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AN NUAL REPO RT
Federal Reserve Bank
of Chicago
Charles J. scanlon became President of the Federal Reserve Bank of
Chicago on January 4, 1962. Prior to that date he had been First Vice
President. Mr. Scanlon started working for the Bank in 1933 following his
graduation from Parker High School in Chicago. He continued his education
through evening courses offered by the American Institute of Banking and
by Northwestern University. Later he graduated from the Stonier Graduate
School of Banking, Rutgers University.
Mr. Scanlon was Chief Examiner of the Bank when he was elected
First Vice President in 1959.
He has instructed and lectured on banking subjects at the Inter-Agency
Bank Examination School, Washington, D. C., Northwestern University,
and North Central College, Naperville, Illinois.
Recently Mr. Scanlon served as a consultant to the Government of
Liberia in connection with the consideration of the establishment of a
central bank.
In announcing the appointment Mr. Robert P. Briggs, Chairman of the
Board of Directors of the Federal Reserve Bank of Chicago, said, “Mr.
Scanlon has devoted his business career to this Bank and has risen to the
position of Chief Executive Officer as a result of the outstanding work he
has done. No man better understands the problems of the District. He will
give the Bank outstanding leadership. In turn the Bank will further the
growth and development of the five-state area in the Seventh Federal
Reserve District.”
To the Member Banks of the Seventh Federal Reserve District:
Economic activity rose during 1961, following a moderate decline in the
second half of the preceding year. The major developments in business,
agriculture and banking, as they have affected the Seventh District, are dis
cussed briefly in this report. The statements of condition as of December 31,
1961, and of earnings and expenses for the year appear on pages 10 and 11.
By way of general review, business activity rose rapidly early in the year,
slowed in the summer and accelerated again beginning in October. Most
measures of activity established new record highs before the year-end. Never
theless, there was still substantial capacity to accommodate further increases
in employment and production. Markets for products and services were
highly competitive throughout the year, and credit was readily available to
all qualified borrowers.
In the Seventh Federal Reserve District both the decline in activity in 1960
and the expansion in 1961 were relatively greater than in the nation. This
reflects the great importance of durable goods manufacturing in the District.
These industries typically fluctuate more during business cycles than many
other types of activity.
The most significant feature of the business expansion in its early stages was
the rise of inventories beginning in the second quarter of the year, followed
by a slow rise in investment in new plant and equipment. Consumer spending
also increased, although not as rapidly as personal income. The increase in
demand in the business and consumer sectors was accompanied by higher
outlays by the Federal, state and local governments.
Consumers continued to increase their savings deposits and other liquid fi
nancial assets at a rapid pace. Through September, instalment debt on auto
mobiles was declining and what some regarded as a rather slow pace of
spending for goods continued to be reflected in retail sales. Farm income, at
a higher level throughout the year than in 1960, had risen as a result of
excellent crops, higher price supports and increased Government payments
to retire land from production.
In the fourth quarter retail sales rose sharply, unemployment declined more
than seasonally and business firms reported plans to increase inventories
more rapidly as well as to step up investment in new plant and equipment.
As a result, 1961 ended on a note of confidence quite different from the mood
prevailing at the start of the year. It is against this general background that
developments in individual industries and areas must be evaluated.
Personal income rose somewhat faster in the District than in the nation as
employment increased and work weeks in manufacturing were lengthened.
In March income established a new record, and throughout the remainder of
the year new highs were established almost every month.
Although consumer buying rose somewhat, it did not keep pace with the rise
of personal income until the fourth quarter. Spending was somewhat cau
tious in the face of the relatively high unemployment. The sharpening of
international tensions and calls of reserve units to active duty appeared also
to have contributed to the moderate rate of retail trade. In September and
October the low inventories of some kinds of new automobiles may have
limited sales temporarily.
In the fourth quarter, however, consumer buying, particularly of automobiles,
increased substantially. Stronger consumer demand was reflected also in a
rise in instalment credit beginning in October. Throughout the year retail
sales in the District were strongest in the rural areas.
Farm income was well above the preceding year with producers of hogs,
dairy products and grains all showing gains. Generally excellent weather
conditions and heavy applications of fertilizer assured record yields of corn
and soybeans, the two major District crops.
