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annual report 1 9 7 0 When issued in 1971, the new Eisenhower dollar coin will become the first dollar coin produced by the Mint since 1935. The Eisenhower dollar will have the distinction of completing the series of coins— from the penny to the dollar— bearing profiles of former presidents. The Eisenhower dollar shown on the cover bears the year 1970. It is a model only, used for display purposes. Actual minting of the new coin will begin in 1971, the earliest date to be used on the coins. The front and back of the Eisenhower dollar were designed and executed by the U.S. Mint's chief sculptor and engraver, Frank Gasparro. The profile of the former president reflects the strength and character the artist perceived when he first saw Eisenhower. The artist's initials, FG, appear in the curved base of the bust. The reverse of the coin symbolizes the Apollo 11 spacecraft, "The Eagle." It shows the bald eagle landing on the cratered surface of the moon, clutching an olive branch in each claw. The earth appears in the background above the eagle's head. Thirteen stars represent the first States of the Union. The designer's initials are below the tail feathers. Front and back cover illustrations courtesy of the Office of the Director of the Mint, The U.S. Treasury Department. Contents The President's Letter 2 Regulatory Changes 3 Statement of Condition 4 Statement of Earnings and Expenses . . . 5 Statement of Operations 6 Appointments, Elections, Promotions, Retirements 7 Directors 8 Officers 9 The new President of the Federal Reserve Bank of Chicago is an old hand in the world of banking and finance. Robert P. Mayo brings to the Chicago Fed a firmly grounded and broadly based understanding of the formulation and implementation of national economic policies. It is knowledge gained on the job in cabinet level positions of Director of the Bureau of the Budget and Presidential Counsellor in the Nixon Administration, and prior to that, during nineteen years in the office of the Secretary of the Treasury. He brings, too, a knowledge of the Federal Reserve System and of commercial banking that is second to none. In his new position, he intends to combine this background with longstanding interests in the problems and concerns of urban areas, the credit needs of the agricultural community, and in helping to expand the vital role of the Midwest in international trade and finance. Both publicly and privately, Bob Mayo makes it plain that he is going to do everything in his power to insure that the Federal Reserve Bank of Chicago is ready to respond positively to the challenges of the changing environment. Although born and raised in Seattle, Chicago is something of a second home for Mayo. From 1960 to 1968, he was vice president of the Continental Illinois National Bank and Trust Company, specializing in economics, trust investments, and public affairs. Even while he was Budget Director, the Mayos retained a permanent residence in the Chicago area. Since settling in as president of the Chicago bank, Bob Mayo has been busy meeting people inside and outside the organization. If you haven't already met Mr. Mayo personally, and should you find yourself in the neighborhood of the Chicago Fed, be assured that the door to his office is always open to people like you who share his interest in the sound economic growth of the Seventh Federal Reserve District and of the nation. Meet Bob Mayo To the member banks of the Seventh Federal Reserve District: 1970 was a year of adjustment from the severe strains entailed in efforts to deal with the inflation that developed in the late Sixties. As the economy cooled and the gap between potential and actual production widened, monetary controls were relaxed and credit conditions eased. Continued upward pressures on wages and prices, however, required that monetary expansion remain moderate if inflation were not to be rekindled. At year-end, both production and employment were at unsatisfactorily low levels, in part due to a prolonged strike in the automobile industry. A major challenge for 1971 will be to regain momentum in production and income growth without causing acceleration in prices. Banks, aided by the easier monetary policy that has evolved in recent months, undoubtedly will play an important role in meeting this challenge. The financial statements of this bank reflect the pace of economic activity in the Seventh District and the impact of credit demands and monetary policy action on interest rates and the reserve base of the banking