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FEDERAL RESER VE BANK O F N EW YO RK Fiscal A g en t of the U nited States r C i r c u la r N o . 3 6 8 3 L A p r i l 2 , 1951 A D D IT IO N A L IN F O R M A T IO N R E G A R D IN G 2 % PE R C E N T T R E A S U R Y BONDS, IN V E ST M E N T SERIES B-1975-80 T o all B anking Institutions, and Others Concerned, in the Second Federal R eserve D is tr ic t: Since the issuance of Treasury Department Circular No. 883, dated March 26,1951 (which was made part o f our Circular No. 3671, dated March 19,1951), with respect to the 2% percent Treasury Bonds, Investment Series B-1975-80, a number of inquiries have been received regarding the bonds. Because the answers to some of these inquiries may be of general interest, they are set forth below: Inscription 1. 2 % percent Treasury Bonds may not be registered in the name o f a nominee. Registration must be in the name o f the owner whether in own right or as a fiduciary. Use in paym ent o f estate taxes 2. 2 % percent Treasury Bonds registered in the name o f a partnership may be used to pay Federal estate taxes o f a deceased partner to the extent o f the fractional part o f the bonds in authorized denominations proportionate to the deceased partn er’s share in the capital o f the partnership, provided said fractional part is actually distributed to the estate upon liquidation o f partnership assets, but the entire amount o f such fractional part must be applied to payment o f the tax. 3. I f a representative o f a decedent’s estate exchanges 2 y2 percent Treasury Bonds of June or December 1967-72 owned by the estate or acquired by the representative o f the estate fo r 2 % percent Treasury Bonds, the 2 % percent Treasury B onds w ill not be eligible fo r redemption at par fo r payment o f Federal estate taxes with respect to the decedent’s estate, since the bonds did not constitute part o f the decedent’s estate at the time o f his death. Use as collateral 4. 2 % percent Treasury Bonds are eligible as security fo r State, county and m unicipal deposits, but are not eligible as security fo r Treasury T ax and Loan Accounts, nor fo r other deposits o f Federal public moneys. The term “ deposits o f public m oneys,” as used in section II, paragraph 3, o f Treasury Department Circular No. 883, does not include State, county or municipal deposits. 5. U nder section II, paragraph 3, o f Treasury Department Circular No. 883, 2 % percent Treasury Bonds may be used as collateral for loans and may be pledged as security fo r the perform ance o f an obligation or for any other purpose. In the event o f a default on the loan or in perform ance o f the obligation, the pledgee will have the right only to exchange the bonds fo r 1 y2 percent five-year marketable Treasury notes. W hen the pledgee presents a 2 % percent Treasury B ond for such an exchange, it should be accompanied by a power o f attorney executed by the pledgor in form satisfac tory to us and, if the pledgor is a corporation, a certified copy o f a resolution o f the governing body o f the pledgor authorizing the execution o f the power o f attorney. Trust funds 6. W here a bank acting as trustee o f an individual trust exchanges 2y2 percent Treasury Bonds o f June or December 1967-72 fo r 2 % percent Treasury Bonds, and subsequently desires to merge the assets o f the trust into a common trust fu n d maintained by the bank, transfer o f the 2 % percent Treasury Bonds to the bank as trustee o f its common trust fu n d w ill be perm itted subject to limita tions as to amounts imposed by State law and Regulation F o f the B oard o f Governors o f the Federal Reserve System. Retransfer to the bank as trustee o f an individual trust, and distribution to benefi ciaries on the termination of an individual trust, will be permitted. Additional copies of this circular will be furnished upon request. A lla n S p r o u l, President. Fe d e r a l R e se r v e B a n k of N ew Y ork President’s Report to cDirectors for 1950 FEDERAL RESERVE BANK OF NEW President’s cRgport to 1Directors for 1950 CONFIDENTIAL YORK FED ERAL RE SE R V E BANK O F NEW YORK March 22, 1951. T o the D irectors o f the F ederal R eserve Bank o f N ew Y o r k : I submit herewith a confidential report on the operations o f the Bank during 1950. This gives a more intimate and detailed view o f our operations than is possible or appropriate in our annual report to the stockholders. The swift acceleration of inflationary trends in our economy placed a heavy burden on the Federal Reserve System and this Bank in the latter half of 1950. Efforts to curb these inflationary forces with credit restraints applied through open market operations were gravely hampered by a continuing failure to achieve agree ment with the Treasury Department on the proper coordination of debt management and credit policies. This failure culminated in a public rupture on August 18 which was still unhealed at the end o f 1950. (As you know, a general accord was reached in early March o f 1951.) Both the extent and the volume of our operations increased during 1950, com pared with the three preceding years. Follow ing the enactment of the Defense Production Act o f 1950, the Board of Governors o f the Federal Reserve System promulgated regulations dealing with loan guarantees for defense production, and consumer and real estate credit. The administration o f these regulations and of new Treasury controls over certain foreign assets served to broaden the scope of our work. The larger volume reflected both the generally high and rising level of economic activity throughout the year and the quickening tempo of the defense program during the latter half o f the year. The country’s expanding program o f military and economic preparedness may further increase the demands upon our staff and facilities. W e are adding to our work ing force, however, and are fortunate in having many key members o f the staff com petent to meet the problems o f what may prove to be a rapidly changing situation. Yours sincerely, President, C O N TE N TS PAGE Open M arket O p e r a t io n s ........................................................................................................................................................................ 1 T r a n s a c t i o n s i n G o v e r n m e n t s e c u r i t i e s .................................................................................................................................. D i r e c t s e c u r i t y p u r c h a s e s f r o m t h e T r e a s u r y b y S y s t e m O p e n M a r k e t A c c o u n t ............................... 2 4 R e p u r c h a s e a g r e e m e n t s ........................................................................................................................................................................ S t a t i s t i c a l s u m m a r y ................................................................................................................................................................................ 4 4 F i s c a l A g e n c y O p e r a t i o n s ..................................................................................................................................................................... 5 P u b l i c d e b t .................................................................................................................................................................................................... T r a n s a c t i o n s i n U n i t e d S t a t e s s e c u r i t i e s ............................................................................................................................. 5 6 S a f e k e e p i n g o f s a v i n g s b o n d s f o r t h e p u b l i c ..................................................................................................................... T r a n s a c t io n s in s e c u r it ie s o f th e I n t e r n a t io n a l B a n k f o r R e c o n s t r u c t io n a n d D e v e l o p m e n t ............................................................................................................................................................................................ 6 R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n ........................................................................................................................................ F o r e i g n A s s e t s C o n t r o l ........................................................................................................................................................................ 7 7 7 L o a n s a n d C r e d i t s ............................................................................................................................................................................................ 7 L o a n G u a r a n t e e s f o r D e f e n s e P r o d u c t i o n ( R e g u l a t i o n V ) ............................................................................. C o n s u m e r C r e d i t ( R e g u l a t i o n W ) ........................................................................................................................................... 7 8 R ea l E sta te ..................................................................................................................................... 9 R e l a t i o n s ................................................................................................................................................................................................. 9 C r e d i t f i l e i n s t a l l a t i o n s ........................................................................................................................................................................ C h e c k h a n d l i n g p r o c e d u r e s ............................................................................................................................................................... 10 10 P u b l i c I n f o r m a t i o n ......................................................................................................................................................................................... 11 B a n k S u p e r v i s i o n .............................................................................................................................................................................................. 11 S y s t e m m e m b e r s h i p o f S t a t e b a n k s ........................................................................................................................................ R e s e r v e s ............................................................................................................................................................................................................ B a n k m e r g e r s a n d b r a n c h b a n k i n g ........................................................................................................................................... 11 11 11 B ank Check C r e d it C o l l e c t io n (R e g u la tio n X ) ........................................................................................................................................................................................... 12 A i r t r a n s p o r t a t i o n ................................................................................................................................................................................... 12 A r m o r e d c a r r i e r s e r v i c e ..................................................................................................................................................................... C h e c k R o u t i n g S y m b o l P r o g r a m ................................................................................................................................................. 12 12 D e fe r r e d p o s tin g 13 Cash O p e r a t io n s le g is la t io n ......................................................................................................................................................... .............................................................................................................................................................................................. 13 C o u n t e r f e i t s .................................................................................................................................................................................................... 13 C u r r e n c y a n d c o i n s h o r t a g e s ............................................................................................................................................................ 13 W i r e T r a n s f e r s o f F u n d s ....................................................................................................................................................................... 14 F o r e ig n O p e r a t io n s ...................................................................................................................................................................................... 14 A s s e t s h e l d f o r f o r e i g n a n d i n t e r n a t i o n a l a c c o u n t ...................................................................................................... C h a n g e i n s t a t u s o f f o r e i g n a c c o u n t s ................................................................................................................................... L o a n s o n g o l d .............................................................................................................................................................................................. G o l d m o v e m e n t s ........................................................................................................................................................................................ V i s i t s t o f o r e i g n c e n t r a l b a n k s ................................................................................................................................................... 14 14 16 16 16 F o r e i g n c e n t r a l b a n k v i s i t o r s ....................................................................................................................................................... S t a f f G r o u p o n F o r e i g n I n t e r e s t s .............................................................................................................................................. 17 17 R e s e a r c h ..................................................................................................................................................................................................................... 17 D o m e s t i c s t u d i e s a n d p u b l i c a t i o n s ........................................................................................................................................... F o r e i g n a n d i n t e r n a t i o n a l s t u d i e s a n d p u b l i c a t i o n s .............................................................................................. F o r e i g n m i s s i o n s a n d a s s i g n m e n t s ......................................................................................................................................... C o n t a c t s w i t h o t h e r o r g a n i z a t i o n s ........................................................................................................................................... L i b r a r y ............................................................................................................................................................................................................... 17 18 19 19 20 L i t i g a t i o n .................................................................................................................................................................................................................. 20 S e c u r i t y F i l e s P r o g r a m ............................................................................................................................................................................. 20 E q u ip m e n t R e p l a c e m e n t P r o g r a m ................................................................................................................................................ 