Incomes of hog producers improved as a result of larger marketings and low
feed costs while a good level of consumer demand maintained prices. Cattle
feeders in the summer did less well than in 1960 because prices declined
substantially. Dairy farmers increased production and were benefited by
somewhat higher prices. The very large production of turkeys and broilers
caused severe price declines and low returns to poultry raisers.
Prices of farm land were rising toward the end of 1961, following a modest
decline in some areas in the preceding year. However, relatively little land
was offered for sale and in most communities there were very few transac
tions during the year. Farm real estate debt continued the gradual increase
that has been evident in recent years.
Production of automobiles, especially important in many Midwest areas,
was reduced sharply in the first quarter of 1961 to enable dealers to work
off large inventories; a record 1 million domestically produced passenger cars
were on hand when the year began. However, in April production began to
rise rapidly and continued at an improved rate until halted by model changeovers in August and strikes in September and October. In the final months of
the year, production was stepped up to provide adequate inventories of the
new models and accommodate the sharp increase of retail sales. During the
fourth quarter production of cars was second only to the same period of 1955,
while sales about equaled the record number in that earlier period. In the
final months of 1961 output and employment in the auto industry probably
2
Annual Report, 1961
would have risen even more were it not for the labor contracts negotiated
in September and October. Under the terms of these agreements large sup
plemental unemployment compensation payments would be required if out
put was reduced in the face of an excessive inventory build-up.
For 1961 as a whole, auto output was 5.5 million units— 18 per cent below
the 1960 level. But deliveries to customers declined only 9 per cent. Dealer
inventories, which had risen in 1960, were reduced in 1961. Other features
of the car market were the continued decline in imports and the further rise
in the proportion of domestically produced “compacts.”
Production of trucks was about 8 per cent below the previous year, with the
heavy-duty vehicles declining relatively more than the lighter weights. As in
the case of autos, truck sales improved substantially in the fourth quarter
and production was at the highest rate for the period since 1955.
Steel output was about the same in 1961 as in 1960. However, the patterns
in the two years were very different. Production of steel declined by about
50 per cent during 1960 from a record rate in January to a very low level
at the end of the year. In 1961, January was the low month and December
marked the high.
But the rise in steel output during 1961 was not steady. This was the first
major industry to report a rise in activity early in the year. In July production
was 40 per cent above the level in January. Once output had risen in line
with current consumption, there was little further change until December
when steel users, led by the auto firms, sharply increased orders. Steel pro
duction in the Chicago area paralleled the national pattern closely, while in
Detroit there was a temporary cutback in midyear.
Expenditures for machinery and equipment began to rise in the second quar
ter of 1961, concurrent with the rise in spending by consumers and Gov
ernment. In earlier postwar upswings, revivals in demand for capital goods
had lagged the pickup in other sectors by about six months.
Continued strength in foreign orders helped support the gradual rise in pro
duction of industrial machinery and equipment. Production of farm machin
ery, on the other hand, had increased rapidly in the spring as manufacturers
and distributors expanded inventories in anticipation of higher sales, expected
to accompany the rise of farm income. However, sales were below the ex
pected volume and production was reduced in the summer. Toward year-end,
with a large harvest assured, farmers stepped up their purchases and manu
facturers increased production schedules.
Production and sales of construction machinery increased somewhat during
1961 as the volume of public works and other heavy construction rose, al
though part of the new orders were filled by drawing down the large inven
tories on hand at the beginning of the year.
Federal Reserve Bank of Chicago
3
The demand for railroad equipment and truck trailers declined further in
1961. While new orders picked up in the autumn as rail and truck traffic
increased, the improvement came much later than in other sectors of durable
goods manufacturing.
Residential construction advanced during the year with the increase more
than offsetting the decline in industrial construction. Somewhat greater avail
ability of mortgage funds aided housing starts. In the first 10 months con
struction was undertaken on 4 per cent more new houses than in the corre
sponding period of the preceding year in the nation, while the increase in the
District was about 2 per cent. A growing share of the new housing in large
urban centers was apartments; construction of single-family dwellings was
far below the preceding year in some cities.
