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To Ox ir Member Hanks:
W e are pleased to present the Annual Report o f the Federal
Reserve Bank o f Richm ond fo r 1969. The report features a review
o f background factors affecting interest rates in the 1960’s. Also in
cluded are the Bank’s annual financial statements, a brief summary
o f the highlights o f the year’s operations, and a current list o f officers
and directors at our Richmond, Baltimore, and Charlotte offices.
On beh alf o f our directors and staff, we wish to thank you
fo r the splendid cooperation and support you have extended to us
throughout the past year.

Sincerely yours,

Chairman of the Board

Pr es ide nt

THE FEDERAL RESERVE
BANK OF RICHMOND
Fifty-Fifth

A nnual Report

Contents
■

SOME BACKG ROUN D FA CTO R S A F F E C T IN G IN TE RE ST
R A T E S IN THE 196 0 ’S
4
The Domestic Economy
6
The External Accounts and the Foreign Sector
8
The Changing Institutional Pattern 10
The Policy Environment 14
The Course o f Rates 20
■

HIGH LIGHTS OF 1969 25
Summary o f Operations 29

■

C O M P A R A T IV E S T A T E M E N T S 30
Condition 30
Earnings and Expenses 31
DIRECTORS 32

■
■
■

OFFICERS 33

B R A N C H DIRECTORS 34

SOME BACKGROUND
FACTORS AFFECTING
INTEREST RATES
IN THE lQdO'S

The Soaring Sixties have now passed into history, leaving behind
a m ixed record o f econom ic and financial perform ance that will no
doubt long occupy and intrigue econom ic theorists as well as business
annalists. It is, o f course, premature to evaluate the legacy o f this
ten-year period at this close range. Y et even a cursory review o f the
record invites the temptation to label it one o f the most interesting
decades in the country’s econom ic history. W hile this applies to the
overall perform ance of the econom y, it seems preem inently applicable
to the financial vicissitudes o f the period and especially to the behavior
o f interest rates over the final half o f the decade.
F or a generation prior to the Sixties, U. S. financial markets had
becom e accustom ed to interest rate levels which, by historical standards,
w ere extrem ely low. Through the depressed 1930’s, with business
credit demands at a low ebb, most market rates were frequently under
3 per cent and yields on some short-term Government obligations were
often under 1 per cent. During W orld W ar II easy m oney policies
to facilitate w ar financing kept rates at close to these unusually low
levels even in the fa ce o f heavy Treasury borrow ing and grow ing busi
ness demands fo r credit. F or six years follow in g termination o f the
war, the Federal Reserve continued the policy, instituted in 1942, o f
pegging the prices o f Government bonds at close to the low coupon
rates com m on at that time. This policy led to large increases in bank
reserves, with correspondingly large increments in credit supplies that
kept rates from rising significantly even in the fa ce o f grow ing de
mands fo r credit.
In M arch 1951 the Treasury-Federal Reserve A ccord form ally
ended the policy o f pegging the prices o f Governments, although the
Federal Reserve publicly acknow ledged a commitment to intervene in
the m arket w henever disorderly conditions threatened to develop.
F ollow ing the A ccord , yields on m arket instruments began to reflect

more closely changing demand conditions in the several markets fo r
loan funds, as well as basic supply conditions as m odified by credit
policy measures.
In particular, they exhibited a classical cyclical
pattern, moving upward in periods o f strong business expansion, when
credit demands were heavy, and dow nw ard in periods o f slack busi
ness, when credit demands eased o ff and policy restraints were being
relaxed. This was the typical pattern throughout the rem ainder o f
the decade o f the 1950’s. Most rates drifted upward substantially in
the business expansions o f 1950-53, 1954-57, and 1958-59, with the
movements reversed sharply in the business recessions o f 1953-54 and
1957-58. Nevertheless, the general trend o f rates over this period was
m oderately upward and a w eighted average o f rates in the 1950’s
would show substantial increases over com parable figures for 1940
and fo r the second half o f the decade o f the 1930’s.
Com pared with experience in the preceding 30 years, interest rate
behavior in the 1960’s was dramatic indeed. Although virtually all
the drama was confined to the last half of the decade, it seems likely
that in many quarters the Soaring Sixties will be rem em bered best for
soaring interest rates. By the end o f the decade, yields in many
sectors o f the money and capital markets reached levels that had not
been seen in more than a century.
The factors that figure in the dram atic behavior o f rates in the
1960’s are multifarious and com plex and cannot be adequately
analyzed in the brief scope of this report. The Vietnam W ar and sizable
Federal deficits clearly played a m ajor role, although no attempt is
made to evaluate their effects here. It is equally clear that the gen
eral behavior of rates was heavily conditioned by a number o f other
broad background factors that may not have been given sufficient at
tention in the contem poraneous com mentaries o f market analysts.
Taking a longer-run viewpoint, fo r exam ple, it is not possible to under
stand the behavior o f rates in the 1960’s without reference to the un
precedented business prosperity o f the decade and the burgeoning
credit demands generated by this prosperity. Similarly, the behavior
o f rates in domestic markets was obviously influenced in an im portant
way by a number o f developments in the international econom y and,
perhaps more immediately, by important innovations in the international
financial system. Finally, although certainly not exhaustively, certain
institutional changes in domestic financial markets, including important
new departures in com m ercial banking, probably exercised significant
background effects on rate behavior in the period.
The sections o f this report that fo llo w are concerned primarily
with these three broad background influences on rates in the 1960’s.
A supplem entary section considers the vicissitudes o f credit policy in
the decade, with some observations on the general role played by
policy in influencing broad swings in yields.

he Domestic Economy
Despite the general feeling that interest rate behavior in the
ten years ended last D ecem ber was som ehow unusual, the general
cyclical pattern o f market yield movements in the decade was not
essentially different from that noted for the 1950’s. This is to say
that rates generally m oved dow nw ard in periods o f business recession
and then came under strong upward pressure in periods o f business
expansion. The essential difference between the tw o decades is not
to be found in dissimilar patterns o f rate movements but rather in the
relative intensity and duration o f general business cycle swings. For
while the 1950’s produced three nearly com plete cycles, with three
distinct periods o f expansion and tw o short but sharp recessions, the
1960’s experienced less than one com plete cycle, with a shallow re
cession at the beginning o f the decade follow ed by an unprecedented
106-month expansion.
PROSPERITY AND CREDIT DEMANDS
The 1960’s began inauspiciously enough, with the econom y in the late stages o f the short
business expansion that dated from early 1958. This cyclical m ove
ment peaked in the second quarter o f 1960, and fo r the next four
quarters real output— i.e., the Gross National Product measured in
constant dollars— receded in a gentle decline from this high point.
From that cyclical trough, reached in February 1961, business activity
took o ff on a historic expansion, not yet ended, which made the 1960’s
by all odds the most prosperous decade in the nation’s history.
Measured in current dollars, the Gross National P roduct rose from
$484 billion in 1959 to $932 billion in 1969, a gain o f 93 per cent.
Corrected for price changes, so that the figure reflects only the change
in real output, the gain was 53 per cent. Over the same period, popula
tion increased only about 14 per cent and, accordingly, GNP per capita
grew at a rapid rate. In real terms the gain per head came to over
one-third. Industrial output, measured by the Federal Reserve In
dustrial Production Index, clim bed 64 per cent. Total em ploym ent rose
to 78.2 million, an increase o f 13.5 million, or 21 per cent, from ten
years earlier. The number o f new job s created exceeded the net addi
tion to the labor force by more than one and a quarter million, and the
unemployment rate, which averaged 5 i/2 Per cent ten years earlier,
averaged only 3*4 per cent in 1969.
The w ell-know n tendency fo r interest rates to move up in
periods o f prosperity was all the stronger in the 1960’s fo r the un
usual vigor and duration o f the business advance. Credit demands
generated in the private sector by the rapid escalation o f activity were
enormous. W ith consumer incomes rising rapidly and the grow th
spilling over to em brace hitherto low -incom e groups, sales o f consumer
durables, financed mainly on credit, grew at record rates. By the end
of 1969 consumer credit outstanding reached $120 billion, nearly two

