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THIRTY-SECOND

ANNUAL REPORT
of the

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM

COVERING OPERATIONS FOR




THE YEAR

LETTER OF TRANSMITTAL
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM,

Washington, ]une 14, 1946.
T H E SPEAKER OF THE HOUSE OF REPRESENTATIVES.

Pursuant to the requirements of Section 10 of the Federal Reserve Act,
as amended, I have the honor to submit the Thirty-second Annual Report,
prepared by direction of the Board of Governors of the Federal Reserve
System, covering operations during the calendar year 1945.
Yours respectfully,
M. S. ECCLES, Chairman.




CONTENTS
TEXT OF REPORT
Page

Introduction
Monetary Situation as a Result of War
War Financing Policies
,
Bank credit expansion
Postwar financing policies
Continued Inflationary Pressures during Reconversion
Shortages at the end of the year
Increased production of civilian goods
High level of employment
High incomes
Strengthened financial positions
Heavy business and consumer demands
Advanced levels of prices
Growth in Liquid Assets
Consumer Credit Regulation
Margin Requirements
International Trade and Finance
Foreign trade
Wartime expansion in holdings of gold and dollar balances
Extension of credits to other countries
Establishment of international financial organizations
V Loan Program
Banking Operations and Structure
Bank earnings
Capital accounts
Changes in number of banking offices
Increase in membership in Reserve System
Par and nonpar banks
Check routing symbols
Reserve Bank Operations
Volume of operations
Earnings and expenses
Foreign transactions
Bank premises
Reserve Bank Personnel
Chairmen and Deputy Chairmen
Directors
Changes in Presidents and First Vice Presidents
Staff . . .




,

i
i
9
IT
12
15
16
17
18
19
19
19
20
21
23
25
26
27
29
30
31
31
34
34
36
37
37
38
38
39
39
40
40
41
42
42
42
43
43
HI

Page

Bank Supervision by the Federal Reserve
Examination of Federal Reserve Banks
Examination of State member banks
Bank holding companies
Trust powers of national banks
Increased acceptance powers
Foreign branches and banking corporations
Research and Advisory Services
Publications and Releases
Board of Governors—Staff and Expenditures
Staff
Expenditures
Federal Reserve Meetings
Legislation and Reports to Congress
Currency and reserves of Federal Reserve Banks
Bretton Woods Agreements Act; National Advisory Council on
International Monetary and Financial Problems
Advisory Board of Export-Import Bank of Washington
Purchase of Government obligations directly from the United States
Veterans' guaranteed loans
Reports to Congress
Pre-1945 legislation during defense and war period
Changes in Regulations of the Board of Governors
Foreign banking corporations
Consumer credit
Margin requirements for purchasing securities
Reserves of member banks
Common trust funds
Pre-1945 changes in Board's regulations during defense and war
period
Litigation
Injunction under Regulation W
Suit regarding condition of membership
Suit regarding removal of bank directors

44
44
44
44
45
45
45
46
48
48
48
50
51
52
52
52
52
53
53
53
53
55
55
55
56
56
56
57
58
58
58
59

TABLES
No.
No.
No.
No.

1. Statement of Condition of the Federal Reserve Banks (In Detail), Dec. 31, 1945
2. Statement of Condition of Each Federal Reserve Bank at End
of 1944 and 1945
3. Holdings of United States Government Securities by Federal
Reserve Banks, End of December, 1943, 1944, and 1945. . . .
4. Holdings of Special Short-Term Treasury Certificates by the
Federal Reserve Banks, 1942-45

IV



62-63
64-67
68
69

Page

No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.

5. Volume of Operations in Principal Departments of Federal
Reserve Banks, 1941-45
6. Earnings and Expenses of Federal Reserve Banks during 1945
7. Current Earnings, Current Expenses, and Net Earnings of Federal Reserve Banks and Disposition of Net Earnings, 1914-45
8. Number and Salaries of Officers and Employees of Federal
Reserve Banks, Dec. 31, 1944 and 1945
9. Minimum Down Payments and Maximum Maturities on Consumer Credit Subject to Regulation W
10. Federal Reserve Bank Discount, Interest, and Commitment
Rates, and Buying Rates on Bills (In effect Dec. 31, 1945) . .
11. Maximum Rates on Time Deposits
12. Member Bank Reserve Requirements
.
13. Margin Requirements
14. Analysis of Changes in Number of Banking Offices during 1945
15. Number of Banks on Par List and Not on Par List, by Federal
Reserve Districts and States, Dec. 31, 1944 anc ^ J 945

69
70-71
72-73
74
75
76
77
77
77
78
79

APPENDIX
Record of Policy Actions—Board of Governors
Record of Policy Actions—Federal Open Market Committee
United States p. Consumers Home Equipment Co
Peoples Bank v. Federal Reserve Bank of San Francisco
Agnew v. Board of Governors of the Federal Reserve System
Board of Governors of the Federal Reserve System
Federal Open Market Committee
Federal Advisory Council
Directors and Senior Officers of the Federal Reserve Banks
Map of Federal Reserve Districts
Index




82-89
9°~93
94
95—103
104-116
117
117
118
119-128
129
131-138

ANNUAL REPORT OF THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
In making its thirty-second annual report, as required by law, the Board of
Governors of the Federal Reserve System takes the first opportunity afforded,
since the end of hostilities, to present to the Congress a general appraisal of the
war's effects upon the country's monetary situation, viewed from the standpoint
of the responsibilities which Congress has placed upon the System and the System's statutory powers to discharge these responsibilities.
It is the Board's belief that the implicit, predominant purpose of Federal Reserve policy is to contribute, in so far as the limitations of monetary and credit
policy permit, to an economic environment favorable to the highest possible degree of sustained production and employment. Traditionally this over-all policy
has been followed by easing credit conditions when deflationary factors prevailed and, conversely, by restrictive measures when inflationary forces threatened.
In common with other nations whose energies were devoted primarily to winning the victory, the United States had no choice, under the exigencies of a global
war, except to use monetary powers in furtherance of essential war financing and
not as an anti-inflationary weapon. There has been a widespread assumption
that, with the coming of peace, such statutory powers as the Reserve System
possesses should be exerted in the traditional way against the heavy inflationary
forces at present confronting the country. The Board believes that such an
assumption does not take sufficiently into account either the inherent limitations
of the System's existing statutory powers, under present-day conditions, or the
inevitable repercussions on the economy generally and on the Government's financing operations in particular of an exercise of such existing powers to the
degree necessary to be an effective anti-inflationary influence.
Accordingly, the Board takes this occasion to review Government financing
operations of the war years and at present as they have affected the country's
banking and credit situation, and to outline, in general terms, some of the alternative measures to which the appropriate committees of the Congress may
wish to give detailed consideration at the proper time, in determining by what
means monetary and credit responsibilities should be discharged.
MONETARY SITUATION AS A RESULT OF WAR
Between June 30, 1940, on the eve of the defense program, and the end of 1945,
the Government raised approximately 380 billion dollars. Of this, 153 billion
dollars came from taxes, or about 40 per cent. The remainder, 228 billion, or
about 60 per cent, was raised by borrowing, that is, by increasing the public debt.
Of the total borrowed, 133 billion, or about 60 per cent of the borrowing, came
from selling Government securities to investors other than commercial banks and
the Federal Reserve Banks. Approximately 95 billion dollars, or 40 per cent,
of the borrowing, was raised by selling Government securities to the commercial
banking system.



2

ANNUAL REPORT OF BOARD OF GOVERNORS

It is important to any appraisal of monetary and credit conditions, to understand
that borrowing from the banking system, whether by Government or by others,
creates an equivalent addition to the country's monetary supply. Borrowing
from individuals, business concerns, insurance companies, or other sources, except
the banking system, represents the investment of existing savings. To the extent
that the Government did not finance its war program by taxation, it was obliged
to borrow, and to the extent that it did not borrow from nonbank investors, it
relied upon the banks and thus created new supplies of money.
As a consequence, the country's money supply, as measured by demand deposits
and currency in circulation, more than tripled, increasing from 40 billion dollars
in June 1940 to 127 billion at the end of 1945. Time deposits nearly doubled in
the same period and now amount to about 50 billion dollars. In addition, the
general public (exclusive of banks, Government trust funds, insurance companies,
and other financial institutions) has about 100 billion dollars of Government
securities, eight times as much as in June of 1940.
From the monetary standpoint, it is necessary to take into account, not only
these existing liquid assets, but also the amount of current income flowing from
production and employment. All of these items compose an inflationary potential, at a time when the supply of goods and services available for purchase with
existing funds and currently produced income is far from adequate to meet
current demand, on which is superimposed an unprecedented backlog of demand
accumulated in the war years. The extent to which funds available to the public,
including business, will compete for the existing supply of goods and services depends upon many factors. It depends, among other things, upon the continuance
and effectiveness of price controls, upon credit restraints and other devices for
dealing with inflationary effects, and upon public psychology and behavior, which
in turn are influenced by expectations as to the trend of prices and the volume of
production. Public confidence that the purchasing power of savings and current
earnings will be maintained depends primarily on the determination of Congress
and of administrative officials to hold inflationary forces in check and to reduce
them, wherever possible, until the country's unrivaled capacity to produce has had
every opportunity to bring about a reasonable balance between the factors of
supply and demand.
It is axiomatic that inflationary dangers exist when the supply of money in
the hands of people who seek to spend it greatly exceeds the volume of goods and
services available. The more the money supply exceeds the volume of goods, the
greater the inflationary pressures will be. There can be no doubt that the country's money supply, several times greater now than ever before, is and will continue for an indefinite time to be much in excess of available goods. Under such
conditions, with the heavy drains of war financing no longer existing, public
policy calls for vigorous attack on the basic causes of inflationary pressures. This,
in turn, requires that the Government stop and reverse, if possible, the process
whereby it has created bank credit. It is all the more imperative that the
Government reverse this process as the commercial banking system resumes its



FEDERAL RESERVE SYSTEM

3

peacetime function of supplying credit to private sources whose borrowing
will itself create additional funds.
The Government has, in fact, been reversing its creation of money by drawing
on its surplus cash balance to pay off Government debt, primarily that held by
the banks. As long as this use of the Treasury's cash balance continues, the
effect will be anti-inflationary and altogether salutary at this time. However,
if the policy of paying off Government debt is to continue, as it should until
such time as deflationary and not inflationary pressures threaten economic stability, it will be essential to have not only a balanced budget but as great a surplus of receipts over expenditures as is possible without neglecting necessary governmental functions. Accordingly, further general reduction of taxes should be
avoided and prudent economy should be effected in governmental operations.
Necessary as it is that Government policy be firmly anti-inflationary at this
juncture, the rapid attainment of full and sustained production far overshadows
all other economic considerations. As production is disrupted, whether by
strikes or other causes, a series of interrelated and dangerous economic consequences inevitably results. On the one hand, supply is diminished relative to
demand. On the other hand, demand is increased in so far as the public, anticipating rising prices, strives to purchase whatever can be obtained at whatever
prices are asked or tolerated. Black markets, inventory accumulation, speculation,
particularly in fields not covered by price controls, such as securities and real
estate, are thus fostered. These are the customary symptoms of an inflationary
spiral, which can end only in collapse and deflation. When that stage is reached,
diminished incomes cause a sharp decline in Government revenues, leading to
an unbalanced budget and a deficit which has to be financed chiefly by creation
of more bank credit.
It is this chain of causation that has to be prevented, first of all, by full and
sustained production and, second, by having the Government discontinue its
creation of bank credit and reduce as rapidly as possible its debt. Even under
the most favorable auspices, of maintaining high levels of taxation and of careful
economy, the process of reducing the redundant money supply will be slow and
gradual. It may be offset, not only by creation of bank credit to finance necessary
private production, but by creation of bank credit that finances speculation in
existing assets, whether commodities, real estate, securities, or Government bonds.
The creation of unnecessary bank credit by the commercial banking system is
the particular concern of those charged with monetary responsibilities. It can
not be a matter of indifference that at present the country's central banking
mechanism lacks appropriate means, that may be needed, to restrain unnecessary
creation of bank credit through continued acquisition of Government or other
securities by the commercial banks. So long as the Government is able, whether
out of its surplus cash balance as at present, or out of a future budgetary surplus,
to pay off its debt held by the commercial banking system, a restraining influence
is exerted.
Nevertheless this restraint may not suffice because of circumstances which are



4

ANNUAL REPORT OF BOARD OF GOVERNORS

the heritage of war financing. One of these is the Reserve Board's assurance to
the Treasury that the rate of % per cent on one-year certificates will be maintained,
if necessary, through open market operations. This means in practice that the
Federal Reserve stands ready to purchase short-term Government securities in
the open market in order to prevent short-term interest rates from rising above the
level the Government is now paying. This assurance is necessary from the standpoint of the Government's financing operations, and was given because the Board
does not favor a higher level of interest rates than the Government is now paying.
This policy makes it possible, however, in the absence of effective restraints,
for commercial banks to sell short-term, lower-yield Government securities to
the Reserve System and thus acquire reserves which, on the present basis of
reserve requirements, can support a sixfold expansion of member bank credit.
To the extent that commercial banks use these reserves, either for their own
account or in loans to customers, for the purpose of purchasing longer-term,
higher-yield Government bonds or other securities, the money supply can
thereby be increased on the volition of the banks irrespective of national monetary
policy and without control such as exists in other principal countries.
There remain outside of the banks approximately 20 billion dollars of Treasury
bonds which are eligible for bank purchase. An additional 34 billion, now ineligible for banks to purchase, will become eligible during the next 15 years.
Thus, even though the Federal budget is balanced and Government debt continues to be paid down, there will be some 55 billion dollars of Treasury bonds
that could be acquired by the commercial banks, in the absence of effective restraint. Commercial banks hold some 20 billion dollars of certificates and, at
least theoretically, could by selling less than half of these certificates to the
Reserve System obtain enough reserves, on a six-to-one ratio, to absorb all of
this 55 billion dollars of Government bonds. This is wholly aside from what
other loans and investments banks could make on the basis of the potential reserves available.
It is this possible further monetization of the public debt which may need to
be subjected to more definite restraint, if monetary policy is to be effective and,
indeed, if the commercial banks themselves are not to induce a further lowering
of the interest rate structure. This in turn would reduce the earnings of banks
from sources other than their Government bond portfolios. Furthermore, such
continued, uncontrolled monetization of the debt and the consequent decline in
interest rates would further accentuate speculative inflationary forces in all capital assets. Constant downward pressure on interest rates arising not from the
accumulation of savings but from the creation of unnecessary bank credit is
not desirable under inflationary conditions.
Excessive competition for and the consequent bidding up of market prices of
outstanding longer-term Government securities makes for private speculative
profits but not for a saving to the Government. Continued declines in the rate
structure bear most adversely upon the many millions of the country's savers,
upon insurance companies, savings banks, endowments, trust funds, and pensions.



FEDERAL RESERVE SYSTEM

5

Instead of a further monetization of the debt by the commercial banking system, public policy at this time would be well served if the banks were to sell
some of their longer-term holdings to nonbank investors and if bank holdings
of the debt were more concentrated in short-term securities which bear low rates
of interest. Bank earnings in general reached a higher level in 1945 than at any
previous time as a result of profits and earnings from Government securities.
While the peak of receipts from this source has probably been reached, it would
be preferable if bank earnings were derived increasingly from private lending
and other operations in response to necessary community requirements, and if
less reliance were placed upon earnings from Government securities.
There can be no assurance that the process of shifting from the shorter- to the
longer-term Government securities will be discontinued unless the shorter-term
rates should rise to the point where the shifting would no longer be profitable—
and this would be undesirable because it would increase the cost to the Government of carrying the public debt. Unless some adequate restraint could be exercised as to the amount and kind of Government securities that commercial banks
may hold in relation to their demand deposits, the issuance of additional longterm securities to the market could result in a continued monetization of the
debt, even though the securities were made ineligible for bank purchase. For
there would be nothing to prevent the sale of existing eligible securities to the
banks and the use of the proceeds to purchase the new issues. Even though
the funds thus obtained by the Government were used to pay off short-term
maturing debt held largely by the banks, there would be nothing to prevent the
banks from replacing, through market purchases, enough of the eligible securities
to equal the amount paid ofT. Under such circumstances, nothing would be
gained towards reducing the money supply.
If the Federal debt occupied the relatively subordinate place in the economy
that it held even up to 1940, the problems of debt management would be far
simpler and the question of increasing the cost of carrying the debt would manifestly be of less significance. However, the Federal public debt at the end
of 1945 had reached 280 billion dollars, or nearly six times what it was five
years before. Whereas it was equal to about one-fourth of the entire debt of the
country in 1940, by the end of 1945 it was nearly two-thirds, as is shown on the
chart on page 6. Interest on the Federal public debt amounted to less than a billion dollars for the fiscal year 1939. It rose to 3.6 billion dollars for the fiscal year
1945, and according to budget estimates it will be 4.8 billion for the fiscal year
1946 and 5 billion for the fiscal year 1947. As a result of this fivefold increase,
it has become the largest single item in the budget aside from expenditures for
national defense, and exceeds by 800 million dollars estimated expenditures for
veterans' pensions and benefits for the fiscal year 1947. In view of the large
amount of short-term debt that will need to be refunded in the next few years,
each full percentage point of increase in the level of interest rates would add up
to a billion dollars a year to the nation's tax bill.
Proposals, therefore, for increasing interest rates, as an anti-inflationary in


ANNUAL

REPORT

OF BOARD OF

GOVERNORS

fluence, raise more formidable questions affecting the Federal budget, the levels
of taxation, and the amounts paid on the debt to the banking system than was
the case only a few years ago. In all principal nations the trend of rates paid by
the Government has been downward rather than upward, notwithstanding the
presence of comparable, war-created inflationary pressures. In other countries,
Governments have been better able to exercise effective control over the amounts
of Government securities purchased by banks and over the rates paid to banks for
this financing.
TOTAL PUBLIC AND PRIVATE DEBT
BILLIONS OF DOLLARS

END OF CALENDAR YEARS

BILLIONS OF DOLLARS*
500

500

400

400
PUBLIC DEBT
FEDERAL

m

300

200

100

• i111
11

1
BS
B

1919

1929

1933

•

i i
1940

300

200
STATE AND LOCAL

PRIVATE DEBT

—

100

1945

Such comparisons would perhaps be unwarranted were it not for the fact
that proposals have been publicly put forth in the United States suggesting that
further debt monetization might be prevented through voluntary agreements
on the part of the commercial banks of this country such as are entered into in
some other countries. Such a solution for the problem would be far preferable
to statutory regulations if it offered a reasonably assured prospect of success.
The differences between the situation in the United States and in other countries
arise because there arc more than 14,000 commercial banks in the United States,
operating under highly competitive conditions, and with three Federal and
forty-eight State bank supervisory agencies. In England and Canada, the countries usually cited in connection with voluntary agreements, competitive and
other conditions are entirely dissimilar. Each of these countries has but one
bank supervisory authority. There are but ten chartered banks in Canada, while



FEDERAL RESERVE SYSTEM

7

in England about a dozen banks do most of the banking business. It is a
relatively simple matter to bring about voluntary agreements among so few banks
and to obtain equitable observance, but in view of the different situation prevailing in the United States it would be impossible to enter into or to enforce
similar agreements.
Another proposal, which has been more frequently advocated, is that the
Reserve System discontinue its policy of maintaining the % per cent rate on
Treasury certificates, and that open market operations be directed only towards
maintaining the rate of 2-J4 per cent on the longest term bonds. This suggestion
contemplates that the short-term rate would rise to a point close enough to the
long-term rate to discourage commercial banks from selling short-term securities
to the Reserve System and purchasing the long-term securities in the market.
It is contended that an increase in the short-term rate from % to as high as ilA
per cent would increase the cost of carrying the public debt by an estimated 200
million dollars and that this would be a small price to pay in combating inflationary dangers. However, there is no assurance that this much of an increase in
the short-term rate would stop further debt monetization and even less reason to
suppose that it would be of value in combating inflationary dangers which have
arisen from two primary causes, neither of which would be corrected by higher
rates. One cause is the volume of money already created, which can not be
rapidly reduced. The other, and by far the most important basic cause, is the
insufficiency of production as yet in relation to the existing money supply.
A major consequence in attempting to deal with the problem of debt monetization by increasing the general level of interest rates would be a fall in the market
values of outstanding Government securities. These price declines would create
difficult market problems for the Treasury in refunding its maturing and called
securities. If the price declines were sharp they could have highly unfavorable
repercussions on the functioning of financial institutions and if carried far enough
might even weaken public confidence in such institutions.
The Board, therefore, does not believe that the problem could be met by voluntary agreement among 14,000 commercial banks or that it could be dealt with
effectively by increased interest rates unless they were so high as to be a deterrent
to necessary production, apart from the serious consequences to the Government
security market.
If traditional interest rate policy or voluntary agreements are not appropriate
or feasible, then what alternatives remain for preventing further debt monetization? Various alternatives have been suggested, some of which the Board considers too restrictive or otherwise impractical. Among the proposals which the
Board believes worthy of consideration by the appropriate committees of the
Congress are the measures outlined in general terms below.
One measure would be to empower the Board of Governors to place a maximum on the amounts of long-term marketable securities, both public and private,
that any commercial bank may hold against its net demand deposits. This
measure would serve to restrict the banks' demands for long-term Government



O

ANNUAL REPORT OF BOARD OF GOVERNORS

securities and to strengthen their demands for short-term securities. It would
not restrict the banks' ability to make loans or to purchase long-term securities
against savings deposits. It would reduce, however, the existing inducement
to sell short-term securities to the Reserve System, thus creating additional reserves, in order to purchase higher-yielding, long-term issues. The voluntary
agreement adopted in Canada is similar to this limitation, which would be
consistent with good banking practice in this country.
Another measure would be to empower the Board of Governors to require
all commercial banks to hold a specified percentage of Treasury bills and certificates as secondary reserves against their net demand deposits. To aid banks in
meeting this requirement, they should be permitted to hold vault cash or excess
reserves in lieu of Government securities. This measure would result in stability
of interest yields on short-term Government securities and, therefore, of the cost
of the public debt. Like the bond portfolio limitation, it would provide a
measure for regulating commercial banks' demands for short-term Government
securities relative to their demands for longer-term issues. At the same time, it
would leave considerable freedom for movement of interest yields on nonGovernment paper of short-term maturity.
Some administrative flexibility should be authorized in connection with either
of these measures in order to meet differences among banks as well as to adjust
to the changing needs of the economy for bank credit expansion or contraction.
A further possibility would be to grant additional power to the Board to raise
reserve requirements, within some specified limit, against net demand deposits.
If this authority were granted, banks should be permitted to count vault cash
as reserves, and there should be provision for greater administrative flexibility in
applying changes in requirements. To assure effective control, all commercial
banks should be subject to the same reserve requirements. Adoption of this
measure would strengthen the capacity of the Federal Reserve to prevent bank
credit expansion on the basis of additional reserves obtained through gold imports
or return flows of currency from circulation.
Under present conditions, however, when banks have relatively small amounts
of excess reserves, increases in reserve requirements would make it necessary
for banks to liquidate some of their assets. This would result in a rise in interest
rates or necessitate Federal Reserve purchase of sufficient securities to provide the
additional reserves. Under a continued policy of maintaining the existing level
of short-term interest rates, the principal effect of an increase in reserve requirements would be a shift of Government securities from the commercial banks to
the Reserve Banks.
Each of the foregoing measures would provide additional instruments for
coping with emerging banking and monetary problems without increasing the
cost of Government financing or upsetting the market for Government securities.
The suggested measures would help to strengthen the position of the banks and
at the same time would enable them to continue their normal peacetime functioning in the financing of commerce, industry, and agriculture, as well as consumers.



FEDERAL RESERVE SYSTEM

WAR FINANCING POLICIES

When the United States entered the war in December of 1941, the Federal
Reserve System announced that it was prepared to use its powers to assure that
an ample supply of funds would be available at all times for financing the war
effort and to exert its influence toward maintaining conditions in the United
States Government security market that would be satisfactory from the standpoint
of the Government's requirements.
As was stated in the President's budget message of January 14, 1946, "Close
wartime cooperation between the Treasury Department and the Federal Reserve

RESERVE BANK CREDIT. REQUIRED AND EXCESS RESERVES
OF MEMBER BANKS, AND CURRENCY
MONTHLY AVERAGES OF DAILY FIGURES

BILLIONS OF DOLLARS

BILLIONS OF DOLLARS

30

30

10

1940

1941

1942

1943

1944

1945

System has made it possible to finance the most expensive war in history at low
and stable rates of interest." A structure of interest rates on Government securities conforming closely to the pattern prevailing at the beginning of the war was
maintained. The rates on marketable securities ranged from % per cent on
one-year Treasury certificates to 2/2 per cent on the longest term Treasury bonds.
Federal Reserve purchases of securities provided the basis for the rapid growth
of currency in circulation and also supplied the banks with additional reserves
needed to support the expansion of bank credit and deposits. Under existing
reserve requirements, each dollar of additional reserves permits an expansion of
more than six dollars in bank credit and bank deposits by the banking system
as a whole.



10

ANNUAL REPORT OF BOARD OF GOVERNORS

As is shown in the chart on page 9, Federal Reserve purchases of 22 billion
dollars of Government securities, together with 7 billion of reserves in excess
of requirements held by member banks in 1940, provided the basis for a wartime
currency expansion of 20 billion and a growth of 8 billion in member bank
required reserves. The increase in required reserves reflected an expansion
of about 50 billion dollars in member bank deposits against which reserves are
required; in addition there was an increase of over 20 billion in United States
Government war loan deposits, which have been exempt from reserve requirements since early in the war period. There was also a large expansion in deposits of nonmember banks, which are not required to hold reserves with the
Federal Reserve Banks.
As part of the System's policy, the Open Market Committee early in 1942
established a % per cent buying rate at which the Federal Reserve Banks purYIELDS ON U. S. GOVERNMENT SECURITIES
PER CENT

WEEKLY AVERAGES OF DAILY FIGURES

PER CENT

3
TREASURY BONDS
(TAXABLE)
" 15 YEARS OR MORE

\

7 - 9 YEARS

CERTIFICATES OF INDEBTEDNESS
9-12 MONTHS

TREASURY BILLS

1942

1943

1944

1945

1946

chased all Treasury bills that were offered to them. There was also put into
effect a provision by which banks could retain the option to repurchase Treasury
bills from the Reserve Banks at the rate at which they had been sold. The
banks were thus given assurance that they could at any time convert these shortterm Government securities into cash and were, therefore, more willing to invest
excess reserves in such securities. In the course of time, however, nearly all of
these bills came to be held in the Federal Reserve portfolio, while commercial
banks bought higher-yield issues.



FEDERAL RESERVE SYSTEM

II

A further step in encouraging the use of available banking funds to finance
the war was the establishment at the Federal Reserve Banks, with the Board's
approval, of a preferential rate of x/i per cent on advances to member banks secured
by Government obligations with a maturity not exceeding one year. This enabled
the banks to meet temporary needs for reserves by borrowing from the Reserve
Banks rather than by liquidating their Government securities.
Establishment of low discount and buying rates on short-term securities was
especially directed toward encouraging banks to purchase and hold short-term,
low-yield issues rather than longer-term issues. This objective was also promoted
through Treasury policy during the later years of the war of prohibiting or
restricting bank holdings of certain longer-term issues offered in the war loan
drives.
The effect of these policies in maintaining a low and stable structure of interest
rates throughout the war period is shown by the chart on the preceding page.
Maintenance of interest rates at low levels served several purposes: It encouraged
investors to purchase securities without waiting for higher yields and to hold
them without fear of loss from price fluctuations. It kept the market free from
disorderly movements. It also retarded the growth in bank earnings on the
securities they purchased. Finally, it held down the cost to the Treasury of
interest charges on the greatly expanded public debt. As a result of these
measures and policies, the Government experienced no difficulty at any time in
raising the necessary funds. The average interest cost of the public debt to
the Treasury was less than 2 per cent.
Bank credit expansion. While one of the objectives of war finance was
to sell as many securities as possible to investors other than banks, some of the
procedures followed in financing the war and in maintaining the structure of
interest rates resulted in excessive bank credit expansion. In retrospect it is
evident that more vigorous policies should have been adopted in order to raise
more of the cost of the war through taxation and to restrict bank purchases of
Government securities. If fewer securities which were eligible for bank purchase either at the time of issue or later had been offered, the wartime expansion
of bank credit would not have been as excessive and the postwar problem of
preventing further monetization of the debt might have been avoided.
Although war loan drives were directed toward nonbank investors, and banks
were not permitted to subscribe for securities offered in the last six of the war
loans except to a limited extent, the methods of conducting the drives resulted
in large increases in bank holdings of Government securities. Individuals and
businesses paid for securities in part by drawing on their existing deposits and
in part by selling to banks securities bought in previous drives. Banks had reserve funds available during the drives because funds were shifted from deposits
against which reserves are required to war loan accounts, which were exempt
from reserve requirements. As a consequence a stimulus to expansion in bank
credit was given during each war loan drive.



1^

ANNUAL REPORT OF BOARD OF GOVERNORS

Between drives, as the Treasury drew on its accumulated balances to meet its
current deficit, deposits of businesses and individuals increased. Member banks
met the resulting increase in reserve requirements by selling securities to the
Reserve Banks, thus creating new reserves. This process led to a gradual growth
in bank reserves during and between drives on the basis of which member bank
deposits expanded by more than six times the reserve increase. The Reserve
Banks purchased whatever amounts of Government securities were necessary
to supply banks with reserves to cover increasing requirements, as well as to
meet the steady growth in demand for currency by the public.
Another factor conducive to bank credit expansion during the war was the
maintenance of the wide differential between short-term and long-term interest
rates. This differential became established in the prewar period when, partly
as a result of tremendous gold imports, banks and others had large amounts
of idle funds seeking temporary investment and there was a limited supply of
short-term investments. During the war, however, there developed a growing
demand for long-term securities with their higher rates. Banks, as well as other
investors, began to shift from short-term securities to the longer-term issues. The
shorter-term yields were prevented from rising by Federal Reserve support to
the market, and as a consequence longer-term rates tended to decline.
It has been especially profitable for banks and other investors to shift from
short-term to the longer-term securities without reducing their potential liquidity,
as long as the structure of yields on all Government securities continued to be
maintained. Because of the lower rates maintained on short-term securities,
outstanding longer-term issues rise in price as they approach maturity. Holders
can sell these issues at a premium and then purchase other long-term issues
yielding the same or higher returns. In many cases short or medium-term securities bought in war loan drives were sold during subsequent drives at a
premium, while the holders purchased new issues at par.
This practice, known as "playing the pattern of rates," brought about the decline in long-term interest rates, which increased the premiums on outstanding
medium and longer-term issues. This practice led to bank credit expansion
because Federal Reserve purchases created additional bank reserves on the basis
of which the banking system as a whole was able to expand loans and securities
by more than six times the amount of new reserves created.
Shifting by banks from short-term to longer-term securities occurred to an
increasing extent after the middle of 1944. The first chart on the following page
shows that in early years of the war the increases in member bank holdings of
short-term bills, certificates, and notes were relatively greater than the growth in
bonds. Since 1944, however, holdings of bonds have increased more rapidly than
those of notes and certificates and bank holdings of bills have been substantially
reduced. During the same period the Federal Reserve, as the second chart
illustrates, rapidly increased its holdings of Treasury bills and more recently of
certificates, while its small holdings of bonds were reduced.



FEDERAL RESERVE SYSTEM

MEMBER BANK HOLDINGS OF U. S. GOVERNMENT SECURITIES
BY CLASSES OF SECURITIES
BILLIONS OF DOLLARS

JUNE 30 AND DECEMBER 31 FIGURES

BILLIONS OF DOLLARS

50

50

20

10

1940

1941

1942

1943

1944

1945

FEDERAL RESERVE BANK HOLDINGS OF U. S. GOVERNMENT SECURITIES
BY CLASSES OF SECURITIES
BILLIONS OF DOLLARS

WEDNESDAY FIGURES

BILLIONS OF DOLLARS

25

25

1940

1941




1942

1943

1944

1945

'46

14

ANNUAL REPORT OF BOARD OF GOVERNORS

Postwar financing policies. With the rapid decline in Government expenditures following the end of hostilities, the monetary situation has undergone
a radical change. No further increase in the public debt is expected. There is,
consequently, no need for the Treasury to sell additional securities to the banks.
Some of the forces that contributed to credit expansion and the consequent
decline in long-term interest rates during the war no longer exist or are less
influential. The absence of new borrowing needs by the Treasury is one of these.
Another is the discontinuance of war loan drives with their special inducements
to bank credit expansion. Utilization by the Treasury of its large cash balance
to retire debt is resulting in a reversal of wartime tendencies. Bank holdings
of Government securities are contracting, and retirement of Federal Reserve
holdings tends to reduce bank reserves. Discontinuance of the preferential discount rate on advances secured by short-term Government securities by the Federal Reserve Banks discourages borrowings by member banks to hold Government securities or to make loans on such securities.
Continued retirement of Government securities held by banks would further
decrease the volume of bank credit and bank deposits. The use of existing Treasury balances in banks to retire debt, however, does nothing to reduce the existing volume of deposits of businesses and individuals. To bring about a reduction in these deposits, it will be necessary for the Treasury to retire debt out of
a budgetary surplus or to refund maturing securities now held by banks through
the sale of new issues to nonbank investors.
In adopting a refunding program designed to reduce bank holdings of
Government securities some departure from past practices would be necessary.
As previously pointed out, banks hold a large volume of short-term securities,
some of which can be retired as they come due, but there is also a large volume
of outstanding securities available for purchase by banks. Any refunding program should endeavor to reduce the available supply of bank eligible issues not
only at present but also for the future.
New issues should be of the type—such as savings bonds—that are nonmarketable and are redeemable upon notice on a basis that would give a proportionately lower return if redeemed before maturity. They would assure
eligible investors of an opportunity for investment of savings funds. Under conditions calling for a budgetary balance or surplus the proceeds should be used
to retire maturing public debt largely held by the banking system.. The rate
should reflect the supply of savings funds relative to the demand and should not
be a reflection of surplus funds created through unnecessary monetization of the
public debt by the banking system. The investor would be guaranteed against
risk of price fluctuations in case liquidation before maturity were necessary, but
would receive a smaller yield for earlier redemption. Under present market conditions in which the short-term rate is supported, investors not only receive maximum yields on marketable long-term issues, which arc in effect demand obligations, but they may also obtain a premium by selling their holdings before maturity.
This premium varies according to the length of time that such issues are held.



FEDERAL RESERVE SYSTEM

15

Increased offerings of securities to nonbank investors would need to be accompanied by more effective restraints on bank credit expansion in order to
prevent widespread sale to banks of securities eligible for bank purchase by holders wishing to subscribe for the new issues. If this were permitted offerings
of these securities by the Treasury might stimulate rather than reduce further
expansion in bank credit.
It is because of the monetary situation resulting from the war, as described in
this report, and because of the probability that continued restraints will be
needed that the Board recommends for consideration by the Congress the provision
of additional powers which could be used to prevent further unnecessary expansion of bank credit without raising the cost of Treasury financing.
CONTINUED INFLATIONARY PRESSURES DURING RECONVERSION
Throughout 1945, after as well as before the end of fighting in Germany
and Japan, shortages of goods and services to meet civilian demands were widespread and upward pressures on prices continued. Advances in commodity
prices were generally held within rather narrow limits but only through direct
controls, subsidy payments, and diversion of substantial amounts of income
from markets for goods into taxes and savings. Increases in transportation
costs, residential rents, and various service charges also were avoided in large
measure, but here again price stability depended to a considerable degree on
continuation of various direct and indirect controls. Capital values, which were
not subject to direct control, rose considerably, with marked increases evident
in prices of urban and farm real estate and also in security prices. Basic rates of
pay were held close to previous levels for the most part but toward the end of
the year substantial upward adjustments were being made in a number of industries, adjustments sought partly to offset decreases in earnings resulting from reductions in the amount of overtime work at premium rates of pay. Markets
were generally strong in the latter part of the year, following a brief period of
hesitation in August and September, when there was considerable uncertainty
concerning the extent to which Government orders, then being canceled in
tremendous volume, would be replaced by private buying.
During the period of hesitation numerous steps were taken to facilitate the
transition and to prevent any greater amount of unemployment than would be
unavoidable in a period of rapid demobilization and general liquidation of the
war production program. Rationing, allocation, and inventory controls were
discontinued in most lines, employment and wage controls were generally
suspended or greatly modified, and Federal taxes were revised downward.
Taxes on business were reduced, chiefly through elimination of the excess
profits levy, and taxes on individual incomes were lowered, all effective at the
beginning of 1946. To facilitate the financing of reconversion, provision was
made for prompt deduction from current tax obligations of part of the refunds
due to business enterprises under wartime tax laws. Action was also taken to



10

ANNUAL REPORT OF BOARD OF GOVERNORS

expedite the settlement of war contracts. Direct price controls, however, were
continued in order to prevent inflationary developments during an interim period
before supplies could be expected to be available in sufficient quantity to stop
any general sharp price rise.
Shortages at the end of the year. Shortages in this country, it is true,
were not at any time comparable with those in war-devastated areas abroad,
and, moreover, soon after the war ended some commodities like gasoline, which
had not been freely available during the war, came to be in ample supply.
Shortages were sufficiently widespread, nevertheless, to endanger price stability and
orderly reconversion. Consumers, producers, and distributors in this country
and foreign buyers as well found it impossible to obtain many of the things
they were seeking. There were not enough houses to meet heavy consumer
demands and not enough commercial structures to meet business demands.
Existing stocks of passenger automobiles and many other durable goods held
by consumers were considerably smaller than before the war and in some instances almost no new supplies became available before the end of the year.
There were many shortages, some of which were not foreseen, of consumer
nondurable goods such as clothing and food. Producers were still short of many
materials, including imports such as tin and copra, and of numerous component
parts required for the manufacture of finished products. In some lines of great
importance to the war program much new plant and equipment had been installed during the war, but in others existing plant had deteriorated and replacement requirements were urgent; moreover, large expansion programs were being
undertaken in industries with prospects for large sales in the period ahead.
The principal factors underlying the continued widespread shortages at the
end of the year were: (i) the depletion of stocks of many goods in the hands
of consumers, distributors, and producers resulting from lack of production
for several years beginning in 1942; (2) the strengthening of the financial position of business enterprisers and consumers, who had been able to increase
their holdings of liquid assets and to reduce their indebtedness because of the
large excess of income over taxes and expenditures for goods and services; (3) the
continued high, although somewhat reduced, level of income distributed after
the war, primarily in connection with a growing volume of production for
civilians but partly also, especially at first, in connection with the liquidation of
the whole war program; (4) the disposition of consumers and producers to use
funds at their disposal rather freely for a wide range of purposes; (5) the time
required to transfer manpower and other resources from wartime activities to
peacetime production—a start had been made in 1944 and again after the end
of the war in Europe, especially in output of producers' equipment, but it was
only a start; and (6) the additional time needed after the transfer of resources
to turn out sufficient materials, and later finished products, to meet heavy
accumulated and current demands. Disorganization of economic life abroad was
a factor increasing the immediate demand for products of the United States
and limiting the amount of materials available for importation into this country.



FEDERAL RESERVE SYSTEM

17

Speculative withholding of goods from the market was not a major factor in
shortages during 1945, although instances of such withholding were reported
at the end of the year. In brief, shortages persisted because, even in an economy
as flexible as that of the United States, deficiencies developed in several years of
warfare could not be eliminated in a few months.
Increased production of civilian goods. In general, where physical reconversion of plant facilities was required it was accomplished quickly, and in
many industries, especially those producing materials, the changeover involved
little if any interruption in output. Producers did encounter continuing problems, however, in obtaining large and balanced supplies of materials and parts
essential for full production. This was the result of the great shift in requirements and the great difficulty of expanding rapidly the output of such things
as building materials, which in the later stages of the war had not been required
in as large volume as some other goods. In some instances deliveries were delayed in disputes over ceiling prices. Recruiting of workers for industries paying relatively low wages, as, for example, certain textile and building material
industries, proved to be a slow process.
Output, moreover, was interrupted in a number of lines by labor-management
disputes, and such disputes became more numerous toward the end of the year.
Issues relating to organization matters as well as to wage rates were involved in
some disputes and a number of important work stoppages continued for considerable periods. The coal, petroleum refining, glass, lumber, and automobile
industries were among the more important industries directly affected by work
stoppages. In many industries, however, agreements were reached on new wage
scales 10 per cent or more above previous levels without interruptions of output.
Altogether from 5 to 6 million workers obtained increases in basic rates in this
period. And in many leading industries, including steel, electrical equipment,
meatpacking, and the railroads, negotiations did not reach a critical stage until
after the end of the year. One of the broader issues involved throughout these
negotiations was the extent to which higher wages could be paid without increasing prices, an issue which hinged in part on differences in view as to the
prospective volume of business and the levels of productivity attainable.
Notwithstanding the numerous problems of readjustment, production in the
economy as a whole declined less during the early autumn than had been expected by many observers and in the final months of the year increased. At factories and mines, where a large part of production for war purposes had been
concentrated, the total volume of output declined from 235 per cent of the
1935-39 average in March and 210 in July to 162 in October, and then advanced
to 168 in November. Elsewhere in the economy, activity generally increased, as
in the construction industry and in many service industries, or showed little
change, as in agriculture and on the railroads. The value of the total national
product, as represented by expenditures for all currently produced goods and
services, including the services rendered by the armed forces, declined only
from an annual rate of 206 billion^ dollars in the second quarter of 194.5 to about



18

ANNUAL REPORT OF BOARD OF GOVERNORS

185 billion in the fourth quarter. The decline in physical volume of all goods
produced and services rendered was not much greater than this. It was thus in
spite of a high level of production that shortages persisted in this period.
As compared with the 1935-39 average—not a wholly satisfactory standard in
view of the low levels prevailing then—industrial production in the fourth
quarter was up 65 per cent, and output of electric power for all purposes was up
80 per cent. In agriculture production for the year was about 30 per cent above
the level for the prewar period. Construction activity was rising rapidly at the
end of the year but was still not up to the prewar level.
In interpreting these figures for increases since 1935-39 in relation to potential
levels in the years ahead, account should be taken not only of the low level of
production before the war—an average of about 9 million persons were unemployed—but also of the increases which have occurred since then in the
population and the labor force and the improvements which have been developed
throughout the economy in techniques of production. Notwithstanding the
higher levels of production prevailing at the end of 1945 than before the war,
further substantial increases appear to be feasible. Moreover, it is evident that
to an increasing degree productive activity will be reflected in increased output
of finished products for consumers rather than, as was true to an unusual degree
in the latter part of 1945, in production of materials and parts and of industrial
equipment for producers.
High level of employment. One important element in the production and
supply situation at the end of 1945 was that by that time over 5 million persons
in excess of the number currently recruited had been mustered out of the armed
forces, and more than this number had been released from employment in
war production. This helped to make possible the rapid growth in production
for civilians. Concern lest the release of so many workers from the war program in such a short time would lead to an exceptionally large volume of unemployment did not prove warranted. This was partly because withdrawals
from the labor force were quite rapid, numbering 2 million or more in this
period, and because veterans in many cases did not immediately begin looking
for jobs. The principal factor, however, was the absorption of workers in employment for civilian purposes.
The total number of workers employed at the end of the year, excluding 7
million still in the armed forces, was over 51 million, and the number unemployed was about 2 million. The work week meanwhile had been reduced
from peak wartime levels but continued to be longer than before the war. In
manufacturing the average number of hours worked per week in December
1945 was about 10 per cent below the wartime maximum and 10 per cent above
the 1939 average. Further reductions in hours as well as increases in production
and employment may be expected during the early months of 1946 as releases
from the armed forces proceed at a rate of about a million a month, more
than offsetting withdrawals from the labor force and steadily increasing the
number of workers available to increase production.



