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A N N U A L

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con ten ts
New England Banking Today, 2
New England Banking History, 6
How Banking Serves New England, 16
Changes in New England’s







It is a pleasure to send you the 1958 Annual Report of the Federal Reserve
Bank of Boston.
As is our custom, much of the report is devoted to an extended study of
an important phase of the New England economy.
This year we present a review of the growth of commercial banking in New
England from 1784 through 1958. In addition to discussing New England’s early
banking history and the region’s numerous contributions to banking procedure,
we have paid particular attention to significant changes which have occurred in
the commercial banking structure since 1920, especially since 1945. While the
statistics used here have been drawn from official sources, we hope their organi­
zation in the present form will fill a gap in New England’s financial history and
will prove interesting not only to bankers but to other readers as well.
The report also includes summaries of the Bank’s operations. For the in­
creasing efficiency of these operations, and for the assistance of our officers and
staff in helping still further to expand the Bank’s contributions to New England’s
economic progress, I extend my own thanks and those of our directors.
Our gratitude goes also to the bankers and business leaders of New England
for their continuing generous co-operation.

January 26,1959

IMEW ENGLAND BANKING TODAY




It was on July 5, 1784, that New England’s first commercial bank opened its doors
to the 17,000 townsfolk of Boston. The Massachusetts Bank was unique — the first
independent joint-stock bank to be chartered in the new nation, and its advent came
some five years before Washington's inauguration as president. Others soon followed;
of the nation’s six oldest existing commercial banks, four are in New England.
Over the intervening 175 years, New England commercial banking has contributed
immeasurably to the economic and social progress of both the region and the country.
It helped build New England into one of the nation’s most intensively-developed indus­
trial areas, and it was New England money and enterprise which, among other ventures,
pioneered the construction of western railroads and nurtured gold mining in California
and copper mining in Montana. Today, New England banks not only continue to foster
the region’s people and their industries, but are stimulating the research, development
and practicalities of the space age as well.
Here are the past and present of the region’s commercial banking and something
of its implications for the future.
^
A t the end of 1958, the resources of New England’s commercial banks were esti­
mated at $10.8 billion. Some 46 per cent of this total represented loans to industrial,
commercial and trade groups and individuals, and 34 per cent represented investments
in U. S. and other securities. At the same time, the banks had about $12 billion of prop­
erty under administration in personal trusts and in custody in their trust departments.
As in the nation, the institution of money and banking is vital to the region’s
economy and significantly influences practically all economic activities. It contributes
its own strength or weakness and is in turn subject to these same forces should they de­
velop in other parts of the economy.
In a narrow sense, commercial banking is the significant base of the entire finan­
cial structure. Commercial banks occupy a unique position. They are the only privatelyowned institutions which can create money in the form of demand deposits through mak­
ing loans. The activities of other financial institutions are dependent upon receiving
money from other sources. In another sense, the banking system provides money, a com­
mon denominator in which all the activities of the economic system can be expressed.
The services provided by commercial banks, aside from the function of creating
money, are essential elements in interrelating the whole range of economic activity —
land, building, machinery, raw materials, people at work, legal obligations — and, more
important, the results which they produce.
Commercial banking includes both national and state-chartered banks, with the lat­
ter embracing many trust companies which have specialized along commercial lines.
Noncommercial or investment banking includes a few state banks, a number of trust
3




Position of
Commercial
Banks

The Typical
Commercial
Bank




companies, mutual and stock savings banks, savings and loan associations and co-opera­
tive banks. Thus the New England banking system is composed of national banks operat­
ing under federal law, state banks operating under state laws, and a system of special
institutions organized under state law or federal law, including a few fiduciary institu­
tions, savings banks, savings and loan associations and co-operative banks.
As an employer, commercial banking in New England provides about one-fourth of
the region’s total employment in the financial community and more employment than sev­
eral manufacturing industries which are important in the region. Banking employment
has nearly doubled since World W ar II. The banks’ regular staffs now comprise over
34,000 persons. In addition, a large number of professional and technically-trained per­
sons are retained on a consulting or part-time basis. Measured by resources, commercial
banking is significantly larger than several specialized types of financial institutions and
is about half the size of the region’s insurance companies. If the trust activities of the
banks are included, they about equal the life insurance companies in size.
The typical New England commercial bank, like the typical business concern or
farm, is relatively small in size. Because New England is highly industrialized and
densely populated, this typical bank is roughly twice the size of its national counterpart,
however, and serves a larger number of persons and a more varied clientele. In contrast
to those in some other areas, the typical New England bank serves both business and
agriculture and in these activities there are many small enterprises with high-value-added
products. Such a bank holds deposits of about $6 million. It is chiefly a local institution
whose stockholders, directors, officers and 7,500 customers are local people. The typical
bank’s loans tend to be tied to local business. Only its investment portfolio, seasonal
holdings of commercial paper acquired through dealers or directly placed, and occa-

jte National and State Commercial Banks in New England

8

1.8

1.6

1

0.2

6.3

8

1.8

9.5

4

0.9

56

7 .9

8

1.8

2 3 .4

170

2 4 .2

55

12.2

22.5

204

2 9 .0

135

30.0

7.3

75

10.7

105

23.3

33

4.5

54

7.7

101

22.4

6

0.8

6

0.8

25

5.6

450

100.0%

17

$ 1 5 0 ,0 0 0 — $ 2 5 0 ,0 0 0 . . .

30

4.1

11

$ 2 5 0 ,0 0 0 — $ 5 0 0 ,0 0 0 . . .

87

12.0

44

$ 5 0 0 ,0 0 0 — $ 7 5 0 ,0 0 0 . . .

94

12.9

67

$ 7 5 0 ,0 0 0 — $1 m illion . .

74

10.2

$1 m illio n — $2 m illion .

170

$ 2 m illio n — $5 m illion .

164

$5 m illio n — $ 1 0 m illion

53

$ 1 0 m illio n — $ 5 0 m illion
$ 5 0 m illion and over . . .
TOTAL

...............................

728

2.3

16

U nder $ 1 5 0 ,0 0 0 ...............

100.0%

703

2.3

100.0%

4

^ Estimates of Employment and Resources of
Selected Financial Institutions in New England
Type of Institution

K

billions
of dollars

1946

1954

1957

C om m ercial Banks
Banking D epartm ents .

7.8

9.1

10.4

16.7

26.3

30.6

Trust D epartm ents . . .

5.0

8.5

11.5

2.2

3.2

3.5

M utual Savings Banks . . .

5.7

7.9

9.5

6.9

8.9

10.2

Savings and L oan A ssoc,
and C o-operative Banks

1.0

2.1

4.0

2.5

4.3

L ife Insurance C om panies

9.0

17.1

21.3

1.1
20.0

38.0

43.5

Other Insurance C om panies

4.8

6.3

26.0

39.0

4 1 .5

Investm ent C om panies . . .

2.2
0.8

2.5

3.1

0.8

1.6

2.0

..................................

31.5

5 2 .0

66.1

73.7

119.5

135.6

total

sionally a participation in loans with its city correspondent spread its risks to other areas.
The size of the region’s banks varies greatly, however, with the largest bank holding
deposits of over $1.6 billion while the smallest has less than $300,000. Seven banks are
among the 100 largest in the nation and 19 are among the top 300. Several banks in the
area trace an uninterrupted line of service back to the late 1700’s and early 1800’s and a
large number are more than 100 years old. The region’s larger financial centers like Bos­
ton, Hartford, New Haven, Portland, Providence, Springfield and Worcester contain
banks having 50,000 to 100,000 or more customers and long-established relationships
with a number of the largest corporations throughout the nation. Some of these banks
are among the leaders in making loans to American industry.
A Boston bank is one of seven banks in the nation which operate one or more
branches abroad. It was the second national bank in the nation to open a foreign branch
under the authority of the Federal Reserve Act, establishing a branch in Buenos Aires in
1917 to serve better the New England wool and hide industries, and another in Havana
in 1923 to serve the sugar trade with Cuba. The bank now has 15 branches in Cuba, A r­
gentina and Brazil.
The banks in New England’s financial centers, particularly those in Boston, serve as
correspondents for other banks located in the region, the nation and abroad. The Boston
banks have 3,200 correspondent banking accounts, about 2,000 of which are with New
England institutions located in every city and county in the region. Some 650 accounts
are carried for banks elsewhere in the nation and about 550 are for foreign banks.
Although the typical New England bank is an independent unit or single-office bank
serving its respective community, some form of branch banking has been developed, as
the law permitted, in all of the region’s states except in New Hampshire where, since no
permissive legislation exists, authorities prohibit it. Many of the region’s larger banks
have developed broad networks of branch offices which widen the opportunities for
service and usefulness in neighborhood, suburban and rural areas.
5







NEW
ENGLAND
BANKING
HISTORY

New England’s early banks were started under varying circumstances. After the
Revolutionary War cut off the credit upon which colonial trade had depended, and at the
same time undermined the paper money which the colonial governments had issued, com­
mercial banking began to make headway in New England. The states of the new nation
relinquished the right to issue bills of credit and the gap created brought about a demand
for banking facilities. Within a few years banks were organized in Boston, Baltimore,
New York and Philadelphia.
The Massachusetts Bank, the first independent joint-stock bank in the United
States, was chartered under state law in 1784. It converted to a national bank in 1865
and, with its name changed through consolidation, continues business today with an
unbroken management succession. In circulating the proposal for the bank, the found­
ers stated that they had been “Taught by the Experience of many Nations that well
regulated Banks are highly useful to Society, as they promote Punctuality in the Perform­
ance of contracts, increase the medium of Trade, facilitate the Payment of Taxes, pre­
vent the Exportation of, and furnish a safe deposit for Cash, and in the way of Discount,
render easy, and expeditious the anticipation of funds at the Expence only of common
Interest.” This bank and the others which followed were not banks of loan, discount and
deposit as known today, but chiefly banks of note issue.
The early New England banks, like those elsewhere, were chartered by special acts
of the legislatures of the respective states, and chartered banking in the region continued
to be the dominant form until Congress passed the National Bank Act in 1863. The re­
gion’s comparatively dense population, along with its active manufacturing and commer­
cial interests and steady accumulation of capital, made it necessary and possible to
provide banks. The legislatures granted charters with some freedom but surrounded the
banks with a number of general regulations which conformed to a common type.
The typical New England bank was an incorporated company having reasonably
broad banking powers. In every state the legislature placed the banks under the super­
vision of one or more commissioners provided with certain powers of inspection and in­
vestigation, and required that reports of condition of every bank be made to the state.
New England requirements were among the most stringent in the nation and there was
uniformity in the region. The conservatism in banking requirements saved the area from
a flood of irresponsible facilities characteristic of some sections of the United States. The
banks used their funds chiefly, and frequently exclusively, to purchase trade paper, and
their bank notes were issued on the basis of general assets of the bank. To make counter­
feiting more difficult, the practice was developed of mixing colored silk threads in the
paper pulp from which the notes were made. The origin of this idea is attributed to the
Massachusetts Bank. For almost the entire period preceding the National Bank Act of
1863, New England had a safe, adequate currency with a good diffusion of banking facili­
ties. About one-third of the banks and more than one-fourth of the bank capital in the
nation were in New England at the close of the early period in 1838.
7




In the
Beginning




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During the course of its development since 1784, New England banking, along with
that of the nation, has changed from the function of note issue banking — supplying
means of payment in the form of bank notes — to the function of deposit banking —
providing means of payment in the form of checks.

In other areas chartered banking failed to display New England’s systematic ar­
rangement or to follow a consistent policy, and competition in many areas tended to be
suppressed. The diversity in banking compelled a change, and the method of incorpora­
tion by general act — “free banking” —- was added to the method of incorporation by
special charter. Corporate banking was thus opened to anyone meeting the requirements
of the laws; a specified number of persons complying with the requirements could take
out a charter and enter the banking business. This change reflected the pressure for more
liberal supplies of credit for economic expansion and also the need for a better note cir­
culation. Provision for the general incorporation of banks, or “free banking,” was intro­
duced first in New York State in 1838. The idea of freedom in banking met with wide
popular appeal. Laws were passed in most states following the pattern in New York,
partly to systematize banking and partly because of the growing preference for general
legislation rather than special in all possible cases. These general laws all provided some
plan for a uniform note issue secured by state or federal bonds. With the development of
“free banking” the business changed from the generally privileged character for which
there was little governing legislation to a highly competitive business subject to legis­
lation and supervision.
By the time of the National Bank Act, 1863, the “free banks” had come to hold the
most important place in most states of the nation. The movement, however, never made
headway in New England. Vermont, Massachusetts and Connecticut passed general bank­
ing laws in the early 1850’s but Maine, New Hampshire and Rhode Island failed to do so.
Several “free banks” were established in Massachusetts and Connecticut but they were
relatively unimportant. In New England, chartered banks retained almost exclusive pos­
session of the field until most of them converted to national banks under federal law. Up
to the time of the National Bank Act no attempt was made to regulate banks by national
laws. The state authorities were assumed to be the proper instrument for this purpose.

Chartered vs.
"F r e e ” Banking:

^
In the period between 1838 and 1863, checks drawn on bank deposits superseded
bank notes as the principal means of payment. After 1875, the use of bank notes began
to decline, their place being taken increasingly by other currency forms and by bank de­
posits subject to check. This development in considerable part reflected a change in the
character of economic life. With the growth of large-scale enterprise and improvements
in transportation and communication, the volume of transactions and number of pay­
ments beyond local areas increased. Deposits subject to check came to be used as more
convenient than currency, and the provision of bank credit in the form of deposits instead
9




Rise of
Deposit B an kin g

M illions o f Dollars

--------350

Growth of
Deposit
Banking in
New England
1834

’39

'44

’49

’54

’59

’63

’68

’73

’78

’83

’88

’93

1898

of notes became the principal function of banks. In 1829, banks in the cities of Boston
and Salem, Massachusetts, reported a ratio of notes to deposits of 109 per cent and that
of country banks in Massachusetts was 315 per cent. By 1875, the ratio for New Eng­
land was 95 per cent. Today, for the nation as a whole, currency is about 25 per cent
of demand deposits. Checks, however — deposit currency — are used to settle 90 per
cent of all transactions.

