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1913
1973

Annual

REPORT
Federal

Reserve

Bank of

Chicago

To the member banks of the
Seventh Federal Reserve District

Progress toward achieving our national employment and production goals
in 1973 was clouded by an accelerated rate of inflation. Expansion of real output
was down slightly from the 1972 pace, the balance of payments moved to a surplus position for the first time since 1969, and the unemployment rate averaged
lower. However, during the year, the consumer price level rose much faster than
in 1972. The major aim of monetary policy in 1973 was to contain inflation by
restricting the growth of money and credit to levels consistent with potential output. But there was little the System could do to relieve price pressures resulting
from worldwide crop shortages, from shortages of basic materials and skilled
labor, or from adjustments to relaxation of wage and price controls.
Mainly because of the fuel situation, we face greater uncertainty than
usual in projecting economic activity in 1974. Shortages, especially in energy, will
continue to threaten our ability to expand real income and will heighten the conflict between the two major national economic goals of full employment and
price stability. It will be necessary for the Federal Reserve to limit the growth in
bank reserves to an amount consistent with the supply of money and credit nec•

essary to maximize real output and employment without contributing to further
price inflation. The cost of money and commercial banks' ability to meet the
credit demands of their customers will depend on the strength of those credit
demands relative to this supply constraint.
This bank's financial statements for 1973 reflect continued growth in
economic activity in the Seventh District, the effects of higher prices and interest
rates, and the effects of policy action to restrain monetary expansion. Assets of
the bank rose more than $1 billion, to $16.5 billion. Most of the increase, as
usual, represented our share of U. S. Government securities purchased for the
System Open Market Account, the major source of reserves to the banking system. Net earnings were $720 million, compared with $551 million in 1972. Of
that, $704 million were transferred to the U. S, Treasury.
Both the volume and cost of operations rose. Almost 1.5 billion checks
were cleared by this bank, its branch, and its offices in 1973, up 140 million from
1972. Substantial progress was made in shifting securities in custody for member
banks and their customers to book-entry form. Reflecting the generally tight
supply of reserves relative to loan demand, both the volume of member bank borrowings and the number of borrowers set new records.
The Federal Reserve Bank of Chicago is continuing its efforts to improve
the check collection system. Both the Chicago bank and the Detroit branch expanded their overnight check clearing operations last year. The Des Moines office,
opened in 1972, was fully operational throughout 1973. In addition, an Indiana
office was established in Indianapolis, and plans were announced for a Wisconsin
office in Milwaukee to better serve those areas of the Seventh District.
Because of the major economic problems facing the nation, both the
Federal Reserve and the commercial banks had to cope with many new challenges
in 1973. Our directors, officers, and staff join me in thanking you for your
cooperation throughout the year.
Sincerely,

Robert P. Mayo
President
December 31, 1973

Statement of earnings
1973

1972

Current earnings:
Advances and discounts

$ 16,287,284

U. S. G o v e r n m e n t securities

$

778,388,289

Foreign currencies

1,927,020

609,927,134

69,226

173,510

285,432

126,696

$795,030,231

$612,154,360

$ 56,380,771

$ 48,959,118

3,927,084

4,946,457

A l l other
T o t a l c u r r e n t earnings

Current expenses:
Operating expenses
Federal Reserve currency
Assessment f o r expenses of Board o f Governors

6,961,600

Total

5,295,000

$ 67,269,455

$ 59,200,575

Less r e i m b u r s e m e n t f o r certain
5,315,357

4,877,671

C u r r e n t net expenses

fiscal agency and other expenses

$ 61,954,098

$ 54,322,904

C u r r e n t net earnings

$733,076,133

$557,831,456

$

$

Additions to current net earnings:
P r o f i t o n sales o f U. S. G o v e r n m e n t securities (net)

—

A l l other

166.034

Total additions

485,247
406,647

$

166,034

$

$

5,659,178

$

891,894

Deductions f r o m current net earnings:
Loss on sales o f U. S. G o v e r n m e n t securities (net)
Loss o n foreign exchange transactions (net)