FEDERAL RESERVE SYSTEM

19

High incomes. Shortages continued after the end of the war partly because
of the high level of income which encouraged buying both by business enterprises and by individuals. In the fourth quarter individual incomes, on a
seasonally adjusted basis, were at a rate of 157 billion dollars a year, as compared
with 163 billion in the second quarter and 67 billion in the 1935-39 period. Incomes in the boom year 1941 amounted to 93 billion dollars.
The reduction in income from the second quarter to the fourth quarter of
1945 reflected a sharp decline in factory pay rolls and some decline in payments
to the armed forces, offset only in part by increases in other payments. Factory
pay rolls declined about 30 per cent, as activity in many of the higher pay industries declined sharply and the amount of overtime work at premium rates of
pay was reduced. There were, however, large increases in wage and salary
payments in various other parts of the economy, where activity had been greatly
restricted during the war. Unemployment compensation payments and discharge
payments to veterans increased considerably. The net income of farmers continued at peak levels and that of other proprietors advanced further. Although
corporate profits were somewhat below the high levels of previous wartime
years, dividend payments were maintained.
At the end of the year many of these shifts in income payments were continuing, but pay rolls in manufacturing had already begun to increase as activity
rose and as wage-rate increases became effective.
Strengthened financial positions. The holding of greatly increased liquid
assets by businesses and individuals, discussed in a subsequent section of this
report, was an important factor strengthening the demand for goods and services
currently being produced and for capital assets and used goods as well. Increases in other reserves, such as insurance and pensions, and substantial reductions in private debt also tended to strengthen market demand.
The improvement in the financial position of business enterprises and individuals as compared with prewar years was not as great as figures on liquid
asset accumulation, debt reduction, and the like would suggest, because meanwhile prices had advanced considerably. Moreover, not all people in the country had shared equally in the improvement which did occur. Nevertheless, in
view of the general situation and the experience of the latter part of 1945, it
appears evident that the improvement in financial position was a real factor in
encouraging purchases of all sorts of things and bidding up of prices where
shortages persisted and direct controls were not in effect.
Heavy business and consumer demands. Available information shows
that expenditures other than those for war purposes generally increased from the
second quarter to the fourth quarter of 1945, and it is apparent that outlays
would have been made for many more goods and services at the end of the
year as well as earlier if they had been available. As it was, consumer outlays
increased from a rate of 100 billion dollars a year to i n billion in this interval
and there was a further expansion to 120 billion in the first quarter of 1946.



20

ANNUAL REPORT OF BOARD OF GOVERNORS

This rise reflected mainly the purchase of more goods and services, although
there was a gradual rise in prices in this period.
As the armed forces were demobilized the size of the civilian population increased. As more goods became available there was increased buying from
current income and, in many individual instances, from the disposition of
existing assets. The rate of i n billion dollars of consumer expenditures in the
fourth quarter was not only a record in dollar terms but was also a real increase,
in physical terms, over the level prevailing at the end of the war and in 1939.
The level reached, however, was not as high as that in 1941, and changes from
prewar levels varied greatly for different types of goods and services. This
unevenness of change was partly a result of the unavailability of supplies of
some things and partly a reflection of variations in demand for different products
that result from rising incomes. In general demand was strong for most semidurable goods like clothing and for perishable products, as well as for durable
goods. But as yet there were few new durable goods available for purchase.
Business expenditures for new plant and equipment and for inventories, as
well as for materials to be fabricated and immediately passed along to consumers, expanded considerably. Here again outlays were limited by lack of
available supplies rather than by lack of funds or the disposition to use them.
Expenditures for construction of new houses increased considerably, with the
limiting factor being supplies of building materials. The number of new dwelling units started in the fourth quarter was about 90,000 as compared with 60,000
in the second quarter, but the rate was still low relative to prewar levels and
very low relative to the rate needed in the early postwar years. In the first
quarter of 1946 the number of new dwelling units started rose further to approximately the previous highest level.
Advanced levels of prices. As a result of all these developments affecting
the availability of supplies and the intensity of demand, upward pressures on
prices were generally strong throughout 1945, except that for a brief period when
hostilities ended there was weakness in some markets, particularly for certain
agricultural products. Sharp price increases generally in 1945 were avoided only
through the operation of various controls, direct and indirect.
While prices in wholesale and retail commodity markets showed only gradual
increases during the year, prices for real property and for common stocks
advanced sharply. Housing facilities were almost universally short of demand
and active bidding drove values in urban areas up about 10 per cent further
during the closing months of the year. The level reached at the end of the
year was about 60 per cent above that of 1940 although meanwhile rents had
not been permited to advance materially. Commercial properties, not subject to
rent control, were also in great demand. Values of farm real estate, which had increased at a fairly rapid rate during the war under the stimulus of greatly increased farm income, showed less increase for a brief period after the end of
the war but later the advance was accelerated. By the end of the year the increase over the prewar level amounted to nearly 70 per cent, which was about the



FEDERAL RESERVE SYSTEM

21

increase shown from 1914 to 1920 in percentage, though not in dollar, terms. The
advance in real estate prices generally provided an opportunity for speculative
activity on a growing scale.
Prices of common stocks advanced about 20 per cent in the latter part of
1945 and the volume of trading was relatively large. The general level reached
was close to the peak in the early part of 1937. Restrictions imposed on the use
of credit for trading in securities are discussed in another section of this report.
The general situation concerning prices as the year closed was more evident
in information dealing with the forces which lie back of prices than in price
statistics. This was true partly because of the effectiveness of controls in preventing price increases and, in some instances, because of trading in black markets
at prices much above the legal limits. Moreover, price statistics do not fully reflect
shifts in buying from low-priced to high-priced goods that result in considerable
part from a scarcity of low-priced items and do not reflect changes in demand
that accompany increased incomes.
Price data, nevertheless, indicate that the increases during the war period were
large, although not as great as those during the first world war, and that they
were widespread, although by no means uniform. Wholesale commodity prices
were up about 40 per cent from the 1939 level and 35 per cent from the average
for the 1935-39 period. Farm product prices were double the 1939 level. At
retail, prices of food and clothing were up fully 50 per cent. Rents had shown
little rise, however, and the increase above January 1941 in the cost of living
recognized for purposes of wage adjustments was 33 per cent. Marked advances
in prices of real estate and of common stocks have been referred to in preceding
paragraphs.
Altogether this is an impressive list of increases, and the underlying situation
at the end of the year was such that further advances occurred in the early months
of 1946. Adjustments in price relationships, as in production relationships, also
were in prospect in the further transition to peacetime conditions. There was
danger, however, unless direct and indirect controls were maintained in most instances and even increased in some cases, that price increases would not be
limited to those necessary for the reallocation of resources but would become
widespread and hamper rather than facilitate the orderly increase of production
required to eliminate the extensive shortages still in evidence.
GROWTH IN LIQUID ASSETS
One of the most important wartime developments was a rapid growth in
holdings of liquid assets, including currency, bank deposits, and United States
Government securities. Between June 1940 and December 1945 personal and
business holdings, excluding those of such groups as insurance companies, banks,
and governmental bodies, more than tripled. The increase was nearly 155 billion
dollars, of which a third was business holdings and two-thirds personal. There
was a sevenfold expansion in holdings of United States Government securities by
these groups, which accounted for half of the total increase in all types of liquid



22

ANNUAL REPORT OF BOARD OF GOVERNORS

assets. The growth in demand deposits amounted to almost 38 billion dollars,
while currency increased nearly 20 billion and time deposits 21 billion.
These rapid increases were a result of an excess of income, even after payment
of wartime taxes, over the supply of goods available for purchase during the war.
Throughout the period ^ the proportion of resources devoted to war production
remained considerably higher than the proportion of wartime incomes taken
in taxes. The excess of income available after taxes over the income which could
be spent on consumption goods at the prices prevailing was necessarily saved, and
as relatively little private investment was taking place, most of the saving was in
liquid form.
These large holdings of liquid assets in part represent more or less permanent
saving which people are holding against old age or a rainy day; in part they
represent larger working balances required by the growth of business and by
wartime disturbances of normal expenditure patterns; and in part they represent
deferred purchasing power likely to come on the market as soon as goods are
available, particularly goods the production of which was curtailed or eliminated
during the war. If even a small fraction of the total should be used in a short
period of time to buy goods, the effect in stimulating price increases would be
great. On the other hand, if most liquid assets should be held as savings and
only used in emergencies, their growth might well make a sizable contribution
to the regularization of expenditures and the stabilization of economic activity.
Although reduced following the end of the war, the growth in liquid assets
in 1945 remained large. As is indicated in the table, it amounted to 32 billion
dollars, compared with 39 billion in 1944, 40 billion in 1943, and 30 billion in
1942. At the beginning of the war business holdings expanded rapidly, but after
1943 the rate of increase slowed down as business experienced larger current
tax payments and began to pay of? bank loans and other indebtedness. In the
second half of 1945 the start of reconversion intensified this development.
Demand deposits held by businesses showed little change, while business holdings of liquid assets showed the smallest increase since early 1941. Demand
deposits of manufacturing and mining concerns in fact declined by about 2
billion dollars, but balances of trade and service firms increased. An overwhelming portion of the increase in business liquid assets over the war period as
a whole was accounted for by increased holdings of United States Government
securities and demand deposits.
Individual holdings, on the other hand, increased most rapidly after 1942,
and in the second half of 1945 the increase was at a more rapid rate than during
any previous period except the second half of 1944. Government securities were
the major form taken by personal holdings, but in the past three years there-has
also been a rapid increase in time deposits.
It is to be expected that the increase of such assets in 1946 will be considerably
slower than it has been in the past. The sharp reduction in the Treasury's
deficit almost removes the principal cause of the wartime expansion in liquid
assets. Since the first of the year there has been a small decrease in currency



FEDERAL RESERVE SYSTEM

23

in circulation and little further change in demand deposits, while time deposits
have continued to expand. Treasury war loan accounts are being drawn upon
to retire Government securities; since a large part of these securities are held by
banks, the effect of such retirements on business and individual holdings of
demand deposits and Government securities is relatively small.
Some shift in asset holdings from businesses to individuals may continue in
1946, as business as a whole uses its holdings to meet accrued tax liabilities and
costs involved in establishing peacetime production. Some segments of business—
ESTIMATED LIQUID ASSET HOLDINGS OF INDIVIDUALS AND BUSINESSES 1

[In billions of dollars]
Increase
Outstanding June 30, 1940
to
Dec. 31, 1945
Dec. 31, 1945

Change during year
1945

1944

1943

1942

1941

221.2

Currency
Demand deposits
Time deposits
U. S. Government securities

+153.5

+31.0

+39.0

+39.6

+30.4

+10.8

25.5
60.3
47.7

Total

+ 19.4
+37.4
+21.0

+2.9
+7.2
+8.7

+4.6
+6.0
+7.0

+4.9
+ 10.4
+4.3

+4.2
+8.8
+0.8

+2.3
+3.5
0

87.7

+75.7

+ 12.2

+21.4

+20.0

+16.6

+5.0

Business holdings—total. . .

73.4

+52.7

+5.2

+11.6

+17.4

+ 13.0

+3.9

Deposits and currency.
U. S. Government securities
.
....

42.1

+24.5

+3.0

+3.5

+9.1

+5.4

+1.7

31.3

+28.2

+2.2

+8.1

+8.3

+7.6

+2.2

147.8

+ 100.8

+25.8

+27.4

+22.2

+17.4

+6.9

46.8
44.6

+33.4
+19.9

+7.5
+8.3

+7.5
+6.6

+6.4
+4.1

+7.7
+0.7

+4.1
0

56.4

+47.5

+ 10.0

+13.3

+11.7

+9.0

+2.8

Personal holdings—total. . .
Demand deposits and
currency
Time deposits
U. S. Government securities

1
These estimates differ from the published totals for deposits, currency, and holdings of United States
Government securities, which are the totals used in an earlier part of this report. The estimates are
designed to cover what domestic individuals and businesses hold according to their records. In every case
the estimated holdings of foreigners, the banking system, insurance companies, building and loan associations, nonprofit institutions, and governments or government agencies, corporations, and trust funds
have been deducted. In the case of demand deposits an additional deduction has been made from holdings as reported by banks for the estimated amount of both bank and mail float. Further details of the
methods used in making these estimates will be found in the Federal Reserve BULLETINS for June 1945
and February 1946.

particularly the trade and service groups—will probably continue to increase
their holdings. It seems likely, however, that liquid asset holdings by individuals will increase in relative importance during the year.
CONSUMER CREDIT REGULATION

Throughout 1945 supplies of consumers' goods continued to be far short of
demand, even though there was some increase in these supplies with the ending
of the war and consumer demand was still subject to some restraint, including
that imposed by the Board's consumer credit regulation, Regulation W. That
regulation, a part of the Government's anti-inflation program, applies primarily
to instalment credits for purchasing consumers' durable goods but applies also
to consumer credits in other forms and for other purposes. Its typical terms
require a down payment of one-third and limit the length of instalment con


24

ANNUAL REPORT OF BOARD OF GOVERNORS

tracts to 12 months. The only substantial changes, made about two months
after V-J Day, were one which removed the control from credits for home
repairs and home improvements and another which extended from 12 months
to 18 the permissible maturity on consumer loans for purposes other than purchasing consumers' durable goods.
Regulation W went into effect about three months before Pearl Harbor at
a time when the total volume of consumer credit was about 10.1 billion dollars.
Reflecting in part the influence of Regulation W, but reflecting still more the
curtailed production of consumers' durable goods such as are commonly purchased on credit, this amount decreased to about 4.9 billion in the early months
of 1944. It then increased gradually to about 6.7 billion at the end of 1945.
There was a further rise in the first quarter of 1946.
Consumers' goods of the kind which are typically purchased on credit—such
as household appliances and automobiles—are beginning to become available
again. As more of them come on the market, there is sure to be some further
expansion of consumer credit, even under the terms presently prescribed by Regulation W. For a considerable time to come, however, expanding production of
consumers' goods is likely to be short of demand arising from growing current
incomes and from accumulated buying power. Under these circumstances any
expansion of consumer credit will tend to aggravate a generally inflationary
situation and, therefore, should be kept within moderate bounds. It is during
the period while this danger remains acute that consumer credit regulation, like
other anti-inflationary measures, is most essential. Unless powerful inflationary
forces can be held in check during this period, they will generate the very
situation in which powerful deflationary forces, well known to be even more
difficult to hold in check, will begin to operate and be likely to gather momentum.
President Truman, referring to this subject in his Message to Congress dated
January 14, 1946, made the following statement: "Continued control of consumer credit will help to reduce the pressure on prices of durable goods and
will also prolong the period during which the backlog demand will be effective."
Reference to the same subject has also been made by a congressional committee—
the House Special Committee on Postwar Economic Policy and Planning—
which said in a report dated September 8, 1944, "Some control of consumer
credit, particularly of instalment credit, may be needed after the war," and
in its later report dated March 4, 1946, that "continuance of control over consumer credit" is among the important fiscal and monetary measures which seem
to the Committee to be desirable.
The Board recommends the consideration by Congress of legislation which
will authorize and direct the Federal Reserve System to continue the regulation
of consumer credit on a permanent basis and as an integral part of the System's
function of maintaining sound credit conditions.
Over the past 30 years, consumer instalment financing has come to occupy
an important and strategic place in the national economy. Such financing is
essential to the mass distribution and consequently to the mass production of



FEDERAL RESERVE SYSTEM

25

consumers' durable goods. From time to time, however, the expansion and
subsequent contraction of consumer credit have gone so far as to accentuate
the upswings and downswings of the business cycle. There is no way of preventing such excessive expansion and contraction except governmental regulation
of the terms on which consumer credit shall be made available, such as the down
payment required on instalment sales or financing and the length permissible
for instalment contracts. To provide for such regulation, by legislation which
will contemplate the timely tightening and timely easing of such terms, will
assist the over-all program of stabilizing the national economy at a high level
of production and employment. The Federal Reserve System, if directed by
the Congress to perform this function, can bring to bear on its performance the
experience of 30 years in formulating credit policy and the experience of the
years since 1941 in administering consumer credit regulation, by Executive Order,
during a period of national emergency.
MARGIN REQUIREMENTS
Growth in the supply of money, resulting from the war and its financing,
continued during 1945 to exert strong upward pressure on the price levels of
corporate securities. Prices of stocks advanced further during the year. There
was, however, little increase in the amount of credit employed in purchasing and
carrying securities. An important factor in restraining this increase in credit
was action by the Board to raise margin requirements, first in February and
again in July.
Stock prices declined during the early part of the war and in the spring of 1942
both the level of stock prices and the volume of stock market credit were at the
lowest points in many years. Since then, the general movement of stock
prices has been upwards, rising rapidly until the middle of 1943, again in the
summer of 1944, and again at intervals in 1945. At such times, as is shown on
the chart on the following page, the volume of stock market credit usually increased rapidly, reflecting increased buying of stocks on margin, which is well
known to be largely speculative.
Increasing the margin requirements in February 1945 from 40 per cent to
50 per cent had little observable effect, either on the growth in stock market
credit or on the course of stock prices, but it did operate to reduce somewhat
the proportion of trading in stocks that consists of margin trading. After the
requirements were raised in July to the 75 per cent level, however, the upward
trend of stock market credit was reversed notwithstanding a further sharp increase in stock prices, the proportion of margin trading was further reduced, and
margin traders sold more securities than they bought. This afforded evidence of
the potency of margin requirements as an instrument of credit policy, the most
impressive evidence in fact that has been afforded since the instrument was
brought into use, by congressional mandate, in 1934.
A factor in this result was a rule first imposed in July which required the



ANNUAL REPORT OF BOARD OF GOVERNORS

proceeds of all sales of securities in undermargined accounts to be used to reduce
outstanding indebtedness in the account.
STOCK MARKET
MILLIONS OF DOLLARS

160

1600

140

1400

1200

1000

800

600

400

200

1938

1936

1940

1942

1944

Early in 1946, at a time when there was renewed governmental interest in
combating inflation, when stock prices were rising rapidly and some increase
was also taking place in stock market credit, the Board raised margin requirements to the 100 per cent level. In that connection, the Chairman of the Board
issued a statement explaining the Board's action and at the same time calling
attention to the need for more fundamental measures, particularly fiscal and
monetary measures.
INTERNATIONAL TRADE AND FINANCE
End of the war in Europe and Asia marked a turning point in the trade and
financial relations of the United States with the rest of the world. During the
war period greatly increased exports of goods from the United States represented
largely supplies financed under lend-lease agreements with anti-Axis countries.
Commercial exports declined from the levels of 1939 and 1940, while imports
increased. Various countries exporting to the United States to meet the heavy
wartime demands found themselves restricted in purchasing from our limited
supplies, and as a consequence accumulated large reserves of gold and dollar
balances.
Following the end of the war lend-lease shipments were sharply curtailed
while other exports increased sharply. This country again showed a substantial



FEDERAL RESERVE SYSTEM

27

export balance on commercial account. While many countries of the world
possessed adequate gold and dollar resources to make purchases here, those
countries which had suffered most from the war and, therefore, had the greatest
need for supplies, were not in a position to pay in cash for all the goods that
were urgently needed. Arrangements were made to provide credits to meet
some of these needs. The Export-Import Bank was reorganized, and its lending
authority was enlarged primarily for the purpose of making reconstruction loans.
An agreement was negotiated with the United Kingdom to cover the most pressing needs of that country for dollars during the next few years and the agreement was subsequently embodied in a bill which was introduced in Congress
early in 1946. The Bretton Woods Agreements providing for an International
Monetary Fund and an International Bank for Reconstruction and Development
were adopted, and a National Advisory Council was set up to coordinate the lending activities of the United States Government and the policies and operations
of the American representatives on the Bretton Woods institutions. The Chairman of the Board of Governors of the Federal Reserve System is one of the
members of this five-man Council.
Foreign trade. Following the prompt curtailment of lend-lease shipments
in September 1945, exports dropped sharply. October shipments, valued at 455
million dollars, were the smallest since the summer of 1941. There was a
moderate recovery in the final two months of the year, when a sharp increase
in private exports was supported by a substantial rise in UNRRA deliveries and
by continuing lend-lease shipments which represented primarily the export of
commodities for which repayment terms had been arranged. Total exports for
the year (excluding shipments to our armed forces abroad) were valued at
nearly 10 billion dollars, of which nearly 4 billion represented "commercial"
shipments, i.e., shipments other than lend-lease and relief. The latter figure
may be compared with 3 billion dollars of commercial exports in 1944 out of
total exports of more than 14 billion. In view of the diverse movements of
the three components of the export total during the year, the quarterly data
shown in the accompanying table will present a more informative picture than
FOREIGN TRADE OF THE UNITED STATES

[In millions of dollars]
Total exports
Period
Total
1941
1942
1943
1944
1945
Jan.-Mar
Apr.-June
July-Sept
Oct.-Dec
1

Lend-lease

Relief1

Other

5,147
8,080
12,964
14,257
9,806
2,820
3,011
2,145
1,830

739
4,933
10,357
11,305
5,561
2,047
2,026
1,111
377

33
59
120
485
48
70
118
249

4,408
3,114
2,548
2,832
3,760
725
915
916
1,204

Including both public and private relief.




General
imports
3,345
2,745
3,382
3,921
4,136
1,024
1,098
1,050
964

28

ANNUAL REPORT OF BOARD OF GOVERNORS

can be derived from annual figures. Imports were less affected than exports by
the end of hostilities although the upward trend which had characterized the
early months of the year was reversed in the autumn. Total imports of over
4 billion dollars were only slightly larger than those of 1944. In the last two
months of the year commercial exports exceeded imports for the first time since
November 1942.
Virtual discontinuance of lend-lease operations brought to a close the gigantic
international supply program through which the United States shared its productive capacity with the anti-Axis forces of the world. From the inception of
lend-lease in March 1941 to the end of September 1945, exports under the program exceeded 32 billion dollars and during 1943 and 1944 accounted for 80
per cent of total shipments from the United States excluding supplies furnished
to our armed forces abroad. The great bulk of these exports went to the United
Kingdom and the Soviet Union, which together received over 23 billion dollars
worth of munitions, foodstuffs, industrial equipment, petroleum, and miscellaneous supplies. Africa and the Middle East received supplies valued at 3.5
billion dollars, over 2 billion of which were sent to Egypt largely for the use
of the British forces. The Far East (principally India and Australia) received
nearly 4 billion dollars of lend-lease supplies, European nations other than England and Russia approximately 1 billion, and Latin America approximately 365
million.
With the national energies concentrated on war, commercial exports were
sharply curtailed. Meanwhile, merchandise imports rose somewhat above prewar values and were purchased predominantly for cash. For the four war years
1942-45 the United States had an import balance on cash account of approximately 1.9 billion dollars. This total figure conceals the considerably larger import balance of the United States in its cash trade with Latin America, the Near
East, South Africa, and the Far East. The accompanying table shows the net
balance of the United States in its commercial trade with various countries and
W A R T I M E TRADE OF THE U N I T E D STATES EXCLUDING LEND-LEASE AND R E L I E F

SHIPMENTS1

[In millions of dollars]
1942-45

Last quarter 1945

Area and country

Balance

Exports
Canada
American Republics
Other Western Hemisphere
United Kingdom
U.S.S.R.
Other Europe
Near East and Africa
Western Asia
British West Africa
Union of South Africa
Far East
.
India and Ceylon
Australia
Total
1

Imports

Balance

4,781
3,600
516
1,119
60
584
952
208
46
278
641
263
171

4,129
5,513
405
413
158
563
1,281
356
96
377
1,721
739
629

+653
-1,913
+111
+706
-98
+21
-329
-148
-49
-100
-1,080
-476
-458

+54
+ 13
+ 10
+81
-2
+77

12,254

14,183

-1,929

+240

Distribution of relief shipments, public and private, partly estimated.




+4
+3

FEDERAL RESERVE SYSTEM

29

areas of the world for the period 1942-45. The final column shows the shift in
this balance during the final quarter of 1945, a shift for which both the decline of
lend-lease shipments and the growth of commercial exports were responsible.
The cash merchandise deficit of the United States during the period was augmented by excess payments for service items of which the largest was military
expenditure abroad. After allowing for services given and received under
lend-lease and reciprocal aid, net service payments for the period probably
totaled about 3.3 billion dollars. Because of the predominant importance of
military expenditures in these transactions, it may be assumed that the bulk
of the net payments went to those countries in which United States soldiers were
stationed in large numbers. Payments on all current transactions, including both
goods and services, thus exceeded receipts by over 5 billion dollars during these
four war years.
Wartime expansion in holdings of gold and dollar balances. This
excess of payments over receipts in the wartime accounts of the United States
enabled foreign nations to purchase substantial amounts of gold from this
country and, in addition, to build up their dollar balances. Net sales of gold by
the United States Treasury amounted to 2.7 billion dollars over the period while
foreign holdings of dollar balances increased by about 3 billion. Purchases of
gold, together with wartime gold production, accounted for a rise in foreign
gold holdings from nearly 10 billion dollars in December 1941 to nearly 16
billion in December 1945. Foreign holdings of dollar balances at the end of
1945 totaled 6.4 billion, of which 3.7 billion represented holdings of central
banks and governments.
The increase in foreign dollar balances plus net sales of Treasury gold between the end of 1941 and the end of 1945 amounted to about 5.7 billion dollars,
whereas excess payments on current transactions were estimated at 5.2 billion.
The difference is largely accounted for by credit transactions other than those
connected with the distribution of Army-Navy supplies for relief in foreign
countries or with the sale of surplus property not entered in United States
export statistics.
Of the total estimated increase of 9 billion dollars in foreign-held reserves of
gold and dollar balances during the period 1942-45, nearly 6 billion is believed
to represent additional holdings of gold. When estimated world production
of 3.9 billion dollars is added to the figure for United States Treasury gold
sales of 2.7 billion, the increase in world reserves is more than equaled. The
600 million dollars worth of gold remaining may have been absorbed in industry
and in private holdings which were augmented by public sale of gold as an
anti-inflationary measure in certain Eastern countries.
Of the 9 billion dollars added to foreign reserves since the end of 1941 over
2.5 billion went to Latin American countries of which about 2 billion was
in payment for cash sales of goods and services to the United States. Perhaps an additional quarter of a billion dollars in gold was added to reserves
from domestic gold production. The balance of the increase must be attributed



30

ANNUAL REPORT OF BOARD OF GOVERNORS

to dollar sales to countries other than the United States. Canada, South Africa,
and European neutrals added almost 3.5 billion dollars to their reserves, bringing
the total for countries outside the theatre of hostilities to 6 billion. The
major additions to reserves of countries which suffered war damage were the
1.4 billion dollar increase in "net" gold and United States dollar reserves between
December 31, 1941 and the end of June 1945 reported by the United Kingdom
and attributable largely to American military expenditures in the British sphere;
and the increase of some 600 million dollars in China's reserves as a result of a
United States loan of 500 million and of military expenditures in the country.
The remaining billion dollar increase in reserves outside of the Western Hemisphere represents the sum of numerous small accretions to the reserves of various
nations and includes an allowance for a sizable growth in Russian gold reserves
resulting from domestic production.
Extension of credits to other countries. With the sharp reduction in
lend-lease exports and military expenditures abroad in 1945 other methods of
financing exports to foreign countries which had suffered from the war became
necessary. During 1945 the United States lent on balance approximately 2
billion dollars to foreign countries. These loans represent for the most part
special credit transactions in the second half-year in connection with the furnishing of supplies to civilian populations by the armed forces and the taking over by
foreign governments of lend-lease inventories and surplus property.
In order to help finance some of the most essential needs of foreign countries
the lending authority of the Export-Import Bank was increased from 700 million
to 3,500 million dollars by an Act of Congress approved on July 31, 1945. During
the last six months of 1945 the Bank authorized loans of roughly one billion
dollars, most of which represented reconstruction loans to devastated countries
of Europe. At the end of the year the Export-Import Bank had unused lending
authority of 1,800 million dollars. The Bank's loans did not finance a large
volume of purchases in 1945. Disbursements under all Export-Import Bank
loans totaled only 59 million dollars during the last six months of 1945.
Export-Import Bank loans will play a major role in financing foreign needs in
1946 and in the early months of 1947. Thereafter the International Bank for
Reconstruction and Development, which should reach full-scale activity in 1947,
will be the main source of long-term foreign loans.
In December 1945 the governments of the United States and United Kingdom
concluded discussions on trade and financial matters and announced agreements
containing far-reaching proposals. The financial agreement proposes a loan
of 3,750 million dollars by the United States to the United Kingdom to meet her
unique balance of payments difficulties in the transition period. The agreements
were approved by the British Parliament before the end of 1945 and submitted
to Congress in 1946. Only with the help of the proposed loan is there any
possibility that the United Kingdom will be able to meet the urgent needs of
her economy in the transition period and at the same time eliminate exchange
restrictions and discriminatory currency practices within the great sterling area.



FEDERAL RESERVE SYSTEM

31

Establishment of international financial organizations. Both the
International Monetary Fund and the International Bank for Reconstruction and
Development, proposals for which had been formulated at Bretton Woods in
July 1944, came into existence at the end of 1945. The Bretton Woods Agreements Act authorizing United States membership was passed in July, and by the
end of December the proposals had been accepted by the majority of the governments represented at Bretton Woods.
The total capital of the International Bank is 7,670 million dollars, of which
one-fifth may be used by the Bank to make loans. The remainder can be called
only if needed to meet obligations of the Bank. Total loans and guarantees of
the Bank are limited to the amount of its unimpaired capital, surplus, and reserves. For the most part the Bank will either lend funds borrowed in member countries or guarantee the loans of private investors. The principal market
for securities issued or guaranteed by the Bank is likely to be in the United States.
The International Monetary Fund aims to promote exchange stability, provide
for orderly changes in exchange rates when necessary, and to eliminate harmful
restrictions on payments for current international transactions. The Fund has
7,397.5 million dollars in gold and various currencies subscribed by members,
which will be used to help them meet temporary deficits without resorting to
harmful measures. The Fund will play an important role in the transition period
in establishing a reasonable pattern of initial exchange rates and in working
toward the elimination of wartime exchange controls.
The Bretton Woods Agreements Act provided for an important change in the
assets of the United States Stabilization Fund established under the Gold Reserve
Act of 1934. Of the Fund's total assets of slightly over 2 billion dollars, 1.8 billion will be used to pay part of the United States subscription to the International
Monetary Fund. The remainder, which represents the portion of the United
States Fund which has in the past been in active use, will suffice to carry on
such operations as are necessary to supplement those of the International Monetary
Fund.
The Bretton Woods Agreements Act also established the National Advisory
Council on International Monetary and Financial Problems to coordinate the
policies and operations of the United States representatives on the Fund and the
Bank and of all agencies of the Government engaging in foreign financial
transactions including the Export-Import Bank. The Council consists of the
Secretary of the Treasury, the Secretary of State, the Secretary of Commerce, the
Chairman of the Board of Governors of the Federal Reserve System, and the
Chairman of the Board of Trustees of the Export-Import Bank. The Council
played an important role in coordinating the financial and lending policies of the
United States in the second half of 1945.
V LOAN PROGRAM
During the year 1945 the Federal Reserve Banks, under the general supervision of the Board of Governors, continued to act as agents of the War De


32

ANNUAL REPORT OF BOARD OF GOVERNORS

partment, Navy Department, and United States Maritime Commission in guaranteeing war production and termination loans. Through this system of guarantees,
made under Regulation V of the Board of Governors, 10.3 billion dollars in private
production credits were made available to the nation's war industries, large and
small, in 3V2 years' time. The guarantee consisted of an agreement, made in
advance of each loan, by which the procurement agency that required the particular production obligated itself to take over a specified portion of the credit
risk at any future time, on demand of the bank or other commercial lending institution that had made the loan with its own funds. For this protection against
possible loss, the lending institution paid a small portion of its interest return as
a guarantee fee.
From the beginning of the V loan program in April 1942 to December 31,
1945, the Federal Reserve Banks received 9,605 applications for guaranteed loans
aggregating 10.7 billion dollars. The War Department, Navy Department, and
Maritime Commission authorized 8,757 guaranteed loans totaling 10.3 billion.
Of these authorizations 6,678 for 8 billion dollars were War Department guarantees; 1,794 for 2.2 billion were Navy Department guarantees; and 285 for 174
million were Maritime Commission guarantees. Only 847 applications aggregating 335 million dollars were rejected by the guaranteeing agencies. The
principal reasons for rejections were that the guarantor could not certify that
the production of the applicant was necessary, appropriate, or convenient for the
prosecution of the war, or that it was believed preferable to provide the necessary financing by advance payments. Of the 8,757 guarantees authorized, 7,999
were actually executed, covering credits aggregating 9.9 billion dollars.
When 1945 began, the volume of V loans was practically at its peak, with 6.2
billion dollars of credit available under agreements in force and 1.7 billion
in guaranteed loans actually outstanding. The peak had been reached during
1944, when outstanding loans amounted to 2.1 billion on July 31 and total credit
available to 6.3 billion on October 31. Following conclusion of the European
phase of the war in May 1945 there was a slight reduction in the volume of guaranteed credits to 5.1 billion dollars in credit available and 1.4 billion in outstanding
loans on June 30, 1945. After the surrender of Japan in August the decline in
new loan applications, the termination of war contracts and subcontracts, the advances made by the procurement agencies prior to final settlement, and the
rapid rate of such settlements greatly reduced the scope of the V loan operation.
Only 1.5 billion dollars in aggregate credit available and 511 million in outstanding loans remained in force on December 31, 1945, although 1,323 new guaranteed
loans amounting to one billion dollars had been arranged by the Federal Reserve
System and authorized by the three procurement agencies during 1945.
Of these new guarantees 599, covering credit authorization of 264 million
dollars, were for "T" loans authorized under the Contract Settlement Act of
1944 to cover credit needs in connection with the termination of contracts. More
general usage of the "T" loan by contractors was largely obviated by several
factors, i.e., the rapidity with which many claims were liquidated after the con


FEDERAL RESERVE SYSTEM

33

elusion of hostilities, the availability of partial payments on claims, and the liquid
financial position of companies.
Three changes in administration occurred during the early stages of liquidation in 1945. First, after the German and Japanese surrenders the War
and Navy Departments and the Maritime Commission determined that new war
production loans should be authorized only in exceptional cases of clear necessity.
Second, after consultation with the Office of Contract Settlement the War Department in September began closing its liaison offices at the Federal Reserve
Banks (the last of these offices was closed in January 1946). Third, the War and
Navy Departments delegated to the Federal Reserve Banks additional authority
over outstanding loans, authorizing them at their discretion to approve extensions
of loan maturities up to 60 days, waivers of default, and other acts of commercial
lending institutions and users of guaranteed credit, provided the interest of the
Government would not be materially affected by the desired adjustments.
Not only had the guarantee plan proved effective in making available commercial credit for necessary war production but as the program approached an
end, it became evident that the V loan system had more than paid its own financial
costs. From the inception of the plan to the end of 1945, the Reserve Banks collected 32.2 million dollars in guarantee and commitment fees for the account
of the three guaranteeing agencies. Expenses of the Reserve Banks reimbursed
by the three Services for which they were the agents amounted to 3.4 million dollars. The combined net receipts of the procurement agencies accordingly
were 28.8 million dollars, and on December 31, 1945, it was estimated that their
total losses would not exceed 6 million. This was an over-all ratio of losses to
authorizations of 0.06 per cent.
Although a final accounting can not be had until the liquidation process is
complete, certain aspects of this new experience in the guaranteeing of commercial loans to industry may be recorded at this time. The operation was decentralized to a considerable extent. The plan was utilized by nearly 1,400 banks
and other commercial lending institutions. While these were a minority of all
such institutions, their contribution to the war effort was disproportionately large;
total war production loans under Regulation V amounted to 66 per cent of the
estimated total of war production loans outstanding from all commercial banks
on June 30, 1944, and to 54 per cent of that total at the beginning of 1945. The
war-financing activity under Regulation V occurred preponderantly within the
framework of the system of private enterprise in finance. The participating
private institutions utilized their own funds exclusively except in the relatively
few cases where they exercised their option at some later time to transfer
some part of the risk to the procurement agencies. The plan provided a mechanism for financing the subcontractors as well as the prime contractors in war
production.
The smallest credit guaranteed was for $400 and the largest for one billion
dollars. Nearly 400 banks participated in the latter credit, of which only 100
million dollars was utilized. This credit, like many other guaranteed loans, was



34

ANNUAL REPORT OF BOARD OF GOVERNORS

arranged for under the provisions of Regulation V because the guaranteed portion of Regulation V loans was not subject to legal limitations on the amount
which might be lent to a single borrower. The maximum amount of this particular credit was in excess of the total lending capacity of all the commercial
banks in the country (approximately 600 million dollars) on such loans to a single
borrower.
Applicability of the guarantee plan to the financial problems of the smaller
businesses was emphatically shown. Up to March 31, 1945, 62 per cent of the business borrowers were enterprises that had less than $500,000 in total assets when
their first V loan was obtained. The amounts of credit placed at the disposal of
these small enterprises were exceptionally large; for example, the average amount
of authorization per borrower to enterprises with less than $50,000 in total assets
was $97,000. Less than 8 per cent of the V loan borrowers up to the stated date
were enterprises with as much as 5 million dollars in total assets. A valuable and
in many respects new experience in the "tailoring" of commercial loans to fit the
requirements of the individual borrowers was also a by-product of the experience under Regulation V. In spite of the fact that the higher proportions of risk
coverage required the payment of larger fees, more than half of all guarantees
provided coverage of the order of 90 per cent, and the average of all guarantees,
up to the date stated above, was approximately 85 per cent. Every type of war
production, from foods to metal products, textiles and chemicals, was financed
under the plan.
BANKING OPERATIONS AND STRUCTURE

Bank earnings. Member bank net profits after taxes increased by 139 million
dollars in 1945 and reached a new peak of 788 million. They had been rising
steadily since 1942 and in 1943 had attained the highest point ever reported.
Income from Government securities and profits on sales of such securities were
the principal sources of income. About one-third of net profits was paid out as
dividends and the remainder was added to capital accounts.
Earning assets of member banks exceeded 107 billion dollars at the close of
1945, having increased almost 16 billion during the year. In amount this increase was about the same as it had been in 1944 but as a percentage of total
earning assets it was less than in any year since 1941. During the defense and
war period, 1940-45, earning assets have almost trebled and an increasing proportion of the total has consisted of United States Government securities. At
the end of 1945 this proportion was nearly 75 per cent.
The present level of bank profits, as compared with that of the late 1920's,
results from circumstances markedly different from those prevailing at that time.
Total earning assets of banks were about three times as large in 1945 as in 1929.
The rate of interest return on these earning assets, however, was decidedly lower.
While the level of market interest rates has fallen substantially for a decade and
a half, the average return received by banks from earning assets has dropped
even more. The composition of earning assets has shifted from a dominance of



FEDERAL RESERVE SYSTEM

35

loans, a high-yield asset, to United States Government securities, the lowest yielding of all earning assets. At the same time, however, banking losses have declined greatly, while profits on securities sold and recoveries have expanded.
During 1945 member banks increased their holdings of United States Government securities by 11 billion dollars to 78 billions. They also increased their loans
and holdings of other securities, as is shown in the accompanying table. Total
loans increased to the largest amount outstanding since early in 1931. Loans on
securities, which have increased sharply at times of war loan drives and declined
between drives, continued at higher levels than in recent years.
MEMBER BANK LOANS AND INVESTMENTS

[In billions of dollars]
Outstanding
Dec. 31, 1945

Change during year
1945

1944

22.8

+4.1

+2.4

8.9
0.9

+ 1.4
-0.3

+0.1
+0.2

6.5
3.5
1.9
1.1

+2.2
+0.2
+0.4
+0.2

+2.1
-0.1

United States Government securities (direct and guaranteed)

78.3

+ 10.7

+ 14.7

State and local government securities. . .

3.3

+0.4

+0.1

Other securities

2.8

+0.5

+0.1

Loans—total
Commercial and industrial l o a n s . . . .
Agricultural loans
Loans for purchasing or carrying securities
Real estate loans
Consumer loans
All other, including loans to banks. . .

Commercial and industrial loans declined somewhat in the first half of the
year, but increased considerably after the termination of hostilities. Since loans
to finance war production were sharply curtailed in this period, it appears that
loans for reconversion and for other civilian activities may have increased by over
2 billion dollars. At the end of 1945 total commercial and industrial loans at
member banks were at the highest level in 15 years. Consumer loans by banks,
which reached a low point in 1944, increased somewhat in 1945. There was
also a small increase in real estate loans in the latter part of the year.
The wartime growth in earnings has been accompanied by a narrowing of
differentials in the rate of return on earning assets among classes of banks and
among individual banks. In 1940 the estimated average rate of return received
from Government securities was almost twice as high at country banks as at
money market banks. At present there is little difference between these groups
of banks. Futhermore almost every bank, regardless of size, is now earning some
profit. As is shown in the chart on page 36, member bank profits after
taxes were almost 11 per cent of capital funds in 1945, a higher level than had
been previously reached. The profit ratios of most banks clustered around this
average, that is, fell within a range of about 9 to 12 per cent. The present level



3^

ANNUAL REPORT OF BOARD OF GOVERNORS

of net profits may be contrasted with net losses of over 7 per cent on capital
funds in the depression year 1933.
It seems unlikely that bank profits will continue at the high levels of 1945,
although they are not expected to decline in the near future to a level that will
present difficulties for the banks. With the current debt retirement program
of the Treasury, it is probable that bank earnings on Government securities
MEMBER BANK EARNINGS AND PROFITS
AS PERCENTAGES OF CAPITAL ACCOUNTS
ANNUAL FIGURES

-10
1920

1925

1930

1935

1940

1945

Net current earnings are total earnings from current operations less current operating expenses. Net
profits are net current earnings plus recoveries, profits on securities, etc., less losses and charge-offs and
taxes on net income. Capital accounts consist of all forms of capital, including capital notes and debentures, surplus, undivided profits, reserves" for contingencies, and other miscellaneous capital accounts.
Prior to 1927 profits on securities were included in current earnings; beginning in 1942 taxes on net
income were excluded, while recurring depreciation was included, as a current operating expense deduction
from earnings.

have reached their peak. Earnings on loans, however, with their higher rates of
interest, may increase. Bank expenses and taxes increased further in 1945, and
somewhat higher expenses may be expected in 1946, although taxes will be
lower. Any further expansion in the volume of bank credit or a rise in the
general level of interest rates would tend to maintain bank profits at a high
level, and possibly to increase them.
Capital accounts. Capital accounts of member banks increased 621 million
dollars in 1945, compared with 493 million in 1944. Although there were some
sales of additional capital stock, most of the increase was from profits remaining
after dividend payments.