Early Central
Arrangements




Over the last century the banking structure has changed from a collection of indi­
vidual institutions with relatively few connecting ties to one of institutions drawn closely
together in an organic system, and its significance as a system lies in the interrelation of
activities. In a general sense, this unity provided the strength needed to enlarge opera­
tions and broaden facilities.
The city of Boston early developed as the commercial and shipping center of New
England and the seat of a large southern trade. As these functions grew, Boston’s financial
institutions developed and extended their influence. Banks throughout New England
found it necessary to keep deposits in Boston and as a result there grew up a correspond­
ent system — one of the most highly developed in the nation — which tended to unify
the region’s banks.
The correspondent banking system, with its clearings, dates from the Suffolk System
established in 1824, when the Suffolk Bank of Boston instituted mutual redemption of
bank notes. New England bank notes, already in high standing, became the soundest in
the nation. The Suffolk Bank agreed to receive at par the notes of any bank keeping with
it a sum sufficient for the current redemption of its notes and, in addition, a permanent
deposit. The Suffolk Bank thus became a clearinghouse for notes of New England banks.
The notes were sorted and redeemed and held subject to the order of the issuing bank.
The notes of non-participating country banks were returned to their issuers for redemp­
tion in specie.
10

In acting as a redemption and clearing center for New England notes, the Suffolk
Bank not only prevented undue expansion of the note issues of country banks, but also
gave New England a sound and uniform currency readily acceptable at par in New Eng­
land and other sections of the nation. The Suffolk plan succeeded in rendering some cen­
tralized banking services and was more efficient than anything that could be provided
through legislation. Excessive issues of notes were quickly and rigidly checked. The com­
mercial relations of the region were not subjected to sudden or intense demand for set­
tlements from outside. The community had confidence in tne value of assets made up of
paper created in regular and prosperous business. The use of specie was economized
and a smoothly-working credit system was produced in response to regular demands of
business. Notes were substituted for coin and maintained at par with specie by influence
at a central point. The Suffolk System continued in operation until 1866 when state bank
notes were so heavily taxed by the federal government as to become unprofitable.
The clearinghouses set up in many cities after 1850 represented an important
advance in developing understanding and co-operation, and later assisted in bank reg­
ulation. The first clearinghouse was established in New York in 1853 and the Boston
Clearing House opened for business in 1856. Those in Boston and in other New England
cities provided an efficient mechanism for clearance and collection of checks and other
cash items. In 1899, after having been opposed by a majority of banks for a long period,
collection of out-of-town checks was begun at Boston. After 1905, several other cities
followed the example of Boston and their clearinghouses established country' depart­
ments. Bankers state that the Boston country clearing arrangement was the most success­
ful attempt to solve the problem of country check collection prior to the Federal Reserve
System. The Boston plan was modeled after the Suffolk System and enabled the New
England banks to distinguish themselves with respect to deposit currency just as they
had distinguished themselves in the matter of bank notes. Checks circulated at par with
notes. Organized clearing provides efficiency and economy in the use of reserves and
brings greater effectiveness to the use of checks. To the extent that all banks participate
in a centralized clearing, all debits and credits tend to equalize and offset each other,
minimizing the use of reserves.

The passage of the National Bank Act of 1863, and its early amendments, marked The National
the close of the era of state banking and the beginning of a closer federation of the bank­
B ank Act
ing system. The A ct established an agency through which the currency was to be issued
and provided the nation With a uniform currency and uniformity of supervision and regu­
lation. Standards of banking requirements and practice were developed that were superior
to those otherwise generally in force in the nation. But the Act also continued “free bank­
ing,” thus providing for a continued extension of facilities. Practically all of the state
banks in New England converted to national charters, a record which was not equaled
in other regions.
The national system, however, failed to develop flexibility and to change as the econ­
omy changed, and defects developed with the passage of time. The system was concerned
11







Num ber of Banks

N ational B a n k s

700

A ll B a n k s
State B a n k s and
T ru st C om panies

—

1839

1844

1849

1854

1859

1863

1868

1873

1878

1883

100

1888

New England Commercial Banks 1834-1898
chiefly with the safety and regulation of bank notes and little attention was paid to the
demand deposits which were becoming the dominant part of the banking process. The
most important defect of the national system was the lack of flexibility in the nation’s
currency and bank reserves.
The volume of national bank notes depended upon the amount of the government
debt. The policy of debt repayment and other noncommercial factors, and the geographi­
cal distribution of issuing banks, were not related to the need for notes. Bank reserves
were widely scattered among banks instead of being concentrated at a central point which
would provide mobility. Furtherm ore, the method of collecting checks had become slow
and expensive and was tied closely to the reciprocal balance arrangements.
The national banking system was generally found to be weak when strength was
needed, with the banks failing to co-operate when co-operation was essential. Under the
12

correspondent system, banks in the larger centers acted in a dual capacity — as local
banks to meet local demands and as central banks to serve other banks. Even during
periods of normal business, extremely heavy seasonal demands for currency would bring
about shortages of reserves, and declines in reserves tightened credit. If the shortage of
bank reserves became acute, as was true in 1873, 1884, 1893 and 1907, it frequently
led to a suspension of specie payments by the banks. Demands for reform became insis­
tent during the latter part of the 1800’s and early 1900’s.
Meanwhile, trust companies chartered by special acts of the state legislatures in­
creased in number in New England as in many other parts of the nation after about 1870.
The New England states did not provide for incorporation of these companies under the
general law until after 1900. Many of the early trust companies were organized primarily
for other purposes and trust powers were granted as a secondary objective of incorpora­
tion. In other cases, the charter provided a threefold character: first, a bank with all
banking powers except the right to issue notes; second, a savings institution; third, an
incorporated executor, administrator and trustee of decedents’ estates and “of the living
who might desire to avail of its services.”
By the early 1880’s many of the trust companies were developing a generally broad
banking business and began to compete actively with national banks. Later many of the
trust companies were acquired by national and state banks to round out their business
and provide trust services.
^

^

Although there had been two experiments with central banking in the United States
before 1914 — the first Bank of the United States (1791-1811) and the second Bank
of the United States (1816-1836) — it was not until the passage of the Federal Reserve
Act that the country’s banking system secured a permanent central organization.
The Federal Reserve System was designed to meet several general objectives:
(1 ) Generally strengthen reserves so that they might be more readily used to
enable banks in any section of the country to meet their obligations instead of
suspending cash payments. Concentration of reserves was also designed to or­
ganize and consolidate the strength of the financial community.
(2 ) Furnish an elastic currency which would expand and contract with the
needs of business. Abolish the rigid and inelastic bond-secured currency as is­
sued by national banks.
(3 ) Exercise the functions of a clearinghouse for its member banks in handling
checks.
(4 ) Provide general supervision of banking at the federal level and exercise
broad functions in connection with the money supply, leaving to the highlycompetitive, privately-owned individual units the actual direction of the regu­
lar day-to-day business of banking, and to market forces and the individual
units the allocation of the money supply among users.
(5) Help create conditions favorable to sustained high employment, stable
values, growth of the country and a rising level of consumption.
13




The Federal
Reserve
System




The Federal Reserve Act provided for a system of 12 Federal Reserve Banks situ­
ated strategically throughout the country. The capital was subscribed by national banks,
which were required to become members, and state banks and other financial institu­
tions which elected to become members and qualified for admission to the System. The
banking system thus became an association or federation of national and state banks
united to a considerable extent through the district Federal Reserve Banks. Local ad­
ministration of federal banking regulations and the means of strengthening banking
facilities were provided through each Reserve Bank. The Federal Reserve Banks as a
whole were placed under the general direction of the Board of Governors in Washington
appointed by the nation’s President. The Board would generally oversee and harmonize
the operations of the Reserve Banks.
Thus the Federal Reserve System organized the banking units in the national
and state systems into an integrated whole. The Act maintained “free banking,” as
it was then constituted, and did not call for a change in the banking system in a broad
sense. Nevertheless, it provided the means for a further evolution and development of it.
The Reserve System, in effect, united the reserves of thousands of small banks into a small
number of combined reserves, which resulted in equalizing the strength of the banking
community and making possible further economies in the use of reserves and a more
efficient and effective use of bank capital. In New England, the Federal Reserve Bank
was established at Boston to serve the six New England states, a closely-knit, highlydeveloped economic region. Later, Fairfield County, Connecticut, was assigned to the
New York Reserve district.
The organization of the Federal Reserve System, as reflected in its structure as well
as in its operating and policymaking bodies, brings together both public and private in­
terests. Some powers have been given to the central agency — the Board; some to its
constituent parts — the Reserve Banks; and some to a combination of the two. The
interest of the public at large is represented not only by the Board but also by the Class
C directors of the Reserve Banks, who are appointed by the Board, and by the Federal
Advisory Council. The System is at one and the same time national and regional, and
through federating the banking structure provides both greater strength and flexibility.
Besides carrying out its functions of regulating and supplying reserve funds, the
Federal Reserve Bank of Boston provides several important services for its members and
the banking community in general. The clearing and collection of checks is one of the
most important of these — over one-quarter of a billion checks were handled during
1958. The Federal Reserve Bank services the region’s supply of currency and coin, and
provides needed fiscal agency services for the government. Other services available to
member banks include the buying and selling of U. S. securities on their order, safe­
keeping such securities and use of the Federal Reserve wire transfer service.

14

^

Check Collections by the Federal Reserve Bank of Boston

Coin and Currency Handled by the Federal Reserve Bank of Boston

15







The financial services provided by commercial banks as a whole cover a wide range
and include “retail” as well as “wholesale” banking. Retail banking serves both business
and individuals in local markets — meeting the mass demand of small borrowers —
while wholesale banking operations serve business and finance on a regional, national
and international scale and involve lending substantial blocks of money to large borrow­
ers. Although some banks confine their operations to a narrow field, others render such a
variety as to be termed “department store” banks, and many place particular emphasis on
consumer services.
The activities of banks touch the lives of almost every New Englander. One or
another of the banks may make a small personal loan of $100 or a commercial loan in
the millions; accept a 50-cent weekly deposit in a Christmas Club or corporate deposits
in the millions from firms in the region or the nation.
A New Englander may purchase an automobile with a loan from one of the region’s
banks, fill it with gas and oil purchased from a company financed by the bank, and drive
it on a toll highway built with the proceeds of a bond issue held in part as an investment
by the bank.
Another New Englander may own investment trust shares or other securities which
were transferred into his name by a bank’s corporate trust department and may keep them
in a safe deposit box at one of the bank’s branches where he maintains a savings or per­
sonal checking account.
A family may shop in a supermarket built with a construction loan made by the bank
or live in a house which has been financed by a conventional, VA or FH A mortgage.
Thousands of New Englanders and others elsewhere receive retirement income checks
from corporations where they were once employed which are mailed to them by the
bank’s personal trust department which manages the pension fund.

An interesting feature of banking progress over the years has been the steady devel­
opment and continuous change in functions and operations of banks. Despite change,
lending to business continues as the bank’s major function, takes a variety of forms and
serves a number of purposes. Credit, in many instances, is granted under what is called “a
line of credit” and is generally unsecured. If the credit runs for more than a year it is
known as a term or intermediate loan. It may arise under a letter of credit and involve
acceptance financing. Commerce and industry use bank credit to finance output, carry
inventories, augment facilities, and market and distribute goods. Loans finance residen­
tial and commercial construction and “warehouse” mortgages pending final holding by
insurance companies or savings banks. Loans aid those engaged in defense as well as
private production. Some of the defense loans are guaranteed by the military services
under the V-loan program administered by the Federal Reserve Banks as agents for the
guarantors.
17




Commercial
Banking
Services

Services
to Business




^

Percentage of Total New England Bank Loans

(D e c e m b e r

1958)

Manufacturing and M ining.....................................................................................................................

Food, liquor and to b a c c o .................................................................... .......2.6
Textiles, apparel and le a th e r ............................................................. .......2.8
Metal and metal p ro d u cts.................................................................... .......6.5
Petroleum, coal, chemical and ru b b e r......................................................4.2
All other manufacturing and m in in g ......................................................3.5

Trade..............................................................................................................................................................................

Wholesale tr a d e .....................................................................................
Commodity d e a le rs ...............................................................................
Retail trade ...........................................................................................

11.3

3.8
2.2
5.3

Other.................................................................................................................................................................................

20.5

Sales fin an ce...................................................................................................3.7
Transportation, communication and public u tilitie s ..................... .......5.0
Construction .......................................................................................... .......1.9
All o th e r .................................................................................................. .......9.9
Total Business Loans ...............

51.4

Real Estate Loans..............................................................................................................................................
Loans to Individuals.......................................................................................................................................

18.0
24.7

All Other Loans....................................................................................................................................................