20 ............................................................................................................................................................................................................... 20 B i w e e k l y p a y .............................................................................................................................................................................................. S a l a r y a d m i n i s t r a t i o n .......................................................................................................................................................................... 20 21 H e a d O f f ic e s a l a r y l i a b i l i t y ............................................................................................................................................................ N u m b e r o f e m p l o y e e s .......................................................................................................................................................................... S t a f f i n g s t u d i e s ........................................................................................................................................................................................... 21 21 22 E m p lo y e e ................................................................................................................................................................................... 22 O t h e r p e r s o n n e l d e v e l o p m e n t s ...................................................................................................................................................... 23 P ersonnel b e n e fits B uffalo B ran ch ............................................................................................................................................................... 23 ’ P e r s o n n e l .......................................................................................................................................................................................................... C h e c k c o l l e c t i o n ........................................................................................................................................................................................ O p e r a t io n s 24 24 W i r e t r a n s f e r s o f f u n d s ..................................................................................................................................................................... C a s h o p e r a t i o n s ........................................................................................................................................................................................ 24 24 L o a n s t o m e m b e r b a n k s ..................................................................................................................................................................... B a n k a n d p u b l i c r e l a t i o n s ............................................................................................................................................................ 25 25 A c c o u n tin g p ro ce d u re 25 .......................................................................................................................................................................... P R E S ID E N T ’ S R E P O R T T O D IR E C T O R S F O R 1950 end o f the mild business recession that 1949, and the subsequent ex pansion o f economic activity, were reflected in Federal Reserve System credit policies during 1950. The policy o f credit ease, announced publicly in mid-1949, was superseded first by one of neutral ity and, later, when expansionary forces gained the ascendancy, by one of restraint. Inflationary influences gradually reasserted themselves in the first six months of 1950; after the invasion of the Republic o f Korea on June 28, 1950 and the subsequent participation by Communist China on an overt basis, they were intensified as the full economic and military implications of these devel opments became better defined. It was clear that the economy, already operating at near capac ity, would have to be accommodated to the requirements of an enlarged and accelerated defense, or possibly war, program. Accordingly, the need for a stronger policy of credit restraint became more urgent, and the general problem of credit policy again became that of applying restraint on an expanding supply of credit within the limits imposed on the Federal Reserve System, including those arising out of the rate problems involved in its relations with the market for United States Government securities. To meet its responsibilities, as they were affected by these developments, the Federal Reserve Sys tem promptly adopted a program o f both general and selective credit control measures. In so doing, it aligned itself with the announced policy of the Government which, in its initial phase, was based on fiscal and credit measures rather than full and direct wartime controls. In alerting the public and in explaining the direction of the steps to be taken in the new economic setting which was developing, the Federal Open Market Committee and the Board o f Governors o f the Federal Reserve System issued the following joint statement on August 18, 1950: h e Tmarked most o f The B oard o f Governors o f the Federal Reserve System today approved an increase in the discount rate o f the Federal Reserve Bank o f New Y ork from 1 y 2 per cent to 1% per cent, effective at the opening o f business Monday, August 21. W ithin the past six weeks loans and holdings of corporate and municipal securities have expanded by $1 14 billion at banks in leading cities alone. Such an expansion under present conditions is clearly excessive. In view o f this development and to sup port the Governm ent’s decision to rely in m ajor degree fo r the immediate future upon fiscal and credit measures to curb inflation, the B oard o f Governors o f the Federal Reserve System and the Federal Open Market Committee are prepared to use all the means at their command to restrain further expansion o f bank credit consistent with the p olicy o f maintaining orderly conditions in the Government securities market. The B oard is also prepared to request the Congress fo r additional authority should that prove necessary. Effective restraint o f inflation must depend ulti mately on the willingness o f the American people to tax themselves adequately to meet the Governm ent’s needs on a pay-as-you-go basis. Taxation alone, how ever, will not do the job. Parallel and prom pt restraint in the area o f m onetary and credit policy is essential. The actions taken during the balance of the year pursuant to this statement included: (1 ) voluntary appeals to the commercial banks to avoid speculative or otherwise inappropriate ex tensions o f credit, (2) an increase in the discount rate at all Federal Reserve Banks from 1 y2 to 1 % per cent, (3) a strengthening o f the policy o f restricting addi tions to banks’ reserve balances to a minimum, and a consequent firming o f market rates in response to growing credit demands, (4 ) the application o f selective controls over con sumer credit and mortgage lending (authorized in the Defense Production A ct o f 1950), and (5) the announcement late in the year o f an increase in reserve requirements to become effective early in 1951. OPEN M A R K E T O PER A TIO N S The character and scope of open market oper ations during 1950 were without precedent in the history of the Federal Reserve System, largely because o f the failure to achieve a greater measure of harmony between debt management and credit policies. This failure stemmed from a seemingly irreconcilable cleavage of opinion between the Treasury and the Federal Reserve System as to the effectiveness of a program of general credit control and the role that changes in interest rates might play in that program. The disagreement was evidenced by the failure of the Treasury, in the second and third quarters of 1950, to make the terms of its new obligations compatible with the then current markets. The effectiveness of a policy of credit restraint through open market operations was seriously curtailed l 2 PR E SID E N T’ S R E P O R T T O D IR E C T O R S F O R 1950 as these offerings failed to attract investors and required System support to hold their place in the market. Nevertheless, open market operations continued to be the keystone in the System’s structure of credit controls, and they were carried out by this Bank in accordance with the intent o f the Federal Open Market Committee policy statement of June 28, 1949. W ithin the limits imposed by the main tenance of orderly markets and the need to support Treasury refunding operations, transactions were directed toward regulating the supply and avail ability o f reserve funds (1) by discouraging sales o f short-term obligations to the Federal Reserve Banks by commercial banks seeking to expand credit, and (2) by increasing the cost o f reserve position adjustments through application o f a policy o f greater flexibility in market rates. Transactions in G overnm ent securities Efforts to reduce the availability of Federal Reserve credit and to increase the cost of reserve adjustments to commercial banks meant continu ation of the System’s postwar policy o f striving for a less rigidly controlled Government security market. As short-term rates were permitted to respond within limits to growing demands for credit, it became possible to reduce System Account purchases at fixed rates and to increase possibilities of making offsetting sales o f other issues for which a demand existed at rising rates. Large industrial corporations, for example, were notable buyers o f these short-term securities during the last five months of the year. The limitations on System policy were especially marked in periods of Treasury refunding opera tions during the second and third quarters of the year, when debt management decisions failed to support System efforts to restrict expansion o f the credit supply. Open market operations, therefore, fell short o f open market policy goals, partly because of Treasury reluctance to accept the consequences (higher market rates on its obligations) o f Federal Reserve attempts to avoid creating new reserve funds by support purchases o f securities. This Treasury reluctance was apparent even in the beginning of the year, although during the first quarter some concessions in maturities of new offerings were made as interest rates firmed. In the second quarter, while economic activity con tinued to rise, the Treasury decided to refund issues due in June and July at terms (1^4 per cent for 13 months) unattractive to investors in the prevailing market. The announcement of the refunding was made at an unusually early date, thus in effect creating a need for substantial Federal Reserve support operations until after the refunding had been completed. Thus, the outbreak o f aggression in Korea, which came at a time of rising business activity and expanding credit, found the System with little area of maneuver for open market opera tions. Soon the difference in policy between the Treasury and the Federal Reserve broke into the open with conflicting announcements on August 18. As I have noted, the Board o f Governors and the Federal Open Market Committee cited the need for a program o f credit restriction and stated their determination to use all the means at their command to carry it out; the Treasury announced a September-October refunding on the same terms that had proved unacceptable to investors in mid-year and did so with full knowledge of the public statement that the Fed eral Reserve was issuing. Open market trans actions were nonetheless carried out in the spirit o f the August 18 policy statement: although System Account purchases were made unreserv edly o f the maturing issues which were exchange able into an unattractive obligation, partially off setting sales were made at declining prices o f other securities in the System portfolio. Under these conditions, holders of the maturing issues pre ferred to sell them to the System and to purchase better yielding securities in the market, thereby doing their own refunding. Meanwhile, the Treas ury was of course protected against the possibility that an embarrassingly large amount o f the matur ing issues might be presented for redemption by disappointed holders. About 18 per cent ($2.4 bil lion) of the maturing obligations were redeemed for cash, compared with from 3 to 8 per cent of refundings earlier in the year. From August 18 to September 21, the System Account pur chased a total o f $8.5 billion ($8.0 billion of the four maturing issues) and sold or redeemed $7.8 billion. Most of the sales were made at a loss, of course. B y November, when the next refunding opera tion was announced, market rates on one-year Treasury obligations had risen of 1 per cent. The obligation chosen for the December-January refunding offer was a five-year 1% per cent note. The terms were consistent with the prevailing market and were also designed to improve the F E D E R A L R E SE R V E B A N K OF NEW Y O R K structure of the debt (which was disproportion ately very short-term) and to furnish more oppor tunities for restrictive credit policies to be exe cuted in open market operations. Probably because the maturity of the new note was longer than many corporate holders o f the maturing issues found desirable, and because year-end preferences for liquidity were strong, the refund ing required System market support. Federal Reserve purchases during the operation totaled $2.6 billion, against which offsetting sales of other securities were made in the amount of $1.3 billion. Redemptions ($1.1 billion out of $8.0 billion maturing) were larger than “ normal.” The conflict in policies between the Treasury and the Federal Reserve during the refunding operations of the second and third quarters greatly increased the volume o f transactions for System Account and created considerable nervousness among institutional investors in Government securities. But these considerations were less im portant than the distressing evidence that the Treasury and the Federal Reserve were working at cross purposes, a situation which made effective use o f open market operations almost impossible. Early in 1950, market transactions in longer Y ie ld s o n U . S. G overn m en t Securities 1946 1947 1948 1949 19 5 0 3 term Treasury bonds also reflected economic con ditions and System policy. In accordance with open market policy announced in June 1949 and the general program o f credit ease which was applied in the latter half o f that year, the System had withdrawn from the long-term Treasury bond market. However, as economic conditions began to reverse themselves toward the year-end, long term interest rates generally tended to move lower and the rate on the longest-term 2M> per cent restricted Treasury bond declined to a yield of 2.23 per cent. Unable to temper this tendency by prompt and adequate increases in short-term mar ket rates, the System early in January 1950 re entered the market as a seller o f long-term Treasury bonds, selling them at successively lower prices in an effort to absorb reserves while, at the same time, bringing about a long-term rate structure in the Government security market— and indirectly in other bond markets— which would be more in keeping with the emerging economic situation. Throughout the first eight months of 1950 there was a generally good net demand for intermediate and long-term Treasury bonds on the part of a broad group of nonbank investors, prominent among which were trust accounts and various pen sion and State funds. There developed a relative scarcity of other suitable outlets for funds, a declining prospect of early long-term borrowing by the Treasury, and comparatively light offerings of long-term bonds in the market. The Federal Reserve System was therefore able to reduce its holdings o f long-term Treasury bonds by approxi mately $2.5 billion in the first three quarters of 1950, uncovering fresh investment demand at successively lower prices while maintaining an orderly market and investor confidence. During this nine-month period, yields on the longest-term restricted bonds rose from 2.23 to 2.44 per cent. The open break between the Treasury and the