—

7,444,395

A l l other

7,723,360

50,712

Total deductions

$ 13,154,285

$

7,723,360

Net d e d u c t i o n s f r o m (—) or a d d i t i o n s
t o c u r r e n t net earnings

-12,988,251

-6,831,466

$720,087,882

$550,999,990

$

$

Net earnings before payments
t o U. S. Treasury

Dividends paid

7,729,090

7,126,102

Payments t o U. S. Treasury
(interest o n Federal Reserve notes)

704,086,842

Transferred t o surplus

$

530,384,188

8.271,950

$ 13,489,700

$124,150,150

$110,660,450

Surplus account
Surplus, January 1

8.271.950

Surplus, December 31

13.489,700

$132.422,100

Transferred t o surplus—as above

$124,150,150

Statement of condition
December 31. 1973

December 3 1 . 1972

$ 1,595,272,313

$ 1,846,174,385

Assets
G o l d c e r t i f i c a t e account
Special d r a w i n g rights certificate account

70,000,000

70,000,000

Federal Reserve notes of other banks

68,620,400

101,525,750

Other cash

32,514,805

40,085,433

Loans:
Secured by U. S. G o v e r n m e n t securities

37,560,000

T o t a l loans

$

Federal agency obligations, b o u g h t o u t r i g h t
U. S. G o v e r n m e n t securities
T o t a l loans and securities

164.000.000

195,905,000

$

262,285,000

315,617,000

210,976,000

12,780,765,000

11,230.999,000

$13,292,287,000

$11,704,260,000

1,288,752,664

1,459,407,392

Cash items in process of c o l l e c t i o n
Bank premises

16,215,278

16,418,543

133,062.673

154,570.510

$16.496,725.133

$15.392.442.013

$10,926,364,364

$10,064,341,663

3,516,514,296

3,516,467,665

207,841,508

189,771,416

40,820,000

43,210,000

Other assets
Total assets

98,285,000

158,345,000

Other

Liabilities
Federal Reserve notes
Deposits:
Member bank reserves
U. S. Treasurer— general account
Foreign
Other

437,937,122

50,715.222

$ 4,203,112,926

$ 3,800,164,303

Deferred availability cash items

952,058,072

1,192,451,152

Other liabilities

150,345.571

37,184,595

$16.231,880,933

$15.144.141.713

$

$

T o t a l deposits

Total liabilities

Capital accounts
Capital paid in
Surplus
Total liabilities and capital accounts
C o n t i n g e n t l i a b i l i t y on acceptances purchased
f o r foreign correspondents

132,422,100

124,150,150

132.422,100

124.150.150

$16.496,725.133

$15,392,442,013

$

$

91.232,700

26,671,000.

Regulatory changes
A number of 1973 amendments to Federal Reserve regulations were related to System efforts
to control inflation. Changes in reserve requirements for member banks (Regulation D) reduced the banks' expansion potential and increased the cost of credit expansion, especially to
the large banks. Modification of interest rate ceilings (Regulation Q) increased costs for banks
that raised the interest rates they paid. At the same time, these changes allowed commercial
bank deposits to remain reasonably competitive with market instruments for both business
funds and personal savings, thus lessening the problem of disintermediation. Increases in the
"discount rate" to a record71/2percent by the end of August reflected a more restrictive monetary policy and the need to limit the gap between the cost of reserves in the money market
and their cost at the discount window as market interest rates rose. In a move unrelated to
monetary policy, Regulation A (Extensions of Credit by Federal Reserve Banks) was amended
to implement a "seasonal borrowing privilege."
I n t e r e s t rate ceilings