5.9

Total Loans ..........................................
100.0

In extending loans to industry on a regional or national scale, the smaller banks gen­
erally work with their city correspondents. The correspondent offers aid and support to
the smaller bank on loans involving specialized knowledge or requiring amounts exceed­
ing the smaller bank’s lending capacity. In a number of instances, the correspondent
participates or carries the excess loan.
Although most of the business lending of the region’s banks, as measured in dollars,
is to large corporations, the greater number of commercial borrowers are relatively small
firms whose loans range from a few hundred dollars to $50,000. Boston banks attract
loan business from all parts of the nation, either through correspondents or new business
18

departments, in successful competition with banks elsewhere. In many cases, banks have
also been able to retain the business of firms which have moved away from the region. At
the end of 1958, business loans of New England commercial banks totaled $2.5 billion
and represented over 50 per cent of total loans. Over the 13-year period since World War
IT, the dollar volume of business loans has more than tripled. Within the increased total,
however, the proportion of loans to manufacturing, mining and wholesale groups has de­
clined while the proportion of loans to sales finance, real estate, construction and service
firms has increased. Shown in the table on the opposite page are the major business
borrowing groups at the end of 1958.
The region’s larger banks, particularly those in Boston, have developed specialists
in handling loans to various industries. They have also contributed to the technique of
lending. Many bankers attribute the first use of a term loan to a Boston bank in lending
to a large metal fabricator in 1934. Since that date, term loans have become a large com­
ponent of the loan portfolio of many of the nation’s leading banks. This type of lending is
widely used to finance business expansion programs. Such a loan runs for more than a
year and provides for serial repayment. As district banks make term loans to industry, to
that extent have the over-all financial requirements of business corporations been more
adequately and flexibly served.
In 1945, a Boston bank entered into active competition with the long-established
factors and was the first bank to operate its own factoring credit office in New York. Since
that date the bank has become one of the top five lenders in total annual factoring volume.
Banks also provide the means for transferring funds rapidly and efficiently, provide
domestic and foreign exchange and purchase and sell foreign currencies. In addition to
the Federal Reserve wire transfer system, more than 200 commercial banks in 60 princi­
pal cities in the nation are linked through the “bank wire.” A dozen or more of the re­
gion’s banks participate in this facility.
The larger banks co-operate with financial officers of firms operating nationally in
developing ways of accelerating the movement of their cash — “mobilizing money” — in
the form of sales receipts, payroll funds and interregional settlements. An increasingly
popular service is remittance banking, an arrangement with customer companies under
which banks collect from post office lock boxes the invoices and payments returned to the
company by its own customers. Checks are recorded on high-speed duplicating equip­
ment and converted into available funds with a minimum of delay.
The foreign departments of the larger city banks provide broad facilities for inter­
national trade. They serve both foreign and domestic customers in facilitating the move­
ment and interchange of the goods of the world. Transportation agencies, merchants
and shippers use bank credit to move commodities overseas.
New England banks rank third in the list of the nation’s institutions which create
banker’s acceptances and are exceeded only by the banks of the New York and San F ran­
cisco Reserve districts. Banker’s acceptances are used principally to finance the move­
ment of goods to and from the markets of the world. One Boston bank provides direct
New York handling for these drafts through its Edge Act foreign banking corporation
19




Term
Loans

subsidiary, one of two such corporations in the United States offering this kind of service.
In another phase of their activities, a number of banks in each state in the region
helped to organize the first development credit corporations in the nation, beginning in
1949 in Maine. These corporations lend funds to promising small business ventures which
involve too much risk for direct bank lending.
^
Services
to States
and
Municipalities




^

^

Through their municipal bond departments, or through purchases of municipal se­
curities, banks participate in the financing of schools, roads, waterworks, sewer systems
and other public improvements for states and their political subdivisions. The region’s
banks perform this function by dealing in and underwriting the short- and long-term obli­
gations which the governments offer at interest rates generally established by competitive
bidding, although sometimes through negotiated sales.
The volume of revenue anticipation notes (short-term debt) issued by New England
cities and towns is approximately $300 million annually. Some 600 separate bond issues
(long-term debt) aggregating about $500 million, the proceeds of which are used to de­
velop community facilities, have been offered annually in recent years. About half the
proceeds of these issues have been used for school construction while another quarter has
been spent on sewer, water and highway projects.
A t present 10 of the region’s larger banks handle almost three-quarters of the mu­
nicipal financing in New England: five in Boston, two each in Hartford and Providence,
and one in Portland. The balance is spread among a number of the smaller banks. The
practice of placing municipal deposits with the low bidders on note issues has stimulated
the activity of the smaller banks in this field as the tight money conditions of recent years
have encouraged more vigorous competition for deposits. Frequently the smaller banks
originate the loan and later sell it or participate in it with their correspondent. In other
instances, tax notes may be sold to corporate customers. For the most part, short-term
obligations are absorbed within New England.
Certain of the short-term credit requirements of Boston and Providence are supplied
by arrangements designed to meet the particular needs of these cities. Boston usually bor­
rows about $80 million for tax anticipation purposes throughout the year, coming to the
market on an average of every two weeks. The notes are always offered in the market for
bidding and the syndicates which bid on these notes are generally headed by a New York
bank or bond house. Boston banks, however, are always members of these syndicates.
Several years ago, the city of Providence and the commercial banks located there
established a revolving credit plan designed to meet the city’s bond anticipation require­
ments. U nder the plan, a line of credit is set up, subject to annual or more frequent re­
vision, which permits the city to follow its policy of entering the bond market only once
each year. This avoids the necessity of issuing bond anticipation notes and having to go
to the market for relatively small amounts of money. The interest rate is reviewed every
six months and participating banks are assigned parts of the line on a capital-deposit
formula basis.
20

Although commercial banks buy virtually all the short-term municipal notes issued,
they seldom underwrite bond flotations. Instead, bond dealers, either in syndicates or
individually, depending on the size of an issue, underwrite the long-term obligations.
The banks, however, are of service to communities in connection with bond issues in a
number of other ways: first, as adviser on technical details; then, as publicist of the issue;
and finally, as certifying and paying agent. By helping organize municipal financial data
in an orderly and uniform fashion, banks have significantly increased the number of bids
received by communities in their area. In addition, a school for municipal officials
originated by one of the Boston banks has attracted nationwide attention, and an annual
forum for municipal finance officers was established several years ago by a Hartford
bank. Other efforts are being made locally in this direction.
Commercial bank investments in municipal bonds in the region (both revenue and
general obligations) increased from $85 million in 1946 to $767 million in 1958 — a
somewhat faster rate of increase than in the nation.

Some 375 of New England’s banks serve as qualified government depositaries, as
did the Massachusetts Bank when designated by Alexander Hamilton as the first such
state bank in the nation as early as 1789. It received the first deposit in February 1790.
Using commercial banks as part of the government depositary system provides an
efficient way of transacting the government’s business. The depositary system reduces
to a minimum the effect of Treasury financial operations on the economic stability of
the nation. Tax monies and the proceeds of the sale of government securities are accumu­
lated in these accounts subject to a government order. The depositaries make possible
a smooth flow of funds from the banking system to the Treasury and back again into the
channels of trade through government disbursements.
In recent years the balance in these New England accounts has averaged $200 mil­
lion and ranged from a high of $400 million to a low of $50 million during the year,
representing about five per cent of the total of such deposits in the nation. The tremen­
dous growth in recent years of the federal government budget and of the public debt has
made Treasury operations the largest and most important single influence on the flow of
funds through the money market.
Commercial banks also assist the Treasury in the weekly sale and distribution of
Treasury bills and other securities, including the sale and issuance of U. S. Savings bonds
either by direct sales or servicing payroll savings plans.

Services
to the Federal
Government

^
New England banks also provide a variety of needed services — generally described
as “retail banking” —■for a large percentage of New England’s people. Such services in­
clude regular savings accounts which draw compound interest, Christmas Club and tax
club savings accounts, Register or money order checks, special checking accounts, safe
deposit boxes, traveler’s checks and the extension of personal credit.
21




Consumer
Services

The regular savings accounts aid and safeguard individual savings as well as make
them more productive. Register checks, a form of personal money order, and special
checking accounts requiring no minimum balance supply those without regular checking
accounts with a means of transferring money and paying bills safely and conveniently at
small cost. Safe deposit boxes protect valuables such as wills, securities, insurance poli­
cies and jewelry. Traveler’s checks may be purchased for cash and, when properly vali­
dated, are considered the equivalent of cash throughout the world, thus protecting funds
when traveling. The Register check originated by a Boston bank in 1937 is now widely
used throughout the nation. All of these services have grown importantly since their
introduction.
Personal or consumer instalment loans represent one of the most popular services
and the one which has had the most significant growth. Such loans are made for indi­
vidual, family, professional and small business use. Families borrow to consolidate debt,
pay for medical care, travel, education and insurance, and to finance a variety of such
major expenditures as automobiles, household appliances, and maintenance and repair
of residential property. Those in the professions borrow to establish practices or to acquire
“tools of the trade.” Small business has borrowed to become established and to grow, to
purchase equipment or to obtain working capital. Some banks have recently initiated term
loans to small business for working capital or other needs running up to $25,000 in
amount with maturities up to five years. During the postwar period consumer loan service
has grown in breadth and attracted a broader clientele.
Instalment credit extended by commercial banks in New England has a long history.
Instalment
Several of the banks were the first, or at least among the very few early entrants into the
Credit
field. A Boston bank began making loans to individuals for the instalment purchase of
automobiles as early as July 1916. The bank began soon thereafter to finance purchases
through dealers in the area. In 1920, a Bridgeport, Connecticut, bank offered co-maker
consumer instalment loans through its “Industrial Plan.” In November 1928, the Boston
bank mentioned above further extended its service to the community by formally or­
ganizing a personal loan department. Since then the region’s banks have developed means
of meeting the full range of needs of wage earners, professional persons and small busi­
nessmen. The banks have also contributed to the various techniques used in extending
credit in the consumer area. A recent contribution was the development of a “revolving”
plan in 1955 by a Boston bank for using instalment credit for the purchase of a wide
range of goods and services — a service which has been copied by banks elsewhere in
the nation.
With the passage of the National Housing Act in 1934, a Boston bank was licensed
on the opening day to offer loans for repair and modernization of residential property
under Title I. This bank is among the nation’s leading lenders in this field, and has held
first place in New England since the inception of these loans, which have been offered
widely throughout the district since the 1930’s.
In the late 1920’s, personal loan departments of the region’s commercial banks ac­
counted for an amount estimated at less than 10 per cent of the over-all total of consumer




22

loans in New England. Early in the period after World War IT, when this type of lending
was resumed on a broad scale, the area’s commercial banks accounted for about 36 per
cent of the total of these loans. At the end of the year 1958, commercial banks in the re­
gion reported close to $725 million of consumer instalment loans, representing about 48
per cent of the total of such credit advances in the region.
IjJ

^

The trust company is distinctly of American origin. The first of which a record has
been preserved is the Massachusetts Hospital Life Insurance Company, chartered in Bos­
ton in 1818. In 1823, it received the express sanction of the state legislature to conduct
trust business. The company wrote life insurance policies and annuity contracts and
acted as trustee for invested funds contributed by a large number of individual investors.
The trust or endowment business soon exceeded the life insurance business and by 1836
it had $5 million of trust deposits. Between 1820 and 1830, the profession of private
trustee came into prominence in Boston. The “Boston trustees” for a long period admin­
istered or controlled a larger aggregate of trust property than was held by the corporate
trustees. They have played an important part in the management of New England prop­
erty but gradually have been superseded in importance by corporate trustees.
By the latter part of the 19th century, trust business had become a new frontier of
financial development and had taken on added importance with the rise of personal and
industrial wealth. New England, because of its traditions in conservative property man­
agement has always been a leader. Currently, it is estimated that the region holds between
eight and 10 per cent of the total trust business handled by banks in the United States.
Nationwide, the real development of the trust business has occurred in the last 50 years.
National banks were first granted trust powers under the Federal Reserve Act of 1913.
The region’s banks now offer varied and extensive trust services through their trust
departments. Since 1946 expansion has been significant, reflecting the increasing demand
for various specialized trust services. Through their personal trust departments the banks
serve as executors, guardians and trustees for individuals and participate in the manage­
ment of funds for nonprofit institutions. The departments also supervise the investments
of corporate and individual customers. Through their corporate trust departments, banks
serve as trustees for bond issues, transfer agents and registrars for stock issues, paying
agents for bonds and dividend disbursing agents. Tn 1958, more than 60,000 individuals
and corporations and nonprofit organizations were using these services offered by dis­
trict banks.
As a whole, the region’s trust departments have shown a substantial increase in the
volume of property under administration. Assets of personal trust departments in New
England aggregated $12 billion at the end of 1958, more than double the amount held at
the close of 1946. About half of the property held in personal trust departments repre­
sented investment management agency accounts and custodies and the balance personal
and court trusts. The former type of services has been among the most rapidly growing
divisions of trust work in the postwar period.
23




Trust
Services




Pension trusts and profit-sharing plans have also grown significantly in importance
in recent years, with an increasing number of corporations using the trustee form of pro­
viding employee benefits. A recent study indicated that at the end of 1957, more than $19
billion of assets were held in pension trust funds of domestic corporations. The pension
fund assets held by district banks constitute about four per cent of the total held by all
trustees in the nation.
Common trust funds have been established by about 35 New England banks and
have grown rapidly in recent years. Designed for smaller-sized fiduciary accounts, they
offer diversified and economical handling to beneficiaries. A t the close of 1958, aggre­
gate assets of these funds were valued at about $270 million, more than 10 per cent of
the national total.
There has also been a significant growth in the volume of services offered by the
corporate trust departments of district banks. Many of the larger banks have reported
new appointments as trustees for corporate and municipal bond issues, transfer agents
and registrars. This has followed the expanded trading on the security exchanges, in­
creases in new security offerings, rights, stock splits and other corporate capital changes.
A growing number of corporations have appointed district banks as co-transfer agents.