System on August 18 and the subsequent rise in short-term yields created uncertainty about the future course of price movements in Govern ment securities. Soon offerings of long-term bonds began to exceed market demand and the System withdrew from the market as a seller. Chief among the sellers were life insurance companies and savings banks, which were seeking funds to meet new loan and investment commitments; the special offerings o f Series F and G Savings Bonds dur ing the last quarter may also have encouraged 4 PR E SID EN T’ S R E P O R T TO D IR E C T O R S FO R 1950 some selling. System Account operations were resumed early in September, but this time on the buying side o f the market, and support purchases were continued for the balance of the year. D irect secu rity purchases from th e Treasury b y System O pen M arket A ccoun t On June 30, 1950 the Federal Reserve System’s temporary authorization to purchase directly from the Treasury up to $5 billion of direct or fully guaranteed Government securities was extended by Congress for another two years. This authority, which was first obtained under special wartime legislation enacted in 1942, was supported by the Federal Reserve System and granted by Congress solely on a basis which contemplated its use for temporary purposes rather than permanent financ ing. In the past, use of this authority to purchase special certificates of indebtedness has proved helpful in the conduct of open market operations by minimizing short-run fluctuations in member bank reserve positions and in the maintenance of orderly conditions in the Government security market. It has also enabled the Treasury to operate with a somewhat smaller cash working balance. On two occasions during the year purchases were made for the System Open Market Account of special certificates o f indebtedness directly from the Treasury to avoid overdrafts at the Federal Reserve Banks arising from short-term fluctuations in the Treasury’s cash position at or near tax dates. The certificates purchased carried a rate o f *4 per cent and matured at the end o f the month in which they were issued but were redeemable on demand. They were purchased in the amounts of $108 million and $105 million in mid-March and mid-June, respectively, and were retired within a period o f two days or less following their issuance. R epurchase agreem ents In support o f a flexible rate policy, increased use was made by the Federal Reserve Bank of New Y ork o f the repurchase agreement authority granted by the Federal Open Market Committee to all Federal Reserve Banks. This authority permits the individual Federal Reserve Banks to buy short-term Government securities from quali fied dealers under an arrangement allowing the dealers to repurchase those securities within fifteen days. The extension o f repurchase agree ments at the initiative of this Bank at times of money market stringency assisted qualified dealers in carrying positions in short-term Treasury obligations which had the effect of reducing, and at times, obviating, the need for outright System Account purchases. W ith the rise in the discount rate on August 21, 1950 at the Federal Reserve Bank of New York from l 1/* to 1% per cent, the differential between that rate and market rates widened but, because o f the character o f Treasury financing operations, the higher market rates were not reflected in coupon rates on new issues of Treasury obligations eligible for such agreements. Since coupon rates failed to advance with the rise in borrowing costs, there was a tendency for the carrying cost to dealers on short-term Treasury obligations to increase and to be prohibitive when the money market was temporarily tight. In anticipation of acute situations of this kind during periods o f money market stringency, the Federal Open Market Committee early in 1950 had revised the authority to the Federal Reserve Banks gov erning the rate on repurchase agreements with qualified dealers in Government securities, relating it to the issuing rate on Treasury bills rather than to the discount rate. This instrument of Federal Reserve policy proved to be a particularly helpful adjunct to open market operations in the latter half of the year in carrying out a policy o f credit restraint emphasizing rate flexibility. Statistical summ ary During the year, under the direction of the Federal Open Market Committee, this Bank pur chased in the open market for the twelve Federal Reserve Banks, Government securities having a total face value o f $19.8 billion and sold, or presented for redemption, securities having a face value of $18.0 billion. Thus, the year’s transactions resulted in an increase of $1.8 billion in System Account holdings of United States Government securities. In addition, $53 million o f United States Government securities were held under repurchase agreements by this Bank over the year-end, bring ing the total increase in United States Government securities held by the Federal Reserve System to approximately $1.9 billion. The effect on member bank reserves of this increase and o f other prin cipal factors affecting reserves is shown in the fol lowing table: F E D E R A L R E SE R V E B A N K OF N E W Y O R K Factors Affecting M em ber Bank Reserves— 1950 (In billion s) F actors o f increase Increase in Federal Reserve holdings of U. S. G o v ’t, s e c u r itie s .................................... $1.9 Increase in other Federal Reserve cred it................. 8 Total Federal Reserve cre d it............... Decrease in Treasury deposits at Federal Re serve Banks and miscellaneous other factors concerned primarily with the issue and redemption of United States savings bonds, Treasury savings notes, and special issues. The following table summarizes the financing operations in United States securities during 1950: Marketable Issues $2.7 .2 5 (In m illions) C ertificates, n otes and b o n d s : E x ch a n g e d ................................................................. $39,977 ................................................................... 4 ,145 $2.9 R ed eem ed $1.7 .1 T r e a s u ry b ills : F actors o f decrease Decrease in gold stock ....................................... Increase in money in c ir c u la tio n ...................... $1.8 Difference in factors Increase in required re s e r v e s ............................ $ .9 Increase in excess re s e r v e s .......................................... 2 Increase in member bank res e rv e s ................... $44,122 Issu ed (a n d red eem ed ) on e x ch a n g e ............ $12,489 Issu ed f o r cash ..................................................... $40,642 R ed eem ed f o r cash .............................................. 39,327 Non-Marketable Issues (In m illions) $1.1 Sales Total System Account holdings amounted to $20.7 billion at the end o f 1950 as compared with $18.9 billion at the end of 1949. Treasury bonds declined by $2.6 billion, Treasury certificates by $3.9 billion, and Treasury bills by $3.6 billion; Treasury notes increased by $11.9 billion. This Bank’s share in the total Government securities held by the System Open Market A c count amounted at the year-end to $4.8 billion, compared with $4.5 billion at the end of 1949. The Federal Reserve Bank of New Y ork bought and resold for its own account, under repurchase agreements, a total o f $0.5 billion short-term Treasury obligations during the year. .................................................................................. R ed e m p tio n s $9,949 ................................................................. 8,425 The gross public debt as o f the close of business December 31, 1950 amounted to $256.7 billion, as compared with $257.1 billion at the end of 1949. The amount of marketable issues outstanding at the close of business December 31, 1950 was $152.4 billion, compared with $155.1 billion for 1949. The net decrease o f $2.7 billion reflected the redemp tion of the unexclianged portions of issues which matured or were called for payment during the year. G ross D e b t o f th e U n ited States G overn m en t FISCAL A G E N C Y O PER A TIO N S B IL L IO N S OT DO LLARS OF T « e A S U « Y O E P A R T U C N T O A TA P u blic debt Refunding operations in marketable securities of the United States during 1950 consisted princi pally of eight issues o f certificates o f indebtedness, four issues of Treasury bonds, and one issue of Treasury notes, aggregating $44 billion. There were no cash offerings of marketable securities other than the usual weekly offering o f Treasury bills in an amount sufficient to meet maturing bills, except that, for the 13-week period beginning April 13, 1950, each weekly offering was for $100 million more than the amount of the maturing issue. Non-marketable securities operations were 250 200 ISO 50 1941 1942 1943 1944 194 5 1946 1947 1948 1949 1950 6 P R E SID EN T’ S R E P O R T T O D IR E C T O R S F O R 1950 Transactions in U nited States securities Acting as fiscal agent of the United States for the issue, exchange, transfer and redemption of marketable securities, we handled during 1950 2,820,366 pieces having a face value o f approxi mately $257 billion. The comparable figures in 1949 were 2,558,999 pieces with a value o f about $218 billion.f A ctivity in telegraphic transfers o f United States marketable securities reached new highs in August and September o f 1950, as shown in the table below. The exceptional volume o f trans fers during these months was due primarily to the unusual market situation which developed in connection with the Treasury refunding of $13.6 billions o f certificates o f indebtedness and bonds with two issues o f l 1/^ per cent 13-month Treasury notes. Transfers (Outgoing) Pieces Face Amount (In millions) December 1949* . . . . 2,850 25,892 $1,614 August 1950 ........... . . 3,914 36,229 3,137 September 1950 . . . .. 4,788 35,561 2,503 transfers of securities during 1950 amounted to $136,590 as compared with $94,695 during 1949. As can be seen from the table below, transac tions in non-marketable issues showed an increase for 1950 over 1949 in volume of pieces handled, although dollar volume declined when Treasury savings notes became relatively less attractive as short-term interest rates moved up. Pieces Handled 1949 1950 ........ 10,408,842 11,524,857 ......................... ........ 11,605,993 12,304,603 Reissues and corrections.. ........ 892,545 907,800 89,587 84,361 83,347* 70,767 U. S. Savings Bonds: Redeemed Armed Forces Leave Bonds: Redemptions ..................... ........ Savings Notes: Issued, redeemed and reissued.. 23,080,314 * The 1949 report did not include 2,422 pieces redeemed at the Buffalo Branch. (Incoming) D ollar V olu m e H andled September 1948* .. . . 4,079 21,938 $1,819 August 1950 ........... .. 4,576 26,853 3,200 September 1950 . . . 4,818 32,370 2,817 Since March 1, 1948, when telegraphic transfer facilities were extended to include all outstanding unmatured marketable bearer securities of the United States, there has been an increase in vol ume which is shown in the following comparisons for the years 1948,1949 and 1950: Pieces Face Amount (In millions) 1948 26,808 209,241 $14,886 1949 32,256 269,529 17,743 1950 38,935 328,677 22,193 (Incoming) 1948 37,509* 198,625 $14,809 1949 29,200 167,515 13,411 1950 35,285 219,956 20,114 * Incoming transfers during 1948 were unusually high and resulted from sales of Government securities to meet the several increases in reserve require ments that year. Fees collected by this Bank and credited to the Treasurer of the United States for outgoing wire t The totals for 1949 are lower than those given in last year's report, where some non-marketable securities were incorrectly included. 1949 1950 U. S. Savings Bonds: $1,200,644,210 $1,328,450,235 ....................... 805,899,480 968,156,050 Reissues and corrections 212,283,910 249,548,220 19,285,925 19,102,125 Redeemed * Previous monthly high. Transfers (Outgoing) 24,892,388 Armed Forces Leave Bonds: Redemptions ................... Savings N otes: Issued, redeemed and re issued ........................... 3,925,008,575* $6,163,122,100 2,193,649,750 $4,758,906,380 * The 1949 report did not include the dollar volume of $17,549,950 redeemed at the Buffalo Branch. Safekeeping o f savings bonds fo r th e public A t the close o f business December 31, 1950, this Bank held in safekeeping 555,387 bonds having a total maturity value o f $69,531,355 for the account o f 29,273 depositors, as compared with 560,994 pieces with a maturity value of $67,628,450 for the account o f 32,858 depositors at the close of business December 31, 1949. The decrease in the number o f depositors resulted from the con solidation o f accounts. During 1950, 87,475 pieces were received and deposited and 93,082 piece.® were withdrawn and delivered. F E D E R A L R ESER VE B A N K OF N E W Y O R K Transactions in securities o f the International Bank fo r R econstruction and D evelopm en t Tlie Bank, as fiscal agent of the International Bank for Reconstruction and Development, re deemed $100 million of its 10-year 2*4 per cent bonds due July 15, 1957, which were called for payment February 17, 1950, and issued a like amount o f 2 per cent serial bonds of 1953-62. The following table shows the volume of transactions handled for the International Bank during 1950 as compared with 1949: P ieces H an d led 1949 1950 D olla r V o lu m e H an d led 1949 1950 -0- 93,881 - 0- $ 100 ,000,000 Redemption & Exchange of Securities . 15,967 52,931 $30,636,000 105,707,000 15,967 146,812 $30,636,000 $205,707,000 Issue............... R econstruction Finance Corporation The volume o f transactions effected by this Bank as fiscal agent for the Reconstruction Finance Corporation decreased during the year to such an extent that the R.F.C. Custody Depart ment was disbanded on August 23, 1950. There after all custody work for the Corporation was handled by our Safekeeping Department and dis bursements for the account of the Corporation were handled by the Collection Department. Since November 1950, the Reconstruction Finance Corporation has opened several letters of credit aggregating about $54 million and has authorized this Bank to pay drafts drawn thereunder. Foreign Assets Control On December 17, 1950, the Secretary o f the Treasury authorized and requested the Federal Reserve Bank of New York, as fiscal agent of the United States, to act on behalf of the Treasury Department in the administration of regulations issued on that date to block assets in this country of Communist China and North Korea. As a result, the Foreign Assets Control Department was established in the Foreign Function under the direct supervision of Norman P. Davis, Assistant Vice President. This department has been func tioning along the general lines of the Foreign Funds Control Department which, until the sum mer o f 1949, acted on behalf of the Treasury in the administration of the blocking control incident to W orld W ar II. In addition to handling inquiries from the public concerning the new freezing regu lations and distributing pertinent documents, this 7 department, under authorization from the Treas ury, issues and denies licenses. In his letter of instruction and authorization, Secretary Snyder provided that reimbursement will be made by the Treasury Department for services rendered and expenses incurred by us in these operations. LOANS AN D CRED ITS There was a decrease in both the number of advances made to member banks and in the amount of their daily average borrowings during the last year, as compared with 1949. In 1950, 2,114 advances, aggregating approximately $7.7 billion, were made to 274 banks, all secured by obligations of the United States, compared with 2,257 advances of some $12.6 billion to 309 banks in 1949. Daily average borrowings in 1950 were $44.2 million against $58.2 million the previous year. Outstanding advances in 1950 ranged from $1.4 million on January 2 to a high o f $442.9 million on December 28 which exceeded the 1949 high by $4.6 million. As in 1949, the 1950 peak borrowings lasted for only one day and repre sented largely the borrowings o f the New York City banks to adjust their reserve balance posi tions, which were under temporary strain, prin cipally as a result of an outflow of funds to other areas. Outstanding advances to member banks located outside of New Y ork City reached a high o f $46.5 million in 1950, as compared with a high