The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal Reserve Bank of Cleveland To the Banks in the Fourth Federal Reserve District: We are pleased to present the Annual Report of the Federal Reserve Bank of Cleveland for 1967, and to express our appreciation to the agricultural, business, and financial community in the Fourth District for cooperation and encouragement in helping us fulfill our responsibilities. The Annual Report this year focuses on major operations of the Federal Reserve Bank of Cleveland-check collection, fiscal agency, currency and coin, and data processing. This Annual Report represents a coordinated effort by people in various departments. The Research Department was responsible for organizing, coordinating, and producing the Annual Report; personnel from the operating departments provided the expertise and basic facts. The Report is intended to describe some of the services provided by this Bank designed to improve the nation's financial flows and payments mechanism-the handling of securities, the issuance of currency and coin, and the processing and utilization of diversified information. We hope it will interest commercial bankers, businessmen, and the general public. We should like to thank the officers and employees of this Bank. Their loyal support has contributed importantly to the success of the Bank. ~N~'O~~·~ TRENDS IN OPERATIONS AT FEDERAL The Federal Reserve System is well known for its role in formulating and implementing monetary policy. But, CONTENTS it is not so well known that the System performs many service functions such as collecting and clearing checks, Trends in Operations at the furnishing currency for circulation, and acting as fiscal 2 agents, custodians, and depositaries for the U. S. Trea- Check Collection Department 4 sury and other Government agencies. The twelve re- Fiscal Agency Department 8 Federal Reserve Bank of Cleveland Securities Department 12 Cash Department . . 13 Data Processing Department 19 Comparative Statement of Condition 24 gional Federal Reserve Banks and their branches all participate in these service functions, which are necessary to foster a flow of credit and money that will promote orderly economic growth. It will perhaps be surprising to some that the operating or service functions either directly or indirectly affect the formulation, implementation, and influence of monetary policy. The speed of check collection operations, for Comparison of Earnings and Expenses 25 example, determines "float," and in turn affects the re- Joseph B. Hall 26 serve position of commercial banks. If the fiscal agency Directors and Officers 27 Branch Directors and Officers 28 2 function does not handle Treasury funds or securities quickly and efficiently, flows of funds at the nation's financial institutions and in the central money market "THE " RESERVE BANK OF CLEVELAND may be distorted. The role of the Reserve Banks in satisfying the public's need for currency and coin has an effect on the nation's money supply and in turn can have an important influence on the public's decisions to spend or save. Finally, the high-speed transmission of data among the Federal Reserve Banks through the use of electronic equipment enables those responsible for formulating monetary policy to have access to the timely and comprehensive business and financial information that is needed to interpret recent and prospective developments at home and abroad. This Annual Report examines four service functions at the Federal Reserve Bank of Cleveland-check col- lection, the fiscal agency function, the currency and coin function, and data processing. Because the recent years have been marked by tremendous gains in productivity and reduced operating costs as a result of the increased use of automated procedures and equipment, this Report focuses on activities during a fairly short time period. In most cases, relevant data are presented for the five-year period 1963 through 1967. 3 CHECK COLLECTION DEPARTMENT Billions of checks are written annually to pay for goods and services, to purchase financial assets, for gifts, and for various other purposes. Because of the wide distribution and large volume of checks, some mechanism is needed to pay and collect the funds represented by the checks. As a service to the business and financial community, as well as the general public, the Federal Reserve System provides a nationwide network for clearing and collecting checks. The clearing and collection process is the main job of the Check Collection Department. Clearing is simply sending a check to the bank on which it is drawn. Collection involves deducting the amount of the check from the account of the bank on which the check is drawn, and 4 reimbursing the bank that cashed the check. A special routi ng system enables banks to settle for checks they cash and pay with a minimum of delay. In recent years, the keynote of banking operations has been the automation of check processing. Since the end of World War II, the volume of checks written in the United States has grown at an annual rate of 5 to 6 percent. In 1957, approximately 10 billion checks were written in the United States. By 1967, the number had risen to approximately 19 billion, and it is estimated that over 23 billion checks will be written in 1970, and more than 29 billion in 1975. From 1963 through 1967, the number of checks processed by this Bank increased at the rate of approxi mately 6 percent a year. In 1967, the Check Collection Department at the,three offices of the Federal Reserve Bank of Cleveland received and forwarded for collection more than 485 million items valued at $139 billion, It is expected that by 1985, this Bank will be processing nearly one billion checks a year, and it is anyone's guess what the value will be. It is clear that the banking system would have been literally swamped by an ever-increasing flood of checks if sophisticated, high-speed procedures had not been introduced into the check-handling process. As a starter, in 1956, the American Bankers Association, in cooperation with equipment manufacturers, the printing industry, and the Federal ReserveSystem, introduced a special type font to be printed on checks with magnetic ink. The new system was called Magnetic Ink Character Recognition-MICR. When checks are printed, the bank's number (the so-called ABA routing symbol) and the customer's account number are printed in the special type font on the bottom of the check. When the check is deposited in a bank, the amount of the check is encoded in the same type font with magnetic ink. Checks printed and encoded with magnetic ink characters can be processed through high-speed sorting equipment that is connected to a computer. Preprinting of routing information has increased steadily and in 1967, more than 98 percent of the total of all checks drawn on Fourth District banks were preprinted with an ABA routing symbol. In addition, about 94 percent of the checks received at the three offices of this Bank had the dollar amounts printed with magnetic ink. A significant portion of the reduction in check processing costs at our three offices can be attributed to the increased dollar encoding by member banks. Five pilot installations of high-speed check handling equipment were set up at various Federal Reserve Banks in 1960 to test the performance and reliability of various manufacturers' equipment. With the pilot a success, the first permanent high-speed equipment was installed in this Bank in October 1961. Additional check sorters were installed in all three of the Bank's offices and at yearend 1967, there were seven systems in operation. Before this installation at the Federal Reserve Bank of Cleveland, check processing costs averaged about $10 per 1,000 items; by 1967, check processing costs had been reduced to about $5 per 1,000 (see table). Annual volume increased by about 100 million items over the period, whi Ie costs were reduced by more than $1 million. Increased reliance on automated procedures has made it possible to reduce, by attrition and transfer to other positions, the number of employees in the Check Collection Department. In 1963, the department employed 536 persons, while in 1967, only 303 were needed to handle a much larger volume of checks. At the same time, automated procedures improved productivity in the Check Collection