FEDERAL RESERVE SYSTEM

37

The increase of over 2 billion dollars in capital accounts of member banks
since 1939 has not kept pace with the growth in deposit liabilities, but the growth
in liabilities has been accompanied by increased holdings of Government
securities. As a result, the percentage ratio of capital accounts of member banks
to total assets other than Government securities and cash assets was 25 on December 31, 1945, practically unchanged from the ratio at the end of 1939.
Changes in number of banking offices. The total number of banking
offices, other than offices at military reservations, increased by 112 in 1945 to
18,402. The preceding year there had been an increase of 12, the first reported
since 1934. Notwithstanding this recent growth, there was a net decline of 261
between December 1939 and the close of 1945. This figure reflects a decline of
481 in the number of head offices and an increase of 220 in the number of
branches and additional offices.
For the first year since 1934, w n e n many banks were reopened after the banking holiday, there was a net increase in the number of banks (head offices) in
1945. During the year 118 new banks opened for business, of which 25 were
member banks, 82 insured nonmember banks, and 11 noninsured banks.
Through consolidation or otherwise, however, 100 head offices were discontinued.
The net increase of 18 brought the number of banks in operation at the end of
the year to 14,553. Of this total, 14,011 were commercial banks and 542 were
mutual savings banks.
The number of branches and additional offices, other than offices at military
reservations, increased by a net of 94 during the year to a total of 3,849- Since
1933 this number has increased in every year except 1942, when it remained
unchanged.
The foregoing figures do not include banking facilities at military reservations,
of which a considerable number were opened during 1943, 1944, and the early
part of 1945. There were about 350 in existence on V-J Day, and at the end of the
year there were 241. Including these facilities there were 18,643 banking offices
at the end of 1945, comprising 14,553 banks, 3,849 branches, and 241 offices
located at military reservations.
Increase in membership in Reserve System. Membership in the Federal Reserve System increased in 1945, as it has in every year since 1939, anc^
registered a net gain of 70 banks for the year. The number of national banks
decreased by a net of 8 while the number of State member banks increased bv
a net of 78. Eight of the 95 State banks admitted to membership were newly
organized and 87 were already in operation. All but one of the 87 had previously been admitted to membership in the Federal Deposit Insurance Corporation. Total deposits of these 87 banks were about 378 million dollars. Over onehalf of the State banks admitted to membership were located in three Federal
Reserve districts—Cleveland, Chicago, and St. Louis.
The 6,884 member banks in operation at the end of 1945 accounted for 49 per
cent of the number and 86 per cent of the deposits of all commercial banks in
the country. These percentages compare with 44 and 86 respectively at the



3^

ANNUAL REPORT OF BOARD OF GOVERNORS

end of 1939. The State member banks of the Federal Reserve System accounted
for 21 per cent of the total number and 69 per cent of the deposits of all State
commercial banks. The corresponding percentages were 13 and 68 respectively
in December 1939.
Par and nonpar banks. During 1945 there was a net increase of 324 in
the number of banks on the Federal Reserve Par List and a net decrease of 312 in
the number of nonpar banks.1 This was a continuation of the trend of the past
several years. The 2,133 banks not on the Par List at the end of 1945 represented only 15 per cent of all banks on which checks are drawn and held less
than 2 per cent of the deposits of all commercial banks in the country. Corresponding figures for the end of 1939 were 2,719 banks, 19 per cent of all banks
on which checks are drawn, and 2 per cent of deposits.
During 1945, 421 banks were added to the Par List, 5 withdrew from the
Par List, and 92 par banks terminated existence.2 Included in the banks added
to the Par List were 151 banks in Nebraska, where the increase resulted from
the enactment of a State par clearance law. (A similar increase of i n banks
occurred in 1943 as a result of State legislation in Iowa.) Other States in which
there was a net increase of 10 or more par banks during 1945 included Tennessee 55, Texas 23, Illinois 18, Florida 16, and Virginia and Wisconsin 15
each.
At the end of 1945 there were 24 States and the District of Columbia in which
all banks were on the Federal Reserve Par List, and 8 States in which the number
of nonpar banks was 11 or less, as follows: Michigan 1, Kansas 2, Illinois 2,
Nebraska 3, West Virginia 3, Montana 4, Washington 10, Oklahoma 11. The
16 other States that collectively had over 98 per cent of the banks not on the Par
List at the end of 1945, were: Minnesota 418, Georgia 274, Mississippi 171,
Arkansas 129, North Carolina 122, Wisconsin 119, Alabama 117, Tennessee
108, North Dakota 105, South Carolina 103, Louisiana and South Dakota 100
each, Missouri 76, Texas 68, Florida 66, and Virginia 21.
Check routing symbols. The American Bankers Association and the Federal Reserve Banks announced a plan early in June 1945 which will make it
easier for banks to sort checks for collection through the Federal Reserve System.
The Association distributed a booklet to all banks in the country describing the
plan, and the Reserve Banks circularized all par remitting banks in their respective districts.
Under the plan "check routing symbols" were assigned by the Federal Reserve
Banks to all par remitting banks. It was recommended that the symbol be
printed in the upper right-hand corner of checks, above the dollar amount, in
combination with the ABA transit number, which has been in use for years
to identify the bank numerically. The ABA transit number appears as the
1
The Federal Reserve Par List comprises all member banks, which are required under the law to remit
at par for checks forwarded to them by the Reserve Banks for payment, and also such nonmember banks
as have agreed to do likewise.
2
Seventy-four of the 92 par banks that went out of existence were absorbed by other member and
par nonmember banks, and 40 of the banks thus absorbed were converted into branches.




39

FEDERAL RESERVE SYSTEM

numerator and the check routing symbol as the denominator of a fraction, as in
the following example:

In the example the first part of the ABA transit number (to the left of the
hyphen) designates the reserve city or State in which the bank is located, and the
second part designates a particular bank in that State. In the check routing
symbol (the denominator of the fraction) the first digit designates the Federal
Reserve District; the second digit designates the head office of the Federal
Reserve Bank, a branch office, or a special collection arrangement; and the last
digit indicates whether the check is receivable for immediate or deferred credit
and the State in which the payor bank is located. In the example above, the
first digit designates the Third Federal Reserve District, the second digit
designates the Federal Reserve Bank of Philadelphia, and the last digit indicates
that the item is receivable for deferred credit and that the payor bank is located
in New Jersey.
A survey by the Federal Reserve Banks, based on checks handled in one week
in February 1946, showed that about half of the approximately 12,000 banks that
are on the Federal Reserve Par List have had the new check routing symbols
printed on at least some of their checks.
RESERVE BANK OPERATIONS

Volume of operations. Operations of the Reserve Banks were in considerably larger volume in 1945 than in 1944, especially those relating to the issuance
and redemption of securities and to other activities as fiscal agents of the United
States.
Discount operations were somewhat larger than in recent years, and there
RESERVE BANK EARNINGS ON LOANS AND SECURITIES,

1942-45

[Dollar amounts in thousands]

Item and year

Daily average holdings:
1942
1943
1944
1945

Total

Discounts and
advances

U. S. Government
securities,
direct and
guaranteed

Industrial
loans

$3,209,649
7,761,651
14,917,596
21,742,567

$6,610
24,759
135,459
375,958

$3,191,259
7,724,488
14,772,201
21,363,244

$11,780
12,404
9,936
3,365

Earnings:
1942
1943
1944
1945

$51,943
68,656
103,837
141,631

$65
152
724
1,977

$51,404
68,090
102,810
139,553

$474
414
303
101

Average rate of earnings (per
cent):
1942
1943
1944
1945

1.62
0.88
0.70
0.65




0.98
0.61
0.53
0.53

1.61
0.88
0.70
0.65

4.03
3.34
3.05
2.99

4o

ANNUAL REPORT OF BOARD Of GOVERNORS

was an increase in the Reserve Banks' holdings of Treasury bills acquired from
member banks and others under agreements to resell upon demand prior to
maturity at a discount rate of % per cent per annum. Holdings of Government securities in the System Open Market Account also increased. Industrial
loan operations again declined, reaching the lowest level since the making of
industrial loans and commitments by Federal Reserve Banks to provide working
capital for industry was authorized in 1934. ^ n e table on page 39 shows
daily average holdings during the past four years of discounts and advances,
Government securities, and industrial loans, and average rates of earnings
thereon.
Receipts and payments of paper currency and coin by the Federal Reserve
Banks again increased, reflecting the large amount of currency in circulation.
Issues and exchanges of Government securities and the volume of checks
handled also increased substantially in 1945. Figures showing the volume of
operations in principal departments are given in Table 5 on page 69.
Earnings and expenses. Current earnings, current expenses, and the distribution of net earnings of the various Federal Reserve Banks are given in
detail in Table 6 on pages 70-71, and a condensed annual statement for all the Reserve Banks combined since 1913 is given on pages 72-73. The table below shows
EARNINGS, EXPENSES, AND DISTRIBUTION OF N E T EARNINGS OF FEDERAL RESERVE BANKS,

1944 AND 1945
[In thousands of dollars]
Item
Current earnings
Current expenses
Current net earnings
Net additions to current net earnings
Net earnings
Paid U. S. Treasury (Sec. 13b)
Dividends paid
Transferred to surplus (Sec. 13b)
Transferred to surplus (Sec. 7)
Total

1944

1945

104,392
49,176
55,216
3,222

142,209
48,717
93,492
-830

58,438

92,662

327
9,500
201
48,410

248
10,182
262
81,970

58,438

92,662

a condensed summary for all of the Reserve Banks for the years 1944 and 1945.
Current earnings were 142 million dollars in 1945 as compared with 104 million
in 1944. Current expenses were about the same as in 1944, and net earnings
amounted to 92 million dollars, or 34 million more than in 1944. After payments
totaling 10 million dollars for dividends to member banks as provided in the
Federal Reserve Act and payments to the United States Treasury under Section
13b of the Act relating to industrial loans, 82 million was added to the surplus
of the Reserve Banks.
Foreign transactions. The volume of foreign transactions passing through
the Federal Reserve Bank of New York continued large in 1945. The magnitude
of these transactions on behalf of the United States Government departments and
agencies declined sharply after V-J Day, amounting to about 40 million dollars in



FEDERAL RESERVE SYSTEM

41

December as compared with a monthly average of around ioo million during
the summer and with a peak of over 200 million in January 1945. At the same
time, other activities increased as relations were resumed with a number of
central banks in countries formerly occupied by the enemy. At the end of 1945
the Federal Reserve Bank of New York held accounts for the central banks
or governments of 60 foreign countries.
For the year as a whole, total foreign assets held at the Federal Reserve Bank
of New York increased. The tendency in the latter months of the year was
toward a reduction in the amount of dollar funds, which declined by an over-all
amount of 340 million dollars for the year. At the year end these balances
amounted to 861 million dollars as compared with the high of 1,246 million
recorded in June and the all-time high of 1,650 million for May 1944. Holdings
of United States Government securities for account of foreign central banks and
governments increased from 960 million dollars in December 1944 to 1,696
million in October 1945, after which they declined to 1,654 million at the end
of the year. Gold held under earmark rose from 3,937 million dollars in December 1944 to 4,294 million in December 1945. Exports and imports of gold
were on a comparatively small scale. The Federal Reserve Bank of New York
continued to operate the United States Exchange Stabilization Fund in accordance
with authorizations and instructions from the Treasury. The Federal Reserve
Banks also continued to act as agent for the Treasury in the administration of
Foreign Funds Control.
During 1945 the Federal Reserve Banks made a series of short-term advances,
secured by gold held in New York, to a Latin American central bank, the largest
amount outstanding under this agreement being 12 million dollars. In addition,
a short-term loan of 35 million dollars, also secured by gold in New York, was
made to the government of a liberated European country. Both of these amounts
were still outstanding at the close of the year.
Bank premises. The pressure for additional space at most of the Federal
Reserve Banks and branches arising from expanded wartime operations was
referred to in the Annual Reports for 1942 and 1943. Conditions in this respect
have not improved, and it appears that most of the Federal Reserve Banks and
branches will have to continue to rent outside space until such time as they
can make additions to their present inadequate quarters or, in some cases, erect
new buildings. The Board of Governors advised the Federal Reserve Banks
during the year that, except in cases of urgent need, no building project should
be undertaken until it is clear that labor and materials are readily available and
the timing of the construction is in harmony with the postwar building program.
Under this policy the only construction projects at Federal Reserve Banks
authorized in 1945 were an additional story on the building occupied by the
Helena Branch of the Federal Reserve Bank of Minneapolis, necessary repairs
and improvements to the building acquired by the St. Louis Federal Reserve
Bank in 1944, and completion of a vault and of air conditioning at the Federal
Reserve Bank of Chicago.



42

ANNUAL REPORT OF BOARD OF GOVERNORS

Building sites for future expansion were acquired at the Pittsburgh, New
Orleans, and Detroit Branches. A site for a building to house the Seattle Branch,
which now occupies rented quarters, was also acquired during the year.
RESERVE BANK PERSONNEL
Chairmen and Deputy Chairmen. One of the Class C directors of each
Federal Reserve Bank is designated annually to serve as Chairman and Federal
Reserve Agent, and another Class C director is appointed annually as Deputy
Chairman. A list of the Chairmen and Deputy Chairmen is shown on page 119.
The Chairman and Deputy Chairman at each of the twelve Federal Reserve
Banks were redesignated to serve as such during the year 1945.
Directors. A list of directors of the Federal Reserve Banks and branches
as of the close of the year is shown on pages 121-128.
The Board made the following appointments of new directors either for
terms beginning January 1, 1945, or to fill vacancies during the year:
Class C Directors. On December 7, Russell L. Dearmont, Chief Counsel
for Trustee, Missouri-Pacific Lines, St. Louis, Missouri, was appointed a Class
C director of the Federal Reserve Bank of St. Louis.
On March 27, G. A. Frierson, a planter and merchant of Shreveport, Louisiana,
was appointed a Class C director of the Federal Reserve Bank of Dallas.
Branch Directors. S. Headley Shouse of Lexington, Kentucky, was appointed a director of the Cincinnati Branch of the Federal Reserve Bank of
Cleveland for a two-year term beginning January 1, 1945. Mr. Shouse is engaged
in farming.
Paul G. Blazer, Chairman of the Board, The Ashland Oil and Refining
Company, Ashland, Kentucky, was appointed a director of the Cincinnati
Branch of the Federal Reserve Bank of Cleveland for a three-year term beginning January 1, 1945.
Howard W. Jordan, President, Pennsylvania Rubber Company, Jeannette,
Pa., was appointed a director of the Pittsburgh Branch of the Federal Reserve
Bank of Cleveland for the term beginning January 1, 1945.
On November 29, James F. Shriver, President, B. F. Shriver Company, Westminster, Maryland, was appointed a director of the Baltimore Branch of the
Federal Reserve Bank of Richmond.
Ernest Gilbert of Waldron, Michigan, was appointed a director of the Detroit
Branch of the Federal Reserve Bank of Chicago for the term beginning January
1, 1945. Mr. Gilbert is engaged in farming.
On March 12, Hal Bogle, Pecos Valley Alfalfa Mill Company, Dexter, New
Mexico, was appointed a director of the El Paso Branch of the Federal Reserve
Bank of Dallas.
J. E. Wheat of Woodville, Texas, was appointed a director of the Houston
Branch of the Federal Reserve Bank of Dallas for the term beginning January
1, 1945. Mr. Wheat is an Attorney-at-Law.
John M. McGregor, Manager, McGregor Land and Livestock Company,



FEDERAL RESERVE SYSTEM

43

Hooper, Washington, was appointed a director of the Seattle Branch of the
Federal Reserve Bank of San Francisco for the term beginning January i, 1945.

Changes in Presidents and First Vice Presidents. Mr. William A.
Day, who had been an officer of the Federal Reserve Bank of San Francisco since
July 1917 and President since April 1936, resigned as President on December
31, 1945, having availed himself of the privilege of retiring under the provisions of the Retirement System of the Federal Reserve Banks.
Mr. Day was succeeded as President, effective January 1, 1946, by Mr. Ira
Clerk, who had served as First Vice President since April 1936. Mr. Clerk
has been an officer of the Bank since it was organized in November 1914. Mr.
Clerk, in turn, was succeeded as First Vice President by Vice President C. E.
Earhart, who has been with the Bank since 1917 and who has served as an
officer since 1920.
During the year the First Vice Presidents of two of the Federal Reserve Banks
resigned to accept positions with commercial banks. Mr. H . P. Preston resigned
as First Vice President of the Federal Reserve Bank of Chicago effective August
31, 1945, in order to accept the presidency of the Hamilton National Bank
of Knoxville, Tennessee. Mr. Preston had served as an officer of the Federal
Reserve Bank of Chicago since March 21, 1933, and as First Vice President since
March 1, 1936. H e was succeeded as First Vice President on October 25 by
Vice President and General Counsel Charles B. Dunn. Mr. Dunn had served
as General Counsel of the Federal Reserve Bank of Chicago since January
1, 1934. On February 26, 1942, he was appointed Vice President as well as
General Counsel.
Mr. Reuben B. Hays resigned as First Vice President of the Federal Reserve
Bank of Cleveland effective November 30, 1945, to become Executive Vice
President of the First National Bank of Cincinnati, Ohio. Mr. Hays had been
a member of the staff of the Federal Reserve Bank of Cleveland since July 10,
1934, an officer since February 16, 1935, and First Vice President since July 1,
1943. He was succeeded as First Vice President on December 1, 1945, by Vice
President W m . H . Fletcher. Mr. Fletcher has been a member of the Bank's
staff since February 1918 and an officer of the Bank since July 1923.
Staff. At the end of the year the total number of officers and employees of
the twelve Federal Reserve Banks and their twenty-four branches was 23,522,
having declined by 920 after the end of 1944. This was the second successive
year of decline following several years of successive increases due to the great expansion in the volume of operations accompanied by a high rate of turnover of
personnel during the war years. The total number of officers and employees
of the Reserve Banks and branches at the end of each year beginning with 1938
was as follows:
1938
1939
1940
1941

10,919
11,355
11,640
14,083

1942
1943
1944
1945

19,972
24,741
24,442
23,522

Effective November i, 1945, the officer in charge of the El Paso Branch of the
Federal Reserve Bank of Dallas was designated as a Vice President of the



44

ANNUAL REPOkT OF BOARD OF GOVlRNOkS

Reserve Bank. Effective January i, 1946, the officers in charge of the Little
Rock, Louisville, and Memphis Branches of the Federal Reserve Bank of St.
Louis were designated as Vice Presidents of the Reserve Bank and as Managers
of the respective Branches. With these changes twelve of the twenty-four
branches are now under the immediate direction of resident Vice Presidents of
their Reserve Banks.
BANK SUPERVISION BY THE FEDERAL RESERVE
The volume of banking activities continued to expand during 1945. With
the war effort a first consideration during the larger part of the year, Federal
Reserve authorities endeavored to pursue examination and supervisory practices
and policies which would further that effort in the banking field.
Examination of Federal Reserve Banks. The Board's Division of
Examinations examined the twelve Federal Reserve Banks and their twenty-four
branches during the year as required by law.
Examination of State member banks. State member banks are subject
to examinations made by direction of the Board of Governors or of the Federal
Reserve Banks by examiners selected or approved by the Board of Governors.
The established policy is to make at least one regular examination of each
State member bank, including its trust department, during each calendar year,
by examiners for the Reserve Bank of the district in which the bank is situated,
with additional examinations if considered desirable. Wherever practicable,
such examinations are made jointly in cooperation with State banking authorities
or, by agreement with State authorities, alternate examinations are made.
The program for the examination of State member banks in 1945 was substantially completed with the close cooperation of State authorities, notwithstanding difficulties of travel and turnover in examining personnel.
Wartime conditions in 1945 made it impracticable to hold the customary
conference of representatives of the bank examination departments of the twelve
Federal Reserve Banks and of the Board for discussion of examination practices
and procedures and formulation of supervisory policies and principles. However, the officers in charge of bank supervision at a number of the Reserve
Banks visited the Board's offices for discussions and it was possible also to hold
effective discussions between members of the Board's staff and representatives
of the Reserve Banks who attended the meeting in New Orleans in November
of the National Association of Supervisors of State banks.
Bank holding companies. During 1945 the Board acted upon applications
for voting permits submitted by holding company affiliates of banks and
authorized the issuance of six permits for general purposes and six permits for
limited purposes.
Section 301 of the Banking Act of 1935 provides that the term "holding
company affiliate" shall not include, except for the purposes of Section 23A
of the Federal Reserve Act, any organization which is determined by the
Board not to be engaged, directly or indirectly, as a business in holding the stock



FEDERAL RESERVE SYSTEM

45

of, or managing or controlling, banks, banking associations, savings banks, or
trust companies. During the year the Board made such determinations with
respect to four organizations.
Trust powers of national banks. Under the provisions of Section n ( k )
of the Federal Reserve Act, the Board granted to 17 national banks authority
to exercise one or more trust powers. This number includes the grant of
additional powers to 2 banks which previously had been granted certain trust
powers. Trust powers of 18 national banks were terminated, 11 by voluntary
liquidation or consolidation and 7 by voluntary surrender. At the end of 1945,
there were 1,788 national banks holding permits to exercise trust powers.
Increased acceptance powers. During the year the Board approved an
application of a national bank made pursuant to the provisions of Section 13
of the Federal Reserve Act for permission to accept drafts and bills of exchange
to an amount not exceeding at any one time, in the aggregate, 100 per cent
of its paid-up and unimpaired capital stock and surplus. No other applications
were received.
Foreign branches and banking corporations. The liberation of the
Philippines and the surrender of Japan during the year, with the consequent
release from Japanese domination of Far Eastern areas, made it possible for
American banking institutions to regain control of their branches situated
in that area. As soon as conditions permitted, the parent banks sent representatives to reopen their branches for such banking operations as were feasible, and
progress was made generally in this respect despite the many difficult problems
encountered. During the year, foreign branches of American banking institutions continued to perform an important function in facilitating import and
export movements of strategic and other needed materials and supplies and furnishing banking facilities to our armed forces.
The Board received and approved one application made pursuant to the
provisions of Section 25 of the Federal Reserve Act for permission to establish
a foreign branch. No new foreign branches of member banks were established
and no branches were closed during the year.
At the end of 1945, seven member banks were operating a total of 72 branches
in 20 foreign countries or dependencies or possessions of the United States. Of
the 72 branches, four national banks were operating 66 and three State member
banks were operating 6. The foreign branches were distributed geographically
as follows:
Latin America
Argentina.. . .
Brazil
Chile
Colombia
Cuba
Mexico
Panama
Peru
Uruguay
Venezuela
Continental Europe
Belgium
France



10
4
2
3
16
1
3
1
1
1
1
1

42

2

England
Far East
China
India
Hong Kong
Straits Settlements
U. S. Insular Possessions and Dependencies
Canal Zone
Philippines
Puerto Rico
Total

10
6

12

72

46

ANNUAL REPORT OF BOARD OF GOVERNORS

During the year, the Board approved one application made pursuant to the
provisions of Section 25 of the Federal Reserve Act relating to the investment
by member banks in stocks of corporations engaged principally in international
or foreign banking. The corporation entered into an agreement with the Board
as required by the provisions of the Section and, with the Board's approval,
established a branch in Paris during the year. Four other corporations organized
under State laws have been operating for some years under similar agreements.
Two of the four have no foreign branches, one operates a branch in England,
and one has an English fiduciary affiliate.
There is only one banking corporation in active operation organized under
the provisions of Section 2$(a) of the Federal Reserve Act to engage in international or foreign banking. Its head office was examined during the year by
the Board's Division of Examinations. The bank operates a branch in Paris,
France, and following the surrender of Japan, reopened its branches in Tientsin
and Shanghai, China, and in Hong Kong. It also operates a fiduciary affiliate
in England.
RESEARCH AND ADVISORY SERVICES
During 1945 the current research and reporting work of the Board continued
along the same lines as in other recent years, with emphasis on the study of
war and postwar adjustments. Special attention was given to matters relating
to Treasury finance, both because of the dominant importance of Government
receipts and expenditures in the economic picture and more particularly because
of their relation to System open market operations and to banking developments.
Business finance was also given careful consideration, from the point of view of
possible reconversion and postwar requirements. Membership of the Chairman
of the Board of Governors on the Economic Stabilization Board provided the opportunity for an exchange of views with other governmental departments and
agencies in the light of the responsibilities of the Federal Reserve System.
Labor and fiscal developments were carefully followed and interpreted, as
were conditions in agriculture and housing. Considerable work was done in
developing techniques for analyzing the composition of national income, for
making projections of income and employment under varying assumptions, and
for using these data in exploring the outlook for monetary and banking developments. Work was continued on the problems of measuring industrial production
and on the analysis of current business trends. The Reserve Banks and the Board
continued to collect and report data on department store sales and stocks. These
series provide one of the few sources of information that reflect promptly the
effect of reconversion in key metropolitan areas.
Semi-annual surveys of the ownership of demand deposits, the annual survey
of the financial condition of business, particularly small business, conducted in
cooperation with the Robert Morris Associates, and the current retail credit
survey continued to provide important information as to individual and business
holdings of liquid assets, as well as other significant financial data. Such data



FEDERAL RESERVE SYSTEM

47

are particularly useful at this time to the Reserve System, to various governmental organizations, and to many private organizations.
During the year the Board of Governors also sponsored exploratory surveys,
conducted by the Division of Program Surveys of the Bureau of Agricultural
Economics (Department of Agriculture), of liquid holdings of individuals
in Birmingham, Alabama, and Douglas County, Illinois. The results of these
surveys aroused so much interest and proved to be of such assistance, not only
to the Board and various Government agencies but also to other users of such
data, that arrangements were made to have a nation-wide survey on the same
subject conducted in the same manner early in 1946.
In the international field the Board's work expanded further in response to the
growing importance of international problems. During the winter and spring
there were many demands associated with congressional hearings and action on
the Bretton Woods proposals. Ratification of these proposals placed additional
responsibilities upon the Chairman of the Board of Governors as a member of
the National Advisory Council on International Monetary and Financial Problems. The Chairman also served on the Advisory Board of the Export-Import
Bank and as a member of the group of officials negotiating the British loan. As
a consequence the responsibilities of the Board's staff for supplying information
on foreign developments were increased.
On several studies of international matters members of the Board's staff
worked with members of the staffs of various Government departments at times
during the course of the year. Also during the year a special study on bank
financing of exports and bankers' attitudes on the desirability of export credit
insurance was made for a subcommittee of the Senate Small Business Committee.
On the request of various Governments and central banks, the Board contributed the services of members of its staff to help in the technical preparation
of new monetary and banking legislation in several Latin American countries.
As a result of such missions, far-reaching reforms were recently enacted in
Paraguay and Guatemala. Similar work is currently being carried out in other
countries, in collaboration with the Federal Reserve Bank of New York. In
some cases assistance has had to be postponed because of the limited staff
available for such missions. In the spring and summer the Board also lent
the services of a member of its staff for the purpose of assisting in the rehabilitation of the banking system of the Commonwealth of the Philippines.
Members of the Board's staff continued to serve on many interdepartmental
committees concerned with the development of economic information for the
use of governmental authorities, thereby bringing the System's point of view
to various officials and agencies and giving the Federal Reserve authorities a
better opportunity to be familiar with work done elsewhere. Members of the
staff also worked with members of the staff of a Senate Committee and of other
Government agencies in connection with the Full Employment bill and assisted
in the preparation of reports on other pressing subjects before Congress.



48

ANNUAL REPORT OF BOARD OF GOVERNORS

PUBLICATIONS AND RELEASES

There was a steadily increasing demand for the Board's publications and releases after the end of the war made it possible to discontinue the wartime restrictions on distribution. The monthly Federal Reserve Bulletin was issued for
the 31st year. Three Member Ban\ Call Reports were released during the year,
the complete Par List was issued in January and September followed by supplements in the other months, and in February a revised edition of Federal
Reserve Chart Boo\ I (Bank Credit, Money Rates, and Business) was published.
Other publications included State Ban\ Members of the Federal Reserve System
and Nonmember Ban\s that Maintain Clearing Accounts with Federal Reserve
Ban\s, issued in January with monthly supplements thereafter; The Retail Credit
Survey—1944 and Provisions of State Laws Relating to Ban\ Reserves, issued
in May.
Between August and December the Board published three of a special series
of eight pamphlets in which members of its staff analyzed various postwar
problems. It is anticipated that all the other pamphlets in the series will be
published in 1946.
BOARD OF GOVERNORS—STAFF AND EXPENDITURES

Staff. On December 31, 1945, the Board's staff, exclusive of those on military
leave or leave without pay, numbered 455, as compared with 448 at the end of
1944.
During the year 21 of the Board's permanent employees who had been on
military leave rejoined the staff after their discharge from military service; 48
of the 74 permanent employees who had entered military service were still
on military leave at the end of the year. Of the 25 employees who had resigned
their temporary appointments to enter military service, two were reemployed by
the Board during the year on their return to civilian life.
Lawrence Clayton, who had been Assistant to the Chairman of the Board
of Governors since December 1934, resigned in January 1945 to become head
of a securities company in Boston.
Elliott Thurston, who had been Special Assistant to the Chairman since May
1935, was appointed Assistant to the Chairman, effective February 1, 1945.
Dr. E. A. Goldenweiser, who had been a member of the Board's Division of
Research and Statistics since March 1919, and Director of the Division since
January 1927, was appointed to the newly created position of Economic Adviser
effective February 1, 1945. Dr. Goldenweiser retired as a member of the
Board's staff at the close of the year and became a member of the Institute for
Advanced Study at Princeton, New Jersey.
Dr. Goldenweiser was succeeded as Director of the Division of Research and
Statistics by Woodlief Thomas, who had been Assistant Director of the Division
since November 1934. For 13 years prior to that time Mr. Thomas had been
engaged in research work for the Federal Reserve System, serving at various



FEDERAL RESERVE SYSTEM

49

times with the Federal Reserve Bank of Philadelphia, the Federal Reserve Bank
of New York, and the Board.
Effective February i, 1945, Howard S. Ellis was appointed Assistant Director
of the Division of Research and Statistics. Mr. Ellis had been a member of
the Division since September 1943, on leave of absence as Professor of Economics
at the University of California.
J. P. Dreibelbis resigned as General Attorney effective March 15, 1945, to
become a Vice President of a trust company in New York. Mr. Dreibelbis joined
the staff of the Board in January 1936 as Assistant General Counsel and was
appointed General Attorney in August 1942.
Effective March 16, 1945, George B. Vest was appointed General Attorney
to succeed Mr. Dreibelbis. Mr. Vest has been a member of the Board's legal
staff since 1922. In May 1935 he was appointed Assistant General Counsel, in
which position he served until August 1942, when he was made Assistant General Attorney.
Effective March 1, 1945, J. Leonard Townsend was appointed by the Board
of Governors as Assistant General Attorney.
Effective July 1, 1945, Chester Morrill, who had been Secretary of the Board
since October 7, 1931, was appointed to the newly created position of Special
Adviser to the Board of Governors, in which capacity he is concerned with matters
of policy and procedure.
Effective as of the same date, S. R. Carpenter, who had been a member of the
staff since 1926 and Assistant Secretary of the Board of Governors since May 18,
1933, was appointed Secretary.
William B. Pollard resigned as Assistant Director of the Division of Examinations as of the close of the year in order to accept appointment as Vice President
of the Federal Reserve Bank of St. Louis with the designation of Manager of the
Memphis Branch. Mr. Pollard had been a member of the Board's Division of
Examinations since July 1933 and was made Assistant Chief of the Division on
July 1, 1942.
Effective January 1, 1946, O. E. Foulk retired as Fiscal Agent under the provisions of the Federal Reserve Retirement System. At the same time the
functions of his Office were transferred to the Board's Division of Administrative
Services.
Chandler Morse was appointed Assistant Director of the Board's Division of
Research and Statistics and assumed his new duties on January 2, 1946. Mr.
Morse had served for a number of years on the staff of the Research Department
of the Federal Reserve Bank of New York and with the Board's Division of
Research and Statistics which he left in 1941 to become associated with the
Office of Strategic Services.
During 1945 the Board's personnel continued to participate in the Pay Roll
Savings Plan for the purchase of War Savings Bonds. Deductions from salaries
for this purpose throughout the year averaged 14.6 per cent of gross pay roll.



5®

ANNUAL REPORT OF BOARD OF GOVERNORS

Expenditures. The current expenses of the Board for the year 1945 aggregated $2,071,745. Two assessments were levied on the Federal Reserve Banks,
representing about fifty-five hundredths of one per cent of their average paid-in
capital and surplus for the year, to cover the general expenses of the Board.
Details are shown in the following table:
RECEIPTS AND DISBURSEMENTS OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM FOR THE YEAR 1945
General fund account:
Balance January 1, 1945:
For general expenses of the Board
$223,035.31
For expenses chargeable to Federal Reserve
Banks
33,362.23
For purchase of United States Savings Bonds
for employees under Board's Voluntary Pay
Roll Savings Plan
7,735.30
For income tax withholdings due Collector of
Internal Revenue
58,304.80 $ 322,437.64
RECEIPTS
For general expenses of the Board:
Assessments on Federal Reserve Banks for estimated
general expenses of the Board
$2,340,509.55
Subscriptions to the Federal Reserve Bulletin
7,115.58
Other publications, sales
3,261.99
Reimbursements for leased wire service
53,668.24
Cafeteria operations
66,324.38
Miscellaneous receipts, refunds, and reimbursements.
15 ,034.24 2,485 ,913.98
For expenses chargeable to Federal Reserve Banks:
Assessments on Federal Reserve Banks for:
Cost of printing Federal Reserve notes
3,231,159. 75
Expenses of leased wire system (telegraph)
61,171.16
Expenses of leased telephone lines
10,300.75
Expenses of Federal Reserve Issue and Redemption Division (Office of the Comptroller of the
Currency)
45 ,744.28
Miscellaneous expenses
5,848.92 3,354,224.86
Employees' pay roll allotments for purchase of United
States Savings Bonds
230,598.20
Income tax withheld from salaries
255,982.43
Total receipts
Total available for disbursement

6,326,719.47
6,649,157.11

DISBURSEMENTS

For expenses of the Board:
Current expenses of 1945 (per detailed statement)
$2,071,744.64
Less accounts unpaid December 31,
1945
145,801.17

1,925,943.47

Expenses of prior years paid in 1945
57,425.50
Expenses of leased wire service, reimbursable
53,205.27
Cafeteria operations
61,591.49
Miscellaneous refunds and items reimbursable
7,809.99 2,105,975. 72
For expenses chargeable to Federal Reserve Banks:
Cost of printing Federal Reserve notes
3,002,148.45
Expenses of leased wire system (telegraph)
61,856.12
Expenses of leased telephone lines
9,000.75
Expenses of Federal Reserve Issue and Redemption
Division (Office of the Comptroller of the Currency)
45,744.28
Miscellaneous expenses
2,595.25 3,121,344.85
Purchase of United States Savings Bonds and refunds under Board's pay roll plan
227,904.75
Collector of Internal Revenue—income tax withheld from
salaries
253,762.13

Total disbursements
Balance in general fund account December 31, 1945:
For general expenses of the Board
For expenses chargeable to Federal Reserve Banks
For purchase of United States Savings Bonds for em- - --Pay ~ " ~ *
ployees under Board's- VoluntaryT Pay Roll Savings
Plan
For income tax withholdings due Collector of Internal
Revenue




.777777777777 5, 708,987.45
602,973.57
266,242.24
10,428.75
60,525.10
$ 940,169.66

FEDERAL RESERVE SYSTEM

51

RECEIPTS AND DISBURSEMENTS—Continued
CURRENT EXPENSES

Personal services:
Salaries
Retirement contributions

$1,620,453.27
124,640.39

Total personal services
Nonpersonal services:
Traveling expenses
Postage and expressage
Telephone and telegraph
Printing and binding
Stationery and supplies
Furniture and equipment
Books and subscriptions
Heat, light, and power
Repairs and alterations (building and grounds)
Repairs and maintenance (furniture and equipment)
Medical service and supplies
Insurance
Cafeteria operations
Liquid assets survey
Legal fees and expenses
Miscellaneous

$1,745,093.66
99,328.38
16,806.62
47,988.85
66,853.11
14,322.92
5,503. 70
7,449.61
24,710.77
2,703.89
3,165.12
839.94
4,050.34
14,363.84
7,500.00
2,527.98
8,535.91

Total nonpersonal services

$ 326,650.98

GRAND TOTAL

$2,071,744.64

Under an arrangement with the Federal Reserve Bank of Richmond, the
accounts of the Board for the year 1945 were audited by the Auditor of the Bank,
who certified them to be correct.
FEDERAL RESERVE MEETINGS
The Federal Open Market Committee met in Washington on February 28,
March 1, June 20, and October 17, 1945, and the executive committee of the
full committee met from time to time during the year. Under the provisions of
Section 12A of the Federal Reserve Act, the Federal Open Market Committee
has responsibility for determining the policies under which the open market
operations of the Federal Reserve Banks shall be carried out. A record of the
actions taken by the Committee on questions of policy will be found on pages
90-93 of this report.
A Conference of the Chairmen of the Federal Reserve Banks was held on
October 29 and 30, 1945, and was attended by the members of the Board of
Governors.
The Conference of Presidents of the Federal Reserve Banks held meetings
on February 26-27, June 18-19, a n ( ^ October 15-16, 1945, and the Board of
Governors met with the Presidents on February 28, March 1-2, June 21, and
October 18, 1945.
Meetings of the Federal Advisory Council were held on February 18-19, May
13-14, September 16-17, anc ^ November 18-19, 1945, and the executive committee of the Council met on June 13 and October 3, 1945. The Board of
Governors met with the Council or its executive committee on each of these
occasions. 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.
During the year several conferences, attended by representatives of the Federal



52

ANNUAL REPORT OF BOARD OF GOVERNORS

Reserve Banks and the Board of Governors, were held to discuss monetary and
credit developments, international monetary relationships, personnel administration, bank operations, services to member banks, and other System problems.
LEGISLATION AND REPORTS TO CONGRESS
Currency and reserves of Federal Reserve Banks. By an Act of
Congress approved June 12, 1945, the reserve requirements of Federal Reserve
Banks were reduced to a uniform amount of 25 per cent in gold certificates against
Federal Reserve notes and an equal amount against deposit liabilities. The Act
also extended indefinitely the authority for the use of direct obligations of the
United States as collateral security for Federal Reserve notes and terminated the
authority of the Federal Reserve Banks to issue Federal Reserve Bank notes.
In addition, the authority of the President and the Secretary of the Treasury
with respect to the issuance of United States notes under the Thomas Amendment of May 12, 1933 was terminated.
Bretton Woods Agreements Act; National Advisory Council on
International Monetary and Financial Problems. The "Bretton Woods
Agreements Act," approved July 31, 1945, provided for the participation of the
United States in the International Monetary Fund and the International Bank
for Reconstruction and Development. Among other things, it made provision
for Federal Reserve Banks to act as depository or fiscal agent for the Fund
or the Bank under the supervision of the Board of Governors of the Federal
Reserve System.
The Act established the National Advisory Council on International Monetary
and Financial Problems consisting of the Secretary of the Treasury as Chairman,
the Secretary of State, the Secretary of Commerce, the Chairman of the Board
of Governors of the Federal Reserve System, and the Chairman of the Board
of Trustees of the Export-Import Bank of Washington. The Act placed important
responsibilities on the Council and specifically provided that it "shall coordinate,
by consultation or otherwise, so far as is practicable, the policies and operations
of the representatives of the United States on the Fund and the Bank, the ExportImport Bank of Washington and all other agencies of the Government to the
extent that they make or participate in the making of foreign loans or engage
in foreign financial, exchange or monetary transactions."
Advisory Board of Export-Import Bank of Washington. The "Export-Import Bank Act of 1945," approved July 31, 1945, increased the bank's
lending authority and made certain other changes. Among other things, it
provided for an Advisory Board consisting of the Chairman of the Export-Import
Bank, who shall serve as Chairman, the Secretary of State, the Secretary of
the Treasury, the Secretary of Commerce, and the Chairman of the Board of
Governors of the Federal Reserve System. The Advisory Board may make such
recommendations to the Board of Directors of the Bank as it deems advisable, and
the Board of Directors shall consult the Advisory Board on major questions of
policy.



FEDERAL RESERVE SYSTEM

53

Purchase of Government obligations directly from the United
States. By an Act of Congress approved December 28, 1945, the period during
which the Federal Reserve Banks can purchase obligations of the United States
directly from the United States was extended until June 30, 1946, unless sooner
terminated by Congress or the President. The total amount of securities that
can be purchased under this provision continues to be limited to 5 billion dollars
held at any one time.
Veterans' guaranteed loans. Certain limitations contained in Section 24
of the Federal Reserve Act upon real estate loans by national banks, were, in
effect, set aside by the Act of December 28, 1945, in so far as they relate to
loans to veterans guaranteed under the Servicemen's Readjustment Act of 1944.
Reports to Congress. On several occasions during the year, members of
the Board were called upon to appear before committees of Congress to give
information on proposed legislation. At the request of such committees, and of
the Bureau of the Budget, the Board submitted reports on proposed legislation
relating to currency and reserves of Federal Reserve Banks, the Bretton Woods
Agreements, the Export-Import Bank of Washington, the promotion of maximum
employment and production, Government reorganization, increase in the limit
on the Federal debt, credit for small business, amendments to the Clayton AntiTrust Act, loans to veterans, various aspects of the Federal Home Loan Bank
System, revaluation of gold, certain suits against national banks, authorization
to carry Government obligations at par, and certain types of real estate loans.
Pre-1945 legislation during defense and war period. Although existing law provided much of the necessary authority, the System's vital part in the
defense and war efforts was also reflected in legislation passed during this period.
Acts of May 7, 1940 and December 18, 1941 made certain technical and clarifying amendments to Section 5(b) of the Act of October 6, 1917, known as the
Trading With the Enemy Act, and confirmed actions taken under the provision.
This section, under which the Presidential Proclamation of a "Bank Holiday"
had been issued in 1933, was the basis for Presidential Executive Orders by which,
beginning in 1940, transactions in funds or other property of invaded countries
were subjected to licensing by the Secretary of the Treasury. Reports as to
such funds or property, as well as applications for licenses, were required to be
filed with the Federal Reserve Banks.
It was under the same provision of the Trading With the Enemy Act that
the President, by Executive Order No. 8843 on August 9, 1941, authorized and
directed the Board of Governors to exercise a measure of control over consumer
credit during the emergency arising out of World War II.
The growing need for defense housing led to the enactment of special legislation for insuring defense housing mortgages. An Act of March 28, 1941 exempted
such insured mortgages from the limitations in Section 24 of the Federal Reserve
Act on the amounts and maturities of real estate loans by national banks.
Uncertainties regarding the ownership of funds of the invaded countries led
to the passage of the Act of April 7, 1941, providing a procedure whereby Reserve



54

ANNUAL REPORT OF BOARD OF GOVERNORS

Banks and insured banks may safely make payments of amounts due to
foreign governments or central banks in such cases. The Act also clarified
the authority of Reserve Banks to maintain banking accounts for foreign banks
and governments without having to establish reciprocal accounts with them.
In connection with the existing provisions of law relating to the System's
important functions in endeavoring to promote stability in the Government
securities market, there were two amendments, largely procedural in character.
The first, contained in the "Second War Powers Act of 1942" approved March 27,
1942, authorized the Reserve Banks to purchase United States obligations directly
from the United States. The total amount so purchased was limited to 5 billion
dollars held at any one time. The authority for such direct purchases was limited
to December 31, 1944, unless terminated earlier by Congress or the President.
An Act approved December 20, 1944 extended this date to December 31, 1945,
and as indicated previously, an Act of December 28, 1945, extended it to June 30,
1946.
The second amendment on the subject was contained in the Act of July
7, 1942. This regrouped the Federal Reserve Banks for the purpose of electing
the Reserve Bank representatives on the Federal Open Market Committee, which
is composed of the members of the Board of Governors and five representatives
of the Federal Reserve Banks. The regrouping provided continuous representation on the Committee for the Federal Reserve Bank of New York, which is
located in the principal capital market and acts as the agent for the Committee
in the operation of the System's open market account. The tremendous financial
operations of the war required certain changes in the reserve requirements of
member banks, but these were largely adjustments rather than fundamental
alterations. The Act of July 7, 1942 authorized the Board of Governors to
change reserve requirements of member banks in central reserve cities, within
existing limitations, without necessarily changing the requirements for reserve
cities. It also repealed the prohibition against member banks making new loans
or paying dividends while their reserves are deficient. The Act of April 13,
1943 provided that, until six months after the cessation of hostilities as declared
by Congress or the President, "war loan deposit accounts" (deposits payable to
the United States arising solely as a result of subscriptions for United States
securities) should be exempt from the reserve requirements applicable to member
banks. It also exempted such deposits in insured banks from deposit insurance
assessments during the same period. The Act of June 11, 1942 permitted the
Secretary of the Treasury to appoint any insured banks as depositaries of public
moneys, in efTect repealing the requirement that only member banks could
be such depositaries.
It was, of course, essential throughout this period that the Reserve Banks
continue to have authority to use United States obligations as collateral for
Federal Reserve notes. This authority had originally been enacted on February
27, 1932, to last until March 3, 1933. It was repeatedly extended for short periods,



FEDERAL RESERVE SYSTEM

55

including extensions in 1941 and 1943. As previously indicated, it was finally
made permanent by the Act of June 12, 1945.
Under the Presidential Executive Order No. 9112 of March 26, 1942, and
Acts approved October 9, 1940 (Assignment of Claims Act of 1940), June u ,
1942, and July 1, 1944 (Contract Settlement Act of 1944), the System provided
valuable assistance to individual war contractors, particularly small contractors, in
obtaining financing from banks. The Reserve Banks, under the general supervision of the Board of Governors, acted as Fiscal Agents for the War and Navy
Departments and Maritime Commission in guaranteeing loans made by financing
institutions to war contractors. As indicated in the references to Regulation V
under the discussion of changes in the Board's regulations, this financing covered
both production and contract termination claims—so-called "V" loans, "VT"
loans, 1944 "V" loans, and "T" loans.

