Full text of Annual Report of the Federal Reserve Bank of New York : Thirty-Eighth Annual Report of the Federal Reserve Bank of New York for the Year Ended December 31, 1952

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THIRTY-EIGHTH

ANNUAL REPORT
OF TH E

FEDERAL RESERVE BANK OF NEW YORK

For the Year Ended December 31

1952

Second Federal Reserve District

FEDERAL RESERVE BANK
OF NEW YORK

March 9, 1953

To the Stockholders of the
Federal Reserve Bank of New York:
I am pleased to transmit herewith the thirtyeighth annual report of the Federal Reserve Bank
of New York reviewing the year 1952.

A ll a n Sp r o u l ,

President.

Contents

The Year in Perspective................................................................................
Economic Progress in the United States ........................................
International Economic Developments ..........................................

The United States Economy in 1952 ........................................................
Approaching the Peak of Rearmament Demands.......................
The Strength of the Civilian Economy............................................
The Sideways Movement of Prices ...................................................

Economic Trends in the Second D istrict..................................................
Federal Reserve Credit P o licy .....................................................................
Reliance upon General Credit Controls..........................................
Impact of System Policy on the Money Market and the Govern
ment Security Market ..................... ................................................
Growth of Bank Credit and the Money Supply...........................
Revival of the Discount Mechanism.................................................

The Sources, Uses, and Cost of F u n d s......................................................
The Over-all Pattern of Borrowing and Lending.........................
Conditions in the Capital and Credit Markets ...........................
Financing Costs ....................................................................................

The United States in the World Econom y...............................................
The Changing Dollar Problem .........................................................
The Changing Pattern of Foreign Aid ..........................................

Financial and Economic Developments A broad.....................................
Rearmament and the Control of Inflation......................................
Progress Toward International Payments Balance.....................
Developments in the New York Foreign Exchange Market . . . .

Volume and Trend of the Bank’s Operations .........................................
Domestic Operations ..........................................................................
Foreign and International Operations ............................................

Financial Statements ....................................................................................
Statement of Condition ......................................................................
Earnings and Expenses........................................................................

Changes in M em bership................................................................................
Changes in Directors and Officers...............................................................
Changes in Directors............................................................................
Changes in Officers ..............................................................................
Member of Federal Advisory Council............................................

List of Directors and Officers, January 9? 1953

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

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Charts
Page

Changes in Major Components of Gross National Product
by Half-Years, for 1951 and 1952 ...................................

Nonagricultural Employment in the United States and the
Second District .......................................................................

Changes in Factors Affecting Member Bank Excess Reserves
during 1952 ..............................................................................

Free Reserves and the Issue Rate on Treasury Bills, 1952

Net Demand for and Sources of Credit and Capital Funds

Quarterly United States Exports and Imports of Goods and
Services, 1951 and 1952 ........................................................

Gold and Dollar Holdings of Selected Countries and Areas

Thirty-Eighth Annual Report

Federal Reserve Bank of New York
The Year in Perspective

URING the initial period of reconversion, reconstruction, and planning
for the future that followed World War II, the year 1952 was singled
out as the distant date when many challenging goals were to be achieved.
It was to mark the end of the postwar “transition” period, when the world
would be ready for the International Monetary Fund to preside over a
system of convertible currencies and an unobstructed flow of trade. With
the launching of the four-year Marshall Plan in 1948, sights were fixed
on achieving “dollar viability” for Western Europe, and indirectly for the
other friendly countries of the world, by 1952. The outbreak of hostilities
in Korea in June 1950 disrupted these plans, and threatened to interrupt
the remarkable progress that had been achieved up to that time. Then
a new focus was placed on 1952 as the year in which a revived defense
effort in the United States would approach its peak. Subsequently, 1952
was also set as the target date for completing the skeleton of a unified
military force for the defense of Western Europe.
Thus 1952 brought together a constellation of goals, all of world-wide
significance, and all dependent in part for their fulfillment upon the vigor
and capacity of the American economy itself. While it was no doubt
inevitable that the reach should exceed the grasp, and while there have
been many disappointments, the record of achievement in strengthened
military preparedness, and in economic production and trade, has been
substantial both here and abroad in the years following World War II.
The “transition” period is not yet over; there is a basis now for feeling
that in some respects it may continue for years to come; but some necessary
foundations have been laid for sustained economic progress — for growing
production, employment, and trade — within and among the free nations
of the world. The grave threat is that of prolonged military and economic
tension provoked by Soviet imperialism. If that threat can be removed or
held at bay, the economic underpinnings that had been put into place by
the end of 1952 promised a basis for eventual attainment of the broad
objectives, if not the specific forms, of the original postwar goals.

T \

THIRTY-EIGHTH ANNUAL REPORT

Economic Progress in the United States

The disruptive inflation which had broken out intermittently through
the first five postwar years was halted in 1951, and many prices settled
downward in 1952. Consumer prices, which had lagged behind the in
flationary surge of wholesale prices that occurred after the Korean out
break in June 1950, moved generally sideways through the year 1952, and
wholesale prices declined. By the year end, the index of sensitive com
modity prices had fallen back close to the pre-Korea figure.
While developments during 1951 had foreshadowed the possibility of
further price corrections, and of generally stable economic conditions, the
economic forecasters were uneasy at the beginning of 1952. The defense
program was scheduled to rise to an annual rate of 65 billion dollars by
the end of December, a year-to-year increase of 20 billion. Consumer
incomes were certain to remain high and demand was likely to continue
strong, while record outlays for business plant and equipment were in
dicated by surveys of the plans already launched. Moreover, the projected
further increases in Government expenditures were expected to require in
1952, for the first time since the Korean outbreak, substantial Govern
mental borrowing to finance a cash deficit of perhaps 10 billion dollars for
the calendar year. In the face of these prospects, two troublesome ques
tions arose. Could the surprising elasticity already demonstrated by an
economy operating at almost full capacity be stretched even further;
could it provide increases in the real volume of goods and services produced,
and changes in their composition, comparable to those that had been
attained in 1951? And, even if it could, would it be possible to avoid an
inflationary expansion of credit as massive additional demands were placed
upon the economy?
What happened was a substantial growth in production, and at the
same time a gratifying degree of price stability. It proved advisable to
lower the scheduled peak of defense expenditures somewhat, and to spread
out the increases over 1952 and on into 1953. But, while this softening
of the impact of the defense program was no doubt a major factor in
averting inflationary strains, that modification would not have been enough
without the resilience, adaptability, and further growth of the economy
itself. The behavior of consumers was also a stabilizing influence. There
was no repetition of the spending sprees that had occurred in the late
summer of 1950 and early in 1951, and liquid savings continued to grow,
roughly matching the growth in long-term capital requirements. An

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

important part was also played by the continued development of the
potentialities for credit control that had been opened up in the spring of
1951 — by preventing an excessive addition to the money supply, and by
creating an atmosphere of credit restraint conducive to more effective
utilization of the economy’s real resources.
In the final result, Government expenditures for defense rose to an
annual rate of roughly 55 billion dollars by December 1952, a rise from
the end of 1951 of about 10 billion dollars, or only half the increase
originally projected. Over the same period, the nation’s gross product
rose by an estimated 23 billion dollars (annual rate), permitting a sub
stantial increase in personal consumption expenditures, while private
domestic investment expanded slightly more than had been estimated at
the beginning of the year. Although business inventories increased moder
ately, as described further in the next section of this Report, the absorp
tion of current production in expanding inventories was much less for the
year as a whole than in 1951. This change reflected in part the workingout within the year of needed correction in the overbalanced stocks of
some soft goods lines and may also have reflected, among other factors,
the inducement to tighter control of inventory positions resulting from the
more general restrictions upon credit availability. The net effect, over
much of the period that defense expenditures were rising rapidly, was
some shift of resources from production for inventory to production for
current use, thus making possible a greater combined increase in Govern
ment expenditures, consumption, and plant and equipment outlays than
would have been permitted solely by the expansion of the gross product
itself. Over the last half of the year, the increase in defense expenditures
was relatively small, and the continued additions to total output flowed
partly into inventories, as well as into other investment and consumption.
Mainly because of the cutback in scheduled defense expenditures, the
Government’s cash deficit for the calendar year emerged as 1.6 billion
dollars, instead of 10 billion. However, owing largely to the seasonal pat
tern of Treasury receipts, the Government’s cash borrowing demands during
the last half of the year did aggregate nearly 9 billion dollars (to cover
both the Government’s operating cash requirements and cash redemptions
of other outstanding debt). This volume of Governmental demand for
credit was superimposed on a record volume of security flotations by State
and local governments and a new peak in private capital demand. Fortu
nately, these demands were met very largely by a record volume of liquid
savings.

THIRTY-EIGHTH AN NUAL REPORT

Although the combined additions (net) to debt and equity financing
were more than one-fourth larger than the comparable increases in 1951,
and represented an unprecedented aggregate volume for any period short
of total war, the volume of additional credit provided by the commercial
banking system through the expansion of demand deposits was much less
than in 1951. A larger part of the increase in commercial bank credit in
1952 represented channeling of new time and savings deposits at com
mercial banks into productive uses. Correspondingly, the over-all growth
in the money supply (adjusted demand deposits plus currency in circula
tion) was about 4 billion dollars, or roughly 3 per cent, compared with a
rise of almost 7 billion dollars, or nearly 6 per cent, in 1951. Much of the
explanation for the restraint upon bank credit expansion, in the face of
aggregate demands for funds of potentially inflationary proportions, lay
in the firmer control exercised over the general availability of money and
bank reserves during 1952.
The effectiveness of monetary and credit policy over the past year
resulted mainly from a flexible use of open market operations by the
Federal Reserve System which caused member banks to become substan
tial borrowers of reserve funds. The basis for flexible open market opera
tions was established by the Treasury-Federal Reserve accord in March
1951. Borrowing at the Reserve Banks again became an effective instru
ment of credit restraint when the System became able, on its own initiative,
to control the flow of its funds into the Government security market. Once
the banks could be kept more or less continuously dependent upon borrow
ing to meet deposit drains and increases in their required reserves, they
understandably became more cautious, reluctant lenders and investors. In
addition, the new Federal Reserve policy initiated in 1951 also exerted a
restraining influence upon the other major types of financing institutions.
With funds no longer readily available from the Federal Reserve through
sales of Government securities in the market, these other lenders had to
schedule their loans and investments within the limits set by the flow of
new savings coming to them and funds arising from repayment of past
loans or investments (and whatever sales could be made out of their
portfolios to others already in possession of investable funds). The induce
ment thus given to attracting additional savings, and to weighing care
fully the relative merits of competing outlets for funds, helped to provide
the financial framework for a noninflationary accommodation of the heavy
demands placed upon the economy’s resources in 1952.
By the end of the year, the economy had largely completed the

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

physical tasks of making room for an expanded defense program, and
barring a further deterioration in international relations could again turn
the greater part of its capacity for expansion to meeting civilian needs.
Because defense expenditures presumably would continue at high levels
for some time, there was no prospect of major reconversion problems, nor
of serious “gaps” in demand to be opened up by a swift curtailment of
Government spending. Nor would there, because of the successful mainte
nance of civilian production during the defense build-up, be large accumu
lated backlogs of pent-up deferred consumer demand. The stage was set
for a resumption of the orderly processes of growth and change of an
economy responsive to the free choice and spending decisions of private
consumers, and to the stimulus exerted by the competitive efforts of private
enterprise to serve these consumer markets.
This was a promising, and a challenging, outlook. But there were
disturbing questions. Could the private economy continue to generate
sustained high level employment without temporary, perhaps serious,
lapses as changes or corrections occurred in one sector of the economy or
another? Would over-all economic activity again reflect, for example,
those characteristic inventory cycles that had recently been submerged
beneath the dominating influence of increases in Government spending?
Would there be a resumption of long waves of fluctuation in housing and
construction activity? Would there be a slump in business plant and
equipment expenditures because the creation of stand-by capacity for
defense might mean excess capacity for continuing civilian requirements?
Would consumers themselves continue to spend at high rates, or had
there been, for example, an approach to saturation of the demand for many
types of consumer durables? Would savings outrun the outlets for profit
able investment? Was the consumer and mortgage debt structure too
large, so that any decline of incomes would exert a whipsaw effect as
production and employment had to give way to the prior claims of debt
repayment upon temporarily reduced incomes? Or was it necessary, as
an offset to these various uncertainties, for Government to assure a con
tinuous injection of additions to demand — injections that might result in
continuous rises in prices, in creeping inflation, instead of the general
stability or reduction of prices that might be hoped for as a means of
spreading more widely and efficiently the results of our enormous produc
tive capacity?
There was little immediate concern over these questions at the close
of 1952; the early prospects for 1953 pointed toward more consumer

THIRTY-EIGHTH ANNU AL REPORT

spending, slight further increases in defense outlays, sustained plant and
equipment expenditures, and a strong housing market. In fact, the risk
most frequently mentioned was that of an “over-confidence boom”. But
for the longer run, these other questions had to be weighed against the
capabilities already demonstrated by the economy before Korea — capabili
ties for “rolling readjustment”, for aggressive innovation under the com
petitive pressure of buyers’ markets, and for recovering from such brief
but general corrective downswings as that of 1949. By checking inflation
during the period of rapid defense build-up in 1951 and 1952, the economy
was better prepared for the maintenance of economic stability in the years
ahead.
International Economic Developments

Inflation had generally been halted around the world by the end of
1951 and did not break out again in 1952. Although there were threaten
ing signs at one time or another in countries as far apart as Austria and
Norway in Europe, or Australia and South Africa in the sterling area, the
prevailing tendency was for stability or decline in wholesale prices in most
countries. Several South American countries, largely for special internal
reasons, were the notable exceptions, and some of them had apparently
reached at least a temporary price plateau by the year end. The scare
buying that followed the outbreak of hostilities in Korea in 1950 had
injected disturbing price distortions into the economies of primaryproducing and industrial countries alike. But the general tapering-off
of prices in 1951 and the succession of corrective realignments that con
tinued on through 1952 had, by the year end, brought about a notable
decline in the price averages and an approach toward equilibrium in the
interrelations among the prices of the major commodities in world trade.
The cessation of world-wide inflation was not merely the outcome
of a “scare-buying cycle” running its course — from excess to retrench
ment to balance — but reflected actions taken to deal with important
internal sources of inflationary dangers in many countries. All faced the
common challenge raised by growing government budgets, and the accom
panying threat that budget deficits and excessive monetary expansion
would be superimposed on economies that were already close to the maxi
mum employment of men and resources permitted by existing productive
facilities. In some countries the overriding urge, and a growing one since
the end of World War II, was to expand social services; in others, it was
to speed industrialization (or mechanization); and in others it was, more

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

broadly, to raise the standard of living; but regardless of emphasis, every
country wanted some part of all of these. The common danger was that
of trying to do too much too fast, and of precipitating the distortion, waste,
and uneconomical direction of effort that come with inflation. To all of
this had been added, particularly for the countries of Western Europe, the
great enlargement of defense programs that followed the Korean outbreak
in 19S0.
It was thus in some measure a reflection of internal restraint by most
of the Western countries that inflation did not break out again in 1952.
Government budgets were not all balanced; actually only a few succeeded
in that. But there was growing concern over “budget discipline”, and in
most countries vigorous efforts were made to finance whatever budget
deficits emerged through methods that would exert the least inflationary
impact. As a counterpart of tighter fiscal policies, monetary and credit
restrictions were much more widely imposed, in 1951 and 1952, than at
any other time in the past two decades, thus helping to curb any tendencies
toward an insupportably large growth of private investment and spending.
For Western Europe another important factor in avoiding inflation
during 1952 was the downward revision that became apparent in the scale
of defense outlays, compared with original projections. Unlike the situa
tion in the United States, however, this stretching-out, or cutting-back
(whichever it may prove to be) did not come after most of the ground
toward the original goals had been covered. The combined defense expen
ditures of the European members of the North Atlantic Treaty Organiza
tion had reached an estimated annual rate equivalent to roughly 10 billion
dollars at the end of 1952, and most of these countries were still attempting
to wedge into their economies some further additions to their defense pro
grams. A major persisting uncertainty for Western Europe thus con
tinued to be the risk that more defense spending in fulfillment of existing
plans might bring more inflation (unless offset by reduced spending for
other purposes), while the United States had largely passed through that
stage by the end of 1952. Also in contrast with our experience, Europe
did not succeed for the year as a whole in raising production as a significant
offset to potential inflationary pressures. Increases in heavy manufactur
ing barely offset the decline in the lighter industries and on balance over
all industrial production appeared to be about the same as in 1951. A
general rise was apparent in the final quarter of 1952, however, and good
harvests provided a moderate increase in per capita food production during
the year.