system. Total assets were more than $14.8 billion on December 31, up $1.2 billion for the year, compared with an increase of about $850 million in 1969. Most of the funds supplied by the 1970 increase in assets were either absorbed by the expansion in Federal Reserve notes outstanding, reflecting the public's increased demands for currency, or added to the reserves of member banks to support a higher volume of deposits. Earnings on U. S. Treasury obligations, which constitute the principal earning assets of the bank, were about $90 million higher in 1970 than in 1969. Federal Reserve purchases of U. S. securities are the major source of reserves to the banking system. Net earnings from all sources amounted to $595 million, of which $583 million were transferred to the U. S. Treasury. This bank is continually seeking ways to better service the ever-accelerating flow of financial transactions. The huge volume of clearing operations, paper work, and physical handling of debt instruments, coupled with rising wage costs and security risks, demands better techniques and greater mechanization if the needs of the public are to be served. One large step toward breaking the logjam of transactions was accomplished when the Federal Reserve communications center at Culpeper, Virginia became operational in September. The Culpeper operation is already handling a large proportion of funds transfers that move through the Federal Reserve banks, and the changeover is expected to be completed early in 1971. In addition to year-end financial statements, this report includes a summary of the major amendments to Federal Reserve regulations in 1970. The directors, officers, and staff join me in thanking you for your cooperation and assistance during the past year. Sincerely, Robert P. Mayo President 2 December 31, 1970 Regulatory changes Amendments to Federal Reserve regulations during 1970 were designed to maintain effective supervisory control in face of changing banking practices, and to aid in the battle against inflation, unemployment, and an international payments deficit. In the monetary policy area, the most significant rulings affected the ability of the commercial banking system to attract deposits and the Federal Reserve's control over the volume of bank liabilities other than deposits. Through other actions the Board strengthened its efforts to maintain sound banking, assure equitable application of rules, and promote more efficient use of Federal Reserve facilities. As in other recent years, the Regulation Q ceilings on interest rates payable on time deposits had an important influence on the banking system's ability to expand credit. On January 20, 1970, the Board raised the schedule of maximum rates payable on time and savings deposits for the first time since April 1968. The change was intended to halt the decline in these deposits that occurred throughout 1969, and perhaps to have some anti-inflationary impact by encouraging longer-term savings. A second major modification of Regulation Q was the suspension in late June of rate ceilings on large negotiable certificates issued for less than 90 days. This action, closely following the announcement of the Penn Central bankruptcy, permitted banks to acquire sufficient funds to refinance businesses that were unable to replace their outstanding commercial paper at maturity. In other clarifications of Regulation Q, the Board narrowed the exemptions for foreign deposits to apply only to time deposits of foreign national governments and their official agencies, ruled that deposits in foreign branches guaranteed by domestic offices are not exempt, and allowed premiums given depositors for new accounts, if within specified value limits, to be classified as promotional expense rather than payment of interest. The Board also clarified the distinction between deposits and certain types of nondeposit liabilities and specified their status under both rate limitations and reserve requirements (Regulation D ) . On February 12, the Board specified that exemption from Regulations Q and D of federal funds purchased applies only to contracts with a bank (defined to include mutual savings and savings and loan institutions) selling funds for its own account. Effective June 30, 1970, the Board ruled that subordinated notes, to be exempt, must be unsecured, be sold in units of at least $500, mature no sooner than seven years, and be approved by a federal supervisory agency as an addition to capital. Effective September 17, following up a proposal first announced in 1969, the Board applied a 5 