CHANGES IN REGULATIONS OF THE BOARD OF GOVERNORS
Foreign banking corporations. Effective February 2, 1945, the Board
amended the second paragraph of Section XV of Regulation K, which relates to
"Banking Corporations Authorized to do Foreign Banking Business under the
Terms of Section 25(a) of the Federal Reserve Act," commonly known as Edge
Act Corporations, so as to provide that with the permission of the Board the
limitation placed on the aggregate liabilities of such a corporation may be exceeded.
Consumer credit. Effective February 5, 1945, the Board amended Regulation W relating to consumer credit so that the existing exemption of veterans'
loans that are guaranteed by the Veterans Administration would also apply to
veterans' loans guaranteed by similar State agencies.
Effective June 11, 1945, Regulation W was amended in several respects. The
changes were chiefly of a technical and administrative nature relating to repairs
or improvements of residential property, the so-called "summer plans" for
specified home improvement items, and the exemption for certain "disaster
credits."
Effective July 27, 1945, certain technical and administrative changes were made
in the exemptions relating to credits for aircraft, agricultural loans, and railroad
watches.
Effective October 15, 1945, the regulation was amended to exempt credits
for home repairs and improvements and to lengthen from 12 months to 18
the maturity limitation on loans which are not for the purpose of purchasing
consumers' durable goods.
Effective December 1, 1945, another amendment was adopted which was
primarily of the nature of a technical or clarifying supplement to the preceding
amendment. It permits outstanding obligations to be renewed or revised so as
to obtain the benefit of any increase in maximum maturity authorized by any
changes in the regulation made since the obligation arose. It also permits an 18
months' maturity for consolidated obligations if none of the additional credit



$6

ANNUAL REPORT OF BOARD OF GOVERNORS

is to be used to purchase consumers' durable goods. In addition, the amendment restored to the regulation provisions effective prior to May 1942, which
relieve an automobile salesman from having to meet the standard requirements
when he buys a car to be used as a demonstrator.
Margin requirements for purchasing securities. On two occasions in
1945, the Board amended Regulation T entitled "Extension and Maintenance
of Credit by Brokers, Dealers, and Members of National Securities Exchanges/'
and Regulation U, entitled "Loans by Banks for the Purpose of Purchasing or
Carrying Stocks Registered on a National Securities Exchange." The first amendments, effective February 5, 1945, increased the 40 per cent margin requirements
for purchasing registered securities to 50 per cent, the figure already applicable
to short sales.
Effective July 5, 1945, these regulations were further amended to increase the
margin requirements to 75 per cent for purchases of registered securities. The
increased margins also applied to short sales. At the same time provisions were
adopted, to become effective July 16, 1945, making certain changes in the regulations to simplify and strengthen the supporting rules. The new provisions required that the proceeds of sales of securities in accounts that are undermargined
under the new requirements shall be used to the extent necessary to increase the
margin on the remaining securities in the account until they are up to the new
requirements. Except to this extent, neither regulation required that existing
accounts or loans be brought up to the level of the new requirements. As in
the past, neither regulation applied to loans for purposes other than purchasing,
carrying, or trading in securities.
Effective January 21, 1946, Regulations T and U were amended to increase
margin requirements to 100 per cent for both purchases of registered securities
and short sales. The rules that became effective in July 1945 continued to require
that the proceeds of liquidations be used to bring undermargined accounts up
to the level required for new commitments.
Reserves of member banks. Effective August 1, 1945, the Board amended
Section i{d) of Regulation D relating to reserves of member banks, so as to
provide that a member bank with its head office or any branch office located in
a central reserve city shall be considered to be in a central reserve city for reserve
purposes and a member bank with any office in a reserve city but no office in a
central reserve city shall be considered to be in a reserve city. However, a member
bank considered to be in a central reserve or reserve city solely by reason of the
location of an office in an outlying district of such a city may obtain permission,
upon the affirmative vote of Rve members of the Board of Governors, to carry
lower reserve balances.
Common trust funds. Effective September 1, 1945, the Board amended
Section 17 of Regulation F entitled "Trust Powers of National Banks" so as
to increase from $25,000 to $50,000 the amount of the funds of any one trust
which may be invested in a common trust fund. At the same time, the Board
adopted other amendments to the common trust fund provisions of the regu


FEDERAL RESERVE SYSTEM

57

lation to provide restrictions on a bank's advertising of such funds and to make
certain other minor changes, principally of a clarifying nature. Corresponding
changes also were made in the provisions relating to mortgage investment funds.
Pre-1945 changes in Board's regulations during defense and war
period. Changes in the Board's regulations reflected chiefly changes in underlying statutes. Two new regulations, Regulation W, relating to consumer credit,
and Regulation V, relating to the financing of war production and war contract
termination, grew out of Presidential Executive Orders.
Regulation W was originally issued on August 21, 1941, to become effective
September 1, 1941. It then applied only to instalment sales and instalment loans,
and covered a fairly limited list of consumer durable goods. Amendments
effective March 23 and May 6, 1942, brought charge accounts and single-payment loans under the regulation, broadened the list of articles to include almost
all kinds of consumer durable and semi-durable goods, and also further restricted
the credit terms available under the regulation.
There were a number of other amendments to Regulation W. Some were for
the purpose of improving its practical working; but until the relaxations mentioned above in 1945, most of the changes were made to support various phases
of the war program sponsored by other branches of the Government.
Regulation V was issued effective April 6, 1942, pursuant to the President's
Executive Order No. 9112 of March 26, 1942. The regulation provided the
general framework for a highly successful war program under which the Federal Reserve Banks, under the supervision of the Board of Governors, acted as
agents for the War and Navy Departments and the Maritime Commission in
guaranteeing loans made by banks for the purpose of financing war production
contractors. Within this general V loan framework, and without amendment
to the regulation, the program was extended in September 1943 to include socalled VT loans which provided contractors with protection against termination
of their war contracts, as well as funds for current production. After the enactment of the Contract Settlement Act of 1944, the regulation was amended, effective
September 11, 1944, to cover the making of T loan guarantees for the purpose
of financing contractors after cancellation of their contracts.
Effective April 30, 1942, the Board of Governors made certain clarifying and
technical changes in Regulation S, relating to loans by Federal Reserve Banks to
commerce and industry under Section 13b of the Federal Reserve Act, in order
further to facilitate Federal Reserve participation in the financing of war production.
Effective March 20, 1942, Regulation A, relating to discounts for and advances
to member banks by Federal Reserve Banks, was amended to clarify the authority
of Reserve Banks to make 90-day advances to member banks on the security
of direct obligations of the United States. Effective September 18, 1942, the
regulation was amended so that paper guaranteed pursuant to Executive Order
No. 9112 need not be negotiable in order to be eligible for discount by a Federal
Reserve Bank. Effective September 11, 1944, t n e r e was a further amendment to



58

ANNUAL REPORT OF BOARD OF GOVERNORS

apply the same rule to paper guaranteed pursuant to the Contract Settlement
Act of 1944.
Regulation D, relating to reserve requirements of member banks, was amended
a number of times in 1942. This was to conform to changes in the law and also
to release reserves to banks in central reserve cities by reducing requirements on
their demand deposits in three steps from 26 per cent to 20 per cent. All member
banks in central reserve and reserve cities were given permission to average their
required reserves over a weekly period. Previously reserves of banks in Federal
Reserve Bank and branch cities, and in three other nearby cities, were averaged
over semi-weekly periods. The regulation was amended in 1943 to conform to
the statutory changes exempting war loan deposit accounts from reserve requirements.
LITIGATION

Injunction under Regulation W. A decree restraining Consumers Home
Equipment Co. and A. B. Chereton, its President, from violations of Regulation
W of the Board of Governors of the Federal Reserve System was entered on July
19, 1945, in the District Court of the United States for the Eastern District of
Michigan, Southern Division.
The Consumers Home Equipment organization, which has its head office
at Detroit, Michigan, and offices in Illinois, Indiana, Kentucky, Michigan, New
York, Ohio, and Pennsylvania, and affiliates with offices in Maine, Massachusetts,
New Hampshire, Rhode Island, and West Virginia, is engaged in the houseto-house sale of household merchandise on an instalment basis. The company
was charged with violating the regulation in a number of instances by making
sales without obtaining the down payment required, by failing to furnish statements of transactions to customers, and by not only failing to maintain records
but attempting to conceal violations by manipulation and alteration of its records.
The effect of the decree, to which the defendants consented, is to render the
defendants liable for punishment for contempt of court in the event they are
found in the future to have violated the regulation in any of the respects described
in the decree.
The text of the decree appears in the Appendix at page 94.
Suit regarding condition of membership. In 1944 the Peoples Bank,
Lakewood Village, California, brought suit in the District Court of the United
States for the Northern District of California against the Federal Reserve Bank
of San Francisco, the Board of Governors of the Federal Reserve System, and the
Federal Reserve Agent at San Francisco. The complaint alleged that a condition of membership which had been prescribed when the Peoples Bank became
a member of the Federal Reserve System was unauthorized by law and asked
for a declaratory judgment and for an injunction restraining the defendants from
enforcing the condition. Defendants filed separate motions to dismiss the suit.
The District Court in an opinion rendered November 17, 1944, and set out
in the Appendix at pages 95-101, granted these motions of the defendants.
An appeal to the United States Circuit Court of Appeals for the Ninth Circuit



FEDERAL RESERVE SYSTEM

59

was taken by the plaintiff as to the Federal Reserve Bank and the Federal Reserve
Agent, and a cross appeal was taken by the Federal Reserve Bank.
On June 29, 1945, the Circuit Court of Appeals rendered a decision dismissing
the appeals. The opinion of the Court appears in the Appendix at pages 102-103.
On December 24, 1945, the Peoples Bank filed suit in the District Court of the
United States for the District of Columbia against the individual members of
the Board of Governors. The allegations and requested relief were similar to
those in the California litigation.
Suit regarding removal of bank directors. On April 30, 1945, suit was
filed in the District Court of the United States for the District of Columbia by
John Agnew and F. O. Fayerweather against the Board of Governors of the
Federal Reserve System and the individual members thereof to review an order
of the Board issued pursuant to authority conferred by Section 30 of the Banking
Act of 1933, removing plaintiffs as directors of a national bank in Paterson, New
Jersey. The removal order was predicated upon a finding that plaintiffs had
violated Section 32 of the Banking Act of 1933, which prohibits any officer,
director or employee of any company, partnership or individual primarily engaged
in the business of underwriting securities from serving at the same time as an
officer, director or employee of any member bank of the Federal Reserve System.
Plaintiffs contended in effect that the use of the words "primarily engaged" in
Section 32 limited its application to cases in which the underwriting business
of the securities company is first in volume as compared with other businesses
in which it is engaged and that, since this was not true of the securities company
of which they were employees, the statute was not applicable to them.
Motions were filed by the defendants challenging the jurisdiction of the
court to entertain proceedings to review the Board's order in this case and also
challenging plaintiffs' interpretation of the law as set forth above. The motions
were granted by the District Court and the suit dismissed.
The plaintiffs appealed the case to the United States Court of Appeals for the
District of Columbia. On February 13, 1946, the Court, speaking through Justice
Prettyman, rendered an opinion reversing the District Court. Justice Edgerton
dissented. The opinion of the Court appears in the Appendix at pages 104-114
followed by the dissenting opinion at pages 114-116.
On April 29, 1946, the Supreme Court of the United States granted a petition
for a writ of certiorari to review the decision of the Court of Appeals.







TABLES

62

ANNUAL REPORT OF BOARD OF GOVERNORS

NO. I—STATEMENT OF CONDITION OF THE FEDERAL RESERVE BANKS (IN DETAIL)
DECEMBER 31, 1945 i

ASSETS
Amounts in boldface type are those shown in the Board's weekly statement.
Interdistrict settlement fund
5,529,121
Gold certificates on hand
1,010,444
Gold certificates with Federal Reserve Agent
10,523,000

In thousands of dollars.]

Gold certificates on hand and due from U. S. Treasury
Redemption fund for Federal Reserve notes

17,062,565
800,359

Total gold certificate reserves
Other cash:
United States notes
Silver certificates
Standard silver dollars
National and Federal Reserve Bank notes
Subsidiary silver, nickels, and cents

17,862,924
27 ,984
179,245
1,789
8,092
19,205

Total other cash
Discounts and advances secured by U. S. Government securities:
Discounted for member banks
Discounted for individuals, etc

236,315
201,865
40
201,905

Other discounts and advances:
Discounted for member banks
Foreign loans on gold

47,000

Total discounts and advances
Industrial loans
U. S. Govt. securities in system open market account:
Bills
Certificates
Notes
Bonds
U. S. securities—repurchase option (Treasury bills)

47,000
248,905
1,941

7,979,322
8,364,461
2,119,650
946,892
4,851,923

Total U. S. Government securities

24,262,248

Total loans and securities
Due from foreign banks
Federal Reserve notes of other Federal Reserve Banks
Uncollected items:
Transit items
Exchanges for clearing house
Other cash items

24,513,094
110
153,226
1,851,986
238,207
107, 739

Total uncollected items
Bank premises:
Land
Buildings (including vaults)
Fixed machinery and equipment

2,197,932
12,787
44,399
17 ,039

Total bank premises
Less depreciation

74,225
40,843

Bank premises, net
Other assets:
Industrial loans past due
Miscellaneous assets acquired account industrial loans
Miscellaneous assets acquired account closed banks
Total
Less valuation allowances

33,382
54
707
183
944
812

Net
Federal Deposit Insurance Corporation stock 2
Fiscal Agency and other expenses, reimbursable
Interest accrued
Premium on securities
Deferred charges
Sundry items receivable
Real estate acquired for banking house purposes
Suspense account
All other

132
9,572
34,876
13,613
871
4,178
1,655
766
217

Total other assets

65,880

Total assets
* Before closing books at end of year.




45,062,863
5

Charged off.

See footnote 4, Table 7.

FEDERAL RESERVE SYSTEM

63

NO. 1—STATEMENT OF CONDITION OF THE FEDERAL RESERVE BANKS (IN DETAIL)
—Continued

LIABILITIES
Federal Reserve notes outstanding (issued to Federal Reserve Banks)
25,633,380
Less: Held by issuing Federal Reserve Banks
770,075
Forwarded for redemption
214,173
984,248
Federal Reserve notes, net (includes notes held by Treasury and by Federal Reserve Banks other than issuing Bank)
24,649,132
Deposits:
Member bank—reserve account
15,914,099
U. S. Treasurer—general account
976,516
Foreign
862,320
Other Deposits:
Nonmember bank—clearing accounts
128,853
Officers' and certified checks
8,336
Federal Reserve exchange drafts
647
All other
307,736
Total other deposits
Total deposits
Deferred availability items
Other liabilities:
Accrued dividends unpaid
Unearned discount
Discount on securities
Sundry items payable
Suspense account
All other liabilities

445,572
18,198,507
1,619,770
849
113
5 ,849
1,027
76
138

Total other liabilities
Total liabilities

8,052
44,475,461

CAPITAL ACCOUNTS
Capital paid in
Surplus (Sec. 7)
Surplus (Sec. 13b)
Other capital accounts:
Reserves for contingencies:
Reserve for registered mail losses
All other
Earnings and expenses:
Current earnings
Current expenses
Current net earnings
Add—profit and loss
Deduct—dividends accrued since Jan. 1. ...
Net earnings available for charge-offs, reserves, and surplus
Total other capital accounts
Total liabilities and capital accounts




177,095
238,319
27,164
5 ,720
53,684
142,209
48,717
93 ,492
2 ,110
10 ,182
85,420
144,824
45,062,863

NO. 2—STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK AT END OF 1944 AND 1945
[In thousands of dollarsl
Boston

Total

Item
1945

1944

New York

Philadelphia

1945

1944

ASSETS
Gold certificates
17,062,565 17,850,365
Redemption fund—Federal Reserve notes
594,126
800,359

747,953

878,238 4,908,821 5,149,403

878,051

124,283

61,134

Total gold certificate reserves
17,862,924 18,444,491
Other cash
236,315
242,189

807,142
18,536

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

201,905
47,000

79,825

Total discounts and advances
Industrial loans

248,905
1,941
12,831,245
8,364,461
2,119,650
946,892

IT. S. Government securities:
Bills
Certificates
Notes
Bonds

59,189

1944

1945

1944

1945

1944

1945

1944

1945

890,388
38,521

919,167 5,033,104 5,256,134 939,185 988,028 1,148,163 1,372,513 1,102,193 954,479 1,068,280
17,980
36,867
57,125
18,487
15,779
25,352
15,577
17,816
15,768
19,184

928,909
19,481

245

79,825
3,751

4,209
110

245
201

11,147,918
4,886,640
1,568,221
1,243,426

718,776
583,354
147,829

42,799

49,204

2,749
53

650
126

1,645

308

787,511 1,129,195 1,258,178
295,001 802,373 284,067
94,670 203,332
91,164
75,063
90,833
72,283

675,894
513,908
130,229
58,176

255,244
81,913
64,948

764,847

634,373

77,775
12

4,386
1,763

505
2,570

832,508 3,052,191 2,259,370
233,390 2,098,442 1,622,723
531,769
520,764
74,900
237,552
59,387
412,908

760,805
621,726
157,554
70,383

214,344

60,083

650

505

77.775

57,694

775
1,974

250
4,136

197,330
17,014

78,031

450
4,089
4,539

1,645

420,812
106,637
47,637

Total U. S. Government
securities (including
guaranteed securities).. 24,262,248 18,846,205 1,515,997 1,200,185 5,919,954 4,815,765 1,610,468 1,252,245 2,225,733 1,705,692 1,378,207 1,166,952 1,209,459
Total loans and securities. 24,513,094 18,929,781 1,520,316 1,200,631 6,134,298 4,893,552 1,616,617 1,255,320 2,230,272 1,706,000 1,381,009 1,167,728 1,211,104
149
Due from foreign banks
136
110
10
10
12
10
12
Federal Reserve notes of other
17,675
17,759
Federal Reserve Banks
4,463
12,545
112,514
10,539
4,042
29,092
153,226
10,569
6,072
3,303
7,298
420,234 569,682 139,850 153,977 217,034 272,593 192,767 201,593 150,104
Uncollected items
2,197,932 2,448,145 160,798 184,062
8,674
Bank premises
1,352
8,894
1,568
2,852
3,457
2,769
4,101
3,989
34,278
33,382
1,610
3,313
15,382
4,650
16,460
Other assets
3,699
2,916
3,278
3,955i
4,042
6,349
57,077
65,915
3,002
4,353
Total assets

1

714,028
171,197
54,940
43,561

983,726
983,747
12,160
119,603
1,611
2,471

45,062,898 40,268,611 2,517,264 2,329,765 11,666,274 10,819,655 2,726,203 2,425,930 3,632,154 3,384,517 2,730,277 2,355,892 2,472,656 2,067,986

After deducting $70,000 participations of other Federal Reserve Banks on Dec. 31, 1945, and $87,000 on Dec. 31, 1944.




1944

45,950

106,731

945,229 1,070,132 1,314,819 1,042,110

Atlanta

905,275 1,022,330

40,929

1,060
3,149

66,038

1945

Richmond

Cleveland

LIABILITIES
Federal Reserve notes in actual
circulation l
24,649,132 21,731,01 1,478,972 1,366,544 5,407,924 4,851,017 1,635,243 1,427,509 2,096,342 1,893,593 1,738,344 1,487,766 1,483,961 1,276,563
Deposits:
Member bank—reserve account
15,914,950 14,372,899
U. S. Treasurer—general ac976,668
count
440,487
862,320 1,203,703
Foreign
445,572
393,881
Other deposits
18,199,510 16,410,970
Total deposits
1,619,770 1,633,226
Deferred availability items
Other liabilities including ac7,66;
crued dividends
7,071
Total liabilities
CAPITAL ACCOUNTS
Capital paid in
Surplus (Sec. 7)
Surplus (Sec. lib)
Other capital accounts

709,430
89,027
56,168
4,379
859,004
140,710
406

677,659 4,855,437 4,554,844
31,269
293,764
83,042 2 337,584
343,765
4,730

799,634

175,050
2
466,212
287,547

59,678
72,195
4,308

796,700 5,830,550 5,483,653
236,189
133,586
319,639

935,815
106,130

1,139

500

763

1,413

710,778 1,156,889 1,128,014

727,247

636,754

762,425

628,914

84,773
71,375
9,671

42,299
34,457
3,758

23,385
46,241
2,324

53,726
28,714
4,087

9,566
36,992
2,850

850,431 1,322,708 I, 284,578 807,761
105,809 157,950 160,573 155,713

708,704
136,942

848,952
115,889

678,322
94,140

396

322

373

28,722
106,353
4,578

614

46,017
102,885
7,662

827

338

44,476,073 39,782,284 2,479,092 2,297,593 11,476,076 10,655,448 2,677,688 2,384,363 3,577,790 3,339,571 2,702,156 2,333,808 2,449,124 2,049,398

177,095
358,355
27,428
23,947

162,531
228,153
27,165
68,478

10,635
22,439
3,012
2,086

10,053
15,239
2,880
4,000

63,630
116,860
7,205
2,503

59,281
84,903
7,143
12,880

13,064
28,946
4,501
2,004

12,227
19,872
4,468
5,000

17,654
33,745
1,007
1,958

16,339
19,071
1,007
8,529

7,177
15,593
3,326
2,025

6,517
7,813
3.29C
4,464

6,354
14,450
762
1,966

5,851
7,936
762
4,039

Total liabilities and capital accounts
45,062,898 40,268,611 2,517,264 2,329,765 11,666,274 10,819,655 2,726,203 2,425,930 3,632,154 3,384,517 2,730,277 2,355,892 2,472,656 2,067,986
Commitments to make industrial
164
415
loans
703
3,048
300
50
200
1,644
4,165
FEDERAL RESERVE NOTE
STATEMENT
Federal Reserve notes:
Issued to Federal Reserve
Bank by Federal Reserve
25,633,380 22,507,705 1,539,012 1,414,389 5,555,137 5,020,538 1,699,231 1,472,713 2,183,181 1,958,442 1,799,845 [,536,494 1,566,911 1,335,337
Agent
Held by Federal Reserve
776,688
47,845
147,213
169,521
45,204
48,728
984,248
86,839
63,988
64,849
61,501
58,774
82,950
60,040
Bank
In actual circulation *. . . . 24,649,132 21,731,017 ,478,972 1,366,544 5,407,924 4,851,017 1,635,243 1,427,509 2,096,342 1,893,593 1,738,344 1,487,766 1,483,961 ,276,563
Collateral held by F. R. Agent
for notes issued to banks:
10,523,000 11,298,000 460,000
Gold certificates
201,455
79,625
1,060
Eligible paper
15,403,201 11,534,902 ,100,000
U. S. Government securities.
Total collateral held

26,127,656 22,912,527

610,000 3,120,000 3,020,000 500,000
245
197,330
77,775
250
810,000 2,400,000 2,000,000 1
,200,000

623,000 635,000
505
850,000 1,550,000

812,000

1,150,666

680,000

605,000

900,666

750,606

561,060 1,420,245 5,717,330 5,097,775 1,700,250 1,473,505 2,185,000 1,962,000 1,845,775 1,565,650 1,580,000 1,355,000

1
Includes Federal Reserve notes held by the U. S. Treasury or by a Federal Reserve Bank other than the issuing bank.
* After deducting $523,414,000 participations of other Federal Reserve Banks on Dec. 31, 1945 and $735,225,000 on Dec. 31, 1944.




670,000 615,000
775
650
1,175,000 950,000

NO. 2—STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK AT END OF 1944 AND 1945—Continued
Chicago
1945

St. Louis

1944

1945

ASSETS
Gold certificates
,
3,027,003 3,236,811
135,309
97,907
Redemption fund for F. R. notes
Total gold certificate reserves
3,162,312 3,334,718
28,148
29,840
Other cash
Discounts and advances:
Secured by U. S. Government securities.
Other
6,110
Total discounts and advances
Industrial loans
U. S. Government securities:
Bills.
Certificates
Notes
Bonds

1944

Minneapolis
1945

1945

San Francisco

Dallas

1944

1945

1945

1944

1944
>

588,990
42,997

619,419
32,783

331,936
20,145

345,553
14,820

584,231
35,246

649,877
25,779

465,459
26,155

527,145 2,395,549 2,388,208
17,755
111,837
69,204

631,987
15,293

652,202
13,473

352,081
7,685

360,373
5,933

619,477
15,130

675,656
14,151

491,614
11,800

250
1,410

450

1,660
15

450
25

1,410

444,765
364,886
92,466
41,306

1,081
1,081

200
3,572

1,410

200

3,572

488

459,871
232,353
74,567
59,124

312,354
232,112
58,818
26,275

326,202
88,636
28,444
22,553

531,497
417,570
105,817
47,271

527,505
188,719
60,565
48,021

Total U. S. Government securities
(including guaranteed securities). . . 3,796,779 2,881,806 1,077,909

825,915

629,559

465,835 1,102,155

824,810

943,423

671,605 2,852,605 2,051,669

Total loans and securities

825,915

630,640

465,835 1,103,830

825,285

944,833

671,805 2,856,177 2,052,157

3

4

8,426
108,109
2,116
3,058

6,713
54,099
1,263
1,799

5,214
119,635
2,667
2,591

5,812
83,162
829
2,912

5,802
80,740
901
1,787

Due from foreign banks
Federal Reserve notes of other Federal Reserve Banks
Uncollected items
Bank premises
Other assets
Total assets




3,802,889 2,881,806 1,081,109
14

17

z
a
••tf

1,790
1,410

493,510
427,625
108,365
48,409

2,299,424 1,453,730
1,095,666 906,499
277,655 290,914
124,034 230,663

Z

544,900 2,507,386 2,457,412
9,434
21,993
27,672

3,200

6,110

1944

Kansas City

3

3

14,752
9,042
16,558
341,424 361,579 103,677
2,879
3,106
2,059
10,154
9,410
3,966
7,363,861 6,635,745 1,847,136 1,613,303 1,054,283

3,913
44,130
1,252
1,274

9,287
115,564
2,597
3,134

461,372 1,778,461 1,302,796
133,449
785,987 475,362
42,827
199,179 152,553
33,957
88,978 120,958

11
24,172
219,219
1,863
6,306

20,532
232,442
1,938
6,044

882,713 1,869,022 1,645,203 1,540,965 1,315,373 5,642,803 4,792,529

w
o
©

o

i
z

§

LIABILITIES
Federal Reserve notes in actual circulation l . . 4,444,533 3,978,835 1,063,366

930,849

551,859

475,794

910,750

796,543

618,639

546,527 3,219,199 2,699,477

Deposits:
Member bank—reserve account
U. S. Treasurer—general account
Foreign
Other deposits

2,347,115 2,
169,950
139,437
27,827
106,652 143,346
4,907
4,802

599,150
37,877
24,612
16,301

528,958
15,916
35,836
11,790

385,403
38,287
18,869
2,425

317,789
15,877
25,432
2,109

774,851
42,323
24,612
1,281

670,715
26,291
33,524
4,240

764,670
36,544
24,612
1,360

642,981 2,032,699 1,705,543
28,482
58,933
12,085
90,316
62,470
33,524
49,330
57,528
3,721

2,598,111 2,345,925
Total deposits
241,594 245,947
Deferred availability items
927
1,825
Other liabilities including accrued dividends.

677,940
84,735
299

592,500
73,102
263

444,984
41,673
332

361,207
32,597
229

843,067
94,418
289

734,770
97,541
279

827,186
75,172
239

692,311 2,203,432 1,881,869
173,143
169,597
60,207
703
908
558

7,286,063 6,571,634 1,826,340 1,596,714 1,038,848

Total liabilities
CAPITAL ACCOUNTS
Capital paid in
Surplus (Sec. 7)
Surplus (Sec. 13b)
Other capital accounts

21,074
53,029
1,429
2,266

19,599
33,201
1,429
9,882

5,611
12,939
527
1,719

5,142
7,048
527
3,872

3,861
8,869
1,073
1,632

Total liabilities and capital accounts.. 7,363,8616,635,745 1,847,136 1,613,303 1,054,283
Commitments to make industrial loans

1

4,444,533 3,978,835 1,063,366

Collateral held by F. R. Agent for notes issued to bank:
Gold certificates
1,890,000 2,200,000
Eligible paper
U. S. Government securities
2,700,000 1,900,000
Total collateral held.
1

3,501
4,950
1,073
3,362

5,237
6,196
1,137
3,500

5,731
11,891
1,137
1,739

185

5,238
6,025
1,307
3,200

16,297
28,924
2,142
2,304

13,546
15,899
2,142
5,750

92

597

971,228
40,379

569,076
17,217

486,557
10,763

948,173
37,423

822,824
26,281

663,464
44,825

419,443 2,834,012
586,556 3,
40,029 200,244 134,535

930,849

551,859

475,794

910,750

796,543

618,639

546,527 3,219,199 2,699,477

375,000

170,000

195,000

3oo;666

320,000
450
525,000

249,000 1,649,000 1,674,000

400,000

280,000
250
700,000

169,000

654,902

500,000

345,000 1,900,000 1,300,000

4,590,000 4,100,000 1,179,991 1,029,902

570,000

495,000

980,250

845,450

669,000

594,000 3,549,000 2,974,000

300,000
1,790
878,201

Includes Federal Reserve notes held by the U. S. Treasury or by a Federal Reserve Bank other than the issuing bank.




6,007
10,670
1,307
1,745

882,713 1,869,022 1,645,203 1,540,965 1,315,373 5,642,803 4,792,529

55

FEDERAL RESERVE NOTE
STATEMENT
Federal Reserve notes:
Issued to Federal Reserve Bank by Fed4,570,1544 068,615 1,119,753
eral Reserve Agent
125,621
56,387
89,780
Held by Federal Reserve Bank
In actual circulation

869,827 1,848,524 1,629,133 1,521,236 1,299,603 5,593,136 4,755,192

g

68

ANNUAL REPORT OF BOARD OF GOVERNORS
NO. 3- -HOLDINGS OF UNITED STATES GOVERNMENT SECURITIES BY FEDERAL
RESERVE BANKS, END OF DECEMBER 1943, 1944, AND 1945
[In thousands of dollars]
Type of issue

Rate of
interest
(Per cent)

Treasury bonds:
1944-46
1944-54
1945-47
1945
1946-56
1946-48
1946-49
1947-52
1948-50*
1948-51
1948*
1949-51*, June
1949-51*. Sept
1949-52
1949-53
1950-52*. Sept
1950-52
1951-54
1951-55
1951-53*
1951-53
1952-55*
1952-54*, Dec
1953-55
1954-56
1955-60
1956-58*
1956-59
1958-63...
1960-65
1963-68*
1964-69*. June
1964-69*. Dec
1967-72*

4
3*
2*
2U
2
2
2

2V-,
2V*
2

2X
2Yx
2
2X

196,000
60.930
121,200
19,000
37,250
96,700
47,852
13,000
38,100
100,500
7^750'
3,000
32,500
74,100
88,700
75,000
85,300
16,000
192,500
32,500
26,500
16^700
6,000
8,000
7,790
5,000
40,900
37,250

Dec. 31.
1944

135,250
17,800
43,950
99,700
47,952
12,000
39,600
100,500
25,000
7,750
3,000
31,500
74,100
38,300
70,000
81,300
16,000
22,800
31,500
31,600
60,930
13,700

Dec. 31,
1945

43,950
99,700
47,952
12,000
39,600
100,500
25,000
7,750
500
31,500
74,100
36,800
70,000
81,800
16,000
21,150
31,500
31,600
13,700

1

14,500
7,790
5,000
40,900
37,250
2,595
15,699
20,800
94,660

14,500
6,940
5,000
40,900
37,250

1,559,465

2%

1,243,426

946,892

H

88,100
59,400
23,700
23,200

k

55,600
146,100

320,400
20,600
152,371
417,250
74,400

268^800

268^800'
311,900

1

.90
.90

Change during
1944

-196,000
-60,930

" " 73',443

1

Total Treasury
bonds
Treasury notes:
Mar. 15, 1944
June 15, 1944
Sept. 15, 1944
Sept. 15, 1944*
Mar. 1, 1945*
Mar. 15, 1945.
Mar. 15. 1945*
Jan. 1, 1946*
Mar. 15, 1946*
July 1, 1946*
Dec. 15. 1946*
Sept. 15. 1948*

Dec. 31,
1943

+ 14.050
-1,200
+6.700
+3.000
+100
-1.000
+ 1,500

-135,250
-17,800

+25,000
-1,000
-5i000

-4.000

-169^700
-1,000
+5,100
+60.930
-3,000
—6,000

+6,500

" ' " +2,595'
+ 15,699
+20,800
+21,217
57^200
-316,039
-88,100
-59,400
-23,700
-23,200
+320,400
-35,000

576,550
74,400
899,500
273,800
295,400

1945

+6,271
+417,250
+74.400

-2,500

—i i 566
+500
-1^656

-850
-2,595
-15,699
-20,800
-37,460
-296.534

-320.400
-20.600
-152.371

+159.300

+311^900

+899.500
+5,000
-16,500

Total Treasury
notes
Certificates of indebtedness*

664,900

1,565,721

2,119,650

+900,821

+553,929

2,467,300

4,886,640

8,364,461

+2,419,340

+3.477,821

Treasury bills:
Bought under repurchase option*.
Other*

3,845,077
2,923,191

3,983,771
7,164,147

4,851,923
7,979,322

+ 138,694
+4,240,956

+868,152
+815.175

6,768,268 11,147,918 12,831,245

+4,379,650

+ 1.683,327

Total Treasury
bills
Guaranteed securities:
CCCFeb. 15, 1945*.
RFC Apr. 15, 1944*.
HOLC 1944-52
HOLC 1945-47
FFMC 1944-64
FFMC 1944-49....
Total guaranteed securities
Total holdings.


* Taxable issues.


i*
3

2,500
10,500
34,501
1,271
7,925
26,317

2,500

83,014

2,500

11,542,947 18,846,205 24,262,248

-10,500
-34,501
-1,271
-7,925
-26,317

-2,500

-80,514

-2.500

+ 7,303,258

+5.416,043

69

FEDERAL RESERVE SYSTEM

NO. 4—HOLDINGS OF SPECIAL SHORT-TERM TREASURY CERTIFICATES BY THE
FEDERAL RESERVE BANKS, 1942-45
[In millions of dollars]
Date

Date

Amount

1942—June 16
19
20
22
23

58
70
47
34
94

Sept. 15
16
17
18
19

324
189
286
76
53

Nov. 27
28
30

139
329
422

Dec.

1
10
15

98
16
145

1943—Jan. 29
30

1943—Mar.

115
202

2
4

3
174
354
543
591
648
632
790
1,043
1,302
1,250
981
836
778
768
603
700
512
432
384
304
104

5

6
8
9 .
10
11
13
15
16
17
18
19
20
22
23
24
25
26
27
29 .
30

Amount

Date

Amount

805
659
350
256

1943—June 15
16
17

18
19
Sept

212

11
126
243
246
214
179
424
258

8

9

10
11
13
14
15

16
1945—Mar 15
Dec

40

4
5
6
7
8
10

4

107
318
374
484
484

.

202

NO. 5—VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS OF FEDERAL
RESERVE BANKS, 1941-45
[Number in thousands; amounts in thousands of dollars]
1941

1943

1942

1944

1945

NUMBER OF PIECES HANDLED 1

Discounts and advances:
Applications
Notes discounted and advances made
Industrial loans:
Loans made
Commitments to make industrial loans
Currency received and counted . .
Coin received and counted
Checks handled:
U. S. Government checks... .
All other
Collection items handled:
U. S. 3Government coupons
paid
All other
Issues, redemptions, and exchanges by fiscal agency department:
U. S. Government direct obligations
. •
All other
Transfer of funds
.
..

2
2

1

4

1

.6

1

8

5
2

8

5
.8
(2)

.6
.1
(2)

(2)

.2

.2

2,529,703
3,216,761

2,678,801
3,761,445

2,874,099
3,810,300

3,006,898
4,167,265

3,016,719
4,562,709

123,128
1,142,465

130,895
1,204,648

266,686
1,246,384

426,460
1,288,465

510,608
1,341,342

15,047
6,392

14,990
5,833

17,054
4,622

18,292
4,483

13,479

117 425
'473

411
840

r

4

16,527
5 ,072

270,358
r

842

4

4

356,845

865

937
906

250

381 593
'474
939

AMOUNTS HANDLED

Discounts and advances
Industrial loans:
Loans made
Commitments to make industrial loans
Currency received and counted...
Coin received and counted
Checks handled:
U. S. Government checks....
All other
Collection items handled:
U. S. Government coupons
paid 3
All other
Issues, redemptions, and exchanges by fiscal agency department:
U. S. Government direct obligations
All other
Transfer of funds
r
2
4

125,178

193,278

2,840,341

14,922,128

34,778,804

15,695

68,032

60,265

20,381

14,043

19 530
11,283,817
327,555

22,207
13,010,185
355,581

10,221
15,599,680
381,254

4,769
17,157,034
417,014

2,350
18,307,687
445,892

27,732,559 67,834,790 113,791,554 127,931,710
334,336,667 409,273,478 509,640,311 532,755,045

124,610,917
563,498,349

926,960
6,003,082

1,082,321
6,167,564

r

l,481,520
7,882,053

2,348 172
9,295]666

1,840,647
7,962,994

33,278,154 90,338,225 "209,762,970 4261,297,489
1,986,425
2 840,687
3 262,012
3,260,660
118,423,057 140,444,452 203,510,209 215,006,532

4

299,624,101
2,729,452
223,490,280

Revised. 1 Two or more checks, coupons, etc., handled as a single item are counted as one "piece."
Less than 500. 3 Includes coupons from obligations guaranteed by the United States.
Except Treasury savings certificates and war savings stamps received for redemption.




NO. 6—EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1945
Item

System

Boston

New York

Philadelphia

Cleveland

Richmond

Atlanta

Chicago

St. Louis

Minneapolis

Kansas
City

Dallas

San
Francisco

CURRENT EARNINGS
$59,278
$55,854 $114,493
$57,478 $227,592 $107,862
$87,764 $1,045,398
$55,166
$83,869
$4,579
$77,748
$1,977,081
Discounted bills
110
110
Purchased bills
14,551
142
4,531
102
100,755
5,987
69,209
2,279
2,730
1,233
Industrial loans
Commitments to make in117
3,510
214
447
240
5,725
dustrial loans
12,533
1,480
800
U. S. Government securities. . 139,552,881 9,132,479 34,924,153 9,929,522 13,098,832 8,686,182 ' 7,202',604 19,705,119 6,433,581 3,597,155 ' 6,492,342 5,531,031 14,819,881
All other
8,594
10,121
54,462
7,310
73,380
21,114
24,742
566,186
55,922
139,840
4,766
156,133
9,802
Total current earn142,209,546 9,233,987 36,025,725 10,063,287 13,289,224 8,763,622 7,281,298 20,076,761 6,596,119 3,657,087 6,733,577 5,546,212 14,942,647
ings . . -•
!
CURRENT EXPENSES
Operating expenses:
Salaries:
183,752
182,756
198,644
172,911
149,416
239,055
354,229
149,333
164,458
187,264
296,053
2,854,484
576,613
Officers
46,515,928 2,614,475 10,154,205 2,892,287 4,444,307 2,689,594 2,503,373 7,537,418 2,689,726 1,254,087 2,420,126 2,232,144 5,084,186
Employees
Retirement System con252,659
229,479
266,226
708,747
357,513
252,290
137,745
225,642
214,459
386,123
4,101,690
213,799
857,008
tributions
425
13
9,676
607
358
7,175
40
372
29,465
2,691
2,108
6,000
Legal fees
Directors' fees and ex13,194
10,587
7,781
9,884
8,452
6,914
15,023
11,048
128,363
8,156
11,266
penses
11,615
14,443
Federal Advisory Coun627
350
697
1,244
1,550
918
1,350
1,755
15,480
759
1,456
cil, fees and expenses. .
1,424
3,350
T r a v e l i n g expenses
(other than of directors and members
of Federal Advisory
33,117
32,645
68,085
19,988
45,239
44,642
28,418
28,890
453,611
25,594
25,020
39,253
Council)
62,720
633,425
554,034
903,864
529,174
671,666
349,446
263,141
430,437
395,444 1,011,101
723,820 1,145,694
7,611,246
Postage and expressage..
26,366
44,445
41,734
46,947
31,320
48,373
23,513
41,815
37,384
74,573
24,040
533,766
93,256
Telephone and telegraph.
Printing, stationery, and
165,771
235,497
516,317
359,979
189,844
240,383
292,315
78,214
172,272
159,053
241,079
590,984
3,241,708
supplies
Insurance on currency
2,298
3,448
2,649
3,712
1,687
4,046
863
703
1,190
1,305
28,292
2,876
3,515
and security shipments
12,811
10,850
28,410
15,248
14,574
18,680
10,405
26,702
8,622
9,315
220,365
13,400
51,348
Other insurance
83,900
66,646
180,560
132,403
65,864
92,930
38,752
106,506
73,442
1,510,801
136,000
442,362
91,436
Taxes on real e s t a t e . . . .
92,914
42,548
70,581
55,786
70,312
72,477
112,476
29,086
74,832
1,041,179
55,832
221,060
143,275
Depreciation (building).
Light, heat, power, and
40,905
36,903
70,843
72,269
35,581
22,135
22,578
36,462
33,748
596,925
155,940
33,305
36,256
water
21,508
19,731
23,679
30,291
46,966
41,212
38,804
7,094
287,660
4,615
5,245
15,774
32,741
Repairs and alterations. .
24,424
94,603
306,179
39,808
29,556
16,441
175,171
139,945
21,154
20,598
1,000,294
49,729
82,686
Rent
26,158
67,266
130,787
52,395
46,607
15,807
63,580
101,491
30,945
46,032
772,917
28,494
163,355
Furniture and equipment
95,147
157,342
154,267
135,163
417,720
70,495
100,353
215,230
237,683
105,543
2,107,011
175,795
242,273
All other
Total operating expenses




73,051,1851 4,449,304 14,857,519 4,680,787 6,974,382 4,405,741 4,319,711 11,373,537 4,229,232 2,235,928 3,988,399 3,578,185

7,958,460

Less reimbursement for
certain fiscal agency
and other expenses. . . 31,384,732 1,637,801 5,276,799 1,673,873 2,959,228 1,746,233 2,185,982 5,727,458 1,893,963
981,495 1,645,771 1,740,863 3,915,266
Net operating expenses. . 41,666,453 2,811,503 9,580,720 3,006,914 4,015,154 2,659,508 2,133,729 5,646,079 2,335,269 1,254,433 2.342,628 1,837,322 4,043,194
Assessment for expenses of
181,940
70,411
71,180
71,535
Board of Governors
303,183
53,409
81,557
2,340,509
156,989
843,342
204,489
98,625
203,849
Federal Reserve currency:
419,118
171,458
182,264
223,952
26,528
Original cost
525,960
204,798 1,112,731 322,021
4,194,119
431,524
394,097
179,668
74,947
27,419
31,162
Cost of redemption
10,953
23,032
75,789
516,190
86,367
27,032
52,502
37,967
35,248
33,772
Total current expenses 48,717,271 3,196,322 11,623,160 3,560,456 4,436,638 3,224,905 2,661,885 6,551,011 2,664,528 1,345,323 2,611,916 2,121,928 4,719,199

PROFIT AND LOSS
Current net earnings
93,492,275
Additions to current net
earnings:
Profits on sales of U. S.
Government securities. 3,312,628
Recoveries of, and withdrawals from allowances for, losses on industrial advances (net)
476,585
All other
305,627
Total additions
4,094,840
Deductions from current net
earnings:
Charge-offs
on bank
premises
201,650
Reserves for contingencies
3,709,701
All other
1,013,496
Total deductions
4,924,847
Net additions
-830,007
Net earnings
92,662,268
Paid U. S. Treasury (Sec.
13b)
247,659
Dividends paid
10,182,851
Transferred to surplus (Sec.
13b)
262,133
Transferred to surplus (Sec.
7)
81,969,625
Surplus (Sec. 7), January 1. . 228,152,331
Additions, as above
81,969,625

6,037,665 24,402,565 6,502,831 8,852,586 5,538,717 4,619,413 13,525,750 3,931,591 2,311,764 4,121,661 3,424,284 10,223,448

241,116

802,592

255,719

336,234

207,653

169,877

415,493

156,071

95,519

161,320

141,061

329,973

185,721
9,419
436,256

129,671
5,345
937,608

100,721
101,736
458,176

6,074
63,778
406,086

44,373
2,717
254,743

10,000
18,835
198,712

7,473
422,966

4,136
160,207

6,798
102,317

32,836
194,156

11,321
152,382

25
41,233
371,231

201,650
461,426
637,740
623,745
885,955
4,591
627,298
468,946
70,208
413
179,130
49,923
41,215
2,9i9
184
25,418
2,624
'518,405
123,057
1,018,520
2,919
4,775
649,163
413
935,878
41,215
531,634
123,057
629,922
518,405
468,946
-582,264
934,689
101,904 -741,722
111,167 -160,403
453,401
283,029 -375,179 -270,234 -95,439 -488,956
5,455,401 25,337,254 6,956,232 9,135,615 5,163,538 4,349,179 13,430,311 3,442,635 2,413,668 3,379,939 3,535,451 10,063,045
57,502
618,318

65,940
3,627,446

131,402

62,662

83,968
7,177
765,606 1,025,112
32,452

4,154
409,879
35 858

2,516
9,884
367,516 1,215,381

326,314

221,686

873
330,263

730
344,375

14,915
930,955

—241

4,648,179 21,581,206 6,074,206 8,103,326 4,713,647 3,971,779 12,212,414 3,116,562 2,191,982 3,048,803 3,190,346 9,117,175
15,238,712 84,902,462 19,871,579 19,071,303 7,813,341 7,935,878 33,200,673 7,048,131 4,949,737 6,196,267 6,024,966 15,899,282
4,648,179 21,581,206 6,074,206 8,103,326 4,713,647 3,971,779 12,212,414 3,116,562 2,191,982 3,048,803 3,190,346 9,117,175

for contingencies:
Previously charged to
current net earnings... 11,131,011
5,706,052
922,976
4,408,080
67,380
26,523
Previously charged to
surplus..
37,102,278 2,551,663 4,670,085 3,000,000 5,647,512 3,066,084 2,542,929 3,207,763 2,774,128 1,660,401 2,646,415 1,427,808 3,907,490
Surplus (Sec. 7), December
31
358,355,245 22,438,554 116,859,805 28,945,785 33,745,117 15,593,072 14,450,586 53,028,930 12,938,821 8,869,500 11,891,485 10,669,643 28,923,947




NO. 7—CURRENT EARNINGS, CURRENT EXPENSES, AND NET EARNINGS OF FEDERAL RESERVE BANKS AND DISPOSITION OF NET
EARNINGS, 1914-45
Earnings and expenses
Bank and period

Disposition of net earnings
Franchise tax
paid to U. 2S.
Treasury

Paid to U. S.
Treasury
(Sec. 13b)

Transferred
to surplus
(Sec. 13b)

Transferred
to surplus
(Sec. 7)

Current
expenses

Net
earnings 1

$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

$1,134,234
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
5,044,119
21,078,899
22,535,597

1930
1931
1932
1933
1934

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

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

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

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

17,308

$-60,323

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

1935
1936
1937
1938
1939

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

31,577,443
29,874,023
28,800,614
28,911,608
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
-425,653

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

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

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

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

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

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

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

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

142,209,546

48,717,271

92,662,268

10,182,851

859,663,386

870,355,054

232,224,867

All Federal Reserve Banks by years:
1914-15
1916
1917
1918
1919

1940
1941
1942
1943
1944

. . .