o f $52.5 million in 1949. During the year, one application was received for an industrial working capital loan under sec tion 13(b) o f the Federal Reserve A ct from a small soft drink bottling concern located in New York State. The loan was made on June 13, 1950, in the principal amount o f $30,000, evidenced by a series of notes maturing over a period of approximately twTo years, with final maturity on July 1, 1952. The loan is secured by diversified collateral, including liens on certain plant ma chinery and equipment, and as o f December 31, 1950 the loan principal amount had been reduced to $26,574.87. Loan Guarantees fo r D efen se Production ( R egulation V ) The so-called V-Loan program o f W orld W ar II was virtually reactivated on September 27, 1950 with the issuance o f a new Regulation V by the Board o f Governors. The new guaranteed loan program generally follows the pattern of 8 PR E SID E N T’ S R E P O R T T O D IR E C T O R S F O R 1950 the former one. Its objective is to facilitate the financing— and thus the performance— o f Gov ernment defense contracts by guaranteeing loans made by banks to contractors and subcontractors. The program is authorized by section 301 of the Defense Production A ct o f 1950 and Executive Order No. 10161 o f September 9,1950, which desig nates the Federal Reserve Banks to act as fiscal agents o f the United States in behalf of the follow ing guarantors: The Departments of the Army, the Navy, the A ir Force, Commerce, the Interior, and Agriculture, and for the General Services Administration. There has been no delegation o f authority— as there was in the former program, within certain limitations— to the Federal Reserve Banks to issue guarantees without specific authorization o f the guaranteeing agency. However, this Bank’s work includes processing applications for guar antees, reviewing the credit factors involved, preparing reports for the guarantor, making recommendations to the guarantor, issuing author ized guarantees, and servicing outstanding guar antee commitments. B y the year-end, we had received 42 applications for guarantees of pro posed loans aggregating some $34 million; of this number, eight guarantees of loans totaling $4.5 million had been authorized and issued, two had been declined by the guarantors, and the remainder were in various stages o f processing. This modest development o f the present guar anteed loan program, in contrast to our experience during the initial stages o f the W orld W ar II program, reflects primarily the moderate rate of expansion o f military procurement in 1950, com pared with the all-out effort o f 1942. Furthermore, many banks of the district have been willing to provide the defense production financing of large and well-established industrial concerns without guarantees. About half of the applications re ceived have requested guarantees for 90 per cent of the V-loans proposed. The Comptroller General made a ruling in May 1949 to the effect that where an indebtedness by a contractor to the Government arises by reason of repricing o f a contract, that indebtedness may be recovered from the bank which has financed per formance o f the contracts under an assignment of the proceeds. The ruling has caused a great deal of apprehension in the banking community and our Legal Department drafted a complete remedial revision of the Assignment o f Claims Act o f 1940 as an alternative to a draft prepared by a com mittee o f the American Bankers Association. A bill to remove this difficulty was introduced in Congress early in March 1951. Consum er C redit (R egulation W ) On September 8, 1950, the Board of Governors reinstated the control o f consumer instalment credit through a new Regulation W effective September 18, 1950. (The regulation is authorized by Section 601, Title IV, of the Defense Produc tion Act of 1950 and Executive Order No. 8843 of August 9, 1941.) The present authority may be terminated by the President, or by concurrent resolution of the Congress, before the statutory expiry date o f June 30, 1951. Regulation AY was first issued in 1941 and was effective through October 1947. It was reinstated in September 1948 and expired June 1949. The new regulation is much the same as the control that expired in 1949, except that credit for home improvement and repair is now included in the restrictions imposed. It is directed at controlling, through restricting maximum maturities and loan values, instalment sales and instalment loans in a principal amount of $2,500 or less, arising out of the sale o f certain items of consumer goods designated as “ listed articles” (instalment credit in a principal amount o f $5,000 or less involved in the sale of passenger automobiles is regulated). It also covers, with certain exceptions, instalment loans o f $2,500 or less even though the proceeds are not used to buy “ listed articles.” The regulation requires all persons engaged in a business subject to its provisions to register with the Federal Reserve Bank o f the district in which the main office of the business is located. B y December 31, 1950, this Bank had received approximately 14,700 registration statements. Our enforcement activities began about midOctober; by the year-end we had made 777 exam inations o f registrants, and found 15 registrants had committed significant violations. Our enforce ment work has included corresponding or confer ring with violators and obtaining assurances of future compliance. W e expect to examine about 25 per cent o f all classes o f registrants, except supervised lenders, before the expiry date of June 30, 1951. The various Federal and State agencies supervising lending institutions have promised to cooperate with us in our enforcement efforts. They will check for compliance with the regulation in the course o f their regular exam inations o f lenders. F E D E R A L R E SE R V E B A N K OF N E W Y O R K Public understanding of the objectives o f the control and of its application to consumer instal ment credit is considered an important phase of the administration and enforcement o f the regu lation. This end has been sought during examina tions, participation in group meetings of bankers, trade associations and others, and in replies to inquiries from registrants and the press. G ro w th o f R e a l E sta te and C on su m er C redit B IL L IO N S B IL L IO N S O F D O LLA R S OF D O LLAR S 50 |------------ 50 N O N FA R M M O R TG A G E D E B T O U TS TA N D IN G 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 End of year figures; nonfarm mortgage debt for 1950 partly estimated. R eal Estate C redit ( Regulation X ) W e assumed new responsibilities during the year when the Board of Governors of the Federal Reserve System issued Regulation X , effective October 12, 1950, under authority of the Defense Production A ct o f 1950 and the President’s Execu tive Order No. 10.161 dated September 9, 1950. The regulation was designed to lessen inflationary pressures by reducing the record volume of resi dential construction and the further expansion of mortgage credit, as well as to free men and mate rials for defense requirements. Similar restric tions on Government-aided residential financing were imposed by the Administrator o f the Hous ing and Home Finance Agency and by the Vet erans Administration, also effective October 12, 1950. The combined restrictions on the use of mortgage credit were intended to permit the con struction o f not more than 800,000 to 850,000 new housing units in 1951, as compared with approxi mately 1,400,000 started during 1950. 9 On October 16, 1950, the Real Estate Credit Department was established in our Loans and Credits Function to administer the regulation in the Second Federal Reserve District. W e immediately started an educational pro gram answering questions on the applicability of the regulation. During the remainder o f the year we participated in ten meetings and panel discus sions in the field for the purpose of increasing the public’s knowledge and acceptance o f the regula tion. Various supervisory authorities, such as the Comptroller o f the Currency and the State Super intendent o f Banks, will cooperate with us, through spot checks of transactions subject to the regulation, in the course of their regular periodic examinations o f financing institutions under their supervision. They will report violations to us, as well as actions they have taken to assure future compliance. In addition to this liaison with super visory authorities, we will examine unsupervised lenders to insure compliance with the regulation. On November 3, 1950, the board of directors appointed a real estate credit advisory committee to assist in the administration of the regulation. The committee consists o f George C. Johnson, President, The Dime Savings Bank of Brooklyn (Chairman o f the Committee); Milford A. Vieser, Vice President, The Mutual Benefit Life Insur ance Company, Newark; and Harry Held, Vice President, The Bowery Savings Bank, New York City. The members o f the committee have had wide experience in all phases of the real estate lending field and have been of invaluable assist ance to us in the administration o f the regulation. Early in 1951, Regulation X was revised twice by the Board of Governors, once to make all resi dential construction credit subject to the regula tory terms and later to include some types of nonresidential construction. In early February 1951, the administration of Regulations W and X was consolidated in the Real Estate Credit Department, which was there upon renamed the Real Estate and Consumer Credit Department. B A N K R E LA TIO N S The need for a better public understanding of Federal Reserve actions in the field o f credit con trol and monetary policy guided much of our bank and public relations work. In the course o f their regular visits to member and nonmember banks, our representatives were called upon to explain 10 PR E SID E N T’ S R E P O R T T O D IR E C T O R S F O R 1950 and discuss tlie steps that were being taken in the continuing battle to curb inflation. W e also under took to explain and clarify the new Regulations W and X , both in the regular course of our visits and by assisting in making arrangements for panel discussions before various banking organi zations in the district. During the year, we continued the program started early in 1949 o f holding biweekly meet ings with groups of bankers. Our officers and rep resentatives also increased the number of their appearances before public organizations, particu larly the service clubs. In short talks, we en deavored to outline the basic functions and pur poses of the Federal Reserve System, particularly our current anti-inflationary policies. In the latter part o f the year, we combined these talks with showings of the new Encyclopaedia Britannica film on the Federal Reserve System. In a further effort to increase public knowledge and understanding o f the Federal Reserve System, our representatives called on teachers o f money and banking in colleges in the district to acquaint them with the various publications and periodicals available to them as teaching aids, and to invite them and their students to visit the Bank. On several occasions, our representatives were asked to talk to student groups. H igh school and college students continued to make up the majority o f visitors to this Bank. During 1950 over 3,000 visitors were guided on tours o f the Bank. These visitors consisted of: 1,268 high school students, 927 college students, 608 bank employees and 470 from other fields. Our representatives also called on editors and publishers of daily newspapers in the district to acquaint them with the availability o f various press releases and publications. In the course of our semiannual visits to each bank in the district, we have continued to aid them with operating problems, particularly with those which affect our own operations in behalf o f banks. W e gave assistance, fo r example, in such matters as transportation delays involving checks or cur rency, procedural changes requested by our operating departments, and the use o f the check routing symbol. C redit file installations Several years ago we cooperated with the New Y ork State Bankers Association in the develop ment of a Farm Credit File and assisted in making pilot installations of this file in a number o f banks. Late in 1949 we renewed our offer to assist mem ber banks in installing the files. In the course of these installations, it soon became evident that a simplified commercial credit file was also needed. A special committee of the New York State Bankers Association developed such a file and again we assisted in trial installations in a number of banks. The new file was form ally introduced by one o f our representatives at the New York State Bankers Association’s Farm Credit and Bank Operations Conference held at Syracuse in the fall. Following that meeting we mailed a sample copy to each member bank, offering to supply the folder at cost and the forms free of charge. The orders received have far exceeded our expectations. W e now have one representa tive in the field full time, and we are training another, to assist member banks with the initial installation o f credit files and to review existing files and loan supervision techniques for the pur pose of making suggestions for their improve ment. During the past year, we assisted with credit file installations in 36 banks; one man spent a week or more in each bank. W e also reviewed the files in 44 other member banks. C heck handling procedures Last year I reported our intention of engaging the services of a management expert to assist us in establishing, if possible, some basic check opera tion standards and procedures for banks of varied size. W e recently received an interim report from the management engineering firm, and we have distributed it to representative bankers for study and comment. The gist of this report is that the whole problem is more complicated than we had expected, in that efficiency is substantially influ enced by such intangible factors as quality o f per sonnel and supervision, staff morale and indivi dual aptitudes. The report, however, recommends some further studies to be made by us with respect to comparative procedures and operating times and a more detailed study o f available mechanical equipment to be made by the management engi neers. W e are convinced, as a result o f these studies, that while there is no one easy solution to the problem there is much to be gained from a continuing study. In an effort to facilitate the collection o f checks for member banks, our representatives have en couraged the adoption o f county clearing arrange ments. Use of this clearing arrangement permits banks within a county, or a small group of coun F E D E R A L R E SE R V E B A N K O F N E W Y O R K ties, to send their checks directly to each other, with settlement made on our books, while return of items is also made directly between the banks involved. During the year two such arrangements were established, bringing to 21 the total now in operation. During the year, we assisted the mem bers of one county clearing arrangement to be come members of the county clearing arrangement in an adjoining county, thereby increasing the value of the scheme for all the members. W e have continued to make available to member banks, at their request, our specialist in check handling operations. He made surveys at 75 banks during the year, and was a featured speaker at the annual Farm Credit and Bank Operations Conference of the New Y ork State Bankers Association. PU BLIC IN FO R M A T IO N I reported last year that we had embarked upon an affirmative program o f public information de signed to improve understanding of the System and its policies. This program looks beyond the mere use of the devices of publicity to effective work in the public interest by this Bank and the System, and the goal of creating an understand ing o f what we are doing and why we are doing it. W e have, therefore, tried to reach more people more effectively with our publications, films, and speakers. A t the end o f the year a Division of Public In formation was created in the Secretary’s Office and an economist from the Research Department was added to the staff. The work of this Division is largely one o f assistance to all the Departments o f the Bank in gaining the widest possible public acceptance or approval of