing
mainly to net purchases of issues maturing in more
than 1 year. Member bank borrowing rose slightly to
a level of about $150 million in the first half of May.

Mid-Maylate-July

Reduced the degree of reserve availability slightly further. System holdings of U.S. Government securities
increased nearly $1.2 billion, about one-fifth representing net purchases of issues maturing in more
than 1 year. Member bank borrowing increased further, averaging $275 million over the period.

Mid-July

Raised the discount rate from 3 to ?>Vi per cent.
Raised maximum interest rates payable by member
banks on time deposits (other than savings) and
certificates of deposit with maturities of 90 days to
6 months from 2Vi to 4 per cent and with maturities
of 6 months to 1 year from l>Vi to 4 per cent.

Late-JulyDecember

Reduced a little further the degree of reserve availability. System holdings of U.S. Government securities increased about $1.1 billion, of which more than
one-half represented purchases of securities with
maturities of more than 1 year. Member bank borrowing averaged about $325 million over the period.

November

Raised margin requirements on loans for purchasing
or carrying listed securities from 50 to 70 per cent
of market value of securities. Also increased retention requirements on proceeds of sales from undermargined accounts from 50 to 70 per cent.

1963
Purpose

To offset seasonal downward pressures on short-term interest rates
early in the period and to provide for growth in bank credit and
the money supply at a rate consistent with minimizing capital outflows in accordance with the policy of slightly reduced reserve
availability adopted at the December 18, 1962, meeting of the
Federal Open Market Committee.

To achieve a slightly greater degree of firmness in the money market in order to minimize the outflow of capital while continuing
to provide reserves for moderate monetary and credit growth.

To help reduce short-term capital outflows by firming U.S. short-term
money market rates and permitting member banks to compete more
effectively for foreign and domestic funds.

To attain slightly more firmness in the money market, in the context
of a higher discount rate, with a view to minimizing the outflow
of funds abroad while offsetting seasonal reserve drains and providing for growth needs of the domestic economy.

To help prevent excessive use of stock market credit, which had increased sharply since July 1962, when margin requirements were
lowered from 70 to 50 per cent.

ANNUAL REPORT OF BOARD OF GOVERNORS

MONE1 V*

During 1963 the Federal Reserve continued to seek monetary
and credit conditions that would contribute to adequate and
sustainable growth in the domestic economy and to the achievement of balance in U.S. international payments. In working
toward these objectives, it gradually lessened the degree of credit
and monetary ease.
Reserves and discount operations. At its last meeting in 1962 the
Federal Open Market Committee had concluded that it was appropriate to reduce a little the degree of ease existing at that time.
Accordingly, it redirected its actions toward accommodating
"moderate further increases in bank credit and the money supply,
while aiming at money market conditions that would minimize
capital outflows internationally." The Committee made no further
change in policy until mid-May, when it moved to reduce reserve
availability slightly further.
These changes in policy resulted in a fairly persistent decline in
the free reserves of commercial banks from late 1962 to mid1963. The amount by which total excess reserves of member
banks exceeded their borrowings from the Federal Reserve Banks,
for example, narrowed gradually from around $400 million in the
last quarter of 1962 to an average of about $150 million by
June 1963.
As the first half of 1963 unfolded, domestic economic prospects brightened. The rapid rise in production and the substantial
expansion in employment and income indicated that economic
activity was improving. Bank credit rose at an annual rate of 11
per cent during the period, and time and savings deposits at commercial banks increased at a 14 per cent rate. Expansion in the
money supply—demand deposits and currency held by the public
—was moderate, 2Vi per cent, as it had been throughout the
past decade.
But in contrast to the brighter picture in our domestic economy
during the first half of the year, there was a marked worsening

FEDERAL RESERVE SYSTEM

during the spring in the U.S. balance of international payments
as outflows of both long-term and short-term private capital
increased.
Short-term money market rates rose only a little until late
spring, despite the reduction in free reserves and in the liquidity
of the banking system. In June, however, the rate on 3-month
TOTAL RESERVES continue growth

BORROWINGS rise in 1963

NOTE.—Monthly averages of daily figures for member banks. Total and
nonborrowed reserves seasonally adjusted. Total reserves also adjusted to exclude the effects of changes in reserve requirements. Nonborrowed reserves
are total reserves (adjusted) minus borrowings at F.R. Banks.

ANNUAL REPORT OF BOARD OF GOVERNORS

Treasury bills advanced to 3 per cent, the level of the Federal
Reserve discount rate. Then in mid-July, shortly before President
Kennedy's announcement of a number of other steps to help
reduce the U.S. balance of payments deficit, the discount rate was
raised to IV2 per cent and reserve availability was reduced a
little further, in the light of the increase in the discount rate, in an
effort to help to achieve international payments equilibrium.
During the last half of the year the gross national product
continued to rise, and demand for bank loans was brisk. With
liquidity drawn down and reserves less readily available, the
banks met this loan demand in part by selling securities. Reflecting in part the increased loan demand and despite some lessening
in credit availability, the money supply rose in the final 6 months
at an annual rate of just under 5 per cent. The rise was also due
in part to a shift of demand deposits from Treasury to private
ownership, the Treasury having built up its deposits to an unusually high level at midyear. Time and savings deposits in banks
continued to expand rapidly.
By early July the lower levels of bank liquidity and free
reserves, together with widespread expectations in financial
markets that money rates would rise, resulted in a stepping up
and then a further but slower advance in these rates during the
summer and early fall. During the last 2 months of the year
money rates settled at a level about Vz of 1 percentage point
higher than in mid-June. The rise in short- and intermediateterm market rates was quite general, but its effect on negotiated
rates on customer loans of banks was modest. Meanwhile, most
long-term interest rates, which had edged up during the early part
of the year, rose on the average about Vs of 1 percentage point
further in the second half.
Operations in longer-term Government securities. In supplying

the reserves needed to support moderate bank credit and monetary expansion, the Federal Reserve continued on occasion during 1963 to buy longer-term U.S. Government securities instead
of short-term issues. It did this to help minimize downward

FEDERAL RESERVE SYSTEM

pressures on short-term interest rates that developed from time
to time during the year.
The Federal Reserve's purchases of longer-term securities
(with maturities of more than a year) amounted to $1.5 billion
in 1963, about one-sixth of its gross purchases of Government
securities. In 1962 and 1961 purchases of longer-term securities
by the Federal Reserve had totaled $1.9 billion and $2.7 billion,
respectively. As in the earlier years, purchases of Government
securities outside the short-term area in 1963 were concentrated
in issues maturing in less than 10 years.
A chronological review of operations of the System Open Market Account in domestic securities during the year 1963 appears
on pages 129-70.
Foreign exchange operations. During 1963 the Federal Reserve
continued to engage in transactions in foreign currencies. Such
transactions are designed primarily to cushion short-run disturbances in the foreign exchange markets. They are not intended to
be a substitute for basic measures to reduce the deficit in the U.S.
balance of payments.
In these operations the Federal Reserve made use of the network of reciprocal currency, or "swap," arrangements with foreign central banks that it had begun to set up in early 1962. By
the end of 1963 these arrangements had added more than $2
billion to the sums potentially available or actually being used
for the defense of the dollar. Drawings under the swap arrangements have a maturity of 3 months, and renewals are limited in
order to ensure that every drawing is liquidated within a year at
the most.
Under those arrangements, the Federal Reserve in 1963 drew
$793 million of foreign currencies and repaid $589 million.
Drawings outstanding at the year-end amounted to $469 million,
as compared with $265 million a year earlier. Against these
drawings, plus forward-exchange commitments of $63 million,
the System had foreign-currency holdings of $153 million and
forward-exchange purchase contracts of $22 million. The difference of $357 million between total drawings and commitments,

ANNUAL REPORT OF BOARD OF GOVERNORS

on the one side, and total holdings and purchase contracts, on the
other, represented the net amount of foreign currencies the Federal Reserve would need to acquire, either in the foreign-exchange market or directly from foreign central banks, in order to
liquidate its commitments.
A review of operations of the System Open Market Account in
foreign currencies in 1963 appears on pages 171-90.
Other actions. Concurrently with the increase in the discount
rate in mid-1963, the Federal Reserve raised to 4 per cent the
maximum rates that member banks may pay on time deposits
with maturities of from 3 to 12 months. Since this increase came
at a time when money rates were advancing, many large banks
soon raised the rates that they pay on deposits with these maturities as well as those with longer maturities. The adjustment
enabled commercial banks to compete more effectively for funds
that might otherwise have gone into direct investment in shortterm securities or to other financial intermediaries, and helped
to retain in this country the liquid balances of domestic as well
as foreign investors that might have gone into the Euro-dollar
market.
In early November the Board of Governors also raised from
50 to 70 per cent the equity required on new or additional
credits arranged for the purpose of purchasing or carrying securities registered on a national securities exchange. Simultaneously, it raised from 50 to 70 per cent the proportion of the
proceeds of a security sale from an undermargined account—
in this instance, an account with a margin of less than 70 per
cent at the time of sale—that must be retained in the account
to build up additional equity.
These actions on margin requirements followed a rise in stock
market credit of more than 40 per cent from the July 1962 low
of $4.9 billion to the September 1963 total of $7.0 billion.
This rate of growth was faster than in any other segment of the
credit markets, and the Board concluded that an increase inmargin requirements was appropriate to prevent the excessive
use of credit in the stock market.

FEDERAL RESERVE SYSTEM

There were moderate increases in both short- and long-term
interest rates in financial markets during 1963. The demand for
credit was quite large, with the net amount of funds raised in
credit markets reaching a record $61 billion. On the supply side
^
i if i o n s

dollars
: 75

NOTE.—Flow of funds data for total borrowing by nonfinancial businesses,
households, governments, and foreigners in U.S. credit markets. Includes
corporate stock issues. Excludes security credit, trade credit, and borrowing
by financial businesses.

there was some lessening of credit availability as a result of
monetary policy actions, and this put a little upward pressure
on interest rates generally. These policy actions had their most
immediate impact on the availability and cost of bank reserves
and on short-term interest rates. The net flow of long-term saving

ANNUAL REPORT OF BOARD OF GOVERNORS

to banks and other financial institutions continued to be substantial, although the rate slackened somewhat in the second half,
and this helped to moderate the rise in long-term interest rates.
Consumer finance. Consumers continued in 1963 their active
participation in financial markets as both lenders and borrowers.
Consumer saving, expanding in line with total production, personal income, and consumption, rose 5 per cent more than in
1962. As in that year, consumers invested more than half of
their total saving in financial assets, a proportion well above the
average for the preceding 10 years. Although the net increase in
consumer borrowing, at $27 billion, was also large, it was much
less than the amount consumers saved and made available for
lending. As a group, consumers made net advances of $19
billion to other sectors of the economy during the year.
Financial investment. The total flow of consumer funds into
financial assets was $46 billion, of which about two-thirds
flowed into cash and time and savings accounts. Thus, as in
1962, consumers continued in their acquisitions to place strong
emphasis on liquid types of assets, and by the year-end their total
holdings of such assets had risen to $310 billion. This was equal
to 79 per cent of disposable income, compared with 75 per cent
a year earlier.
A few shifts in asset preference were discernible in 1963,
however. The rise in demand deposits was larger, and in time
and savings deposits was smaller, than in 1962. Also, during
most of the year consumers made larger net direct investments
in U.S. Government securities, partly in response to increases
in market rates of interest. Meanwhile, individuals continued
to add steadily to their equity in life insurance and pension funds.
In stock transactions, individuals withdrew more funds from
the market than they invested, while institutions expanded their
holdings. As in 1962, net new issues of stocks by business corporations were light, and institutional buying continued to exceed the total volume of new issues. Some of the increase in institutional holdings apparently represented stocks bought from
consumers, who used funds from these and other sales of stock

FEDERAL RESERVE SYSTEM

to invest in other financial assets or in physical assets, and perhaps to some extent to increase consumption. Even though consumers as a group made net sales of stocks during the year, the
current value of their stock holdings increased over the year along
with the rise in stock prices, and they borrowed large amounts
for the purpose of purchasing or carrying securities.

FINANCIAL

ASSETS:

NfcT FINANCIAL SAVING

NOTE.—Flow of funds data, including nonprofit organizations. Liquid assets
consist of demand deposits, currency, and time and savings accounts at banks
and savings institutions. Other financial assets are U.S. Govt. and other securities, mortgages, insurance and pension reserves, and equity in noncorporate
business. Borrowing consists of mortgages, consumer credit, security debt, life
insurance policy loans, and mortgage and other borrowing by nonprofit organizations.

Borrowing. Consumer borrowing for other purposes was also
large in 1963—at the same high rate relative to consumer capital outlays as in 1962. Net borrowing on home mortgages was
about $2 billion more than in 1962. Part of this borrowing was to
finance purchases of new or existing houses, and part was to
refinance existing mortgages under the more liberalized terms

ANNUAL REPORT OF BOARD OF GOVERNORS

prevailing, with the net proceeds used for either financial investment or spending on other goods and services.
Consumers added an estimated $6.7 billion to their short- and
intermediate-term indebtedness in 1963. This was about $1
billion more than in 1962 and was slightly above the previous
record amount in 1959. Instalment credit accounted for most of
the increase. As usual, automobile credit accounted for the largest share—more than 40 per cent of the expansion in the instalment category.
Both extensions and repayments of instalment credit were at
new high levels—10 per cent more than in 1962 and almost 30
per cent more than in 1959. Repayments of instalment debt, at
about 13.7 per cent of disposable personal income, absorbed
somewhat more of consumers' income than in 1962. Meanwhile,
delinquency rates on consumer instalment loans at commercial
banks generally remained near their 1962 levels, a moderate
upward drift in such rates on purchased automobile paper being
offset by declines in rates on other types of consumer loans.
Corporate finance. The supply of corporate internal funds remained very large in 1963, as profits rose steadily after the first
quarter. For the year this flow totaled $27 billion after taxes,
10 per cent above the previous peak in 1962. The upward trend
in aggregate profits has continued longer and profit margins
have been maintained better than in other recent periods of
cyclical expansion. Retained earnings in 1963 were the largest
since 1959, and depreciation allowances continued to expand.
The new depreciation guidelines and the investment tax credit
together added roughly $2.5 billion to corporate internal funds
in 1963, about the same amount as in 1962 when these provisions first became effective.
Outlays for new plant and equipment reached a new peak in
1963, but the increase from 1962 was considerably less than
the rise in internal funds. Inventory accumulation was about
in line with its restrained pace in most of the recent expansion
period. On the other hand, business corporations increased their

FEDERAL RESERVE SYSTEM
accounts receivable by more than in any other year since 1955,
and their holdings of cash and of U.S. Government securities
rose moderately.
With internal funds in large supply, there was less corporate
external financing than might have been expected in a period of
moderate inventory build-up and large capital expenditures. The
largest single source of external financing was open-book credit
granted by business suppliers. Corporate borrowing from banks
was sizable, although only a little more than in the previous year;
sales of open market paper by corporations provided a smaller
amount of funds than in 1962.
Net financing in the long-term securities markets—that is,
after deducting repayments and refinancings—was a little less
than the total for 1962. Total new security financing rose by 14
per cent, but retirements of outstanding obligations, both from
internal funds and from the proceeds of security issues, rose even
more. Offerings of new stock issues declined by 20 per cent, but
those of bonds increased.
Government sector. During the calendar year 1963 the Federal
Government incurred a cash deficit of $4.6 billion. With receipts rising faster than payments, this deficit turned out to be
less than in either of the two previous years. To finance it, the
Treasury drew down its cash balance by a few hundred million dollars and undertook net cash borrowing of $4.3 billion.
The Treasury met most of its borrowing needs by selling marketable securities; nonbank investors were net purchasers of such
securities, as banks drew down holdings of U.S. Government
issues on balance. For the first time since 1950, savings bonds
provided the Treasury with a net source of funds, as sales exceeded redemptions (excluding accrued interest) by about $500
million during the year.
Continuance of balance of payments pressures and the desire
to bring U.S. short-term interest rates more in line with the
short-term rates in other countries resulted again in major reliance by the Treasury on the sale of bills in cash financings.

ANNUAL REPORT OF BOARD OF GOVERNORS

TREASURY continues to rely mainly on bills in cosh financing
while advance refundings lengthen the Federal debt
Change, in billions of dollars
10
8
6
4
2

+
O
2
4
6

C O U P O N ISSUES
MATURING:
WITHIN 5
AFTER 5

BILLSI

1960

1961

The increase in Treasury bills outstanding accounted for more
than $3 billion of the total increase of about $4.5 billion in
marketable Government debt outstanding.
Since the Treasury centered its new borrowing on shorterterm issues, it relied on regular and advance refundings to maintain a well balanced maturity structure of the debt. Advance
refundings shifted more than $14.7 billion of securities into
longer-term issues. Partly as a result of such shifts, coupon issues
maturing within 5 years declined during the calendar year by
$4.3 billion, while issues with maturities in excess of 5 years rose
by about $5.6 billion. Continuing the trend of the last few years,
the average maturity of the public debt rose slightly—from 4
years and 11 months at the end of 1962 to 5 years and 1 month
at the end of 1963.
State and local governments were active in credit markets

FEDERAL RESERVE SYSTEM

during the year. To raise funds for the construction of highways, schools, and other public facilities, they sold a record $9.1
billion of long-term bonds. This was 6 per cent more than the
previous peak of a year earlier. Bond sales to refund outstanding issues of long-term debt were up even more, to about $1.3
billion, as these governments took advantage of the relatively low
interest rates to obtain funds to retire high-coupon revenue
bonds sold earlier.
Financial intermediaries. The lending and borrowing of various
sectors of the economy were accomplished to a great extent
through financial institutions. Money flows through major nonbank financial intermediaries were very large during 1963,
although the gains were largest in the first half. Competition for
funds among savings institutions remained acute throughout the
year, and there were some selective further increases in the interest rates offered for savings.
The emphasis on mortgage financing by the savings intermediaries continued undiminished. This was true not only for
lenders that specialize in mortgages but also for the more diversified types of lending institutions, such as life insurance companies and commercial banks.
Savings and loan associations. Share capital at savings and
loan associations again increased by a record amount—about
$11 billion for the year. Rates of inflow during the first half
of the year substantially exceeded those prevailing during the
same period in 1962, but after midyear the rate of growth
slackened somewhat.
Despite the record inflow of investable funds, reliance on
advances from the Federal home loan banks increased sharply
over the year. After heavy repayments during the first quarter,
total borrowings by savings and loan associations at these banks
climbed steeply to a new high of $5 billion at the end of December. Expanded use of borrowed money facilitated the record increase in mortgage lending. The increase for the full year is
estimated to have been $12 billion, compared with the previous
high of $10 billion in 1962.

ANNUAL REPORT OF BOARD OF GOVERNORS

Mutual savings banks. At mutual savings banks, too, the inflow
of savings slackened in the second half of 1963, but for the year
as a whole it exceeded the 1962 total. Mortgage acquisitions were
also at a new high, likewise exceeding the totals for the previous
year. As in most other recent years the mortgage lending of the
mutual banks exceeded the net growth in their deposits. These
banks financed the difference primarily from net sales of U.S.
Government securities. Sales of such issues in 1963 were the
largest since 1960.
Life insurance companies. Like other financial intermediaries,
life insurance companies grew faster in 1963 than in 1962.
Much of the difference in their total asset growth in these years,
however, appears to have been due to changes in the market
value of their stock holdings; after adjusting for these valuation
changes, it appears probable that funds actually becoming available in 1963 were only slightly larger than a year earlier.
The rapid acceleration in mortgage lending that began in late
1962 continued throughout 1963, and advance commitments
remained at or near record levels. Despite the emphasis on
mortgage lending, takings of domestic corporate debt securities
remained near the high 1962 volume while acquisitions of
foreign securities increased. The reduction in holdings of U.S.
Government securities, on the other hand, was quite sharp, and
there was a slight decline in holdings of State and local government securities.
Commercial bank credit. During 1963 commercial banks supplied credit in substantial volume to consumers, businesses, State
and local governments, and credit markets generally. Over the
year their outstanding loans and investments increased by $18.6
billion, or 8 per cent. This increase was somewhat below the
rate of almost 9 per cent in 1962 but about the same as that in
1961. As in those years, the flow of credit from banks was
facilitated by a large movement of funds into time and savings
deposits and by the continued ready availability of reserves from
the Federal Reserve to back both demand and time deposits—
although at a higher cost after midyear.

FEDERAL RESERVE SYSTEM

Bank reserves. The total reserves of member banks increased
by about $700 million during the year. This amount was little
different from that in 1962 after adjusting for reserves released
by the reduction that year in reserve requirements against time
deposits. This similar reserve expansion supported a slightly
smaller credit expansion in 1963, however. Demand deposits
rose more relative to time deposits than they had in 1962, so
that slightly more of the reserve funds were absorbed by the
higher reserve requirements against these deposits.
The Federal Reserve provided more reserves by buying U.S.
Government securities in the open market during 1963 than it
had the year before, when the reserve requirement reduction had
supplied banks with loanable funds. To supplement the reserves
that they obtained from the System's open market operations,
banks increased their borrowings from the Federal Reserve
Banks. After allowance is made for the temporary but sharp rise
in borrowings at the end of 1962, member banks obtained more
reserves on their own initiative in 1963 than they did the year
before. All told, Federal Reserve credit increased by $3.4 billion
during the year.
Factors affecting reserves, other than Federal Reserve operations, absorbed more reserves on balance than in 1962, and this
increased the need for open market operations to offset them.
There were greater flows of currency into circulation and a larger
rise in U.S. Government deposits at the Reserve Banks. On the
other hand, the U.S. gold stock declined less than in 1962, and
this reduced the need for Federal Reserve operations to offset
absorption of reserves from that source.
Loans. The proportion of bank credit that took the form
of loans was larger in 1963 than in the previous year. This was
the result of continued demand for loans by businesses and consumers in combination with a slightly slower growth in bank
funds available for lending and investing.
Seasonally adjusted data indicate that more than half of
the $4.5 billion increase in bank loans to business occurred in
the fall of the year. A number of influences probably helped

ANNUAL REPORT OF BOARD OF GOVERNORS

to cause this bunching. One was inventory accumulation at the
manufacturing and distributional levels, which was larger than
many had expected. In addition, there were some special situations leading to heavy bank borrowing by business corporations,
especially in December. These developments were reflected in
more lending than usual to food processors, commodity dealers,
trade concerns, and public utilities during the fall. On the other
hand, loans to manufacturers were only a little, if any, larger
than usual as these firms continued to finance inventory accumulation and other outlays in large part with internal funds.
Commercial banks invested even more heavily in real estate
BANKS add to loans and "other" securities
while reducing holdings of U.S. Governments
ons of dollars
25

TOTAL LOANS
AND
INVESTMENTS

U.S. GOVT.
SECURITIES

OTHER
SECURITIES

NOTE.—Changes during year, based on data for all commercial banks for
Dec. 31. Figures for 1962 and 1963 partly estimated. Interbank loans excluded.

FEDERAL RESERVE SYSTEM

loans during 1963 than they had the year before, and a substantial proportion of this investment was on commercial properties, including multifamily residential buildings. Banks also
increased their share of the mortgage market even though mortgage holdings of all lenders increased more in 1963 than in
earlier years.
Banks also made more consumer loans on balance than in
1962, in line with the general expansion in demand for credit
to finance automobiles and other durable goods. In addition,
their loans to nonbank financial institutions—principally mortgage and sales finance companies—rose somewhat more than
they did that year as these companies sought financing from banks
to help accommodate the expansion in consumer and mortgage
credit.
Bank loans on securities exhibited rather sharp month-tomonth swings. Such lending to U.S. Government security dealers
was heavy in February, June, and September in connection with
Treasury financing activities, including large advance refundings in late winter and in the late summer.
Investments. With loans absorbing such a large proportion
of investable funds in 1963, banks were able to add relatively
little to their investment portfolios. Acquisitions were concentrated in non-U.S. Government securities. Holdings of these
securities, chiefly State and local government issues, increased by
$5.8 billion during the year. This was a somewhat larger absolute
increase than the previous year but was a slightly smaller percentage rise. The rate of increase in bank holdings of municipal
securities slowed in the last few months of 1963.
While adding substantially to loans and to holdings of State
and local government securities, banks reduced their investment
in U.S. Government securities by about 5 per cent, as compared
with a decrease of less than 1 per cent in 1962. Although there
was evidence of more restrained buying of other securities during the last few months of the year, U.S. Government securities
took the burden of the portfolio adjustments made by banks
to the somewhat reduced availability of funds during 1963.

ANNUAL REPORT OF BOARD OF GOVERNORS

The decline in Government security holdings during the year
was concentrated in the shorter-term areas. For banks reporting
in the Treasury Survey of Ownership, holdings of issues maturing
within 1 year or less declined by $3.2 billion, and those maturing in 1 to 5 years declined by $240 million. Holdings of issues
maturing in more than 5 years, however, rose by $300 million
over the year.
The shifting away from short-term holdings continued the
tendency that began in 1962, when banks had stressed higheryielding longer-term investments in an effort to maintain earnings in the face of the large increases in their interest-bearing
deposits. The participation by banks in two large: advance refunding operations of the Treasury contributed to the lengthening of their security holdings during 1963.
Liquidity. The decline in holdings of short-term U.S. Government securities tended to reduce bank liquidity further in 1963.
The ratio of such holdings to deposits had declined in 1962 by
1.7 percentage points to 9.5 per cent at the year-end, and in

LOANS/TOTAt DEPOSITS

5HOMT-T6RM/ TOTAL
GOVTS. / DEPOSITS

NOTE.—Based on data for all commercial banks. Loans exclude interbank
loans. Short-term U.S. Govt. securities are those maturing within 1 year. Deposits are net of cash items in process of collection.

FEDERAL RESERVE SYSTEM

1963 it declined another 2 percentage points. Practically all of
the decline in 1963 took place in the first half of the year; after
June the ratio fluctuated in a narrow range.
Other measures also indicated a decline in bank liquidity
during the year. The ratio of loans to deposits rose to about 59
per cent at the end of 1963, some 2.5 percentage points higher
than a year earlier, as the uptrend since World War II continued.
Increases in loan-to-deposit ratios were most marked at country banks, where there was more flexibility because ratios were
comparatively low, and at reserve city banks outside New York.
At New York City banks, where ratios are the highest—around
68 per cent at the year-end—they showed limited change.
Money supply and time deposits. The 1963 increase of 3.8 per
cent in the money supply—that is, currency and demand deposits
in the hands of the public—was the most rapid rate in 10 years,
except for 1958 when it increased by 3.9 per cent. Growth in
1962 had been at a rate of 1.5 per cent. In that year expansion
had been restrained by a large-scale shift in the public's preference for liquid assets—to time and savings deposits from money
and other assets, in response to the rise in interest rates on those
deposits at the beginning of the year.
The stock of money in 1963 was also used more intensively
than the year before. At centers outside of New York the annual
rate of turnover of demand deposits in the fourth quarter was
6.2 per cent higher than a year earlier. This was a smaller rise,
however, than the 7.7 per cent increase between the fourth quarters of 1961 and 1962.
Along with the growth in the money supply during 1963, time
deposits expanded by $14.3 billion, or 15 per cent. This was
a faster rate than in any previous postwar year except 1962.
Outstanding negotiable time certificates reported by large New
York City banks increased by $1.8 billion over the year, compared with an increase of less than half that amount in 1962.
Moreover, at all weekly reporting banks time deposits (other
than passbook savings accounts) accounted for more than threefifths of the increase in time and savings deposits combined, a

ANNUAL REPORT OF BOARD OF GOVERNORS

much larger proportion than in 1962, when time deposit growth
had also been exceptional.
A further impetus to the use of negotiable time certificates
came from the mid-July rise to 4 per cent in maximum permissible rates of interest on time deposits maturing in 90 days to 1
year. As a result, banks increased the rates offered for these
shorter-term maturities, and they also raised their rates on deposits with maturities of 1 year and over, for which the maximum

GROWTH in money supply
and liquid assets continues in 1963

MONEY SUPPLY

NOTE.—Seasonally adjusted. Money supply and time deposits, monthly
averages of daily figures. Other liquid assets, end of period. Money supply
consists of: demand deposits at all commercial banks (except those due to
domestic commercial banks and the U.S. Govt.); foreign demand balances
at F.R. Banks; and currency in the hands of the public. Commercial bank
and F.R. Bank float excluded. Time deposits are time and savings deposits,
other than domestic interbank and U.S. Govt., at all commercial banks. Other
liquid assets are holdings by the nonbank public of: deposits in mutual savings
banks and the Postal Savings System; shares in savings and loan associations;
U.S. Govt. savings bonds; and U.S. Govt. securities maturing within 1 year.

FEDERAL RESERVE SYSTEM

permissible rate remained at 4 per cent. With the increased attractiveness of both short- and longer-term negotiable certificates,
business corporations have continued to invest in them.
Taken together, the money supply and time deposits at commercial banks grew more rapidly than GNP in 1963. With
continued substantial growth in other liquid assets in the hands
of the public—such as shares in savings and loan associations,
deposits in mutual savings banks, and short-term U.S. Government securities—the ratio of total liquid assets to GNP rose
from 80.4 per cent in the fourth quarter of 1962 to an estimated
81.7 per cent in the last quarter of 1963. The rise in this ratio,
which as already noted often declines in periods of expanding
GNP, reflected in part the continued favorable yields on liquid
assets and also the continuation of a relatively stimulative monetary policy.
Interest rates. The balancing of demands and supplies in credit
markets in 1963 was reflected in moderate increases in interest
rates other than on mortgages. Yields on high-quality long-term
corporate and State and local government bonds rose throughout the year, but at the year-end they were still somewhat below
the levels reached during the first phase of cyclical expansion in
1961. Yields on lower-grade bonds, on the other hand, changed
little during the year.
Contributing to the rise in interest rates on corporate and
municipal high-grade bonds were the increase in such financing
by both domestic and foreign borrowers, the improvement in
business sentiment and economic activity, and a shift toward
higher interest rate expectations on the part of lenders. Tending
to moderate the rise, however, was the continued large flow of
funds to financial intermediaries. The impact of this flow was felt
more in mortgage markets than in security markets.
Even though mortgage debt outstanding increased by a record
amount, interest rates on mortgages declined somewhat in early
1963 and then stabilized as lenders, who were well supplied with
funds, competed vigorously for mortgages. By spring the secondary market yield on 25-year, 5V4 per cent FHA-insured

ANNUAL REPORT OF BOARD OF GOVERNORS

NOTE.—Monthly averages, except for FHA (based on quotation for 1 day
each month). Corporate and State and local govt. bonds, Moody's Investors
Service. U.S. Govt. bonds, issues maturing or callable in Id years or more.
Treasury bills, market yields on 3-month bills.

mortgages on homeowner properties had declined to 5.44 per
cent, 20 basis points below a year earlier and the lowest yield
since 1958. During the rest of 1963 it changed little. Interest
rates on conventional mortgages on new and existing homes also
changed little after the early part of the year.

FEDERAL RESERVE SYSTEM

With respect to interest rates on U.S. Government obligations,
the average yield on long-term securities—those maturing in 10
years or more—rose during most of the year, after declining on
balance during 1962. At the year-end it was around 4.15 per
cent. The yield on short-term securities, as typified by the 3-month
Treasury bill, changed little in the first half of 1963, after having
edged upwards during 1962. In the second half, however, the bill
yield rose by about 0.5 of a percentage point to about 3.5 per
cent, the level to which the Federal Reserve discount rate had
been raised in mid-July. While both short- and long-term rates
rose in 1963, they continued well below their previous peaks in
early 1960.

In its transactions with the rest of the world, as noted earlier,
the United States had an adverse payments balance in 1963 of
$3.3 billion, excluding special transactions, compared with $3.6
billion in 1962. The adverse balance was particularly large in
the first half of 1963, but showed a significant decline in the
second half.
Over the year as a whole, the U.S. gold stock declined by $460
million, while U.S. official holdings of foreign convertible currencies rose by about $100 million. Foreign holdings of liquid
short-term assets in the United States, including marketable U.S.
Government securities, increased by $1.6 billion. In addition,
foreign governments and central banks acquired $640 million of
special nonmarketable U.S. Treasury bonds and notes, mostly
denominated in their own currencies; they repaid in advance of
maturity $325 million of debts owed to the U.S. Government;
and they made net advance payments of $360 million for U.S.
military sales.
On a seasonally adjusted basis the over-all deficit was nearly
$2.3 billion in the first half of 1963 and only $1 billion in the
second. The improvement reflected primarily a reduction in net
outflows of long-term and short-term private capital from the

ANNUAL REPORT OF BOARD OF GOVERNORS

very high levels reached in the spring and early summer. There
was also a moderate improvement in the balance on current
account and Government capital account (exclusive of special
transactions).
Private capital flows. U.S. investors purchased large amounts
of newly issued foreign securities during the first: half of the
year, as Canadian issues appeared in unprecedented volume
after the resolution of the Canadian exchange crisis of 1962 and
as issues by overseas borrowers continued the upward trend
already evident in 1961. Direct investment by U.S. companies
in their subsidiaries abroad continued large up to midyear; in
the second quarter it included some short-term financial transactions of oil companies with their foreign affiliates Outflows of
U.S. bank credit, including loans and acceptance credits, increased abruptly in the second quarter, after having been relatively small for about a year. Moreover, in that period U.S. corporations and financial institutions increased their placement of
funds in interest-bearing, U.S.-dollar-denominated deposits in
Canada and elsewhere and in money market assets denominated
in foreign currencies.
The President's special message to Congress on July 18 that
announced the various measures being taken to improve the
balance of payments requested the enactment of a temporary tax
on purchases of foreign securities from foreigners, to continue
through 1965. The tax was designed to increase the effective
interest cost to foreign issuers of securities sold to U.S. residents
by about 1 percentage point per annum. Exceptions were made
for new issues of less developed countries, and a special exemption was proposed for Canada in the mutually agreed expectation that policies of the Canadian authorities would result in a
substantial reduction in Canadian borrowing in this country.
Pending enactment of the proposed tax, uncertainties regarding its final form strongly influenced potential borrowers, underwriters, and investors. New foreign issues in the United States declined sharply after July. There were also significant net sales

FEDERAL RESERVE SYSTEM

of outstanding foreign securities by Americans to foreigners, as
gross purchases of such securities diminished.
U.S. money market interest rates and rates paid on time deposits increased after the Federal Reserve policy actions of
July, and the spread between these rates and similar rates abroad
—including those on U.S.-dollar-denominated deposits—tended
to narrow. This narrowing of differentials appears to have helped

PAYMENTS DEFICIT shrinks with cut in capital outflow
and improvement in trade and other transactions

NOTE.—Dept. of Commerce data, seasonally adjusted; fourth quarter 1963
estimated by Federal Reserve. Over-all balance equals sum of two balances
in lower panel, plus "errors and omissions" (unrecorded transactions and
statistical discrepancies) not shown. All other transactions exclude special
transactions (U.S. receipts from debt prepayments, advances on U.S. military
exports, and sales of nonmarketable U.S. Govt. securities).

ANNUAL REPORT OF BOARD OF GOVERNORS

to reduce outflows of liquid funds into deposits and other shortterm investments abroad. In the second half there was a net
reflux of such funds. Net outflows of bank credit were small in the
third quarter but resumed on a large scale in the fourth.
Foreign trade. Our trade balance with foreign countries improved during 1963. Whereas demand pressures had tended to
ease in many countries in 1962, economic activity increased
strongly from the spring of 1963 onward in most countries.
Exports financed by U.S. Government credits and grants were
unusually large in the second quarter. Despite the subsequent
decline in such financing, total U.S. nonmilitary exports of
goods in the second half of the year were at a record seasonally
adjusted annual rate of more than $22.5 billion.
U.S. imports increased at a moderate pace during most of the
year, though with a sharper advance in the summer. After July,
imports on the average were at an annual rate of about $17.5
billion. Thus the trade surplus, as measured in the balance of
payments accounts, was at an annual rate of $5 billion in the
latter part of 1963, compared with $4.3 billion for all of 1962.
For the first time in 6 years, some visible progress toward
long-run equilibration of external receipts and payments appears to have been made in 1963. The maintenance of a high
degree of price stability in the United States since 1959 has
played an important role both in the improvement of the trade
balance and in strengthening the confidence of international investors and traders in the stability of the U.S. dollar. To some
extent, factors of a temporary character contributed to the sharp
decline in private long-term capital outflows in the second half
of 1963, and in some foreign markets the demand for U.S.
exports was rising at a pace that might not be sustained. Nevertheless, a basis for long-run improvement in the balance of payments appears to have been established.

PART II
Records, Operations, and Organization

FEDERAL RESERVE SYSTEM

January 7, 1963
Amendment to Regulation G, Collection of Noncash Items.

Effective January 1, 1964, a new paragraph was added to Section 207.1
of Regulation G in order to include in the definition of noncash items
checks, drafts, and other items with special instructions or requiring special
handling.
Votes for this action: Messrs. Martin, Balderston, Mills,
Robertson, and Shepardson. Votes against this action: None.

The purpose of the amendment was to minimize the volume
of envelope drafts and other items requiring special handling,
sent to the Federal Reserve Banks for cash collection, by discouraging the use of such items.
The amendment had been the subject of a notice of proposed
rule-making published in the Federal Register and was adopted
by the Board after consideration of relevant views received from
interested persons.
March 28, 1963
Adoption of Regulation S, Bank Service Arrangements.

Effective April 3, 1963, the Board issued Regulation S pursuant to the
provisions of the Bank Service Corporation Act.
Votes for this action: Messrs. Balderston, Mills, Robertson,
King, and Mitchell. Votes against this action: None.

Under Section 5 of the Bank Service Corporation Act (Public Law 87-856), no State member bank may cause to be performed, by contract or otherwise, any bank services for itself,
whether on or off its premises, unless assurances satisfactory to
the Board of Governors are furnished to the Board, by both the
bank and the party performing such services, that the performance thereof will be subject to regulation and examination by

ANNUAL REPORT OF BOARD OF GOVERNORS

the Board to the same extent as if such services were being performed by the bank itself on its own premises. The term "bank
services," as defined in Section l ( b ) of the Bank Service Corporation Act, includes services such as: check and deposit sorting and posting; computation and posting of interest and other
credits and charges; preparation and mailing of checks, statements, notices, and similar items; or other clerical, bookkeeping, accounting, statistical, or similar functions performed for a
bank.
Regulation S, designed to implement the requirement with respect to assurances concerning examination and regulation contained in the Bank Service Corporation Act, became applicable
to the performance of bank services for any State member bank
by a "bank service corporation" in which banks were authorized
to invest, by some other organizations (such as an electronic
data processing center) not affiliated with any bank, or by another bank. The Regulation, which was prepared in the light
of comments received by the Board subsequent to publication of
a proposed regulation in the Federal Register on December
5, 1962, incorporated, with some modification, the basic provisions of a statement issued by the Board as an initial guide to
State member banks immediately following passage of the Bank
Service Corporation Act. The Regulation, as adopted, was published in the Federal Register on April 3, 1963, which thereupon became the effective date. A similar regulation applicable
to nonmember insured banks was adopted by the Federal Deposit Insurance Corporation.

July 16, 1963
Increase of rates on discounts and advances by Federal Reserve Banks,
and amendment to Regulation Q, Payment of Interest on Deposits.

Effective July 17, 1963, the Board approved actions taken by the Boards
of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, Richmond, St. Louis, Minneapolis, and Dallas establishing a rate of
3Vi per cent (an increase from 3 per cent) on discounts and advances to
member banks under Sections 13 and 13a of the Federal Reserve Act.

FEDERAL RESERVE SYSTEM
Votes for this action: Messrs. Martin, Balderston, and Shepardson. Vote against this action: Mr. Robertson.
Pursuant to the policy established by this action, the Board
subsequently approved the same rate for the remaining Federal
Reserve Banks effective on the following dates:
Philadelphia
Chicago
San Francisco
Atlanta
Kansas City

July
July
July
July
July

19, 1963
19, 1963
19, 1963
24, 1963
26, 1963

Effective on the same dates, the Board approved for the respective Federal Reserve Banks a rate of 4 per cent on advances to member banks
under Section 10(b) of the Federal Reserve Act. In addition, the Board
approved changes at some of the Banks in rates on advances to individuals,
partnerships, and corporations under the last paragraph of Section 13 of
the Act.
(In accordance with provisions of the Federal Reserve Act, the Federal
Reserve Banks establish rates on discounts for and advances to member
banks at least every 14 days, and submit such rates to the Board for
review and determination. Prior to this date, no changes had been made
in these rates since those referred to on pages 85-86 of the Board's ANNUAL REPORT for 1960.)

Also effective July 17, 1963, the Board approved an increase to 4 per
cent in the maximum rate of interest permitted to be paid by member
banks on time deposits and certificates of deposit with maturities of 90
days to 1 year. Since January 1962, the permissible rate ceilings had been
3 Vi per cent on time deposits and certificates with maturities of 6 months
to 1 year, and 2Vi per cent on those with maturities of 90 days to 6
months. Payment of the higher rates was authorized by a revision of the
Supplement to Regulation Q.
Votes for this action: Messrs. Martin, Balderston, Robertson, and Shepardson. Votes against this action: None.
In approving the discount rate change proposed by the Federal Reserve Banks, and amending Regulation Q, the Board was
influenced primarily by a desire to minimize short-term capital
outflows, which had been encouraged by higher rates of interest
prevalent in other countries. Preliminary information indicated
that short-term outflows had contributed materially to the sub-

ANNUAL REPORT OF BOARD OF GOVERNORS

stantial deficit in the U.S. balance of payments incurred in the
second quarter.
The economy had continued a somewhat more vigorous expansion than had generally been anticipated in the second quarter of the year. The index of industrial production continued
its rise in June, despite the fact that steel output declined with
the disappearance of the strike threat.
In light of the strength of the domestic economy and technical conditions that had developed in the money and credit
markets, it appeared that an increase in discount rates would
help to relieve the drain on U.S. monetary reserves without putting substantial upward pressure on long-term rates or undue
restraint on domestic economic expansion. It was the view of
the members of the Board favoring the discount rate increase
that, even after the proposed change, the general posture of
monetary policy would remain stimulative to domestic expansion and would thus continue to be conducive to fuller utilization of manpower and other resources.
The increase in the maximum rates of interest payable on
time deposits and certificates of deposit with maturities of 90
days to 1 year was intended to permit banks to compete effectively for foreign and domestic balances in the light of the market rate structure that had developed and could be anticipated
following the discount rate change.
In taking these actions to help stem short-term capital outflows,
the Board was encouraged by the fact that other Governmental
proposals to reduce the balance of payments deficit were under
active consideration and were likely to be announced shortly.
Governor Robertson dissented from the Board's discount rate
action because he felt that the probable benefit to the U.S. balance of payments resulting from the increase would be so small
as to be considerably outweighed by its potential adverse effects
upon domestic economic activity. It was his view that the balance of payments problem should be attacked by measures that
dealt directly with its underlying causes. Such basic remedies
might appropriately be supported by a progressively less easy

FEDERAL RESERVE SYSTEM

monetary policy in due course, provided the combination of
public and private stimulation of business expansion had proceeded to a point where higher interest rates and restrained credit
availability were an appropriate concomitant. If a stimulative
tax cut were forthcoming promptly, for example, this stage of
economic advance conceivably might be reached in a very few
months. But in the interim he felt that a discount rate increase
was premature, likely both to create some dampening influences
within what needed to be a stimulative domestic monetary environment and, at the same time, to have only trivial effects on
international capital flows because of the combination of compensating adjustments in foreign money and exchange rates and
the large remaining differentials between foreign and U.S. rates
of return on long-term credit and equity capital.
Given action to increase the discount rate, however, and the
accompanying push on short rates generally, Governor Robertson believed that banks were going to have to be able to pay a
correspondingly higher rate on their negotiable time certificates
of deposit if they were not to lose their ability to sell new certificates or even to replace maturing certificates. Therefore, he
voted for approval of the increase in the maximum rate of interest payable on certificates with maturities of 90 days to 1 year.
He favored a stimulative monetary policy under prevailing economic conditions and feared that failure to amend Regulation
Q in this regard would tend to tighten bank credit and dampen
domestic business activity.
August 1, 1963
Revision of Regulation M, Foreign Branches of National Banks, (title
changed from Foreign Branches of National Banks and of Corporations
Organized Under the Provisions of Section 25(a) of the Federal Reserve
Act), and amendment of Regulation H, Membership of State Banking
Institutions in the Federal Reserve System.

Effective August 1, 1963, the Board adopted a revision of Regulation M
and certain conforming amendments to Regulation H.

ANNUAL REPORT OF BOARD OF GOVERNORS
Votes for this action: Messrs. Martin, Balderston, Shepardson, and Mitchell. Vote against this action: Mr. Mills.
In announcing its action the Board pointed out that the revision of Regulation M was designed primarily to implement an
amendment to Section 25 of the Federal Reserve /vet (Public
Law 87-588) that had as its purpose improving the usefulness
of foreign branches of national banks. The amendment authorized the Board to issue regulations permitting such branches to
exercise powers (with certain exceptions) that are usual abroad.
The revision of Regulation M was prepared in the light of comments received by the Board subsequent to publication of a
proposed revision of the Regulation in the Federal Register on
January 25, 1963.
The Board's announcement noted that, subject to certain conditions, the revision of Regulation M authorized foreign branches
of national banks to exercise the following powers so far as
they might be usual in the banking business at the place where
such a branch was operating:
1. To issue guarantees and similar agreements, provided that the
aggregate unsecured amount thereof for the national bank (including
all its branches) does not exceed 50 per cent of the banks capital and
surplus, and that the combined total of unsecured guarantees issued for
the benefit of any one customer and of other obligations owed the bank
by such customer (with certain exceptions) shall not exceed 10 per cent
of the bank's capital and surplus.
2. To accept drafts or bills of exchange, subject only to the usual
amount limitations of the Board's Regulation C, Acceptance by Member Banks of Drafts or Bills of Exchange.
3. To invest in the securities (including stock) of the central bank,
clearing houses, governmental entities, and development banks of the
country in which the branch is located; but a particular branch's total
investments of this type (excluding investments required by foreign
law) may not exceed 1 per cent of its total deposits.
4. To underwrite and deal in obligations of the national government
of the country in which the branch is located, including obligations
issued by agencies or instrumentalities of such government if supported
by the full faith and credit of the national government; but no bank
(including all its branches) may hold for its own account the obligations of any such government exceeding in the aggregate 10 per cent
of its capital and surplus.

FEDERAL RESERVE SYSTEM
5. To take liens on foreign real estate in connection with extensions
of credit without complying with certain requirements of Section 24
of the Federal Reserve Act.
6. To make loans to executive officers of the branch for the purpose
of acquiring residences abroad, if such loans do not exceed $20,000
for any officer.

The revision also simplified the procedure under which national banks may establish foreign branches by providing that if
a national bank has established a branch in any particular foreign country with Board approval, it may establish additional
branches in that country after 30 days' notice to the Board with
respect to each such branch. In order that the same procedure
would apply with respect to the establishment of foreign branches
by member State banks, the Board adopted—simultaneously
with this revision—an amendment to its Regulation H, conforming the provisions thereof to the provisions applicable to national
banks under Regulation M.
Governor Mills dissented from this action on the ground that,
although Public Law 87-588 seemed intended to permit foreign
branches of U.S. banks to compete on relatively favorable terms
with banks in the host country, he considered it the responsibility
of the supervisory agency to stand on the side of sound banking
if a regulation that would permit such competition resulted in
lower banking standards. In his opinion, the extension of authority to foreign branches to guarantee and to accept would
condone and encourage unsound banking practices, and it would
also open the gate to an increased outflow of dollars and gold
from the United States.
August 22, 1963
Revision of Regulation K, Corporations Engaged in Foreign Banking and
Financing under the Federal Reserve Act (title changed from Corporations Doing Foreign Banking or Other Foreign Financing under the
Federal Reserve Act).

Effective September 1, 1963, the Board adopted a revision of Regulation K.

ANNUAL REPORT OF BOARD OF GOVERNORS
Votes for this action: Messrs. Martin, Balderston, Robertson, Shepardson, and Mitchell. Vote against this action: Mr.
Mills.

Adoption of the revised Regulation followed a comprehensive
review of the rules in effect since January 15, 1957, that were
applicable to corporations (the so-called Edge Act and "agreement" corporations) operating under Sections 25 and 25(a)
of the Federal Reserve Act. The revision was prepared in light
of comments received by the Board subsequent to publication
of a proposed revision of the Regulation in the Federal Register
on March 16, 1963.
In announcing its action the Board stated that the primary
objective of the revision was to enable Edge Act and "agreement"
corporations to operate more effectively in financing international
and foreign commerce. Another important objective was to
shorten and simplify the Regulation by deleting provisions that
merely reiterated statutory requirements. The revision eliminated
the formal distinction between "banking" and "financing" corporations, and the substance of this distinction was also considerably modified.
With respect to substantive matters, the Board pointed out
that the revision differed from the former Regulation K in the
following major respects:
1. For the first time the Regulation contained a statement of national
purpose. A statement of general policy concerning operations in the
United States also was added.
2. Prior Board approval was required with respect to the issuance
by any corporation of debentures, bonds, or similar obligations. This
provision for prior approval replaced detailed provisions of the former
Regulation.
3. The procedure for establishing branches or agencies abroad was
simplified so that a corporation that had established a branch or agency
in a particular foreign country with Board approval could, unless otherwise advised by the Board, establish additional branches or agencies in
that country after 30 days' notice to the Board.
4. The procedure by which Edge Act and "agreement' corporations
were allowed to invest in the stock of other corporations represented
a substantial modification and simplification.

FEDERAL RESERVE SYSTEM
5. The restrictions of the former Regulation were relaxed to allow
corporations to accept time deposits from foreign depositors for the
purpose of safekeeping or investment.
6. The provisions of the former Regulation were also relaxed to
permit a corporation to take over or acquire participations in credits
or obligations relating to transactions that it could have financed at
inception.
7. The restrictions regarding a corporation's investment in the United
States of funds not currently employed in its international business were
tightened so as to preclude the purchase of open market commercial
paper and domestic "investment securities," other than U.S. Government or State obligations.
8. The guarantee power of corporations was patterned after that of
foreign branches of national banks under the recently adopted revision
of Regulation M.
Governor Mills dissented from this action because he felt that
certain features of the revised Regulation, in particular the
broadening of the acceptance and guarantee powers of Edge
Act and "agreement" corporations, could lead to considerable
risk exposure and unsound banking practices, and also could
project a serious outflow of funds from the United States.
November 5, 1963
Increase in margin and retention requirements.

Effective November 6, 1963, the Supplements to Regulation T, Credit
by Brokers, Dealers, and Members of National Securities Exchanges, and
Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying Registered Stocks, were amended (1) to increase the margin requirements from 50 per cent to 70 per cent, these requirements to be applicable
both to purchases of securities and to short sales; and (2) to increase
from 50 per cent to 70 per cent the amount required to be retained in an
undermargined account with a brokerage firm or bank when there was a
sale of part of the securities serving as collateral.
Votes for this action: Messrs. Martin, Balderston, Mills,
and Shepardson. Votes against this action: Messrs. Robertson
and Mitchell.
Margin requirements are established by the Board of Governors pursuant to authority contained in the Securities Exchange

ANNUAL REPORT OF BOARD OF GOVERNORS

Act of 1934 "for the purpose of preventing the excessive use of
credit for the purchase or carrying of securities." The present
change was the first since July 10, 1962, when the requirements
were reduced from 70 per cent to 50 per cent for reasons set
forth on pages 113-14 of the Board's ANNUAL REPORT for 1962.
In announcing its action, the Board pointed out that since
July 1962 stock market credit reported by member brokerage
firms of the New York Stock Exchange and by weekly reporting
member banks of the Federal Reserve System had risen by $2.1
billion (43 per cent). Of the increase, nearly $1.8 billion was in
customer net debits of the brokerage firms, which rose by 49
per cent.
The retention requirement had been 50 per cent since June 15,
1959. The effect of the increase to 70 per cent was that in the
case of a sale of part of the collateral securing an undermargined
account or loan, that is, one in which the customer has an equity
amounting to less than the current margin requirement, the
amount of the proceeds of the sale that could be withdrawn by
the customer would be 30 per cent rather than 50 peir cent until
the customer's equity equaled the current margin requirement.
Governors Robertson and Mitchell agreed with the majority of
the Board that some increase in the margin and retention requirements was justified. However, they would have preferred
to raise the requirements to 60 per cent at this time, feeling that
such an increase would have been sufficient in light of currently
available data on stock market credit, and to review the situation
again, on the basis of subsequent developments, to decide whether
a further increase seemed necessary.

FEDERAL RESERVE SYSTEM
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 19 meetings of the Federal Open
Market Committee during the calendar year 1963, including
the votes on the policy decisions made at those meetings as
well as a resume of the basis for the decisions, as reflected
by the minutes of the Committee.
It will be noted from the record of policy actions that in
some instances the decisions were by unanimous vote and
that in other instances dissents were recorded. Further, as this
record indicates, 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.
Both the Manager of the System Open Market Account and
the Special Manager of the Account for foreign currency operations attend the meetings of the Committee and obtain guidance for the conduct of their operations.
The policy directives of the Federal Open Market Committee are issued to the Federal Reserve Bank of New York as

ANNUAL REPORT OF BOARD OF GOVERNORS
the Bank selected by the Committee to execute transactions
for the System Open Market Account. In the area of domestic
open market activities the Bank operates under two separate
policy directives from the Open Market Committee—a continuing authority directive and a current economic policy directive. At the beginning of the calendar year the continuing authority directive in effect was as follows:
1. The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, to the extent necessary to carry out
the current economic policy directive adopted at the most recent 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 (including forward commitments, but not including
such special short-term certificates of indebtedness as may be purchased
from the Treasury under paragraph 2 hereof) shall not be increased or
decreased by more than $1 billion during any period between meetings
of the Committee;
(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 $75 million or 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;
(c) To buy U.S. Government securities with maturities of 24 months
or less at the time of purchase, 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 under agreements for repurchase of such securities or acceptances in 15 calendar days
or less, at rates not less than (a) the discount rate of the Federal Reserve

FEDERAL RESERVE SYSTEM
Bank of New York at the time such agreement is entered into, or (b) 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
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 (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 $500 million.
The only revisions in this directive during the year affected
the limit on changes in holdings of securities in the System
Open Market Account during any period between meetings
of the Committee, as specified in Section l ( a ) . As noted in
the entries for the respective dates, this limit was raised to $1.5
billion on June 18, restored to $1.0 billion on July 30, again
raised to $1.5 billion on October 1, and restored to $1.0 billion on November 12. The current economic policy directive
was changed frequently during the year, as shown in the respective policy record entries. The current economic policy
directive that was in effect at the beginning of 1963 instructed
the Federal Reserve Bank of New York as follows:
It is the current policy of the Federal Open Market Committee to accommodate moderate further increases in bank credit and the money
supply, while aiming at money market conditions that would minimize
capital outflows internationally. This policy takes into account the lack
of any significant improvement in the U.S. balance of payments and the
recent substantial increase in bank credit, but at the same time recognizes

ANNUAL REPORT OF BOARD OF GOVERNORS
the unsatisfactory level of domestic activity, the continuing underutilization of resources, and the absence of inflationary pressures.
To implement this policy, operations for the System Open Market Account during the next 3 weeks shall be conducted with a view to offsetting
the anticipated seasonal easing of Treasury bill rates, if necessary through
maintaining a firmer tone in money markets, while continuing to provide
moderate reserve expansion in the banking system.
In the foreign currency area, the Federal Reserve Bank of
New York operates under (1) an authorization regarding open
market transactions in foreign currencies, (2) a statement of
guidelines for System foreign currency operations, and (3) a
continuing authority directive on System foreign currency operations.
The authorization regarding open market transactions in foreign currencies in effect at the beginning of 1963 and throughout the year read as follows:
AUTHORIZATION REGARDING OPEN MARKET TRANSACTIONS
IN FOREIGN CURRENCIES

Pursuant to Section 12A of the Federal Reserve Act and in accordance
with Section 214.5 of Regulation N (as amended) of the Board of Governors of the Federal Reserve System, the Federal Open Market Committee
takes the following action governing open market operations incident to
the opening and maintenance by the Federal Reserve Bank of New York
(hereafter sometimes referred to as the New York Bank) of accounts with
foreign central banks.
I. Role of Federal Reserve Bank of New York
The New York Bank shall execute all transactions pursuant to this
authorization (hereafter sometimes referred to as transactions in foreign
currencies) for the System Open Market Account, as defined in the Regulation of the Federal Open Market Committee.
II. Basic Purposes of Operations
The basic purposes of System operations in and holdings of foreign
currencies are:
(1) To help safeguard the value of the dollar in internation al exchange
markets;

FEDERAL RESERVE SYSTEM
(2) To aid in making the existing system of international payments
more efficient and in avoiding disorderly conditions in exchange
markets;
(3) To further monetary cooperation with central banks of other
countries maintaining convertible currencies, with the International
Monetary Fund, and with other international payments institutions;
(4) Together with these banks and institutions, to help moderate
temporary imbalances in international payments that may adversely
affect monetary reserve positions; and
(5) In the long run, to make possible growth in the liquid assets available to international money markets in accordance with the needs
of an expanding world economy.
III. Specific Aims of Operations
Within the basic purposes set forth in Section II, the transactions shall
be conducted with a view to the following specific aims:
(1) To offset or compensate, when appropriate, the effects on U.S.
gold reserves or dollar liabilities of disequilibrating fluctuations in
the international flow of payments to or from the United States,
and especially those that are deemed to reflect temporary forces
or transitional market unsettlement;
(2) To temper and smooth out abrupt changes in spot exchange rates
and moderate forward premiums and discounts judged to be disequilibrating;
(3) To supplement international exchange arrangements such as those
made through the International Monetary Fund; and
(4) In the long run, to provide a means whereby reciprocal holdings
of foreign currencies may contribute to meeting needs for international liquidity as required in terms of an expanding world
economy.
IV. Arrangements with Foreign Central Banks
In making operating arrangements with foreign central banks on System
holdings of foreign currencies, the New York Bank shall not commit itself
to maintain any specific balance, unless authorized by the Federal Open
Market Committee.
The Bank shall instruct foreign central banks regarding the investment
of such holdings in excess of minimum working balances in accordance
with Section 14(e) of the Federal Reserve Act.
The Bank shall consult with foreign central banks on coordination
of exchange operations.

ANNUAL REPORT OF BOARD OF GOVERNORS
Any agreements or understandings concerning the administration of
the accounts maintained by the New York Bank with the central banks
designated by the Board of Governors under Section 214.5 of Regulation
N (as amended) are to be referred for review and approval to the Committee, subject to the provision of Section VIII, paragraph 1, below.
V. Authorized Currencies
The New York Bank is authorized to conduct transactions for System
Account in such currencies and within the limits that the Federal Open
Market Committee may from time to time specify.
VI. Methods of Acquiring and Selling Foreign Currencies
The New York Bank is authorized to purchase and sell 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 Stabilization Fund of the Secretary of the Treasury established
by Section 10 of the Gold Reserve Act of 1934 and with foreign monetary
authorities.
Unless the Bank is otherwise authorized, all transactions shall be at
prevailing market rates.
VII. Participation of Federal Reserve Banks
All Federal Reserve Banks shall participate in the foreign currency operations for System Account in accordance with paragraph 3 G (1) of
the Board of Governors' Statement of Procedure with Resped: to Foreign
Relationships of Federal Reserve Banks dated January 1, 1944.
VIII. Administrative Procedures
The Federal Open Market Committee authorizes 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) to give instructions
to the Special Manager, within the guidelines issued by the Committee,
in cases in which it is necessary to reach a decision on operations before
the Committee can be consulted.
All actions authorized under the preceding paragraph shall be promptly
reported to the Committee.
The Committee authorizes 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:

FEDERAL RESERVE SYSTEM
(1) 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;
(2) 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;
(3) From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary
and Financial Problems.
IX. Special Manager of the System Open Market Account
A Special Manager of the Open Market Account for foreign currency
operations shall be selected in accordance with the established procedures
of the Federal Open Market Committee for the selection of the Manager
of the System Open Market Account.
The Special Manager shall direct that all transactions in foreign currencies and the amounts of all holdings in each authorized foreign currency
be reported daily to designated staff officials of the Committee, and shall
regularly consult with the designated staff officials of the Committee on
current tendencies in the flow of international payments and on current
developments in foreign exchange markets.
The Special Manager and the designated staff officials of the Committee shall arrange for the prompt transmittal to the Committee of all
statistical and other information relating to the transactions in and the
amounts of holdings of foreign currencies for review by the Committee
as to conformity with its instructions.
The Special Manager shall include in his reports to the Committee
a statement of bank balances and investments payable in foreign currencies, a statement of net profit or loss on transactions to date, and a
summary of outstanding unmatured contracts in foreign currencies.
X. Transmittal of Information to Treasury Department
The staff officials of the Federal Open Market Committee shall transmit
all pertinent information on System foreign currency transactions to
designated officials of the Treasury Department.
XL Amendment of Authorization
The Federal Open Market Committee may at any time amend or
rescind this authorization.