G R O S S N A T IO N A L P R O D U C T
$ Billion

Source:

index

1958=100

U. S. Department of Commerce.

and a quarter times its level at the beginning o f 1960. Private resi
dential m ortgage credit outstanding rose at only a slightly slow er pace,
just about doubling in the course o f the decade. Responding to grow
ing demands fo r all kinds o f goods and services, businessmen made
record outlays fo r new plant and equipment to expand production
facilities.
Expenditures fo r this purpose, financed in large part
through borrow ing, m oved up at a sharp pace after the first quarter
o f 1963 and in 1969 amounted to more than tw ice their level in 1959.
Similarly grow ing business inventory requirements, made necessary by
large increases in sales, further augmented business credit demands.
A PERIOD OF STABLE G RO W TH Growth in the econom y, and in
credit demands, did not proceed at a uniform pace over the decade.
As noted earlier, 1960 was a year o f mild recession. At the end o f
the year the unemployment rate stood at 7 per cent and the capacity
utilization rate in manufacturing was only slightly above 80 per cent.
The ensuing expansion can be studied conveniently in tw o distinct
chronological periods: one running from early 1961 through the end
o f 1964 and the other from the beginning o f 1965 to the end o f 1969.
The first of these was a period o f rem arkably stable and balanced
grow th. A ggregate demand, as measured by the GNP in current dol
lars, grew at an average annual rate o f about 6 1/2 per cent, while real
output (GNP in constant dollars) increased at an average annual rate
o f slightly over 5 per cent. Output gains thus kept fairly closely in
step with spending increases and the substantial real growth of the
period was achieved with little upward pressure on prices. Growth

cut steadily into the margin o f unused resources and at the end o f
1964 the unemploym ent rate had been reduced to 5 per cent and the
capacity utilization rate in manufacturing was up to 90 per cent. Both
private and governm ent credit demands grew substantially, but savings
and credit growth kept supply increases in line with demand expansion
and only the mildest upward pressures were introduced on the interest
rate structure. In general, the 1961-64 period was characterized by
stable and balanced econom ic grow th, with more or less m atched ex
pansion o f credit demands and credit supplies and extraordinary
stability in both price and interest rate levels.
A HALF DECADE OF INFLATION
This pattern was altered sharply
in the last half o f the decade. Beginning early in 1965, aggregate de
mand grow th accelerated sharply, under the double stimulus o f the
delayed effects o f the 1964 tax cut and step-by-step escalation o f the
Vietnam W ar. For the five-year period, GNP in current dollars rose
at an average annual rate o f more than 8 per cent, with little inter
ruption except in the brief “ mini-recession” o f the first half 1967. The
step-up in the pace o f spending occurred against a background o f a
rapidly disappearing margin o f unused resources, as the unemployment
rate fell below 4 ^ per cent by the end of 1965 and m oved steadily
dow nw ard to a low o f 3.3 per cent in early 1969. In this context,
grow th in real output began to encounter bottlenecks. Real grow th
averaged 4 % per cent per year fo r the five-year period, but tapered
o ff substantially in the final three years. F or these three years the
average annual rate was only 3% per cent and fo r the final year o f
the decade it was 2.9 per cent.
W ith spending increases accelerating and output gains slowing,
inflation soon becam e a serious problem . Measured by the im plicit
GNP deflator, the rate o f inflation m oved up sharply and steadily,
from 1.9 per cent in 1965 to 3.2 per cent in 1967 and 4.7 per cent in
1969.
This developm ent was of great significance fo r interest rate
behavior in the period, fo r it added a dimension to the demand fo r
credit and introduced a new element o f reluctance in lender attitudes
tow ard the comm itment o f funds. M oreover, the inflation problem and
the related question o f the timing o f rem edial policy measures becam e
important elements in a constellation o f factors that fostered the de
velopm ent o f an unusual degree o f uncertainty in credit markets, with
a corresponding degree o f volatility in yield movements.

The External Accounts an J the
Foreign Sector
D evelopm ents in the international econom y and in the United
States’ econom ic relations with the rest o f the w orld also played an im
portant role in interest rate movements over the decade. This was in

part an indirect consequence o f the U. S. balance o f payments problem ,
which had begun to assume serious proportions in the late 1050’s and
which throughout the 1960’s proved frustratingly resistant to rem edial
measures. Balance o f payments considerations figured importantly
in both fiscal and credit policy decisions through most o f the decade
and frequently influenced the adoption o f policy measures which in
troduced upward pressure on the entire interest rate structure. M ore
over, as the problem persisted through the decade, now worsening,
now showing some promise o f improvement, it becam e a m ajor factor
shaping market expectations patterns and contributing to the volatility
o f these patterns. This was especially the case in view o f the close
relationship between the U. S. balance o f payments position and con
ditions in the international exchanges, in the w orld’s gold markets, and
in international financial markets generally.
THE CHANGING W ORLD ECONOMY The decade also witnessed
a number o f fundamental changes in international econom ic relation
ships that had important implications fo r both credit demands and
credit supplies in domestic markets. The period was marked by a
notable extension o f the movement tow ard international econom ic in
tegration. The stage was set fo r this movement in the late 1950’s, with
the establishment o f the European Econom ic Community and the res
toration o f substantial currency convertibility by the leading trading
nations. Especially through the first half o f the 1960’s, both ta riff bar
riers and exchange restrictions were relaxed progressively and foreign
trade and international flow s o f capital grew apace. The integrating
tendencies that follow ed linked the U. S. econom y, and U. S. financial
markets, to their foreign counterparts to a degree not known fo r a
generation.
W ORLD PROSPERITY Over the same period, the econom ies o f most
o f the trading nations abroad were experiencing boom s com parable to
that in the U. S. General prosperity in the w orld trading community
gave a further fillip to w orld trade and to demands fo r credit to
finance this trade. Probably more important, rapid grow th abroad,
coupled with the elimination or relaxation o f many currency restric
tions, provided a strong stimulus to U. S. foreign investment. Direct
investments by U. S. firms seeking new and cheaper sources o f in
dustrial materials or entry into increasingly lucrative markets m oved
up sharply, especially in the first five years o f the decade. A t the
same time, relatively high interest rates in many foreign markets proved
increasingly attractive to U. S. lenders and portfolio investors, while
borrow ers in capital-poor areas o f the w orld found U. S. loan and
capital markets attractive com pared with the less w ell-developed
markets abroad. Large outflow s o f capital becam e a matter o f con
cern fo r the U. S. balance o f payments and led in the second half of
the decade to controls on U. S. outflow s fo r direct investment and to

a program o f voluntary restraint on the foreign lending and investment
of U. S. financial institutions.
But the avenues opened up fo r international capital flow s by
the increasing integration o f the w orld econom y were not one-way. The
dynam ic o f Am erican business in the Sixties, the long record o f steady
econom ic grow th and great political stability in this country com pared
with the rest o f the w orld, the relatively high degree o f freedom from
restrictions on foreign investors, and other factors com bined to make
U. S. m oney and capital markets attractive outlets fo r foreign funds.
Especially in the later years o f the decade, foreign funds m oved in sub
stantial volume into U. S. markets, mainly through direct purchases of
U. S. equities and indirectly through Eurodollar borrow ings and
negotiable CD sales abroad by U. S. com m ercial banks. In brief, so
fa r as U. S. financial markets are concerned, supply conditions as well
as demand conditions were a ffected by the closer interlinkage o f the
U. S. econom y with the rest o f the trading w orld.
In the context o f this increasingly close interconnection o f the
w orld ’s financial markets, interest rates in this country m oved into
a tighter relationship with rates abroad and becam e more sensitive
to foreign financial developm ents than at any time since the 1920’s.
Precisely how the strengthened international tie a ffected the level and
behavior o f rates in this country is problem atical. The large deficits
in the capital account o f the U. S. balance o f payments over much o f
the decade suggest that on the whole these international developm ents
may have tended to keep dom estic rates higher than they w ould have
been otherwise. M oreover, in the light o f the unusual volatility o f
conditions in foreign financial markets, in the international exchanges,
and in the w orld’s gold markets in the 1960’s, the strengthened con
nection with these markets may well have added a dimension o f in
stability to the U. S. interest rate structure.

The Changing Institutional Pattern
From the standpoint o f the financial historian, the decade o f the
1960’s was perhaps most notable fo r numerous significant changes in
the institutional m achinery fo r bringing together demanders and sup
pliers o f funds. Arrangem ents fo r m obilizing capital funds both at
home and abroad and fo r channeling these funds into their ultimate
uses reached new peaks o f efficien cy and this no doubt exercised some
dam pening effect on the strong upw ard pressures on rates generated
by the great business expansion.
INSTITUTIONAL CHANGE IN INTERNATIONAL FINANCE A m ong
the most significant instutional changes in the decade were those
closely related to the international developm ents discussed in the pre
ceding section. Facilities fo r trading in the m ajor currencies o f the
w orld expanded rapidly, as com m ercial banks and other foreign ex-