Total loans and discounts at District member banks increased somewhat
during 1961, but the rise was less than in 1960. Loans to commercial and
industrial firms and to consumers declined in the first half of the year and
rose only moderately in the second half. This was in contrast with agricultural
loans which had a fairly steady rise after a drop in some areas in 1960. With
the demand for credit from the consumer and business sectors relatively
weak, banks increased real estate loans and loans to securities dealers. But
most of the rise in banks’ earning assets was in short-term Government
securities.
At the large banks in the District, loans showed very little change in 1961.
The increase of total loans and discounts noted above was in the smaller
banks, which, as a group, reported loan growth throughout the year although
at a slower rate than in 1960.
Net repayments on commercial and industrial loans at large banks were
greater than usual through July. Subsequent loan expansion largely reflected
seasonal borrowings by commodity dealers, food processors and trade firms.
Despite the higher activity, durable goods producers and finance companies
reduced their borrowing from banks.
The relatively weak demand for business credit from banks reflected in part
the large amount of funds available from other sources. Business firms issued
a large volume of securities during 1961, depreciation allowances continued
upward and, after the first quarter, profits rose. Finance companies increased
their sales of commercial paper.
Total deposits of all District member banks increased more than twice as
much in 1961 as in the previous year, with small banks gaining relatively
more than large banks. Time deposits accounted for a large share of the
increase. Demand deposits also increased rapidly after midsummer.
With deposits increasing more than loans, the ratio of loans to total deposits
at District banks declined from a peak of 50 per cent in mid-1960 to 48
per cent in October 1961. Most of the declines in the loan/deposit ratios
occurred in the large banks.
4
Annual Report, 1961
Monetary policy was responsible for a substantial expansion in bank re
serves during the year. As noted above, this was reflected largely in a sharp
rise in banks’ holdings of Treasury securities and municipals, with the increase
concentrated in Treasury bills and other short-term issues.
The large banks in the major cities in the District began to increase their
holdings of short-term Governments in the latter part of 1960. At these banks
Treasury issues maturing within one year rose from 300 million dollars in
mid-1960 to a peak of 2 billion in October 1961. At the smaller banks the
increase was proportionately much less.
Borrowing by member banks from the Federal Reserve Bank of Chicago was
the smallest since 1950 and averaged less than 20 million dollars daily during
the year. There were no changes in reserve requirements of member banks,
but applications of several Reserve City banks to be reclassified as Country
banks were approved by the Board of Governors of the Federal Reserve
System.
The Federal Reserve discount rate remained at 3 per cent throughout 1961,
and interest rates on most types of securities and loans were relatively stable.
Short-term Treasury bills fluctuated between 2 lA and 2 Vi per cent during
most of the year. Bond yields moved up somewhat in the spring when security
issues were very large, but contrary to widespread expectations rates leveled
off in the summer and showed some tendency to decline in the fall.
In December the Board of Governors amended Regulation Q which pre
scribes the maximum rates that may be paid by member banks on savings
and time deposits. Effective January 1, 1962, the maximum permissible rates
are 3 Vi per cent on savings and time deposits of six months or more, except
that 4 per cent may be paid on balances which remain on deposit for a year
or more. Before the close of the year several banks in the District an
nounced plans to increase the rates they pay on time and savings deposits
to the new legal maximums.
Inflationary pressures were largely absent during 1961. In view of the rapid
rise in output and employment there was a gratifying stability of prices. While
prices of foods and services rose and pushed the consumer price index to a
record high, manufactured goods were generally stable with reductions on
some items balancing increases on others. Ample capacity, particularly in
basic industries, and widespread competition from imports were responsible
for keeping markets highly competitive. Prices of some industrial raw mate
rials declined, notably aluminum and some types of steel. The 1962 auto
mobiles were introduced at about the same prices as comparable models in
the preceding year.
A t the close of the year the economic picture was favorable with activity con
tinuing to rise, employment and income increasing further and credit readily
available. But the ever-present challenge, to achieve efficient and relatively
full utilization of resources without triggering speculation and inflation, con
tinued in the spotlight at the national, District and community levels.
Federal Reserve Bank of Chicago
5
Resignations and Appointments of Officers
Carl E. Allen, after five years of outstanding leadership as President of
the Federal Reserve Bank of Chicago, resigned as of December 31, 1961, to
become a vice president of General Motors Corporation.
