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Thirty-fifth Annual R eport

Federal Reserve Bank
of New York




For the Year Ended December 31, 1949

Second Federal Reserve District

FEDERAL RESERVE BANK
OF NEW Y O R K

March 9, 1950

To the Stockholders of the
Federal Reserve Bank of New York:

I am pleased to transmit herewith the thirtyfifth annual report of the Federal Reserve Bank
of New York reviewing the year 1949.




A l l a n Sp r o u l ,

President.

Contents
PAGE
R

eadjustm ent

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5

N

a t io n a l

E

c o n o m ic

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11

E

c o n o m ic

T

re n d s in t h e

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

16

F

ederal

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

19

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

28

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

30

C o n d i t i o n s ...........................

33

The European Recovery Program .................................................

34

The Currency Readjustments.............................................................

36

Economic Development Abroad ........................................................

39

R

eserve

C orporate F
T

he

N

Y

ew

F o r e ig n E

U

E

and

T

F

he

V

o lu m e and

Second D

C r e d it P

o r e ig n

F

c o n o m ic a n d

T

1949

r en d s in

o l ic y

in a n c e a n d t h e

ork

P r o g r e ss

c o n o m ic

E

is t r ic t

C a p it a l M
M

xchange

in a n c ia l

St a t e s B a l a n c e

a r k e t

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

41

p e r a t i o n s ..........................

42

Domestic Operations..................................................................................

42

Foreign and International Operations.........................................

46

n it e d

T

ym en ts

B a n k *s O

rend of t h e

F i n a n c i a l St a t e m

of

Pa

ar k ets

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

47

Statement of Condition...........................................................................

47

Earnings and Expenses ...................................................

50

en ts

C hanges

in

M

e m b e r s h ip

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

C hanges

in

D

ir e c t o r s a n d

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

53

Changes in Directors.......................................................

53

Changes in Officers....................................................................................

54

Member of Federal Advisory Council............................................
L

54

is t o f

D

ir e c t o r s a n d




O

O

52

f f ic e r s

f f ic e r s

3

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

55

Charts
PAGE
G ross N a t i o n a l P r o d u c t , 1 9 4 7 -4 9

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

12

N o n a g r ic u l t u r a l E m p l o y m e n t , S e c o n d D is t r ic t
U n i t e d S t a t e s ..............................................................

16

M e m b e r B a n k L o an s a n d I n v e s t m e n t s .........................

21

and

M a j o r F ac to rs A f f e c t in g M e m b e r B a n k R eserve
P o s i t i o n s ....................................................................................

24

F e d e r a l C a s h R e c e i p t s a n d E x p e n d i t u r e s ................

26

Sa l i e n t O p e r a t i o n a l T r e n d s a t N e w Y o r k R e s e r v e

B a n k .............................................................................................




4

43

Federal Reserve Bank of New York
Thirty-fifth Annual Report
HE recession which had been recurrently expected since the end
of the war finally arrived in 1949, having been foreshadowed by
some slackening of business in the final quarter of 1948. The buoyant
strength of the American economy overcame any tendency toward
cumulative depression, however, and by late summer recovery was
under way. At the close of 1949 the aggregate output of goods and
services (in value) was within about five per cent of the peacetime
peak achieved late in 1948. The distortions introduced by the war
and the postwar reconversion, although not entirely eliminated, were
no longer acute. By comparison with previous periods of readjustment
or depression, the recession of 1949 was extremely mild, comparing favor­
ably in duration and intensity with the minor downturn of 1923-24.
The price reductions and the unloading of inventory which
dominated the downward movement of business from October 1948 to
July 1949 were essentially healthful corrections. Both followed more
or less inevitably from a tapering off in the great (but necessarily transi­
tory) rise in consumer spending and capital expansion that had been
fed by wartime accumulations of liquid assets and motivated by
backlogs of war-deferred demand. Total consumer spending in 1949
remained remarkably constant from quarter to quarter, and as pro­
ductive capacity was finally released from most shortages and bottle­
necks, there was a general return of buyers’ markets and vigorous
competition. The stocks that had been appropriate to a continued rapid
expansion of sales became top-heavy. Seasonally adjusted inventories
of wholesalers and retailers began to drop below their postwar peak
in December 1948. By March of 1949 the impact of this reduction had
reached most manufacturers’ inventories of materials and goods in
process. And by the fourth quarter of the year, when inventories were
beginning to level out, five sixths of the drop in gross national product
from the record fourth quarter of 1948 was traceable to the curtailment
that had occurred in acquisition of business inventories.
Price corrections began somewhat earlier than the general turn­
around in inventories. Farm and food prices, which had risen further

T




5

6

THIRTY-FIFTH ANNUAL REPORT

above prewar levels than all others, fell back through much of 1948
and edged downward more slowly through 1949. Most other prices in
producers’ and wholesalers’ markets turned decisively at the beginning
of 1949, and reached bottom in midsummer at levels generally 5 to 15
per cent below the 1948 peak. However, the index of consumers’ prices
—statistically insensitive to bargain sales and reflecting the contradictory
effects of rising rents, declines in apparel and housefurnishings, cross
currents in food prices, and relatively stable price quotations for utilities
and the miscellaneous group—declined only slightly further after the
moderate reduction in the last quarter of 1948.
The return of buyers’ markets and the lessening of disparities
among prices appeared to exert a sustaining influence on consumer
outlays and on expenditures for cost-saving capital equipment, and
to have a stimulating effect on residential construction. Consumers’
spending for nondurable goods, which had risen uninterruptedly for a
decade, finally reached a peak late in 1948 and sales fell off moderately
in 1949. But spending for durable goods, after slackening during the
early part of 1949, rose steadily under the influence of price adjustments,
of remaining demand backlogs (chiefly for automobiles), and of the
attractions of new designs and new products. Spending on services
continued to rise gradually. Thus shifts in demand, matched by adapta­
tions in the flow of consumer goods and services, combined to produce
the phenomenon of constant aggregate consumer expenditures during a
period of underlying readjustment and moderately decHning disposable
income.
The same tapering off that occasioned the shift in inventories was
also associated, of course, with a shrinkage in outlays on capital equip­
ment identified with a quantitative expansion of capacity. Some of the
fears concerning the economic outlook since the end of the war had been
rooted in the expectation that private investment must eventually slow
down. But these fears often did not take account of the capital outlays
necessary for modernization, for extending technical innovations through­
out existing plants, or for additional cost-saving equipment—in general,
for the qualitative improvement of productive capacity that is character­
istic of rising productivity in a vigorous economy. And it was this
latter type of capital expenditure that was nourished by the dis­
appearance of sellers’ markets and the return of aggressive price com­
petition in 1949. Although outlays of a purely expansionary character
dropped off substantially, the increased amount of cost-reducing invest-




FEDERAL RESERVE BANK OF NEW YORK

7

ment held the total decline from 1948 to 1949 for nonfarm producers’
plant and equipment to less than 7 per cent—without adjustment for
any changes in machinery and building costs.
The direct stimulating effect of price declines (and increased avail­
abilities of materials and financing) was most marked in residential
construction. By August, the wholesale prices of building materials,
and over-all costs of residential construction, had fallen 8 per cent from
their high point in 1948, and a large volume of new demand came into
the housing market. For the last four months of 1949, contract awards
indicated a rise of nearly nine tenths in the number of new units planned
over the corresponding period of 1948; dollar volume rose by about three
quarters. Moreover, the fourth-quarter increase in 1949 was mainly in
one and two-family dwellings, privately financed, without an appreci­
able change in the proportion of Government mortgage guarantees.
Under the pressure of autumn demand, building costs leveled out, but
did not rise appreciably, and at the end of the year a volume of winter
building of unprecedented proportions was under way.
These economic developments of 1949 reflected the price-responsive
potential of an adaptable economy. But shifts in the composition of
consumer and business spending and the resulting diversion of produc­
tive capacity away from some uses and into others did come at the
expense of a slight increase in unemployment, and in business failures.
Average monthly unemployment in 1948 had been about 2.1 million;
at its peak for the year in July 1949, it was 4.1 million. Yet even
at the latter date, the typical (median) duration of unemployment was
less than six weeks. Less than one third of a million workers had been
unemployed more than 26 weeks (the maximum period for which un­
employment insurance applies in most industrial States). The over-all
rise in unemployment was, in considerable measure, a reflection of the
fact that more people were again on the move from one job to another,
and that the typical period from severance to reemployment was two
weeks longer than in 1948.
A somewhat similar phenomenon occurred in the business popula­
tion. There were seven business failures in the first half of 1949 for
every four in the comparable period of 1948; the volume of liabilities
involved grew correspondingly. Discontinuances (mergers, voluntary
liquidations, etc., as well as failures) rose for all business groups during
the first two quarters of 1949, with the incidence particularly heavy in
manufacturing. Yet new concerns continued to be formed at a high rate,




s

THIRTY-FIFTH ANNUAL REPORT

throughout all business groups. The net result was a decline of less
than 2 per cent in the total number of operating businesses from
September 1948 to June 1949, although the absorption or merger of
many small and marginal manufacturers (who had been lingering on
after the war) caused a net reduction in that group of nearly 10 per
cent over the same period.
Looking backward, it seems reasonably clear that the mobility of
labor and enterprise during 1949 was a necessary part of the con­
tinuous change that produces economic progress. To have taken direct
action, Governmental or otherwise, based on some single fixed indicator
of economic conditions, might only have slowed down (or perhaps have
prevented) the wholesome shifts that were taking place under the
guidance of the price system. Appropriate recourse was taken, how­
ever, to the broad and impersonal influence of general ease in the
availability of credit, through a series of measures that began in
March and continued through the summer. The Federal Government
also initiated a modest effort to shift its contracts, wherever feasible, to
concerns located in regions of relatively high unemployment; but there
was no hasty attempt to adapt aggregate Government purchases of goods
and services to the spring downturn in business. Although all levels of
government incurred net cash deficits, these were incidental to the
general downturn, not planned to counteract it.
The internal resiliency demonstrated by the economy in 1949 was
not uniformly interpreted, however, as reassuring evidence that a high
level of activity would continue into the future. There was a wide­
spread disposition, not limited to the proponents of large-scale economic
planning, to think of the nation’s gross product as necessarily divided
into fixed compartments of investment and consumption, and to doubt
whether the needed amount of investment could be found for sustained
over-all activity at a high level. That doubt raises challenging questions
for which there can be no categorical answers, but the experience of
1949 does, at least, suggest the possibility of shifts between investment
and consumption, and among the components of each—shifts which
cannot always be tagged and earmarked in advance, but which are set
in motion by free market forces when a competitive environment is
maintained.
The mild economic readjustment in the United States had amplified
effects abroad. The decline of one quarter of a billion dollars in our
imports of goods and services during the first half of the year, small




FEDERAL RESERVE BANK. OF NEW YORK

9

though it appeared, meant a reduction of roughly 10 per cent in the
current dollar earnings of the rest of the world; for the sterling area
alone, there was a drop of nearly 20 per cent from the first to the
second quarter of 1949. Our import cuts, however, resulted not only
from the domestic inventory correction, but also to an indeterminate
extent from growing uncertainty over the values of some foreign cur­
rencies. The effects abroad of the import cuts were magnified because the
general scarcity of hard-currency reserves left no cushion against a
short-run decline in dollar sales. As an offset, however, the scheduled
volume of net U. S. Government aid, combining all programs, had risen
about one billion dollars over 1948. And at some time before or during
1949, most of the countries embraced in the European Recovery Program
passed their inflation peaks, completed the rapid growth that is possible
when recovering lost (but familiar) ground, and came squarely against
the more stubborn problems of expanding their output and trade in
new and unexplored directions. As one step toward fundamental adjust­
ment, beginning with the British action of September 18, more than
thirty countries devalued their currencies, hoping to help bring their
comparative prices and productivity into better relationship with those
of the United States.
The consequences of devaluation can be only sketchily suggested by
the record of the final quarter of 1949. A substantial short-run improve­
ment in foreign exchange reserves was experienced by some countries,
largely because decisive exchange rate action removed the speculative
pressure that had been associated with anticipated devaluation. But
the rise of many local currency prices behind the devaluation screen,
together with the automatic increase in the local prices of imports from
the dollar area, created an uneasy situation in which the devaluing
countries experienced a renewed risk of inflation. While it appeared
likely, and desirable, that American imports would be stimulated over
the long run by the new currency relationships, the fourth-quarter rise
of our total imports of goods and services represented an annual rate
of less than % billion dollars. Total exports of the United States fell
by only a slightly larger amount; and it was impossible to determine
how much of this reduction was attributable to the price changes brought
on by devaluation, as against the effects of increased import restrictions
in some of the more hard-pressed countries.
A second series of measures in the international field, less dramatic
than devaluation but possibly of greater eventual significance, gained




1
0

THIRTY-FIFTH ANNUAL REPORT

momentum during the year. Through the General Agreement on Tariffs
and Trade, import duties and other restrictions were relaxed on an
important segment of the merchandise traded among some twenty-four
countries. Moreover, members of the Organization for European
Economic Cooperation agreed, with limited exceptions, to conduct at
least half of the trade among themselves on open general licenses. And
toward the close of the year, the OEEC was again endeavoring to con­
struct a mechanism for multilateral clearing of payments among member
countries. From such measures may come a cautious but continuous
widening of the scope for relatively free trade, which should help to
sort out inefficient uses of resources, to encourage larger-scale produc­
tion, and generally to stimulate industrial productivity in all of the
affected countries.
In its annual report for 1949 the Council of the OEEC forcefully
pointed out that the exports of all countries need greatly increased
access to the markets of the United States, and indicated that Europe
is likely in any event to face a continuing (though perhaps ‘ ‘ manage­
able” ) dollar deficit after the Marshall aid program ends in 1952. These
are critical issues for the future. Morever, it is important, as we succeed
in expanding imports, to avoid the inequity of placing the full burden of
readjustment in the international position of the United States upon a
limited few domestic concerns or industries. Yet it is unlikely that other
countries can earn dollars to pay for a continued large volume of
exports from this country without exerting some competitive impact
upon individual producers in this country. To an extent, American
capital export may provide dollars with which to close the longer-run
hard-currency gap. The President’s Point Four program for technical
assistance and investment in the underdeveloped areas, announced at the
beginning of the year, was received eagerly throughout the world as an
indication of forward American planning to this end. But it would
be dangerous to expect too much on this score. Emphasis is rightly
placed, so far as direct investment is concerned, upon the flow of private
capital. It will be difficult, however, to enlarge American capital
exports above the one billion dollar (net) annual rate of 1949 while
the rewards to capital are still substantial at home, the political
and economic risks of investment abroad are great, and the rewards
for such risky investment, when successful, are so largely reduced by
taxes. Yet ways must be found, both to raise our imports and to
increase the outflow of private capital, if many of the successes thus




FEDERAL RESERVE BANK OP NEW YORK

1
1

far achieved in rehabilitating the production and trade of the world
are not to shrink away after 1952.
In retrospect, 1949 was a year of modest progress toward most of
our economic objectives—domestic and international. By safely weather­
ing the first threat of a long anticipated postwar recession, and by
continuing to demonstrate the potentialities for growth and adjustment
of a vigorous enterprise economy, the United States was fulfilling in
substantial measure the heavy responsibilities of leadership that world
events during the first half of the century had placed upon it.