changc dealers geared up to meet grow ing demands fo r international
financial services. Many U. S. com m ercial banks with hitherto small
or token international departments m oved aggressively to enlarge these
departments, while numerous others entered the field anew. Parallel
ing the increasing internationalization o f the operations o f many large
nonfinancial businesses, bankers m oved in grow ing numbers to establish
foreign branches or, via Edge A ct subsidiaries, to acquire foreign bases
fo r their own expanded operations. Increasingly, too, nonbank financial
institutions, notably insurance companies, brokerage houses and other
securities firms, and sales finance companies, established facilities
abroad which linked them directly to many foreign financial markets.
This movement abroad by U. S. institutions was m atched by a com
parable multiplication o f the U. S. offices o f foreign institutions, and by
the middle o f the decade an elaborate multinational netw ork o f market
functionaries linked together the m ajor financial markets o f the world.
The decade was notable, too, fo r the grow th and developm ent o f
foreign m oney and capital markets, and especially fo r the robust grow th
in tw o relatively new international markets, the Eurodollar market and
the Eurobond market. The evolution o f capital markets abroad, pri
marily in Continental Europe, was given considerable impetus as a
result o f U. S. capital restrictions im posed to help ameliorate the
balance o f payments problem . The same restrictions, notably the In
terest Equalization Tax o f 1963, the Voluntary Foreign Credit Restraint
Program instituted in 1965, and the voluntary and m andatory controls
on U. S. capital outflow s fo r direct investment, were instrumental in
prom oting the em ergence and rapid developm ent o f the Eurobond
market after the m id-1960’s. The Eurodollar market, in its infancy at
the beginning o f the decade, quickly grew to m ajor dimensions and
was a prim ary fa ctor in international finance before 1965.
The full significance o f the developm ent o f these markets fo r
the behavior o f U. S. interest rates is difficu lt to assess. A fter 1965
Eurobonds becam e an important source o f funds fo r U. S. corporations
operating abroad, while in 1969 the Eurodollar market was a m ajor
funds source fo r large U. S. com m ercial banks. O f more fundamental
significance, through these markets convenient dollar-denom inated in
com e-bearing claims, o f a large spectrum o f maturities and other
liquidity characteristics, and with minimum foreign exchange risks,
becam e readily available to investors over the entire trading w orld.
Largely because of this fact, the markets quickly becam e important
vehicles prom oting the international m obility o f capital and prime in
stitutional links connecting the various national money and capital
markets. By the close o f the decade, the Eurodollar market, es
pecially, had com e to be recognized as a more than rudimentary
mechanism through which the effects o f credit policy measures in one
m ajor country might be transmitted to markets in other countries.

DOMESTIC DEVELOPMENTS IN COM M ERCIAL BAN K IN G Parallel
ing these developm ents in the international area came equally sig
nificant institutional changes in domestic money and capital markets.
Rapid econom ic grow th and other secular developments at home in
troduced grow ing and changing demands on the financial system and
the system responded with a number o f significant institutional
adjustments.
Perhaps the most significant of these occurred in com mercial
banking, which through the entire decade show ed itself to be a dy
namic industry indeed. The ten-year period saw numerous changes in
banking codes and regulations, and with the continuation o f the m erger
and consolidation movement, significant changes in the structure of
banking markets and in both the scale and scope o f operations o f in
dividual institutions. In some measure, developm ents in banking rep
resented an extension o f trends dating back to the earlier years o f the
post-W orld-W ar era. But in addition the pressure o f grow ing credit
demands in the 1960’s fostered among com m ercial banks an increasingly
aggressive disposition to seek out new sources o f funds and to tap
existing sources more intensively. Larger banks especially began to
rely more heavily on the Federal funds market, and as market in
terest rates m oved up, it becam e more costly fo r sm aller banks to hold
reserves idle. As a result, the volume o f Federal funds trading ad
justed upward substantially and this market assumed increased im
portance as a m obilizer o f capital resources.
Through most o f the decade, however, the m ajor fund-raising
efforts o f banks centered primarily in the market fo r thrift deposits and
in the m oney market. W ith successive relaxations in interest rate re
strictions represented in Regulation Q, com m ercial banks raised rates
payable on passbook accounts and also developed a variety o f new con
sumer-type thrift certificates. Through these activities they brought
themselves into sharper com petition with such savings intermediaries
as mutual savings banks and savings and loan associations. At the
same time, the large money market banks developed the negotiable
certificate o f deposit as a device to tap portions o f the m oney market
that had hitherto been left mainly to the U. S. Treasury and other large
nonbank borrow ers. As a m oney m arket instrument, the negotiable CD
caught on quickly and the em ergence o f a secondary m arket fo r trading
in this instrument shortly after its introduction in 1961 has to be
reckoned one o f the significant institutional developm ents o f the decade.
Increasing reliance by bankers on relatively high cost thrift and
m oney market funds was accom panied by important changes in bank
loan and investment policies. Generally speaking, the adjustments in
assets patterns made by banks in this period involved increased
emphasis on relatively high-return assets, such as consumer loans, real
estate m ortgages, and especially municipal securities. Except fo r the
unusually tight m oney years 1966 and 1969, com m ercial banks con
stituted the backbone o f the market fo r state and local securities
after 1961.

In brief, com m ercial banks in the ly 6 0 ?s m oved vigorously to
aiversiiy tneir opeiaLions miu in paiiicuiai lo inciease their efforts to
serve as intermediaries through which savings funds and short-term
contingency balances are channeled into loan and investment markets.
F or more than a generation, com m ercial banks had been content to
leave the bulk o f this kind o f financial intermediation to nonbank fi
nancial institutions which, as a group, had grow n at an unusually rapid
rate in the late 1940’s and throughout the 1950’s. Now, in the 1960’s,
com m ercial banks entered into a keen com petition with mutual savings
banks, savings and loan associations, and nonbank fund-raisers in the
money market.
In the later years o f the decade, the one-bank holding company
em erged as a popular device through which some large banks sought
to diversify their operations and expand their role as intermediaries.
This consolidating device involved the establishment o f a parent com
pany which could acquire controlling interest in a well-established
com m ercial bank as well as a number o f specialized financial com
panies such as insurance firms, sales finance companies, m ortgage
companies, etc. Through the one-bank holding com pany device, a
com m ercial bank could p roject itself into the leadership o f what came
to be known in some quarters as a “ congeneric,” i.e., a closely inter
related group o f financial companies with different— although som e
times overlapping— specialties, centering around a large com m ercial
bank. As the decade drew to a close, the future o f the one-bank
holding com pany as a device through which com m ercial banks could
diversify their activities was in doubt. A bill severely limiting the
operations o f these com panies had passed the House o f Representatives
but had not yet been acted on by the Senate.
IN T E R M E D IA T IO N , D IS IN T E R M E D IA T IO N A N D INTEREST R ATES

The aggressive move by com m ercial banks to expand their role as fi
nancial intermediaries probably has to be counted one o f the important
institutional developm ents o f the decade. The extent o f their success
in this endeavor is reflected in the rapid grow th in the relative im
portance o f their time and savings deposits. Such deposits represented
32 per cent o f total com m ercial deposits at the end o f 1960. This
figure rose quickly after 1961, to 441/2 Per cent at the end o f 1965
and in mid-1969 it came to 47 per cent.
Expansion in the com m ercial banks’ intermediation function, how
ever, did not proceed evenly through the decade. As a matter o f fact,
it experienced notable interruptions when market rates rose above
Regulation Q ceilings and com m ercial banks found it difficult to com
pete fo r either thrift funds or m oney m arket funds. In the tight
m oney periods o f 1966 and again in 1969, com m ercial bank deposit
losses, especially o f negotiable CD’s, were great, amounting to several
billion dollars. To denote such large-scale run-offs o f time and savings
deposits, as they a ffected both com m ercial banks and other depository
institutions, the decade spawned the term “ disinterm ediation,” which

quickly becam e part o f the jargon o f the m arketplace. Disintermedia
tion reached especially large proportions in 1969, when com m ercial
banks experienced a run-off o f well over half the outstanding volume
of their large-denomination negotiable CD’s. To recoup these heavy
losses, many banks m oved aggressively to raise funds from other, socalled “ nondeposit,” sources. Large banks with good foreign connec
tions borrow ed heavily in the Eurodollar market. Others, through
subsidiaries and affiliates— including one-bank holding com panies—
sold sizable amounts o f com m ercial paper and some resorted to sales
of loans to nonbank customers.
Precisely how the jerk y grow th o f financial intermediation by
com m ercial banks impinged on the structure o f interest rates cannot
be easily assessed. To the extent that com m ercial bank activity in
this area im proved the efficiency with which thrift and m oney market
funds were m obilized and channeled into their alternative uses, rates
in some markets at least should have been held below levels that they
might otherwise have reached. But it is not unlikely that increased
intermediation by banks also had the effect o f channeling funds away
from some markets and tow ard others, so that resulting yield pressures
might have been dow nw ard in some markets and upward in others.
A llocative effects were more conspicuous in periods o f disintermedia
tion, when funds clearly were diverted aw ay from m ortgage markets
with accom panying sharp upward movements in m ortgage rates.

Environment
M oney and credit policy is, o f course, a m ajor fa ctor conditioning
the behavior o f interest rates in any period, although the relationship
between policy changes and rate movements in given sectors o f the
money and capital market is probably considerably more com plicated
than it may appear at first glance. As a short-run matter, an easing
o f policy is likely to lead to rate reductions and a tightening to rate
increases, but it is a serious oversim plification to consider that the
matter ends there. Generally speaking, policy changes a ffect the
supply side o f credit markets and hence can be expected to influence
the price o f credit via these effects. But as a short-run matter, these
effects o f policy are likely to be concentrated in markets fo r short-term
credit, w here supplies are highly sensitive to changes in bank reserve
positions. Supply effects in long-term markets w ork out over a longer
period o f time and are not nearly as clear-cut as those in short-term
markets.
But in addition to the immediate im pact o f policy changes on
credit supplies, there are also effects on expectations patterns and hence
on the attitudes o f both borrow ers and lenders. These expectational
effects, w hich are often not predictable with any great degree o f con
fidence, can exert a m ajor influence on both supply and demand in
credit markets, both short-term and long-term .