Bank and System poli cies and actions; some o f these services, therefore, are noted in other sections o f this report. B A N K SU PERVISION System m em bership o f State banks On January 1, 1950, there were 360 State banks in this district, of which 244 were members of the Federal Reserve System. During 1950, no State bank was admitted to membership. On the other hand, 8 State member banks were taken over by other banks and one withdrew from membership. A t the end o f 1950, there were 347 State banks, of which 235 were members. One application for membership was pending at the end o f the year. During the year, Congress did not act on the System-approved bill to reduce the minimum capi 11 tal required under Federal law for the establish ment o f out-of-town branches to amounts compar able with those required under the State law. In 1949, 3 banks withdrew from membership because they were unable to meet the minimum capital re quirements under Federal law to establish out-oftown branches. In 1950, one bank withdrew for the same reason and another is contemplating withdrawal; in addition, a national bank converted into a State nonmember bank for the purpose of taking over a national bank in another community and continuing the office o f that bank as a branch. All of these banks had sufficient capital to meet New Y ork State requirements for the establish ment o f out-of-town branches. Reserves New York City lias long been classified as a central reserve city. However, banks in certain sections of the city have been permitted to carry reserves proportionately lower than those re quired of central reserve city banks. For many years prior to 1949 New Y ork City member banks in the borough o f Manhattan carried reserves required of central reserve city banks; in the boroughs of Brooklyn and The Bronx, those of reserve city banks; and in the boroughs o f Queens and Richmond, those of country banks. As a result o f action by the Board o f Governors permitting certain banks in Philadelphia to main tain the reserves required of country banks, we were requested in the early part of 1949 by banks in midtown Manhattan that they be permitted to carry similar reserves. A fter considering the mat ter we recommended to the Board of Governors that, in view of their location and the character of the business transacted by them, the nine member banks (since reduced to eight) located above Canal Street in Manhattan, and having no branch in downtown Manhattan, be permitted to carry the reserves required to be maintained by reserve city banks. In September 1949, the Board of Gover nors granted this permission. At various times in the months that followed three member banks in Brooklyn, one in The Bronx, and one in an outlying district o f Buffalo, were granted permission to carry reserves re quired to be maintained by country banks rather than those of reserve city banks. Bank mergers and branch banking During the past three years, the number of bank mergers and new branch offices has increased in this district and has been highlighted by the 12 PR E SID E N T’S R E P O R T T O D IR E C T O R S F O R 1950 absorptions o f nine New York City banking insti tutions by other banks. The trend has not been confined to New Y ork City or to large banks, how ever. Consolidations have taken place and new branches have been established throughout the dis trict, and talk o f more mergers is widely current. During 1950, a total o f 22 commercial banks, member and nonmember, were taken over by other banks in the Second Federal Reserve District, as compared with 13 taken over in 1949. The mergers in these two years enabled the continuing banks to acquire additional deposits aggregating $786,000,000 and 76 additional branches. Through the absorption since 1948 o f nine New Y ork City banks alone, the continuing banks acquired threequarters of a billion dollars in additional deposits and 48 additional branches. C H ECK COLLECTION The annual volume o f commercial checks col lected by this Bank again reached a new peak in 1950, when ~we collected approximately 350 million checks as compared with 332 million in 1949, the previous high. During the year we were able to achieve further operating economies and to obtain increased efficiency of the staff by completing the transfer o f all commercial check handling opera tions to one floor o f our building. A substantial unexpected increase in volume during the last three months o f 1950, together with an increase in the rate o f personnel turnover, how ever, put us in the position of needing additional manpower at a time when it was not readily avail able. As a result, it was not always possible to process all checks on the day of receipt and some debit float wras created despite the complete coop eration o f our staff through overtime work. This condition was gradually overcome after the turn o f the year when, with sporadic exceptions, the volume o f checks received returned to more nor mal levels. Although we opposed the move, in principle, it was decided as a System matter that, in order to correct certain inequities in Federal Reserve Banks’ schedules o f availability o f credit for cash items and to reduce the sorting requirements for member banks, all Reserve Banks on January 12, 1951 should reduce from three to two busi ness days the maximum period o f deferment of credit for cash items. A t the same time, the Eeserve Banks announced that all telegrams relat ing to cash items deposited for collection through the Federal Reserve check collection system by member banks would be sent, to the extent prac ticable, over the Federal Reserve leased wires without cost to the member banks. Previously, these telegrams had been charged to such banks at commercial wire rates. These liberalizations of the use o f Federal Reserve leased wire facilities will remove a source o f irritation to member banks and their depositors. A ir transportation Our use of air transportation for the collection o f checks showed an increase proportionate to the rise to record volume o f check collections during 1950. Consolidated shipments to other Federal Reserve Banks and branches of our own cash let ters and those of 34 participating direct-sending banks in the metropolitan area reached a new high o f approximately 682,000 pounds, or almost 222 million checks, an increase of 53,000 pounds over 1949. A rm ored carrier service In December 1948, 13 banks located in Nassau County, Long Island, anticipating late deliveries o f cash letters forwarded through the mail during the holiday season, arranged to have the Armored Carrier Corporation, Bay side, New York, make deliveries o f their cash letters addressed to their New Y ork City correspondent banks and to this Bank. This service proved efficient and several banks in Nassau County expressed a desire to con tinue and expand the service. They authorized us to deliver our cash letters to the Armored Carrier Corporation as their agent for delivery to them at their expense. Member banks which prefer to use this method of transportation for our cash letters addressed to them, rather than the mail or express service which we had previously used, are now credited with the average daily cost o f forwarding our cash letters by conventional means. This service has now been expanded to include 136 banks and branches located in 8 counties in the metropolitan area. C heck R outing Sym bol Program The Check Routing Symbol Program, sponsored by the American Bankers Association and the Federal Reserve Banks, made considerable pro gress during the past year. Its progress was ac celerated by the collapse, in early 1950, of the last serious opposition to it— on the part of one of the country’s largest suppliers of checks. In December F E D E R A L R E SE R V E B A N K OF N E W Y O R K 1950 a nation-wide survey of cliecks in circulation throughout the country, drawn on par remitting banks, showed that 76 per cent of the checks bore the symbol in the approved location— the upper right or “ northeast” corner. This was an increase of 9 percentage points for the year. The Second Federal Reserve District again held the lead with 87 per cent, although all districts advanced over the year. In general, checks supplied by banks to their customers now conform with the program, al though many checks ordered directly from print ers by customers of banks still do not. Accordingly, the Division o f Public Information of this Bank produced, for the Bank Management Commission of the American Bankers Association and the Com mittee on Collections of the Federal Reserve Sys tem, a pamphlet explaining the Check Routing Symbol Program and its benefits to the business man. This promotional device will be distributed, through the Association’s member banks, to bank customers who order checks directly from a printer. The Association has also recently dis tributed, to check printers throughout the country, a “ guide” that describes the purpose and use of the check routing symbol and solicits their co operation in the program. D eferred posting legislation In my 1949 report, I stated that the 1950 New York State legislature had passed a deferred posting bill and that, on the date of my report, the bill was awaiting action by the governor. The bill was enacted later into law. Four other States and the District o f Columbia also enacted deferred posting statutes in 1950, bringing the total number of States that have done so to 44. Of these, 39 have laws that are in, or substantially in, the form of the American Bankers Association model statute and satisfactory in all respects concerning the Federal Reserve System. CASH O PER A TIO N S Counterfeits The increase in counterfeits, first noted in 1948 and again in 1949, continued during 1950. Our currency counters detected 3,157 counterfeits in 1950 (an increase of 15 per cent over 1949 and 127 per cent over 1948) amounting to $41,174. Most of these counterfeits were in the $10 denomination and a large percentage of them purported to be issued by the Federal Reserve Banks o f Minne 13 apolis and St. Louis. W e sent circular letters de scribing current counterfeits to all banks in this district in March and August, with the approval and cooperation o f the United States Secret Ser vice ; special representatives in the Bank Relations Department also showed typical counterfeits to banks and others. Some decline was observed toward the end of the year in the number o f coun terfeits appearing in currency deposited with us. C urrency and coin shortages During the months of May and June our avail able stock o f new $1 silver certificates dropped to an unusually low point because of the inability of the Bureau o f Engraving and Printing to main tain production of this denomination at a level sufficient to meet the demands o f the public. In order to have a supply sufficient to fill orders, it became necessary to reduce our standard of fit ness in sorting $1 certificates deposited with us. Up to June 19, we had been rejecting approxi mately 50 per cent of these notes as unfit for fur ther circulation; thereafter we rejected only about 30 per cent. The continuing heavy demand pre vented our rebuilding stock on hand to desired levels so that it was necessary to maintain the lower standard for the balance of the year. A few banks complained of the condition o f $1 silver cer tificates received from us, but the situation was explained to their satisfaction in each case. It be came possible in the latter part of January 1951 to revert to the normal standard o f fitness. During the fall a shortage o f pennies made it necessary to ration banks to 50 per cent of amounts requested. This shortage arose principally from (1) reduced production by the Philadelphia Mint as a result o f its being closed for a period during the summer months, and (2) apparent slowdown in the velocity of circulation of pennies. Our short age was temporarily relieved by the receipt late in October o f $400,000 in pennies shipped to us by the Treasury Department from the San Fran cisco Mint. Early in December, however, continu ing demand necessitated a resumption o f ration ing, which was continued into January, when a circular was sent to all banking institutions in the district requesting their cooperation in returning to us all pennies not absolutely needed by them and their depositors. The need for rationing pen nies disappeared in the latter part o f January when, as the result of our circular and seasonal influences, there occurred an influx o f surplus pen nies from member banks. 14 P R E SID E N T’ S R E P O R T T O D IR E C T O R S F O R 1950 W IR E TR A N SFE R S OF FUNDS W ire transfers of funds handled during 1950 numbered 248,518 for a total of $174 billion, an increase o f 24,879 transfers and $35 billion above the preceding year, or gains of 11 and 25 per cent, respectively. Telegrams sent and received in 1950 totaled 505,520, an increase of 64,597, or more than 14 per cent, over 1949 volume. These increases in volume resulted partly from a larger number o f United States Government securities being transferred over the Federal Reserve leased wires, but were caused primarily by a greater velocity o f bank funds resulting from the general high level o f economic activity. It is anticipated that transfers o f funds and other leased wire traffic will increase further as a result o f certain liberalizations of leased wire services put into effect on January 12, 1951. These liberal izations include (1) permission to member banks to transfer bank balances in any amount of $1,000 or more over the leased wires without cost, as a substitute for the previous arrangement which limited free transfers o f balances to those in mul tiples o f $1,000; and (2) discontinuance o f charges at commercial wire rates to member banks for telegrams sent over the leased wires which relate to cash items deposited for collection in the Fed eral Reserve check collection system. assets occurred in the accounts of the central banks of Canada ($602 million), England ($557 million), France ($138 m illion), Mexico ($126 mil lion), and Argentina ($118 million), and of the Bank for International Settlements ($126 mil lion). The rise in Canadian assets reflected the large inflow o f funds to that country, especially in the period just before the change in its ex change rate system. The rise in British assets reflected the continued receipt o f E.C.A. aid (which was terminated at the end of 1950), the betterment o f the sterling area position following the devalu ation o f the pound, and the boom in raw materials produced in the sterling area following the out break o f war in Korea. Relatively few foreign accounts experienced a reduction in assets; the largest declines occurred in the accounts o f Brazil, Colombia, Venezuela, Australia, and Czechoslo vakia, with the greatest reduction, however, being only $34 million. T o t a l G o ld and D o lla r A s s e ts H e ld at th e F ed era l R e se rve B ank o f N e w Y o r k f o r F o r e ig n A c c o u n ts and fo r In tern a tion al F u n d and B ank B IL L IO N S O F DO LLAR S B IL L IO N S O r D O LLAR S F O R E IG N O P E R A TIO N S Assets h eld fo r foreign and international account Continuing at an accelerated rate the increase which has been occurring since the latter part of 1947, the total amount of earmarked gold, de posits, United States Government securities, and other assets held at this Bank for foreign account rose during 1950 by about $2.3 billion to a new peak o f approximately $7.3 billion, or about $300 million above the previous peak in September 1945. A t the same time, assets held for the Inter national Bank for Reconstruction and Develop ment and the International Monetary Fund rose $82 million to $3,155 million, bringing the com bined assets held for foreign and international account to well over $10 billion. As can be seen from the table below, all three of the principal types of assets held for foreign ac count rose during 1950. The largest rise occurred in earmarked gold, which increased from $3,451 million to $4,757 million, but United States Gov ernment security holdings also expanded consid erably. The most pronounced increases in total 1941 1942 1943 1944 1945 1846 1 94 7 1943 1949 1950 Change in status o f foreign accounts In addition to the accounts opened in January 1950 by this Bank, as principal, in the names o f the National Bank o f Egypt 011 behalf o f the Egyptian Government Exchange Control, and of Caisse Centrale de la France d ’Outre-Mer (both men tioned in last year’s report), regular accounts were also opened in 1950 for the newly established central banks of Cuba, Costa Rica, and Honduras. In addition, an account was opened in the name of 15 F E D E R A L R E SE R V E B A N K O F N E W Y O R K Total Assets H eld at Federal Reserve Bank o f New Y ork fo r Foreign and International Accounts (In millions) E n d of E n d of 1949 1950 N e t C h an ge Foreign Accounts Earmarked Gold ..................................................... U. S. Government Securities.................................. Miscellaneous Securities, Commercial Paper, and Bankers’ A ccep tan ces................................ Total— Foreign A c c o u n ts .............................. $3,451 (a) 766 669 $ 4,757 (b) 895 1,571 +$1,306 + 129 + 902 — 10 70 60 $4,956 $ 7,283 +$2,327 $ 822 317 1,454(c) 480(d) $ +$ — + + 47 278 249 64 $3,073 $ 3,155 +$ 82 $8,029 $10,438 +$2,409 International Accounts (International Fund & Bank) Earmarked Gold ..................................................... D e p o s its ..................................................................... U. S. Government Securities.................................. Miscellaneous Securities ...................................... Total— International A c c o u n ts .................... G rand T otal ............................................................. 869 39 1,703 (c) 544(e) ( a ) Includes $38,169,000 held as collateral to loans made b y domestic commercial banks to Bolivia, France, and Nicaragua, and $75,477,000 held as collateral to foreign loans on gold made by Federal Reserve Banks. ( b ) Includes $91,654,000 held as collateral to loans made b y domestic com m ercial banks to B olivia, N icaragua, Spain, and Venezuela. ( c ) Includes non-interest-bearing non-negotiable demand notes as follow s: 1949— $1,008,000,000 1950— $1,270,000,000 ( d ) Does not include bonds having fa ce value o f 17,000,000 Swiss francs and 45,355,000 Belgian francs. ( e ) Does not include bonds having fa ce value o f 17,000,000 Swiss francs, 87,132,200 B elgian francs, 2,893,500 Canadian dollars, and 273,500 pounds sterling. Instituto Espanol de Moneda Extranjera, an agency of the Spanish Government, in connection with gold we hold as collateral pledged by the In stitute to loans extended by New Y ork City banks. W ith the establishment of an account for the new Banco Central de Costa Rica, the account previ ously maintained in the name of the Issue Depart ment of Banco Nacional de Costa Rica was closed and the balance therein was transferred to the new account. Similarly, the opening of an account in the name of Banco Nacional de Cuba was fo l lowed closely by the transfer to that account of the gold which this Bank, as fiscal agent of the United States, had held for account of the Govern ment of the Republic of Cuba, and the closing of the fiscal agency account. A sub-account was established for the Bank for International Settlements, as Agent for the Or ganization for European Economic Cooperation (European Payments Union), through which periodic settlements are made between the mem bers of the E.P.U. A t the direction of the Secretary of the Treas ury, this Bank, as fiscal agent o f the United States, opened on August 21 a custody account in the name of the Bank of Korea in which are now held some of the Korean gold and silver reserves which were salvaged from South Korea and brought to this country by military carrier. The account maintained on our books, as fiscal agent of the United States, on behalf of The Central Bank of China as fiscal agent of the Government of the 16 P R E SID E N T’ S R E P O R T TO D IR E C T O R S F O R 1950 Republic of China, was closed in April 1950. The regular account for The Central Bank o f China continues. In connection with the move of The Central Bank of China to Taipeli, Formosa, we obtained a new certification from the Secretary of State, pur suant to section 25(b) o f the Federal Reserve Act, regarding the authority o f certain officials of the central bank in Taipeli. Although we subsequently received two communications from ‘ ‘ The Liquida tion Office o f The Central Bank of China,” Shang hai, which, in effect, asserted a claim on behalf of the “ Central People’s Government o f China” to the assets o f The Central Bank o f China, we con tinued, with the concurrence o f the State Depart ment, to recognize the authority of those officials named in the certification. At the year-end, this account was small and inactive. Loans on gold During the year outstanding loans on gold to foreign central banks at no time amounted to more than $70.5 million. From this level in January they declined steadily until complete liquidation was effected in August. This trend extended the prior reduction from a peak of $259.7 million in August 1948. A t the close of 1949 loans aggregat ing $69.5 million were outstanding to the central banks of Poland, France, Ecuador, and Turkey. The loan to Poland, following a program of gradual repayment, was liquidated in February; the Turkish loan, after having been increased by $1 million in January and having been outstand ing for nearly a year, was terminated in M ay; and the loans to France and Ecuador were liquidated in August. Early in the year, the central bank of Ecuador had requested another loan— o f about $1.7 million— which we declined to make because it appeared that the Ecuadorian balance of pay ments deficit was of a more than seasonal or tem porary nature. Arrangements with the central banks o f Costa Rica and Australia, and with the Bank for International Settlements, for possible advances during 1950 were not utilized. Gold in our custody, belonging to the central banks or foreign exchange authorities o f Bolivia, Venezuela, and Spain, was transferred during the year to the accounts o f three domestic commercial banks. The gold is security for credits these banks are now extending for a longer period than our policy permits. These loans are in addition to two credits extended in 1947, and still outstanding, by commercial banks to the central banks o f Bolivia and Nicaragua. Gold held as security for a loan made to France in 1949 by a group of domestic banks was returned to the account o f the central bank o f that country upon liquidation o f the loan. G old m ovem ents In sharp contrast to net acquisitions of foreignowned gold by the United States in the amounts of $2.8 billion in 1947, $1.5 billion in 1948, and about $200 million in 1949, the United States ex perienced a net loss of gold in 1950 of about $1.7 billion. Purchases by the Treasury o f less than $70 million o f foreign-owned gold offset to only a minor extent sales o f $1,797 million o f gold by the Treasury to foreign account. O f this amount, pur chases by England accounted for over $1 billion, as contrasted with that country’s sales to the Treasury of $445 million in 1949; other large pur chasers o f gold included Mexico, France, Canada, The Netherlands, Uruguay, and Belgium. The principal other sellers were Cuba and South Africa. Despite the large dollar value, the num ber of all gold transactions handled during the year was somewhat smaller than during 1949. Visits to foreign central banks In April 1950, Horace L. Sanford, Assistant Vice President in the Foreign Function, and Henry C. Wallich, Chief o f the Foreign Research Division, Research Department, attended the in auguration of the Banco Nacional de Cuba, the first central bank in Cuba. In the fall of 1950, Bertrand H. Webber, Chief o f the Foreign Operations Division, Foreign De partment, spent seven weeks at the Bank of Eng land, observing methods and operations. Mr. Webber was accompanied by Charles A. Coombs o f the Foreign Research Division, Research De partment, who also visited the Banque de France and was concerned with research matters. Charles R. Athern, Special Assistant in the F or eign Department, and Charles R. Pricher, Assist ant Chief o f the Foreign Operations Division, Foreign Department, spent two weeks during June at the Bank of Canada studying operations there. This stay, part of a program for exchange visits of staff members o f this Bank and o f the Bank o f Canada, was followed by a two-week period o f observation and study here by two men from the Canadian institution. In December W alter S. Ruslimore, Special Assistant in the Foreign Department, and Edwin W . Carroll, Assistant Chief of the Foreign Operations D ivi sion, Foreign Department, spent two weeks at the Bank o f Canada and that bank sent two men to us. F E D E R A L R E SE R V E R A N K O F N E W Y O R K Foreign central bank visitors The number o f visitors from other central banks coming to this Bank to observe and study our methods and operations continued to grow during the past year. W e provided offices for, and facili tated the studies of, representatives of the central banks of Argentina, Belgium, Burma, Cuba, Eng land, France, Germany, Italy, Japan, and South Africa. W e also received during the year senior officials o f a number of central banks, including those of Belgium, Canada, Cuba, England, Greece, Nor way, South Africa, and Thailand. Staff G roup on Foreign Interests Several meetings were held in the course of the year by the Staff Group on Foreign Interests, consisting of representatives of the foreign, legal, and research staffs of this Bank and the Board of Governors. Among the topics discussed at these meetings were United States treaty provisions with respect to the treatment of American banks doing business in foreign countries, the adequacy of financing facilities for United States foreign trade (particularly im ports), the influence of for eign currency devaluations on United States ex ports, the nature of the relationships between treasury and central bank in foreign countries and the respective roles of the two, the Federal tax status of bankers’ acceptances and time deposits held in this country by foreign central banks, the question of representation by the Federal Eeserve System on the board o f the Bank for International Settlements, and the feasibility of a system of Federal Eeserve stabilization credits to foreign countries meeting certain criteria. The Staff Group, by correspondence and telephone as well as through its meetings, continued to deal actively with current foreign mission problems, especially with the preliminary selection o f personnel for missions requested by foreign countries or United States Government agencies. R ESEARCH Outstanding among the special matters receiv ing attention from our Eesearch Department during 1950 were ( 1 ) the scope and type o f measures needed to restrain inflation in this country, ( 2 ) studies and surveys connected with the intro duction o f Regulations W and X , 17 (3 ) evaluation o f the results o f the September 1949 devaluation o f the pound sterling and some 30 other currencies, (4 ) analysis o f recent pronounced changes in the foreign trade and balance o f payments o f the United States, (5 ) participation in the seminar sessions fo r a visit ing group o f professors o f money and banking from the Tw elfth Federal Reserve District, and ( 6 ) preparation o f material on factors affecting the money market and on Federal Reserve operations in that market, fo r use by teachers o f money and banking and others. D om estic studies and publications Considerable attention was devoted during the year to studies of national income and savings, pension plans, labor force trends, agricultural production and policy, and business and govern ment finance. W e initiated a system for the regu lar review of Congressional committee hearings, investigations, and reports with the object of locating new background material or relevant up-to-date information not available elsewhere. A proposed method o f reserve requirement cal culation— “ uniform reserve requirements” — was tested in January upon a sample group o f country banks and upon most of the large banks in this dis trict. This test was made to determine what changes would have occurred in the level of re quirements for different groups of banks if this method of calculation had been in effect during a particular reserve period. In April, the Depart ment cooperated with the New Jersey Bankers Association in preparing a detailed questionnaire on salaries and supplemental benefits for submis sion to the New Jersey banks. To explore the reasons for the rapid expansion in bank credit, the Board o f Governors, in November, requested a special survey o f those New Y ork City banks which had increased their commercial and industrial loans by 25 million dollars or more from June 28 to November 1. These banks were asked for a breakdown of their loan increase by the type of business of the borrower and by the purpose of the loan. To get the required information, three members of the staff visited ten banks and interviewed their loan officers. In November and December, the Department was called upon to check and analyze the statistical data on about 15,100 registration statements sub mitted under Eegulation W by businesses engaged in making instalment sales or instalment loans. PR E SID E N T’ S R E P O R T TO D IR E C T O R S F O R 1950 18 The information obtained from these registration statements is to be used as a benchmark from which the Board of Governors intends to project future estimates of outstanding consumer credit. W orking in close cooperation with the Bank Relations Department, the Research Department fulfilled during the year numerous member bank requests for special analyses and comparisons of operating ratios as well as other types o f available financial information. Toward the end of the year, work was started on a handbook on the mechanics of open market operations which is to be published by the Federal Reserve System. The first draft will be submitted to a System editorial committee and a committee of professors o f money and banking. The handbook is intended primarily as a supplement to college textbooks on money and banking. The Department late in 1950 revised and brought up to date a number o f articles, dealing with factors affecting bank reserves, which have been published in the Bank’s Monthly Review during the past two or three years. These revised articles will be published by this Bank shortly in pamphlet form. Also late in 1950, the Department revised and expanded the table of domestic business indexes, which appears regularly in the Bank’s Monthly Review. Beginning with the January 1951 issue of the Review, this set of business indicators consists of 29 national series and 9 District series, as against the former 10 national series and 3 District series. Am ong the series selected for the new table are those which are believed to give the earliest indications o f changes in economic trends. The usefulness o f the table has been enhanced by adding two columns showing the percentage changes from the previous month and from the same month a year earlier. During the year the Department began to issue, with some of its press releases o f statistical data, brief explanations of the significance of the data and o f the changes. The following are a few selected items from among the numerous research papers prepared during the year on domestic topics: Postwar State Finances Pension Plans, Savings, and Investment The Problem o f Bank Capital The Financial Position o f Federal Trust Funds H ow Consistent A re Prelim inary Estimates o f Gross National P rodu ct with the Final Data? The P ort o f New Y ork A uthority The Outlook fo r A gricultural Production and Consumption Significant Labor F orce Trends The P arity Concept in Am erican A gricultural Policy The A dm inistration’s Program fo r Revised Social Insurance Comparative C osts: Debt Service v. Inflation Overlapping Responsibilities o f the Treasury and the Federal Reserve System Three Types o f Reserve Requirements Investment Practices o f Government Trust Funds and Investment Accounts Institutionalization o f Savings in the United States Debt Management and Credit P olicy fo r Another W ar Foreign and international studies and publications A variety of problems demanded attention, including a study o f the effects of the September 1949 currency devaluations on United States trade (for which data were collected through personal interviews with traders), and an analysis o f the pronounced changes which took place in the United States balance of payments during the year. The