Department to the extent that employees were handling 998 items per manhour in 1967, compared with only 392 items per manhour in 1963. Putting it another way, improvements in equipment have increased the number of checks processed in one hour from 30,000 to an average of over 65,000 checks per hour. At yearend 1967, approximately 95 percent of the average daily volume of 1.6 million checks dispatched from the three offices of this Bank were processed on high-speed equipment. In order to permit the Federal Reserve Banks and commercial banks to take advantage of high-speed computer facilities, the Federal ReserveSystem adopted a new policy on September 1, 1967. This policy provides that the Federal Reserve Banks will no longer process as cash items checks that do not have the ABA routing symbols printed in magnetic ink. Checks not properly coded are returned to the sending bank or processed as noncash items, thereby delaying presentation and payment. It was necessary to put this program in effect because of the expense of manual processing of checks and the volume of checks now in use. Commercial banks benefit appreciably from the M ICR program. Checks presented to the banks for payment by the Federal Reserve can be readily processed by computers. Banks with access to a computer can sort the items for a customer's account, update the account daily, and prepare a monthly statement. Accelerated check collection results from automated procedures and the increased use of motor carrier facilities, making funds available to the banks for loans and investments much more quickly than in the past. Many checks cashed at District commercial banks are now presented to drawee banks in one day rather than in the two-day period typical before automation. Automated procedures have also reduced the large 5 Check Collection Department Number of Employees and Expenses 1963-1967 1964 1963 Number of Employees (annual average) . Percent of Total Bank Employees . Total Expenses (thous. of dollars) . 1966 1965 1967 536 34% $3,867.8 494 33% $3,230.4 393 27% $3,227.3 336 25% $2,805.4 303 23% $2,571.4 69.7 264.0 77.9 273.6 82.4 280.2 84.3 311.3 88.5 347.2 48.4 48.0 49.2 48.9 50.5 $ 367.5 3,157.9 $ 400.8 2,601.1 $ 370.2 2,522.5 $ 287.3 2,231.1 $ 239.8 2,052.6 140.8 118.5 111.4 93.7 91.9 201.6 210.0 223.2 193.3 187.1 64 423 60 386 35 309 36 259 28 235 19 16 15 14 14 30 31 33 27 26 582 321 689 375 937 489 1,384 657 1,974 831 1,422 1,677 1,899 2,092 2,114 Volume (mils. of checks) City Checks Country Checks. Government Checks and Post Office Money Orders. Total Expenses (thous. of dollars) City Checks Country Checks. Government Checks and Post Office Money Orders. Miscellaneous Operations, including Noncash Collection, Return Items, and Adjustments Number of Employees (annual average) City Checks Country Checks. Government Checks and Post Office Money Orders. M iscella neous Operations, including Noncash Collection, Return Items, and Adjustments Items per Manhour City Checks Country Checks. Government Checks and Post Office Money Orders. Cost per 1,000 Items City Checks Country Checks. Government Checks and Post Office Money Orders. 6 $ 5.27 11.96 2.91 $ 5.14 9.51 2.47 $ 4.49 $ 3.41 $ 9.00 7.17 2.71 5.91 2.26 1.92 1.82 daily backlog of unprocessed checks at the Federal Reserve Bank of Cleveland. These uncollected checks represent dollars that are credited to the depositing bank's account according to a published availability schedule. If a backlog of checks exists, the proceeds will not be collected within the anticipated time schedule. The three offices of this Bank have significantly reduced the backlog of checks that used to accumulate during periods of heavy volume. In 1967, a daily average of only 163 checks, amounting to less than $100,000, were being held for processing the next day, compared with 140,000 checks in 1963, totali ng more than $32,000,000. At one time, monthly and seasonal fluctuations in volume were almost impossible to handle by manual processing methods. With automated equipment, fluctuations in volume are now handled with relative ease by extra processing time on computers. Another important development occurred in March 1966 when a new payment procedure was initiated for checks dispatched to District banks. The new system allows the total amount of all checks to be charged automatically to the member bank's reserve account or correspondent bank account. Through the elimination of delays in transportation of payment drafts, payment is now automatic for the majority of District banks. These delays have been reduced through the efforts of both the Federal Reserve Bank and the increased use of motor carriers. In addition, increased use of air transportation to cities where other Federal Reserve Banks are located has made overnight collection of checks possible in many of those cities. While "automation" is a word not well defined, its meaning is quite clear in the banking industry. As indicated earlier, it is estimated that approximately 19 billion checks were drawn in the United States in 1967. Without the automatic equipment available to the banking industry today, this "paper mountain" would have required well over 100,000 additional employees and literally millions of additional square feet of space to house the employees and the additional old-fashioned equipment that would have been necessary. It would also have resulted in increased service charges by commercial banks or a serious erosion in earnings. An alternative to the use of checks has been advanced by the proponents of the "checkless society." Study groups under the auspices of the American Bankers Association, the Bank Administration Institute (formerly NABAC), and the Federal Reserve System are now at work investigating the possibilities of improving the payments mechanism. For the foreseeable future, however, the collection network must be prepared to process the mounting volume of checks. It is for this reason that another generation of high-speed equipment will soon be placed in operation within the Bank to provide more efficient processing, both in terms of speed and cost. CHECK COLLECTION DEPARTMENT AVERAGE NUMBER of EMPLOYEES 1963-1967 600 1963 Averaga for fintthrea 1964 quartan 1965 1966 1967 of 1961. 7 FISCAL AGENCY DEPARTMENT Unlike the names of other departments in the Bank, the words "Fiscal Agency" provide little indication of the nature of this department's di verse operations. In very broad terms, the fiscal activities of the Federal Government consist of receiving funds from collection of taxes and the sale of Government securities and the disbursing of those funds. The Federal Reserve Banks, as fiscal agents of the Federal Government have four general areas of responsibility: (1) issuing, redeeming, and servicing Government obligations; (2) maintaining Treasury Tax and Loan Accounts; (3) processing deposits of Federal taxes; and (4) verifying and destroying worn out currency. In addition, the Federal Reserve Banks maintain the principal checking accounts of the U. S. Treasury. ISSUING, REDEEMING, OF U. S. GOVERNMENT AND SERVICING OBLIGATIONS All U. S. Government obligations are classified into two groups: marketable and nonmarketable securities. Marketable securities, which include U. S. Treasury 8 bonds, notes, bills, and certificates of indebtedness, are negotiable, that is, they can be traded from one owner to another. The principal nonmarketable securities, U. S. savings bonds and savings notes, are not negotiable; ownership can be transferred only under conditions prescribed by the Treasury Department. Typically, new issues of marketable securities are offered when the Treasury requires funds to retire maturing issues or when additional operating funds are needed. The Fiscal Agency Department. using information provided by the Treasury Department, prepares and distributes an official offering circular describing the issue, receives applications for the issue from banks and other prospective subscribers, collects the proceeds, and delivers the new securities. If an issue is offered for cash, subscribers' payments are credited in the accounts of the Treasury Department. If an issue is offered in exchange for a maturing issue, the Fiscal Agency Department receives, cancels, and forwards the maturing securities to the Treasury Department. Each issue of securities has a specified maturity