As a longer-run matter, any assessment o f the interest rate im pact
o f a policy change, or o f a given posture o f policy maintained over time,
must take account o f the implications o f policy fo r prices and money
incomes. This is true because changes in prices and incomes are among
the more important determinants o f the demand fo r loan funds. As
the effects o f a given policy change w ork themselves out over time,
money and credit flow s in the econom y as a w hole are enlarged or
diminished and demands fo r goods and services o f all kinds are a f
fected. Eventually employment, production, prices, and money in
com es are also likely to be affected, with credit demands adjusting to
any changes in these magnitudes that may occur as well as to expectational shifts that may accom pany such changes. Hence a sudden
easing o f policy, fo r example, may through its short-run im pact on
credit supplies, low er some interest rates. But if, as the result o f such
a move, prices and money incomes begin to rise, credit demands will
likely increase and interest rates will come under upw ard pressure and
tend to move back up tow ard the level prevailing before the easing move
was made. For this reason, many economists, while conceding the im
portance o f the short-run rate effects o f credit policy moves, question
whether policy can in fa ct override the m arketplace as a determinant
o f interest rates over the long pull.
POLICY IN THE EARLY 1960’S For most of the first half o f the
decade monetary policy was keyed primarily to prom oting domestic
business expansion through keeping credit readily available on easy
terms. Over the same period, how ever, policy makers were con
fronted with a serious balance o f payments problem and a risk of
sizable capital outflow s if short-term rates in this country fell sig
nificantly below those abroad. A ccordingly, in the first years o f the
decade efforts were made to supply reserves to the banking system
through means that would introduce minimal dow nw ard pressure on
short-term rates. In late 1960 and through 1961 the term “ Operation
T w ist” was often applied to these efforts. As publicized in the fi
nancial press o f the times, Operation Twist represented a policy of
maintaining short-term interest rates at relatively high levels for
balance o f payments purposes while trying to low er long-term rates
in order to encourage domestic investment. From the standpoint of
the manner in which m onetary policy was conducted, it represented
efforts to shift the interest-depressing effects o f reserve-supplying
operations from short-term markets, where they ordinarily focus, to
long-term markets. To this end, the Federal Reserve m ade a number
o f notable changes in the manner in which it used its tradional policy
tools. Open m arket purchases, which had hitherto been concentrated
chiefly in the market fo r short-term Governments, were shifted in part
to the market fo r over one-year maturities. Similarly, small-step re
ductions in reserve requirements were used to supply reserves for
seasonal purposes.

Despite the persisting seriousness o f the balance o f payments
problem , credit policy remained easy by almost any definition through
1964. It was especially easy through 1962. Reserves were supplied
to the banking system in abundance. Net free reserves rose sharply
after the first quarter in 1960, moving well past $500 million before
the end o f the year and remaining close to that level through most of
1962. This marginal reserve measure drifted dow nw ard through 1963,
how ever, and stayed mainly in a range o f $100 to $150 million from
mid-1963 through 1964. This decline was accom panied by an increase
in m em ber bank borrow ings at the discount w indow and reflects som e
what less ease than existed in 1961 and 1962. Nevertheless, Federal
Reserve credit supplied through open market operations continued to
rise steadily and the mild firm ing in credit conditions after 1962 reflects
chiefly increasing credit demands rather than a reduced pace o f sup
ply grow th. As short-term market rates drifted upw ard in response
to this firm ing, the discount rate was raised in July 1963 from 3 to 3*4
per cent. The reason fo r this action, however, was related more to
balance o f payments pressures than to any effort to restrain domestic
credit grow th. The discount rate was raised again in N ovem ber 1964,
to 4 per cent, but again this second increase follow ed a sharp rise in
both officia l and market rates in London and was designed to keep
domestic rates in line with foreign money rates.
F or the five-year period 1960-64 all the monetary aggregates
show ed steady and substantial grow th. M ember bank reserves (a d
justed to take account o f a number o f reserve requirement changes in
the period) expanded at an average annual rate o f slightly more than
31/2 per cent.
Total loans and investments o f all com m ercial banks
grew at an average annual pace o f just under 8 per cent. The money
stock grew at a rate slightly above 2 i/2 Per cent per year, but the money
stock plus time deposits increased at an average annual rate o f 7 per
cent. Time and savings deposits at com m ercial banks grew fa r faster
than demand deposits reflecting the aggressive efforts o f com m ercial
banks to tap thrift deposits and money market sources o f funds. The
rapid acceleration in grow th o f com m ercial bank time and savings de
posits was facilitated by three hikes in Regulation Q ceilings. These
ceilings were raised in January 1962 and again in July 1963 and
N ovem ber 1964.
In general, grow th in all the m onetary aggregates proceeded at
a considerably more rapid pace in the 1960-64 period than in the 1950’s.
M oreover, fo r the first half o f the decade grow th in these aggregates,
as shown in the charts on the follow in g page, was smooth and stable,
with little year-to-year deviation from the average rates fo r the fiveyear period.
THE TIG H T MONEY EPISODE OF 1965-66 The overall climate of
credit policy in the second half o f the decade differed sharply from
that in the first five years. The basic reason fo r the differen ce is the
contrasting nature o f the problem s confronted by policy in the tw o

M EMBER BA N K RESERVES
$ Billion

BANK CREDIT AND MONEY SUPPLY

Note:

Source:

Begin n in g July 1969, ban k credit d a ta are revised to include all b an k premises,
subsidiaries an d other significant m ajority-ow ned dom estic subsidiaries; earlier d a ta
are for com m ercial ban ks only. A lso b a n k credit com ponents are now reported
gross of valuatio n reserves rather than net a s previously reported.
Board of G overn ors of the Federal Reserve System.

periods. The first half o f the decade was dom inated by problem s o f
underemployment, retarded grow th, and balance o f payments deficits.
The balance o f payments problem persisted in the second half o f the
decade, which also witnessed several exchange and gold m arket crises
w hich posed policy problems. On the dom estic scene, the problem s
o f underemploym ent and slow grow th becam e after 1964 problem s o f
overem ploym ent and an overheating econom y. The objectives of

policy were correspondingly transformed, m oving from goals of actively
prom oting domestic grow th while contributing to balance o f payments
improvement to goals o f restraining domestic inflation and shielding
the international payments system from the shock waves o f a variety of
international financial disturbances.
Early in 1965 the Federal Open Market Committee m odified the
posture o f credit policy by directing the New Y ork Reserve Bank to
work through the Trading Desk fo r slightly firm er money market con
ditions. For the rem ainder o f that year, the m arginal reserve measures
reflected increasing restraint. Net free reserves o f $100 million early in
the year becam e net borrow ed reserves o f more than $150 million by
mid-year and fo r most o f the rem ainder o f the year m em ber banks’ bor
rowings at the discount window , which rose substantially, exceeded
member banks’ excess reserves. W ith some interruption in late 1965
and early 1966, this firm ing o f policy continued, culminating in the
extrem ely tight m oney period o f the summer and early autumn o f 1966.
W hile the Federal Reserve m oved progressively to restrain credit
in 1965, it was not until D ecem ber o f that year that the discount rate
was raised, from 4 per cent to 41/2 per cent. By this time, grow ing
credit demands, coupled with the firm ing policy, had produced sharp
rises in most m arket interest rates and it was clear that market rates
remained under heavy upw ard pressure. In the period immediately
follow in g the D ecem ber discount rate hike, the F ederal Reserve sup
plied reserves generously through open m arket operations to smooth
the transition to a higher level o f rates and to reassure increasingly
nervous markets. This tem porarily slow ed the slide in the marginal
reserve measures, but with credit demands remaining heavy, banks
early in 1966 stepped up their borrow ings at the discount w indow and
net borrow ed reserves m oved to the $400 million level by late summer.
Interestingly, while late 1965 and early 1966, are generally re
garded as the tight money prelude to the so-called “ credit crunch” o f
late summer 1966, the m onetary aggregates over much o f this period
grew more rapidly than in the preceding five years. A ggregate re
serves o f m em ber banks, fo r example, rose at an annual rate o f more
than 5 per cent in 1965 and more than 41/2 per cent in the first half o f
1966. The com parable rate o f grow th in 1960-64 was 3.8 per cent.
Similarly, bank credit expanded at a 10.0 per cent rate in 1965 and
a 9.0 per cent annual rate in the first half o f 1966, com pared with an
average rate o f under 8.0 per cent in 1960-64. The money supply,
w hich grew at an average rate o f slightly more than 2 1/2 per cent in
1960-64, expanded at an annual rate o f better than 41/2 per cent in
1965 and the first half o f 1966. The accelerated pace o f grow th of
these aggregates suggests that the sharp upw ard movement o f rates
in this period was due more to large increases in credit demands than
to any curtailment o f credit supplies.
The tight m oney situation o f 1966, how ever, is reflected in the
behavior o f the m onetary aggregates in the second half o f that year.
M em ber bank reserves in that half-year declined at an annual rate