.

. . . .

1945
Total—1914-45




Current
earnings

1,769,297,812

Dividends
paid

2 ioii[4i8*

247,659
149,138,300

262,133

2,086,234

'-118,138

81,969,625
4 487,023,791

w

>
o
o
o

Aggregate for each Federal Reserve Bank
1914-45:
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
1
2
3

119,494 ,845
508,855 ,322
136,909 ,734
160,514 ,239
89,445 ,577
83,054 ,898
242,068 ,994
77,514 ,062
55,008 ,650
84,592 ,501
64,325 ,594
147,513 ,396

61 ,678,875
207 ,458,425
65 ,500,061
80 ,055,049
49 272,567
40 865,394
112 ,725,926
44 032,089
29 ,833,269
50 ,891,801
38 ,195,145
79 154,785

56,740,343
300,783,529
71,628,434
75,384,464
37,459,492
37,023,438
120,818,467
28,918,071
23,808,442
30,829,014
23,168,398
63,792,962

16,544,838
79,360,168
21,485,017
23,499,401
9,782,408
8,265,592
26,973,275
8,144,662
5,673,965
7,811,338
7,449,422
17,234,781

7,111,395
68,006,262
5,558,901
4,842,447
6,200,189
8,950,561
25,313,526
2,755,629
5,202,900
6,939,100
560,049
7,697,341

278,693
281,141
715,347
82,058
170,501
79,177
150,618
7,063
55,115
64,201
101,134
101,186

+ 136,626
-547,005
+302,501
-8,446
-94,970
+5,491
+ 11,681
-21,217
+64,875
-8,388
+55,336
-14,622

32,668,791
153,682,963
43,566,668
46,969,004
21,401,364
19,722,617
68,369,367
18,031,934
12,811,587
16,022,763
15,002,457
38,774,276

Current earnings less current expenses, plus other additions and less other deductions.
The Banking Act of 1933 eliminated the provision in the Federal Reserve Act requiring payment of a franchise tax.
On Dec. 31, 1945, surplus (Sec. 13b)—relating to funds received from the Secretary of the Treasury under Section 13b ot the Federal Reserve Act for the purpose of making loans to industry—amounted to $27,428,173 ($27,546,311 received from the Secretary of the Treasury minus the $118,138 net debits shown here).
4
On Dec. 31, 1945, surplus (Sec. 7)—accumulated pursuant to Section 7 of the Federal Reserve Act—amounted to $358,355,245 ($487,023,791 retained net earnings, shown
here, minus $139,299,557, charge-off cost of Federal Deposit Insurance Corporation stock, and $500,000, charge-off on bank premises, plus $11,131,011 transferred from reserves
for contingencies).




NO. 8-NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF FEDERAL RESERVE BANKS

Federal Reserve Bank
(including branches)

Other officers

President
Annual salary

Number

Annual salaries

Employees, except those whose
salaries are reimbursed to Bank
Number

Annual salaries

Employees whose salaries
are reimbursed to Bank

Total

Number

Annual salaries

Number

Annual salaries

[December 31, 1945]
Boston
New York. . .
Philadelphia.
Cleveland....

$25,000
45,000
25,000
25,000

13
48
12
25

$116,100
550,850
127,000
193,350

848
2,863
1,187
1,280

$1,465,596
6,451,032
1,954,073
2,433,786

541
1,662
506
918

$867,173
3,518,633
976,165
1,727,884

1,403
4,574
1,706
2,224

$2,473,869
10,565,515
3,082,238
4,380,020

Richmond. . .
Atlanta
Chicago
St. Louis. . . .

21,000
20,000
30,000
25,000

22
24
35
23

178,040
168,000
324,000
173,340

853
684
1,573
763

1,454,276
1,215,888
3,471,366
1,424,010

658
818
1,762
734

1,065,549
1,168,262
3,401,363
1,269,194

1,534
1,527
3,371
1,521

2,718,865
2,572,150
7,226,729
2,891,544

Minneapolis..
Kansas City.
Dallas
San Francisco

25,000
20,000
20,000
25,000

18
24
23
36

137,250
176,060
157,905
274,700

383
686
626
1,130

600,483
1,217,823
1,107,781
2,145,517

384
635
572
1,141

615,927
1,087,545
974,917
2,125,012

786
1,346
1,222
2,308

1,378,660
2,501,428
2,260,603
4,570,229

12,876

$24,941,631

10,331

$18,797,624

23,522

$46,621,850

568

Total..

$306,000

303*

$2,576,595*

f

w
O

3

[December 31, 1944]
$25,000
45,000
25,000
25,000

Richmond
Atlanta
Chicago
St Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total.

$93,842
491,600
128,300
204,432

2,780
1,006
1,127

$1,390,063
5,652,872
1,599,267
1,988,494

1,820
574
1,148

$844,707
3,589,795
969,612
1,858,306

1,417
4,644
1,594
2,302

$2 353 612
9,779,267
2,722,179
4,076,232

19
24
34

149,660
154,600
307,800
169,340

802
627
1,607

710
898
2,118

674

1,292,491
949,605
3,160,755
1,213,267

786

1,080,134
1,294,015
3 753,294
1,278,247

1,532
1,550
3 760
1,484

2,543,285
2,418,220
7 251 849
2 685 854

25,000
20,000
20,000
25,000

.

43
13
26

21,000
20,000
30,000
25,000

Boston
New York
Philadelphia
Cleveland

19
20
22

141,000
159,780
151,305
262,700

324
624
563
1,094

522,252
1,040,338
946,420
1,946,265

470
752
711
1,520

687,440
1,208,853
1,130,011
2,668,301

814
1,397
1,297
2,651

1,375,692
2,428,971
2 247 736
4,902,266

$2,414,359f

12,066

$21,702,089

12,075

$20,362,715

24,442

$306,000

10

23

36

289f

* Includes $587,261 reimbursed to the Banks for salaries of 82 officers.
f Includes $618,436 reimbursed to the Banks for salaries of 89 officers.




838

$44,785,163

w

i

75

FEDERAL RESERVE SYSTEM

NO.

9- -MINIMUM DOWN PAYMENTS AND MAXIMUM MATURITIES ON CONSUMER
CREDIT SUBJECT TO REGULATION W

Prescribed by Board of Governors of the Federal Reserve System in accordance with Executive Order
No. 8843 dated August 9, 1941
Effective
May 6, 1942

In effect
December 31, 1945

Type of credit
Down
payment

Instalment sales:2
Automobiles
Mechanical refrigerators, washing machines, radios, vacuum cleaners
Stoves, ranges
Furnaces, oil burners, plumbing and
sanitary fixtures'
Furniture
Floor coverings
Watches, clocks
Jewelry
Clothing, furs
Materials (not elsewhere listed) for
repair or improvement of residential
structures4
Instalment loans:
To purchase listed articles
To pay charge account arising from
sale of listed article, or to pay singlepayment loan
Other
Consolidations of instalment sale or loan
with previously outstanding instalment
credit—General rule
Consolidations of instalment loans if additional credit is not to purchase listed
articles
Single-payment loans
Charge sales of listed articles

Maximum
maturity
(months)

33 X

Down
payment

Maximum
maturity
(months)

15

33 H

15

12
12

33 H
33 H

12
12

12
12
12
12
12
12

12
12
12
12
12

12

6
12

6
"18

12
12
3
10th day of 2d
month after sale

7

18
3
10th day of 2d
month after sale

1
2
8

Down payments determined after deduction of any trade-in, except in case of automobiles.
Terms shown for selected articles. For terms on other listed articles, see regulation.
No down payment required after June 10, 1945. No maturity limitation after Oct. 14, 1945.
* No maturity limitation after Oct. 14, 1945.
6

Where credit is to purchase listed articles, requirements same as on instalment sales of the respective
articles.
• Effective Oct. 15, 1945.
7
Special maturity for these credits provided by amendment effective Dec. 1, 1945.
NOTE.—The above limitations have been subject to various exceptions; for exceptions in detail, and for
additional provisions not reflected in this table, the regulation should be consulted. Where no figure is
shown, there was no limitation imposed by Regulation W.




ANNUAL REPORT OF BOARD OF GOVERNORS
NO. 10—FEDERAL RESERVE BANK DISCOUNT, INTEREST, AND COMMITMENT RATES,
AND BUYING RATES ON BILLS
[Per cent per annum]
In effect December 31, 1945

Type of transaction

Discounts for and advances to
member banks under Sees.
13 and 13a of the Federal
Reserve Act:
Advances secured by Government obligations maturing or callable in one
year or less
All other
Advances to member banks
under Sec. 10(b) of the Federal Reserve Act
Advances to individuals, partnerships, or corporations
other than member banks
secured by direct obligations
of the United States (last
paragraph of Sec. 13 of the
Federal Reserve Act):
To nonmember banks
Toothers
Advances to industrial or
commercial businesses under Sec. 13b of the Federal Reserve Act, direct
or in participation with
financing institutions
Discounts for and purchases
from financing institutions
under Sec. 13b of the Federal Reserve Act:
On portion for which institution is obligated
On remaining portion
Commitments to make advances under Sec. 13b of
the Federal Reserve Act:
To industrial or commercial businesses
To financing institutions..
Minimum buying rates on
prime bankers' acceptances
payable in dollars.
1-90 days
91-120 days
121-180 days
Buying rate on Treasury
bills*
1
2
a
4
6

Boston

New
York

Phil- Cleve- Richadel- land mond Atlanta
phia

Chi-

Min- KanSt.
sas
Louis neap- City
olis

Dal- San
las Francisco

X
VA

V/2

1
2Vi

2M-5

C1)
(«)

2

( )2
3

(*)

)

'-IX
IX

IX

•fc

rlX

X

X

Rate charged borrower byfinancinginstitution less commitment rate.
May charge same rate as charged borrower byfinancinginstitution, if less.
Rate charged borrower.
Financing institution is charged H per cent on undisbursed portion of loan.
The same minimum rates in effect at the Federal Reserve Bank of New York apply to any purchases made by other
Federal Reserve Banks.
6
Established rate at which Federal Reserve Banks stand ready to buy all Treasury bills offered. Effective Aug. 3, 1942,
purchases of such bills, if desired by the seller, were made on condition that the Reserve Bank, upon request before maturity,
would sell back bills of like amount and maturity at the same rate of discount. Since May 15, 1943, all purchases have
been made subject to repurchase option.
NOTE.—Maximum maturities for discounts and advances to member banks are: 15 days for advances secured by obligations of the Federal Farm Mortgage Corporation or the Home Owners Loan Corporation guaranteed as to principal and
interest by the United States, or by obligations of Federal Intermediate Credit Banks maturing within 6 months; 90 days
for other advances and discounts made under Sections 13 and 13a of the Federal Reserve Act (except that discounts of certain bankers' acceptances and of agricultural paper may have maturities not exceeding 6 months and 9 months respectively);
and 4 months for advances under Section 10(b). The maximum maturity for advances to individuals, partnerships, or
corporations made under the last paragraph of Section 13 is 90 days. Industrial advances and commitments made under
Section 13b of the Federal Reserve Act may have maturities not exceeding 5 years.




77

FEDERAL RESERVE SYSTEM
NO. 11—MAXIMUM RATES ON TIME DEPOSITS

Maximum rates that may be paid by member banks as established by the Board of Governors under provisions of Regulation Q
[Per cent per annum]
Nov. 1, 1933,
to
Jan. 31, 1935

Feb. 1, 1935,
to
Dec. 31, 1935

In effect
beginning
Jan. 1, 1936

3
3

2y2

iy2
iy2

3
3
3

Type of deposit

ly*

Savings deposits
Postal Savings deposits
Other time deposits payable:
In 6 months or more
In 90 days to 6 months
In less than 90 days

2K
1

NOTE.—Maximum rates that may be paid by insured nonmember banks as established by the Federal
Deposit Insurance Corporation, effective Feb. 1, 1936, are the same as those in effect for member banks.
Under Regulation Q 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.

NO. 12—MEMBER BANK RESERVE REQUIREMENTS
[Per cent of deposits]
Net demand deposits l
Period in effect

June
Aug.
Mar.
May
Apr.
Nov.
Aug.
Sept.
Oct.

21,
16,
1,
1,
16,
1,
20,
14,
3,

Central reserve
city banks
13

1917-Aug. 15, 1936
1936-Feb. 28, 1937
1937-Apr. 30, 1937
1937-Apr. 15,1938
1938-Oct. 31, 1941
1941-Aug. 19, 1942
1942-Sept. 13, 1942
1942-Oct. 2, 1942
1942 and after

19H

22%
26
22%
26
24
22
20

Reserve
city banks

Country
banks

10
15

Time deposits
(all member
banks)

7
10^
12^
14
12
14
14
14
14

ny2

20
20
20
20

3
6
5
6
6
6
6

1
Demand deposits subject to reserve requirements; i.e., demand deposits other than war loan deposits,
minus cash items in process of collection and demand balances due from domestic banks.

NO. 13—MARGIN REQUIREMENTS *
Prescribed by Board of Governors of the Federal Reserve System in accordance with
Securities Exchange Act of 1934
[Per cent of market value]
Nov. 1, 1937Feb. 4, 1945
Regulation T:
For extensions of credit by brokers and dealers on listed securities
For short sales
Regulation U:
For loans by banks on stocks

Feb. 5, 1945July 4, 1945

July 5, 1945Jan. 20, 1946

Effective
Jan. 21, 1946

40
50

50
50

75
75

100
100

40

50

75

100

1
Regulations T and U limit the amount of credit that may be extended on a security by prescribing
a maximum loan value, which is a specified percentage of its market value at the time of the extension;
the "margin requirements" shown in this table are the difference between the market value (100 per cent)
and the maximum loan value.




ANNUAL REPORT OF BOARD OF GOVERNORS
NO. 14—ANALYSIS OF CHANGES IN NUMBER OF BANKING OFFICES DURING 1945
Commercial banks
AH
banks

Member
banks

Mutual
savings
bank

Nonmember
banks*

Total
National

ANALYSIS OF BANK CHANGES

Number of banks on Dec. 31, 1944. . 14,535 13,992

State
member

Insured

Noninsured

5,025

1,789

6,452

729

Increases in number of banks:
Primary 3 organizations (new
banks)

+ 118

+ 118

+ 17

+8

+82

-81
-19

-80
-19

-34
2

-8

-34
-9

2

192

-4
-8

Noninsured

351

* +11

Decreases in number of banks:
Consolidations and absorptions
Voluntary liquidations5

Insured

Inter-class bank changes:
Conversions—
National into State .
State into national
Federal Reserve membership6
Admissions of State banks.
Withdrawals of State banks
Federal deposit insurance7:
Admissions of State banks
Withdrawals of State banks

-5

+ 16

-7

+5
-9
-86

-1

+2
+ 14

+87

-14

-1

Net increase or decrease
in number of banks...

+18 +19
14,553 14,011
Number of banks on Dec. 31,1945.

-1

-8
+78
-36
5,017 2 1,867 6,416

+1

-15
714

-1
2

192

350

99

41

ANALYSIS OF BRANCH CHANGES8

Number of branches and additional
offices on Dec. 31, 1944

4,064

3,924

Increases in number of branches:
De novo branches
Banks converted into branches

+67
+42

+65
+41

Decreases in number of branches:
Branches discontinued

-15

1,813

-15

+29
+24

1,079

978

+ 11
+ 10

+21

-4

54

+2

-10

+7

+1

-1

Inter-class branch changes:
From National to State member
From nonmember to State
member

-1

+1
+8

-8

Banking offices at military reservations:
Established
Reopened
.
Discontinued

+60
+2

-130

+60
+2
-130

+44
+1
-99

-17

-14

Net increase or decrease
in number of branches
and additional offices

+26

+23

-2

+19

+3

+3

+2

+1

Number of branches and additional
offices on Dec. 31, 1945

4,090

3,947

1.811

1,098

981

57

101

42

+ 10

+6
+1

i Includes such unincorporated (private) banks as report to State banking departments.
2
The State member bank figures and the insured mutual savings bank figures both include three member
mutual savings banks. These banks are not included in the total for "commercial banks" and are included
only once in "all banks."
a
Exclusive of new banks organized to succeed operating banks.
4
Includes one unclassified increase.
6
Exclusive of liquidations incident to the succession, conversion, and absorption of banks.
6
Exclusive of conversions of national banks into State bank members, or vice versa. Such changes do
not affect Federal Reserve membership; they are included under "conversions."
7
Exclusive of insured nonmember banks converted into national banks or admitted to Federal Reserve
membership, or vice versa. Such changes do not affect Federal Deposit Insurance Corporation membership; they are included in the appropriate groups under "inter-class bank changes."
8
This analysis covers all branches and other additional offices at which deposits are received, checks paid,
or money lent. Offices established at miliary reservations (shown separately) include "banking facilities"
provided through arrangements made by the Treasury Department with banks designated as depositaries
and financial agents of the Government. Five of these banking facilities are in each case operated by two
national banks, each bank having separate tellers windows; each of these facilities is counted as one banking office only.




FEDERAL RESERVE SYSTEM

79

NO. 15—NUMBER OF BANKS ON FEDERAL RESERVE PAR LIST A N D N O T ON PAR LIST
BY FEDERAL RESERVE DISTRICTS A N D STATES, ON DECEMBER 31, 1944 A N D 1945

Federal Reserve
district or State

Total banks on
which checks
are drawn 1
1945

1944

495
955
851
1,177
1,005
1,115
2,458
1,459
1,273
1,747
969
505

503
964
858
1,181
1,007
1,104
2,432
1,460
1,268
1,754
960
506

14,009

Banks on par list
Total
1945

Member

Nonmember

1

Banks not on
par list
(Nonmember) 1

1944

1945

1944

1945

1944

1945

495
955
851
,177
756
489
,396
,093
588
,732
849
495

503
964
858
1,180
733
408
2,361
1,073
566
1,590
824
492

340
814
647
721
472
325
995
490
472
751
585
272

13,997

11,876

11,552

6,884

347
816
647
710
468
316
969
475
467
749
580
270
6,814

155
141
204
456
284
164
1,401
603
116
981
264
223
4,992

156
148
211
470
265
92
1,392
598
99
841
244
222
4,738

249
626
62
366
685
15
120
10
2,133

216
11
225
194
138

217
12
224
192
140

99
11
96
194
138

90
12
95
192
140

16
5
30
81
46

7
5
29
82

116
40
21
165
357

116
40
21
165
347

116
40
21
99
83

116
40
21
83
76

83
7
66
110
92
64
17
18
61
59

46
851
491
656
614

46
833
494
650
618

46
849
491
656
612

46
831
494
650
616

386
151
63
170
186

410
8
65
346
41
682
202
150
677
380

407
9
65
348
41
689
202
152
679
382

386
51
63
170
186
442
258
31
513
107
407
8
65
346
41
682
80
45
677
369

382
44
65
174
191

443
676
202
589
111

387
149
65
174
191
440
670
202
591
111

70
1,020
22
144
166

68
1,029
23
145
164

70
1,020
22
41
66

293
859
57
71
314

292
850
57
71
312

185
791
57
71
293

122
179
557
56

126
178
557
56

112
176
438
56

1944

DISTRICT

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Total

1
274
696
71
387
702
164
136
14

2,445

STATE

Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Dist. of Columbia,
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts. . .
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire..
New Jersey
New Mexico
New York
North Carolina...
North D a k o t a . . .
Ohio
Oklahoma
Oregon
Pennsylvania. . . .
Rhode Island
South Carolina...
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia.. . .
Wisconsin
Wyoming
1

439
249
28
512
100
256
9
65
348
41
689
76
45
679
370
68
1,029
23
36
65
130
768
57
71
278
112
173
423
55

83
6

66
113
92
64
17
18
66
59
26
491
234
162
213
113
43
38
80
150
231
210
28
182
78
146
6
53
294
27
590
54
42
424
217
33
770
12
28
60
82
543
34
40
197
55
108
168
38

26

474
228
161
214
113
40
40
80
154
228
209
26
176
74
147
7
53
293
27
593
54
42
417
215
32
767
13
28
60
78
538
34
40
194
56
109
163
37

52
23
3
33
24

20
358
257
494
399
273
8
25
90
36
211
48
3
331
29
261
2
12
52
14
92
26
3
253
152
37
250
10
13
6

103
248
23
31
96
57
68
270
18

117

127

129

* 129

66
274

82
271

2

2

2

2
5
105

48 •
52

23
3
22
17
20
357
266
489
402
269
4
25
94
37
211
40
2
336
26

109
2
12
55
14
96
22
3
262
155
36
262
10
8
5
52
230
23
31
84
56
67
260

18

''ioo'
1
418
171
76
4

122
105

1
421
174
79
11
151

126
107
12

103
100
108
68

109
99
162
82
34

10
3
119

14
5
134
1

Does not include nonmember mutual savings banks, on a few of which some checks are drawn. The
difference of 5 between the number of nonmember commercial banks on Dec. 31, 1945 shown in this table
and in Table 14 is due to the fact that this table excludes 117 banks (principally 50 industrial banks and
52 nondeposit trust companies) on which no checks are drawn, and includes 112 banks (principally 98
private banks and 12 cooperative banks) on which checks are drawn but which are not reporting to a
State banking department or are in liquidation.
Back figures.—See Banking and Monetary Statistics, Table 15, pp. 54-55, and Annual Report for 1943,

p. 82.






RECORD OF POLICY ACTIONS
BOARD OF GOVERNORS

MEETING ON FEBRUARY 2,

1945

Members present: Mr. Eccles, Chairman; Mr. Ransom, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Draper; Mr. Evans.
Amendments to Regulation T, Extension and Maintenance of Credit by Brokers,
Dealers, and Members of National Securities Exchanges, and Regulation U,
Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on
a National Securities Exchange.

Mr. Draper moved that the Board take action to reduce the maximum
loan value of registered securities in a general account, prescribed in the
supplement to Regulation T, and on stocks, as prescribed in the first paragraph of the supplement to Regulation U, from 60 per cent to 50 per cent.
Mr. McKee moved, as a substitute for Mr. Draper's motion, that action
on a change in margin requirements be deferred pending the outcome of the
discussions of the Economic Stabilization Board, to which Chairman
Eccles had referred during the meeting.
The substitute motion was put by the chair and lost, Mr. McKee voting
"aye" and Messrs. Eccles, Ransom, Szymczak, Draper, and Evans voting
"no."
Mr. Draper's original motion was put by the chair and carried, Messrs.
Eccles, Ransom, Szymczak, Draper, and Evans voting "aye" and Mr.
McKee voting "no."
In accordance with Mr. Draper's motion and effective February 5, 1945:
Regulation T was amended to increase margin requirements on registered securities (other than exempted securities) in a general account subject to section 3 of the regulation from 40 to 50 per cent, and on registered
securities (other than exempted securities) in a special omnibus account
subject to section 4 of the regulation from 25 to 35 per cent.
Regulation U was amended to increase margin requirements on any
stock subject to section 1 of the regulation from 40 to 50 per cent, and on
any registered stock in the case of a loan to a broker or dealer, under conditions set forth in the supplement, from 25 to 35 per cent.
On these actions Mr. McKee voted "no."
Mr. McKee's substitute motion was made by reason of a statement of Chairman Eccles during the meeting that discussions were being carried on at the
time by the Economic Stabilization Board, of which the Chairman was a member, with respect to steps that might be taken by the Government in the field of
taxation, credit control and otherwise to prevent further inflationary developments.
The other members of the Board did not favor Mr. McKee's motion, and voted
for the above amendments, on the grounds that no question as to the desirability
of the action was involved in reaching a decision on other steps to counteract inflationary developments and, therefore, the action should be taken without awaiting the outcome of the current discussions; that the history of the Securities Exchange Act of 1934 shows that action by the Board on margin requirements
should take into account the amount of credit outstanding and also the level of

82


FEDERAL RESERVE SYSTEM

&3

stock prices, the general business situation, and related factors; that the general
level of stock market prices during recent weeks had been rising to a succession of
new 7-year highs, the volume of trading being above normal; that the volume of
stock market credit (as measured by customers' debit balances) had been increasing and was for the first time above any level since the beginning of 1938;
that the proportion of margin trading by the public commonly rises on sharp
advances in the market, and that along with the increase in proportion of such
trading there had been an increase also in the number of shares being carried in
margin accounts. It was, therefore, the opinion of the other members of the
Board that a move in the direction of higher margin requirements was justified for
the purpose of preventing the excessive use of credit for purchasing or carrying
securities, particularly under war conditions, and that there no longer existed any
reason for the differential between the lower margin requirements on purchases and
those on short sales of securities that had been in effect since October 1937.
The increase in the margin requirements for special omnibus accounts under
Regulation T and on registered stocks in connection with loans to brokers or dealers under Regulation U was in accordance with the policy previously existing of
having a differential of 15 per cent in the margin requirements in such cases.
Mr. McKee's vote of "no" on Mr. Draper's original motion, and on the amendments adopted in accordance with that motion, was based on the belief that the
statute did not intend that action to increase or decrease margin requirements
would be predicated on the volume of activity in the market or the level of stock
market prices, and that the prevention of the excessive use of credit for the
purchase or carrying of securities, as contemplated by the statute, did not call for
action to increase margin requirements at this time inasmuch as trading was
largely on a cash basis and the increase in the volume of credit in use in the
market was not alarming.
Amendments to Regulation K, Banking Corporations Authorized to do Foreign Banking
Business under the Terms of Section 25 (a) of the Federal Reserve Act, and to
Agreements Entered into with the Board by State Chartered Foreign Banking
Corporations under the Terms of Section 25 of the Federal Reserve Act.
By unanimous vote, Section XV of Regulation K was amended, effective
February 2, 1945, to provide that, except with the permission of the Board
of Governors, the aggregate of the liabilities of an Edge Act corporation
outstanding on account of acceptances, monthly average domestic and
foreign deposits, debentures, bonds, notes, guaranties, indorsements, and
other such obligations shall not exceed at any one time 10 times the amount
of the corporation's subscribed capital and surplus.
It was also agreed unanimously that, in proper cases, a similar change
would be made in agreements entered into with the Board by State chartered foreign banking corporations as a condition precedent to the investment by member banks in the stock of such corporations pursuant to the
provisions of section 25 of the Federal Reserve Act.
For many years the Regulation had provided that the aggregate of the liabilities
of an Edge Act corporation, as specified above, could not exceed 10 times the
amount of its capital and surplus. A limitation of a similar type was contained in
the agreements made with the Board by State chartered foreign banking corporations as a condition precedent to the investment by member banks in the stock of
such corporations. When this requirement was first imposed, there were no
adequate precedents to guide the Board in the supervision of these institutions,
and such a limitation was regarded as necessary in the interest of sound opera


84

ANNUAL REPORT OF BOARD OF GOVERNORS

tions. A review of the policy of the Board in this matter was occasioned by a
request from a State chartered foreign banking corporation that the requirement be eliminated from an agreement proposed to be entered into by the corporation with the Board, and it was decided that the Board would not be justified in
deleting the requirement entirely from such agreements or from Regulation K,
but that in the light of experience it would now be proper to provide for flexibility
where the need existed and demonstrated capable management appeared to justify
such action.
The Regulation retained authority in the Board to amend the Regulation,
provided that such amendment did not prejudice obligations undertaken in good
faith under the Regulation in effect at the time such obligations were assumed, and
the agreements with State chartered corporations retained a requirement that
such corporations would restrict their operations and conduct their business in
such manner and under such further limitations as the Board might prescribe from
time to time.
MEETING ON FEBRUARY 5,

1945

Members present: Mr. Eccles, Chairman; Mr. Ransom, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Draper; Mr. Evans.
Amendment to Regulation W, Consumer Credit.
By unanimous vote, Section 8 of Regulation W was amended, effective
February 5, 1945, so as to exempt from its provisions any extension of credit to a veteran guaranteed in whole or in part by any State
agency pursuant to legislation similar to the Servicemen's Readjustment
Act of 1944.
By a previous amendment which became effective November 6, 1944, loans
guaranteed in whole or in part by the Administrator of Veterans' Affairs under
the provisions of the Servicemen's Readjustment Act of 1944 were exempted
from the regulation. Subsequently it came to the attention of the Board that a
State had enacted similar legislation providing for guaranties by a State agency,
and that other States might take the same action. The credits under this legislation which would be subject to Regulation W consisted principally of residential
repairs and improvements and certain consumers durable goods purchased occasionally for business use, and it was the view of the Board that such credits when
guaranteed under State legislation could be exempted from the Regulation for the
same reason as prompted the earlier amendment.
MEETING ON MAY 22,

1945

Members present: Mr. Eccles, Chairman; Mr. Ransom, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Draper; Mr. Evans.
Amendment to Regulation W, Consumer Credit.
By unanimous vote, effective June 11, 1945, Regulation W was amended
in certain respects relating almost exclusively to transactions for financing
the purchase of materials, articles, and services used in repairs or improvements of residential property.
The reasons for the Board's action are set forth in the following paragraphs
contained in a statement for the press issued under date of May 23, 1945:
"The purpose of this amendment, notwithstanding the fact that it makes
certain changes of detail in down-payment and maturity requirements, is



FEDERAL RESERVE SYSTEM

85

essentially administrative. It reflects no change in the Board's consumer
credit policy or in the place of consumer credit regulation in the Government's anti-inflation program.
"Under the amendment no credit transaction in the home-improvement
field is any longer exempted from the Regulation by reason of the way
in which it may be secured, the area in which it may be located, or the
type of job to which it may relate. For all such credit transactions, if they
relate to residential property and are not over $1,500, a length-of-contract
requirement is prescribed, but no down-payment requirement is prescribed
for any of them. The maximum maturity may not hereafter exceed 18
months except that for certain 'fuel conservation credits' extended during
the next five months the maximum maturity may be 24 months. Heretofore some such transactions have been altogether exempt, some have been
subject to a maturity limitation of 12 months, and others have been subject
to both a down-payment requirement of one-third and a maturity limitation of 12 months.
"The amendment also contains some technical provisions which relate
to so-called 'summer plans' for specified home-improvement items and
others which relate to the exemption for 'disaster credits.'"
MEETING ON JUNE 27,

1945

Members present: Mr. Eccles, Chairman; Mr. Ransom, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Draper; Mr. Evans.
Amendment to Regulation D, Reserves of Member Banks.
By unanimous vote, Section 2(a) of Regulation D was amended effective
August 1, 1945, to provide that for reserve purposes a member bank with
its head office or any branch office located in a central reserve city shall be
considered to be in a central reserve city, and a member bank with its head
office or any branch office in a reserve city but no office in a central reserve
city shall be considered to be in a reserve city, provided that a member
bank considered to be in a central reserve or reserve city solely by reason of
the location of an office in an outlying district of such a city may be permitted, upon the affirmative vote of Rwt members or the Board of Governors, to carry lower reserve balances as provided in Section 2 of the
Regulation.
The question which gave rise to this amendment was the manner in which
reserves should be computed in the case of a member bank having a branch or
branches in a reserve city, but having its head office in a non-reserve city. The
Board had never ruled on the question whether, in such a situation, the deposits
of a member bank should be subject to the reserve requirements applicable to
reserve city banks or those applicable to non-reserve city banks. However, the
Board had ruled many years ago, in the case of a bank with its head office in a
reserve city and branches in non-reserve cities, that such a bank was required to
maintain against all of its deposits wherever located the reserves required of reserve
city banks.
Before taking action on the amendment, the Board obtained the views of the
Federal Reserve Banks and, through them, of the member banks which would
be affected by the amendment. After careful consideration of these views and the
potential effect of the amendment on the banks, as well as the history of reserve
requirements and the provisions and purposes of section 19 of the Federal Reserve
Act, the Board came to the conclusion that the amendment should be adopted.



86

ANNUAL REPORT OF BOARD OF GOVERNORS

The amendment adopted by the Board provides the same rule for all member
banks with either a head office or a branch in a reserve city as the rule made in the
early years of the Federal Reserve System that a member bank with its head office
in a reserve city having non-reserve city branches is required to maintain reserves
on a reserve city basis against all of its deposits wherever received. It also follows
the principle observed since 1918 in New York City, in that a member bank
located in a borough other than Manhattan is not required to carry reserves on
a central reserve city basis unless it has a branch in Manhattan, and a member
in the boroughs of Queens or Richmond is classified as a non-reserve city bank
unless it has an office in Brooklyn or the Bronx in which case it is classified as a
reserve city bank. Moreover, the amendment is consistent with the position
taken by the Board for many years that a bank and its branches comprise a single
institution for reserve purposes.
MEETING ON JULY 3,

1945

Members present: Mr. Eccles, Chairman; Mr. Ransom, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Draper; Mr. Evans.
Amendments to Regulation T, Extension and Maintenance of Credit by Brokers,
Dealers, and Members of National Securities Exchanges, and Regulation U,
Loans by Banks for the Purpose of Purchasing or Carrying Stocks Registered on
a National Securities Exchange.
Regulations T and U were amended to increase the margin requirements
on registered securities (other than exempted securities) in a general account and on short sales under Regulation T, and on stocks under Regulation U from 50 to 75 per cent, effective July 5, 1945, and to include in both
regulations a requirement to become effective July 16, 1945, that the
proceeds of sales of securities in an undermargined account be used to
the extent necessary to increase the margin on the remaining securities
until they are on a 75 per cent basis. The amendments also made certain
technical changes in the regulations, including one relating to specialists'
accounts, to become effective July 5, 1945, which excepted specialists from
the increase in margin requirements and from the change in requirements
concerning the proceeds of sales; another which terminated as of July 16,
1945, any margin requirements on omnibus accounts, and a third which,
effective July 16, 1945, eliminated from Regulation U the exemption of
any loan for the purpose of purchasing stocks to any person whose total
indebtedness to the bank did not exceed $1,000.
On this action the vote was unanimous except that Mr. McKee voted
"no" on the proposed increase in margin requirements from 50 to 75 per
cent, on the amendments relating to specialists' accounts, and the termination of the exemption from the provisions of Regulation U of a loan to a
person whose total indebtedness to the bank did not exceed $1,000.
In deciding to increase the margin requirements to the 75 per cent level and to
make the related changes included in these amendments, the Board considered
that the continued upward trend and increased activity in the securities markets
justified the action for the purpose of preventing the excessive use of credit for
purchasing or carrying securities. In addition, account was taken of the fact
that the amount of credit used for these purposes, after decreasing in March, had
increased again thereafter by a substantial amount. All of these considerations
were deemed by the Board to have special weight by reason of the existence of an
unprecedented and growing volume of purchasing power in the hands of in


FEDERAL RESERVE SYSTEM

87

dividuals and corporations, as a result of the war and war financing, at a time
when there was an acute shortage of goods, and the consequent danger of general
inflation.
In deciding to impose new restrictions on the use of credit in undermargined
accounts, which would not require any liquidation but would prevent the use of
credit already obtained from being used to make new commitments, the Board
was influenced by the consideration that this would operate to restrain speculative activity and that it would also put the holders of old accounts, so far as new
purchases were concerned, on the same basis as new customers.
The requirements for specialists were left unchanged in recognition of the fact
that specialists, under the rules of national securities exchanges, are charged
with a stabilizing function and are subject to strict rules of the exchanges designed
to confine their operations to the performance of that function.
The prescribing of margin requirements for omnibus accounts and omnibus
loans was terminated on the ground that it had ceased to be necessary, largely in
consequence of the operation of a rule of the Securities and Exchange Commission, relating to the hypothecation of customers' securities. This rule, promulgated in 1941, had the effect of limiting the omnibus borrowings of brokers and
dealers to the mere refinancing of customers' transactions which were themselves
governed by Regulation T.
MEETING ON JULY 9,

1945

Members present: Mr. Eccles, Chairman; Mr. Ransom, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Evans.
Amendment to Regulation F, Trust Powers of National Banks.
By unanimous vote, Regulation F was amended, effective September 1,
1945, to provide (a) that the maximum amount that may be invested by
a national bank for any one trust in a common trust fund be increased
from 10 per cent of the value of the assets of the common trust fund or
$25,000, whichever is less, to 10 per cent of the value of the assets of the
fund at the time of investment or $50,000, whichever is less, (b) a reasonable time, not to exceed one week, in which to effect appraisals and make
the necessary computations following each valuation date, and (c) for
restrictions on the advertising of a common trust fund. Similar changes
were made in the provisions relating to mortgage investment funds.
These changes were adopted after consultation with the Committee on
Common Trust Funds of the American Bankers' Association and other qualified
trust officers. When the limitation of $25,000 was adopted in 1937, it was regarded as a compromise and subject to change as the actual operation of common trust funds and their development might indicate. As a result of such
experience, it appeared to the Board that, without danger to the safety of trust
funds, the limitation could be raised to permit greater diversity in investments
and to effect operating economies which would benefit both the trustees and
the beneficiaries. The change relating to appraisals and computations following
valuation dates was for the purpose of clarifying the language of the regulation
which had been somewhat differently interpreted by different banks and to
allow additional time in which to make the necessary determinations. The third
amendment was for the purpose of preventing the use of a common trust fund as
an investment trust and to emphasize the requirement of the Regulation that
the bank could not permit any funds of any trust to be invested in a common



00

ANNUAL REPORT OF BOARD OF GOVERNORS

trust fund if it had reason to believe that the trust was not created or was not
being used for bona fide fiduciary purposes.
MEETING ON JULY 27,

1945

Members present: Mr. Ransom, Vice Chairman; Mr. Szymczak; Mr. Evans.
Amendment to Regulation W, Consumer Credit.
By unanimous vote (Mr. Draper was unable to be present but had
stated that if present he would vote for the amendment), Section 8
of Regulation W was amended effective July 27, 1945, to change as stated
below the provisions of the exemptions relating to (1) military aircraft
credits, (2) agricultural loans, and (3) railroad watches.
In its application to aircraft, the regulation had not previously made a distinction between personal and commercial planes because no planes were available
for private purchase. With the sale by the Government of surplus stocks and
the fact that new planes would be coming on the market within a few months,
it was felt that such a distinction should be made so that small planes for personal
use would be subject to the Regulation while larger planes which would be used
for commercial purposes would be exempt.
The purpose of the second change was to broaden the exemption of agricultural loans so as to make it possible for the Federal Land Banks to make as large
a loan in certain circumstances as the Land Bank Commissioner may make.
Before this amendment was adopted, the purchase of railroad watches was
exempt from the Regulation on condition that the registrant obtain a certification
of need on a form prescribed by the War Production Board. This certification
had been discontinued by the War Production Board and, since the railroads
still required new employees to purchase such watches, it was felt that the reasons
for the exemption still existed. The amendment was adopted for the purpose
of continuing it under a procedure which provided for a certification of need
by the division superintendent of the railroad.
MEETING ON SEPTEMBER 25,

1945

Members present: Mr. Eccles, Chairman; Mr. Ransom, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Draper; Mr. Evans.
Amendment to Regulation W, Consumer Credit.
By unanimous vote, Regulation W was amended, effective October 15,
1945, to exempt therefrom credits for home repairs and improvements and
to lengthen from 12 to 18 months the maturity limitations on loans not
for the purpose of purchasing consumers' durable goods.
This action was taken by the Board after a review of developments following
the termination of the war and of the measures that had been or might be taken
to relax wartime controls in the interest of orderly reconversion. It was the belief
of the Board that, until consumers' goods came on the market in sufficient supply
to meet demands, the use of consumer credit to purchase such goods should
continue to be discouraged and that, therefore, the Regulation should not be
substantially amended at this time except as stated above. The exemption of
home-improvement credits was in accord with the policy of rapid relaxation of
other Governmental controls on residential and other building. The extension



FEDERAL RESERVE SYSTEM

89

of the permissible maturity for loans not for the purpose of purchasing consumers'
durable goods was approved because it was felt that the extension would be a
helpful liberalization for persons and families facing readjustment of their
affairs in consequence of the ending of the war and would not seriously impair the
effectiveness of the Regulation in accomplishing its primary objectives.
MEETING ON NOVEMBER 16,

1945

Members present: Mr. Eccles, Chairman; Mr. McKee; Mr. Draper; Mr. Evans.
Amendment to Regulation W, Consumer Credit.
By unanimous vote, Regulation W was amended, effective December 1,
1945, to (a) exempt from its provisions any extension of credit to an
automobile salesman which was to be repaid within 12 months to purchase an automobile to be used as a demonstrator, and (b) to permit any
loan, which was not made for the purpose of purchasing consumers'
durable goods and which was made when the maturity was limited to 12
months, to be extended to 18 months from the date of the original loan,
and to permit additions to instalment loans with maturities up to 18
months provided the addition did not represent credit for purchasing
consumers' durable goods and the payments on the consolidated loan were
as large as on the old obligation.
The first change restored a provision in the Regulation which was in effect
prior to May 1942 and was designed to relieve an automobile salesman from
having to meet the standard requirements in purchasing a new automobile which
was to be used as a demonstrator.
The second change was in the nature of a clarifying supplement to the
amendment adopted by the Board as of October 15, 1945, which extended from
12 to 18 months the permissible maturity for instalment loans which were not
for the purpose of purchasing consumers' durable goods. It was agreed that this
change was a logical consequence of the amendment of October 15, 1945, although not included in its language.




RECORD OF POLICY ACTIONS
FEDERAL OPEN MARKET COMMITTEE

MEETING ON MARCH I, 1945

Members present: Mr. Eccles, Chairman; Mr. Sproul, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Ransom; Mr. Draper; Mr. Evans; Mr. Williams; Mr.
Gidney; Mr. Leedy; Mr. Gilbert.
A meeting of the Federal Open Market Committee (the last before the members
of the Committee took office who were elected as representatives of the Federal
Reserve Banks for terms of one year beginning March 1, 1945), was held on
February 28, 1945, for the purpose of ratifying actions which had been taken
under existing policies and to discuss matters relating to Treasury financing. At
that meeting no policy actions were taken.
1. Authority to Effect Transactions in System Account.
At the meeting on March 1, 1945, upon motion duly made and seconded,
and by unanimous vote, the following direction to the executive committee was approved:
That the executive committee be directed, until otherwise directed by the
Federal Open Market Committee, to arrange for such transactions for the
System open market account, either in the open market or directly with the
Treasury (including purchases, sales, exchanges, replacement of maturing
securities, and letting maturities run off without replacement), as may be
necessary in the practical administration of the account, or for the purpose
of maintaining about the present general level of prices and yields of Government securities, or for the purpose of maintaining an adequate supply of
funds in the market; provided that the aggregate amount of securities held in
the account at the close of this date [other than (1) bills purchased outright
in the market on a discount basis at the rate of 3/8 per cent per annum and
bills redeemed at maturity and (2) special short-term certificates of indebtedness purchased from time to time for the temporary accommodation of the
Treasury] shall not be increased or decreased by more than $1,500,000,000.
That the executive committee be further directed, until otherwise directed
by the Federal Open Market Committee, to arrange for the purchase for the
System open market account direct from the Treasury of 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 amount of such certificates held in the account at any one time shall
not exceed $1,500,000,000.