date and the Treasury will not pay any interest after that time. In some instances, the Treasury reserves the right to call all or any part of an issue for redemption before maturity. When this right is exercised, the call date in effect becomes the maturity date. The largest portion of maturing securities are surrendered for redemption or exchange by commercial banks, either for their own accounts or for customer accounts. The Fiscal Agency Department processes the matured securities as exchanges for a new issue or makes payment to the owners by credit in the account of a commercial bank or by a check drawn on the Treasury Department. Retired securities are then canceled by a particular kind of perforation and forwarded to the Treasury Department for destruction. Some marketable Treasury securities lie dormant in safe deposit boxes or other storage places from the time of issuance until maturity. However, many securities are involved in a number of different transactions that often require the services of the Fiscal Agency Department. For example, if the owner of a $100,000 Treasury bond wishes to sell half of his holding, the $100,000 denomination is delivered to the Fiscal Agency Department and exchanged for two $50,000 denominations. The services of this department also are required in TABLE I Fiscal Agency Department Volume and Expenses Government Obligations and Treasury Tax and loan Accounts Activity 1963-1967 many cases involving registered securities when it is necessary to change the registration or to exchange registered securities into bearer securities and vice versa. The Fiscal Agency Department also assists in completing some purchase and sale transactions involving Treasury securities through the use of a private leased wire arrangement maintained by the Federal Reserve System under a procedure authorized by the Treasury Department. These interconnecting wire services between Federal Reserve Banks and the Treasury Department make it possible, in effect, to transfer securities between Federal Reserve offices by telegraph. For example, if a bank in the Fourth District sells a specific amount of a particular issue of securities for delivery to a dealer in New York, the Federal Reserve Bank of Cleveland will retire the securities and instruct the Federal Reserve Bank of New York to issue the appropriate amount of the issue for delivery to the New York dealer. The Federal Reserve Banks maintain inventories of each issue of Treasury securities outstanding. Detailed daily and month-end reports are sent to the Treasury Department to record all transactions affecting the inventories of unissued securities. As another service, the Fiscal Agency Department verifies interest coupons detached from Government bearer securities and deposited by commercial banks for payment. Interest payments are made either by a credit in the depositing bank's account or by a check drawn on the U. S. Treasury. After the coupons have been counted, sorted, and canceled according to Treasury Department regulations, they are forwarded to the Treasury. The total amount shi pped is then charged to the Treasurer's account. Effective January 2, 1968, the Treasury Department authorized the issuance of marketable Government securities to commercial bank owners in the form of "book-entry securities," as well as the traditional definitive form. The book-entry procedure is applicable only when the securities are to be held by the Federal Reserve Bank for safekeeping or as certain types of collateral. The commercial banks are given notice in writing that the Federal Reserve Bank has recorded the deposit of book-entry securities in its account. The procedure provides for the conversion of book-entry Treasury securities to definitive securities whenever a depositor requests delivery to itself or to its agent. The book-entry procedure is designed to reduce the number of definitive securities required and thereby 9 TABLE II Fiscal Agency Department Volume and Expenses Federal Income Tax and Excise Tax Function 1963-1967 Volume (thous. of receipts) Expense (thous. of dollars) * . Unit Cost per Receipt* Manhours . Receipts per Manhour Fourth District Volume as Percent of System . 1963 1964 1965 1966 1967 Percent Change 1963-1967 820.5 $ 64.9 $0.079 15,400 53.3 861.4 $ 62.2 $0.072 15,474 55.7 862.1 $ 66.7 $0.077 14,923 57.8 941.7 $ 68.3 $0.072 14,852 63.4 1.142.6 $ 73.9 $0.065 12,765 90.0 +39.3% +14.0 -17.7 -17.1 +68.8 6.8% 6.9% 6.8% 6.8% 6.9% • Excluding postage. printing costs, as well as to increase efficiency in handling a large volume of securities through data processing equipment. At present, the book-entry procedure is applicable only to securities held by Federal Reserve Banks for certain purposes, but may eventually be extended to Treasury securities held for other purposes, and perhaps ultimately to securities other than those of the U. S. Government. Another innovation, effective January 1968, permits the Federal Reserve Banks to issue Treasury securities in registered form. Before this time, the Federal Reserve Banks could issue only bearer-form securities. This change should ease the work load at the Treasury Department as well as accelerate delivery of registered securities to owners. Of all U. S. Government securities, the general public is most familiar with the nonmarketable U. S. savings bonds and U. S. savings notes. In contrast to marketable securities, which are issued only on specifically announced occasions, savings bonds and notes may be issued at any time by the Federal Reserve Banks and other issuing agents, including commercial banks, savings and loan associations, business firms, and credit unions. In 1967, this Bank issued over 4.7 million savings bonds and notes, a 14.5-percent increase over the number issued in 1963. In addition, the 1,675 issuing agents serviced by this Bank issued approximately 13 million savings bonds and notes in 1967, an increase of 11 percent over 1963. Blank savings bonds and notes are received from the Treasury Department by the Fiscal Agency Department, and are then distributed to the various issuing agents under rigorous accounting controls. The proceeds from sales of savings 10 bonds and notes by the Federal Reserve Bank and the issuing agents are recorded and credited in the Treasurer's account by the Fiscal Agency Department. The redemption of savings bonds by an owner or co-owner is usually a simple transaction; however, redemption or exchange sometimes can be more involved if ownership status has changed. While the Fiscal Agency Department processes most of these transactions, some require special handling by the Treasury Department. The largest portion of savings bonds are redeemed at banks, savings and loan associations, and certain Government agencies authorized by the Treasury to act as "paying agents." These paying agents send the redeemed bonds to the Fiscal Agency Department and are, in turn, repaid by credit or a check drawn on the Treasurer's account. TREASURY TAX AND LOAN ACCOUNTS Treasury Tax and Loan Accounts were developed during World War I to provide a more orderly flow of large amounts of funds in and out of the Treasury and to minimize the impact of the movement of these funds on the central money market. Under this system, Treasury funds are held as demand deposits at commercial banks qualified as special depositaries until the funds are needed. Any commercial bank, whether or not it is a member of the Federal Reserve System, may be designated as a special depositary by complying with Treasury requirements. Deposits of adequate collateral to secure depositary balances is one of the principal requirements. Funds are deposited with commercial banks in payment of Treasury securities and taxes, and are credited in the Treasury Tax and Loan Accounts at the banks. An advice of the amount credited is sent to the Federal Reserve Bank where a similar account is maintained for each depositary bank. As funds are needed, the Treasury Department notifies the Federal Reserve Bank that a portion of the balances in the Treasury Tax and Loan Accounts is to be called for payment by the depositary banks and credited in the Treasury account at the Federal Reserve Bank. At yearend 1967, approximately 725 commercial banks in the Fourth Federal Reserve District maintained Treasury Tax and Loan Accounts. During 1967, more than 