o f over 2 .0 per cent while the annual rate o f increase o f bank credit
fell from over 9.0 per cent in the first half to only 2.0 per cent in the
second half. Grow th in the money stock began to taper o ff as early
as April 1966 and was negative over most o f the rem ainder o f the year.
For the second half, the money stock declined at an annual rate o f
about 1.0 per cent. Growth in the money stock plus time deposits at
com m ercial banks was also sharply curtailed, falling from an annual
rate o f nearly 7.0 per cent in the first half to slightly over 2.0 per
cent in the second half.
RETURN TO EASE, 1967-68 In the course o f the tight m oney episode
of 1966, long-term interest rates had moved to historic highs and the
construction industry was especially hard hit by an acute shortage o f
m ortgage funds. Consumer outlays on durables began to slow and
as 1966 drew to a close it becam e clear that the pace o f the econom y’ s
advance was m oderating. Some dampening o f business capital out
lays was expected to follow suspension o f the 7 per cent investment
tax credit in O ctober and a sizable inventory correction appeared
imminent. In the fa ce o f these prospects fo r a further reduction in
the pace o f the business expansion, policy began to m ove over to a
distinctly easier posture beginning in N ovem ber 1966.
From that time through most o f 1967, both the m arginal and the
aggregate measures o f policy reflect a sharp easing. Free reserves
m oved from a negative $300-$400 million in late 1966 to a positive
$300 million by mid-1967 and remained near that level until the end
o f the year. M em ber bank borrowings, which had averaged as high
as $800 million around mid-year, quickly m oved down to normal levels.
Member bank reserves rose at an annual rate o f nearly 11.0 per cent in
the first half o f the year and 1 0 .0 per cent fo r the year as a w hole.
Bank credit expanded nearly 12.0 per cent fo r the year, while the
money supply increased almost 6 V2 per cent. As part o f the easing
process, the discount rate was reduced from 4 ^ 2 per cent to 4.0 per
cent in April 1967.
Tow ard the end o f 1967, however, policy becam e distinctly less
easy. This move tow ard restraint was led by a hike in the discount rate
at the time o f the British devaluation in N ovem ber 1967. A t about the
same time free reserves began to move down sharply, fa llin g to a nega
tive $350 million by June 1968, while member bank borrow ings m oved
up close to the levels prevailing in mid-1966. International financial
disturbances in the w ake o f the British devaluation w ere a dominant
consideration in policy decisions in early 1968 and, fo r the most part,
dictated a definite firm ing. Discount rate increases in M arch and
April, bringing this rate to 5!/2 Per cent, were related prim arily to
these international disturbances.
Despite this firm ing o f credit conditions, the m onetary a g
gregates continued to expand at a relatively fast pace in early 1968,
although they slow ed considerably from the sharp rate o f increase in
the previous year. M em ber bank reserves in the first h a lf grew at

an annual rate just under 41/2 per cent while bank crcdit rose at a
rate o f about 6 V2 per cent. Growth in the money stock, on the other
hand, actually accelerated in the first half, m oving up to a rate of
6 .8 per cent com pared with 6.2 per cent in 1967.
Shortly after passage o f the 10 per cent surcharge on the Federal
incom e tax in June 1968, policy again m oved over to an easier posture.
The discount rate was cut to 5% per cent in August and both the
marginal and the aggregative reserve measures began to register easier
credit conditions. Net borrow ed reserves declined to $150 million in
Septem ber and m ember bank borrow ings fell to a range of $300-$350
million. Bank reserves grew at a rate o f over 9.0 per cent per year
in the second half, while bank credit m oved up at a rate o f over 15 per
cent per year and the money supply at a better than 6 per cent rate.
T IG H T MONEY AG AIN , 1969
As it becam e apparent that the 10
per cent surcharge was not exerting the expected restraining effects
on the econom y’s advance, policy was once again tightened in D ecem
ber 1968. A t that time the discount rate was raised to 51/2 per cent
and this was follow ed by another hike, to 6 per cent, in April 1969.
Bank reserve grow th was brought under a tight rein. Net borrow ed
reserves rose rapidly, surpassing the $1 billion mark in the second
quarter and fluctuating in a range o f $700 million to $1.2 billion for
the rest o f the year. Member bank borrow ings also rose rapidly, reach
ing $1.5 billion in the summer months and remaining at or near record
levels through the year.
The aggregate measures also reflected a sharp tightening.
G row th in bank reserves came to a virtual halt in the first half and
in the remainder of the year reserves showed a substantial decline.
G row th in bank credit also slow ed sharply in the first half and was
negative over much o f the second half. The money stock showed
virtually no net increase fo r the year.

The behavior o f selected groups o f short-term and long-term rates
during the decade is shown in the charts on pages 22 and 23. The in
num erable ups-and-downs o f the several series cannot, o f course, be
explained in terms o f the broad background factors discussed h e r e ; nor
is it the purpose o f this report to provide an explanation o f these shortrun fluctuations in rates. These can be explained partly by short-run
variations in credit demands not only o f businesses and consumers but
also o f Federal, state, and local governments. In part, too they are
explainable by short-run supply variations associated with shifts in
market expectations as well as with policy changes. The general pat
tern o f rate movements over the sweep o f the decade, however, can be
discussed in terms of these background factors, although it may not be
possible to identify the precise influence o f each factor separately.

A NOTABLE CONTRAST Perhaps the most striking feature o f the
patterns shown in the charts is the contrast between rate movements
in the first half o f the decade and those in the second. The contrast
is especially sharp in the chart showing yields on long-term bonds. In
this connection, the decade divides almost precisely in half. For the
first half, rates generally show ed some tendency to drift gradually
upward, although considering the magnitude o f the business expansion
they remained rem arkably stable. Then after about the m iddle o f
1965 the upward m ovement accelerated and all across the maturity
spectrum rates rose sharply. For the most part, this sharp upward
movement continued throughout the remainder o f the decade, although
there were tw o notable interruptions in this uptrend. The first cam e in
the massive inventory adjustm ent o f the first half o f 1967, follow in g the
so-called “ credit crunch” o f August-September 1966. The second fo l
low ed enactment o f the 10 per cent surcharge on the F ederal incom e
tax in June 1968. In both cases, a substantial easing o f Federal Re
serve policy figured in the tem porary reversal o f the upw ard m ovement.
Despite these interruptions, the general drift o f rates all across
the board was sharply upward over the remainder o f the decade. In
the final year o f the period, rates in many maturity sectors had m oved
to levels not seen in this country in more than one hundred years.
Yields on Treasury bills m oved to successive records— with three-m onth
and six-month maturities reaching 8.10 per cent in D ecem ber— and the
U. S. Treasury was having to pay more for borrow ed funds than at
any time since before the Civil W ar.
MOVEMENTS IN SHORT RATES The behavior o f short rates over
the decade follow ed the general pattern described earlier, although
yields in short-term markets m oved, as is usually the case, both more
erratically and over a w ider range than did long rates. In addition to
this, some effects o f a num ber o f the background fa ctors discussed
earlier are more apparent in the behavior o f short rates than in the
movement o f long rates. In the first half of the decade, fo r exam ple,
the behavior o f short rates was heavily conditioned by the nation’s
balance o f payments problem . These rates declined in the recession
year, 1960, but they fell less in this recession than in most previous
ones, mainly because o f officia l efforts to cushion the decline in order
to minimize capital outflow s from this country. M oreover, much o f
the upward movement in these rates between 1961 and 1965 follow ed
discount rate hikes, in July 1963 and Novem ber 1964, w hich were
dictated in large measure by balance o f payments considerations.
To what extent the updrift o f short rates betw een 1961 and
1965 is related to the em ergence o f the large denom ination CD is
problem atical. The CD quickly becam e a m ajor com petitor with com
m ercial paper and Treasury bills and, as the chart shows, rates on
these two money market instruments rose more than 100 basis points
between the end o f 1961 and the end o f 1964. But clearly a large
part o f this increase represents upward adjustments to the tw o dis-

M O N E Y RATES
Per Cent

Source:

Board of G overnors of the Federal Reserve System.

count rate hikes in the period. M oreover, as recovery from the 1960-61
recession proceeded, the general demand fo r short-term funds rose
correspondingly.
The movement o f short rates in the second half o f the decade
cannot be analyzed separately from the burgeoning demand fo r funds
in a boom ing, inflation-ridden econom y.
But the sharp tem porary
swing in these rates in the 1965-67 periods and their precipitous rise
again in 1969 were associated with changes in credit p olicy as de
scribed in an earlier section o f this report.
A m ong the more interesting features o f short rate behavior in
the last half o f the decade is the rapid-fire run-up, with tw o brief
interruptions, in the prime rate, and the persisting tendency o f the Fed-