ANNUAL REPORT OF BOARD OF GOVERNORS

The guidelines for System foreign currency operations in effect
at the beginning of the year were as follows:
GUIDELINES FOR SYSTEM FOREIGN CURRENCY OPERATIONS

1. Holdings of Foreign Currencies
Until otherwise authorized, the System will limit its holdings of foreign
currencies to that amount necessary to enable its operations to exert a
market influence. Holdings of larger amounts will be authorized only
when the U.S. balance of international payments attains a sufficient surplus to permit the ready accumulation of holdings of major convertible
currencies.
Holdings of a currency shall generally be kept sufficient to meet forward
contracts in that currency (exclusive of contracts made under parallel
arrangements with foreign monetary authorities which provide their own
cover) expected to mature in the following 3-week period.
Foreign currency holdings above a certain minimum shall be invested
as far as practicable in conformity with Section 14(e) of the Federal
Reserve Act.
2. Exchange Transactions
System exchange transactions shall be geared to pressures of payments
flows so as to cushion or moderate disequilibrating movements of funds
and their destabilizing effects on U.S. and foreign official reserves and on
exchange markets.
In general, these transactions shall be geared to pressures connected
with movements that are expected to be reversed in the foreseeable future;
when expressly authorized by the Federal Open Market Committee, they
may also be geared on a short-term basis to pressures connected with other
movements.
Subject to express authorization of the Committee, the Federal Reserve
Bank of New York may enter into reciprocal arrangements with foreign
central banks on exchange transactions ("swap" arrangements), which
arrangements may be wholly or in part on a standby basis.
The New York Bank shall, as a usual practice, purchase and sell
authorized currencies at prevailing market rates without trying to establish rates that appear to be out of line with underlying market forces.
If market offers to sell or buy intensify as System holdings increase or
decline, this shall be regarded as a clear signal for a review of the System's
evaluation of international payments flows. This review might suggest
a temporary change in System holdings of a particular convertible cur-

FEDERAL RESERVE SYSTEM
rency and possibly direct exchange transactions with the foreign central
bank involved to be able to accommodate a larger demand or supply.
Starting operations at a time when the United States is not experiencing
a net inflow of any eligible foreign currency may require that initial System
holdings (apart from sums that might be acquired from the Stabilization
Fund) be purchased directly from foreign central banks.
It shall be the practice to arrange with foreign central banks for the
coordination of foreign currency transactions in order that System transactions do not conflict with those being undertaken by foreign monetary
authorities.
3. Transactions in Spot Exchange
The guiding principle for transactions in spot exchange shall be that,
in general, market movements in exchange rates, within the limits established in the International Monetary Fund Agreement or by central bank
practices, index affirmatively the interaction of underlying economic
forces and thus serve as efficient guides to current financial decisions,
private and public.
Temporary or transitional fluctuations in payments flows may be
cushioned or moderated whenever they occasion market anxieties, or
undesirable speculative activity in foreign exchange transactions, or excessive leads and lags in international payments.
Special factors making for exchange market instabilities include (i)
responses to short-run increases in international political tension, (ii)
differences in phasing of international economic activity that give rise to
unusually large interest rate differentials between major markets, or (iii)
market rumors of a character likely to stimulate speculative transactions.
Whenever exchange market instability threatens to produce disorderly
conditions, System transactions are appropriate if the Special Manager, in
consultation with the Federal Open Market Committee, or in an emergency with the members of the Committee designated for that purpose,
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. Whenever supply or demand persists in influencing exchange
rates in one direction, System transactions should be modified, curtailed,
or eventually discontinued pending a re-assessment by the Committee of
supply and demand forces.
4. Transactions in Forward Exchange
Occasion to engage in forward transactions will arise mainly when
forward premiums or discounts are inconsistent with interest rate differentials and are giving rise to a disequilibrating movement of short-term -

ANNUAL REPORT OF BOARD OF GOVERNORS
funds, or when it is deemed appropriate to supplement existing market
facilities for forward cover as a means of encouraging the retention or
accumulation of dollar holdings abroad.
Proposals of the Special Manager to initiate forward operations shall be
submitted to the Committee for advance approval.
For such operations, the New York Bank may, where authorized, take
over from the Stabilization Fund outstanding contracts for forward sales
or purchases of authorized currencies.
5. Exchange Rates
Insofar as practicable, the New York Bank shall purchase a currency
through spot transactions at or below its par value, and should lower
the rate at which it is prepared to purchase a currency as its holdings of
that currency approach the established maximum.
The Bank shall also, where practicable, sell a currency through spot
transactions at rates at or above its par value, and should raise the rate
at which it is prepared to sell a currency as its holdings of that currency
approach zero.
Spot transactions at rates other than those set forth in the preceding
paragraphs shall be specially authorized by the members of the Committee
designated in Section VIII of the Authorization for Open Market Transactions in Foreign Currencies.
Certain revisions were made in these guidelines at the meeting

on May 28, as noted in the entry for that date.
The continuing authority directive with respect to foreign currency operations in effect at the beginning of 1963 was as follows:
The Federal Reserve Bank of New York is authorized and directed to
purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency Operations issued by the Federal Open Market Committee on
February 13, 1962, and amended November 13, 1962:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Total foreign currencies held at any one time shall not exceed $1 billion.

FEDERAL RESERVE SYSTEM

This directive was amended on several occasions during the
year, as noted in entries for various dates. In general, the effects
of the amendments were (1) to add certain currencies to the list
of foreign currencies in which transactions were authorized, (2)
to specify certain additional purposes for which foreign currency
transactions were authorized, and (3) to modify the amounts
and the form of the dollar limitations specified for foreign currency operations.
January 8, 1963
1. Authority to effect transactions in System Account.

Domestic economic activity, although at record levels, remained lower than needed for the full utilization of existing
manpower and industrial capacity. Industrial production and
employment showed little change in December from the levels
reached in mid-1962, while gross national product was estimated to have increased moderately further in the fourth quarter. Unemployment was estimated to have changed little from
the advanced November rate. Department store and new automobile sales continued high, although they were below November levels. New orders for machinery and other equipment
rose again in November. Commodity prices at wholesale continued stable in December, and consumer prices were unchanged
in November.
In the financial area, yields on private and Government securities with a fixed return showed little net change in recent
weeks. Offerings of corporate and State and local government
securities were in moderate volume in December and were indicated to continue so in January. Stock market prices in December maintained the advanced levels reached following the
Cuban crisis, and in early January rose further.
Seasonally adjusted commercial bank credit in December
was estimated to have increased sharply further, about in line
with the growth in other recent months. Bank loans continued
to register a substantial increase. The conventionally defined

ANNUAL REPORT OF BOARD OF GOVERNORS

money supply (currency in circulation and privately held demand deposits) rose sharply, and time and savings deposits
increased substantially further. Required reserves of member
banks averaged more than 3 per cent higher than in December 1961; for the past 4 months they had increased at a seasonally adjusted annual rate exceeding 9 per cent. Excess reserves and member bank borrowing from the Federal Reserve
Banks both moved higher as banks made year-end adjustments
in their reserve positions, with free reserves declining considerably, and the money market continuing relatively firm. In
accordance with the current economic policy directive adopted
at the preceding meeting (December 18, 1962), System operations since then had been conducted with a view to maintaining slightly less easy monetary conditions.
The U.S. balance of payments in the fourth quarter of 1962,
apart from special receipts, was still in serious deficit, although
not on a scale comparable with the large single-month deficit
in October. Gold and foreign exchange markets had been relatively calm in recent weeks.
Differences of view with respect to monetary and credit policy, at least for the near future, were quite small at this meeting, with a general consensus in favor of continuing unchanged
the policy of slightly less ease adopted at the December 18
meeting, to which credit markets had adjusted gradually and
smoothly. Factors taken into account in arriving at the current
policy consensus included the Treasury's $250 million bond
offering to underwriters, other pending Treasury financing operations, and the lack of significant change in domestic economic
conditions or in the international financial position of the United
States.
After some discussion of the wording of the December 18
current policy directive, the phrasing of that directive—but
not the substance—was changed somewhat. Accordingly, the
following current policy directive was issued to the: Federal Reserve Bank of New York:

FEDERAL RESERVE SYSTEM
It is the Committee's current policy to accommodate further, though
more moderate, growth in bank credit and the money supply, while aiming
at money market conditions that would minimize capital outflows internationally. This policy takes into account the lack of significant improvement in the U.S. balance of payments and the recent substantial increases
in bank credit, demand deposits, and the reserve base, but at the same
time recognizes the modest progress of the domestic economy during 1962,
the continuing underutilization of resources, and the absence of inflationary pressures.
To implement this policy, System open market operations during the
next 3 weeks shall be conducted with a view to maintaining about the
same degree of firmness in the money market that has prevailed in recent
weeks and to offsetting seasonal downward pressures on short-term interest
rates, while providing for moderate reserve expansion in the banking
system.
Votes for this action: Messrs. Martin, Balderston,
Bryan, Deming, Ellis, Fulton, King, Mills, Shepardson,
and Treiber. Vote against this action: Mr. Robertson.

Mr. Robertson, in dissenting, indicated that the Treasury
financing program and the continued reserve expansion during
the past 3 weeks inclined him toward a position of no change
in policy at this time. However, he believed that primary emphasis should not be placed on maintenance of the Treasury
bill rate and that no actions should be taken to tighten marginal
reserve positions simply in order to resist a decline in the bill
rate. Instead, primary emphasis should be placed on insuring
the maintenance of an availability of reserves that would stimulate the domestic economy, and in his opinion the wording of
the policy directive was inconsistent with this view.
2. Authority to purchase and sell foreign currencies.

The continuing authority directive to the Federal Reserve
Bank of New York on System foreign currency operations, last
amended October 2, 1962, was further amended, effective immediately, to increase from $1.0 billion to $1.3 billion the
authorized maximum holdings of foreign currencies at any one

ANNUAL REPORT OF BOARD OF GOVERNORS
time. As amended, the continuing authority directive read as
follows:
The Federal Reserve Bank of New York is authorized and directed
to purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency Operations issued by the Federal Open Market Committee on
February 13, 1962, and amended November 13, 1962:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Total foreign currencies held at any one time shall not exceed $1.3
billion.
Votes for this action: Messrs. Martin, Balderston,
Bryan, Deming, Ellis, Fulton,-King, Mills, Robertson,
Shepardson, and Treiber. Votes against this action:
None.
At this date reciprocal currency (swap) agreements totaling
$900 million were outstanding on a standby basis with 9 foreign central banks and the Bank for Internationa] Settlements,
as follows:
Austrian National Bank
National Bank of Belgium
Bank of Canada
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Netherlands Bank
Swiss National Bank
Bank for International Settlements

(In millions of dollars)
50
50
250
50
50
50
150
50
100
100

FEDERAL RESERVE SYSTEM

There were in prospect the execution of a similar agreement
with the Bank of Sweden and an enlargement of certain of the
existing swap facilities. In addition, the Federal Reserve held
a modest quantity of certain foreign currencies that had been
acquired from the U.S. Treasury Stabilization Fund at the outset of the Federal Reserve program of foreign currency operations in February 1962. In the circumstances it was considered
appropriate to increase the maximum amount of foreign currencies authorized to be held at any one time.
January 29, 1963
1. Authority to effect transactions in System Account.

Statistics available indicated virtually no change in general
domestic business conditions from 3 weeks and 6 weeks earlier.
Through December industrial activity, nonagricultural employment, and wholesale prices continued at the levels of other
recent months. Personal income and retail sales rose further to
record levels in December; consumer prices edged down after
having leveled off in the autumn. The number of housing units
started and the volume of new orders received by producers of
machinery and other durable goods declined in December from
advanced levels. Partial data suggested that retail sales continued high in January, while the unemployment rate remained in
the relatively high range where it had been for many months.
Most business and other projections, including those prepared
by the Council of Economic Advisers, reflected caution in appraising economic prospects and suggested little likelihood of
an upsurge in activity in 1963 sufficiently strong to bring about
a significant reduction in the rate of unemployment.
In contrast to business activity, key financial indicators and
projections showed a degree of strength that on occasion in the
past had foreshadowed a pick-up in underlying economic activity.
There was a further sharp rise in the seasonally adjusted money
supply in the first half of January, although indications for

ANNUAL REPORT OF BOARD OF GOVERNORS

the second half of the month were for sorpe decline. Time
deposits also rose substantially further in the first half of the
month. Required reserves of member banks against private
deposits were averaging somewhat higher during January than
in December. Free reserves also were averaging somewhat higher,
but the money market retained a moderately firm tone, with
the 3-month bill rate holding slightly above the 2.90 per cent
level.
Three major administration messages—economic, budget, and
tax—that had been presented to the Congress since the January 8
meeting, emphasized fiscal and other efforts to stimulate economic growth, and this emphasis contributed a note of caution
to bond markets and strength to the stock market. Yields on
U.S. Government and some other fixed-interest-return securities rose a little, on balance, from their levels in early January.
Common stock prices continued the rise of recent months on
sizable trading volume, and at the time of this meeting had
recovered two-thirds of their decline from December 1961 to
June 1962. Corporate security financing in Janueiry was indicated to be smaller than in December, while municipal financing
was estimated to be larger.
Weekly indicators of U.S. monetary reserves and liquid liabilities suggested an over-all deficit of as much as $500 million in
the U.S. balance of payments for the month of January. The
prolonged dock strike possibly contributed to the enlarged deficit,
but unusually large outflows of capital—particularly long-term
—appeared mainly responsible. Purchases of foreign securities,
including large purchases of new Canadian issues, were substantial in January. In addition, some U.S. dollar time deposits were
placed in Canadian banks. Gold and foreign exchange markets
remained generally quiet.
Members of the Committee were in agreement that no change
in policy should be undertaken in the 2 weeks intervening before
the February 12 meeting. Influential factors included the large
imminent Treasury refunding operation, the lack of observable

FEDERAL RESERVE SYSTEM

change in domestic business activity, the large expansion in bank
credit and money during recent months, and the deterioration
in the U.S. balance of payments. Members of the Committee
combined these considerations in varying proportions in their
evaluations of policy action. But even for those who otherwise
might have preferred to shift policy a little, the desirability of
maintaining an "even keel" position during the Treasury financing was controlling.
The economic policy directive was re-worded somewhat to
recognize the forthcoming Treasury financing and otherwise to
make it represent more precisely the currently available facts
and Committee considerations. Accordingly, the current directive was issued to the Federal Reserve Bank of New York in
the following form:
It is the Committee's current policy to accommodate growth in bank
credit and the money supply more moderate than in recent months, while
aiming at money market conditions that would minimize capital outflows
internationally. This policy takes into account the recent deterioration in
the U.S. balance of payments and the recent substantial increases in bank
credit, demand deposits, and the reserve base, but at the same time
recognizes the limited progress of the domestic economy in recent months,
the continuing underutilization of resources, and the absence of inflationary
pressures.
To implement this policy, and in view of the forthcoming Treasury
financing, System open market operations during the next 2 weeks shall
be conducted with a view to maintaining about the same degree of firmness
in the money market that has prevailed in recent weeks and to offsetting
downward pressures on short-term interest rates, while providing for
continued moderate reserve expansion.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bryan, Deming, Ellis, Fulton, Mills,
Mitchell, Robertson, and Shepardson. Votes against
this action: None.
2. Authority to purchase and sell foreign currencies.

The Committee had authorized, on December 4, 1962, the
negotiation of a reciprocal currency (swap) agreement between

ANNUAL REPORT OF BOARD OF GOVERNORS

the Federal Reserve and the Bank of Sweden, and the consummation of a $50 million agreement was announced on January
17, 1963. The consummation of the agreement was accompanied by the addition of Swedish kronor to the list of foreign
currencies that the Committee's continuing directive on foreign
currency operations authorized the Federal Reserve Bank of
New York to purchase and sell in accordance with the guidelines on System foreign currency operations originally issued
by the Committee on February 13, 1962, and amended on November 13, 1962. The amendment of the continuing authority
directive to add Swedish kronor to the list of foreign currencies
was ratified at this meeting.
February 12, 1963
Authority to effect transactions in System Account.

The domestic economic situation at the time of this meeting
was little changed from other recent months. Exceptionally inclement weather in many areas affected business activity, as did
several important labor disputes. Industrial production, nonagricultural employment, and unemployment in January had
about equaled their December levels and were approximately
the same as in mid-1962. New orders for durable goods declined
again in December. Retail sales were estimated to have been
fractionally lower in January than in December but well above
levels of the past summer. Automobile sales, however, were
higher than in December. The length of the work week in manufacturing had declined further in January. Average hourly earnings of factory workers were unchanged in January and were
less than 2 per cent above a year earlier, a small increase as
compared with other postwar years. Corporate profits apparently rose appreciably in the fourth quarter of 1962.
The seasonally adjusted money supply declined slightly more
in the second half of January than it had risen in the first half,
but for the month it averaged somewhat higher than in Decem-

FEDERAL RESERVE SYSTEM

ber. The rate of growth of time and savings deposits accelerated
somewhat during January. Seasonally adjusted bank credit rose
further, with the rise concentrated in security holdings. Total
reserves, as well as required reserves against private deposits,
had declined over the 3 weeks preceding this meeting. Free
reserves also had declined, and member bank borrowings from
Federal Reserve Banks had averaged somewhat higher. The
money market had firmed a little in the past 2 weeks, with yields
on 90-day Treasury bills varying in a range between 2.93 and
2.96 per cent, and the Federal funds rate at or just under the
discount rate of Federal Reserve Banks.
Capital market financing for February was indicated to be
somewhat above the moderate volume in January owing to a
considerably larger volume of municipal financing. The February Treasury refunding was regarded as highly successful,
and the market was now awaiting an advance refunding operation which the Treasury had indicated would be forthcoming.
Stock market prices, which had risen further in January on
active trading, showed little additional rise in early February.
Yields on U.S. Government, municipal, and corporate bonds had
risen somewhat during the past few weeks as investor caution
increased.
The over-all deficit in the U.S. balance of payments was now
estimated for the month of January at about $400 million, a
somewhat better showing than indicated by reports at the January 29 meeting. Foreign bond issues and private placements in
the U.S. market reached a large volume. Gold and foreign exchange markets were generally quiet, but the pound sterling and
the Canadian dollar weakened in late January and early February as a result of political developments.
The Committee was unanimously of the view that no change
should be made in monetary policy from that followed in recent
weeks. This view reflected a desire to maintain a steady market
tone during forthcoming Treasury financing operations. Also,
business and financial sentiment was reported as being affected

ANNUAL REPORT OF BOARD OF GOVERNORS

by uncertainties surrounding the discussion of tax legislation, by
the size of the Federal deficit, and by the continuing balance of
payments problem. Developments abroad, notably the French
veto of British entrance into the Common Market and the Canadian tension over defense policy, added to the atmosphere of
business uncertainty.
While there was agreement that no change in monetary policy
was to be made at this time, some technical changes in the wording of the current economic policy directive were deemed appropriate in the light of recent developments. After discussion
of these changes, unanimous approval was given to the following directive to the Federal Reserve Bank of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while aiming at money market conditions that would
minimize capital outflows internationally. This policy takes into account
the continuing adverse U.S. balance of payments position and the substantial increases in bank credit, money supply, and the reserve base in
recent months, but at the same time recognizes the limited progress of the
domestic economy, the continuing underutilization of resources, and the
absence of general inflationary pressures.
To implement this policy, and in view of the forthcoming Treasury
financing, System open market operations during the next 3 weeks shall
be conducted with a view to maintaining about the same degree of firmness
in the money market that has prevailed in recent weeks and to offsetting
downward pressures on short-term interest rates, while accommodating
moderate reserve expansion.
Votes for this action: Messrs. Martin, Hctyes,
Balderston, Bryan, Deming, Ellis, Fulton, Mitchell,
Robertson, and Shepardson. Votes against this action:
None.

Although he voted to approve this directive, Mr. Robertson
indicated he did not favor continuing the clause in the second
paragraph: "and to offsetting downward pressures on short-term
interest rates." He felt that retention of this clause, well beyond
the period of strong seasonal rate pressures, suggested Committee preoccupation with the maintenance of a particular level of

FEDERAL RESERVE SYSTEM

bill rates rather than with the promotion of a general monetary
atmosphere appropriate to the objectives of the Committee.
March 5, 1963
1. Authority to effect transactions in System Account.

On balance, the domestic economic picture had not changed
significantly since the preceding meeting of the Committee.
Special influences, such as unusually severe winter weather and
strikes in some key industries, had affected some of the statistical readings but most changes, both favorable and unfavorable, were quite small.
Automobile production and sales continued high in February. Total retail sales also continued close to record levels.
Personal income increased in January owing to large dividend
payments on veterans' insurance, which more than offset a
sizable increase in employee contributions to social security.
The labor market showed little change, although the seasonally
adjusted rate of unemployment edged up in January and again
in February.
The industrial production index in January was down fractionally from December but stayed in the narrow range that
had prevailed since July 1962. New orders received by durable
goods producers, on the other hand, rose appreciably to a level
slightly above the October 1962 high.
Consumer prices in January reversed the slight decline experienced in December; they were 1.4 per cent above a year
earlier, with higher prices of foods and services mainly responsible. Wholesale commodity prices continued to show little change
from the preceding month or from a year earlier.
Yields on corporate bonds showed little change in the weeks
immediately preceding the meeting, while municipal bond yields
increased moderately in response to continuing heavy dealer
inventories. Yields on Treasury intermediate- and long-term issues also rose somewhat, partly reflecting Treasury refunding

ANNUAL REPORT OF BOARD OF GOVERNORS

activities. Treasury bill rates dropped slightly below mid-February levels. A highlight of the period was the apparently successful
Treasury advance refunding operation—not yet completed—involving a potential exchange of about $29 billion of outstanding
issues, of which public holdings accounted for about $20 billion.
Capital market financing by corporations and State and local
governments was in moderate volume again in February. Stock
market prices declined appreciably during the 2 weeks preceding
the meeting, after rising vigorously for more than 3 months.
Bank credit rose substantially further in February on a seasonally adjusted basis, reflecting chiefly increases in security loans
and loans to finance companies and a much smaller than usual
decline in holdings of U.S. Government securities. The seasonally
adjusted money supply apparently was maintained close to the
January level, while time and savings deposits increased substantially further. Total reserves and required reserves behind private
deposits had declined about seasonally over the past 4 weeks.
Free reserves averaged somewhat lower, and member bank
borrowings higher.
According to tentative preliminary estimates, the balance of
payments deficit was much lower in February than in January.
However, in view of the influence of the dock strike on the trade
figures, the average for the past 2 or 3 months seemed more significant, and this average showed no improvement over 1962.
Exchange markets and the London gold market were generally
quiet; sterling continued to show counterseasonal weakness.
The Committee was in agreement that monetary policy in the
period until its next meeting should continue along the lines
followed in recent weeks. As usual, there were shadings of opinion
as to the relative importance and usefulness of small changes in
monetary policy, in one direction or the other, either for dealing
with the domestic economy or for coping with the continuing
large deficit in the balance of payments. In terms of the period
immediately ahead, however, there was general recognition that

FEDERAL RESERVE SYSTEM

the continuing Treasury financing operations during most of the
period argued against any significant change in policy.
Although the decision was for continuation of the same degree
of monetary ease as had prevailed in recent weeks, certain minor
technical changes in the wording of the directive were adopted.
Accordingly, the following current economic policy directive was
issued to the Federal Reserve Bank of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while aiming at money market conditions that would
minimize capital outflows internationally. This policy takes into account
the continuing adverse U.S. balance of payments position and the increases in bank credit, money supply, and the reserve base in recent
months, but at the same time recognizes the limited progress of the
domestic economy, the continuing underutilization of resources, and the
absence of general inflationary pressures.
To implement this policy in a period following a major Treasury financing, System open market operations during the next 3 weeks shall be
conducted with a view to maintaining about the same degree of firmness in
the money market that has prevailed in recent weeks and to offsetting
downward pressures on short-term interest rates, while accommodating
moderate reserve expansion.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, Mills, Mitchell, Robertson, Scanlon, and Shepardson. Votes against this
action: None.
2. Authority to purchase and sell foreign currencies.

Authorization was given to the Federal Reserve Bank of New
York to undertake, on an experimental basis, forward purchases
up to a combined total of $25 million equivalent of any or all
of the foreign currencies authorized for System operations in
order to permit greater flexibility in covering commitments under
reciprocal currency (swap) agreements.
Accordingly, the continuing directive to the Federal Reserve
Bank of New York with respect to foreign currency operations
was amended as follows, effective immediately:

ANNUAL REPORT OF BOARD OF GOVERNORS
The Federal Reserve Bank of New York is authorized and directed
to purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Fore ign Currency
Operations reaffirmed by the Federal Open Market Committee on March
5, 1963:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
The Federal Reserve Bank of New York is also authorized and directed
to purchase, in accordance with the Guidelines and for the purpose of
allowing greater flexibility in covering commitments under reciprocal
currency agreements, any or all of the foregoing currencies through forward transactions, up to a combined total of $25 million equivalent.
Total foreign currencies held at any one time shall not exceed $1.3
billion.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, King, Mills, Mitchell,
Robertson, Scanlon, and Shepardson. Votes against
this action: None.
3. 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, 1963,
and their assumption of duties, the Committee followed its customary practice of reviewing all of its continuing authorizations
and directives. The action taken with respect to the continuing
authority directive on foreign currency operations has been
described in the preceding portion of the entry for this date.
The Committee reaffirmed its continuing authority directive
to the Federal Reserve Bank of New York with respect to trans-

FEDERAL RESERVE SYSTEM

actions in U.S. Government securities, repurchase agreements,
and bankers' acceptances, in the form in which that directive was
outstanding at the beginning of the year 1963. The language of
the directive is set forth in the preface to this record of Open
Market Committee policy actions for 1963.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, King, Mills, Mitchell,
Scanlon, and Shepardson. Votes against this action:
None. Abstaining: Mr. Robertson.

Mr. Robertson, who had voted against the adoption of the
continuing authority directive in its present form on March 6,
1962, abstained because he continued to feel that the directive
was inadequate and did not provide sufficient guidance and
restrictions.
The Committee also reaffirmed its authorization regarding
open market transactions in foreign currencies and its guidelines
for System foreign currency operations, in the form in which both
of these were outstanding at the beginning of the year 1963, as
set forth in the preface to this record of policy actions.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, King, Mills, Mitchell,
Robertson, Scanlon, and Shepardson. Votes against
this action: None.

The reaffirmation of the authorization for System foreign currency operations was with the understanding that the program
continued to be regarded as experimental in nature.
March 26, 1963
Authority to effect transactions in System Account.

Reports indicated that business and financial sentiment with
respect to short-run prospects for domestic activity had strengthened since the preceding meeting of the Committee as favorable
economic data predominated. A recent survey indicated that

ANNUAL REPORT OF BOARD OF GOVERNORS

business planned to increase fixed capital outlays in 1963 by 5
per cent, instead of the 3 per cent increase reported by a survey
last autumn. Business plans for inventory holdings called for a
stepping-up of expansion in the second quarter of this year, partly
as protection against a possible steel strike in the summer. New
orders received by machinery and other durable goods producers
had risen somewhat further in February; and stock market prices
had maintained the higher level to which they rebounded in early
March. Also, consumer plans to spend for automobiles, other
durable goods, and homes indicated continuing strength of
demand.
While these portents of further expansion in activity substantially reduced whatever expectations there had been for an
imminent cyclical recession, they were not sufficient to suggest
a major improvement in unemployment. In fact, unemployment
had increased again in February, reaching a seasonally adjusted
rate of 6.1 per cent of the civilian labor force. The rise reflected
the fact that the increase in the labor force was greater than the
moderate rise in employment.
Industrial production remained essentially unchanged again
in February. Construction expenditures declined, but new
housing units started increased a little from the reduced January
level. Retail sales showed little change in February around the
advanced January rate but, with automobile markets continuing
strong, sales rose further in early March. Industrial commodity
prices continued stable.
In the financial area corporate and municipal security issues
in March were relatively large and appeared likely to continue
so in April. Nevertheless, yields on corporate bonds had changed
little in recent weeks, while yields on State and local government
securities had declined. Large-scale Federal refundings and cash
borrowings also took place, with yields on U.S. Government
securities remaining in a relatively narrow range. Yields on 90day Treasury bills, at 2.90 per cent, continued below the Federal
Reserve discount rate, while yields on long-term Treasury issues

FEDERAL RESERVE SYSTEM

edged up to an average of 3.94 per cent in the week preceding
this meeting.
Seasonally adjusted bank credit expansion continued large in
January, February, and early March. Business loans, however,
had shown mainly seasonal changes following a rapid increase
in late 1962. Real estate and consumer loan demand continued
strong.
Free reserves of member banks averaged $300 million in the 3
weeks ending March 20, little changed from the average for the
month of February. The seasonally adjusted money supply rose
in the first half of March following a slight drop in February.
Time and savings deposits, seasonally adjusted, continued to
expand rapidly, but at a somewhat slackened pace in February
and the first half of March.
The deficit in U.S. international payments in the first quarter
of 1963 was tentatively estimated to be moderately lower than
the quarterly average for the years 1962 and 1961. The firstquarter figures were unfavorably affected by the dock strike and
a bunching of foreign bond issues but favorably affected by large
repayments of bank loans and probably some flows of funds
connected with the recent weakness of the pound sterling. Both
in 1962 and 1961, however, results of the first quarter had turned
out to be considerably better than those for subsequent quarters.
(In 1963 the contribution of one favorable but seasonal influence
—the reversal of year-end window-dressing operations by foreign banks—was much reduced.) Exchange markets showed,
on balance, little net change, except for the pressure on sterling.
The Committee indicated general satisfaction with the degree
of monetary and credit ease that had prevailed in recent weeks,
and none of the members suggested a major change in policy in
either direction. However, in view of the cumulative consequences
of large balance of payments deficits, a minority felt it desirable
to start moving toward slightly less reserve availability and
slightly higher Treasury bill rates. Some other members indicated
that they might have been attracted to this policy position except

ANNUAL REPORT OF BOARD OF GOVERNORS

for the Treasury financing program under way and ahead. Still
others, however, expressed serious doubt that a less easy monetary policy, within the ranges discussed, would have any appreciable effect on the balance of payments position, and they felt
that a more pronounced shift would have unfavorable consequences for the domestic economy.
The majority position was clearly for maintaining essentially
the status quo during the ensuing 3-week period. Nevertheless,
in order to keep the current economic policy directive as
accurately descriptive of current conditions and policy as
possible, minor technical wording changes were adopted. Accordingly, the following directive was issued to the Federal Reserve
Bank of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while aiming at money market conditions that would
minimize capital outflows internationally. This policy takes into account
the continuing adverse U.S. balance of payments position and the increases in bank credit, money supply, and the reserve base in recent
months, but at the same time recognizes the limited progress of the
domestic economy, the continuing underutilization of resources, and the
absence of general inflationary pressures.
To implement this policy in a period of a Treasury bond financing,
System open market operations during the next 3 weeks shall be conducted
with a view to maintaining about the same degree of firmness in the money
market that has prevailed in recent weeks, while accommodating moderate
reserve expansion.
Votes for this action: Messrs. Martin, Balderston,
Bopp, Clay, Irons, King, Mills, Mitchell, Robertson,
Scanlon, and Shepardson. Vote against this action: Mr.
Hayes.

Mr. Hayes recognized that the scope for policy change during
the forthcoming 3-week period was distinctly limited by the
Treasury financing program. However, because of the gravity
of the threat to the position of the dollar due to cumulative effects
of balance of payment deficits, he would have favored moving

FEDERAL RESERVE SYSTEM

toward a slightly lesser degree of monetary ease since he was
convinced that somewhat higher interest rates and reduced credit
availability could bring important benefits, both actual and psychological.
April 16, 1963
Authority to effect transactions in System Account.

The economic situation had improved noticeably in March,
with widespread gains registered by various measures of activity
and with business sentiment distinctly better. Industrial production rose 1 percentage point to a level fractionally above the
September 1962 high. Production of steel increased substantially,
along with orders, partly reflecting inventory accumulation in
anticipation of a possible strike in the summer. Nonagricultural
employment rose further, with increases reported for most major
types of industry and activity. The unemployment rate declined
appreciably in March to 5.6 per cent of the civilian labor force,
but it appeared that both this decline and the rise in the preceding
month probably reflected, in part, difficulties in measuring
seasonal changes.
Retail sales rose further in March, with automobile markets
continuing exceptionally strong. GNP was tentatively estimated to
have risen in the first quarter to an annual rate of $572 billion, a
higher level than had been expected earlier.
Industrial material and other wholesale price averages
remained little changed in March and early April. Very recently,
however, certain producers of steel had announced price increases
for a portion of their products, and it was regarded as quite possible that others would follow suit. Stock market prices advanced
further in recent weeks to within about 5 per cent of the December
1961 peak, the record level of corporate profits reported for the
fourth quarter of 1962 having been a contributing factor.
Against the background of indications of greater business
strength and selective commodity price increases, a relatively

ANNUAL REPORT OF BOARD OF GOVERNORS

large volume of corporate and municipal bond financing, together
with an auction of $300 million of U.S. Government long-term
bonds, had resulted in some tendency toward capital market
congestion and higher yields. A sizable portion of the auctioned
Treasury bonds were still undistributed. Yields on 3-month
Treasury bills, however, remained at or close to 2.90 per cent.
Bank credit expansion (seasonally adjusted) in March was
large, as bank holdings of U.S. Government securities declined
less than seasonally. While business loans were up only slightly
further, expansion was appreciable for most other types of loans.
The seasonally adjusted money supply rose by $300 million
in March, and in the latter part of the month it was about 2.25
per cent higher than a year earlier; however, it had risen at an
annual rate of only 1 per cent compared with late December
1962. Time and savings deposits continued to increase rapidly
at about the rate of other recent months.
The U.S. balance of payments deficit continued large in the
first quarter of 1963. Comparative analysis was difficult, however,
mainly because of the conflicting influences of the dock strike in
January and the weakness of sterling in March. The net decline
in the U.S. gold stock was unusually small in relation to the payments deficit, which, according to fragmentary data, appeared to
have worsened again in the first 10 days of April. Gold and foreign exchange markets had been moderately active at times in
the past few weeks, with the dollar generally weaker than earlier
this year.
Although the domestic economic situation had shown signs
of improvement throughout the country in recent weeks, it
appeared to the Committee premature to assume that a vigorous
sustained expansion was yet under way. This situation, together
with factors such as continuing high rates of unemployment and a
lack of evidence of general inflationary pressures, led the majority
to favor no change of policy in the direction of lesser monetary
ease at this stage. In addition, some members who otherwise
might have preferred to move toward a slightly lesser degree of

FEDERAL RESERVE SYSTEM

ease felt that such action would be undesirable at this time
because of the aftermath of the Treasury bond auction and
impending large refunding operations. Two members, however,
favored a shift in monetary policy at this time, one recommending
a slightly lesser degree of ease, the other a slightly greater degree
of ease.
In line with the majority decision to continue unchanged the
policy adopted at the meeting on March 26, the directive issued
to the Federal Reserve Bank of New York at that meeting was
renewed without change.
Votes for this action: Messrs. Martin, Balderston,
Bopp, Clay, Irons, King, Mitchell, Robertson, Scanlon,
and Shepardson. Votes against this action: Messrs.
Mills and Treiber.

In dissenting from this action, Mr. Mills expressed the view
that financial developments were resulting in undesirable downward pressure on the money supply. The substantial expansion
of commercial bank credit in 1962 and early 1963 had been
accommodated largely by a sharp expansion in time and savings
deposits rather than by expansion of the money supply, he said,
and there had not been the stimulative effect on economic activity
that would have been obtained from expansion in the money
supply itself. Considering the normal lag between policy action
and the resulting effects, he felt that it was not too early to alter
the tone and direction of monetary policy toward slightly greater
ease.
Mr. Treiber felt that within the narrow limits of providing an
even-keel base for Treasury financing there was some room for
seeking a slightly firmer money market. In his judgment, the
ample liquidity in the economy and the recent improvement in
domestic activity permitted additional attention to be given to
this country's continuing and serious balance of payments
problem.

ANNUAL REPORT OF BOARD OF GOVERNORS

May 7, 1963
Authority to effect transactions in System Account.

The widespread improvement noted in the domestic economy
in March continued in April. Employment rose further, and preliminary indications were that there had been a substantial
advance in industrial production. The rise in industrial production
reflected increased steel output, both for building inventories as
a hedge against a possible strike and higher prices and for meeting
the increased needs arising from higher current levels of durable
goods output. Automobile production and sales, for example,
had continued at exceptionally high levels. Some recent information, however, was less favorable. The unemployment rate rose
slightly in April from the improved March level. Retail sales,
seasonally adjusted, were indicated to have declined in April,
and increases previously reported for March and February had
been revised downward.
One indication of underlying strength came from a recent
survey of business plans for new plant and equipment outlays
for 1963 and later years. This survey reported a higher level of
prospective business outlays for this year than reported by an
earlier survey made last autumn, and confirmed the increase in
prospective spending reported several weeks earlier by another
survey.
Commodity price averages continued little changed; some
items—such as selected steel and aluminum products and sugar
—rose, but most others remained stable. The consumer price
index advanced Ylo of 1 per cent further in March.
Largely in reflection of the gains in business activity, the
markets for Government, corporate, and municipal bonds were
under some pressure in April. Another complicating factor in
the market was the slow redistribution of auctioned U.S. Government bonds that had been acquired by an underwriting syndicate.
More recently, however, the market tone had improved somewhat. Since mid-April, average yields on outstanding U.S. Gov-

FEDERAL RESERVE SYSTEM

ernment long-term bonds had remained just under 4 per cent;
intermediate-term security yields had declined somewhat, while
3-month bill yields had fluctuated narrowly around the 2.90 per
cent level.
Seasonally adjusted commercial bank credit declined in April
following a sharp rise in March, when tax borrowing and Treasury financing operations contributed to bank credit expansion.
The seasonally adjusted money supply rose by $500 million
further in April to a level 2.25 per cent above a year earlier; time
and savings deposits also rose further but much less rapidly than
in other recent months. Free reserves averaged higher in April,
while member bank borrowings from Federal Reserve Banks
averaged lower.
The balance of payments deficit, according to preliminary
data, increased sharply in April and was above the monthly
average for the first quarter of the year. The rise in the deficit
may have reflected a reaction in the U.S. trade surplus from the
bulge in February and March following settlement of the dock
strike, cessation of capital inflows attributable to the March
pressure on sterling, and increased outflows to Canada as market
confidence in the new Canadian Government strengthened. The
London gold market continued quiet. In foreign exchange
markets, sterling weakened while most continental European currencies, as well as the Canadian dollar, strengthened.
The Committee noted that although the business atmosphere
and outlook had improved significantly in recent weeks, unemployment had continued excessively high and the balance of payments deficit disturbingly large. Committee members placed
varying interpretations on the relative importance of such factors
for current open market policy, but there was rather general
agreement that any change in policy that might be made at this
time should be of a relatively modest nature. It developed from
the discussion that while several members felt that it would be
unwise to risk dampening the budding expansion in domestic
activity at this juncture by even a slight reduction in the degree

ANNUAL REPORT OF BOARD OF GOVERNORS

of monetary ease, a somewhat larger number concluded that the
domestic economy had already strengthened sufficiently to permit
a move to slightly less ease in order to place greater emphasis
on this country's balance of payments problem.
The majority decision, therefore, was to move toward a position of slightly less ease beginning about the middle of May,
when current Treasury financing operations would be out of the
way; and the Committee's directive was modified to reflect this
change in policy and to be more descriptive of the current situation. Accordingly, the following directive was issued to the Federal Reserve Bank of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market conditions that would contribute to an improvement in the capital account of
the U.S. balance of payments. This policy takes into consideration the
continuing adverse balance of payments position and its cumulative effects
and the improved domestic business outlook, as well as the increases in
bank credit, money supply, and the reserve base in recent months. At the
same time, however, it recognizes the continuing underutilization of
resources.
To implement this policy, System open market operations following
the conclusion of the Treasury refunding operation shall be conducted
with a view to achieving a slightly greater degree of firmness in the money
market than has prevailed in recent weeks, while accommodating moderate reserve expansion.
Votes for this action: Messrs. Martin, Hayes, Eialderston, Irons, King, and Shepardson. Votes against this
action: Messrs. Bopp, Clay, Mitchell, Robertson, and
Scanlon.

May 28, 1963
1. Authority to effect transactions in System Account.

Domestic economic activity in April had generally advanced
further, with advances widespread among principal industrial
sectors. While information for May was quite incomplete, avail-

FEDERAL RESERVE SYSTEM

able data indicated that expansion in activity had continued.
Although higher prices were posted for certain products, prices
remained little changed on the average.
Industrial production in April rose by almost 2 percentage
points to a new high, with about one-third of the total rise
accounted for by higher steel production. The April index, at
122, was 4 per cent above a year earlier. Housing starts also
advanced in April. Nonfarm employment continued to rise, with
manufacturing accounting for much of the increase. Rapid growth
in the labor force, however, left the unemployment rate about
unchanged despite the gain in employment.
Retail sales in April and early May appeared to have changed
little. Sales by automobile dealers maintained a high level, and
recent surveys of consumer buying intentions for autos, other
durable goods, and houses suggested that spending plans were
continuing to show strength. New orders, sales, and unfilled
orders received by producers of durable goods rose appreciably
in April. Although much of the rise reflected heavy buying of
steel, new orders rose moderately in nearly all industries,
including machinery.
New security financing by corporations and State and local
governments in the preceding weeks had been moderate, and the
calendar through June indicated that offerings would be fairly
light in the corporate area, although more substantial for State
and local issues. Retail distributions of new issues were reported
as slow, however, and dealers' inventories quite large. Bond yields
declined somewhat through mid-May but moved up thereafter,
while downward pressure on mortgage rates continued. Common
stock prices held at a level a little below the late 1961 peak, and
the volume of stock market credit reached a new high.
Treasury bill rates were steady in early May but moved higher
after midmonth, partly in response to a somewhat lower margin
of free reserves available to member banks; the 3-month rate
advanced from about 2.90 per cent to 2.97 per cent. Treasury
bond yields fluctuated in a narrow range after early May, with

ANNUAL REPORT OF BOARD OF GOVERNORS

substantial purchases of coupon issues by the Treasury for its
investment accounts a steadying factor.
The seasonally adjusted money supply rose moderately further
in the first half of May to a level 2.4 per cent above a year earlier.
In the April-early May period time deposits at commercial banks
increased considerably less rapidly than earlier in 1963.
Reflecting, in part, action of the System Account pursuant to
the directive issued at the preceding Committee meeting, free
reserves moved lower after mid-May. Borrowings from the Federal Reserve Banks rose to an average of $281 million in the
week ending May 22, up from an average of $134 million during the preceding 3 weeks.
The balance of payments deficit for April, while somewhat
smaller than had been indicated by the earlier preliminary figures,
was substantial. Moreover, tentative and fragmentary figures for
the first 3 weeks of May indicated continued sizable net transfers
to foreigners, and foreign borrowing in U.S. markets continued
on a large scale. In these circumstances the dollar remained weak
against the major continental European currencies. Trading on
the London gold market was quite active, although the price
changed little.
Discussion at this meeting centered on reviewing economic
and market developments in the light of the slight shift in monetary policy toward less ease that had been adopted at the May 7
meeting of the Committee. This review found quite general agreement that a moderate further strengthening of domestic economic
activity had occurred. Business sentiment, although p»erhaps a bit
more cautious than earlier, apparently remained optimistic. The
performance of the economy, however, was still below capabilities, with unemployment persisting at unsatisfactory levels and
with other indications of continuing inadequate resource utilization. The balance of payments problem continued to be serious,
and the position of the dollar in foreign exchange markets had
weakened.
Most members of the Committee felt that the lessened credit

FEDERAL RESERVE SYSTEM

ease accomplished since the preceding meeting was constructive
and that the existing market tone and degree of reserve availability should be continued for the next 3 weeks. Some members,
in fact, would have been inclined, if anything, to favor action to
lessen credit ease further. Others, however, continued to question
the desirability of the restraint already imposed, although only
one member urged a return at this time to the degree of ease
prevailing at the time of the previous meeting.
The case for maintaining the current position, or for moving
toward a lesser degree of ease, reflected particularly the gravity
of the U.S. international financial position and some indication
of a deterioration of lending and investing standards at home.
The case for a greater degree of ease reflected a desire to provide
further stimulus to the domestic economy, along with doubt as
to the effectiveness of modest changes in monetary policy for
dealing with the balance of payments problem. One member held
that a policy of less ease was neither a necessary nor desirable
means of improving the quality of credit under present conditions
of low resource utilization. It was clear from the entire discussion,
however, that a large majority felt that policy should not be
changed again at this time, one way or the other.
The consensus therefore was to maintain, but not intensify,
the slightly lesser degree of ease established pursuant to the May
7 policy action. It was felt that the effects of that change were not
yet fully apparent and that additional time for market adjustments was desirable, especially in the light of the uncertainties
stemming from legislative consideration of the debt ceiling.
Accordingly, the following directive was issued to the Federal
Reserve Bank of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market conditions that would contribute to an improvement in the capital account
of the U.S. balance of payments. This policy takes into consideration the continuing adverse balance of payments position and its cumulative effects and the improved domestic business outlook, as well as the
increases in bank credit, money supply, and the reserve base in recent

ANNUAL REPORT OF BOARD OF GOVERNORS
months. At the same time, however, it recognizes the continuing underutilization of resources.
To implement this policy, System open market operations shall be conducted with a view to continuing the degree of firmness in the money
market that has prevailed recently, while accommodating moderate reserve expansion.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, King, Mills, Scanlon, and
Shepardson. Vote against this action: Mr. Mitchell.
2. Authority to purchase and sell foreign currencies.

The guidelines for System foreign currency operations, as
reaffirmed on March 5, 1963, were amended as follows:
In Section 2, the following new paragraph was inserted after
paragraph 3:
Drawings made by either party under a reciprocal 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.
In Section 4, the following two new paragraphs were added:
The New York Bank may also, where authorized, purchase currencies
through forward transactions for the purpose of allowing greater flexibility in covering commitments under reciprocal currency agreements.
The New York Bank may further, where authorized, purchase and sell
currencies through forward as well as spot transactions for the purpose
of settling commitments denominated in one currency by means of utilizing the Bank's holdings of another currency.
The effect of the amendment to Section 2 was to recognize,
within the context of a specific application, the principle
embodied in the guidelines that the use of foreign currency credit
facilities available under reciprocal currency arrangements should
be geared to market swings that were expected to prove reversible
in the relatively near future. Indebtedness incurred by the System
through drawings under reciprocal arrangements was clearly
intended to be of a short-term nature, and in no sense to provide

FEDERAL RESERVE SYSTEM

longer-term financing for persistent U.S. balance of payments
deficits. However, the guidelines had not heretofore specified
precisely the time period implied in the reversible principle underlying such drawings. The amendments to Section 4 were designed
to provide flexibility in settling System commitments.
The continuing authority directive to the Federal Reserve Bank
of New York on foreign currency operations, which had previously been amended on March 5, 1963, to authorize the purchase
of foreign currencies through forward transactions within specified limitations, was further amended at this meeting to authorize
the purchase and sale of foreign currencies through forward as
well as spot transactions for the purpose of settling commitments
denominated in one currency by means of utilizing System holdings of another currency. The directive was also amended to increase from $1.3 billion to $1.75 billion the limit on total holdings of foreign currencies at any one time. At this date reciprocal
currency agreements outstanding between the Federal Reserve
System and foreign banks aggregated $1.1 billion, and it was
anticipated that the reciprocal currency arrangement with the
Bank of England would shortly be raised from $50 million to
$500 million to enlarge the facilities for dealing with temporary
reversible flows of funds between the two countries and further
reinforce international liquidity by augmenting the availability of
foreign exchange in case of need.
Accordingly, the continuing directive was issued in the following form:
The Federal Reserve Bank of New York is authorized and directed to
purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency
Operations reaffirmed by the Federal Open Market Committee on March
5, 1963, as amended May 28, 1963:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs

ANNUAL REPORT OF BOARD OF GOVERNORS
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
The Federal Reserve Bank of New York is also authorized and directed
to purchase, in accordance with the Guidelines and for the purpose of
allowing greater flexibility in covering commitments under reciprocal
currency agreements, any or all of the foregoing currencies through forward transactions, up to a combined total of $25 million equivalent.
The Federal Reserve Bank of New York is further authorized and directed to purchase and sell, in accordance with the Guidelines and for
the purpose of utilizing its holdings of one currency for the settlement of
commitments denominated in other currencies, any or all of the foregoing
currencies through forward as well as spot transactions, up to a combined
total of $50 million equivalent.
Total foreign currencies held at any one time shall not exceed $1.75
billion.
Votes for these actions: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, King, Mills, Mitchell,
Scanlon, and Shepardson. Votes against these actions:
None.

June 18, 1963
1. Authority to effect transactions in System Account.

Expansion in domestic activity was reported to have continued
in May and early June. The industrial production index advanced
again in May, with gains widespread among industries and
products. Employment also increased and hours of work at
factories lengthened, but the unemployment rate rose as teenagers
entered the labor market. Retail sales were unchanged from the
level of the preceding 3 months, and commodity prices continued
to show only small mixed changes. Stock market prices showed
little change on balance.
Business confidence remained strong; a recent survey found
the planned rise in outlays for new plant and equipment in 1963
to be practically the same as reported earlier, but with relatively
more of the increase anticipated in the second half of the year.

FEDERAL RESERVE SYSTEM

Expectations of higher sales and inventories than had been indicated earlier were also reported. Stockpiling against a possible
steel strike appeared about at an end, however, and the steel
industry was expected soon to become a contractive influence on
the economy, at least temporarily, as production was brought
into closer balance with consumption.
In the financial area, market adjustments to the mid-May shift
in System policy toward slightly less monetary ease continued
moderate. Yields on Treasury securities had risen somewhat, but
a Treasury offering of a 4 per cent intermediate-term bond met
with an exceptionally strong market reception. Corporate yields
on new issues changed little, while yields on municipal securities
increased.
In May, seasonally adjusted bank credit rose substantially,
offsetting a comparable decline in April. Real estate and consumer loans continued to expand rapidly; the rise in business
loans was less sharp. The seasonally adjusted money supply was
unchanged in May, in part because of an unusually large increase
in Treasury deposits. Time and savings deposits rose more
rapidly than in April, but more slowly than earlier in the year.
Free reserves of member banks averaged somewhat lower after
mid-May than earlier.
The U.S. balance of payments deficit in April and May continued at about the advanced level of the first quarter, with capital
outflows remaining a major factor. Gold and foreign exchange
markets were generally quiet, although the dollar was relatively
weak against most major foreign currencies.
At this meeting of the Committee, attention was focused on
the failure of the balance of payments deficit to show improvement; on the role of capital outflows in the continuing large
deficits; and on the contribution that monetary policy might
make, either alone or in conjunction with other Governmental
actions, toward a solution of the problem. The majority view
was that market adjustments to the mid-May shift in policy were
still in process and that no further change in open market policy

ANNUAL REPORT OF BOARD OF GOVERNORS

was appropriate at this time. One minority position was that
monetary policy should move a little further toward firmness;
this position was based on the view that while the domestic economy continued to strengthen, the balance of payments drain
remained serious and could be alleviated somewhat through a
higher structure of domestic interest rates, particularly short-term
rates. Another minority view, which favored returning to the
degree of monetary ease existing before the May decision, was
based largely on the feeling that an easier credit posture would
encourage the domestic economy to expand more rapidly and
that this in turn would help the balance of payments situation.
Although no expectations of a boom in domestic conditions
were expressed, neither were there reports from Federal Reserve
districts of any significant weakening of business and financial
expectations for maintenance of activity at current advanced
levels. A majority agreed that, with unemployment persisting at
high rates, domestic conditions did not require a further lessening of monetary ease at this time. Further monetary action—possibly dramatic action—might be required soon, however, if the
international financial situation did not show signs oi: betterment.
By majority vote, the current economic policy directive to the
New York Reserve Bank was reissued in the same form as
approved at the preceding meeting of the Committee.
Votes for this action: Messrs. Martin, Bopp, Clay,
Irons, Mills, Scanlon, and Shepardson. Votes against
this action: Messrs. Hayes, Balderston, and Mitchell.

Messrs. Hayes and Balderston dissented because they felt that
the Committee should move further in the direction of slightly
less ease, while Mr. Mitchell dissented because he favored a
return to the greater degree of ease that had existed prior to the
policy shift of mid-May.
2. Amendment of continuing authority directive.

In accordance with the recommendation of the Account
Manager, Section l ( a ) of the continuing authoritj^ directive to

FEDERAL RESERVE SYSTEM

the Federal Reserve Bank of New York was amended to raise
from $1 billion to $1.5 billion the limit on changes in holdings of
securities in the System Open Market Account between meetings
of the Committee. With this amendment, Section l ( a ) read as
follows:
(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 (including forward commitments, but not including such
special short-term certificates of indebtedness as may be purchased from
the Treasury under paragraph 2 hereof) shall not be increased or decreased by more than $1.5 billion during any period between meetings
of the Committee.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mills, Mitchell, Scanlon,
and Shepardson. Votes against this action: None.

July 9, 1963
Authority to effect transactions in System Account.
Economic activity had continued to expand moderately
through June, but business sentiment appeared to have become
a little less buoyant than earlier, probably reflecting some
uncertainty over the timing and magnitude of inventory curtailments following the steel labor settlement. A threatened rail strike
also may have been a factor.
GNP was indicated to have increased substantially again in
the second quarter. Retail sales in June, however, showed little
change at the level prevailing since February. The industrial production index apparently was at least as high in June as in May,
as reductions in steel output were offset by gains elsewhere. The
construction and housing situation appeared strong.

ANNUAL REPORT OF BOARD OF GOVERNORS

The labor market strengthened a little. The unemployment
rate declined slightly to 5.7 per cent in June from 5.9 per cent in
May; young people had entered the labor market in smaller numbers than expected. New and unfilled orders in the machinery
industry rose in May, but a survey of capital appropriations by
large manufacturers indicated a decline in the first quarter,
following 2 quarters of sharp increases. Business inventory accumulation in the second quarter apparently increased less than
expected, and Federal Government expenditures were below projected levels.
In the financial area, bank credit expansion in June was exceptionally large, with bank holdings of U.S. Government securities
up substantially, including a sizable proportion of the recent $1.9
billion issue of Treasury 7-year bonds. Holdings of other securities also increased further, and loan growth was substantial. The
seasonally adjusted money supply rose moderately further in
June, and time and savings deposits expanded again, but not so
rapidly as in most other months this year. Bank reserve positions
were somewhat less easy as member banks obtained more of
their reserves by borrowing from Federal Reserve Banks.
The money market had firmed since the preceding meeting
of the Committee, with the 3-month bill rate moving up sharply
in early July to about 3.20 per cent from around a 3 per cent rate
earlier, reflecting widespread market expectations of a change in
the Federal Reserve Bank discount rate. Yields on other maturities of U.S. Government securities also moved upward. Yields
on corporate bonds continued to show little change, however,
while yields on municipals, which had risen sharply from midMay to mid-June, tended to stabilize.
The balance of payments deficit for the second quarter was
estimated to be somewhat above even the high first-quarter rate.
The trade surplus in April and May was much larger than in the
first quarter, and the volume of foreign securities issued in the
U.S. capital market declined from the unusually high first-quarter level. But the effect of these favorable developments on the

FEDERAL RESERVE SYSTEM

payments balance was more than offset by a rise in U.S. bank
lending to foreigners and other short-term capital outflows,
including unreported transactions. Foreign exchange markets
had been moderately active in recent weeks, with some seasonal
easing of exchange market pressure on the dollar.
There was extensive discussion at this meeting of the Committee about the proper course of monetary policy in the light
of the serious and persistent balance of payments deficit and the
urgent need for additional measures to deal with it. At the same
time it was recognized that the domestic economy was not
expanding at a rate sufficient to bring about full employment soon
and that a more rapid rate of growth was highly to be desired.
In considering these problems, special attention was given to
reports of additional Governmental measures under consideration
to improve the international financial position, and to the role
monetary policy might play within the context of a broad corrective effort. It was generally accepted that the large outflow of
short-term funds was amenable in some degree to curtailment by
a monetary policy directed toward higher short-term interest
rates. Judgments differed, however, as to whether short-term
rates sufficiently higher to be effective could be brought about
without materially affecting the over-all availability of domestic
credit or without causing long-term rates to increase somewhat
as well. Similarly, there were differences of view as to the likely
consequences of higher short-term rates for the domestic economy, which some members felt was not so robust as might appear.
The majority view was that the use of monetary tools was justified in an effort to help improve the balance of payments position.
On the question of timing, however, there was some feeling that
any further action could properly await additional testing of the
strength of the economy and evidence of market reactions to the
broader Governmental programs contemplated and yet to be
announced. Another view called for prompt action to take
advantage of recent widespread market expectations regarding
a change in monetary policy, in the belief that this would make

ANNUAL REPORT OF BOARD OF GOVERNORS

for more orderly markets and that everything possible should be
done to guard against any possible balance of payments crisis
before it became imminent.
Some of the discussion related to the open market policy that
might appropriately be followed if early action were taken by the
Federal Reserve System to increase the discount rate; several
Reserve Bank members of the Committee reported that they
intended to recommend to the directors of their respective Banks
within the near future that a higher discount rate be established.
There was considerable feeling, in such circumstances, that it
would be inappropriate for open market operations; to permit a
sharp decline from existing market rates, which reflected expectations of a discount rate increase, only to have market rates rise
again if the discount rate should be increased.
After weighing all of the foregoing considerations, a majority
favored conducting open market operations in the next 3 weeks
with a view to maintaining the degree of firmness in the money
market existing at the time of this meeting. A minority believed
that a return to an easier and more stimulative monetary position
would be appropriate.
In accordance with the majority view, the following current
economic policy directive was issued to the Federal Reserve Bank
of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market conditions that would contribute to an improvement in the capital account of
the U.S. balance of payments. This policy takes into consideration the
continuing adverse balance of payments position and its cumulative effects
and the high level of domestic business activity, as well as the increases
in bank credit, money supply, and the reserve base in recent months. At
the same time, however, it recognizes the continuing underutilization of
resources.
To implement this policy, System open market operations shall be conducted with a view to continuing the present degree of firmness in the
money market.

FEDERAL RESERVE SYSTEM
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, King, Mills, Scanlon, and
Shepardson. Votes against this action: Messrs. Mitchell
and Robertson.

Messrs. Mitchell's and Robertson's dissenting votes reflected
their view that the Committee should take prompt steps to moderate the money market firming that had occurred in the period
since the preceding meeting, and move gradually toward a still
easier monetary policy that, along with the tax reduction under
consideration by Congress, would be more conducive to an acceleration of domestic economic growth. They recognized fully the
gravity of the U.S. balance of payments problem but thought that
it should be dealt with by vigorous application of specific remedies, including further efforts to bring about a reduction of existing
discriminatory barriers to U.S. exports. They viewed firming
money market conditions at this time as continuing the Committee's recent trend toward reducing the incentive for domestic
borrowing, and they were concerned that it might induce a backwash of reaction that would worsen rather than help the balance
of payments problem over the months immediately ahead.
July 30, 1963
1. Authority to effect transactions in System Account.

The domestic economy had continued to expand at a moderate
pace. In the second quarter, GNP was estimated on a preliminary
basis at a $579 billion seasonally adjusted annual rate, as compared with $572 billion in the first quarter. Industrial production
in June rose further to an index level of 125, despite a decline in
steel output.
Housing starts, although off somewhat in June from the
advanced May level, were substantially above a year earlier. Nonagricultural employment rose further, average hours of work at
factories remained high, and the unemployment rate declined
slightly. Retail sales in June were at the level prevailing since

ANNUAL REPORT OF BOARD OF GOVERNORS

winter, but in July a modest rise appeared likely. Consumer prices
increased in June, with higher food prices the major factor, and
industrial prices in wholesale markets firmed.
Despite the generally favorable tone of the statistics, more
crosscurrents and uncertainties in the economy were apparent
than earlier, with some questioning of the continuation of the
current rate of expansion. The persistent balance of payments
deficit contributed to the uncertainties, and programs designed
to deal with it had been announced by the President in mid-July.
The recent action increasing the Federal Reserve discount rate
to 3Vi per cent had been widely anticipated, particularly following reports of a further deterioration in the balance of payments
in the second quarter. Yields on U.S. Government securities rose
during the first half of July, with Treasury bills showing the
greatest response. The 3-month bill rate rose about V\ of 1 percentage point to 3V4 per cent, and intermediate- and long-term
bond yields increased somewhat. After the discount rate
announcement yields receded slightly, but on the shortest maturities yields subsequently moved back to about the 3 J 4 per cent
level. Federal funds rates, after oscillating sharply during the
period when differing Reserve Bank discount rates were in existence, moved up into a 3V4 to 3Vi per cent range. Corporate and
municipal bond yields were not affected significantly.
Credit at weekly reporting member banks declined much more
than usual in the first 3 weeks of July following an exceptionally
large increase in June, both months being affected by the earlier
timing of Treasury financing operations this year. Required
reserves against private deposits rose more than seasonally in the
4 weeks ended July 24. Free reserves averaged somewhat less
than in the preceding 4 weeks, while both excess reserves and
borrowings were larger.
The seasonally adjusted money supply increased sharply in
the first half of July, following a somewhat smaller rise in June.
Time and savings deposits at commercial banks increased in
the first half of July at about the second-quarter rate; the mid94

FEDERAL RESERVE SYSTEM

month increase to 4 per cent in the maximum permissible rate
of interest payable on time deposits with maturities between 90
days and 1 year was followed by a sharp rise in time deposits at
weekly reporting member banks.
The U.S. balance of payments deficit proved to have increased
sharply in June and for the second quarter. Excluding net receipts
from special Government transactions, the seasonally adjusted
deficit for the quarter was expected to come to about $1.25
billion, considerably larger than the deficit for the first quarter.
The increase was traceable to an enlarged capital outflow,
especially of short- and medium-term bank credit.
In the week and a half after the increase in the discount rate
and the announcement of a proposed interest equalization tax
on American purchases of foreign securities, the U.S. dollar
strengthened against the Canadian dollar and very slightly against
sterling, but showed little or no general improvement against
other currencies.
The discussion at this meeting showed that the range of views
as to the appropriate policy to be followed for the next 3 weeks
was relatively narrow. To a considerable extent, the differences
of opinion reflected varying judgments as to whether open market
operations should focus more on the levels of short-term rates
or on target levels for the availability of bank reserves. Judgments
also differed on whether short-term rates should preferably remain
about where they were for the period immediately ahead, or
whether they should be encouraged to move up slightly further,
in the context of a higher discount rate, to clarify to the market
the present posture of System policy. It developed that a majority
of the Committee favored attaining a slightly greater degree of
firmness in the money market, while continuing to provide for
moderate expansion in bank reserves, and the following current
policy directive therefore was issued to the Federal Reserve Bank
of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market condi-

ANNUAL REPORT OF BOARD OF GOVERNORS
tions that would contribute to an improvement in the capital account of
the U.S. balance of payments. This policy takes into consideration
the continuing adverse balance of payments position and its cumulative effects and the high level of domestic business activity, as well as
the increases in bank credit, money supply, and the reserve base in recent
months. At the same time, however, it recognizes the continuing underutilization of resources.
To implement this policy in the context of a higher discount rate,
System open market operations shall be conducted with a view to attaining a slightly greater degree of firmness in the money market, while
accommodating moderate expansion in aggregate bank reserves.
Votes for this action: Messrs. Martin, Hayes, Balderston, Irons, Mills, and Shepardson. Votes against this
action: Messrs. Bopp, Mitchell, Robertson, and ScanIon.
2. Amendment of continuing authority directive.