Department devoted considerable attention to many other matters: ( 1 ) the international economic position and outlook o f the United K ingdom and the sterling area; ( 2 ) the aims, structure, and implications o f the European Payments U nion; (3 ) the different aspects o f the general problem of E u ro p e ’s “ viability” (ability to balance its interna tional payments without outside assistance) ; (4 ) the possible later need or desirability o f a system o f Federal Reserve stabilization credits to coun tries which regain financial stability and subscribe to sound economic policies; (5 ) economic problems which foreign countries will face as a result o f their rearmament program s; ( 6 ) the effect o f the Korean crisis on the world “ dollar g a p ” and on United States foreign aid program s; (7 ) recent and prospective trends in the m ajor serv ice items o f the United States balance o f paym ents; ( 8 ) analyses o f United States export and im port trade by areas and commodities and, in particular, the com putation o f indexes o f the price and volume o f United States imports since 1923, according to m ajor com modity groups and m ajor countries. In May and June, the twelve New Y ork City banks which report monthly data on Latin American export credit conditions were inter viewed concerning possible additions and improve ments to our monthly survey in this field, and the reactions of the three other reporting banks were obtained through the Reserve Banks o f the respective districts. As a result o f this inquiry, the monthly survey was slightly amended and expanded. F E D E R A L R E SE R V E R A N K O F N E W Y O R K O f the several hundred research papers written during tlie year on foreign and international topics, the following are worth noting: The A rgentine Econom ic Situation E conom ic Development in Central and Southeastern E urope The Ceylon M onetary Law U nited States Foreign Econom ic P olicy after 1952 The R ecovery o f the British Reserve Position since Devaluation The D ollar Problem o f the Sterling Area Developments in the Philippine Balance o f Payments and Public Finances The E uropean Payments Union The Revision o f the Argentine Exchange Rate Struc ture Effected A ugust 29, 1950 Commercial Banking Reorganization in Germany Basic Commodity Prices since Korea Recent and Prospective Trends in the United States Balance o f Payments Mutual Defense Assistance Program Foreign D ollar B on d s: Present Status and Possibilities o f Future Financing Shipping P olicy and the United States Balance o f Payments The Interest and Dividends A ccou nt in the United States Balance o f Payments D ollar Shortage— Oil Surplus Simplification o f United States Customs Adm inistration Foreign missions and assignments The demands for the services o f our research technicians for temporary foreign assignments were heavier in 1950 than in any previous year. As mentioned in last year’s report, Arthur I. Bloomfield, Chief o f the Balance of Payments Division, proceeded to Korea in August 1949, in company with John P. Jensen o f the Auditing Department, for the purpose o f drafting new monetary and banking legislation for the Republic o f Korea. In March and April o f 1950, on his way home from Korea, Mr. Bloomfield visited the central banks o f Japan, Indonesia, and India, and commercial banks in Hong Kong. Henry C. Wallich, Chief of the Foreign Research Division, went to Portugal in December for a three-month survey of that country’s finances and banking system, as requested by the E.C.A. Fred H. K lopstock spent the first half o f 1950 in Germany as adviser to the Chief o f the Finance Division o f the United States High Commissioner. John H. Adler and Eugene R. Schlesinger went to Guatemala in May to assist in the completion of a fiscal and monetary study which the Bank of Guatemala had undertaken with our cooperation in 1949. Charles A. Coombs served for about two months during the 19 summer as financial advisor in an economic survey of Iran, headed by Ambassador Henry F. Grady; before returning home, Mr. Coombs spent study periods of approximately one and two months, respectively, at the Bank o f France and the Bank o f England. Miroslav A. Kriz was sent by this Bank to attend the Third International Banking Summer School at Stockholm, Sweden, in Septem ber. Before and after this attendance, he spent brief periods o f study at the Bank for Inter national Settlements in Switzerland and at the central banks o f Denmark, Sweden, and Norway. Philip J. Glaessner was loaned in September to the International Bank for Reconstruction and De velopment to serve as financial technician on a mission making an economic survey o f Cuba; Mr. Glaessner’s assignment was completed in January 1951. Apart from missions involving actual travel abroad, several staff members carried out special assignments for various official agencies in the foreign or international field. Mr. W allich assisted during the summer in the study of United States foreign economic policy, carried out by Gordon Gray at the request of President Truman. Mr. Bloomfield served briefly as a consultant on Korea to the Fiscal Division of the Department o f Economic Affairs o f the United Nations. Mr. Klopstock followed his stay in Germany with several months as a part-time consultant of the Department o f State on German banking reform. Late in 1950, Mr. Schlesinger was appointed a temporary part-time consultant to the Washington office o f the Economic Commission for Latin America (a United Nations agency). Contacts ivith oth er organizations The Department supplied an economist to speak at each o f the biweekly regional group meetings of member banks organized in 1950 by the Bank Relations Department. The subjects discussed included current economic conditions, the business outlook, and the data and methods used by our Research Department in estimating that outlook. Many other public addresses on varied topics were made by research staff members before various groups o f bankers, businessmen, economists, educators, and students. Many members o f the research staff, with the Bank’s permission and encouragement, contributed signed articles to pro fessional and business journals on economic problems o f more or less general interest. The officers and several staff members of the Depart PR E SID E N T’ S R E P O R T T O D IR E C T O R S F O R 1950 20 ment also represented this Bank on a variety of System committee meetings during the year. Library The Library Division, an essential cog in the work o f the Research Department, continues to serve both the Department and the Bank in many useful ways. Aside from the ordering, catalogu ing, and circulating o f books, pamphlets, reports, and periodicals, and the answering of numerous requests for information, the Library prepares the Bank’s daily Newspaper Review, which for many years has been popular throughout the Bank and has also met with genuine appreciation among the member banks since distribution to those banks was started in 1948. The Library also issues and circulates in the Bank a semimonthly Library News, listing and briefly commenting upon new books, periodicals, etc. acquired. A t the year-end, the Library helped in launching a new publication, the Bank’s W eekly Neivs Review, and is now assisting the Division o f Public Information in preparing and circulating this Review , which is sent to member banks for redistribution to their customers. L IT IG A T IO N Two o f the litigated cases pending at the end of 1949 against this Bank on claims arising out of alleged forged endorsements were disposed of, together with five new similar actions instituted during 1950. The total claims involved in these seven cases aggregated $141,612. No loss to the Bank was involved. A t the end of 1950 six cases were still pending with claims aggregating $15,472 (including one action for $1,552, in which there have been no developments since 1940 and which may be regarded as abandoned). The Bank’s gen eral counsel appears as attorney of record in only one active suit, in which $1,000 is sought. In the other five cases the prior endorsing banks have agreed to indemnify this Bank, and their own counsel are conducting the defense on behalf of this Bank without any cost or expense to it. One action has been brought against the Bank for $75,000 for injuries allegedly sustained by a trucking company employee. The action is being defended by our insurance carriers. SE C U R IT Y FILES PR O G R A M In a report dated August 9, 1950, the Subcom mittee on Destruction o f Records recommended to the Committee on Miscellaneous Operations of the Conference o f Presidents o f the Federal Reserve Banks that measures be taken by each Federal Reserve Bank to insure the protection and duplication o f vital records so that, in an emer gency, the business o f each bank could be resumed, in so far as records were concerned, on as current a basis as practicable. This Bank began an experimental program of duplicating vital records for a five-week period beginning September 5, 1950. Every effort was made in this dry run to simulate the conditions that would exist if these records had been main tained outside the Bank. Prior to the close of the five-week trial it was determined to continue this operation within Bank premises until suitable space had been obtained for the location o f the Security Files outside of New Y ork City. The space was obtained in the Starling Building in Ossining, New York, before the end o f the year, and we moved our Security Files unit to Ossining early in January 1951. Although the records included in this program are too numerous to detail, it may be noted that we approached the problem from the point o f view o f obtaining by-product records, i.e., copies of existing forms, wherever practicable, because these records would be less expensive than micro film copies, and also in a more immediately useful form, in event o f an emergency, than microfilm. In some instances, particularly in the case of such records as authorizations and signature files, where facsimile reproduction was essential, we have made photostats. Considerable work remains to be done on arrangements for dealing with other problems likely to arise in the event o f an emer gency. W e are trying to complete the program as soon as possible. E Q U IPM E N T R E P L A C E M E N T P R O G R A M The office furniture and equipment replacement program was substantially completed during the year, with the installation of some 1,500 desks, 1,000 tables and 2,500 chairs o f modern metal construction. PERSON N EL B iw eekly pay Perhaps the most significant new procedure of the year affecting employees was our adoption, in November, o f the biweekly method of paying sal aries. The advantages and disadvantages— both to the Bank and to the staff— of the various meth ods o f paying salaries, had been studied by our Personnel Department for some tim e; the biweekly system was adopted largely because o f the advan tage of regularity o f payments to the staff. 21 F E D E R A L R ESER VE B A N K O F N E W Y O R K Salary administration N um ber o f em ployees W e made wage and salary surveys in New York During the first five and one-half months of the City and Buffalo during October 1950 in line with year, or to about the date o f the start of hostilities the objective of our Personnel Classification Plan in Korea, the number o f employees at the Head of assuring an appropriate relationship between Office declined by 110, or 3.2 per cent, continuing salaries paid in the Bank and those paid elsewhere the contraction begun in 1944. On June 17, 1950, in the community for comparable jobs. W e found the number o f employees at the Head Office was that substantial increases in the rates of pay for 3,331, a reduction o f 1,406 from the peak employ many jobs had occurred in both communities dur ment of 4,737 reached on July 27, 1944. The staff ing the year. On the basis of these findings, the increased by 54 employees during the latter half minimum and maximum rates of the salary grade of 1950, making a net reduction for the year o f 56 structures at the Head Office and Buffalo Branch employees, or 1.6 per cent. The increase during were increased, effective November 30, 1950, and the second half year resulted primarily from the at the same time salary increases were granted to reactivation of Regulations V and W , the admin most employees in order to bring our rates o f pay istration o f Regulation X , and a greater volume up to those paid by progressive employers in the of work in the Cash and Collections Function. community. The following table and chart present some A t the Head Office the average increase o f mini basic statistics on Head Office employment: mum and maximum rates amounted to approxi mately 5.75 per cent and the salaries of most E m p loy ees, clo s e o f b u si 1946 1947 1948 1949 1950 employees were increased, effective November 30, ness D e c. 3 1 ........................ 4,142 3,755 3,771 3,441 3,385 1950, by an amount equal to 7 per cent of basic E m p loy ees, a v era g e n u m b er, en g a g ed in w o rk r e annual salary or $300, whichever was less. These im bu rsa b le b y U . S . G ov t, salary increases aggregated $702,441 per annum, a n d its a g e n cie s ................. 1,218 824 690 590 541 or 6.37 per cent of total salary liability. In addi E m p loy ees, a vera ge tion to these increments, merit increases aggre n um ber, a ll o t h e r ............... 2,949 3,066 3,141 3,050 2,839 gating $197,978 per annum, or approximately 1.69 A p p lic a n ts ............................. 8,346 7,405 8,050 4,531 4,648 per cent of the total salary liability as of Novem H i r e d ......................................... 948 565 282 553 767 ber 30, 1950, were granted effective December 28, S e p a ra tio n s* ........................ 1,100 952 751 612 609 1950, instead of the first of the new year, as here D ism issals (in clu d e d in tofore, because a new pay period started on that S e p a r a tio n s) .................... 246 402 210 109 158 day under the biweekly pay program. * Ineludes those who becam e officers, were dismissed, resigned, Another objective of our Personnel Classifica retired, or died. tion Plan is to maintain a proper description of jobs in terms of knowledge and skills required. F lu ctu a tion s in Y e a r ly H e a d O ffic e E m p lo y m e n t 1941-1950 During the year, therefore, we re-evaluated 472 job descriptions, or about 75 per cent of those in use at the Head Office. Many of these job descrip tions, and the position o f some jobs in the salarygrade structure, were changed as a result of the review, which showed that material changes had occurred in job duties and responsibilities. H ead O ffice salary liability As o f December 31, 1950 the employee salary liability (including reimbursable salary) at the Head Office was $11,779,000; the comparable fig ure for previous year-ends was $10,929,000 (1949), $11,496,000 (1948), $10,621,000 (1947), and $11,242,000 (1946). The rise o f about $850,000, or 7.8 per cent, in salary liability during 1950 reflected primarily the general increase which became effective November 30, and the inclusion of the year-end merit increases. 1941 1942 1943 1944 1945 1946 1947 1948 1949 19SO 22 PR E SID E N T’ S R E P O R T T O D IR E C T O R S F O R 1950 The following table shows the distribution of Head Office employees according to length of service. It will be noted that 446 employees, or about 13 per cent, have been with the Bank for 25 years or more. L e n g th o f S e rv ice N u m b er o f E m p lo y e e s 35 years or m ore..................... P e rce n ta g e o f T o t a l N u m b er o f E m p loy ees 5 .15% 30 years to 34 years inclusive 274 8.09% 25 years to 29 years inclusive 167 4.93% 20 years to 24 years inclusive 369 10.90% 15 years to 19 years inclusive 191 5.64% 156 4.61% 10 years to 14 years inclusive 5 years to 9 years inclusive 1,186 35.04% Less than 5 years................... 