CAPITAL MARKET YIELDS
Per Cent

Source:

Board of G overn o rs o f the Federal Reserve System.

eral funds rate to remain well above the discount rate. Both reflect,
in large measure, the grow ing pressure on banks to meet rising cus
tom er demands. Through the 1950’s and early 1960’s it had becom e
customary in many quarters to consider that the discount rate rep
resented something o f a ceiling on Federal funds rates. But a F ed
eral funds rate considerably higher than the discount rate becam e
som ething o f a rule after 1965 and at times in 1969 Federal funds

traded as high as four full percentage points above the discount rate.
In some measure, this phenomenon reflects the increasingly aggressive
quest fo r loan funds among bankers as described in an earlier section
o f this report.
LONG RATES Long-term rates in the first half o f the decade were re
m arkably stable, with only intermediate governments showing any pro
nounced net upward movement between 1961 and 1964. Municipals
especially showed rem arkable strength and stability through this period
and at the end o f 1964 yields in this sector were low er than in 1961.
In some large measure, this reflects the increasing participation o f
com m ercial banks in the tax exempt market. In turn, this increasing
participation was largely a by-product o f more aggressive efforts by
banks to raise thrift funds and money market funds. In the early part
o f this half-decade, too, official policy sought to maintain dow nw ard
pressure on long rates, as discussed earlier.
In the second half o f the decade, again as in the case o f short
rates, credit demand was perhaps the paramount fa ctor behind the
broad m ovement o f long rates. Swings in policy in 1965-67 and again
in late 1968 and 1969 are reflected in the chart, but much less than
in the m ovement o f short rates. As a matter o f fact, through much of
the first half o f 1967, long rates rose in the fa ce o f a massive increase
in bank reserves and bank credit and a pronounced slow dow n in busi
ness grow th. The movement of these rates in this short period is ex
plainable in part by heavy demands fo r long-term credit to restore
liquidity positions eroded away in the extrem ely tight money period
o f 1966.
For the most part, rates in the several long markets over the
last half o f the decade moved up in parallel. For a time in 1966 and
again in 1969, however, rates on municipals rose at a more rapid pace
than other long rates. One reason fo r this was the im pact o f dis
intermediation on com m ercial bank investment policies. Just as
intermediation tended to make com m ercial banks more willing buyers
o f tax-exempts, so disintermediation tended to curtail sharply net com
m ercial bank demand in the municipals market. Especially in 1969,
disintermediation reduced com m ercial bank CD funds by more than
50 per cent, and while banks were able to recapture some o f these
funds through tapping other so-called nondeposit sources, their net
purchase operations in tax-exem pt markets were curtailed sharply.
This was a m ajor fa ctor in the rise of tax-exem pt yields to record levels.

Net earnings b efore pay
ments to the United States Treasury increased $41,956,750.02 to a
record $224,141,078.92 in 1969. Six per cent statutory dividends
totaling $2,008,397.94 were paid to Fifth District m em ber banks, and
$220,778,680.98 was paid to the Treasury as interest on F ederal R e
serve notes.

EARNINGS A N D C A PITA L ACCOUNTS

Capital stock rose $1,354,000.00 to $34,203,350.00 as m em ber
banks increased their stockholdings by three per cent o f the rise in
their capital and surplus. The Bank’s surplus account increased
$1,354,000.00 to a total o f $34,203,350.00.
On April 4, the Richmond Reserve Bank, with the
approval o f the Board o f Governors, raised its discount rate from
5 i/2 Per cent to 6 per cent in an effort to check inflationary pressures.
The 6 per cent rate is the highest on record at the Richm ond Bank.

DISCOUNT RATI.

OF FIFTH DISTRICT MEMBER BANKS
Daily
borrow ings o f m em ber banks in the Fifth District reached an alltime high during 1969. They clim bed to $132.7 million on May 23,
rose to $137.7 million on June 27, advanced to $162.6 m illion on
July 25, and peaked at a record $190.2 million on O ctober 24. There
was also a significant increase during the year in the frequ en cy and
amount o f borrow ings by m em ber banks using m unicipal securities and
eligible customers’ paper as collateral.

BORROW INGS

Plans were com pleted during the
year fo r the opening o f a regional check clearing center at the Balti-

REGIONAL CLEARING CENTER

more Branch on January 2, iy'70. The center evolved from a jointly
conducted three-year study by Federal Reserve staff members and
com m ercial bankers from Northern Virginia, Suburban Maryland, and
the cities o f Baltimore and W ashington.
The clearing center serves about 90 banks located within a 40-mile
radius o f W ashington, D. C. Included in the service area are the city
o f W ashington; the city o f Baltimore and the counties o f Anne Arundel,
Baltim ore, Calvert, Charles, H ow ard, M ontgom ery, and Prince G eorges
in M aryland; and the cities o f Alexandria, Falls Church, and F airfax
and the counties o f Arlington, Fairfax, Loudoun, and Prince W il
liam in Virginia.
The new center processes checks fo r banks that form erly pre
sented them directly to other banks located in the same town or city,
or to correspondent banks, clearinghouse associations, the Federal Re
serve, or some combination o f these media. Each participating bank
sends daily to the center all checks it has received which are drawn
on other area banks and in turn receives from the center checks
which are drawn on its own custom ers’ accounts. Concentrating the
clearing function in a single regional clearing center easily accessible
to area banks is expected to accelerate check collection and the return
o f unpaid checks, give earlier credit on checks, help stem “ check
kiting,” and reduce check “ floa t.” So fa r the center has processed an
average o f almost 900,000 checks daily.
This regional clearing center is the first operation o f its kind to
be established by a Federal Reserve Bank and represents another step
in the System’ s continuing effort to provide maximum efficien cy in
check clearing operations.
CULPEPER FACILITY
The Communications and Records Center,
Culpeper, Virginia, on which construction began in September 1966,
was com pleted and occupied during the year. The facilities were
dedicated on D ecem ber 10.
In addition to serving as an em ergency relocation site and a
records storage facility, the Culpeper installation will house the central
switch fo r a com puter-operated communications switching system link
ing together the nation’s Federal Reserve offices. Installation o f the
new switch is expected in early 1970, and the com plete netw ork will
go into full operation follow ing several months of testing. It is ex
pected that the communications netw ork will greatly speed up the
movem ent o f money, securities, and econom ic statistics.
NEW MEMBER BAN K One Fifth District bank becam e a member
o f the Federal Reserve System in 1969. Community Bank and Trust,
Fairm ont, W est Virginia, a nonm em ber institution, converted to a na

tional charter and System membership on O ctober 15, under the title
o f Community Bank and Trust, N.A.
CHANGES IN DIRECTORS
The election, by Fifth District m em ber
banks, o f one Class A and one Class B director to three-year terms on
the Richmond Board o f Directors was held in the fall. Hugh A. Curry,
President, The Kanawha V alley Bank, Charleston, W est Virginia, was
elected a Class A director succeeding Robert C. Baker, Chairman o f
the Board, Am erican Security and Trust Company, W ashington, D. C.
Elected as a Class B director was Robert S. Small, President and Chief
Executive O fficer, Dan River Mills, Inc., Greenville, South Carolina.
Mr. Small succeeded Thaddeus Street, President, Carolina Shipping
Company, Charleston, South Carolina.
W ilson H. Elkins, President, University of M aryland, College
Park, Maryland, was redesignated Chairman o f the Board fo r 1970.
Reappointed by the Board o f Governors to a three-year term as a
Class C director and renam ed Deputy Chairman o f the Board was
Robert W . Lawson, Jr., M anaging Partner, Charleston O ffice, Steptoe
& Johnson, Charleston, W est Virginia.
Arnold J. K leff, Jr., Manager, Baltimore Refinery, Am erican
Smelting and Refining Company, Baltimore, Maryland, was reap
pointed by the Board o f Governors to a three-year term as a mem ber
o f the Board o f Directors at the Baltimore Branch. The Board o f G ov
ernors appointed E. Craig W all, Sr., Chairman o f the Board, Canal In
dustries, Inc., Conway, South Carolina, to a three-year term on the
Charlotte Board o f Directors. Mr. W all succeeded James A. Morris,
Commissioner o f Higher Education, The South Carolina Commission on
H igher Education, Columbia, South Carolina.
The Richmond Board appointed James R. C haffinch, Jr.,
Executive Vice President, The Denton National Bank, Denton, M ary
land, as a director at the Baltimore Branch succeeding John P. Sippel,
President, The Citizens National Bank, Laurel, M aryland. J. W illis
Cantey, President, The Citizens & Southern National Bank o f South
Carolina, Columbia, South Carolina, was re-elected to a three-year
term as a director o f the Charlotte Branch.
FEDERAL AD VISO RY COUNCIL The Board o f D irectors selected
Robert D. H. Harvey, Chairman o f the Board and Chief Executive O f
fice r o f Maryland National Bank, Baltimore, Maryland, to serve as the
m em ber o f the Federal A dvisory Council representing the F ifth F ed
eral Reserve District fo r the year 1970.
Mr. Harvey succeeded
J. Harvie Wilkinson, Jr., Chairman o f the Board, United Virginia
B ank/State Planters, Richmond, Virginia.