THIRTY-EIGHTH ANNUAL REPORT

Along with the subsidence of inflation, most countries also experienced
improvement in their net balance-of-payments position. This did not
reflect, however, an increase in the volume of international trade, but was
instead the mixed result of an expansion in some exports that was more
than offset by increasingly severe restrictions upon imports on the part of
countries most threatened by unbalance in their international accounts —
notably the sterling area group. While an approach to balance that
depended upon further direct restrictions upon the flow of trade and inter
national payments was widely regretted, as a deviation from the long-run
goals for economic expansion throughout the “free” areas of the world,
the results in terms of strengthened international monetary reserves
were encouraging. Stronger reserves might eventually, it was hoped,
provide the base from which to move toward relaxation of the restraints
upon trade and currencies, and toward a gradual self-sustaining expansion
in the volume of world trade and production.
There was a moderate decline in trade, not only among the other
friendly countries of the world but also in their combined merchandise
trade with the United States. Correspondingly, although many countries
came close to over-all balance in their accounts and a number succeeded in
adding to their aggregate foreign exchange reserves, there was still a con
siderable “dollar gap” in the relations of the rest of the world with the
United States. Nonetheless, largely because the combined amount of
dollars supplied through grants of foreign aid, Government loans, and
private investment abroad exceeded the aggregate amount of the world’s
dollar deficit, some countries were able to increase their reserves of gold
and dollars as well. Compared with the peak dollar gap of more than
11 billion dollars in 1947, the aggregate deficit of about 2^4 billion
dollars on trade and services account (excluding military aid) in 1952
represented a decisive improvement. Similarly, the combined holdings of
gold and dollars by foreign countries (excluding gold holdings of the
USSR), which had hovered around 15 billion dollars through 1948 and
1949, had nearly reached 20 billion by the end of 1952. The increase in
the last year, including both dollar earnings and additions of newly mined
gold, was about 0.9 billion dollars.
The persistent problems in restoring a sustainable and adequate flow
of trade, which had been aggravated by World War II and then partly
obscured by events following the Korean outbreak, again came to the fore
front of world concern in 1952. In part, solutions were sought through
further integration among the European economies, and in building trade

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

relations among the other countries of the world outside the United States.
Continued functioning of the Organization for European Economic Co
operation, and its European Payments Union, as well as initial success in
establishing the North Atlantic Treaty Organization as a vehicle for
coordinated economic (as well as military) effort, and the development
of the Schuman Plan organization for unified control over Continental
European coal and steel production, all represented temporary or perma
nent regional achievements in 1952. Technical assistance for both the
industrialized and the nonindustrialized countries was provided in in
creasing scope, under the auspices of the United Nations, the Interna
tional Bank and Fund, the Colombo Plan for southeast Asia, and our own
Technical Cooperation Administration. But the long-run, underlying
challenge still remained that of achieving a sustainable balance, and a
framework for growth and stability, in the international economic rela
tions of the other friendly countries of the world with the United States.
There was a wholesome shift of emphasis abroad during the year,
epitomized by the phrase “trade, not aid”. The clear implication was that
other countries recognized their basic need as that of expanding produc
tivity and achieving a balanced output of the goods and services for which
they possessed a comparative economic advantage in manpower and
resources. There was a further implication that the United States should
go as far as practicable in opening its markets to the products of the rest
rest of the world.
The United States Economy in 1952

Most comprehensive indicators of business activity in the United
States reached new peaks during 1952, but for the most part the gains
were moderate and centered in the latter part of the year. For 1952 as
a whole, the total dollar volume of goods and services produced was 5
per cent greater than in 1951, but about half of this advance was attribut
able to the higher average price level which prevailed in 1952.
Approaching the Peak o f Rearmament Demands

Increases in production were unevenly distributed, as among major
components of gross national product and as between the first half and
the second half of the year. The accompanying chart shows the principal
changes, by half-years, occurring in 1951 and 1952. The outstanding
development shown by the chart is the sharp falling-off of additions to
national defense expenditures. In 1951 increases in defense expenditures
absorbed most of the growth in gross national product, while increases

THIRTY-EIGHTH AN NUAL REPORT

CHANGES IN MAJOR COMPONENTS OF GROSS NATIONAL PRODUCT
BY HALF-YEARS, FOR 19S1 AND 1952

Source: U. S. Department of Commerce. Data for half-years based on changes in quarterly data, e.g., a
second-half change was computed as the change from the second to the fourth quarter.

in consumer expenditures and other demands, though considerable, re
flected price increases in the first half of the year and were made possible
in the second half, in effect, by a decisive reduction in the rate of business
inventory accumulation. In 1952 inventory curtailment continued through
the first half of the year, again roughly offsetting the increases in personal
consumption and other demands, while additions to the gross national
product were concentrated in the national defense sector. Through the
last half of the year, however, defense expenditures were practically level,
and nearly all of the increase in the gross national product became available
to the private sectors of the economy. The leveling-off in defense spending
in the second half of 1952 reflected the effect of the steel strike in July and
August and the stretching-out of delivery dates on some items, but it also
signaled the effects of substantial modifications in the pace, and in the
expected peak volume, of the defense program.
At the end of 1952, defense plans called for further gradual increases,
with spending continuing close to peak levels throughout 1953 and 1954,
and as long thereafter as necessary to achieve preparedness. These re

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

vised defense goals resulted largely from cutbacks in projected orders
for “military hard goods”, in conformity with the principle that had
guided the new defense program from the beginning — that effort
should be concentrated upon preparation of facilities for the output of
military goods, rather than upon stockpiling the goods themselves. The
fact that most of the remaining scheduled rise in defense expenditures
was to be for weapons, planes, and other heavy equipment suggested
that the stimulus of expanding defense activity was already tapering
off by the end of 1952. Much of the additional amount still to be added
to defense expenditures was already reflected in the work and out
lays which necessarily had to be made by the contracting firms many
months ahead of the date of final delivery and Government payment.
Consequently, although the defense program was expected to exert a
steady demand for goods and services at an annual rate of roughly 55
billion dollars for some time to come, the responsibility for the nation’s
further economic growth and development had by the end of 1952 been
shifted back to the private sector of the economy.
The Strength o f the Civilian Economy

The marked growth in defense output during the past two and a half
years has been accomplished without serious curtailment in supplies of
civilian goods. Unlike World War II, we have built up no important
backlog of repressed demand for durable goods and housing. Consumers
have been able to buy a moderately increasing volume of goods and
services, although for a while they experienced delays in obtaining certain
items. At the same time, business has been spending record amounts for
new plant and equipment, in many cases adaptable to either war or peace
time production. The nation’s total manufacturing capacity is estimated
to have expanded by approximately 50 per cent in the seven years since
the end of World War II. Aggregate expenditures for other types of plant
and equipment by utilities, railroads, commercial firms, farmers, and other
enterprises have also been at or close to record levels. In 1952, businessmen
(other than farmers) invested an estimated 26.9 billion dollars in new
plant and equipment, and surveys indicate that they plan to spend nearly
as much on capital goods during 1953.
Some industries reached a state of inventory congestion in the latter
part of 1951 and the early months of 1952. Nondurable goods industries,
such as textiles, leather goods, and paperboard, were forced to cut back
production until they worked off heavy stocks. Producers of consumer

THIRTY-EIGHTH ANN UAL REPORT

durable goods, other than automobiles, reduced output in many cases even
below the levels implied by restrictions then in effect on the use of steel,
copper, and aluminum. The television industry was particularly hard hit
by excessive inventories at factories, distributors, and retail outlets. By
midyear, however, most industries had brought their stocks into better
balance with sales, and thereafter they stepped up production to levels
more nearly equal to current consumer takings.
Even in the early months of the year, when consumer goods inven
tories were heaviest, the over-all rate of industrial production remained
relatively high. The major setback to production during the year was the
steel strike in June and July, which — together with brief shutdowns in
April and May — caused the loss of nearly 20 million tons of steel output.
Recovery from the effects of the strike in both defense and nondefense
lines was exceptionally rapid. The accompanying recovery in many con
sumer goods lines made the rise in production during the latter part of
1952 a general one, and by the fourth quarter industrial production was
at the highest rate since V-E Day. At the start of 1952 there had been
concern that shortages of steel, copper, and aluminum, in particular,
would create serious bottlenecks, dislocating civilian production and con
tributing to inflationary pressure. But the combined effects of modifica
tions in the defense program, increased capacity for steel and aluminum
production, and increased imports of copper (although at higher prices)
prevented extreme strain, and larger allotments — at least of steel and
aluminum — were promised for nonmilitary uses in 1953.
During much of 1952, consumers bought with restraint, in sharp con
trast to their behavior in the early months of the Korean war. Wellstocked stores and relatively stable prices gave little cause for buying
sprees, and retailers often found extensive promotions necessary in order
to move goods. In the final months of 1952, however, there were indica
tions that consumers were beginning to spend somewhat more freely.
Personal consumption expenditures in the fourth quarter of 1952 were
estimated at an annual rate of 222.0 billion dollars, 11.5 billion dollars
more than a year earlier. This rise slightly exceeded the increase in
disposable personal income, leaving estimated net saving at nearly the
same dollar volume as in the fourth quarter of 1951, but at a somewhat
smaller percentage of income. The physical volume of consumption, as
indicated by expenditures in constant prices, was about 4 per cent greater
in the fourth quarter of 1952 than a year earlier, while real per capita
consumption rose 2 per cent. Even so, consumer purchases during the

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

fourth quarter of 1952 fell slightly short of the physical volume of such
purchases during the buying spree in the summer of 1950. As in 1950,
the rise in consumer spending was aided by rapid expansion of consumer
instalment credit, particularly after controls on credit terms were lifted
in May 1952.
The Sideways Movement o f Prices

With consumer demand high but industry’s ability to supply that
demand at least equally high, consumers’ prices were relatively stable
over the year. The December 1952 index of consumer prices was less
than 1 per cent above the December 1951 figure, and no greater than it
was at midyear. The slight rise in the index of consumer prices was
attributable to a continued gradual rise in rents and in the cost of fuels
and services; prices of clothing and homefurnishings were lower at the
end of 1952 than at the end of 1951. Throughout the year, the index
fluctuated within a range of less than 2 per cent. Because of the lower
price level in the early part of 1951, the entire year 1952 averaged about
2 per cent above the year 1951. Wholesale prices during 1952 continued
the downward drift which started in April 1951. The decline was not a
sharp one— 1952 averaged about 3 per cent lower than 1951— but it
was fairly steady. Most of the decline centered in prices of farm products,
which by the end of 1952 were 15 per cent below their March 1951 peak.
Bumper crops, both here and abroad (with consequent reduction of export
demand), and heavy livestock marketings contributed to the decline in
agricultural prices. Prices of commodities other than farm products and
foods showed a slight over-all decline during 1952, largely attributable
to the pressure of heavy inventories, both domestic and international, in
the first half of the year. Some offset to these price declines occurred when
prices of such basic commodities as steel, aluminum, and coal were raised
following wage increases in those industries, but a new wage-price spiral
did not develop, and for the last five months of the year the general level
of industrial prices was virtually unchanged. Against this background,
the price controls imposed under the Defense Production Act during 1951
were successively modified, and controls on many prices were suspended
or removed.
The avoidance of price inflation was apparently the result both of
coincidence and of policy. When defense expenditures were increasing,
and might otherwise (in conjunction with extraordinarily large capital
investment) have generated inflationary pressures, other sectors of the

THIRTY-EIGHTH ANNUAL REPORT

economy were going through a sizable inventory correction. Had the
inventory adjustment not been offset, however, a deflationary movement
might have developed. Later in the year when all civilian sectors were
expanding, and there was some return of inventory accumulation, the de
fense program was stretched out so that it placed only a small additional
demand upon the nation’s resources. The economy thus entered 1953 with
the defense program approaching a plateau, with inventories generally
well balanced, with business investment continuing at high levels, and
with consumer demand rising. The part that monetary and credit policy
played in contributing to the balance achieved in 1952 is discussed in
other sections of this Report.
Economic Trends in the Second District

Business in the Second Federal Reserve District shared in the defense
expansion and the general national prosperity during 1952. Employment
reached a new record, and in October 1952 unemployment claims dropped
to a postwar low. Production by heavy industry in this area expanded
more markedly than in the country as a whole, partly because the steel
strike affected this District’s output less than some of the other major
industrial areas. Some of the more important consumer goods industries
were affected early in the year by reduced demand and the need for
working off heavy inventories. However, once these stocks had been
reduced to better balanced proportions, industry and trade in the Second
District advanced to new peaks.
One of the best indicators of the generally high level of business activ
ity that prevailed in the Second District is the over-all rate of income
payments, which set a new record in 1952. Tentative estimates made at
this bank indicate that income payments in the District were approxi
mately 41 billion dollars in 1952, compared with 38.6 billion in 1951. The
rise in income appeared to be greatest in wages and salaries, while farm
incomes showed little or no gain. The year-to-year increase of 7 per cent
in estimated total income for the District was somewhat greater than the
5 per cent rise in the rest of the United States. In other postwar years
(except in 1949) income payments in the Second District have declined
in relation to the national total.
The relatively better showing in the Second District than in the rest
of the country was concentrated in durable goods manufacturing. For
1952 as a whole, employment in durable goods factories in this area aver
aged 6 per cent higher than in 1951, compared with a rise of less than

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

1 per cent in the country as a whole, while the aggregate number of
workers in nondurable goods manufacturing and in nonmanufacturing
lines showed approximately the same minor year-to-year changes in this
District as in the entire United States. The effects of the steel strike on
this area were relatively minor, except in the steel-producing Buffalo area.
In other sections of the District, many durable goods firms had built up
sizable inventories of steel (or were not directly affected by steel short
ages); consequently, cutbacks in employment were not particularly severe
or prolonged. On the whole, the durable goods industries in the District
have consistently had a sharper rate of growth during the past two
years than those in the country as a whole, as shown in the accompanying
chart. These gains have been centered in the metal-working industries,
particularly aircraft, ordnance, and electrical apparatus. Undoubtedly
the rise in metal-working employment in the Second District reflects the
stimulus of defense orders, while at the same time there may have been
less of an offsetting contraction than there was in other industrial areas
because of materials restrictions in the manufacture of automobiles and
NONAGRICULTURAL EMPLOYMENT IN THE UNITED STATES
AND THE SECOND DISTRICT
(Monthly index numbers; 1947-49 average = 100 per cent)

Percent

Per cent

Source; Computed by the Federal Reserve Bank of New York from dato supplied by the Departments of Labor
o f New York State, New Jersey, Connecticut, and the United States.