1,037 30.64% Total (Dec. 31, 1950) 3,385 Staffing studies In the latter part of 1949 we inaugurated a pro gram of establishing production standards and of developing techniques for measuring productivity, in order to appraise the manpower needs of vari ous departments. The approach to this program has been that it was not to infringe upon estab lished lines of management authority and respon sibility. Rather, its aim has been to provide in dividual operating officers with additional data as an aid to them in establishing and maintaining work forces at an efficient level. At the outset of the program we recognized that some functions, such as Research and Legal, were not readily susceptible to staffing studies; and we therefore determined to conduct our studies (1) on a functional basis, i.e., in large operating de partments where repetitive identical operations were carried on from day to day, and (2) by type o f job, such as typists and file clerks. "Within this framework is included approximately two-thirds o f the employees of the Bank. By the end of 1950 we had conducted staffing studies in approxi mately half of the area outlined. To date, no dollar saving of any appreciable amount can be attributed to this program, but we consider it worthwhile, and plan to continue staff ing studies. W e feel that management interest in operating costs has been stimulated, and it is hoped that the stimulation will be both progressive and cumulative as the program continues. Event ually staffing studies may prove a most helpful factor in the determination of budgets. E m p loyee benefits W e continued during 1950 the programs devel oped in earlier years to provide benefits and pro tection to staff members, including the following: 1. Blue Cross Hospital and Surgical-Medical Plans. A total of 3,037 employees, or 88.3 per cent were enrolled, compared with 3,102 employees or 88.7 per cent, at the end of 1949. The expense to the Bank, which pays two-thirds of the total cost, was $96,724, compared with $93,992 the preceding year. During the year, members of our Head Office staff filed 614 claims for hospital care (involving a cost of $83,282) and 650 claims for medical and surgical care (amounting to $39,404). 2. Our Group L ife Insurance Plan covered 2,422 Head Office employees (70.4 per cent) at the end of 1950, compared with 2,593 employees (74.1 per cent) a year earlier. During the year, 15 Head Office staff members died; of these 14 were covered under the plan and their beneficiaries received a total of $64,000. 3. Old-age and survivor’s benefits under the Social Security law were extended to officers and employees of Federal Reserve Banks, effective January 1, 1951, by the Social Security A ct Amendments of 1950. The Board of Trustees of the Retirement System adopted a plan of integra tion of Retirement System benefits with Social Security benefits effective November 30, 1950. These combined benefits will in no case be less than the benefit previously paid from the Retirement System, and aggregate benefits will be substan tially greater for individuals retiring within the next several years. Annual deductions from regu lar salaries of staff members for the combined Social Security and Retirement System coverage, however, will not be increased under the inte grated plan. Prior to January 1,1951, members of the Retirement System were given an opportunity to increase their contributions to the Retirement System to compensate for Social Security tax deductions, thus maintaining their Retirement Sys tem contributions unchanged; a majority of the members at this Bank chose to exercise this option. 4. Disability Benefits. Effective July 1, 1950 our Directors amended the sick leave policy so as to assure aggregate payments to employees, dis abled by nonoccupational injury or illness while F E D E R A L R E SE R V E B A N K O F N E W Y O R K employed by the Bank or within 4 weeks after involuntary termination of employment, not less than benefits provided under a Disability Benefits Law enacted by the New York State legislature. Our Legal Department had earlier concluded that the State law is not applicable to this Bank. On November 10, 1950, we were notified by the New York W orkm en’s Compensation Board that it ap peared one o f our employees, disabled by a nonoccupational injury, was in “ covered” employ ment with us when disabled and that we should make payments to her as provided in the Disability Benefits Law. W e replied in effect that, although not subject to the law, we had paid the employee the full amount o f her salary during the entire period of disability (an amount exceeding the re quirements of the law, incidentally). W e have received no reply to our letter, and the position of the W orkm en’s Compensation Board on the im munity we claim is still uncertain. 5. Medical Division. Visits by employees to the Medical Division during the year totaled 32,994, an average o f approximately 10 visits per em ployee. W e have begun making electrocardio grams a part of the annual examination of em ployees 45 years of age and over; they are also made for others when the Medical Staff considers it desirable. 6. R ed Cross blood bank. W e have continued to cooperate with the blood bank o f the American Red Cross; the staff, through the Federal Reserve Club, gave a total of 254 units of blood in 1950. During the year, 163MJ units were withdrawn to meet the needs o f employees or their families, thus saving them about $4,900. 7. Military service. W e issued a statement dur ing the year o f rights and privileges of employees leaving the Bank for military service, and gave a copy to each o f the 28 employees leaving for mili tary service during 1950. Effective October 18, the Bank absorbed the full cost of providing coverage under the Blue Cross Hospital and SurgicalMedical Plans to families o f employees who, at the time o f entering active service in the armed forces, were enrolled in these plans under a “ fam ily” or “ husband and w ife” type o f contract. W e also resumed the custom, established during W orld W ar II, of sending Christmas gifts to staff mem bers in the armed forces. 23 O th er p erson n el developm ents The Personnel Department was reorganized dur ing the year to provide more effective administra tion o f welfare and morale activities. A Personnel Relations Division was established to handle coun seling, grievances, suggestions, veterans affairs, officers loan funds, transfers, promotions, and similar matters. Leadership and improvement courses, begun in 1948, were attended by 262 supervisory employees during the year. The pro gram o f interviewing new employees and those who leave the Bank voluntarily was established on a permanent basis. These interviews are proving increasingly useful in testing the effec tiveness o f our personnel policies and practices. Despite strong support of the mid-year savings bond drive of the United States Treasury Depart ment, there was a decline in the number of em ployees participating in the payroll deduction plan. The Federal Reserve Club continued to offer a broad program o f social and recreational activ ities and special services. Our exit interviews have shown that the program has a substantial appeal for the staff, 90 per cent o f whom are members of the Club. BU FFALO B R A N C H O PER A TIO N S Economic activity during 1950 in the Branch territory not only recovered ground lost during 1949 but also went on to levels higher than the wartime peak. The composite index of business compiled by the Buffalo Chamber o f Commerce reached 197.7 in November, compared with 186.2 in the preceding month and 171.4 in November 1949. The increase in heavy industry was featured by the completion during the year of an enlarged strip mill (Bethlehem Steel Company) and an automobile body stamping plant (Ford Motor Company). Retail trade and construction activity were at high levels, while bank deposits in Buffalo rose about $94 million during the year to set a record o f $1,286 million. Business improved in Rochester and Niagara Falls, also, but the in creases were not so marked as in Buffalo. Continuing the trend of the past several years, the volume o f most of the Branch’s operations increased in 1950 over the previous year’s. Cur rent expenses, plus cost of Federal Reserve cur rency, totaled $804,434 in 1950, compared with $797,050 in 1949. Fiscal agency and other reim bursable expenditures aggregated $27,671 as against $30,553 in 1949. Despite the increased vol 24 PR E SID E N T’ S R E P O R T TO D IR E C T O R S F O R 1950 ume of work handled, the higher costs of rented equipment and supplies, and the 5 per cent salary increase which became effective November 30, 1950, total expenditures of the Branch in 1950 were only $4,500 higher than in 1949. P ersonnel During 1950 the number o f employees at the Branch increased from 170 to 172, the result of 40 separations from service, and the hiring of 42 new employees. A ll employees but one have signed authorizations for deductions from payroll for the purchase of Series E bonds, the total de ductions amounting to 5.04 per cent of the payroll at the end of the year. In addition, 49 employees are participating in a special payroll savings plan providing for deposits in a local savings bank. A ll but 11 employees are enrolled in the Blue Cross and Blue Shield plans for hospitalization and surgical benefits. Some of the 11 exceptions are covered under a similar plan through other members of their families. Employees participat ing in the group life insurance plan number 130, or 75.58 per cent of the staff. To keep our pay scales up to the community level, the salaries o f most employees o f the Branch were increased by approximately 5 per cent, effec tive as of November 30, 1950. Year-end merit increases were also granted effective December 28, 1950. The following tabulation shows the number of employees and aggregate salary liability at the last five year-ends: 1946 211 1947 164 1948 176 1949 1950 N u m b e r o f e m p lo y e e s .. 170 172 S a la r y lia b ility ( in t h o u s a n d s ) ............ $467 $390 $455 $448 $492 C heck collection The Branch collected 28.3 million checks aggre gating $8.3 billion in 1950, compared with 26.1 million items amounting to $7.1 billion in 1949. The average number o f checks handled daily rose from 104,350 in 1949 to 113,403 in 1950. The gain of 2.2 million checks over the previous year re flects greater business activity in the Buffalo area and an increased use o f Federal Reserve facilities. A fter an intensive study of air transportation schedules and facilities, and after several changes in methods o f operation, a new Buffalo Branch time schedule was issued, effective February 1, 1950, advancing by one day the credit availability to member banks in the Branch territory for checks payable in 20 Federal Reserve cities. Further progress was made during 1950 in obtaining the revision of poorly designed checks and the adoption of the check routing symbol. A survey, as o f December 1, 1950, showed that 90.4 per cent of the checks passing through the Branch’s Check Division, drawn on banks located in the Branch territory, bore the routing symbol and transit number in the approved location, as compared with 82.6 per cent on December 1, 1949. Two 32-pocket electric keyboard IBM proof machines were installed during the latter part of 1950. The eight additional pockets on these ma chines have made it possible to expand the direct sorting o f checks in some of the operations o f the Branch’s Check Division. During the month of November a mechanical IBM sorting machine was installed in this division to sort Government card checks. It will also be used for other purposes when a tabulator and other equipment necessary for punch-card operations are obtained. W ire transfers o f funds The W ire Transfer Section handled 11,576 transfers o f funds amounting to $2,376,549,000 in 1950, compared with 11,370 transfers of $2,110,660,000 in the preceding year. The inaugu ration o f a private banking wire service on Octo ber 30 is apparently reducing moderately our vol ume o f so-called third party transfers (for which we do not absorb wire costs) and increasing cor respondingly the volume o f straight bank-to-bank transactions. Cash operations The volume o f currency flowing in and out of the Branch increased moderately above that han dled in 1949. A total of 48,379,101 pieces o f cur rency was counted in 1950 as compared with the previous peak of 47,705,514 in 1949; 54,718,800 pieces of coin were counted as against 51,331,400 in the previous year; and 13,696,000 pieces o f coin were wrapped, an increase o f 5,461,000 pieces over the 8,235,000 wrapped in 1949. A part o f the in crease in coin receipts originated from banks in Syracuse, Albany, and other points in the Head Office territory when a Railway Express Com pany strike in October in New Y ork City blocked the normal channels through which coin ordinarily flows. Counterfeit currency in circulation con tinued to increase during 1950, necessitating more careful sorting and examination of the money which passed through the Cash Division. Branch money counters detected 194 counterfeit notes F E D E R A L R E SE R V E R A N K O F N E W Y O R K amounting to $2,501, compared with 158 counter feits and one raised note aggregating $2,170 in 1 94 9 - A new armored trucking service was initiated on August 7 to pick up and deliver currency and coin weekly for the Branch and member banks. Arrangements were also made to include the pick up of deposits from two large nonmember banks in Rochester, and the service was extended to in clude certain member banks and branches which previously employed their own private trucking facilities. This improved service is now being used by 65 banks and branches in 9 counties. In all, more than $65 million had been transported between August 7 and the end of the year, accom plishing a saving of $5,532 over the cost which would have been incurred by the Branch if the same shipments had been made through registered mail. In addition, there has been a similar saving o f $3,830 in connection with the shipments of banks and branches which previously employed private trucking services. On May 1, 1950 a Tickometer was rented and installed in the Branch’s Cash Division to dupli cate the count on fit $20 notes, and to verify the count of fit Federal Reserve notes o f this Bank received from other Federal Reserve Banks and branches. It is also used by the Board examiners and Head Office auditors to speed up the count of currency on hand during examinations and audits o f the Branch. It will prove increasingly useful and economical if the volume of currency flowing through the Branch continues to gain. Loans to m em ber banks A total of 335 loans aggregating $264 million was granted to 38 member banks, compared with 261 loans totaling $207.1 million granted to 34 member banks in 1949. Discount earned amounted to $33,581, as compared with $21,768 in 1949. The highest volume of loans outstanding at any one time during 1950 was $13,690,000 on August 14, and the longest period of borrowing by any 25 one bank was 95 days. At the end o f the year, no banks were in our debt. Bank and p u b lic relations Bank and public relations activities during 1950 included 456 visits to banks, 92 meetings attended, and 27 addresses by officers of the Branch before banking groups or civic organizations. All banks in the Branch territory were visited at least twice during the year. Nine banks were given sub stantial assistance during the year in installing adequate credit files covering their farm loans, and toward the latter part of the year an effort was made to encourage the development of credit files covering other loans. In all, 163 visitors were conducted through the Branch to observe its operations. A ccoun tin g p roced u re During the latter part o f 1949 a study was made to develop a more complete accounting pro cedure at the Branch. As a result, the Branch started operating its own general ledger and handling the payments o f all its expense items on January 3, 1950. This change in procedure has placed on the officers o f the Branch the pri mary responsibility for supervision and control o f the Branch’s accounts and expenses, subject to audit and examination by the General Auditor and by the Board o f Governors o f the Federal Reserve System. It has resulted in prompter payment o f bills and clearing up o f suspense items, and it has enabled the Branch officers to obtain full information regarding transactions and expenses which heretofore had been obtain able only after communication with the Head Office. Any additional cost o f this operation has been more than offset as a result of closer budget ary control and scrutiny of expenses by the Branch officers. In addition, the new procedure in the Branch accounting methods conforms to the practices in all the other 23 Federal Reserve branches.