percent reserve requirement (but not deposit interest ceilings) to funds received by member banks through issuance of commercial paper by their affiliates. In the same action, the requirement against time deposits over $5 million was reduced from 6 to 5 percent. This equalized the treatment of time deposits and commercial paper with respect to required reserves. The Board, in effect, defined as demand deposits such paper issued with maturities shorter than 30 days. On November 30, the Board announced an increase, from 10 to 20 percent, in reserve requirements on Eurodollars borrowed above a bank's re- serve-free base, and redefined the base period as the four weeks ended November 25. Declines in Eurodollar borrowings in later periods will entail equivalent reductions in the base. This amendment attempted to discourage repayment of Eurodollars occurring because the cost of obtaining funds domestically had dropped below Eurodollar rates—and thereby avert the resulting balance-ofpayments effects—by penalizing the return to this market at a later time. This action accompanied the Board's approval of the second of two quarter-point reductions in the discount rate to a level of 5.5 percent. Also in line with its less restrictive policy, and in view of a sharp reduction in the use of credit for stock purchases, the Board amended Regulations T, U, and G, effective May 6, to reduce margin requirements for stocks from 80 to 65 percent and for bonds convertible into stocks from 60 to 50 percent. Several technical changes in rules governing lending by Federal Reserve Banks were approved in 1970. These included some liberalization in the interpretation of eligible paper, the substitution of "continuing lending agreements" for formal applications for individual loans, and the termination of the practice of making advances on a "discount" basis. Maximum Interest Rates Payable by Commercial Banks January 1 December 31 1970 1970 4.50 4.00 Savings deposits . Time deposits—multiple maturity: 4.50 4.00 30-89 days 5.00 5.00 90 days to 1 year 5.50 5.00 1 year to 2 years 5.75 5.00 2 years and over Time deposits—single maturity: Less than $100,000: 30 days to 1 year 1 year to 2 years 2 years and over $100,000 and over: 30-59 days 60-89 days 90-179 days 180 days to 1 year 1 year or more 5.00 5.00 5.00 5.00 5.50 5.75 5.50 5.75 6.00 6.25 6.25 suspended suspended 6.75 7.00 7.50 3 Statement of Condition Assets December 31, 1970 December 31, 1969 Gold certificate account $ 2,209,626,441 $ 1,468,276,254 Special drawing rights certificate account 70,000,000 Federal Reserve notes of other banks 60,299,000 48,507,800 Other cash 31,942,741 13,988,166 2,550,000 18,575,000 224,375,000 150,000 Discounts and advances: Secured by U. S. Government securities Other Total discounts and advances $ U. S. Government securities Total loans and securities $ 18,725,000 9,498,894,000 $10,012,600,000 $ 9,517,619,000 2,327,046,039 2,187,411,771 Cash items in process of collection Bank premises 16,887,444 17,157,772 124,793,062 360,736,256 $14,853,194,727 $13,613,697,019 $ 9,003,044,980 $ 8,458,223,356 3,429,976,085 2,949,639,086 103,606,870 107,734,777 Other assets Total assets 226,925,000 9,785,675,000 Liabilities Federal Reserve notes Deposits: Member bank reserves U. S. Treasurer—General account Foreign 18,500,000 19,240,000 282,154,793 51,385,120 $ 3,834,237,748 $ 3,127,998,983 1,713,965,571 1,733,807,384 91,035,228 95,674,796 $14,642,283,527 $13,415,704,519 $ $ Other Total deposits Deferred availability cash items Other liabilities Total liabilities Capital accounts Capital paid in Total liabilities and capital accounts 105,455,600 98,996,250 105,455,600 98,996,250 $14,853,194,727 $13,613,697,019 $ $ Contingent liability on acceptances purchased for foreign correspondents 4 37,014,800 21,593,200 Statement of Earnings and Expenses Current earnings: 1970 1969 $ 14,933,619 $ 13,014,720 614,380,420 522,446,794 7,276,478 17,951,710 171,248 136,157 $636,761,765 $553,549,381 $ 41,533,264 $ 36,107,135 Federal Reserve currency 3,955,139 3,553,830 Assessment for expenses of Board of Governors 3,137,100 2,225,000 $ 48,625,503 $ 41,885,965 5,319,490 4,486,505 Current net expenses $ 43,306,013 $ 37,399,460 Current net earnings $593,455,752 $516,149,921 $ $ Discounts and advances U. S. Government securities Foreign currencies All other Current expenses: Total Less reimbursement for certain fiscal agency and other expenses Additions to current net earnings: Profit on sales of U. S. Government securities (net) 1,347,366 890,027 532,001 All other $ 1,879,367 $ 890,027 $ 997,497 