THIRTY-EIGHTH ANN UAL REPORT

other consumer durables, which are relatively less important in the Second
District’s metal-working industry.
Nearly 6 billion dollars of defense contracts was received by firms in
the Second District during the first nine months of 1952, bringing the total
since the start of the Korean war to approximately 15 billion dollars, or
over one fifth of the national total. Firms benefiting from these contracts
were principally those producing electronic equipment and other electrical
machinery, aircraft, ordnance, instruments, and photographic equipment.
Some aircraft and tank factories were affected by the defense program
stretch-out; nevertheless, metal-working employment has continued to
account for the major share of this area’s employment increases. Other
types of manufacturing, on the whole, actually employed fewer workers
in 1952 than in 1951.
This District’s major industrial center, New York City, has still
received only a relatively small amount of defense work, either directly
or on subcontracts. In fact, until the closing months of the year New York
City was officially classified as an area of “substantial labor surplus”. To
a large extent, this reflected the persistent weakness in nondurable goods
industries. In the District as a whole, the important apparel industry
showed a moderate rise in employment, but all other major nondurable
goods industries reported lower average employment in 1952 than in 1951.
Even after heavy inventories were worked off by textile, paper, and leather
goods manufacturers, continued cautious buying by their customers tended
to limit the recovery during the latter part of the year.
The increased purchasing power of Second District consumers during
1952 was not fully reflected in retail sales. While not necessarily a repre
sentative indicator of total retail sales, this District’s department store
sales were 5 per cent below those in 1951, whereas most other Federal
Reserve Districts showed increases, averaging about 1 per cent. This
unfavorable comparison resulted mainly from substantial decreases in
department store sales in the metropolitan area of New York City, how
ever, where department stores have been subject to special adverse influ
ences. The rapid growth of the suburbs, the changing character of city
population, traffic and transportation difficulties in main shopping areas,
and the more liberal prices or credit terms offered by some specialty stores
have all played a part in the declining competitive position of department
stores in New York City and elsewhere. The relative showing of all types
of retail sales in the City and the District was considerably better than
that of the department stores alone.

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

In the field of construction, this District appeared to have more than
kept pace with the rest of the country. Available information on permits
and contract awards indicate a somewhat greater increase between 1951
and 1952 in residential building here than in the country as a whole.
(Housing activity as reported in the national totals indicates starts of
more than 1.1 million units in 1952, second only to the record set in 1950.)
Large outlays continued to be made for defense plant expansion and for
increased public works. Contracts for commercial and educational build
ing showed sizable increases in this area, whereas in the rest of the country
such construction made only minor gains.
Farmers in the Second District on the whole fared somewhat better in
1952 than those in the nation’s major agricultural areas. Prices received
by farmers, nationally, averaged 5 per cent lower in 1952 than in 1951
with major price declines centered in such products as livestock and
cotton. However, for major Second District products, such as dairy
and poultry products, fruits, and vegetables, prices were generally well
maintained; a composite index of prices received by New York State
farmers rose 6 per cent in 1952. Production of both milk and eggs
in the District rose in 1952, and the potato crop was about one-tenth
larger. Truck crops and fruit orchards in some parts of the District
felt the effect of the prolonged dry weather during the summer of
1952. Altogether, cash income from farm marketings in New York
State was about 4 per cent higher in 1952 than in 1951 — a slightly greater
increase than in the country as a whole — but, in New Jersey and
Connecticut, farmers’ cash income declined somewhat. Production costs
continued to rise, however, and apparently resulted in a slightly lower
level of net farm income in this District during 1952.
Federal Reserve Credit Policy

The stability achieved by an economy pressing at the limits of its
productive capacity is precarious, and there is the constant threat that
shifts in the pattern of consumption expenditures, of business outlays, or
of Government spending may disturb the existing equilibrium. When
ever such shifts occur, or become likely, easy access to a ready supply of
bank credit may serve to feed or sustain an inflationary movement. Yet
without some flexibility in the availability of money and credit, necessary
shifts of productive resources may be impeded, or the potentialities of the
economy for larger output may be incompletely realized. The monetary

THIRTY-EIGHTH ANNUAL REPORT

and credit policies of the Federal Reserve System during 1952, therefore,
had to find an appropriate middle ground, seeking a supply of money and
credit adequate to evoke maximum production, while sufficiently limited
to promote the most economical use of available real resources and to
deter inflationary forces.
The policy adopted was to provide the bank reserves necessary to
support normally expected changes in the volume of credit requirements,
but only at such times, and in such forms, as to maintain continual mod
erate restraint on extensions of bank credit. During the early months of
1952, this was a policy of monetary neutrality. Over this period of de
clining seasonal requirements, such a policy involved the use of open
market action to prevent the accumulation of excess reserves in the bank
ing system which might, then or later, encourage easier credit tendencies.
As the year progressed, the seasonal expansion of business credit and the
Treasury deficit financing which pressed upon bank credit facilities
brought about a gradual shift in the effect of Federal Reserve policy from
neutrality to mild and then progressively more marked restraint. Re
serve balances were provided to the banks by the Federal Reserve System
in the last half of the year to replace seasonal reserve drains and to
support a seasonal growth of credit. But security purchases by the
Federal Reserve System for this purpose, both outright and under repur
chase contracts with dealers, were so scaled as to maintain almost con
tinual tightness in the money market and pressure on the reserve positions
of member banks. The degree of restrictiveness involved in this policy
tended to increase through the last quarter of 1952, as expanding credit
demands on the banking system created a greater need to resort to the
“discount windows” of the Reserve Banks for necessary reserve funds.
Reliance upon General Credit Controls

Member banks’ discounts with the Federal Reserve Banks were the
principal source of reserves to offset intramonthly and, in part, seasonal
influences affecting the money market and the demand for credit during
the year. In the early months, declines in the volume of Government
securities held in the System Open Market Account were directed toward
maintaining a degree of reserve pressure that would keep the member
banks on the threshold of borrowing. The primary function of the discount
mechanism was to facilitate banks’ intramonthly adjustments to the usual
swings in the flow of funds. Later in the year, when needs for additional
Federal Reserve credit arose, the System supplied only part of the banks’

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

requirements through security purchases. Increasingly, the banking system
turned to discounting to replace seasonal reserve losses and, in effect, to
obtain the reserves required to support an expanding volume of deposits.
As illustrated in the following chart, discounts provided a major portion
of the reserve balances acquired by the banking system in the last half
of 1952.
The development and execution of a flexible Federal Reserve credit
policy was greatly aided during 1952 by changes that had taken place
during 1951 in the System’s relationship to the Government security
market. In earlier postwar years, the latitude for flexible credit policy was
severely circumscribed by the responsibility assumed by or placed on the
Federal Reserve System to support, through market purchases, the prices
of certain Government securities. After the Treasury-Federal Reserve
accord of March 1951, the policy of rigidly supported prices was aban
doned and System support, as such, was extended only during periods of
Treasury refunding operations. Aid to the Treasury at such times usually
involved System purchases of maturing issues at a slight premium in
CHANGES IN FACTORS AFFECTING MEMBER BANK
EXCESS RESERVES DURING 1952
B ill TonS
of dollars

(Monthly averages of daily figures, cumulated from December 1951;
plus and minus indicate effect on excess reserves)

Billions
of dollars
+ 1.5

+ 1.0
+ 0 .5

-0 .5

-1.0
J

O N

•Includes changes in currency in circulation, gold stock, Treasury cash, “float", and Treasury, foreign, and “other"
deposits with the Federal Reserve Banks.

THIRTY-EIGHTH ANNUAL REPORT

order to prevent any possible impairment of the Treasury’s terms during
the period of the offering and thus assure the maximum volume of
exchanges. In practice, the System usually acquired a large part of the
holdings that would otherwise have been redeemed for cash, and the effect
was to hold the cash drain due to redemptions of maturing issues to a
minimum. Some of the reserves gained by the banks through these oper
ations were recaptured by the System through sales in the market of other
short-term issues. But the policy of aid to the Treasury during debt
operations also imposed restrictions on the scope for flexible credit policy,
particularly in view of the frequency of Treasury refundings, and tended
to make more difficult the development of a free market for Government
securities that would reflect underlying supply and demand conditions.
Therefore, during the latter part of 19S2, the System modified its approach,
attempting to provide only such aid to Treasury refundings as was broadly
compatible with real needs for reserve funds and with the System’s current
credit policy objectives.
The general balance in the economy in the past year, the slower rate
of growth in defense expenditures, and the greater scope for employ
ment of the generalized instruments of credit policy made the selective
credit controls which had been imposed in the two preceding years some
what less necessary for the special purposes that had caused their
adoption under the Defense Production Act of 1950. Regulation W for
control over the down payment and instalment terms of consumer credit
was withdrawn by the Board of Governors in May, and the Congress
did not renew the enabling legislation in June. Following a request by
the President in March that the Voluntary Credit Restraint Program
suspend review of the financing proposals of States and municipalities,
this cooperative screening of all larger loans and investments by the major
institutional lenders was reduced in coverage. In May, the entire Program
was suspended and the authorizations under which the various committees
had acted to recommend priority for defense-related financing lapsed at the
end of June. Congress did extend the authority to control the terms of
real estate loans beyond June, but it provided that the regulations should
be relaxed if housing starts fell below an annual rate of 1,200,000 units for
three successive months. This minimum was not reached in June, July,
or August, and in September the Board suspended its Regulation X
which had provided the basis for control over the terms of conventional
real estate mortgage credit. The removal of these various selective credit
control instruments during the past year posed no immediate threats to

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

stability in any sector of the economy. The steady and rapid growth in
consumer credit after the lifting of Regulation W, however, did lead
to concern over evidences of a competitive deterioration of terms on the
part of some lenders, and over the potential dangers of growing consumer
indebtedness in a period of high level current income.
Impact o f System Policy on the Money Market
and the Government Security Market

In the face of Federal Reserve policies designed to limit the avail
ability of credit, persistent credit demands resulted in almost constant
tightness in the money market after January 19S2. The major exceptions
to the prevailing tightness occurred around the tax payment dates in
March, June, and September, when the Treasury supplied reserves to the
banking system by allowing its balances with the Federal Reserve Banks
to run down temporarily so as to avoid undue strain on the money market
during the tax collection period. In June and September, refunding of
the July 1 and October 1 maturities was undertaken by the Treasury near
the middle-of-the-month tax dates, and System security purchases in aid
of the Treasury operations temporarily strengthened the other factors
making for money market ease at these periods.
However, in each instance, the ease generated was short-lived and
was followed by renewed pressure on bank reserve positions. The funds
provided through Federal Reserve security purchases in June were
partly recaptured by offsetting System sales. In early July the banks
needed higher required reserve balances to support the Treasury deposits
growing out of the bank-financed subscriptions to the 4.2 billion dollars
of new cash financing at that time, and as a result there was a contraction
of excess reserves followed later by some increases in member bank bor
rowing. Federal Reserve credit put into the market in September during
the Treasury financing period served also as part of the planned release
of funds to provide for the banks’ seasonal needs.
Within most months, the pattern of float and currency movements
created moderately easier conditions briefly at midmonth, but at no time
could the banking system rely upon a sure and ready source of reserve
balances, as had been the case when the Federal Reserve System had been
committed to a policy of support of the Government security market. The
competition for available reserve balances served to maintain the rate
on Federal funds in the New York money market for lengthy intervals

THIRTY-EIGHTH ANNUAL REPORT

at levels only nominally below the discount rate at the Federal Reserve
Bank, and the supply of funds offered at these rates was seldom equal
to the demand. As a result of these circumstances, credit extensions
and commitments in 1952 had to be approached by the banks in full
awareness that the necessary funds to support them might be acquired
only with difficulty.
During roughly the first half of 1952, commercial bank lending was
under no particular pressure to expand; loans of all commercial banks
in this period increased at a rate only slightly more than half that for the
similar period in 1951. The principal aim of Federal Reserve credit policy
at this time was to absorb free reserves accruing to the banks from gold
inflows, reduced currency circulation, and other sources. By so doing,
the System hoped to check any tendency the banks otherwise might have
had to seek outlets for such idle funds, and to prevent a build-up of free
reserves at the ready command of the banks that could have given them
greater leeway in meeting credit requests. Had these funds not been
absorbed, their use by the banks would have created a situation of apparent
ease in the money and security markets, instead of caution and restraint.
Once such funds had become imbedded in the deposit base through a further
expansion of bank credit, their eventual recovery for use in financing the
necessary autumn seasonal expansion would have been extremely difficult.
In the last half of the year, the expanded demands upon bank credit
in conjunction with the limited supply of reserves in the money market
caused many commercial banks, anxious to minimize their borrowing
from the Federal Reserve Banks, to dispose of short-term Government
securities and other investments to acquire the funds to meet the credit
demands of their customers. The New York City banks, in particular,
undertook thus to provide for one form of bank credit by disposing of
another. These institutions as a group were under pressure to restrict
their total loans and investments because of a net loss of deposits to
out-of-town banks over the year which occasioned a substantial outflow
of reserve balances. As a result, nearly two thirds of the net increase in
loan credit at the weekly reporting New York City banks in the last six
months of 1952 was offset by a decline in security portfolios, and this
despite the large volume of new Treasury borrowing over the period.
While the record of the New York City banks in this respect was out
standing, the weekly reporting banks in other large cities also reacted to
the System’s policy of credit restraint. Significantly, these larger commercial
banks, which have traditionally operated on the narrowest excess reserve