The Account Manager suggested that under present conditions
the continuing authority directive to the Federal Reserve Bank
of New York, which had been amended on June 18, 1963, to
raise from $1 billion to $1.5 billion the limit on net changes in
the System Open Market Account in the period between Committee meetings, might appropriately be changed to restore the
former figure of $1 billion. Accordingly, the Committee amended
Section l ( a ) of that directive by inserting "$1 billion" and
deleting "$1.5 billion.'5
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Irons, Mills, Mitchell, Robertson, ScanIon, and Shepardson. Votes against this action: None.

August 20, 1963
Authority to effect transactions in System Account.

According to preliminary figures on industrial production,
retail trade, employment, new orders, and private construction,
the domestic economy demonstrated somewhat more vigor in
July than had been generally anticipated. The industrial pro-

FEDERAL RESERVE SYSTEM

duction index rose nearly 1 percentage point, to 126.5 per cent
of the 1957-59 average, from a June figure that had been revised upward, and the gains were widespread among industries
and market groupings.
The labor market also showed some improvement as nonagricultural employment rose further, factory hours of work
were maintained at high levels, and the rate of unemployment
declined slightly. The number of major labor market areas
classified in substantial labor surplus categories had been reduced to the smallest total since mid-1960. Retail trade, which
had been on a plateau for some time, showed evidence of advancing in both June and July, with sales in July more than
2 per cent above the May level. According to a recent survey,
consumer buying plans also had strengthened. Industrial prices
remained relatively stable on average, while stock market prices
had risen to the year's high and were close to the record high
of December 1961.
The impact of the mid-July increase in the Reserve Bank
discount rate, other monetary actions, and the President's program to deal with the deficit in the balance of payments had
now been reflected more substantially in the financial sector.
Treasury short-term bill rates had risen somewhat further and
were about one-third of a percentage point above the 3 per
cent level prevailing at the beginning of July. Other money
market rates had also risen, and Federal funds recently had
been trading quite consistently at 3Vi per cent. In longer-term
markets yields on Treasury bonds remained practically unchanged at about 4 per cent for most issues, while yields on
new issues of corporate and municipal bonds had declined
several basis points. Although the volume of corporate and
municipal financing continued to be light, dealers had nevertheless encountered some sluggishness in investor demand.
Bank credit, seasonally adjusted, declined substantially in
July following a large rise in June, but the average expansion
for the 2 months was about the same as that for earlier months

ANNUAL REPORT OF BOARD OF GOVERNORS

this year. The seasonally adjusted money supply rose $900 million in July but increased only slightly further in the first half
of August, according to preliminary estimates. Time and savings deposits increased considerably further in July and early
August, with the rate of expansion in time deposits accelerating after mid-July when the ceiling on time deposits with
maturities of 90 days to 1 year was raised to 4 per cent. Free
reserves averaged a little lower in the 4 weeks to mid-August
than in the preceding 4-week period.
International transactions in July apparently resulted in a
small surplus in the U.S. balance of payments. However, this
reflected advance debt repayments by two European countries
and reversal of midyear window-dressing operations of some
European banks; without these transactions, there would have
been a deficit of about $200 million to $250 million. Taking
the months of June and July together, and excluding special
Government receipts, the deficit was at an annual rate of about
$3.5 billion. Fragmentary data for early August indicated no
significant change. In the exchange markets the U.S. dollar
improved slightly vis-a-vis the Canadian dollar, weakened
against the Swiss franc, and was little changed against other
major currencies.
The discussion of open market policy for the period immediately ahead related essentially to whether the Committee's
directive should continue to call for System Account operations
with a view to attaining a slightly greater degree of firmness in
the money market or whether operations should be conducted
with a view to maintaining the prevailing degree of firmness.
Upon consideration of recent economic and financial developments, including the increase in short-term rates during the
past several weeks, and in view of prospective large-scale
Treasury financing operations, it was the conclusion of the
Committee that it would be preferable for the present degree
of market firmness to continue unchanged for the time being,
pending further evaluation of System policy in the light of de-

FEDERAL RESERVE SYSTEM

velopments affecting the domestic economic situation and the
balance of payments. The following current economic policy
directive was issued to the Federal Reserve Bank of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market conditions that would contribute to an improvement in the capital account of
the U.S. balance of payments. This policy takes into consideration
the continuing adverse balance of payments position and its cumulative effects and the high level of domestic business activity, as well as the
increases in bank credit, money supply, and the reserve base in recent
months. At the same time, however, it recognizes the continuing underutilization of resources.
To implement this policy, System open market operations shall be conducted with a view to maintaining the prevailing degree of firmness in
the money market, while accommodating moderate expansion in aggregate bank reserves.
Votes for this action: Messrs. Martin, Balderston,
Bopp, Clay, Irons, Mills, Mitchell, Robertson, Scanlon,
Shepardson, and Treiber. Votes against this action:
None.

September 10, 1963
1. Authority to effect transactions in System Account.

Preliminary figures for August suggested no major change
in the domestic business situation, with prospects favoring a
continuation of an upward movement at a moderate pace. The
unemployment rate edged down, although at 5.5 per cent it
was not significantly different from a year earlier. It appeared
probable from incomplete information that industrial production in August had changed little from the July level, with
sharp declines in auto output—associated with the model
change-over—and in steel production approximately offset by
rises in other lines. Weekly data suggested that retail sales may
have risen slightly further. Scattered reports of price increases
for some industrial commodities were about balanced by re-

ANNUAL REPORT OF BOARD OF GOVERNORS

ports of declines for others, and the over-all average of commodity prices remained stable.
With respect to prospective developments, the latest survey
of business plans indicated that plant and equipment expenditures would rise substantially over the balance of the year.
Stock price averages touched new highs, perhaps influenced by
both brighter business prospects and the expectation of a tax
cut. The end of the immediate threat of a rail strike at least
temporarily removed a potentially serious impediment to business activity.
Credit conditions at commercial banks also showed relatively little change. Banks continued to acquire large amounts
of municipal and Government agency securities and to expand
their mortgage and consumer loans relatively rapidly. Business
loans, however, remained sluggish. The money supply, seasonally adjusted, declined slightly in August, but seemingly
began to rise again in early September. Through August,
growth in the money supply in 1963 had been at an annual
rate of 2.5 per cent, compared with a 1.5 per cent increase in
1962 as a whole.
Conditions in the money and capital markets at the time
of this meeting -were influenced by a Treasury advance refunding operation that had been announced earlier in September.
Prior to the announcement, the rate on 3-month Treasury bills
had been fluctuating between 3.38 and 3.40 per cent, and yields
on long-term Government, corporate, and municipal securities
were all between Vs and VA of a percentage point above their
lows earlier in the year. The refunding operation put some
downward pressure on bill rates in the last few days before this
meeting and was accompanied by some upward adjustments
in yields on longer-term Government and corporate bonds.
According to the tentative weekly figures, the August deficit
in the U.S. balance of payments, like the July deficit, was below
the rate for the first 2 quarters, after allowance for seasonal
variations. The evidence available suggested that the improve-

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FEDERAL RESERVE SYSTEM

ment thus far in the third quarter might have been confined to
the capital account.
The Committee was unanimous in the view that no change
should be made in its credit policy while the Treasury refunding operation was in process. Some members expressed an inclination to seek a slightly greater degree of firmness in money
market conditions after the refunding, or at least to resolve
any uncertainties on the side of less ease, on the ground that
improving domestic business conditions offered an opportunity
for monetary policy to make some further contribution to improvement in the balance of payments situation. In the opinion
of others, however, present policy was appropriate even apart
from the desirability of maintaining stable monetary conditions
during the refunding. Some members also favored a continuation of present policy on the grounds that it was preferable to
make any desired changes at Committee meetings rather than
to project them into a period between meetings. After discussion, a consensus was reached favoring no change for the full
3-week period ahead. The Committee then issued the following
current economic policy directive to the Federal Reserve Bank
of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market conditions that would contribute to an improvement in the capital account of
the U.S. balance of payments. This policy takes into consideration
the continuing adverse balance of payments position and its cumulative effects and the high level of domestic business activity, as well as the
increases in bank credit, money supply, and the reserve base in recent
months. At the same time, however, it recognizes the continuing underutilization of resources.
To implement this policy, and taking account of the current Treasury
refunding operation, System open market operations shall be conducted
with a view to maintaining the prevailing degree of firmness in the money
market, while accommodating moderate expansion in aggregate bank
reserves.

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ANNUAL REPORT OF BOARD OF GOVERNORS
Votes for this action: Messrs. Martin, Hayes, Balderston, Clay, Irons, King, Mitchell, Robertson, ScanIon, Shepardson, and Wayne. Votes against this action:
None.
2. Authority to purchase and sell foreign currencies.

Upon recommendation of the Special Manager oi: the System
Open Market Account, the Committee amended the continuing
authority directive for System foreign currency operations to
increase from $25 million to $50 million the authorization for
purchases of foreign currencies through forward transactions
for the purpose of allowing greater flexibility in covering commitments under reciprocal currency agreements. With this
amendment the directive issued to the Federal Reserve Bank
of New York read as follows:
The Federal Reserve Bank of New York is authorized and directed to
purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency Operations reaffirmed by the Federal Open Market Committee on
March 5, 1963, as amended on May 28, 1963:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
The Federal Reserve Bank of New York is also authorized and directed
to purchase, in accordance with the Guidelines and for the purpose of
allowing greater flexibility in covering commitments under reciprocal
currency agreements, any or all of the foregoing currencies through forward transactions, up to a combined total of $50 million equivalent.
The Federal Reserve Bank of New York is further authorized and directed to purchase and sell, in accordance with the Guidelines and for the
purpose of utilizing its holdings of one currency for the settlement of

102

FEDERAL RESERVE SYSTEM
commitments denominated in other currencies, any or all of the foregoing
currencies through forward as well as spot transactions, up to a combined
total of $50 million equivalent.
Total foreign currencies held at any one time shall not exceed $1.75
billion.
Votes for this action: Messrs. Martin, Hayes, Balderston, Clay, Irons, King, Mitchell, Robertson, Scanlon,
Shepardson, and Wayne. Votes against this action:
None.

October 1, 1963
1. Authority to effect transactions in System Account.

The Board's index of industrial production fell back 1 percentage point in August to 126, from a July high of 127. The
decline reflected decreases in steel and auto production, where
special temporary factors were at work. Nonagricultural employment also was reduced a little in August, and total personal income rose less than in most earlier months. In September the seasonally adjusted unemployment rate continued at about 5.5 per
cent.
Retail sales were maintained in August at the advanced level
of the preceding month, according to the latest data, but preliminary indications suggested that sales had declined in September. New housing starts fell in August, but the June-August average remained considerably higher than a year earlier.
Price advances for industrial goods had become more widespread, but with few exceptions the increases were modest and
there continued to be offsetting declines. Through mid-August
the monthly index for industrial commodities had changed little,
and the subsequent weekly indexes continued stable. The consumer price index, which had risen appreciably in June and July,
showed no change in August.
Despite the fact that some key measures had recently leveled
off or shown modest declines after earlier rapid advances, GNP
in the third quarter was indicated to be substantially above the

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ANNUAL REPORT OF BOARD OF GOVERNORS

$580 billion annual rate reported for the second quarter of the
year—perhaps as high as $589 billion.
In capital markets, corporate and municipal financing volume
was relatively small in September. It appeared likely that corporate financing would decline further in October, but that State
and local government financing would be sharply higher. Yields
on new corporate bond issues had stabilized in recent weeks,
while yields on municipal bonds had increased moderately further. Both were at the highest levels in over a year. Common
stock prices in early September breached their late 1961 high,
but most recently declined moderately.
In the Government securities market, long-term yields edged
off from the highs reached in early September when the Treasury's advance refunding was announced. Yields on 3-month bills
remained around the 3 % per cent level.
Preliminary estimates indicated that bank credit expanded
considerably in September—by over $2 billion after seasonal
adjustment—with all of the rise in loans. About half of the
estimated increase was in security loans, reflecting in large part
dealer borrowing in connection with the Treasury's advance refunding. Business loan growth also was somewhat larger than
earlier in the year.
The seasonally adjusted money supply in the first half of September was estimated to have risen by about $400 million from
the August average, following a decline of $200 million in August. Growth in time and savings deposits had continued large but
at a slower rate than in August. Free reserves, although down
sharply in the latest week, averaged about the same over the past
4 weeks as they had in the preceding 4 weeks.
The balance of payments apparently had improved somewhat
in the third quarter, but the deficit evidently was still large.
Industrial activity abroad continued its upward course.
While there were some differences of opinion within the Committee on monetary policy for the next 3 weeks, the range among
types of policies contemplated was relatively narrow. Some

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FEDERAL RESERVE SYSTEM

members favored seeking slightly less ease in the money market,
on the grounds that the balance of payments problem remained
serious while prospects for domestic economic activity appeared
to them to be relatively encouraging. Others thought such a shift
would be inappropriate in view of the continuing underutilization
of domestic resources. After discussion, a decision against any
change in policy at this time was reached by the Committee. The
following current policy directive, which differed from the one
adopted at the preceding meeting only by deletion from the
second paragraph of the earlier reference to the Treasury refunding operation, was issued to the Federal Reserve Bank of
New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market conditions that would contribute to an improvement in the capital account
of the U.S. balance of payments. This policy takes into consideration the
continuing adverse balance of payments position and its cumulative effects
and the high level of domestic business activity, as well as the increases in
bank credit, money supply, and the reserve base in recent months. At
the same time, however, it recognizes the continuing underutilization of
resources.
To implement this policy, System open market operations shall be
conducted with a view to maintaining the prevailing degree of firmness
in the money market, while accommodating moderate expansion in aggregate bank reserves.
Votes for this action: Messrs. Martin, Bopp, Clay,
Irons, Mitchell, Robertson, and Scanlon. Votes against
this action: Messrs. Hayes, Balderston, Mills, and
Shepardson.

Messrs. Hayes, Balderston, Mills, and Shepardson dissented
because they favored seeking slightly less ease in the money market. Mr. Hayes commented that even a small modification in
policy of the sort he favored would, in his judgment, have some
significance; he did not feel that all policy changes had to be
dramatic.

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ANNUAL REPORT OF BOARD OF GOVERNORS
2. Amendment of continuing authority directive.

In accordance with the recommendation of the Account Manager, Section 1 (a) of the continuing authority directive issued to
the Federal Reserve Bank of New York was amended to raise
from $1 billion to $1.5 billion the limit on changes in holdings of
securities in the System Open Market Account between meetings
of the Committee. A similar action had been taken at the meeting of June 18, 1963, but the former figure was restored at the
meeting of July 30, 1963. With the action at this meeting, the
wording of Section l ( a ) shown in the entry for June 18, 1963,
was again adopted.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mitchell, Mills, Robertson,
Scanlon, and Shepardson. Votes against this action:
None.
3. Authority to purchase and sell foreign currencies.

On March 5, 1963, the Committee had authorized the Federal
Reserve Bank of New York to undertake forward purchases of
foreign currencies, within a specified dollar limit, for the purpose
of permitting greater flexibility in covering commitments under
reciprocal currency (swap) agreements. On May 28, 1963, forward and spot transactions were authorized for the additional
purpose of settling commitments denominated in one currency by
use of System holdings of another, within a separately specified
dollar limit. At this meeting the Committee authorized purchases
of foreign currencies through spot transactions and sales through
forward transactions for the purpose of restraining short-term
outflows of funds induced by arbitrage considerations. This authority was considered likely to prove useful when relationships
among spot and forward foreign currency prices and interest
rate differentials provided incentives for arbitrage operations involving potentially heavy outflows of short-term funds.
Concurrently with this action, the dollar limitations on forward
operations for each of the two specific purposes previously auth-

106

FEDERAL RESERVE SYSTEM
orized were removed, and a new dollar limit of $150 million
equivalent was specified for all three types of authorized forward
operations taken together, in order to provide greater flexibility
in these operations.
These actions were reflected in the following amended continuing authority directive for transactions in foreign currencies,
issued to the Federal Reserve Bank of New York:
The Federal Reserve Bank of New York is authorized and directed to
purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency
Operations reaffirmed by the Federal Open Market Committee on March
5, 1963, as amended May 28, 1963:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
The Federal Reserve Bank of New York is also authorized and directed
to operate in any or all of the foregoing currencies, in accordance with
the Guidelines and up to a combined total of $150 million equivalent,
by means of:
(a) purchases through forward transactions, for
the purpose of allowing greater flexibility in covering
commitments under reciprocal currency agreements;
(b) purchases and sales through forward as well as
spot transactions, for the purpose of utilizing its holdings of one currency for the settlement of commitments denominated in other currencies; and
(c) purchases through spot transactions and sales
through forward transactions, for the purpose of
restraining short-term outflows of funds induced by
arbitrage considerations.
Total foreign currencies held at any one time shall not exceed $1.75
billion.

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ANNUAL REPORT OF BOARD OF GOVERNORS
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mitchell, Mills, Robertson,
Scanlon, and Shepardson. Votes against this action:
None.

October 22, 1963
1. Authority to effect transactions in System Account.

The domestic business situation and outlook appeared generally favorable at the time of this meeting. Increases in September were recorded for new orders received by durable goods
producers, new housing starts, and average hours of work. These
series are among those that had tended in the past to move ahead
of over-all activity. There was a note of caution in the economic
appraisals, however, as some key measures, such as industrial
production and the rate of unemployment, were unchanged in
September, and retail sales declined. Weekly data for early
October suggested that more recently retail trade was recovering
and output was rising in the auto industry. GNP in the third
quarter was estimated to have advanced by $9 billion, on a
seasonally adjusted annual rate basis, to $588.5 billion.
Despite numerous announcements of price increases, the index
of wholesale prices remained in the narrow range prevailing for
several years. Stock market prices rose appreciably to about their
previous peak on heavy trading volume. Stock market credit increased sharply in September.
Security financing by State and local governments was light in
September, but estimates for October suggested sharp expansion.
Corporate financing remained moderate in September, but contrary to earlier estimates was now expected to be somewhat larger
in October. Yields on corporate and municipal bonds had
declined slightly from their September highs. A more cautious
tone had developed in the U.S. Government securities market.
Yields on all maturities of Government securities edged up during
the first half of October and at midmonth were generally at their
highest levels of the year. On the day preceding this meeting the

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FEDERAL RESERVE SYSTEM

3-month Treasury bill rate closed at 3.46 per cent, 9 basis points
above its level of 3 weeks earlier. The upward pressure on bill
rates reflected, in part, sizable Treasury additions to bill supplies.
It was reported that the Treasury planned to announce shortly
the terms on which it would refinance $7.6 billion of securities
maturing November 15, 1963.
Bank credit, which had increased sharply in September,
declined in early October mainly because of loan repayments
by security dealers and finance companies. Business loans in
early October continued to expand more rapidly than usual at
this time of the year. Both the money supply and commercial
bank time and saving deposits, seasonally adjusted, were estimated to have increased more rapidly in the first half of October
than in the month of September. Free reserves at member banks
averaged about $50 million in the 4 weeks ending October 16,
compared with nearly $150 million in the preceding 4 weeks.
The balance of payments deficit showed a marked decline in
the third quarter, on the basis of preliminary estimates. The
improvement reflected primarily sharp reductions in capital outflows stemming in part from the effects of the proposed interest
equalization tax and increases in domestic interest rates, especially short-term rates, that were associated with the July rise in
Federal Reserve Bank discount rates. Economic activity in most
foreign countries continued to expand.
With respect to monetary policy for the next 3 weeks, the
Committee favored maintaining an "even keel" in the money
market in view of the imminent Treasury financing. Some members, however, expressed concern about recent rates of increase
in member bank reserves and in the public's liquid asset holdings
and about the outlook for commodity prices. Others emphasized
the marked improvement in the third quarter balance of payments figures, which they felt reduced the urgency of achieving
greater money market firmness for the sake of moderating capital
outflows. They also noted the continuing margin of underutilized

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ANNUAL REPORT OF BOARD OF GOVERNORS
domestic resources and had questions about the sustainability
of the recent rate of growth in aggregate demand.
While the consensus favored no change in policy, the first paragraph of the current economic policy directive was revised to
reflect the improved balance of payments position and the recent
further expansion in the domestic economy. The second paragraph also was revised, to include a reference to the forthcoming
Treasury financing and to employ language that, in the opinion
of a majority, specified more clearly than the previous language
the desired degree of money market firmness. The directive was
issued to the Federal Reserve Bank of New York in the following form:
It is the Federal Open Market Committee's current policy to accommodate moderate growth in bank credit, while maintaining conditions in
the money market that would contribute to continued improvement in
the capital account of the U.S. balance of payments. This policy takes
into consideration the fact that domestic economic activity is expanding
further, although with a margin of underutilized resources; and the fact
that the balance of payments position is still adverse despite a tendency
to reduced deficits. It also recognizes the increases in bank credit, money
supply, and the reserve base of recent months.
To implement this policy, and taking into account the imminent Treasury refinancing, System open market operations shall be conducted with
a view to maintaining the degree of firmness in the money market that
has prevailed in recent weeks, while accommodating moderate expansion
in aggregate bank reserves.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Mills, Mitchell, Robertson, ScanIon, Shepardson, and Shuford. Votes against this action: None.
2. Authority to purchase and sell foreign currencies.

The Committee authorized the Federal Reserve Bank of New
York to undertake negotiation of a standby reciprocal currency
(swap) arrangement with the Bank of Japan in the amount of
$150 million.

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FEDERAL RESERVE SYSTEM
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Robertson, Scanlon, Shepardson,
and Shuford. Votes against this action: Messrs. Mills
and Mitchell.

It was agreed that the reciprocal currency arrangement with
Japan, when negotiated, would complete the set of such arrangements that the Committee presently contemplated. Note was
taken of the fact that Japan, unlike other countries with which
the System had entered into reciprocal currency arrangements,
had not yet removed all restrictions on payments and transfers for
current international transactions. A majority of the Committee
believed, however, that it was appropriate to negotiate the
arrangement at the present time because Japan was a country of
major importance in international trade and finance and because
the remaining restrictions on current account transactions were
relatively minor and could be expected to be removed soon.
Mr. Mills indicated that in addition to substantive criticisms
and objections to a reciprocal currency arrangement with Japan,
his reasons for dissenting went beyond this particular transaction.
He believed that there was an undesirable drift away from the
original and more orthodox objectives in the System's foreign
currency operations and by his dissent he also desired to crystallize awareness of this tendency within the Committee. Mr.
Mitchell's dissent was based on a question as to whether the
agreement with Japan was entirely compatible with what he
understood to be the original purpose of the System's reciprocal
currency arrangements—to ameliorate the balance of payments
problem of the United States. He doubted that the short-term
international financial position of the United States was sufficiently strong as yet to undertake assisting other countries with
their balance of payments problems, or that short-term credits
made available as a result of the swap arrangement would be
basically helpful to the Japanese.
It was the view of the majority, on the other hand, that the
arrangement was desirable because capital flows between Japan

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ANNUAL REPORT OF BOARD OF GOVERNORS

and the United States were subject to reversals in direction, and,
more generally, because the reciprocal currency arrangements
were best viewed as a mutual defense under which short-term
credit would be extended by either party when required by the
other.
In a related action the Committee modified the amounts and
form of the dollar limitations specified in the continuing authority
directive for System foreign currency operations. In place of the
previous limit of $1.75 billion on total foreign currency holdings
at any one time, two separate limits were specified: a limit of
$1.95 billion on foreign currencies held under reciprocal currency
arrangements, and a limit of $150 million on foreign currencies
held as a result of outright purchase. The former figure was equal
to the sum of the amounts currently specified by the Committee
for all individual authorized reciprocal currency arrangements,
and therefore represented the maximum of System covered holdings of foreign currencies under these arrangements, in the remote
possibility that they might all simultaneously be fully drawn on.
The limit of $150 million on forward transactions that had been
previously specified was retained.
Reflecting these actions, the directive issued to the Federal
Reserve Bank of New-York read as follows:
The Federal Reserve Bank of New York is authorized and directed to
purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency
Operations reaffirmed by the Federal Open Market Committee on March
5, 1963, as amended May 28, 1963; provided that the aggregate amount
of foreign currencies held under reciprocal currency arrangements shall
not exceed $1.95 billion equivalent at any one time, and provided further
that the aggregate amount of foreign currencies held as a result of outright
purchases shall not exceed $150 million equivalent at any one time:

Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
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FEDERAL RESERVE SYSTEM
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
Japanese yen
The Federal Reserve Bank of New York is also authorized and directed
to operate in any or all of the foregoing currencies in accordance with
the Guidelines and up to a combined total of $150 equivalent, by
means of:
(a) purchases through forward transactions, for the
purpose of allowing greater flexibility in covering commitments under reciprocal currency agreements;
(b) purchases and sales through forward as well as
spot transactions, for the purpose of utilizing its
holdings of one currency for the settlement of
commitments denominated in other currencies;
and
(c) purchases through spot transactions and sales
through forward transactions, for the purpose of
restraining short-term outflows of funds induced
by arbitrage considerations.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bopp, Clay. Mills, Mitchell, Robertson,
Scanlon, Shepardson, and Shuford. Votes against this
action: None.
Messrs. Mills and Mitchell voted favorably on this directive
despite their opposition to a reciprocal currency arrangement
with the Bank of Japan because the Committee earlier had
approved negotiation of such an arrangement in an action to
which their dissents were already recorded.
November 12, 1963
1. Authority to effect transactions in System Account.
Information available for October indicated a pick-up in
domestic economic activity and broad stability in price indexes,
but a continued high rate of unemployment. Industrial production was estimated at or fractionally above the September level,

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ANNUAL REPORT OF BOARD OF GOVERNORS

and retail sales had risen to a new high, with automobile markets
especially strong. Construction activity continued steady at a
level about 5 per cent above a year earlier.
Business sentiment appeared more optimistic than earlier. A
private survey of business plans for 1964, released November 8,
indicated an increase of 4 per cent in fixed capital outlays relative to 1963. In past business expansions this survey had tended
to underestimate the amount of change actually realized.
Seasonally adjusted commercial bank credit expanded only
moderately further in October, and growth so far this year had
been somewhat slower than in the corresponding period of 1963.
Business loan demand again was strong, and banks continued to
make substantial sales of U.S. Government securities.
The private money supply, seasonally adjusted, increased
substantially further in October. The rise was associated with
an unusually large decline in U.S. Government deposits at commercial banks. Time and savings deposits also increased at a
rate somewhat greater than in other recent months.
Stock market prices declined moderately in early November,
after reaching new highs in late October. The October rise was
associated with a large trading volume and a further increase
in stock market credit. Effective November 6, the Board of
Governors increased margin requirements from 50 per cent to
70 per cent.
Corporate and municipal financing increased sharply in October from the moderate volume of preceding months, but was
expected to drop back in November. Yields on U.S. Government securities continued to rise and except for the longest
maturities were at their highest levels since the spring of 1960.
Rates on 3-month Treasury bills recently had moved above the
3Vi per cent discount rate and prior to this meeting were
3.55 per cent. These rate increases were attributable to a combination of factors: a large volume of short-term issues by the
Treasury in the last 10 days of October; continued bank liquidation of Government securities; increased optimism about the

114

FEDERAL RESERVE SYSTEM

business outlook; and an expectation, widely held in financial
markets, that money market conditions might soon become
somewhat firmer.
The third-quarter international payments deficit, sharply reduced from the second quarter by declines in direct investment,
in new foreign security issues, and in outflows of short-term
money market funds, was estimated at a seasonally adjusted
annual rate of about $2 billion. (This estimate excluded the
effects of special Government transactions and of the July reflux
of window-dressing credits.) Abroad, activity was continuing to
expand, but it seemed possible that limited availability of manpower and other resources in several major European countries
in the face of expanding demands might result in slower rates
of real growth, stronger inflationary trends, and more restrictive
monetary policies in those countries.
The Committee believed that circumstances did not warrant
a change in monetary policy at this time and agreed that over
the next 3 weeks reserves should be supplied to accommodate
the expected seasonal expansion in demand for bank credit.
Within this consensus, however, several members expressed
concern about the recent increases in short-term interest rates,
especially the rise in the rate on 3-month Treasury bills to a
level somewhat above the discount rate. They felt that these
increases were undesirable because they reinforced market expectations of imminent discount rate action and, if continued,
would contribute to upward pressures on both domestic longerterm yields and interest rates abroad. Some other members felt
that the recent increases in short-term rates and the firming of
other credit market indicators were appropriate in view of the
substantial recent expansion of the reserve base and the high
level of liquidity in the economy. They expressed the view that
a firmer policy posture might be warranted in the near future.
The current economic policy directive issued to the Federal
Reserve Bank of New York differed from the one adopted at
the previous meeting of the Committee only by deletion of a

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ANNUAL REPORT OF BOARD OF GOVERNORS

reference, no longer applicable, to Treasury financing. It read
as follows:
It is the Federal Open Market Committee's current policy to accommodate moderate growth in bank credit, while maintaining conditions in
the money market that would contribute to continued improvement in
the capital account of the U.S. balance of payments. This policy takes into
consideration the fact that domestic economic activity is expanding further, although with a margin of underutilized resources; and the fact
that the balance of payments position is still adverse despite a tendency
to reduced deficits. It also recognizes the increases in bank credit, money
supply, and the reserve base of recent months.
To implement this policy, System open market operations, shall be conducted with a view to maintaining the degree of firmness in the money
market that has prevailed in recent weeks, while accommodating moderate expansion in aggregate bank reserves.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mitchell, Robertson, ScanIon, and Shepardson. Vote against this action: Mr.
Mills.

Mr. Mills dissented because he felt that present policy was
undesirably restrictive for viability of the domestic economy.
He thought that measures required to combat any further balance of payments difficulties should be taken in the area of
fiscal controls, and he favored increasing the supply of reserves to relieve some of the existing upward pressure on interest rates and to reduce what he considered to be a threat
to appropriate growth in the money supply.
2. Amendment of continuing authority directive.

In accordance with a suggestion of the Account Manager,
Section l ( a ) of the continuing authority directive to the Federal Reserve Bank of New York was amended to reduce the
limit on net changes in the System Open Market Account in
any period between meetings of the Committee to $1 billion
from the $1.5 billion that had been established at the meeting
on October 1. Earlier in the year the limit had been $ 1 billion,

116

FEDERAL RESERVE SYSTEM

except for the period between the meetings of June 18 and
July 30, when it was $1.5 billion.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mills, Mitchell, Robertson,
Scanlon, and Shepardson. Votes against this action:
None.
3. Authority to purchase and sell foreign currencies.

Since early September the U.S. Stabilization Fund had been
engaged in a program of spot purchases of Italian lire for two
purposes: to help the Italian authorities cushion the abrupt
decline that had been occurring in their monetary reserves,
and to accumulate funds for repayment of the Treasury's bonded
debt denominated in lire and maturing over the period from
March 1964 to September 1965. However, the resources of the
Stabilization Fund for this type of operation were limited. The
Special Manager of the System Account recommended that the
Federal Reserve Bank of New York be authorized to make spot
purchases of Italian lire, at a rate above par if necessary, for
purposes of immediate forward sale to the Treasury at the same
rate, in order to assist in achieving the two objectives underlying
recent Treasury lire purchases. He also recommended that authority be granted to conduct similar operations in other foreign
currencies in which the Treasury had outstanding indebtedness
to facilitate Treasury repayment of these debts. The Committee
concluded that such operations appeared sufficiently likely to
be useful to warrant their approval on an experimental basis,
and the continuing authority directive for System foreign currency operations was amended by the addition of the following
paragraph:
The Federal Reserve Bank of New York is also authorized and directed
to make purchases through spot transactions, including purchases from
the U.S. Stabilization Fund, and concurrent sales through forward transactions to the U.S. Stabilization Fund, of any of the foregoing currencies
in which the U.S. Treasury has outstanding indebtedness, in accordance

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ANNUAL REPORT OF BOARD OF GOVERNORS
with the Guidelines and up to a total of $100 million equivalent. Purchases may be at rates above par, and both purchases and sales are to be
made at the same rates.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mills, Mitchell, Robertson,
Scanlon, and Shepardson. Votes against this action:
None.

November 26, 1963
Authority to effect transactions in System Account.

This meeting was held by telephone on the first business day
following the death of President Kennedy. It was called for the
purpose of considering whether action by the Committee was
required to deal with any actual or potential unsettlement in
domestic financial markets or in foreign exchange markets stemming from the President's death.
Reports by the Manager and the Special Manager of the System Open Market Account indicated that there was no evidence
of adverse market developments as of late morning. The Account
Manager reported that the Government securities market had
opened with a confident tone, and that prices at the opening
were unchanged or slightly higher on securities of various maturities. The stock market already had made a good recovery
in early trading. The Special Manager noted that gold and foreign exchange markets were steady, and that where necessary
central banks were acting to maintain foreign exchange rates
at their previous levels.
The Committee decided that it was desirable, as a precautionary measure, to revise its current economic policy directive in
order to insure that the Federal Reserve Bank of New York
would have ample authority to deal with any unsettlement that
might develop. The revision was confined to the second paragraph, and the directive was issued in the following form:
It is the Federal Open Market Committee's current policy to accom-

118

FEDERAL RESERVE SYSTEM
modate moderate growth in bank credit, while maintaining conditions in
the money market that would contribute to continued improvement in
the capital account of the U.S. balance of payments. This policy takes
into consideration the fact that domestic economic activity is expanding
further, although with a margin of underutilized resources; and the fact
that the balance of payments position is still adverse despite a tendency
to reduced deficits. It also recognizes the increases in bank credit, money
supply, and the reserve base of recent months.
To implement this policy, System open market operations shall be
conducted with a view to cushioning any unsettlement that might arise in
money markets stemming from the death of President Kennedy and to
maintaining about the same conditions in the money market as have
prevailed in recent weeks, while accommodating moderate expansion in
aggregate bank reserves.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mitchell, Robertson, ScanIon, and Shepardson. Vote against this action: Mr.
Mills.

Mr. Mills dissented for the same reasons he had dissented from
the directive adopted at the meeting of November 12, 1963; he
thought the Committee should modify its policy to one of greater
ease.
December 3, 1963
1. Authority to effect transactions in System Account.

Information on economic and financial developments since
the death of President Kennedy, while quite incomplete, suggested that the economy had shown little tendency to depart from
the path of continued moderate advance in over-all activity and
broad stability of commodity prices. Business and consumer
confidence appeared to have remained firm and widespread.
Unsettlement in sensitive commodity and security markets had
been minimal, and corporate stock prices had quickly recovered
from the losses suffered on November 22. Speculative switching
out of dollars into other currencies or gold had been limited.
More complete data on domestic activity in October confirmed

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ANNUAL REPORT OF BOARD OF GOVERNORS

earlier indications of a distinct pick-up in that month, with gains
noted in such measures as industrial production, nonfarm employment, personal income, housing starts, and retail sales. New
orders for durable goods and capital appropriations by manufacturers also were reported to have risen. Scattered data for November added to the impression of some continued over-all
expansion. However, the unemployment rate in October remained at the 5.5 per cent level of other recent months and gave
no sign of declining in November.
In financial markets, the yield on 90-day Treasury bills had
declined several basis points to a level slightly below the 3Vi
per cent discount rate during the week preceding this meeting,
but more recently it had risen again and had closed at 3.53 per
cent on the previous day. Yields on long-term U.S. Government
securities were steady. The volume of corporate and municipal
financing was moderate in November, but yields on new corporate issues increased to the highest level in more than a year.
Bank credit expansion was large in the first 3 weeks of November, and business loans showed a marked rise. The seasonally adjusted money supply rose sharply again in November,
and time and savings deposits also expanded further.
The balance of payments deficit in October and the first 3
weeks of November was somewhat above the third-quarter rate
but substantially below the rates for the first 2 quarters.
The Committee concluded that it was appropriate to continue
the policy it had been following in recent weeks, in light of these
domestic and international developments and in view of the fact
that only a short time had elapsed for appraisal of business and
financial reactions following the death of President Kennedy.
The directive adopted at the meeting of November 26, 1963,
was therefore renewed without change.
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mitchell, Robertson, ScanIon, and Shepardson. Vote against this action: Mr.
Mills.

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FEDERAL RESERVE SYSTEM
Mr. Mills, who had voted against the directives adopted at
the two preceding meetings, dissented from this action also, because he continued to believe that the Committee should adopt
a policy of greater ease.
2. Authority to purchase and sell foreign currencies.

The Committee amended the first paragraph of its continuing
authority directive for foreign currency operations to increase the
limit on the aggregate amount of foreign currencies held under
reciprocal currency (swap) arrangements at any one time from
$1.95 billion to $2.05 billion. With this amendment, the first
paragraph of the continuing authority directive read as follows:
The Federal Reserve Bank of New York is authorized and directed
to purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency Operations reaffirmed by the Federal Open Market Committee on
March 5, 1963, as amended May 28, 1963; provided that the aggregate
amount of foreign currencies held under reciprocal currency arrangements shall not exceed $2.05 billion equivalent at any one time, and
provided further that the aggregate amount of foreign currencies held as
a result of outright purchases shall not exceed $150 million equivalent
at any one time:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
Japanese yen
Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mills, Mitchell, Robertson, Scanlon, and Shepardson. Votes against this
action: None.

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ANNUAL REPORT OF BOARD OF GOVERNORS

The previous limit of $1.95 billion, which had been established
at the meeting of October 22, 1963, was equal to the sum of the
amounts authorized for individual swap arrangements at that
time. On November 22, 1963, Committee members had approved
increases of $50 million each in the swap lines with the Swiss
National Bank and the Bank for International Settlements, effective November 25, 1963. This action, which was ratified by the
Committee at this meeting, raised the sum of the individual swap
lines to $2.05 billion. The purpose of the amendment to the
continuing authority directive was to make the limit on aggregate
foreign currency holdings under swap arrangements again equal
to this sum.
December 17, 1963
Authority to effect transactions in System Account.

At this meeting optimism about the economic outlook was
reported to be widespread and to have increased recently as prospects for a tax cut early in 1964 appeared to have brightened.
Preliminary estimates of GNP for the fourth quarter suggested
growth at about the same rate as earlier in the year.
Some grounds for caution in assessing the outlook were noted,
however. Results of the latest survey of business plans for capital
outlays showed less strength in this area than had been widely
anticipated; they indicated that fourth-quarter outlays were not
expected to be quite so large as had been reported earlier and
that there probably would be little change from the fourth quarter
to the first quarter of 1964. Also, in November some key measures, such as industrial production and retail sales, showed little
or no improvement from October or from levels that had been
reached in July. The unemployment rate rose to 5.9 per cent in
November from 5.5 per cent in October.
The wholesale price index for industrial commodities was
unchanged from October to November, and less complete weekly
indexes suggested that stability continued into early December.

122

FEDERAL RESERVE SYSTEM

The consumer price index rose slightly in October and remained
about 1 per cent above a year earlier.
Yields on 3-month Treasury bills continued to fluctuate around
the 3Vi per cent level, but those on Treasury notes and bonds
edged up after late November to new 1963 highs. Corporate
bond yields also rose on a large volume of new financing, while
yields on municipal securities declined on unusually small volume. Common stock prices rose further to near their October
peak.
Bank earning assets continued to expand in late November
and early December, but figures for city banks suggested some
recent softening of earlier strong private credit demands. A good
part of the substantial increment in business loans at city banks
in this period represented special financing arrangements and
acquisitions of bankers' acceptances. Holdings of U.S. Government securities rose more than usual for this period, as banks
were allotted practically all of a $1 billion Treasury bill issue
for which 50 per cent payment in the form of tax-and-loanaccounts credit was permitted.
The money supply apparently changed little in the last half
of November and the first half of December, and growth in time
and savings deposits appeared to have slowed. Free reserves on
average were about the same in the 4 weeks ending December
11 as in the preceding 4 weeks. During part of the early December period, however, the money market was unexpectedly easy,
with Federal funds trading in substantial volume below the 3Vi
per cent discount rate on several days. Banks met the demands
for funds associated with December tax and dividend dates with
little or none of the strains they often experience at this season.
Estimates of the U.S. balance of payments for the fourth quarter, based in part on preliminary figures for the first 2 weeks
of December, suggested that the deficit would be above the
reduced third-quarter rate but below the rate of the first half.
It was the judgment of the Committee that no change should
be made in monetary and credit policy at this time. Factors seen

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ANNUAL REPORT OF BOARD OF GOVERNORS

as militating against a shift toward less ease included the moderate pace of business expansion in November, the absence of
evidence of general inflationary pressures, and the continued
high level of unemployment. Some members expressed the view
that the widespread optimism about business prospects was disproportionate to actual recent gains in activity; they felt that more
evidence on the continuing vigor of the expansion was necessary
before a policy shift would be appropriate. Difficulties of gauging
the outlook during the present holiday season were noted. The
prospect of considerable churning in the money market over
coming weeks, as seasonal demands for credit decline and the
customary return flow of currency to commercial banks occur,
was advanced as an argument against modifying policy in either
direction at the present time.
The Committee concluded that it was no longer necessary to
retain the clause relating to unsettlement in money markets
stemming from the death of President Kennedy that had been
included in the second paragraph of the current economic policy
directives adopted at the two preceding meetings. With this
clause deleted, the directive issued to the Federal Reserve Bank
of New York read as follows:
It is the Federal Open Market Committee's current policy to accommodate moderate growth in bank credit, while maintaining conditions in
the money market that would contribute to continued improvement in
the capital account of the U.S. balance of payments. This policy takes
into consideration the fact that domestic economic activity is expanding
further, although with a margin of underutilized resources; and the fact
that the balance of payments position is still adverse despite a tendency
to reduced deficits. It also recognizes the increases in bank credit, money
supply, and the reserve base of recent months.
To implement this policy, System open market operations shall be
conducted with a view to maintaining about the same conditions in the
money market as have prevailed in recent weeks, while accommodating
moderate expansion in aggregate bank reserves.
Votes for this action: Messrs. Martin, Bopp, Clay,
Daane, Irons, Mitchell, Robertson, Scanlon, and Shepardson. Votes against this action: Messrs. Hayes and
Mills.

124

FEDERAL RESERVE SYSTEM

Mr. Hayes dissented from this action because he favored a
modest shift in policy toward less ease. He thought such a shift
appropriate not only because of the continuing adverse balance
of payments but also because he considered recent growth rates
of bank credit and nonbank liquidity to be excessive from a
domestic viewpoint, and to have potentially undesirable consequences for credit standards. He observed that if the Committee
did not modify policy at this meeting, successive Treasury financings tentatively scheduled for early 1964 might militate against
such action being taken in the near future.
Mr. Mills, who continued to favor a policy of greater ease,
noted that the actual level of reserve availability in the period
since the preceding meeting was consistent with his view of a
viable and constructive credit policy. He dissented from the
action on the directive, however, because he did not believe
that a continuation of recent monetary conditions was compatible
with the language of the directive.

125

OPERATIONS OF THE SYSTEM OPEN MARKET ACCOUNT

The following two reports describe the actions taken by the
System Account Management during 1963 to carry out the
policies of the Federal Open Market Committee. The first one
is a chronological review of operations in domestic securities.
In providing the reserve base for rapid expansion in commercial
bank credit and for substantial growth in the money supply—
and in view of the public's changing preferences for currency,
demand deposits, and time deposits—the System Account Management acquired $2.8 billion, net, of U.S. Government securities during the year.

NOTE.—Cumulative changes in Wed. figures for Treasury issues and acceptances both on an outright basis and under repurchase agreement.

126

FEDERAL RESERVE SYSTEM

These acquisitions not only offset the contractive effect on
member bank reserves of a comparatively small decline in the
U.S. gold stock and an unusually large rise in the amount of
currency held outside the Treasury, the Federal Reserve, and
member banks, but also contributed to continued expansion in
the aggregate reserves of member banks. The growth in credit and
money that was encouraged by this expansion of reserves took
place at somewhat higher interest rates, as the policy directives
of the Federal Open Market Committee continued during the
year to seek conditions that would actively encourage domestic
economic growth while minimizing outflows of capital from the
United States to foreign financial centers.
The report on operations in domestic securities was prepared
by Robert W. Stone, Manager of the System Open Market Account, who supervises these operations. It is written from the
vantage point of the Trading Desk at the Federal Reserve Bank
of New York, where operations in these securities are effected to
carry out the policy directives of the Federal Open Market Committee. The report stresses the factors—including variations in
reserve elements, money market tendencies, and Treasury financings—that the System Account Management takes into account
in the day-to-day provision of bank reserves.
The second report is a review of Federal Reserve operations
in foreign currencies. The Federal Reserve has been buying and
selling such currencies since early 1962 as part of the efforts to
defend the dollar and strengthen the world payments system.
During 1963 the volume of Federal Reserve operations in foreign
currencies increased substantially. The reciprocal currency, or
swap, network linking the Federal Reserve with foreign central
banks and the Bank for International Settlements was extended
to cover additional central banks, and existing swap lines were
considerably enlarged. As a result, the facilities that are available
through this network were more than doubled.
The Federal Open Market Committee also authorized during
the year a broader range of operating techniques, including

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ANNUAL REPORT OF BOARD OF GOVERNORS

various types of transactions in the forward market. The reinforcement of the swap lines and the actual foreign exchange
transactions exerted a strongly stabilizing influence on both gold
and foreign exchange markets, which remained calm in the face
of several potentially dangerous developments during the year.
The report on foreign currency operations was prepared by
Charles A. Coombs, Special Manager of the System Open Market
Account, who supervises the Federal Reserve's operations in such
currencies. All these operations for the System Account are
carried out, under the authorization of the Federal Open Market
Committee, by the Federal Reserve Bank of New York, which
also handles foreign currency transactions for the U.S. Treasury.
This report begins on page 171.

128

FEDERAL RESERVE SYSTEM
REVIEW OF OPEN MARKET OPERATIONS
IN DOMESTIC SECURITIES

For the purpose of this review of operations in domestic securities, the year is divided into five broad periods, with divisions
indicating shifts in policy or in general background factors to
which Federal Reserve operations are continuously adapted.
January and February: Consolidating the slight shift toward less ease.

As 1963 began, Federal Reserve open market operations
undertook to consolidate the policy shift toward slightly less
ease that had been adopted by the Federal Open Market Committee on December 18, 1962. The broad policy objective
continued to be the accommodating of moderate growth in
bank credit in keeping with domestic economic objectives,
while aiming at money market conditions that would minimize
capital outflows internationally. In more specific terms, policy
was designed to offset anticipated seasonal downward pressures
on short-term interest rates.
Operations in January were complicated by a pre-year-end
build-up of excess reserves that flooded the market at the very start
of the period, and by the unusually high level of Federal Reserve
float that persisted through the month. Nevertheless, after these
influences had produced a brief period of ease in early January,
the money market gradually firmed as the Federal Reserve aggressively absorbed redundant reserves. Thus the effects of the
policy shift, which had been felt in the closing week or two of
1962, were reasserted, and by the end of February the traces
left by that shift on indicators of reserve availability were clear.
From January 10 through the end of February, the bulk of
the trading in Federal funds took place at the 3 per cent discount rate, rather than in the 2% to 3 per cent range that had
prevailed in the latter part of 1962, as shown in the chart on
page 145. Free reserves averaged about $340 million, compared with about $400 million during the last half of 1962,
and average member bank borrowings increased to $135 million from about $100 million. Reflecting in part the influence of
the policy shift, the rate on 3-month Treasury bills did not un-

129

ANNUAL REPORT OF BOARD OF GOVERNORS

dergo its customary seasonal decline, but ranged from a low of
2.86 per cent on January 3 to a high of 2.96 in early February,
before dipping to 2.90 at the end of February.
The wide swings in reserve availability stemming from the
movements in market factors necessitated substantial open
market operations during January and February. Although the
net result of Federal Reserve transactions was a withdrawal of

SYSTEM OPERATIONS IN GOVERNMENT SECURITIES DURING 1963
(In millions of dollars)
Type of operation
Outright purchases:
Treasury bills:
Market
Foreign
Coupon issues
Outright sales:
Treasury bills:
Market
Foreign
Coupon issues

Jan. 2Feb. 27

Feb. 28May 15

May 16July 31

Aug. 1Oct. 23

Oct. 24D t c 31

Total

345
400
32

971
258
494

1,824
769
321

746
259
464

1,330
389
198

5,216
2,075
1,509

550
237

447
338
14

907
192
15

820
285
40

506
78

3,231
1,130
104

Redemptions

1,232

Repurchase agreements
Purchases
Sales

1,408
1,613

1,985
2,017

1,951
1,912

1,584
1,728

1,968
1,957

8,895
9,226

Net increase

-322

791

1,179

-195

1,320

2,773

$322 million of reserves from the banking system during the
period as a whole, outright transactions in Government securities, including both purchases and sales, totaled about $1.7
billion. New repurchase agreements in this period totaled $1.4
billion, and $1.6 billion of agreements were terminated.,
The larger-than-seasonal release of bank reserves by market
factors during the opening weeks of the year was countered by
the withdrawal through January 23 of about $957 million of
reserves as a result of Federal Reserve operations in Government securities. A total of $342 million of repurchase agree-

130

FEDERAL RESERVE SYSTEM

merits terminated at the start of the year, and from January 2
through January 23 the Federal Reserve sold $580 million of
Treasury bills, including $444 million in the market, and also
sold $35 million of short-term coupon issues to foreign accounts. With market factors persistently providing funds in
excess of expectations, no Federal Reserve action was taken to
inject reserves during this period.
The tendency for free reserves to exceed expectations posed
difficult problems early in 1963 for the System Account Management in its efforts to achieve the Federal Open Market Committee's objective of "offsetting the anticipated seasonal easing
of Treasury bill rates . . . " These difficulties were aggravated by
a substantial movement of reserves from country banks to the
money centers. Country banks had accumulated average excess
reserves of more than $700 million during the statement week
ended January 2, partly as a result of heavy borrowings early in
the statement week in preparation for the December 31 statement
date. Since these banks did not end their reserve settlement
period until January 9, they supplied their accumulated excess
funds to reserve city banks in the week ended January 9, thus
providing an abundant supply of reserves in the money centers.
Meanwhile, the reserve positions of the banks in New York City
improved as dealer loans contracted when more attractive financing terms became available elsewhere. The money market turned
easier despite Federal Reserve sales of $200 million of Treasury
bills on January 7 and 8, and the effective rate for Federal
funds declined to 2 per cent by January 9. No action to absorb
reserves was taken on that day since reserve availability was
expected to contract sharply in the next statement week and sales
would only have necessitated larger purchases in that week.
Following the "double settlement" date on January 9 (that
is, the final day of a reserve-averaging period for country as
well as reserve city banks), Federal Reserve operations successfully offset an easier tendency in the money market and
helped reverse a decline in Treasury bill rates which had tem-

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ANNUAL REPORT OF BOARD OF GOVERNORS

porarily brought the 91-day issue as low as 2.86 per cent on
January 3. By January 23, despite a broad seasonal demand,
rates for Treasury bills were above year-end levels. In achieving this result the Federal Reserve's policy shift and the techniques used to implement it were augmented by an increase in
the supply of short-term securities. The Treasury sold $2.5
billion of 1-year bills on January 9 to replace a $2: billion maturing issue and auctioned $1 billion of June tax anticipation bills for cash on January 30. Partly reflecting these new
issues, dealer inventories of bills, while substantially reduced
from the record totals in December, remained relatively high.
As money market conditions grew firmer in response to the policy
shift, these inventories had to be financed at a higher cost.
The size of dealers' positions in bills facilitated Federal Reserve operations in late January and early February, when
month-end reserve needs were enlarged by the shai*p decline in
float from the abnormally high level it had reached earlier in
January. Although the Federal Reserve supplied about $1.1
billion of reserves in the 2 weeks ended February 6, the 3-month
Treasury bill rate—which the System Account Management had
continuously in mind in conducting operations on that scale—
rose to 2.96 per cent in early February. The sizable financing
needs of dealers enabled the Federal Reserve to make new repurchase agreements totaling about $900 million during the
2-week period, and about $500 million of these agreements remained outstanding on February 6. Meanwhile the System Account Management also made some outright purchases in the
market. In the period through February 6 it bought $324 million
of Treasury bills. These purchases were confined to the shortest
maturities in order to minimize the impact of such buying on
the 3-month rate. The Account Management also purchased an
additional $270 million of Treasury bills from foreign accounts
and bought $31.5 million of coupon issues in the market. In view
of its concern with short-term interest rates, the Federal Reserve
supplied reserves gingerly, and without attempting to anticipate
reserve needs; it relied on market conditions to indicate the emer-

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FEDERAL RESERVE SYSTEM
gence of such needs, and moved only when these had been clearly
indicated by the performance of the market itself.
Over the balance of February, the Federal Reserve withdrew
$461 million of reserves net. It made some new repurchase
agreements to meet temporary needs and to offset dealer withdrawals of existing agreements, but over the 3 weeks ended February 27 it permitted the repurchase balance to decline by some
$357 million. It confined its market purchases of bills in this
interval to $20 million of short-dated issues on one day, while
it sold or redeemed a total of $255 million of Treasury bills,
partly as a means of dealing with renewed downward pressure
on bill rates. This pressure developed as demand for Treasury
bills expanded, beginning in mid-February. Outright buying,
attracted by the higher rate level that had emerged, was augmented by demand from sellers of coupon issues eligible for exchange in the Treasury's February refunding and advance refunding operations. Dealers' holdings of Treasury bills declined
by about $1 billion from record levels in December to just over
$2 billion in late February. The 3-month bill rate dipped temporarily to a low of 2.87 per cent, but closed on February 28
at 2.90 bid as caution reappeared with the approach of the
pressures that typically accompany the mid-March period of
heavy liquidity needs.
The markets for intermediate- and longer-term Government
securities were dominated by a series of major Treasury debt
operations during January and February. As the year opened,
market attention was focused on the scheduled sale on January 8 of $250 million of Treasury bonds of 1988-93 through
competitive bidding among underwriting syndicates. Following
the Treasury's December 20 announcement, four syndicates
had been formed to bid on the issue. This first trial of a new
technique for marketing long-term securities was highly successful. The winning bid, setting a net interest cost to the Treasury
of about 4.008 per cent, topped the second-place bid by only
$275 for the entire $250 million amount.
The public reoffering of the new 4 per cent bonds at par was

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ANNUAL REPORT OF BOARD OF GOVERNORS

greeted by such an enthusiastic investor response that the issue
was reported oversubscribed only a few hours after the auction,
and the new bonds immediately moved to a premium. The success of the financing also stimulated a general rise in prices of
outstanding Treasury issues that persisted through mid-January.
Thereafter, prices receded in a more cautious atmosphere as
the market looked ahead to the approaching February refinancing and, more generally, appraised the prospect of the large
volume of new Treasury borrowing that was implicit in the
President's budget and tax messages.
On January 30 the Treasury announced the terms of its refunding of $9.5 billion of February 15 maturities. At the same
time it indicated that the market could expect an advance refunding operation soon after February 15 and a second long-term
auction by competitive bidding in early April. The prospect
of these operations dampened interest in longer maturities, and
prices of these issues continued to drift lower through midFebruary; prices of shorter maturities, however, held firm. The
February refunding operation, which was confined to relatively
short-term issues, was highly successful. The maturing issues,
which were exchangeable into the new securities offered by the
Treasury, moved to premiums of % 2 to % 2 during the subscription period. The public exchanged 96 per cent of its $5.5 billion
of maturing issues for $2.8 billion of 1-year 3V4 per cent certificates and for $2.5 billion of the reopened 3% per cent bonds of
August 1968. The Federal Reserve exchanged its $3.8 billion
of the maturing issues for the 3V4 per cent certificate.
On February 20 the Treasury announced the terms of its
generally anticipated advance refunding operation. These terms
provided public holders of $10.6 billion of 1963-64 maturities
and $9.7 billion of 1965-66 issues with the option of exchanging
them for somewhat longer maturities. This large and rather
complex operation was highly successful, exceeding the most
optimistic estimates. The public exchanged about $8 billion of
1963-66 issues for $4.3 billion of new 3 % per cent notes of
1967, $2.6 billion of a reopened issue of 3 % per cent bonds

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FEDERAL RESERVE SYSTEM

of 1971, and $1.1 billion of a reopened issue of 4 per cent bonds
of 1980. In all, it converted 38 per cent of its holdings, and the
Treasury achieved a significant amount of debt extension.
The advance refunding operation again proved to be a powerful stimulant to market activity, generating an enormous variety
of portfolio adjustments. Trading volume in the Government
securities market, which typically averages between $1.5 billion
and $2 billion per day, soared to a daily average of between
$3 billion and $3.5 billion from the time of the Treasury's
announcement on February 20 to the close of the subscription
books for institutional subscribers on February 28. (Individual
subscribers were allowed an additional week through March 8.)
Dealers accommodated readily the large-scale switching of
money and securities, and in doing so accumulated a substantial
underwriting position in the new refunding securities.
Against the background of this heavy volume of activity,
accomplished within the confines of fairly narrow price movements, the entire market displayed a steady tone at the close
of February. Earlier price movements and adjustments to the
terms of the refunding, however, had reduced prices of longer
maturities over the 2 months by about % to 3A point. These
declines raised the average yield on long-term Treasury bonds
to 3.94 per cent from 3.87 on December 31, 1962. Shorter
maturities, due or callable through 1967, on the other hand,
were generally unchanged to slightly higher in price.
Prices of tax-exempt obligations, after a brief period of firmness in early January, also drifted lower as higher interest rate
expectations emerged. Commercial bank demand was not so
substantial as in early 1962, and dealers' advertised inventories
rose to $516 million by the end of February. During this 2month period new offerings of these issues amounted to $1.8
billion, a heavy volume. Despite the progressively higher yields
on these new offerings, investor demand remained rather sluggish. On February 28 the average yield on Moody's Aaa-rated
tax-exempt issues stood at 3.02 per cent, 8 basis points above
the December 31 level.

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ANNUAL REPORT OF BOARD OF GOVERNORS

Corporate bond prices reacted relatively mildly to the factors
affecting the other sectors of the capital market. Quotations
moved irregularly, but a generally firm tone was maintained
throughout the January-February period. New public offerings
were not large—a total of $600 million—and were largely digested by the close of February, although initial receptions were
mixed. There were also private placements of about $530 million
in this period. At the end of February, the average yield on
Moody's Aaa-rated corporate issues was 4.19 per cent, compared
with 4.22 at the end of 1962.
March through mid-May: Seasonal reserve expansion. Within the
framework of the somewhat firmer money market conditions
achieved earlier, the Federal Reserve turned in March to meeting seasonal reserve needs. During the interval from March to
mid-May it provided almost $800 million of reserves net to
member banks. Reserve availability remained such that the market mechanism readily accommodated the very large flows of
funds and securities associated with the mid-March Federal income tax date for corporations and the April 1 Cook County
(Illinois) personal property tax date, as well as the flows generated by the several Treasury financing operations during that
period. Federal funds typically traded at the 3 per cent discount
rate. Member bank borrowings were about $140 million on the
average during the period, about the same as in the opening
months of the year. There were only brief intervals of more comfortable money market conditions, mainly around the end of
country bank reserve-computation periods.
Continuing concern over the level of short-term rates, for balance of payments reasons, required careful execution of the Federal Reserve's operations to supply reserves. Treasury bill rates
were subject to recurrent downward pressures following the
$5.8 billion reduction in the supply of Government securities
maturing in less than 1 year that resulted from the Treasury advance refunding operation in February and March. The Federal Reserve's general approach to operations, as on other occasions, was to minimize market purchases of Treasury bills and

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FEDERAL RESERVE SYSTEM

to achieve the maximum rate impact from bill sales during
periods when market factors were temporarily adding to reserve
availability.
As shown in the table on page 130, the Federal Reserve made,
and terminated during the period, about $2 billion of repurchase
agreements either to meet short-term reserve needs or to meet
somewhat longer-run needs on a temporary basis on occasions
when outright purchases might have had a particularly adverse
impact on rates.
At the same time, the expanded supply of coupon issues available in the wake of the Treasury's advance refunding enabled
the Federal Reserve to meet a substantial portion of member
banks' reserve needs through purchases of $494 million of these
securities from March to mid-May. Gross market purchases of
$971 million of Treasury bills were partly offset by sales and redemptions, and outright holdings of bills rose $343 million
net. Bill purchases in the key 3-month maturity area were minimized, however, and the Account Management often executed
purchases unobtrustively by responding to unsolicited offerings
by dealers—instead of using the "go-around" technique in which
it openly solicits simultaneous offerings from all dealers.
Treasury bill rates moved within a narrow range in this interval despite periods of strong demand. Downward rate pressures were offset not only by the use of the technical operating
devices indicated above, but also, and more importantly, by
debt management actions that partly offset the reduction in
supplies of short-term issues produced by the advance refunding. The Treasury added $100 million to the regular weekly
auctions of 6-month bills for 8 consecutive weeks beginning
March 25; it sold $1.5 billion of June tax anticipation bills in
March; and it raised $500 million of new money in the 1-year
bill auction on April 15. The 3-month bill rate ranged from a
low of 2.86 per cent to a high of 2.92 over the 2Vi months, and
closed at 2.90 on May 15, unchanged from February 28. The
6-month bill rate, reflecting the additions to supply, rose 5 basis
points to 2.99 per cent by May 15. As a result there was a slight

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ANNUAL REPORT OF BOARD OF GOVERNORS

widening of the unusually narrow spread between the two maturities that had prevailed earlier.
Heavy downward pressures on bill rates developed at the
start of the period, in early March, at a time when the Federal
Reserve found it necessary to supply large amounts of reserves.
The downward pressures on rates reflected in part the reduction
in the supply of short-term securities as a result of the advance
refunding, and in part a persistent demand, including stockpiling of bills by Chicago banks in preparation for the April 1
Cook County tax date. The Federal Reserve's need to provide
reserves, and to do so with a minimum downward impact on
rates, thus posed difficult problems. Since the books on the
Treasury's advance refunding operation were to remain open
for individual investors until March 8, it was desirable to avoid
purchases of coupon issues as a means of supplying reserves.
Moreover, the size of dealer financing needs made it feasible to
meet only a modest portion of reserve needs through repurchase
agreements. Nevertheless, after making use of repurchase agreements where possible, and after buying bills from foreign accounts, the Federal Reserve was able to meet the balance of
reserve needs through gradual and unobtrusive bill purchases in
the market that had little impact on rates. Such bill purchases
amounted to $114 million over the 2 weeks ended March 13.
The Federal Reserve reversed direction around mid-March
and sold or redeemed more than $200 million of bills to counteract slightly easier tendencies that emerged in the money market
after the March 15 tax date. Reserves shifted to the: money centers at that time as dealer borrowing contracted after settlement
for issues offered in the advance refunding, and money flowed
to city banks with the approach of the country banks' settlement
date on March 20, augmenting the accumulation of temporary
deposits of corporate tax payments in money market banks.
Meanwhile, the 3-month Treasury bill rate moved to 2.86 per
cent in early March (equal to the year's low of January 3) before edging up with the approach of the March dividend and tax
dates. Dealers' holdings rose as they bought bills being offered

138

FEDERAL RESERVE SYSTEM

by corporations and as they absorbed a large share of the $1.5
billion of new June tax anticipation bills auctioned by the Treasury without tax- and loan-account credit on March 14. The 3month bill closed on March 15 at 2.88 per cent.
In late March and early April, reserve needs were inflated
as the combination of a sharp decline in float and an unusually
large currency outflow drained funds from the banking system.
In addition, preparations for both the March 31 quarterly bankstatement publishing date and the April 1 Cook County tax
date placed demands on the money market. Federal Reserve
efforts to increase reserves through repurchase agreements were
largely unsuccessful as dealers found sufficient demand for securities in their portfolios and sufficient availability of alternative
financing sources to permit them to make sizable withdrawals
before maturity of existing agreements. Indeed, although the
System Account Management made $304 million of new agreements with dealers during the week ending April 3, these were
more than offset by terminations in that week. And while $142
million of reserves were provided through purchases of coupon
securities, further activity in these issues was limited by the approach of the second long-term bond auction on April 9.
The Federal Reserve also supplied some reserves by purchasing $59 million of Treasury bills from foreign accounts. However, the reserve needs still remaining were such that it was necessary to purchase $358 million of bills directly in the market. A
plentiful supply of short-term Treasury bills, which had returned
to the market following the March 15 tax date, and again around
the month-end, permitted the Federal Reserve to concentrate
its buying operations in short bills, thus minimizing the rate impact in the 3-month area. This rate impact was also minimized
by the acceptance of unsolicited dealer offerings of blocks of
bills, and the Federal Reserve conducted only one "go-around"
of the entire market during the period.
Toward the end of the April 3 statement week an easier money
market tone emerged, reflecting some overpreparation by money
center banks for the quarterly statement date, the completion

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ANNUAL REPORT OF BOARD OF GOVERNORS

of operations in connection with the Cook Count)' tax date,
and the customary biweekly flow of funds to money centers
at the end of country bank reserve computation periods. The effective Federal funds rate dropped to XVi per cent on Wednesday, April 3, but no overt action was taken to absorb reserves
since the accumulation appeared to be only temporary. The
Federal funds rate returned to 3 per cent early in the next statement week.
Meanwhile, Treasury bill rates fluctuated within a narrow
range (2.90 to 2.92 per cent for the 3-month issue) in late March
and early April, despite strong investor demand, particularly by
State and local government funds. The downward rate impact of
the Federal Reserve's purchases was limited by the use of the
kinds of devices indicated above. Moreover, the Treasury's action
in increasing the size of both the weekly and the quarterly bill offerings tended to shore up bill rates. Intensified pressures toward
lower rates developed in the second half of April, when the impact of persistent demand was augmented by the prospect of
further investor buying associated with the May 15 refunding.
However, Federal Reserve sales and redemptions of more than
$600 million of short-term securities in the 3 weeks ended April
24, together with further increases in the size of the Treasury's
weekly bill offerings, largely offset these downward rate pressures. On April 24, rates on 3-month bills were 2.89 per cent and
on 6-month bills were 2.99.
Following the rather heavy sales made through April 24, the
Federal Reserve turned in late April to offsetting the month-end
reserve drains. As May 1 (the end of a statement week) approached, market factors began to absorb funds considerably
more rapidly than had been expected, producing increased firmness in the money market. This, coupled with the outlook for
a further contraction in the reserve base in the next statement
week (ending May 8), required the System Account Management to accelerate its program of supplying reserves. The result
was the most substantial operations of the year to date—the
provision of $857 million of reserves in the week ended May 1.