200,000 entries were made in these accounts, involving deposits and withdrawals of funds and collateral. To illustrate the scope of the Fiscal Agency operations in Government obligations and Treasury Tax and Loan Accounts, comparative figures for the years 1963 through 1967 are shown in Table I. The totals include the branch offices at Cincinnati and Pittsburgh, each of which has a Fiscal Agency Department that services the banks, issuing and paying agents, and the public in its respective territory. Table I shows the percent of the total operations in the Fourth District accounted for by each of the three offices. In some of the operations, branch activities exceed those at the mai n office, for example, the Pittsburgh branch issues 57 percent of all the savings bonds in the District. TABLE PROCESSING DEPOSITS FEDERAL TAXES OF Regulations governing the withholding at the source of some Federal taxes (including income, social security, and excise taxes) provide that the funds be deposited with either a commercial bank depositary or a Federal Reserve Bank. Commercial banks may forward deposits received by them to the Federal Reserve Bank or credit the amounts received to their Treasury Tax and Loan Accounts. A revised and simplified procedure,effective January 1, 1968, was developed by the Treasury Department to make the processing of Federal tax deposits more effective and economical. Comparative figures for 1963 to 1967 for the Federal Income Tax and Excise Tax function of the Fiscal Agency Department are shown in Table II. In 1967, the Fiscal Agency Department processed 1,142,600 depositary receipts representing $6.2 billion in taxes compared with 820,500 receipts amounting to $4.05 billion in 1963 (see Table II). Most of this increase reflects expansion in economic activity over the five-year period; a smaller part resulted from revisions in the regulations in 1966 that required more frequent deposits by some employers, and in 1967, applied the deposit procedure to payments of corporate income taxes. The steady increase in the number of items handled per manhour reflects sizable gains in productivity, which in turn are due to increased use and improvement of III Fiscal Agency Department Volume and Expenses Currency Verification and Destruction Function 1963-1967 1963 Volume (mils. of pieces) Expense (thous. of dollars) Unit Cost per 1,000 Items. Manhours . Items per Manhour Fourth District Volume as Percent of System Percent Distribution of District Volume Cleveland Cincinnati Pittsburgh 52.8 $13.1 $0.25 3,367 15,683 1964 54.4 $12.4 $0.23 2,958 18,400 1965 1966 1967 Percent Change 1963-1967 49.7 $12.8 $0.26 3,136 15,860 66.9 $15.3 $0.23 3,176 21,091 102.6 $24.4 $0.24 5,148 20,122 +94.3% +86.2 - 4.0 +52.9 +28.3 5.0% 5.3% 8.4% 4.4% 5.0% 43.6% 24.2 32.2 43.1 % 26.6 30.3 41.4% 29.9 28.7 46.0% 28.4 25.6 49.7% 23.2 27.1 11 SECURITIES Securities Department Safekeeping Activity Main Office 1948-1967 Period Total Dollar Total Total Deposit Value of Pieces and Securities Held of Withdrawal (billions) Transactions Securities 1948-1952 20,000 139,600 $1,895.4 1953-1957 30,900 243,500 2,084.9 1958-1962 34,400 317,300 2,401.1 1963-1967 34,000 333,500 2,672.7 automated procedures that provide more efficient processing. Figures for the Cincinnati and Pittsburgh branches are not shown separately in Table II because all tax deposits for the entire Fourth District are processed at the main office. VERIFYING AND DESTROYING WORN OUT CURRENCY Before 1953, all worn currency was sent to the Treasury Department in Washington, D. C., for destruction. In that year, the Treasury authorized and established procedures that permitted the Federal Reserve Banks to destroy silver certificates and U. S. Notes. Subsequent Congressional action extended this authority to Federal Reserve Notes. Currency is sorted in the Cash Department to determine if it is fit for further circulation or if it is worn out and should be destroyed. Worn currency is perforated with a number of distinctive holes and then delivered to the Fiscal Agency Department. After verification by the Fiscal Agency Department according to Treasury Department regulations, the worn currency is burned. As shown in Table III, with the exception of 1965, the volume of currency verified and destroyed increased each year, from 52.8 million pieces in 1963 to 102.6 million pieces in 1967. Although part of the increase can be attributed to more currency in circulation in line with the needs of an expanding economy, most of the growth resulted from the Federal Reserve Banks' increased participation in the destruction procedure beginning in 1966. 12 DEPARTMENT The Securities Department provides a safekeeping service to member banks and, in some instances, other holders of specified securities. This service is offered primarily to accommodate commercial banks where protective facilities may be inadequate, or where securities are pledged for various purposes. Although securities are held in safekeeping for member banks for a variety of purposes, securities held for nonmember banks are restricted largely to those pledged to departments, agencies, or officials of the U. S. Government, for example, collateral for Treasury Tax and Loan Accounts. Securities are received and releasedonly on authorized instructions. The safekeeping service includes coupon clipping and presenting matured or called securities for payment. There is no charge for the safekeeping service, except for telephone, telegraph, and shipping charges. As a further service to member banks, the Securities Department upon authorized instructions places orders for the purchase or sale of marketable securities with recognized dealers. If no dealer is specified, orders are placed on a "best-price" basis to produce the most favorable result for the member bank, by obtaining competitive bids or offers from several dealers. The book-entry procedure inaugurated by the Treasury Department will expand the use of automated procedures that began in the Securities Department about 15 years ago, when some manual operations were adapted to data processing equipment. Under procedures now being developed, securities transactions will be further automated. Because of the wide variety of services each Federal Reserve office is asked to perform, Securities Department activity is not measured in terms of productivity and unit cost; consequently, there are no comprehensive figures available for the System. A review of this Bank's records from 1948 to 1967 clearly shows the marked increase in the volume of our operations. Annual averages for each five-year period from 1948 to 1967 are shown in the table. During the period, the number of deposits and withdrawals increased 76 percent and the number of pieces of securities handled increased 155 percent. Over the same period, the total dollar value of securities held in safekeeping increased to nearly $2.7 billion, or 37 percent more than in the 1948-1952 period. The growth of safekeeping activities since 1948 can be attributed largely to the marked increase in the volume of government and corporate securities outstanding. CASH DEPARTMENT One of the responsibilities of a Federal Reserve Bank is to provide a means through which currency and coin are moved into and out of circulation. This responsibility is carried out by the bank's Cash Department, which supplies currency and coin to commercial banks to meet the needs of the public. The Cash Department of the Federal Reserve Bank of Cleveland serves approximately 1,200 banking offices in the Fourth District. The department not only supplies currency and coin as ordered by District banks, but also receives deposits of currency and coin that are in excess of the banks' needs or are unfit for further circulation. As an additional service, the Cash Department receives canceled food stamps from District banks. The activities of the department also include currency sorting and counting, coin sorting and counting, coin wrapping, and verification and destruction of food stamp coupons, CURRENCY All supplies of new currency are obtained from the Treasury Department. Federal Reserve Notes, which account for almost all of the currency presently being issued, are printed by the Bureau of Engraving and Printing in amounts based on annual estimates made by the Federal Reserve Banks. Notes are consigned to the Federal