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

margins, and which are therefore most immediately vulnerable to restrictive
Federal Reserve credit policies, were responsible for much less than their
pro rata share of the increase in total commercial bank credit that actually
occurred in 1952. Only the commercial banks outside the 94 “weekly
reporting” centers showed an aggregate expansion in their investment
portfolios as well as in loans for the last half of 1952.
The frequent use of short-term Government securities in making bank
portfolio adjustments to changes in private credit requirements resulted
in a very close relationship between short-term security yields and condi
tions of ease or tightness in the availability of bank reserves. In the
absence of arbitrary restrictions on changes in market yields, and in a
money market environment that permitted very little slack, this result
was to be expected. At certain periods, particularly in the fall of the year,
heavy nonbank investment was sufficient to absorb bank offerings at
fairly steady yields. But in the closing months of 1952, corporation
investment in short-term Government issues tapered off and in December

THIRTY«EIGHTH ANNUAL REPORT

was replaced by net selling to provide for tax payments and other yearend cash needs. In addition, the sale in October and November of 4.5
billion dollars of tax anticipation bills to mature in March and June raised
the total of Treasury bills outstanding to the highest level on record, and
exceeded the absorptive capacity of the nonbank market. As a result,
bill yields in December climbed to the highest levels in nearly twenty
years. The chart illustrates the relationship between short-term security
yields and the availability of bank reserves over the past year.
Despite the recurring periods of money market tightness, and despite
occasional thinness in the Government security market, trading in Govern
ment securities was conducted in orderly fashion during 1952. Changes
in prices and yields which in other recent years might have occasioned
widespread unease and tension came to be accepted as the normal charac
teristics of a free market. In dealing with the market, the Federal Reserve
Bank of New York made use of repurchase contracts with Government
security dealers and thus aided the maintenance of an active dealer market
when a release of reserves was appropriate to offset temporary or seasonal
factors tending to reduce bank reserves. This device permits the System
to “tie a string” to reserves released into the Government security market,
so that the withdrawal of reserves after the temporary need has passed
is somewhat easier than if outright purchases were made (which would
have to be followed by outright sales, or run-offs of maturing Treasury
bills on a large scale).
Growth o f Bank Credit and the Money Supply

The total increase in bank loans in 1952 amounted to 8.0 billion dollars,
about 800 million larger than the increase in 1951. The composition of the
growth in total loans showed noticeable contrasts with 1951, which largely
accounted for the differences in aggregate loan increases. Available statistics
indicate that consumer instalment credit in its various forms accounted
for a much larger share of the total credit expansion in 1952 than in the
previous year, and business loans a much smaller share. Nearly the entire
growth in consumer credit outstanding took place subsequent to the
removal of Regulation W in May 1952.
Seasonal factors played a larger role in shaping the timing and the
composition of changes in the business lending of banks during 1952 than
they had in most recent years. A contraction of bank business loans of
somewhat less-than-seasonal proportions occurred in the first half of the
year, followed in the second half by an expansion of roughly seasonal

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

dimensions. In the previous year (following the entry of the Chinese
into the Korean war), business loans had expanded contraseasonally
in the first six months, and were topped by a normal expansion during
the last six months only moderately smaller than that in the last half
of 1952. The growth in defense-related loans to the metals and metalproducts industries, loans which in considerable measure were not of a
truly seasonal character, was largely responsible for the less-than-seasonal
contraction in the first half of 1952. In the last half of 1952, however, the
growth of loans to metals concerns fell off and loans to sales finance
companies rose sharply, while other business loans generally increased
along seasonal lines.
The aggregate security investments of all banks increased in 1952
by contrast with a small decrease in the previous year. While the growth
in banks’ holdings of “other” securities was only moderately larger than in
1951, their holdings of Government securities increased by 1.3 billion
dollars in 1952, representing a substantial swing from the 1.6 billion dollar
decrease in this category of bank assets for the previous year. Much of
the expansion in banks’ Government security portfolios reflected the
Treasury’s fall financing in tax anticipation bills. As discussed further
in the next section of this Report, aggregate demands for all forms of
credit and capital in 1952 were considerably greater than in 1951.
Despite the greater expansion in bank credit in 1952, privately owned
demand deposits increased by much less than they had in the previous
year, a growth of 2.9 billion dollars as against 6.0 billion dollars in 1951.
Consequently, the increase in the total money supply in 1952, in the form
of adjusted demand deposits and currency in circulation, was less than two
thirds that of 1951. Net nonbank investment in Government securities
helped to absorb a significant part of the Treasury’s new money financing
and acted as a brake on the growth of private demand deposits. At the
same time, the sharp increase in liquid savings at all types of savings
institutions helped in avoiding an inflationary increase in the money sup
ply. The increase of less than 3 per cent in privately held demand deposits
in 1952 would appear to have been consistent with the normal secular
increase required to serve the needs of a healthy, growing industrialized
economy. Velocity of money use, as measured by the average rate of turn
over of demand deposits, was slightly less than in the preceding year at
banks outside New York City and about 8 per cent greater in New York
City (possibly reflecting greater activity in the securities markets in 1952).

THIRTY-EIGHTH ANNUAL REPORT

Revival o f the Discount Mechanism

A primary purpose underlying the creation of the Federal Reserve
System was to provide a source to which banks could turn to make
adjustment for temporary and seasonal swings in their needs for funds,
and the discount mechanism, through which member banks may borrow
reserve funds from the Federal Reserve Banks, was originally intended
as the means of providing this accommodation. Under the circumstances
which prevailed during most of the decade beginning in 1942, however,
banks and others had semiautomatic recourse to Federal Reserve credit
through the Government security market. Discounting, which had fallen
into disuse as a result of the gold inflows and other accretions to bank
reserves during the 1930’s, could not be reactivated as an effective instru
ment of credit control until a flexible Federal Reserve open market policy
had been restored. The open market policies followed by the Federal
Reserve System after the early part of 1951, and in 1952, resulted in a
re-introduction of many member banks to the use of the discounting
privilege. By December, discounts at all Reserve Banks had climbed to the
highest level (2.4 billion dollars) in more than thirty years. The aggre
gate volume of member bank borrowing in the Second Federal Reserve
District during 1952 (as mentioned below in the description of this bank’s
operations) was the largest since 1929. The average daily volume of out
standing borrowing was nearly double that of 1951. Nearly half of the
720 member banks in the Second District made use of the discount facility
on one or more occasions during the year.
Reserves created for the banking system by System purchases of
Government securities are liquid assets acquired by a bank without
incurring a specific offsetting liability, and thus may be employed by
an individual bank on the assumption that the reserves will remain
available until deposits are withdrawn. Reserves acquired through dis
counting, by contrast, create a contractual liability for the individual bank
and may be employed only in the knowledge that the bank must make
provision to meet its obligation to repay. For this reason, and because
of the traditional reluctance of banks to remain in debt, a policy which
results in borrowing by the banks as a group to secure needed reserves
is; believed to exercise a restrictive influence on bank credit policies.
Therefore, greater reliance on discounting as a source of reserves, as a
result of, or in conjunction with, a flexible Federal Reserve open market
policy, helps reconcile the economy’s need for a flexible credit base with

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

a policy of restraint on the availability of bank reserves to limit over-all
credit expansion.
Success in a policy of limited credit availability of the type adopted
by the Federal Reserve System in 1952 required that there be either
voluntary or imposed inhibitions on the volume of member bank bor
rowing. Otherwise, attempts to regulate the volume of bank reserves
through open market operations, while the “discount window” remained
wide open, would be a self-defeating process. The coincidence of a much
increased use of the discount apparatus and a sizable expansion of bank
credit in the last half of 1952 might have appeared puzzling to some
observers. It might even have seemed to indicate a rather general willing
ness of banks to borrow, for profit-seeking purposes, because of tax benefits
and in order to take advantage of a situation in which yields on most
money market instruments were in excess of the discount rate. But
discount policy has traditionally relied upon the reluctance of American
bankers to be in debt at the Reserve Banks (thus placing the Reserve
Banks in a position to question and admonish) as a built-in regulator
on the use of the discount privilege. Indeed, available statistics indicate
that throughout last year the groups of banks that were the most
active borrowers were also the most consistent sellers of Government
securities and were, generally, those banks which were experiencing some
deposit drains and whose total loans and investments showed relatively
little expansion. The volume of discounting in the latter part of 1952
was thus a measure of the restrictive effectiveness of System policy, rather
than an indication of an inconsistency between open market policy and
the use of the discount mechanism.
To some degree, the rate charged member banks for discount accom
modation at the Reserve Banks may also serve as a deterrent to borrowing.
In earlier years, central bank authorities sometimes attempted to maintain
a “penalty” discount rate as a means of regulating borrowing. In actual
practice, however, the discount rate could rarely be a penalty rate except
with reference to the lowest-yielding credit instruments in the market,
as market rates tended to rise with the discount rate. While no point
would be served by allowing the discount rate to become fundamentally
out of line with prevailing market rates, thus needlessly encouraging
borrowing, the penalty rate concept, as such, has not in recent years
been the guiding consideration in discount rate policy. Discount rate
changes reflect the response of monetary and credit policy to the complex
of economic and credit developments; they do not follow automatically

THIRTY-EIGHTH ANN UAL REPORT

from any single set of considerations. Depending upon circumstances,
the discount rate may be increased, for example, to signal a shift in the
direction of System policy, or an intensification of existing policy. Or it
may be increased to conform with a restrictive open market policy and with
the market rates that such policy has already helped bring about. It may
also be increased simply as a means of reaffirming a policy whose outlines
have been blurred or have begun to wear off, with the passage of time
since the last policy action.
Effective January 16, 1953 the discount rates of eight of the Federal
Reserve Banks were raised to 2 per cent from the rate of
per cent
that had been in effect since August 1950, and the other four Federal
Reserve Banks took similar action during the following week. This change
largely reflected a continuation of the policy of limiting access to bank
reserves that had been in effect in 1952, the discount rate being thus
brought more nearly in line with the short-term market rates of interest
that had resulted from the continuation of this System policy into the
new year.
The Sources, Uses, and Cost of Funds

Heavy demands for credit and capital funds in 1952 were financed,
as indicated above, without inflationary pressures being reflected in the
price level. The combination of flexible monetary policy, the relatively
free markets and freely determined costs of money that such a policy
implies, and enlarged liquid savings, were the major factors in cutting the
nation’s financial cloth to fit the size of its activities in physical terms.
The Over-all Pattern o f Borrowing and Lending

Aggregate demands for funds rose substantially in the year, as
shown in the accompanying chart. Almost the entire increase came
in the demand for long-term financing. The expansion of shorter-term
credit needs was only moderately larger than in 1951; the volume of
new borrowing (net) by business was considerably smaller but was
more than offset by the increased growth of consumer borrowing from
commercial banks. In the capital markets, the major increase in de
mand came from the various units of government. The expansion in
private demand was moderate; increased corporate security financing was
in part offset by a small reduction in real estate borrowing.
The Federal Government accounted for most of the growth in govern
mental demand for funds between 1951 and 1952. Associated almost en

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

tirely with expanding outlays for defense, Federal cash expenditures rose
more than cash receipts, resulting in a cash deficit for the calendar year
19S2 of 1.6 billion dollars, in contrast to a small net cash surplus in 1951.
In order to cover this net cash outlay, and to increase the cash balances
in its general fund, the Treasury borrowed 3.4 billion dollars net from the
market. In 1951 the Treasury had been able to retire net 1.3 billion
dollars of outstanding debt held by the public.
Pressing needs for State and local government facilities and services
brought peak outlays for public construction in 1952, and resulted in the
largest volume of new “municipal” security flotations on record. Offerings
of revenue bond issues for the financing of self-sustaining capital projects
doubled in volume. However, maturities of outstanding issues, sinking
fund retirements, and State and local government trust account purchases
reduced, in part, the impact on the market of the large volume of new
“municipal” offerings. The net aggregate demand was in the neighborhood
of 3 billion dollars.
Corporations likewise raised a record amount of funds through net
NET DEMAND FOR AND SOURCES OF CREDIT AND CAPITAL FUNDS
Billions
of dollars

1950 1951 1952

"Includes the increase in net long-term debt and net new equity security dotations.
tlncludes net increase in commercial bank loans and investments and net change in Federal Reserve holdings of
Government securities.

THIRTY-EIGHTH ANN UAL REPORT

new security flotations. Offerings totaled 7 billion dollars in 1952, com
pared with 6.1 billion in 1951. Paradoxically, total corporate uses of funds
were considerably smaller in 1952 than in 1951. Responding to the Govern
ment’s program for providing large defense plant capacity, outlays for
capital assets increased, but inventory accumulation fell off and was accom
panied by a substantial reduction in corporate borrowing from commercial
banks. Internal funds generated from corporate operations were not much
different in aggregate amount from 1951; a decline in retained earnings
was not quite offset by larger depreciation allowances. The additional
factor which played a large part in causing the substantial increase of
corporate external financing in the new security issue market was the
drying-up of tax accruals as a source of additional funds. Current accruals
fell off in 1952 because of a reduction in aggregate corporate profits and,
as a result, were smaller than actual tax payments made during the year
on 1951 liabilities.
The only sector in which private demands for long-term funds rose
less than in 1951 was real estate financing. The growth in net debt on
small homes and on farms was virtually the same as in 1951, but the
volume of net new mortgage financing on commercial building was about
Yz billion dollars below 1951, reflecting in large part Government restric
tions on such construction. The combined demand for new mortgage
money was roughly 9^2 billion dollars net in 1952.
A somewhat higher proportion of the supply of funds came from
personal savings than in the previous year. Individuals continued to set
aside a sizable portion of their growing after-tax incomes. Higher rates
of return realized from most types of investment instruments were passed
on to individual savers, chiefly in the form of higher interest rates on thrift
deposits, and were an additional influence attracting an increased volume
of liquid savings to financial institutions. Direct investment of liquid
savings by individuals, principally in corporate and municipal securities,
also rose substantially, according to reports of the Securities and Exchange
Commission for the first nine months of the year.
Nevertheless, the volume of savings of the public was not large enough
to meet all demands for long-term and permanent capital; new savings
just about kept pace with the expansion of demand. The banking system
thus provided to the capital markets nearly the same additional amount
of funds as in 1951. However, the expansion in shorter-term bank lending
was greater in 1952 than in 1951, principally because of the growth in
consumer credit, and consequently the rise in total credit extended by the

F E D E R A L R E S E R V E B A N K O F NEW Y O R K

banking system was larger than in 1951. As indicated earlier in this
Report, the growth of Federal Reserve credit was considerably smaller in
1952, representing chiefly a drop in net purchases of Government securities.
Conditions in the Capital and Credit Markets