National Economic Trends in 1949
The magnitude of the economic fluctuations which occurred during
1949 is apparent only in monthly or quarterly data for certain sectors
of the economy. In some lines, gains in the latter part of the year
canceled out the poor showing of the first half. Declines in output and
employment in particular industries or localities during the year
often coincided with the reaching of new peaks of activity in other
industries or localities. As a result, most of the business indicators
covering the economy as a whole during 1949 compared favorably
with 1948, and hardly reflected the readjustments that had taken
place during the year. The value of all goods and services produced
in 1949 (the gross national product) was estimated at 257.4 billion
dollars, only 2 per cent below the 1948 total. Since there was some
decline in prices during the year, the over-all physical volume of
activity was probably even closer to the 1948 level. Total employment
averaged 58.7 million persons during 1949, compared with 59.4 mil­
lion in 1948, a decline of about 1 per cent. Personal income, at 209.8
billion dollars, was nearly as great as in 1948, and actually a some­
what greater amount of wages and salaries was paid out in 1949.
The gross national product declined from the record (seasonally
adjusted) annual rate of 270 billion dollars in the fourth quarter of
1948 to 255 billion in the third quarter of 1949 and remained practically
unchanged in the last quarter. The decline was caused almost exclu­
sively by a change in inventory policy, motivated by slackening of con­
sumer demand and falling prices in many lines. As indicated in the
accompanying chart, production was increasingly stimulated during 1948
by the demand for goods to build up inventories. In the fourth quarter
of 1948, businessmen were adding to their inventories at the rate of
9 billion dollars a year. In 1949, this situation was reversed. Distrib-




THIRTY-FIFTH ANNUAL REPORT

12

GROSS NATIONAL PRODUCT, 1947-49*
BEFORE AND AFTER CHANGE IN BUSINESS INVENTORIES
B IL L IO N S
OF D O LLARS

B IL L IO N S
OP D O L L A R S

‘ Quarterly data at seasonally adjusted annual rates.
Source: U. S. Department of Commerce.

utors and manufacturers generally tended to cut down their stocks,
and in many instances production was curtailed while orders were
filled out of inventories. During the last three quarters of 1949 inven­
tories were reduced at an average annual rate of 4 billion dollars. In
this way it was possible for the actual flow of goods and services to
consumers, business, and government to be maintained close to the
1948 peak throughout 1949, despite a drop in over-all production
amounting to 15 billion dollars (annual rate) or 5% per cent, between
the fourth quarter of 1948 and the fourth quarter of 1949.
While the reduction in inventories took place at all levels of
manufacturing and distribution, the decline in production was centered
in manufacturing and mining. During the first half of 1949, the
Federal Reserve index of industrial production declined steadily, and
in July it reached a low (partly seasonal) of 161, which was 17 per
cent below the October-November 1948 peak of 195. The inventory cur­
tailment was accomplished in many instances through a drastic reduc­
tion of new orders or even the cancellation of old ones. Many business




FEDERAL RESERVE BANK OF NEW YORK

13

enterprises had started 1949 with a sizable backlog of unfilled orders,
but soon found that their backlogs had been substantially reduced.
This, together with the curtailment of output by some factories which
were working off their own inventories, resulted in many cases of
shortened work-weeks, temporary plant shutdowns, and layoffs. Unem­
ployment more than doubled between October 1948 and July 1949,
reaching a peak of 4.1 million persons in the latter month.
By July, however, wholesalers, retailers, and some manufacturers
appeared to have largely completed working off their excess stocks
and to have started increasing their purchases to cover current needs.
In a few cases, stocks had been cut too sharply and were inadequate
7
to meet the seasonal rise in demand. As a result, buying was intensified,
and a shortage of goods for immediate delivery developed in certain
textile and apparel lines, where producers were not fully prepared for
the influx of orders. In the last quarter of 1949 labor disputes reduced
the output of coal, steel, and aluminum, leading to the depletion of
fabricators’ stocks. When steel production was resumed, the pressure
of demand lifted operating rates to near-capacity levels.
Despite these sharp fluctuations in production, the nation con­
tinued steadily to consume goods and invest in housing at near-record
rates, while investment in capital goods was curtailed only moderately.
New plant and equipment expenditures of nonagricultural producers
were reduced from 19.2 billion dollars in 1948 to 17.9 billion in 1949,
but this decline was only slightly greater than had been anticipated
at the start of 1949. Agricultural and noncommercial capital expendi­
tures remained at the high 1948 level, and so did the construction of
new homes. Residential building lagged behind the 1948 rate during
the first half of the year, but was maintained at a record-breaking
rate during the second half and was an important factor in the busi­
ness recovery. A new record total of 1,025,800 dwelling units was
started in 1949, compared with 931,300 in 1948 and the previous peak
of 937,000 units in 1925. There was a decline of 2 billion dollars in
“ net private foreign investment” (i.e., in the excess of sales of goods
and services to foreign countries over purchases from abroad), but
there was a rise in Federal, State, and local government expenditures
for goods and services, from 36.7 billion dollars in 1948 to 43.4 billion
in 1949. More was spent not only for Federal foreign aid, defense,
and farm price-support programs, but also for public works programs,
particularly at the State and local level.




14

THIRTY-FIFTH ANNUAL REPORT

Personal consumption expenditures were, on the whole, remarkably
stable during 1949, and the annual rate of consumption in every
quarter of 1949 was approximately equal to the 1948 total of 179
billion dollars. While personal income was 1 per cent less than in
1948, the real purchasing power of consumers was higher in 1949. The
lower rate of personal income taxes which was in effect throughout
1949 resulted in a net drop in personal taxes of 2.5 billion and a
slight increase in disposable income. In addition, the somewhat lower
level of consumers’ prices prevailing in 1949 meant that consumers
could purchase a somewhat greater volume of goods and services
than in 1948, while at the same time they were able to maintain
their rate of net personal saving (at about 12 billion dollars, or 6
per cent of disposable income). The high level of spending was based
in part on a continued expansion in the amount of consumer credit
outstanding. On the other hand, there were indications that the rise
in consumer and mortgage debt was accompanied by a corresponding
increase in the volume of liquid assets in the hands of consumers. As
in the two previous years, however, by far the largest part of individual
savings was invested in tangible assets, such as homes, farm equipment,
and unincorporated businesses.
Although consumers’ expenditures remained relatively stable
throughout 1949, there were considerable variations among the different
types of expenditures. The sharp rise in automobile sales, particularly
in the second half of the year, was the most notable feature of the
retail trade picture in 1949, and was in fact an important sustaining
influence for the whole economy. The 1949 output of passenger auto­
mobiles and trucks reached a new peak of 6,238,000 units, well above
any previous year. In July, when industrial production as a whole was
at its lowest point of the year, automobile factories broke the weekly
production record set more than twenty years earlier. The boom in
sales of television receivers gained momentum during 1949, although
there was a summer setback, perhaps only partly seasonal in character.
Sales of other types of durable goods lagged substantially behind 1948
during the early part of 1949, but recovered subsequently. Total
expenditures on all types of durable goods were the highest on record,
both in dollar volume and as a percentage of disposable income. Non­
durable goods expenditures, on the other hand, were 3 per cent lower
than the 1948 record, although much of the decline, particularly in
the case of apparel and food, may be attributable to lower prices.




FEDERAL RESERVE BANK OF NEW YORK

15

Expenditures on housing rose, because of higher rents and the greater
number of units available. In general it may be said that the sale and
distribution of goods has become more competitive. For many items,
1949 was the first full year of a buyers’ market in nearly a decade.
The decline in prices which had begun in the latter half of 1948
continued during 1949. The general level of wholesale prices was
7 per cent lower at the end of 1949 than it had been a year earlier.
As grain prices dropped sharply in February, prices of farm products
in general fell and then recovered somewhat; they declined further in
the latter half of the year, primarily because of lower livestock prices.
The net reduction during 1949 in the prices of farm products was
13 per cent, while food prices, which followed a similar pattern, declined
9 per cent. Other wholesale prices, taken as a whole, declined about
5 per cent in the first half of 1949 and thereafter remained stable.
Prices of metals and metal products declined during the first half of
1949, when nonferrous metal prices dropped sharply, but stabilized
during the second half of the year. A similar pattern of marked
weakness in the first half and firmness in the second half of 1949 was
shown by prices of building materials, while textile and chemical prices
(with some exceptions) continued to decline, though at a slower rate,
during the latter months of the year.
Prices of primary commodities declined much more sharply than
prices of finished goods and services. At the end of 1949, the daily
index of spot prices of 28 basic commodities tabulated by the Bureau
of Labor Statistics was 31 per cent below its postwar peak, and the
weekly index of wholesale prices showed an 11 per cent decline from
its 1948 postwar high. Retail prices of commodities, however, were
down only 6 per cent from their postwar peak, on the whole, while
rents and some services continued to advance.
Work-spreading, through shorter work-weeks and staggered layoffs,
probably was instrumental in keeping the volume of unemployment
from rising higher than it did during the decline in business in the
early part of the year. In July, when the number of unemployed, at
4.1 million, was the highest since January 1942, there were also an
estimated 1.7 million persons working less than 15 hours a week and
0.3 million people temporarily laid off from their regular jobs. To a
large extent, the increase in unemployment was attributable not only
to a decline in employment, but also to the failure of new job oppor­
tunities to keep pace with an expanding labor force. For the year as




THIRTY-FIFTH ANNUAL REPORT

16

a whole, the decrease in employment averaged only 0.7 million, but
unemployment increased 1.3 million.

Economic Trends in the Second District
In general, business in the Second Federal Reserve District followed
the national pattern of recession and revival during 1949. As the
accompanying chart indicates, declines in employment in the District
were centered almost entirely in manufacturing, while the number of
workers in other nonagricultural industries was practically unchanged
from the 1948 level. New York State appears to have fared better in
the matter of employment during 1949 than some other parts of the
country. Factory employment in New York State averaged 6 per cent
lower than in 1948, whereas in the rest of the country the decline was
8 per cent. On the other hand, New Jersey and Connecticut, parts of
which are in the Second District, experienced declines in manufacturing
employment of 11 per cent and 14 per cent, respectively. On the whole,

NONAGRICULTURAL EMPLOYMENT, SECOND DISTRICT AND UNITED^ STATES
(1947 average = 100 per cent)
PER CENT

M ANUFACTURING

OTHER N ONAGRICULTURAL

Source: Second District computed by the Federal Reserve Bank of New York from data furnished by the
Departments of Labor of the States of New York, New Jersey, and Connecticut; United States computed
from data of U. S. Bureau of Labor Statistics.