Reserve Agent at each Federal Reserve Bank 13 (the Federal Reserve Agent is also Chairman of the Board of Directors) and are held in the joint custody of the agent and the bank until "issued" to the Reserve Bank for its inventory. When applying to the agent for an issue of notes, the bank tenders collateral equal to the face amount of the notes. The only other currency presently being issued consists of U. S. Notes, a form of "Treasury currency" first authorized in 1862. Approximately $323 million of such notes are outstanding, backed by a gold reserve of $156 million. U. S. Notes circulate along with Federal Reserve Notes until they become unfit, at which time they are sorted separately for destruction. When currency is returned from circulation, it is counted and sorted by skilled operators who examine each piece and feed the bills into a counting machine. An experienced sorter processes more than 32,000 bills a day. Incoming $1 notes appearing to be in good condition can sometimes be processed on high-speed equipment that counts the bills about three times faster than the regular sorting and counting operation. Counterfeits, foreign bills, types of currency in process of retirement, and mutilated and unfit notes are separated from the fit money. Fit money is then packaged and held in the bank's vaults for future circulation. Currency that is unfit for circulation is canceled in the Cash Department. If it is a type that the Federal Reserve Bank is authorized to destroy (all Treasury currency and $1 through $100 Federal Reserve Notes), it is turned over to the bank's Fiscal Agency Department to be destroyed according to procedures set forth by the Treasury Department. Currency that cannot be destroyed at the Reserve Bank is cut in half lengthwise. The lower halves are sent to the Treasury Department for verification and destruction, and the upper halves are turned over to the Fiscal Agency Department for verification and destruction. The volume of currency sorted and counted in this Bank's Cash Department increased from 260 million pieces in 1963 to 299 million in 1967 (see Table I). The growth in the dollar volume of payments and receipts is shown in Table II. Annual payments to District banks rose in each year from 1963 through 1967, increasing from $2.1 billion in 1963 to $2.6 billion in 1967. Annual receipts of currency also increased, from $1.8 billion in 1963 to $2.2 billion in 1967. 14 Despite the substantial increase in the volume of currency processed, the number of people needed for the counting and sorting operation declined. In 1963, there were 49 employees involved in this work, compared with 46 in 1967. Total expenses of the function declined by 3 percent between 1963 and 1967. In addition, the number of items processed per manhour rose from 3,053 in 1963 to 3,782 in 1967 and the cost per 1,000 items declined from $1.07 to $0.90. These improvements reflect both the simplification of sorting procedures for $5 and $10 notes and more efficient operations. COIN New coins are received from the U. S. Mints at Philadelphia and Denver. The dollar amount of the coin is credited to the Treasurer's account at each bank and the coins are stored until ordered by commercial banks to meet the needs of the public. Coins in circulation that are in excess of the needs of the public are returned by commercial banks to the Federal Reserve Banks. Returned coins are counted and sorted to remove foreign coins, slugs, and worn or mutilated U. S. coins. The sorting operation is performed by employees who visually examine the coin as it is fed through an automatic counting machine. The usable (fit) coin is then bagged or wrapped and stored until ordered by District banks. More than 95 percent of coin paid out is wrapped by automatic machines that accept loose coin and produce as many as 10,000 rolls in a day. The dollar volume of payments and receipts at the three offices of this Bank is shown in Table II. Reduced volume in 1964, 1965, and 1966 reflects the coin shortage in those years. In 1966, payments by this Bank accounted for 11.6 percent of total payments by all Federal Reserve Banks, and receipts for 12.3 percent of the total. A more vivid picture of the task involved in handling coin can be seen by considering the number of pieces rather than dollar volume: 1,975 million coins were paid into circulation in 1967, and 1,597 million were received in deposits from District banks. The volume of coin counted and sorted rose from 1,178 million pieces in 1963 to 1,424 million pieces in 1967, and was processed by a staff averaging 11 persons during 1967, compared with 14 persons in 1963. More importantly, total expense of the function was smaller in 1967, and the number of items processed per manhour was substantially higher (see Table I). The volume of coin wrapped increased from 1,457 million pieces in 1963 to 1,916 million pieces in 1967. The average number of employees in the function rose from 20 in 1963 to 26 in 1967, a slightly smaller percent increase than in the case of volume (see Table I). FOOD STAMP COUPONS Under an agreement with the Secretary of Agriculture, the Federal Reserve Banks receive canceled food stamp coupons from banks, pay for them by crediting the forwarding banks and charging the general account of the Treasurer of the United States, and destroy the paid coupons. The Reserve Banks are reimbursed for the cost of destruction, audits, and special examinations, TABLE I Cash Department Number of Employees and Expenses 1963-1967 Number of Employees (annual average) Percent of Total Bank Employees . Total Expenses (thous, of dollars) . 1966 1965 1964 1963 1967 155 9.9% $1,963.5 139 9.2% $1,843.8 139 9.6% $2,013.5 157 11.5% $2,245.2 187 14.0% $2,534.6 260.2 1,177.5 1,457.1 16.4 260.9 459.0 853.4 20.7 264.7 391.6 1,022.8 29.4 276.9 1,023.7 1,625.4 40.8 298.9 1,423.5 1,915.7 57.5 $ 278.4 77.6 254.5 11.5 $ 283.3 38.1 172.5 14.2 $ 292.4 26.4 190.3 17.6 $ 279.5 54.0 303.4 23.9 $ 269.0 70.4 357.2 27.0 49 14 20 2 49 6 13 3 50 4 14 3 46 8 22 4 46 11 26 5 3,053 48,212 3,150 41,248 2,940 51,442 3,279 61,748 3,782 64,477 Volume (mils. of pieces) Currency Sorting and Counting. Coin Sorting and Counting Coin Wrapping . Verification of Food Stamp Coupons. Total Expenses (thous. of dollars) Currency Sorting and Counting. Coin Sorting and Counting Coin Wrapping . Verification of Food Stamp Coupons. Number of Employees (annual average) Currency Sorting and Counting. Coin Sorting and Counting Coin Wrapping . Verification of Food Stamp Coupons. Items per Manhour Currency Sorting and Counting. Coin Sorting and Counting Cost per 1,000 Items Currency Sorting and Counting. Coin Sorting and Counting $ 1.07 0.07 $ 1.09 0.08 $ 1.10 0.07 $ 1.01 0.05 $ 0.90 0.05 15 but not for the receiving, verifying, and paying operations. In late 1967, the food stamp program was in operation in 93 of the 168 counties in the Fourth District, and canceled coupons were being received from approximately 400 commercial banking offices. In 1967, the three offices of this Bank processed nearly 58 million coupons, approximately 18 percent of the total processed by all Federal Reserve Banks; this compared with 16.4 million coupons in 1963. The number of employees required to verify incoming coupons in 1967 averaged only 5, compared with an average of 2 for a much smaller volume in 1963 (see Table I). MAJOR CHANGES, 1963-1967 Currency. During the last five years there was a change in the type of $1 bills in circulation-from Treasury to Federal Reserve currency. At the beginning of 1963, the only type of $1 bills being issued and actually circulating were silver certificates. Legislation enacted in that year authorized the issue of Federal Reserve Notes in the $1 denomination and the Federal Reserve Banks began paying the $1 notes into circulation. Retirement of silver certificates began in late 1964. The retirement process involved sorting all silver certificates received from circulation and destroying them in TABLE II Cash Department Payments and Receipts of Currency and Coin 1963-1967 (millions of dollars) 1963 1964 1965 1966 1967 Payments to Banks Cleveland Cincinnati Pittsburgh $ 826 523 797 $ 842 551 881 $ 853 593 929 $ 928 617 966 Total ... $2,146 $2,274 $2,375 $2,510 $ 974 674 984 -$2,632 $ 675 489 643 $ 703 524 703 $ 792 569 790 $ 849 597 797 $1,808 $1,930 $ 720 541 745 --$2,006 $2,151 $2,243 $ $ Currency --- Receipts from Banks Cleveland Cincinnati Pittsburgh Total ... Coin Payments to Banks Cleveland Cincinnati Pittsburgh Total ... Receipts from Banks Cleveland Cincinnati Pittsburgh Total ... 