140

FEDERAL RESERVE SYSTEM

With the Treasury bill market still sensitive to downward rate
pressure, the Federal Reserve would have preferred not to buy
bills in the market, but to use other means of supplying reserves;
as on some earlier occasions, however, the opportunities to do so
were somewhat limited. Because the Treasury's May refunding
operation was in process, purchases of coupon securities were
avoided, lest an undue influence be exerted on the financing. A
total of $116 million of bills were purchased from foreign accounts, but this was much less than the aggregate reserve need.
It was possible to make more than $520 million of new repurchase agreements with nonbank dealers, but there were substantial
early withdrawals of such agreements. This left sizable reserve
needs to be met through market purchases of Treasury bills. At
first the Federal Reserve executed these bill purchases quite unobtrusively, by responding to unsolicited offerings; but as the
withdrawal of repurchase agreements accelerated in the face
of a continuing large reserve need, the Federal Reserve solicited
offerings of bills in a market "go-around." Over the May 1 week
as a whole, the total amount of bills bought in the market was
$390 million. On May 1 the rate on 3-month bills closed at 2.90
per cent, while the 6-month issue was quoted at 2.99.
Treasury bill rates held steady despite the substantial Federal
Reserve purchases. Awards of new bills to dealers had been
particularly heavy in the auction on April 29. With the increase
in dealer portfolios that resulted from these heavy awards and
from dealer acquisitions of securities during the Treasury's May
refunding operation, a cautious atmosphere emerged in the market. The caution in the bill market also reflected an increase in
the cost of carrying dealer portfolios that accompanied the firmer
money market produced as reserves shifted away from the money
centers. (Sizable calls by the Treasury on its balances at major
commercial banks, reversing earlier redeposits, accelerated the
shift.) In addition, such reserve needs as appeared in the first
half of May were met outside the bill market. Coupon issues
amounting to $123 million were purchased, and new repurchase
agreements totaling $105 million were used to deal with pres-

141

ANNUAL REPORT OF BOARD OF GOVERNORS

sures that emerged on the May 15 settlement date for the Treasury financing. Finally, at times during the May 2-15 period the
Federal Reserve had opportunities to withdraw reserves. It sold
about $40 million of bills in the week ended May 15, and the
3- and 6-month bills closed at bid quotations of 2.90 and 2.99
per cent respectively.
In the capital markets, prices moved generally lower during
the period from March through mid-May, after a brief showing
of strength at the start of the period. In the market for Treasury
notes and bonds, prices improved in the wake of the successful
advance refunding, and this strength persisted through the first
week in March in response to a continuing interest in the new
bonds. Furthermore, there was good demand for outstanding
issues, and offerings that appeared on swaps against the new
bonds were readily absorbed. This atmosphere soon disappeared,
however, and after early March a lower price trend emerged.
This trend was partly an aftermath of the advance refunding,
which swelled the available market supply of securities. More
fundamentally, however, it reflected a shift in market psychology
regarding the interest rate outlook—a shift that was rooted in the
favorable performance of the economy, the unfavorable trend in
the balance of payments, and an expanding volume of new corporate and municipal security offerings.
The technical condition of the market was particularly vulnerable just after the advance refunding. Substantial portfolio
adjustments, accomplished by means of the refunding, tended
to reduce subsequent buying activity, with the result that demand was limited by this factor as well as by the above-noted
change in interest rate expectations. Offerings from short-term
holders of the issues sold in the refunding, together with offerings by dealers out of their substantial underwriting positions,
could be redistributed only at gradually declining prices. Modest
private investment demand for long-term Treasury issues during March was augmented by purchases for Treasury investment
accounts and for the Federal Reserve. This buying was under-

142

FEDERAL RESERVE SYSTEM
taken at declining prices, and by early April prices were % to 1
point below those of a month earlier.
Market atmosphere was still hesitant as the date (April 9)
approached for the Treasury's second offering of long-term bonds
by competitive bidding. In view of the shift in outlook, underwriting bids were less aggressive than in January. The winning
bid for the $300 million of 4Vs per cent bonds of 1989-94 set
a net interest cost to the Treasury of 4.093 per cent, about 8
basis points above the January auction, and the reoffering of
the new bonds at 100% (4.082 per cent) attracted only a
limited investor response. About 40 per cent of the issue was
distributed the first day—in contrast to the rapid sell-out of the
bonds awarded in January—and sizable amounts of bonds remained unsold when the syndicate was terminated on April 25.
The market for Treasury notes and bonds recovered somewhat by late April, and the steadier tone that emerged was maintained when the Treasury announced on April 24 that it would
confine its May refunding to the short-maturity area. Holders
of $9.5 billion of maturing issues were given the option of exchanging them either for a 3V4 per cent certificate or for additional 35/s per cent notes of February 1966. The operation had
little impact on the market in terms either of price movements
or of trading activity. The results were highly successful, with
more than 90 per cent of the public holdings of the maturing
issues being exchanged—$2.4 billion for the 3*4 per cent certificate and $3.2 billion for the 3 % per cent note. The Federal
Reserve exchanged its $3.3 billion of May maturities for the
VA per cent certificate.
With the refunding completed, the market looked forward
to a respite from the rather steady succession of Treasury financing operations since the start of the year. Confidence in current rate levels for the near term was bolstered by the reduction
in the Canadian bank rate on May 7, and renewed demand
brought the recently issued 4V6 per cent bonds of 1989-94 almost
back to the original reoffering level by May 15. The average
yield on long-term Treasury bonds, which had risen to 3.99 per

143

ANNUAL REPORT OF BOARD OF GOVERNORS

cent in mid-April, stood at 3.96 on May 15, only 2 basis points
above the level at the beginning of March.
The markets for corporate and municipal obligations followed
much the same pattern as the Treasury market during the period:
an early firm tone gave way to weakness that prevailed through
late April, after which prices steadied and then moved narrowly. Moody's index of Aaa-rated corporate bonds rose 2 basis
points from February 28 to 4.21 per cent on May 15, roughly
equaling the level at the end of 1962, while the index of Aaarated tax-exempt bonds declined 5 basis points to 2.97 per cent
over the period.
Mid-May through July: Policy shift toward less ease. After settlement for the Treasury's refinancing operation on May 15, Federal Reserve operations turned to achieving and maintaining a
slightly greater degree of firmness in the money market. This
shift toward somewhat less monetary ease—the third within a
year—followed the decision of the Federal Open Market Committee at its May 7 meeting to put increased emphasis on money
market conditions that would contribute to an improvement in
the capital account of the U.S. balance of payments. In line with
the emphasis on raising short-term interest rates, the discount
rate of the Federal Reserve Banks was increased to 7>Vi per cent,
seven banks making the change on July 17 and the others following in the next 9 days. At the same time, in order to maintain
and encourage the improvement in business conditions, the Federal Reserve continued to accommodate moderate growth in
bank credit; in the period from May 16 through July 31 it provided $1.2 billion of reserves net.
In pursuit of the above objectives, a substantial volume of
activity was undertaken. The Federal Reserve made almost $2
billion of new repurchase agreements, purchased about $320
million of coupon issues, and bought, sold, or redeemed more
than $4.3 billion of Treasury bills outright. Operations in bills
resulted in a net addition of more than $800 million to the Federal Reserve's holdings. During the same period the 3-month bill

144

FEDERAL RESERVE SYSTEM
FREE RESERVES decline, borrowings up in 1963
Millions of dollars
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Weekly averages of daily figures except for Treasury bills, which is average
issuing rate.

rate rose from 2.90 to 3.27 per cent in response to the May shift
in open market policy and the July change in the discount rate.
The change in open market policy was also clearly reflected by
the various indicators of reserve availability. Free reserves averaged around $170 million from mid-May through July, compared
with $310 million during the first 4Vi months of the year; and
except for a brief time in mid-July following the discount rate

145

ANNUAL REPORT OF BOARD OF GOVERNORS

change, the Federal funds rate held at the discount rate. An increased margin of unsatisfied demand for Federal funds was reflected in a rise in average borrowing from the Federal Reserve
Banks to about $275 million from $140 million during the earlier
part of the year.
The Federal Reserve's operations during the first few weeks of
the period were complicated by a stubborn tendency for reserves
to fall short of expectations, at times by a considerable margin.
While sizable "misses" in projections are not unusual, the errors
are rarely so consistently in one direction as they were in this
interval. Given the unreliability of current reserve estimates, the
System Account Management was guided to a considerable extent by the tone and feel of the market in implementing the May
policy shift. The tone and feel were consistently firmer than one
would have expected on the basis of the reserve estimates. This
disparity counseled a rather restrained approach to reserve absorption in the opening weeks of the period and a somewhat aggressive provision of funds thereafter. Even so, average free
reserves turned out to be considerably below expectations in the
statement weeks ended May 8, 15, and 22.
The lower levels of free reserves underscored the slight shift
in Federal Reserve policy. Coming on the heels of good business
news and poor reports on the balance of payments, and emphasized by Federal Reserve sales of Treasury bills in the market
on May 17 and 20, the low reserve levels helped to make it clear
to the market that policy was changing. By late May most market
participants and observers were convinced that a shift had taken
place. Accordingly, the main task after May 22 was to allow the
firmer money market conditions already achieved to produce a
slightly higher level of short-term rates than existed before May
15, while at the same time avoiding any stringency in the market.
A substantial volume of operations was required to offset lateMay reserve drains, which were accentuated by the currency outflow associated with the Memorial Day holiday. Hence, in the
period from May 28 to June 5, the Federal Reserve provided
about $630 million of reserves to the banking system. Purchases

146

FEDERAL RESERVE SYSTEM

of coupon securities by the Federal Reserve were limited, since
the need to stay within the public debt limit was forcing Treasury
trust-fund cash accumulation into already outstanding marketable issues rather than into newly created issues. Some use was
made of repurchase agreements, but the bulk ($515 million) of
the reserve need was met through outright purchases of Treasury
bills in the market. So far as possible, the Federal Reserve bought
the shortest maturities, and it operated unobtrusively by accepting unsolicited offerings; full market "go-arounds" were conducted on only two days. The rate impact of the Federal Reserve's
purchases was limited not only by the use of such techniques,
but also by the growing general awareness of the policy shift,
by a renewed gold outflow, and by the firmer money market
conditions that had developed, which had increased dealers'
financing costs. The 3-month bill rate, in fact, reached 3.03 per
cent in the weekly auction on June 3, despite the heavy buying
by the System Account Management.
The Federal Reserve alternately absorbed and supplied reserves in response to changes in market factors during the midJune dividend and tax-date period in order to preserve a consistently firm tone in the money market. On June 10 and June 17,
the respective dividend and tax dates, it made repurchase agreements to facilitate the heavy flows of funds through the money
market. The market mechanism worked so smoothly that member bank borrowing rose only slightly around the tax date, even
though the usual money flows on that date were augmented by
payment for $735 million of bonds sold by the Federal home loan
banks. Moreover, demand for Treasury bills expanded at the
higher rate levels that had emerged, and the inflow of bills to
the market during the tax-date period was absorbed without any
significant further increase in rates.
On the June 17 tax date, the Federal Reserve re-entered the
market as a substantial provider of funds. From mid-June
through early July member banks' reserve needs expanded
sharply, first because of enlarged required reserves against taxdate borrowing and commercial bank payment for the new 4

147

ANNUAL REPORT OF BOARD OF GOVERNORS

per cent Treasury bonds of 1970, and then because of the needs
for reserves around the month-end and the July 4 holiday. From
June 17 to July 5 the Federal Reserve supplied a net total of
$1.5 billion of reserves, including $1.1 billion in the statement
week ended July 3. The System, still concerned with the level
of bill rates, once again sought to minimize its market purchases
of Treasury bills. Thus it bought $285 million of coupon issues
between June 17 and July 5, made more than $1 billion of new
repurchase agreements (of which $377 million were still outstanding on July 5), and bought $300 million of bills directly
from foreign accounts. Sizable needs remained, however, and
in meeting these needs the Federal Reserve bought more than
$670 million of bills in the market—again employing techniques
aimed at minimizing the rate impact of such large purchases.
Treasury bill rates did not decline during the period of heavy
Federal Reserve purchases. Commercial bank selling partly
offset that buying, and some nonbank buying as well. Moreover,
dealers had to finance a sizable portion of their large needs by
borrowing at New York City banks at relatively high rates, and
this discouraged any reduction in bill rates. Furthermore, shortly
after the Federal Reserve had completed its heavy buying program, bill rates began to rise sharply as expectations of an increase in the discount rate developed and were reinforced by
further gold outflows and by official statements indicating that
higher short-term rates would aid the balance of payments.
Contributing further to the cautious tone that had so quickly
developed in the bill market, the published level of average free
reserves dipped below $100 million for the week ended July 3.
This reflected in considerable measure the carrying forward into
that week of a substantial downward revision ($69 million)
of the previous week's free reserve figure. In the following week,
the Federal Reserve sold bills to recapture reserves released by
the postholiday reflux of currency. Against this general background, as well as a widely noted prediction of imminent discount rate action contained in a bond market advisory letter
on July 8, the average issuing rate for the 91-day bill rose sharply

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to 3.16 per cent on that day, 15 basis points above the previous
week. The quarterly sale of $2 billion of 1-year bills on the next
day resulted in an average rate of 3.582 per cent, 52 basis points
higher than in the April auction of $2.5 billion of similar bills.
By July 11 the 3-month rate had climbed further to 3.24 per
cent bid, following testimony before a congressional committee
by the Secretary of the Treasury, which was also regarded as
pointing to a discount rate boost.
The announcement on July 16 of an increase in the discount
rate at seven Federal Reserve Banks came as little surprise to
the market. A mild initial upward adjustment in money market
rates was soon reversed as an expanded demand at the higher
rate levels converged on the market and encountered dealer inventories that had been reduced from the levels of late June.
Scarcities of particular bill issues developed, especially of short
issues; unsatisfied demand for these issues spilled over to longer
bills and exerted downward pressure on rates throughout the
bill list. These downward pressures were reinforced by the
emergence of significantly easier money market conditions in
the few days following the discount rate rise. Thus, while the
3-month bill rate moved up to 3.24 per cent on July 17, the day
after the change in the discount rate was announced, it moved
lower thereafter and reached 3.18 per cent 3 days later. Rates
moved upward over the balance of July, with the 3-month issue
closing on July 31 at 3.27 per cent bid, up 37 basis points from
mid-May. The 6-month rate rose to 3.40 per cent bid by July 31.
The particular timing of the discount rate increases by the
various Federal Reserve Banks posed some complications for
Federal Reserve open market operations in the period immediately before the change and extending through July 24. In
the first place, anticipations of the rate increase by both dealers
and commercial banks resulted in a substantial shift in reserves
toward the money centers as dealers' inventories, and hence
their borrowings at money-center banks, contracted. Moreover, many banks, particularly those in the money centers,
lightened their holdings of short-term securities and issued more

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certificates of deposit following the increase in Regulation Q
ceilings to 4 per cent on deposits of 90 days and over (announced at the same time as the discount rate increase). In addition, an unusual accumulation of reserves by country banks
in the statement week ended July 17, and large pre-week-end borrowings on July 18 and 19 in those Federal Reserve districts
where the discount rate was still 3 per cent, created a supply of
excess reserves that flooded the market during the week ended
July 24. As indicated earlier, the money market turned sharply
easier in response to these factors. The effective Federal funds
rate dropped from VA per cent on Friday, July 18, to 3 4 per
cent by Wednesday, July 24, even though the average level of
free reserves was relatively low at $159 million.
The Federal Reserve, meanwhile, had been engaged since
July 8 in withdrawing reserves that had been supplied to the
market by the reflux of currency after the July 4 holiday and by
the mid-July expansion in float. By July 18 it had absorbed more
than $1 billion of reserves through sales and redemptions of
$842 million of Treasury bills and terminations of substantial
amounts of repurchase agreements. The reserve outlook with
which the System Account Management was working at the time
the money market turned easy (July 18-24) indicated that
rather large open market purchases would be needed in the statement week ending July 31. This confronted the System Account
Management with a dilemma: If it made further large sales in
order to bring about a firming of market conditions, it would
soon afterward have to buy back the securities it had sold, and
the purchase of these securities would put downward pressure
on the bill rate; on the other hand, if it took no action to firm
up the market, the bill rate would continue to move lower—an
anomalous situation in the wake of a discount rate increase designed to raise bill rates. Under these circumstances, it was decided to refrain from additional sales and to ride through the
week or so of ease in the expectation that the market would turn
firm when the reserve needs that loomed ahead began to make
themselves felt.

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As expected, a firmer tone returned to the money market in
late July, with the Federal funds rate moving to and holding
at ZVi per cent. Temporary reserve excesses disappeared after
the reserve settlement date for country banks on July 24; and
with market factors draining reserves, the Federal Reserve supplied over $700 million of reserves in the week ended July 31.
However, in supplying these funds, the Federal Reserve did not
attempt to anticipate reserve needs, but rather sought to stay
one step behind the reflection of those needs in the market in
order to avoid any reversion to the easy conditions that had
existed in the previous week. This approach—in which reserve
needs were met, but on a slightly delayed basis—minimized the
impact of operations on short-term rates. This was a particularly
useful result since the Treasury's August refunding made it desirable to avoid the purchase of coupon issues and since only
$166 million of new repurchase agreements could be made. The
needed reserves were thus supplied largely through outright purchases of bills, considerable amounts of which, however, were
acquired from foreign accounts.
Meanwhile, the capital markets reacted only mildly to the
shift in Federal Reserve policy. Long-term Treasury bond yields
rose from 3.96 per cent on May 15 to a peak of 4.03 in early
July, but the market subsequently recovered and by July 31 the
average yield on long-term bonds was back to 3.99 per cent. At
no time did any significant deterioration in market psychology
occur, and selling of bonds by investors was generally limited.
A cautious atmosphere had emerged in the market for Treasury notes and bonds around mid-May, and prices moved lower
for several weeks as market awareness of the Federal Reserve
policy shift was crystalized by a stream of reports and statements
indicating more favorable business news on the one hand and
further balance of payments deficits and associated gold outflows on the other. Some outright selling and maturity-shortening
swaps appeared during this period, but the selling was not heavy,
and price declines were moderated by some private investment

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demand and by the already mentioned purchases for the Treasury trust accounts undertaken because of the debt limit problem.
Although the underlying bond market atmosphere was still
cautious, the change in rate expectations that was generated by
the May shift in policy and by the factors that induced the
shift appeared to have about run its course by early June. At that
time the Treasury announced a cash offering of about %\XA billion of 4 per cent bonds of 1970. Initially the market's reaction
to the offering was favorable, and it became increasingly enthusiastic as the subscription date (June 11) approached. The fact
that commercial banks were permitted to make payment by
credits to tax and loan accounts made the offering particularly
attractive to them, while the Treasury's announcement that subscriptions up to $100,000 would be alloted in full also attracted
considerable interest. The new bonds thus elicited an extraordinary response as expectations of small allotments induced subscribers to pad their subscriptions liberally.
On June 14 the Treasury announced that an overwhelming
$16.5 billion of subscriptions had been received and that it
would allot 5 per cent on subscriptions of more than $100,000,
thus raising to $1.9 billion the total amount to be issued. The
number of subscriptions on which it was necessary to make full
allotments (subscriptions of $100,000 or less) was so large that
these allotments amounted to $1.4 billion—more than the total
amount initially offered. Had the size of the issue not been increased, many needs would not have been satisfied.
The entire market strengthened with the extraordinarily favorable response to the Treasury offering, and although sizable
amounts of the new bonds soon appeared in the market, these
were readily absorbed by a broad demand, both outright and
on swaps out of 1968-70 maturities. Prices moved narrowly
over the balance of June, with the new 4 per cent bonds closing
at a premium of *%2 over the offering price.
In contrast to the strong reaction in the short-term market, the
long-term market experienced only a mild and brief reaction to
the expectations in early July concerning the discount rate. When

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the change was actually announced on July 16 it had relatively
little impact on longer maturities. The technical position of the
market was favorable, for dealers had lightened their own inventories considerably in May and early June, and selling by investors had been limited. More generally, the reaction of investors and dealers alike appeared to hinge on the widespread
feeling that official action was aimed primarily at short-term
rates for balance of payments reasons and was designed not to
impede domestic expansion.
Various official statements tended to support this view; and the
President's request for a tax on foreign securities sold in the
United States was thought to promise an easing of the burden
placed on monetary policy by the deficit in the balance of payments. Accordingly, the market for Treasury issues recovered
after mid-July, with additional encouragement stemming from
the Treasury's confinement of its August refunding to the shortterm area, and from the reinvestment in intermediate-term Treasury issues of the proceeds of a large tax-exempt bond offering.
The Treasury's offering of a 3% per cent 15-month note to
holders of $6.6 billion of August 15 maturities was well received. The public's holdings of this maturity were small—$2.5
billion—and the proportion converted was more than 90 per
cent. The Federal Reserve turned in its $4.1 billion holdings of
rights for the new note. The new 3 % per cent note rose to
100% 2 bid in "when issued" trading, while other outstanding
issues continued to edge higher, offsetting in good part the losses
sustained early in July.
The markets for corporate and municipal obligations moved
more or less parallel with the market for Treasury obligations
during June and July. Price declines, however, were more pronounced in the tax-exempt sector, where dealers cut prices
sharply in an effort to reduce inventories in the face of a continued heavy volume of new offerings. Over the 2-month period
$1.8 billion of new issues were brought to the market, about $500
million more than in the same period in 1962. Despite an increase in investment buying, prices moved lower through early

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ANNUAL REPORT OF BOARD OF GOVEB NORS

July before recovering later in the month. The July 16 announcement of an increase in Regulation Q ceilings, which was expected
to generate an increased inflow of time deposits and hence additional demand by commercial banks for municipal securities,
contributed to the recovery of that market. Average yields on
Moody's Aaa-rated tax-exempt bonds rose to 3.11 per cent in
early July and closed at 3.08 on July 31, up 8 basis points from
the end of May.
A seasonally light calendar of new issues in the corporate
bond market enabled dealers to reduce inventories in June and
early July as prices edged lower, and this market also recovered
in late July. About half of the $1.8 billion of new issues were
publicly offered. Average yields on Moody's Aaa-rated corporate
bonds rose 6 basis points from May 31 to 4.29 per cent on
July 31.
August through late October: A further shift toward less ease.

As evidence of deterioration in the nation's balance of payments
position accumulated and domestic economic conditions improved, the Federal Open Market Committee on July 30 instructed the System Account Management to edge further toward
firmness in the money market, reinforcing the discount rate rise.
Balance of payments considerations were particularly important
in motivating the shift, and operations were directed at augmenting the effect of the discount rate increase in producing a
higher level of short-term rates. At the same time the policy
directive continued to call for "accommodating moderate expansion in aggregate reserves" to support further domestic economic
expansion.
In accordance with these basic objectives, and to produce the
desired degree of firmness in the money market, Federal Reserve
operations reduced member banks' free reserves somewhat at
the start of August. The money market then remained consistently firm through late October, with reserves alternately supplied and withdrawn in response to seasonal movements in market factors. In all, Federal Reserve operations withdrew $195

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FEDERAL RESERVE SYSTEM
million of reserves net from August 1 through October 23. Gross
transactions in Treasury bills were again sizable, aggregating
about $2.5 billion. In working toward short-term rate objectives
the Federal Reserve sold or redeemed a net of $475 million of
Treasury bills, but at the same time it provided $424 million of
reserves through net purchases of coupon issues. It also used the
repurchase mechanism extensively to meet temporary needs or
to adjust the timing of outright operations to market conditions.
Such agreements withdrew $144 million of reserves on balance,
but about $1.6 billion of new contracts were made during the
period.
The gradual firming in the money market as a result of the
Federal Reserve's policy shift of July 30 was reflected in a decline in average free reserves to about $100 million and an increase in average borrowings from the Federal Reserve to about
$325 million in the period from August to late October. The
Federal funds rate generally held at the 3V^ per cent discount
rate. The occasional dips from that level reflected mainly the precautionary build-up of excess reserves through pre-week-end borrowings. These temporary easings were most notable following
the September 15 tax date and again in early October. Treasury
bill rates rose gradually in response to the firmer money market
conditions and the impact of additional Treasury financing in
the bill area. The 3-month bill rate reached 3.49 per cent by
October 17, an increase of almost 30 basis points from the
August 2 level.
The achievement of slightly higher short-term rates was complicated at the start of August by a strong and broadly based
demand for bills, including large-scale corporate buying. With
reserve distribution still tending to favor banks in the money
centers, funds moved into the bill market from that source also.
These demands pressed on a relatively light supply of bills in
dealers' hands, and rates moved lower. The System Account Management at this time faced the prospect of supplying reserves to
the banking system to offset drains from market factors, particularly the late-July decline in float. Once again the Manage-

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ANNUAL REPORT OF BOARD OF GOVERNORS

ment resorted to the technique of supplying reserves on a slightly
delayed basis, waiting until reserve needs had clearly emerged
and were exerting some pressure on the market. In providing
reserves it made extensive use of coupon issues, $193 million of
which were purchased from August 1 to 8. On one occasion
during this period, the System Account Management undertook
swap operations, selling Treasury bills to foreign accounts to
keep this buying out of the market, and offsetting the reserve
effect of these sales by purchasing coupon issues in the market.
The desired firming in bank reserve positions was accomplished fairly quickly, partly because reserves shifted away
from the money centers after the first few days of August.
Indeed, accumulated reserve deficiencies culminated in a sharp
increase in borrowings from the Federal Reserve Banks. Such
borrowings amounted to more than $1 billion on August 7. Demand for bills from nonbank sources tapered off, and commercial
bank selling of bills, coupled with sales by the Federal Reserve
to offset the mid-August expansion in float, reversed the direction of bill rates and increased dealers' positions. Market psychology was also affected at the time by widespread discussion
of a possible official desire for higher rates following the report
that the second-quarter balance of payments deficit had risen
to a seasonally adjusted annual rate of about $5 billion. The
3-month bill rate moved from a low of 3.20 per cent on August 2 to 3.37 on August 21, when the market's expectations of
a new short-term cash offering were confirmed by the Treasury's
announcement that $1 billion of 1-year bills would be auctioned
on August 27. This was the first of a new monthly series of 1year bills to replace the quarterly series of such bills.
With the end of August approaching, the System Account
Management faced the problem of meeting reserve drains associated with the decline in float late in the month and the preLabor Day currency outflow, and of doing so without reversing
the recent progress that had been made in raising the bill rate.
The Federal Reserve relied heavily on repurchase agreements
and purchases of coupon issues in meeting these reserve needs. It

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FEDERAL RESERVE SYSTEM

also purchased about $247 million of Treasury bills in the market, chiefly short maturities that became available as corporate
repurchase agreements with dealers matured. Treasury bill rates
moved down for a brief period in early September, partly as a
reflection of Federal Reserve buying and partly as a result of
demand growing out of an advance refunding operation that the
Treasury undertook early in that month. This drop in bill rates
was soon reversed, however, as the mid-September dividend and
tax dates approached.
Operations during mid-September were geared mainly to
accommodating large shifts of money and securities associated
with the tax and dividend payment dates and with the Treasury's
advance refunding. Projections of reserves were frequently wide
of the mark, and the Federal Reserve continued to be guided by
the tone and feel of the market. In carrying out its operations, it
attempted to maintain the consistently firm market conditions
that were desired by the Federal Open Market Committee, while
permitting net reserve availability to rise when reserve needs were
at their peak and then to move down as those needs receded.
Over the 2 weeks ended September 25 Federal Reserve operations at times supplied and at times withdrew reserves and for
the period resulted in a net withdrawal of $416 million.
In late September and early October, reserve needs were enlarged by an unusually rapid decline in float. To meet these needs
the Federal Reserve provided over $1 billion of reserves from
September 26 through October 7. The impact of these operations
on short-term rates was minimized by the purchase of $103 million of coupon issues, the increase of repurchase agreements outstanding by $554 million, and the purchase of $125 million of
bills that were available from foreign accounts. The remaining
need was filled through market purchases of $283 million of
short-term bills, which were readily available in the market.
From October 8 to October 23, the Federal Reserve was concerned with offsetting the midmonth bulge in reserve availability
in a period when market expectations were undergoing a marked
shift in the direction of higher rates. During this period it ab-

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sorbed about $900 million of reserves. However, such operations
were undertaken cautiously in view both of the heavy tone prevailing in the securities market and of the tendency for reserves to
fall short of the estimates. Initially, the Federal Reserve absorbed
reserves through the termination of repurchase agreements aggregating $554 million; later, as market factors expanded reserves
further, holdings of Treasury bills were reduced by $346 million.
Redemptions accounted for most of this decline; only $98 million
of Treasury bills were sold directly to the market.
Meanwhile, the rate on 3-month Treasury bills fluctuated
around the 3.40 per cent level from mid-September to the end of
that month. In early October the rate began to climb once more
in response to expectations of further additions to the supply of
bills that the market would be called on to distribute. These expectations were partially confirmed by the Treasury's auction of
$2 billion of March tax anticipation bills on October 9; these
partially replaced $2.5 billion of 1-year bills that matured October 15. In the uncertain atmosphere that had developed, investment demand for bills was confined to the shortest maturities.
Meanwhile, market supplies of longer bills were inflated by the
new issue of tax bills as well as by the monthly issue of 1-year
bills sold at the end of September. Under these conditions, the
3-month rate rose to 3.46 per cent by October 16.
On that date, the Treasury announced that it would auction a
"strip" of $1 billion of bills (adding $100 million to each of 10
outstanding issues of bills). This offering was initially interpreted
as indicating an official desire for still higher rates, partly because
the "strip" sale technique had been used in the past to push rates
upward. In response to the new offering, rates on outstanding
bills moved still higher, with the 3-month bills reaching 3.49 per
cent on October 17. Demand was stimulated at the higher rate
levels, however, and under the force of that demand the 3-month
bill rate declined to 3.44 per cent by October 23, while the 6month issue closed that day at 3.61. The relatively wide spread
of 17 basis points between the two issues indicated the weight
of an increased supply in longer maturities.

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FEDERAL RESERVE SYSTEM

In the capital markets, interest rates also edged higher from
August to late October, although the movement was more irregular and smaller than in the short-term area. Activity in the
Government securities sector was dominated by the Treasury's
September advance refunding operation and the subsequent redistribution of dealer holdings to buyers in a weakening market
atmosphere. Yields on high-grade bonds generally rose by about
3 to 8 basis points during the period and reached new high levels
for the year.
Activity in the market for Treasury issues was relatively light
prior to the advance refunding. The firm tone that had developed
in July continued through early August as moderate offerings
of coupon issues were absorbed in part by Federal Reserve
purchases and in part by dealer and investor demand, including
the reinvestment in Treasury issues of the proceeds of a major
tax-exempt issue. Prices moved irregularly over the balance of
August as some uncertainties were created by discussions of the
heavy second-quarter balance of payments deficit and by expectations of an advance refunding.
On September 4 the Treasury announced a massive debt extension operation, combining a pre-refunding and a junior advance refunding. Public holders of almost $20 billion of Government securities maturing from 1964 through 1967 were given
the opportunity to extend maturities at higher rates. Holders
of pre-refunding rights (that is, eligible issues maturing in 1964)
were entitled to exchange them into any of three issues: a 3 %
per cent bond of 1968, a 4 per cent bond of 1973, and the reopened 4Vs per cent bond of 1989-94. Holders of the junior
refunding rights (that is, eligible issues maturing in 1966 and
1967) were entitled to exchange them for the 1973 and 1989-94
maturities.
Despite some surprise at the magnitude of the operation and
at the inclusion of a long-term bond, the market's reception of
the announcement was quite favorable. Long-term bond prices
adjusted lower initially, but a good demand developed for rights
and "when issued" securities, and this gave rise to lively trading

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ANNUAL REPORT OF BOARD OF GOVERNORS

during the subscription period, which extended from September
9 to September 13. The market for outstanding bonds stabilized
at the new price levels, and offerings—which arose mainly on
swaps for the securities being offered by the Treasury—were
readily absorbed by professional short-covering, some Treasury
buying for trust accounts at the lower price levels, and private
investment demand.
The total amount of eligible securities exchanged was $6.5
billion, or 28 per cent of public holdings; exchanges included
$1.6 billion for the 3 % per cent bonds of 1968, $3.7 billion
for the 4 per cent bonds of 1973, and $1.3 billion for the 4x/8 per
cent bonds of 1989-94. The market took the results in stride,
although there was some surprise at the large demand for longterm bonds. The volume of offerings coming into the market remained light, and after some initial hesitation prices edged higher
in response to a good investment and professional demand for
both new and outstanding issues.
Prices fluctuated narrowly over the balance of September and
into early October, when a more cautious atmosphere emerged
throughout the market. Signs of strength in the economy generated uncertainty about long-term interest rates, and the general
upward price movement that had been under way in the Government bond market since mid-September came to a halt. The
cautious atmosphere was heightened by some congestion in the
short-term market, in which the Treasury raised $2.5 billion in
September and October. The brighter business outlook was reflected in a range of economic indicators, including a rise in
stock prices to new high levels; furthermore, scattered price
increases led to discussion of the possible emergence of inflationary tendencies. In this general atmosphere, the somewhat
lower free reserve figures recorded in October, coupled with a
3-month bill rate close to the 3Vi per cent discount rate,
prompted market discussion of a possible further shift in Federal
Reserve policy.
Expanded offerings of the longer-term bonds issued in the
advance refunding came into the market well before dealer

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FEDERAL RESERVE SYSTEM

holdings had been distributed. With investment demand for
other intermediate- and long-term issues quite limited, these offerings could be absorbed only at declining prices. Treasury trust
account purchases at declining prices had the additional effect of
slowing the price decline, but the shift in market psychology and
outlook was such that dealers continued to reduce their inventories, which as noted above had been swollen by sizable holdings
of the advance refunding issues. As in the short-term area, the
market tended to stabilize toward the end of October, but a cautious atmosphere prevailed. On October 23 the Federal Reserve
average of long-term bond yields stood at 4.07 per cent, 8 basis
points above the July 31 level.
Prices of corporate bonds, meanwhile, moved narrowly from
August through October, except for a sharp initial price reaction
when the Treasury's advance refunding offering of 4Vs per cent
bonds was announced. The narrow yield spread between the
offering rate on the new Treasury bonds and rates on outstanding high-grade corporate issues prompted upward yield adjustments of as much as 10 basis points on recently marketed corporate bonds. The improved technical position of the market,
coupled with an expansion in demand and a light calendar of
new offerings in September, permitted a partial recovery. Prices
moved irregularly thereafter, weakening again toward the close
of October. Borrowing through the corporate bond market in
the 3 months totaled $2.5 billion, compared with $2.2 billion in
the same period of 1962. Moody's Aaa corporate bond series
rose 3 basis points from late July to 4.32 per cent on October 31.
Tax-exempt obligations weakened in September as heavy inventories and an expanding calendar of new offerings added to
the price declines in this sector. After a brief period of stability
in early October, prices began to decline again later in the
month as caution and uncertainty dominated all segments of the
capital market. New State and local government offerings during the period aggregated about $2.4 billion, compared with
$1.6 billion in the same period of 1962. Average yields on

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ANNUAL REPORT OF BOARD OF GOVERNORS

Moody's Aaa municipal bonds rose to 3.16 per cent by October
31, an increase of about 8 basis points over the 3 months.
Late October through December: Policy steady, with further economic

expansion. The Federal Reserve's policy posture held steady in
the final months of the year. The economic background was essentially unchanged as domestic business continued to post solid
gains while the balance of payments remained in deficit. There
were some shifts in the relative importance of the background
factors, however. Thus it was becoming evident that the payments
deficit in the third quarter had been much reduced from the
highly unfavorable second-quarter rate, and while the deficit was
still regarded as a serious problem for monetary policy, it now appeared that short-term interest rates in the United States were
in reasonable balance with comparable foreign rates. At the
same time, some concern was cropping up on the domestic side
in regard to potentially inflationary developments and occasional
evidences of deteriorating credit quality. But on balance these
elements indicated no immediate need for a change in policy.
The assassination of President Kennedy in November was a
further consideration in holding policy unchanged over the
balance of the year.
Within the context of the firmer money market conditions
already attained, the Federal Reserve provided about $1.3 billion of reserves net to the banking system from late October
through December to meet the substantial reserve needs associated with the seasonal rise in credit demands. Provision of this
large volume of reserves posed no particular problem from the
standpoint of short-term interest rates, and the System Account
Management was able to reduce substantially its use of various
technical devices to keep bill rates up—devices that it had found
necessary to use rather extensively through the first 9 months
or so of the year.
Indeed, the System Account Management was able to meet
more than $1.1 billion of the seasonal needs for reserves through
net purchases of Treasury bills, with no downward impact on
rates. In fact, bill rates moved to new high levels for the year, and

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FEDERAL RESERVE SYSTEM

concern lest any further rise disturb the balance between domestic and foreign rates prompted the Treasury to reduce the size
of its weekly auctions for 2 weeks in November. The Federal
Reserve also purchased $198 million of coupon issues during
the period and made almost $2 billion of new repurchase agreements to supply temporary reserve needs. It also stepped up its
operations in bankers' acceptances toward the year-end, when
these instruments were in seasonally heavy supply. Outright
Federal Reserve holdings of acceptances reached a peak of $70
million at the end of the year, while holdings of acceptances
under repurchase agreements were at a peak of $96 million near
the year-end.
Federal Reserve operations generally maintained a steadily
firm tone in the money market from late October to the yearend. Free reserves fluctuated fairly widely at times as patterns
of reserve distribution changed, or as significant changes
occurred in the rate at which the economy utilized reserves.
Free reserves averaged about $130 million, and member bank
borrowing from the Federal Reserve Banks held around the
$325 million average level that had been recorded since August.
An active demand for reserves kept the Federal funds rate almost continuously at IV2 per cent. Against this background
of consistently firm conditions, the stresses and strains that so
often converge on the money market in the final month or two
of the year, especially in December, were accommodated without noteworthy market pressures.
From late October through early November, Federal Reserve operations were complicated both by the bearish atmosphere in the securities market and by the substantial money
flows generated by payments for the $1 billion bill "strip" on
October 28 and for $1 billion of 1-year bills- on November 4.
In addition, there was a persistent tendency for reserves to fall
short of day-to-day projections. Subsequent revisions of these
estimates indicated more vigorous growth in required reserves
than was allowed for in the projections of usual seasonal and
growth trends. In these circumstances, and with the money

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ANNUAL REPORT OF BOARD OF GOVERNORS

market under rather continuous pressure, the System Account
Management supplied reserves relatively freely, meeting reserve
drains as they occurred or even at times anticipating them—
in contrast to the practice of supplying funds on a delayed basis
earlier in the year when short-term rates were considerably
more of a problem. The Federal Reserve provided about $1
billion of reserves to the market from October 24 to November
6 through outright purchases of $543 million of Treasury bills
and $123 million of coupon issues, and through a net increase
of $360 million in holdings of Government securities under repurchase agreements.
Such operations were successful not only in heading off heavy
pressures in the money market but also in cushioning the adjustment in securities markets to the change then in process in
the business outlook and in rate expectations. As indicated
earlier, this shift in expectations had already carried the 3month bill rate to 3.49 per cent on October 17, following the
"strip" auction. Then, after a brief technical recovery, the atmosphere deteriorated again, reflecting further development of
the conviction that domestic business was definitely improving
and also an emerging feeling that the Federal Reserve might
respond, or might be responding, by taking a firmer tack in
policy. In the short-term area, moreover, this shift in psychology
occurred almost simultaneously with the succession of Treasury
financing operations already described. Either of these influences
—the changed economic and interest rate outlook or the
sizable short-term financing undertaken by the Treasury—
would alone have exerted upward pressure on rates; together
they were mutually reinforcing.
Apart from the sizable Federal Reserve purchases in late
October and early November, demand for Treasury bills around
that time was light and was confined mainly to shorter maturities.
Meanwhile, the supply of longer bill issues remained heavy, with
distribution of the newly offered "strip" and 1-year bills proceeding slowly. In this atmosphere, bill rates moved steadily
upward as the higher rate levels after mid-October tended to

164

FEDERAL RESERVE SYSTEM

generate expectations of still higher rates, including a possible
discount rate increase. The average rate on 3-month Treasury
bills rose to a 3.58 per cent peak on November 12.
The market atmosphere changed thereafter. On November 13
the Treasury announced that it would reduce its next weekly
bill auction by $100 million to avoid disturbing the existing balanced relationship between domestic and international
money market rates. It made a similar reduction in the next
regular auction, and in the 1-year bill auction held on November
27 it permitted commercial banks to credit Treasury tax and
loan accounts for 50 per cent of their acquisitions. These actions
suggested to the market that no further increase in short rates
was desired by the Treasury, and indeed that the recent rate
adjustment had perhaps been overdone. The market recovered
as good investor demand developed at the higher rate levels,
and the 3-month bill moved down to 3.49 per cent by November 22.
Federal Reserve operations, after taking up $645 million of
reserves on November 12 and 13 to offset a sharp increase
caused by market factors, soon reversed direction as seasonal
forces began to absorb reserves in large volume. From November 18 through the week ending December 4, the Federal Reserve provided $1.1 billion of reserves, chiefly by purchasing
Treasury bills, including $844 million in the market. The Federal Reserve also bought $76 million of coupon securities, although the reserve effect was partly offset by a decline in repurchase agreements outstanding.
The Federal Reserve was in the midst of meeting these reserve
needs on Friday afternoon, November 22. A market "go-around"
to purchase Treasury bills had been initiated, and dealers were
making offerings to the System Account Management when reports from Dallas of an attack on President Kennedy began to
reach the market. When the Dow-Jones news ticker confirmed
the reports that the President had been shot, the Federal Reserve canceled its operation before any actual purchases were
made. A quick survey of the major dealers indicated that market

165

ANNUAL REPORT OF BOARD OF GOVERNORS

activity had already dried up, pending clarification of the events
in Dallas. When the gravity of the situation became clear, the
System Account Management asked dealers to suspend trading
for the day. Trading in virtually all sectors of the financial
markets was suspended, and this prevented the possible spreading of panic through the network of markets. The sharp drop
in stock prices in heavy trading during the brief span before
trading on the stock exchanges was suspended gave some indication of the potential danger averted by the closing of the
financial markets.
A meeting of the General Committee of the New York Money
Market was held at the Federal Reserve Bank of New York late
Friday afternoon, following which that Bank, after consultation
with the Chairman of the Board of Governors of the Federal
Reserve System, released a statement indicating thai the leaders
of the financial community agreed that there was no need for
special action in the financial markets. It was further indicated
that the Federal Reserve had ample power to deal with any
situation that might arise and that close cooperation would be
maintained with foreign central banks.
Confidence in the nation and its institutions and in the continuity of the U.S. Government was manifest throughout the
country as President Johnson succeeded to office. The pause for
reflection afforded by the week-end and the special day of mourning on Monday, November 25, gave time for the show of continuity to be felt with full force. Finally, the demonstration of
international financial cooperation, which contributed so importantly to the excellent performance of the dollar on the foreign
exchange markets, also helped impart a sense of confidence.
All of these factors contributed to the confident atmosphere
in which the financial markets reopened on Tuesday, November
26. Stock prices rose even more sharply than they had fallen
on Friday. Prices of Treasury obligations and other fixed-income
securities, in which trading had been stopped on Friday before
any backlash on prices could develop, opened steady to slightly
higher. The Manager of the System Open Market Account re-

166

FEDERAL RESERVE SYSTEM

ported on market conditions at a special telephone meeting of
the Federal Open Market Committee on Tuesday morning and
indicated that in his judgment there was no need for unusual
Federal Reserve action. While the Committee, as a precautionary
measure, modified its instructions to provide for conducting operations with a view to cushioning any unsettlement in the money
market that might result from the assassination, no special action
proved necessary.
On Tuesday, November 26, the Federal Reserve supplied reserves through Treasury bill purchases in a routine operation,
resuming the operation that had been interrupted the previous
Friday by the news from Dallas. The Federal Reserve completed
its substantial reserve-supplying operations by December 3, and
over the balance of the month alternately absorbed and supplied reserves as necessary to offset seasonal movements. Operations in the early December period were complicated by a
tendency for the money market to ease, at a time of year more
often noted for firmness. It appears that some money market
banks overprepared in relation to the seasonal demands actually placed on them; in contrast to their customary role as large
net purchasers of Federal funds, the New York banks as a group
were sometimes net sellers in this period. The effective rate on
Federal funds dropped as low as 2lA per cent on several days
during December 4-11, despite the Federal Reserve's action in
absorbing reserves through the termination of $385 million of
repurchase agreements over that period and through sales of
$214 million of Treasury bills in the market on December 10.
By mid-December the impact of Federal Reserve operations
and seasonal liquidity demands raised the Federal funds rate
again to 3V£ per cent, and firm money market conditions prevailed over the rest of the year. The Federal Reserve provided
some additional reserves over the December 15 tax date through
repurchase agreements, thus contributing to the smooth operation
of the market during this period, and then recaptured these funds
through the termination of the agreements during the balance
of the year. Some new repurchase agreements were made in late

167

ANNUAL REPORT OF BOARD OF GOVERNORS

December, but these too were largely withdrawn before the close
of the year. No sizable operations were required over the yearend period, in contrast with some other recent years.
Treasury bill rates moved irregularly after early December.
The amount of new bills issued by the Treasury in the weekly
auctions was raised again to equal the maturities after the two reductions in late November. Rates edged slightly higher over the
December tax date, with the 3-month issue reaching 3.54 per
cent, but no unusual pressures arose and rates moved a little
lower during the balance of the month. The monthly 1-year bill
issue was auctioned on December 30 at an average rate of 3.707
per cent, and the latest 91- and 182-day issues closed the year
at bid quotations of 3.53 and 3.65 per cent, up 60 and 68 basis
points, respectively, from December 31, 1962.
In the market for Treasury notes and bonds, the Treasury's
refunding of November 15 maturities was successfully arranged
in late October. Before the settlement date for the refunding,
however, market sentiment deteriorated, and bond prices
dropped to new low levels for the year in early November.
Thereafter, the market moved irregularly in relatively light trading, remaining stable following the assassination and the succession of the new administration.
The Treasury's November refinancing was routine. Cash subscriptions were accepted on October 28 for a new 18-month,
3% per cent note to replace $7.6 billion of maturing issues, of
which $3.5 billion were publicly held. Market response to the offering was favorable, and nonpreferential subscriptions were allotted on a 21 per cent basis. The Federal Reserve exchanged its
entire $3.9 billion holdings of the November 15 maturities for the
new note. The day after the books closed, the new 3 % per cent
note was bid at a % 2 premium in "when-issued" trading, but
subsequent demand ran below expectations and the premium
gave way for a time to a small discount.
The lackluster performance of the new 3 % per cent Treasury
note in secondary trading both reflected and contributed to the
heavier atmosphere that emerged in late October and early No-

168

FEDERAL RESERVE SYSTEM

vember. In the first place, movements in business indicators at
this time were interpreted by the market as presaging a rise in
economic activity and credit demands. Moreover, the proximity
of the 3-month Treasury bill rate to the Federal Reserve discount
rate led to considerable discussion of a possible increase in the
discount rate. Both the increase in margin requirements on corporate stock purchases, made effective November 6, and the relatively low levels of published free reserve figures produced apprehension concerning a general firming in monetary policy.
In addition to this shift in sentiment there was a bulge in corporate and municipal offerings; and dealer holdings of Government securities remained sizable. Although selling of Treasury
issues was relatively light, demand was also modest. In this
atmosphere dealers sought to reduce their inventories, particularly of the 4 and 4Vs per cent bonds taken in the September
advance refunding and still held in some volume. Price declines
of as much as 3A point in the period from late October to November 6 carried most issues to new lows for the year; the
average yield on long-term bonds reached 4.12 per cent on
November 6.
A steadier and more confident tone began to develop in midNovember. Reports indicating official satisfaction with the levels
of rates and with the improvement in the bill market following the
Treasury's reduction in the weekly bill auctions contributed to
this improved atmosphere. Investment demand also increased,
both outright and on year-end tax swaps, and the technical
position of the market was much improved following the long
period of liquidation of dealer inventories. It was in this improved atmosphere that the market received the shattering news
of the President's assassination on Friday, November 22; as
indicated earlier, this improved atmosphere was quickly reasserted when the market opened on Tuesday, November 26.
Prices of Treasury issues tended lower again through much
of December, against a background of additional reports of
economic improvement. Prices reached new lows for the year just
before Christmas and then recovered slightly in the closing

169

ANNUAL REPORT OF BOARD OF GOVERNORS

days of the year as the higher yields attracted some additional
demand, including professional short-covering. The average
yield on long-term Treasury bonds was 4.15 per cent on December 31, 28 basis points higher than a year earlier, and only
1 basis point below the year's high on December 20.
The markets for corporate and municipal obligations also
showed some heaviness late in the year, but steadied again by
the year-end. Expectations of increased credit demands were
assessed by the market as having a particularly adverse impact
on the municipal sector, and widespread price-cutting resulted
in yield increases of as much as 20 basis points for some taxexempt issues in early November. The market recovered in late
November, however, and remained fairly firm through December. New issues aggregated $1.1 billion for the 2 months, virtually unchanged from the same period of 1962. Average yields
on Moody's Aaa municipal bonds, after reaching a peak of 3.18
per cent on November 13, declined to 3.11 on December 31,
compared with 2.94 at the close of 1962.
The corporate bond market also weakened in early November, but then steadied in the latter part of that month. Demand
improved following an early-December release of slow-moving
issues from the marketing syndicates. Average yields on Moody's
Aaa corporate bonds rose 4 basis points for the 2 months to 4.37
per cent on December 31, compared with 4.21 at the close of
1962. New offerings in November and December totaled $1.8
billion, including $820 million of private placements; in the same
period of 1962 offerings totaled $1.7 billion, including $1.2 billion of private placements.

170

FEDERAL RESERVE SYSTEM
REVIEW OF OPEN MARKET OPERATIONS
IN FOREIGN CURRENCIES

Total foreign exchange transactions of the Federal Reserve in
1963—including purchases and sales directly with foreign central banks as well as in the market, but excluding drawings and
repayments under the swap lines—amounted to $1.4 billion, as
shown in the table on page 176. This compares with transactions
of $500 million in the last 10 months of 1962, following the
resumption of such operations by the Federal Reserve.
At the opening of 1963 the Federal Reserve had swap facilities totaling $900 million with the central banks of France, England, the Netherlands, Belgium, Canada, Switzerland, Germany,
Italy, and Austria, and with the Bank for International Settlements. By the close of the year the central banks of Sweden and
Japan had joined the network, and the total facilities had been
raised to $2,050 million, as shown in the following table.
The largest of the individual increases in the swap lines during
the year—and one which may well have marked a milestone in
international financial cooperation—was that raising the line between the Federal Reserve and the Bank of England from
$50 million to $500 million. Less dramatic, but nevertheless
significant, were the substantial increases in the arrangements
with several major continental central banks and the BIS. In addition, the maturity structure of the network was extended, with
several of the arrangements being placed on a 6-month or 1-year
standby basis.
During 1963 the swap arrangements were often drawn upon
to cushion the impact of swings in the payments positions of the
major industrial countries. Not only were the facilities employed
extensively by the Federal Reserve in defense of the dollar and
of the U.S. gold stock, but in addition three foreign central banks
used them to help smooth changes in their own countries' payments and reserve positions. While none of these drawings by
foreign central banks were large, they demonstrated the feasibility and desirability of the mutual use of the swap network as

171

ANNUAL REPORT OF BOARD OF GOVERNORS

a means of selectively expanding international liquidity to meet
temporary needs.
As in 1962, the bulk of Federal Reserve exchange operations
involved use of the swap arrangements in direct transactions
with foreign central banks to even out fluctuations in the amounts
of dollars accumulated by these banks in their own foreign exFEDERAL RESERVE RECIPROCAL CURRENCY ARRANGEMENTS

Other party to agreement

Amount
Date
(In millions of dollars)
of
original
agreement
Dec. 31,
Original
1963

Term of
arrangement (in
months) 1

1962
Bank of France
. ...
Bank of England
Netherlands Bank

Mar. 1
May 31
June 13

50
50
50

100
500
100

3
12
3

National Bank of Belgium
Bank of Canada
Bank for International
Settlements

June 20
June 26

50
250

6
12

July 16

100

150

Swiss National Bank
German Federal Bank
Bank of Italy
Austrian National Bank

July 16
Aug. 2
Oct. 18
Oct. 25

100
50
50
50

150
250
250
50

3
3
6
3

50
150

3
3

1963
Bank of Sweden
Bank of Japan

Jan. 17
Oct. 29

Total
1

2,050

Term is that stated in latest renewal of agreement.

change markets. There were also occasions, however, when the
System Account Management intervened through foreign central
banks in their markets, and directly in the New York foreign exchange market, to maintain orderly conditions and restrain speculative pressures. The most striking operation of this type occurred
on Friday afternoon, November 22, following the report of the

172

FEDERAL RESERVE SYSTEM

attack on President Kennedy. The initial shock of the news had
temporarily paralyzed the New York foreign exchange market,
and there was clear risk that the panic selling that had hit the
stock market might spread to the gold and foreign exchange
markets as well.
To provide firm assurance of the continuity of U.S. international financial policy, the System Account Management immediately offered in the market sizable amounts of most of the major
foreign currencies at the rates prevailing just before the tragedy.
The Bank of Canada simultaneously and on its own initiative
took similar steps, which were then reinforced by Federal Reserve
actions in New York, to stabilize the Canadian dollar-U.S. dollar
rate. As the market realized that the Federal Reserve with the cooperation of foreign central banks was fully prepared to defend
existing rate levels, speculative reactions subsided, and the market closed with a firm tone. By the end of the day, total Federal
Reserve intervention in the New York market amounted to no
more than $23 million in all currencies. Intervention by the Bank
of Canada to support the U.S. dollar on November 22 amounted
FEDERAL RESERVE N E T DEBTOR POSITION UNDER
RECIPROCAL CURRENCY ARRANGEMENTS

(In millions of dollar equivalent)
End of year
Other party to agreement
1962

1963

German Federal Bank
Swiss National Bank
,
Bank for International Settlements.
Netherlands Bank

46
55

59
75
145
80

National Bank of Belgium.
Bank of Italy
Austrian National Bank...

15
50
50

15
1-50

216

324

All parties.
1

Net creditor position.

173

ANNUAL REPORT OF BOARD OF GOVERNORS

to U.S. $24 million; half of these acquisitions were subsequently
taken over by the Federal Reserve.
Well before the close of Friday afternoon arrangements had
been completed for a joint program of official intervention on
both sides of the Atlantic to deal with any speculative developments. As this coordinated intervention became clear to the
European markets, trading remained quiet and orderly at stable
rates on Saturday morning as well as on Monday (when the New
York market remained closed on the national day of mourning).
No further Federal Reserve intervention, and only limited intervention by foreign central banks, was required.
Throughout the year the Federal Reserve was also active on
the exchanges in efforts to cushion the potentially disturbing
effects of short-term capital movements arising out of speculative
flurries, seasonal pressures, and changing money market conditions in the major financial centers. Such operations, involving
mainly drawings and repayments on the swap lines, were heavily
concentrated in German marks, Swiss francs, and Netherlands
guilders. At the beginning of the year, as shown in the accompanying table, the Federal Reserve had a net debtor position
of $216 million under the swap lines. In the following months it
paid off most of its swap drawings, and by September 25 its
net debtor position was down to $20 million. Thereafter it
became necessary to make heavy net drawings in order to deal
with repatriations of dollar investments by European commercial banks for year-end window-dressing purposes-9a speculative
flow of funds to the Netherlands resulting from guilder revaluation rumors, and a tightening of the continental European
money markets. As of the end of 1963, the net debtor position
of the Federal Reserve under the swap lines had risen to $324
million. This total was reduced to $145 million at the end of
February 1964 and further repayments are anticipated during
the next few months.
During 1963 the Federal Reserve Bank of New York also
continued to intervene on behalf of the U.S. Treasury in the foreign exchange markets both here and—through foreign central

174

FEDERAL RESERVE SYSTEM

banks—abroad. Operations for the Treasury were concentrated
in the forward markets in an effort to influence the timing and
direction of short-term capital flows between money market centers. The total of all Treasury foreign exchange operations during
the year was $900 million.
German marks. From early January through late July there
was almost continuous buying pressure on the German mark,
which strengthened from $0.24945/s on January 7 to $0.2515 V6
on June 20. Underlying the mark's strength were a substantial
improvement in the German foreign trade position and large inflows of long-term capital for investment in relatively high-yielding German bonds and in German equities. Early in 1963, the
outward flow of German funds that had been repatriated at the
end of 1962 helped to ease the upward pressure on the mark, but
in March tight money market conditions developed in Germany
and there was a substantial inflow of short-term funds.
The pressures on the mark-dollar exchange rate were moderated in closely coordinated actions by the German Federal
Bank and the Federal Reserve Bank of New York. From early
March through August the German Federal Bank acquired a
substantial amount of dollars at rates well below the ceiling on
the mark and thus helped to maintain a calm and orderly atmosphere in the market. On the U.S. side, the Federal Reserve Bank
of New York intervened heavily for both Treasury and Federal
Reserve account. For this purpose, it used accumulated mark
balances as well as amounts that became available through drawings on the Federal Reserve swap arrangement, through the partial reversal of a Treasury swap of marks for Swiss francs that
had been arranged in December 1962, and through the placement with the German Federal Bank of U.S. Treasury bonds
denominated in marks.
In April, Treasury and Federal Reserve disbursements of previously accumulated mark balances amounted to $16.5 million
equivalent. Then in May and June the Federal Reserve drew the
entire $150 million equivalent of marks available under its swap
with the German Federal Bank, and by July 5 it had disbursed

175

ANNUAL REPORT OF BOARD OF GOVERNORS
TYPES OF FOREIGN CURRENCY TRANSACTIONS OF THE
FEDERAL RESERVE, 1963
(In millions of dollars)
Drawings and
repayments under
swap lines
Currency

Foreign exchange operations
Under swap lines

Other operations

Total
Drawings
German mark
Swiss franc
Netherlands guilder
Pound sterling
Canadian dollar
Belgian franc
French franc
Italian lira
Austrian schilling
All currencies.

g
|
I
•*
$
|.
'?
|
k.