PER C E N T

FEDERAL RESERVE BANK OF NEW YORK

17

nonmanufacturing industries made a slightly more favorable showing in
this District than in the rest of the country.
According to preliminary estimates made at this bank, income
payments in the Second District during 1949 totaled approximately
34 billion dollars, the same as in 1948, whereas in the country as a
whole, personal income was somewhat lower in 1949 than in 1948.
The slightly more favorable showing in the income of this District
arises partly from the more stable nature of this area’s economy. On
the one hand, farm income, which dropped more than one fifth in the
country as a whole and accounted for most of the national decline in
income, is a relatively small part of this District’s income; the drop
in farm income in this District therefore had relatively little effect
on the District’s total income. On the other hand, an exceptionally
large proportion of manufacturing in the Second District is devoted to
the production of apparel and other consumers’ nondurable goods,
which in times of recession generally decline less than durable goods.
To a considerable extent, the fact that the 1949 decline in factory
employment was relatively smaller in New York State than in the
country as a whole may reflect the circumstance that some of the
readjustment process in this State had already been accomplished.
Data from the State Department of Labor show that the postwar peak
in factory employment in New York was reached back in November
1946. In the country as a whole, factory employment did not reach
a peacetime peak until September 1948, almost two years later. During
the first half of 1949, the policy of inventory curtailment particularly
affected this State’s dominant apparel industry, but in the second half
of the year that industry was especially stimulated by the restocking
movement of the period. At the end of 1949, the apparel industry was
the only major industry in the State to employ a greater number of
workers than a year earlier. Producers of some nondurable goods,
notably food processors, textile mills, and printers, made sizable cuts in
their working forces during 1949, but over nine tenths of the year-toyear decline in factory employment occurred in durable goods industries.
The reduction in durable goods employment in New York State amounted
to 10 per cent, while in nondurable goods the decline was less than 1
per cent. Manufacturers of primary and fabricated metals, machinery
(both electrical and nonelectrical), and transportation equipment
accounted for the bulk of the layoffs.
The sharper declines in factory employment in New Jersey and




18

THIRTY-FIFTH ANNUAL REPORT

Connecticut were mainly attributable to the greater concentration of
durable goods industries in those areas. In New Jersey, the metals and
machinery industries laid off large numbers of workers; and in the case
of electrical machinery manufacturers, employment was cut by nearly
one fourth. In the nondurable goods group, factories producing chemi­
cals, textiles, and rubber products also employed fewer workers in 1949.
Largely as a result of layoffs by manufacturing concerns, two areas
in this District, Bridgeport and Utica-Rome, were among the 12
“ critical” industrial areas listed by the Federal Government in August.
(These areas were so designated because unemployment exceeded 12
per cent of the total labor force in each area.) In both areas there has
been some improvement since, but unemployment remains high.
Residential construction in the District reached a high level during
1949. The number of new dwelling units started in the New York
metropolitan area alone was 102,000 units, or approximately one tenth
of the national total. This represents an increase of more than one third
over 1948, when 74,000 dwelling units were started. In New York City
itself, residential building was stimulated during the first half of 1949
by a large volume of public housing projects; private building lagged
during the first half of the year but increased sharply in the second
half. During the year as a whole, 43,390 dwelling units were started
in New York City, of which nearly one half were publicly financed.
Although the number of one and two-family homes started in the City
dropped sharply, apartment house units begun in 1949 numbered more
than twice as many as in 1948. In Westchester and the Northern New
Jersey counties, there was also a sharp rise in apartment building, while
on Long Island increased construction of smaller, lower-priced, single­
family homes accounted for much of the rise in activity. New housing
in the rest of the Second District outside the metropolitan area totaled
about 25,000 units. Various types of nonresidential construction in
the District also increased during 1949. An increase in the construction
of schools, churches, stores, and office buildings more than offset declines
in the erection of factories and institutional buildings.
Agriculture in this area was affected by the extremely dry weather
in the early summer of 1949 and by declines in farm prices. Cash
receipts from crops produced on New York State farms in 1949 were
16 per cent less than in 1948, and receipts from milk and other live­
stock products declined 11 per cent. Potatoes accounted for nearly two
thirds of the fall in crop receipts, since potato acreage was restricted




FEDERAL RESERVE BANK OF NEW YORK

19

and the Government price-support level was one-third lower than in the
previous year. Pastures generally were poor, and hay output was onefourth less than in 1948. Although dairy farmers had to rely more
heavily on purchased feeds, milk production rose about 10 per cent
over 1948.
Retail sales in this District were, on the whole, well maintained
during 1949. As in the rest of the country, increased sales by auto­
mobile dealers offset declines at other types of retail outlets. With the
major exceptions of food and of passenger car sales, trends in con­
sumption and distribution in the District are generally indicated by
the statistics of department store sales. According to figures collected
by this bank, sales of department stores during 1949 declined 7 per cent
in dollar volume from the 1948 record level, marking the first drop in
dollar sales in a decade. Unit sales in all probability showed a smaller
decrease, for some part of the loss in dollar volume reflected a decline
in the level of prices. Dollar sales were reduced somewhat more in
this District than in the country as a whole, but the difference was not
of significant proportions. Within the Second District, Westchester
County was the only area where stores reported a gain in sales for
1949. Buffalo, Niagara Falls, and Poughkeepsie reported decreases of
4 per cent. The decline in New York City was slightly greater than
that in the rest of the District, and the sharpest drop in sales—9 per
cent—occurred in Binghamton.

Federal Reserve Credit Policy
The character of the credit problems facing the Federal Reserve
System changed markedly during 1949, and credit policy was altered
to meet the new situation. Late in 1948 the inflationary pressures which
had persisted throughout most of the postwar period began to show
signs of abating. Not long after the turn of the year it became clear
that credit demands had lessened considerably. Bank loans to business
were falling and institutional investors had reduced or reversed their
large-scale selling of long-term (restricted) Government securities for
the purpose of reinvesting the funds in private securities. In fact,
purchases of long-term restricted Government securities by some types
of investors, which had started near the end of 1948, continued on an
increased scale during much of 1949. The gold inflow, which had been
adding to member bank reserves at an average annual rate of more




THIRTY-FIFTH ANNUAL REPORT

20

than iy% billion dollars since the end of the war, was reduced to a
trickle; indeed, a net outflow of gold set in late in 1949.
In retrospect, the reasons for the decline in the rate of economic
activity and in prices during the first half of 1949 are clear enough;
they are reviewed elsewhere in this report. As a result, loans by banks
to business fell off as inventories declined and demands for long-term
capital to finance investment expenditures slowed down. In addition,
the postwar rise in consumer expenditures ceased its rigorous upward
trend as the more pressing needs of buyers began to be satisfied.
The change in the business situation was accompanied by (though
only partly the cause of) a considerable shift in the Treasury’s position
with respect to disbursements and receipts. In the calendar year 1948,
a cash surplus of 8 billion dollars, used largely to retire Government
debt obligations held by the Federal Reserve System, had exerted an
important restraint on the ability of banks to expand credit, and on the
money supply, since these funds were not returned to the income stream.
In 1949, however, Treasury cash disbursements to the public exceeded
cash receipts by about 1.3 billion dollars, reflecting in part the “ built-in’ ’
flexibility of the Treasury’s cash budget, i.e., the tendency of tax receipts
to decline and of expenditures (unemployment payments, for example)
to rise in times of reduced business activity. The Treasury’s net
payments to the public in 1949 were outweighed (in so far as their
effect on the money supply is concerned) by a net addition to the

Causes of Changes in Deposits and Currency*
(In millions of dollars; (+ ) or ( - ) indicates effect on volume of deposits and currency)

Year

Treasury
net cash
income
or outgo

1945
1946
1947
1948
1949

+35,751
989
- 6,797f
- 8,012
+ l,259p

Bank
loans
+
+
+
+
+

4,347
5,286
7,354
5,172
l,600e

Nonbank
holdings
of U.S.
securities
-20,400
+ 7,000
500
+ 1,000
- 2,000e

Bank
holdings
of other
securities

Gold
and
foreign
accounts

+ 1,016 214
4* 914 + 817
+ 1,232 4- 3,029f
4- 699 4- 1,240
4- l,200e 458

Bank
capital
accounts
-

Other

899 + 967
818 + 1,001
588 + 2,274
531 457
650e 467e

Total
+20,568
+13,211
+ 6,004
889
+ l,000e

* Includes: demand and time deposits adjusted (other than U. S. Government) and
currency outside banks,
t Adjusted for payment of United States quota in International Monetary Fund,
p Preliminary.
e Estimated by the Federal Reserve Bank of New York.
Source: Treasury cash income or outgo and nonbank Government security holdings
derived from Treasury Bulletin; all other data, Board of Governors of the
Federal Reserve System.




2
1

FEDERAL RESERVE BANK OF NEW YORK

holdings of Government securities by nonbank investors. Nevertheless,
the money supply available for the public’s use at the end of the year,
in the form of demand deposits and currency, was slightly larger than
at the beginning.
As a result of the sustained demand for new homes, real estate
loans at the banks increased. This increase, together with an expansion
in consumer loans, was greater than the decline in loans to business;
total bank loans rose, therefore, although the rise was modest compared
with that of other postwar years. Bank purchases of securities other
than U. S. Government obligations increased during the year and this
had an expansive effect on deposits and currency.
None of the forces at work in the economy during 1949 operated
evenly throughout the year. For example, the Treasury had its usual
cash surplus in the first part of the year, although the surplus was
smaller than in recent years. Later the Treasury’s expenditures rose
and its receipts declined so that net cash disbursements of considerable
size resulted. Business inventories and bank loans to business started

BILLIONS
OF DOLLARS

B IL L IO N S
OF D O LL A R S

---------- 100

100 --------LO ANS*

INVESTMENTS

ALL OTHER SECURITIES

80 -

80

60

60

40

40

20

20

0

0
1939

1945 1946

1948

1949

1939

1945

1946

1948 1949+

•Beginning June 30, 1948, various loan items are reported gross, i.e., before deduction of valuation reserves,
t Estimated.




22

THIRTY-FIFTH ANNUAL REPORT

to fall early in the year, but a reversal took place in late summer. At
the start of the year, however, these later changes in trend could not
be clearly foreseen. In each of the more recent postwar years uncer­
tainties had arisen in the first half, price weaknesses had developed and
the rate of growth in bank loans had slackened, but later in each year,
inflationary pressures had reasserted themselves. Early in 1949, how­
ever, a repetition of these developments appeared sufficiently unlikely
to justify the easing of credit restraints in some measure.
The retirement by the Treasury of System-held Government securi­
ties was reduced, not only because of the diminished amount of funds
available to the Treasury for such purposes, but also because of a desire
to relax pressure on the reserve positions of member banks. The System
also took other steps to avoid being “ too late” in meeting a possible
turn of the economic tide. Consumer credit terms were eased in recog­
nition of the slowing down of demand for consumer durable goods such
as household appliances. At the end of the first quarter of the year
the Board of Governors acted to permit greater use of credit in security
transactions by reducing margin requirements, under Regulations T
and U, from 75 per cent to 50 per cent. Some further relaxation of
restraint upon credit expansion was effected in the second quarter of
1949. In this period, the decline in the volume of bank credit to business
had accelerated and the fall in business inventories had become pro­
nounced. At the same time unemployment continued to rise, while prices
of basic commodities declined further. In response to these and other
indications of a declining level of economic activity, there was a fur­
ther easing of consumer credit terms by the Board of Governors
in April. Late in the same month a lowering of member bank reserve
requirements was announced by the Board, to take effect early in May.
The percentage of reserves required to be held against demand deposits
was lowered by 2 points in the case of central reserve city banks and
by 1 point in the case of other banks, while the reserve requirement
against time deposits was reduced for all banks by % per cent. This
action, which freed about 1.2 billion dollars of reserves, was followed
by a strong demand for Government securities on the part of the banks.
The System met the demand for short-term Government securities and
Government bonds by sales from the Open Market Account, and thus
prevented a sudden rise in prices and decline in yields. Commercial
bank purchases of medium-term issues were supplied mainly by nonbank
investors, who in turn bought long-term restricted issues indirectly
from the Reserve Banks.




FEDERAL RESERVE BANK OF NEW YORK

23

Toward the end of June, in view of the impending expiration of
the temporary powers granted to the Sytem under the ‘ ‘ anti-inflation
act” of August 1948, the Board of Governors announced another re­
duction in reserve requirements. This reduction brought the required
reserve percentages to the levels which constitute the permanent upper
limits now permitted by law, except in the case of central reserve city
banks, whose reserve requirements were already below the limit.1 At
the same time the Board had to terminate the control of consumer credit
which it had been exercising through Regulation W under authority
of the temporary legislation of 1948.
On June 28, the day preceding the announcement of the lowering
of reserve requirements, the Federal Open Market Committee issued
the following statement:
1‘ The Federal Open Market Committee, after consultation with
the Treasury, announced today that with a view to increasing
the supply of funds available in the market to meet the needs of
commerce, business, and agriculture it will be the policy of the
Committee to direct purchases, sales, and exchanges of Govern­
ment securities by the Federal Reserve Banks with primary
regard to the general business and credit situation. The policy of
maintaining orderly conditions in the Government security market
and the confidence of investors in Government bonds will be
continued. Under present conditions the maintenance of a
relatively fixed pattern of rates has the undesirable effect of
absorbing reserves from the market at a time when the avail­
ability of credit should be increased.’ 9
Following this statement, the Open Market Account, which had
been supplying securities to the market rather freely, temporarily
stopped its sales. In the absence of increased private demands for
credit, however, member banks undertook to invest, quickly, the 800
million dollars of reserves freed by the reduction in reserve require­
ments, and prices of all Government securities were bid up sharply.
Market rates on Treasury bills, which had hovered near 1.16 per cent
during most of June, fell abruptly to 0.78 per cent early in July, and
yields on the longest certificates of indebtedness dropped from an
average of 1.20 per cent to slightly below 1.00 per cent. It became
apparent that, unless additional supplies of securities were made avail­
able to the banks, so large an amount of reserves could not be released
1 After this reduction, the reserve requirements of member banks were as follows:
against demand deposits: 24 per cent for central reserve city banks, 20 per cent for
reserve city banks, and 14 per cent for other member banks; and against time deposits,
6 per cent for all member banks.




24

THIRTY-FIFTH ANNUAL REPORT

without creating “ disorderly” markets. The Reserve System then
acted to supply Treasury bills and certificates to meet the demand. By
this means the increase in excess reserves was absorbed, at least tem­
porarily, with a stabilizing effect on the market.
A third series of reductions in member bank reserve requirements
was announced by the Board of Governors early in August. The reduc­
tions were made effective in instalments during that month and ending
on September 1. Altogether the reductions amounted to 2 percentage
points in the required reserves on demand deposits and 1 percentage
point on time deposits for all classes of member banks; and released a
total of about 1.8 billion dollars of reserves. The series of small
reductions facilitated adjustments by the banks and the Reserve System
to the new situation, and avoided the disturbances in the money market
which had been found likely to result from a single large release of
reserves.
As on previous occasions, member banks invested in Government
securities most of the additional funds made available to them. The
MAJOR FACTORS AFFECTING MEMBER BANK RESERVE POSITIONS
(Monthly averages of daily figures, 1945*49)
B ILLIO N S
OF DOLLARS

B ILLIO N S
OF DOL L AR S

fGold stock adjusted for foreign account balances with Federal Reserve Banks and for a payment to the
International Monetary Fund in 1947 as part of the United States subscription.