69 44 37 $ 36 29 15 $ 27 23 26 $ 150 $ 81 $ 76 62 41 31 $ 25 22 6 $ 8 11 3 $ 134 $ 53 $ 23 $ $ NOTE: Details may not add to totals because of rounding. 16 --- 67 51 44 78 63 60 $ 162 $ 201 $ $ --- 48 38 30 $ 117 -- 66 52 44 $ 161 Chart 1. PAYMENTS the manner prescribed for unfit Treasury currency. By the end of 1967, the volume of $1 Federal Reserve Notes in circulation exceeded the number of $1 silver certificates that had been in circulation when the process began. Although a substantial number of silver certificates remained outstanding, few were actually circulating. They were believed to be in the hands of collectors or persons who were holding them for future redemption in silver bullion. In June 1967, Congress enacted legislation that limited to one year the time within which silver certificates could be redeemed for silver. In July, the Treasury Department discontinued the sale of silver from its stock to the public for the monetary value of $1.29 an ounce. Within a week, the cash market price rose above $1.80 per ounce. Later in the year, it reached a high of $2.17. This development enhanced the value of silver certificates and resulted in their almost complete disappearance from circulation. Coin. Two significant developments affecting United States coi nage occurred during 1962 -1967 - the coi n shortage and the transition from silver to clad or "sandwich" coins. The effects of the shortage on the return flow of coin to this Bank and on the payments made into circulation month by month are shown in Chart 1. The low point in receipts was November 1964, when the return flow of all denominations averaged about 0.6 million pieces per working day, compared with average receipts of approximately 5.7 million pieces per working day during 1962. Payments reached a low point of 1.8 million pieces a day in July 1964, compared with an average of 6.8 million pieces per day during 1962. The extent of recovery from the shortage is shown by the fact that both receipts and payments in 1967 were greater than in 1962 or any intervening year. The recovery can also be seen from the high inventory levels reached in 1966 and 1967 (see Chart 2). The coin shortage was most severe and prolonged for dimes, quarters, and halves. Recovery for dimes and quarters was not complete until the effect of the large quantities of newly minted clad coins was fully felt in 1966. Half-dollars have not yet come back into general circulation although approximately 895 million have been made since early 1964, almost two-thirds of the total number minted in the period from 1793 through 1963. The continued shortage of half-dollars has been and RECEIPTS of COIN Average Daily Number All Denominations 1962-1967 MiliionJ 12 of Pieces .01 pieces SHIPMENTS 10 to 8 1964 Chart -. MONTHLY BANKS 1965 2. NUMBER of DA YS SUPPLY of COIN Based on Average All Denominations 1962-1967 Number 100 Daily Payments in 1962 and on HAND 1963 of days END OF MONTH 80 1962 1963 1964 1965 1966 1967 17 TABLE III Mint Coin Production by Calendar Years 1960-1967 (millions of pieces) 1960 1961 2,169 250 272 2,510 306 306 Quarters . 94 Halves. Cents Nickels. Dimes. Total 1962 -2,402 1963 1964 -- 381 411 2,531 456 548 3,384 797 811 124 167 213 382 26 32 48 92 202 2,811 3,276 3,409 1965 -3,064 2,016 1,315 (1,308)* (7)t 1,338 (878)* (461 )t 186 # 3,840 5,576 7,920 1966 1967 3,680 287 3,191 (168) * (3,023)t 2,180 (5)* (2,174)t 212 (42)* (170)t 9,549 3,049 107 2,244t 1,524t 295t 7,219 * 90 t t # percent silver. Clad-cupro nickel. Clad-40 percent silver. Clad half-dollars struck at Denver Mint on December 30, 1965, included in 1966 totals. attributed to the special memorial value of the Kennedy half and to the silver content of the coin in a period when the public was becoming aware of the growing scarcity of silver. The clad half-dollars minted pursuant to the Coinage Act of 1965 still contained some silver (40 percent) and were not readily distinguishable in general appearance from the 90 percent silver Kennedy halves dated 1964. The coin shortage was overcome in time by the tremendous production efforts of the Bureau of the Mint. The increased output is shown in Table III. Total production in 1966 was 2~ times as large as in 1963 and almost 3~ times as large as in 1960. The coin situation in this period was complicated by the increasing demand for silver and rapid depletion of the stock held by the Treasury Department. The steppedup production of dimes, quarters, and halves in 1964 18 and 1965, and the extensive sales of silver to the public, so reduced the Treasury's supply that it became urgent to find some substitute metal for subsidiary coinage. Following intensive study, the Treasury Department recommended the clad quarters and dimes composed of an inner core of pure copper and outer layer of an alloy of 75 percent copper and 25 percent nickel. The new half-dollar is composed of a core of 79 percent copper and 21 percent silver and outer layers of 20 percent copper and 80 percent silver. The Coinage Act passed in August 1965 authorized the use of the new coins. By December 1965, more than 45 million clad quarters had been received by the three offices of this Bank to be paid into circulation-the equivalent of 3 coins for each man, woman, and child in the Fourth District. Payment of the new dimes and half-dollars was initiated in March 1966. DATA PROCESSING DEPARTMENT Computer processing of data is an integral part of every major function of the Bank and the role of the computer is growing steadily as new techniques having favorable effects on analytical procedures and operating costs are uncovered and put into practice. The main role of the Data Processing Department is to provide service to Research and the operating departments. The magnetic tape computer purchased in 1962 is the heart of the data processing service and approximately 50 persons are needed to coordinate its operation. Data processing personnel perform several tasks, including the designing of computing procedures, translating the procedures into a language understood by the computer, and punching data on cards to be fed into the computer. The computer's memory units, magnetic tapes, and printers are used to manipulate, store, and present data in a useful and usable form. Close coordination of the tasks performed by the personnel of the Data Processing Department is necessary to insure that computed results meet the desires and needs of other departments. Coordination is accomplished through proposals, suggestions, and recommendations made by either the department involved or data processing personnel on the design and adoption of new procedures and new equipment uses. The final decision on implementing new procedures and further utilizing the computer is vested with the department served. DEMAND FOR COMPUTER SERVICES The increased demand for computer time since 1962 is one indicator of Data Processing's contribution to Bank operations. In 1962, the Data Processing Department required one shift of personnel and the computer was used less than eight hours per day (see Chart 1). By 1963, the utilization rate climbed above eight hours and overtime was being logged by the computer operators. Data processing became a full two shift operation to accommodate increased work loads in 1965 and 19 Chart 1. COMPUTER UTILIZATION 1962-1967 1st SHIFT 2nd SHIFT 3rd SHIFT 00 8.0 o 1962 1963 196.4 E) 1965 1966 1967* *Oa •• not include introduction of weekend utilization. NOTE: Machine time. only ond doe. not include maintenance. Utilization ba.ed on peak month of the year. 20 began operating around the clock in 1966. Demand for computer time was so high in 1967 that new applications and changes in procedures and techniques were limited to the computer time available on weekends. COMPUTER USERS IN THE BANK The largest user of the data processing computer is the Fiscal Agency Department, followed by Check and Noncash Collections, and Research. Usage by these three areas accounts for 75 percent of the computer time charged to all users (see Chart 2). The amount of computer time does not measure the complexity of the many different computations performed for the