On May 16, the Board of Governors (in coordination with other federal agencies regulating banks) announced the suspension of Regulation Q interest rate ceilings on certificates of
deposit in denominations of $100,000 or more (CDs) maturing in 90 days or longer. CDs with
shorter maturities had been free from ceilings since mid-1970. As market interest rates rose
above the ceilings on the longer-dated CDs, only very short-dated CDs could be sold. Suspension of the remaining ceilings permitted a more balanced maturity structure and helped avoid
a repetition of the severe deposit outflows that had occurred in 1966 and 1969.
Regulation Q ceilings applicable to time deposits other than CDs were increased effective July 1. The maximum rate on bank passbook accounts was raised from41/2to 5 percent.
Ceilings on time deposits of less than $100,000 were raised by1/4t o3/4percentage points on
various maturity categories and ceilings were suspended for deposits of at least $1,000 with
maturities of at least four years. Subsequently, banks were instructed to limit ceiling-free obligations to 5 percent of each bank's total time and savings deposits. Effective November 1, following a legislative directive that required the reimposition of ceilings on deposits of less than
$100,000, a71/4percent maximum was set for the four-year deposit, and limitations on
outstandings were removed.
Effective July 5, withdrawal of a time deposit before maturity is permitted only at a
reduced rate of interest. Later amendments required disclosure with respect to the withdrawal
penalties both when the depositor enters the contract and in the advertising of offering rates.
Reserve requirements

Concurrent with the suspension of CD ceilings, the Board increased reserve requirements on CDs and commercial paper sold by bank holding companies for bank use—to the
extent these liabilities exceeded the average amount outstanding in the week ending May 16 or
$10 million, whichever was greater—from 5 percent to 8 percent. The 20 percent requirement
against Eurodollars above a reserve-free base, which had effectively prohibited any increase
above base, was reduced to 8 percent but with this requirement to be applied gradually to the
base amount until none will be reserve-free by March 1974.
Late in June, finance bills (ineligible acceptances) were defined as deposits for purposes
of reserve requirements. These obligations (of 30 days or longer) were included with CDs and
commercial paper subject to the 8 percent requirement. The "marginal" requirement was
raised another 3 percent, to a total of 11 percent on the specified liabilities above base, beginning October 4. This final increase was revoked in early December.
In July, reserve requirements on net demand deposits above $2 million were increased
by1/2percentage point. All except the smallest member banks were affected.
In a November amendment to Regulation D, gross demand deposits were defined to
include a bank's obligation to pay a check after the customer's deposit account has been debited but before the bank has made payment. This required the banks to maintain reserves
against available funds no longer recorded as deposits.
S e a s o n a l b o r r o w i n g privilege

Effective April 19, Regulation A was amended to provide a formal channel through
which qualifying member banks can obtain credit from the Federal Reserve to cover significant
drains of funds through deposit outflows and/or bulges in loans that occur seasonally. The
purpose of this borrowing privilege is to enable smaller banks to be more responsive to the
overall credit needs of their communities by permitting them to arrange in advance to borrow
from the Reserve banks to meet predictable peak needs. To be eligible, a bank must lack reliable access to national money markets and must meet specified criteria with respect to the size
and duration of the seasonal need.

Statement of operations
Dollar amount
1973

Loans t o m e m b e r banks
Currency c o u n t e d

1973

$6.6 billion

1972

363*

168*

6.1 b i l l i o n

5.6 b i l l i o n

741.3 million

175.0 m i l l i o n

Coin c o u n t e d
Checks c o l l e c t e d :

$30.1 billion

N u m b e r o f items
1972

165.0 m i l l i o n

1.4 b i l l i o n

642.3 billion

557.1 b i l l i o n

1.4 b i l l i o n

1.2 b i l l i o n

29.2 billion

25.7 b i l l i o n

99.5 million

98.0 million

1.4 b i l l i o n

1.6 b i l l i o n

1.6 m i l l i o n

1.7 m i l l i o n

752.5 million
1.3

billion

1

C o m m e r c i a l bank checks
U. S. G o v e r n m e n t checks 2
Noncash c o l l e c t i o n items
Transfers of funds