Repayments

286.0
230.0
150.0
35.0
20.0

226.0
115.0
80.0
35.0
20.0

21.5
50.0

12.5
50.0
50.0

792.5

588.5

Disburse- Acquisitions
291.7
230.0
146.8
13.6
16.3
25.0
21.5

744.9

176.0
95.0
67.3
13.6
16.3
25.0
21.5
50.0
50.0
514.7

Purchases

Sales

3.0
2.0

3.3
1.9

474.0
328.9

22.0

13.0

62.2
32.6
50.0
43.0
100.0
50.0

18.2

1,354.8

214.1

50.0
77.0

i In the market and directly with foreign central banks.
NOTE.—Excludes transactions with U.S. Treasury.

$143 million of these drawings. The partial reversal of the
German mark-Swiss franc swap made available to the Treasury
$13.2 million equivalent, which was disbursed in June and July.
On July 11 the Treasury issued to the German Federal Bank
$25 million equivalent in 2-year mark bonds, which provided
funds for further intervention during the remainder of the month.
Despite this shift to the Treasury in the financing of U.S.
operations in marks, the Federal Reserve was still faced with
the need to liquidate as early as possible its commitments under
the fully drawn $150 million swap arrangement. The German
Federal Bank would have been agreeable to an extension of the
swap drawings pending the expected reversal of the flow of
funds. As this appeared likely to take some time, however, the
Federal Reserve and the Treasury—in line with the general policy
of reserving swap facilities for countering flows that gave evidence of being quickly reversible—felt it desirable at this point
to substitute a medium-term U.S. Treasury borrowing in the
form of a further issue of 2-year mark bonds, in place of a portion of the short-term obligations of the Federal Reserve to the
German Federal Bank. Accordingly, on August 28 the Treasury

176

FEDERAL RESERVE SYSTEM

issued to the German Federal Bank $50 million of such bonds
and immediately sold the proceeds to the Federal Reserve, which
used them to reduce its swap drawing. This was the first instance
of a refunding of a Federal Reserve swap drawing through
medium-term Treasury borrowing.
During August and early September, when buying pressure
on the mark tapered off, the System Account Management was
able to purchase from the German Federal Bank $25 million of
marks, which were employed to reduce the swap drawing to $75
million. The remainder was fully liquidated by October 28,
mainly with marks acquired from the German Federal Bank
when it needed dollars for the account of the German Defense
Ministry for the purchase of U.S. military equipment.
In November the German Federal Bank once again took in
substantial amounts of dollars, as German banks began repatriating funds for the year-end. Consequently, the Federal Reserve
made new drawings on the swap line (which had been expanded
to $250 million on October 10), both to absorb dollars held by
the German Federal Bank and to acquire marks to sell in the
New York market. Marks were also sold in the New York
market for U.S. Treasury account.
The inflow of funds to Germany persisted through midDecember, by which time Federal Reserve drawings on the swap
line had risen to $136 million (including $10 million drawn to
cover spot sales made in New York on November 22, following
the assassination of President Kennedy). Once again, however,
the German Defense Ministry's need for dollars enabled the
System Account Management to acquire marks, in this instance
totaling $70 million equivalent, during the remainder of December. These marks, supplemented by acquisitions through the
German Federal Bank on December 30 as year-end pressures
were reversed, were used to reduce the net commitments under
the swap to $59 million at the close of the year. Early in January
a further reverse flow of funds to Germany enabled the Federal
Reserve to acquire sufficient additional marks through the German Federal Bank to repay completely the outstanding swap
drawings by January 9, 1964.

177

ANNUAL REPORT OF BOARD OF GOVERNORS

Swiss francs. At the opening of 1963 the Federal Reserve had
Swiss franc commitments totaling $105 million equivalent
under swap drawings from the Swiss National Bank and the
Bank for International Settlements, and the U.S. Treasury had
Swiss franc forward contracts totaling $83 million equivalent
that had arisen from sales to Swiss commercial banks through
the Swiss National Bank.
As has been pointed out by both U.S. and Swiss officials, the
strength of the Swiss franc in recent years has been attributable
mainly to recurrent inflows of short-term capital associated with
international tensions. Whenever these inflows have tapered off,
the underlying deficit in the Swiss balance of payments has
emerged and generated sizable demands for dollars to finance
imports and other payments. During the spring and early summer
of 1963, such a demand for dollars reappeared and brought
about a strengthening of both the spot and the forward dollar
rates against the Swiss franc. Under these conditions the Federal
Reserve and the Treasury rapidly reduced their short positions
in Swiss francs, and by June 20 these positions had been
eliminated.
The Treasury accelerated the liquidation of its $83 million
of forward contracts outstanding on January 1, 1963, by issuing
to the Swiss Confederation an additional $76 million of Swiss
franc bonds. By providing the Confederation with franc-denominated assets, these bonds correspondingly reduced the need for
the Confederation to invest in dollar assets abroad, and consequently its need to have recourse to the forward market to acquire Swiss franc cover for such investments.
The Federal Reserve, for its part, liquidated $80 million of
the $105 million of swap drawings outstanding at the beginning
of the year by buying Swiss francs, both in the New York market
and directly from the Swiss National Bank, and by drawing down
existing U.S. official balances in Swiss francs. To speed up liquidation of the final $25 million of the swap drawing, the Federal
Reserve in cooperation with the Treasury made use of the technique of swapping outright holdings of one currency for another.

178

FEDERAL RESERVE SYSTEM

The Federal Reserve and the Treasury each swapped with the
BIS $13 million of previously acquired sterling for Swiss francs.
This was the first third-currency swap operation by the Federal
Reserve under the authorization granted by the Federal Open
Market Committee on May 28.
In late July, however, the Swiss franc strengthened once more
as the Swiss money market became somewhat tighter. To counter
the liquidity squeeze, Swiss commercial banks repatriated funds
placed abroad, and this inflow—combined with some renewed
speculative pressures—created a heavy demand for Swiss francs.
In closely coordinated operations in New York and Zurich, the
Swiss and U.S. authorities tempered these market pressures and
prevented unduly sharp movements in rates. Intervention took
the form mainly of U.S. Treasury placements of forward Swiss
franc contracts and purchases of spot dollars by the Swiss National Bank in the Zurich market, both on a moderate scale.
Limited spot sales of Swiss francs were also undertaken in the
New York market both for Treasury account (with resources
provided by an additional swap with the BIS of $10 million of
sterling for Swiss francs) and for the account of the Swiss
National Bank. With some easing of the Swiss money market, the
exchange market returned to a more balanced position in August,
and the dollar rate held slightly above its floor.
In September the Swiss franc again advanced as a result of
inflows of funds to Switzerland associated with the usual market
gossip surrounding the annual meeting of the International
Monetary Fund, and also because of a flow of funds from Italy.
To help counter these pressures and to reduce Swiss official reserve gains, forward sales of Swiss francs for Treasury account
in the Swiss market were resumed, and during September some
$72 million equivalent was committed, raising to $105 million
equivalent the Treasury's forward Swiss franc commitments.
Nevertheless, the Swiss National Bank had to absorb substantial
amounts of dollars. In order to acquire Swiss francs to mop up
these excess dollar holdings of the Swiss National Bank, the Federal Reserve reactivated its swap arrangement with the BIS and

179

ANNUAL REPORT OF BOARD OF GOVERNORS

drew $50 million on September 30 and $30 million on October 7.
Although there was a temporary easing of the influx after the
IMF meeting came to a close, further heavy flows of funds from
Italy occurred.
To cope with these pressures, the Treasury sold an additional
$44 million of forward Swiss francs, and on October 22 the
Federal Reserve drew the remaining $20 million of Swiss francs
available under the $100 million swap arrangement with the
BIS. Later in the month the Federal Reserve actuated its arrangement with the Swiss National Bank by drawing $60 million
equivalent, while the Treasury funded $30 million of its maturing
forward Swiss franc contracts by selling to the Swiss Confederation a certificate of indebtedness denominated in Swiss francs.
In early November the Swiss franc came off its ceiling as a result
both of a slowing down in the movement of funds; from Italy
and of an easing in the Swiss money market, and the Federal
Reserve was able to acquire sufficient francs to reduce its drawings on the Swiss National Bank and the BIS by $5 million each,
to $55 million and $95 million.
In the latter part of November the Swiss franc again advanced
toward its ceiling as Swiss banks began to repatriate funds for
year-end needs. By November 22 the rate was just below the
ceiling, and after the assassination of President Kennedy it moved
to the ceiling, at which level the Federal Reserve sold some $2
million of francs. On the same day the Federal Reserve swap
lines with the BIS and the Swiss National Bank were each increased by $50 million to $150 million. The franc thereafter
remained at, or just below, its ceiling until the year-end.,
During December the Swiss National Bank engaged in a large
volume of swap transactions with the Swiss commercial banks
(buying dollars spot and selling them forward) to provide accommodation for the year-end repatriation of funds, but in addition it had to absorb outright a substantial volume of dollars
in the spot market. The Federal Reserve mopped up most of these
excess dollar holdings on December 31 by drawing $70 million
of Swiss francs under the swap arrangements with the BIS and

180

FEDERAL RESERVE SYSTEM

the Swiss National Bank. At the year-end the Federal Reserve's
swap commitments in Swiss francs totaled $220 million, and the
Treasury's forward market contracts $120 million.
Netherlands guilders. At the beginning of 1963 the dollarguilder market was quiet, and in February the Federal Reserve
repaid its outstanding drawing of $10 million equivalent on the
Netherlands Bank. Renewed buying pressure on the guilder developed in mid-March, however, and continued for more than
2 months. Part of the dollar influx into the Netherlands apparently originated in foreign direct investment, but a more important cause was a gradual tightening of the Amsterdam money
market.
Short-term money rates rose sharply as Dutch commercial
banks were squeezed for liquidity. To ease the pressure on the
commercial banks, the Netherlands Bank in March agreed to
accept certain Netherlands Treasury paper under repurchase
agreements, and reduced the banks' cash reserve requirements
by 1 percentage point to 4 per cent for the monthly reserve
period ended April 21. Nevertheless the tightness continued, and
Dutch commercial banks repatriated short-term investments
from abroad in order to bolster their strained domestic liquidity
positions. The return flow of short-term funds was reflected both
in a strengthening of the spot rate for the guilder and in a narrowing of the forward guilder premium.
In these circumstances it seemed appropriate to prevent
through central bank swap operations the potential unloading
of such repatriations on the Netherlands Bank. Accordingly,
from April 10 through May 28 the Federal Reserve gradually
disbursed a total of $44 million equivalent in guilders acquired
through drawings on the $50 million swap line with the Netherlands Bank. Most of these disbursements were effected through
exchange market operations, with the dual purpose of preventing the spot dollar rate from declining to the floor and of simultaneously absorbing dollars that would otherwise have flowed
to the Netherlands Bank.
By early June the tide began to turn, as the Netherlands Bank

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ANNUAL REPORT OF BOARD OF GOVERNORS

again reduced the commercial banks' cash reserve requirements
by 1 percentage point to 3 per cent and money market conditions eased in the Netherlands. With the decline in Dutch money
rates and the strengthening of the Dutch commercial banks'
liquidity positions, the banks resumed placements of short-term
funds abroad, thereby pushing up the spot rate for the dollar and
widening the forward premium on the guilder. During the first
3 days of July the Federal Reserve was able to acquire $5 million of guilders through market operations conducted by the
Netherlands Bank, and the dollar rate continued to strengthen
gradually throughout the summer months.
Although such favorable market conditions probably would
have permitted further gradual liquidation of most of the swap
drawing, the Netherlands Bank and the Federal Reserve preferred to take advantage of a $70 million debt prepayment by
the Netherlands Government to the U.S. Government on July
22. This prepayment, which resulted in an equivalent draft upon
the dollar reserves of the Netherlands Bank, enabled the System
Account Management to buy directly from the Netherlands Bank
enough guilders to liquidate its remaining commitment under the
swap drawing.
In September the guilder rate again turned upward, as a general debate in the Netherlands over credit and wage policy gave
rise to widespread rumors that the guilder might be revalued.
These rumors set off a brief but very heavy speculative demand
for guilders, and the rate rose sharply until early October when
the revaluation rumors died down. During this period the Federal
Reserve drew $100 million of guilders on its swap line with the
Netherlands Bank (the arrangement was increased from $50
million to $100 million on October 2) and sold $15 million of
guilders in the New York market and $80 million to the Netherlands Bank to absorb dollars in excess of that bank's usual holdings. In addition, $38.7 million of guilders were sold for 1-month
forward delivery for U.S. Treasury account through the Netherlands Bank in order to facilitate an outflow of funds from the
Netherlands.

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FEDERAL RESERVE SYSTEM

The guilder market became calmer later in October and November, and there was some outflow of funds from the Netherlands. As the guilder rate eased, the Federal Reserve Bank of
New York was able to acquire guilders to reduce the Federal
Reserve's swap commitment by $20 million to $80 million and
to meet part of the Treasury's forward contracts. The remainder
of the guilders needed to liquidate the Treasury's forward commitments were acquired through a swap with the BIS of $17
million of the Treasury's holdings of marks for guilders. (These
marks had been acquired for possible market intervention in October through the reversal of an outstanding Treasury swap with
the BIS of marks against Swiss francs. The Swiss francs needed
for this latter operation were in turn acquired by swapping into
Swiss francs part of the lira balances that the Treasury was building up in anticipation of future maturities of lira bonds issued to
the Bank of Italy in 1962.)
In the latter part of November, however, the guilder strengthened again as a bond issue by the Netherlands Government
tightened the Dutch money market. Then on November 22,
following the assassination of President Kennedy, the Federal
Reserve sold in the New York market $3.2 million equivalent
of guilders out of existing balances. As the guilder again eased
at the end of the year, the Federal Reserve was able to resume
purchases of guilders, and at the beginning of January 1964
its swap commitment was reduced by $10 million to $70 million.
Sterling. The pound sterling strengthened in early January
1963, and there were numerous indications at that time that
seasonal inflows of dollars might considerably augment British
official reserves during the first half of the year. Accordingly, the
Federal Reserve drew about £ 9 million, or $25 million equivalent, under its $50 million swap facility with the Bank of England, and subsequently used £ 2 million, or $5.6 million equivalent, of this drawing to support the dollar rate.
Late in January, however, the exchange market situation was
abruptly transformed when the British bid for membership in
the Common Market was rejected. The Federal Reserve re-

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ANNUAL REPORT OF BOARD OF GOVERNORS

versed gear and on February 1 purchased sufficient sterling to
restore its sterling balance to $25 million equivalent. Simultaneously, as speculative pressures on sterling gathered force, the
Bank of England disbursed the $25 million credited to its account
at the Federal Reserve under the initial swap drawing. Despite
sizable intervention by the Bank of England, the sterling rate
gradually declined during February and March. On March 29
the Federal Reserve Bank of New York, for U.S. Treasury account, purchased in the market £ 3 million, or $8.4 million
equivalent, thereby reinforcing the support operations of the
Bank of England.
The Bank of England might readily have drawn on the remaining $25 million of the $50 million swap line, which the Federal
Reserve was prepared to increase. But the speculative outflow
from London was apparently directed in large part to continental
financial centers rather than to New York. The Bank of England
accordingly negotiated short-term credits of $250 million with
several continental European central banks in order to reinforce
British official reserves. These short-term credits, which cushioned the decline in British reserves during February and March,
were reported early in April by Chancellor Maudling. This
announcement strengthened sterling, as the markets realized that
the central banks were acting together to defend the pound, and
the rate stabilized at slightly above par.
Later in the spring sterling eased again, and between May 6
and 20 during temporary declines in the rate the Federal Reserve Bank of New York, on behalf of both the Federal Reserve
and the Treasury, accumulated £ 6 . 5 million, or $18.2 million
equivalent, in order to build up U.S. official holdings. No
immediate need to employ these balances for intervention in the
dollar-sterling market was anticipated, however, cind as noted
earlier, it appeared advantageous several weeks later to swap
about £ 4 . 6 million each, or about $13.0 million equivalent each,
of the Treasury's and the Federal Reserve's holdings for Swiss
francs. This was done to accelerate repayment of the Federal
Reserve's earlier drawings on its swap line with the Swiss Na-

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FEDERAL RESERVE SYSTEM

tional Bank. In July a similar swap for $10 million equivalent
was carried out for account of the Treasury with sterling acquired
from the Bank of England.
Perhaps the most important single development in the sterlingdollar relationship during the year was the increase in the swap
line between the Federal Reserve and the Bank of England from
$50 million to $500 million, announced on May 29. The magnitude of this increase greatly reinforced market confidence in the
stability of the sterling-dollar parity, and throughout the second
half of 1963 the sterling market was unusually quiet. The $25
million swap operation initiated in January 1963 was liquidated
by the Bank of England on July 16, and the $500 million swap
arrangement consequently reverted fully to a standby basis.
In August, as sterling again declined before stabilizing during the fall months, the Federal Reserve Bank of New York
acquired in the market £ 2 . 7 million, or $7.5 million equivalent,
of additional sterling balances for the System Open Market
Account and the Treasury. There were no further Federal
Reserve or Treasury operations in sterling until the afternoon
of November 22, when the Federal Reserve sold $8 million
equivalent of sterling in New York following the assassination of
President Kennedy. These sales were covered by a Federal Reserve drawing of $10 million equivalent of sterling on the swap
line with the Bank of England. An easing of sterling in December,
as continental commercial banks repatriated funds from the
United Kingdom for year-end positioning, enabled the Federal
Reserve to build up its sterling holdings and repay the swap
drawing before maturity.
Canadian dollars. Throughout 1963 both the Canadian and
the U.S. authorities kept a close watch on potentially disturbing
flows of short-term capital between the two countries. The desire
to minimize such flows appears to have been reflected in part in
adjustments in the Bank of Canada's discount rate in May, when
it was reduced to 3Vi per cent, and again in August, when it
was raised to 4 per cent following the increase in the Federal
Reserve discount rate and the increase in ceiling rates on time

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ANNUAL REPORT OF BOARD OF GOVERNORS

deposits under the Board's Regulation Q. With Canadian shortterm rates thus running only slightly above U.S. rates and with
the forward Canadian dollar at a small discount, the incentive
to move funds on a covered basis was relatively minor,
The completion in September of a $500 million Canadian
wheat sale to the Soviet Union introduced a new technical problem, which was quickly resolved. The sale naturally created a
heavy demand for Canadian dollars for future delivery against
U.S. dollars, because the sales contracts between the Soviet
Union and the international grain companies—which were acting as intermediaries—called for settlement in U.S. dollars,
whereas the grain companies had to purchase the wheat from
the Canadian Grain Board with Canadian dollars. Consequently,
the forward Canadian dollar moved to a premium vis-a-vis the
U.S. dollar.
Such a premium on the forward Canadian dollar, coupled with
the existing interest differential in favor of Canadian money market instruments, might well have generated a sizable flow of arbitrage funds from the United States to Canada. In these circumstances, acting in close cooperation, the U.S. and Canadian
authorities intervened to eliminate the forward premium on the
Canadian dollar and thus reduced the covered interest arbitrage
incentive in favor of Canada. In this connection, the Federal
Reserve Bank of New York engaged in swap transactions for
U.S. Treasury account, buying Canadian dollars spot and selling
them forward against U.S. dollars. Such operations helped to
meet market demands for forward Canadian dollars, and reduced to a minimum the flow of interest arbitrage funds during
the period. Shortly after their completion, the Federal Open
Market Committee on October 1 authorized the Federal Reserve
Bank of New York to engage in similar swap transactions for the
System Open Market Account. However, no such operations were
undertaken during 1963.
The first Federal Reserve operation in Canadian dollars in
1963 occurred on November 22 when the Federal Reserve sold
$2.3 million equivalent of Canadian dollars in the New York

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FEDERAL RESERVE SYSTEM

market as part of its stabilization efforts following the assassination of President Kennedy. Early in the following week the System Open Market Account sold $14 million equivalent of Canadian dollars to the Bank of Canada to absorb some of the U.S.
dollars that the Bank of Canada had acquired during the crisis
period. The Canadian dollar resources for these operations were
acquired through a $20 million equivalent drawing on the swap
line with the Bank of Canada. In mid-December, when the
Canadian dollar weakened as a result of the usual year-end pressures arising from heavy interest and dividend payments abroad,
the Federal Reserve was able to purchase from the Bank of
Canada the Canadian dollars necessary to cover these swap commitments, and it repaid the $20 million drawing in advance of
maturity.
Belgian francs. The National Bank of Belgium has from the
beginning preferred to keep its swap with the Federal Reserve
fully drawn. This feature distinguishes the Belgian swap from
the other swap arrangements, which are drawn upon only when
needed and otherwise are left on a standby basis. The swap thus
has provided the National Bank of Belgium with a supplementary
dollar balance of $50 million and the Federal Reserve with an
equivalent balance of 2.5 billion Belgian francs.
In 1963, disbursements of the reciprocal balances created by
the swap were made by both parties for a combined total of
$70 million equivalent. These exchange operations generally
were quickly reversed, reflecting the fluctuations in the Belgian
balance of payments. At the end of the year as at the beginning,
the Federal Reserve's net commitment under the arrangement
totaled $15 million equivalent.
In May 1963 the U.S. Treasury issued to the National Bank
of Belgium 2-year bonds denominated in Belgian francs in the
amount of $30 million equivalent. These bonds were timed to
coincide with Belgian Government borrowings of dollars in
London and New York for internal financing requirements,
which would otherwise have resulted in accrual of surplus dollars
on the books of the National Bank of Belgium. These dollars,

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ANNUAL REPORT OF BOARD OF GOVERNORS

however, were immediately absorbed by the Treasury with the
Belgian franc proceeds of the bond issues.
During the year, total swings of $170 million in the Belgian
payments position were financed through the Federal Reserve
swap facility and the Treasury issue of Belgian franc bonds.
Although limited in scale, these coordinated exchange operations by the U.S. and Belgian exchange authorities demonstrated
how flexibly the recently developed international financial machinery can help to finance the payments swings that inevitably
accompany even a balanced growth of trade and payments.
French francs. The French franc remained firmly at its ceiling
throughout the first half of 1963 as the French balance of payments continued in substantial surplus, and there was no occasion
for Federal Reserve intervention in the market. The French surplus moderated during the second half of the year, however, and
the Federal Reserve was able for the first time to engage in some
exploratory operations in French francs.
Between July 19 and 23, in an effort to test the market, the
Federal Reserve drew and disbursed a total of SI2.5 million
equivalent of French francs under the swap line v/ith the Bank
of France, which had been increased to $100 million on March 4.
This intervention lifted the dollar slightly off its floor, but it
quickly became apparent that very sizable disbursements would
be required to bring about any appreciable improvement of the
dollar rate, and intervention was accordingly suspended. Shortly
thereafter the System Account Management readily acquired
sufficient francs in the forward market through the Bank of
France to cover the outstanding swap drawings. (Such forward
purchases of currencies in which the Federal Reserve has swap
arrangements had been authorized by the Federal Open Market
Committee on May 28.)
No further opportunity for operations in French francs presented itself until October, when an active two-way market developed in Paris. In order to induce further improvement in the
dollar rate, the Federal Reserve asked the Bank of France to
sell at its discretion spot francs for the System Open Market

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FEDERAL RESERVE SYSTEM
Account, any sales to be covered by simultaneous drawings under
the swap arrangements. A total of $9 million equivalent of francs
were sold in this manner. These small-scale commitments were
quickly covered through forward purchases of francs.
Italian lire. On January 21, 1963, the Federal Reserve repaid
the $50 million equivalent of lire drawn in December 1962
under the swap arrangement with the Bank of Italy, as the anticipated return flow of funds from Italy occurred. Thereafter, there
were no operations in lire until the fall when the lira came under
pressure as a result of the Italian cabinet crisis and the continued
deficit in Italy's balance of payments.
In late October the Bank of Italy, in order to bolster its reserves, which were being depleted by operations in support of
the lira, drew $50 million on its swap line with the System Open
Market Account. This standby swap facility had earlier been increased to $250 million. Meanwhile, in September and October
the U.S. Treasury purchased a total of $67 million equivalent of
lire from the Bank of Italy in order to provide support for the
Italian reserve position and in anticipation of the Treasury's
future need for lire to meet obligations arising out of the issuance
of lira-denominated bonds. As described earlier, the Federal Reserve Bank of New York, for Treasury Account, then swapped
$ 17 million of these lire against Swiss francs with the BIS in order
to reverse an equivalent swap of German marks against Swiss
francs.
In December, as the Italian deficit persisted, the Federal Reserve bought an additional $50 million of lire from the Bank of
Italy and simultaneously sold the lire forward to the U.S. Treasury, which thereby reduced further its uncovered lira bond liabilities. This was the first such transaction under a November 12
authorization of the Federal Open Market Committee for Federal Reserve spot purchases and concurrent forward sales to the
Treasury of currencies in which the Treasury has outstanding
indebtedness.
Austrian schillings. At the beginning of 1963 the Federal Reserve had outstanding a swap drawing of $50 million equivalent

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ANNUAL REPORT OF BOARD OF GOVERNORS

from the Austrian National Bank. During the 3-month term of
the drawing the Austrian balance of payments remained in surplus, and no reversal of the flow of funds appeared in immediate
prospect. Accordingly, at maturity on January 24, 1963, the
drawing was entirely repaid with schillings bought from the Austrian National Bank, and the swap arrangement was placed on a
standby basis.
In April the U.S. Treasury issued to the Austrian National
Bank a $25 million equivalent 18-month bond denominated in
Austrian schillings. A second such $25 million bond was issued
in December. In both cases the schilling proceeds were used to
absorb dollar holdings of the Austrian National Bank, which had
been increasing owing to Austria's balance of payments surplus.
Swedish kronor and Japanese yen. A Standby swap line of $50
million equivalent was negotiated with the Bank of Sweden in
January 1963, and one of $150 million equivalent with the
Bank of Japan in October. There were no Federal Reserve or
Treasury operations in either currency during 1963.

190

FEDERAL RESERVE SYSTEM

Examination of Federal Reserve Banks. The Board's Division of
Examinations 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
made a detailed audit of the accounts and holdings of the System
Open Market Account, operated at that Bank in accordance
with policies formulated by the Federal Open Market Committee, and rendered a report thereon to the Committee. The procedures followed by the Board's examiners were surveyed and
appraised by a private firm of certified public accountants.
Examination of member banks. Although authorized to examine
all member banks, both State and national, neither the Federal
Reserve Banks nor the Board of Governors as a matter of practice examines national banks because the law charges the Comptroller of the Currency directly with that responsibility. The
Comptroller makes reports of examinations of national banks
available to the Board of Governors in Washington, and each
Federal Reserve Bank obtains from the Comptroller copies of
such reports of examination of national banks in its district as
it may need.
State member banks are subject to examinations made by direction of the Federal Reserve Bank of the district in which they
are situated by examiners selected or approved by the Board.
The established policy is 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. Wherever practicable, joint examinations are
made in cooperation with the State banking authorities, or alternate independent examinations are made by agreement with State
authorities. All but 13 of the 1,493 State member banks were
examined under the Federal Reserve System's 1963 program.
The Board of Governors makes its reports of examination of

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ANNUAL REPORT OF BOARD OF GOVERNORS

State member banks available to the Federal Deposit Insurance
Corporation, and the Corporation in turn conducts examinations
of insured nonmember State banks and makes its reports available to the Board. Reports of examination of State member banks
are also 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. In addition, under provisions of
the Federal Reserve Act and other statutes, the Board passes on
applications for admission of State banks to membership in the
System and 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, or (6) invest in bank premises
in excess of 100 per cent of a bank's capital stock. Comments
with respect to some of the more important of these actions
appear below.
Federal Reserve membership. As of the December call date in
1963, member banks accounted for about 45 per cent of the
number of all commercial banks in the United Stales and nearly
62 per cent of all commercial banking offices, and held approximately 83 per cent of the total deposits in such banks.
State member banks accounted for 17 per cent of the number of
all State commercial banks and 31 per cent of the State banking offices, and held 64 per cent of total deposits in State
commercial banks.
Of the 6,108 member banks of the Federal Reserve System
at the end of 1963, 4,615 were national and 1,493 were State
member banks. There was a net increase of 61 member banks
during 1963. This reflected an increase of 112 national banks
and a decrease of 51 State members. The increase in national
banks resulted from the organization of 162 new national banks
and the conversion of 18 nonmember banks to national banks,
offset by 55 conversions to branches incident to mergers and

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FEDERAL RESERVE SYSTEM

absorptions and 13 conversions to nonmember banks; and the
State member decrease reflected 26 conversions to branches incident to mergers and absorptions, and 22 withdrawals from membership.
At the end of 1963, member banks were operating 10,370
branches, 966 more than at the close of 1962; this included 850
de novo establishments.
Detailed figures on changes in the banking structure during
1963 are shown in Table 19, page 234.
Bank mergers. Under Section 18(c) of the Federal Deposit Insurance Act, as amended May 13, 1960, the Board passes upon
each merger, consolidation, acquisition of assets, or assumption
of liabilities in which the acquiring, assuming, or resulting bank
is to be a State member bank. Unless the Board finds that it must
act immediately to prevent the probable failure of one of the
participating banks, it 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 State nonmember bank.
During 1963 the Board approved 31 and disapproved 3 mergers, consolidations, acquisitions of assets, or assumptions of liabilities, and submitted 99 reports on competitive factors to the
Comptroller of the Currency and 37 to the Federal Deposit Insurance Corporation. As required by Section 18(c) of the Federal Deposit Insurance Act, a description of each of the 31 cases
approved by the Board, together with other pertinent information,
is shown in Table 21 on pages 237-71.
Statements and orders of the Board with respect to all bank
merger and bank holding company applications, whether approved or disapproved, are released immediately to the press and
the public and are published later in the Federal Reserve Bulletin.
These include comprehensive presentations of the factors con-

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ANNUAL REPORT OF BOARD OF GOVERNORS

sidered, the conclusions reached, and the vote of each Board
member present. Dissenting statements, if any, are appended.
Bank holding companies. During 1963, pursuant to Section
3 (a) (1) of the Bank Holding Company Act of 1956, the Board
approved 2 applications for prior approval to become a bank
holding company and denied 1 application. Pursuant to Section
3 (a) (2) of the Act, the Board approved the acquisition by 5
bank holding companies of voting shares in 5 banks (2 related
bank holding companies, one of which controlled the other, filed
applications to acquire shares of one of the banks), and denied
applications by 2 holding companies with respect to 3 banks.
Under Section 4(c) (6) of the Act, the Board, after hearings,
granted requests by 2 holding companies for determinations that
the activities of 8 subsidiaries were so closely related to the banking activities of their respective holding company systems as to
be proper incidents thereto and as to make it unnecessary for the
prohibitions of Section 4 to apply in order to carry out the purposes of the Act. To provide necessary current information, annual reports for 1962 were obtained from all registered bank
holding companies.
During 1963, pursuant to the Banking Act of 1933, the Board
authorized the issuance to holding company affiliates of member
banks of 10 voting permits for general purposes and 16 for limited purposes. In accordance with established practice, a number
of holding company affiliates were examined by examiners for
the Federal Reserve Banks in whose districts the principal offices
of the holding companies are located.
Section 301 of the Banking Act of 1935 provides that the
term "holding company affiliate" shall not include—except for
the purposes of Section 23A of the Federal Reserve Act, which
restricts loans to affiliates and loans on or investments in the stock
or obligations of affiliates—any organization that is determined by
the Board not to be engaged, directly or indirectly, as a business
in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies. The Board

194

FEDERAL RESERVE SYSTEM

made such determinations with respect to 25 organizations during 1963.
Foreign branches of member banks. At the end of 1963, 10 member banks had in active operation a total of 160 branches in 42
foreign countries and overseas areas of the United States: 5 national banks were operating 124 of these branches, and 5 State
member banks were operating 36. The number and location of
these branches were as follows:
Latin America
73
Argentina
16
Bahamas
2
Brazil
15
Chile
2
Colombia
5
Dominican Republic . . . . 3
Ecuador
2
Guatemala
2
Jamaica
1
Mexico
4
Panama
9
Paraguay
3
Peru
1
Trinidad
1
Uruguay
2
Venezuela
4
Virgin Islands (British). . 1
Continental Europe
Belgium
France
Germany
Italy
Netherlands
Switzerland

12
2
4
3
1
1
1

England

Africa
Liberia
Nigeria

.
.
.

3
1
2

Near East
Lebanon
Saudi Arabia

.
.

4
3
1

Far East
Hong Kong
India
Japan
Malaysia
Okinawa
Pakistan
Philippines
Thailand

. 31
. 3
. 4
10
. 5
1
. 2
. 5
1

U.S. Overseas Areas and
Trust Territories
Canal Zone
Guam
Puerto Rico
Truk Islands
Virgin Islands

. 23
. 2
. 1
15
1
4

Total

160

Under the provisions of the Federal Reserve Act (Section
25 as to national member banks and Sections 9 and 25 as to
State member banks), the Board during 1963 approved 22 applications made by member banks for permission to establish
branches in foreign countries.

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ANNUAL REPORT OF BOARD OF GOVERNORS

During the year a member bank opened branches at locations
formerly operated by its wholly owned foreign banking subsidiary in Paris, France; Duesseldorf, Germany; Hong Kong,
Colony of Hong Kong; Kuala Lumpur and Singapore, Federation of Malaysia; Guatemala City, Guatemala ( 2 ) ; and Beirut,
Lebanon. Another opened branches in Port of Spain, Trinidad,
and Santiago de los Caballeros, Dominican Republic. A third
opened branches in Quito, Ecuador; Bogota, Colombia; Geneva,
Switzerland; Buenos Aires, Argentina; and Delhi, India. Thirteen of these branches had been authorized before 1963.
Acceptance powers of member banks. During the year the Board
approved the application of 1 member bank, pursuant to the provisions of Section 13 of the Federal Reserve Act, for increased
acceptance powers. The bank was granted permission to accept
commercial drafts or bills of exchange to an amount not exceeding at any time, in the aggregate, 100 per cent of its paid-up and
unimpaired capital stock and surplus, and also full permission
to accept drafts or bills of exchange drawn for the purpose of
furnishing dollar exchange as required by the usages of trade in
such countries, dependencies, or insular possessions of the United
States as may have been designated by the Board of Governors.
Foreign banking and financing corporations. In 1963, 1 corporation was organized under State law and opened for business to
operate under agreement 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. At the end of 1963 there were 5
corporations operating under agreements with the Board pursuant to Section 25.
During the year examiners for the Board examined 3 "agreement" corporations with head offices in New York and 1 with
its head office in San Francisco. Two of these have an English
fiduciary affiliate. Another has a branch in England, and it owns:
the stock of 2 banks organized under the laws of, and operating
in, Liberia and the Republic of South Africa; the stock of 2 trust

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FEDERAL RESERVE SYSTEM

companies, 1 organized under the laws of the Bahamas and 1
of Canada; and 50 per cent of the stock of a bank in Canada.
The fifth "agreement" corporation is a national member bank in
the Virgin Islands, which is owned by a State member bank in
Philadelphia.
During 1963, under the provisions of Section 25(a) of the
Federal Reserve Act, the Board issued final permits to 8 corporations to engage in international or foreign banking or other
international or foreign financial operations. Seven of these corporations commenced operations in 1963; 1 other corporation
that began operations in 1963 had received its final permit in
1962. At the end of 1963 there were 30 corporations in active
operation under Section 25(a): 20 have home offices in New
York City, 1 in Boston, 3 in Philadelphia, 1 in Pittsburgh, 2 in
Chicago, 2 in Detroit, and 1 in Seattle. Examiners for the Board
of Governors examined 26 of these corporations during the year.
Twenty-two of these corporations have no subsidiaries or foreign branches. One has a Canadian investment and development
subsidiary, a branch in France, and an English fiduciary affiliate
that has a branch in Canada. Another owns the stock of: a bank
organized under the laws of, and operating in, the Republic of
South Africa; a trust company organized under the laws of the
Bahamas; and a Brazilian corporation that holds stock of a
Brazilian bank. Another owns substantially all of the stock of
a bank organized under the laws of, and operating in, Italy.
One has a finance and investment subsidiary organized under
the laws of Panama with headquarters in Bermuda; 1 has an
Argentine finance company subsidiary; 1 has a Bahaman subsidiary; and another has a French investment banking subsidiary.
Bank Examination School. In 1963 the Bank Examination School
conducted two sessions of the School for Examiners and four
sessions of the School for Assistant Examiners. This School,
established in 1952 by the three Federal bank supervisory agencies, has been conducted jointly by the Board of Governors of
the Federal Reserve System and the Federal Deposit Insurance

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ANNUAL REPORT OF BOARD OF GOVERNORS

Corporation since withdrawal of the Office of the Comptroller
of the Currency in 1962.
Since the establishment of this program in 1952. 2,191 men
have attended the various sessions. This number includes representatives of the Federal bank supervisory agencies; another
Federal agency; the State Banking Departments of California,
Connecticut, Indiana, Louisiana, Maine, Michigan, Mississippi,
Montana, Nebraska, New Hampshire, New Jersey, New Mexico,
New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Virginia, and Washington; the
Treasury Department of the Commonwealth of Puerto Rico; and
four foreign countries.
LEGISLATION ENACTED
Authority to issue $1 and $2 Federal Reserve notes. The Act of
Congress approved June 4, 1963 (Public Law 88-36), in addition to repealing the silver purchase acts and the related tax on
transfers of silver bullion, amended Section 16 of the Federal
Reserve Act so as to authorize the issuance of $1 and $2 Federal
Reserve notes. The purpose of this legislation is to make monetary silver available for coinage by substituting Federal Reserve
notes for silver certificates. Before this amendment, the law
limited the issuance of Federal Reserve notes to denominations
of $5 and up.
Federal Reserve notes in the $ 1 denomination were first issued
in November 1963. Issuance of a $2 denomination note is not
contemplated. This denomination was included so that Federal Reserve notes would be authorized in all present denominations of paper money.
PROPOSED LEGISLATION
Lending authority of Federal Reserve Banks. On August 21, 1963,
the Board of Governors recommended legislation to the Banking and Currency Committees of the Congress that would
broaden substantially the kinds of security on which credit can

198

FEDERAL RESERVE SYSTEM

be advanced by the Federal Reserve Banks. Present law permits advances on collateral other than certain limited types of
paper only at an interest rate Vi of 1 per cent higher than the
normal discount rate.
The Board's recommendation followed an extensive review
within the Federal Reserve System of the law, regulation, and
practices governing member bank borrowing from the Federal
Reserve Banks. The proposed legislation would do away with
technical requirements regarding "eligibility" of collateral for
such borrowings that have become outmoded since the enactment of the Federal Reserve Act of 1913. Subject to regulation by the Board of Governors, the Reserve Banks would be
authorized to make loans to member banks based primarily on
the soundness of the paper offered as security and the appropriateness of the purpose for which credit is sought.
The proposed legislation was embodied in bills S. 2076 and
H.R. 8505, introduced by Senator Robertson and Representative Kilburn, respectively.
Bank Holding Company Act of 1956. The Board is required by
Section 5(d) of the Bank Holding Company Act of 1956 (12
U.S.C. 1844) to include in its ANNUAL REPORT to Congress
any recommendations for changes in that Act that the Board
thinks would be desirable. In a Special Report submitted to
Congress on May 7, 1958 (published in the Federal Reserve
Bulletin of July 1958), the Board recommended a number of
amendments to the Bank Holding Company Act designed to
improve its effectiveness, facilitate its administration, and clarify
ambiguities. The Board believes that the suggested amendments
(with the exception of Recommendation 15, which was withdrawn in the Board's ANNUAL REPORT for 1960) merit early congressional consideration and legislative action.
The Board particularly emphasizes the desirability of prompt
amendment of the Holding Company Act in the following respects:
1. The present definition of "bank holding company" covers only situations involving 2 or more banks. In the Board's

199

ANNUAL REPORT OF BOARD OF GOVERNORS

judgment, this definition is not adequate to control certain potential evils toward which the Act is directed, in that it permits
common corporate control of banking and nonbanking interests. Accordingly, the Board reiterates its recommendation (1958
Special Report, Recommendation 1) that the Act be amended
to subject a corporation to regulation as a bank holding company if it controls 25 per cent or more of the stock of a single
bank.
2. The Act exempts a company that was registered under
the Investment Company Act of 1940 before May 15, 1955,
and certain of its related corporations. As pointed out in Recommendation 7 of the 1958 Special Report, this exemption has
no logical basis. It has been actively utilized to expand a bank
holding company system, free from regulatory control, in a
manner inconsistent with the basic principles of the Bank Holding Company Act. The Board therefore urges prompt amendment of the Act to eliminate this unwarranted exemption.
The Act also excludes from its coverage (a) companies with
most of their resources "in the field of agriculture" and (b)
companies "operated exclusively for religious, charitable, or
educational purposes." As pointed out in Recommendations 8
and 9 of the 1958 Special Report, however, the principal dangers with which the statute is concerned—unregulated expansion
of corporate ownership of banks, and ownership of banking and
nonbanking interests by the same organization—are not obviated by the fact that a holding company is engaged chiefly in
agriculture or is operated for religious, charitable, or educational purposes. Accordingly, these exemptions also should be
repealed.
3. In administering the Act the Board has confirmed its
view (explained in Recommendation 23 of the 1958 Special
Report) that Section 6 of the Act should be repealed or, at
least, amended. That provision, broadly speaking, prohibits intrasystem investments and extensions of credit by banks in holding company systems. This constitutes a severe and, in the
Board's judgment, an unnecessary restriction upon the opera-

200

FEDERAL RESERVE SYSTEM

tions of banks controlled by holding companies, and therefore
should be repealed or amended as soon as possible.
4. Before enactment of the Bank Holding Company Act of
1956, Federal regulation of bank holding companies was based
principally on provisions of the Banking Act of 1933 relating
to "holding company affiliates." As pointed out in Recommendation 25 of the 1958 Special Report, the effectiveness of the laws
relating to holding company affiliates is open to question, and
it is doubtful whether, in view of the enactment of the Bank
Holding Company Act, these laws are sufficiently useful to justify their retention. Eliminating them would remove the confusion and the administrative burden that result from the existence of two sets of laws relating to the same general subject
but based on different definitions of what constitutes a holding
company.
LITIGATION
First Oklahoma Bancorporation, Oklahoma City, Oklahoma. In December 1962 and January 1963, petitions were filed in the U.S.
Court of Appeals for the Tenth Circuit (Denver, Colorado) for
review of an order of the Board, issued under the Bank Holding
Company Act, approving the formation of a bank holding company by First Oklahoma Bancorporation, Inc. Pursuant to consent action voluntarily taken by petitioners in each case, the
Court, on February 26 and April 8, 1963, dismissed the appeals.
Whitney Holding Corporation, New Orleans, Louisiana. Following
Board action of May 3, 1962, authorizing Whitney Holding
Corporation, New Orleans, Louisiana, to become a bank holding company by acquiring stock of 2 Louisiana banks—1 a
proposed new national bank—a petition for review of the action
was filed in the U.S. Court of Appeals for the Fifth Circuit (New
Orleans). In a separate action instituted in the U.S. District
Court for the District of Columbia, the petitioners in the Fifth
Circuit appeal obtained an order enjoining the Comptroller of
the Currency from issuing a certificate authorizing the proposed

201

ANNUAL REPORT OF BOARD OF GOVERNORS

national bank to open for business. The injunction order was
affirmed by the U.S. Court of Appeals for the District of Columbia Circuit, and by order dated October 17, 1963, the Court
of Appeals denied petitions for rehearing before the entire court,
which had been filed on behalf of the Comptroller and the
proposed national bank.
A decision by the Fifth Circuit Court of Appeals on the
petition for review of the Board's May 3 action was being withheld at year-end, pending determination as to any review proceedings that might be pursued in the District of Columbia case.
First Wisconsin Bankshares Corporation, Milwaukee, Wisconsin; The
Marine Corporation, Milwaukee. On December 17, 1963, the U.S.

Court of Appeals for the Seventh Circuit (Chicago, Illinois)
unanimously affirmed actions of the Board denying applications
by First Wisconsin Bankshares Corporation for approval of its
acquisition of the stock of 2 banks in Wisconsin—The American,
Bank and Trust Company, Racine, and Merchants & Savings
Bank, Janesville. On the same date, the Court unanimously
affirmed the Board's denial of an application of The Marine
Corporation for approval of the acquisition of stock of The
Beloit State Bank, Beloit, Wisconsin. In both cases the Court
issued opinions setting forth reasons for its decisions.
Wm. D. Bryan v. Federal Open Market Committee, et al. This

action was commenced on August 16, 1963, in the U.S. District
Court for Montana. Plaintiff sought (1) to have the powers exercised by the Federal Open Market Committee declared to have
been delegated unconstitutionally by Congress, and (2) to have
the Committee and its individual members restrained from purchasing and selling U.S. Government securities on the open market. As of the end of the year, an answer or other pleading on
behalf of the Committee was due on January 20, 1964.
RESERVE BANK OPERATIONS
Earnings and expenses. Current earnings, current expenses, and
the distribution of net earnings of each Federal Reserve Bank

202

FEDERAL RESERVE SYSTEM

during 1963 are shown in detail in Table 7 on pages 222-23,
and a condensed historical statement is shown in Table 8 on
pages 224-25. The table below summarizes the earnings, the expenses, and the distribution of net earnings for 1963 and 1962.
EARNINGS, EXPENSES, AND DISTRIBUTION OF N E T EARNINGS
OF FEDERAL RESERVE BANKS, 1963 AND 1962

(In thousands of dollars)
1963

Item
Current earnings
Current expenses

I 1,151,120
§ 187,273

1,048,508
176,136

963,847

872,372

615

-56

964,462

872,316

28,912
879,685

27,412
799,366

55,864

45,538

Current net earnings
Net additions
to or deductions from (—) current net
1
i
earnings
Net earnings before payments to Treasury
;
I
Dividends paid
*
Paid Treasury (interest on F.R. notes)
j
Transferred to surplus

1962

Includes net profits on sales of U.S. Govt. securities of $312,000 in 1963 and $1,990,000
in 1962.

Current earnings of $1,151 million in 1963 were $103 million,
or 10 per cent, more than in 1962. Of the increase, $99 million
represented larger earnings on U.S. Government securities; earnings on discounts and advances were $5 million higher than in
1962. In each instance the larger earnings were due mainly to
a rise in average holdings during the year. Earnings on foreign
currencies amounted to $2 million, compared with $4 million
in 1962.
Current expenses of $187 million were about 6 per cent higher
than in 1962. Current net earnings increased $91 million, or 10
per cent over 1962.
The effect on current net earnings of profit and loss additions
and deductions was negligible. Net earnings before payments to

203

ANNUAL REPORT OF BOARD OF GOVERNORS

the Treasury totaled $964 million, an increase of 11 per cent
from 1962.
Statutory dividends to member banks amounted to $29 million, about $2 million more than in 1962. This rise reflected an
increase in the capital and surplus of member banks and a consequent increase in the paid-in capital of the Federal Reserve
Banks.
Payments to the Treasury as interest on Federal Reserve notes
amounted to $880 million, 10 per cent more than in 1962. The
remaining $56 million of net earnings was added to Reserve
Bank surplus accounts in order to bring them up to the level of
subscribed capital.
Expenses of the Federal Reserve Banks include costs of $242
for 3 regional meetings in connection with the Treasury Department Savings Bond program.

RESERVE BANK EARNINGS ON LOANS AND SECURITIES,

Item and year

Discounts
and
advances

Total

Acceptances

1961-63

U.S.
Government
securities

In millions of dollars
Average daily holdings:
1961
1962
1963

Earnings:
1961
1962
1963

27,517
29,703
32,085

83
137
269

41
42
53

27,393
29,524
31,763

941.3
1,044.7
1,148.8

2.5
4.1
8.9

1.2
1.3
1.7

937.6
1,039.3
1,138.2

In per cent
Average rate of interest:
1961
1962
. .
1963
1

3.42
3.52
3.58

3.01
3.02
3.30

Based on holdings at opening of business.

204

2.83
2.97
3.28

3.42
3.52
3.58

FEDERAL RESERVE SYSTEM
Holdings of loans and securities. Average daily holdings of loans
and securities during 1963 amounted to $32,085 million—an
increase of $4,382 million over 1962. Holdings of U.S. Government securities accounted for $2,239 million of the increase, and
discounts and advances for $132 million.
The average rate of interest on holdings of U.S. Government
securities increased slightly, from 3.52 to 3.58 per cent; the
average rate on discounts and advances increased from 3.02 to
3.30 per cent owing to the change in the discount rate from 3 to
ZVi per cent in July and to heavier borrowings in the last half of
the year. The preceding table shows holdings, earnings, and
average interest rates on loans and securities held by the Federal
Reserve Banks during the past 3 years.
Volume of operations. Table 10 on page 226 shows the volume
of operations in the principal departments of the Federal Reserve
Banks for 1960-63. The volume of checks handled continued to
rise and reached another new high in 1963. Increased usage of
electronic check-handling equipment at 12 offices and new installations at 6 offices further reduced the manual burden of
processing checks.
The number of pieces of coin received and counted decreased
substantially, reflecting the severe and continuing shortage of
coin. The supply of newly minted coin increased over 1962, but
member banks still deposited considerably less coin than in recent
years. Conversely, the number of pieces of currency received and
counted and the aggregate dollar value increased, establishing
record highs.
The number of issues, redemptions, and exchanges of U.S.
Government securities approximated the previous high reached
in 1957, and the dollar value of these transactions continued an
upward trend, reaching another new high.
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 Aero-

205

ANNUAL REPORT OF BOARD OF GOVERNORS

nautics 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 as fiscal agents of the
guaranteeing agencies under the Board's Regulation V.
During 1963 the agencies authorized the issuance of 17 guarantee agreements covering loans totaling $30 million. Loan
authorizations outstanding on December 31, 1963, totaled $159
million, of which $139 million represented outstanding loans and
$20 million additional credit available to borrowers. Of total
loans outstanding, 75 per cent on the average was guaranteed.
During the year approximately $166 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, 1964.
Table 14 shows guarantee fees and maximum interest rates
applicable to Regulation V loans.
Foreign and international accounts. Assets held for foreign account
at the Federal Reserve Banks increased by $1,973 million in
1963. At the end of the year they amounted to $20,719 million:
$11,038 million of earmarked gold; $8,675 million of U.S. Government securities (including securities payable in foreign currencies) ; $171 million in dollar deposits; $92 million of bankers'
acceptances purchased through Federal Reserve Banks; and
$743 million of miscellaneous assets. The latter item includes
mainly dollar bonds issued by foreign countries and international
organizations. Assets held for international organizations rose
by $65 million to $8,093 million.
A gold collateral loan of $1 million outstanding at the
beginning of 1963 was repaid. New arrangements—including a
standby commitment—amounted to $87 million, of which $32
million was outstanding at 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

206

FEDERAL RESERVE SYSTEM

depositary and fiscal agent for international 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 to assets in the United States of Cuba
(since July 8, 1963), Communist China, and North Korea, and
their nationals, and to transactions with those countries and
their nationals.
Bank premises. During 1963 the Board authorized construction
of a new building for the New Orleans Branch.
With the approval of the Board, properties adjacent to the
Federal Reserve Banks of Richmond and Kansas City and the
Charlotte and Birmingham Branches were acquired for future
expansion, and a site for a new building was purchased for the
Little Rock Branch.
Table 6 shows the cost and book value of bank premises owned
and occupied by the Federal Reserve Banks and real estate
acquired for banking-house purposes.

The accounts of the Board for year 1963 were audited by the
public accounting firm of Haskins & Sells.
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, 1963 and the related
statement of assessments and expenditures 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.

207

ANNUAL REPORT OF BOARD OF GOVERNORS
In our opinion, the accompanying financial statements present fairly
the financial position of the Board of Governors of the Federal Reserve
System at December 31, 1963 and its assessments and expenditures for
the year then ended, in conformity with generally accepted accounting
principles applied on a basis consistent with that of the preceding year.
Haskins & Sells
Washington, D. C.
January 28, 1964.

BOARD O F G O V E R N O R S O F T H E F E D E R A L R E S E R V E S Y S T E M
BALANCE

SHEET, DECEMBER 31,

1963

ASSETS
OPERATING FUND:

Cash
Miscellaneous receivables and travel advances
Stockroom and cafeteria inventories—at cost

$ 947,084
13,222
20,964

Total operating fund

981,270

PROPERTY FUND—At cost:

Land and improvements
Building
Furniture and equipment

792,852
4,065,296
757,780

Total property fund

5,615,928

TOTAL

$6,597,198
LIABILITIES AND FUND BALANCES

OPERATING FUND:

Current liabilities:
Accounts payable and accrued expenses
Income taxes withheld
Accrued payroll
Fund balance:
Balance, January 1, 1963
Excess of assessments over expenditures for the year..

$ 314,993
229,011
132,011

$ 676,015

167,926
137,329

305,255

Total operating fund

981,270

PROPERTY FUND:

Fund balance, January 1, 1963
Expenditures for additions
Property adjustments and disposals

5,522,393
106,043
(12,508)

Total property fund

5,615,928

TOTAL

$6,597,198

208

FEDERAL RESERVE SYSTEM
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF ASSESSMENTS AND EXPENDITURES
FOR THE YEAR ENDED DECEMBER 31,
1963
ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS:

For Board expenses and additions to property
$ 7,572,800
For expenditures made on behalf of the Federal Reserve Banks. . .
8,340,270
Total assessments

15,913,070

EXPENDITURES:

For printing, issue and redemption of Federal Reserve notes,
paid on behalf of the Federal Reserve Banks
For expenses of the Board:
Salaries
$4,805,670
Retirement and insurance contributions
718,869
Traveling expenses
323,549
Consumer Finances Survey
266,315
Legal, consultant and audit fees
65,501
Other contractual services
72,336
Printing and binding—net
306,331
Equipment and other rentals
241,889
Telephone and telegraph
105,111
Postage and expressage
103,184
Stationery, office and other supplies
73,189
Heat, light and power
51,601
Operation of cafeteria—net
50,057
Repairs, maintenance and alterations
82,339
Books and subscriptions
22,354
Insurance
1,696
System membership, Center for Latin American
Monetary Studies
18,000
Miscellaneous—net
21,437

8,340,270

7,329,428

For property additions

106,043

Total expenditures

15,775,741

EXCESS OF ASSESSMENTS OVER EXPENDITURES FOR THE YEAR

209

137,329

Tables
*

1. DETAILED STATEMENT OF CONDITION OF ALL FEDERAL RESERVE BANKS
COMBINED, DECEMBER 31, 1963
(In thousands of dollars)
Gold certificates on hand:
Held by Federal Reserve Banks
Held by Federal Reserve Agents
Gold certificates due from U.S. Treasury:
Interdistrict Settlement Fund
Federal Reserve Agents' Fund

ASSETS
316,055
2,500,000
6,613,088
4,390,000 13,819,143
1,417,709

Redemption fund for Federal Reserve notes
Total gold certificate reserves
Federal Reserve notes of other Federal Reserve Banks
Other cash:
United States notes
Silver certificates
Standard silver dollars
National bank notes and Federal Reserve Bank notes
Subsidiary silver, nickels, and cents
Total other cash
Discounts and advances secured by U.S. Govt. securities:
Discounted for member banks
Discounted for others
Other discounts and advances:
Discounted for member banks
Foreign loans on gold

15,236,852
497,156
24,676
136,263
4,526
389
16,838

182,692
30,310

30,310

32,000

69,978
91,742
4,141,422
7,066,231
17,729,041
4,645,407

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

33,582,101
10,800
33,fi92,901

Total loans and securities..
Cash items in process of collection:
Transit items
Exchanges for clearing house...
Other cash items

33,816,931
6,836,729
252,368
701,778

Total cash items in process of collection
Bank premises:
Land
Buildings (including vaults)
Fixed machinery and equipment
Total buildings
Less depreciation allowances.
Total bank premises
Other assets:
Denominated in foreign currencies
Reimbursable expenses and other items receivable
Interest accrued
Premium on securities
Deferred charges
Real estate acquired for banking house purposes
Suspense account
All other

7,790,875
103,839
58,780
162,619
85,377

26,296

77,242

103,538
152,620
2,948
222,771
15,316
1,956
1,476
523

3,361
400,971

Total other assets.

58,029,015

Total assets

32,000
62,310

Total discounts and advances.
Acceptances:
Bought outright
Held under repurchase agreement
U.S. Government securities:
Bought outright:
Bills
Certificates
Notes
Bonds

212

DETAILED STATEMENT OF CONDITION OF ALL FEDERAL RESERVE BANKS
COMBINED, DECEMBER 31, 1963—Continued
(In thousands of dollars)

LIABILITIES
Federal Reserve notes:
Outstanding (issued to Federal Reserve Banks)
Less: Held by issuing Federal Reserve Banks.
Forwarded for redemption
Federal Reserve notes, net (includes notes held by
U.S. Treasury and by Federal Reserve 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 *
All other

1,308,224
131,854

34,318,269
1,440,078

32,878,191
17,047,234
880,465
171,014
46,606
9,394
26,688
96,972
113,202

Total other deposits.

292,862

Total deposits
Deferred availability cash items
Other liabilities:
Accrued dividends unpaid
Unearned discount
Discount on securities
Sundry items payable
Suspense account
All other

18,391,575
5,192,859
357
74,475
5,964
957
63

Total other liabilities.

81,816

Total liabilities.

56,544,441
CAPITAL ACCOUNTS

Capital paid in
Surplus
Other capital accounts 2

494,858
989,716

Total liabilities and capital accounts

58,029,015

Contingent liability on acceptances purchased for foreign correspondents

91,852

Includes Inter-American Development Bank, International Bank for Reconstruction and
Development,
International Finance Corporation, International Monetary Fund, etc.
2
During the year this item includes the net of earnings, expenses, profits, etc., which are closed
out on Dec. 31; see Table 7, pp. 222-23.
NOTE.—Amounts in boldface type are those shown in the Board's weekly statement in millions of
dollars.

213

STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1963 and 1962
(In millions of dollars unless otherwise indicated)
Boston

Total

Item

New York
1962

Cleveland

Philadelphia

1962

1963

1962

1963

1962

13,819
1,418

14,430
1,266

720
81

892
72

3,608
334

3,395
303

728
79

918
76

1,072
121

1,255
112

845
118

895
100

15,237

15,696

801

964

3,942

3,698

807

994

1,193

1,367

963

995

496
182

492
288

37
9

45
24

110
32

95
42

35
6

53
16

31
11

28
20

39
9

37
26

Discounts and advances:
Secured by U.S. Govt. securities
Other

31
32

32
6

*
2

*
*

1
9

15
1

1
2

1
*

6
3

2
1

Acceptances:
Bought outright
Held under repurchase agreement

70
92

52
58

70
92

52
58

U.S. Govt. securities:
Bought outright
.
..
Held under repurchase agreement

33,582
11

30,478
342

1,571

1,473

8,697
11

7,527
342

1,831

1,679

2,784

2,451

2,351

2,068

33,818

30,968

1,573

1,473

8,880

7,995

1,834

1,680

2,793

2,451

2,354

2,069

7,791
104

8,115
104

742
3

721
3

1,689
8

1,605
8

453
3

476
3

509
6

721
7

589

572
s

153
247

81
276

7
12

4
13

41
64

22
67

9
13

5
15

14
21

7
17

4
19

58,028

56,020

3,184

3,247

14,766

13,532

3,160

3,242

4,578

3,983

3,727

1963

Richmond

1962

1963

ASSETS
Redemption fund for F R notes •.
Total gold certificate reserves
F R. notes of other B a n k s . . .
Other cash

Total loans and securities
Cash items in process of collection.
Other assets:
Denominated in foreign currencies
All other
Total assets

8 |
22
4,624

LIABILITIES
F.R. notes
Deposits:
Member bank reserves
U.S Treasurer—General account
Foreign
Other

32,877

30,643

1,926

1,797

7,940

7,235

1,917

1,863

2,812

2,680

2,703

2,525

17,049
880

17,454
597

829
46

4,995
227

4,644
117

1,158
44

1,201
38

707
79

247
424

12
4

54
167

58
289

768
32

825
45

171
291

691
37

15
5

15
8

24
15

7
9

761
28

Total deposits
Deferred availability cash items
Other liabilities

18 391
5,191
82

18 722
5,181
73

891

5 108
795
18

815

341
4

404
4

811
320
5

54,619

3,113

3,181

14,370

13,156

3,077

3,161

1,278
531
5
4,494

398
6

56,541

1,225
399
7
4,443

802

489
4

5 443
967
20

890

443
4

3,909

3,661

497
990

467
934

24
47

22
44

132
264

125
251

28
55

27
54

45
90

43
87

25
49

58,028

56,020

3,184

3,247

14,766

13,532

3,160

3,242

4,578

4,624

3,983

3,727

29.7%

31.8%

30.0%

35.9%

29.5%

30.0%

29.5%

36.1%

29.6%

34.5%

27.5%

29.8%

34,317

32,117

2,004

1,876

8,274

7,513

1,976

1,935

2,992

2,864

2,787

2,646

1,440

1,474

334

278

180

184

121

32,877

30,643

1,926

1,797

7,940

7,235

1,917

1,863

2,812

2,680

2,703

2,525

6 890
15
28,242
35,147

7 643
16
25,179

483

535

1,700

1,600

425

670

625

688

1,530

1,365

6,700

32,838

2,013

1,900

8,400

1
2,275
2,901

2,653

Total liabilities

8
4

740

9
6

12
10

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts
Total liabilities and capital accounts
Ratio of gold certificate reserves to deposit and
F.R. note liabilities combined.
...
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 l
Collateral held by F.R. Agent for notes issued to
Bank:
Gold certificate account
Eligible p a p e r . . .
U.S. Govt. securities
Total collateral
For notes see end of table.