In the case of some markets, such as those for corporate debt instru
ments and State and local government securities, the aggregate supply of
new issues was apparently larger than the volume of currently generated
savings initially seeking such investments. Readjustments of portfolios
among the various groups of investors consequently occurred as market
offerings were distributed. In order to make room for corporate issues,
life insurance companies and, to a lesser extent, the mutual savings banks
made net sales of Government securities (although much reduced from
1951) and reduced their net purchases of Veterans Administrationguaranteed and Federal Housing Administration-insured mortgages. Other
investors took up this slack. Industrial corporations, State and local govern
ment investment funds, other nonbank investors, and the banking system
absorbed the net sales of Government securities, while savings and loan
associations acquired an unusually large proportion of the new mortgages.
A large part of the increase in the supply of new State and local issues was
absorbed by individuals and personal trusts, but substantial price conces
sions were required to take many new issues off the market, as it became
necessary to attract some investors for whom the tax exemption on these
issues was not so important a consideration.
Gross flotations of new corporate security issues (exclusive of invest
ment company securities) reached the all-time high record of 9.7 billion
dollars, about 2 billion more than were floated in 1951. Because of rising
interest rates on new offerings, refunding issues were small. Exchange
offerings plus those issued to retire other types of debt, together with
market purchases and retirements of outstanding issues out of general
corporate cash balances, brought net new corporate security flotations
down XjoIY i billion dollars.
Nearly all of the increase in gross new offerings was in debt issues
rather than in equities, in keeping both with the apparent preferences of the
issuers and with the requirements of major investors in this market.
Direct placement of new corporate security issues (almost entirely in the
form of debt instruments) with institutional investors, principally with
the larger life insurance companies, amounted to 4.1 billion dollars during
the year, up 700 million from the previous year’s volume. These privately

THIRTY-EIGHTH ANNUAL REPORT

negotiated placements accounted for about 42 per cent of the total new
corporate security offerings, compared with 44 per cent in 1951. There
was thus an increase of about 1.3 billion dollars in bond flotations offered
in the open market through investment bankers, making available a larger
supply and diversity of corporate obligations to investors not ordinarily
engaged in negotiating direct placements.
Apparently, high dividend yields and Federal corporate income and
excess profits tax rates continued to be a deterrent to new equity financing.
Offerings of new equity securities in 1952 were slightly less than the
previous year’s total of about 2 billion dollars, as sales of new preferred
stock issues declined by about 300 million dollars. Although favorable
levels of prices for outstanding issues prevailed, common share flotations
rose only 200 million dollars from a total of 1.2 billion dollars in 1951.
Despite the lag in stock financing and the sharp expansion in debt issues,
the debt-equity ratio in the capital structure of all corporations as a group
showed little change as corporations continued to rely heavily on retained
earnings for a large part of their total financing.
Considerable difficulty was experienced in placing some new State
and local issues with investors because of the enlarged supply. Expecta
tions of a continuation of this growth in supply and of a reduction in
Federal income and excess profits taxes scheduled under existing law for
1953 and 1954, which would reduce the tax-exemption value of municipal
bonds, further complicated the marketing process. To clear the market,
yields had to approach a point at which such issues would become attrac
tive to investors with less to gain from the tax-exemption privileges of
State and municipal securities. Thus, in the closing months of the year,
some revenue bonds of State and local governments and independent
authorities, being solely dependent upon the earnings of toll highways,
bridges, and other facilities for meeting their debt service rather than upon
taxes, were sold at yields comparable to those of corporate bonds.
The mortgage market remained relatively strong. Yield differentials
were an important factor in determining the form of financing made avail
able for small home purchases. Investors favored the higher-yielding con
ventional loans over FHA and VA mortgages on which official rates had
not been changed. The restrictive credit terms of Regulation X also tended
to exercise some restraint on mortgage lending early in the year, but sus
pension of the Regulation in September was not followed by material
changes in the terms of new mortgage loans.
Treasury borrowing was substantially in excess of the small cash

F E D E R A L R E S E R V E B A N K O F NEW Y O R K

deficit realized for the calendar year. The Treasury borrowed to increase
its working balances, and to offset a sizable volume of net redemptions of
nonmarketable securities and run-offs of maturing marketable issues. The
concentration of receipts in the first half of the calendar year under the
Mills plan also made it necessary for the Treasury to borrow during the
second half of the year in anticipation of heavy tax receipts in the first
half of calendar 1953. As a result of these various needs, the Treasury
raised 1.9 billion dollars through cash issues in the first half of 1952, and
8.7 billion in the last half. Additions to weekly bill issues during the
second quarter of the year provided 1.6 billion, and the remaining 300
million dollars raised during the first half-year was obtained from a com
bined cash and exchange offering of the 1975-80 nonmarketable, con
vertible bonds that had been first introduced in March 1951. On July 1,
a marketable six-year bond produced 4.2 billion dollars, and issues of tax
anticipation bills in October and November provided 4.5 billion. The
Treasury also completed exchanges of 28.2 billion dollars of securities for
maturing and called issues during the year, exclusive of the regular roll
overs of Treasury bills. Despite the heavy burden imposed on the market
by these operations, no serious congestion was created, and the assistance
provided by the Federal Reserve System in connection with Treasury
exchange and cash offerings was lessened during the course of the year.
A small exchange in December was carried through without any direct
Federal Reserve support.
The commercial banks were called upon to underwrite a large part of
the Treasury’s new financing as well as to meet a large part of the addi
tional credit needs of business and consumers and a small part of the
requirements of long-term borrowers. The banks purchased initially the
largest part of the Treasury’s two tax anticipation bill issues in the latter
part of the year, gradually selling some of them to other investors, prin
cipally industrial corporations. And nearly two thirds of the Treasury’s
major new money offering, the 4.2 billion issue of 2 ^ ’s of June 1958
floated in the middle of the year, had become lodged in the banks by the
year end, although initially subscribed for in the main by nonbank in
vestors, many of whom were attracted by expectations of a quick profit. On
balance, the commercial banks acquired (net) about 1.7 billion dollars of
Government securities over the year. Their holdings of medium-term
eligible bonds rose appreciably, but most of their purchases were financed
with the proceeds of the sale of short-term Treasury securities to State
and local government sinking funds, trust accounts, and, particularly in the

THIRTY-EIGHTH ANNUAL REPORT

second half of the year, to industrial corporations investing their tax
accruals.
The growth in commercial bank funds placed at the disposal of other
capital markets was about the same as in the preceding year. Real estate
loans, term loans to business, and net purchases of State and local govern
ment securities each rose by 24 of a billion to one billion dollars in both years.
Private demands for short-term bank credit were somewhat larger
than in 1951. As mentioned earlier, a moderate seasonal decline in certain
types of business loans in the first half of the year was offset in consider
able part by expanding borrowings of defense producers in the metal
products industries. For the year as a whole, however, the expansion of
commercial and industrial loans of the banks was considerably less than
in 1951; but, largely because of a marked increase in consumer loans after
Regulation W was suspended in May, the total loans of all commercial
banks increased about one billion dollars more than in 1951.
Financing Costs

Only moderate upward adjustments of interest rates resulted from
the huge volume of financing requirements in 1952, considering the pres
sure of demand and the restrictions on the availability of reserves. Bank
lending rates on business loans rose mainly at the banks which most
frequently adjust their lending rates with changing conditions. The in
crease was about %. of 1 per cent, on the average, for smaller loans (from
4.7 per cent for 1951 to 4.9 per cent in 1952), with somewhat larger
increases for the larger-sized loans. Rates on other types of loans, and on
credit and investment instruments, also rose moderately. In the urban
mortgage field, some institutions which had not raised their rates on new
conventional loans in 1951, after removal of Federal Reserve support of
the Government bond market, increased their posted rates during 1952
by to ^2 of 1 per cent. The shift away from VA-guaranteed or FHAinsured loans also had the effect of raising average prevailing rates on new
mortgages, and some trading in the insured or guaranteed mortgages at
discounts from par at times raised their effective yields.
Treasury financing costs also rose somewhat during the year. The
yield on new Treasury bills reached a peak rate of about 2J4 per cent in
December 1952, approximately % of 1 per cent above the highest cost
of December 1951 bill financing. (The average bill rate receded to about
2 per cent early in 1953.) One-year money rose, generally, by more than
y i per cent to about 2% per cent. The Treasury paid 2% per cent for

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

six-year money on July 1, compared with yields of 2 % -2 % per cent in
this part of the market in the corresponding period of 1951. Average yields
of medium-term issues rose between 1/5 and 1/4 of 1 per cent over the
year. Long-term bonds showed lesser increases in yield, but near the close
of December their yields rose slightly above the highs of December 1951.
In contrast, yields on the medium and highest grades of corporate
bonds traded in the market declined slightly over the year, despite the
record-breaking new issue volume. Average yields for the year as a
whole (2.96 per cent for the Aaa and 3.52 per cent for the Baa series)
were slightly higher, however, about 1/10 of 1 per cent, than last year’s
•average. But trading in corporate bonds in the secondary market was not
•extensive, so that quotations on outstanding issues did not always reflect
market conditions and the trend of yields for new offerings. The rate of
return on new issues of comparable grades, a more accurate barometer,
showed a somewhat larger increase in 1952. Nevertheless, yield changes
over the year tended to narrow the spread between corporate and Govern
ment bond yields. Reflecting the difficulties of clearing the market of
supplies of unsold new issues of State and local government securities,
which were sizable from time to time, financing costs for these offerings
showed the most marked increases, ranging from 1/5 to 1/3 of 1 per cent
depending upon the quality of the issue.
The United States in the World Economy
The Changing Dollar Problem

During 1952, the balance of international payments of the United
States underwent a notable change. The heavy balance-of-payments
deficits of foreign countries with the United States, which had begun in the
summer of 1951, continued through the first quarter of 1952, but in the
second quarter a reversal took place, and during the remainder of the
year foreign countries as a whole (with some help from our foreign aid
program) were able to acquire substantial amounts of gold and dollar
assets. The net increase in these holdings attributable solely to transactions
with the United States amounted to approximately 1.2 billion dollars
during the last three quarters of 1952, contrasted with a loss of almost
1 billion in the preceding nine months. Evidently the corrective measures
taken abroad, especially in the sterling area, with a view to arresting the
•earlier reserve drain had taken effect. To some extent, the reversal of
the trend reflects also an abatement of inflationary pressures in impor
tant trading areas of the world, as well as improved harvests abroad

THIRTY-EIGHTH

ANNUAL

REPORT

o f certain agricultural products usually im ported from the United States.
L arger United States G overnm ent loans to E urope and rising Am erican
m ilitary expenditures abroad also affected the reserve position o f several
foreign countries.
T h e U nited States export surplus o f goods and services declined on ly
m oderately, from 5.2 billion dollars in 1951 to approxim ately 5.0 billion
in 1952; excluding m ilitary aid, how ever, the surpluses were 3.7 billion
dollars and 2.6 billion dollars, respectively.

(T h ese figures for 1952, and

all other balance-of-paym ents data fo r the year in this
prelim inary.)

Report,

are still

B ut these y ea r-to-yea r com parisons d o not reflect ade

quately certain im portant developm ents that affected the various com
ponents o f the goods and services account.

C losely paralleling the shift

from losses to gains in foreign gold and dollar assets, our export surplus
(excluding m ilitary a id ), which had am ounted to 3.7 billion dollars during
the nine months beginning Ju ly 1951, fell to 1.5 billion (o r b y 59 per
cen t) during the nine-m onth period beginning A pril 1952.
T otal U nited States exports o f goods and services, aggregating 20.4

Billions
of dollors

QUARTERLY UNITED STATES EXPORTS AND IMPORTS
OF GOODS AND SERVICES, 1951 AND 1952
B (||;ons
of dollars

1951
*Fourth-quarter data for 1952 are preliminary.
Source: U. S. Department of Commerce

m
1952

nr*

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

billion dollars in 1952 (including 2.4 billion dollars of military aid), were
somewhat higher than during the previous year. The slight rise was almost
entirely attributable to an increase in services sold to foreign countries,
since merchandise exports, amounting to 15.5 billion dollars, remained at
the 1951 level. The 1952 figure for merchandise exports contains, how
ever, noticeably expanded shipments of military equipment which offset a
decline in exports of nonmilitary goods. Similarly, a slight increase in
United States payments for imports of goods and services, from 15.1
billion dollars in 1951 to 15.4 billion in 1952, was due solely to increased
payments on service account. United States merchandise imports in 1952
were almost 400 million below the previous year’s level of 11.7 billion,
largely as a result of sharply reduced prices for raw material imports.
Increased payments for services, on the other hand, reflected in the main
substantially higher tourist and troop expenditures abroad as well as
larger payments by the United States Government for its share in the
construction cost of NATO facilities.
The net outflow of private investment capital did not reach the rela
tively high level attained in 1951, mainly because of reduced direct
investments in Canada and because of some liquidation of Canadian
portfolio security holdings by United States investors; both developments
occurred during the second half of the year. There was, however, a sharp
expansion in disbursements under United States Government credits, the
net outflow increasing by more than 450 million dollars over the previous
year, with beneficial effects on the foreign dollar reserve position. Included
was a 154 million dollar disbursement to France under an Export-Import
Bank credit, which was granted to prefinance arms deliveries under United
States offshore procurement contracts and which was intended to mitigate
France’s dollar stringency. Largely because of this payment, total net
disbursements by the Export-Import Bank during the year amounted to
207 million dollars as against 69 million in 1951.
This outflow of private and Government capital, combined with
private remittances and Government grants, was substantially in excess
of the United States current account surplus. The resulting accretion to
foreign gold and dollar assets was, of course, not evenly distributed among
the major trading areas, the largest share accruing to Western Europe.
The Changing Pattern o f Foreign Aid

During 1952, the first full year of the Mutual Security Program, the
United States Government’s foreign aid activities continued to be geared

THIRTY-EIGHTH ANNUAL REPORT

to its major foreign policy objective — the strengthening of the defenses of
the free world, in particular those of Western Europe. Foreign aid trans
actions in 1952 for the first time fully reflected the shift from economic
to military assistance, from stimulating recovery to speeding rearmament,
that had been in evidence since Korea. Total Government aid, in the
form of both grants and loans, was approximately 4.9 billion dollars, as
against 4.6 billion in 1951; this increase was chiefly the result of stepped-up
military aid shipments (which accounted for well over half of all grants,
compared with one third the previous year), and of larger disbursements
under Government credits.
Economic assistance (the so-called “defense support” program),
although lower than in 1951, was continued at a considerable rate in order
to ease the stresses generated by the armament efforts of certain countries.
The United Kingdom, which once more became eligible for such aid early
in the year, after having seen it suspended in 1951, was the largest
single beneficiary in 1952, receiving over one quarter of all “defense
support” given to Western Europe. Moreover, technical assistance (the
“Point Four” program) was continued and expanded in the underdeveloped
areas of the free world, where the raising of living standards is considered
to be a prime prerequisite for political and economic stability. At the end
of the year, such assistance was being given to thirty-five countries on
three continents.
However, as the year drew to a close it became increasingly clear
that considerable changes would take place, affecting both the over-all
pattern and the extent of future United States foreign aid. Increased
uneasiness abroad over continued dependence upon United States gifts,
as exemplified by the call for “trade, not aid”, and certain public pro
nouncements in this country seemed to point toward a reduction in future
economic aid. While a sizable backlog of already allocated, but as yet
unexpended, military aid appropriations assures a continued and possibly
increasing flow of military equipment abroad in the immediate future,
there were indications that grants of economic aid in the form of com
modities and industrial equipment may be curtailed.
From direct economic aid, the emphasis has been shifting to offshore
procurement, i.e., the purchase abroad by the United States of military
equipment for both its own and other NATO forces. Under this procedure,
which assures the expansion of military production capacity in Europe,
while at the same time providing additional dollar earnings to the produc
ing countries, 621 million dollars’ worth of contracts were let in the fiscal