The open market policies of the System continued through the year 1944 to be
determined on the basis of the needs of war financing and were designed to
continue the assurance of an adequate supply of member bank reserves and to
exert an influence toward the maintenance of conditions in the Government
security market that would be satisfactory from the standpoint of Government
requirements. When this meeting of the Committee was held, plans were being
made for the Seventh War Loan Drive which would result in a further large
increase in Treasury borrowing. It also appeared that as long as the war lasted
90



FEDERAL RESERVE SYSTEM

91

there probably would be a continued increase in currency in circulation, coupled
with a further reduction in the monetary gold stock of the United States, all
of which would require large additional amounts of reserve funds to be supplied
by the Federal Reserve Banks. In these circumstances the Committee was of the
opinion that there was no occasion for a change in its existing general policy,
and that it should renew the outstanding direction to the executive committee to
arrange for the purchase and sale of securities for the System account. This was
accomplished by the approval of the direction set forth above, which was in the
same form as the direction issued at the previous meeting of the Federal Open
Market Committee on December n , 1944.
2. Purchase by Federal Reserve Banks of Treasury Bills at Posted Discount Rate.
Upon motion duly made and seconded, the following direction to
the Federal Reserve Banks was approved by unanimous vote, with the
understanding that resales of Treasury bills held under option would be
for immediate delivery when so requested by the option holder:
Until otherwise directed by the Federal Open Market Committee, the 12
Federal Reserve Banks are directed to purchase all Treasury bills that may
be offered to such Banks on a discount basis at the rate of 3/8 per cent per
annum, any such purchases to be upon the condition that the Federal Reserve
Bank, upon the request of the seller before the maturity of the bills, will
sell to him Treasury bills of like amount and maturity at the same rate of
discount. All bills purchased under this direction are to be held by the
purchasing Federal Reserve Bank in its own account and prompt reports
of all transactions in Treasury bills are to be made to the Manager of the
System Open Market Account.
The above direction was in the same form as that issued by the Committee on
March 1, 1944, with respect to the purchase of Treasury bills except that the
last sentence was changed to provide that the Federal Reserve Banks should
make prompt reports of all transactions in Treasury bills (instead of reports of
purchases only) to the Manager of the System Open Market Account. The
direction was renewed for substantially the same reasons as when the earlier
action was taken and was presented for the purpose mainly of affording the
incoming representatives of the Federal Reserve Banks who were elected as
members of the Committee for terms of one year beginning March 1, 1945, an
opportunity to vote on the question of policy involved. The change in the last
sentence of the direction was merely to conform the language of the direction
to the present practice of reporting all transactions in Treasury bills to the
Manager of the System Open Market Account.
MEETING ON JUNE 20,

1945

Members present: Mr. Eccles, Chairman; Mr. Sproul, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Ransom; Mr. Draper; Mr. Evans; Mr. Williams;
Mr. Gidney; Mr. Leedy; Mr. Gilbert.
1. Authority to Effect Transactions in System Account.

Upon motion duly made and seconded, the following direction to the
executive committee was approved by unanimous vote:
That the executive committee be directed, until otherwise directed by
the Federal Open Market Committee, to arrange for such transactions for



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ANNUAL REPORT OF BOARD OF GOVERNORS

the System open market account, either in the open market or directly with
the Treasury (including purchases, sales, exchanges, replacement of maturing
securities and letting maturities run or! without replacement), as may be
necessary in the practical administration of the account, or for the purpose
of maintaining about the present general level of prices and yields of Government securities, or for the purpose of maintaining an adequate supply of
funds in the market; provided that the aggregate amount of securities held
in the account at the close of this date [other than ( i ) bills purchased outright in the market on a discount basis at the rate of 3/8 per cent per annum
and bills redeemed at maturity and (2) special short-term certificates of
indebtedness purchased from time to time for the temporary accommodation
of the Treasury] shall not be increased or decreased by more than
$2,000,000,000.

That the executive committee be further directed, until otherwise directed
by the Federal Open Market Committee, to arrange for the purchase for the
System open market account direct from the Treasury of 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 amount of such certificates held in the account at any one time shall not
exceed $1,500,000,000.

When this action was taken the Seventh War Loan Drive was nearing completion. It was evident to the Committee that, although the European phase of
the war had come to an end, there was little likelihood of any decline in war
expenditures during the period before another meeting of the Committee and,
for that reason, the need for reserve funds would continue to be large. In fact,
it was estimated that if the next meeting of the Committee were held in October
of this year it would be necessary for the Federal Reserve Banks to put into the
market in the neighborhood of $2 billion in order to supply the funds that would
be needed. In view of this situation, the Committee decided that its existing general policy should be continued for substantially the same reasons as prompted its
adoption. Accordingly, the above direction was approved in the same form as the
direction issued at the meeting of the Committee on March 1, 1945, except that, for
the reason set forth above, the limitation contained in the first paragraph on the
amount by which the total securities held in the System account could be increased was raised from $1,500,000,000 to $2,000,000,000.
MEETING ON OCTOBER 17, 1945

Members present: Mr. Eccles, Chairman; Mr. Sproul, Vice Chairman; Mr.
Szymczak; Mr. McKee; Mr. Ransom; Mr. Draper; Mr. Evans; Mr. Williams;
Mr. Gidney; Mr. Leedy; Mr. Gilbert.
1. Authority to Effect Transactions in System Account.
Upon motion duly made and seconded and by unanimous vote, the
following direction to the executive committee was approved:
That the executive committee be directed, until otherwise directed by the
Federal Open Market Committee, to arrange for such transactions for the
System open market account, either in the open market or directly with the
Treasury (including purchases, sales, exchanges, replacement of maturing
securities, and letting maturities run off without replacement), as may be
necessary in the practical administration of the account, or for the purpose



FEDERAL RESERVE SYSTEM

93

of maintaining about the present general level of prices and yields of Government securities, or for the purpose of maintaining an adequate supply of
funds in the market; provided that the aggregate amount of securities held
in the account at the close of this date [other than ( i ) bills purchased
outright in the market on a discount basis at the rate of 3/8 per cent per
annum and bills redeemed at maturity and (2) special short-term certificates
of indebtedness purchased from time to time for the temporary accommodation of the Treasury] shall not be increased or decreased by more than
$2,000,000,000.

That the executive committee be further directed, until otherwise directed,
by the Federal Open Market Committee, to arrange for the purchase for
the System open market account direct from the Treasury of 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 amount of such certificates held in the account at any one time shall
not exceed $1,500,000,000.

Since the preceding meeting of the Committee the war had come to an end
and the Treasury had announced the Victory Loan Drive as the last great public
drive to be held. With the approach of the termination of the war the Committee at previous meetings had considered the need for reformulating the credit
policies of the System, on the basis of possible postwar conditions. It gave particular consideration to abuses that had grown up in the Government security
markets, including speculative purchases of securities during the war loan drives
and sales by banks of short-term securities to the Federal Reserve Banks to
obtain funds with which to purchase long-term securities which had created
reserves in amounts greater than were needed for the successful financing of
the war and which were adding to inflationary pressures. A discussion of these
problems will be included in the report of the Board of Governors to Congress.
At this meeting the open market policies of the System were reviewed in the
light of these considerations and of an estimate before the Committee that it
would be necessary for the Federal Reserve Banks between the date of this
meeting and the end of the Victory Loan Drive, to purchase between $1.5 billion
and $2 billion of Government securities for the purpose of providing the funds
which would be needed to meet anticipated increases in currency in circulation
and in required reserves of member banks. It was felt that the reasons on which
the existing policies of the Committee were based made it desirable to continue
these policies through the remainder of the current year and the direction set
forth above, which was in the same form as the direction issued at the meeting
on June 20, 1945, was approved for that purpose. In this connection it was
understood that the executive committee would continue its discussions with the
Treasury of the problems arising with the termination of the war as well as the
System's postwar credit policies and the policies of the Treasury with respect to
management of the public debt.




UNITED STATES v. CONSUMERS HOME
EQUIPMENT CO.

DISTRICT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF MICHIGAN,
SOUTHERN DIVISION
UNITED STATES OF AMERICA, Plaintiff,

(
Civil Action
CONSUMERS HOME EQUIPMENT CO., a corporation,
and A. B. CHERETON, 4801-19 Woodward Avenue,

No. 5097

Detroit, Michigan, Defendants.
JUDGMENT

The above-entitled matter came on to be heard by the Court upon the complaint and stipulation for consent judgment filed herein by the parties. Upon
consideration of the same and it appearing to the Court that plaintiff's complaint alleges in substance that the defendants named have violated Regulation
W of the Board of Governors of the Federal Reserve System and that the defendants have stipulated that this consent judgment be entered against them,
Now,

THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED

That the defendants, Consumers Home Equipment Co. and A. B. Chereton,
and their agents, servants, representatives, employees and persons in active
concert and participation with them, and any and all companies and persons
under their control, respectively, be and they are hereby permanently enjoined, in
the installment sale of merchandise, from:
1. Making installment sales subject to the requirements of Regulation W of
the Board of Governors of the Federal Reserve System without obtaining the
cash down payment required by Section 4(0) of said Regulation.
2. Making installment sales subject to the requirements of Regulation W of
the Board of Governors of the Federal Reserve System without furnishing the
obligors the statement of transaction required by Section q(d) of said Regulation.
3. Making installment sales subject to the requirements of Regulation W of
the Board of Governors of the Federal Reserve System without maintaining and
preserving, for the life of the obligation to which they relate, such books of account,
records and other papers as are relevant to establishing whether or not an extension of credit within the scope of said Regulation was in conformity with
the requirements thereof, as required by Section n(h) of said Regulation.
Dated this 19th day of July, 1945.
By the Court:
(signed) Ernest A. O'Brien,
Judge, United States District Court.

94



PEOPLES BANK v. FEDERAL RESERVE BANK
OF SAN FRANCISCO
DISTRICT COURT OF THE UNITED STATES, NORTHERN DISTRICT OF CALIFORNIA
PEOPLES BANK,

Plaintiff,

v.
FEDERAL RESERVE BANK OF SAN FRANCISCO, BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM, AND HENRY F. GRADY, FEDERAL
RESERVE AGENT, Defendants.
ORIGINAL FILED

November 17, 1944, with Clerk, U. S. District Court,

San Francisco.
No. 23243-R
OPINION

This is a suit by the Peoples Bank, a State banking corporation organized
under the laws of the State of California, to annul and enjoin the enforcement of
a condition of membership required by the Board of Governors of the Federal
Reserve System as a prerequisite to granting plaintiff the right to become a
member bank of the Federal Reserve System.
Following the jurisdiction allegations, and those identifying the parties, the
complaint alleges (Par. IV) that on or about November 28, 1941, plaintiff, desiring
to become a member of the Federal Reserve System, made application to the
Board of Governors of the Federal Reserve System (hereinafter referred to as
"the Board"), under the rules and regulations prescribed by the Board, for the
right to subscribe to the stock of the Federal Reserve Bank of San Francisco
(hereinafter referred to as "Reserve Bank"). On or about May 6, 1942, it is
stated, the Board approved plaintiff's application for membership, subject to
certain conditions, among which was the one complained of, numbered 4. This
condition, it is stated, was as follows:
"4. If, without prior written approval of the Board of Governors of the
Federal Reserve System, Transamerica Corporation or any unit of the Transamerica group, including Bank of America National Trust and Savings Association, or any holding company affiliate or any subsidiary thereof, acquires,
directly or indirectly, through the mechanism of extension of loans for the
purpose of acquiring bank stock, or in any other manner, any interest in such
bank, other than such as may arise out of usual correspondent bank relationships, such bank, within 60 days after written notice from the Board of Governors of the Federal Reserve System, shall withdraw from membership in the
Federal Reserve System."
Plaintiff claims that this condition is "arbitrary, unreasonable, capricious, discriminatory, ultra vires and null and void in all respects" in that no power has
been conferred upon the Board to exact such condition as a prerequisite to membership in the Federal Reserve System. It is then alleged (Par. V) that on or
about May 7, 1942, the defendant Reserve Bank informed plaintiff that, as a



95

g6

ANNUAL REPORT OF BOARD OF GOVERNORS

condition to its subscription to stock in the Reserve Bank, it would be required
by said bank to accept condition No. 4 and agree to comply therewith by resolution of its board of directors. On or about May 12, 1942, plaintiff, it is stated,
"being desirous of acquiring the said stock" in the Reserve Bank and becoming
a member thereof "and under the compulsion of the said requirement of said
defendant," accepted the condition and, by resolution of plaintiff's board, agreed
to comply therewith. Although the fourth paragraph of the complaint states
that the condition of membership complained of emanated from the Board,
it is alleged that it was "exacted" of plaintiff by the Reserve Bank and that, in
so doing, the Reserve Bank violated the obligation imposed upon it by statute
to administer its affairs fairly and impartially and without discrimination
against plaintiff.
It is alleged (Par. VI) that on or about February 17, 1944, without the assistance of prior knowledge of plaintiff, Transamerica Corporation became the
owner of five hundred out of five thousand shares of the capital stock of plaintiff.
It is stated, upon information and belief, that this acquisition of plaintiff's stock
by Transamerica Corporation was without the written approval of the Board
and falls within the purview of condition No. 4 "imposed upon plaintiff by defendant, the Federal Reserve Bank of San Francisco." Notice of this purchase
of plaintiff's stock by Transamerica Corporation was given the Board by plaintiff
on or about April 4, 1944 (Par. VII). After stating that the defendants assert that
the condition is valid and enforceable, it is alleged (Par. VIII), also upon information and belief, that the defendants intend to and will, unless restrained, take proceedings, predicated on condition No. 4, to deprive plaintiff of its stock in the
Reserve Bank and its membership in the Federal Reserve System, to the irreparable
damage of plaintiff and that such proceedings are imminent. The validity and
enforceability of the condition is denied, and it is alleged that the condition, being
void, constitutes a cloud upon plaintiff's title to its shares in the Reserve Bank.
Alleging the existence of a justiciable controversy and the lack of other adequate
remedy, plaintiff asks this Court for declaratory relief, for a decree invalidating
the condition and for temporary and permanent injunctive relief against the
enforcement of the condition or the termination of plaintiff's membership in the
Federal Reserve System. However, no application for an injunction pendente lite
was made.
In opposition to the relief requested in the complaint, the following motions
were filed: Board of Governors of the Federal Reserve System, motion to dismiss;
Henry F. Grady, motion to dismiss; Federal Reserve Bank of San Francisco,
motion to dismiss and, in the alternative, motion for summary judgment. In
addition, plaintiff interposed a counter-motion for summary judgment against
the defendant Reserve Bank. To this counter-motion, defendant Reserve Bank
filed a motion to strike. This counter-motion will be stricken. It is clear that,
under Rule 56a of the Federal Rules of Civil Procedure, a party seeking to recover upon a claim or to obtain declaratory relief may move for summary judgment in his favor only after a pleading responsive to the complaint has been
filed. No such pleading has been filed by the Reserve Bank in this case. The
counter-motion is premature.
Moore's Federal Practice, Vol. 3, p. 3181
U. S. v. Adlers Creamery Inc., C. C. A., 2nd, 1939 107 Fed. (2d) 987
Fox v. Johnson and Wimsatt, 127 Fed. (2d) 729
The motion of the Board of Governors of the Federal Reserve System for dismissal will be granted. This Board is an independent establishment of the
United States, created by the Congress to perform certain important govern


FEDERAL RESERVE SYSTEM

97

mental functions prescribed by the Federal Reserve Act and other statutes (30
Op. Atty. Gen. 308, 311). Neither in the enactment creating the Board nor in
any subsequent act has the Congress given its consent to suits against the Board.
Aside from this, however, it is undeniably true that, by law, the habitat or official
residence of this Board is in the District of Columbia (U.S.C., Tit. 12, Sec. 244).
Service of summons and complaint in this case was made by sending a copy
thereof by registered mail to the Board at its office in Washington, D. C. The
appearance entered by the Board was special, for the sole purpose of testing the
jurisdiction of this Court over it. Whether or not this suit be considered as one
against the United States and therefore not maintainable against the Government without its own consent or Congressional sanction, it is undeniably true
that the Board is not an "inhabitant" of this district and therefore may not be
sued herein without its consent (U.S.C., Tit. 28, Sec. 112). That this is the law
is amply supported by the authorities.
International Molders Union v. National Labor Relations Board, 26 Fed. Supp.
423.
Appalachian Electric Power Co. v. Smith ( C C A . 4th) 67 Fed. (2d) 451;
certiorari denied, 291 U. S. 674
Raichle v. Federal Reserve Ban\ of New Yor\ (CCA. 2d) 34 Fed. (2d) 910
Howard v. United States ex rel. Alexander (CCA. 10th) 126 Fed. (2d) 667;
certiorari denied, 62 S. Ct. 1297, 316 U.S. 699, 86 L.Ed. 1768
Kentucky Natural Gas Corporation v. Public Service Commission of Kentucky
(D.C, Ky.) 28 Fed. Supp. 509; affirmed in CCA., 119 Fed. (2d) 417
Carr v. Desjardines (D.C, Okla.) 16 Fed. Supp. 346
United States v. Western Fruit Growers, Inc. (D.C., Cal.) 34 Fed. Supp. 794
Plaintiff contends that, because the Federal Reserve Act makes provision for
the appointment in each Reserve district of a Federal Reserve Agent who, in addition to his duties as chairman of the board of directors of the Reserve Bank,
is required to maintain a local office of the Board on the premises of the Reserve
Bank and to act as the official representative of the Board in the performance of
the functions of the Board (U.S.C., Tit. 12, Sec. 244), the situation is sui generis
and the general rule is inapplicable. With this contention, I do not agree. If it
were sound, it would subject the Board to the jurisdiction of any district court
in any district where a Reserve Bank is maintained and a Federal Reserve Agent
could be found. In many of the cases in which the right of governmental agencies
to be sued only in the District of Columbia has been sustained, there have been
local agents with powers as broad as those accorded Federal Reserve Agents,
authorized to act and acting for the agency at the place where the suit was
brought, but the fact that such agency existed has not been held to create an exception to the rule. Nor has the plaintiff cited any cases in support of its contention.
The motion of Henry F. Grady, Federal Reserve Agent, for dismissal as to
him is likewise granted. It is not contended that Grady performed any function
or had any authority to act in connection with the imposition of the condition
of membership concerning which complaint is made. He is described in plaintiff's
brief as "a proper though not indispensable party" (Plaintiff's Brief, p. 86). It
may be true that, if he had been an actor in the matters concerning which complaint is made and if he had legal authority for such acts, he would be a proper
party. But the questions presented on this motion to dismiss are primarily
whether the Board is an indispensable party and, if so, whether, with the Board
absent, this Court can proceed with the suit as against the Reserve Agent. In
other words, granting that this Court has jurisdiction of the person of the
Reserve Agent, does the complaint state a claim for relief as to him and is there



98

ANNUAL REPORT OF BOARD OF GOVERNORS

any justiciable controversy as to him in the absence of the Board. In matters
of the kind involved in this suit, the Board is undoubtedly an indispensable party
and, under the facts alleged in the complaint, there exists no cause of action
against the Reserve Agent and no justiciable controversy between him and
plaintiff. Plaintiff says:
"No allegation is made that the Reserve Agent took any part in the imposition
upon the plaintiff of the invalid condition, but it is alleged that he, along with
the other defendants, contends that it is a valid condition and intends to enforce
it as against the plaintiff." (Plaintiff's Brief on motion to dismiss complaint,
P-7)
Regardless of what the Reserve Agent believes regarding the validity of the
condition of membership (a matter which is entirely immaterial), a careful search
of the law governing his statutory authority fails to disclose any provision which
would confer upon him any authority to enforce the conditions or penalize
plaintiff for breach thereof (U.S.C., Tit. 12, Sees. 305, 411 to 417, inc., and 445).
Moreover, the mere expression by the pleader of the opinion or fear that the
Reserve Agent "intends" to enforce the condition, without any allegation as to
when, where or by what means the threat of enforcement was made, does not
assist in stating a valid claim {National War Labor Board, et at. v. Montgomery
Ward & Co., Inc., 144 Fed. (2d) 528). The power and responsibility of fixing
conditions of membership for State banks applying for admission to the Federal
Reserve System, as well as the administrative power to expel banks from the
Federal Reserve System for violation, are vested by law in the Board of Governors
of the Federal Reserve System and in that body alone. In such matters, the
Federal Reserve Agent has no authority whatever and, if an injunction were
to be granted in this suit, it would be the hands of the Board which must be
tied, not those of the Federal Reserve Agent. In the absence of the Board, there
exists no justiciable controversy between plaintiff and the Federal Reserve Agent
and no jurisdiction in this Court to hear the case as to him.
Appalachian Electric Power Co. v. Smith, supra New Orleans Private Patrol,
etc. v. Fleming (D.C., La.) 33 Fed. Supp. 856
Webster v. Fall, Secretary of Interior 45 S. Ct. 148, 266 U.S. 507
Redlands Foothill Groves v. Jacobs (D.C., Cal.) 30 Fed. Supp. 995
Bethlehem Ship Building Corp. v. Nylander, et al. (D.C., Cal.) 14 Fed. Supp.
201

fames, Inspector v. La\e Wales Citrus Growers Assn. (C.C.A., 5th) n o Fed.
(2d) 653
In opposition to the motion to dismiss and the alternative motion for summary
judgment interposed by the Federal Reserve Bank of San Francisco, plaintiff very
earnestly and ably argues that, even though this Court does not have jurisdiction
to hear the suit as against the Board and even though it be found, as I have
found, that, as to the Federal Reserve Agent, the complaint fails to state a claim
or cause of action upon which relief can be granted, nevertheless this Court has
jurisdiction of the person of the Federal Reserve Bank and should proceed with
the suit as against it. In opposition to the motion to dismiss, it is argued that
the complaint states a cause of action as against the Reserve Bank alone (Plaintiff's
Brief, pp. 5, 6); that the complaint shows the existence of a cloud upon or an
adverse claim affecting plaintiff's ownership of stock in the Reserve Bank (Plaintiff's Brief, pp. 87-93); and that the condition of membership is absolutely void
and therefore the fact of its acceptance by plaintiff is immaterial (Plaintiff's Brief,
pp. 14-55). These and the other arguments made in opposition to the Reserve
Bank's motion to dismiss I have considered carefully.



FEDERAL RESERVE SYSTEM

99

In opposition to the alternative motion for summary judgment interposed
by the Reserve Bank, it is argued that it is immaterial that the Reserve Bank
acted in a purely ministerial and clerical capacity on behalf of the defendant
Board; that the complaint alleges and the fact is that the Reserve Bank "imposed"
the condition complained of as a requirement of its own and that it is neither
legally nor factually true that the Reserve Bank is without authority to take
proceedings for the enforcement of condition No. 4.
First, in connection with the motion for summary judgment, I have read the
two affidavits of William A. Day, President of the Reserve Bank, and the counteraffidavit of W. M. Parker, Cashier of plaintiff bank, and have considered the
cases cited in the briefs. It seems clear from the uncontradicted statements contained in the Day affidavits that the Reserve Bank has never taken any position
with regard to the validity of the condition; that it has not attempted to and
does not intend in the future to attempt to enforce the condition; and that, prior
to this suit, it had never received from plaintiff any complaint regarding the
condition or its imposition. It is equally clear that neither the letter dated May 7,
1942, addressed by the Reserve Bank to plaintiff (Day affidavit, Ex. I), transmitting the "suggested form" of resolution for adoption by plaintiff's board,
nor the resolution itself constituted an attempt by the Reserve Bank to take action
independent of that of the Board with relation to the condition of membership.
These were pursuant to instructions from the Board and constitute the mere
action of the Board. It is also clear from the law that Congress has vested in the
Board, and in that body only, the power and authority to prescribe conditions of
membership for State member banks and, after administrative hearing, to forfeit
membership upon proper proof of violation of the law or the regulations of the
Board made pursuant thereto (U.S.C., Tit. 12, Sec. 327). Neither the Parker
affidavit nor the exhibits thereto tend to contradict these conclusions. Therefore,
there is ample reason to grant the motion of the Reserve Bank for summary
judgment. However, due to the fact that I have concluded that I do not have
jurisdiction of the subject matter of the suit as it affects the Reserve Bank and
have decided to grant its motion to dismiss, the motion for summary judgment
will be denied.
I am of the opinion that, as against the Federal Reserve Bank of San Francisco,
the complaint fails to state a claim or cause of action upon which relief can be
granted; that as to that Bank alone this suit is one against a subaltern without
authority and is not maintainable; and that this suit does not present a proper
case for injunctive relief, because in the complaint no coercion or compulsion
in the legal sense is alleged, because it does not appear from the complaint that
plaintiff is now confronted with any immediate or imminent danger of injury,
irreparable or otherwise, and because, as between plaintiff and the Reserve
Bank, no justiciable controversy, in the legal sense, exists. It is my opinion, also,
that this suit may not properly be maintained as one to remove a cloud upon
the title of plaintiff's stock in the Reserve Bank. For the foregoing reasons, the
motion of the Federal Reserve Bank of San Francisco for dismissal as to it will
be granted.
All State banks desiring to become members of the Federal Reserve System
are required to apply to the Board of Governors, under such rules and regulations as it may prescribe, for the right to subscribe for stock in the appropriate
Reserve Bank. The Board, subject to the provisions of the Act and subject to
such conditions as it may prescribe pursuant thereto, may permit the applying
bank to become a member (U.S.C., Tit. 12, Sec. 321). If at any time it should
appear to the Board that a member bank has failed to comply with the applicable



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ANNUAL REPORT OF BOARD OF GOVERNORS

provisions of the Act or the regulations of the Board, it is within the sole power
of the Board, after hearing, to require the offending bank to surrender its stock
and forfeit membership. The Board may, in proper cases, restore forfeited
membership (U.S.C., Tit. 12, Sec. 327). Whenever a member bank is ordered
by the Board, under authority of law, to surrender its stock holdings in the
Reserve Bank, all its rights and privileges as a member bank thereupon cease
(U.S.C., Tit. 12, Sec. 328). It is thus evident from the law that the Board is
the only body vested by Congress with authority to admit and expel State member
banks. That that is true is equally evident from Regulation H, promulgated
by the Board and governing the membership of State banks (C.F. Reg., U.S.C.,
Tit. 12, Ch. II, Part 208). This being true, any act on the part of the Reserve
Bank, looking to the imposition of conditions of membership or the enforcement
thereof, would be an act on its part, without authority in law and without
binding effect. The complaint alleges that plaintiff's application for membership
was approved by the Board, which gave its permission to plaintiff to become a
member bank subject to conditions (Complaint, Par. IV). The subsequent
allegation to the effect that the Reserve Bank "required" the acceptance of the
condition and an agreement to comply with it, while no doubt made for the
purpose of giving this Court a semblance of jurisdiction, does not aid to that
end for, at best, it must be concluded that, if true, the Reserve Bank was merely
passing on to plaintiff the conclusions reached by the Board, the only body vested
with authority in the premises. As a subaltern without authority, the Reserve
Bank may not be sued alone for the alleged misfeasance of the admitted superior.
The relief sought is from the Reserve Board, not the Reserve Bank. To allow
this suit to be maintained as against the subordinate alone would be contrary to
the settled rules of equity practice.
Warner Valley Stoc\ Co. v. Smith, 165 U. S. 28, 34, 17 S. Ct. 225, 41 L. Ed. 621
Gnerich v. Rutter, 265 U. S. 388, 44 S. Ct. 532, 68 L. Ed. 1068
Jewel Productions, Inc. v. Morgenthau, 100 Fed. (2d) 390
Neher v. Harwood (C.C.A., 9th) 128 Fed. (2d) 846, 849
Defendant Reserve Bank also urges that the complaint does not allege a proper
case of coercion or compulsion warranting equitable relief; that there is presented
no proper case for declaratory relief; that plaintiff has sustained no present injury;
and that, taken at its best, the complaint sets forth a case of anticipated possible
future injury which may or may not be sustained, depending upon future and,
as yet, unannounced action by the Board of Governors of the Federal Reserve
System. It is claimed that this case is governed by decisions such as the following:
Smith v. American Asiatic Underwriters (C.C.A., 9th) 127 Fed. (2d) 754
Southern Pacific Company v. Conway (C.C.A., 9th) 115 Fed. (2d) 746
United States v. West Virginia, 295 U. S. 463, 55 S. Ct. 789, 79 L. Ed. 1546
Northport Power & Light Co. v. Hartley, 283 U. S. 568, 51 S. Ct. 581, 75 L. Ed.
1275
These arguments seem sound and, aside from the more important question
of jurisdiction over the subject matter, sufficient to warrant sustaining the motion
to dismiss. The condition of membership complained of is certainly not selfexecuting. It provides merely that, // Transamerica Corporation or its subsidiaries acquire stock of plaintiff bank without the Board's permission and //
the Board, being advised of that fact, gives plaintiff notice, plaintiff will withdraw
from or surrender its membership in the Federal Reserve System. It is to be
presumed that, the two prerequisite facts existing, if the plaintiff refused to



FEDERAL RESERVE SYSTEM

101

surrender its membership in the System on notice from the Board, this would
constitute a violation of the condition. But it is not alleged that the Board has
taken any action of the kind described and, since over six months elapsed between
the filing of the complaint in this suit and the hearing on the motions without
a supplemental complaint being filed, it may be presumed that the Board has
not yet acted. However that may be, it is clear that the complaint presents a
case of anticipated, possible injury, based, it seems largely, upon conjecture and
not such a case of immediate and impending danger as would warrant injunctive
relief.
sfei'ij&j
National War Labor Board v. Montgomery Ward, supra
Finally, it is my opinion that there is no merit in plaintiff's contention that
condition No. 4 constitutes a cloud upon the title to plaintiff's stock in the
Reserve Bank or an adverse claim affecting the same, in the nature of a cloud,
the existence of which the Court has power to remove. Plaintiff's shares in the
Reserve Bank are a mere incident to its membership therein. This stock is
nontransferable, nonnegotiable and has no "market value." Title to this stock
must, under the law, remain in plaintiff bank so long as it is a member bank
and, when and if that status is forfeited, the title to the stock is likewise forfeited.
None of the defendants claims an estate or interest in the stock adverse to plaintiff.
Clearly a case is not presented which is governed by section 738 of the California
Code of Civil Procedure. The suit sounds in personam, against the Board of
Governors for alleged abuse of discretion, not in rent. Moreover, if, as I have
determined, this Court is without jurisdiction to hear the case, as against the
Board, jurisdiction as to all other incidents of the case likewise fails.
Hartmann v. Federal Reserve Ban\ of Philadelphia, 55 Fed. Supp. 801
1. The motion of the plaintiff, Peoples Bank, for summary judgment against
the defendant, Federal Reserve Bank of San Francisco, is denied.
2. The motion of the defendant, Federal Reserve Bank of San Francisco, for
summary judgment against the plaintiff is denied.
3. The motion of the defendant, Federal Reserve Bank of San Francisco,
to strike plaintiff's motion for summary judgment is granted.
4. The motions to dismiss filed by each of the defendants will be granted.
The Court is of the view that the defendant Board of Governors of the
Federal Reserve System is an indispensable party not properly before the Court
and that the complaint does not state a claim for equitable relief or for declaratory
judgment within the jurisdiction of this Court as to any of the defendants. Therefore, this Complaint is dismissed as to all defendants for lack of jurisdiction of
this Court.
,
#%
An order will be entered in accordance with this Opinion.
DATED: San Francisco, California,
November 17th, 1944.
Michael J. Roche,
United States District Judge.




102

ANNUAL REPORT OF BOARD OF GOVERNORS

UNITED STATES CIRCUIT COURT OF APPEALS FOR THE NINTH CIRCUIT
PEOPLES BANK, Appellant,

v.
FEDERAL RESERVE BANK OF SAN FRANCISCO AND HENRY F. GRADY, FEDERAL
RESERVE AGENT, Appellees.

FEDERAL RESERVE BANK OF SAN FRANCISCO, Appellant,

v.
PEOPLES BANK, Appellee.

No. 11,002

June 29, 1945
UPON APPEALS FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE
NORTHERN DISTRICT OF CALIFORNIA, SOUTHERN DIVISION

Before Garrecht, Mathews and Bone, Circuit Judges
Garrecht, C. J.
The question here is whether this Court has jurisdiction.
The Peoples Bank brought suit against the Federal Reserve Bank of San
Francisco, Board of Governors of the Federal Reserve System, and Henry F.
Grady, Federal Reserve Agent, to annul and enjoin the enforcement of a condition of membership in the Federal Reserve System required by the Board of
Governors of the Federal Reserve System. In an opinion dated November 17,
1944, the lower court held that it did not have jurisdiction as the indispensable
party, the Board of Governors of the Federal Reserve System, was not properly
before the court, and there was no action against the other defendants. An
order was filed the same day, granting motions to dismiss and denying motions
for summary judgment. The Judgment itself was filed January 8, 1945, dismissing the cause at plaintiff's cost. Both the Peoples Bank and Federal Reserve
Bank appealed from the order of November 17, 1944, after Judgment was entered.1
The appellee, Henry F. Grady, and the cross-appellant, the Federal Reserve
Bank, have filed motions to dismiss the appeal of the Peoples Bank. This Court
is of the opinion that both appeals should be dismissed. The order of November
17, 1944, is not an appealable order within the meaning of section 128 of the
Judicial Code, 28 U. S. C. A., section 225.
City and County of San Francisco v. McLaughlin, Collector of Internal Revenue

et al. (9th Cir.) 9 F. (2d) 930
Wright v. Gibson et al. (9th Cir.) 128 F. (2d) 865, 866.
This rule clearly applies to the instant case, as the lower court in denying
a motion to correct the order of November 17, 1944, to show that it was a final
disposition of the case, said:
«# # # t k e Order on Motions, dated and* entered herein on the 17th day of
November 1944, does not contain any error therein arising from oversight or
omission or otherwise, that the said Order on Motions, at the time the same was
made and entered, was not regarded by the Court as a final order, judgment or
decree, that the said Order on Motions was, and is, a memorandum order
1

T h e Notice of Appeal of Peoples Bank was dated Dec. 16, 1944, but was not filed until Jan. IS, 1945.




FEDERAL RESERVE SYSTEM

IO3

only, and that the Judgment Dismissing Action on Defendants' Motions to
Dismiss, Ordering Plaintiff's Motion for Summary Judgment Stricken, and
Denying Motions for Summary Judgment, approved as to form by plaintiff's
counsel as provided by Rule 5(d) of Rules of Practice of this Court, signed
and entered herein on the 8th day of January 1945, was, and is, the final Judgment rendered by this Court in the said action."
The lower court intended to enter a memorandum order on November 17,
1944. The appellant and cross-appellant intended to and did appeal from that
order of November 17, 1944. The Peoples Bank appeal is taken from "that part
of the Order of the above entitled Court, Honorable Michael J. Roche, Judge,
presiding, dated the 17th day of November 1944", which part grants the motions
to dismiss. The fact that the Peoples Bank attempted to correct the order of
November 17, 1944, is evidence of their intention to appeal from that order and
not the Judgment. In appealing from that part of the order denying summary
judgment, the Federal Reserve Bank, in describing the order, itself used the
very same language in its Notice of Appeal as did the Peoples Bank.
No appeal was ever taken from the Judgment dated January 8, 1945.
Dismissed.




Francis
United
Clifton
United
Homer
United

A Garrecht
States Circuit Judge
Mathews
States Circuit Judge
T. Bone
States Circuit Judge

AGNEW v BOARD OF GOVERNORS OF THE
.
FEDERAL RESERVE SYSTEM
UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA

No. 9102.
JOHN AGNEW, F. O. FAYERWEATHER, APPELLANTS,

v.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, ET AL., APPELLEES.

Appeal from the District Court of the United States for the District of Columbia.
Argued November 14, 1945.

Decided February 13, 1946.

Mr. Hugh H. Obear for appellants.
Mr. J. Leonard Townsend, Assistant General Attorney, Board of Governors
of the Federal Reserve System, with whom Mr. Edward M. Curran, United
States Attorney, was on the brief, for appellees.
Before EDGERTON, WILBUR K. MILLER and PRETTYMAN, JJ.
PRETTYMAN, J.: Appellants sought from the District Court a writ of certiorari
to the Board of Governors of the Federal Reserve System (to which we shall refer
as the Board) or, in the alternative, a mandatory injunction, seeking review of
an order of the Board which had removed them from office as directors of the
Paterson National Bank of Paterson, New Jersey. The District Court dismissed
the complaint.
The substantive controversy revolves around the meaning of the words
"primarily engaged" in the following statute:
"No officer, director, or employee of any corporation or unincorporated
association, no partner or employee of any partnership, and no individual,
primarily engaged in the issue, flotation, underwriting, public sale, or
distribution, at wholesale or retail, or through syndicate participation, of
stocks, bonds, or other similar securities, shall serve the same time as an
officer, director, or employee of any member bank except in limited classes
of cases in which the Board of Governors of the Federal Reserve System
may allow such service by general regulations when in the judgment of
the said Board it would not unduly influence the investment policies of
such member bank or the advice it gives its customers regarding investments." x
The Board is empowered,2 upon certification by the Comptroller of the Currency, to remove from office a director of a member bank if it finds that he has
continued to "violate any law" relating to the bank, after having been warned
*Act of June 16, 1933, c. 89, § 32, 48 Stat. 194 (as amended Aug. 23, 1935, c. 614, § 307, 49 Stat.
709), 12 U. S. C. A. § 78.
2 By Section 30 of the Act (12 U. S. C. A. § 77).
IO4



FEDERAL RESERVE SYSTEM

105

by the Comptroller. A director who participates in the management of a bank
after having thus been ordered removed from office, is liable to a fine of not more
than $5,000 or imprisonment for not more than five years, or both.
Appellants were directors of the Paterson National Bank, one since November
27, 1934, and the other since January 13, 1925. Since March, 1941, they have
been employees of Eastman, Dillon & Co., a New York concern engaged in the
securities business.
After certification by the Comptroller of the Currency and after hearing, the
Board made the following findings of fact in respect to Eastman, Dillon & Co.:
The company advertises its business as "Underwriters, Distributors, Dealers
and Brokers in Industrial, Railroad, Public Utility and Municipal Securities."
For the fiscal year 1943, its gross income from the "underwriting field" (meaning the issue, flotation, underwriting, public sale or distribution, at wholesale
or retail or through syndicate participation, of stocks, bonds or other similar
securities)3 amounted to 26 per cent of its gross income from all sources; and
its gross income from the brokerage business (acting as agent in buying and
selling for others) amounted to 42 per cent of its gross income from all sources.
For the fiscal year ending February 29, 1944, its gross income from the "underwriting field" amounted to 32 per cent of its gross income from all sources; and
its gross income from the brokerage business amounted to 47 per cent of its
gross income from all sources. Considering the market value of the securities
which were bought and sold by the firm as agent as well as those bought and
sold by it for its own account during an indefinite period prior to September
20, 1943, that part lying within the "underwriting field" would represent about
15 per cent of the total market value. If one were to classify the total number
of transactions during an indefinite period prior to September 20, 1943, it would
be found that those in the "underwriting field" would amount to a similar percentage (15 per cent) of the total number. During the year 1943, the firm ranked
ninth among 94 leading investment bankers of the country with respect to its
total participations in underwritings of bonds. Excluding municipal and railroad bonds, its participations in underwritings during 1943 amounted to
$14,657,000. For a period during 1943 it ranked first among the underwriters.
Upon the basis of the foregoing findings of fact, the Board reached the following "Conclusions of Law":
"The only substantial question, and the one upon which this matter
turns, is whether Eastman, Dillon & Co. was, at the times stated in the
certificate of the Comptroller of the Currency, 'primarily engaged in the
issue, flotation, underwriting, public sale, or distribution, at wholesale or
retail, or through syndicate participation, of stocks, bonds, or other similar
securities' within the meaning of section 32 of the Act. The Respondents
contend that the use of the word 'primarily' limits the application of the
statute to those cases in which the underwriting business of the securities
firm is first in volume in comparison with any other business or businesses
in which it engages. It is true that, under oae of its definitions, the word
has a quantitative meaning. This, however, is not the only accepted
meaning. The word 'primary' is frequently used in another sense. For
instance, red is one of the 'primary' colors but it is not the only primary
color; Saturn is one of the 'primary' planets but it is neither the only nor
the largest one. Standard dictionaries cite as examples of the use of the
word in the latter sense expressions such as 'the primary causes of a war'
3
The Board thus used the term "underwriting" to mean the entire operation described in the statute.
We shall so use it.