The resignation of George W. Mitchell, Vice President and Director of Re
search, was accepted as of August 30, 1961. His appointment as a member
of the Board of Governors of the Federal Reserve System was a high honor
and recognition of his outstanding services to the Federal Reserve Bank of
Chicago.
The resignation of Robert C. Holland as Vice President was accepted as of
February 15, 1961. Mr. Holland is continuing his employment in the Fed
eral Reserve System by joining the staff of the Board of Governors.
The resignations of these officers, Messrs. Allen, Mitchell and Holland, were
accepted with sincere regret. With them, in their new positions, go the best
wishes of the Federal Reserve Bank of Chicago.
Ernest T. Baughman, Vice President, was appointed Director of Research
on September 1, 1961, succeeding George W. Mitchell.
Richard A. Moffatt, Assistant Vice President, was promoted to Vice Presi
dent, September 1, 1961, in charge of Credit and Investment Departments.
Robert E. Sorg, formerly Assistant Cashier, was made Assistant Vice Pres
ident on November 1, 1961.
Elbert O. Fults, formerly Assistant Chief Examiner, became Assistant Vice
President on January 1, 1962.
Daniel M. Doyle and Karl A. Scheld were appointed Assistant Cashiers on
September 1, 1961, and Erich K. Kroll was appointed an Assistant Cashier
on November 1, 1961.
Board Appointments and Elections
During the year 1961, Board appointments and elections were announced
as follows:
Robert P. Briggs, Executive Vice President, Consumers Power Company,
Jackson, Michigan, a Director since 1956 and Chairman and Federal Re
serve Agent in 1961, was reappointed a Director for a term of three years
and was redesignated Chairman and Federal Reserve Agent for 1962.
James H. Hilton, President, Iowa State University, Ames, Iowa, a Director
since 1960 and Deputy Chairman for 1961, was redesignated Deputy Chair
man for 1962.
John H. Crocker, Chairman of the Board, The Citizens National Bank of
Decatur, Decatur, Illinois, a Director since 1959, was reelected for a term
of three years.
6
Annual Report, 1961
William E. Rutz, Director and Member of the Executive Committee, Giddings and Lewis Machine Tool Company, Fond du Lac, Wisconsin, was
elected a Director for a term of three years, succeeding William J. Grede,
Chairman of the Board, Grede Foundries, Inc., Milwaukee, Wisconsin.
James W. Miller, President, Western Michigan University, Kalamazoo,
Michigan, was appointed a Director (Detroit Branch) for a term of three
years, succeeding C. V. Patterson, Director, The Upjohn Company, Kala
mazoo, Michigan.
Donald F. Valley, Chairman of the Board, National Bank of Detroit, De
troit, Michigan, a Director (Detroit Branch) since 1959, was reappointed
for a term of three years.
Kenneth V. Zwiener, President, Harris Trust and Savings Bank, Chicago,
Illinois, was appointed member of the Federal Advisory Council from the
Seventh Federal Reserve District for 1962, succeeding Homer J. Livingston,
Chairman of the Board, The First National Bank of Chicago.
Retirements
The year 1961 brought the retirement of the following:
William J. Grede and C. V. Patterson retired as directors, and Homer J.
Livingston retired as our representative on the Federal Advisory Council.
Mr. Grede was a director for more than 14 years. Mr. Patterson served as
a member of our Detroit Branch Board for more than five years. Mr.
Livingston was the Seventh District representative on the Federal Advisory
Council for six years, during the last three of which he served by election
of the council as its president.
Fred H. Grimm, Assistant Cashier, retired December 31, 1961, after more
than 45 years of faithful service.
The employees listed below, all with service records of more than 25 years,
retired in the course of the year:
Harry Dearborn
Henry Dickey
Glenna Dillard
Albert C. Gericke
Fanny Hamilton
Edward A. Herwald
Hilda A. Hoehl
Frank R. Hoffman
Jennie E. Johnsen
Verna Kott
Gerald N. Mehney
Orville H. Meiners
Walter O. Mueller
Willis Nieman
Hervey E. Shannon
David W. Startup
Sidney G. Tull
Helen S. Walsh
Joseph C. Walz
The Bank is grateful to all of the officers and employees, including those
who retired during the year, for their devoted service to the Bank and to
the Federal Reserve System.