Deductions from current net earnings: $ Loss on sales of U. S. Government securities (net) All other Total deductions 27,210 • $ 27,210 2,358 $ 999,855 Net deductions from ( —) or additions Net earnings before payments to U. S. Treasury Dividends paid - 1,852,157 to current net earnings 109,828 $595,307,909 $516,040,093 $ $ 6,065,780 5,779,678 Payments to U. S. Treasury Transferred to surplus 504,505,165 582,782,779 (interest on Federal Reserve notes) $ 6,459,350 $ 5,755,250 Surplus account Surplus, January 1 Transferred to surplus—as above Surplus, December 31 ..................................................................................... $ 98,996,250 $ 93,241,000 6,459,350 5,755,250 $105,455,600 $ 98,996,250 5 Statement of Operations V alue 1970 Number of items 1969 (millions) 1970 1969 (thousands) Clearing a n d collection Commercial bank checks Government checks* Other items $ 441,905 389,514 1,062,164 997,636 24,573 24,314 100,088 97,099 2,948 2,962 1,886 1,867 $ Currency and coin Currency received and counted $ 5,153 176 1,474 $ 5,194 162 1,434 727,546 1,479,880 312,855 739,059 1,376,745 295,043 $ 5,217 4,831 194 5,298 $ 5,045 4,907 178 4,912 345 403 2,924 1,426 381 397 2,999 1,484 $ 8,992 $ 6,779 7,454 4,244 10 11 10 13 287f 332| 823 10 11 $2,034,540 $1,701,457 1,170 1,028 $ $ 15,160 2,574 567 5 570 5 46,896 12,654 49,771 10,533 1,422 11 1,514 13 22,985 999 20,936 1,126 1,443 4 1,291 5 $ 1,293 309 1,434 26,157 1,578 21,892 27,938 1,579 22,233 23,671 $ 24,252 4,535 4,344 224 $ 86 166,474 67,148 Coin received and counted Unfit currency withdrawn from circulation. . . . Safekeeping of securities Definitive securities** Securities received Securities released Coupons detached In safekeeping on December 31 Book-entry Treasury securities Securities deposited Securities withdrawn 8,299 On deposit on December 31 4,937 Discount and credit Total loans made during the year $ 43,949 $ 236 Daily average outstanding 21,153 221 Number of banks accommodated Investment Purchases and sales of securities for member banks $ 645 $ Transfer of funds Funds transferred Services to the U.S. Treasury Marketable securities Issued: Bearer and registered Book entry 19,231 3,638 Serviced: Bearer and registered Book entry Redeemed: Bearer and registered Book entry Savings bonds and savings notes Issued $ Reissued and replaced 274 Redeemed Federal tax deposit forms processed Food stamps processed 6 1,261 1,381 $ $ Appointments Robert P. Mayo became President of the bank by appointment of the Board of Directors with approval by the Board of Governors of the Federal Reserve System. Mr. Mayo took office on July 29, 1970. Ernest T. Baughman was appointed First Vice President of the bank, succeeding Hugh J. Helmer. Mr. Baughman, formerly Senior Vice President and Director of Research, started with the bank as an economist in 1946. He moved to his current position on April 1, 1970. Karl A. Scheld, Vice President, was appointed Director of Research as of April 1. He joined the bank's Research Department in 1958, and became a bank officer in 1961. Promotions Appointments, Elections, Roby L. Sloan, senior agricultural economist, became Assistant Vice President and administrative officer of the Research Department. Mrs. Patricia W. Wishart, formerly administrative assistant, became Assistant Vice President in charge of the statistical section of the Research Department. At year-end, Arthur G. Stone and Thomas C. Tucker of the Planning Department, and Mrs. Charlotte H. Scott of Personnel were named Assistant Vice Presidents. Resignations Promotions, Charles J. Scanlon resigned as President of the bank after 36 years of service. Mr. Scanlon's resignation was effective April 15, 1970. George G. Kaufman, Assistant Vice President and Economist, resigned October 21 to accept a professorship at the University of Oregon. Retirements Resignations, and Retirements Hugh J. Helmer elected early retirement effective April 1, 1970 after 37 years of service. Mr. Helmer was First Vice President of the bank at the time of retiring. John J. Capouch, Assistant Vice President, retired after 37 years with the Chicago Fed. Retiring with more than 45 years service were Joseph Budasi, Albert Morris, and William Smeatham of the Chicago bank and Frank E. De Yonker and Edward B. Tumey of the Detroit branch. Retirees with more than 40 years service included: Clara Heck Daniel Thomas William A. Henderson William O. Wallace Mary E. Scahill Cecelia Wanks John A. Shinn Fed employees who retired after more than 25 years of service with the bank included: Mabel H. Buchanan