an

&

24




BANKING
STRUCTURE

Changes in
the Banking
Structure




The number of commercial banks in New England reached a peak in the year
1920. There were then 728 units in operation, well distributed within and among the
states. Since that year, however, the number of banks has declined and at the end of
1958 the total had been cut by two-fifths to 448 in number. The reduction in the number
of banks has been concentrated in two periods— 1920-1934 and 1945-1958. The
roster of banks was reduced by about one-fifth during the first period and by about onesixth during the second period.
Stability in the number of banks has been considerably greater in New England
than in the nation. More than half of the nation’s banks disappeared as going concerns
between 1921 and 1958, the number dropping from over 30,000 to about 13,500. In
both the period of the 1920’s and that since World War II, the reduction in number of
banks has been more rapid in the nation than in New England.
In the region, the number of national banks has exceeded that of state banks and
trust companies in every year since passage of the National Bank Act. A t the end of 1958,
there were 253 national banks and 195 state banks and trust companies. Total deposits
then held by national banks amounted to about $5.8 billion and those of state banks and
trust companies were about $3.8 billion.
Federal Reserve membership in the first district (which excludes Fairfield County,
Connecticut) now comprises 248 national banks and 39 state banks and trust com­
panies. Together they control over 85 per cent of the banking resources of the district.
Several circumstances brought about the reduction in number of banks since 1920.
Some failed, some merged and some became members of branch banking systems. With
the spread of branch banking, however — which provided a number of new offices —
and the chartering of a small number of new units, the district’s residents are better
served and have better access to banking facilities than in 1920. The number of banking
offices has increased from 820 in 1920 to 1,150 at the end of 1958, with an increase
reported for each state except Vermont and New Hampshire.
Because New England is densely populated it is reasonable to expect the average
New England bank to serve a greater number of customers than its counterpart else­
where. Since 1900 the population per bank in New England has consistently been higher
than the national average — now about 22,000 per commercial bank as compared with
13,000 in the United States as a whole. Population per bank in the region rose from
8,500 persons in 1900 to 10,200 in 1920 and was 12,400 in 1931. It has nearly doubled
over the last quarter century. This higher population per bank has been one reason why
New England has had fewer bank failures than the rest of the country.
A good test of the availability of banking facilities is the distance the bank’s custom­
ers have to travel to reach a banking office. The New Englander has always been
fortunate in having banking services close at hand. In 1958, there were less than 60
square miles per banking office in the region as compared with the national average of
about 140. The typical New England bank has increased in size four times by all meas­
ures, capital, resources or deposits, since 1913. At the same time, the banking-system
has become more highly integrated.
26

'

Number of National and State Commercial Banks in New England
1945

Maine ..............
New Hampshire
Vermont ..........
Massachusetts ..
Rhode Island . .
Connecticut . . .
TOTAL
1 June
2 Decem ber




Banking Facilities
in New England - 1958

Localities with Commercial
Banking Offices

Bank
Failures

Until the early 1930’s, bank failures were a serious national problem, although New
England’s record in this respect has always been better than that of any other area. This
has also been true for every state in the region. The superior performance of New
England banks stems from a pattern of general excellence and conservative management,
stronger capitalization, larger average resource size and greater density of population
per bank. Again, and in general, New England banks appear to have been established
largely in response to demonstrated economic need, a fact not characteristic of some
other areas.
The period from 1921 to 1936 was unhappily significant for American banking.
These years were characterized by a consistent rise in failure rates, with the peak coming
in the early 1930’s. The failure rates during this period are shown geographically in the
following table.

Bank Suspensions 1921-1936
State Bank Suspensions

National Bank Suspensions

Number

Per cent of
Banks in
Operation
in 1920

Loans and
Investments
Million $

153.0
804.3
1,125.5
360.8
325.4
186.7
159.9
131.7
158.1

80
324
2,404
4,591
1,590
636
1,088
613
299

25.0
31.2
60.0
61.9
65.1
43.8
48.8
58.2
33.0

364.5
1,076.8
2,108.4
1,172.5
885.3
232.3
443.6
185.2
171.8

3,405.4

11,625

55.7

6,640.4

Number

Per cent of
Banks in
Operation
in 1920

Loans and
Investments
Million $

New E n g la n d ...................
Middle A tla n tic ...............
East North C e n tr a l........
West North Central . . . .
South A tla n tic .................
East South C e n tr a l.........
West South C e n tra l.........
M o u n ta in ..........................
Pacific ..............................

62
424
534
664
281
123
279
218
134

15.2
27.3
39.1
42.1
30.6
33.9
27.2
92.0
27.9

U N IT E D STATES TOTAL

2,719

33.9

Geographic Division

•




Most of the banks which failed were relatively small in size, whether measured by
capital, resources or deposits, and were situated in smaller communities. Few of them
were members of the Federal Reserve System and many had been in operation for only
short periods. The climax of failures came with the bank holiday in 1933, with failures
after that only sporadic. Since 1946, they have not exceeded an annual rate of one per
1,000 banks in the nation and have been practically nonexistent in New England.
^
28

Reasons for bank mergers vary not only within the region but within the same
community. Such reasons include the desire to acquire branches, increase size and
prestige, enlarge banking facilities, acquire complementary types of business, strengthen
management, reduce overhead costs and avoid bank failures. And frequently merger
is the only way that large holdings of bank shares, or closely-held shares, may be m ar­
keted in a block at a reasonable price.
There have been two waves of mergers among district banks, the first in the 1920’s
and the other in the postwar period. During the earlier period, the mergers were concen­
trated among banks in the larger cities of the region, primarily to develop city branch
systems and to acquire comparatively undeveloped trust and other types of business. In
a number of instances, consolidation made it possible to avoid failures. In Maine and
Rhode Island, however, a substantial percentage of the consolidations involved the ac­
quisition of branches in towns outside the head-office city. Between 1921 and 1936,
there were 172 consolidations in New England. Although merger activity in the earlier
period comprised a larger number of banks than in the later period, it involved a smaller
volume of banking business.
From 1945 through 1958, there were 118 mergers among New England banks, a
movement paralleled in the rest of the nation. Connecticut reported the largest number
of mergers while New Hampshire showed the fewest. The lack of branch banking
authorization in New Hampshire is one reason for that state’s small number of mergers.
In contrast, the liberal Connecticut law has proved a stimulus to mergers.
A substantial proportion of postwar New England bank mergers has involved banks
located in the same city. Usually the objective has been to bring together “wholesale”
and “retail” banking, to round out the various services offered by a single institution and
to enlarge facilities, thus placing the bank in a better position to attract or hold the
business of large concerns as well as consumers. The rapid growth in the size of indus­
trial firms and the postwar increase in the volume of business in general have necessitated
larger banking units in order to fill the financing needs of firms and communities. Occa­
sionally one such merger has provoked others as competitors seek to maintain relative
positions and prestige.
An important proportion of the mergers involved banks in different cities of the
same county or in contiguous counties. Usually these were the result of development of
branch banking within county lines or larger areas as the state law permitted. The exten­
sion of branch systems was designed to tap business offered by the mass of consumers
over as wide an area as possible. Sometimes mergers in the same city or territory were
brought about to reduce overhead costs and occurred in several New England towns
and cities which were “over-banked.” In other cases, the bank acquired was in a declin­
ing community and costs in both merged banks were too high for potential returns as
separate institutions. A relatively small number of mergers took place between banks
in noncontiguous counties.
The source of a bank’s charter does not seem to have been a factor in New England
merger activity. The 118 mergers between 1945 and 1958 were about equally divided
29




Bank
Mergers




among absorptions of national banks by nationals, nationals by state banks, states by
nationals, and states by states.
There was a high degree of concentration in the New England merger activity of
the postwar period — that is, a relatively small number of banks accounted for a large
percentage of the mergers. In Connecticut, two banks accounted for 50 per cent of the
mergers between 1945 and 1958. In Massachusetts, three banks accounted for over
one-third of the mergers. In Rhode Island, over two-thirds of the mergers were accounted
for by two banks, while one bank accounted for 30 per cent of Vermont’s mergers. In
New England as a whole, four banks were involved in 30 per cent of all mergers in the
region, and 10 banks accounted for 45 per cent of all New England bank mergers.
A study of many merged institutions indicates that the absorbing banks were more
profitable than those absorbed. While the absorbing banks showed an average of over
seven per cent earned on capital, the absorbed banks earned less than six per cent. The
absorbing banks carried down over 21 per cent of total income to profits. The absorbed
banks netted only 19 per cent of gross income. The absorbing banks paid out a higher
proportion of their average earnings in dividends and had a higher rate of risk assets to
total assets. In addition, they had a lower capital-to-deposits ratio.
Publicity given to bank mergers in recent years overshadows the fact that a number
of banks have not participated in the merger movement. This results in part from dif­
ferences of opinion among bankers as to the clear-cut advantages of mergers. Some are
reluctant to pay much of a premium for the stock of the bank which might be absorbed
because premiums paid can only be written off out of earnings and the earnings must grow
or one of the direct advantages of the merger is lost. Others point out the costs of pos­
sible misjudgment of an area’s potential expansion and the loss of correspondent bal­
ances as country banks are absorbed. Some bankers question the wisdom of the retail
banking which has characterized a number of recent mergers. They stress that there is
always room for banks which offer specialized types of service.

^

New England Commercial Bank Mergers 1945-1958
1945-1949

M a in e ....................................
New H am p sh ire...................
V e rm o n t................................
Massachusetts .....................
Rhode I s la n d ........................
Connecticut ..........................
T O T A L ............................

2
1
2
16
5
9
35

1950-1954

4
1
4
7
9
16
41

1955-1958

5
1
8
11
1
16
42

Total

11
3
14
34
15
41
118

30

But even when banks are anxious to merge there are frequently practical difficulties
standing in the way. Personnel problems are sometimes insoluble, with either or both
banks unwilling to drop loyal personnel who would not be needed in the new institution.
In others, the problem of price may be the factor preventing the merger. In general,
absorbing banks are reluctant to pay more than book value because of the difference
between book and market values which has been characteristic of most of the postwar
period. Stockholders in many cases refuse to accept less than book value.

Mergers and the development of the branch system since the war have reflected the
need for either enlarging facilities, reorienting the geographical structure of an institu­
tion, or both. The underlying factors include changes in living habits of the population
and in the patterns of business development, and the rise of the middle-income group.
As individuals have moved from large cities to the suburbs, they have contributed to the
suburbs’ tremendous growth. At the same time, cities themselves have experienced a
relative decline. The rising middle-income group has been the chief migrant to the
suburbs, and has become an important source of deposits and borrowings and a user of
the banks’ expanded consumer services.
During the 1920’s, most of the development of branch banking in the region oc­
curred within the large cities. This expansion has continued in the present period and
has now spread to many of the region’s smaller cities. More significant, however, has
been the establishment of branches in the outlying districts of metropolitan areas, with
this activity growing more rapidly during the postwar than in the earlier period. The
balance of the branching development has come with the establishment of state-wide
systems or branches in counties not contiguous to head offices.
In 1920, 63 of the region's banks operated 92 branches. By 1931, the number of
banks operating branches had increased to 86 and there were 236 branches. At the close
of 1958, 157 banks operated about 700 branches. In the earlier period almost 60 per
cent of the branches were located in the banks’ head-office cities, whereas today only
about 39 per cent of the branches are so situated. Approximately 42 per cent of the
branches are in the same county but outside the head-office city, and 19 per cent are
elsewhere. Branches now constitute 60 per cent of all banking offices in New England,
and 35 per cent of the banks have branches. Most of the branches are in large cities and
metropolitan areas and belong to large banks. But among these banks there is no close
relationship between the size and the number of their branches.
A comparison of the growth rates of cities in which branches were established and
the growth rates of head-office cities reveals that the branch cities averaged a 21 per cent
increase in population from 1940 to 1950 as compared with only 7.6 per cent for headoffice cities.
Even when banks located in relatively small cities have established branches, they
have tended to do so not in communities of comparable size but in still smaller towns or
villages. The basic reason for this appears to be the difference in population growth rates
31




Branch
Banking

of different sections of New England. And where branches have been established in the
same city as the head office, there is evidence that they have been put in relatively newlydeveloped and thus faster-growing portions of the city.
As families have moved to the suburbs they have also tended to take their banking
business to the suburbs. Furthermore, the increasing congestion of city traffic has further
stimulated the establishment of banking offices in less crowded suburban sections. There,
banks or branches offer parking lots or drive-in-teller windows and otherwise provide
convenient access to facilities.

New Commercial Banking Facilities in New England 1945-1958
Maine

New Hampshire

Vermont

MB B M M
1

New Banks — 0
New Branches— 1

New Branches — 0

T o ta l
N e w E n g la n d
C o m m e r c ia l
B a n k in g F a c ilitie s
E s ta b lis h e d
New Banks

New Branches

■
1945-’49

19 4 5-’49
6

1945-'49
48

19 5 0-’54
7

1950-'54
111

1955- 58
10

0|
1955-’58

3 0
1945-'49

1 H U f 2 ()
1950-’54

1955-’58

0 0

0

1945-’49

TOTAL
341

0

1950-'54

0

1

1955-58

1 9 5 5-’58
182

TOTAL
23

1950-'54




Massachusetts

New Banks — 10
New Branches— 164

Rhode Island

Connecticut

New Banks — 0
New Branches — 37

I
19
13

11

2
1945-'49

1950-'54

1955-’58

1945-’49

1950-’54

1955-'58

■

1945-’49

!
31
1950-'54

1955-'58

New England has also undergone considerable industrial change since the end of
the war. Many textile firms have ceased operations or moved away, forcing communities
into positive action to attract substitute industries. Ignoring the empty, multi-storied fac­
tory space, many new manufacturing firms have built plants on the peripheries of cities or
located in modem industrial parks. This has reinforced the move away from the centers
of cities by the labor force. Banks wishing to continue their growth followed the populace
and industry to the suburbs.
32