Respectfully submitted,
By order of the Board
of Directors
January 15, 1962
R obert P. B riggs, Chairman
Board of Directors
Federal Reserve Bank of Chicago
7
ROBERT P. BRIGGS, Executive Vice President
Consumers Power Company
Jackson, Michigan
C h a irm a n a n d F e d e ra l R eserve A g e n t
JAMES H. HILTON, President
Iowa State University
Ames, Iowa
D ep u ty C h a irm a n
JOHN H. CROCKER, Chairman of the Board
The Citizens National Bank of Decatur
Decatur, Illinois
GERALD F. LANGENOHL, Treasurer
and Assistant Secretary
Allis-Chalmers Mfg. Co.
Milwaukee, Wisconsin
WILLIAM A. HANLEY, Director
Eli Lilly and Company
Indianapolis, Indiana
WILLIAM E. RUTZ, Director
and Member of the Executive Committee
Giddings and Lewis Machine Tool Company
Fond du Lac, Wisconsin
VIVIAN W. JOHNSON, Chairman of the Board
First National Bank
Cedar Falls, Iowa
DAVID M. KENNEDY, Chairman of the Board
Continental Illinois National Bank
and Trust Company of Chicago
Chicago, Illinois
DETROIT
JOHN W. SHELDON, President
Chas. A. Stevens & Co.
Chicago, Illinois
BRANCH
DIRECTORS
J. THOMAS SMITH, President
Dura Corporation
Oak Park, Michigan
Chairman
CARL A. GERSTACKER, Chairman of the Board
The Dow Chemical Company
Midland, Michigan
JAMES W. MILLER, President
Western Michigan University
Kalamazoo, Michigan
C. LINCOLN LINDERHOLM, President
Central Bank
Grand Rapids, Michigan
FRANKLIN H. MOORE, President
The Commercial and Savings
Bank of St. Clair
St. Clair, Michigan
WILLIAM A. MAYBERRY, Chairman of the Board
Manufacturers National Bank of Detroit
Detroit, Michigan
DONALD F. VALLEY, Chairman of the Board
National Bank of Detroit
Detroit, Michigan
MEMBER
OF
FEDERAL
ADVISORY
KENNETH V. ZWIENER, President
Harris Trust and Savings Bank
Chicago, Illinois
January 1, 1962
8
Annual Report, 1961
COUNCIL
ERNEST T. BAUGHMAN, Vice President
CLARENCE T. LAIBLY, Vice President
ARTHUR M. GUSTAVSON, Vice President
RICHARD A. MOFFATT, Vice President
HUGH J. HELMER, Vice President
HAROLD J. NEWMAN, Vice President
PAUL C. HODGE, Vice President,
General Counsel and Secretary
HARRY S. SCHULTZ, Vice President
LAURENCE H. JONES, Vice President and Cashier
RUSSEL A. SWANEY, Vice President
CARL E. BIERBAUER, Assistant Vice President
ROBERT E. SORG, Assistant Vice President
ELBERT O. FULTS, Assistant Vice President
JOSEPH J. SRP, Assistant Vice President
EDWARD A. HEATH, Assistant Vice President
and Assistant Secretary
GEORGE T. TUCKER, Assistant Vice President
BRUCE L. SMYTH, Assistant Vice President
CHARLES G. WRIGHT, Assistant Vice President
JOHN J. CAPOUCH, Assistant Cashier
LESTER A. GOHR, Assistant Cashier
LE ROY A. DAVIS, Assistant Cashier
VICTOR A. HANSEN, Assistant Cashier
LE ROY W. DAWSON, Assistant Cashier
WILLIAM O. HUME, Assistant Cashier
DANIEL M. DOYLE, Assistant Cashier
ERICH K. KROLL, Assistant Cashier
FRANCIS C. EDLER, Assistant Cashier
KARL A. SCHELD, Assistant Cashier
JOHN J. ENDRES, General Auditor
LELAND M. ROSS, Chief Examiner
FRED A. DONS, Assistant General Auditor
JOSEPH B. LEDERLEITNER, Assistant Counsel
and Assistant Secretary
DETROIT
BRANCH
RUSSEL A. SWANEY, Vice President
W. GEORGE RICKEL, Assistant Cashier
RICHARD W. BLOOMFIELD, Assistant Vice President
ARTHUR J. WIEGANDT, Assistant Cashier
PAUL F. CAREY, Assistant Cashier
GORDON W. LAMPHERE, Assistant General Counsel
‘ Effective January 4, 1962.