Edna F. Henneberry Lenore C. Carlson Eldon E. Hicks William A. J. Dean Lester C. Hyldahl Bernice P. Garland Stella G. Ludwig Joseph George Henry J. Pellicore Fred S. Gobat Geneveieve T. Wendelken Herbert Hardt 7 Directors As of December 31, 1970 EMERSON G. H I G D O N President The M a y t a g Company Newton, Iowa Chairman and Federal Reserve Agent W I L L I A M H. D A V I D S O N President Harley Davidson Motor Co., Inc. Milwaukee, Wisconsin W I L L I A M H. FRANKLIN President Caterpillar Tractor Company Peoria, Illinois M E L V I N C. LOCKARD President The First N a t i o n a l Bank M a t t o o n , Illinois FRANKLIN J. L U N D I N G Chairman, Finance Committee Jewel Companies, Inc. Melrose Park, Illinois H O W A R D M . PACKARD Vice Chairman S. C. Johnson & Son, Inc. Racine, Wisconsin E D W A R D B. SMITH Chairman of the Board The Northern Trust Company Chicago, Illinois JOSEPH O . W A Y M I R E Vice President, Finance (Retired) Eli Lilly a n d C o m p a n y Indianapolis, Indiana FLOYD F. W H I T M O R E President E. G. H I G D O N W . H. D A V I D S O N M. C. LOCKARD W . H. FRANKLIN F. J. L U N D I N G E. B. SMITH H. M . PACKARD J. O. WAYMIRE F. F. WHITMORE Detroit Branch Okey-Vernon N a t i o n a l Bank of Corning Corning, Iowa L. W I L L I A M S E I D M A N General Partner Seidman & Seidman, C.P.A. G r a n d Rapids, Michigan Chairman L. W . SEIDMAN P. B. CLARK W . M . DEFOE PETER B. CLARK Chairman of the Board a n d President The Detroit News Detroit, Michigan W I L L I A M M . DEFOE Chairman of the Board Defoe Shipbuilding Company Bay City, Michigan R. A. MEWHORT R. T. PERRING B. P. SHERWOOD, JR. ROLAND A. MEWHORT Chairman of the Board Manufacturers N a t i o n a l Bank of Detroit Detroit, Michigan R A Y M O N D T. PERRING Chairman of the Board The Detroit Bank & Trust Company Detroit, Michigan B. P. S H E R W O O D , JR. President Security First Bank & Trust Co. G r a n d Haven, Michigan GEORGE L. WHYEL President Genesee Merchants Bank & Trust Co. Flint, Michigan 8 G. L. WHYEL D. M . GRAHAM Member of Federal Advisory Council DONALD M. GRAHAM Chairman of the Board Continental Illinois N a t i o n a l Bank a n d Trust Company Chicago, Illinois Officers ROBERT P. M A Y O , President ERNEST T. B A U G H M A N , First Vice President CARL E. BIERBAUER, Senior Vice President and Control Officer JAMES R. MORRISON, Senior Vice President DANIEL M . DOYLE, Senior Vice President HARRY S. SCHULTZ, Senior Vice President WARD J. LARSON, Senior Vice President, General Counsel, and Secretary BRUCE L. SMYTH, Senior Vice President GEORGE W . CLOOS, Vice President and Economist R A Y M O N D M . SCHEIDER, Vice President LE ROY A. DAVIS, Vice President KARL A. SCHELD, Vice President and Director of Research FRED A. DONS, General Auditor JOSEPH J. SRP, Vice President ELBERT O. FULTS, Vice President LYNN A. STILES, Vice President and Economist ARTHUR M . GUSTAVSON, Vice President JACK P. THOMPSON, Vice President EDWARD A. HEATH, Vice President ALLEN G. WOLKEY, Vice President RICHARD A. MOFFATT, Vice President ARNOLD J. ANSCHUTZ, Assistant Vice President WILLIAM T. NEWPORT, Assistant Vice President BUDDIE J. BELFORD, Assistant Vice President DOROTHY M. NICHOLS, Assistant Vice President and Economist HARRIS C. BUELL, JR., Chief Examiner WILLIAM ROONEY, Assistant Vice President CHARLES L. CARTER, Examining Officer ROBY L. SLOAN, Assistant Vice President ROBERT P. CORNELISEN, Assistant Vice President ROBERT E. SORG, Assistant Vice President FREDERICK S. DOMINICK, Assistant General Auditor D A V I D R. STARIN, Assistant Vice President FRANKLIN D. DREYER, Assistant Chief Examiner ADOLPH J. STOJETZ, Assistant Vice President RUDOLPH W . DYBECK, Assistant Vice President HILBERT G. S W A N S O N , Assistant Vice President WILLIAM H. GRAM, Assistant General Counsel and Assistant Secretary EUGENE J. WAGNER, Assistant Vice President VICTOR A. HANSEN, Assistant Vice President CARL C. WELKE, Assistant Vice President ROBERT J O H N S O N , Assistant Vice President ROBERT W . WELLHAUSEN, Assistant Vice President ERICH K. KROLL, Assistant Vice President PATRICIA W . WISHART, Assistant Vice President JOSEPH G. KVASNICKA, Assistant Vice President and Economist THOMAS L. WOLFE, Examining Officer Detroit Branch DANIEL M . DOYLE, Senior Vice President LOUIS J. PUROL, Assistant Vice President G O R D O N W. LAMPHERE, Vice President and Assistant General Counsel R A Y M O N D A. REAME, Assistant Vice President WILLIAM C. CONRAD, Assistant Vice President RONALD L. ZILE, Assistant Vice President 9
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