Population and industrial shifts led to extending banking facilities chiefly through
branches rather than through an increase in the number of unit banks. M any of the new
banking offices have been established in relatively small communities. Bankers frequently
point out that a branch can operate profitably in small towns and rural areas in which a
unit bank could not survive because of the higher costs of unit operation.
Another reason for the greater increase in the number of branches as against the
increase of unit banks has been the reluctance of supervisory authorities to grant new
charters for banks in relatively small communities, and at times the difficulty of raising
capital for new banks. Throughout most of the period, bank stocks were traded at less
than book value. The stocks of New England banks absorbed in mergers after the war
were quoted at an average of 54 per cent of book value at the time of absorption. Only
in the last few years have the prices of many bank stocks reached book value. Because
investors desiring to enter banking have been able to buy into existing banks at relatively
low prices, there has been little interest in investing in new units.
About two-thirds of the branch banking development in New England since 1945
has come through the creation of new offices rather than the acquisition of existing units
and their conversion to branches. This is a smaller proportion than that for the rest of
the country and probably indicates that New England was less in need of new banking
facilities than many other areas. In other instances, branch development has been ex­
panded through the acquisition of existing units and their conversion to branches, par­
ticularly to expand retail banking. Usually it is more profitable to conduct retail banking
through branches acquired through absorption rather than through the establishment
of new offices. This also applies to other types of banking. Absorption of a unit bank
minimizes promotional and construction costs and personnel recruitment. One further
advantage of the merger route is the relative certainty of success. Operating data on an
existing bank provide a basis for forecasting its probable performance as a branch office.
While the change from unit bank to branch obviously will bring operating changes, a
going institution affords a sounder base for action than does a newly-established office.
0}

Federal law authorizes national banks to establish branches in states where branch
banking is expressly permitted by state law. The geographical range over which national
bank branches may be established is limited to that governing the branching of state
banks. Enabling federal legislation was provided in 1927 by the M cFadden Act and by
the Banking Acts of 1933 and 1935. Currently all of the New England states except
New Hampshire authorize some form of branch banking subject to specified conditions.
In Maine, branches have been operated since before 1895. The trust company law
of 1907 expressly authorizes them, although branches had been permitted before that by
special charter. Branches are presently permitted in the same county with the head office
and in contiguous counties. They may also be established in towns in other counties if
there are no existing commercial banking facilities or through absorption of a unit.
33




Branch
Banking
Laws

Massachusetts, by an act in 1902, permitted a state bank or trust company to estab­
lish a branch in the head-office city. In 1914 other branches acquired through consolida­
tion were authorized. In 1928 one or more branches of a state bank or trust company
were permitted within the city limits of the head offices. Finally, branches within county
limits of the head-office city were authorized in places where there were inadequate
commercial banking facilities by the act of 1934 and by subsequent legislation.
Rhode Island law has authorized the operation of branches on a state-wide basis
since 1896. The general banking law of 1908 based on a revision of earlier law continued
this authority.
There were a few branches in Vermont in the first years of the nineteenth century
but they soon disappeared. Then, in 1929, Vermont officially permitted state-wide
branches.
In Connecticut, although a few commercial banks operated branches at various
times in the 1800’s, there was no express authorization. Branches were prohibited by an
act in 1902, but enabling legislation was passed in 1933 authorizing branches on a
state-wide basis in towns in which there were no commercial banking main offices.
Branches could also be operated if acquired through merger.
In New Hampshire in 1902 the Commissioner stated that although there was no
law directly authorizing branches, and none was in operation, he was “not aware of any
law which would prohibit such a practice within certain limits.” The law is still silent on
the subject and in recent years has been interpreted to prohibit branches.

Group
and Chain
Banking




Some of the units in New England’s banking structure have been associated through
the mechanisms of group and chain banking. Such arrangements provide common serv­
ices of one kind or another for the associated banks — ranging from developing uniform
accounting systems and co-ordination of policies to investment advice and central pur­
chasing of supplies. Groups and chains are generally found in those areas where branch
banking is prohibited or restricted to narrow geographical areas.
Group banking is an arrangement by which three or more banks, each of which re­
tains its identity, capital and personnel, are brought under common control by a holding
company or holding company affiliate. Chain banking is a similar arrangement except
that the individual units are owned or controlled, directly or indirectly, by any device
other than that of a holding company.
Group and chain banking systems were developed in New England during the latter
part of the 1920’s and early 1930’s, as they were in other sections of the country. At the
end of 1931, there were 10 groups and one chain in operation in New England compris­
ing 73 banks with 105 branches. Four of the groups and the chain operated in Massa­
chusetts. Three groups in Connecticut, two groups in Maine and one group in Rhode
Island associated banks in those states. Massachusetts had the greatest concentration of
group operations, both in number and in resources involved, and the groups took the
form of subsidiary holding companies. In the other states the over-all holding company
34

or the investment trust type of affiliation was used. During this period, there was gen­
erally close association among the units in the groups or chains.
Since the m id-1930’s, group and chain banking have declined in importance. Even
though the banks remaining in groups are larger in size, they control a substantially
smaller percentage of resources currently and are fewer in num ber— 38 with 120
branches. In some cases the groups have consolidated into branch systems as the state
law has permitted and the policy of the group management dictated. This action has
been taken by groups in Connecticut, Rhode Island and Massachusetts.
A t the present time there is one chain in operation in Connecticut associating three
national banks. It was established early in the postwar period. Two groups established
in the late J 920’s remain in operation in Massachusetts. The affiliation which existed
prior to 1933 between one Boston bank and the group was terminated following passage
of the Banking Act of 1933 and the group has taken the form of an over-all holding
company. It presently associates banks in counties in the vicinity of Boston and includes
one bank in Springfield. The other group is headed by a Boston bank and associates
banks in counties adjacent to the city. The chain still operating in Massachusetts was
established in the 1920’s but the community of interest among the members has become
less strong.
One group established in 1930 continues to operate in Maine and comprises three
banks headed by a bank in Bangor. There is also one group operating in New Hampshire
headed by a holding company established in 1934 and associating six national banks in
the two southern counties of the state.
The Bank Holding Company Act of 1956 requires, among other things, the ap­
proval of the Board of Governors of the Federal Reserve System before additional banks
can be acquired by a bank holding company. Such a company is prohibited from acquir­
ing a bank in another state unless specifically authorized by the statutes of the state in
which the bank to be acquired is domiciled. It is also required to divest itself of non­
banking interests.
^

35




S
jfr




Some Federal Reserve districts are predominantly industrial while others are mainly
agricultural. Several contain financial and economic activities which have close ties with
countries abroad. The differing economic structures of the 12 districts stimulate inter­
regional trade and a net movement of funds from one district to another. The movements
may be largely seasonal or they may represent longer-term adjustments in the regional
balance of payments. Shifts in agricultural prices and production in relation to industrial
production can cause a net movement of funds from one district to another. Federal
government transactions, as they have increased in size since the war, also affect the
economic relationships of regions. These transactions may speed or retard the changes
in regional growth, production, population shifts and disposable income.
The districts which contain money markets with security exchanges and investment
banking houses may at times attract large amounts of short-term balances and lose them
at other times. Business funds are raised and accumulated in financial centers and then Why
transferred in substantial amounts to production areas. Some districts are capital export­ Deposits
ers and others capital importers. Evidence suggests that New England, as it has been
Shift
traditionally, continues to be a capital export region on balance both for short- and long­
term funds.
With the coming of World War IT, the movement of funds among regions increased
and changed. The main factors in the change were the development of defense industry
and the consequent restriction of peacetime activity, and the large growth in govern­
ment receipts and expenditures. Some areas experienced greatly increased economic
activity through the development of defense industry. In others, such as the already
heavily-industrialized New England, the expansion of production because of the plant
dispersal policy of the War Production Board was relatively less. Funds were raised in
financial centers and spent in the important war production centers. Interior banks drew
upon their accounts in money centers to finance credit needs of defense industries and
to buy government securities. The greatest gains made during this period were by those
districts in which government expenditures were largest. Tn general, the complex of these
long-run factors is chiefly responsible for the trends exhibited by deposits and for their
distribution among as well as within regions, particularly since the war. During the post­
war period, the rise of the middle-income group, the expanding volume of business,
changes in industrial structures, the rise of service activities, the increased size of banks
and related factors stimulated still further deposit changes.
Until World War II, the total deposits (demand and time) of New England com­
mercial banks increased at almost the national average rate. The war, of course, brought
changes and New England during this period experienced an increase in the rate of
deposit growth, but the rate of increase was slower than the nation’s. The region’s relative
position, as measured by the total deposit ratio, declined from six per cent at the begin­
ning of the war to five per cent at the close in 1945. A decline was also shown in the
ratio of the Federal Reserve Bank of Boston’s liabilities to the System’s total, which
dropped from over six per cent to 5.6 per cent.
37




Any comparison of total deposits of New England commercial banks with those of
the nation will show substantially slower growth rates for the region during the postwar
period, largely because of the smaller time deposit proportion of total deposits held by
the region’s banks. The average commercial bank in the region has a ratio of 25 per cent
time to total deposits as contrasted with 31 per cent for its counterpart in the nation.
Both city and country banks in New England generally have experienced a consistently
slower rate of increase in these deposits than have banks elsewhere. Commercial banks
in New England must actively compete with 338 mutual savings banks and 337 co­
operative banks and savings and loan associations — which are well diffused throughout
the region. These possess a long history and an impressive tradition. The New England
states contain 65 per cent of the number and 27 per cent of the deposits of the mutual
savings banks in the nation. Many commercial banks in New England accept savings
deposits purely as a convenience for their customers or because competition from other

' ..' .

..........

^

■ ■

: . : :
:

:

Commercial Bank Deposits

::
•:

- ■
■
.

:' '

::: :

—New England and the United States

P E R C E N T A G E C H A N G E S IN C E 1947

D e m a n d D e p o s its
+50

+40

+30

.jfm

m

m

b

+20

M B k C

_

__ __

ik

B i ll
_ _

Total Deposits
+50

+10

+40

0

-m

■ ",

+30

-1 0

1947 ’48

’49

’50




’51

'52

’53

’54

’55

’56

’57

1958

+20

....

..

+10

■■ New England

0

■ ■

■
- p ^ 1- 1■1 ■
1 1 1 1
1 1 1 1
1 1 1 1
--------------------- 1 1 1 1

..

■ United States
-1 0
1947 ’48

’49

’50

’51

’52

’53

’54

’55

’56

’57

1958

38

commercial banks makes this a matter of policy. On the other hand, the savings banks
carry operating balances with the commercial banks and in a number of instances own
substantial proportions of their shares. Commercial banks elsewhere in the United States
are frequently the only institutions to provide savings facilities in their communities.
Demand deposits in New England banks, however, have grown at a faster rate than
those of the nation since 1947. For the period 1947-1958, New England’s demand
deposits increased 38 per cent as compared with only 29 per cent in the nation. The
over-all district figure, however, conceals the significantly different rates of growth
which have been shown by the several states. Massachusetts, holding over half of the
region’s demand deposits, has grown about as much as the national average. In contrast,
Connecticut has experienced an 86 per cent increase in demand deposits, more than
offsetting the relatively slower rates of growth reported by Rhode Island, Maine, New
Hampshire and Vermont.
■

■ H

ISSSiBS?
A

!* ■ §

•

10,000 |
1
1
1
5,000 J
4,000
3,500
3,000
2,500
2,000

^
oo

1,500

CT3

Total
Com mercial Bank

j

Deposits

"o
O

o
£=
o
GO

i=

1,000
900
800 j
700 j
600

New England
States

500
400
300

200

39




▼ la
1946

1948

1950

1952

1954

1956

1958

Deposit
Shifts in the
#
egion

In 1920, Connecticut’s commercial banks held about 17 per cent of New England’s
tota^ deposits. By 1945, the holdings had risen to 20 per cent and a steady increase since
then has brought the holdings to 23 per cent at the end of 1958. The only other state
has increased its relative share since 1920 is Rhode Island, which moved from about
seven per cent in 1920 to 10 per cent in 1945. Since that date a gradual decline has oc­
curred and at the end of 1958 the state held nine per cent of the region’s deposits.
Since 1920, Massachusetts has experienced a slow but steady decline in its relative
position. At that time, its banks had about 60 per cent of the area’s total deposits. This
proportion was generally constant until 1945 but since then it has fallen moderately,
reaching 54 per cent in 1958. The three northern states have each shown small losses in
relative position. From slightly over 15 per cent in 1920 their combined share had de­
clined to just under 14 per cent at the end of 1958.

$
^ Total
C om m ercial Bank
Deposits

New England
Financial Centers




200

40

Of perhaps more interest and significance are the changes which have taken place
in the distribution of total deposits among the various important cities of New England.
The relative positions of several of these have changed rather sharply in recent years,
reversing earlier trends.
The reserve city of Boston, for example, had in 1920 only about 16 per cent of New
England’s commercial bank deposits, and in 1958 had over 28 per cent. This has by no
means represented a steady increase, however, as in 1941 the Boston banks had over 40
per cent of the region’s commercial bank demand deposits. But the percentage declined
steadily after that date. This experience contrasts somewhat with that of the nation as a
whole, where reserve city banks have increased their share of the country’s deposits. Yet
despite this relative decline, Boston banks have experienced steady growth in dollar
amounts.

New England Total Commercial Bank Deposits
50

40

30

20

1946

'47

’48

’49

’50

'51

’52

’53

’54

’55

’56

’57

1958

"Other Financial Centers" includes Hartford, New Haven, Portland, Providence, Springfield and Worcester.

41




The suburbs of Boston had their greatest relative growth in the 1920’s, increasing
their share of the region's deposits during the period from less than three per cent to
about nine per cent. The latter figure has remained about the same since 1930, indicat­
ing that the growth in their banking resources has paralleled that of New England and
that they have not experienced the percentage decline shown by the central city.
The important cities in Connecticut and central Massachusetts have shown the most
rapid growth since 1920. Hartford is the most striking example. In 1920, Hartford banks
held little more than two per cent of New England’s commercial bank deposits, and
less than six per cent in 1946. By 1958, however, its share had risen to about eight per
cent. This rise has come principally from the extension of branch systems in the state.
New Haven, Worcester and Portland have also improved their relative positions.