3,783.2 billion

2,930.9 billion

1.9 m i l l i o n

1.5 m i l l i o n

U. S. savings bonds
issued, exchanged, redeemed

3.5 b i l l i o n

3.3 b i l l i o n

56.0 million

51.6 m i l l i o n

Other g o v e r n m e n t securities
issued, exchanged, redeemed

247.7 billion

136.8 b i l l i o n

1.7 m i l l i o n

1.6 m i l l i o n

Securities held in safekeeping
F o o d stamps processed

14.8 b i l l i o n

12.3 b i l l i o n

1.6 m i l l i o n

1.6 m i l l i o n

491.0 million

448.0 million

264.6 million

261.6 million

* N u m b e r of banks a c c o m m o d a t e d .
1

Totals include t h e Chicago b a n k , the D e t r o i t b r a n c h , and the Des Moines and Indianapolis offices.

2

Includes postal m o n e y orders.

Directors

Federal Reserve Bank of Chicago

as of December 31, 1973
W I L L I A M H. F R A N K L I N
J O H N W. B A I R D
P E T E R B. C L A R K

Chairman and Chief Executive O f f i c e r
Caterpillar T r a c t o r C o m p a n y , Peoria, Illinois

[Chairman]

President
Baird & Warner, Inc., Chicago, Illinois
Chairman of t h e Board and President
Evening News Association, D e t r o i t , Michigan [Deputy

JOHN T. HACKETT

Chairman]

Executive Vice President
C u m m i n s Engine C o m p a n y , Inc., C o l u m b u s , Indiana

M E L V I N C. L O C K A R D
OSCAR G . M A Y E R
H O W A R D M. P A C K A R D

President
First National Bank, M a t t o o n , Illinois
Chairman, Executive C o m m i t t e e
Oscar Mayer & Co., Madison, Wisconsin
Vice Chairman

EDWARD BYRON SMITH

S. C. Johnson & Son, Inc., Racine, Wisconsin
Chairman of t h e Board

F L O Y D F. W H I T M O R E

T h e N o r t h e r n Trust C o m p a n y , Chicago, Illinois
President
The O k e y - V e r n o n National Bank o f Corning, Corning, Iowa

Member of
Federal Advisory Council
A L L E N P. S T U L T S

FRED A. DONS
F R E D E R I C K S. D O M I N I C K

Chairman o f t h e Board
A m e r i c a n National Bank and Trust C o m p a n y of Chicago, Chicago, Illinois

General A u d i t o r
Assistant General A u d i t o r

Officers
R O B E R T P. M A Y O
ERNEST T. B A U G H M A N

C A R L E. B I E R B A U E R
W A R D J. L A R S O N
J A M E S R. M O R R I S O N
KARL A. SCHELD

President
First Vice President

Senior Vice President
Senior Vice President, General Counsel, and Secretary
Senior Vice President
Senior Vice President and D i r e c t o r o f Research

H A R R Y S. S C H U L T Z

Senior Vice President

B R U C E L. S M Y T H

Senior Vice President

GEORGE W. CLOOS

Vice President and Economist

LE R O Y A . D A V I S

Vice President

EDWARD A. HEATH

Vice President

RICHARD A. M O F F A T T

Vice President

R A Y M O N D M. S C H E I D E R

Vice President

R O B Y L. S L O A N

Vice President

JACK P. T H O M P S O N

Vice President

A L L E N G. W O L K E Y

Vice President

A R N O L D J. A N S C H U T Z

Assistant Vice President

B U D D I E J. B E L F O R D

Assistant Vice President

P A U L J. B E T T I N I

Assistant Vice President

H A R R I S C. B U E L L , J R .
R I C H A R D P. BUSH
C H A R L E S L. C A R T E R

Assistant Vice President
Assistant General A u d i t o r
Examining Officer

R O B E R T P. C O R N E L I S E N

Assistant Vice President

F R A N K L I N D. D R E Y E R

Assistant Vice President

W I L L I A M H. G R A M
R O D E R I C K L. H O U S E N G A
ROBERT JOHNSON

Assistant General Counsel and Assistant Secretary
Chief Examiner
Assistant Vice President and C o n t r o l O f f i c e r