CHANGES IN OFFICIAL STAFF A number o f changes were made
in the officia l staff during the year. In the Examining Department,
effective June 1, Fred L. Bagwell and W yatt F. Davis were prom oted
to Examining O fficers. On July 1, H. Lee Boatwright, III joined the
Baltim ore staff as a Vice President.
Donald F. Hagner, Senior Vice President in charge o f the Balti
more Branch, retired January 1, 1970, after 47 years o f distinguished
service. He was succeeded by Mr. Boatwright, who was appointed
Senior V ice President effective January 1, 1970.
Also effective January 1, 1970, were the follow in g promotions
and changes. John G. Deitrick was elevated to V ice President in
charge o f Fiscal A gency and Securities, Joseph F. Viverette was named
General Auditor, and G. Harold Snead was appointed Senior Adviser
in the Auditing Department. W ilbur C. W ilson was named Assistant
Cashier in Fiscal A gency and Securities and Joseph C. Ram age was
made Assistant Cashier in Discount and Credit.
V ice President
A rthur V. Myers, Jr. was assigned the responsibility fo r the A ccounting
and Bank Accounts Departments in addition to his present duties in
the Bank and Public Relations Department.
John F. Rand was named Vice President in charge o f com m unica
tions at the Culpeper facility, Boyd Z. Eubanks was prom oted to A s
sistant V ice President at the Charlotte Branch, and Charles P. Kahler
was named Assistant Cashier at the Baltimore Branch.

Summary o
CHECK CLEARING & COLLECTION

1969

1968

Dollar amount
Commercial bank checks1 _______________________________
Government checks" ____________________________________
Return items ___________________________________________

154,553,326,000
14,184,745,000
1,055,809,000

136,720,488,000
12,288,027,000
946,277,000

Number of items
Commercial bank checks1 _______________________________
Government checks2 ____________________________________
Return items ___________________________________________

499,162,000
66,058,000
5,898,000

488,551,000
63,728,000
5,397,000

3,046,362,299
150,655,860
1,087,116,889
1,079,930,385

2,832,717,000
150,002,776
961,121,222
1,030,628,600

4,235,021
764,219

4,025,893
724,813

10,698,050,400
57,452,742
112

3,897,413,600
21,286,430
89

Marketable securities delivered or redeemed
Dollar amount __________________________________________
N um ber_________________________________________________

13,969,235,175
352,267

14,239,513,644
270,329

Coupons redeemed
Dollar amount __________________________________________
Num ber_________________________________________________

86,260,506
304,453

98,283,112
333,885

Savings bond and savings note issues
Dollar amount __________________________________________
N um ber_________________________________________________

371,618,450
10,389,683

367,899,080
10,590,872

Savings bond and savings note redemptions
Dollar amount __________________________________________
N um ber_________________________________________________

546,468,910
12,309,004

464,444,138
10,606,335

Depositary receipts for withheld taxes
Dollar am ount__________________________________________
Num ber_________________________________________________

8,591,714,516
1,975,201

6,010,544,702
1,543,647

289,995,671,461
389,437

266,547,198,717
364,867

CURRENCY & COIN
Currency disbursed— Dollar amount_____________________
Coin disbursed— Dollar am ount__________________________
Dollar amount of currency withdrawn for destruction ....
Dollar amount of currency burned _____________________
Daily average of currency burned
Dollar amount __________________________________________
Number _________________________________________________

DISCOUNT & CREDIT
Dollar amount
Total loans made during year _______________________
Daily average loans outstanding _____________________
Number of banks borrowing during the year _________

FISCAL AGENCY ACTIVITIES

TRANSFERS OF FUNDS
Dollar amount ______________________ ___________________
Num ber_________________________________________________

1 Excluding checks on this Bank.
2 Including postal money orders.

r n \J .4' J LPJ L A 1 ? A T T fV P
V ___'

J .

V .J -

j -

-» -_ v

STATEMENTS
Condition
ASSETS:
Gold certificate account ________________________________
Federal Reserve notes of other Federal Reserve Banks
Other cash ______________________________________________
Discounts and advances ________________________________

DEC. 31,1969

DEC. 31, 1968

5 926,579,929.99
67,815,864.00
6,414,018.09
12,150,000.00

5 861,188,243.08
82,832,052.00
12,704,406.20
3,310,000.00

U. S. Government securities:
Bills ___________________________________________________
Certificates____________________________________________
Notes __________________________________________________
Bonds __________________________________________________

1,664,937,000.00

1,409,622,000.00

2,347,358,000.00
261,448,000.00

2,157,409,000.00
411,436,000.00

TOTAL U. S. GOVERNMENT SECURITIES _____________

4,273,743,000.00

3,978,467,000.00

TOTAL LOANS AND SECURITIES ______________________

4,285,893,000.00

3,981,777,000.00

Cash items in process of collection ____________________
Bank premises ___________________________________________
Other assets _____________________________________________

1,070,079,540.79
10,858,191.24
137,232,291.92

886,393,584.75
10,336,706.02
144,668,725.92

5,504,872,836.03

$5,979,900,717.97

Federal Reserve notes ______________________________________

$4,327,423,885.00

$4,142,317,669.00

Deposits:
Member bank— reserve accounts ________________________
U. S. Treasurer— general account _____________________
Foreign ___________________________________________________
Other ______________________________________________________

1,089,525,344.69
130,767,416.21
6,760,000.00
30,296,932.65

1,020,706,548.37
576,533.18
11,440,000.00
21,717,517.66

TO TAL ASSETS _____________________________

LIABILITIES:

_____________________________________

1,257,349,693.55

1,054,440,599.21

Deferred availability cash items _________________________
Other liabilities _____________________________________________

808,930,309.66
42,762,247.82

687,570,410.44
29,873,339.32

TOTAL LIABILITIES ___________________________

6,436,466,136.03

5,914,202,017.97

t o t a l d e p o s its

CAPITAL ACCOUNTS:
Capital paid in _____________________________________________
Surplus ______________________________________________________
TO TAL LIABILITIES AND C APITAL
A C C O U N T S __________________________________

Contingent liability on acceptances purchased for
foreign correspondents __________________________________

34,203,350.00
34,203,350.00

32,849,350.00
32,849,350.00

$6,504,872,836.03

$5,979,900,717.97

7,586,800.00

5,678,400.00

harnings and hxpenses
E A R N IN G S :

1969

Discounts and advances _________________________________
Interest on U. S. Government securities ______________
Foreign currencies _______________________________________
Other earning’s ___________________________________________
t o t a l c u r r e n t e a r n i n g s __________________________

1968

$ 3,404,671.02
236,068,720.12
6,333,270.83
______ 49,694.63
245,856,356.60

1,128,269.42
195,815,740.73
3,980,001.57
_______32,809.12
200,956,820.84

18,843,497.13
780,700.00
1,892,778.10
21,516,975.23
224,339,381.37

16,103,164.89
734,000.00
2,402,749.52
19,239,914.41
181,716,906.43

306,622.09
306,622.09

58,222.40
419,142.55
477,364.95

EXPENSES:
Operating expenses (including depreciation on bank
premises) after deducting reimbursements received
for certain Fiscal Agency and other expenses _______
Assessments for expenses of Board of Governors _____
Cost of Federal Reserve currency _____________________
N ET E X P E N S E S ______________________________________
CURRENT NET EAR N IN G S ___________________
ADDITIONS TO CURRENT NET E A R N IN G S:

Profit on sales of U. S. Government securities (net) __
All other __________________________________________________
TOTAL A D D IT IO N S ____________________________________
DEDUCTIONS FROM CURRENT NET E A R N IN G S:

Loss on sales of U. S. Government securities (net) ____
All o th er__________________________________________________
TOTAL DEDUCTIONS _________________________________
N E T AD D ITIO N S OR DED U CTIO N S _________
N E T E A R N IN G S BEFORE P A Y M E N T S TO
U. S. T R E A S U R Y ___________________________
Dividends p a id ____________________________________________
Payments to U. S. Treasury (interest on Federal
Reserve notes) ________________________________________
Transferred to surplus __________________________________
TO T AL ____________________________________________

448,948.42
55,976.12
_____________ 9,942.48
504,924.54
9,942.48
-198 ,3 0 2 .4 5
467,422.47
$224,141,078.92

$182,184,328.90

2,008,397.94

1,909,325.95

220,778,680.98
1,354,000.00
$224,141,078.92

178,500,502.95
1,774,500.00
$182,184,328.90

$ 32,849,350.00
1,354,000.00

$ 31,074,850.00
1,774,500.00

$ 34,203,350.00

$ 32,849,350.00

$ 32,849,350.00
1,721,000.00
34,570,350.00
_____ 367,000.00

$ 31,074,850.00
1,905,500.00
32,980,350.00
_____ 131,000.00

$ 34,203,350.00

$ 32,849,350.00

SURPLUS ACCOUNT
Balance at close of previous year _____________________
Addition account of profits for year ___________________
B ALA N CE A T CLOSE OF CURRENT
Y E A R _________________________________________

CAPITAL STOCK ACCOUNT
(Representing amount paid in, which is 50% of amount
subscribed)
Balance at close of previous year _______________________
Issued during the year _____________________________________
Cancelled during the year ________________________________
BAL A N C E A T CLOSE OF CURRENT
Y E A R _________________________________________

T A T 7 ')
(D ecem ber 31, 1969)

Wilson H. Elkins

Chairman o f the Board and Federal R eserve A g en t

Robert W . Lawson, Jr.