465

610

6,000

1
1,600

1,500

2,450

2,250

7,600

2,026

1,966

3,060

2,920

1,964

STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1963 and 1962—Continued
(In millions of dollars unless otherwise indicated)
Chicago

Atlanta

Item

1963

1962

1963

1962

1963

Kansas City

Minneapolis

St. Louis
1962

1962

1963

San Francisco

Dallas

1962

1963

1962

1,821

ASSETS
Gold certificate account
Redemption fund for F.R. notes
Total gold certificate reserves
F R notes of other Banks

Discounts and advances:
Secured by U.S. Govt. securities
Other
Acceptances:
Bought outright
•.
Held under reourchase agreement
U.S. Govt. securities:
Bought outright
Held under repurchase agreement
Total loans and securities
Cash items in process of collection
Bank premises
Other assets:
Denominated in foreign currencies
All other
Total assets

730
87

789
71

2,427

2,364
221

633
60

576
53

282
29

361
28

587
55

624
51

516
44

540
40

1,671

256

154

139

817

860

2,683

2,585

693

629

311

389

642

675

560

580

1,825

1,960

41
25

47
22

50
25

44
51

22
13

20
15

41
7

32
10

16
7

15
10

23
8

19
10

51
30

57
42

3
2

4
4

2
1

11
1

1
4

1 957

1,757

5,395

5,160

1,325

1,260

649

628

1,354

1,241

1,286

1,239

4,382

3,995

1,962

1,762

5,403

5,161

1,328

1,260

650

628

1,366

1,255

1,288

1,239

4,387

3,995

549

606

1,277

1,329
24

298
6

287
6

211
4

209
4

387
7

307
12

309
13

780
10

920
11

8
14

4
17

22
39

11
46

5
11

3
11

2
6

7
10

9
9

4
12

3,331

9,522

9,251

2,376

2,231

1,280

2,442

2,337

2,216

2,186

20
32
7,135

11
36

3,433

4
5
1,233

360
7
3
12

*
1

...

7,032

LIABILITIES
1,929

1,791

5,891

5,528

1,340

1,295

592

577

1,258

1,222

979

911

3,590

3,219

916
63
9
5

906
28
14
9

2,498
65
23
33

2,672
86
36
19

652
83
5
3

650
32
9
4

404
46
4

432
33
6
1

767
73
7
5

826
21
11
5

844
51
9
4

960
35
15
4

2,649
80
21
46

2,748
88
35
59

993
422
5

957
502
4

2,619
789
13

2,813
699
13

743
239
3

695
190
3

455
149
2

472
196
2

852
264
3

863
189
3

908
240
4

1,014
178
3

2,796
540
11

2,930
688
9

3,349

3,254

9,312

9,053

2,325

2,183

1,198

1,247

2,377

2,277

2,131

2,106

6,937

6,846

28
56

26
51

70
140

66
132

17
34

16
32

12
23

22
43

20
40

28
57

27
53

66
132

62
124

Total liabilities and capital accounts..

3,433

3,331

9,522

9,251

2,376

2,231

1,233

1,280

2,442

2,337

2,216

2,186

7,135

7,032

Ratio of gold certificate reserves to deposit
and F.R. note liabilities combined
Contingent liability on acceptances purchased
for foreign correspondents

28.0%

31.3%

31.5%

31.0%

33.3%

31.6%

29.7%

37.1%

30.4%

32.4%

29.7%

30.1%

28.6%

31.9%

2 009

1 883

6 147

5 721

1 402

1 368

618

672

1.296

1,268

970

3,758

3.401

256

193

168

182

3,590

3,219

F.R. notes
Deposits:
Member bank reserves
U.S. Treasurer—General account
Foreign
Other
Total deposits
Deferred availability cash items
Other liabilities
. . .
Total liabilities

....

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts

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

]

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

1,929

1,791

5,891

5,528

1,340

1,295

592

577

1,258

1,222

979

911

365

500

1,100

1,400

350

120

130

215

750

800

500

550

290
14
1,000

190

1,050

272
11
1,100

900

800

3,200

2,800

1,400

620

680

1,383

1,304

1,090

1,015

3,950

3,600

1,700

1,400

5,077

4,500

250
2
1,210

2,065

1,900

6,177

5,900

1,462

* Less than $500,000.
i Includes F.R. notes held by U.S. Treasury and by F.R. Banks other than the issuing Bank.

1 .054

FEDERAL RESERVE HOLDINGS OF U.S. GOVERNMENT SECURITIES
DECEMBER 31, 1961-63
(In thousands of dollars)

Treasury bonds:
1959-62 June
1959-62 Dec
1962-67
1963 Aug
1963-68
1964 Feb
1964-69 June
1964-69 Dec
1965 Feb
1965-70
1966-71
1966 May
1966 Aug
1966 Nov
1967-72 June. .
1967-72 Sept
1967 Nov
1967-72 Dec
1968 May
1968 Aug
1968 Nov
1969 Feb
1969 Oct
1970 Aug
1971 Aug
1971 Nov
1972 Feb
1972 Aug
1973 Aug
1974 Nov
1975-85
1978-83
1980 Feb
1980 Nov
1985 May
1987-92
1988-93
1989-94
1990 Feb
1998 N o v

interest
(percent)

21/4
2 VA
2VI

. I*
' IB
1
'
-.
•

25/s
2i/ 2
21/2
33/4
3

21/2

i
I

37/ 8
33/ 4

37/8

'
•
:
|
!

4
4
4
4
37/8

'
3%

j
1
I
%

4
31/2
3%
AVA

1
1

4
4V«
31/2
31/2

Total

1963

1962

107,560

107,560
348,500
146,085
90,750
296,740
325,199
407,100
572,540
144,007
210,500
27,850
165,600
52,766
40,052
533,950
79,358
226,200
29,900

164,085
90,750
306,740
334,199
480,600
573,540
144,007
247,200
36,550
209,100
54,566
44,052
579,550
95,858
250,700
116,600
8,000
69,500
13,000
40,450
23,450
45,200
93,600 " " 45,ioo'
126,900
44,000
98,000
23,500
88,600
32,200
21,000
35,150
33,400
5,750
4,250
500
500
32,800
16,300
19,400
18,400
20,800
20,800
5,000
4,000
13,500
13,900
57,450
43,450
14,250
9,750
4,645,407

Total
Treasury n o t e s :
Feb. 15, 1962—A.. . .
Feb. 15, 1962—D
Feb 15 1962 F
Apr. 1, 1962—EA.. .
May 15, 1 9 6 2 — E . . . .
Aug. 15, 1962—G
N o v . 15, 1 9 6 2 — C . . .
N o v . 15, 1962—H . . .
Feb. 15, 1 9 6 3 — A . . . .
Feb. 15, 1963—E
M a y 15, 1 9 6 3 — B . . . .
May 15, 1 9 6 3 — D . . . .
N o v . 15, 1963—C
May 15, 1964—A
M a y 15, 1 9 6 4 — D . . . .
Aug. 15, 1 9 6 4 — B . . . .
Aug. 15, 1 9 6 4 — E . . . .
N o v . 15, 1 9 6 4 — C . . .
N o v . 15, 1 9 6 4 — F . . . .
Apr. 1 , 1 9 6 5 — E A . . .
M a y 15, 1 9 6 5 — A . . . .
May 15, 1965—C. . . .
N o v . 15, 1 9 6 5 — B . . . .
Feb. 15, 1966—B
Aug. 15, 1 9 6 6 — A . . . .
Feb. 15, 1967—B
Aug. 15, 1 9 6 7 — A . . . .

4,136,757

35/8
4

Wi
4
3*4
33/4
25/8

31/4
47/8
434
2VA

5
47/s
33/4
45/8
37/8
3

4
3%
! . ..

Increase or decrease ( —)
during—

December 31

Rate of

Type of issue
and date

224,566'
173,500
52,500
814,600
188,039
2,796,383
219,000
118,550
1,794,400
2,310,400

"i,797',983"
219,000
122,550
1,739.400
2,306,300
4,074,993
15,000
206,700
3,911,506
63,000
274,500
1,643,959
119,000
235,150

""89,150'

17,729,041

10.717,281

15,000'
185,100
17,000'
114,000
1,605,159

r
218

1961

1963

395,849
375,765
81,110
16,500 " - 3 4 8 " , 5O6"
143,085
18,000
88,250
261,340
10,000
315,199
9,000
234,600
73,500
561,540
1,000
140,007
113,500 ""'36,7O6'
17,850
8,700
109,600
43,500
52,766
1,800
20,052
4,000
496,450
45,600
76,958
16,500
210,200
24,500
86,700
8,000
56,500
17,000
18,450
45,200
48,500
82,900
74,500
56.400
21,000
1,750
31,400
1,500
4,250
500
7,600
16,500
14,900
1,000
8,800
l',600"
13,500
13,900
14,000
41,450
4,500
7,750
3,845,721

508,650

1962

-395,849
-375,765
26,450
332,000
3,000
2,500
35,400
10,000
172,500
11,000
4,000
97,000
10,000
56,000
20,000
37,500
2,400
16,000
29,900
13,000
5,000
45,100
44,000
23,500
32,200
2,000
8,700
3,500
12,000
4,000
2,000
2,000
291,036

13,000
-13,000
11,500
-11,500
4 756 982
-4,756,982
25,000
-25,000
139,300
-139,300
3,641,493
-3,641,493
10,600
-10,600
3,228,950
-3,228,950
142,500 "-•224,566'
82,000
43,500
130,000
- 173,500
30,500
22,000
-52,500
743,600
71,000
- 814,600
15.584
172,455
- 188,039
2,777,383
19,000
1,600
201,500
17,500
91,550
27,000
4,o66'
1,700,900
93,500
- 55,000
2,266,400
44,000
-4,100
4,074,993

1*5,666

143,600 " " ' 2 1 , 6 0 6 '
41,500
3,911,506
46,000
17,666
160,500
114,000
38,800
1,605,159
119,000
146,000 ' ' " ' *89, i 50'
19.983,842

"7,011,760 -9,266,561

FEDERAL RESERVE HOLDINGS OF U.S. GOVERNMENT SECURITIES
DECEMBER 31, 1961-63—Contineud
(In thousands of dollars)

Type of issue
and date

1962

1963
Certificates:
May 15, 1962
Feb. 15, 1963
May 15, 1963
Aug. 15, 1963
Nov. 15, 1963
Feb. 15, 1964
May 15, 1964

3
3V4
3V*
3V4
3Vs
3V4
3%

Total

1961

1962

1963

1,699,500
-3,402,482
-2,393,149
-3,731,493
-3,654,815
3,800,982
3,265,249

3,402,482
2,393,149
3,731,493
3,654,815
3,800,982
3,265,249
13,181,939

7,066,231

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

Increase or decrease (—)
during—

December 31

Rate of
interest
(per cent)

1,699,500

-6,115,708

-1,699,500
3,402,482
2,393,149
3,731,493
3,654,815

11,482,439

19,000

108,000

174,500

-89,000

-66,500

2,893,512
1,061,610
167,300

1,666,922
446,735
220,352

2,158,281
692,305
168,000

1,226,590
614,875
-53,052

-491,359
-245,570
52,352

4,141,422

2,442,009

3,193,086

1,699,413

-751,077

10,800

342,000

159,000

-331,200

183,000

Total holdings

33,592,901

30,819,986

28,881,149

2,772,915

1,938,837

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

6,815,044
15,754,385
8,668,760
2,136,212
218,500

5,917,404
11,850,183
10,807,452
2,094,097
150,850

7,196,763
10,453,262
8,737,317
2,227,381
266,426

897,640
3,904,202
-2,138,692
42,115
67,650

-1,279,359
1,396,921
2,070,135
-133,284
-115,576

Total
Repurchase agreements.

FEDERAL RESERVE BANK HOLDINGS OF SPECIAL SHORT-TERM TREASURY
CERTIFICATES PURCHASED DIRECTLY FROM THE UNITED STATES, 1953-63
(In millions of dollars)

Date

Amount

1953
Mar. 18
19
20
21
22*
23
24
25
26
June 5
6
7*
8
9
10

110
104
189
189
189
333
186
63
49
196
196
196
374
491
451

Date
1953
June 11
12
13
14*
15
16
17
18
19
20
21*
22
23
24

Amount

358
506
506
506
999
1,172
823
364
992
992
992
908
608
296

Date

Amount

1954
Jan. 14
15
16
17*
18
19
20
21
22
23
24*
25
26
Mar. 15
16

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

Date

Amount

1955)
1956[none
1957]
1958
Mar. 17
18

143
207

1959
1960
1961 none
1962
1962

* 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 l/x per cent through Dec. 3, 1957, and lA 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.

219

OPEN MARKET TRANSACTIONS OF THE FEDERAL RESERVE SYSTEM DURING 1963
(In millions of dollars)
Outright transactions in U.S. Govt. securities by maturity
Treasury bills

Total
Month

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

Gross
purchases

Gross
Redemp- purtions
chases

Gross
sales

271
536
666
493
800
1,421
1,216
527
711
654
1,176
319

638
183
201
558
296
342
586
604
385
156
295
289

8,789

4,533

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

5
230
63
55
72
79
190
43

Gross
sales
35

365
9
15

603
183
201
544
281
342
586
604
345
156
295
289

1,152

7,280

4,429

843

Exch.
or
maturity
shifts

Total

Gross
purchases

"'-91'

20
69

-2,787

65
38
63
155
50

Gross
sales

-2,193
40

365
9
15
1,152

2,518
56

Exch.
or
maturity
shifts

Gross
purchases

"'-99'

-499

-531
297
377
219
72
773
441
-77
172
195
909
-74

8,895

9,226

2,773

Exch.
or
maturity
shifts

7
9
17
[0

543

505
1,245
845
449
691
897
909
243
573
1,032
921
915

Gross
sales

— 228

-2,932

342
1,261
808
782
353
783
1,015
253
419
1,095
959
826

3,431

7
8

Gross
sales

Over 10 years

-8
-164

Gross
purchases

"V.ois'

3
42
11

Net change
in U.S.
Govt.
securities

Exch.
or
maturity
shifts

Gross
sales

-2,510
164

Repurchase agreements
(U.S. Govt. securities)

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

71
51
50
94
192
294
10

Gross
purchases

5-10 years

"2,292"

106

Redemptions

271
504
359
429
677
1,262
1,054
166
608
654
977
319

71
51
50
94
192
294
10

1-5 years

Gross
purchases

Gross
sales

Others within 1 year

Bankers' acceptances

Net
outright
10

Net
repurchas es

N e t change
in U . S . G o v t .
securities and
acceptances

-48
-10

3
8
2
3
1

5
-5

-4
10
-2
28

14
-14
92

-569
279
375
211
70
774
436
-78
168
219
893
45

2,824

N O T E . — S a l e s , redemptions, and negative figures reduce System h o l d i n g s ; all other figures increase
such holdings. Details m a y not add to totals because of r o u n d i n g .

220

6. BANK PREMISES OF FEDERAL RESERVE BANKS AND BRANCHES,
DECEMBER 31, 1963
(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

2,966,116

10,523,417

3,066,270

New York
Annex
Buffalo

5,215,656
592,679
406,069

12,339,713
1,451,569
2,555,197

4,886,521
673,458
1,565,400

22,441,890
2,717,706
4,526,666

4,152,543
605,746
3,351,812

Philadelphia

1,884,357

4,839,506

2,154,452

8,878,315

3,012,010

Cleveland
Cincinnati
Pittsburgh

1,295,490
400,891
1,656,418

6,578,575
1,163,135
2,975,831

3,428,397
1,587,495
2,523,357

11,302,462
3,151,521
7,155,606

1,240,326
941,620
4,245,628

Richmond
Annex
Baltimore
Charlotte

469,944
152,883
250,487
347,071

4,164,663
131,722
2,009,381
1,069,026

2,483,977
1,068,445
625,121

7,118,584
284,605
3,328,313
2,041,218

1,952,994
272,929
1,571,181
1,309,471

Atlanta
Annex
Birmingham
Jacksonville
Nashville
New Orleans

957,855
93,931
338,917
164,004
592,342
1,119,907

6,309,726
137,100
1,982,184
1,706,794
1,478,380
1,046,190

1,703,338
103,867
948,236
712,577
1,016,213
265,700

8,970,919
334,898
3,269,337
2,583,375
3,086,935
2,431,797

8,457,467
246,345
2,474,779
1,499,465
2,432,895
1,464,246

Chicago
Detroit
St. Louis
Little Rock
Louisville
Memphis

6,275,490
1,147,734
1,675,780
241,105
700,075
128,542

17,405,056
2,845,585
3,195,210
391,611
2,859,819
287,644

9,401,769
1,311,512
2,229,885
206,575
1,041,202
198,834

33,082,315
7,100,875
839,291
4,601,096
615,020

19,722,434
2,808,943
1,802,374
418,391
3,738,059
212,334

Minneapolis
Helena
Kansas City
Denver
Oklahoma City
Omaha

600,521
15,709
545,764
592,271
592,435
445,663

4,689,718
126,401
3,521,181
523,041
1,511,600
1,491,117

2,688,921
62,977
1,320,983
86,910
830,714
723,843

7,979,160
205,087

3,877,756
63,911

5,387,928
1,202,222
2,934,749
2,660,623

1,094,567
728,067
2,694,878
2,006,390

Dallas
El Paso
Houston
San Antonio

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

4,811,690
787,728
1,408,574
1,400,390

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

9,095,796
1,443,506
2,818,376
2,419,833

6,697,684
1,112,998
2,260,228
1,824,443

2 473,235
247,201
777,614
207,380
480,222
274,772

3,783,530
124,000
4,103,844
1,678,512
1,878,238
1,896,541

1,458,028
30,000
1,592,708
649,432
707,575
661,987

5,714,793
401,201
6,474,166
2,535,324
3,066,035
2,833,300

870,688
358,801
3,282,434
1,460,669
2,524,423
1,679,307

35,108,536

118,588,891

59,165,664

212,863,091

103,537,506

San Francisco
Annex
Los Angeles
Portland
Salt Lake City
Seattle
Total

5,304,831

OTHER REAL ESTATE ACQUIRED FOR BANKING-HOUSE PURPOSES
Richmond
Birmingham
Little Rock
Kansas City

157,953
71,317
614,447
3 625,872

6,551

157,953
71,317
620,998
625,872

Total

1,469,589

6,551

1,476,140

May include expenditures in construction account pending allocation to appropriate accounts.
23 Revised from figure published in ANNUAL REPORT for 1962.
Includes cost of building on property.

221

EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1963
(In dollars)

Item

Total

Boston

New
York

Philadelphia

Cleveland

Richmond

Chicago

St. Louis

Minneapolis

San
Francisco

Kansas
City

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

8,865,844
282,807 546,633
563,965
246,814
267,047 2,514,235
585,180 1,679,049
169,804
821,800
585,957
602,554
1,728,755
1,728,755
1,138,167,465 57,691,810 286,967,895 61,405,726 94,214,163 75,645,681 62,774.757 190,404,300 45,292,511 22,713,451 47,457,227 45,650,694 i 47,949,252
271,770
111,142
288,100
97,018
549,698
118,491
190,022
69,486
46,502
84,916
2,039,600
95,995
116,460
33,294
33,924
15,032
56,100
19,227
42,590
9,447
14,384
318,396
21,529
17,251
32,766
22,853
1,151,120,060 58.070,907 291,816,683 61,826,251 94,972,347 76,322,891 63,505,003 192,414,039 45,618,258 22,944,141 48,396,708 46,375,963 148,856,869
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 (building)
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 of
Board of Governors
Total

617,992
710,054 603,502 440,904
569,058
614,431
416,378 1,434,884 516,224 602,871
536,597 467,956
7,530,851
99,257,976 6,382,259 23,609,561 4,903,977 8,215,749 6,630,316 5,942,427 14,368,199 5,355,725 3,208,546 5,335,290 4,221,255 11,084,672
17,517,934 1,090,900 3,877,325 903,164 1,474,774 1,211,181 1,105,009 2,486,793 955,983
598,708 1,008,888 765,011 2,040,198
91,330
46,204
49,774
69,001
60,434
55,762
43,844
571,122
28,561
30,441
38,380
37,706
19,685
177,137
259,449
287,143
364,090
173,718
154,789
2,144,063
131,056
113,884
130,739
130,850
92,905
128,303
21,333,562 1,474,181 2,711,365 1,068,485 1,778,887 1,963,545 1,921,730 2,923,726 1,200,047 838,199 1,430,909 1,160,438 2,862,050
181,334
180,668
381,854
95,382
194,707
118,941
124,531
121,006
1,735,398
93,125
61,171
105,142
77,537
8,376,360
564,353 1,309,821
341,362
797,131
666,270
630,695 1,692,605
480,774
247,588
488,868
517,689 639,204
28,646
36,287
38,282
47,231
58,535
33,821
31,979
389,900
26,626
14,480
35,175
24,701
14,137
874,918
5,000,399
933,423
505,786
198,394 288,967
620,827
182,920
348,805
259,616
239,233
154,236 393,274
455,999
6,368,389
580,541 1,371,092
484,696
523,786
197,775
321,151
344,037
225,956 692,511
270,528 900,317
256,301
1,930,003
119,841
138,247
309,456
177,978
164,655
137,098
99,781
134,139
140,535
156,364
95,608
38,572
900,630
1,852,828
79,342
135,881
169,765
104,022
42,306
40,231
64,357
49,695
122,616
105,411
154,229
11,426
5.787
15,081
63,218
25,172
11,623
2,262
1,361
3,878
1,508
6,854
6,059
3,097,943
9,125,749
3,303,310

286,108
840,616,

125,341
53,024

911,515
1,018,106
861,887
-754.358

343,692
523,122
126,717
63,420

146,431
832,752
462,018
102,108

223,606
674,367
138,456
-9,461

142,874
535,817
152,662
64,551

290,786
1,650,167
520,233
155,373

355,926
130,903
39,742

405,432
131,860
26,016

601,311
211,780
48,795

500,262
294,541
64,200

1,187,871
146,912
146,590

189,690,014 12,559,959 38,730,006 9,843,345 16,309,131 13,421,436 12,635,681 27,766,864 10,190,847 7,000,591 10,952,617 9,373,204 20,906,336
726,102 1,972,475 535,287 534,895
10,062,901
896,477 927,246 1,712,708 497,019
77,640 423,850 242,538 1,516,664
7,572,800

362,200

2,032,100

435,000

704,300

358,300

416,600

1,069,700

256,900

176,300

322,600

434,400

1,004,400

207,325,716 13,648,261 42,734,580 10,813,632 17,548,326 14,676,213 13,979,526 30,549,272 10,944,765 7,254,531 11,699,067 10,050,142 23,427,400

Less reimbursement for certain
fiscal agency and other expenses
Net expenses

20,052,359 1,125,501

3,636,001

901,516 1,896,146 1,139,644 1,374,488

3,697,765

1,231,094

611,557 1,550,287

841,691

2,046,668

187,273,357 12,522,760 39,098,579 9,912,116 15,652,180 13,536,568 12,605,038 26,851,507 9,713,671 6,642,974 10,148,781 9,208,451 21,380,731
PROFIT AND LOSS

Current net earnings
Additions to current net
earnings:
Profits on sales of U.S.
Govt. securities (net)
All other

963,846,704 45,548,147 252,718,103 51,914,136 79,320,167 62,786,323 50,899,965 165,562,532 35,904,587 16,301,167 38,247,928 37,167,513 127,476,138

312,355
490,787

15,896
34,153

77,185
112,711

17,908
38,653

26,166
45,949

20,749
36,891

16,693
19,027

51,785
53,889

12,768
17,535

7,257
24,595

14,474
14,066

11,845
24,089

39,629
69,229

803,140

50,049

189,896

56,561

72,115

57,639

35,720

105,674

30,303

31,852

28,540

35,934

108,857

Deductions from current net
earnings

188,309

10,822

10,970

3,165

1,415

1,459

1,686

113,032

1,996

2,101

642

24,808

16,213

Net deductions from ( —) or
additions to current net
earnings

614,834

39,227

178,927

53,396

70,700

56,181

34,034

-7,358

28,307

29,751

27,898

11,126

92,644

Total additions.

Net earnings before payments
to Treasury.

964,461,538 45,587,374 252,897,030 51 ,967,532 79,390,867 62,842,503 50,933,999 165,555,174 35,932,894 16,330,918 38,275,826 37,178,639 127,568,782

Dividends paid
Paid Treasury (interest on F.R.
notes).

879,685,219 41,648,032 232,650,269 48,851,933 73,916,924 56,413,810 44,938,810 153,713,724 32,405,995 14,332,545 33,396,652 32,204,404 115,212,119

Transferred to surplus
Surplus, January 1
Surplus, December 31

28,912,019 1,376,442

7,743,061

4,069,450

985,699

673,472 1,251,974 1,668,435

3,846,063

8,510,600
3,305,800
1,324,900
3,627,200
I 55,864,300 2,562,900 12,503,700 1,476,900 2,820,300 5,037,000 4,381,800 7,772,000 2,541,200
,_ ,
, ,
,
,
.
1 933,851,400 4<670;i00 250,711,100 53,769,400 86;968;400 4 4 J 0 2 3 0 51 ,244,600 132,072,500 31,706,300 21,709,200 39,625,000 53,464,000 123,808,500
1 989,715,700 47,233,000 263,214,800 55,246,300 89,788,700 49,139,300 55,626,400 139,844,500 34,247,500 23,034,100 43,252,200 56,769,800 132,319,100

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

1,638,699 2,653,643 1,391,693 1,613,389

EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, 1914-63
(In dollars)

Period or Bank

All F.R. Banks,
by years:

to
K>
P

Current
earnings

Current
expenses

Net earnings
before payments to
Treasury l

Dividends
paid

Franchise tax
paid to
Treasury

Paid to
Treasury
(Sec. 13 b)

Paid to
Treasury
(interest on
F.R. notes)

Transferred
to surplus
(Sec. 13b)

Transferred
to surplus
(Sec. 7)

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
9,583,913

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

2,473,808
8,464,426

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

2,011,418

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
28,911,608
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

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

17,617,358
570,513
3,554,101
40,237,362
48,409,795

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

5,044,119

21,078,899
22,535,597

17,308

-60,323

135,003

201,150

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

262,133
27,708
86,772

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

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

153,882,275
161,274,575
176,136,134
187,273,357

963,377,684
783,855,223
872,316,422
964,461,538

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

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

42,613,100
70,892,300
45,538,200
55,864,300

1960
1961
1962.
1963

I 1,103,385,257
*- 941,648,170
1,048,508,335
] 1,151,120,060

l,118,387,902

Total 1914-63

'12,421,555,403

2,960,509,455

9,520,087,964

559,047,925

149,138,300

2,188,893

7,691,328,601

-3,657

Aggregate for each
F.R. Bank, 1914-63:
Boston
New York
Philadelphia
Cleveland

4
\
I 720,009,862
» 3,155,182,944
1 769,325,725
1 1,091,889,858

207,946,722
646,210,256
188,266,698
267,852,698

517,383,492
2,528,827,073
588,747,975
827,697,524

33,451,532
177,492,652
42,388,097
54,355,516

7,111,395
68,006,262
5,558,901
4,842,447

280,843
369,116
722,406
82,930

419,076,482
1,982,921,084
470,211,388
665,404,044

135,411
-433,413
290,661
-9,906

57,327,825
300,471,371
69,576,522
103,022,493

Richmond.. .
Atlanta
Chicago
St. Louis

767,573,193
656,438,988
2,013,390,901
539,547,507

199,406,837
174,950,730
417,381,005
161,626,530

572,338,797
481,539,319
1,600,593,879
378,780,344

24,483,862
23,726,617
70,706,797
19,213,521

6,200,189
8,950,561
25,313,526
2,755,629

172,493
79,264
151,045
7,464

486,534,660
387,884,444
1,349,237,575
317,463,117

-71,517
5,491
11,682
-26,515

55,019,108
60,892,940
155,173,254
39,367,128

Minneapolis
Kansas City
Dallas
San Francisco

g 315,032,014
I 556,092,459
| 501,903,315
| 1,335,168,638

102,338,440
158,652,863
137,978,317
297,898,360

215,143,486
399,607,298
366,226,215
1,043,202,557

13,047,112
20,702,798
24,375,475
55,103,942

5,202,900
6,939,100
560,049
7,697,341

55,615
64,213
102,083
101,421

169,861,675
324,517,710
280,085,993
838,130,426

64,874
-8,674
55,337
-17,089

26,911,313
47,392,150
61,047,278
142,186,517

?12,421,555,403

2.960,509,455

9,520,087,964

559,047,925

149,138,300

2,188,893

7,691,328,601

-3,657

1,118,387,902

Total

1
Current earnings less current expenses, plus and minus profit and loss additions
and2 deductions.
The $1,118,387,902 transferred to surplus was reduced by direct charges of
$139,299,557 for contributions to capital of the Federal Deposit Insurance Corporation,
$500,000 for charge-off on bank premises, and $3,657 net upon elimination of surplus

(Sec. 13b), and was increased by $11,131,013 transferred from reserves for contingencies,
leaving a balance of $989,715,700 on Dec. 31, 1963.
NOTE.—Details may not add to totals because of rounding.

9. NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF
FEDERAL RESERVE BANKS, DECEMBER 31, 1963
President
Federal Reserve '
Bank (including "
branches)
' Annual
salary
Boston
New York
Philadelphia

Other officers

Employeesi

Total

Number

Annual
salaries

$ 35,000
70,000
40,000

23
67
29

$ 372,000
1,311,000
463,000

1,433
4,058
1,002

$ 6,240,998
23,154,349
4,789,610

1,457
4,126
1,032

Number

Annual
salaries

Number

Annual
salaries
$

6,647,998
24,535,349
5,292,610

Cleveland
Richmond
Atlanta

35,000
40,000
40,000

36
35
41

545,500
529,000
578,550

1,513
1,400
1,342

7,717,125
6,531,388
5,836,255

1,550
1,436
1,384

8,297,625
7,100,388
6,454,805

Chicago
St. Louis
Minneapolis

50,000
35,000
40,000

42
36
27

660,000
548,000
398,250

2,932
1,125
656

13,719,899
5,131,264
2,976,377

2,975
1,162
684

14,429,899
5,714,264
3,414,627

37,500
40,000
40,000

32
30
41

465,100
427,950
569,500

1,205
957
2,195

5,150,558
4,165,363
10,175,661

1,238
988
2,237

5,653,158
4,633,313
10,785,161

. $502,500

439

$6,867,850

19,818

$95,588,847

20,269

$102,959,197

Kansas City
Dallas
San Francisco
Total
1

'
'

Includes 926 part-time employees.

10. VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS OF FEDERAL
RESERVE BANKS, 1960-63
(Number in thousands; amounts in thousands of dollars)
Operation

1962

Discounts and advances...
Currency received and counted
*
Coin received and counted .
a
Checks handled:
U.S. Govt. checks
*
Postal money o r d e r s . . . .
All other 2
*
Collection items handled:
i
U.S. Govt. coupons paid
$
All other
Issues, redemptions, and exchanges I
of U.S. Govt. securities
£
Transfers of funds
}

1961

1960

19
4,746,665
9,767,544
454,576
243,999
4,069,111

443,271
247,400
3,873,341

15,430
26,839

15,879
25,327

16,431
23,144

16,357
21,513

204,213
3,603

198,123
3,318

192,2 66
3,038

197,825
2,918

Discounts and advances...
|
44,894,170
Currency received and counted
p
32,350,089
1,007,532
Coin received and counted .
*
Checks handled:
I
131,795,729
U.S. Govt. checks
%
4,707,908
Postal money o r d e r s . . . .
All other 2
* 1,363,949,957
Collection items handled:
*
5,213,610
U.S. Govt. coupons paid
1
All other
*
7,143,665
Issues, redemptions, and exchanges \
of U.S. Govt. securities
* 683,736,756
3,442,100,310
Transfers of funds

19,685,050
31,621,061
1,140,009

14,657,545
30,670,620
1,133,^-70

58,057,685
31,553,482
1,095,870

125,431,359
4,701,516
1,283,430,670

115,009,063
4,860,182
1,198,461,186

105,212,842
5,029,890
1,154,120,907

4,755,819
6,940,394

4,717,259
6,553,424

4,798,446
5,793,218

639,755,488
3,168,359,333

560,263,435
2,706,716,007

527,444,784
2,428,083,100

AMOUNTS HANDLED

1
2

407,333
270,307
3,419,093

Packaged items handled as a single item are counted as one piece.
Exclusive of checks drawn on the F.R. Banks.

226

11. FEDERAL RESERVE BANK DISCOUNT RATES,
DECEMBER 31, 1963
(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 i

Advances under
Sec. 10(b)2

Boston
New York
Philadelphia. .

3*4
3Vi
3V4

4*4

Cleveland
Richmond
Atlanta

3fc

5
4y 2

Chicago
St. Louis
Minneapolis. .

3V4
Wi
3V4

Kansas City...
Dallas
San Francisco.

3*4

41/2
41/2

3%
3y 2

5
4Vi
4

1
Advances secured by U . S . G o v t . securities a n d discounts of a n d advances secured by eligible
paper. Rates shown also apply to advances secured by securities of Federal intermediate credit b a n k s
maturing within 6 m o n t h s . M a x i m u m m a t u r i t y : 90 days except that discounts of certain b a n k e r s '
acceptances a n d of agricultural paper m a y have maturities n o t over 6 m o n t h s a n d 9 m o n t h s , respectively, a n d advances secured by F I C B securities are limited t o 15 days.
2Advances secured to t h e satisfaction of the F . R . Bank. M a x i m u m m a t u r i t y : 4 m o n t h s .
3Advances to individuals, partnerships, or corporations other t h a n m e m b e r b a n k s secured by
U.S. G o v t . direct securities. M a x i m u m m a t u r i t y : 90 days.

12. M A X I M U M I N T E R E S T R A T E S P A Y A B L E O N T I M E A N D S A V I N G S D E P O S I T S
(Per cent p e r a n n u m )
Effective date
Type of deposit
Nov. 1,
1933
Savings deposits held for—
1 year o r m o r e
Less t h a n 1 year

?
^ ' -,
*. /

Postal savings deposits held for—
1 year or m o r e
Less t h a n 1 year

> ] *>
1

Other time deposits payable i n — '
1 year o r m o r e
6 months-lyear
90 days-6 m o n t h s
Less t h a n 90 days

*1 ^
} J
t 3
\ 3

Feb. 1.
1935

Jan. 1,
1936

2*4

21/2

2*4

21/2

Jan. 1,
1957

/ 4
\ 3i

2
1

July 17,
1963

4
31/2
4
3%

2V2
2%

Jan. 1,
1962

21/2

4
3^2
2*4

For exceptions with respect to foreign time deposits, see 1962 ANNUAL REPORT, p. 129.

Note.—Maximum rates that may be paid by member banks as established by the Board of Governors under provisions of Regulation Q. Under this Regulation the rate payable by a member bank may
not in any event exceed 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. Effective Feb. 1, 1936, maximum rates
that may be paid by insured nonmember commercial banks, as established by the FDIC, have been
the same as those in effect for member banks.

227

13. MARGIN REQUIREMENTS
(Per cent of market value)
Effective date
Regulation

Regulation T:
For extension of credit by
brokers and dealers on
listed securities
For short sales
Regulation U:
For loans by banks on stocks .

Mar. 30, Jan. 17, Feb. 20,
1949
1951
1953

July 5,
1945

Jan. 21,
1946

Feb. 1,
1947

Jan. 4,
1955

75
75

100
100

75
75

50
50

75
75

50
50

60
60

100

Effective date
Apr. 23, Jan. 16,
1955
1958
Regulation T:
For extension of credit by
brokers and dealers on
listed securities
For short sales
Regulation U:
For loans by banks on stocks

Aug. 5,
1958

Oct. 16,
1958

July 28,
1960

July 10, Nov. 6,
1963
1962

70
70

50
50

70
70

90
90

70
70

50
50

70
70

Note.—Regulations T and U, prescribed in accordance with Securites Exchange Act of 1934,
limit the amount of credit that may be extended on a security by prescribing a maximum loan value,
which is a specified percentage of its market value at the time of extension; margin requirements are
the difference between the market value (100%) and the maximum loan value. Changes on Feb. 20,
1953, and Jan. 4, 1955, were effective after close of business on these dates.
For earlier data, see Banking and Monetary Statistics, 1943, Table 145, p. 504.

14. FEES AND RATES UNDER REGULATION V ON LOANS
GUARANTEED PURSUANT TO DEFENSE PRODUCTION ACT OF 1950,
DECEMBER 31, 1963
Fees Payable to Guaranteeing Agency by Financing Institution on Guaranteed Portion of Loan

Percentage of loan guaranteed

70 or less.
75
80
85
90
95
Over 9 5 . . ,

Guarantee fee
(percentage of
interest payable
by borrower)

Percentage of
any commitment
fee charged
borrower

10
15
20
25
30
35
40-50

15
20
25
30
.35
40-50

Maximum Rates Financing Institution May Charge Borrower
6

Interest rate
Commitment rate.

228

per cert per annum
Vi P e r cert per annum

15.

MEMBER BANK RESERVE REQUIREMENTS
(Per cent of deposits)
Net demand deposits *

Time deposits

Effective date

1917—June
1936—Aug.
1937—Mar.
May
1938—Apr.
1941—Nov.
1942—Aug.
Sept.
Oct.
1948—Feb.
June
Sept.

21
16
1
1
16
1
20
14
3
27
11
16
24
1949—May 1

Central
reserve
city banks 2

Reserve
city banks

Country
banks

13
19%
223/4
26
223/4
26
24
22
20
22
24

10
15
17%
20
17%
20

7
10%
I21/4
14
12
14

Country
banks

6
5
6

16
15

24
June 30
July
1
Aug 1
11
16
18
25
Sept. 1
1951—Jan. 11
16
25
Feb
1
1953 July 1
9
1954 June 16
24
July 29
Aug. 1
1958—Feb. 27
Mar. 1
20
Apr. 1
17
24
1960—Sept. 1
Nov. 24
Dec. 1
1962—Oct. 25
Nov. 1.

Central
reserve and
reserve city
banks 2

21
20

"J4

7%
7%
7
7
6
6

13
23%

19%

23
22%
22
23

19
18%
18
19

5
12

6
13

6
5
6

""20
14
13

21
20

19%

17%

5
5
12

""J9

""xi'W"
18
17%
161/i

11%
11

16%
12
4
4

In effect Jan. 1, 1964

16%

Present legal requirements:
Minimum
Maximum

10
22

7
14

3
6

1 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, 1943June 30, 1947).
2
Authority of the Board of Governors to classify or reclassify cities as central reserve cities was
terminated effective July 28, 1962.
NOTE.—All required reserves were held on deposit with Federal Reserve 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 2% 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. Effective Nov. 24, 1960, all vault cash.

229

16.

MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT, AND RELATED ITEMS—END OF YEAR 1918-63 AND END OF MONTH 1963
(In millions of dollars)
Factors absorbing reserve funds

Factors supplying reserve funds
F.R. Bank credit outstanding
Period

U.S. Govt. securities

Total

Bought
outright

Discounts
Repur- and
chase
adagree- vances
ments

Float

All
otheri

Gold
stock 2
Total

Treasury
currency
outstanding 3

Currency
circulation

Treasury
cash
hold-4
ings

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

Treas- Forury eign

Oth-

Member bank reserves
Other
F.R.
accounts 5

With
F.R.
Banks

Currency
and
coin 6

Required 7

Ex-

1918.
1919.

239
300

1,766
2,215

199
201

294
575

2,498
3,292

2,873
2,707

1,795
1,707

4,951
5,091

288
385

51
31

96
73

25
28

118
208

,636
,890

1,585
1,822

51
68

1920.
1921 .
1922.
1923.
1924.

287
234
436
134
540

287
234
436
80
536

119
40
78
27
52

262
146
273
355
390

3,355
,563
,405
,238
,302

2,639
3,373
3,642
3,957
4,212

1,709
1,842
1,958
2,009
2,025

5,325
4,403
4,530
4,757
4,760

218
214
225
213
211

57
96
11
38
51

5
12
3
4
19

18
15
26
19
20

298
285
276
275
258

,781
,753
,934
,898
2,220

1,654

54
4

2,687
1,144
618
723
320

1,884
2,161

14
59

1925.
1926.
1927.
1928.
1929.

375
315
617
228
511

367
312
560
197
488

3
57
31
23

643
637
582
1,056
632

63
45
63
24
34

378
384
393
500
405

;459
,381
,655
,809
,583

4,112
4,205
4,092
3,854
3,997

1,977
1,991
2,006
2,012
2,022

4,817
4,808
4,716
4,686
4,578

203
201
208
202
216

16
17
18
23
29

8
46
5
6
6

21
19
21
21
24

272
293
301
348
393

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

729

686
775
1,851
2,435
2,430

251
638
235
98
7

21
20
14
15
5

372
378
41
137
21

,373
,853
2,145
2,688
2,463

4,306
4,173
4,226
4,036
8,238

2,027
2,035
2,204
2,303
2,511

4,603
5,360
5,388
5,519
5,536

211
222
272
284
3,029

19
54
8
3
121

6
79
19
4
20

22
31
24
128
169

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

38
28
19
16
11

2,486
2,500
2,612
2,601
2,593

10,125
11,258
12,760
14,512
17,644

2,476
2,532
2,637
2,798
2,963

5,882
6,543
6,550
6,856
7,598

2,566
2,376
3,619
2,706
2,409

544
244
142
923
634

29
99
172
199
397

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

2,274
2,361
6,679
12,239
19,745

21,995
22,737
22,726
21,938
20,619

3,087
3,247
3,648
4,094
4,131

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

2,213
2,215
2,193
2,303
2,375

368 1,133
867
774
799
793
579 1,360
440 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

1930.
1931 .
1932.
1933.
1934.

1,855
2,437
2,430

1935.
1936.
1937.
1938.
1939 .

2.431
2,430
2,564
2,564
2,484

2,430
2,430

5
3
10
4
7

12
39
19
17
91

1940.
1941 .
1942.
1943.
1944.

2.184
2,254
6,189
11,543
18,846

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

3
3
6
5

80
94
471
681
815

817

2,564
2,564
2,484

43
42
4
2

1945 . . .. * 24,262
1946.. . . \ 23,350
1947.. . • i 22,559
1948. . . . * 23,333
1949. . ..| 18,885

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

578
580
535
541
534

2
1
1
1
2

25,091
24,093
23,181
24,097
19,499

20,065
20,529
22,754
24,244
24,427

4,339
4,562
4,562
4,589
4,598

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

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

977
393
870
1,123
821

862
508
392
642
767

446
314
569
547
750

495
607
563
590
706

15,915
16,139
17,899
20,479
16,568

14,457
15,577
16,400
19,277
15,550

1,458
562
1,499
1,202
1,018

1950.
1951.
1952.
1953.
1954.

.
.
.
.
.

. .9 20,778
.. ' 23,801
. . I 24,697
.. • 25,916
. .H 24,932

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

53
196
663
598
44

67
19
156
28
143

1,368
1,184
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

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

,293
,270
,270
761
796

668
247
389
346
563

895
526
550
423
490

565
363
455
493
441

714
746
111
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

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

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

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

26,984
28,722
30,478

400
159
342

33
130
38

1,847
2,300
2,903

74
51
110

29,338
31,362
33,871

17,767
16,889
15,978

5,398
5,585
5,567

32,869
33,918
35,338

377
422
380

485
465
597

217
279
247

533
320
393

941
,044
,007

17,081
17,387
17,454

2,544
2,823
3,262

18,988
20,114
20,071

637
96
645

30,110
30,391
30,805
30,691
31,101
31,988
32,324
32,237
32,563
32,696
33,567
33,582

179
195
158
491
153
39
144
154

87
209
201
153
208
96
338
389
138
332
868
63

1,511
,759
,369
,446
,304
,638
,101
,316
,567
,439
,341
>,600

72
54
52
44
42
43
39
38
34
58
42
162

31,959
32,608
32,585
32,825
32,808
33,804
33,946
34,134
34,302
34,587
35,918
36,418

15,928
15,878
15,878
15,877
15,797
15,733
15,633
15,582
15,582
15,583
15,582
15,513

5,569
5,573
5,575
5,581
5,583
5,587
5,588
5,588
5,591
5,582
5,572
5,578

34,093
34,286
34,513
34,645
35,067
35,470
35,663
35,850
35,891
36,177
37,227
37,692

406
428
409
420
391
369
389
382
384
372
378
361

821
841
909
952
651
806
629
705
948
881
890
880

197
192
201
160
171
175
182
178
174
175
165
171

327
322
188
206
177
242
262
195
199
209
192
291

968
,140
,069
997
,155
,097
,070
,213
,107
,016
,267
,065

16,644
16,850
16,748
16,904
16,574
16,965
16,971
16,782
16,772
16,922
16,952
17,049

3,262
3,260
2,565
3,227
3,171
2,651
3,432
2,788
2,900
3,566
3,020
4,099

19,190
19,132
19,073
19,294
18,994
19,807
19,452
19,182
19,747
19,566
19,662
20,677

716
978
240
837
751
-191
951
388
-75
922
310
471

1960. . . . ' 27,384
1961 . . .. ; 28,881
1962. . . . c 30,820

249
163
85
223
78

1963—
Jan.. .
Feb...
Mar..
Apr...
May..
June..

July. .
Aug..
Sept..
Oct...
Nov..
Dec...

30,289
30,586
30,963
31,182
31,254
32,027
32,468
32,391
32,563
32,758
33,667
33,593

' 62
100
11

P1 Preliminary.
Principally acceptances and industrial loans; authority for industrial loans expired
Aug. 21, 1959.

oi me united states, includes currency ot tnese kinds neid in tne treasury and the r.K.
Banks4 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 silver certificates and Treasury notes of 1890, and
the following coin and paper currency held in the Treasury: subsidiary silver and minor
coin, 5 United States notes, F.R. notes, F.R. Bank notes, and national bank notes.
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.
6 Part allowed as reserves Dec. 1, 1959-Nov. 23, 1960; all allowed thereafter.
7 These figures are estimated through 1958. Before 1929 available only on call dates
(in 1920 and 1922, the call dates were Dec. 29).
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.

17.

PRINCIPAL ASSETS AND LIABILITIES, AND NUMBER OF COMMERCIAL AND MUTUAL SAVINGS BANKS, BY CLASS OF BANK,
DECEMBER 20, 1963, AND DECEMBER 28, 1962
(In millions of dollars)
Commercial banks
All
banks

Item

Mutual savings banks

Member banks
Insured
nonmember

Total
Total

National

Noninsured

Total

State
December 20, 1963

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

I
I
(
ji
\
J

301,270
192,340
108,930
68,560
40,370
51,910

253,270
155,720
97,550
62,690
34,860
50,940

209,820
131,470
78,350
49,330
29,020
44,660

136,760
84,400
52,360
33,290
19,070
28,470

73,060
47,070
25,990
16,040
9,950
16,190

41,820
23,530
18,290
12,850
5,440
5,890

1,630
720
910
510
400
390

48,000
36,620
11,380
5,870
5,510
970

41,580
32,250
9,330
4,330
5,000
860

6,420
4,370
2,050
1,540
510
110

Deposits, total
Interbank
Other demand
O t h e r time
Total capital accounts

\
;
f»
:
'i

319,540
15,890
148,030
155,620
29,220

274,890
15,890
147,970
111,030
25,070

229,510
14,970
123,520
91,020
20,670

150,100
8,750
79,860
61,490
13,290

79,410
6,220
43,660
29,530
7,380

43,770
600
23,520
19,650
4,010

1,610
320
930
360
390

44,650

38,780

5,870

60
44,590
4,150

50
38,730
3,520

10
5,860
630

Number of banks

14,079

13,570

6,111

4,615

1,496

7,173

286

330

December 28, 1962
Loans and investments, total
Loans
Investments
U.S. Govt. securities
Other securities
Cash assets

"' 280,397
* 172,822
f- 107,575
'
72,563
35,012
;
54,939

235,839
140,106
95,732
66,434
29,298
54,049

195,698
118,637
77,061
52,968
24,092
47,427

127,254
75,548
51,706
35,663
16,042
29,684

68,444
43,089
25,355
17,305
8,050
17,744

38,557
20,811
17,745
12,932
4,814
6,276

1,584

657
926
534
392
346

44,558
32,716
11,842
6,129
5,714
890

38,597
28,778
9,819
4,639
5,180

784

533
106

Deposits, total
Interbank
Other demand,
Other time
Total capital accounts

*
*

303,653
16,543
148,153
138,957
28,046

262,122
16,542
147.870
97,710
24,094

219,468
15,667
124,085
79,716
19,854

142,825
9,282
79,810
53,733
12,750

76,643
6,385
44,275
25,983
7,104

41,142
578
22,900
17,664
3,870

1,513
297
886
330
371

41,531
1
283
41,248
3,951

36,104
1

5,427

276

35,827
3.343

5,420

Number of banks

13,940

13,429

6,049

4,505

1,544

7,072

308

511

331

180

Estimated.

NOTE.—All banks in the United States.

5,961
3,938
2,023
1,490

608

18.

MEMBER BANK INCOME, EXPENSES, AND DIVIDENDS
OF BANK, 1963 AND 1962

BY CLASS

Reserve city banks
Total
New York
City

Item
1963

1962

1963

1962

Country
banks

City of
Chicago
1963

Other

1962

1963

1962

1963

1962

In millions of dollars
Revenue
On U.S. Govt.
securities
On other securities
On loans
All other

11,150 10,154

1,756

1,644

457

406

4,291

3,902

4,646

4,202

1,722
772
7,174
1,482

1,687
629
6,435
1,403

218
139
1,106
293

228
106
1,017
293

68
42
288
59

65
33
250
57

590
262
2,849
590

595
211
2,552
545

846
329
2,931
540

798
279
2,616
509

Expenses
Salaries and wages
Interest on deposits . . . .
All other

7,916
2,656
2,852
2,408

7,041
2,501
2,358
2,182

1,134
394
367
373

1,010
385
277
347

300
89
127
84

255
85
95
76

3,029
1,019
1,121
889

2,703
956
948
799

3,452
1,154
1,236
1,062

3,074
1,075
1,038
960

Net current earnings
before income taxes . . . .

3,234

3,112

622

634

156

151

1,262

1,199

1,193

1,128

Recoveries and profits * . . . .
Losses and charge-offs 2 . . . .
Net increase (or decrease,
-f) in valuation
reserves
Net income before
related taxes
Taxes on net income
Net income
Cash dividends declared3..

2,902
1,078
1,823
877

370
376

54
50

17
12

125
135

174
179

301

116

2,805
1,110
1,695
832

575
242
333
191

607
205
401
196

132
47
85
35

133
49
83
33

1,121
464
656
354

1,073
454
619
336

1,042
362
680
291

1,024
364
660
271

In per cent
Ratios:
Net current earnings
before income taxes
to—
Average total capital
accounts
Average total assets..
Net income to—
Average total capital
accounts
Average total assets..
Average return on—
U.S. Govt. securities.
Loans

16.0
1.29

16.3
1.34

15.8
1.37

16.7
1.50

16.1
1.36

16.4
1.43

17.0
1.32

17.2
1.37

15.0
1.20

15.3
1.24

9.0
.72

8.9
.73

10.2
.88

8.8
.79

8.8
.74

9.1
.79

8.8
.69

8.9
.71

8.6
.69

8.9
.72

3.37
5.85

3.22
5.93

3.27
5.00

3.11
5.10

3.33
5.08

3.06
5.14

3.38
5.89

3.24
5.99

3.40
6.29

3.26
6.36

Includes recoveries credited to valuation reserves.
Includes losses charged to valuation reserves.
Includes interest on capital notes and debentures.
NOTE.—Data for 1963 are preliminary; final figures will be published in the May 1964 F.R.
Bulletin.
2

233

19.

CHANGES IN NUMBER OF BANKING OFFICES IN THE
UNITED STATES DURING 1963 1
Commercial banks (incl. stock savings
banks and nondeposit trust companies)

Type of office and change

Member

All
banks

Nonmember

Total
NaState 2
tional i

Banks, Dec. 31, 1962

t
\ 13,938

Changes during 1963
«
New banks 3
298
Suspensions
*
_2
Consolidations and absorptions:!
Banks converted into branches! - 1 4 0
Other
> -13
Voluntary liquidations ^
1
_9
Other change 5
....
1
—1
Interclass changes:
]
Nonmember to State member.!
State member to nonmember.]
National to nonmember
I .. . .
State to national
1
Noninsured to insured
.. 1

13,427

Mutual
savings
banks

Insured

Noninsured 2

4,503

1,544

7,072

303

298
—2

162

115
-2

-139
-12
—2
—1

-55
-7
_1

-26
-2

-56
-3

-2

4
-22

-3
22
13
-18
37

-1

-37

Insured

Noninsured

331

180

—1

— 13
26

-8

140

142

112

-51

105

-24

-1

Number of banks Dec. 31, 1963. 14,078

13,569

4,615

1,493

7,177

284

330

179

Branches and additional offices,
Dec 31 1962
J 12 655

12,068

6,423

2,981

2,614

466

121

1,103
140
-54

1,065
139
-52

654
87
-27
67

196
30
-13
-28

214
22
-12
-38

2
1
-2

1,189

1,152

781

185

186

Number of branches and addi- [
tional offices, Dec. 31, 1 9 6 3 . . . , 13,844

13,220

502

122

Net change

Changes during 1963
De novo
Banks converted
Discontinued 6
Interclass changes—net 6

I
'
•
1

Net change

Banking facilities, Dec. 31,1962 i

277

7,204
217

3,166
28

2,800
32

Changes during 1963
Established 6
Discontinued

8
-7

4
-5

1
-2

-1

278

Net change
Number of banking facilities, !
f
Dec 31, 1963
1

-1
216

" ' " '1 j '

fiO

Includes a national bank (2 branches) in the Virgin Islands; other banks or branches located in
the possessions are excluded.
2
State member bank figures include and noninsured bank figures exclude 1 nuninsured trust company without deposits.
3
Exclusive of new banks organized to succeed operating banks.
4
Exclusive of liquidations incident to the succession, conversion, or absorption of banks.
5 Ceased banking operations.
« For details see Feb. 1964 F.R. Bulletin, p. 240.
7 Provided at military and other Govt. establishments through arrangements made by the Treasury.

234

20.

NUMBER OF PAR AND NONPAR BANKING OFFICES,
DECEMBER 31, 1963

Par
Nonpar
(Nonmember)

Total
F.R. district,
State, or
other area

Total

Nonmember

Member

iBanks Branches Banks Branches Banks Branches Banks Branches Banks Branches
& offices
& offices
& offices
& offices
& offices
DISTRICT
Boston
New York
Philadelphia...
Cleveland
Richmond . . . .
Atlanta
Chicago
St. Louis
Minneapolis...
Kansas City...
Dallas
San Francisco.

< 388
* 530
I 578
3 867
I 859
! 1,456
I 2,509
I 1,486
I 1,331
! 1,843
1,234
406

Total

|3,487

388
530
578
867
752
923
2,509
1,217
724
1,841
1,160
404

251
943
426
2,361
443
891
513
1,246
413
1,633
467
668
1,394 1,010
475
393
485
118
796
174
656
191
172
3,285

744
2,084
693
1,064
1,094
548
892
264
67
123
123
2,935

137
104
135
354
339
456
1,499
742
239
1,045
504
232

13,617 11,893

13,297 6,107

10,631

5,786

2,666

12
8
47
6
154
1
55
28

943
2,361
891
1,246
1,732
743
1,394
475
170
174
203
3,285

107
533

99
75

269
607
2
74
2

82
52

1,594

320

100

STATE
242
12
12
242
149
196
61
20

129
51
223
77
2,12!
7
258
60

164
10
12
142
149
196
61
20

123
51
223
54
2,122
7
258
60

97
5
4
81
70
122
30
7

43
176
48
1,968
6
203
32

67
5
8
61
79
74
31
13

14
379

76
16

14
340

76
15

11
171

68
12

3
169

* 423
f
1
i
27
| 1,006
'
436
1 673
" 593
, 348
199
43

160
111
111
4
399
21
45
198
220
158

152
7
27
1,006
436
673
593
348
95
43

149
111
111
4
399
212
45
198
185
158

70
2
16
523
224
165
209
97
55
28

132
40
103
4
272
38
32
135
145
113

82
5
483
212
508
384
251
40
15

33'
476
728
8
111
48

118
161
367
302
60
582
124
424
7

337
476
728
7
97
48
3
26
52

53
111
216
215
36
171
91
135
5

210
391
596
6
61
27
3
19
45

65
50
151
87
24
411
33
289
2

Alabama
Alaska
;
Arizona
^
h
Arkansas
'
California
*
Colorado
i
Connecticut. . . *
Delaware
}
District of
Columbia.. . •
Florida
,
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine

Maryland
l
Massachusetts. '{
Michigan
§
Minnesota. . . . *
Mississippi.. . . \
Missouri
£
Montana
;
Nebraska
*
Nevada
*
New Hamp\
shire
;

118
161
367
706
194
633
124
424
7

New Jersey
j
New Mexico...
New York . . . . - •
North
*
Carolina.. . 4
North
jf
v
Dakota
Ohio
i
Oklahoma . . . . f
Oregon
\
Pennsylvania.. fi
Rhode Island.. \

232
61
358

57:
79
1,699

232
61
358

572
79
1,699

151

67:

159
552
400
50
616
10

38
815
34
234
1,04'
106

60
552
397
50
616
10

26
5:

36
21

104

404
134
51

1
80

513
47
1,616

36
23
59

59
32
i 83

580

328

252

14
815
34
234
1,047
106

41
350
236
14
462
5

6
706
29
201
850
75

19
202
161
36
154
5

109
5
33
197
31

235

1
11

127
85
132

196
38
299

For notes see end of table.

127
174
13
63
40
45

39
271

92
24

20.

NUMBER OF PAR AND NONPAR BANKING OFFICES,
DECEMBER 31, 1963—Continued
Par

Total
F.R. district,
State, or
other area

Total

Nonpar
(Nonmember)

Nonmember

Member

Branches
Branches
Branches
Branches
Banks Branches
& offices Banks & offices Banks & offices Banks & offices Banks & offices
STATE—
Cont.
South
Carolina.. . .
South Dakota.
Tennessee
Texas
Utah
Vermont
Virginia
Washington. ..
West Virginia..
Wisconsin
Wyoming

88
69
223
1,069
52
48
280
93
182
575
165
63
1

210
44
259
45
95
43
430
344

136

138
173
293
1,097
52
48
280
93
182
575
63

217
71
272
45
95
43
430
344

11
2

34
1

57
11
141
472
29
20
96
59
73
412
15

136

165
1

31
58
82
597
23
28
184
34
109
163
48

152
36
188
24
77
22
336
327

58
8
71
21
18
21
94
17

50
104
70
28

7
27
13

iii

OTHER
AREA
Puerto Rico 2.
Virgin
Islands 2 . . . .

121

1
2

Includes 4 N.Y.C. branches of 2 insured nonmember Puerto Rican banks.
Puerto Rico and the Virgin Islands assigned to the N.Y. District for check clearing and collection purposes. All member branches in Puerto Rico and all except 2 in the Virgin Islands are branches
of N.Y.C. banks. Certain branches of Canadian banks (2 in Puerto Rico and 1 in Virgin Islands) are
included above as nonmember banks; and nonmember branches in Puerto Rico include 6 other branches
of Canadian banks.
NOTE.—Comprises all commercial banking offices on which checks are drawn, including 278
banking facilities. Number of banks and branches differs from that in Table 19 because this table
includes banks in Puerto Rico and the Virgin Islands but excludes banks and trast cos. on which no
checks are drawn.

236

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION
OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY
THE BOARD OF GOVERNORS DURING 19631
Name of bank, and type of transaction2
(in chronological order of determination)

No. 1—Bank of Jamestown,
Jamestown, N.Y.

Resources
(in millions
of dollars)

Banking offices
In
operation

48.7

2.7

To be
operated

to merge with

Clymer State Bank, Clymer, N.Y.

SUMMARY REPORT BY ATTORNEY GENERAL (12-17-62)

Bank of Jamestown, with assets of $48.7 million, operates 5 banking
offices in Chautauqua County in southwestern New York. It is the third
largest bank in an area marked by banking concentration.
Clymer State Bank, with assets of $2.7 million, operates 1 banking
office in Clymer, New York, a small town in the southern portion of the
Jamestown service area.
The proposed merger will eliminate Clymer Bank as one of the remaining independent banks in Chautauqua County. It will eliminate the competition existing between the 2 participating banks. Finally, it will make
Bank of Jamestown the second largest bank in Chautauqua County in
terms of assets and total deposits and increase the degree of concentration
already existing in banking in the county. The 3 largest banks in the county
would control almost 90 per cent of total assets and total deposits in the
county.
For these reasons we believe that the effect of the merger on competition will be substantially adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (1-14-63)

Jamestown (population about 42,000) is located in southwestern New
York about 25 miles northeast of the village of Clymer (population about
1,400). Bank of Jamestown operates 4 offices in Jamestown and 1 office
in the village of Sherman, about 22 miles west of Jamestown and 12 miles
north of Clymer. Clymer Bank, the only banking office in Clymer, serves
an agricultural area of some 2,000 population. There are 2 banks in
Corry, Pennsylvania, about 8 miles south of Clymer, and 1 of the 2
other banks with main offices in Jamestown has a branch in Mayville,
9 miles northeast of Sherman.
The financial condition of Clymer Bank has deteriorated in recent years,
partially because of the strain on its resources that has resulted from
attempts to meet requests for loans. In addition, the bank's recent loss of
its 2 active officers through resignation and illness has resulted in a serious
management succession problem. Effectuation of the proposal would
replace Clymer Bank with a branch of Jamestown Bank and eliminate a
moderate amount of competition between the former and the latter's
For notes see p. 271.

237

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION
OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY
THE BOARD OF GOVERNORS DURING 19631—Continued
Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources j
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

branch at Sherman. Other sources of banking services, however, would
remain reasonably accessible to persons in these 2 communities. This,
together with the management strength and succession, and increased
banking services and resources that the transaction would be expected to
bring to the Clymer community, outweigh the adverse considerations
relating to the competitive factor.
No. 2—Lock Haven Trust Company,
Lock Haven, Pa.
to merge with
The Mill Hall State Bank,
Mill Hall, Pa.