FEDERAL RESERVE BANK OF NEW YORK

25

Federal Open Market Committee adopted practices designed to facilitate
the adjustment. Considerable amounts of maturing Treasury bills
in the System Open Market Account were allowed to run off without
replacement, which resulted in larger allotments of the weekly issues
of new Treasury bills to other bidders. In addition, the Treasury
increased its offerings of bills by 100 or 200 million dollars a week for
several weeks in August and early September, partly to meet the excess
of Government expenditures over receipts, and total Treasury bills
outstanding were increased by an aggregate of 800 million dollars in
this period. Finally, corporations and other investors made substantial
sales of short securities in the market in order to purchase Treasury
Savings notes, yields on which were attractive compared with those on
short-term marketable issues. The total supply of Treasury bills avail­
able in the market from all these sources proved to be greater than the
commercial banks were prepared to absorb. There was some fear at the
time of a further decline in interest rates, and the banks tended to show
a preference for the longer maturities of Treasury certificates of in­
debtedness. Consequently, the Reserve Banks made certificates available
to the market and absorbed some of the supply of bills.
Until the latter part of the summer, little expansion of bank loans
followed the successive reductions in member bank reserve requirements.
The first effect was to increase the secondary reserves (the liquidity) of
the banks and their total earning assets, as they purchased Government
and other securities with the released reserves. In the July-September
period, however, the decline in bank loans first began to slacken, and then
was followed by an upturn; in September member bank commercial, in­
dustrial, and agricultural loans expanded rapidly. The rise continued
at a slower and irregular pace until the end of the year.
The tendency toward business recovery gained momentum during
the autumn, despite the interruptions to production caused by the
coal and steel strikes. Prices of industrial products, in a number of
instances, became firmer. Meanwhile, the money supply (demand de­
posits and currency outside banks), which in the second quarter had
recovered part of the seasonal reduction in the first quarter, rose
considerably further in the latter half of the year. Consequently the
year as a whole showed a small net increase, following the 2 billion
dollar reduction in 1948. The principal factor in the increase after the
first quarter was the cash deficit of the Treasury. In the last three
quarters, cash outgo of the Treasury was swollen by payments to farmers




26

THIRTY-FIFTH ANNUAL REPORT

FEDERAL CASH RECEIPTS AND EXPENDITURES
(Quarterly totals, calendar years 1945-49)

B IL L IO N S
OF D O L L A R S

BIL LIO N S
OF D O LLARS

.....

30

j..

30

SURPLUS

1

d e f ic it

25

H H

j
25

20

2 Of

RECEIPTS
15

' X

10

I5

V,

/

10

EXPEtVD/TURES

... 1

i

n

.......
1 ....1

m: 12

1945

i

1 1

j

....

I

I

I

n m r z i i i D L i z i
1946

1 94 7

n

1 ... 1

m

1948

rz

.. I

i n

,.l_.l

m

rz

1949

Source: U. S. Treasury Department.

for crop price supports and by rising unemployment benefits. As a
result of the enlargement of expenditures and a (partly seasonal) fall
in receipts, Treasury cash income, which had exceeded outgo by almost
3.2 billion dollars in the first quarter of 1949, fell short of receipts by
about 4.4 billion dollars in the remainder of the calendar year.
In view of the pronounced change in the business and financial
situation in the latter part of the year, the Reserve System modified
its aggressive ‘ ‘ easy money” policy, and allowed increased demands for
credit and currency to exercise a moderate firming effect on the money
market during the fall. By the end of November, yields on Treasury
bills and other short-term Government securities were pressing against
the 1Ys per cent, one-year rate which had been fixed by the Treasury
in its September and October refunding operations. It was in these
circumstances that the Treasury had to decide upon the terms for the
refunding of its bonds called for redemption on December 15 and of
its certificates maturing on that date. The decision was to offer 1%
per cent, 4^4-year Treasury notes in exchange for these issues. At the




FEDERAL RESERVE BANK OF NEW YORK

27

same time it was announced that another issue of 1% per cent, one-year
certificates of indebtedness would be offered in exchange for the issue
of certificates maturing on January 1, 1950. Prevailing short-term
interest rates were maintained during December in order to facilitate
the January 1 Treasury refinancing operation.
These developments illustrated the close interrelationship between
monetary policy and debt management policy and the need for effective
coordination of the policies of the Treasury and of the Federal Reserve
System. As the president of this bank stated2 “ . . . the central problem
of monetary and credit policies under present conditions . . . . is how
to combine effective monetary management with effective debt manage­
ment . . . . there cannot be a purposeful monetary policy unless the
Federal Reserve System is able to pursue alternating programs of
restraint, ‘ neutrality/ and ease, as the business and credit situation may
require. Such programs must, as they accomplish an increase or con­
traction in the volume of credit and a tightening or loosening in the
availability of credit, affect interest rates, not only for private credit,
but for Government securities. The terms of Treasury offerings for
new money, and for refunding issues, must be affected. Yet those effects
will, at times, be inconvenient and burdensome to the Treasury in its
management of the enormous public debt, and may conflict with other­
wise praiseworthy efforts to minimize expenditures for debt service.
This is a conflict which will continue to arise, in one form or another,
so long as this public debt, huge in relation to our present national
income, is with us. It is not a problem which can be solved by demand­
ing more courage or independence on the part of the Federal Reserve
System, nor by attacking indiscriminately the Treasury’s understand­
able concern with the cost of servicing the public debt.”
The operations of the Reserve System during the latter half of
1949 illustrated and clarified the meaning of the statement in the June 28
announcement of the Federal Open Market Committee that it would
“ be the policy of the Committee to direct purchases, sales, and exchanges
of Government securities by the Federal Reserve Banks with primary
regard to the general business and credit situation” ; also the statement
that “ The policy of maintaining orderly conditions in the Government
security market” would be continued.
2 Midwinter meeting of New York State Bankers Association, January 23, 1950.




28

THIRTY-FIFTH ANNUAL REPORT

Corporate Finance and the Capital Markets

Financing by nonfinancial corporations, in the aggregate, was
sharply lower during 1949, reflecting mainly the tendency of working
capital requirements to decline during the moderate business recession
in the first half of the year. The business adjustment was reflected in
figures of corporate finance mainly in a liquidation of inventories and a
general strengthening of financial positions. Corporations improved
their liquidity through large repayments of debts to banks and smaller
repayments to trade creditors, while adding substantially to their cash
and Government security holdings. The reduction of inventories re­
leased an estimated 3.7 billion dollars of corporate funds during 1949,
in contrast to 1948 when an accumulation of inventories required the
investment of 6.3 billion dollars.
The liquidation of inventories provided corporations with funds
with which to repay debts. Corporate indebtedness to the banks was
reduced by about 1.6 billion dollars during the year (compared with an
increase of 1.2 billion during 1948), and indebtedness to trade creditors
by 0.2 billion. At the same time, funds accruing in Federal income tax
reserves prior to payment (and thus available for general business
purposes) declined 2.4 billion dollars. Since corporations as a whole
increased their cash and bank deposits by 1 billion dollars, their
Government securities by 1.5 billion, and their customer financing
through open book credit by 0.7 billion, largely offsetting the decline
in inventories, current assets were reduced only slightly while current
liabilities were reduced substantially. In other words, there was a
growth of more than 3 billion dollars in net corporate working capital.
Corporations continued, however, to require large amounts of funds
for the purpose of financing new plant and equipment. In 1949 the
amounts spent for this purpose are estimated to have totaled 16 billion
dollars, only 1.3 billion (or 7 ^ per cent) below the 1948 total.
In financing this huge capital expenditure, and at the same time
increasing net working capital, nonfinancial corporations in the aggre­
gate relied somewhat more on the capital markets (relative to their total
financing) than in previous years. Somewhat larger depreciation allow­
ances were available to meet part of the corporations’ needs for funds,
but undistributed earnings, estimated at 7.5 billion dollars, were 40 per
cent smaller than in the preceding year, since business corporations in
the aggregate increased their dividend payments to stockholders in the
face of reduced net profits after taxes. As a result, the volume of




FEDERAL RESERVE BANK OF NEW YORK

29

corporate financing in the capital market was fairly well sustained,
especially in the first half of the year, and approximately 5.1 billion
dollars, net, of new security issues (total issues less cash retirements)
were offered, compared with 6 billion in 1948.
Despite this relatively greater reliance by corporations on the
capital markets to meet their needs for long-term and equity funds,
the total funds which they obtained from external sources fell sharply
from 9.7 billion dollars in 1948 to 1.4 billion in 1949, as a result of
the sharp decline in bank loans and other current liabilities.
A decline in new* corporate mortgages accounted for about one
third of the decrease (from 7.4 billion dollars in 1948 to 6.8 billion in
1949) in urban mortgage financing. The decrease in urban mortgage
financing reflected a slight decline in the value of private construction
of all types except utility construction. The small decrease in the
amount of residential mortgage financing was due in part to a decrease
in new loans for the purchase of existing homes, and apparently also,
in part, to an increase in the proportion of new homes in the lower
price ranges. (Although 1949 was a record year in terms of the number
of new dwelling units placed under construction, it was estimated that
the total value of private residential construction in 1949 was slightly
below the 1948 total.)
State and local government outlays for roads, schools, housing,
hospitals, and other public construction reached new record levels dur­
ing the year, and were financed largely through borrowing. State and
local governments in 1949 raised about 2.9 billion dollars through
security issues, or 200 million more than the previous year’s recordbreaking total, despite much smaller amounts of veterans’ bonus issues.
While the aggregate demand for funds declined during 1949,
personal savings, as measured by the increase in funds made available
to thrift institutions, continued to increase. The supply of other investable funds probably rose, also, due partly to the accumulation of pension
fund reserves. This shift in the balance between the demand for and
supply of investable funds, compared with 1948, was pointed up by
the substantial decline during 1949 in the liquidation of Government
bonds by nonbank investors.
Prices of high-grade bonds rose throughout the year, and new
corporate bond offerings were generally well received by investors.
Total corporate security issues for new money purposes declined about




THIRTY-FIFTH ANNUAL REPORT

30

19 per cent to 4.8 billion dollars1 during 1949, with the volume of offer­
ings declining sharply in the second half of the year. The decrease
for the year as a whole was entirely in corporate bonds. Issues for the
retirement of existing indebtedness totaled 875 million dollars, and were
somewhat larger than in 1948, owing partly to the decline in interest
rates. New security offerings for other purposes (including the pur­
chase of existing plant and equipment, securities of other companies,
etc.) amounted to about 370 million dollars as against 235 million in 1948.
The volume of securities placed directly with large investors (for the
most part, life insurance companies) fell about 16 per cent to 2.6 billion
dollars.
Despite the low and decreasing cost of debt capital and the high
cost of equity financing in 1949, total common and preferred stock
flotations amounted to more than 1.1 billion dollars (about 20 per cent
of total new capital issues) and were slightly above the 1948 total.
Yields on representative common stocks during 1949 averaged over 6
per cent, a rate of return which until the past few years has prevailed
only in periods of war or depression. Nevertheless, new issues of common
stocks rose 120 million dollars to about 735 million, while sales of new
preferred issues dropped about 60 million dollars to 430 million.
Stock prices declined during the business recession of the first
half of the year and in mid-June fell somewhat below the range of
fluctuation which had persisted since September 1946. Trading re­
mained relatively inactive and, even while new low prices were being
made, never reached a volume that would indicate general liquidation.
Share prices subsequently responded strongly to the improved business
prospects in the latter part of the year, and toward the close of 1949 the
Dow-Jones average of industrial stock prices, consisting mainly of
higher-grade issues, was the highest since August 1946 and came within
6 per cent of the postwar high of May 1946.

The New York Foreign Exchange Market
The outstanding developments affecting the New York market were
those leading up to and resulting from the devaluation of the pound
sterling from $4.03 to $2.80 in September. While prior to devaluation
the spot sterling rate in New York was maintained close to $4.03 through
1 This figure differs slightly from the 5.1 billion given on page 29 for net new security
issues, owing to the fact that the latter includes new security issues for the purpose of
purchasing assets of existing businesses and new issues of open-end investment
companies.




FEDERAL RESERVE BANK OF NEW YORK

31

official support, market sentiment with respect to the pound had been
reflected in discounts of as much as 25% cents for three months’ forward
delivery. After devaluation the forward rates were variously quoted
at only a slight discount from or premium over the spot rate, and spot
quotations were at all times close to the Bank of England’s official buying
and selling rates.
In the wake of the sterling devaluation, the currencies of all other
sterling area countries (except Pakistan) and of various European and
other countries (including Canada) were devalued. As shown in the table,
most of these countries—with the principal exceptions of Belgium,
France, Western Germany, Portugal, and Canada—devalued their cur­
rencies to about the same extent as the pound sterling, i.e., 30.5 per cent.
Italy made certain changes in its regulations which had the effect of de­
preciating the lira vis-a-vis the dollar by about 9 per cent, and Argentina,
Paraguay, and Uruguay made adjustments in their multiple rate
systems. Peru abolished its multiple rate system in November, and
since that time all transactions have been effected at a uniform but
fluctuating rate. Prior to the autumn wave of devaluations, Mexico
had established a new par value of 8.65 pesos per dollar ($0.1156 per
peso), after allowing the peso to depreciate to that level from the old
parity of 4.855 pesos ($0.2059 per peso) which had existed until July
1948. To the extent that the currencies of the above-mentioned
countries are quoted in the New York market, rates here, of course,
reflected the changes made abroad.
An important step in the direction of freer foreign exchange trading
was taken by Belgium, which established a free market for the United
States dollar at the end of November 1949. In Switzerland all dollar
transactions have been conducted at the free market rate since
the latter part of September 1949; previously there had existed both
a fixed official rate and a fluctuating free rate, the latter applying to
sales of dollar capital assets and certain other transactions. In both
Belgium and Switzerland rates for the dollar during the past few months
have been quite stable, and provision has been made for official inter­
vention, if required, to maintain them within certain limits. Some
progress towards more normal exchange conditions has also been made
by France which, immediately following the sterling devaluation, estab­
lished uniform exchange rates to replace the previously existing multiple
rate system; for most types of transactions the new arrangement
represented a depreciation of somewhat over 22 per cent.