Factors
in R egional
Deposit
S h ifts




There are several reasons for the varying rates of deposit growth in the New England
states and their important cities. The shifts in proportions held by the states is accounted
for principally by the following factors, all of which are interrelated.
(1 ) Connecticut has had the most rapid population and income growth of any
state in the region, and has exceeded the national growth rate for both factors.
Vermont and New Hampshire approximately equaled the rate of income
growth in the nation, while in Massachusetts, Rhode Island and Maine it has
been less rapid.
Among the forces which have contributed to these developments are shifts in
the nature of economic activities and changes in the volume of business in
general. Important in this connection has been the expansion of electronics
and other research-based industries in particular and the durable goods indus­
tries in general. On the other hand, the decline of the textile industry and
shifts in some farming activities have been depressing forces. Government
spending for goods and services for defense, as well’as for regular operations
and social programs, have also been interacting and contributing factors.
(2 ) The changing competitive positions of the region’s banks, both among
themselves and with banks in the rest of the nation, have an important influ­
ence in the final determination of deposit totals. As business units have in­
creased in size and as the volume of business has grown, banking has become
increasingly competitive. Where competition has not been met the result has
been a loss of deposits. The change in the structure of banking within the
district, viewed both from the increase in the size of the unit through merger
as well as the development of branch banking, has enabled certain banks to
attract and hold business within the region and to obtain business outside the
region which otherwise would have been lost. Most of the change in the struc­
ture of banking has occurred in Connecticut, Massachusetts and Rhode Island,
and has resulted in increasing the relative share of deposits of each state or
reducing deposit losses.
42

.jap**.

(3) As hitherto local firms have become divisions of national concerns, important ^ nanc'a' arrangements have been shifted from the state where domiciled
to elsewhere in the region or the nation, thus shifting deposits.
The change in the position of the cities must be viewed against the background of
these several factors. In addition, a primary cause of the position changes has been the
increased size of banks resulting from merger or the development of branch systems em­
bracing wider areas. As a result, Hartford, New Haven, Providence, Worcester,
Springfield and Portland have been able to attract business which previously went to
Boston or New York City.
In reviewing deposit trends in New England, interesting contrasts are provided
when the banks of the region are divided into three groups — Boston banks, other financial center banks and those outside these areas. From this viewpoint, Boston’s share of
the region’s deposits has fallen, other financial centers have gained substantially and the
remaining banks have gained only slightly. In the case of the banks outside Boston and
the other financial centers, the extension of branch banking systems in Maine, Massa­
chusetts, Rhode Island and Connecticut has resulted in some deposits which were for­
merly credited to a county, city or town now being reported by the parent bank which
itself may be in a financial center. Thus, in Rhode Island, Providence has had only a
small increase in population and industrial growth in recent years, but Providence banks
have managed to hold their own because they have been able to take advantage of the
growth of other cities and towns in the state.
Boston’s share of the region’s deposits has fallen from 32 to 28 per cent over the
last 10 years. The ability of Boston city banks to hold the loss of position to this modest
amount has resulted from the further expansion of their well-entrenched, county-wide
branch systems. Otherwise the growth of suburban banking would have affected them
more adversely.
Several other factors should be cited. Business deposits do not necessarily move in
step with population. Larger firms, even those located in suburban areas, maintain their
accounts with banks that are sufficiently large to be able to offer a line of credit consistent
with the credit needs of the firm and to provide the large volume of services called for by
the account. National and area chain stores operating numerous units within a single
metropolitan area frequently concentrate their funds rather than scatter them among
banks in each of the suburban areas in which they operate. Usually each unit carries a
local bank account only for initial deposits of its receipts, obtaining change and other
limited banking services. The funds are then customarily transferred to a city bank from
which they are spent and invested. The accounts which migrate from the city consequently
are mainly those of the smaller trade and service establishments and some of the profes­
sions that have no reasons for maintaining further connections with the larger banks.
The deposits of industrial firms moving to the suburbs would probably remain with the
city bank. Some loss, however, may be experienced in city deposits as large firms make
local payroll and other arrangements for their decentralized plants.
43




Boston vs.
Other Areas in

Trends in
Interbank
Deposits




Large domestic interbank deposits have long been characteristic of the American
banking system. From the early days, banks in the interior have found it convenient or
necessary to maintain balances with banks in financial and commercial centers, and
large-city banks have found such business to be profitable. The balances would be used
for currency, payment of checks, issuance of drafts, purchase of securities and for money
transfers. The correspondent system grew in importance as deposit banking developed.
It was supported by the forces of competition and trade developments, particularly
among different communities. Banks in financial centers became the focal points for
country banks and those in smaller cities. Banks in the smaller cities were in a dual posi­
tion. On the one hand, they were large depositors with the financial center banks and, on
the other hand, they held sizable deposits of the country banks. Toward the close of the
nineteenth century, correspondent banking became dominant largely because of the de­
centralized system of required reserves under the National Bank Act, the prohibition of
branch banking and the lack of a central bank. It continues today but has become of
less over-all importance because of further integration of the banking system.
Although domestic interbank deposit balances have grown steadily in dollar
amount, they are less important in relation to demand deposits than in the period from
the 1920’s to the early 1940’s. In 1934, interbank deposits represented nearly one-fifth
of the nation’s demand deposits. Now they account for less than one-tenth, at which
figure they have remained stable in recent years.
The amount of domestic correspondent balances held by New England banks has
increased between 1945 and 1958, reversing a decline which had been in progress since
1934 when they held 4.7 per cent of the nation’s total. The share of New England banks
rose from three per cent of the nation’s domestic interbank deposits in 1945 to 3.8 per
cent in 1958, a greater relative increase than any other Reserve district except Dallas.
The Atlanta, Chicago and Philadelphia districts also improved their shares during the
postwar period. Since 1934, the principal gainers have been the Atlanta, Dallas, Kansas
City and St. Louis districts.
The changes in the distribution of domestic interbank deposits by districts reflect
distribution changes among central reserve city, reserve city and country banks. In 1934,
New York and Chicago banks held nearly half of interbank balances, whereas reserve city
banks held 43 per cent and country banks only eight per cent. By 1945, the share held
by the central reserve city banks was down to 40 per cent, reserve city banks had climbed
to 50 per cent, and country banks increased their share to 10 per cent. Since that date,
the shares have remained relatively constant.
The gain since the 1930’s in the proportion of domestic interbank deposits by re­
serve city banks as a group, and the general stability in the proportion held during the
postwar period, are accounted for by several factors. Among these are the growth in the
size of country banks which have traditionally had close reserve city ties. As they have
grown in size, the amount of deposits carried by them with other banks has likewise
grown. The number of “money market banks” outside New York and Chicago has in­
creased since the early 1940’s. These banks have tended to economize in the volume of
44

D o m estic In terb a n k D eposits
of Total Held by:

▼

'W

▼

-

Central Reserve City Banks

49

52

40

41

38

37

Reserve City B a n k s ...........

43

41

50

50

52

52

Country Member Banks . .

8

7

10

9

10

11

100 %

100 %

100 %

100 %

100 %

100 %

ALL M E M B E R BANKS. . . .

balances held in New York City and Chicago. They have also aggressively competed
with central reserve city banks for correspondent business and for loans on a national
and regional basis — an indirect generator of interbank balances. Another factor has
been the general diffusion of industry throughout the United States and the continued
industrial development of many areas first stimulated during World War II by the estab­
lishment of defense plants.
$

$

The proportion of interbank balances held by the reserve city of Boston, in com­
parison with those of New England country banks, has shown a movement somewhat in
contrast to that in the nation. Although the proportion of the region’s domestic interbank
deposits held by Boston banks remained relatively constant from 1934-1945, at about
78 per cent, it has fallen steadily since 1945, and by June 1958 was 70 per cent. New
England country banks presently hold 30 per cent of the total and have gained more
relatively than the nation’s country banks. Among the reasons for this development is
the growth in the size of banks in Hartford, New Haven, Providence, Springfield,
Worcester and Portland. This growth has enabled these banks to become less dependent
upon balances with Boston or New York City banks. In addition, some of these banks
offer their customer banks special services and have developed reciprocal participation
agreements for business loans. Banks in some of these cities now handle a substantial
proportion of state and municipal borrowing which previously went to Boston banks
and in some cases to New York City. The end result has been a decrease in the size of
the balances carried in Boston either in the form of municipal deposits or by banks for
their own account which previously participated in local government financing with
Boston banks. Furthermore, the absorption of banks in Connecticut and Rhode Island
through branch development has eliminated certain country banks which previously
maintained balances with banks in Boston and New York City.
Although Boston now has a smaller proportion of the district’s domestic interbank
deposits, it continues to be the region’s significant city in this deposit category. Boston
banks receive deposits from banks in every county in New England, from every state in
the nation and from many countries abroad. In mid-1958, Boston ranked as the sixth
45




Interbank
Deposits in
New England

largest holder of domestic balances in the nation and fourth in holdings of foreign bal­
ances. Despite the widespread change in the nation’s bank structure, the geographical
distribution of deposits due to banks held by Boston banks has remained surprisingly
constant for many years. In 1920, as in 1958, approximately 75 per cent of the domestic
interbank deposits held by Boston banks were due to other New England banks.
Among the chief shifts which have taken place is that a larger portion of the deposits
from outside the district have originated from banks in the South and a smaller portion
from banks in the Midwest. These shifts in deposits reflect the rising development of new
industrial areas as well as the relative decline of the older areas in the United States, and
they indicate that Boston banks have remained competitive with banks in other sections
of the country and have been able to hold old business as well as to attract new business.
There is a general relationship between interbank deposits and loans which are
made by banks outside their own localities. Lending outside their own city is important
to most Boston banks. During the 1800’s, the customers of the larger New England
banks, and to a lesser extent the banks themselves, helped to push the American frontier
westward. Today, the region’s banks are aiding in a more intensive development of some
of the country’s younger areas. And as was true in earlier periods, local or regional needs
have been met and satisfied first.
^
Lending
Outside the
Region




^

New England banks, particularly those in Boston, make substantial commercial
loans outside the region; in recent years the amount has occasionally approached $500
million. The larger banks in the region compete directly for business with banks scattered
over the nation. The major part of the lending outside New England is originated by
district banks and they are responsible for the entire credit. Only 30 per cent involves
participations with other banks.
Boston banks lead the region in both the amount and number of commercial loans
made in other parts of the nation. During the 1955-1957 period of record business
activity, as much as 40 per cent of the outstanding volume, and five per cent of the num­
ber, of commercial loans of the Boston banks went to borrowers in other districts. The
proportion of such loans has almost doubled since 1920. For the region as a whole, about
one-quarter of the outstanding volume and two per cent of the number of loans were
made outside the region during the 1955-1957 period, only moderately more than was
loaned elsewhere in 1920. For both Boston and other New England banks, the amounts
of these loans are large and they are well distributed geographically and by industrial
classification.
Many of the loans made to outside borrowers by New England banks have gone to
firms in businesses which are foreign to the region, including such commodities as
cotton and wheat, and to the oil and motion picture industries. At times, almost 20 per
cent of the volume has involved borrowers dealing in real estate — principally to pro­
vide warehousing arrangements for federally-aided mortgages pending final placement
with institutional investors. Boston banks are prominent in these fields.
46

jt"

D istribution o f C o m m ercia l Loans and In terb a n k D eposits 1
OF N EW ENGLAND BANKS

■B
E
Total

mmmssmmeam

Loans

Interbank
Deposits

Commercial
Loans

Interbank
Deposits

New E ngland..................................

81%

74%

75%

69%

East .................................................

7

8

10

10

S o u th ...............................................

2

5

7

12

M idw est...........................................

8

9

5

5

W e s t.............................................

1

1

2

1

Pacific .............................................

1

3

1

3

100%

100%

100%

100%

Location of Borrower or Source of
Deposits by Geographic Divisions

U N IT E D S T A T E S ............................

1 Interbank deposit and loan data fo r 1920 from Annual Report of the Comptroller o f the Currency, 1920,
pp. 214-218. Interbank deposit data fo r 1957 based on a sample of New England banks. L oan d ata fo r 1957
are estim ated on the basis of a Survey o f Business Loans made by the Federal Reserve System and inter­
views w ith district banks. Loan data fo r 1957 a re generally comparable with the C om ptroller’s data for
loans in 1920 which were m ainly comm ercial.




/ ’ Business Loans of New England Banks Reach A round the W orld

Sales finance companies have also received a large proportion of the “outside” loans
— sometimes as much as 25 per cent. A t some of the banks outside Boston, credits to
sales finance companies are the principal loans made outside New England. The southern
textile industry has received as much as five per cent of the volume because the region’s
banks have successfully retained a large part of the business that they held when the
firms were domiciled in New England. Other loans go to food, liquor and tobacco proces­
sors, metal manufacturers and trade and service firms.
The geographical distribution of loans made, and the sources of correspondent
balances held by New England banks, have not changed substantially in over 40 years.
Changes, where they have occurred, reflect shifts in the industrial pattern of the nation
and a shift in domicile of some firms. A smaller percentage of the loan volume in recent
years has gone to midwestern borrowers — an increased proportion has gone to the South
and the Southwest.
The table on page 47 compares changes in the geographical distribution of loans
and interbank balances over almost a 40-year period. In the earlier part of the period,
the loan classifications are only generally comparable with those current today, and a
large proportion of the business loans made to other regions took the form of commercial
paper purchased from note brokers. Purchased paper originated with a variety of impor­
tant industries, many of which used the commercial paper market as a substitute for, or
to supplement, bank borrowing. Today, many of these firms borrow their total needs at
the bank counter at the prime commercial loan rate. Purchased finance company paper
represented only a modest proportion of the funds advanced outside the region in 1920,
in contrast to the large proportion of direct commercial loans made to finance companies
outside New England in recent years.