106

ANNUAL REPORT OF BOARD OF GOVERNORS

and 'a matter of primary importance.' (Merriam-Webster International
Dictionary and Webster's Collegiate Dictionary.) The Board is mindful
of the rules of statutory construction that, while all of the words of a statute
should be considered as having meaning, where a word used in a statute is
susceptible of several meanings, that meaning should be adopted which
best accords with the intention of the legislature in enacting the statute.
Also, a word used in a statute should not be construed to produce an absurd
consequence if it is susceptible of another construction in accord with
the legislative intent. Section 32 is one of several measures enacted in
1933 designed to divorce commercial banking from investment banking.
To say that a securities firm ranking ninth among the leading investment
bankers of the country with respect to its total participations in underwritings of bonds, and for a period ranking first, should be held to be
beyond the scope of the statute is to say that Congress enacted a statute
with the intention that it would apply to no one. The construction for
which the Respondents contend, which is based on one accepted definition
of the word 'primarily', would lead to that result. The other construction,
which is based on another accepted definition of that word, would conform
to the Congressional intention as established by the legislative history.
Accordingly, the Board finds as a matter of law that Eastman, Dillon & Co.,
at the times stated, was 'primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through
syndicate participation, of stocks, bonds, or other similar securities'."
In general terms the questions presented are: Had the District Court jurisdiction? If so, what power has the court? Should the Board's interpretation of the
statute stand?
It is important that the first two questions be more precisely defined. Generalities as to judicial review serve to confuse rather than to clarify. Three features
of the case at bar delimit its questions of jurisdiction and of power. First, the
statute involved is a general prohibition directed to all persons whatsoever. It
forbids the persons described from being directors of a member bank. The
authority of the Board is statutory and extends as far as, but no further than, the
acts prohibited by the statute itself. Second, the Board seeks to determine the
meaning of the statute as a matter of law; it does not present as the determinative
premise of its order a finding of fact that Eastman, Dillon & Co. was primarily
engaged in underwriting. It is quite clear and commendably candid about its
action and its objective. The facts as to Eastman, Dillon & Co. are the material
from which the ruling is fashioned, but the ruling itself is a statutory construction.
Third, no statutory method of appeal exists and the persons involved must, in order
to test their rights, either seek the process of injunction or submit to criminal
prosecution. The order of the Board is a final order.
The question of jurisdiction, therefore, is: Where an administrative agency issues
a final order affecting the rights of individuals, which order is based upon a
construction of a statute of general application, upon which construction the
authority of the agency depends, and where, there being no statutory appeal,
the individuals involved have no means of testing their rights except by civil
action for injunction or by subjecting themselves to criminal liability by disobeying the order, has a Federal District Court jurisdiction to examine the order of
the agency in a civil action for injunction? We think that it has.
We are not at this point considering the range of issues open to review, but
merely whether, under the circumstances stated, resort can be had to the court at
all. It is the right to challenge, not the extent of the remedial power, which



FEDERAL RESERVE SYSTEM

107

must first be considered. We think it unnecessary to analyze the long line of
cases dealing with the subject. Concurring in the St. Joseph Stoc\ Yards case,4
Mr. Justice Brandeis remarked, "The supremacy of law demands that there shall
be opportunity to have some court decide whether an erroneous rule of law was
applied." The factors determinative of jurisdiction vel non were carefully analyzed
by Mr. Justice Frankfurter in the Rochester Telephone case.5 The Duquesne
Warehouse cases in this court6 and in the Second Circuit7 contain elaborate
references to the authorities. In his dissent in the latter case, Judge Frank commented:
"I note in passing that in this Circuit we have not believed that the Supreme
Court has suggested that we submit to 'administrative absolutism,' and consequently we have not hesitated to protect the legal rights of citizens when
administrative officers have acted in excess of their statutory powers."
We think it unnecessary to review the cases at length.
The pending dispute is obviously a controversy and a case. The order complained of is not an interim administrative step. The requirements of equity are
met by the fact that "disregard of the Commission's adverse action entails threat of
oppressive penalties." 8 The challenged power of the Board arises only when a director of a bank continues to violate a "law," in this case a statute. The content of
the "law" is a subject for judicial determination. When presented under circumstances such as those just outlined, equity power exists to consider it.
A more difficult problem is the scope of the power of the court having jurisdiction. This question, like the question of jurisdiction, must be stated in terms
of the case at bar, and not as an abstract generality. Most important of the
limiting circumstances in this respect is that the Board has rested its order upon
a construction of the statute as a matter of law. It did not evade or becloud the
issue by merely making a finding of fact that, considering all the facts and circumstances Eastman, Dillon & Co. was primarily engaged in underwriting, thus
seeking the protection of the doctrine of substantial evidence. Its objective is
not the treatment of this concern alone. It seeks, quite properly, to establish
the meaning of the statute which gives it power. With frankness and candor,
which we think admirable, it poses the precise question to which it seeks an
answer. Its course was to conclude that, as a matter of law, the phrase "primarily
engaged" encompasses activities which, while not first or principal, are nevertheless substantial and important; and it then found that, within the meaning thus
established, Eastman, Dillon & Co. was primarily engaged in underwriting.
The ultimate question before us is whether the interpretation of the statute by
the Board, as the definition of a standard to be applied generally, is correct. That
question is not one of fact. It is not even what one learned author calls "a particularized conclusion,"9 i.e., the exercise of judgment with respect to particular
facts in determining the application of the statute.10 The question is a matter
of law.11 We need not, therefore, attempt to thread our way through the
confused and conflicting phases of the subject of judicial review which have
*St. Joseph Stock Yards Co. v. U. S., 298 U. S. 38, 84, 56 S. Ct. 720, 80 L. Ed. 1033 (1936).
Rochester Tel. Corp. v. U. S., 307 U. S. 125, 59 S. Ct. 754, 83 L. Ed. 1147 (1939).
0
Railroad Retirement Board v. Duquesne Warehouse Co.,
U. S. App., D. C.
, 149 Fed. 2d
507 (1945).
7
Duquesne Warehouse Co. v. Railroad Retirement Board, 148 F. 2d 473 (C. C. A. 2d, 1945).
8
Language of Mr. Justice Frankfurter in the Rochester Telephone case, supra, note 5.
9
Stern, Review of Findings of Administrators, Judges and Juries, 58 Harv. L. Rev. 70, 98.
10
Board v. Hearst Publications, 322 U. S. I l l , 64 S. Ct. 851, 88 L. Ed. 1170 (1944); South Chicago
Co. v. Bassett, 309 U. S. 251, 60 S. Ct. 544, 84 L. Ed. 732 (1940); Parker v. Motor Boat Sales, 314
U.11 244, 62 S. Ct. 221, 86 L. Ed. 184 (1941): Rochester Tel. Corp. v. U. S., supra note 5.
S.
"When the issue relates to the existence or nature of a general rule or standard which will be applicable to many cases, it is normally regarded as presenting a question of law." Stern, supra note 9, at 94.
5




108

ANNUAL REPORT OF BOARD OF GOVERNORS

puzzled both courts and students. On matters of law, unmixed, reviewing
courts are free to substitute their own judgment for that of the administrator, although great weight must be given the administrative judgment. Consideration
of a few recent decisions of the Supreme Court are sufficient to establish this
conclusion. Dobson v. Commissioner, 320 U. S. 489, 64 S. Ct. 239, 88 L. Ed. 248
(1943);12 Security Mills Co. v. Commr, 321 U. S. 281, 64 S. Ct. 596, 88 L. Ed. 725
(1944); Medo Corp. v. Labor Board, 321 U. S. 678, 681-682, n. 1, 64 S. Ct. 830,
88 L. Ed. 1007 (1944);13 For an earlier statement see Great Northern Railway
Co. v. Merchants Elevator Co., 259 U. S. 285, 295 et seq., 42 S. Ct. 477, 66 L. Ed.
943 (1922).
We conclude as to the scope of the power of the court that the construction of
the statute, for violation of which the Board is authorized to remove from office
directors of a bank, is essentially a judicial function, but that the construction
given the statute by the Board is entitled to great weight and respect.
The Board, in contending that the interpretation of this statute is within its
unreviewable authority, relies upon Adams v. Nagle, 303 U. S. 532, 58 S. Ct. 687,
82 L. Ed. 999 (1938), as controlling. We find little similarity between that case
and the case at bar. The opinion in that case, by Mr. Justice Roberts, dealt
with the power of the Comptroller of the Currency to determine the sufficiency
of the assets of a closed national bank as a prerequisite to assessment against the
stockholders. The Court found that it had been invariable administrative practice, apparently since 1864, for the Comptroller to make such determinations, that
prompt liquidation of such banks was desirable, that it would be intolerable if
the Comptroller's decisions were open to attack collaterally, and that Congress
had confided this function to the Comptroller. The Court held that the primary
object of the statute was the protection of creditors, that reimbursement of the
stockholders must await possible realization upon the assets, and that the remedy
of the stockholder must await that event. None of these circumstances or considerations are in the present case.
We come now to consider the meaning of the statute. The facts in the case
at bar are clear and clearly found. Thereby the alternative involved in the decision is made clear. Underwriting and brokerage, although both concerned with
securities, are vastly different operations. By no quantitative test shown in this
record can Eastman, Dillon & Co. be held to be principally or chiefly engaged
in underwriting. Whether measured by volume, by income, or by number of
transactions, its business is principally brokerage.14 On the other hand, its
underwriting business is substantial, and it ranks high in the relative dollar
amount of such business among concerns in the United States. So, if substantial
business other than the chief or principal business be considered, the company is
within the statute. Thus, the question narrows to this: Does "primarily engaged"
12
"It is contended that the applicable statutes and regulations properly interpreted forbid the method
of calculation followed by the Tax Court. If this were true, the Tax Court's decision would not be 'in
accordance with law' and the Court would be empowered to modify or reverse it. Whether it is true is a
clear-cut question of law and is for decision by the courts." (Page 492.) ". . . ; when the court cannot
separate the elements of a decision so as to identify a clear-cut mistake of law, the decision of the Tax
Court must stand. In view of the division of functions between the Tax Court and reviewing courts it is
of course the duty of the Tax Court to distinguish with clarity between what it finds as fact and what
conclusion it reaches on the law. In deciding law questions courts may properly attach weight to the
decision of points of law by an administrative body having special competence to deal with the subject
matter." Id. at 502.
13
See also Stern, supra note 9, at 97: "Such questions as to the test to be applied or the factors to be
considered relevant or controlling are legal rather than factual. Though they must be determined initially
by the lower court or administrative body, it is open to the reviewing court to set them aside whenever
it disagrees with the decision below."
14
These are all the quantitative measures mentioned or found by the Board, and the court is not permitted to speculate as to whether other measurements, such as net income, interest, effort or self-appraisal
of importance, not found by the Board, might lead to a different result. We must assume that the Board
mentioned all relevant factors, and certainly the validity of its conclusions must rest upon its findings and
not upon speculations by the court as to other facts.




FEDERAL RESERVE SYSTEM

109

mean chiefly, or principally, engaged, or does it mean simply substantially, or
importantly, engaged?
The Board says that the phrase "primarily engaged" has two possible meanings.
Its premise is that the word "primary" has two possible meanings, one being a
quantitative meaning and the other the meaning which the word has in expressions such as "the primary colors," "one of the primary planets," "the primary
causes of war," and "a matter of primary importance." It says that the latter
meaning accords with the legislative intent and, further, that the former leads to
absurd results. It, therefore, adopts the latter meaning and concludes that, as a
matter of law, Eastman, Dillon & Co. was primarily engaged in underwriting
within the meaning of the statute.
It is true that the adjective "primary" has different shades of meaning, but
always its basic idea is "first". It may refer to the first in order of time, and thus
mean original or initial; or in order of importance, and thus mean chief or principal; or in order of derivation, and thus mean fundamental. Its synonyms are
"prime" and "primeval". Its antonyms are "secondary" and "lesser". The
difference which the Board senses, but does not state, is that "primary" is not
restricted to the singular; it may refer to a plural. Thus, the primary colors are
not one but several; and so with the planets and the causes of war. An activity
may be either a primary activity or the primary activity of a given person. The
adverb "primarily" has similar shades of meaning. The Board's interpretation is,
in effect, that "primarily engaged" as it occurs in this statute encompasses all the
important activities of a concern; that it means "a" primary activity, not merely
"the" primary activity.
But "primary" when applied to a single subject always means first, or chief, or
principal. A concern's "primary activity" is never otie of several; it is always the
first, or chief, or principal, activity. And so it is with "primarily". When applied to a single activity, as it is to underwriting in the case at bar, it always
means the first, or chief, or principal, activity. One would never say that a person
is "primarily concerned" or "primarily interested" or "primarily engaged" in a
specified single activity, if the idea sought to be conveyed was that the named
activity was a lesser among several important activities. To say that such an
expression conveys that idea is, we think, clearly erroneous.
In its brief, the Board epitomizes its position by saying, "Undoubtedly, then,
Eastman, Dillon & Co. are 'fundamentally' or 'primarily' engaged in both the
brokerage business and the underwriting business. To put it otherwise, underwriting is one of the businesses in which the firm is 'primarily' engaged." The
latter sentence makes plain the error of law of the Board. It is true that the word
"primary" may be applied to a plurality of items in order to distinguish that
group from still others as secondary. But this does not answer the question which
is posed by the statute. That problem is to ascertain whether the designated
concern is primarily engaged in a single, named activity, i.e., underwriting. That
problem is not solved by finding that the concern is primarily engaged in a group
of several activities, in contradistinction to still other lesser activities, and then
concluding that the concern is primarily engaged in each separate activity in the
first group. That process would lead to the conclusion that an activity which,
standing by itself, is by every standard less than another, is, nevertheless, primary.
Such a conclusion is simply not true. The activity in which the concern is in fact
secondarily engaged cannot be made its primary engagement by a process of
reasoning which includes a fallacy of division.
The expression which Congress chose to use in this statute is an ordinary one,
and in ordinary usage certainly refers to the chief or principal activity in which



110

ANNUAL REPORT OF BOARD OF GOVERNORS

the company is engaged.15 In dealing with practical matters, Congress does not
consciously utilize obscure meanings of ordinary words to convey its intent. We
should not impute to it either an ineptitude or a departure from its custom. So
far as the ordinary and normal meaning of the words is concerned, the matter
before us is clear and without difficulty. The sum of the matter is that we simply
do not see how it can be said that a company is primarily engaged in underwriting,
when underwriting is not, by any standard of measurement shown by the record,
its chief or principal business. The Board strains at the language in order to
achieve a result which it believes to be desirable.
It should be added that if Congress had meant to direct its prohibition to companies simply engaged in underwriting, or substantially engaged in underwriting
(i.e., to companies whose underwriting activities are secondary although important among several activities), it could have said so, as it has said many times in
statutory enactments, and did in fact, as we shall see, so say in another section of
this same Act.
But the Board says, quite properly, that legislative intent must govern statutory
construction. It says that Congress intended to separate as far as possible national and member banks from securities dealers. In support, it points in its
brief to the Senate Committee Report16 on the bill which became the Act, and to
Section 2017 and Section 21 18 of the Act.
The section of the Committee Report upon which the Board relies reads:
"The committee has, therefore, determined to present proposed legislation
aimed at the following objects:
"(1) To separate as far as possible national and member banks from
affiliates of all kinds."
But the bill upon which th£ Committee was reporting contained a definition of
"affiliates". When the Committee said "affiliates", it was using a term defined,
not a generality. The bill, and the consequent Act19 defined an affiliate as any
corporation, etc., of which a member bank owns or controls either a majority of
the voting shares or more than 50 per cent of the shares voted for the election of
directors, or controls in any manner the election of a majority of directors; or of
which control is held by shareholders of a member bank who own or control either
a majority of the shares of the bank or more than 50 per cent of the shares voted
for the election of directors of the bank; or of which a majority of its directors
are directors of any one member bank. It is thus clear that the separation about
which the Senate Committee was speaking in the Report relied on by the Board,
was based upon a majority of shares or a majority of directors. It was not a
complete dissolution of intermingled personnel; it was a dissolution of control
only. It applied a quantitative test. Such were the "affiliates" to which the
Senate Committee referred.
Moreover, the full text of the Committee Report does not bear out the meaning
attached by the Board to the single sentence quoted. The context is:
"(a) The greatest of such dangers is seen in the growth of 'bank affiliates*
which devote themselves in many cases to perilous underwriting operations,
stock speculation, and maintaining a market for the banks' own stock often
largely with the resources of the parent bank. This situation was never
15
It is true, as the Board says in its brief, that some dictionaries give "fundamental" as a meaning of
"primary"; and some also give "essential", which, however, the Board does not mention. But these words
are not synonyms of "primary", and they overlap in meaning only when the implication of "fundamental"
or "essential" is "first" or "principal." Other meanings of "fundamental" and "essential" cannot
be ascribed to "primary" merely because the words are in part analogous. Certainly those words, in
meanings other than "principal", are not apt as descriptive of business activity.
16
Sen. Rep. No. 77, 73rd Cong., 1st Sess. (1933).
17
48 Stat. 188, 12 U. S. C. A. § 377.
*M8 Stat. 189. 12 U. S. C. A. § 378.




FEDERAL RESERVE SYSTEM

III

contemplated by the National Banking Act, and it would, therefore, appear
that the affiliate system calls for the establishment of some legislative provisions designed to deal with the situation. It has been suggested from
many quarters that the affiliate system be simply, 'abolished.' This suggestion has much authority behind it, but, in addition to the manifest difficulty
of enforcement, owing to the existence of well-known subterfuges to maintain
control, there remains the question whether it would be of much real service
so long as State legislation permits the growth of affiliates in connection with
State banks and trust companies. The committee has, therefore, determined
to present proposed legislation aimed at the following objects:
"(i) To separate as far as possible national and member banks from
affiliates of all kinds.
"(2) To limit the amount of advances or loans which can be obtained by
affiliates from the parent institutions with which they are connected.
"(3) To install a satisfactory examination of affiliates, working simultaneously with the present system of examination applicable to the parent
banks." 20
It is thus clear that the Committee, in this section of its Report, was concerned
with the "bank affiliate" system, and, further, that it did not deem feasible the
abolition of that system, dangerous though it was said to be. That the legislation
was not designed to accomplish the total abolition of even the affiliate system, and
was addressed to a described evil, lends weight to the idea that in using the word
"primarily" in its description of the prohibited relationship in Section 32 of the
Act, Congress intended a restricted scope rather than totality in the prescribed
separation.
Referring to Section 20 of the Act, the Board says, in its brief in this court:
"One of the principal sections designed to attain these purposes is section 20
of the Act, which provides that no member bank shall be affiliated 'in any
manner' with any company 'engaged principally in the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate
participation of stocks, bonds, debentures, notes, or other securities/ "
But the Act does not read as the Board quotes it. It does not say "that no
member bank shall be affiliated 'in any manner' with any company," etc. It says,
"no member bank shall be affiliated in any manner described in subsection (b)
of section 2.21a of this title with any corporation," etc. (Italics supplied.) The
subsection mentioned is the definition of affiliates which we have just discussed.
Thus, Section 20, in full text, prescribes dissolution of control only, and not the
complete divorcement indicated by the partial quotation relied on by the Board.
There is a vast difference.
Thus, it is plain that the Committee Report and the section of the Act from
*M8 Stat. 162, 12 U. S. C. A. § 221a. The Act said:
"As used in this chapter—
"(b) Except where otherwise specifically1 provided, the term 'affiliate' shall include any corporation, business trust, association, or other similar organization—
"(1) Of which a member bank, directly or indirectly, owns or controls either a majority of the
voting shares or more than SO per centum of the number of shares voted for the election of its
directors, trustees, or other persons exercising similar functions at the preceding election, or controls in any manner the election of a majority of its directors, trustees, or other persons exercising
similar functions; or
"(2) Of which control is held, directly or indirectly, through stock ownership or in any other
manner, by the shareholders of a member bank who own or control either a majority of the shares
of such bank or more than 50 per centum of the number of shares voted for the election of directors
of such bank at the preceding election, or by trustees for the benefit of the shareholders of any
such bank; or
"(3) Of which a majority of its directors, trustees, or other persons exercising similar functions
are directors of any one member bank."
*> Supra note 16, at 10.




112

ANNUAL REPORT OF BOARD OF GOVERNORS

which the Board says we must derive the intent of Congress, do not prescribe the
complete divorcement which the Board urges, but, quite the contrary, direct only
a dissolution of control. In each provision of the definition of the prohibited
affiliation, the line is drawn at the majority. Forty-nine per cent is permissible.
Fifty-one per cent is prohibited. This is a quantitative test. If, as the Board says,
we are to ascertain the intent of Congress by these references, we reach the clear
conclusion that Congress intended to apply a quantitative test in its prohibition.
As to Section 21 of the Act, the Board says, in its brief in this court:
"Section 21 is complementary to section 20 and, among other things, prohibits any company which is engaged in the underwriting business from engaging 'at the same time to any extent whatever in the business of receiving
deposits . . .'"
This section of the Act, prohibiting dealers in securities from engaging in the
banking business, contains two expressions pertinent to the present inquiry.
Congress here used the phrase "engaged in the business"—not "primarily engaged," or "principally engaged," but simply "engaged". It added the emphatic
phrase "to any extent whatever". These words prescribe complete separation.
When Congress meant complete separation, it said so, in this same Act, in unmistakable terms. It knew what terms to use, and used them.
We do not know why Congress, in separating member banks from outside
interests, went only so far as to prohibit control. We do not know why it rested
its prohibition upon the precise line of majority. We only know that it did so.
And the fact that it did so seems to indicate that when it used the term "primarily
engaged" in Section 32 of the Act, as contrasted with "engaged" and "engaged
to any extent whatever" in Section 21, it had in mind a chief or principal business
as measured by a quantitative test.
The Board says that if "primarily engaged" be construed to mean chiefly or
principally engaged, absurd consequences would follow.21 But we do not see that
the consequences would be more absurd than those which ensue when Section 20
is applied. That a principality of business be requisite to a prohibition is no more
absurd than that 51 per cent of stock ownership be requisite. The Board urges
that to except one of the large and important concerns from this prohibition
would be absurd. If the interrelationship were 49 per cent, it would be excepted
from the prohibition of Section 20. One seems no more absurd than the other.
Research by the court has revealed one, and only one, previous reference by the
Board to the provision here involved.22 Our idea that the connection is too
remote to be helpful seems to have been shared by the Board as that ruling was
neither cited nor mentioned by it in brief or argument. On the other hand, the
same phrase in other statutes has been repeatedly interpreted. For example, by
Section 2(a)(3) of the Public Utility Holding Company Act of 1935,23 the
Securities and Exchange Commission was authorized to declare a company without the Act if it found certain facts, including one that the company "is primarily
engaged in one or more businesses other than the business of an electric utility
company," and, in another clause, if it "is engaged primarily in manufacturing";
similar phrases appear in Section 3(a)(3) 24 in relation to holding companies.
The Commission has many times considered cases under the quoted language,
and while we do not find that it ever defined the phrase, the findings of fact
underlying its conclusions appear always to have been quantitative in nature and
21
T h e Board remarks in its conclusions that if " p r i m a r i l y " be held to mean principally, t h e statute
would apply to no one. So far as appears, this observation is a speculative generality, which on t h e
record cannot be treated as a finding of fact.
22 27 Fed. Reserve Bull. 399 ( 1 9 4 1 ) .
23
49 Stat. 804, IS U . S. C . A. § 79b.
2*49 Stat. 810, IS U . S. C . A § 79c.




FEDERAL RESERVE SYSTEM

113

it uses the terms "principal business" and "principally engaged" as synonymous
with "primarily engaged" (for example, The Cleveland-Cliffs Iron Company,
3 S. E. C. 326, 329, 330; Sloss-Sheffield Steel and Iron Company, 3 S. E. C. 460;
Aluminum Company of America et al., 5 S. E. C. 640, 645; Fairbanks, Morse &
Co., 8 S. E. C. 360, 361). In the International Paper Company case, 9 S. E. C.
937) 94°> t n e Commission said:
"After having given consideration to the circumstances surrounding the
sales of electric energy by applicant, particularly that the energy sold is
generated by owned or leased facilities devoted primarily to applicant's own
use, as well as to the quantum and relative percentage of such sales, it appears to the Commission that International Paper Company is primarily engaged in one or more businesses other than the business of an electric utility
company within the meaning of the Public Utility Holding Company Act
of 1935, . . . "
The full phrase in the Public Utility Holding Company Act relating to holding
companies is "only incidentally a holding company, being primarily engaged or
interested in one or more businesses other than the business of a public-utility
company." The Commission held in the Cities Service Company case, 8 S. E. C.
318, 329, that the entire phrase must be read together and that while the scope
of the qualification is explained by the latter portion of the language, the " 'incidentally' phrase" must also be given effect.
"Primarily engaged" also appears in the Bankruptcy Act,25 an exemption being
granted a person "primarily bona fide personally engaged" in farming. The
courts have had many cases involving this definition and uniformly recite
quantitative tests.26 They have used such expressions as " 'Primarily' means
basically, or in such manner as to be of first importance or of principal concern";27
"The evidence does not support the conclusion that he was engaged chiefly in
farming or tillage of the soil";28 and "His farming activities did not, we think,
ever become his primary business."29
It is of some importance, in referring to the Public Utility Holding Company
Act and the Bankruptcy Act as throwing some light upon the terminology of the
Banking Act, that the three Acts were before Congress at the same time. The
first was approved August 26, 1935,30 a reenactment of the second on May 15,
1935,31 and the third on August 23, 1935.32
Further in respect to the Board's statement that "primarily" should not be
construed to produce an absurd consequence (with which statement we, of course,
agree), in the light of the Senate Committee Report on the Banking Act, which
we have discussed, we see a possible reason why Congress went only so far as to
prohibit interrelationship between a bank and a security concern when the business of the latter is chiefly or principally underwriting. The evil at which this
section of the statute was aimed was the possible selling of securities to the bank
by its directors. Congress may well have considered that such practice is much
more likely to occur where underwriting is the principal or chief business of a
concern, than where underwriting is a lesser or secondary interest. So it is not
wholly unreasonable, in our view, that Congress laid the prohibition at that line.
At the same time, it may be, as the Board urges, that as a matter of policy,
25 47 Stat. 1470, 11 U. S. C. A. § 2O3(r).
^Williams v. Great Southern Life Ins. Co., 124 F. 2d 38 (C. C. A. 5th, 1941); Benitez v. Bank of
Nova Scotia, 125 F. 2d 523 (C. C. A. 1st, 1942); Swift v. Mobley, 28 F. 2d 610 (C. C. A. 5th, 1928);
Skinner y. Dingwell, 134 F. 2d 391 (C C A 8th, 1943).
^Benitez v. Bank of Nova Scotia, supra note 26, at 531.
28
Swift v. Mobley, supra note 26.
» Skinner v. Dingweli, supra note 26, at 393.
31
82

49 Stat! 246*.
49 Stat. 704,




114

ANNUAL REPORT OF BOARD OF GOVERNORS

the national banking system should be divorced completely from concerns engaged in underwriting. But that question is not for the courts. Our function
is merely to determine what Congress actually did in the statute before us. The
Board could, and, if it so feels, should, present to the Congress its views on the
problem of policy.
Collateral to the substantive question involved are the contentions of the Board
that viewed as a suit against the Board, the action must fail because it is in effect
a suit against the United States, which has not consented to be sued, and that
the District Court is without jurisdiction to issue the writ of certiorari for the
purposes sought.
The contention that the action for injunction is in effect a suit against the
United States is without merit. Appellants seek to restrain an order of the
Board on the ground that it is beyond the power of the Board. We need not
pass upon the contention with respect to the jurisdiction of the court to issue a
writ of certiorari, since we regard the action for injunction as the proper action.
Reversed.
EDGERTON, ]., dissenting: I think the judgment should be affirmed. Eastman, Dillon & Co. are "Underwriters, Distributors, Dealers and Brokers in Industrial, Railroad, Public Utility and Municipal Securities." It seems to me a
paradox to say that these underwriters are not primarily engaged in underwriting:
are they, then, only incidentally engaged in underwriting? Everyone agrees that
underwriting is one of the Eastman firm's primary businesses and brokerage
another. I think it is equally true that they are "primarily engaged" in each,
and not merely in both, of these businesses.
I think Congress used the word "primarily" in a sense which includes "essentially" or "fundamentally" and is not limited to "chiefly" or "principally".1
These are all recognized senses of the word. The Oxford Dictionary includes
"essentially", Webster's New International Dictionary includes "fundamentally",
and Funk & Wagnalls' Standard Dictionary includes both "essentially" and
"fundamentally", among the meanings of "primarily".
The court argues that we should not impute obscure meanings of ordinary
words to Congress. Highly obscure and even wholly unheard-of meanings of
ordinary words have sometimes been imputed to Congress in order to avoid a result which Congress did not intend. Thus in Trinity Church v. United States2
the Supreme Court, in order to shield a church from criminal liability, held that
a clergyman does not perform any "labor or service". But there is nothing obscure or unusual about a meaning which is recognized, without the slightest
suggestion of rarity or obsolescence, by most of the leading dictionaries. Unusual meanings of ordinary words, when they are recognized at all by these
dictionaries, are marked "rare".3 Meanings which are recognized without qualification are ordinary meanings. By ruling that "primarily" has no ordinary
1
Since the meaning which words convey necessarily varies with their context, interpretations of the
words "primarily engaged" in other statutes are only slight evidence of their meaning here. For example,
it is a far cry from the premise that the International Paper Co. is "only incidentally a holding company"
and is "primarily engaged" in the paper business, within the meaning of the Public Utility Holding Company Act, to the conclusion that the Eastman firm of underwriters is only incidentally and not primarily
engaged in the underwriting business within the meaning of the Act before us.
2
143 U. S. 457.
3
The following quotations illustrate the way in which these dictionaries distinguish between ordinary
and unusual meanings of ordinary words.
"Casual . . . 1. Happening or coming to pass without design, and without being foreseen or expected
. . . S. . . . Acting at random; undependable. Rare." Webster's New International Dictionary.
"Pleasant . . . 1. Giving or promoting pleasure . . . 2. Conducive to merriment or laughter; gay;
lively; also (rarely), witty or facetious . . . 3. [Rare.] Excited with drink; alcoholically good-tempered."
Funk & Wagnalls' New Standard Dictionary.
"Salt . . . 1. Impregnated with or containing salt; hence, having a taste like that of salt; saline . . .
5. Of speech, wit, etc.: Pungent, stinging. Now rare." Oxford Dictionary.




FEDERAL RESERVE SYSTEM

115

meaning except chiefly or principally, this court overrules the editors of Webster's, the Standard, and the Oxford dictionaries on a question of fact in their
field. I think the court errs in deciding that meanings which three leading
dictionaries regard as ordinary are in fact so rare that they cannot have been
intended by Congress. The contradiction is not reduced by the court's suggestion
that the words "essentially" and "fundamentally" add nothing to the sense of
the definitions in which they occur.4 A dictionary is not a book of synonyms.
It purports to give meanings of terms, not to furnish alternative terms by which
a given meaning may be expressed. "Essentially" and "fundamentally" mean
what they say.
Choice between dictionary meanings is a normal process of statutory construction. It does not consist in deciding which meaning is the more usual. Its normal
purpose and result are to give effect, as the Board did, to the probable intention
of the legislature. This court's choice of a meaning for "primarily" is extraordinary in that its result is to defeat the intention of the legislature. It deprives
§ 32 of rational basis and of practical effect.
It is not disputed that what Congress aimed at in § 32 was the likelihood that
if a bank director is interested, in the degree which Congress undertook to define
as critical, in underwriting, the director may influence the bank or its customers
to buy securities. This is made clear by the section itself.5 In determining what
interest in underwriting Congress undertook to define as critical, the question
what interest might reasonably be thought critical is of great importance. Congress might reasonably think that if the director's employer is essentially engaged
in underwriting, the director may be tempted to sell securities to the bank or its
customers. Congress could not reasonably think that although the employer is
so engaged, the fact that he is even more largely engaged in the related business
of brokerage removes the temptation. The Board's interpretation attributes the
rational theory, and this court's interpretation the irrational one, to Congress.
The Board says, and its statement is not disputed, that restricting the application of § 32 to firms whose underwriting business is first in volume would make
this section "apply to no one." The court does not suggest that this result, which
is no result at all, is the one which Congress intended. If the court's position is
correct, the Act of Congress requires us to defeat the purpose of Congress. This
seems to me another paradox.
The court argues that if Congress meant essentially it could have said essentially.
It is equally true that if Congress meant principally it could have said principally.
And the court overlooks the fact that in a different section of the same Act, and
with regard to engaging in exactly the same group of activities, Congress did say
principally. The "affiliate" section of the Act provides that a bank shall not,
through control of stock or of directors, control an organization "engaged principally in the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of stocks, bonds, debentures, notes,
or other securities."6 But § 32, which defines the degree of engagement in the
underwriting business that disqualifies a man as a bank director, rejects the
phrase "engaged principally" which had been used in the affiliate section and
uses instead the phrase "primarily engaged." It is reasonable and conventional
4
The court's language is that essential and fundamental "are not synonyms of 'primary', and they
overlap in meaning only when the implication of 'fundamental' or 'essential' is 'first' or 'principal'." This
amounts^ to saying that "essential" and "fundamental" never "overlap in meaning" with "primary";
for the implication of "fundamental" or "essential" is never "first" or "principal." The two pairs of
words convey wholly different ideas. The dictionaries include neither of the second pair in definitions of
the first pair, and neither of the first pair in definitions of the second.
5
The section authorizes the Board to make regulations which permit men within the described class to
serve as directors of a bank "when in the judgment of the said Board it would not unduly influence the
investment policies of such member bank or the advice it gives its customers regarding investments."
"48 Stat. 188 § 20: 12 U. S. C. § 377.




Il6

ANNUAL REPORT OF BOARD OF GOVERNORS

to suppose that Congress made this change with a purpose. If so, Congress did
not intend that "primarily engaged" should be interpreted as meaning "principally engaged."7
From the fact that Congress made a "majority" of one sort critical in sections8
of the Act where it used the word "majority," the court infers that Congress
meant to make a majority of another sort critical in § 32 where it did not use
the word. To me the opposite inference, if either, would seem to be suggested.
But the contexts are so different that no inference is suggested. They are so
different that the court's argument comes to this; by recognizing that majorities of
votes control corporations, Congress implied that a man's qualification to serve
as a bank director should turn upon a majority of the business activity in which
he is engaged. The sections on which the court relies concern affiliates of banks.
The purpose of Congress, in those sections, was to prevent banks from controlling
underwriting corporations. Since control of a corporation depends upon control
of a majority of directors, or ownership or control of a majority of voting shares
or of shares voted, Congress made such majority control the measure of prohibited affiliation. In respect to the control of a corporation, 51 per cent of
directors or of voting stock is a wholly different matter from 49 per cent. But
in § 32 Congress did not aim at control, either of underwriters by banks or of
banks by underwriters;9 and even if Congress had aimed at control, the question
whether underwriting was or was not a majority of a firm's business would still
have been irrelevant to its purpose. Section 32 is aimed only at the likelihood that
a bank director who is interested in the underwriting business may exert influence
upon his bank or its customers in favor of that business. The likelihood that he
will do this does not depend in any degree upon the question whether the underwriting business is 51 per cent or 49 per cent of the business in which he is
interested. The fact that Congress expressly treated a majority of voting power
as critical where it makes sense to do so has no tendency to show that Congress
meant to treat a majority of business activity as critical where it would not make
sense to do so.
The Board interpreted "primarily" as meaning "essentially" or the like. This
interpretation is in accordance with the Board's rulings in other cases10 and
carries with it, as settled administrative practice always does, a strong presumption of correctness. If Congress intended to forbid this interpretation the Board
made a mistake of law.11 But it seems to me clear that this is not the case. Accordingly I do not undertake to say whether the record would support a finding
that the Eastman firm are principally engaged in underwriting.12
7
The opinion of the court points out that in § 21 of the Act, in prohibiting underwriters from being
engaged in banking, Congress used the phrase "engage . . . to any extent whatever." As the court points
out, this makes it quite clear that when Congress, in § 32, prohibited bank directors from being "primarily
engaged" in underwriting, Congress did not mean "engaged to any extent whatever." But no one contends
that Congress meant that.
M 8 Stat. 162, 188: §§ 2 ( b ) ( l ) , 20: 12 U. S. C. §§ 221a ( b ) ( l ) , 377.
9
The section makes no distinction between one director, who has no control, and a majority of directors.
If underwriting were 100 per cent of the business of a firm, that fact would give its employee no more
control of a bank of which he was a director than he would have if underwriting were a trifling and nonessential part of the firm's business, but it would subject him to more temptation to exert his influence in
favor of his employer's underwriting operations. Accordingly § 32 is, as all agree, so drawn that the
employee is disqualified to serve as a bank director in the first case but not in the second.
i°27 Federal Reserve Bulletin 399 (1941).
11
If Congress did not intend to forbid that interpretation, it is immaterial whether Congress intended to
require it or only to permit it. "Congress may have intended the agency to determine the 'sub-principle'
within the statutory framework. The vital factor is the intention of Congress, not the generality of the
administrative application." Stern, Review of Findings of Administrators, Judges and Juries, 58 Harv.
L. Rev. 70, 107.
13
They put "Underwriters" first in their advertising, and they get all the underwriting business they
can. This suggests primacy of interest and effort, which promote sales. For all that appears, they may
get a larger net income from underwriting than from brokerage. A man may be principally engaged in
the practice of law even if his transactions on the stock exchange are rAQre numerous and more profitable,
and employ more capital, than his legal transactions.




BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
[December 31, 1945]
MARRINER S. EGCLES, of Utah, Chairman
RONALD RANSOM, of Georgia, Vice Chairman
M. S. SZYMCZAK, of Illinois
JOHN K. MCKEE, of Ohio
ERNEST G. DRAPER, of Connecticut
R. M. EVANS, of Virginia

Term
January
January
January
January
January
January

Expires
31, 1958
31, 1956
31, 1948
31, 1946
31, 1950
31, 1954

ELLIOTT THURSTON, Assistant to the Chairman
CHESTER MORRILL, Special Adviser to the Board of Governors
S. R. CARPENTER, Secretary
BRAY HAMMOND, Assistant Secretary
WALTER WYATT, General Counsel
GEORGE B. VEST, General Attorney
J. LEONARD TOWNSEND, Assistant General Attorney
E. A. GOLDENWEISER, Economic Adviser
WOODLIEF THOMAS, Director, Division of Research and Statistics
HOWARD S. ELLIS, Assistant Director, Division of Research and Statistics
LEO H. PAULGER, Director, Division of Examinations
C. E. CAGLE, Assistant Director, Division of Examinations
WILLIAM B. POLLARD, Assistant Director, Division of Examinations
EDWARD L. SMEAD, Director, Division of Ban\ Operations
J. R. VAN FOSSEN, Assistant Director, Division of Ban\ Operations
J. E. HORBETT, Assistant Director, Division of Ban\ Operations
CARL E. PARRY, Director, Division of Security Loans
BONNAR BROWN, Assistant Director, Division of Security Loans
ROBERT F. LEONARD, Director, Division of Personnel Administration
LISTON P. BETHEA, Director, Division of Administrative Services
FRED A. NELSON, Assistant Director, Division of Administrative Services
EDWARD L. SMEAD, Administrator, Office of Administrator for War Loans
GARDNER L. BOOTHE, II, Assistant Administrator, Office of Administrator for War Loans
O. E. FOULK, Fiscal Agent
JOSEPHINE E. LALLY, Deputy Fiscal Agent

FEDERAL OPEN MARKET COMMITTEE
[December 31, 1945]
MEMBERS
MARRINER S. ECCLES, Chairman (Board of Governors)
ALLAN SPROUL, Vice Chairman (Elected by Federal Reserve Bank of New York)
ERNEST G. DRAPER (Board of Governors)
R. M. EVANS (Board of Governors)
RAY M. GIDNEY (Elected by Federal Reserve Banks of Cleveland and Chicago)
R. R. GILBERT (Elected by Federal Reserve Banks of Atlanta, St. Louis, and Dallas)
H. G. LEEDY (Elected by Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco)
JOHN K. MCKEE (Board of Governors)
RONALD RANSOM (Board of Governors)
M. S. SZYMCZAK (Board of Governors)
ALFRED H. WILLIAMS (Elected by Federal Reserve Banks of Boston, Philadelphia, and Richmond)
EXECUTIVE COMMITTEE
MARRINER S. ECCLES, Chairman

OFFICERS
CHESTER MORRILL, Secretary

ALLAN SPROUL, Vice Chairman

S. R. CARPENTER, Assistant Secretary

R. M. EVANS

WALTER WYATT, General Counsel

M. S. SZYMCZAK

GEORGE B. VEST, Assistant General Counsel

ALFRED H. WILLIAMS

ACENT
ALrHIN i

E. A. GOLDENWEISER, Economist

^ ' °* -^ARDY> Associate Economist
L MERLE HOSTETLER, Associate Economist

FEDERAL RESERVE BANK OF N E W YORK

W. H. IRONS, Associate Economist

R. G. ROUSE, Manager of System Open Market
Account,

C. A. SIENKIEWICZ, Associate Economist
WOODLIEF THOMAS, Associate Economist
JOHN H. WILLIAMS, Associate Economist




117

FEDERAL ADVISORY COUNCIL
| December 31, 1945J
MEMBERS
District No. 1—CHARLES E. SPENCER, JR., President, The First National Bank of Boston, Boston,
Massachusetts.
District No. 2—JOHN C. TRAPHAGEN, President, Bank of New York, New York, New York.
District No. 3—WILLIAM F. KURTZ, President, The Pennsylvania Company for Insurances on
Lives and Granting Annuities, Philadelphia, Pennsylvania.
District No. 4—JOHN H. MCCOY, President, The City National Bank and Trust Company,
Columbus, Ohio.
District No. 5—ROBERT V. FLEMING, President, The Riggs National Bank of Washington, D. C ,
Washington, D. C.
District No. 6—KEEHN W. BERRY, President, Whitney National Bank of New Orleans, New
Orleans, Louisiana.
District No. 7—EDWARD E. BROWN, Chairman, The First National Bank of Chicago, Chicago,
Illinois.
District No. 8—RALPH C. GIFFORD, Chairman, First National Bank, Louisville, Kentucky.
District No. 9—JULIAN B. BAIRD, President, First National Bank of St. Paul, St. Paul, Minnesota.
District No. 10—A. E. BRADSHAW, President, National Bank of Tulsa, Tulsa, Oklahoma.
District No. 11—ED H. WINTON, President, Continental National Bank of Fort Worth, Fort
Worth, Texas.
District No. 12—GEORGE M. WALLACE, President, Security-First National Bank of Los Angeles,
Los Angeles, California.
EXECUTIVE COMMITTEE
EDWARD E. BROWN, ex officio

CHARLES E. SPENCER, JR., ex officio

ROBERT V. FLEMING

WILLIAM F. KURTZ

RALPH C. GIFFORD

JOHN C. TRAPHAGEN

OFFICERS
President, EDWARD E. BROWN

Secretary, WALTER LICHTENSTEIN

Vice President, CHARLES E. SPENCER, JR.

Acting Secretary, HERBERT V. PROCHNOW




DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS
[December 31, 1945]
CHAIRMEN AND DEPUTY CHAIRMEN
Federal Reserve Bank of—

Chairman

Deputy Chairman

Boston

Albert M. Creighton

Henry S. Dennison

New York

Beardsley Ruml

William I. Myers

Philadelphia

Thomas B. McCabe

Warren F. Whittier

Cleveland

George C. Brainard

Reynold E. Klages

Richmond

Robert Lassiter

W. G. Wysor

Atlanta

Frank H. Neely

J. F. Porter

Chicago

Simeon E. Leland

W. W. Waymack

St. Louis

Wm. T. Nardin

Douglas W. Brooks

Minneapolis

W. C. Coffey

Roger B. Shepard

Kansas City

Robert B. Caldwell

Robert L. Mehornay

Dallas

Jay Taylor

J. R. Parten

San Francisco

Henry F. Grady

Harry R. Wellman

CONFERENCE OF CHAIRMEN

The Chairmen of the Federal Reserve Banks are organized into a Conference of Chairmen
which meets from time to time to consider matters of common interest, and to consult with and
advise the Board of Governors.
During the first part of the year, Mr. Creighton served as Chairman of the Conference and
as Chairman of the Executive Committee of the Conference. The other members of the Executive Committee were Mr. Leland, Chairman of the Federal Reserve Bank of Chicago, and
Mr. Nardin, Chairman of the Federal Reserve Bank of St. Louis.
During the latter part of the year, Mr. Caldwell, Chairman of the Federal Reserve Bank of
Kansas City, served as Chairman of the Conference and as Chairman of the Executive Committee of the Conference. The other members of the Executive Committee were Mr. Leland,
Chairman of the Federal Reserve Bank of Chicago, and Mr. Grady, Chairman of the Federal
Reserve Bank of San Francisco.
CONFERENCE OF PRESIDENTS

The Presidents of the Federal Reserve Banks are organized into a Conference of Presidents
which meets from time to time to consider matters of common interest, and to consult with
and to advise the Board of Governors.
During the year Mr. Day, President of the Federal Reserve Bank of San Francisco, served as
Chairman of the Conference, Mr. Sproul, President of the Federal Reserve Bank of New York,
served as Vice Chairman, and Mr. Sienkiewicz, Vice President of the Federal Reserve Bank of
Philadelphia, served as Secretary.




119

120

ANNUAL REPORT OF BOARD OF GOVERNORS

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.
PRESIDENTS AND VICE PRESIDENTS

Federal Reserve President
Bank of—
First Vice President

Vice Presidents

Boston

Ralph E. Flanders
William Willett

E. G. Hult
J. C. Hunter1

Carl B. Pitman
0. A. Schlaikjer

New York

Allan Sproul
L. R. Rounds

J. W. Jones
L. W. Knoke
Walter S. Logan
A. Phelan
J. M. Rice

H. V. Roelse
Robert G. Rouse
John H. Williams
V. Willis
R. B. Wiltse

Philadelphia. . . Alfred H. Williams
Frank J. Drinnen

W. J. Davis
E. C. Hill

C. A. Mcllhenny2
C. A. Sienkiewicz

Cleveland

Ray M. Gidney
Wm. H. Fletcher

J. W. Kossin
A. H. Laning2

B. J. Lazar
W. F. Taylor

Richmond

Hugh Leach
J. S. Walden, Jr.

Claude L. Guthrie
Geo. H. Keesee1
E. A. Kincaid

R. W. Mercer
C. B. Strathy
Edw. A. Wayne

Atlanta

W. S. McLarin, Jr.
Malcolm H. Bryan

V. K. Bowman
L. M. Clark

H. F. Conniff
S. P. Schuessler

Chicago

C. S. Young
Charles B. Dunn

Allan M. Black1
Neil B. Dawes
J. H. Dillard
E. C. Harris

John K. Langum
0. J. Netterstrom
A. L. Olson
Alfred T. Sihler

St. Louis

Chester C. Davis
F. Guy Hitt

0. M. Attebery
Henry H. Edmiston

Wm. E. Peterson
C. M. Stewart

Minneapolis

J. N. Peyton
0. S. Powell

H. G. McConnell
A. W. Mills1
Otis R. Preston

E. W. Swanson
Sigurd Ueland
Harry I. Ziemer

Kansas City. . . H. G. Leedy
Henry 0. Koppang

0. P. Cordill
L. H. Earhart
C. 0. Hardy

John Phillips, Jr.
G. H. Pipkin
D. W. Woolley2

Dallas

E. B. Austin2
R. B. Coleman
W. E. Eagle
W. J. Evans

W. 0. Ford
W. H. Holloway
L. G. Pondrom

C. E. Earhart
J. M. Leisner1

H. N. Mangels
H. F. Slade

R. R. Gilbert
W. D. Gentry

San Francisco.. Wm. A. Day
Ira Clerk
1

Cashier.

2

Also Cashier.




FEDERAL RESERVE SYSTEM

121

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.
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 the 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.