respective departments, and it is in no way a measure of the importance of particular operations within the overall operations of the bank. Activities involving daily processing of a large volume of similar types of data often require more computer time and less sophisticated techniques than those used for administration and supervision, accounting, payroll, and bank examination. The Fiscal Agency Department primarily uses the computer to process withheld tax receipts for the Treasury Department and to print savings bonds as an issuing agent of the Bureau of the Public Debt. Computer time required to process more than one million Federal tax receipts in 1967 totaled 580 hours, while the time required to print nearly two million bonds for the same period was 955 hours. Before using the computer for withheld Federal taxes, the processing cost per item at this Bank was relatively high compared with other Reserve Banks. Since this operation was converted to the computer, this Bank has had one of the lowest per item costs for withheld tax operations in the Federal Reserve System. Similarly, the number of savings bonds printed per manhour increased nearly 65 percent after conversion to the computer and the unit cost dropped from 6.7 cents in 1964 to 5.1 cents in 1967 -again one of the lowest per item costs of all the Federal Reserve Banks. Automation of certain aspects of the noncash collection activity, such as preparation of advices and shipping orders to collect maturing coupons and bonds and the paper work associated with presenting checks and drafts for collection that cannot be processed through high-speed check sorting equipment, has also had a favorable impact on costs. Before the computer was used in this area, the per item cost was 10.4 cents, with 33 items processed per manhour, compared to a per item cost last year of 8.0 cents, with 54 items processed per manhour. Some of the more interesting uses of the computer have originated in the research activities of the bank, and demand for computer time by the Research Department has grown rapidly. Since 1962, utilization of the Bank's computer as a tool in economic research has increased 12-fold, and future growth may even surpass past experience. The Research Department is responsible for reviewing a continuous stream of data covering economic activity in the Fourth District and the United States. These data are a reservoir of information that the research staff can Chart draw upon to evaluate and predict regional and national economic developments. Using an assortment of processing and statistical techniques, the Research Department, through the computer, is able to collect, collate, adjust, analyze, and restructure the stream of data referred to above. In addition to interpreting current data, the research staff conducts longer term studies designed to improve understanding of how the economy and the monetary system work. Recently completed studies include an analysis of cost factors versus demand forces in the behavior of prices, an evaluation of the stabilization aspects of fiscal actions of the Federal, state, and local governments, and an attempt to predict statistically the future course of defense spending from data on obligational authority, etc. Some research projects fall in a category that might be called "pure" research. These projects often utilize models of economic behavior that can be solved on the computer and involve a number of complicated statistical and mathematical techniques. 2. MONTHL Y DISTRIBUTION of COMPUTER TIME In 1967 By Department Hours o 50 100 150 200 I , FISCAL AGENCY CHECK and NONCASH , COLLECTION , RESEARCH ACCOUNTING PLANNING l1li1 SECURITIES ALL OTHER f Hours I 0 50 .1 .1 100 150 200 21 The knowledge gained through such research sharpens analysis of current developments, improves short-term projections of economic activity, and promotes better understanding of the workings of the economy. NEW COMPUTER INSTALLED Our data processing computer is literally bursting at the seams from the volume of work being handled. Replacement with a computer of greater capacity and flexibility was the only solution to meet the Bank's data processing needs. Consequently, in 1967, the Board of Directors of the Bank approved the acquisition of a new computer system. Delivery of a portion of the new equipment took place in January 1968, and the remaining equipment is expected to be installed in 1969. The decision to install a new computer system was accompanied by a change in philosophy on computer processing at the Federal Reserve Bank of Cleveland. Rather than installing a computer system only to handle growing requirements for data processing services in Research and operating departments, it was felt that the new system should handle check processing requirements as well. The reasons underlying the change to a one-computer system include greater flexibility in the use of both equipment and personnel, one computer programming language rather than several, and elimination of a number of small, limited capacity computers with a consequent reduction in personnel. In addition, it is believed that installation of an advanced computer system will enable the Bank to benefit from the development of advanced computer processing concepts and techniques. The new computer will accommodate equipment now being developed that will enable the computer to 22 transmit and receive data directly over telephone lines and circuits. Substantial cost savings in the area of data communications are expected to result when this equipment is available. Pressuresfor using the computer within the Bank will grow when handling costs associated with preparation of data for computer processing can be effectively displaced by new, reliable, lower cost data communications terminals. In addition to handling data communications requirements within the Bank, it is anticipated that the new computer will playa prominent role in speeding communications throughout the Federal Reserve System. NEW DATA COMMUNICATIONS WIRE TRANSFERS OF FUNDS FOR Data communications is not a new area for Federal Reserve Banks. Collectively, the Reserve Banks operate a communications network that annually speeds the transfer of billions of dollars across the country for commercial banks. The switching center, which links together the communications equipment at each of the Reserve Banks, is located at the Federal Reserve Bank of Richmond. What is new and uncertain is the use of high-speed electronic machines at sending and receiving stations in place of slow-speed teletypewriter equipment. Considerable technical knowledge and operati ng experience are needed before computers and associated terminal equipment can be installed and used to communicate speedily and accurately from one Federal Reserve office to another. The Federal Reserve Bank of Cleveland has been cognizant of the need within the Federal ReserveSystem Chart 3. HIGH SPEED TRANSMISSION ~ . .......•....•... ....- . °r,_o _ .\ , PROJECT ".',.... . .-.-.-.- \ \ •... ., I ; -'-. ; , ..... ....... <, J. . , . _._,_.-.-r-,.:_._._. .I CINCINNATI i 'r- _.-._._._.-. I. " t .. _._., . ; .-.~} ..... I ,. i "7 ._ .-.-.-._ ! ~..... ..,._._ I -. ;._. \._. I \ .I .~-' / ..., ._.-'_:- ,.-.-._.-.'7~' .1-.J.-.-.-..... .••.. ._.-._ . . i-'-'-'-'r' '-':, ! i i ••••. .1 l-·_·-, I ,," "'. . .••• . I '\ for experience with high-speed data communications. The Bank is attempting to close the knowledge gap by participating with three other Federal Reserve Banks in the operation of a separate communications network for wire transfers of funds that bypasses the present teletype network, and which improves the wire transfer service to commercial banks in the Fourth District (see Chart 3). High speed transmitting and receiving terminal equipment is being used in this experiment. At this time, preparation of data for transmission over high-speed terminals continues to be a manual operation. The Cincinnati and Pittsburgh branch offices are actively engaged in this project and have the distinction of being the first branches to handle wire transfers of funds by instant telecommunication. Automation has served as the catalyst for successfully achieving lower operating costs and increased productivity per dollar spent for wages and salaries, but only a portion of these gains can be attributed directly to the computer. Management's attention to the design and implementation of more efficient operating procedures for the work force has made an important contribution in several departments, including those where automation has been most pronounced. Regardless of how the various factors are weighted and credited, the fact that the unit costs have dropped generally throughout our operations is gratifying, especially in a period of sharply rising salaries and wages, and during a period when industry in general has been plagued by rising unit costs. 