F E D E R A L R E S E R V E B A N K O F NEW Y O R K

year 1952, and an additional billion of similar contracting was projected
for fiscal 1953. These foreign contracts will, however, remain small,
compared with the actual dollar needs of foreign countries, and in the
aggregate are likely to be much less than our economic aid grants to
Europe in recent years. If, as has been advocated, such aid is to be made
unnecessary by dollar flows to the rest of the world through increased
imports into the United States and expanded private American investment
abroad, there remain, of course, many hurdles to be cleared on both sides.
Financial and Economic Developments Abroad
Rearmament and the Control o f Inflation

By mid-1952 the stresses and strains brought about by rising defense
expenditures were being widely felt in the Western world. Production
generally did not increase as much nor as fast as had been planned, with
the result that a number of Western European countries encountered more
or less serious difficulties in diverting resources to defense on the scale
originally contemplated. In the United Kingdom, the imperative necessity
of restoring external balance by expanding exports could not be met with
out limiting the demands of rearmament on the engineering industries. In
France, the defense effort at home and in Indo-China greatly aggravated
the budgetary imbalance. In many countries, defense expenditures at the
end of the year were running at double the pre-Korea rate, with consequent
intensified strain upon their fiscal position, and they were expected to rise
further, even though at a slower pace than heretofore. Maintenance of
internal financial stability was further threatened, in many instances, by
the persistent pressure for higher money incomes and a reluctance, despite
the requirements of defense and exports, to forego continuing improve
ments in the consumption of manufactured goods, as well as public and
private investment of a comparatively less essential nature.
Despite these strains, inflationary pressure was brought under im
proved control during the course of the year. A number of European
countries consolidated during 1952 the measure of internal stability that
they had attained early in the year; in most industrial countries, economic
stabilization was facilitated by falling prices of primary commodities which
brought reduced import costs.
The relative stability thus restored throughout much of the Western
world was in part attributable to the use of flexible monetary policies. In
the United Kingdom, a 1 per cent increase in the bank rate to 4 per cent

THIRTY-EIGHTH AN NUAL REPORT

in March induced a substantial rise in the short-term interest rate struc
ture; government bond yields also rose, reaching a peak about midyear.
The interest rate pattern in the major countries of the overseas sterling
area and in Canada likewise moved upward noticeably. On the other hand,
in several Continental European countries, which had already resorted
extensively to monetary policy in earlier years, both short and long-term
interest rates either leveled off or actually declined. Central bank discount
rates were reduced in Belgium, Germany, and the Netherlands.
In many countries, the availability of money continued to be restricted
by general credit controls, sometimes accompanied by selective controls
over particular uses of credit. In addition, the United Kingdom also
reduced bank liquidity through debt-funding operations that lowered the
outstanding volume of bank-held Treasury bills. In several countries,
however, there was a moderate relaxation of restrictive monetary policies,
in most cases following an improvement in the country’s balance of pay
ments. In addition to the central bank discount rate reductions already
mentioned, the Netherlands removed, and Germany reduced, their com
mercial bank reserve requirements. Canada suspended its selective credit
controls, while Australia discontinued central bank control over the pur
poses for which commercial bank advances might be made.
In several countries, the postwar economic expansion slowed down
somewhat as the inflation-nurtured boom subsided. As a result, there was
a certain amount of apprehension regarding the current outlook, and the
falling-off in demand for the products of the textile and some other con
sumer goods industries was sometimes interpreted as an undesirable decline
of aggregate demand. On balance, however, the abatement of inflationary
pressure tended to assist some highly desirable shifts in the distribution of
productive resources. There was a growing recognition, moreover, of the
urgent need for further adjustments in the pattern of production and
employment. In the industrial countries, substantial increases in the out
put of capital goods for defense and exports appeared to be called for,
while the primary-producing countries faced the problem of increasing
their production of certain foodstuffs and raw materials for which the
prospective rise in world industrial output promises an expanding market.
Progress Toward International Payments Balance

Total gold and dollar holdings of foreign countries (including newly
mined gold, but excluding all gold reserves of the USSR) showed an
increase of over 1.3 billion for the nine months beginning April 19S2,

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

when they touched their recent low. As appears from the accompanying
chart, Continental Western European countries participating in the Organ
ization for European Economic Cooperation increased their gold and
dollar holdings by about 1 billion and Canada by some 300 million. Among
the Continental countries, the growth of gold and dollar holdings was
especially marked in Belgium, Germany, and the Netherlands. The ster
ling area started to rebuild its monetary reserves in the latter part of the
year. Latin America (as well as the nonsterling-area countries of Asia
and Africa, which are not shown in the chart) experienced, in the aggre
gate, no gain; however, the decline in some countries’ aggregate gold and
dollar holdings slackened considerably toward the year end, and certain
of these countries made substantial additions to their monetary reserves.
As noted in the section dealing with the United States in the world
economy, the most significant factor in last year’s improvement of foreign
gold and dollar holdings was the marked decline in the United States
export surplus; a contributing cause of the improvement in reserves was
the continued disbursement of United States economic aid. The decline in
GOLD AND DOLLAR HOLDINGS OF SELECTED COUNTRIES AND AREAS
Billions
of dollars

B illio n s
ot dollars

'"Including Switzerland, which accounts for about 2 billion dollars of the amount shown in the chart,
tlncluding the United Kingdom, but excluding Eire and Iceland.
^Excluding sterling, French*franc, and Dutch*guilder areas.

THIRTY-EIGHTH ANNUAL REPORT

exports from the United States appeared to be the outcome, to a substantial
extent, of a reduction in demand for this country’s export products, which
in turn reflected basically the abatement of inflationary pressures in many
countries and areas. In most industrial countries, the effects on inter
national payments of the slackening of domestic demand and of the resul
tant reductions in imports were reinforced by the fall in primary commod
ity prices, which improved their terms of trade. In the primary-producing
countries, on the other hand, the fall in commodity prices brought about
some reduction in exchange earnings. However, these price declines were
from the highest levels ever recorded and a large volume of exports
(though somewhat smaller than in 1951) was maintained as a result of the
great industrial activity in the United States and Western Europe. On the
whole, the return to more competitive price conditions seemed to have
contributed to the establishment of a better balance in the economies of
the Western world.
The improvement in the international payments positions of certain
countries and areas was achieved in part at the cost of imposing new
direct restrictions on trade and payments, some of them discriminatory in
character. These restrictions inevitably struck at the exports of other
countries, with the result that, except in a few places, larger exports con
tributed little to the general improvement in the balances of payments.
More particularly, the value of intra-European trade and of Western
European trade with overseas countries other than the United States and
Canada receded from the peaks attained in the first quarter of 1952. A
large part of the expansion in intra-European trade, which had been
achieved mainly as the combined result of the establishment of the
European Payments Union and the liberalization of imports, was thus lost.
The import restrictions also apparently had the effect of reinforcing the pro
tection of certain industries that were relatively uneconomic or inefficient.
Developments in 1952 showed once again that the international pay
ments problem is by no means merely one of adjustment with the dollar
area alone. The European Payments Union was subjected to considerable
strain, and some of the EPU creditor countries were confronted with a
difficult problem in attempting to devise a policy helpful to the debtor
countries without endangering their own monetary stability, and without
introducing vexatious controls that would decrease the existing degree of
convertibility of their currencies. Another sign of the scope of international
payment difficulties was the shortage of sterling in certain Latin American
and other countries.

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

A free multilateral trade system and general currency convertibility
had thus not been attained by the year end, although 1952 was supposed
to mark the achievement of these objectives as expressed in the Articles of
Agreement of the International Monetary Fund. Nor had Western
Europe attained the self-supporting status which the European Recovery
Program was expected to create by the target date of 1952.
Much, nevertheless, had been accomplished. The deficit of the rest
of the world with the United States on account of goods and services
(excluding military aid shipments) was reduced from 11.4 billion dollars
in 1947 to 2.6 billion in 1952, largely as a result of an increase in United
States imports. For the countries that participated in the European
Recovery Program (and their dependencies) the deficit with the United
States was reduced from 5.7 billion in 1947 to less than 0.5 billion in
1952, and a portion of this remaining deficit was directly attributable to
increased defense expenditures and to the disruption of East-West trade.
The large increase over prewar in the volume of exports of some European
countries, especially the United Kingdom, was another notable achieve
ment. In addition, as a result of Western Europe’s remarkable physical
reconstruction and industrial modernization and re-equipment, the area’s
industrial output rose to some 40 per cent above prewar. Meanwhile, the
groundwork had been laid for an accelerated economic development of the
primary-producing countries.
On the other hand, there still remained a significant shortfall on the
achievement of international balance. In the changed circumstances follow
ing the Korean outbreak, of course, the same significance could not be
attached to 1952 as in the earlier postwar years. The need to strengthen
the Western defenses made the restoration of international balance more
complex and difficult than had been anticipated. Nevertheless, the gap
between attempt and success could not be attributed exclusively to the
requirements of defense, since the defense programs were only gradually
translated into effective demand, and since, moreover, the diversion of
resources to defense was being effected out of a substantially higher out
put — particularly industrial output — than before the war.
A particularly important aspect of the international payments problem
was the way in which the improvement in many foreign countries’ dollar
position tended to lag behind the improvement in their over-all balances
of payments. Despite the abatement of inflationary pressure, the con
tinuing dollar deficits suggested that much remained to be done in the
way of transferring resources to dollar-earning or dollar-saving tasks.

THIRTY-EIGHTH ANNUAL REPORT

Moreover, certain serious distortions that had developed in international
price and cost relationships and in exchange rate structures remained to
be corrected. Another reason for uncertainty was the apparent inade
quacy of some countries’ monetary reserves. Wide and sudden swings
in world commodity prices during the postwar years exerted a marked
influence on the reserve positions of certain industrial countries; in pri
mary-producing countries the reserve positions were affected by a failure
to conserve the windfall resulting from high prices and by attempts to
rush industrialization. These reserve inadequacies were further accen
tuated by erratic capital movements.
Nevertheless, the recent improvement in the international payments
positions of most Western European countries seems to have been of a
sturdier character than the earlier recovery of September 1949-June 1951.
In the first place, the recent rise in gold and dollar holdings of the Western
European countries was not made at the cost of a general depletion of their
raw material stocks. In addition, most of these economies had been oper
ating at close to all-time record levels, despite the subsidence of inflation
ary demand in domestic and foreign markets. Finally, the ability of these
countries to encourage more efficient and productive use of their resources,
and thus to sustain long-term international equilibrium, had been en
hanced by their increased reliance upon the guidance of the price mecha
nism and upon controls over the availability and cost of credit.
Developments in the New York Foreign Exchange Market

There was a further increase in activity of the New York foreign
exchange market during the past year and the volume of trading appeared
to be the largest since before World War II. As in recent years, most of
the trading was concentrated in the pound sterling, the Canadian dollar,
and the Swiss franc, with sterling turnover predominating.
Increased interest and activity in the pound sterling reflected, to a
large extent, the greater freedom given to banks in the United Kingdom
in dealing in United States dollars and the widening of the Bank of
England’s official rates; both developments occurred in December 1951.
The New York spot quotation for the pound ranged between the official
limits of $2.78 and $2.82, holding for most of the year below $2.80. In
March, following the budget speech of the British Chancellor of the
Exchequer, the rate rose to $2.81^, which proved to be the high for the
year, and in the latter part of the year it again strengthened to reach
$2.81. Quotations for sterling for forward delivery followed the same

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

general pattern as the spot rate, three and six-month contracts being
quoted at discounts as wide as 3-1/16 cents and 5-19/32 cents, respectively,
in January 1952 and as narrow as 11/32 and 27/32 of a cent at the end of
the year. In general, there was a good demand for sterling in the New
York market during the year and, in fact, because of the British import
restrictions and other factors which tended to curtail the supply of sterling
in the New York market, banks here were compelled to look to London
for some of the supply.
New York trading in the Canadian dollar was considerably more
active than in recent years, reflecting the action taken by the Canadian
Government in December 1951 in releasing all controls over the Canadian
dollar. Stimulated largely by a movement of United States capital (and
also foreign capital invested in the United States) to Canada for invest
ment purposes, the Canadian dollar in the early part of 1952 rose to a
premium vis-a-vis the United States dollar for the first time since Novem
ber 1933. By August, the Canadian dollar had reached a premium of
4-11/32 per cent over the United States dollar. The rate eased subse
quently, and in the latter part of the year it leveled off at a premium of
about 3 per cent.
The rate for the Swiss franc appreciated from a low of $0.2287
in the latter part of January 1952 to a high of $0.2334j4 at the end of the
year. Among other currencies, the free rate for the Uruguayan peso
fluctuated within a wide range, moving from a high of $0.4245 in midJanuary to a low of $0.34 at the beginning of April. At the end of the year,
the Uruguayan peso was quoted in the free market at $0.37. There were
no significant developments in other foreign exchanges traded in New York.
Volume and Trend of the Bank’s Operations
Domestic Operations

The general rise of economic activity in 1952 was reflected in a
higher physical and dollar volume of the varied operations of this bank.
The only significant reduction in duties resulted from the termination of
the Reserve System’s responsibilities for selective control over the terms
of consumer and real estate credit, and the dissolution of the Voluntary
Credit Restraint Program.
As noted in earlier sections of this Report, the member banks increas
ingly availed themselves of the discount facilities of the Reserve Bank in
order to fill temporary needs for reserves. The number of applications for

THIRTY-EIGHTH ANNUAL REPORT

discounts and advances received and processed at this bank in 1952
increased 26 per cent over the previous year to 3,925, the largest num
ber since 1934. There were 350 member banks in this District which
borrowed at some time during the year. The aggregate dollar volume of
all loans made during the course of the year rose by 74 per cent, to 23.5
billion dollars, the largest amount since 1929.
The larger demands of the member banks for currency and coin to
meet their customers’ needs in 1952 were reflected in the further rise in this
bank’s sorting and counting activity shown in the accompanying table.
Shortages of coin, which had been persistent during much of 1951, were
generally alleviated in 1952. The supply was sufficient for all requirements
except during the seasonal peak at the close of the year, when allotments
among member banks were resumed for a brief period. The number of
Government checks handled increased 4 per cent; of non-Government
checks, 6 per cent. The aggregate number of checks — 490.7 million — was
processed more efficiently and with less time lag than in recent years
because of an increase in operator efficiency brought about by a slackening
in the turnover of the personnel involved, and aided by the use of new
electrical proof machines of greater capacity. Substantial progress was also
made in improving operating techniques for the clearance of postal money
orders, a duty assumed for the postal authorities on July 1, 1951. A volume
of 58.4 million items was attained in 1952, the first full calendar year of
operation. Among the collection items shown in the table, United States
Government coupons paid and “all other collection items” continued the
trends discussed in last year’s Anmial Report. One new item, however, is
shown for the first time, namely, “Credits for direct sendings of collection
items”. This item, which increased moderately in 1952, measures the work
involved in sending advices to member banks to notify them of credits due
them for items they have sent directly to other Federal Reserve Banks for
collection.
The security operations handled by the bank as fiscal agent of the
United States were of moderately larger volume in 1952 than in 1951. The
number of transactions in United States Savings bonds — the most im
portant fiscal agency item from the standpoint of physical volume — in
creased 6 per cent, almost entirely because of an increase in sales of small
denomination issues. The work performed on a fiscal agency basis for the
International Bank for Reconstruction and Development was reduced
sharply, as smaller issues were sold in 1952 and fewer temporary serial
issues were exchanged for permanent bonds. Work connected with the

F E D E R A L R E S E R V E B A N K O F NEW Y O R K

Some M easures of the V olume of O perations
F ederal R eserve B ank of N ew Y ork

51
of the

(Including Buffalo Branch)
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 ...................................................
Postal money orders handled ..........................
Collection items handled:
United States Government coupons paid ..
Credits for direct sendings of collection
items .......................................................
All other ....................................................
Issues, redemptions, and exchanges by fiscal
agency departments:
United States Savings bonds .....................
All other United States obligations ..........
Obligations of the International Bank for
Reconstruction and Development ..........
Safekeeping of securities :
Pieces received and delivered ...................
Coupons detached ......................................
Transfers of funds* .........................................