District No. 1—Boston
Class A.Leon A. Dodge
Allen W. Holmes
Allan Forbes
Class B:
Laurence F. Whittemore
Roy L. Patrick
Philip R. Allen
Class C.Henry S. Dennison
Henry I. Harriman
Albert M. Creighton

Term
Expires
Dec. 31
President, The First National Bank of Damariscotta, Damariscotta, Me
1945
President, The Middletown National Bank, Middletown,
Conn
1946
President, State Street Trust Company, Boston, Mass.... 1947
Assistant to President, Boston and Maine Railroad, Boston, Mass
1945
President and Director, Rock of Ages Corporation, Burlington, Vt
1946
Director, Bird & Son, inc., E. Walpole, Mass
1947
President, Dennison Manufacturing Company, Framingham, Mass
1945
Director and Vice Chairman, New England Power Association, Boston, Mass
1946
Chairman of the Board
1947

District No. 2—New York
Class A:
Warren W. Clute, Jr
S. Sloan Colt
Harry H. Pond
Class B:
Carle C. Conway
Donaldson Brown
Charles E. Adams
Class C.William I. Myers
Robert D. Calkins
Beardsley Ruml

President, Glen National Bank of Watkins Glen, Watkins
Glen, N. Y
1945
President, Bankers Trust Company, New York, N. Y . . . . 1946
President, Plainrield Trust Company, Plainfield, N. J
1947
Chairman of the Board and President, Continental Can
Company, Inc., New York, N. Y
1945
Vice Chairman of the Board, General Motors Corporation, New York, N. Y
1946
Chairman, Air Reduction Company, Inc., New York, N. Y. 1947
Dean, New York State College of Agriculture, Cornell
University, Ithaca, N. Y
1945
Dean, School of Business, Columbia University, New
York, N. Y
1946
Chairman, R. H. Macy & Company, Inc., New York,
N. Y
1947

Buffalo Branch
Appointed by Federal Reserve Bank:
Insley B. Smith
Managing Director, Buffalo, N. Y
Lewis G. Harriman
President, Manufacturers and Traders Trust Company,
Buffalo, N. Y
Elmer B. Milliman
President, Central Trust Company Rochester, N. YM
Rochester, N. Y
George H. Bangert
President, The First National Bank of Kenmore, Kenmore, N. Y
Appointed by Board of Governors:
Gilbert A. Prole
Thomas Robins, Jr
Marion B. Folsom

1945
1945
1946
1947

Farmer, Batavia, N. Y
1945
President, Hewitt Rubber Corporation, Buffalo, N. Y.. . . 1946
Treasurer, Eastman Kodak Company, Rochester, N. Y... 1947

District No. 3—Philadelphia
Class A.George W. Reily
John B. Henning
Howard A. Loeb




President, Harrisburg National Bank, Harrisburg, Pa. . . . 1945
President, Wyoming National Bank, Tunkhannock, Pa.. . 1946
Chairman, Tradesmens National Bank & Trust Company, Philadelphia, Pa
1947

122

ANNUAL REPORT OF BOARD OF GOVERNORS

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.

DIRECTORS—Cont.
Class B:
Ward D. Kerlin
James T. Buckley
Charles A. Higgins
Class C.Thomas B. McCabe
Warren F. Whittier
C. Canby Balderston

Term
Expires
Dec. 31
Secretary & Treasurer, Camden Forge Company, Camden, N. J
Chairman, Executive Committee, Philco Corporation,
Philadelphia, Pa
Chairman and President, Hercules Powder Company,
Wilmington, Del

1946

President, Scott Paper Company, Chester, Pa
Farmer, dairyman and cattle breeder, Chester Springs,
Pa
Dean, Wharton School of Finance and Commerce, University of Pennsylvania, Philadelphia, Pa

1946

1945

1947
1945

1947

District No. 4—Cleveland
Class A.Ben R. Conner
H. B. McDowell
F. F. Brooks
Class B.Thomas E. Millsop
R. P. Wright
George D. Crabbs
Class C.Reynold E. Klages
George C. Brainard
A. Z. Baker

President, The First Natfonal Bank of Ada, Ada, Ohio. . .
President, The McDowell National Bank of Sharon,
Sharon, Pa
President, First National Bank at Pittsburgh, Pittsburgh,
Pa

1947

President, Weirton Steel Company, Weirton, W. Va
Secretary-Treasurer, Reed Manufacturing Company,
Erie, Pa
Industrialist, Cincinnati, Ohio

1946
1947

President, Columbus Auto Parts Company, Columbus,
Ohio
President, The General Fireproofing Company, Youngstown, Ohio
President and General Manager, The Cleveland Union
Stock Yards Company, Cleveland, Ohio

1945
1946

1945

1945
1946
1947

Cincinnati Branch
Appointed by Federal Reserve Bank:
Frederick V. Geier
President, The Cincinnati Milling Machine Company,
Cincinnati, Ohio
Buckner Woodford
Vice President and Cashier, Bourbon-Agricultural Bank
& Trust Company, Paris, Ky
Waldo E. Pierson
President, The First National Bank of Cincinnati, Cincinnati, Ohio
Walter H. Behm
President, Winters National Bank and Trust Company of
Dayton, Dayton, Ohio
Appointed by Board of Governors:
Francis H. Bird
S. Headley Shouse
Paul G. Blazer

Professor of Commerce, College of Engineering and Commerce, University of Cincinnati, Cincinnati, Ohio
Farmer, Lexington, Ky
Chairman of Board, The Ashland Oil and Refining Company, Ashland, Ky

1945
1945
1946
1947

1945
1946
1947

Pittsburgh Branch
Appointed by Federal Reserve Bank:
Archie J. McFarland
President, Wheeling Steel Corporation, Wheeling, W. Va..
Clarance Stanley
President, The Union Trust Company of Pittsburgh, Pittsburgh, Pa
R. E. Bowie
President, Security Trust Company, Wheeling, W. Va.. . .
T. C. Swarts
Executive Vice President, Woodlawn Trust Company,
Aliquippa, Pa
Appointed by Board of Governors:
Robert E. Doherty
President, Carnegie Institute of Technology, Pittsburgh,
Pa
Howard W. Jordan
President, Pennsylvania Rubber Company, Jeannette, Pa.
Vacancy

1945
1945
1946
1947

1945
1946
1947

District No. 5—Richmond
Class A.Charles E. Rieman
James C. Braswell
John A. Sydenstricker




President, Western National Bank, Baltimore, Md
Chairman of Board, Planters National Bank & Trust Company, Rocky Mount, N. C
Cashier, First National Bank in Marlinton, Marlinton,
W. Va

1945
1946
1947

FEDERAL RESERVE SYSTEM

123

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.

DIRECTORS—Cont.
Class B.Charles C. Reed
H. L. Rust, Jr
Edwin Malloy
Class C:
W. G. Wysor
Robert Lassiter
Charles P. McCormick

Term
Expires
Dec. 31
President, Williams & Reed, Inc., Richmond, Va
President, H. L. Rust Company, Washington, D. C
President & Treasurer, Cheraw Cotton Mills, Inc., Cheraw,
S. C

1947

General Manager, Southern States Cooperative, Inc.,
Richmond, Va
Chairman of Board, Mooresville Cotton Mills, Mooresville, N. C
President, McCormick & Company, Inc., Baltimore, Md..

1946
1947

Baltimore Branch
Appointed by Federal Reserve Bank:
W. R. Milford
Managing Director, Baltimore, Md
James C. Fenhagen
Vice Chairman of Board, Baltimore National Bank, Baltimore, Md
George M. Moore
Vice President, Union National Bank, Clarksburg, W. Va.
W. Bladen Lowndes
President, Fidelity Trust Company, Baltimore, Md
Appointed by Board of Governors:
Joseph D. Baker, Jr
W. Frank Roberts
James F. Shriver

Secretary and Treasurer, The Standard Lime & Stone
Company, Baltimore, Md
President, Standard Gas Equipment Corporation, Baltimore, Md
President, B. F. Shriver Company, Westminster, Md

1945
1946

1945

1945
1945
1946
1947

1945
1946
1947

Charlotte Branch
Appointed by Federal Reserve Bank:
W. T. Clements
Angus E. Bird
Allen H. Sims
N. S. Calhoun
Appointed by Board of Governors:
D. W. Watkins
George M. Wright
Charles L. Creech

Managing Director, Charlotte, N. C
Chairman of Board, The Citizens & Southern National
Bank of S. C , Charleston, S. C
Executive Vice President and Trust Officer, Citizens National Bank in Gastonia, Gastonia, N. C
President, Security National Bank, Greensboro, N. C
Director of Extension, Clemson College, Clemson, S. C.. .
President, Republic Cotton Mills, Great Falls, S. C
Chairman of Board, B. F. Huntley Furniture Company,
Winston-Salem, N. C.

1945
1945
1946
1947
1945
1946
1947

District No. 6—Atlanta
Class A.Robert Strickland
W. D. Cook
George J. White
Class B:
J. A. McCrary
Fitzgerald Hall
Ernest T. George
Class C:
J. F. Porter
Rufus C. Harris. ,
Frank H. Neely

President, Trust Company of Georgia, Atlanta, Ga
President, First National Bank in Meridian, Meridian,
Miss
President, First National Bank of Mount Dora, Mount
Dora, Fla
Vice President and Treasurer, J. B. McCrary Company,
Inc., Atlanta, Ga
President, Nashville, Chattanooga & St. Louis Railway,
Nashville, Tenn
President, Seaboard Refining Company, Ltd., New Orleans, La
President and General Manager, Tennessee Farm Bureau
Federation, Columbia, Tenn
President, The Tulane University of Louisiana, New Orleans, La
Executive Vice President and Secretary, Rich's, Inc., Atlanta, Ga

1945
1946
1947
1945
1946
1947

1945
1946
1947

Birmingham Branch
Appointed by Federal Reserve Bank:
P. L. T. Beavers
M. B. Spragins
James G. Hall
Gordon D. Palmer
Appointed by Board of Governors:
Wm. Howard Smith
Edward L. Norton
Donald Comer




Managing Director, Birmingham, Ala
President, The First National Bank of Huntsville, Huntsville, Ala
Executive Vice President, The First National Bank of
Birmingham, Birmingham, Ala
President, The First National Bank of Tuskaloosa, Tuscaloosa, Ala.
President, McQueen-Smith Farms, Prattville, Ala
Chairman of the Board, Voice of Alabama, Inc., Birmingham, Ala
Chairman of the Board, Avondale Mills, Birmingham,
Ala..

1945
1945
1946
1947
1945
1946
1947

124

ANNUAL REPORT OF BOARD OF GOVERNORS

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.
Term
Expires

DIRECTORS—Cont.

Dec. 31

Jacksonville Branch
Appointed by Federal Reserve Bank:
Geo. S. Vardeman, Jr
Managing Director, Jacksonville, Fla
J. S. Fairchild
Cashier, The First National Bank of Winter Garden,
Winter Garden, Fla
J. C. McCrocklin
President, First National Bank in Tarpon Springs, Tarpon, Springs, Fla
J. L. Dart
President, The Florida National Bank of Jacksonville,
Jacksonville, Fla
Appointed by Board of Governors:
Charles S. Lee
Farmer, Oviedo, Fla
Frank D. Jackson
President and General Manager, Jackson Grain Company, Tampa, Fla
Walter J. Matherly
Dean, College of Business Administration, University of
Florida, Gainesville, Fla
Nashville Branch
Appointed by Federal Reserve Bank:
Joel B. Fort, Jr
Managing Director, Nashville, Tenn
Edward Potter, Jr
President, Commerce Union Bank, Nashville, Tenn
L. R. Driver
President, First National Bank in Bristol, Bristol, Tenn..
B. L. Sadler
President, First National Bank in Harriman, Harriman,
Tenn
Appointed by Board of Governors:
W. E. McEwen
Director, County Farm Bureau, Williamsport, Tenn
W. Bratten Evans
President, Tennessee Enamel Manufacturing Company,
Nashville, Tenn
Clyde B. Austin
President, Austin Company, Inc., Greeneville, Tenn. . . . .
New Orleans Branch
Appointed by Federal Reserve Bank:
E. P. Paris
Managing Director, New Orleans, La
T. G. Nicholson
President, The First National Bank of Jefferson Parish,
Gretna, La
John Legier
President, National American Bank of New Orleans, New
Orleans, La
J. F. McRae
President, The Merchants National Bank of Mobile, Mobile, Ala
Appointed by Board of Governors:
John J. Shaffer, Jr
Farmer, Ellendale, La
E. F. Billington
Vice President, Soule Steam Feed Works, Meridian, Miss..
Vacancy

1945
1945
1946
1947
1945
1946
1947

1945
1945
1946
1947
1945
1946
1947

1945
1945
1946
1947
1945
1946
1947

District No. 7—Chicago
Class A:
Walter J. Cummings
Horace S. French
Vivian W. Johnson
Class B.William C. Heath
Clarence W. Avery
Nicholas H. Noyes
Class C:
W. W. Waymack
Paul G. Hoffman
Simeon E. Leland

Chairman, Continental Illinois National Bank and Trust
Company of Chicago, Chicago, 111..
1945
President, The Milwaukee Avenue National Bank of Chicago, Chicago, 111
. . 1946
President, First National Bank in Cedar Falls, Cedar
Falls, Iowa
1947
President, A. O. Smith Corporation, Milwaukee, Wis
1945
President and Chairman, The Murray Corporation of
America, Detroit, Mich
1946
Vice President in Charge of Finances, Eli Lilly and Company, Indianapolis, Ind
1947

Editor and Vice President, The Register & Tribune, Des
Moines, Iowa
President, The Studebaker Corporation, South Bend, Ind..
Chairman, Department of Economics, and Professor of
Government Finance, University of Chicago, Chicago,
111..
Detroit Branch
Appointed by Federal Reserve Bank:
Walter S. McLucas
Chairman, The National Bank of Detroit, Detroit, Mich..
Rudolph E. Reichert
President, Ann Arbor Bank, Ann Arbor, Mich
Charles A. Kanter
President, The Manufacturers National Bank of Detroit,
Detroit, Mich
Appointed by Board of Governors:
H. L. Pierson
President, Detroit Harvester Company, Detroit, Mich
Ernest Gilbert
Farmer, Waldron, Mich



1945
1946
1947

1945
1946
1946
1945
1946

FEDERAL RESERVE SYSTEM

125

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.
Term
Expires
Dec. 31

DIRECTORS—Cont.

District No. 8—St. Louis
Class A.Max B. Nahm
G. R. Corlis
Tom K. Smith
Class B:
A. Wessel Shapleigh
H. H. Tucker
Louis Ruthenburg
Class C:
Wm. T. Nardin
Russell L. Dearmont
Douglas W. Brooks

Vice President, Citizens National Bank, Bowling Green,
Ky
Vice President, Anna National Bank, Anna, 1 1
1
President, Boatmen's National Bank, St. Louis, Mo
President, Shapleigh Hardware Company, St. Louis, Mo.
President, Fones Bros. Hardware Company, Little Rock,
Ark
President and General Manager, Servel, Inc., Evansville,
Ind
Vice President and General Manager, Pet Milk Company,
St. Louis, Mo
Chief Counsel for Trustee, Missouri-Pacific Lines, St.
Louis, Missouri
President, The Newburger Company, Memphis, Tenn.. . .

1945
1946
1947
1945
1946
1947

1945
1946
1947

Little Rock Branch
Appointed by Federal Reserve Bank:
A. F. Bailey
Chas. A. Gordon
Emmet Morris
Geo. S. Neal
Appointed by Board of Governors:
R. E. Short
I. N. Barnett
S. M. Brooks

Managing Director, Little Rock, Ark
Vice President, Simmons National Bank, Pine Bluff, Ark..
Chairman, W. B. Worthen Company, Little Rock, Ark.. .
President, Bank of Russellville, Russellville, Ark

1945
1945
1946
1947

Farmer, Brinkley, Ark
Manager, Barnett Bros. Mercantile Company, Batesville,
Ark
President, Brooks Advertising Agency, Little Rock, Ark..

1946
1947

1945

Louisville Branch
Appointed by Federal Reserve Bank:
C. A. Schacht
Lee L. Persise
Phil E. Chappell
Wallace M. Davis
Appointed by Board of Governors:
G. O. Boomer
Rosco Stone
E. J. O'Brien, Jr

Managing Director, Louisville, Ky
President, The State Bank of Salem, Salem, Ind
President, Planters Bank & Trust Company, Hopkinsville, Ky
Vice President, Citizens Fidelity Bank and Trust Company, Louisville, Ky

1945
1945

President, The Girdler Corporation, Louisville, Ky
Farmer, Hickman, Ky
President, E. J. O'Brien & Company, Louisville, Ky

1945
1946
1947

1946
1947

Memphis Branch
Appointed by Federal Reserve Bank:
W. H. Glasgow
V. J. Alexander
W. W. Campbell
W. P. Kretschmar
Appointed by Board of Governors:
J. P. Norfleet
Rufus C. Branch
J. Holmes Sherard

Managing Director, Memphis, Tenn
President, Union Planters National Bank & Trust Company, Memphis, Tenn
President, National Bank of Eastern Arkansas, Forrest
City, Ark
President, Commercial National Bank, Greenville, Miss..

1945

1946
1947

President, Sledge and Norfleet, Memphis, Tenn
Cotton planter and ginner, Pecan Point, Ark
President, Jno. H. Sherard & Son, Sherard, Miss

1945
1946
1947

1945

District No. 9—Minneapolis
Class A:
F. D. McCartney
Clarence E. Hill
J. R. McKnight
Class B:
Ray C. Lange
Homer P. Clark
J. E. O'Connell
Class C:
W. C. Coffey
W. D. Cochran
Roger B. Shepard




Vice President, First National Bank, Oakes, N. D
Chairman of the Board, Northwestern National Bank,
Minneapolis, Minn
President, Pierre National Bank, Pierre, S. D
President, Chippewa Canning Company, Chippewa Falls,
Wis
Chairman of the Board, West Publishing Company, St.
Paul, Minn
President, Eddy's Bakeries, Inc., Helena, Mont
President Emeritus, University of Minnesota, Minneapolis, Minn
W. D. Cochran Freight Lines, Iron Mountain, Mich
President, Finch, Van Slyck & McConville, St. Paul,
Minn

1945
1946
1947

1945
1946
1947

1945
1946
1947

126

ANNUAL REPORT OF BOARD OF GOVERNORS

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.
Term
Expires
Dec. 31

DIRECTORS—Cont.
Helena Branch
Appointed by Federal Reserve Bank:
R. E. Towle
Peter Pauly

1945
1946

Farmer and stockman, Great Falls, Mont
President, Western Life Insurance Company,
Mont

P. B. McClintock
Appointed by Board of Governors:
Malcolm E. Holtz
R. B. Richardson

Managing Director, Helena, Mont
President, Deer Lodge Bank & Trust Company, Deer
Lodge, Mont
Vice President, Farmers National Bank, Chinook, Mont..

1945

1946

1945
Helena,

District No. 10—Kansas City
Class A:
T. A. Dines
M. A. Limbocker
W. L. Bunten
Class B:
Willard D. Hosford
J. M. Bernardin
L. C. Hutson
Class C:
Lyle L. Hague
Robert B. Caldwell
Robert L. Mehornay

Chairman of the Board and President, United States National Bank, Denver, Colo
President and Chairman, Citizens National Bank, Emporia, Kan
Vice President and Cashier, Goodland State Bank, Goodland, Kans
Vice President and General Manager, John Deere Plow
Company, Omaha, Neb
Lumberman, Kansas City, Mo
President and General Manager, Chickasha Cotton Oil
Company, Chickasha, Okla
Farmer and stockman, Cherokee, Okla
Caldwell, Downing, Noble and Garrity, Kansas City, Mo..
President, North-Mehornay Furniture Company, Kansas
City, Mo

1945
1946
1947

1945
1946
1947
1945
1946
1947

Denver Branch
Appointed by Federal Reserve Bank:
P. K. Alexander
W. C. Kurtz
Harold Kountze
Appointed by Board of Governors:
W. A. Alexander
M. E. Noonen

Vice President, The First National Bank of Denver, Denver, Colo
President and General Manager, Independent Lumber
Company, Grand Junction, Colo
President, Colorado National Bank, Denver, Colo
Vice President and Assistant General Manager, The Denver Tramway Corporation, Denver, Colo
Sheep rancher, Kremmling, Colo

Oklahoma City Branch
Appointed by Federal Reserve Bank:
A. E. Stephenson
Chairman of the Board, Central National Bank, Enid,
Okla
D. M. Tyler
First Vice President, Dewey Portland Cement Company,
Dewey, Okla
Hugh L. Harrell
Vice President, First National Bank and Trust Company,
Oklahoma City, Okla
Appointed by Board of Governors:
Lloyd Noble
President, Noble Drilling Corporation, Tulsa, Okla
Neil R. Johnson
Rancher and farmer, Norman, Okla

1945
1946
1946

1945
1946

1945
1946
1946
1945
1946

Omaha Branch
Appointed by Federal Reserve Bank:
T. L. Davis
George A. Bible
Vacancy
George W. Holmes
Appointed by Board of Governors:
Walter S. Byrne
John D. Clark
L. E. Hurtz

President, First National Bank, Omaha, Neb
President, First National Bank, Rawlins, Wyo
President, First National Bank, Lincoln, Neb

1945
1946
1946
1947

General Manager, Metropolitan Utilities District of
Omaha, Omaha, Neb
Dean, College of Business Administration, University of
Nebraska, Lincoln, Neb
President, Fairmont Creamery Company, Omaha, Neb.. .

1946
1947

1945

District No. 11—Dallas
Class A.Walter P. Napier
Frank Turner
J E Woods




President, Alamo National Bank, San Antonio, Texas. . .
President, First National Bank, Decatur, Texas
Chairman of Board, Temple National Bank, Temple,
Texas

1945
1946
1947

FEDERAL RESERVE SYSTEM

127

DIRECTORS AND SENTOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.
Term
Expire $
nrwECTORS- -Tout.
C lass B:

Dec. M

J. R. Milam
Geo. A. Hill, Jr

President, The Cooper Company, inc., Waco, Texas
1945
President, Houston Oil Company of Texas, Houston,
Texas
1946
President and General Manager, Angelina County Lumber Company, Keltys, Texas
1947

E. L. Kurth
Class C:
Jay Taylor
J. R. Parten
G. A. Frierson

Ranching and stockyards, Amarillo, Texas
President, Woodley Petroleum Company, Houston, Texas.
G. A. Frierson & Son, Planters & Merchants, Shreveport,
La

1945
1946
1947

El Paso Branch
Appointed by Federal Reserve Bank:
H. A. Jacobs
Vacancy
R. W M
R W. McAfee
i
d
J. E. Moore
Appointed by Board of Governors:
R. E. Sherman
Jack B. Martin
Hal Bogle

Vice President, El Paso National Bank, El Paso, Texas. .
President, State National Bank, El Paso, T
Texas
S
N i l B k E P
Vi President, Fi
Vice P i d
First N i l B k R l l N M
National Bank, Roswell, N.

1945
1945
1946
1947

Leavell and Sherman, Realtors, El Paso, Texas
1945
President, Arizona Ice and Cold Storage Company, Tucson, Ariz
1946
Owner, Pecos Valley Alfalfa Mill Company, Dexter, N. M.. 1947

Houston Branch
Appointed by Federal Reserve Bank:
B. C. Roberts
President, Wharton Bank & Trust Company, Wharton,
Texas
James A. Elkins
President, City National Bank, Houston, Texas
W. N. Greer
President, Citizens State Bank, Houston, Texas
John W. McCullough
President, Hutchings-Sealy National Bank, Galveston,
Texas
Appointed by Board of Governors:
J. S. Abercrombie
President, J. S. Abercrombie Company, Houston, Texas..
George A. Slaughter
armg,
,
J. E. Wheat
Attorney-at-Law, Woodville, Texas
San Antonio Branch
Appointed by Federal Reserve Bank:
E J Miller
President, South Texas National Bank, San Antonio,
Texas
R D. Barclay
President, National Bank of Commerce, San Antonio,
Texas
J. A. Walker
Executive Vice President, Del Rio National Bank, Del
Rio, Texas
T. C. Frost
Vice President, Frost National Bank, San Antonio, Texas.
Appointed by Board of Governors:
George W. Stocking
Professor of Economics, University of Texas, Austin,
Texas
Holman M. Cartwright
Livestock and farming, Twin Oaks Ranch, Dinero, Texas.
J. M. Odom
General Contractor, Austin, Texas

1945
1945
1946
1947
1945
1946
1947

1945
1945
1946
1947
1945
1946
1947

District No. 12—San Francisco
Carroll F Byrd
C. K. Mclntosh
Vacancy
Class B.Reese H. Taylor
Vacancy
St. George Holden
ClassC:
Harry R. Wellman
Brayton Wilbur
Henry F. Grady

Chairman of the Board and Executive Vice President,
The First National Bank of Willows, Willows, Calif
1945
Chairman of the Board, The Bank of California, N. A.,
San Francisco, Calif
1946
1947
President, Union Oil Company of California, Los Angeles,
Calif
St. George Holden Realty Company, San Francisco, Calif..
Director, Giannini Foundation of Agricultural Economics,
University of California, Berkeley, Calif
President, Wilbur-Ellis Company, San Francisco, Calif. ..
President, American President Lines, Ltd., San Francisco,
Calif

1945
1946
1947
1945
1946
1947

Los Angeles Branch
Appointed by Federal Reserve Bank:
W. N. Ambrose
Managing Director, Los Angeles, Calif
1945
F. E. Snedecor
President, The First National Bank of Corona, Corona,
Calif
1945
Herbert D. Ivey
President, Citizens National Trust & Savings Bank of Los
Angeles, Los Angeles, Calif
1946




128

ANNUAL REPORT OF BOARD OF GOVERNORS

DIRECTORS AND SENIOR OFFICERS OF FEDERAL RESERVE BANKS, Dec. 31, 1945—Cont.
Term
Expires

DIRECTORS—Cont.

Dec. 31

Appointed by Board of Governors:

Y. Frank Freeman
C. E. Myers

Vice President, Paramount Pictures, Inc., Hollywood,
Calif
Agriculturist, Covina, Calif
Portland Branch
Appointed by Federal Reserve Bank:
D. L. Davis
Managing Director, Portland, Ore
Chas. H. Stewart
President, Portland Trust & Savings Bank, Portland, Oregon
William C. Christensen
President, The Commercial National Bank of Hillsboro,
Hillsboro, Ore
Appointed by Board of Governors:

George T. Gerlinger
William H. Steen

1945
1946

1945
1945
1946

President, Willamette Valley Lumber Co., Portland, Ore.. 1945
Livestock and farming, Milton, Ore
1946
Salt Lake City Branch

Appointed by Federal Reserve Bank:

W. L. Partner
Frederick P. Champ
Orval W. Adams

Appointed by Board of Governors:

Henry Aldous Dixon
R. C. Rich

Appointed by Federal Reserve Bank:

C. R. Shaw
Andrew Price
Fred L. Stanton

Appointed by Board of Governors:

Charles F. Larrabee
John M. McGregor




Managing Director, Salt Lake City, Utah
1945
President, Cache Valley Banking Company, Logan, Utah. 1945
Executive Vice President, The Utah State National Bank
of Salt Lake City, Salt Lake City, Utah
1946
President, Weber College, Ogden, Utah
Livestock and farming, Burley, Idaho
Seattle Branch

1945
1946

Managing Director, Seattle, Wash
1945
President, The National Bank of Commerce of Seattle,
Seattle, Wash
1945
President, The Washington Trust Company, Spokane,
Wash
1946
President, Roslyn-Cascade Coal Company, Bellingham,
Wash
1945
Manager, McGregor Land & Livestock Company, Hooper,
Wash
1946

FEDERAL RESERVE SYSTEM
BOUNDARIES OF FEDERAL RESERVE DISTRICTS
AND THEIR BRANCH TERRITORIES

BOUNDARIES OF FEDERAL RESERVE DISTRICTS
BOUNDARIES OF FEDERAL RESERVE BRANCH TERRITORIES
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
FEDERAL RESERVE BANK CITIES
FEDERAL RESERVE BRANCH CITIES

NOTE.—There has been no change in district or branch territory boundaries since the publication of the description in the Annual Report
of the Board of Governors for 1942, pp. 138-145.




Page
Acceptance of drafts and bills of exchange by National banks, application approved
45
Agnew, John, suit against Board regarding removal as bank director
59, 104
Amendments to Federal Reserve Act: (See Legislation)
American Bankers Association, check routing symbols plan devised by
38
Asset holdings of individuals and business, estimated liquid
23
Assets, growth in liquid, discussion of
21
Assets and liabilities of Federal Reserve Banks
62
Audit of accounts of Board of Governors
51
Bank Credit:
Additional powers requested by Board to prevent expansion of
15
Creation by commercial banking system
3
Expansion of
11
Bank holding companies, voting permits granted
44
Bank premises, additions, alterations and purchase of building sites during year
41
Banking offices, changes in number of
37, 78
Blazer, Paul G., appointed director at Cincinnati Branch
42
Board of Governors:
Additional powers requested to prevent expansion of bank credit
15
Audit of accounts by Federal Reserve Bank of Richmond
51
Division of Administrative Services, transfer of functions of office of Fiscal Agent to. .
49
Employees, number of
48
Expenditures for year
50
Members, list of
117
Officers
117
Policy actions: (See Policy actions)
Publications and releases
48
Receipts and expenditures
50
Regulations: (See Regulations)
Research and advisory services
46
Staff: (See Staff of Board)
Bogle, Hal, appointed director at El Paso Branch
42
Branch banks:
Analysis of changes during year
78
Domestic, increase during year
37
Federal Reserve System:
Building operations
41
Directors, list of
121
El Paso, officer in charge designated as Vice President
43
Examination of
44
Little Rock, officer in charge designated as Vice President
44
Louisville, officer in charge designated as Vice President
44
Memphis, officer in charge designated as Vice President
44
Foreign:
Application approved during year
45
Location of
45
Bretton Woods Agreements Act, discussion of
31
Budget message of President of the United States, quotation from
9
Buying rates on bills at Federal Reserve Banks
76
Canada, character of banking system
6
Capital accounts:
Federal Reserve Banks
63, 65
Member banks
36
Carpenter, S. R., appointed secretary to the Board of Governors
49



131

132

INDEX

Page
Chairmen of Federal Reserve Banks:
Conference of
119
Designation for year
42
Executive Committee
119
List of
119
Meetings during the year
51
Charts:
Federal Reserve Bank holdings of United States Government securities
13
Member bank earnings and profits
36
Member bank holdings of United States Government securities
13
Reserve bank credit, required and excess reserves of member banks, and currency...
9
Stock market, showing stock prices and customers' debit balances
26
Total public and private debt
6
Yields on United States Government securities
10
Check routing symbols, new plan announced
58
Civilian goods, increased production of
17
Clayton, Lawrence, resignation as Assistant to the Chairman of the Board
48
Clerk, Ira, appointment as president at San Francisco
43
Commitment rates at Federal Reserve Banks
76
Committees:
Executive, of Conference of Chairmen
119
Executive, of Federal Advisory Council
118
Executive, of Federal Open Market Committee
117
Interdepartmental, service by members of staff of Board on
47
Condition statement of Federal Reserve Banks:
All banks combined
62
Each bank
64
Consumer Credit:
Discussion of
23
Legislation to place control by Board on permanent basis recommended
24
Minimum down payments and maximum maturities
75
Regulation W, amendments to
55, 84, 88, 89
Consumer demands, increase during the year
19
Consumers Home Equipment Company, decree restraining from violation of Regulation W. :
58, 94
Court cases:
Decree restraining Consumers Home Equipment Company from violation of
Regulation W
58, 94
Suit against Board of Governors by John Agnew and F. O. Fayerweather regarding
removal as Bank Directors
59, 104
Suit brought by Peoples Bank of Lakewood Village, California, regarding condition
of membership
58, 95
Credits to other countries, extension of
30
Currency:
Circulation, discussion of supply of
2
Extension of authority for use of direct obligations of United States as collateral
security for Federal Reserve notes
52
Holdings of individuals and business
23
Day, William A., resignation as president at San Francisco
43
Dearmont, Russell L., appointed Class C Director at St. Louis
42
Debt:
Public, monetization of
4
Total public and private, chart
6
Deposits, holdings of individuals and business
23
Deputy Chairmen:
Designation for year
42
List of
119



INDEX

133

Page
Directors:
Federal Reserve Banks:
Classes of
121
Dearmont, Russell L., appointed Class C at St. Louis
42
Frierson, G. A., appointed Class C at Dallas
42
List of
121
Federal Reserve Branch Banks:
Blazer, Paul G., appointed at Cincinnati Branch
42
Bogle, Hal, appointed at El Paso Branch
42
Gilbert, Ernest, appointed at Detroit Branch
42
Jordan, Howard W., appointed at Pittsburgh Branch
42
McGregor, John M., appointed at Seattle Branch
42
Schriver, James F., appointed at Baltimore Branch
42
Shouse, S. Headley, appointed at Cincinnati Branch
42
Wheat, J. E., appointed at Houston Branch
42
Directors:
National bank:
Suit brought by John Agnew and F. O. Fayerweather against Board regarding
removal as Bank Directors
59, 104
Directory:
Board of Governors
117
Federal Advisory Council
118
Federal Open Market Committee
117
Federal Reserve Banks
119, 120
Discount rates at Federal Reserve Banks
76
Dividends, Federal Reserve Banks
40, 71
Dollar balances, wartime expansion during the year
29
Dreibelbis, J. P., resignation as General Attorney
49
Dunn, Charles B., appointment as First Vice President at Chicago
43
Earhart, C. E., appointment as First Vice President at San Francisco
43
Earnings:
Banks
34
Federal Reserve Banks on loans and securities
39
Earnings and expenses of Federal Reserve Banks:
All banks combined
40
Each bank
70
Earnings and profits of member banks, chart
36
Ellis, Howard S., appointed Assistant Director of the Division of Research and Statistics. .
49
Employees:
Board of Governors, number of
48
Federal Reserve Banks, number of
43
Employment, high level during the year
18
England, character of banking system
6
Examinations:
Federal Reserve Banks
44
State member banks
44
Expenditures by business and by individuals
20
Expenses:
Board of Governors
50
Federal Reserve Banks
40, 72
Export-Import Bank:
Act to increase lending authority and provide for an Advisory Board
52
Increase in lending authority
30
Exports from United States, amount of
27
Fayerweather, F. O., suit against Board regarding removal as bank director
59, 104
Federal Advisory Council:
Meetings during year
51
Members and officers
118




134

INDEX

Federal Open Market Committee:
Page
Meetings during the year
51
Members and Officers
117
Federal Reserve bank notes, authority to issue terminated
52
Federal Reserve Bank of Chicago:
Staff:
Dunn, Charles B., appointment as First Vice President
43
Preston, H. P., resignation as First Vice President
43
Federal Reserve Bank of Cleveland:
Staff:
Fletcher, Wm. H., appointment as First Vice President
43
Hays, Reuben B., resignation as First Vice President
43
Federal Reserve Bank of New York:
Foreign transactions handled by
40
Federal Reserve Bank of Richmond:
Audit of accounts of Board of Governors
51
Federal Reserve Bank of San Francisco:
Staff:
Clerk, Ira, appointment as President
43
Earhart, C. E., appointment as First Vice President
43
Day, William A., resignation as President
43
Suit brought by Peoples Bank of Lakewood Village, California
58, 95
Federal Reserve Banks:
Assessments for expenses of Board of Governors
49
Bank premises, improvements during year
41
Branches:
Building operations of
41
Directors, list of
121
Examination of
44
Capital accounts
63, 65
Chairmen:
Designation for year
42
List of
119
Deputy Chairmen:
Designation for year
42
List of
119
Directors: (See Directors)
Dividends paid
40, 71
Earnings and expenses for 1945
40
Earnings and expenses of each bank
70
Earnings, expenses and disposition of net earnings during year
72
Employees, number of
43
Examination of
44
Holdings of United States securities by
68
Officers, list of
120
Officers and employees, number of
43, 74
Presidents, list of
120
Salaries of officers and employees
74
Statement of condition
62, 64
Vice Presidents, list of
120
Volume of operations
39
Volume of operations in principal departments
69
Federal Reserve notes, authority to pledge Government securities as collateral for, extended
52
Federal Reserve System:
Map
129
Membership, increase in
37
Fiduciary powers granted to national banks
45
Financial position of business enterprises and individuals
19
Fletcher, Wm. H., appointment as First Vice President at Cleveland
43



INDEX

135

Page
Foreign banking corporations:
Operations of
45
Regulation K, amendment to
55, 83
Foreign branches of America banking institutions
45
Foreign countries, loans by United States to
30
Foreign trade of the United States
27
Foreign transactions with Governments and correspondent institutions
40
Foulk, O. E., retirement as Fiscal Agent of the Board
49
Frierson, G. A., appointed Class C Director at Dallas
42
Gilbert, Ernest, appointed Director at Detroit Branch
42
Gold, wartime expansion in holdings of
29
Goldenweiser, Dr. E. A., retirement as Economic Adviser to the Board
48
Government debt, amount and form of
3
Government securities:
Authority to pledge as collateral for Federal Reserve notes extended
52
Federal Reserve Bank holdings of, chart
13
Holdings by Federal Reserve Banks
68
Holdings of individuals and business
23
Member bank holdings of, chart
13
Purchase directly from United States, Act of Congress approved
53
Yields on, chart
10
Hays, Reuben, resignation as First Vice President at Cleveland
43
Holdings of short-term Treasury certificates by Federal Reserve Banks
69
Imports to United States, amount of
27
Incomes, high level during the year
19
Inflation:
Discussion of dangers
2
Pressures during reconversion
15
Interest rates:
Federal Reserve Banks
76
Government securities
4
Maximum, on time deposits
77
Public debt
5
International Bank for Reconstruction and Development, establishment of
31
International financial organizations, establishment of
31
International Monetary Fund, establishment of
31
International trade and
finance
26
Jordan, Howard W., appointed Director at Pittsburgh Branch
42
Legislation:
Advisory Board of Export-Import Bank of Washington
52
Bretton Woods Agreements Act, National Advisory Council on International Monetary and Financial Problems
52
Consumer credit control, recommendation that regulation be on permanent basis. .
24
Currency and reserves of Federal Reserve Banks
52
Passed during defense and war period, review of
53
Purchase of Government obligations directly from the United States
53
Reports to Congress on bills
53
Veterans' guaranteed loans
53
Lend lease, amount of exports
27
Liquid assets:
Growth during the year
21
Increased holdings by business and individuals
19
Loans:
Foreign countries, by United States
30
V Loan program
31
Veterans guaranteed, limitations removed by Act of Congress
53
Loans and investments of member banks
35
Loans and securities, Reserve Bank earnings on
39



136

INDEX

Page
Map of Federal Reserve System
129
Margin requirements:
Amendments to Regulations T and U
56, 82, 86
Increase during the year
25
Table
77
McGregor, John M., appointed Director at Seattle Branch
42
Meetings:
Conference of Chairmen
51
Conference of Presidents
51
Federal Advisory Council
51
Federal Open Market Committee
51
Member banks:
Capital accounts
36
Changes in number of banking offices
37
Changes in number during year
78
Earnings of
34
Increase during year
37
Loans and investments
35
Reserve requirements
77
Membership in Federal Reserve System:
Increase during year
37
Suit brought by Peoples Bank, Lakewood Village, California, regarding conditions
of
58> 95
Military service of members of staff, status of
48
Monetary situation as a result of war
1
Monetization of public debt, discussion of
4
Morrill, Chester, appointed as Special Adviser to the Board of Governors
49
Morse, Chandler, appointed Assistant Director of Division of Research and Statistics. . . .
49
Mutual savings banks, changes in number during year
78
National banks:
Changes in number during year
78
Trust powers, authority granted to exercise
45
Nonmember banks, changes in number during year
78
Par List, number of banks on list and number not on list:
Discussion of
38
Number by Federal Reserve Districts and by States
79
Payroll Savings Plan, participation of employees of Board in purchase of War Savings Bonds
49
Peoples Bank, Lakewood Village, California, suit regarding conditions of membership. . . .58, 95
Policy actions:
Board of Governors:
Regulation D, Reserves of Member Banks, amendment to
85
Regulation F, trust powers of National Banks, amendment to
87
Regulation K, banking corporations authorized to do foreign banking business
under terms of Section 25 (a) of the Federal Reserve Act, amendment to. .
83
Regulation T, extension and maintenance of credit by brokers, dealers, and
members of National Securities Exchanges, amendment to
82, 86
Regulation U, loans by banks for the purpose of purchasing or carrying stocks
registered on a National Securities Exchange, amendment to
82, 86
Regulation W, consumer credit, amendments to
84, 88, 89
Federal Open Market Committee:
Authority to effect transactions in System Account:
Meeting of March 1
,..
90
Meeting of June 20
91
Meeting of October 17
92
Purchase of Treasury Bills at posted discount rate
91
Pollard, William B., resignation as Assistant Director of Division of Examinations
49




INDEX

137

Page
Postwar financing policies
14
President of United States:
Budget message, quotation from
9
Message to Congress, quotations on consumer credit control. . .
24
Presidents of Federal Reserve Banks:
Changes during year
43
Conference of
119
List of
120
Meetings during year
51
Preston, H. P., resignation as First Vice President at Chicago
43
Prices, advanced level of
20
Production, effect of Government anti-inflationary policy on
3
Production of civilian goods, increase in
17
Publications issued by Board
48
Rates:
Preferential discount rate on advances secured by Government obligations
11
Discount at Federal Reserve Banks
76
Interest: (See Interest rates)
Receipts and disbursements of Board for 1945
50
Reconversion, inflationary pressures during
15
Regulations, Board of Governors:
A, Discounts for and advances to member banks, changes during war period
57
D, Reserves of Member Banks:
Amendment to
56
Changes during war period
* • • • • 58
Policy action
85
F, Trust powers of National Banks:
Amendment to
56
Policy action
87
K, Banking corporations authorized to do foreign banking business under terms
of Section 25(a) of Federal Reserve Act:
Amendment to
55
Policy action
83
T, Extension and maintenance of credit by brokers, dealers, and members of
National Securities Exchanges:
Amendment to
56
Policy action
82,86
U, Loans by banks for the purpose of purchasing or carrying stocks registered on a
National Securities Exchange:
Amendment to
56
Policy action
82, 86
V, War loans, history of
57
W, Consumer Credit:
Amendments to
55, 84, 88, 89
Decree restraining Consumers Home Equipment Company from violation of. . . .58, 94
Discussion of
23
History of
57
Relief, amount of exports
27
Reports to Congress on bills
53
Repurchase option, plan by which banks could repurchase Treasury bills from Reserve
Banks
10
Research and Advisory Services of Board
46
Reserve requirements:
Additional power to Board to raise, discussion
8
Member banks, amendment to Regulation D
56, 85
Reserves:
Federal Reserve Banks, reduction in
52
Member banks, amendment to Regulation D
56, 85



138

INDEX

Page
Salaries of officers and employees of Federal Reserve Banks
74
Schriver, James F., appointed Director at Baltimore Branch
42
Shouse, S. Headley, appointed Director at Cincinnati Branch
42
Shortages in commodities at end of year
16
Staff of Board of Governors:
Carpenter, S. R., appointed Secretary
49
Clayton, Lawrence, resignation as Assistant to the Chairman
48
Dreibelbis, J. P., resignation as General Attorney
49
Ellis, Howard S., appointed Assistant Director of the Division of Research and Statistics
49
Foulk, O. E., retirement as Fiscal Agent of the Board
49
Goldenweiser, Dr. E. A., retirement as Economic Adviser
48
Heads and Assistant Heads of Divisions
117
Morrill, Chester, appointed Special Adviser to the Board of Governors
49
Morse, Chandler, appointed Assistant Director of Division of Research and Statistics. .
49
Number of employees
48
Pollard, William B., resignation as Assistant Director of Division of Examinations...
49
Thomas, Woodlief, appointed Director of the Division of Research and Statistics . . .
48
Thurston, Elliott, appointed as Assistant to the Chairman
48
Townsend, J. Leonard, appointment as Assistant General Attorney
49
Vest, George B., appointment as General Attorney
49
State member banks:
Changes in number during year
37, 78
Examination of
44
Stock Market, chart showing stock prices and customers debit balances
26
Studies, participation by members of staff of Board
47
Surplus of Federal Reserve Banks
63
Surveys undertaken by Board during year
46
Territory, district and branch boundaries, no change in
129
Thomas, Woodlief, appointed Director of the Division of Research and Statistics
48
Thurston, Elliott, appointed assistant to the Chairman of the Board of Governors
48
Townsend, J. Leonard, appointment as Assistant General Attorney
49
Treasury certificates, holdings by Federal Reserve Banks
69
Trusts funds, common, amendment to Regulation F
56, 87
Trust powers of national banks, authority granted to exercise
45
Vest, George B., appointment as General Attorney
49
Voting permits to bank holding companies authorized during year
44
War financing policies since beginning of war
9
War Loans, V Loan program
31
Wartime trade of the United States, excluding Lend-Lease and Relief Shipments
28
Wheat, J. E., appointed Director at Houston Branch
42





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102