32

THIRTY-FIFTH ANNUAL REPORT
Currency Readjustments, September 18 - December 31, 1949*
Value of monetary unit
in U. S. centsf
Country

Monetary
unit

Date of
devaluation

Old

New

of
devalua­
tion

3 /(a)26.80 to 20.26 /(a)26.80 to 11.09 /0.0to46.7
\(b)29.78 to 20.00 \(b)29.78 to 11.11 \0.0 to 46.7
September 19
224.00
Pound
322.40
30.5
Australia...............
[30.6
(c) 6.94
Schilling
November 22
•{53.2
10.00
Austria..................
(d) 4.68
(e) 3.85
[61.5
Belgium-Luxembourg t Franc
2.00
September 21
2.28
12.3
Rupee
September 18
21.00
30.5
Burma....................
30.23
September 19
90.91
9.1
Canada.................... Dollar
100.00
September 19
21.00
30.5
Ceylon..................... Rupee
30.23
September 18
Denmark................. Krone
20.84
30.5
14.48
September 19
413.30
287.16
30.5
Egypt...................... Pound
(f) 0.4348
30.4
September 19 (f) 0.6250
Finland.................... Markka
/ 5.6
0-303#
/
September 20
France§................... Franc
\ 22.1
\(h) 0.367#
Germany—Western.. Deutsche mark September 19 (f) 30.00
(f) 23.81
20.6
33.0
September 22
0.01#
0.0067
Greece..................... Drachma
30.5
September 20
10.71
15.41
Iceland.................... Krona
30.5
21.00
September 19
30.23
India....................... Rupee
280.00
30.5
September 20
403.00
Iraq......................... Dinar
30.5
280.00
Pound
September 18
403.00
Ireland....................
280.00
30.5
403.00**
September 18
Israel....................... Pound
9.4
0.1576#
September 19
0.1739#
Italy........................ Lira
30.2
26.32
Guilder
September 20
37.70
Netherlands^..........
30.5
(f) 277.89
September 19 (f) 399.96
New Zealand............ Pound
30.5
14.00
September 18
20.15
Norway................... Krone
13.0
September 21
3.48
4.00
Portugal.................. Escudo
/(a) 8.91 to 3.65 /(a) 8.91 to 2.54 /O.Oto 30.4
October
7 \(b) 9.13 to 4.00 \(b) 9.13 to 3.51 \0.0 to 12.3
Spain) |
.....................
(f) 19.32
30.5
September 20 (f) 27.82
Sweden.................... Krona
8.00
Baht
September 27
10.08
Thailand.................
30.5
280.00
September 18
403.00
Union of South Africa Pound
30.5
280.00
September 18
United Kingdom0. ... Pound
403.00
Argentina..............

October

m

20.6

* In addition to the devaluations shown in the table, P araguay, P eru , and U ruguay carried out in
1949 readjustm ents o f th eir m ultiple-exchange-rate system s that amounted to substantial depre­
ciations fo r some types o f transactions.
t In some cases figures are rounded to sim plify table.

t T h e B elgian Congo fra n c rem ains at par with the B elgian fra n c.
# R ates based wholly or in part on dollar quotations in officially regulated fre e m ark ets; new lira
rate based on Septem ber 21, 1949 quotation, F re n ch fra n c on postdevaluation quotations.
§ A ll local cu rren cies of F ren ch dependencies are pegged to the F re n ch fra n c excep t: ( 1 ) the rupee
o f the Fren ch possessions in In d ia, which is m aintained at par with the In d ian rupee; and ( 2 )
the D jibouti fran c, which retains its old dollar parity o f 0.47 U . S . cents.
* * In addition, a rate of approxim ately 300.00 was used fo r certain transactions.
T h e Indonesian guilder rem ained at par with the N etherlands guilder during
Surin am and W est In d ies guilders retain the old dollar parity o f 53 U . S . cents.

1 9 4 9 ; but the

II R epresentative rates applicable to specified commodity transactions.
° A ll local cu rren cies o f B ritish dependencies, except B ritish H onduras, have been devalued by
30.5 per ce n t; the B ritis h H onduras dollar has been devalued by 30.0 per cent.
(a ) selling ra te s ; (b ) buying ra te s ; ( c ) basic ra te ; (d ) effective average ra te ; (e ) premium ra te ;
( f ) middle ra te : (g ) fre e ra te ; (h ) com mercial rate.




FEDERAL RESERVE BANK OF NEW YORK

33

Foreign Economic and Financial Conditions
The countries covered by the European Recovery Program, whose
affairs continue to be a focal point of American foreign economic policy,
made better internal progress during 1949 than seemed likely a year ago.
Nevertheless, improvement in their balance of dollar payments was slow,
leaving unanswered the question of their ability to close the “ dollar
gap” before Marshall Plan aid ends in 1952. The satisfactory rate of
advance which these countries had shown in 1948 in meeting their dollar
needs faltered during the spring of 1949 under the triple impact of:
(1) the American recession, (2) the curtailment of American purchases
from some foreign countries whose export prices were considered too
high, and (3) the postponement of American purchases from and pay­
ments to some countries in the expectation that they would soon devalue
their currencies. Some countries, principally the United Kingdom, had
to resort to the sale of gold to keep their dwindling dollar balances at
a working level.
By the middle of September, Europe’s difficulties in closing the
“ dollar gap” , together with rapidly mounting pressure on the British
pound sterling, brought to a climax the economic imbalance between the
dollar and “ soft currency” areas. Led by sterling, a concentrated and
unprecedented wave of currency devaluations swept over a good part
of the world.
The only noticeable immediate effect of the devaluations was a rise
in dollar balances of most of the devaluing countries, some of which
converted a part of these increased dollar reserves into gold. Thus,
gold and dollar reserves of foreign countries rose in the last quarter
of 1949 by about 600 million dollars. In the first few months of
1950, this strengthening of foreign gold and dollar reserves has con­
tinued. Aside from this, the only observation that can be made con­
cerning the immediately discernible effects of the currency devaluations
of 1949 is that the unspectacular character of postdevaluation develop­
ments, up to the end of the year, is to some extent a cause for satis­
faction. Among the consequences of an unfavorable nature that might
have followed—but did not follow—close upon such widespread and
substantial devaluations were a sharp drop in commodity prices in
terms of dollars, pronounced repercussions upon the exports and internal
economy of the United States, and rapid inflationary spirals abroad.
Whether all of these unfavorable possibilities are to be permanently
avoided, however, and the potential benefits inherent in the currency




34

THIRTY-FIFTH ANNUAL REPORT

readjustments are to be finally realized, will depend in good part upon
the progress of the European Recovery Program and upon the economic
policies of the individual countries concerned.
T h e E uropean R ecovery P rogram

The Congress of the United States initiated the European Recovery
Program in mid-1948 by appropriating 4 billion dollars for the twelve
months from April 1948 to March 1949 and authorizing the Economic
Cooperation Administration to borrow 1 billion from the Treasury for
the purpose of granting loans to, and providing transfer guarantees for
private American investment in, the ERP countries.1 The program was
carried forward in 1949 by a further appropriation of 4.9 billion dollars,
of which 1.1 billion was allocated for grants during April-June 1949, and
3.7 billion for grants and 150 million for loans (through the ExportImport Bank) during the fiscal year 1949-50.
Assisted by the inflow of ECA-financed supplies, most of the ERP
participants achieved, during 1949, significant increases of production,
which contributed in turn to a great improvement in their internal
financial stability. Despite less than average rainfall, grain harvests
in most of these countries exceeded 1948 and closely approached the
prewar average. Many of the ERP nations also reported an important
expansion of industrial output during the first half of the year. By the
third quarter, however, production was showing a tendency to level off
and even to decline somewhat—the result apparently not only of mount­
ing strain on productive capacity but also, in certain instances, of
developing sales resistance in domestic as well as foreign markets.
Although the year’s improvements in output and in the over-all supply
position thus were not unqualified, they reinforced the effectiveness of
the existing monetary controls. Price levels remained encouragingly
stable during the first three quarters of the year. The September cur­
rency devaluations touched off a chain of more or less significant price
increases, but the economies of most of the ERP participants appear to
have withstood the shock of devaluation remarkably well.
Unfortunately, the noteworthy progress achieved by Western
European countries in terms of output and internal financial stability
has not been accompanied by corresponding improvement in their bal­
1 The 4 billion dollar appropriation was nominally for the fifteen months ended June 30,
1949, but included authority to the President, which he exercised, to commit the full
amount by April 2, 1949.




FEDERAL RESERVE BANK OF NEW YORK

35

ances of payments, particularly with respect to the dollar area.
During the first nine months of 1949, Western European exports to all
markets, in the aggregate, appeared to have stopped expanding, while
exports to the dollar area fell off sharply during the first half of the
year. In the case of the United Kingdom, the falling off of dollar earn­
ings, accompanied as it was by other adverse developments, became so
serious a threat to the British dollar position as to necessitate substantial
cutbacks of dollar imports below the austerity levels already prevailing.
Although the decline of European dollar earnings was arrested during
the third quarter of the year and earnings have since recovered somewhat,
the 1949 accomplishment has fallen short of earlier anticipations.
On the other hand, there has been significant progress in restoring
intra-European trade. Trade among the ERP countries rose from
hardly more than 55 per cent of the prewar level in 1947 to nearly 100
per cent in 1949. The pronounced recovery of European sources of
supply has in turn lessened the excessive reliance of Western Europe
upon United States goods, thereby facilitating the progressive reduction
of ECA assistance.
The expansion of intra-European trade has been assisted by the
intra-European payments plans for 1948-49 and 1949-50, under which
the ECA has helped to finance the trade surpluses of the intra-European
creditors through so-called “ conditional” dollar aid grants. During
1949, the efforts of the ECA and of the Organization for European
Economic Cooperation (the common agency of the ERP countries) to
secure a freer flow of intra-European trade have been directed toward a
comprehensive program having as its goal the ultimate unification of the
various ERP economies into “ a single large market within which
quantitative restrictions on the movements of goods, monetary barriers
to the flow of payments, and eventually all tariffs would be swept
away.” 2 The Council of the OEEC in July 1949 called for the pro­
gressive removal of quantitative restrictions on intra-European trade.
In compliance with this resolution, most of the ERP member nations had,
by the close of the year, abolished quantitative restrictions upon roughly
50 per cent of their imports on private account from intra-European
sources.
Some progress has also been made in liberalizing the exchange
restrictions that have hampered trade among the ERP member nations.
2 Address of Paul HoiFman to the Council of the OEEC on October 31, 1949.




36

THIRTY-FIFTH ANNUAL REPORT

Under the 1948-49 payments plan, the “ drawing rights” extended by
one ERP member to another could for all practical purposes be spent
only in the market of the original donor. This rigid bilateralism was
relaxed under the 1949-50 payments plan by a provision permitting each
country to spend 25 per cent of its drawing rights in ERP markets
other than that of the original donor. Proposals now under considera­
tion by ECA and OEEC contemplate further liberalization of payments
restrictions through the establishment of a European payments union.
T he C urrency R eadjustments

While these steps toward a large and better integrated European
market were being taken, the effects of currency devaluation, expected
by many to reduce the need for discriminatory trade arrangements, were
only beginning to work themselves out. The devaluations that began
on September 18 involved the currencies of thirty-one countries (see
page 32) accounting for approximately two thirds of all world trade.
The movement started with the United Kingdom at a moment when
British gold and dollar reserves had fallen to 1,329 million dollars and
were being drained away at an annual rate of almost 1,400 million
dollars. The United Kingdom was followed within one week by twentythree countries, the remaining seven following a little more slowly.
The causes of this currency adjustment were of course more funda­
mental than the pressure, amounting to a “ run,” to which sterling seems
to have been exposed last summer from traders all over the world. The
existence of a very serious imbalance in the international economy was
hardly open to doubt. Since the Marshall Plan was approaching mid­
passage, intensified efforts to close the “ dollar gap” were clearly
required. For many months, the question had been debated in this
country and abroad as to whether the gap could be closed by internal
measures to be taken by the foreign countries concerned, by a further
tightening of their direct controls over dollar purchases, or by exchange
rate adjustments, and in what combination and what order of timing
action should be taken. The issue, however, was largely forced by the
mounting drain on the British reserves. Once the United Kingdom had
made its decision, a similar course became a practical necessity for a
large number of other countries.
The new exchange rate pattern, established with the formal approval
of the International Monetary Fund, may be regarded as closer, on the
whole, to economic realities than that which prevailed before devalua­