16.4
3.8

SUMMARY REPORT BY ATTORNEY GENERAL (12-13-62)

Lock Haven Trust, with assets of over $16 million, and Mill Hall Bank,
with assets of over $3 million, are respectively the largest and third
largest of 3 banks serving the area in which they are located. Since 1927,
over 50 per cent of the stock of Mill Hall Bank has been owned by the
Lock Haven Trust. In addition to the common ownership, the banks have
interlocking directorates and the same president. It is difficult: to assess
the effect upon existing or potential competition in the area. Thus the
active competition that would otherwise exist between the merging institutions is not realistic.
The merger would strengthen the leading position of Lock Haven Trust
to the possible detriment of its much smaller rival and eliminate any
chance for real competition to exist between the merging institutions as
a result of a change in stock control. We are therefore of the view that
the effect of the merger on competition would be adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (1-17-63)

Lock Haven (population about 13,000) is the seat of Clinton County
(population about 38,000) in central Pennsylvania and is primarily an
industrial community which is the chief trading center in the county.
Lock Haven Trust's service area has a population of at least 22,000. Mill
Hall (population about 1,700) is principally a residential community 3
miles southwest of Lock Haven. The service area of Mill Hall Bank has a
population of over 7,000, and the bank's total area of service extends to
Lock Haven. Virtually all of the service area of Mill Hall Bsmk is within
the service area of Lock Haven Trust. Mill Hall Bank is the only banking
office in Mill Hall. Lock Haven has 1 bank in addition to Lock Haven
Trust, which is the larger of the 2 institutions. Two smaller banks are
For notes see p. 271.

238

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

located in Avis and Beech Creek which are, respectively, about 9 miles
northeast and about 10 miles southwest of Lock Haven.
Lock Haven Trust has owned more than 50 per cent of the stock of
Mill Hall Bank for over 35 years, and the same persons are dominant in
the management of the 2 banks, the policies of which have been much
the same. The proposal would unite 2 banks which are already under
common ownership and management and between which little or no true
competition exists. In addition, it would eliminate administrative duplication and tend to increase efficiency with probable benefits from increased
availability of expanded banking services. Otherwise it is expected that
there would be little or no change with respect to banking in the Lock
Haven-Mill Hall area as a result of this transaction.
No. 3—The Hackensack Trust Company,

Hackensack, N.J.
to merge with
Bank of Bogota, Bogota, N.J.

70.6
9.6

SUMMARY REPORT BY ATTORNEY GENERAL (11-30-62)

Hackensack Trust and Bank of Bogota, located 1.1 miles apart in
Bergen County, propose to merge. This region is considered part of the
New York metropolitan trade area. It is densely populated and is a highly
diversified industrial and commercial area with excellent economic prospects.
The merger would eliminate a substantial amount of competition between the merging banks and add to concentration of banking resources in
the service area of the merging banks. Therefore, its effects on competition would be adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (1-30-63)

Hackensack and the Borough of Bogota (populations about 31,000 and
8,000, respectively) are located in the southern part of Bergen County
(population about 780,000), one of the most rapidly developing industrial and residential sections of New Jersey. Hackensack lies about 6 miles
west of New York City and is separated from Bogota (1 mile to the east)
by the Hackensack River. The areas served by Hackensack Trust and
Bogota Bank encompass much of the commercial and industrial activity
in the county.
Thirty-two commercial banks with 85 offices are located in Bergen
County. Hackensack Trust is the fourth largest commercial bank in the
For notes see p. 271.

239

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

county and the second largest in Hackensack. Bogota Bank is the smaller
of the 2 banks in Bogota. Upon consummation of the proposed merger,
Hackensack Trust would be the third largest in the County but would
remain in second place in Hackensack.
While consummation of the proposal would eliminate the moderate
amount of competition existing between Hackensack Trust and Bogota
Bank, there would remain readily accessible to residents of Bogota a
wide variety of alternative sources for bank services and credit. Furthermore, the transaction would replace Bogota Bank with the office of a
bank offering a broader range of banking services, solve the present problem with respect to management depth and succession at Elogota Bank,
strengthen the ability of Hackensack Trust to meet the credit needs of
its customers, and enable that bank to compete more effectively in the
heavily populated and highly industrialized area concerned without
adverse effects on other banks serving Hackensack and Bogota.
No. 4—Ann Arbor Bank, Ann Arbor, Mich. f
to consolidate with
I
The Dexter Savings Bank,
I
Dexter, Mich.
*

69.6
4.8

SUMMARY REPORT BY ATTORNEY GENERAL (9-28-62)

Ann Arbor Bank, the largest of 2 banks in Ann Arbor and with assets
of $69.6 million, proposes to consolidate with Dexter Savings Bank, with
assets of $4.8 million, and located in the village of Dexter near Ann Arbor.
Ann Arbor has shown a substantial growth in population, and both
banks have also grown substantially. Ann Arbor Bank's position as the
larger of 2 banks in Ann Arbor is due in large part to its being the result
of consolidation in 1936 of 3 Ann Arbor banks.
A degree of competition would be eliminated by the consolidation.
Ann Arbor Bank's position as the leading institution in the area would
be increased and the number of banks located in the Ann Arbor-Dexter
area reduced from 3 to 2 at a time when the area is rapidly growing.
The effect of the consolidation on competition would therefore be substantially adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (2-5-63)

Dexter Bank's prospects and ability to provide adequate banking services to the Dexter community have been jeopardized by the bank's failure
to provide experienced succession management. A consolidation with Ann
For notes see p. 271.

240

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION
OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY
THE BOARD OF GOVERNORS DURING 19631—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 BOARD OF GOVERNORS—Cont.

Arbor Bank would resolve the management succession problem and also
eliminate the need for strengthening the capital position of Dexter Bank.
While the merger would eliminate the moderate amount of competition
existing between the 2 banks, such factor is more than offset by the
correction of rather serious problems. Moreover, the continuing bank
proposes to provide a broader range of banking services to the Dexter
community.
6.0

No. 5—Peoples Bank of Glen Rock,

Glen Rock, Pa.
to merge with
Codorus National Bank in Jefferson,

Codorus (Jefferson Borough), Pa.

1.7

SUMMARY REPORT BY ATTORNEY GENERAL (1-2-63)

The merging banks, because of their proximity and overlapping service
areas, are competitors to a slight degree, and the merger will result in the
elimination of this competition. In view of the relative size of the competing commercial banks in the service area, the proposed merger would
not appear to have a substantially adverse effect on competition.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (2-8-63)

The main office of Peoples Bank, located about 15 miles south of York,
serves Glen Rock (population about 1,500) and a surrounding area containing a population of about 8,600. Its single branch in Jacobus (population about 1,000), located 8 miles north, serves an area of about 8,400.
Codorus National, the only bank in Codorus (population about 500), is
located about 10 miles west of Glen Rock and serves an area in which
about 6,500 persons reside. As the service areas of the 2 banks overlap
only slightly in the sparsely populated region between them, and as no
direct road connects Glen Rock and Codorus, there is little competition
between them.
Besides Peoples Bank and Codorus National, there are 12 banks operating offices in central and southern York County. Four of the 12 banks
have 1 or 2 offices within 5 miles of 1 or the other of the banks involved
in the proposed transaction, and all but 1 of the 12 have 1 or more offices
within 5 to 14 miles of Peoples Bank or Codorus National. Of the 14
banks in this area, Peoples Bank and Codorus National are the smallest
based on deposits of individuals, partnerships, and corporations, and the
continuing bank would be only slightly larger than the smallest bank.
For notes see p. 271.

241

j! Resources
i (in millions
| of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

Although the merger would eliminate the small amount of competition between the 2 banks, the transaction would solve the management
succession problem, strengthen earnings prospects, and provide broader
banking services at the only banking office in Codorus. There would be
no unfavorable competitive effects on other banks in central and southern
York County.
No. 6—First State Bank, Canisteo, N.Y.
to acquire the assets and assume the
liabilities of
Greenwood Branch, Security Trust Company of Rochester, Rochester, N.Y.

5.0
0.9

SUMMARY REPORT BY ATTORNEY GENERAL (1-4-63)

First State Bank, a small independent banking institution without a
branch office, located in Canisteo, with total assets of close to $5 million,
proposes to acquire by purchase, Greenwood Branch of Security Trust
Company of Rochester, which has total assets of less than $1 million,
and to operate it as a branch office. First State is smaller than the nearest
competitor in its service area, which has its own branch, and has made
no acquisitions since its charter in 1897. The effect of this acquisition on
competition would not be substantially adverse in view of the relatively
minor degree of competition being eliminated and the continued existence
of independent competing banks.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (2-8-63)

Greenwood Branch of Security Trust was The First National Bank of
Greenwood prior to 1956 when the latter was merged with Security Trust
(deposits about $195 million). The deposits of the branch have grown
slightly since the acquisition, but its distance from Security Trust's principal area of operations (about 85 miles) has been an obstacle to economic operation of the branch since the demand for banking service in
Greenwood (population about 840) appears to be sufficient to support
only a limited operation that can work relatively closely with the main
office. First State Bank, on the other hand, while much smaller than
Security Trust, is located only 12 miles from Greenwood, which should
enable First State Bank to improve the profitability of the office by improving the direct availability of service adequate to Greenwood's needs
as well as by improving the efficiency with which such service is provided.
The Greenwood office has not been a vigorous competitor for banking
business in the area. Thus, although the acquisition of that office by
For notes see p. 271.

242

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

First State Bank would represent to some extent a reduction in alternative sources of service for the local Greenwood area, that area would not
be losing an independent competitive force of the kind that tends actively
to improve the nature of banking service offered to the public. Moreover,
the acquisition would not nullify any strong potential for competition in
the future since discontinuation of the office is in prospect if it is not
acquired by another bank in a position to operate it.
No. 7—Peoples Trust Company of Bergen

County, Hackensack, N.J.
to merge with
The First National Bank of Wyckoff,
WyckofT, N.J.

198.1

10.7

SUMMARY REPORT BY ATTORNEY GENERAL (12-7-62)

This merger would eliminate a degree of competition presently existing
between First National and Peoples Trust. The merger will enhance
Peoples Trust's position as the largest bank in Bergen County and tend to
increase concentration in that area. It may also inspire further mergers in
the area.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (2-15-63)

Hackensack, with a 1960 population of 31,000, is the seat of Bergen
County (1960 population 780,000), situated on the west bank of the
Hudson River opposite New York City. Peoples Trust has its main office
and 2 branches in the county seat, with 9 other branches in various
communities which, like Hackensack, are located generally in the southcentral part of the county. Wyckoff (1960 population 11,200) is primarily an upper middle-class residential community located in the northwest section of the county.
The effect of the merger on competition will be felt chiefly in the
Wyckoff area. Peoples' closest office to First National, at Glen Rock, is 6
miles southeast of Wyckoff. Between these 2 offices are located 3 offices
of competing banks. While there is some existing competition between
First National and the Glen Rock branch of Peoples which will be eliminated when the proposed merger is effected, a wide variety of alternative
sources for bank services and credit will remain. The transaction will
replace First National with an office of a bank offering a far broader
range of banking services, some of which are already in demand, as demonstrated by the number of Wyckoff residents who now bank outside the
town. It appears highly probable that the need for more and expanded
For notes see p. 271.

243

Resources
(in millions
of dollars)

Banking offices
To be
In
operation operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

services will grow as the area itself grows. It does not appear probable
that the increased competition afforded by placing an office of Peoples
directly in Wyckoff will have an adverse effect on the remaining banks
which now have offices in the area.
No. 8—The Commercial and Savings Bank
of St. Clair, St. Clair, Mich.
to consolidate with
Citizens State Bank of Emmett,
Emmett, Mich., and change its title
to The Commercial and Savings Bank
of St. Clair County.

13.7
2.7

SUMMARY REPORT BY ATTORNEY GENERAL (1-25-63)

Commercial and Savings Bank of St. Clair, with total assets of $13.7
million, total deposits of $12.6 million, and net loans and discounts of
$6.8 million, proposes to absorb Citizens Bank of Emmett. The latter bank
is the sole banking facility in the village of Emmett and had, as of November 30, 1962, total assets of $2.7 million, total deposits of $2.4 million,
and net loans and discounts of $1.1 million.
The consolidation would distort the competitive balance presently existing between the banks located in Citizens Bank's service area by establishing a dominant bank in an area heretofore serviced by 4 smaller competitive institutions. The resultant instability would have an adverse effect on
competition.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (2-27-63)

The single office of Commercial Bank is the only bank in St. Clair
(1960 city population 4,500). St. Clair, which is about 50 miles north of
Detroit and 12 miles south of Port Huron (1960 ^population 36,100), is
situated on the west bank of the St. Clair River, part of the international
boundary between Canada and the United States. The service area of
Commercial Bank extends 5 to 9 miles from St. Clair and contains a
population of 15,000. The sole office of Citizens Bank is the only bank in
Emmett (1960 village population 283; service area population 5,000).
Emmett, which is also in St. Clair County, is 21 miles northwest of St.
Clair and 19 miles west of Port Huron. The service area of Citizens Bank
extends in a radius of 6 to 9 miles from Emmett. The service areas of
Commercial Bank and Citizens Bank do not overlap and there is little, if
any, competition between the 2 banks.
Consummation of the transaction would provide a basis for improved
For notes see p. 271.

244

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

earning power for the office of Citizens Bank and would solve the management problem that recently arose with the death of the principal executive officer of Citizens Bank. While there appears to be little need for
increased banking services in Emmett, any demand therefor would be
met by the resulting bank. Consummation of the consolidation would
have a negligible effect on competition in the area.
No. 9—Union Trust Company of Maryland,
Baltimore, Md.
to merge with
Peoples Loan, Savings and Deposit Bank,
Cambridge, Md.

325.9

10.3

SUMMARY REPORT BY ATTORNEY GENERAL (1-2-63)

This merger between a $300 million Baltimore bank and the largest
independent bank in the city of Cambridge and Dorchester County would
leave but 2 independent banks remaining in the city and county respectively. Furthermore, the portion of total deposits in the city accounted for
by independent banks would be reduced from approximately 84 per cent
to approximately 48 per cent. The portion of total deposits in the county
accounted for by independent banks would be reduced to approximately
44 per cent.
In addition, effectuation of this merger and the increased concentration inherent therein would promote future mergers involving the remaining 2 independent banks. Should this come to pass, the city of Cambridge
and Dorchester County would be left with no independent banks. All
control would be centered outside the relevant service area.
If this merger is effectuated, control of over 55 per cent of total deposits
and total assets of all banks in Dorchester County will be in the hands of
2 banks—Union Trust, with over $300 million in assets, and Maryland National, with over $600 million in assets.
The remaining independent banks in the city of Cambridge and Dorchester County will be at a competitive disadvantage vis-a-vis the branch
offices of these banks.
Finally, effectuation of the merger would eliminate a degree of competition presently existing between Peoples Loan and Union Trust.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (3-1-63)

Peoples Loan, Savings and Deposit Bank is located in Cambridge
(population 12,000), on the Eastern Shore Peninsula of Maryland where
Union operates 5 branches—2 in the town of Salisbury and 1 each in
For notes see p. 271.

245

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

Easton, Hillsboro, and Trappe. Cambridge, the one community significantly affected, is the seat of Dorchester County and the second largest
city in the Eastern Shore section. It is situated in the center of a prosperous agricultural region. Food packing was formerly the dominant industry, resulting in a seasonal employment pattern, but new industries entering the area have brought, and are continuing to bring, year-round
manufacturing to Cambridge and its environs. The Cambridge Harbor
Project includes deepening of the channel of the Choptank River and the
constructing of a pier which will make it possible for large seagoing
freighters to load and unload at Cambridge, encouraging and fostering
the trend toward industrialization. A bridge-tunnel now under construction will connect Norfolk, Virginia, to the southern tip of the Eastern
Shore Peninsula and should accelerate the development of the Eastern
Shore area.
Cambridge is now served by 3 local banks and by a branch of the
largest bank in Maryland, the Maryland National Bank, Baltimore. None
of the 3 local banks has a lending limit in excess of $60,500, none operates a trust department, nor does any make available many of the services
needed in an expanding area. Until the trend toward industrialization
began, these local banks were adequate to serve the banking needs of the
community. Growth and development of the area, which seems well
assured, indicates significant need for those services which can be supplied
only by large banks. While a large bank now operates an office in
Cambridge, growth would be encouraged by permitting another to expand
into the Cambridge area. The existence of the Union Trust Company
office at Trappe, 7 miles away, is not a convenient alternative source of
services for larger customers, as it is not feasible to retain an adequate
staff in Trappe, which has a population of only 350.
There is little competition existing between Union Bank, third largest
in the State, and Peoples Bank, and consummation of the transaction
would not have an adverse effect on the other banks operating in Cambridge. The earnings of Peoples have been only fair, and consummation of
the transaction would establish a basis for improved earnings. Cambridge is
experiencing industrial and commercial expansion, and prospects for
growth of the community and surrounding area are regarded as good.
This merger would aid this development through the expansion of banking services in Cambridge and thus benefit the community as a whole.
For notes see p. 271.

246

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION
OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY
THE BOARD OF GOVERNORS DURING 19631—Continued

Name of bank, and type of transaction2
(in chronological order of determination)

No. 10—The Elyria Savings and Trust
Company, Elyria, Ohio.
to consolidate with
The Grafton Savings and Banking

Resources
(in millions
of dollars)

Banking offices
In
operation

50.8

8.5

To be
operated

Company, Grafton, Ohio.

SUMMARY REPORT BY ATTORNEY GENERAL (2-4-63)

The proposed consolidation of Grafton Savings and Elyria Savings
would appear to have adverse effects upon competition.
Grafton Savings offers limited banking services, and is the only bank
serving the small towns of Grafton and LaGrange, Ohio, located about 7
miles from Elyria Savings' main office.
The proposed consolidation would bring together the second largest
and smallest of 5 banks competing in the area served by the consolidating
banks. Thus a degree of competition existing between the consolidating
banks would be eliminated, and the number of competing institutions in
the Elyria-Grafton area will be reduced from 5 to 4.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (3-12-63)

Elyria Savings' main office and 3 of its branches are located in Elyria
(1960 population 44,000), a diversified industrial center in Lorain County
(I960 population about 218,000), about 25 miles west of Cleveland. Its 3
other branches are located within 17 miles of Elyria. There are 2 other
banks in Elyria, 1 larger and the other smaller than Elyria Savings.
Grafton Savings' main office is in Grafton (1960 population 1,700 and
trade area population of 10,000), 7 miles southeast of Elyria. The single
branch of Grafton Savings is 4 miles southwest of Grafton in LaGrange
(1960 population 1,000). The Grafton area is experiencing considerable
residential growth, and the prospects for industrial growth are favorable.
Although the proposed consolidation would eliminate such competition as exists between the 2 banks, this would be more than offset by
resulting benefits. The transaction would solve the management succession problem at Grafton Savings, strengthen earnings prospects of the
continuing bank, and provide both greater banking resources and broader
banking services in the growing Grafton-LaGrange area. There would be
no significant competitive effects on other banks in Lorain County.
For notes see p. 271.

247

No. 11—The Sullivan County Trust Company,
Monticello, N.Y.
to merge with
The National Bank and Trust Company
of Port Jervis, Port Jervis, N.Y.,
and change its title to
Intercounty Trust Company.

Resources
(in millions
of dollars)

Banking offices
In
To be
operation operated

15.0
6.4

SUMMARY REPORT BY ATTORNEY GENERAL (1-18-63)

Sullivan Trust, a small independent banking institution with total assets
of $15 million and 1 branch office, proposes to merge with Port Jervis
National, which has total assets of $6.4 million, and to operate the
acquired bank as a branch office. Sullivan Trust is ranked last among the
competitors in its service area, and has made no acquisitions since its
charter in 1923, except for the opening of a branch office at Wurtsboro in
1951. The effect of this merger on competition would not be substantially
adverse in view of the relatively minor degree of competition being eliminated and the continued existence of independent competing banks.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (3-22-63)

The head office of Sullivan Trust is in the Village of Monticello (permanent population 6,000), about 90 miles from New York City. It is
located in the foothills of the Catskill Mountains and with the surrounding resort area enjoys a 16-fold increase in population from summer
tourist trade. The single branch of Sullivan Trust is the only banking facility in Wurtsboro (population about 700, with a large increase in the
summer), which is about 12 miles southeast of Monticello in Sullivan
County. Port Jervis National is in the city of Port Jervis (population
9,300). Located in Orange County, Port Jervis is 25 miles south of Monticello and 18 miles southwest of Wurtsboro. Monticello, Wurtsboro, and
Port Jervis constitute 3 separate service areas that do not overlap, due to
the sparsely populated, heavily wooded central part of the large triangle
formed by the 3 localities.
Consummation of the merger would strengthen the capital of Sullivan
Trust and solve the management and earnings problems of Port Jervis
National. The resources of the resulting bank should be helpful in meeting the needs of residents of the service area of each of the merging
banks. There is virtually no competition between the participating banks,
and the effect of this merger upon banking competition in the area of
each bank should not be adverse.
For notes see p. 271.

248

No. 12—Bank of Idaho, Boise, Idaho.
to merge with
Panhandle State Bank, Coeur d'Alene,
Idaho.

Resources
(in millions
of dollars)

Banking offices
In
operation

73.7

3.8

SUMMARY REPORT BY ATTORNEY GENERAL

To be
operated

1 -

(2-28-63)

Banking in the State of Idaho is marked by a high degree of concentration, with 4 banks—including the Idaho Bank—controlling 87 per cent
of the total deposits and 81 of the 91 branch banks within the State. The
Panhandle Bank represents approximately only 0.5 per cent of the banking business in the State, but its acquisition by Idaho Bank, the third
largest bank (9.9 per cent), increases concentration to 87.5 per cent and
eliminates another independent bank. In the service area of the Panhandle
Bank, i.e., Kootenai County, Idaho, 3 banks with 4 offices presently compete. These banks include the Idaho Bank (1.7 per cent), Idaho First
National Bank (81.0 per cent), and Panhandle Bank (17.3 per cent).
Although Idaho Bank claims that no competition presently exists between
it and Panhandle Bank so that none would be eliminated by the merger,
potential competition between the 2 would be eliminated. The only independent bank would be taken out of the market, and the county would be
serviced by 4 branches of 2 banks, the main offices of which would be
located almost 300 miles to the south in Boise, Idaho. However, in view
of the serious management problem facing the selling bank, its relatively
small size, and the lack of substantial competition to be eliminated, the
effect of the merger on competition would not be seriously adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (4-15-63)

The main office of Idaho Bank (a subsidiary of Western Bancorporation, a registered bank holding company) and 3 of its branches are either
in or near Boise, the State capital (1960 population 34,500). Five of
Idaho Bank's branches are in southern Idaho, and its 4 remaining branches
are in communities in the northern part of the State. The sole office of
Panhandle Bank is the only independent banking facility in Coeur d'Alene
(1960 population 14,000). The largest city in northern Idaho, Coeur
d'Alene, is the seat of Kootenai County (1960 population 30,000), and is
about 400 miles north of Boise and 30 miles east of Spokane, Washington. The economic prospects of Kootenai County are favorable. The
county provides 15 per cent of the State's lumber production, and, in
addition to farming and dairying, resort and tourist trade in the county
is increasing in importance.
For notes see p. 271.

249

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

Effectuation of the proposed merger would enhance the earnings prospects of the office of Panhandle Bank and solve its management succession problem. While the banking needs of the Coeur d'Alene area are
apparently being adequately met, the resulting bank would provide
customers of Panhandle Bank with certain banking services not now
available there. Competition between the 2 participating banks is not of
significant magnitude; and the over-all effect upon banking competition in
the area should not be adverse. In fact, the proposal would improve the
resulting bank's ability to compete with the 2 largest banks in Idaho.
These 2 banks, together, hold about 66 per cent of the commercial
bank deposits in Idaho and both have an office in Coeur d'Alene.
No. 13—Norfolk County Trust Company

Brookline, Mass.
to consolidate with

132.4

9.1

Wellesley Trust Company,

Wellesley, Mass.
SUMMARY REPORT BY ATTORNEY GENERAL (2-7-63)

The consolidation of the Wellesley Trust, which operates a main office
and 1 branch, with the Norfolk Trust would increase the concentration
of banking interests in the Boston metropolitan area held by Baystate
Corporation, a bank holding company which presently owns a majority
stock interest in Norfolk Trust, as well as in 8 other banks in that area,
and would add to the concentration of banking resources in that area in
a few hands. It would also eliminate a degree of competition existing
between the consolidating institutions. Its effect on competition would be
adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (4-19-63)

Norfolk Trust (a subsidiary of Baystate Corporation, Boston, a registered bank holding company) has its main office and 1 branch in
Brookline (1960 population 54,000). Brookline, in Norfolk County, is
contiguous to Boston in Suffolk County. The 20 other branches operated
by the bank also are in Norfolk County, most of which lies within the
Boston Standard Metropolitan Statistical Area (SMSA). rfhe trade area
of Norfolk Trust, which is primarily industrial and residential, and which
contains over 1 million people, includes all of Norfolk County and portions of Suffolk, Middlesex, and Plymouth Counties.
Both offices of Wellesley Trust are in Wellesley (1960 population
26,000), which is situated in Norfolk County 13 miles southwest of
Boston and 9 miles west of Brookline. Wellesley is a relatively high
For notes see p. 271.

250

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

income area which is chiefly residential. In addition to Wellesley, the
service area of Wellesley Trust (with over 181,000 inhabitants) includes
Needham and a small part of Dover, both of which also are in Norfolk
County, and Newton, Weston, and Natick, which are parts of Middlesex
County. All of Wellesley Trust's service area, which had a population increase of 26 per cent during the past decade, lies within the Boston SMSA.
Consummation of the proposal would strengthen management, expand
the banking services, and improve the earnings and growth prospects for
the offices of Wellesley Trust. The benefits which would accrue from the
transaction would more than offset the elimination of the modest amount
of competition between the participating banks. Effective competition in
the areas concerned may be expected to continue from the several offices
of noncommercial banking institutions which have substantial resources.
The proposed consolidation should have no adverse effect upon these
institutions or upon any of the commercial banks with offices in the areas
involved and should provide more effective competition in the service
area of Wellesley Trust.
No. 14—The Bank of Virginia,

Richmond, Va.
to merge with

176.1

3.4

The Farmers Bank of Dinwiddie,

Dinwiddie, Va.

SUMMARY REPORT BY ATTORNEY GENERAL (3-28-63)

Virginia Bank, having assets of $176 million and 21 offices and facilities
throughout Virginia, seeks to acquire Dinwiddie Bank, a unit bank with
assets of $3.4 million, located 11 miles from the nearest office of Virginia
Bank in rural Dinwiddie County. The acquiring bank is a subsidiary of
Virginia Commonwealth Corporation, a bank holding company which
owns in excess of 90 per cent of 4 other Virginia banks.
There is presently a degree of direct competition between the merging
banks due to the distance between their offices. Moreover, a slight amount
of each bank's business is drawn from the service area of the other. The
merger will not significantly increase banking concentration either in
terms of Virginia Bank's share of the market or the share held by banks
controlled by Virginia Commonwealth Corporation. However, it appears
that the entrance of Virginia Bank into Dinwiddie County may have
adverse competitive effects on the other commercial banks in the area. It
also represents the disappearance of still another independent bank in
Virginia as a result of acquisition by a large institution. For these reasons
we believe the effect of the merger on competition will be slightly adverse.
For notes see p. 271.

251

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS (5-24-63)

The sole office of Dinwiddie Bank is located in Dinwiddie (population
400), the seat of Dinwiddie County (population 22,183), about 35 miles
south of Richmond and 18 miles southwest of Petersburg. Because the
two senior officers are past the normal retirement age and are in rather
poor health, Dinwiddie Bank is faced with a management succession problem, and prospects for solution by means other than merger are not
favorable.
Virginia Bank, a subsidiary of Virginia Commonwealth Corporation
(a bank holding company controlling 4 other banking affiliates and
deposits of about $191 million), is the fifth largest bank in Virginia,
holding 4 per cent of total bank deposits in the State. Virginia Bank's
nearest office to Dinwiddie Bank is its Petersburg branch. Competition
exists between them but it is negligible in volume. Dinwiddie Bank has
concentrated its efforts primarily in Dinwiddie and the nearby area and
has not been a particularly effective competitor in this fairly small area.
Consummation of the proposed merger would eliminate only a negligible amount of competition and will not have adverse competitive effects
on smaller area banks. It will solve a management succession problem
confronting Dinwiddie Bank and provide a broader range of banking
services in the Dinwiddie area. The resources to be gained by the proposed
merger would be too small to alter significantly Virginia Bank's competitive position in the State as a whole or in the areas it serves.
No. 15—Chemical Bank New York Trust
Company, New York, N.Y.
to acquire the assets and assume the
liabilities of
Bank of Rockville Centre Trust Company,
Rockville Centre, N.Y.

5,183.0

112
115

43.0

SUMMARY REPORT BY ATTORNEY GENERAL (4-15-63)

The Department of Justice is of the opinion that this acquisition would
have serious adverse effects on competition.
Chemical is the fourth largest bank in New York City and fifth largest
in the nation, with total assets of $5.2 billion, total loans of $2.5 billion,
and total capital, surplus, and undivided profits of $446.6 million. It conducts an extensive commercial bank and trust business through 109
offices in New York City, 1 office in Westchester County, and 3 offices
(2 of which have been approved but are not yet open for business) in
Nassau County. A substantial portion of Chemical's present size is due
to its acquisitions in 1954 of the Corn Exchange Bank Trust Company,
For notes see p. 271.

252

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL—Cont.

with total deposits of $796.6 million, and in 1959, of New York Trust
Company, with total deposits of $665.6 million. On April 30, 1962,
Chemical's application for merger with Long Island Trust Company,
Garden City, New York, was denied by the Board of Governors of the
Federal Reserve System under Section 18(c) of the Federal Deposit
Insurance Act, as amended by the Bank Merger Act of 1960, as not being
in the public interest.
Rockville Bank is a profitable and growing bank with its main office in
Rockville Centre, 1 branch in Franklin Square, about 3 miles north of
the main office, and another in South Oceanside, about 2 miles south of
Rockville. It has total assets of $43 million, total loans of $20.9 million,
and total capital, surplus, and undivided profits of $2.8 million. Rockville Bank's net current operating income in 1962 was 11.3 per cent of
stated capital; in the period 1950-62 Rockville Bank recorded increases
of 404 per cent in total loans, 169 per cent in total deposits, and 96 per
cent in capital accounts, none of which was as a result of mergers.
The proposed acquisition would eliminate a substantial volume of
actual and potential competition between the 2 banks since Chemical
already derives substantial business from the communities served by Rockville Bank (partly because many Rockville residents commute to New
York City) and this will undoubtedly increase now that Chemical has
approval for a branch office just 2.9 road miles from Rockville Bank's
Franklin Square office and 6.2 miles from its main office. Since Chemical
and First National City Bank in New York, as well as Meadow Brook National Bank and Franklin National Bank—by far the largest banks on
Long Island—each have 1 or more branches in Rockville Bank's area,
residents of that area cannot be said to depend on approval of this
acquisition for access to the full line of services and the competition which
such banks can offer. Approval of the acquisition would undoubtedly generate pressure from both Chemical's New York City competitors and
Rockville Bank's competitors for equitable treatment on similar applications. Such applications would have considerable merit in view of the
fact that Chemical already has more branch locations than all but 2 New
York City banks. Some small local competitors of Rockville Bank might
find irresistible the resulting pressure to resort to protective mergers when
confronted with the vast resources of Chemical. Chemical concedes that
the acquisition might have the unfavorable consequence of slowing down
the growth of 1 of those competitors, Oceanside National Bank, whose main
office would be located between 2 of the new Chemical branches.
In our view the reasons given by the Board of Governors in 1962 in
denying Chemical's application are also applicable to the present proposal.
For notes see p. 271.

253

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS (5-27-63)

This proposal involves the acquisition by Chemical Bank, the fifth
largest bank in the United States and the fourth largest in New York City,
of the relatively small3 Rockville Bank, which holds slightly more than
2 per cent of the IPC deposits and operates 3 of the 173 banking offices
of Nassau County. Rockville Centre (population about 26,000) is a rather
fully developed residential village located in the town of Hempstead in
southern Nassau County about 5 miles east of Queens and 20 miles east
of Manhattan. In addition to its main office, Rockville Bank operates a
branch at the southern edge of Oceanside about 2 miles south, and a
branch in North Malverne about 3 miles north of Rockville Centre. The
areas served by these branches are also primarily residential, with local
shopping centers and shops similar to those found in Rockville Centre.
Management of Rockville Bank has followed a conservative policy, refraining from expanding into new branch locations, and has concentrated
the bank's lending within limited fields. Its loans have been restricted primarily to real estate mortgages and consumer credit rather than commercial and other types of credit. Net earnings of the bank declined
significantly in 1962 and were below the average of comparable size banks
in the Second Federal Reserve District.
Chemical currently has 2 offices in operation in the County—1 in
Massapequa, 12 miles east of Rockville Centre, and 1 at West Hempstead,
3 miles from Rockville Centre's North Malverne office. Only Chemical's
latter office can be considered directly competitive in Rockville Bank's
service area, and competition between the 2 banks is nominal.
Rockville Bank draws 77 per cent of its deposits from an area which
includes the communities of Rockville Centre, Oceanside, Franklin Square,
and West Hempstead, and 81.5 per cent of its deposits from a wider area
which includes the 4 additional communities of Lynbrook, Lakeview, Malverne, and Island Park. Both offices of the small Oceanside National Bank
that compete with Rockville Bank are located less than 2 miles south of
Rockville Centre. The 2 offices of Community Bank, Lynbrook, also a
small bank, are located about 1 mile west of Rockville Centre. Its principal
competition comes from 2 branches of the large Meadow Brook National
Bank and not from Rockville Bank. The balance of the 15 commercial
banking offices located in the 4-community area (and of the 21 in the 8community area) represents branches of larger Long Island or New York
City banks. Franklin National Bank and Meadow Brook National Bank
together have 8 offices and hold a relatively high per cent: of the total
deposits of the commercial banking offices in the 4-community area.
With the passage of the New York Omnibus Banking Act In 1960, the
larger New York City banks began to acquire outlets in Nassau County
in an effort to serve a wider economic area. The banks first tried to achieve
this objective in part by applications for de novo branches. However, what
For notes see p. 271.

254

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION
OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY
THE BOARD OF GOVERNORS DURING 19631—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 BOARD OF GOVERNORS—Cont.

is regarded as a "fully-banked" situation in parts of Long Island and the
"home-office protection" afforded by the New York banking law have
imposed limitations on this route. In 1961, Chemical sought to merge with
Long Island Trust Company, Garden City, New York, the third largest
bank on Long Island with deposits of $140 million and 14 offices. In
marked contrast to that situation, the present case involves a bank with
deposits of less than $40 million and only 3 offices. In rejecting Chemical's
1961 application, the Board's Statement (Federal Reserve Bulletin of May
1962, p. 548) pointed out that future merger applications were "not foreclosed." Rather, the Board said that "approval of future merger applications may well be required" by positive factors discussed therein. Those
factors are persuasive in this case. Furthermore, in that Statement, the
Board indicated that consummation of the proposal would cause "a substantial altering of the banking structure in the area" and "would bring
sudden adverse competitive effects." Such consequences could not reasonably be anticipated in connection with the present proposal. The Board
concludes that broad considerations indicate approval.
No. 16—Sussex County Trust Company,

Franklin, N.J.

to merge with
Farmers National Bank, Sussex, N.J.

and change its title to
The Bank of Sussex County.

13.3

11.7

SUMMARY REPORT BY ATTORNEY GENERAL (12-21-62)

Sussex Trust, with a 120 per cent deposit increase, and Farmers National, with an 81 per cent deposit increase, have shared in the rapid economic growth of Sussex County over the past 10 years. The economic
prospects of the County are excellent. The merger, however, would reduce
the number of available independent commercial banks in the county at a
time when it appears that more, rather than fewer, banks are needed.
There are 6 competitive commercial banks located in Sussex County.
At the present time Sussex Trust ranks third, and Farmers National fourth,
in size. Sussex Trust, if the merger is approved, would be the largest commercial bank in Sussex County in banking offices, total assets, total
deposits, net loans and discounts, and capital accounts. The merger
would inhibit competition in the greater county area and eliminate all
competition presently existing between the participating banks. Thus, the
effect of the merger on existing and potential competition would be
adverse.
For notes see p. 271.

255

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS (5-29-63)

Sussex County (1960 population 49,000), in which both banks are
located, is situated 50 miles from New York City in northwestern New
Jersey adjoining Pennsylvania and New York. While at present principally
rural, the residential and commercial growth of the county has been rapid
in recent years and such growth is expected to continue at an accelerated
pace in future years. The county is served by 6 local commercial banks,
1 of which operates 1 branch. Sussex Trust serves a predominantly
residential and commercial area with an estimated population of 14,000.
Farmers National, located 8 miles northwest of the main office of Sussex
Trust, has a service area that is agricultural, residential, and commercial,
and has a population of 5,000.
The merger of the 2 institutions would permit Sussex Trust to attain a
better balanced executive group than is now possessed by either and thus
would be a step toward assuring competent management succession. It
also would result in improved banking services to local businesses in Sussex
County and provide a basis for improved bank earnings.
While competition existing between the 2 banks would be eliminated
by their merger, the over-all effect on competition in the county, both
immediate and prospective, would not be unfavorable. Sussex Trust would
be able to compete more effectively with the now largest bank in the county
and also with the even larger banks in adjoining counties.
176.1

N o . 17—The Bank of Virginia,

Richmond, Va.
to merge with
The Bank of Henrico, Sandston, Va.

21
24

4.8

SUMMARY REPORT BY ATTORNEY GENERAL (5-2-63)

The proposed merger of Henrico Bank and Virginia Bank brings
together 2 banks that have been so closely affiliated that competition between them has been negligible. When Henrico Bank was organized,
Virginia Bank secured a friendly investor who supplied two-thirds of the
required capital, and it was the intention of Virginia Bank to acquire
the Henrico Bank as soon as permissible under the then laws of Virginia.
They are both presently subsidiaries of and controlled by Virginia Commonwealth Corporation, a registered bank holding company.
The effect of this proposed merger will be a change in form rather than
a change of substance.
For this reason the effect of the merger on competition will not be
significantly adverse.
For notes see p. 271.

256

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS (6-17-63)

Henrico Bank, which began operations on April 15, 1957, was organized
with the understanding at the time that it would be merged with Virginia
Bank after operating for at least 5 years, the period necessary under then
existing State law. Under an amendment to the law, effective June 29,
1962, the prescribed waiting period was eliminated. Virginia Standard
Corporation, then an affiliate of Virginia Bank, on February 2, 1961,
acquired two-thirds stock interest in Henrico Bank. When Virginia Commonwealth Corporation, a bank holding company, was established in 1962
(Federal Reserve Bulletin of November 1962, p. 1442), 1 of the subsidiary
banks was Bank of Virginia. The holding company thereby acquired control of Virginia Standard Corporation. Thereafter, the balance of the
stock of Henrico Bank, except for qualifying shares sold to bank directors
under repurchase agreements, was acquired by Virginia Commonwealth
Corporation.
The proposed merger would unite 2 banks which are subsidiaries of a
bank holding company, are otherwise closely related, and between which
there is no significant competition. The merger would increase efficiency
and provide additional services in the area served by Henrico Bank.
The merger would increase Virginia Bank's share of total deposits in
the State by only Yw of 1 per cent, and its rank would be unchanged.
Thus, the resources to be gained would be too small to alter its competitive
position in the State, as a whole, or in the primary areas it now serves.
Since both banks are owned by Virginia Commonwealth Corporation, as
previously noted, the proposed merger would increase neither the size nor
area representation of the holding company.
No. 18—Wilmington Trust Company,

Wilmington, Del.
to acquire the assets and assume the
liabilities of

406.0

15
16

2.8

Camden Office of Baltimore Trust

Company, Selbyville, Del.

SUMMARY REPORT BY ATTORNEY GENERAL (4-19-63)

The proposed acquisition of certain assets and assumption of liabilities
of the Camden Office of Baltimore Trust by Wilmington Trust would have
a significant adverse effect upon competition.
The acquisition would replace a locally oriented bank by a State-wide
bank in the Dover area. The 2 remaining local banks in the area may
well be forced to unite with each other or other banks to continue in
operation. The dominance and expansion of Wilmington Trust3 will be
enhanced and continued. Finally, the high concentration of IPC deposits
and loans among the 4 largest banks in the State would be augmented.
For notes see p. 271.

257

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS (7-23-63)

The Camden Office of Baltimore Trust is the only banking facility in
Camden (1960 population 1,125), which is centrally located in Kent
County about 4 miles south of Dover (1960 population 7,250), the capital
of Delaware and seat of the county. Since the end of World War II, the
Camden-Dover area has been changing from an essentially agricultural
environment to an area of growing population and industrialization. The
population of the area has about doubled in the past decade. While the
Camden Office served the community fairly well when it was essentially
an agricultural one, the conservative operation of the branch prevented
it from satisfying frequent requests involving broader bank services and
specialized credits. The types of service and credit increasingly required
by the changing and expanding Camden-Dover area are more comprehensive than Baltimore Trust is prepared to make available at its Camden
Office.
Substitution of a branch of Wilmington Trust, the largest commercial
bank in Delaware, for the unaggressive, limited-service branch of Baltimore Trust in Camden, would provide better banking services in Camden
and contribute beneficially to the changing and expanding Camden-Dover
area. No present competition exists between the Camden Office and Wilmington Trust, and the potential competition between them which would
be eliminated would not be significant. Wilmington Trust, which would
acquire 0.3 per cent of the total deposits of commercial banks in Delaware,
would be able to compete for the first time in the Camden-Dover area with
the other 3 largest Delaware banks.
No. 19—Bankers Trust Company, New York,
N.Y.
to acquire the assets and assume the
liabilities of
The First National Bank of Farmingdale,

Farmingdale, N.Y.

3,829.0

55
56

35.6

SUMMARY REPORT BY ATTORNEY GENERAL (7-5-63)

The proposed acquisition represents the replacement of a relatively
small independent bank serving the Farmingdale area of Long Island by
a branch of a very large New York City bank. Because of the proximity
of Farmingdale to New York City, a degree of competition exists between
the banks involved which would, of course, be eliminated by the acquisition. While the proposed new branch office of Bankers Trust would be
able to offer the larger banks in the Farmingdale region stronger competiFor notes see p. 271.

258

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL—Cont.

tion than First Farmingdale is presently able to do, other relatively small
banks in the area would face increasing difficulty in effectively competing
with the branch of Bankers Trust. Thus, this acquisition represents the
elimination of still another independent bank in Long Island and may
lead to still further elimination of small independent banks, ultimately
resulting in the banking resources of the area resting in the hands of a few
very large institutions.
For these reasons, we believe that the effect of this acquisition on competition would be adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (7-26-63)

First Farmingdale serves an area which includes the incorporated village
of Farmingdale proper, located in the county of Nassau on the NassauSuffolk County line, and the surrounding unincorporated areas of Bethpage, Old Bethpage, Plainedge, parts of North Massapequa and Plainview,
South Farmingdale, East Farmingdale, and the southern part of Melville.
The population of the area served by the bank has been increasing
rapidly, in line with recent growth in the 2 counties, and is probably well
above 65,000. A large amount of vacant land properly zoned and suitably
located remains available for both industrial and residential development,
so that continued growth can be anticipated over a period of some years
to come, even though Farmingdale proper has been fairly well built up.
The deposits of First Farmingdale have grown at a rate markedly less
than that of its competitors. Although all of its competitors operate branch
facilities, First Farmingdale has made no effort to expand into branch
locations. Lending policies have been unaggressive, and the bank has failed
to provide the broader range of banking service needed in an expanding
area. The bank is now confronted with a potentially serious management
succession problem.
Approval of the acquisition will replace 1 of the 2 banking offices located
in Farmingdale proper, which holds 31 per cent of all deposits in banking
offices in the service area, with an office of a bank equipped to provide
facilities suited to the growth which can be foreseen, both immediately
and in the long run. Little competition exists between First Farmingdale
and Bankers Trust as their nearest offices are almost 20 miles apart, with
the intervening area being quite heavily populated and containing many
banking offices. Consummation of the proposal should increase competition in the Farmingdale area, and a serious management succession
problem will be averted. Moreover, the merger of the 2 banks will remove
statutory "home-office protection" from Farmingdale proper, so that additional bank branches may be established there.
For notes see p. 271.

259

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION
OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY
THE BOARD OF GOVERNORS DURING 19631—Continued

Name of bank, and type of transaction2
(in chronological order of determination)

No. 20—The Fifth Third Union Trust
Company, Cincinnati, Ohio.
to acquire the assets and assume the
liabilities of
The Citizens Bank of St. Bernard,
St. Bernard, Ohio.

Hanking offices
Resources
(in millions
of dollars)

In
operation

409.0

10.9

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL

(5-15-63)

Commercial banking in the area served by these banks is already highly
concentrated, with 4 banks presently accounting for 94.8 per cent of all
I P C 3 deposits and 94.5 per cent of all loans. This situation has, to a large
extent, resulted from prior acquisitions, in which Fifth Third and the
other large Cincinnati banks were involved. The proposed acquisition
represents another step toward the eventual control of banking in the
metropolitan Cincinnati area by 4 banks and would thus have an adverse
competitive effect.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (8-6-63)

Cincinnati, the seat of Hamilton County (population 864,000), is located
in the southwestern part of the State on the Ohio River. It is the second
largest city in Ohio and has a population of about 503,000. St. Bernard
(population about 7,000) is located 5 miles north of downtown Cincinnati.
It is surrounded on 3 sides by Cincinnati and on the fourth by Elmwood
Place, another Cincinnati suburb. Until recently the area served by Citizens
was chiefly residential. It is now becoming increasingly industrial in
character. Citizens, however, caters primarily to individuals, as opposed
to business and industry, so that the changing nature of the community
could diminish the future prospects of that bank. Citizens has failed to
grow, and since 1959 its average total deposits have not changed significantly.
The acquisition of Citizens by Fifth Third would not adversely affect
competition in the St. Bernard-Cincinnati area to any significant degree.
It would provide expanded banking services and additional resources to
meet the needs of the commercial and industrial concerns in the changing
St. Bernard area and solve Citizens' management succession problem.
For notes see p. 271.

260

No. 21—Asbury Park and Ocean Grove Bank,
Asbury Park, N.J.
to merge with
New Jersey Trust Company of Long
Branch, Long Branch, N.J., and
change its title to New Jersey Trust
Company, Asbury Park, N.J.

Banking offices
Resources
(in millions
of dollars)

operation

39.4

18.3

To be
operated

•

SUMMARY REPORT BY ATTORNEY GENERAL (6-14-63)

The proposed merger of Asbury Park and Ocean Grove Bank with
New Jersey Trust would appear to have an adverse effect upon competition.
The proposed merger would eliminate an independent banking facility
and an alternative source of banking services. It would also add to the
concentration of banking resources in Monmouth County, which concentration has resulted in large part from a series of mergers and acquisitions
on the part of larger banks in the county.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (8-16-63)

Monmouth County, in which both institutions are located, is experiencing a substantial change in its economy and growth in its population.
In the past, the area depended largely on summer resort activity in the
coastal area and diversified farming in the interior. While these activities
continue to be important, commerce and industry are expanding rapidly.
The merger will permit the resulting bank with its substantially higher,
lending limit, expanded services, and improved management to employ
its funds more fully in the local market. It will place the resulting bank
in a better position to contribute to the developing economy of this rapidly
expanding area. In both Asbury Park and Long Branch, strong and effective local competition will remain, while in the county a variety of banking and other financial institutions will provide strong competition with
respect to a wide range of services.
No. 22—Wells Fargo Bank,
San Francisco, Calif.
to merge with
State Center Bank, Fresno, Calif.

3,205.5

158
164

29.1

SUMMARY REPORT BY ATTORNEY GENERAL (6-5-63)

Wells Fargo, California's third largest bank, proposes to absorb its
eighth commercial bank in less than 10 years. A total of $728 million in
deposits, $411.8 million in loans, and 29 banking offices are directly
For notes see p. 271.

261

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL—Cont.

attributable to past acquisitions. Wells Fargo and its 146 branch offices
are operative in 23 counties in northern California and had, as of December 28, 1962, total assets of $3.2 billion, total deposits of $2.9 billion, and
net loans and discounts of $1.8 billion. The merging bank and its 5
branches are located in Fresno County and had, as of December 28, 1962,
total assets of $29.1 million, total deposits of $26.3 million, and net loans
and discounts of $12.3 million.
Commercial banking in California is highly concentrated. The 3 largest
California banks, alone, control 65.5 per cent of total deposits, 66.8 per
cent of total loans, and 59.6 per cent of total banking offices. The 9 largest
have 91.1 per cent and 92.0 per cent and 81.5 per cent, respectively. The
expansionist pattern, through mergers and acquisitions, by large California
banks has seriously increased concentration in California.
It is our view that the proposed demise of the largest independent bank
in Fresno County and the entry, in its place, of another State-wide bank
would not only eliminate the competition presently existing between the
participating banks, but may seriously endanger the remaining independent Fresno County banks. Against the background of the existing
concentration of banking in California the merger may have an adverse
effect on existing and potential competition in Fresno County and in the
State of California.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (8-19-63)

The city of Fresno (population of 134,000), in which State Center has
its main office, is located in the San Joaquin Valley, geographically at the
center of California, about 185 miles from San Francisco and 219 miles
from Los Angeles. State Center's rapid growth since its organization in
1955 is attributable to its president's abilities and influence in obtaining
the accounts of many large commercial customers, the volume of which
is unusual for a bank of this size. However, he is well past normal retirement age, is in poor health, and plans to retire in the near future.
The management succession problem at State Center, which gives rise
to the application, and which threatens to affect its continued progress,
would be resolved by merger of that bank with one equipped to provide
those services required by larger customers. The convenience and needs
of the clientele which State Center has chosen to serve would be facilitated
by effectuation of the proposal, and in at least 2 towns where its branches
are located, the resulting bank would offer services needed by the communities which are not presently available there (although conveniently
available in other communities within driving distance). Relatively little
competition exists between the 2 banks. While consummation of this merger
will add slightly to the already heavy degree of banking concentration in
California, such adverse feature is more than offset by positive benefits
flowing from the merger.
For notes see p. 271.

262

No. 23—Bank of South Haven,
South Haven, Mich.
to acquire the assets and assume the
liabilities of
Peoples State Bank of Bloomingdale,
Bloomingdale, Mich., and change
its title to Citizens Trust and
Savings Bank.

Banking offices
Resources
(in millions
of dollars)

operation

16.4

2.5

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL (9-4-63)

The proposed acquisition of assets and assumption of liabilities of
Bloomingdale Bank by Bank of South Haven would not appear to have
a significant adverse effect upon competition.
As the 2 banks are not in competition with each other, the proposed
transaction would not eliminate competition between them. The increase
in Bank of South Haven's share of the market would not be significant.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (10-15-63)

These 2 banks, located 19 miles apart, are the only banks in their respective cities. The acquisition of Bloomingdale Bank by Bank of South Haven
would provide expanded banking services and resources to serve better
the people of the Bloomingdale area, solve Bloomingdale Bank's management problem, and strengthen the earnings prospects of that banking
office. It would have no significant adverse effect on banking competition
in the service areas of the banks, and would be expected to stimulate banking competition in the area served by Bloomingdale Bank.
No. 24—Peoples Trust Company of Bergen
County, Hackensack, N.J.
to merge with
Palisades Trust Company,
Englewood, N.J.

221.4

34.5

SUMMARY REPORT BY ATTORNEY GENERAL (9-9-63)

Bergen County Bank, with 12 offices and $221 million in total assets,
is presently the largest bank in Bergen County. Since 1954 it has acquired
4 unit banks and now has offices dispersed throughout the central portion
of the county. Palisades Trust ("Englewood Bank"), with total assets of
$34 million, has 3 offices in the Englewood-Englewood Cliffs area, in the
eastern portion of Bergen County.
The proposed merger would give Bergen County Bank 26.61 per cent
of the IPC 3 deposits and 27.56 per cent of the loans held by the 21 banks
For notes see p. 271.

263

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL—Cont.

in its service area. It would be approximately twice the size of the second
bank, three times the size of the third bank, and equal in size to the total
of 15 of the banks in the service area. Also, direct competition between
the merging banks, particularly in the area lying between their home offices
near the Teaneck-Englewood line, would be eliminated.
The proposed merger would significantly increase the share of the area
banking business held by Bergen County Bank, increase banking concentration generally in the area, eliminate an alternative banking source, and
thereby adversely affect competition.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (10-23-63)

Bergen County, wherein both banks are located, is in the northeastern
part of New Jersey across the Hudson River from New York City. The
county has experienced a well balanced residential, industrial, and commercial expansion; its 1960 population of 780,255 reflected an increase of
44.7 per cent since 1950. Englewood Bank has its main office and 1 branch
in the city of Englewood (population 26,000), which is located in the
eastern portion of Bergen County, about 5.5 miles east of Hackensack
(population 30,500). Its other branch is located in the adjoining town of
Englewood Cliffs (population 2,900). Prior to World War [I the Englewood area was a residential community occupied by people of substantial
means..The postwar years, which brought industrial and commercial expansion to the area, also resulted in a change in the composition of the
population. These changes have created a need for larger loans, specialized
forms of personal credit, and a broader range of other banking services.
Englewood Bank has followed quite conservative policies and has failed
to keep abreast of the changing needs of the community. Low earnings
have been a problem for several years, and for this and other reasons
a management succession problem exists. Prospects for any marked improvement in earnings or for obtaining successor management do not appear favorable. Consummation of the merger would eliminate little competition and would provide the Englewood area with an aggressive
alternative source of banking services more attuned to the needs of the
community than is the Englewood Bank. Further, utilization of Bergen
County Bank's competent executive staff would provide a solution for
Englewood Bank's management succession problem. The slight increase
in banking concentration that would result from consummation of this proposal loses its prominence as an adverse factor when viewed in the light
of competition provided the Bergen County banks by banks in the adjoining counties and New York City and by numerous nonbanking financial
institutions. Locally, numerous banking alternatives that provide strong
and effective competition would remain easily accessible to the residents
and commercial firms of the Englewood area.
For notes see p. 271.

264

No. 25—West Branch Bank and Trust

Company, Williamsport, Pa.
to merge with
Bank of Newberry, Williamsport, Pa.

Resources
(in millions
of dollars)

Banking offices
In
operation

28.5

12.5

To be
operated

i•

SUMMARY REPORT BY ATTORNEY GENERAL (5-29-63)

West Branch Bank conducts a commercial banking and trust business
through 1 office located at 102 West Fourth Street, Williamsport. As of
December 31, 1962, it had total deposits of $15.6 million, total net loans
and discounts of $12.2 million, and total capital of $2.3 million. In 1962
its net current operating income was 16 per cent of total capital.
Bank of Newberry conducts a commercial banking business through
1 office located at 2001 West Fourth Street in Williamsport, about 2 miles
west of West Branch. As of December 31, 1962, it had total deposits of
$11.3 million, total net loans and discounts of $6.1 million, and total
capital of $955,000. For the year 1962, its net current operating income
was 10.8 per cent of total capital.
There are 3 other banks located in the city of Williamsport and 10 other
banks in the remainder of Lycoming County. West Branch Bank is now
1 of the 2 largest of these banks, and Bank of Newberry is fourth largest.
The proposed merger would permanently eliminate competition between
2 banks which now hold 29 and 14 per cent, respectively, of the deposit
and loan business done by all Williamsport banks, and 20 and 9 per cent,
respectively, of the business done by all banks in Lycoming County. Concentration of resources in the city's largest bank would be increased to
43 per cent, and one of the few substantial competitive alternatives would
be eliminated.
The proposal, if approved, would thus appear to have an adverse ejfect
upon competition in the relevant areas.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (10-23-63)

Williamsport (population about 42,000), where both institutions are
located, is the seat of Lycoming County, situated in north central Pennsylvania. A large part of the county is forested and mountainous, and
most of its 110,000 residents are in the southern section where Williamsport serves as the main trade center. The economy of the Williamsport
area is based principally on diversified industrial activity, with some 166
industrial establishments engaged in the manufacture of diversified
products.
West Branch Bank now holds approximately 20 per cent of the total
IPC 3 deposits in Lycoming County. The resulting bank would hold approximately 29 per cent of such deposits and would become the largest
in the county. The sole offices of the merging banks are located about 2
miles apart, and competition exists between them. The principal other
For notes see p. 271.

265

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

competitors of the merging institutions are 3 other commercial banks in
the immediate Williamsport area. One has deposits about equal to those
of West Branch Bank; the remaining 2, which operate a total of 3 offices,
are somewhat smaller, holding approximately 15 and 4 per cent of deposits
in the county.
The merger will provide West Branch Bank with expanded resources
and strengthened management that should enable it to meet the needs
of its growing industrial community better than can either constituent bank.
Strong and effective competition will continue to be maintained by the
remaining banks and other types of financial institutions in the Williamsport area, which will offer a wide range of services to the residents and
businesses of the community.
No. 26—Security Savings Bank,
Marshalltown, Iowa.
to acquire the assets and assume the
liabilities of
Peoples Savings Bank, Laurel, Iowa.

18.1

1.2

SUMMARY REPORT BY ATTORNEY GENERAL (9-16-63)

Security Bank, the largest bank in a service area extending over a 25mile radius, proposes to acquire Peoples Bank, located in a village 14
miles distant, and operate it as a limited branch office. The acquisition
would increase slightly the size of Security Bank, already the largest in
its service area, and may invite similar moves by smaller banks in the
general area. However, on balance we do not believe the effect on competition would be significantly adverse.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (11-6-63)

Laurel is 12 miles south of Marshalltown. The small community's
economy is almost entirely dependent upon agriculture. Its declining population totals 225. Future prospects for Peoples Bank, Laurel's only banking office, are not favorable. The chief executive officer who owns a
majority of Peoples Bank's stock is near retirement age and desires to
be relieved of his banking responsibilities. The acquisition of Peoples
Bank by Security Bank would solve this management problem. Since Iowa
statutes limit the operations of the proposed Laurel branch of Security
Bank to paying and receiving deposits, consummation of the proposal
would reduce somewhat the range of banking services available in Laurel.
Any inconvenience which would result from such statutory restrictions
would be minor in view of the relatively short distances to Security Bank's
main office and to other banks.
For notes see p. 271.

266

No. 27—Wachovia Bank and Trust Company,
Winston-Salem, N.C.
to merge with
The Bank of Randolph, Asheboro, N.C.

Resources
(in millions
of dollars)

Banking offices
In
operation

900.6

10.5

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL (8-27-63)

This merger of a small independent bank (Randolph) with the largest
bank in North Carolina (Wachovia) will continue a merger trend in that
State in which Wachovia Bank has been a principal participant, which
trend is leading to the concentration of North Carolina's banking business
in the hands of a few large banks. The merger would also upset the
relative competitive equality now prevailing in the Asheboro service area.
For these reasons, it is our opinion that this merger will have an adverse
effect on competition.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (11-14-63)

The operations and policies of Randolph Bank have been controlled
throughout the more than 60 years of the bank's existence by the chairman of the board of directors (age 88) who has been incapacitated by a
serious illness. While it is a financially sound banking institution, its management problem, complicated by unusual circumstances, creates an impasse unlikely to be resolved without undue delay. The community of
Asheboro requires the services of 2 fully competitive banks, and during
any such delay it would, in effect, be denied a choice of banking services
over much of the range appropriate to its needs. While the merger of
Randolph Bank into 1 of the 3 large banks, which already divide the
major share of banking in the area, is not an ideal solution, it appears
to be a feasible one in the circumstances. The vigor of the remaining competing bank in Asheboro should enable it to maintain its relative position
in a growing community, and the effect on the 1 other small bank at Coleridge in Randolph County (10 miles distant) should not be adverse.
No. 28—The Bank of Virginia,
Richmond, Va.
to merge with
The Hallwood National Bank,
Hallwood, Va.

188.8

5.1

SUMMARY REPORT BY ATTORNEY GENERAL (10-11 -63)

Virginia Bank is the fourth largest bank in Virginia and operates 26
banking offices in the State. As of June 30, 1963, its assets totaled $188.8
million.
For notes see p. 271.

267

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL—Coni:.

Hallwood Bank is located in the town of Hallwood, 170 miles distant
from Richmond, and as of June 30, 1963, had assets of $5.1 million.
These banks are so widely separated that direct competition between
them is practically nonexistent. The small increase in the size of Virginia
Bank as a result of the merger would not appear to have a significant adverse effect on competition.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (12-4-63)

Hallwood (population 269), where the sole office of Hallwood Bank is
located, is situated in the northern part of Accomack County (population
30,635). Accomack County borders on Maryland and is the northernmost
of the 2 counties comprising the Virginia portion of the Eastern Shore
Peninsula, which lies between the Atlantic Ocean and Chesapeake Bay.
The county's economy is expected to show decided gains with the completion of the Chesapeake Bay bridge-tunnel, scheduled for 1964, which
will join the Virginia portion of the peninsula to the Norfolk area.
Virginia Bank, a subsidiary of Virginia Commonwealth Corporation,
a registered bank holding company, ranks fifth in size in the State. Consummation of the proposal would increase the total deposits held by either
Virginia Bank or the Virginia Commonwealth group of banks, by only Vio
of 1 per cent of the total deposits held by commercial banks of Virginia.
While Virginia Bank's rank in size would change to fourth, the resources
to be gained would be so small that this slight change in its competitive
position in the State as a whole or in the primary areas it now services
would be inconsequential.
Consummation of the proposed merger would provide successor management for Hallwood Bank's only banking office, and make available to
individuals and industry in Hallwood and the surrounding Accomack
County area the broad range of services provided by large banks. Competition for business and industrial accounts would be intensified for banks
located in the Maryland portion of the peninsula.
29—Fidelity-Philadelphia Trust

Company, Philadelphia, Pa.
to merge with

598.9

149.9

Liberty Real Estate Bank and Trust

Company, Philadelphia, Pa.

SUMMARY REPORT BY ATTORNEY GENERAL (9-10-6:1)

Fidelity, the fourth largest bank in Philadelphia, with total resources of
$598.9 million, total deposits of $536.3 million, and operating 31 offices
in the 4-county area, proposes to acquire by merger Liberty, the eighth
largest bank in Philadelphia, with total resources of $149.9 million, total
deposits of $134.3 million, and operating 11 offices.
The merger would increase Fidelity's share of IPC 3 deposits among
For notes see p. 271.