January 1, 1962
Federal Reserve Bank of Chicago
9
CONDITION
Assets
Gold certifcate a c c o u n t .............................
Redemption fund for Federal Reserve notes
Total gold certificate reserves
December 31, 1961
December 31, 1960
$2,564,681,898
211,636,890
$2,790,451,708
188,792,575
$2,776,318,788
$2,979,244,283
38,893,000
58,328,505
39,968,500
63,750,734
Federal Reserve notes of other Banks .
Other c a s h ...................................................
Discounts and advances:
Secured by U. S. Government securities
O t h e r ...................................................
Total discounts and advances .
U. S. Government securities
.
.
.
.
$
$
350,000
2,115,000
2,465,000
$
1,575,000
1,104,000
2,679,000
$
4,907,667,000
4,618,576,000
$4,910,132,000
$4,621,255,000
Cash items in process of collection
Bank p r e m i s e s ............................................
Other a s s e t s ...................................................
1,238,947,337
24,249,956
40,309,602
1,111,469,450
22,158,913
34,965,202
Total a s s e t s ...............................
$9,087,179,188
$8,872,812,082
Federal Reserve notes.
$5,361,534,170
$5,302,418,460
Deposits:
Member bank reserves .
U. S. Treasurer—general account
F o r e ig n ............................................
O t h e r ............................................
$2,539,800,738
66,400,647
37,365,000
12,015,216
$2,495,251,926
62,973,258
29,532,000
13,000,450
Total d eposits.............................
Deferred availability cash items .
Other l i a b i li t ie s ....................................
$2,655,581,601
874,167,816
10,622,801
$2,600,757,634
791,124,731
5,032,357
$8,901,906,388
$8,699,333,182
Total liabilities and capital accounts
61,757,600
123,515,200
$9,087,179,188
57,826,300
115,652,600
$8,872,812,082
Ratio of gold certificate reserves to deposit
and Federal Reserve note liabilities combined
34.6%
37.6%
Total loans and securities .
Liabilities
Total liabilities .
.
.
.
Capital accounts
Capital paid i n ...................................................
Surplus
.................................................................
Contingent liability on acceptances purchased
for foreign correspondents.............................
10
Annual Report, 1961
$
17,625,000
$
32,043,600
STATEMENT
OF
EARNINGS
AND
EXPENSES
Discounts and advances .
U. S. Government securities
All o th e r.............................
1960
1961
Current earnings:
$
608,563
160,030,217
46,602
$
4,097,753
185,580,969
83,967
$160,685,382
$189,762,689
Operating exp enses...........................................
$ 25,363,764
$ 23,372,403
Federal Reserve c u r r e n c y .............................
1,040,334
1,121,254
Total current earnings
Current expenses:
886,200
904,900
$ 27,290,298
$ 25,398,557
Assessment for expenses of Board of Governors
T o t a l .................................................................
Less reimbursement for certain fiscal agency
3,726,826
3,652,299
Current net expenses .
$ 23,563,472
$ 21,746,258
Current net earnings .
$137,121,910
$168,016,431
$
$
and other e x p e n s e s .............................
Additions to current net earnings:
Profit on sales of U. S. Government securities (net) .
592,468
All o th e r................................................................................
Total additions
132,125
40,031
$
632,499
$
2,024,275
5,589
2,851
Deductions from current net e a r n i n g s .............................
Net ad d itio n s.................................................................
$
Net earnings before payments to U. S. Treasury .
$137,751,558
Dividends p a i d ........................................................................
Paid U. S. Treasury (interest on Federal Reserve notes) .
Transferred to surplus.................................................................
417,446
1,474,704
Transferred from reserves for contingencies .
$
629,648
$
2,018,686
$170,035,117
3,613,523
3,333,631
126,275,435
158,382,686
7,862,600
$
8,318,800
Surplus account
Surplus, January 1
Transferred to surplus—as above .
Surplus, December 31
$115,652,600
$107,333,800
7,862,600
8,318,800
$123,515,200
$115,652,600
Federal Reserve Bank of Chicago
11
@FedFRASER