FEDERAL RESERVE BANK OF NEW YORK

37

tion. Yet it is by no means certain that each devaluation corresponded
to the particular maladjustment that the devaluing country was facing.
Nor has devaluation done away with all of the exchange rate practices
that the International Monetary Fund considers undesirable. Most
countries maintaining multiple-exchange-rate systems, for instance, have
continued such practices, and a number of countries have not yet
reached agreement with the Fund on uniform par values for their
respective currencies.
The course of postdevaluation world trade and commodity prices
has reflected the interaction between, on the one hand, the monetary
influences set in motion by the currency readjustments, and on the other,
the supply position of various commodities, the prevailing competitive
conditions, and the world-wide pattern of demand. Three different
effects of the devaluations upon world trade, and particularly American
trade, could be anticipated. First, the devaluations may tend to curtail
the demand for American goods; where this demand has been restricted by
direct controls, they may make such controls more effective (or unneces­
sary). Second, the devaluations may tend to increase the international
demand for many of the goods produced in the devaluing countries,
since these goods can now compete more effectively. Finally, the devalu­
ations may divert exports of devaluing countries away from softcurrency to hard-currency areas, since the latter have now been made
more attractive as markets, although this shift appears to be at least
partly counteracted by rising demand from some of the soft-currency
areas.
The tendency of foreign countries, after devaluation, to curtail
purchases in the American market appears so far to be a good deal
stronger than the tendency towards greater sales to this country. During
the final quarter of 1949, dollar disbursements of the devaluing countries
declined noticeably, although it is impossible to determine whether this
was the result primarily of devaluation or of the tighter restrictions
against purchases from the dollar area that were initiated in many cases
just before devaluation. As to the devaluing countries’ exports to the
United States, the postdevaluation picture, so far, differs from country
to country and from one commodity group to another, but on balance
some slight improvements attributable to the devaluations are discern­
ible. From a long-run viewpoint, the currency readjustments have
brought the devaluing countries a powerful stimulus to exports and
deterrent to imports which—unless offset by renewed internal inflation—




38

THIRTY-FIFTH ANNUAL REPORT

should contribute effectively toward redressing the prevailing inter­
national imbalance.
With respect to the repercussions of the devaluations on prices of
internationally traded commodities, dollar quotations have proved on the
whole to be controlling for those primary commodities and manufactured
goods that are still in short supply. As a result, the foreign-currency
prices of primary commodities, including those produced in the sterling
area, have experienced a rise that has confounded some earlier appre­
hensions of a widespead price decline. On the other hand, the fact that
dollar prices of foreign manufactured goods have declined only moder­
ately does not augur well for a rapid expansion of foreign sales to this
country. The price structure of the United States itself has so far been
little affected by the devaluations.
In the countries that have devalued, internal prices have risen to a
varying extent. In some countries the impact of these price increases
has been softened by controls and subsidies, but the increases have
unquestionably given a new impulse to the inflationary pressures that
still prevail in some European countries, and even more in some other
areas. These price advances point to the necessity for continued firm
anti-inflationary measures. The inflationary forces inherent in devalua­
tion are likely to prove particularly strong in the present instance
because, as already indicated, the internal prices of internationally
traded commodities have risen in many cases by the full extent of devalu­
ation and because full employment in most of the devaluing countries
has not permitted a significant further expansion of production.
If these inflationary pressures can be successfully checked through
monetary and fiscal policies of the countries concerned, a gradual shift
toward a better balance of the international accounts of all countries
should be attained. The need for such a shift, however, poses important
questions of policy for the United States. Under present conditions of
abnormally high exports and relatively low imports by this country,
exporters, as well as domestic producers who are enjoying a market
protected from foreign competition, tend to benefit at the expense of
the whole community, which pays for the export surplus through foreign
aid. Relief to the taxpayer through reduced foreign aid inevitably
involves depriving the exporter or the domestic producer of a part of
his markets. The proper apportionment of the burden among the three
interested groups will be difficult, and no easy and early solution in
terms of private capital exports appears probable.




FEDERAL RESERVE BANK OF NEW YORK
E conom ic D e v e l o p m e n t A

39

broad

Some steps to stimulate private American investment abroad and
extend technical and financial assistance to economically underdeveloped
areas were taken in 1949 as a result of the Point Four proposal advanced
by President Truman. In his inaugural address of January 21, 1949,
the President called for a “ bold new program for making the benefits
of our scientific advances and industrial progress available for the im­
provement and growth of underdeveloped areas” , and for action “ to
foster capital investment in areas needing development” .
A concrete program directed towards these ends began to take
shape by midyear. The President requested an appropriation of 45
million dollars from Congress to expand the existing program of
technical assistance to underdeveloped areas. At the same time he
requested legislation to give the Export-Import Bank authority to start
an experimental program of guarantees to United States investors
abroad against such risks as inconvertibility of earnings, arbitrary
expropriation, and war. In addition, negotiations were initiated for a
series of bilateral treaties between the United States and other countries,
designed in the main to assure United States investors of “ national” , or
at least of “ most-favored-nation” , treatment with respect to their legal
position, personnel, and business activities, as well as prompt and ade­
quate compensation in the event of expropriation.3 Finally, certain rec­
ommendations have been made by the National Advisory Council and
by the President with respect to the need to eliminate international double
taxation and the advisability of reducing United States taxes on
income from foreign investment as incentive measures.
In his original proposals President Truman had urged that technical
assistance be carried out largely through the United Nations and its
specialized agencies. This recommendation gave fresh impetus to the
United Nations technical assistance program and led the General
Assembly in November to approve a comprehensive plan involving the
expenditure of 86 million dollars in the first two years of operation.
Technical assistance which foreign countries actually received during
1949 consisted mainly of surveys of resources and the formulation of
development plans. The International Bank for Reconstruction and
Development sent a major mission to Colombia, and also missions to
3 A “Treaty of Friendship, Commerce, and Economic Development” with Uruguay was
signed on November 23, 1949.




40

THIRTY-FIFTH ANNUAL REPORT

various other countries. The United Nations sponsored the Clapp Mission
which surveyed the economic potentialities of the countries that had been
most directly affected by the Palestine war. Finally, a joint com­
mission of United States and Brazilian technicians completed a compre­
hensive study (begun in 1948) of the possibilities of Brazilian economic
development. These activities were supported by continuing efforts
in the underdeveloped countries themselves to draw up development
programs which might be within their capacity if supported by a
measure of foreign aid. Experience has indicated that over-ambitious
plans, unsupported by indigenous administrative and technical skills
necessary to carry them out, cannot be made successful by foreign
advisors nor by foreign loans or grants. The effectiveness of technical
and financial aid from abroad largely depends on the extent to which
the governments of the recipient countries adapt their plans to their
domestic capacities and then assume a positive role in carrying them out,
and in pursuing suitable financial policies while doing so.
The proposals for fostering the flow of private capital abroad
give rise to more difficult problems than do the technical assistance
programs. Among the difficult problems are the following: To what
extent is it appropriate for the United States Government to guarantee
private ventures in the foreign field f Granted that such guarantees are
appropriate under present circumstances, what risks can legitimately
be covered without the likelihood of serious abuse? Should guarantees
against foreign currency inconvertibility apply only to the earnings
from foreign investment or also to the eventual repatriation of the
principal f Are old as well as new investments to be offered guarantees ?
Can a system of tax incentives to increase the net return on foreign
investment be devised without impairing the equity of our tax system f
If all. these and other technical problems connected with the creation
of special incentives can be satisfactorily resolved, serious obstacles to
the outflow of private United States capital remain. The rewards of
capital at home are still attractive. The foreign fields that have tra­
ditionally attracted the bulk of American direct investment, such as
public utilities and mining (including petroleum), are becoming in
many countries the prerogatives of the governments. Portfolio invest­
ment, as an alternative investment form, has not recovered from the
debacle of the 1930 ’s.




FEDERAL RESERVE BANK OF NEW YORK

41

The United States Balance of Payments
The balance of payments of this country in 1949 reflected both
current economic and financial developments in foreign countries and
the year’s changes in domestic income and employment. Our exports
of goods and services fell from 16.8 billion dollars in 1948 to approxi­
mately 15.9 billion in 1949, while imports of goods and services fell
from 10.5 billion dollars to 9.8 billion. The export drop was in line
with the past three years’ decrease in the foreign need for American
goods and services. The fall in imports, on the other hand, resulted
partly from the decline in domestic business activity during the first
half of 1949, and apparently also in part from a temporary post­
ponement of purchases from abroad in anticipation of the September
currency devaluations. A moderate decline in the prices of foreign
raw materials was also a factor, although prices of certain imports—
notably coffee and wool—rose to new high levels. As a result of these
divergent developments, the United States current account surplus
declined only 0.2 billion dollars, from 6.3 billion in 1948 to 6.1 billion
in 1949.
The over-all figures for 1949, however, do not give an adequate
picture of developments during the course of the year. In the first six
months the annual rate of exports actually exceeded that of the year
previous. At the same time imports fell short of the 1948 rate; in
particular, imports from Europe declined, thus upsetting previous hopes
that the large United States export surplus with that area, financed
primarily with ECA funds, would be steadily reduced. The effect of
these developments was a rise of this country’s January-June surplus
on current account to an annual rate of 7.5 billion dollars. In con­
sequence, the flow of Government grants and loans proved insufficient
to finance the “ dollar gap” , and foreign countries again had to tap
their dwindling gold and dollar reserves.
In the last six months of the year, this trend toward greater
imbalance was reversed. As a result of new restrictions abroad against
imports payable in dollars, and of the foreign currency devaluations,
United States exports of goods and services fell to an annual rate of
14.5 billion dollars, while this country’s disbursements of dollars for
merchandise imports and tourist and other services crept upward. The
export surplus during the second half of the year was thus reduced
to an annual rate of about 4.9 billion dollars, the lowest since the end
of the war.




42

THIRTY-FIFTH ANNUAL REPORT

By far the larger part of our 1949 export surplus was financed by
the various foreign aid programs, more than 4 billion dollars being
expended for the European Recovery Program, 1 billion for Army
relief in the occupied areas, and 170 million for aid to Greece and
Turkey. Of the total ERP disbursements, 2.6 billion dollars was spent
directly in the United States, 1.1 billion was used for offshore purchases
in Canada, Latin America, and other countries, and the remainder went
for shipping charges.
The contribution of the Export-Import Bank to the financing of the
export surplus during 1949 continued on a limited scale. New loan
authorizations aggregated 241 million dollars (compared with 138
million in 1948), loans being approved for Afghanistan, Bolivia, Chile,
Israel, and Yugoslavia. Gross disbursements amounted to 185 million
dollars, but, because of repayments of 144 million, net disbursements
amounted to 41 million only.
The International Bank stepped up the volume of new operations
in 1949, authorizing loans totaling 219 million dollars to Belgium, Brazil,
Colombia, Finland, India, Mexico, the Netherlands, El Salvador, and
Yugoslavia. Total loan commitments of the Bank from the beginning of
its operations to the end of the year aggregated 744 million dollars.
Disbursements in 1949 amounted to 68 million dollars, compared with
199 million in 1948. Sales of exchange (mostly U. S. dollars) by the
International Monetary Fund, which aggregated 468 million dollars in
1947 and 208 million in 1948, declined to 100 million in 1949, the chief
recipient countries being Australia, Brazil, India, and Yugoslavia.
The gross outflow of United States private capital in 1949 amounted
to approximately 1,900 million dollars, but a large part of this was ac­
counted for by capital expenditures on American oil properties in Latin
America and in the Near East, and by the reinvestment of funds earned
by foreign subsidiaries of American corporations. The gross outflow was
partly offset, moreover, by an inflow of American capital of about 800
million dollars and a small net increase of foreign-owned long-term
investment in this country.

Volume and Trend of the Bank’s Operations
D omestic O perations

In 1949, as in other recent years, the volume of the bank's domestic
business was substantially above prewar levels. There was some
further contraction in fiscal agency operations, but the normal peace­




43

FEDERAL RESERVE BANK OF NEW YORK

time operations remained near or exceeded the peaks of previous years.
During the war the enlargement of the bank’s fiscal agency opera­
tions, as well as the assumption of certain temporary work for the
United States Treasury, necessitated a large increase in the bank’s
staff. The accompanying chart shows that peak employment in the
bank was attained in July 1944, when the total staff reached 4,940, or
approximately double the number employed in the prewar year 1939.
During the remainder of the war and postwar periods, employment at
the bank contracted; temporary work for the Treasury largely ceased

SALIENT OPERATIONAL TRENDS AT NEW YORK RESERVE BANK*
BILLIONS
OF PIECES

VOLUME OF CURRENCY
AND COIN HANDLED

2.5

VOLUME OF NONGOVERNMENT
CHECKS PROCESSED

OF CHECKS

CURRENCY

2.0

1 3 3 COIN

1.5

1.0

0.5

0
NEW GOVERNMENT
SECURITIES DELIVERED

NUMBER OF EMPLOYEES

THOUSANDS

7

SECURITIES 1

1940*41 >42*43’4 4*4 5 *46'4 7*4 8 *49
^Includes Buffalo Branch.