1952

1951

3,925
1,065,539,000
1,415,250,000
158,000

3,118
1,054,382,000
1,382,011,000
259,000

53,308,000
437,439,000
58,405,000

51,168,000
411,951,000
26,676,000f

4,584,000

4,895,000

330,000
7,114,000

317,000
6,393,000

24,082,000
2,954,000

22,715,000r
3,132,000

117,000

259,000

5,494,000
2,286,000
308,000

4,592,000
1,905,000
294,000

Discounts and advances .................................. $ 23,472,385,000
Currency received and counted..........................
6,903,818,000
Coin received and counted ...............................
131,711,000
Gold bars and bags of gold coin handled..........
2,188,845,000
Checks handled:
United States Government checks ............
22,711,540,000
286,386,244,000
All other ...................................................
Postal money orders handled ...........................
874,402,000
Collection items handled:
United States Government coupons paid ..
1,093,483,000
Credits for direct sendings of collection
items .......................................................
717,888,000
All other ....................................................
1,285,007,000
Issues, redemptions, and exchanges by fiscal
agency departments:
United States Savings bonds ...................
1,832,959,000
All other United States obligations .......... 275,711,978,000
Obligations of the International Bank for
Reconstruction and Development ..........
239,558,000
Safekeeping of securities:
Pieces received and delivered (par value) 377,410,875,000
Transfers of funds* ......................................... 253,479,280,000

$ 13,521,593,000
6,769,646,000
126,156,000
3,581,392,000

Amounts handled

19,074,453,000
267,749,478,000
399,667,000f
1,161,784,000
708,100,000
1,034,657,000
1,993,231,OOOr
271,679,053,000
366,076,000
349,940,698,000
219,197,584,000

r Revised.
* Two or more checks, coupons, etc., handled as a single item are counted as one
“piece”.
f Six months ended December 31, 1951.
$ Includes wire and mail transfers; excludes Treasury transfers and Reserve Bank
interdistrict settlements.

THIRTY-EIGHTH ANN UAL REPORT

safekeeping of securities for member banks did not change materially in
1952. The increases shown in the accompanying table in the data for
pieces received and delivered from safekeeping reflected larger receipts of
unissued securities for the purpose of building up an emergency stockpile
and the handling of unissued stock incident to the Treasury’s revised terms
for Savings bonds which became effective May 1, 1952.
The number of wire and mail transfers of funds increased 5 per cent,
compared with 13 per cent a year ago, and their dollar value rose 16 per
cent, compared with 31 per cent last year. The bulk of those transfers are
made for the larger New York City banks located in the downtown area,
both for their own account and for the accounts of their customers, and the
advices and authorizations they require were formerly delivered by mes
senger. After extensive testing, it was decided that the installation of
equipment for the facsimile transmission of the advices and authorizations
would be a feasible and worthwhile means of expediting the work. Par
ticipation in the project was offered to the local banks and, by October
14, 1952, fifteen of them had installed the equipment necessary to link them
and this bank. Since then, transfer service has improved, and to date the
participating banks, which bear 50 per cent of the cost of the project, feel
that the network has fulfilled expectations.
The continued growth in most of the operational tasks performed by
the bank in 1952 required a larger work force and the average number of
employees on the staff increased approximately 5 per cent, compared with
the previous year. At the end of 1952, however, total employment (exclu
sive of officers) at the head office in New York and at the Buffalo Branch
equaled 3,950, or slightly less than the total of 3,981 on December 31, 1951.
Foreign and International Operations

Earmarked gold, dollar deposits, U. S. Government securities, and
miscellaneous assets held for foreign account at the Federal Reserve Bank
of New York increased by slightly more than 1 billion dollars during
1952, bringing the total at the year end to nearly 7.1 billion dollars, a
figure not far from the all-time high of 7.5 billion reached in March 1951.
This was a reversal of the marked downward trend during the second
half of 1951, which had resulted in total assets falling by 1.2 billion dollars
net during the year as a whole. All of the principal types of assets held
for foreign account participated in the rise in 1952. U. S. Government
securities, principally Treasury bills, increased 773 million dollars, ear
marked gold rose by 213 million, and dollar deposits by 24 million.

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

Assets held for the International Bank and International Monetary
Fund (which are not included in the above figures) were little changed
during the year.
Accounts were opened with this bank, as principal, by two recently
established central banks, the Banque Centrale du Congo Beige et du
Ruanda-Urundi (which assumed the central banking functions of the
Banque du Congo Beige) and the Banco Central del Paraguay (which
similarly succeeded the Banco del Paraguay). The Government of Japan
also opened an account, designating a subaccount for the Minister of
Finance. This subaccount was established as an evidence of good faith in
connection with the settlement of outstanding Japanese dollar bonds.
The Central Corporation of Banking Companies of Hungary closed its
account.
As in the previous year, activity in loans on gold to foreign central
banks was at a comparatively low level during 19S2, only one central bank
being a borrower. The maximum amount of loans outstanding during the
year was 45 million dollars, and at the year end only 29.5 million was
outstanding. The gold loan policy of the bank, which has been described
in the Annual Reports for 1946 and 1947, remains unchanged.
As fiscal agent of the United States, the bank continued to administer
for the Treasury Department the blocking regulations affecting assets in
the United States of Communist China and North Korea and their
nationals, and transactions with those countries. During the year 6,800
applications were filed with the Foreign Assets Control Department.
The bank also continued to operate the United States Stabilization
Fund pursuant to authorization and instructions of the Treasury Depart
ment.
Financial Statements
Statement o f Condition

Total assets of this bank increased an additional 180 million dollars
in 1952, and at the year end were 13,456 million dollars — the largest
amount on record except for 1948. The principal changes during 1952
consisted of a rather large reduction in “total cash” which was more than
offset by a further substantial rise in holdings of U. S. Government securi
ties and lesser increases in discounts and advances and “uncollected items”.
The most important component of “total cash” — gold certificate
holdings — declined 811 million dollars in 1952, whereas a year ago a rise
of 256 million occurred. This reversal of trend stemmed entirely from an

THIRTY-EIGHTH ANN UAL REPORT

unfavorable balance of payments with other Reserve Districts, as inter
national gold movements, the other major element affecting the balance,
provided a substantial increment in 1952, compared with only a minor in
crease in 1951.
The increase in the portfolio of U. S. Government securities (705
million dollars) reflected not only this bank’s share of the net market
purchases by the System Open Market Account but also a larger volume
of direct purchases of a temporary nature by the New York Reserve Bank
from dealers who were committed to repurchase within a short time.
Discounts and advances showed only a year-to-year increase of 112 million
dollars because of the usual member bank aversion to showing borrowings
on their year-end condition statements. Actually, the member bank use
of the borrowing privilege during 1952 was the greatest since 1929 and,
together with the increase in this bank’s security holdings, was the means
by which this bank supplied most of the reserves required by Second
District member banks to meet the credit needs of the economy.
A sse ts o f t h e F ed era l R eserve B an k o f N e w Y o r k

(In thousands of dollars)
Dec. 31,
1952

Dec. 31,
1951

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

5,977,523
135,378
64,367

6,788,866
78,065
69,697r

Total cash .................................................. .......

6,177,268

6,936,628

114,924
—
6,213,352

2,595
23
5,508,485

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

6,328,276

5,511,103

Other assets:
Due from foreign banks*.........................................
Federal Reserve notes of other banks ..........
Uncollected items .........................................
Bank premises ..............................................
All other ........................................................ ........

7
32,307
874,505
7,292
36,637

Assets

Discounts and advances...........................................
Industrial loans ....................................................... ... .
U. S. Government securities .................................. .......

Total other assets.................................... ........
Total assets ............................................
* After deducting participation of other Federal Reserve
Banks amounting to ..................................................
r Revised.

9
22,622
769,587
7,464
28,929r

950,748

828,611

13,456,292

13,276,342

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

Among the liabilities, Federal Reserve notes of this bank outstanding
in the hands of the public increased an additional 208 million dollars, or
3.7 per cent, in 1952 to attain a new peak of 5,796 million dollars. This
rise for the Second District compares with an increase of 4.7 per cent
in the country as a whole, for which outstandings also reached the highest
year-end level on record, 26,250 million dollars.
The member bank reserve account showed a net decline of 184 million
dollars in 1952 despite an increase in required reserves that stemmed from
a moderate rise in deposits. This situation resulted in a greater deficiency
L ia b il it ie s

of t h e

F e d er al R e s er ve B a n k

ork

(In thousands o f dollars)
D ec. 31,
1952

Dec. 31,
1951

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

5,796,489

5,588,434

D eposits:
Member bank— reserve accounts .................................
U. S. Treasurer—general account .............................
Foreign* ............................................................................
Other ..................................................................................

6,184,727
44,922
184,537
334,153

6,368,672
202,462
165,651
220,194

Total deposits ...........................................................

6,748,339

6,956,979

Other liabilities:
Deferred availability cash items .................................
All other ............................................................................

628,042
5,996

461,363
4,642

Liabilities

Total other liabilities .............................................

634,038

466,005

Total liabilities .........................................................

13,178,866

13,011,418

Capital accounts:
Capital paid i n ...................................................................
Surplus (Section 7) .......................................................
Surplus (Section 13b) ...................................................
Other capital accounts ...................................................

80,139
167,503
7,319
22,465

75,471
159,744
7,319
22,390

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

277,426

264,924

Total liabilities and capital accounts ..................

13,456,292

13,276,342

Contingent liability on acceptances purchased fo r foreign
correspondents! ...................................................................

5,977

6,095

Ratio o f gold certificate reserves to deposit and Federal
Reserve note liabilities combined ...................................

48.7%

54.7%

* A fter deducting participation o f other Federal Reserve
Banks amounting to .........................................................

365,403

360,707

t A fter deducting participation o f other Federal Reserve
Banks amounting to .........................................................

13,815

14,818

THIRTY-EIGHTH ANNUAL REPORT

at the end of 1952 than a year previous, reflecting the larger adjustments
that were required to enable member banks to avoid showing heavy
indebtedness in their year-end statements. The member banks in this
District also had to meet substantial losses of reserves during the year
through a net outflow of commercial and financial funds to other districts
and transfers into foreign and other deposit accounts maintained at the
Reserve Bank. Net Treasury expenditures in this area and the flow of gold
from abroad, however, provided sufficient funds to offset a large part of
these reserve losses. For the remainder, the member banks turned to the
Reserve Banks for temporary accommodation while they gradually liqui
dated a portion of their Government security holdings.
Capital accounts, in the aggregate, increased 12.5 million dollars dur
ing the year. Approximately 7.8 million dollars of net earnings was added
to the regular surplus (Section 7). “Capital paid in”, reflecting payments
for additional shares by member banks that increased their own capitaliza
tion (either by the reinvestment of earnings or by the sale of new capital
stock), rose by 4.7 million dollars.
The decline in gold certificate reserves in this District (754 million
dollars after giving effect to the change in the redemption fund), in con
junction with a virtually unchanged level of deposit and note liabilities
combined, resulted in a relatively sharp decline—from 54.7 per cent to
48.7 per cent — in this bank’s reserve ratio.
Earnings and Expenses

Gross earnings of the Federal Reserve Bank of New York increased
14.2 million dollars in 1952 to a new high of 104.2 million. Of the year’s
increase, 11.8 million dollars, or 83 per cent, resulted from a further rise
in income from this bank’s portion of the Government security holdings
of the System Open Market Account. This in turn was due primarily to
the higher rates paid by the Treasury on issues refunded during the year,
although the average volume of the System’s holdings through the year
was also slightly higher than in 1951. Income from discounts and advances
increased from 1.7 million dollars in 1951 to 3.2 million in 1952 because
of the substantial increase in the volume of member bank borrowing.
Expenses increased by 1.8 million dollars during the year to a total
of 22.4 million. The greatest part of the increase was occasioned by larger
outlays for salaries and wages, although sizable increases also occurred
in postage and expressage expense, depreciation, equipment rentals, and
the cost of supplying Federal Reserve currency. Reflecting the much

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

greater rise in earnings than in expenses, net earnings before additions or
deductions increased 12.4 million dollars to a record amount of 81.8 million.
Changes in additions to or deductions from net earnings were gen
erally small, the principal one being the transition from last year’s loss of
0.4 million on the sale of U. S. Government securities to a profit of 0.S
million in 1952.
Net earnings after all adjustments increased to 82.2 million dollars,
or 13.2 million more than in 1951. The usual statutory dividend of 6 per
cent, amounting to 4.6 million dollars, was paid to the member banks. Of
S t a t e m e n t o f E a r n in g s a n d E x p e n s e s
F o r t h e C a le n d a r Y e a r s

1952 a n d 1951

(In thousands o f dollars)
1952

1951

Earnings ___ _
Expenses ....................................................................................

104,207
22,367

90,019
20,599

Net earnings before additions and deductions ..

81,840

69,420

Additions to net earnings:
Profit on sales o f U. S. Government securities (net)
All other ............................................................................

459
1

—
21

Total additions .........................................................

460

Total net earnings and a d d ition s...........................

82,300

69,441

Deductions from net earnings:
Loss on sales of U. S. Government securities (net) ..
Reserves for contingencies ...............................................
A ll other ................................................................................

—
76
5

371
65
2

Total deductions .......................................................

438

Net earnings ............................................................................

82,219

69,003

4,627

4,465

69,833
7,759

58,084
6,454

82,219

69,003

Distribution o f net earnings:
Dividends paid .................................................................
Paid United States Treasury (interest on Federal
Reserve notes) .............................................................
Transferred to surplus (Section 7) .........................
Total

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

Surplus account (Section 7) :
Surplus—beginning o f year ...........................................