Lending in
New England
by "Outside”
Banks




Although the commercial loans made by district banks elsewhere in the nation are
widely spread geographically, most of the commercial loans to district firms made by out­
side banks originate in New York City — which accounts for three-quarters of the total.
The Philadelphia and Chicago districts loan two-thirds of the remainder, with Philadel­
phia district banks lending about twice as much to New England borrowers as banks in
the Chicago district. Over two-thirds of the loans have been made to firms domiciled in
the region in the textile, metal fabricating and transportation fields and public utilities.
Most of the loans go to firms in smaller cities and towns in New England, with a
major portion concentrated in southern Connecticut. Over 20 per cent of the loans out­
standing in the New Haven area (in dollar volume) were made by banks in New York
City. In many cases,firms in the lower part of Connecticut tend to have their major bank­
ing connections more firmly established with New York banks than with New Haven,
H artford or Boston banks because, although the manufacturing plants are located in
Connecticut, many have their administrative offices in New York City.
Some of the loans made in the region by outside banks go to firms in the district’s
large cities in direct competition with local banks. In other cases, the outside banks par­
48

ticipate the loans with local banks. Participations are important in the inflow of funds.
Of the commercial loans secured from the Philadelphia and Chicago districts, about onethird involved participations. Only about one-fifth of the loans made by the New York
banks were participations. The participation may arise in two ways. The size of the lend­
ing limit prevents the local bank from originating the credit so that an outside bank with
which both the firm and the local bank have relationships will originate the credit and
participate part of it back to the local bank which will service the loan. In other cases the
local bank has a large enough lending limit to originate the credit but it wants more
diversification. Accordingly it will participate a part of the credit with its correspondent
in some city outside the region.
^

^

The larger financial center banks in the district also serve localities beyond their own
metropolitan areas. In recent years, the volume of these loans has ranged near $300 mil­
lion, roughly two-thirds the amount of the loans placed outside the region. Boston banks
are the leaders in this type of lending, as they have been since the early development of
banking in the region. They generally place about 20 per cent of their loans in other parts
of Massachusetts and elsewhere in New England. Banks in Providence, Hartford and
New Haven follow suit, placing a little over 10 per cent of their loans outside their
immediate lending area. The loans are made to a cross section of district industry and
amount to about one-sixth of total business loans made by all district banks within the
region. This relatively small percentage suggests that most of the interior banks have
sufficient funds and service all or at least the great bulk of needs in their local areas. P ar­
ticipation occurs on only the largest loans or when diversification of risk is necessary. In
some cases, the city bank and its country correspondent have developed working agree­
ments or participations which relieve pressure at seasonal peaks or fill out the loan port­
folio at seasonal lows in the respective banks.
ijfr

49




Regional
Lending by
City Banks




TH E
FEDERAL.
RESERVE
AND THE

During the early 1900’s, predominant attention was directed to money in the form
of circulating currency when considering the monetary system and its relationship to
economic activity. For about 20 years following the organization of the Federal Reserve
System, emphasis was directed to the regulation of credit. During the Great Depression
of the 1930’s, attention turned to fiscal policy as the major instrument of economic
policy. During World War II and into the postwar period, the operations of the federal
government, and at times those of state and municipal government units, became
important in their effects on economic developments. After the early postwar years,
there was a general tendency, both here and abroad, to return to monetary policy as an
important instrument of economic policy. Thus, since at least 1950, it has become cus­
tomary to view monetary policy, fiscal policy and public debt management as comple­
mentary parts of economic policy objectives. Such objectives include realization of the
potential for growth, avoidance of serious instability of production and employment
and attainment of price stability.
The Federal Reserve System effectuates monetary policy largely by limiting or
influencing the volume of member bank reserves which constitute the base for bank
credit and the money supply. Except for infrequent changes in reserve requirements, the
reserve base is regulated through open market purchases and sales of government securi­
ties and by discounting or lending to member banks. These operations add to or sub­
tract from the reserve base as the System creates or extinguishes its own credit.
The use of bank credit by specific borrowers and sectors of the economy is influ­
enced by its cost and the ability and willingness of the commercial banks to extend it.
The ideal role of bank credit is to meet the needs of the economy without contributing
to inflationary developments as competing demands for goods and services tend to press
against available resources. The willingness of commercial banks to extend credit is
influenced by the balance between reserves which are freely available and reserves which
must be obtained from the Reserve Banks.
Discounting provides reserves to a specific borrowing bank at its initiative on a
temporary basis subject to repayment. Purchases of government securities provide funds
at the System’s initiative to banks in general without provision for repayment. Reserves
released through discounting, however, become diffused while reserves released through
open market operations may be reabsorbed through later sales or redemptions of securi­
ties. Thus in broad effect, discounting and open market operations serve the same
purpose.
All lending and investing transactions of the Reserve Banks create member bank re­
serves and cannot avoid doing so. Furthermore, any new reserves injected into the bank­
ing system support a multiple expansion of deposits by the commercial banking system.
Under the fractional reserve system in the United States, changes in the supply of reserves
have a multiple effect upon the volume of credit and the money supply. A bank obtaining
reserves in excess of requirements may lend or invest only the amount of the excess; but
when the funds thus loaned or invested are deposited by the recipient bank in the same
51




Objectives
of M onetary
Policy

or some other bank, only a fraction of them has to be held by the bank as required re­
serves against deposits, and once again the remainder may be loaned or invested. In this
way, the banking system may eventually build a total volume of credit equal to many
times the supply available. The extent of the expansion depends on reserve requirement
percentages and the types and distribution of deposits among banks.
^

Sources of
B ank
Reserves




^

During the 45-year existence of the Federal Reserve System, the volume of member
bank reserves in the nation has grown from roughly $1.5 billion to nearly $18.5 billion.
In New England it has grown from $75 million to $771 million. W hat are the sources of
these reserves and what are the uses to which they have been put? Is it correct to suggest
that as deposits have expanded, member banks have been forced to turn over to the Re­
serve Banks sums to meet required reserves, thus depriving the commercial banks of funds
that might have been put to some other use? Does the Reserve System depend upon these
reserve funds for its own earnings?
Instead of obtaining any earnings from the deposits of member banks, the Reserve
Banks have provided member banks with the reserve balances they needed to expand
their loans and investments to the present level. In the long run, commercial banks gain
or lose reserves as the result of changes in only three major factors: additions to the
gold stock along with the inflow or outflow of gold, changes in currency in circulation,
and the activities of the Federal Reserve Banks in expanding or contracting their loans
and investments. One might consider that the Federal Reserve Banks could convert all
of their reserve balances into Federal Reserve notes and deliver them to the member
banks to be held in their own vaults as a cash reserve. There would be no change in the
aggregate liability of the Reserve Banks. The gold now used to back up the deposits with
the Reserve Banks would merely shift to backing up an equal amount of Federal Reserve
notes and the Reserve Banks’ earnings would be unaffected.
Over the years, the principal source of reserves of the commercial banks has been
the Federal Reserve operations as shown in detail on the opposite page. The Federal
Reserve Bank of Boston has supplied a proportionate share of these reserves to New
England banks. On the whole, the earning assets of the Reserve Banks have tended to
fluctuate inversely with the banking system’s net acquisitions of reserves from other
sources than Federal Reserve credit. For example, at times when commercial banks have
obtained funds from additions to the gold stock or gold inflows, the Reserve Banks have
contracted their own earning assets as a partial offset to the increase in reserves resulting
from the gold gain. Growth in earning assets of the Reserve Banks has come about when,
for reasons of national policy, additional reserves have been supplied by the System to
the commercial banks.
The essential difference in the credit-creating process between the Federal Re­
serve Banks and the commercial banks is that the Federal Reserve Banks have been given
the power to create reserves. Commercial banks as a system of banks have the power of
creating credit but they cannot create reserves. The earnings of the Federal Reserve Banks
52

(+) or Decrease (—
)

Changes in Factors Tending to Increase
Member Bank Reserves and Excess Reserves, d e c .
F a c to r

1914-’20

’29-’33

’20-’29

’45-’50

’50-’58

’14-1958

569

+ 1,600

+ 1,504

+

+ 16,830

-

1,659

+ 2 ,6 0 7

- 1 ,5 4 9

+ 18,735

941

-

3,213

-1 9 ,7 8 3

+

774

- 4 ,4 3 8

- 2 9 ,1 4 7

660

+ 12,106

—2 0 ,8 7 0

+ 4 ,9 8 1

- 4 ,4 8 3

-

+ 1,926

-

253

+ 2 2 ,0 7 8

—3 ,4 8 4

+ 5 ,5 6 9

+ 2 6 ,3 4 7

- 1 ,9 2 3

-

793

-

221

+

241

-

181

+

43

+

103

119

-

72

-

28

+

60

+

498

+

790

-

72

+

1,295

262

—

101

-

71

-

395

-

58

-

338

-

234

-

1,459

809

+ 2 2 ,7 5 9

- 3 ,2 1 3

+ 5 ,3 0 6

+ 2 6 ,2 4 1

239

+ 1,108

+ 1,357

+

41

C urrency in c ir c u la t io n ..................

- 2 ,2 9 3

+

747

-

T O T A L ......................................

- 1 ,5 2 0

+ 2 ,4 4 6

-

G overnm ent securities ............

+

+

D iscoun ts, advances and industrial loans 2

+ 2 ,9 3 7

F lo a t3

+
-

G old and foreign account transactions 1 . .

’4 0-’45

+

+

-

’33-’40

3 1 ,1 9 5 8

1,510

343

Treasury f a c t o r s .................................

31, 1 9 1 4 - d e c .

355

+

+

2,410

8,000

Federal R eserve factors:

...........................................

Other deposits and F ederal R eserve
a cco u n ts4 ...................................................

287

224

+ 3 ,0 3 6 5

- 1 ,8 7 2

+ 1,034

-

T otal r e s e r v e s ......................................

+ 1,516

+

574

+

374

+ 11,297

+

1,889

+ 1,766

+

823

+ 18,241

Effects o f changes in required reserves . . .

— l,5 2 0 e

-

668e

+

558

-

5,541

-

7 ,0 4 6

- 2 ,0 5 2

-2 ,0 6 3

- 1 8 ,3 3 2

Excess r e s e r v e s ...................................

—

—

94e

+

932

+

5 ,7 5 6

-

5,157

-

- 1 ,2 4 0

-

T O T A L ......................................

4e

286

91

1 U nder the G old Reserve Act of 1934 the price of gold was increased from $20.67 to $35.00 per ounce; this resulted in an increase of
approxim ately $3 billion in the nation’s m onetary gold stock and in Treasury cash. The effects of these changes have been included in the
1933-1940 data shown here.
2 Changes in this total prior to 1934 consist alm ost exclusively of changes in bills discounted and bills bought; those during and after 1934
include changes in industrial loans; and those after 1939 consist mainly of changes in advances.
3 The volume of checks credited to the m em ber banks’ reserve accounts with the Reserve Banks prior to actual collection.
4 Excludes foreign deposits; F ederal Reserve accounts consist of capital accounts plus other liabilities and accrued dividends minus bank
premises and other assets.
3 To m ake this total com parable with those fo r other periods shown, it has been adjusted dow nw ard by $45 million. Such an adjustm ent
has been necessitated by two features of m em ber bank reserves in 1914: (1) m em ber banks held some of their reserves outside the Federal
Reserve Banks; and (2 ) m em ber bank reserve balances held with the Reserve Banks were com puted on a slightly different basis th an in the
later years shown in the table. See Banking and M onetary Statistics, p. 327.
e Estimated.

53




Note; Because of rounding, figures do not necessarily add to totals.

derive from the powers granted by Congress to create reserves and to issue currency.
Present financial institutional relationships and arrangements facilitate allocation of
funds among different regions, industries and firms.
During the last 45 years, the Federal Reserve System, in conjunction with the highlycompetitive, privately-owned commercial banking system, has aided in handling the
changing transaction requirements of an economy whose population and labor force
have increased 75 per cent and whose physical volume of production has quadrupled.
The economy has greatly altered the types of goods produced, passed through the disrup­
tion of three wars and undergone basic shifts in the regional distribution of production
capacity and population. These shifts have been marked within New England and the
region has shared in national gain but to a relatively smaller extent than other sections of
the United States.

p P : %

"
'

N ew E n g lan d ’s
B an k in g
Leadership




.

’ ' ■sit v ;

The foregoing pages have demonstrated the essential strength of New England’s
commercial banking over a period of 175 years. They demonstrate, too, the persistent
pioneering in money matters and the capacity for adaptation to change which have so
long been characteristic of the region’s banking.
An area’s financial stature is measured by much more than the simple sum of its
assets. Other gauges of importance include the breadth and variety of the financial
services offered its people and its businesses, the quality of these services, and the per­
formance of special services not easily or satisfactorily available elsewhere. The record
of New England’s commercial banks on all these counts is impressive.
As one surveys the region’s present prospect one may expect from its commercial
banking that continuation of leadership which will help maintain New England as an
area of significant economic progress.

54




FINANCIAL FOLIO
FEDERAL
OF

RESERVE
BOSTON

BANK

Comparative Statement of Condition
D E C E M B E R 3 1 ST

1958

1957

ASSETS
Gold Certificates........................................................................
Federal Reserve Notes of Other Federal Reserve Banks. .
Other C a s h ................................................................................
Loans and Advances.................................................................
Industrial L o a n s ........................................................................
U. S. Government Securities...................................................
Uncollected Cash Item s...........................................................
Bank Premises............................................................................
Other A ss e ts ..............................................................................

$ 943,826,844.33
41,061,485.00
19,757,938.04
1,220,300.00
326,600.00
1,429,342,000.00
405,506,308.39
4,704,692.43
7,885,164.43

$1,066,638,442.49
31,700,555.00
19,863,025.35
740,000.00
326,600.00
1,293,773,000.00
467,095,945.20
5,010,066.81
11,930,139.70

...............................................................

$2,853,631,332.62

$2,897,077/774^55

Federal Reserve N otes.............................................................
Deposits:

$1,630,425,040.00

$1,638,156,245.00

Member Bank Reserve Accounts......................................
U. S. Treasurer-Collected Funds........................................
F o re ig n ...................................................................................
Other .....................................................................................