44

THIRTY-FIFTH ANNUAL REPORT

and the bank promoted efficiency through the use of better techniques
and more and better equipment in handling the enlarged peacetime
operations. Because of this larger volume of normal work, the decline
in employment was not so great or so sharp as the previous rise had
been. At the end of 1949, the total number of people employed amounted
to 3,611, or about 50 per cent above the 1939 level. The bulk of the
wartime rise in employment and of the subsequent decline took place
among the women employees of the bank.
Fluctuations in employment have occurred principally in functions
set up to facilitate the war effort. The Foreign Funds Control Depart­
ment was created in 1941 to act, in effect, as the field office of the
United States Treasury in administering the controls over the blocked
assets of certain foreign countries; the Department was liquidated as
of June 1, 1949. The Government Check Department was expanded
rapidly during the war and has since operated on a reduced but sub­
stantial scale. Fiscal agency operations for the United States Govern­
ment in connection with the issue, redemption, and exchange of securi­
ties expanded and contracted sharply, as did fiscal agency operations for
the Reconstruction Finance Corporation. One section of the chart shows
the sharp rise and decline in the number of Savings bonds and other
Government securities issued through this bank in each year since 1940.
The chart indicates that during the peak year (1943) the bank issued 3.2
million individual Savings bonds and other Treasury securities, whereas
the annual total is now down to about one million pieces—which is still
more than twice the 1940 level.
The growth in volume of two of the most important regular opera­
tions of the bank, namely, meeting the public need for currency and
coin and facilitating the collection and clearance of checks, is also
indicated in the accompanying charts. In 1949, the volume of coin
handled, as measured by the number of pieces counted (2.2 billion), was
the highest on record and more than double the 1939 volume. The
number of pieces of paper currency sorted and counted (968 million)
was slightly below the 1948 record high level but still 47 per cent
above the 1939 level.
The number of checks of businesses and individuals collected and
cleared during 1949 reached a record figure—356 million, or more than
one million checks per business day. The number of United States
Government checks cleared and collected in 1949 increased by approxi­
mately 10 per cent to 44.4 million items, but the dollar volume receded




FEDERAL RESERVE BANK OF NEW YORK

45

Some Measures of the Volume of Operations of the
Federal Reserve Bank of New York
1949
Number of pieces handled*
Discounts and advances .......................................
Currency received and counted .............................
Coin received and counted ....................................
Gold bars and bags of gold coin handled..............
Checks handled:
United States Government checks .................
All other ........................................................
Collection items handled:
United States Government coupons paid .......
All other ........................................................
Disbursements as fiscal agent for
Reconstruction Finance Corporation, its subsidi­
aries, and Commodity Credit Corporation .
Issues, redemptions, and exchanges by fiscal agency
departments:
United States Savings bonds...........................
All other United States obligations.................
Obligations of the International Bank for Re­
construction and Development .................
Safekeeping of securities:
Pieces received and delivered ........................
Coupons detached ..........................................
Transfers of fundsf...............................................
Incoming and outgoing mail:
Registered ......................................................
Ordinary .........................................................

2,257
967,773,000
2,182,874,000
168,000

1948
2,720
978,239,000
2,000,994,O O
Or
317,000

44,392,000
356,095,000

40,444,000
338,976,000

5,729,000
5,570,000

6,162,000
5,634,000

28,000

30,000

22,907,000
2,729,000

22,597,000
3,158,000

16,000

190,000

4,471,000
1,711,000
235,000

4,243,000
1,551,000
225,000

407,000
9,211,000

472,000
9,376,000

Amounts handled
Discounts and advances ......................................... $ 12,563,787,000 $ 7,760,124,000
6,352,616,000
6,101,253,000
Currency received and counted .............................
160,255,000 r
175,281,000
Coin received and counted ...................................
4,184,698,000
2,353,838,000
Gold bars and bags of gold coin handled...............
Checks handled:
20,687,994,000
14,854,411,000
United States Government checks ...................
All other.......................................................... 209,388,256,000 209,221,357,000
Collection items handled:
1,519,420,000
1,428,259,000
United States Government coupons p aid ........
798,876,000
866,267,000
All other..........................................................
Disbursements as fiscal agent for
Reconstruction Finance Corporation, its subsidi­
500,266,000
441,120,000
aries, and Commodity Credit Corporation
Issues, redemptions, and exchanges by fiscal agency
departments:
2,505,974,000
2,218,828,000
United States Savings bonds...........................
221,491,033,000 263,940,171,000
All other United States obligations ...............
Obligations of the International Bank for Re­
260,023,000
30,636,000
construction and Development .................
Safekeeping of securities:
390,454,757,000 460,507,275,000
Securities received and delivered (par value) ..
Transfers of fundsf .............................................. 132,063,441,000 120,443,671,000
* Two or more checks, coupons, etc., handled as a single item are counted as one
“ piece” .
f Includes wire and mail transfers; excludes Treasury transfers and Reserve Bank inter­
district settlements,
r Revised.




46

THIRTY-FIFTH ANNUAL REPORT

by 28 per cent, reflecting a decline in the average amount of the indi­
vidual checks processed. The number and dollar total of Government
checks processed in 1949 were only slightly more than two fifths the
number and dollar volume processed in the closing war years. Collection
items handled (acceptances, notes, drafts, and coupons credited upon
collection rather than immediately or in accordance with a time schedule)
were in about the same number and dollar volume as in 1948. In the
safekeeping function, the number of securities received and delivered
was moderately higher than in 1948, but the dollar volume decreased
rather sharply. There was an increase in the number of coupons
detached from securities held in safekeeping and collected. Transfers
of funds (mostly telegraphic) were a little greater in number and 10 per
cent higher in dollar volume during 1949.
F oreign

and

I nternational O perations

Total assets held at the Federal Reserve Bank of New York for
foreign and certain international accounts combined rose during 1949
to around 8 billion dollars, or close to the peak reached in February 1947.
Gold and dollar assets held for the International Bank and International
Monetary Fund declined by a moderate amount, but assets held for
foreign central banks and governments increased by 702 million dollars,
continuing at a somewhat reduced rate the upward trend which has
been in evidence since the latter part of 1947. Despite this upward
trend, the total held for foreign accounts alone (4,956 million dollars
at the end of 1949) remained considerably below the peak of 6,971
million dollars reached in September 1945. The net increase in foreign
assets during 1949, while distributed among all kinds of accounts, was
largely in the form of earmarked gold and deposits, which rose by 482
million dollars and 124 million dollars, respectively.
The year 1949 witnessed a decline in loans on gold to foreign
central banks. The total of such loans outstanding, which had risen to
a record high of 259.7 million dollars in August 1948, receded to 69.5
million dollars by the end of 1949. At the close of 1948 loans were
outstanding to four European central banks and one Latin American
central bank. Three of these loans were retired in full during 1949,
and the other two are expected to be liquidated during 1950. During the
year new loans were made to two central banks (and there were several
renewals).
The policy of the bank with respect to gold loans remained un­




FEDERAL RESERVE BANK OF NEW YORK

47

changed, i.e., loans were generally made for an initial period of up to
three months to meet temporary (usually seasonal) dollar deficiencies,
and renewals were made for limited periods where it appeared that they
would serve a useful purpose and were not to be substituted for long­
term needs. The loans are fully secured by gold held in our vaults and
bear interest at the bank’s current discount rate (V/2 per cent per
annum during 1949).
With respect to foreign correspondent relationships, a regular
account was opened during the year for the newly-organized Central
Bank of the Philippines, while one wartime account which had been
maintained for a foreign government was closed, practically bringing to
an end the phase of wartime operations. An account was also opened
for the World Health Organization, an agency of the United Nations,
the bank acting as fiscal agent of the United States in this case.
The over-all volume of transactions handled for foreign and inter­
national accounts in 1949 was somewhat smaller than in 1948. Security
transactions and dollar payments and receipts increased, while the
number of gold transactions, gold loans, and collections handled
declined.
The Federal Reserve Bank of New York continued as the United
States depository of the International Bank and the International
Monetary Fund. The custody of securities, earmarking of gold, and
handling of investments in United States Government securities were
among the more important functions executed in this capacity.

Financial Statements
S tatem ent

of

C o n d it io n

During 1949 this bank’s total assets showed the first substantial
contraction (1,292 million dollars) since 1941. The contraction was
caused principally by a moderate reduction in total gold certificate
reserves and by a sizable decline in the volume of earning assets, i. e.,
discounts and advances and Government security holdings.
The decline in total gold certificate reserves, amounting to 146
million dollars, followed three successive postwar years of expansion
during which such reserves had increased 2,413 million dollars, or 48
per cent. The principal cause of the 1949 decline was the unfavorable
balance of the Second Federal Reserve District, relative to the remainder
of the United States, in commercial and financial payments through




48

THIRTY-FIFTH ANNUAL REPORT

the Interdistrict Settlement Fund. A contributory influence was the
sharp diminution in the net gold inflow from abroad. In 1949, the
Treasury’s credits to the gold certificate fund of this bank against the
net volume of incoming gold offset only a portion of the bank’s
losses of funds to other sections of the country, whereas in 1947 and
1948, when gold imports were substantial, the gold certificate fund
credits were greater than the losses through domestic transfers.
Among the earning assets of the bank, discounts and advances at
the end of 1949 were only 23 million dollars — 55 million lower than
at the close of 1948. The 1949 year-end total represented almost exclu­
sively loans to foreign central banks; only 1 million dollars consisted
of advances to member banks secured by Government securities. The
low year-end volume of advances to member banks, however, does not
by any means measure the member banks’ use of the borrowing privi­
lege. Their average borrowings increased 62 per cent during 1949 to
the highest level since 1945.
Reflecting its share of a larger decline for all Reserve Banks, this
Assets of the Federal Reserve Bank of New York
(In thousands of dollars)

Assets

Dec. 31, 1949

Dec. 31, 1948

Gold certificates ..........................................
Redemption fund for Federal Reserve notes

$ 7,250,198
49,736

$ 7,390,440
55,182

Total gold certificate reserves .......

$ 7,299,934

$ 7,445,622

Other cash .................................................

$

41,720

$

42,544

Discounts and advances ..............................

$

23,377

$

78,700

U. S. Government securities:
Bills ......................................................
Certificates ............................................
Notes ...................................................
Bonds ...................................................

$ 1,144,483
1,487,219
133,236
1,710,523

$ 1,317,805
1,457,291
189,560
2,632,140

Total U. S. Government securities..

$ 4,475,461

$ 5,596,796

Total loans and securities ............

$ 4,498,838

$ 5,675,496

$

$

Due from foreign banks ...........................
Federal Reserve notes of other banks ........
Uncollected items .......................................
Bank premises..............................................
Other assets .................................................
Total assets ....................................
* After deducting participation of other Fed­
eral Reserve Banks amounting to........




12*
24,251
546,227
7,872
23,584

16*
20,331
507,096
8,022
35,252

$12,442,438

$13,734,379

$

$

26

33

FEDERAL RESERVE BANK OF NEW YORK

49

bank’s total holdings of United States Government securities decreased
1,121 million dollars to 4,475 million on December 31, 1949, the lowest
year-end level since 1943. Most (922 million) of the decline occurred in
Treasury bonds and represented primarily the New York bank’s por­
tion of System Open Market Account sales made prior to the June 28
announcement of the Federal Open Market Committee (see page 23).
Treasury bill and note holdings receded 173 million dollars and 56
million dollars, respectively, during the year, while certificates of
indebtedness rose 30 million dollars. The effect upon the bank’s Treasury
bill holdings of substantial cash redemptions of bills (by System Open
Market Account) during the year was largely offset by net market
purchases to supply member banks with needed reserves during periods
of reserve stringency. The Treasury’s refunding of outstanding notes
Liabilities of the Federal Reserve Bank of New York

(In thousands of dollars)
Liabilities

Dec. 31, 1949

Dec. 31, 1948

Federal Reserve notes..................................

$ 5,430,281

$ 5,582,297

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

$ 5,347,438
255,479
246,250*
464,380

$ 6,701,274
184,745
209,368*
430,977

$ 6,313,547

$ 7,526,364

Total deposits ................................
Deferred availability items .........................
Other liabilities............................................
Total liabilities .............................
Capital accounts:
Capital paid i n .....................................
Surplus (Section 7) .............................
Surplus (Section 13b) ...........................
Other capital accounts .........................

$

446,139
2,303

$12,192,270

$

390,868
2,670

$13,502,199

$

72,425
148,149
7,319
22,275

$

69,333
143,019
7,319
12,509

Total capital accounts....................

$

250,168

$

232,180

Total liabilities and capital accounts

$12,442,438

Contingent liability on acceptances purchased
for foreign correspondents ....................
Ratio of gold certificate reserves to deposit
and Federal Reserve note liabilities com­
bined ....................................................
* After deducting
Federal Reserve
tAfter deducting
Federal Reserve




participation of
Banks amounting
participation, of
Banks amounting

other
to ...
other
to...

$

3,319t

$13,734,379
$

56.8%

62.2%
$

520,250
7,188

l,065t

$

432,276
2£64

50

THIRTY-FIFTH ANNUAL REPORT

and bonds with certificates of indebtedness in January, June, and
September was the dominant factor increasing this bank’s holdings
of certificates. In the case of Treasury note holdings, exchanges during
the year were more nearly in balance and the decline arose principally
from net market sales.
Federal Reserve notes of this bank outstanding in the hands of
the public decreased 152 million dollars, or 2.7 per cent, during 1949,
compared with a decrease of 184 million dollars, or 3.2 per cent, in 1948.
Member bank reserve accounts declined 1,354 million dollars in 1949
whereas they had risen 1,128 million in 1948. The 1949 reduction
reflected the lessened need for reserves by member banks as the Reserve
System during the spring and summer reduced the percentages of
reserves which member banks are required to hold against net demand
and time deposits. During 1948, when credit policy had been directed
toward restraining the expansion of bank credit and of the money
supply, the Board of Governors had raised reserve requirements, and
member banks had had to build up their reserve accounts substantially.
Deposits of foreign banks and governments held at the New York Reserve
Bank increased 125 million dollars during 1949. The New York bank’s
share of those accounts (which are participated among the 12 Reserve
Banks) together with certain accounts which this bank holds as fiscal
agent of the United States, increased by 37 million dollars. The general
account of the U. S. Treasurer increased 71 million dollars during
the year and “ Other” deposits advanced 33 million dollars.
Capital accounts in the aggregate increased nearly 18 million
dollars during the year. Approximately 5.1 million dollars of net
earnings was added to the regular surplus (Section 7) and 9.8 million
dollars was added to reserves included in “ Other capital accounts” .
“ Capital paid in” , reflecting payments for additional shares by member
banks which increased their own capitalization (either by the reinvest­
ment of earnings or by the sale of new capital stock), rose 3.1 million
dollars.
As a result of proportionately greater declines in this bank’s
deposit and note liabilities than in its gold certificate reserves, the ratio
of gold certificate reserves to the combined deposit and note liabilities
increased sharply during 1949 to 62.2 per cent, the highest year-end
ratio since 1943.
E arnings

and

E xpenses

Gross earnings of the Federal Reserve Bank of New York rose




51

FEDERAL RESERVE BANK OF NEW YORK

2.4 million dollars in 1949 to a record high of 75.6 million. This rise
was occasioned almost entirely by an increase in income from Govern­
ment securities, reflecting the effect of a greater average volume of
Treasury bond holdings (in contrast to the reduced year-end holdings)
and also somewhat higher average annual yields on shorter-term Treas­
ury obligations. Total income from advances remained small and
approximately unchanged from the 1948 level. A rise in income from
advances to member banks secured by Government securities, which
reflected both higher rates and a higher average volume, was just about
counterbalanced by a decline in income from a lower average volume
of loans to foreign banks secured by gold.
Net expenses increased 900,000 dollars to 17.4 million dollars,
reflecting moderate salary increases and generally heavier expenses of
operation, including the cost of supplying Federal Reserve currency.
After deducting net expenses, current net earnings amounted to 58.3
Profit and Loss Account
For the Calendar Years 1949 and 1948