159,744

153,290r

Transferred from net earnings fo r year ..................

7,759

6,454

Surplus— end o f year .....................................................

167,503

159,744r

r Revised.

THIRTY-EIGHTH ANNUAL REPORT

the remaining net earnings, 69.8 million, or 90 per cent, was transferred
to the United States Treasury in payment of an interest charge levied by
the Board of Governors of the Federal Reserve System under Section 16
of the Federal Reserve Act on Federal Reserve notes not covered by gold
certificates. The balance of the year’s earnings, 7.8 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

During 1952 the total number of banks in this District that are
members of the Federal Reserve System declined from 737 to 720. In this
period, 17 member banks merged with other banks, two national banks
converted to State nonmember banks, and one State bank withdrew from
membership. Three State banks were readmitted to membership. The
720 member banks constitute 87 per cent of all national banks, State banks,
and trust companies in this District, and hold 96 per cent of the total assets
of all such institutions.
N u m b e r o f M e m b e r a n d N o n m e m b e r B a n k s in
Second F e d e r a l R e se r v e D i s t r i c t a t E n d o f Y e a r

(Exclusive of savings banks, private bankers, and industrial banks)
December 31,1952
Type o f bank

December 31,1951

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

National b a n k s................

498

100

510

State banks and
trust com panies..........

222

106

227

111

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

720

106

737

100

C h a n g e s in F e d e r a l R e s e r v e M e m b e r s h ip in
Second D i s t r i c t D u r in g

1952

Total membership beginning o f y e a r ...........................................................
Increases:
State banks and trust companies adm itted.........................................
Decreases:
Member banks combined with other m em bers.................................
Member bank combined with nonm em ber...........................................
Withdrawal from membership...............................................................
National banks converted into nonmember State b a n k s ..............
Total membership end o f y e a r .......................................................................

737
3
16
1
1
2
720

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

The return of three State banks to membership was a direct result of
amendments adopted July IS, 1952 to the provisions of Federal law
regarding the establishment of branch banks. Each of these three banks,
which had previously withdrawn from membership in order to establish a
branch beyond the corporate limits of the community where its head office
is located, could do so under State law but could not meet certain capital
requirements under Federal law. The amendments eased these require
ments and made it possible for these banks to come back into membership
with their existing capital and still retain the out-of-town branches estab
lished in the interim.

Changes in Directors and Officers
Changes in Directors

In April 1952, the Board of Governors of the Federal Reserve System
appointed Philip Young, Dean, Graduate School of Business, Columbia
University, a Class C director for the unexpired term ending December
31, 1952, to fill the vacancy caused by the death of Robert P. Patterson.
Mr. Young was subsequently re-appointed a Class C director by the
Board of Governors for the three-year term beginning January 1, 1953.
Member banks in Group 1 re-elected Clarence Francis, Chairman
of the Board, General Foods Corporation, New York, N. Y., as a Class B
director for a term of three years beginning January 1, 1953.
In November 1952, W. Randolph Burgess, Chairman of the Executive
Committee, The National City Bank of New York, N. Y., was elected
by member banks in Group 1 as a Class A director for a term of three
years beginning January 1, 1953, to succeed John C. Traphagen, Chair
man of the Board, The Bank of New York, New York, N. Y., whose
term expired December 31, 1952. Mr. Burgess did not assume this office
in view of his acceptance of appointment as Consultant and Special
Deputy to the Secretary of the Treasury on Debt Management and
Monetary Policies.
The board of directors of the bank appointed Bernard E. Finucane,
President, Security Trust Company of Rochester, Rochester, N. Y., and
Edward P. Vreeland, President, Salamanca Trust Company, Salamanca,
N. Y., as directors of the Buffalo Branch for terms of three years each,
beginning January 1, 1953. Mr. Finucane was re-appointed; Mr. Vreeland
succeeded George F. Bates, Vice President of The Marine Trust Com
pany of Western New York' (in charge of the Power City Trust offices,

THIRTY-EIGHTH ANNUAL REPORT

Niagara Falls, N. Y.), whose term expired December 31, 1952. Edgar F.
Wendt, President, Buffalo Forge Company, Buffalo, N. Y., was also
re-appointed a director of the Buffalo Branch, by the Board of Governors,
for a three-year term beginning January 1, 1953. The board of directors
of the bank designated Robert C. Tait, President, Stromberg-Carlson
Company, Rochester, N. Y., as Chairman of the board of directors of
the Buffalo Branch for the year 1953.
Changes in Officers

James J. Carroll, Assistant Vice President, who had been with the
bank since 1942, resigned as of March 20, 1952, in order to return to
the active supervision of the business in which he had been engaged before
he came to the bank.
C. Richard Youngdahl, on temporary leave of absence from the
Board of Governors, was appointed an Acting Manager, effective March
31, 1952, and assigned to the Securities Department. Mr. Youngdahl
returned to his position as Chief of the Government Finance Section of
the Division of Research and Statistics at the Board of Governors on
June 10, 1952.
Gustav Osterhus, Manager, Bank Examinations Department, who
had been with the bank since August 1921, retired, effective April 1, 1952,
because of ill health. Mr. Osterhus died on August 17, 1952.
Donald C. Niles, formerly Chief of the Disbursing Division, Account
ing Department, was appointed a Manager and assigned to the Planning
Department, effective April 7, 1952.
Lawrence E. Quackenbush, a senior examiner in the Bank Examina
tions Department, was appointed an Acting Manager and assigned to the
Bank Examinations Department, effective April 21, 1952. On September
15, 1952, Mr. Quackenbush was appointed a Manager, his assignment to
the Bank Examinations Department being continued.
Otto W. Ten Eyck, Assistant Vice President, who had been with the
bank since 1920 and had reached retirement age, left the bank on April
30, 1952.
Charles N. Van Houten, Assistant Vice President, who had been with
the bank since July 1916 and had reached retirement age, retired effective
June 1, 1952.
Arthur H. Willis, formerly a Special Assistant in the Securities
Department, was appointed Acting Assistant Secretary, effective August 7,

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

1952. On September 15, 1952, Mr. Willis was appointed Assistant
Secretary.
Paul R. Fitchen, formerly Manager of the Cash Department, was
appointed an Assistant Vice President, effective September 15, 1952, upon
his return to the bank after an extended leave of absence as financial
adviser to the Union Bank of Burma.
Edward G. Guy’s appointment as Assistant Secretary was terminated,
effective September 15, 1952. Mr. Guy continues as Assistant Counsel.
O.
Ernest Moore, Manager of the Research Department, returned to
the bank on October 1, 1952, after an extended leave of absence as finan
cial adviser to the Government of Haiti, under assignment by the Tech
nical Assistance Administration of the United Nations.
William F. Palmer, formerly Controller of the American Airmotive
Corporation, was appointed a Manager and assigned to the Accounting
Department, effective October 15, 1952.
Alfred L. Pitts, Assistant Counsel, who had been with the bank
since October 1941 and had reached retirement age, retired, effective
January 1, 1953.
Wesley W. Burt, Manager, Savings Bond Department, who had been
with the bank since September 1917 and had reached retirement age,
retired, effective January 1, 1953.
Harold M. Wessel, formerly Manager, Accounting Department, was
appointed Assistant Vice President of the Buffalo Branch, effective
January 1, 1953.
Frederick L. Smedley, formerly Chief of the Check Division (Day),
Check Department, was appointed a Manager and assigned to the Per
sonnel Department, effective January 8, 1953.
Member o f Federal Advisory Council

The board of directors of this bank selected Henry C. Alexander,
President of J. P. Morgan & Co. Incorporated, New York, N. Y., to
serve during the year 1953 as the member of the Federal Advisory
Council from the Second Federal Reserve District.

THIRTY-EIGHTH ANNUAL REPORT

Directors and Officers
D ir e c to r s

Term
expires
Dec. 31

1 Vacancy ....................................................................................................

1955

B urr

P. C l e v e l a n d ............................................................................
President, First National Bank o f Cortland, Cortland, N. Y.

1953

P alm er

A r m s t r o n g .......................................................................
President, The Keyport Banking Company, Keyport, N. J.

1954

C larence

F r a n c is
..............................................................................
Chairman o f the Board, General Foods Corporation, New
York, N. Y .

1955

B. F o l s o m
Rochester, N. Y.

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

1953

E. C r a n e ........................................................................................
Vice President, Standard Oil Company (N ew Jersey), New
York, N. Y .

1954

T. S t e v e n s ,
___
Director, J. P. Stevens & Co., Inc., New York, N. Y .

Chairman, and Federal Reserve A g en t

1953

.............................................
I. M y e r s ,
Dean, New Y ork State College o f Agriculture, Cornell Uni
versity, Ithaca, N. Y.

Deputy Chairman

1954

........................................................................................
Dean, Graduate School o f Business, Columbia University,
New York, N. Y .

1955

Class Group

* M a r io n

♦J a y

*R obert

W illia m

P h il ip Y o u n g

_
_
D ir e c to r s — B u f f a lo B r a n c h

Chairman

C. T a i t ,
........................................................................................
President, Stromberg-Carlson Company, Rochester, N. Y.

1953

O l s o n ..........................................................................................................
President, The First National Bank o f Falconer, Falconer, N. Y.

1953

G. H a r r i m a n ..................................................................................................
President, Manufacturers and Traders Trust Company, Buffalo, N. Y.

1954

G. W h i t e ....................................................... ............................................
Dairy farmer, Stow, N. Y .

1954

E. F i n u c a n e ..............................................................................................
President, Security Trust Company o f Rochester, Rochester, N. Y.

1955

P. V r e e l a n d ..................................................................................................
President, Salamanca Trust Company, Salamanca, N. Y.

1955

F. W e n d t ..........................................................................................................
President, Buffalo Forge Company, Buffalo, N. Y.

1955

R obert

T erm
expires
Dec. 31

E lmer

L e w is

Clayton

B ernard

E dw ard

E dgar

M em ber

F ederal A dvisory C o unc il — 1953
H enry C. A lexander,

President, J. P. Morgan & Co. Incorporated,
New York, N. Y .

* See footnote on page 64.

F E D E R A L R E S E R V E B A N K OF NEW Y O R K

O f f ic e r s
A lla n
W illia m

President
First Vice President

S p r o u l,

F . T r e ib e r ,

Vice President
Vice President
L . W e r n e r K n o k e , Vice President
W a l t e r S . L o g a n , Vice President and
General Counsel
A r t h u r P h e l a n , Vice President
H a r o ld A . B ilb y ,

Vice President
Vice President
V a l e n t i n e W i l l i s , Vice President
R e g i n a l d B . W i l t s e , Vice President
J o h n H . W u r t s , Vice President
H a r o ld V . R o e ls e ,

H e r b e r t H . K im b a ll,

R obert G . R ou se,

T od d G . T i e b o u t ,

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

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

Assistant Vice President
H o w a rd D . C rosse,
Assistant Vice President
F e li x T . D a v is ,
Assistant Vice President
N o r m a n P . D a v is ,
Assistant Vice President

P a u l R . F itc h e n ,

W il ia m F . A b r a h a m s ,

A r th u r

Assistant General Counsel

Manager, Security Custody Department
H
M. B
,
Manager, Cash Custody Department
J
J. C
,
Secretary, and Assistant Counsel
H
C
,
Assistant Counsel
C
R. G
,
Assistant Counsel
E
G. G
,
Assistant Counsel
W
A. H
,
Manager, Savings Bond Department
P
P. L
,
Manager, Collection Department
A
A. M
I
, J .,
Manager, Check Department
S
S. M
, J .,
Manager, Securities Department

Assistant General Counsel

Assistant Vice President
Assistant Vice President
S ila s A . M ille r ,
Assistant Vice President
H o r a c e L . S a n fo rd ,
Assistant Vice President

M a r c u s A . H a r r is ,

H. N o a ,

Manager, Service Department
W i l l i a m F . P a lm e r ,
Manager, Accounting Department
F r a n k lin E . P e te rso n ,
Manager, Cash Department
L aw ren ce E . Q u ack en b u sh ,
Manager, Bank Examinations
Department
R ob ert V . R oosa,
Manager, Research Department
W a l t e r H. R o z e l l , J r .,
Manager, Foreign Department
R a lp h W . S c h e ffe r ,
Manager, Government Bond Department
K e n n e th E . S m a ll,
Manager, Personnel Department
F r e d e r ic k L . S m e d le y ,
Manager, Personnel Department
Thom as O. W aage,
Manager, Public Information Department
A . C h e ste r W a lto n ,
M
J. M L
,
Manager, Government Check Department Manager, Bank Relations Department
W a lte r C. W a rn er,
O. E r n e s t M o o r e ,
Manager, Credit Department, and
Manager, Research Department
Manager, Discount Department
H
A. M
,
R oy E . W e n d e ll,
Manager, Building Operating Department Manager, Safekeeping Department
D
C. N
,
A r t h u r H. W i l l i s ,
Manager, Planning Department
Assistant Secretary
C u r t i s R . B o w m a n , General Auditor
arry

ohn

a r d in g

oyd

larke

ow an

l if t o n

ordon

dw ard

u y

il l ia m

eter

ngus

pencer

e in l

ang

nnes

arsh

ic h a e l

erbert

uether

onald

a u g h l in

il e s

THIRTY-EIGHTH ANNUAL REPORT
O

In s le y

f f ic e r s

— B uffalo B r an c h

S m ith ,

H a r o ld

Vice President

W e s s e l,

Assistant Vice President

G e o r g e J. D o l l ,

G erald H . G reen e ,

Cashier

M . M onroe M yers,

Assistant Cashier
Assistant Cashier

I n d u s t r ia l A d v is o r y C o m m itte e
W illia m

H . P ouch,

Chairman

Chairman o f the Board, Concrete Steel Company,
New York, N. Y.

Vice Chairman

G. N e l s o n ,
Chairman o f the Board,
A. G. Nelson Paper Company, Inc.,
New York, N. Y.

A r th u r

E d w a r d J. N oble,

Chairman o f the Board,
American Broadcasting Company, Inc.,
New York, N. Y.

*
The following changes which occurred during January 1953 have not been re
flected in this List o f D irectors:
Mr. Folsom resigned as Class B director, effective January 19, 1953, to
accept appointment as Under Secretary o f the Treasury.
Mr. Stevens resigned as Class C director, and as Chairman and Federal
Reserve Agent, effective January 19, 1953, to accept appointment as Secretary o f
the Army.
T o succeed Mr. Stevens, the Board o f Governors appointed Mr. Crane, effec
tive January 20, 1953, a Class C director fo r the unexpired portion o f the threeyear term ending December 31, 1953 and designated him Chairman and Federal
Reserve Agent for the remainder o f 1953.

Full text of Annual Report of the Federal Reserve Bank of New York : Thirty-Eighth Annual Report of the Federal Reserve Bank of New York for the Year Ended December 31, 1952

FRASER