771,057,286.55
21,009,386.28
13,395,000.00
2,201,820.85

777,422,475.18
38,076,894.10
19,778,000.00
3,105,923.41

TOTAL d e p o s i t s .............................................................................

Deferred Availability Cash Item s..........................................
Other L iab ilities........................................................................

$ 807,663,493.68
338,324,065.99
1,068,354.73

$ 838,383,292.69
344,346,515.88
548,904.03

TOTAL l i a b i l i t i e s .......................................................

$2,777,480,954.40

$2,821,434,957.60

Capital Paid I n ..........................................................................
Surplus (Section 7) ..................................................................
Surplus (Section 1 3 b ) .............................................................
Reserves for Contingencies.......................................................

$

$

17,741,650.00
47,012,676.68
3,010,527.20
7,877,963.07

........................................

$

$

75,642,816.95

to ta la ssets

L IA B IL IT IE S

C A P IT A L A C C O U N TS

t o t a l c a p it a l a c c o u n t s

18,120,950.00
50,115,887.86
7,913,540.36
76,150,378.22

t o t a l l ia b il it ie s a n d
c a p it a l a c c o u n t s




.................................................

$2,853,631,332.62

$2,897,077,774.55

56

Comparative Statement of Earnings and Expenses
1958

1957

Current Earnings:
Advances to Member B anks...............................................................

$

338,937.68

$ 1,199,518.16

Foreign Loans on G old........................................................................

1,611.76

29,288.87

Industrial Loans ..................................................................................

14,696.33

14,770.09

U. S. Government Securities — System A ccount...........................

39,932,738.50

40,016,933.52

All O t h e r ...............................................................................................

15,699.61

17,981.60

Total Current E a rn in g s ......................................................................

$40,303,683.88

$41,278,492.24

Net E x p en ses.........................................................................................

9,525,487.04

9,123,662.95

Current Net E arn in g s..........................................................................

$30,778,196.84

$32,154,829.29

$

$

Additions to Current Net Earnings:
Profit on Sales of U. S. Government Securities ( n e t) .....................

9,136.95

Reimbursement for Fiscal Agency Expenses Incurred in Prior
Years .................................................................................................

94,314.23

All O t h e r ...............................................................................................
Total A d d itio n s.....................................................................................

9,847.62

290.59

981.82

$

9,427.54

$

105,143.67

$

35,311.71

$

37,010.87

Deductions from Current Net Earnings:
Reserves for C ontingencies...............................................................
Retirement System (Adjustment for Revised Benefits).................

543,884.00

All O th e r ...............................................................................................

1,279.65

1,307.28

Total D eductions..................................................................................

$

36,591.36

$

582,202.15

Net D ed u ctio n s....................................................................................

$

27,163.82

$

477,058.48

Net Earnings Before Payments to U. S. Treasury...........................

$30,751,033.02

$31,677,770.81

Paid U. S. Treasury (Interest on Federal Reserve N o tes).................

$26,710,223.86

$27,583,697.46

Dividends Paid .........................................................................................

1,073,009.20

1,029,222.87

Transferred to Surplus (Section 7 ) .........................................................

2,967,799.96

3,064,850.48

$30,751,033.02

$31,677,770.81







Summary of Principal Changes

The Total A ssets of the Bank were $2.9 billion at the end of 1958, a decline of
$43 million. The principal changes during the year were a $136 million increase in
holdings of U. S. Governm ent Securities, and $9 million in N otes o f other Reserve Banks.
These increases were more than offset, however, by a decline of $122 million in Gold
Certificates, and a decrease of $62 million in Uncollected Cash Item s.
Gold Certificates. A gain of $816 million on Treasury transfers to this district was
more than offset by loss on private commercial and financial transactions with other
districts. These transactions included payment for the increased holdings of U. S. G ov­
ernm ent Securities which represented our allocation of System Open M arket Account.
In part, the larger holdings reflected the policy of credit ease which prevailed most of
the year as well as a proportionate share of the gold outflow to nations abroad.
Uncollected Cash Item s on the asset side and Deferred A vailability Cash Item s on
the liability side were both substantially lower despite almost as large a volume of check
clearing activities as in 1957. Improvement in efficiency of operations and greater
stability in the work force increased productivity. Float as a consequence was reduced.
The principal change in liabilities arose from a decrease in the U. S. Treasurer’s
General A ccount reflecting the heavy flow of government expenditures. The decline in
Federal Reserve Notes in circulation, although offset somewhat by an increase in the
holdings of notes of other Federal Reserve Banks, reflected the slightly lower volume of
cash payments.
M em ber Bank Reserve A ccounts decreased $6 million, as did Foreign Deposits.
Capital Paid In increased about $400,000 and $3 million was added to surplus.
During the year, $2,875,000 of the Surplus (Section 13b) was repaid to the Treasury
and the remaining $135,000 was transferred to Surplus (Section 7 ).
N et Earnings of $30.7 million were $926,000 lower than in 1957, reflecting lower
average earning rates on securities held, a decrease in earnings on advances to member
banks and an increase of $402,000 in expenses. After dividend payments to member
banks of $1,073,000, 90 per cent or $26.7 million of the N et Earnings was transferred
to the U. S. Treasurer for payment of interest charges on Federal Reserve Notes levied
under Section 16 of the Federal Reserve Act.
The Bank’s ratio of Gold Certificate reserves to deposits combined with Federal
Reserve Note liability decreased to 38.7 per cent as a result of the loss in G old Certifi­
cates. A t the end of 1957 this ratio was 43 per cent and at the end of 1956 it was
37.7 per cent.

58

Volume Figures for Years 1 9 5 7 and 1 9 5 8

Daily Average
Volume in Pieces or Units

Annual Total
Volume in Dollars
1958

1957

1957

Transaction

1958

Check Collections.......................

1,131,499

1,143,971

$70,216,508,144

$70,609,468,038

Coin Counted and W rapped. . . .

3,705,548

3,847,012

90,399,700

90,567,700

Currency Sorted and C ounted. .

1,083,897

1,096,337

1,779,312,937

1,767,568,525

4,146

4,119

393,409,976

391,136,601

Received and Delivered........

1,018

1,344

12,798,466,000

17,203,708,000

Coupons D etac h ed .................

1,750

1,652

36,933,448

29,461,705

Transfers of F un d s.....................

369

349

61,500,282,099

51,376,020,560

1,142

1,036

13,684,069,115

12,181,737,973

U. S. Savings B onds...............

40,051

42,165

742,341,431

933,485,382

U. S. Government Coupons Paid
(Direct O b lig atio n s)........

2,301

1,901

141,443,185

110,416,090

Federal Taxes: Depositary Re­
ceipts and Direct Remit­
tances ..................................

2,825

2,762

1,648,832,608

1,637,016,471

Currency Verified and Destroyed

246,123

268,629

87,670,000

95,268,000

Noncash Collections:
Notes, Drafts and Coupons
(except U. S. Government)
Safekeeping of Securities:

Issues, Redemptions and
Exchanges:
U. S. Securities (Direct Obli­
gations ) ..............................

59




I

■*y - ‘ ' / I

*”
■

p p |g

First Year-End Statement of Condition - 1914
Y EA R E N D IN G DEC. 31 s

t,

1914 , AS C OM PARED W ITH TH E STA TEM EN T OF DEC. 3 1s t , 1958

ASSETS

1958

Gold Certificates........................................................................
Federal Reserve Notes of Other Federal Reserve Banks. .
Other C a s h ................................................................................
Loans and Advances.................................................................
Industrial L o a n s ........................................................................
U. S. Government Securities...................................................
Uncollected Cash Item s...........................................................
Bank Premises............................................................................
Other A ss e ts ..............................................................................

1914

$ 943,826,844.33
41,061,485.00
19,757,938.04
1,220,300.00
326,600.00
1,429,342,000.00
405,506,308.39
4,704,692.43
7,885,164.43

$13,020,000.00
17,615.00
944,540.48
143,527.60

$2,853,631,332.62

$16,274,937.59

Federal Reserve N otes.............................................................
Deposits:
Member Bank Reserve Accounts......................................
U. S. Treasurer-Collected F unds........................................
F o r e ig n ..................................................................................
Other .....................................................................................

$1,630,425,040.00

$

771,057,286.55
21,009,386.28
13,395,000.00
2,201,820.85

14,210,590.47

TOTAL d e p o s i t s ...........................................................

Deferred Availability Cash Item s..........................................
Other L iab ilities........................................................................

$ 807,663,493.68
338,324,065.99
1,068,354.73

$14,310,500.00
394,371.95
775.51

.......................................................

$2,777,480,954.40

$14,705,647.46

TOTAL A S S E T S ...............................................................

2,149,254.51

L IA B IL IT IE S

TOTAL l i a b i l i t i e s

99,120.00

789.53

C A P IT A L AC CO U N TS
Capital Paid I n ..........................................................................
Surplus (Section 7) ..................................................................
Surplus (Section 1 3 b ) .............................................................
Reserves for Contingencies.......................................................

$

t o t a l c a p i t a l a c c o u n t s ........................................

$

18,120,950.00
50,115,887.86

$ 1,618,924.99
(L o ss) 49,634.86

7,913,540.36
76,150,378.22

$ 1,569,290.13

$2,853,631,332.62

$16,274,937.59

t o t a l l ia b il it ie s a n d




c a p i t a l a c c o u n t s .................................................

60

Volume Figures for the Year 1 9 2 3
AS COM PARED WITH TH E VOLUM E FIGURES FOR 1958

Daily Average
Volume in Pieces or Units

Annual Total
Volume in Dollars

1958

I 1923 ■

207,954

$70,216,508,144

$15,296,310,273

3,705,548

646,385

90,399,700

20,170,203

1,083,897

682,505

1,779,312,937

1,265,348,775

4,146

2,393

393,409,976

722,650,630

Received and Delivered . . . .

1,018

607

12,798,466,000

1,833,971,533

Transfers of F u n d s .....................

369

164

61,500,282,099

4,112,272,823

U. S. Securities (Direct Obli­
gations) ..............................

1,142

1,127

13,684,069,115

183,017,250

U. S. Government Coupons Paid
(Direct Obligations) . . . .

2,301

18,020

141,443,185

69,761,374

T ra n s a c tio n

1958

Check Collections .....................

1,131,499

Coin Counted and W rapped1 . .
Currency Sorted and Counted . .

1923 I

Noncash Collections:
Notes, Drafts, and Coupons
(except U. S. Government)
Safekeeping of Securities:

Issues, Redemptions and
Exchanges:

*Earliest year for which figures are available.
1Coin was not wrapped in 1923.

61







Federal Reserve Bank of Boston

President

J. A . E r ic k s o n ,
E . O . L a th a m ,

D.

H.

A ngney,

First Vice President

Vice President
Vice President

A n sgar R. B erg e,

H.

G eorge

E llis ,

Vice President and Director of Research

Vice President

B. F. G r o o t,

D ana D . Saw yer,

Vice President
Vice President and General Counsel

O . A . S c h la ik je r ,

J.

Cashier

E. L ow e,

Assistant Vice President

E l l i o t S. B o a r d m a n ,
F . C . G ilb o d y ,

Officers

Assistant Vice President

W illia m R . K in g ,
E . W . O ’N e i l ,

Assistant Vice President

Assistant Vice President

C h a r le s E . T u r n e r ,
L. A . Z e h n e r ,

Assistant Vice President

P a r k e r B . W illis ,
D . L. S tr o n g ,
C h a r le s

H.

M.

B rady,

Assistant Cashier
Director of Public Inform ation

K e a tin g ,

L o r in g C . N y e ,
R ic h a r d

E conom ic A dviser

General A uditor

W a ll a c e D ic k s o n ,
R ip le y

H.

R a d fo r d ,

T h a y e r , J r .,

W a tts,

Assistant Cashier
Secretary and Assistant Counsel

Assistant Cashier

R ic h a r d A . W a lk e r ,

G. G.

Assistant Cashier

Assistant Cashier

L a u r e n c e H. S to n e ,

J. M.

Assistant Vice President

Assistant Cashier

Assistant Cashier

62

C.

R obert

Chairman of the Board and Federal Reserve Agent; Chair­
man of the Board and Treasurer, Sprague Electric Company, North

Sprague,

Adams, Massachusetts
N ils

Y.

Deputy Chairman of the Board; President, Tufts University,
Medford, Massachusetts

W e s s e ll,

D.

E r w in

C anham ,

Editor, The Christian Science Monitor, Boston, Massachu­

setts
S ta n le y

M.

M ilto n

P.

Chairman of the Board, The Fafnir Bearing Company, New
Britain, Connecticut

C ooper,

H ig g in s ,

D.

W illia m

„ .
.
Directors

President, Norton Company, Worcester, Massachusetts

I r e la n d ,

President, Second Bank-State Street Trust Company, Bos­

ton, Massachusetts
W illia m

M.

L ockw ood,

A r th u r

F.

M a x w e ll,

E ugene

B.

President, The Howard National Bank and Trust Com­
pany, Burlington, Vermont

President, The First National Bank of Biddeford,
Biddeford, Maine
President and Treasurer, The Morley Company, Ports­
mouth, New Hampshire

W h it te m o r e ,

L lo y d D . B r a c e ,

President, The First National Bank of Boston, Boston, Massa-

chusetts

John

L.

B a x te r ,

W a lla c e

E arl

P.

Partner,

H. C.

Baxter & Brothers, Brunswick, Maine

First Vice President, The Fuller Brush Company,
Hartford, Connecticut

E . C a m p b e ll,

S te v e n so n ,

Chairman o f the Board, Arthur D. Little, Inc., Cambridge,

Massachusetts
F red

C.

H a r o ld

M em ber
o f F e d e ra l
A d v is o r y
C o u n c il

President, Federal Products Corporation, Providence, Rhode
Island

T anner,

President, Bachmann Uxbridge Worsted Company, Ux­
bridge, Massachusetts

J. W a l t e r ,

63




In d u s tria l
A d v is o r y
C o m m itte e










★

X.

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