(In thousands of dollars)
1949
Earnings ..............................................................
$ 75,640
17,350
Net expenses......................................................
Current net earnings .........................
$ 58,290
Additions to current net earnings:
Profit on U. S. Government securities
sold (net) ...............................................
$ 7,653
7
All other ......................................................
Total additions ...................................
$ 7,660
Deductions from current net earnings:
$ 9,765
Reserves for contingencies .......................
Retirement System (Adjustment for re­
667
vised benefits) .......................................
3
All other ......................................................
Total deductions ...............................
$ 10,435
Net earnings ......................................................
$ 55,515
Dividends paid ...................................................
$ 4,220
Paid United States Treasury (Interest on
46,165
Federal Reserve notes) .................................
5,130
Transferred to surplus (Section 7) ................
Surplus (Section 7) beginning of year ........
$ 143,019
5,130
Addition as above .............................................
148,149
Surplus (Section 7) end of y ear...................
$




1948
$ 73,223
16,467
56,756
$

$

1,502
4
1,506

$

9,884

$

4
9,888
48,374
4,142
39,809
4,423
$ 138,596
4,423
$ 143,019
$
$
I

52

THIRTY-FIFTH ANNUAL REPORT

million dollars, or 1.5 million more than in 1948. Additions to current
net earnings consisted almost entirely of the net profits on sales of
Government securities, and amounted to 7.7 million dollars. Deductions
from current net earnings were made for the purpose of adding to
reserves for contingencies and for payments to the retirement system,
and totaled 10.4 million dollars.
Net earnings after all adjustments but before dividends totaled
55.5 million dollars, or 7.1 million more than in 1948. The usual
statutory dividend of 6 per cent, amounting to 4.2 million dollars, was
paid to the member banks. Of the remaining net earnings, 46.2 million
dollars, or 90 percent, was transferred to the United States Treasury in
payment of an interest charge on Federal Reserve notes levied by the
Board of Governors of the Federal Reserve System under Section 16 of
the Federal Reserve Act. The balance of the year’s earnings, 5.1 million
dollars or 10 per cent of net earnings after dividends, was transferred
to the bank’s regular (Section 7) surplus account.

Changes in Membership
Three State banks and trust companies in the Second District were
admitted to membership in the Federal Reserve System during 1949.
There was a net decline of 13 banks in the District membership, however,
Number of Member and Nonmember Banks in
Second Federal Reserve District at End of Year
(Exclusive of savings banks, private bankers, and industrial banks)
December 31,1949
Type of bank

December 31,1948

Non­
Per cent
Per cent
Non­
Members members members Members members members

National banks ............
State banks and
trust companies ___

526

0

100

532

0

100

244

116

68

251

115

69

Total ......................

770

116

87

783

115

87

Changes in Federal Reserve Membership in Second District during 1949
Total membership beginning of yea r...................................................

783

Increases:
State banks and trust companies admitted ..................................

3

Decreases:
Member banks combined with other members..............................
Withdrawals from membership ....................................................

13
3

Total membership end of year ...........................................................

770




FEDERAL RESERVE BANK OF NEW YORK

53

owing to mergers of 13 member banks with other members and the with­
drawal* from membership of 3 banks because of the statutory capital
requirements for member banks with branches.1 At the end of the year,
there were 770 member banks, which constituted 87 per cent of all
national banks, State banks, and trust companies in the District and
which held 95.6 per cent of the total assets of all such institutions. All
national banks are members and 68 per cent of the State banks and trust
companies in this District are also members.

Changes in Directors and Officers
In July 1949, Marion B. Folsom, Treasurer and Director of the
Eastman Kodak Company, Rochester, N. Y., was elected by member
banks in Group 2 as a Class B director for the term ending December 31,
1950, to fill the vacancy caused by the resignation of Charles E. Adams,
Chairman of the Board of the Air Reduction Company, Incorporated,
New York.
At a regular election in the fall of 1949, John C. Traphagen, Chair­
man of the Board of the Bank of New York and Fifth Avenue Bank,
New York, was elected by member banks in Group 1 as a Class A director
for a term of three years, beginning January 1,1950, to succeed Winthrop
W. Aldrich, Chairman of the Board of The Chase National Bank of the
City of New York, whose term expired on December 31, 1949. At the
same time, Lewis H. Brown, Chairman of the Board of the JohnsManville Corporation, New York, was reelected by member banks in
Group 1 as a Class B director for a three-year term beginning January 1,
1950.
In December, the Board of Governors of the Federal Reserve System
redesignated Robert T. Stevens, Chairman of the Board of J. P. Stevens
& Co., Inc., New York, as Chairman and Federal Reserve Agent for the
year 1950. William I. Myers, Dean of the New York State College of
Agriculture, Cornell University, Ithaca, N. Y., was reappointed Deputy
Chairman for the year 1950.
In December also, the directors of this bank appointed Bernard E.
Finucane, President of the Security Trust Company of Rochester, a
director of the Buffalo Branch for a term of three years, beginning
January 1, 1950, to succeed Raymond F. Leinen, Executive Vice Presi­
dent of the Lincoln Rochester Trust Company, Rochester, whose term
1 The Federal Reserve System has urged modification of capital requirements in such
cases to remove this obstacle to membership.




54

THIRTY-FIFTH ANNUAL REPORT

expired on December 31, 1949. George F. Bates, President of the
Power City Trust Company, Niagara Falls, N. Y., was also appointed
a director of the Buffalo Branch for a term of three years, beginning
January 1, 1950. Mr. Bates succeeds C. George Niebank, President of
the Bank of Jamestown, Jamestown, N. Y., whose term expired on
December 31,1949. The Board of Governors appointed Edgar F. Wendt,
President of the Buffalo Forge Company, Buffalo, N. Y., as a director of
the Buffalo Branch for a term of three years, beginning January 1, 1950.
The directors of this bank designated Lewis B. Swift, President of
the Taylor Instrument Companies, Rochester, N. Y., as Chairman of the
Board of Directors of the Buffalo Branch for the year 1950.
C hanges

in

O f f ic e r s

Walter C. Warner, formerly Acting Manager of the Credit and
Discount Departments, was appointed a Manager, effective June 23, 1949,
his assignment to those departments being continued.
Curtis R. Bowman, formerly Manager of the Government Bond
and R.F.C. Custody Departments, was appointed Assistant General
Auditor, effective October 1, 1949.
James J. Carroll, Manager of the Planning Department, was also
appointed Assistant Secretary, effective October 1, 1949.
John J. Clarke, formerly Assistant Secretary, was appointed Secre­
tary, effective October 1, 1949, succeeding William F. Treiber in that
office. Mr. Treiber continued as an Assistant Vice President, and Mr.
Clarke as an Assistant Counsel.
Marcus A. Harris, formerly Assistant General Auditor, was re­
appointed a Manager and assigned to the Government Bond and R.F.C.
Custody Departments, effective October 1, 1949. He continued in that
assignment until January 5, 1950, when he was appointed an Assistant
Vice President.
Harold A. Bilby, formerly an Assistant Vice President, was ap­
pointed a Vice President, effective January 5, 1950.
M

em ber

of

F

ederal

A

d v is o r y

C o u n c il

At its meeting on January 5, 1950, the Board of Directors of this
bank selected N. Baxter Jackson, Chairman of the Board of Directors
of the Chemical Bank & Trust Company, New York, N. Y., to serve
during the year 1950 as the member of the Federal Advisory Council
from the Second Federal Reserve District.




FEDERAL RESERVE BANK OP NEW YORK

55

Directors and Officers
Class

Group

DIRECTORS

Term
expires
Dec, 31

A

1 John C. T raphagen .............................................................................
Chairman of the Board, Bank of New York and Fifth Avenue
Bank, New York, N. Y.

1952

A

2

Frederic E. W orden .............................................................................
Chairman of the Board, and President, The National Bank of
Auburn, Auburn, N. Y.

1950

A

3

R ocer B. Prescott .............................................................................
President, The Keeseville National Bank, Keeseville, N. Y.

1951

B

1 L ewis H. Brown ...................................................................................
Chairman of the Board, Johns-Manville Corporation, New
York, N. Y.

1952

B

2

M arion B. F olsom .............................................................................
Treasurer and Director, Eastman Kodak Company, Rochester,
N. Y.

1950

B

3

Jay E. Crane .........................................................................................
Director, Standard Oil Company (New Jersey), New York,
N. Y.

1951

C

R obert T. Stevens, Chairman, and Federal Reserve A g e n t..........
Chairman of the Board, J. P. Stevens & Co., Inc., New York,
N. Y.

1950

C

W illiam I. M yers, Deputy Chairman ...............................................
Dean, New York State College of Agriculture, Cornell
University, Ithaca, N. Y.

1951

C

Vacancy

1952

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

DIRECTORS — BUFFALO BRANCH

Term
expires
Dec. 31

Lewis B. Swift, Chairman .........................................................................................
President, Taylor Instrument Companies, Rochester, N. Y.

1950

Clyde C. Brown .............................................................................................................
President, The Cuba National Bank, Cuba, N. Y.

1950

George G. K leindinst .................................................................................................
President, Liberty Bank of Buffalo, Buffalo, N. Y.

1951

Carl G. W ooster .........................................................................................................
Farmer, Union Hill, N. Y.

1951

George F. Bates ...........................................................................................................
President, Power City Trust Company, Niagara Falls, N. Y.

1952

Bernard E. Finucane ...................................................................................................
President, Security Trust Company of Rochester, Rochester, N. Y.

1952

Edgar F. W endt ...........................................................................................................
President, Buffalo Forge Company, Buffalo, N. Y.

1952

MEMBER OF FEDERAL ADVISORY COUNCIL
N. B a x t e r J a c k s o n ,
Chairman of the Board of Directors, Chemical Bank & Trust Company,
New York, N. Y.




56

THIRTY-FIFTH ANNUAL REPORT

OFFICERS
President
J o h n H . W i l l i a m s , Economic Adviser
L e s l ie R . R o u n d s , First Vice President
A r t h u r P h e l a n , Vice President
H a r o l d A . B il b y , Vice President
H a r o l d V . R o e l s e , Vice President
H e r b e r t H . K i m b a l l , Vice President
R o b e r t G . R o u s e , Vice President
L . W e r n e r K n o k e , Vice President
V a l e n t in e W i l l i s , Vice President
W a l t e r S . L o g a n , Vice President and
R e g in a l d B . W il t s e , Vice President
General Counsel
A llan Spro ul,

R u fu s J . T r im b l e ,

T odd G . T ie b o u t ,

Assistant General Counsel

Assistant General Counsel
D o n a l d J. C a m e r o n ,

H o race L . San fo r d ,

Assistant Vice President
W

F e l ix T . D a v is ,

Assistant Vice President
N o r m a n P . D a v is ,

O tto W . T enE y c k ,

Assistant Vice President
W

M ar cu s A . H a r r is ,

Assistant Vice President

S p e n c e r S . M a r s h , J r .,

F. A b r ah am s,

Manager, Security Custody Department

Manager, Securities Department
M

H arry M . B oyd,

o bert

H. Brom e,

Assistant Counsel
W

esley

J. M cL a u g h l i n ,

ic h a e l

Manager, Cash Custody Department,
and Manager, Government Check
Department

Manager, Safekeeping Department
R

u rts,

Assistant Vice President

Assistant Vice President
il l ia m

Assistant Vice President
i l l i a m F. T r e ib e r ,
Assistant Vice President

John H . W

S i l a s A . M il l e r ,

W

Assistant Vice President
i l l i a m F. S h e e h a n ,
Chief Examiner

0 . E rn est M

oore,

Manager, Research Department

W . B u rt,

Manager, Savings Bond Department

F r a n k l in E. P e te r so n ,

Manager, Collection Department

Jam es J. C arroll,

Manager, Planning Department, and
Assistant Secretary

W

alter

H . R o z e l l , J r .,

Manager, Foreign Department
R a l p h W . Sch effer,

J o h n J. C l a r k e ,

Secretary, and Assistant Counsel

Manager, Service Department
C h arles N . V an H o u ten,

Manager, Government Bond Department,
and Manager, R.F.C. Custody Department

H o w a r d D . C r o sse,

Manager, Bank Relations Department
W

P a u l R . F it c h e n ,
W

il l ia m

alter

C. W

A . H e in l ,

Manager, Personnel Department
P e te r P . L a n g ,

R oy E. W

en dell,

Manager, Check Department
H arold M . W

Manager, Accounting Department
W

il l ia m

C u r t is

R.

arner,

Manager, Credit Department, and
Manager, Discount Department

Manager, Cash Department

essel,

Manager, Accounting Department
General Auditor
Assistant General Auditor

H . D il l i s t i n ,

Bowman,

OFFICERS— BUFFALO BRANCH
I nsley B. S m it h ,
H alsey W . S n o w ,

General Manager
G e o r g e J. D o ll .




Assistant Cashier

Cashier
M. M onroe M yers,

Assistant Cashier

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