D A N I E L P. K I N S E L L A

Assistant Vice President

E R I C H K. K R O L L

Assistant Vice President

JOSEPH G. K V A S N I C K A

Assistant Vice President and E c o n o m i s t

C A R O L P. L a B A R B E R A

Assistant Vice President

W I L L I A M T. NEWPORT

Assistant Vice President

D O R O T H Y M. N I C H O L S
R I C H A R D H. R A M S D E L L
WILLIAM

Assistant Vice President and E c o n o m i s t
Assistant Vice President

ROONEY

Assistant Vice President

C H A R L O T T E H. S C O T T

Assistant Vice President

R O B E R T E. S O R G

Assistant Vice President

D A V I D R. S T A R I N

Assistant Vice President

A D O L P H J. S T O J E T Z

Assistant Vice President

A R T H U R G. S T O N E

Assistant Vice President

H I L B E R T G. S W A N S O N

Assistant Vice President

T H O M A S C. T U C K E R

Assistant Vice President

BRUCE A. T U R K S T R A

Assistant Vice President

E U G E N E J. W A G N E R

Assistant Vice President

C A R L C. W E L K E

Assistant Vice President

ROBERT W. W E L L H A U S E N
P A T R I C I A W. W I S H A R T
T H O M A S L. W O L F E

Assistant Vice President
Assistant Vice President
Examining Officer

Des Moines office
R U D O L P H W. D Y B E C K
T H O M A S P. K I L L E E N

Vice President
Assistant Vice President

Indianapolis office
L O U I S J. P U R O L
R I C H A R D L. S I M M S , J R .

Vice President
Assistant Vice President

1913
1973
A b o u t t h e cover
The Federal Reserve System was created when
Public Law Number 43 was passed by the 63rd
Congress, and approved by President Woodrow
Wilson on December 23, 1913. The facsimile of the
first page of the bill, reproduced on the cover of this
report, commemorates the 60th anniversary of the
System. The facade of this bank, also pictured, represents the strong foundations on which the System
rests.
Since its inception, the Federal Reserve System
has been charged with formulating national monetary
policy. Its dedication to the task, and its balanced
approach to the needs of business, government, and
the public in setting policy, have earned the System
worldwide respect. The men and women who have
built and maintained the integrity of the Federal
Reserve System since 1913—and continue to do so
today—include the Board of Governors and their
employees in Washington, D. C., the Board of Directors of each Reserve bank, and the officers and employees at the twelve Reserve banks.
Aware of the past, involved in the present, the
System looks to the future with confidence.

Directors

Detroit branch

as of December 31, 1973
W I L L I A M M. DEFOE
H A R O L D A. ELGAS

Chairman of the Board
Defoe S h i p b u i l d i n g C o m p a n y , Bay C i t y , Michigan [ C h a i r m a n ]
President
G a y l o r d State Bank, G a y l o r d , Michigan

JOSEPH B. F O S T E R

President
A n n A r b o r Bank, A n n A r b o r , Michigan

TOM KILLEFER

Vice President—Finance and General Counsel
Chrysler C o r p o r a t i o n , D e t r o i t , Michigan

E L L I S B. M E R R Y

Director
National Bank o f D e t r o i t , D e t r o i t , Michigan

R O L A N D A. MEWHORT
L. W I L L I A M S E I D M A N

D i r e c t o r and Consultant
Manufacturers National Bank o f D e t r o i t , D e t r o i t , Michigan
General Partner
Seidman & Seidman, C.P.A., Grand Rapids, Michigan

Officers
W I L L I A M C. C O N R A D
R O N A L D L. Z I L E

Vice President & Manager
Vice President

R O B E R T W. COOK

Assistant Vice President

ROBERT M. F I T Z G E R A L D

Assistant Vice President

P H I L I P G. N E H R O

Assistant Vice President

FEDERAL RESERVE BANK OF CHICAGO
Box 834
Chicago, Illinois 60690

FIRST CLASS


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102