23 COMPARATIVE STATEMENT OF CONDITION ASSETS Dec. 31, 1967 Dec. 31, 1966 $ 765,949,467 $ 831,084,455 Redemption Fund for Federal Reserve Notes 155,584,714 155,1 56,139 Total Gold Certificate Reserves. 921,534,181 986,240,594 Federal Reserve Notes of Other Banks 64,876,776 98,460,309 Other Cash . . . . . . . 48,188,824 49,855,792 Gold Certificate Account. Discounts and Advances. . 500,000 U. S. Government Securities: Bills ... 1,220,706,000 Certificates Notes -0963,072,000 -0- 355,004,000 . . 2,056,860,000 1,738,048,000 Bonds . . 465,076,000 505,763,000 Total U. S. Government Securities. 3,742,642,000 3,561,887,000 Total Loans and Securities. 3,743,142,000 3,561,887,000 740,247,276 4,799,415 722,999,562 . Cash Items in Process of Collection . . 169,534,321 4,945,683 106,099,492 Total Assets $5,692,322,793 $5,530,488,432 $3,404,389,597 $3,315,615,159 Bank Premises. Other Assets . LIABILITIES Federal Reserve Notes. Deposits: Member Bank-Reserve Accounts 1,448,512,687 1,457,964,023 U. S. Treasurer-General Account 66,320,161 12,600,000 556,311 14,400,000 13,658,388 13,321,479 1,541,091,236 1,486,241,813 617,152,276 21,920,484 607,918,429 $5,584,553,593 $5,428,230,932 53,884,600 51,128,750 53,884,600 $5,692,322,793 51,128,750 $5,530,488,432 $ $ Foreign. . . . . Other Deposits Total Deposits Deferred Availability Other Liabilities Cash Items . . . Total Liabilities. . 18,455,531 CAPITAL ACCOU NTS Capital Paid In. Surplus . . . . . . . . . . . Total Liabilities and Capital Accounts Contingent Liability on Acceptances Purchased for Foreign Correspondents. . . . . . . . 24 14,085,000 17,262,000 COMPARISON OF EARNINGS AND EXPENSES 1967 $169,185,295 16,334,774 152,850,521 1966 $153,521,823 16,195,696 137,326,127 59,194 128,800 13,288 201,282 -0118,844 26,284 145,128 -0685 685 203,594 37,924 241,518 200,597 -0- -096,390 Net Earnings before Payments to U. S. Treasury $153,051,118 $137,229,737 Dividends Paid . . . . . . . . . . . . . $ 3,130,507 147,164,761 2,755,850 $153,051,118 $ 3,027,907 132,810,630 1,391,200 $137,229,737 Total Current Earnings Net Expenses. . . . . . Current Net Earnings. Additions to Current Net Earnings: Profit on Sales of U. S. Government Securities (Net). . . . . Profit on Foreign Exchange Transactions (Net) . All Other. . . . . . . . . . . . Total Additions . . . . . . . . . . . Deductions from Current Net Earnings: Loss on Sales of U. S. Government Securities (Net) . All Other. . . . . . Total Deductions. Net Additions. Net Deductions. . . . . . . . Payments to U. S. Treasury (Interest on F. R. Notes) . Transferred to Surplus Total . 25 At the end of 1967, Mr. Joseph B. Hall completed 18 years of service to the Federal Reserve Bank of Cleveland. During this period, Mr. Hall was a director at the Cincinnati branch and a director and Chairman of the Board of Directors at the main office of the Federal Reserve Bank of Cleveland. Mr. Hall has the JOSEPH B. HALL CHAIRMAN OF THE BOARD 1962-1967 distinction of being the only director in the Bank's 53-year history to have served on the branch board and main office board on three different occasions. During his many years of service to the Bank, Mr. Hall made significant contributions to the management of the Bank and demonstrated his leadership on numerous occasions. In addition to his untiring work for the Federal Reserve Bank of Cleveland, Mr. Hall held several important positions at The Kroger Co. He was elected vice president in charge of manufacturing operations and director in 1941; vice president, treasurer, and director in 1943; executive vice president and director in 1944; president in 1946; and Chairman of the Board in 1962. He retired as Chairman of the Board of The Kroger Co. on December 31, 1964, under the retirement provisions of his company, but continues as a director. Mr. Hall is also active in many civic activities and is a member of the board of directors of several important companies, including Armco Steel Corporation, Cincinnati & Suburban Bell Telephone Company, Goodyear Tire & Rubber Company, Tenneco Company, and U. S. Plywood-Champion Papers, Inc. Mr. Hall's enthusiasm and dedication have been a source of inspiration to the Federal Reserve Bank of Cleveland and to the Federal Reserve System. 26 As of March 1, 1968 FEDERAL RESERVE BANK OF CLEVELAND DIRECTORS Chairman ALBERT G. CLAY, President Clay Tobacco Company, Mt. Sterling, Kentucky Deputy Chairman LOGAN T. JOHNSTON, Chairman of the Board Armco Steel Corporation, WALTER K. BAILEY Director and Former Chairman of the Board The Warner & Swasey Company Cleveland, Ohio JOHN L. GUSHMAN President and Chief Executive Officer Anchor Hocking Glass Corporation Lancaster, Ohio RICHARD R. HOLLINGTON President The Ohio Bank and Savings Company Findlay, Ohio Middletown, Ohio J. WARD KEENER Chairman of the Board and Chief Executive Officer The B. F. Goodrich Akron, Ohio Company R. STANLEY LAING President The National Cash Register Company Dayton, Ohio EVERETT D. REESE Director and Former Chairman of the Board The City National Columbus, Ohio Bank & Trust Company of Columbus SEWARD D. SCHOOLER President Coshocton National Bank Coshocton, Ohio Member, Federal Advisory Council JOHN A. MAYER Chairman of the Board and Chief Executive Officer Mellon National Bank and Trust Company Pittsburgh, Pennsylvania OFFICERS W. BRADDOCK HICKMAN President WALTER H. MacDONALD First Vice President GEORGE E. BOOTH, JR. Vice President and Cashier PAUL BREIDENBACH Vice President and General Counsel ROGER R. CLOUSE Vice President and Secretary ELMER F. FRICEK Vice President CLYDE HARRELL Vice President WILLIAM H. HENDRICKS Vice President JOHN J. HOY Vice President HARRY W. HUNING Vice President FRED S. KELLY Vice President FRED O. KIEL Vice President MAURICE MANN Vice President and General Economist CLIFFORD G. MILLER Vice President ELFER B. MILLER General Auditor R. JOSEPH GINNANE Assistant Vice President ROBERT G. HOOVER Assistant Vice President LESTER M. SELBY Assistant Vice President and Assistant Secretary H. MILTON PUGH Chief Examiner OSCAR H. BEACH, JR. Assistant Cashier ANNE J. ERSTE Assistant Cashier THOMAS E. ORMISTON, JR. Assistant Cashier ROBERT E. SHOWALTER Assistant Cashier DAVID J. WEITZEL Assistant Cashier HAROLD J. SWART Assistant General Auditor 27 As of March 1, 1968 CINCINNATI BRANCH DIRECTORS Chairman GRAHAM E. MARX, President The G. A. Gray Company, ORIN E. ATKINS Ashland The Second National President Oil & Refining Company Ashland, Kentucky and General Manager Cincinnati, Ohio JOHN W. HUMPHREY Chairman of the Board The Philip Carey Manufacturing Cincinnati, Ohio ROBERT J. BARTH FLETCHER E. NYCE President The First National Bank Dayton, Ohio President The Central Trust Company Cincinnati, Ohio JACOB H. GRAVES JOHN N. STAUFFER President Bank and Trust Company of Lexington Lexington, Kentucky President Wittenberg Springfield, Company University Ohio OFFICERS FRED O. KIEL Vice President ROBERT D. DUGGAN Cashier DONALD G. BENJAMIN Assistant Cashier JOSEPH W. CROWLEY Assistant Cashier HOWARD E. TAYLOR Assistant PITTSBURGH Cashier BRANCH DIRECTORS Chairman F. L. BYROM, President and Chief Executive Officer Koppers Company, Inc., Pittsburgh, Pennsylvania CHARLES M. BEEGHLY Chairman of the Board and Chief Executive Officer Jones and Laughlin Steel Corporation Pittsburgh, Pennsylvania GEORGE SCULL COOK President Somerset Trust Company Somerset, Pennsylvania ROBERT C. HAZLETT President Wheeling Wheeling, Dollar Savings West Virginia & Trust Co. LAWRENCE E. WALKLEY President Westinghouse Air Brake Company Pittsburgh, Pennsylvania THOMAS L. WENTLING President First National Bank of Westmoreland Greensburg, Pennsylvania OFFICERS CLYDE HARRELL Vice President JAMES H. CAMPBELL Cashier CHARLES E. HOUPT Assistant Assistant PAUL H. DORN Assistant 28 Vice President J. ROBERT AUFDERHEIDE Cashier Cashier fourth federal reserve district