D eputy Chairman o f the Board

CLASS A
Robert C. Baker

Giles H.

Miller, Jr.

Douglas D. Monroe, Jr.

Chairman o f the Board, Am erican Security and Trust Company
Washington, D. C.
(T erm expired D ecem ber 31, 1969)
Succeeded b y : Hugh A . Curry
President, The Kanawha Valley Bank
Charleston, W est Virginia
(T e rm expires D ecem ber 31, 1972)
President, The Culpeper National Bank
Culpeper, Virginia
(T erm expires D ecem ber 31, 1970)
President, Chesapeake National Bank
Kilmarnock, Virginia
(T erm expires D ecem ber 31, 1971)

CLASS B
H. Dail Holderness

Charles D. Lyon

Thaddeus Street

President, Carolina Telephone and Telegraph Company
Tarboro, N orth Carolina
(T erm expires D ecem ber 31, 1970)
Retired President, The Potomac Edison Company
Hagerstown, Maryland
(T erm expires D ecem ber 31, 1971)
President, Carolina Shipping Company
Charleston, South Carolina
(T erm expired D ecem ber 31, 1969)
Succeeded b y : Robert S. Small
President and C hief E xecu tive O fficer, Dan R iver
Mills, Inc.
Greenville, South Carolina
(T erm expires D ecem ber 31, 1972)

CLASS C
Wilson H. Elkins

Robert W . Lawson, Jr.

Stuart Shumate

President, U niversity o f M aryland
College Park, M aryland
(T erm expires D ecem ber 31, 1971)
Managing Partner, Charleston O ffice, Steptoe & Johnson
Charleston, W e st Virginia
(T erm expires D ecem ber 31, 1972)
President, Richmond, Fredericksburg, and Potom ac Railroad Company
Richmond, Virginia
(T erm expires D ecem ber 3'1, 1970)

MEMBER FEDERAL ADVISORY COUNCIL
J. Harvie Wilkinson, Jr.

Chairman o f the Board, United Virginia B a n k /S ta te Planters
Richmond, Virginia
(T erm expired D ecem ber 31, 1969)
Succeeded b y : Robert D. H. Harvey
Chairman o f the Board and C hief E xecu tive O fficer,
M aryland Natio7ial Bank
Baltimore, M aryland
(T e rm expires D ecem ber 31, 1970)

Richmond
Aubrey N. Heflin, President

Welford S. Farmer, Senior Vice President and
General Counsel

Upton S. Martin, Senior Vice President
James Parthemos, Senior Vice President and
D irector o f Research

Robert P. Black, F irst Vice P resident

Arthur V. Myers, Jr., Vice President
John L. Nosker, Vice President
John F. Rand, Vice P resident
Raymond E. Sanders, Jr., Vice P resident

John G. Deitrick, Vice President

Aubrey N. Snellings, Vice P resident

J. Gordon Dickerson, Jr., Vice President

William F. Upshaw, Vice President and

William C. Glover, Vice President
Jimmie R. Monhollon, Vice President

Associate General Counsel

H. Ernest Ford, Cashier

J. Lander Allin, Jr., A ssista n t Vice President

Chester D. Porter, Jr., Ch ief E xa m in er

Clifford B. Beavers, A ssista n t Vice President

Victor E. Pregeant, III, A ssista n t Vice President

Lloyd W . Bostian, Jr., A ssistant Vice President

and Secretary

Wm. T. Cunningham, Jr., A ssistant Vice President

Frank D. Stinnett, Jr., A ssista n t Vice President

William C. Fitzgerald, A ssista n t General Counsel

Andrew L. Tilton, A ssista n t Vice P resident

John E. Friend, A ssistant Vice President

William H. Wallace, A ssista n t Vice President

William B. Harrison, III , A ssista n t Vice P resident

Jack H. W yatt, A ssista n t Vice President

Fred L. Bagwell, Exam ining O fficer

Wenifred 0 . Pearce, A ssista n t Cashier

W yatt F. Davis, Exam ining O fficer

Joseph C. Ramage, A ssista n t Cashier

George B. Evans, A ssista n t Cashier

Wilbur C. Wilson, A ssista n t Cashier

Joseph F. Viverette, General A uditor

John C. Horigan, A ssista n t General A uditor

G. Harold Snead, Senior A dviser

Balt imora Branch

Ch arlotte Branch

H. Lee Boatwright, III, Senior Vice President

Edmund F. Mac Donald, Senior Vice President

A. A. Stewart, Jr., Vice President

Stuart P. Fishburne, Vice President

B. F. Armstrong, A ssistan t Vice President

Boyd Z. Eubanks, A ssista n t Vice President

E. Riggs Jones, Jr., A ssista nt Vice President

Winfred W. Keller, A ssista n t Vice President

Gerald L. Wilson, A ssista nt Vice President

Fred C. Krueger, Jr., A ssista n t Vice President

Charles P. Kahler, A ssistant Cashier

0 . Louis Martin, Jr., A ssista n t Cashier

:'0 n leave of absence.

BKA1M UM U l K t U l U K d
(D ecem ber 31, 1969)

Balt 1
imore
Tilton H. Dobbin

John H. Fetting, Jr.

James M. Jarvis

Arnold J. Kleff, Jr.

Adrian L. McCardell

James J. Robinson

John P. Sippel

President and Chairman o f E xecu tive Committee,
M aryland National Bank
Baltimore, M aryland
(T erm expires Decem ber 31} 1971)
President, A . H . F ettin g Company
Baltimore, May'yland
(T erm expires D ecem ber 31, 1970)
Chairman o f the Board, Jarvis, Downing & Emcli, Inc.
Clarksburg, W e st Virginia
(T erm expires D ecem ber 31, 1971)
Manager, Baltimore R efin ery, Am erican Smelting and
R efining Company
Baltimore, M aryland
(T erm expires D ecem ber 31, 1972)
Chairman o f the Board, F irst National Bank o f Maryland
Baltimore, M aryland
(T erm expires D ecem ber 31, 1970)
E xecutive Vice President and Cashier, Bank o f R ipley
Ripley, W e st Virginia
(T erm expires D ecem ber 31, 1970)
President, The Citizens National Bank
Laurel, M aryland
(T erm expired D ecem ber 31, 1969)
Succeeded b y : James R. Chaffinch, Jr.
E xecu tive Vice President, The Denton National Bank
D enton, Maryland
(T erm expires D ecem ber 31, 1972)

Ch arlotte
H. Phelps Brooks, Jr.

C. C. Cameron

J. W illis Cantey

L. D. Coltrane, III

John L. Fraley

William B. McGuire

James A. Morris

President and Trust O fficer, The Peoples National Bank
Chester, South Carolina
(T erm expires D ecem ber 31, 1970)
Chairman o f the Board and President, F irst Union National Bank
o f N orth Carolina
Charlotte, N orth Carolina
(T erm expires D ecem ber 31, 1970)
President, The Citizens & Southern National Bank of South Carolina
Columbia, South Carolina
(T erm expires D ecem ber 31, 1972)
President and Trust O fficer, The Concord National Bank
Concord, N orth Carolina
(T erm expires D ecem ber 31, 1971)
E xecu tive Vice President, Carolina F reig h t Carriers Corporation
Cherryville, N orth Carolina
(T erm expires D ecem ber 31, 1971)
President, Duke P ow er Company
Charlotte, N orth Carolina
(T erm expires D ecem ber 31, 1970)
Commissioner o f H igher Education, The South Carolina Commission
on H igher Education
Columbia, South Carolina
(T erm expired D ecem ber 31, 1969)
Succeeded b y :
E. Craig Wall, Sr.
Chairman o f the Board, Canal Industries, Inc.
Conway, South Carolina
(T erm expires D ecem ber 31, 1972)

Full text of Annual Report of the Federal Reserve Bank of Richmond : 1969 Annual Report

FRASER