268

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY ATTORNEY GENERAL—Cont.

competing banks by 2.7 per cent, from 10.9 per cent to 13.6 per cent, and
its share of loans by 2 per cent, from 10.4 per cent to 12.4 per cent, but
would not change its fourth place position. After the merger the 6 largest
banks in Philadelphia would hold 84.6 per cent of total IPC deposits and
86.1 per cent of loans among the competing commercial banks in the area.
This is the situation about which the Supreme Court expressed concern
in the case of United States v. Philadelphia National Bank when it spoke
of the trend toward merger in the Philadelphia area, the lack of new
entrants, and the increase in concentration, pointing out that ". . . if concentration is already great, the importance of preventing even slight increases in concentration . . . is correspondingly great."
We point out that the application states "This merger has come about
solely as the result of the acute management problem facing Liberty."
The failure of the board of directors of a financial organization with total
resources of almost $150 million to take the necessary steps to insure its
continuing effective operation is a serious abdication of its responsibilities
to depositors, stockholders, community, and the economy as a whole, and
should be viewed with serious concern by the appropriate banking agency.
The proposed merger may have a substantial adverse effect on competition in commercial banking in the 4-county area.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (12-13-63)

The city of Philadelphia (having boundaries coterminous with those of
Philadelphia County) and the adjoining 3 counties of Delaware, Montgomery, and Bucks, had a 1960 population exceeding 3.3 million. (Under
Pennsylvania law, a bank with headquarters in Philadelphia County may
establish branches in any of the 4 counties.) The Standard Metropolitan
Statistical Area of Philadelphia, which consists of these 4 counties and
also the 3 New Jersey counties of Burlington, Camden, and Gloucester,
had a 1961 population of about 4.3 million. There are 15 banks with head
offices in Philadelphia operating branches at various points in the 4-county
area. Eight of the banks range fairly evenly along a scale from First Pennsylvania Banking and Trust Company, which has close to $1 billion of
IPC deposits, down to Liberty. Each of the 7 other institutions has IPC
deposits in a range below $55 million. In addition, Montgomery County
has 2 banks with around $100 million each in IPC deposits, while Delaware County has 1 with IPC deposits of $72 million; and in nearby
Camden, New Jersey, there is 1 bank with $173 million and another with
$126 million of IPC deposits.
Under this proposal the fourth and eighth largest of the 15 banks headquartered in Philadelphia would merge, the offices of the latter becoming
branches of the former. The resulting bank would continue to rank in
fourth place in deposit size. In limited areas direct competition exists between offices of the 2 banks, and this would be eliminated by the merger.
In addition, alternative sources of banking services for small to mediumsized customers would be reduced by 1. On the other hand, the resulting
bank would be able to offer its customers and customers of Liberty a
For notes see p. 271.

269

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cent.

substantially higher loan limit, and to customers of the latter bank there
would be available a broadened range of banking services. The merger
would encourage a livelier competitive climate for the largest banks in
Philadelphia, and provide an additional large community bank, while
leaving an ample range of alternative sources of banking services. Viewed
in the light of the standards of the Bank Merger Act, the Board concludes
that the benefits to the public expected to result from effectuation of the
proposal would outweigh any resulting disadvantages.
No. 30—The County Trust Company,

White Plains, N.Y.
to merge with

673.0

4.2

The First National Bank of Brewster,

Brewster, N.Y.
SUMMARY REPORT BY ATTORNEY GENERAL (10-29-621)

Under the proposed merger, County Trust will acquire the sole commercial banking office in the Village of Brewster, and eliminate an independent banking institution from southeastern Putnam County. County
Trust, heretofore a dominant bank in Westchester County, will extend
this position of dominance into adjacent Putnam County. The proposed
merger will have an adverse effect upon competition.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (12-18-63)

First National serves principally the Village of Brewster (1960 population 1,700), and the town of Southeast (1960 population 6,800), both
located in Putnam County (1960 population 31,700), contiguous to Westchester County to the south. While in the past Putnam County has been
essentially a rural summer resort area, there has been in recent years a
substantial increase in the number of year-round residents due principally
to the construction of important highways. About half of the county's 27
manufacturing concerns are located in the Brewster area. First National,
the only banking office in Brewster, offers a limited range of banking
services and pursues unusually restrictive loan policies. Consequently,
many residents of the Brewster area, including many of the bank's customers, must seek satisfaction of their banking needs from banks in surrounding towns or cities. The service area of County Trust does not overlap that of First National.
The active executive officer of First National is not in good health and
desires to be relieved of his responsibilities of managing the bank. Interests
identified with him own control of the bank, no provision has; been made
for management succession, and prospects for obtaining a competent successor from outside the bank are not favorable. Consummation of the
proposed merger would solve the management succession problem at First
National and bring to the people of the growing Brewster area many imFor notes see p. 271.

270

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY BOARD OF GOVERNORS—Cont.

portant banking services not presently available there. At the same time,
the proposed merger would have only a slight effect on competition.
No. 31—Old Kent Bank and Trust Company, I
Grand Rapids, Mich.
I
to consolidate with
i
Community State Bank, Grandville, Mich. I

349.7

27
29

21.3

SUMMARY REPORT BY ATTORNEY GENERAL (11-29-63)

Old Kent Bank, operating 27 offices in Grand Rapids, and with over
$349 million in assets, proposes to consolidate with the Community Bank,
Grandville, with assets of $21.3 million.
This consolidation would eliminate substantial competition between the
largest and third largest banks with main offices in the service area affected,
increase concentration in the area which has been brought about in large
part by prior acquisitions by Old Kent Bank, and endanger the ability of
smaller rivals to effectively compete. Thus, the consolidation would have
substantial adverse effects on competition.
BASIS FOR APPROVAL BY BOARD OF GOVERNORS (12-24-63)

The proposed consolidation is the direct result of serious difficulties that
came to light in Community Bank, centered principally in its mobile home
financing department. The bank's capital has declined to a dangerously
low point because of charge-offs relating to loans in this department, and
its present condition is regarded as hazardous. Moreover, there are potential losses, including large contingent liabilities arising from the servicing
of mobile home or trailer paper sold to other banks. This condition is
due to deficiencies in the present management which owns a majority of
Community Bank's stock. The future earnings prospects of Community
Bank are highly unfavorable, and there has been no alternative proposal
that would remedy the bank's distressed condition.
The proposed consolidation would enhance the competitive position of
Old Kent Bank, already the dominant bank among the 8 banks serving
the Grand Rapids and Grandville-Hudsonville areas, and, through elimination of the fifth of these 8 banks, would have an adverse effect on banking
competition. However, continuation and probable deterioration of the extremely hazardous situation confronting Community Bank might have a
substantially detrimental effect on the public interest, and the only practical
solution to this problem is consummation of the proposed consolidation
with Old Kent Bank.
1
During 1963 the Board disapproved 3 mergers, etc. 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
Except where specifically stated, the merger, etc., was effected under the charter of the
first
named bank.
3
The abbreviation "IPC" designates deposits of individuals, partnerships, and corporations.
4
Includes 11 branch offices established by Wells Fargo Bank, San Francisco, Calif.,
subsequent to the date of application but prior to the date of merger with State Center
Bank, Fresno, Calif.

271

Federal Reserve Directories and Meetings
BOARD OF GOVERNORS OF TFLE
FEDERAL RESERVE SYSTEM
(December 31, 1963)
WM. MCC. MARTIN, JR., of New York, Chairman....
C. CANBY BALDERSTON of Pennsylvania, Vice Chairman
A. L. MILLS, JR., of Oregon
J. L. ROBERTSON of Nebraska

Term
January
January
January
January

CHAS. N. SHEPARDSON of Texas
GEORGE W. MITCHELL of Illinois
J. DEWEY DAANE of Virginia

January 31, 1968
January 31, 1976
January 31, 1974

RALPH A. YOUNG, Adviser to the Board
CHARLES MOLONY, Assistant to the Board
ROBERT L. CARDON, Legislative Counsel
CLARKE L. FAUVER, Assistant to the Board
OFFICE OF THE SECRETARY
MERRITT SHERMAN, Secretary

KENNETH A. KENYON, Assistant Secretary
ELIZABETH L. CARMICHAEL, Assistant Secretary
ARTHUR L. BROIDA, Assistant Secretary
LEGAL DIVISION

HOWARD H. HACKLEY, General Counsel

DAVID B. HEXTER, Assistant General Counsel
THOMAS J. O'CONNELL, Assistant General Counsel
JEROME W. SHAY, Assistant General Counsel
WILSON L. HOOFF, Assistant General Counsel
DIVISION OF RESEARCH AND STATISTICS

GUY E. NOYES, Director
ALBERT R. KOCH, Associate Director
DANIEL H. BRILL, Adviser
FRANK R. GARFIELD, Adviser
ROBERT C. HOLLAND, Adviser
KENNETH B. WILLIAMS, Adviser

LEWIS N. DEMBITZ, Associate Adviser
ROBERT SOLOMON, Associate Adviser

272

expires
31, 1970
31, 1966
31, 1972
31, 1964

FEDERAL RESERVE SYSTEM
BOARD OF GOVERNORS—Cont.
DIVISION OF INTERNATIONAL FINANCE
RALPH A. YOUNG, Director
J. HERBERT FURTH, Adviser

A. B. HERSEY, Adviser
ROBERT L. SAMMONS, Adviser

SAMUEL I. KATZ, Associate Adviser
RALPH C. WOOD, Associate Adviser
DIVISION OF BANK OPERATIONS
JOHN R. FARRELL, Director

GERALD M. CONKLING, Assistant Director

M. B. DANIELS, Assistant Director
JOHN N. KILEY, JR., Assistant Director
DIVISION OF EXAMINATIONS
FREDERIC SOLOMON, Director

ROBERT C. MASTERS, Associate Director
GLENN M. GOODMAN, Assistant Director
HENRY BENNER, Assistant Director
JAMES C. SMITH, Assistant Director
BRENTON C. LEAVITT, Assistant Director
ANDREW N. THOMPSON, Assistant Director

LLOYD M. SCHAEFFER, Chief Federal Reserve Examiner
DIVISION OF PERSONNEL ADMINISTRATION
EDWIN J. JOHNSON, Director

H. FRANKLIN SPRECHER, JR., Assistant Director
DIVISION OF ADMINISTRATIVE SERVICES
JOSEPH E. KELLEHER, Director

HARRY E. KERN, Assistant Director
OFFICE OF THE CONTROLLER

J. J. CONNELL, Controller
SAMPSON H. BASS, Assistant Controller
OFFICE OF DEFENSE PLANNING
INNIS D. HARRIS, Coordinator
DIVISION OF DATA PROCESSING

M. H. SCHWARTZ, Director

LEE W. LANGHAM, Assistant Director

273

FEDERAL OPEN MARKET COMMITTEE
(December 31, 1963)
MEMBERS
WM. MCC. MARTIN, JR. Chairman (Board of Governors)
ALFRED HAYES, Vice Chairman (Elected by Federal Reserve Bank of New
York)
C. CANBY BALDERSTON (Board of Governors)

KARL R. BOPP (Elected by Federal Reserve Banks of Boston, Philadelphia,
and Richmond)
GEORGE H. CLAY (Elected by Federal Reserve Banks of Minneapolis, Kansas
City, and San Francisco)
J. DEWEY DAANE (Board of Governors)

WATROUS H. IRONS (Elected by Federal Reserve Banks of Atlanta, St. Louis,
and Dallas)
A. L. MILLS, JR. (Board of Governors)
GEORGE W. MITCHELL (Board of Governors)

J. L. ROBERTSON (Board of Governors)
CHARLES J. SCANLON (Elected by Federal Reserve Banks of Cleveland and
Chicago)
CHAS. N. SHEPARDSON (Board of Governors)

OFFICERS
RALPH A. YOUNG, Secretary
MERRITT SHERMAN,

DAVID P EASTBURN,

Assistant Secretary

Associate Economist

KENNETH A. KENYON,

J. HERBERT FURTH,

Assistant Secretary

Associate Economist

HOWARD H. HACKLEY,

GEORGE GARVY,

General Counsel

Associate Economist

DAVID B. HEXTER,

RALPH T. GREEN,

Assistant General Counsel

Associate Economist

GUY E. NOYES,

ROBERT C. HOLLAND,

Economist

Associate Economist

ERNEST T. BAUGHMAN,

ALBERT R. KOCH,

Associate Economist

DANIEL H. BRILL,

CLARENCE W. TOW,

Associate Economist
Associate Economist
ROBERT W. STONE, Manager, System Open Market Account
CHARLES A. COOMBS, Special Manager, System Open Market Account
During 1963 the Federal Open Market Committee met approximately every
three weeks as indicated in the Record of Policy Actions taken by the Committee (see pp. 47-125 of this Report).

274

FEDERAL ADVISORY COUNCIL
(December 31, 1963)
MEMBERS
District No. 1—LAWRENCE H. MARTIN, President, The National Shawmut
Bank of Boston, Boston, Massachusetts.
District No. 2—GEORGE A. MURPHY, Chairman of the Board, Irving Trust
Company, New York, New York.
District No. 3—HOWARD C. PETERSEN, President, Fidelity-Philadelphia Trust
Company, Philadelphia, Pennsylvania.
District No. 4—L. A. STONER, President, The Ohio National Bank of Columbus,
Columbus, Ohio.
District No. 5—ROBERT B. HOBBS, Chairman of the Board, The First National
Bank of Maryland, Baltimore, Maryland.
District No. 6—J. FINLEY MCRAE, Chairman of the Board, The Merchants
National Bank, Mobile, Alabama.
District No. 7—KENNETH V. ZWIENER, Chairman of the Board, Harris Trust
and Savings Bank, Chicago, Illinois.
District No. 8—SIDNEY MAESTRE, Chairman of the Executive Committee,
Mercantile Trust Company, St. Louis, Missouri.
District No. 9—JOHN A. MOORHEAD, President, Northwestern National Bank
of Minneapolis, Minneapolis, Minnesota.
District No. 10—M. L. BREIDENTHAL, Chairman of the Board, Security National Bank of Kansas City, Kansas City, Kansas.
District No. 11—JAMES W. ASTON, President, Republic National Bank of
Dallas, Dallas, Texas.
District No. 12—ELLIOTT MCALLISTER, Director, The Bank of California National Association, San Francisco, California.
OFFICERS
GEORGE A. MURPHY, President
ROBERT B. HOBBS, Vice President
HERBERT V. PROCHNOW, Secretary
WILLIAM J. KORSVIK, Assistant Secretary

EXECUTIVE COMMITTEE
GEORGE A. MURPHY, ex officio
ROBERT B. HOBBS, ex officio
HOWARD C. PETERSEN
J. FINLEY MCRAE
KENNETH V. ZWIENER

Meetings of the Federal Advisory Council were held on February 18-19,
May 20-21, September 16-17, and November 18-19, 1963. The Board of Governors met with the Council on February 19, May 21, September 17, and
November 19. The Council is required by law to meet in Washington at least
four times each year and is authorized by the Federal Reserve Act to consult
with and advise the Board on all matters within the jurisdiction of the Board.

275

FEDERAL RESERVE BANKS
AND BRANCHES
(December 31, 1963)
CHAIRMEN AND DEPUTY CHAIRMEN OF BOARDS OF DIRECTORS

Federal Reserve Bank of—

Chairman and
Federal Reserve Agent

Deputy Chairman

Boston

Erwin D. Canham

William Webster

New York...

Philip D. Reed

James DeCamp Wise

Philadelphia..

Walter E. Hoadley

David C. Bevan

Cleveland

Joseph B. Hall

Logan T. Johnston

Richmond

Edwin Hyde

William H. Grier

Atlanta

Jack Tarver

Henry G. Chalkley, Jr.

Chicago

Robert P. Briggs

James H. Hilton

St. Louis

Raymond Rebsamen

J. H. Longwell

Minneapolis..

Atherton Bean

Judson Bemis

Kansas City..

Homer A. Scott

Dolph Simons

Dallas

Robert O. Anderson

Vacancy

San Francisco

F. B. Whitman

John D. Fredericks

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 5-6, 1963.
Mr. Whitman, Chairman of the Federal Reserve Bank of San Francisco,
who was elected Chairman of the Conference and of the Executive Committee
in December 1962, served in that capacity until the close of the 1963 meeting.
Mr. Briggs, Chairman of the Federal Reserve Bank of Chicago, and Mr. Bean,

276

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
Chairman of the Federal Reserve Bank of Minneapolis, served with Mr. Whitman in 1963 as members of the Executive Committee; Mr. Briggs also served
as Vice Chairman of the Conference.
On December 6, 1963, Mr. Bean, Chairman of the Minneapolis Bank, was
elected Chairman of the Conference and of the Executive Committee to serve
for the succeeding year; Mr. Briggs, Chairman of the Chicago Bank, was
elected Vice Chairman of the Conference and a member of the Executive
Committee; and Mr. Canham, Chairman of the Federal Reserve Bank of
Boston, was elected as the other member of the Executive Committee.
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 5 or 7 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.

DIRECTORS

District 1 — Boston

Term
expires
Dec. 31

Class A:
Arthur F. Maxwell

President, The First National Bank of Biddeford, Maine
William M. Lockwood.. .President, The Howard National Bank and
Trust Company, Burlington, Vt
Ostrom Enders
Chairman, Hartford National Bank and Trust
Company, Hartford, Conn

277

1963
1964
1965

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.
Class B:
William R. Robbins
James R. Carter
John R. Newell
Class C.William Webster
Erwin D. Canham
John T. Fey

District 1 — Boston — Cont.

Term
expires
Dec. 31

Vice President for Finance, United Aircraft Corporation, East Hartford, Conn
President, Nashua Corporation, Nashua, N,H..
President, Bath Iron Works Corp., Bath, Maine

Chairman and Chief Executive Officer, New
England Electric System, Boston, Mass
Editor, The Christian Science Monitor, Boston,
Mass
President, University of Vermont, Burlington,
Vt

1963
1964
1965

District 2 — New York
Class A:
A. Leonard Mott
George Champion
Ralph H. Rue
Class B:
Albert L. Nickerson
B. Earl Puckett
Kenneth H. Hannan

President, The First National Bank of Moravia,
N.Y
Chairman of the Board, The Chase Manhattan
Bank, New York, N.Y
Chairman, The Schenectady Trust Company,
Schenectady, N.Y
Chairman of the Board, Socony Mobil Oil
Company, Inc., New York, N.Y
Formerly Chairman of the Board, Allied Stores
Corporation, New York, N.Y
Executive Vice President, Union Carbide Corporation, New York, N.Y

1963
1964
1965

Class C.Everett N. Case

President, Alfred P. Sloan Foundation, New
York, N.Y
James DeCamp W i s e . . . . Formerly Chairman of the Board, BigelowSanford, Inc., Frenchtown, N.J
Philip D. Reed
Formerly Chairman of the Board, General
Electric Company, New York, N.Y

278

1963
1964
1965

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.

District 2 — New York — Cont.

Term
expires
Dec. 31

Buffalo Branch

Appointed by Federal Reserve Bank:
John M. Galvin
Chairman, Executive Committee, The Marine
Trust Company of Western New York,
Buffalo, N.Y
Anson F. Sherman
President, The Citizens Central Bank, Arcade,
N.Y
Elmer B. Milliman
President, Central Trust Company, Rochester,
N.Y
Arthur S. Hamlin
President, The Canandaigua National Bank and
Trust Company, Canandaigua, N.Y

1963
1964
1964
1965

Appointed by Board of Governors:
Thomas E. LaMont
Farmer, Albion, N.Y
1963
Whit worth Ferguson
President, Ferguson Electric Construction Co.,
Inc., Buffalo, N.Y
1964
Maurice R. Forman
President, B. Forman Company, Inc., Rochester,
N.Y
1965

District 3 — Philadelphia
Class A:
J. Milton Featherer

Eugene T. Gramley
Benjamin F. Sawin

Class B:
Leonard P. Pool
Frank R. Palmer
Ralph K. Gottshall

Executive Vice President and Trust Officer, The
Penn's Grove National Bank and Trust
Company, Penns Grove, N J
1963
President, Milton Bank and Safe Deposit Company, Milton, Pa
1964
Vice Chairman of the Board, Provident Tradesmens Bank and Trust Company, Philadelphia,
Pa
1965

President, Air Products and Chemicals, Inc.,
Allentown, Pa
1963
Chairman of the Board, The Carpenter Steel
Company, Reading, Pa
1964
Chairman of the Board and President, Atlas
Chemical Industries, Inc., Wilmington, Del... 1965

279

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31V 1963—Cont.

DIRECTORS—Com.
Class C.Walter E. Hoadley
Willis J. Winn
David C. Bevan

District 3 — Philadelphia — Cont.

Term
expires
Dec. 31

Vice President and Treasurer, Armstrong Cork
Company, Lancaster, Pa
1963
Dean, Wharton School of Finance and Commerce, University of Pennsylvania, Philadelphia, Pa
1964
Chairman, Finance Committee, The Pennsylvania Railroad Company, Philadelphia, Pa.... 1965

District 4 — Cleveland
Class A:
Paul A. Warner
C. N. Sutton
Frank E. Agnew, Jr

Class B:
Edwin J. Thomas
David A. Meeker
Walter K. Bailey

Class C:
Aubrey J. Brown
Joseph B. Hall
Logan T. Johnston

President, The Oberlin Savings Bank Company,
Oberlin, Ohio
1963
President, The Richland Trust Company, Mansfield, Ohio
1964
Chairman of the Board, Pittsburgh National
Bank, Pittsburgh, Pa
1965

Chairman of the Board and Chief Executive
Officer, The Goodyear Tire & Rubber Company, Akron, Ohio
1963
Chairman of the Board, The Hobart Manufacturing Company, Troy, Ohio
1964
Chairman of the Board, The Warner .& Swasey
Company, Cleveland, Ohio
1965

Professor of Agricultural Marketing and Head
of Department of Agricultural Economics,
University of Kentucky, Lexington, Ky
1963
Chairman of the Board, The Kroger Co., Cincinnati, Ohio
1964
President, Armco Steel Corporation, Middletown, Ohio
1965
280

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Com.

District 4 — Cleveland — Cont.

Term
expires
Dec. 31

Cincinnati Branch

Appointed by Federal Reserve Bank:
John W. Humphrey
President, The Philip Carey Manufacturing
Company, Cincinnati, Ohio
H. W. Gillaugh
President, The Third National Bank and Trust
Company of Dayton, Ohio
G. Carlton Hill
Chairman of the Board, The Fifth Third Union
Trust Co., Cincinnati, Ohio
John W. Woods, Jr
President, The Third National Bank of Ashland, Ky
Appointed by Board of Governors:
Walter C. Langsam
President, University of Cincinnati, Ohio
Barney A. Tucker
President, Burley Belt Plant Food Works, Inc.,
Lexington, Ky
Howard E. Whitaker... .Chairman of the Board, The Mead Corporation,
Dayton, Ohio

1963
1963
1964
1965

1963
1964
1965

Pittsburgh Branch

Appointed by Federal Reserve Bank:
Chas. J. Heimberger
President, The First National Bank of Erie
Pa
S. L. Drumm
President, West Penn Power Company, Greensburg, Pa
James B. Grieves
President, Commonwealth Bank and Trust
Company, Pittsburgh, Pa
Alfred H. Owens
President, The Citizens National Bank of New
Castle, Pa
Appointed by Board of Governors:
G. L. Bach
Maurice Falk Professor of Economics and
Social Science, Carnegie Institute of Technology, Pittsburgh, Pa
William A. Steele
Chairman of the Board and President, Wheeling
Steel Corporation, Wheeling, W.Va
F. L. Byrom
President, Koppers Company, Inc., Pittsburgh,
Pa

281

1963
1963
1964
1965

1963
1964
1965

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.
Class A:
Addison H. Reese
J. McKenny Willis, Jr
David K. Cushwa, Jr
Class B.Robert E. L. Johnson
Robert R. Coker
R. E. Salvati
Class C.William H. Grier
Edwin Hyde
Wilson H. Elkins

District 5 — Richmond

Term
expires
Dec. 31

President, North Carolina National Bank,
Charlotte, N.C
Director, Maryland National Bank (Baltimore),
Easton, Md
President, The Washington County National
Savings Bank, Williamsport, Md
Chairman of the Board, Woodward & Lothrop,
Incorporated, Washington, D.C
President, Coker's Pedigreed Seed Company,
Hartsville, S.C
Chairman of the Board, Island Creek Coal
Company, Huntington, W.Va
President, Rock Hill Printing & Finishing Company, Rock Hill, S.C
President, Miller & Rhoads, Inc., Richmond,
Va
President, University of Maryland, College
Park, Md

1963
1964
1965

Baltimore Branch

Appointed by Federal Reserve Bank:
J. N. Shumate
President, The Farmers National Bank of
Annapolis, Md
Harvey E. Emmart
Senior Vice President and Cashier, Maryland
National Bank, Baltimore, Md
Martin Piribek
Executive Vice President, The First National
Bank of Morgantown, W.Va
Joseph B. Browne
President, Union Trust Company of Maryland,
Baltimore, Md
Appointed by Board of Governors:
Harry B. Cummings
Vice President & General Manager., Metal
Products Division, Koppers Company, Inc.,
Baltimore, Md
Leonard C. Crewe, J r . . . .President and Treasurer, Maryland Fine &
Specialty Wire Co., Inc., Cockeysville, Md
E. Wayne Corrin
President, Hope Natural Gas Company,, Clarksburg, W.Va

282

1963
1964
1964
1965

1963
1964
1965

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Ont.
Term
expires
DIRECTORS—Com.

District 5—Richmond — Cont.

Dec. 31

Charlotte Branch

Appointed by Federal Reserve Bank:
W. W. McEachern
President, The South Carolina National Bank,
Greenville, S.C
Joe H. Robinson
Senior Vice President, Wachovia Bank and
Trust Company, Charlotte, N.C
Wallace W. Brawley
President, The Commercial National Bank of
Spartanburg, S.C
G. Harold Myrick
Executive Vice President and Trust Officer, The
First National Bank of Lincolnton, N.C
Appointed by Board of Governors:
George H. Aull
Consulting Economist, The South Carolina
National Bank, Clemson, S.C
Clarence P. Street
President, McDevitt & Street Company, Charlotte, N.C
J. C. Cowan, Jr
Vice Chairman of the Board, Burlington Industies, Inc., Greensboro, N.C

1963
1964
1964
1965

1963
1964
1965

District 6 — Atlanta
Class A:
George S. Craft
D. C. Wadsworth, Sr
M. M. Kimbrel
Class B:
W. Maxey Jarman
James H. Crow, Jr
McGregor Smith

President, Trust Company of Georgia, Atlanta,
Ga
President, The American National Bank,
Gadsden, Ala
Chairman of the Board, First National Bank,
Thomson, Ga
Chairman, Genesco, Inc., Nashville, Tenn
Vice President, The Chemstrand Corporation,
Decatur, Ala
Chairman of the Board, Florida Power & Light
Company Miami, Fla

Class C.Henry G. Chalkley, Jr.... President, The Sweet Lake Land & Oil Company,
Lake Charles, La
Jack Tarver
President, Atlanta Newspapers, Inc., Atlanta,
Ga
J. M. Cheatham
President, Dundee Mills, Incorporated, Griffin,
Ga

283

1963
1964
1965
1963
1964
1965

1963
1964
1965

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.

District 6 — Atlanta — Cont.

Term
expires
Dec. 31

Birmingham Branch

Avpointed by Federal Reserve Bank:
Frank A. Plummer
Chairman of the Board and President, Birmingham Trust National Bank, Birmingham, Ala.
John H. Neill, Jr
President, Union Bank & Trust Co., Montgomery, Ala
W. H. Mitchell
President, The First National Bank of Florence,
Ala
A. Calvin Smith
President, First National Bank, Greenville, Ala.

Appointed by Board of Governors:
Selden Sheffield
Cattleman, Greensboro, Ala
C. Caldwell Marks
Chairman of the Board, Owen-Richards Company, Inc., Birmingham, Ala
Jack W. Warner
Chairman of the Board and President, Gulf
States Paper Corporation, Tuscaloosa, Ala.

1963
1964
1964
1965

1963
1964
1965

Jacksonville Branch

Appointed by Federal Reserve Bank:
Godfrey Smith
President, Capital City First National Bank of
Tallahassee, Fla
J. T. Lane:
Chairman of the Board, The Atlantic National
Bank, Jacksonville, Fla
Harry Fagan
President, First National Bank in Fort Myers,
Fla
Arthur W. Saarinen
President, Broward National Bank of Fort
Lauderdale, Fla

Appointed by Board of Governors:
J. Ollie Edmunds
President, Stetson University, DeLand, Fla
Harry T. Vaughn
President, United States Sugar Corporation,
Clewiston, Fla
Claude J. Yates
Vice President and General Manager, Southern
Bell Telephone and Telegraph Company,
Jacksonville, Fla

284

1963
1964
1964
1965

1963
1964

1965

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.

District 6 — Atlanta — Cont.

Term
expires
Dec. 31

Nashville Branch

Appointed by Federal Reserve Bank:
D. W. Johnston
Executive Vice President, Third National Bank
in Nashville, Tenn
Travis Hitt
President, Farmers National Bank, Winchester,
Tenn
Harry M. Nacey, Jr
President, Hamilton National Bank, Knoxville, Tenn
R. S. Walling
President, First National Bank, McMinnville,
Tenn
Appointed by Board of Governors:
W. N. Krauth
President and General Manager, Colonial
Baking Company of Nashville, Tenn
V. S. Johnson, Jr
Chairman of the Board and President, Aladdin
Industries, Inc., Nashville, Tenn
Andrew D. Holt
President, University of Tennessee, Knoxville,
Tenn

1963
1964
1964
1965

1963
1964
1965

New Orleans Branch

Appointed by Federal Reserve Bank:
Giles W. Patty
President, First National Bank, Meridian, Miss.
Lewis Gottlieb
Chairman of the Board, City National Bank,
Baton Rouge, La
John Oulliber
President, The National Bank of Commerce in
New Orleans, La
J. R. McCravey, Jr
Vice President, Bank of Forest, Miss
Appointed by Board of Governors:
Frank A. Godchaux, III. .Vice President, Louisiana State Rice Milling
Company, Inc., Abbeville, La
Kenneth R. Giddens
President, WKRG-TV, Inc., Mobile, Ala
J. O. Emmerich
Editor, Enterprise-Journal, McComb, Miss

1963
1964
1964
1965

1963
1964
1965

District 7 — Chicago
Class A:
David M. Kennedy
John H. Crocker
Harry W. Schaller

Chairman of the Board, Continental Illinois
National Bank and Trust Company of
Chicago, 111
1963
Chairman of the Board, The Citizens National
Bank of Decatur, 111
1964
President, The Citizens First National Bank of
Storm Lake, Iowa
1965

285

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.
Class B:
G. F. Langenohl
William E. Rutz
William A. Hanley

Class C.John W. Sheldon
Robert P. Briggs
James H. Hilton

District 7 — Chicago — Cont.

Term
expires
Dec. 31

Treasurer and Assistant Secretary, Allis-Chalmers Manufacturing Company, Milwaukee,
Wis
1963
Director, Giddings & Lewis Machine Tool
Company, Fond du Lac, Wis
1964
Director, Eli Lilly and Company, Indianapolis,
Ind
1965

President, Chas. A. Stevens & Co., Chicago, 111. 1963
Executive Vice President, Consumers Power
Company, Jackson, Mich
1964
President, Iowa State University of Science and
Technology, Ames, Iowa
,.
1965

Detroit Branch

Appointed by Federal Reserve Bank:
William A. Mayberry... .Chairman of the Board, Manufacturers National
Bank of Detroit, Mich
Franklin H. Moore
President, The Commercial and Savings Bank,
St. Clair, Mich
Donald F. Valley
Chairman of the Board, National Bank of
Detroit, Mich
C. Lincoln Linderholm.. .President, Central Bank, Grand Rapids, Mich.

1963
1963
1964
1965

Appointed by Board of Governors:
Max P. Heavenrich, Jr... .President and General Manager, Heavenrich
Bros. & Company, Saginaw, Mich
1963
James William Miller... .President, Western Michigan University, Kalamazoo, Mich
1964
Guy S. Peppiatt
President, Federal-Mogul-Bower Bearings, Inc.,
Detroit, Mich
1965

286

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
Term
expires
DIRECTORS—Cont.
Class A:
H. Lee Cooper
Arthur Werre, Jr
Harry F. Harrington

District 8 — St. Louis

Dec. 31

President, Ohio Valley National Bank of
Henderson, Ky
Executive Vice President, First National Bank of
Steeleville, 111
Chairman of the Board and President, The
Boatmen's National Bank of Saint Louis, Mo.

1963
1964
1965

Class B:
Edgar M. Queeny

Chairman of the Finance Committee and member of Board of Directors, Monsanto Chemical
Company, St. Louis, Mo
Mark Townsend
Chairman of the Board, Townsend Lumber
Company, Inc., Stuttgart, Ark
Harold O. McCutchan.. .Senior Executive Vice President, Mead Johnson
& Company, Evansville, Ind

Class C.Jesse D. Wooten
J. H. Longwell

Raymond Rebsamen

Executive Vice President, Mid-South Chemical
Corporation, Memphis, Tenn
Director, Special Studies and Programs, College
of Agriculture, University of Missouri,
Columbia, Mo
Chairman of the Board, Rebsamen & East, Inc.,
Little Rock, Ark

1963
1964
1965

1963

1964
1965

Little Rock Branch

Appointed by Federal Reserve Bank:
J. W. Bellamy
President, National Bank of Commerce of Pine
Bluff, Ark
R. M. LaGrone, Jr
President, The Citizens National Bank of Hope,
Ark
Ross E. Anderson
Chairman of the Board, The Commercial
National Bank of Little Rock, Ark
H. C. Adams
Executive Vice President, The First National
Bank of De Witt, Ark

287

1963
1963
1964
1965

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
Term
expires
DIRECTORS—Cont.

District 8 — St. Louis — Cont.

Dec. 31

Little Rock Branch—Cont.

Appointed by Board of Governors:
Frederick P. Blanks
Planter, Parkdale, Ark
Waldo E. Tiller
President, Tiller Tie and Lumber Company,
Inc., Little Rock, Ark
Carey V. Stabler
President, Little Rock University, Little Rock,
Ark

1963
1964
1965

Louisville Branch

Appointed by Federal Reserve Bank:
Ray A. Barrett
President, The State Bank of Salem, Ind
John G. Russell
President, The Peoples First National Bank &
Trust Company of Paducah, Ky
John R. Stroud
Executive Vice President, The First National
Bank of Mitchell, Ind
John H. Hardwick
President, The Louisville Trust Company,
Louisville, Ky
Appointed by Board of Governors:
Philip Davidson
President, University of Louisville, Ky
Richard T. Smith
Farmer, Madisonville, Ky
C. Hunter Green
Vice President and General Manager, Southern
Bell Telephone and Telegraph Company,
Louisville, Ky

1963
1963
1964
1965
1963
1964

1965

Memphis Branch

Appointed by Federal Reserve Bank:
John E. Brown
Chairman of the Board and President, Union
Planters National Bank of Memphis, Tenn...
Simpson Russell
Chairman of the Board, the National Bank of
Commerce of Jackson, Tenn
Leon C. Castling
President, First National Bank at Marianna,
Ark
Charles R. Caviness
President, National Bank of Commerce of
Corinth, Miss

1965

Appointed by Board of Governors:
Edward B. LeMaster. . . .President, Edward LeMaster Company, Inc.,
Memphis, Tenn
Frank Lee Wesson
President, Wesson Farms, Inc., Victoria, Ark...
William King Self
President, Riverside Industries, Marks, Miss

1963
1964
1965

288

1963
1963
1964

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
Term
expires
DIRECTORS—Cont.
Class A:
Harold C. Refling
Rollin O. Bishop
Curtis B. Mateer
Class B:
Ray C. Lange
T. G. Harrison
Hugh D. Galusha, Jr
Class C:
Judson Bemis
John H. Warden
Atherton Bean

District 9 — Minneapolis

Dec. 31

Executive Vice President, First National Bank
in Bottineau, N. Dak
Consultant, The American National Bank of
Saint Paul, Minn
Executive Vice President, The Pierre National
Bank, Pierre, S. Dak

1963
1964
1965

President, Chippewa Canning Company, Inc.,
Chippewa Falls, Wis
1963
Chairman of the Board, Super Valu Stores, Inc.,
Minneapolis, Minn
1964
Lawyer and Certified Public Accountant, Helena,
Mont
1965
President, Bemis Bro. Bag Co., Minneapolis,
Minn
1963
Chairman of the Board, Upper Peninsula Power
Company, Houghton, Mich
1964
President, International Milling Company, Inc.,
Minneapolis, Minn
1965
Helena Branch

Appointed by Federal Reserve Bank:
O. M. Jorgenson
Chairman of the Board, Security Trust and
Savings Bank, Billings, Mont
Roy G. Monroe
Chairman of the Board and President, The First
State Bank of Malta, Mont
Harald E. Olsson
President, Ronan State Bank, Ronan, Mont....
Appointed by Board of Governors:
John M. Otten
Farmer and rancher, Lewistown, Mont
C. G. McClave
President & General Manager, Montana Flour
Mills Co., Great Falls, Mont

1963
1964
1964
1963
1964

District 10 — Kansas City
Class A:
Harold Kountze

Chairman of the Board, The Colorado National
Bank of Denver, Colo
W. S. Kennedy
President and Chairman of the Board, The First
National Bank of Junction City, Kans
Burton L. Lohmuller.... President, The First National Bank of Centralia,
Kans

289

1963
1964
1965

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.
Class B:
Max A. Miller
Robert A. Olson
K. S. Adams
Class C:
Homer A. Scott
Dolph Simons
Dean A. McGee

District 10 — Kansas City — Cont.

Term
expires
Dec. 31

Livestock rancher, Omaha, Nebr
President, Kansas City Power & Light Company,
Kansas City, Mo
Chairman of the Board, Phillips Petroleum
Company, Bartlesville, Okla
Vice President and District Manager, Peter
Kiewit Sons' Company, Sheridan, Wyo
Editor and President, The Lawrence Daily
Journal-World, Lawrence, Kans
Chairman of the Board, Kerr-McGee Oil Industries, Inc., Oklahoma City, Okla

1963
1964
1965

Denver Branch

Appointed by Federal Reserve Bank:
Eugene H. Adams
President, The First National Bank of Denver,
Colo
1963
J. H. Bloedorn
President, The Farmers State Bank of Fort
Morgan, Colo
1964
J.P.Brandenburg
President, The First State Bank of Taos,
N. Mex
1964
Appointed by Board of Governors:
Robert T. Person
President, Public Service Company of Colorado,
Denver, Colo
R. A. Burghart
Ingle Land and Cattle Company, Colorado
Springs, Colo

1963
1964

Oklahoma City Branch

Appointed by Federal Reserve Bank:
C. P. Stuart
Chairman of the Board, The Fidelity National
Bank & Trust Company, Oklahoma City,
Okla
R. L. Kelsay
Chairman of the Board and President, The First
National Bank in Hobart, Okla
Guy L. Berry, Jr
President, The American National Bank and
Trust Company, Sapulpa, Okla
Appointed by Board of Governors:
James E. Allison
Consultant, Warren Petroleum Corporation,
Tulsa, Okla
Otto C. Barby
Attorney and rancher, Beaver, Okla.

290

1963
1964
1964

1963
1964

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.

District 10 — Kansas City — Cont.

Term
expires
Dec. 31

Omaha Branch

Appointed by Federal Reserve Bank:
R. E. Barton
President, The Wyoming National Bank of
Casper, Wyo
Henry D. Kosman
Chairman of the Board and President, Scottsbluff National Bank, Scottsbluff, Nebr
John F. Davis
President, First National Bank, Omaha, Nebr...
Appointed by Board of Governors:
John T. Harris
Merchant and cattleman, McCook, Nebr
Clifford Morris Hardin.. .Chancellor, The University of Nebraska, Lincoln, Nebr

1963
1963
1964
1963
1964

District 11 — Dallas
Class A:
Roy Riddel
J. Edd McLaughlin
Ralph A. Porter
Class B:
D. A. Hulcy
H. B. Zachry
J. B. Perry, Jr
Class C:
(Vacancy)
C. J. Thomsen
Robert O. Anderson

President, First National Bank at Lubbock, Tex. 1963
President, Security State Bank & Trust Company,
Rails, Tex
1964
Executive Vice President, The State National
Bank of Denison, Tex
1965
Chairman of the Board, Lone Star Gas Company, Dallas, Tex
1963
President and Chairman of the Board, H. B.
Zachry Co., San Antonio, Tex
1964
President and General Manager, Perry Brothers,
Inc., Lufkin, Tex
1965
1963
Senior Vice President, Texas Instruments, Inc.,
Dallas, Tex
1964
Owner, Lincoln County Livestock Co., Roswell,
N.Mex
1965
El Paso Branch

Appointed by Federal Reserve Bank:
Floyd Childress
Vice Chairman of the Board, The First National
Bank of Roswell, N.Mex
Dick Rogers
President, First National Bank in Alpine, Tex...
Joseph F. Irvin
President, Southwest National Bank of El Paso,
Tex
Chas. B. Perry
Chairman of the Board, First State Bank,
Odessa, Tex

291

1963
1963
1964
1965

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
Term
expires
DIRECTORS—Com.

District 11 — Dallas—Cont.

Dec. 31

El Paso Branch—Cont.

Appointed by Board of Governors:

William R. Mathews
Dysart E. Holcomb
Roger B. Corbett

Editor and Publisher, The Arizona Daily Star,
Tucson, Ariz
1963
Director of Research, El Paso Natural Gas
Products Company, El Paso, Tex
1964
President, New Mexico State University, University Park, N.Mex
1965
Houston Branch

Appointed by Federal Reserve Bank:

J. A. Elkins, Jr

Chairman of the Board, First City National
Bank of Houston, Tex
1963
John E. Gray
President, First Security National Bank of
Beaumont, Tex
1963
J. W. McLean
President, Texas National Bank of Houston,
Tex
1964
M. M. Galloway
President, First Capitol Bank, West Columbia,
Tex
1965
Appointed by Board of Governors:
Max Levine
President, Foley's, Houston, Tex
1963
Edgar H. Hudgins
Ranching—Partner in Hudgins Division of
J. D. Hudgins, Hungerford, Tex
1964
D. B. Campbell
Works Manager, Sabine River Works, E. I. du
Pont de Nemours & Company, Orange, Tex... 1965
San Antonio Branch

Appointed by Federal Reserve Bank :

Donald D. James
Forrest M. Smith
Max A. Mandel
Dwight D. Taylor

Vice President, The Austin National Bank,
Austin, Tex
President, National Bank of Commerce of San
Antonio, Tex
President, The Laredo National Bank, Laredo,
Tex
President, Pan American State Bank, Brownsville, Tex

1963
1963
1964
1965

Appointed by Board of Governors:

G. C. Hagelstein
Harold D. Herndon
John R. Stockton

President and General Manager, Union Stock
Yards San Antonio, Tex
1963
Independent Oil Operator, San Anton:o, Tex... 1964
Professor of Business Statistics and Director of
Bureau of Business Research, The University
of Texas, Austin, Tex
1965

292

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.

District 12 — San Francisco

Term
expires
Dec. 31

Class A:
Carroll F. Byrd

Chairman of the Board and President, The First
National Bank of Willows, Calif.
1963
Charles F. Frankland... .President, The Pacific National Bank of Seattle,
Wash
1964
M. Vilas Hubbard
President and Chairman of the Board, Citizens
Commercial Trust and Savings Bank of
Pasadena, Calif.
1965

Class B:
Joseph Rosenblatt
Walter S. Johnson
Fred H. Merrill
Class C:
John D. Fredericks
Frederic S. Hirschler
F. B. Whitman

President, The Eimco Corporation, Salt Lake
City, Utah
1963
Chairman of the Board, American Forest
Products Corporation, San Francisco, Calif... 1964
President, Fireman's Fund American Insurance
Companies, San Francisco, Calif.
1965
President, Pacific Clay Products, Los Angeles,
Calif.
1963
President, The Emporium Capwell Company,
San Francisco, Calif.
1964
President, The Western Pacific Railroad Company, San Francisco, Calif.
1965
Los Angeles Branch

Appointed by Federal Reserve Bank:
Ralph V. Arnold
Chairman of the Board and President, First
National Bank and Trust Company, Ontario,
Calif.
1963
Douglas Shively
President, Citizens State Bank of Santa Paula,
Calif.
1964
Roy A. Britt
Vice Chairman of the Board and Chairman,
Executive
Committee,
Crocker-Citizens
National Bank, Los Angeles, Calif.
1964
Appointed by Board of Governors:
Robert J. Cannon
President, Cannon Electric Company, Los
Angeles, Calif.
1963
S. Alfred Halgren
Vice President and Director, Carnation Company, Los Angeles, Calif
1964

293

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.

DIRECTORS—Cont.

District 12 — San Francisco — Cont.

Term
expires
Dec. 31

Portland Branch

Appointed by Federal Reserve Bank:
C. B. Stephenson
Chairman of the Board, The First National
Bank of Oregon, Portland, Oreg
D. S. Baker
President, The Baker-Boyer National Bank,
Walla Walla, Wash
E. M. Flohr
President, The First National Bank of Wallace,
Idaho
Appointed by Board of Governors:
Graham J. Barbey
President, Barbey Packing Corporation, Astoria,
Oreg
Raymond R. Reter
Reter Fruit Company, Medford, Oreg

1963
1964
1964

1963
1964

Salt Lake City Branch

Appointed by Federal Reserve Bank:
Oscar Hiller
President, Butte County Bank, Arco, Idaho
Alan B. Blood
Executive Vice President, Barnes Banking Company, Kaysville, Utah
Reed E. Holt
President, Walker Bank & Trust Company, Salt
Lake City, Utah
Appointed by Board of Governors:
Howard W. Price
President, The Salt Lake Hardware Company,
Salt Lake City, Utah
Thomas B. Rowland
President and General Manager, Rowland's
Inc., Pocatello, Idaho

1963
1964
1964

1963
1964

Seattle Branch

Appointed by Federal Reserve Bank:
Joshua Green, Jr
Chairman of the Board, Peoples National Bank
of Washington, Seattle, Wash
Chas. H. Parks
Executive Vice President, Seattle-First National
Bank, Spokane, Wash
M. F. Hastings
President, The First National Bank of Ferndale,
Wash
Appointed by Board of Governors:
Henry N. Anderson
President, Twin Harbors Lumber Company,
Aberdeen, Wash
Robert D. O'Brien
President, Pacific Car and Foundry Company,
Seattle, Wash

294

1963
1964
1964

1963
1964

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
PRESIDENTS and VICE PRESIDENTS
Federal
Reserve
Bank

or branch

Vice Presidents

1 President
First Vice President

Boston

I George H. Ellis
E. O. Latham

D. Harry Angney Ansgar R. Berge
Luther M. Hoyle, Jr. Oscar A. Schlaikjer
Charles E. Turner G. Gordon Watts

New York

* Alfred Hayes
: William F. Treiber

Harold A. Bilby
John J. Clarke
Charles A. Coombs Howard D. Crosse
Marcus A. Harris Alan R. Holmes
Robert G. Rouse Walter H. Rozell, Jr.
Horace L. Sanford Robert W. Stone
Thomas O. Waage
Insley B. Smith

Buffalo

Karl R. Bopp
Robert N. Hilkert

Philadelphia. . .

Cleveland

Cincinnati
Pittsburgh

John R. Bunting
Norman G. Dash
Murdoch K. Goodwin
J. V. Vergari

Edward A. Fink
I W. Braddock Hickman Roger R. Clouse
Fred S. Kelly
Donald S. Thompson Elmer F. Fricek
Maurice Mann
Clifford G. Miller
Martin Morrison Paul C. Stetzelberger
Fred O. Kiel
Clyde E. Harrell

Edward A. Wayne
Aubrey N. Heflin

Richmond

Baltimore
Charlotte

Hugh Barrie
Joseph R. Campbell
David P. Eastburn
Harry W. Roeder
Richard G. Wilgus

Robert P. Black
J. G. Dickerson, Jr.
Upton S. Martin
John L. Nosker
J. M. Nowlan
Benj. U. Ratchford
R. E. Sanders, Jr.
D. F. Hagner
E. F. MacDonald

295

ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
PRESIDENTS and VICE PRESIDENTS—Cont.

Federal
Reserve
Bank
or branch
Atlanta

President
First Vice President

Vice Presidents

Malcolm Bryan
Harold T. Patterson

J. E. Denmark
J. E. McCorvey
L. B. Raisty
Brown R. Rawlings
Charles T. Taylor
E. C. Rainey
T. A. Lanford
R. E. Moody, Jr.
M. L. Shaw

C. J. Scanlon
Hugh J. Helmer

E. T. Baughman
A. M. Gustavson
Paul C. Hodge
L. H. Jones
C. T. Laibly
Richard A. Moffatt
H. J. Newman
Leland M. Ross
Harry S. Schultz
R. A. Swaney

Harry A. Shuford
Darryl R. Francis

Marvin L. Bennett Homer Jones
Dale M. Lewis
Howard H. Weigel
Joseph C. Wotawa Orville O. Wyrick
Fred Burton
Donald L. Henry
E. Francis DeVos

Frederick L. Deming
A. W. Mills

Kyle K. Fossum
C. W. Groth
M. B. Holmgren
A. W. Johnson
H. G. McConnell Franklin L. Parsons
M. H. Strothman, Jr.
Clement A. Van Nice

George H. Clay
Henry O. Koppang

Wilbur T. Billington John T. Boysen
Ray J. Doll
J. R. Euans
L. F. Mills
Clarence W. Tow
J. T. White
Cecil Puckett
H. W. Pritz
George C. Rankin

Birmingham
Jacksonville
Nashville
New Orleans
Chicago

Detroit
St. Louis
Little Rock
Louisville
Memphis
Minneapolis

Helena
Kansas City

Denver
Oklahoma City
Omaha

296

FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANKS and BRANCHES, Dec. 31, 1963—Cont.
PRESIDENTS and VICE PRESIDENTS—Cont.

Federal
Reserve
Bank

or branch

Dallas

President
First Vice President

Vice Presidents

Watrous H. Irons
Philip E. Coldwell

James L. Cauthen Ralph T. Green
T. A. Hardin
G. R. Murff
James A. Parker
T. W. Plant
W. M. Pritchett
Thomas R. Sullivan
Roy E. Bohne
J. L. Cook
Carl H. Moore

El Paso
Houston
San Antonio
San F r a n c i s c o . . . . Eliot J. Swan
H. E. Hemmings
Los Angeles
Portland
Salt Lake City
Seattle

J. L. Barbonchielli P. W. Cavan
E. H. Galvin
David L. Grove
A. B. Merritt
C. H. Watkins
D. M. Davenport
(vacancy)
A. L. Price
E. R. Barglebaugh

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. Irons, President of the Federal Reserve Bank of Dallas, and Mr. Hayes,
President of the Federal Reserve Bank of New York, were elected Chairman of
the Conference and Vice Chairman, respectively, in March 1963, and served in
those capacities during 1963.
Mr. Robert H. Boykin of the Federal Reserve Bank of Dallas and Mr. Thomas
M. Timlen, Jr. of the Federal Reserve Bank of New York were appointed
Secretary of the Conference and Assistant Secretary, respectively, in March
1963, and served during the remainder of the year.

297

•I^THE FEDERAL RESERVE

SYSTEM

BOUNDARIES OF FEDERAL RESERVE DISTRICTS AND THEIR BRANCH TERRITORIES

L®._\
Minneapoli

°^\
Kansas City

•

Dallas
HAWAII

iVov: f^o

• 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.—District and branch territories described in ANNUAL REPORT for 1953, p. 24; later changes in branch territories, in ANNUAL REPORT for 1954, p. 57, and in F.R. Bulletin for Jan. 1959, p. 17, and Sept. 1959, p. 1141.

Ind ex
Page
Acceptance powers of member banks
196
Acceptances, bankers':
Authority to purchase, and to enter into repurchase agreements
48, 70
Federal Reserve Bank holdings
204, 212, 214
Federal Reserve earnings on
204, 222
Open market transactions during 1963
220
Assets and liabilities:
Banks, by classes
232
Board of Governors
208
Federal Reserve Banks
212-17
Balance of payments
31
Bank Examination School
197
Bank holding companies:
Board actions with respect to
194
Litigation
201, 202
Bank Holding Company Act, proposed amendments
199
Bank mergers and consolidations
193, 237-71
Bank premises, Federal Reserve Banks and branches
207, 212, 214, 216, 221
Bank service arrangements, adoption of Regulation S by Board
37
Bank supervision by Federal Reserve System
191
Banking offices:
Changes in number
234
Par and nonpar offices, number
235
Board of Governors:
Audit of accounts
207
Income and expenses
207-09
Litigation
201, 202
Members and officers
272
Policy actions
37-46
Regulations (See Regulations)
Branch banks:
Banks, by classes, changes in number
234
Federal Reserve:
Bank premises
207, 221
Directors
277
Vice Presidents in charge of
295
Foreign branches of member banks:
National banks, revision of Board's Regulation M
41
Number
195
State member banks, amendment of Regulation H
41
Capital accounts:
Banks, by classes
232

301

INDEX
Page
Capital accounts—Continued
Federal Reserve Banks
.213, 215, 217
Chairmen of Federal Reserve Banks
276
Check clearing and collection:
Check mechanization program
205
Volume of operations
226
Collateral for Federal Reserve credit, legislation proposed by Board
198
Collection of noncash items:
Definition of noncash items, amendment to Regulation G
37
Commercial banks:
Assets and liabilities
232
Banking offices, changes in number
234
Number, by classes
232
Condition statement of Federal Reserve Banks
212-17
Defense production loans
205, 228
Deposits:
Banks, by classes
232
Federal Reserve Banks
213, 215, 217, 230
Time and savings deposits, maximum permissible rates:
Increase in maximum rates payable on time deposits
38
Table of
227
Deputy Chairmen of Federal Reserve Banks
276
Directors, Federal Reserve Banks and branches
277
Discount rates at Federal Reserve Banks:
Increase in
38
Table of
227
Discounts and advances by Federal Reserve Banks:
Collateral for Federal Reserve credit, legislation proposed by Board
198
Earnings on
203, 204, 222
Volume of
205, 212, 214, 216;i 226, 230
Dividends:
Federal Reserve Banks
203, 2O4;| 223, 224
Member banks
233
Earnings:
Federal Reserve Banks
202,, 222, 224
Member banks
233
Economic review
3
Examinations:
Federal Reserve Banks
191
Foreign banking and financing corporations
196
Holding company affiliates
194
Member banks
191
State member banks
191
Expenses:
Board of Governors
207-09

302

INDEX
Page
Expenses—Continued
Federal Reserve Banks
202, 222, 224
Member banks
233
Federal Advisory Council
275
Federal Open Market Committee:
Audit of System Account
191
Foreign currency operations (See Foreign currency operations)
Litigation
202
Meetings
47, 274
Members and officers
274
Policy actions
47-125
Review of continuing authorizations
70
Review of operations in domestic securities
12, 126, 129-70
Review of operations in foreign currencies
13, 126, 171-90
Federal Reserve Agents
276
Federal Reserve Banks:
Assessment for expenses of Board of Governors
209, 222
Bank premises
207, 212, 214, 216, 221
Branches (See Branch banks, Federal Reserve)
Capital accounts
213, 215, 217
Chairmen and Deputy Chairmen
276
Check mechanization program
205
Condition statement
212-17
Directors
277
Discount rates:
Increase in
38
Table of
227
Dividends
203, 204, 223, 224
Earnings and expenses
202, 222, 224
Examination of
191
Foreign and international accounts
206
Lending authority of, legislation proposed by Board
198
Officers and employees, number and salaries
226
Presidents and Vice Presidents
295
Profit and loss
223
U.S. Government securities:
Holdings of
205, 212, 214, 216, 218, 230
Open market transactions during 1963
220
Special certificates purchased directly from the U.S
219
Volume of operations
205, 226
Federal Reserve notes:
Authority to issue $1 and $2 Federal Reserve notes
198
Condition statement data
212-17
Cost of printing, issue, and redemption
209
Interest paid to Treasury
203, 223, 224

303

INDEX
Page
Federal Reserve System:
Bank supervision by
191
Foreign currency operations (See Foreign currency operations)
Map of Federal Reserve Districts
299
Membership
192
Financial developments
15
Foreign banking and financing corporations:
Examination of
196
Operations of
196
Regulation K, revision of
43
Foreign branches of member banks:
National banks, revision of Board's Regulation M
41
Number
195
State member banks, amendment of Regulation H
41
Foreign currency operations:
Authorization and guidelines
50-56, 71, 84
Continuing authority directive
56, 59, 63, 69, 85, 102, 106, 110, 117, 121
Federal Reserve earnings on foreign currencies
203, 222
Review of operations
13, 126, 171-90
Gold certificate reserves of Federal Reserve Banks
212, 214, 216
Government securities (See U.S. Government securities)
Holding company affiliates
194, 201
Income, expenses, and dividends, member banks
233
Insured commercial banks
232, 234
Interest rates:
Discount rates at Federal Reserve Banks:
Increase in
38
Table of
227
Regulation V loans
228
Time and savings deposits, maximum permissible rates:
Increase in maximum rates payable on time deposits
38
Table of
227
Investments:
Banks, by classes
232
Federal Reserve Banks
212, 214, 216
Legislation:
Authority to issue $1 and $2 Federal Reserve notes
198
Bank Holding Company Act, proposed amendments
. . 199
Lending authority of Federal Reserve Banks, legislation proposed by Board 198
Silver legislation
198
Litigation:
First Oklahoma Bancorporation
201
First Wisconsin Bankshares Corporation
202
Marine Corporation
202
Whitney Holding Corporation
201
Wm. D. Bryan v. Federal Open Market Committee, et al
202

304

INDEX
Page
Loans:
Banks, by classes
232
Federal Reserve Banks :
Collateral for Federal Reserve credit, legislation proposed by B o a r d . . . . 198
Earnings on discounts and advances
203, 204, 222
Volume of discounts and advances
205, 212, 214, 216, 226, 230
Regulation V loans
205, 228
Margin requirements:
Increase in margin and retention requirements
45
Table of
228
Member banks:
Acceptance powers
196
Assets, liabilities, and capital accounts
232
Banking offices, changes in number
234
Examination of
191
Foreign branches:
National banks, revision of Board's Regulation M
41
Number
195
State member banks, amendment of Regulation H
41
Income, expenses, and dividends
233
Number
192, 232
Reserve requirements
229
Reserves and related items
230
Membership in Federal Reserve System
192
Mergers (See Bank mergers and consolidations)
Monetary policy:
Digest of principal policy actions
8
Review of
10
Mutual savings banks
232, 234
National banks:
Assets and liabilities
232
Banking offices, changes in number
234
Foreign branches:
Number
195
Revision of Board's Regulation M
41
Number
192, 232
Nonmember banks:
Assets and liabilities
232
Banking offices, changes in number
234
Open Market Committee (See Federal Open Market Committee)
Par and nonpar banking offices, number
Policy actions, Board of Governors:
Discount rates at Federal Reserve Banks, increase in
Regulation G, Collection of Noncash Items:
Amendment with respect to definition of noncash items

305

235
38
37

INDEX
Page
Policy actions, Board of Governors—Continued
Regulation H, Membership of State Banking Institutions in the Federal
Reserve System:
Amendment with respect to foreign branches
41
Regulation K, Corporations Engaged in Foreign Banking and Financing
under the Federal Reserve Act:
Revision of
,
43
Regulation M, Foreign Branches of National Banks:
Revision of
41
Regulation Q, Payment of Interest on Deposits:
Maximun rates payable on time deposits, increase in
,
38
Regulation S, Bank Service Arrangements:
Adoption of
37
Regulation T, Credit by Brokers, Dealers, and Members of National
Securities Exchanges:
Margin and retention requirements, increase in
45
Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying
Registered Stocks:
Margin and retention requirements, increase in
45
Policy actions, digest of
8
Policy actions, Federal Open Market Committee:
Authority to effect transactions in System Account, including current
economic policy directive
.47-125
Continuing authority directive on domestic operations. . .48, 70, 88, 96, 106, 116
Foreign currency operations:
Authorization and guidelines
. 50-56, 71, 84
Continuing authority directive... 56, 59, 63, 69, 85, 102, 106, 110, 117, 121
Review of continuing authorizations
70
Presidents of Federal Reserve Banks:
Conference of
297
List
295
Salaries
226
Profit and loss, Federal Reserve Banks
223
Record of policy actions (See Policy actions)
Regulations, Board of Governors:
G, Collection of Noncash Items:
Amendment with respect to definition of noncash items
37
H, Membership of State Banking Institutions in the Federal Reserve System:
Amendment with respect to foreign branches
41
K, Corporations Engaged in Foreign Banking and Financing under the
Federal Reserve Act:
Revision of
43
M, Foreign Branches of National Banks:
Revision of
41
Q, Payment of Interest on Deposits:
Maximum rates payable on time deposits, increase in
38

306

INDEX
Page
Regulations, Board of Governors—Continued
S, Bank Service Arrangements:
Adoption of
37
T, Credit by Brokers, Dealers, and Members of National Securities
Exchanges:
Margin and retention requirements, increase in
45
U, Loans by Banks for the Purpose of Purchasing or Carrying Registered
Stocks:
Margin and retention requirements, increase in
45
Repurchase agreements:
Bankers' acceptances
48, 70, 212, 214; 220
U.S. Government securities
48, 70, 212, 214, 219, 220, 230
Reserve requirements, member banks
229
Reserves:
Federal Reserve Banks
212-17
Member banks:
Reserve requirements
229
Reserves and related items
230
Salaries:
Board of Governors
209
Federal Reserve Banks
226
Savings Bond meetings
204
Savings deposits {See Deposits)
Silver legislation authorizing substitution of Federal Reserve notes for silver
certificates
198
State member banks:
Assets and liabilities
232
Bank service arrangements
37
Banking offices, changes in number
234
Examination of
191
Foreign branches:
Amendment of Regulation H
41
Number
195
Mergers and consolidations
193, 237-71
Number
192, 232
System Open Market Account:
Audit of
191
Authority to effect transactions in
47-125
Review of operations in domestic securities
12, 126, 129-70
Review of operations in foreign currencies
13, 126, 171-90
Time deposits {See Deposits)
U.S. Government securities:
Bank holdings, by class of bank
232
Federal Reserve Bank holdings
205, 212, 214, 216, 218, 230
Federal Reserve earnings on
203, 204, 222
Open market operations
12, 47-125, 126, 129-70, 220

307

INDEX
Page
U.S. Government securities—Continued
Repurchase agreements
48, 70, 212, 214, 219, 220, 230
Special certificates purchased directly from the U.S
219
V loans
205, 228
Voting permits issued to holding company affiliates
194

308

Full text of Annual Report of the Board of Governors of the Federal Reserve System : 1963

FRASER