View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

A N N U A L REPORT

F E D E R A L R E S E R V E B A N K M IN N E A P O LIS




1970

A N N U A L REPORT

F E D E R A L R E S E R V E B A N K M IN N E A P O LIS



1970




A t least once e v e ry
d e ca d e there com es a year
w hen again the truth of the
old saw , “T h e re ain’t no
free lunch,” is driven home
b y intractable econom ic
fo rce s. 1970 has been
such a year. Wanting to
believe that w e could have
the equivalent in the 60 's
of a free lunch guns and
b u t t e r -t h e Am erican
public d evelo ped
e x ce s s ive and e x u be ra nt
ex p e cta tio n s that fo rce d
m onetary policy to becom e
increasingly re strictive in
1969. We entered 1970
with m oney rates at
historic highs, an econom y
that w a s only then
beginning to sho w signs
of slowing, a still tight
labor m arket, little real
evid en ce of any ch an g e in
the rate of inflation, and a
general lack of conviction
in the business com m unity
that dem and inflation
would be cu rb e d . A so rry
configuration, indeed.
T h e re w ere tw o
especially troublesom e
co n ce rn s last Ja n u a ry. T h e
first of these w a s the
illiquidity in the business
com m unity that d evelo ped
as the 60 's soared to their
close. T h e financial
com m unity w as also
affe cte d b y this trend,
ve ry much to the con ce rn
of the s u p e rvis o ry
authorities.




T h e w o rs t of our fears
alm ost becam e reality in
m id-sum m er with the PennCentral b a n k ru p tc y
petition. In a fe w sho rt
d a ys (or e x ce s s ive ly long
d a ys, depe nd ing on yo ur
va n ta g e point) the survival
of the com m ercial pa pe r
m arket becam e an u rgen t
question, overriding m ost
other m onetary policy c o n ­
siderations. In a re­
m arkable co o p e ra tive
effo rt with the m oney
m arket banks, s te p s w ere
taken b y the F e d to inform
com m ercial banks that the
d isco un t w ind o w w ould be
available to provide
e m e rg e n cy fu nd s should
b usin esse s be unable to
m eet their financial obliga­
tions as a result of the loss
of co n fide n ce in co m ­
mercial pa pe r generally. In
addition to the re sp o n se
at the d isco un t w in d o w b y
the Federal R e se rve
B a nks, the B o a rd of
G o ve rn o rs s u s p e n d e d the
ceilings on interest rates
payable on single m aturity
time d epo sits of $ 1 0 0 ,0 0 0
or more having a m aturity
of 3 0 -8 9 d a ys. T h is
enabled the banking s y s ­
tem to a b s o rb the m oney
that had previo usly been
in com m ercial paper. O rd e r
w a s re store d . B u s in e ss e s
since then have strive n to
re du ce their reliance on
s ho rt-term credit, and the




drive to rebuild liquidity
with longer-term capital
is still going on.
A s “lender of last
re s o rt,” the F e d w o rk e d
thro ug h and w ith the
banking com m unity to
a v e rt the liquidity crisis
th at could have d eve lo ped
as an afterm ath to the
w id e sp re a d fran tic se a rch
for fu nd s.
O n the whole, com m ercial
banks them se lves have
c o n d u c te d them se lves
w ith g ro w in g discretion.
T h e p ra c tice of gra n tin g
indiscrim inate and
unrealistic “lines of c re d it”
to co rpo ratio n s in e ffo rts
to keep and s e cu re
prestigio us cu sto m e rs m ay
be e x ped ie n t in the sho rt
run, but in a time of
tigh te ning m onetary policy
can be terrib ly c o u n te r­
p ro d u ctive , fo r if the
Fed eral R e s e rv e w e re b y
this p ra c tice to be b ro u g h t
into a position of ha vin g to
validate th e se cre d it
com m itm ents, the c o n d u c t
of m on etary policy in the
national in terest w ould be
taken out of the ha nd s of
the S y s te m . With the
lessening of p re s s u re s
within the econom y and the
slackening of loan
dem an ds later in the year,
the immediate co n ce rn
resulting from this p ra ctice
has lessened, but

com m ercial banks them ­
selve s will have to
continue to gua rd against it.
O n e of the results of the
p re s s u re s fo r fu n d s to
m eet these loan com ­
m itm ents w a s to ca u se
banks to ta p o ther s o u rce s
outsid e the U n ite d S ta te s
in re ce n t ye a rs. T h e E u ro ­
dollar m arket blossom ed
from seed to a full-blown
$15 billion in tw o ye ars.
When the dem and fo r fu nd s
w a s high, this so u rce
pa rtly o utside of d ire ct
rate regulation enabled
som e b an ks to obtain
fu n d s, in spite o f the
tigh t m oney m arket th at
existe d in the w inter of
1 9 6 9 -7 0 . N o w as rates
have m od erated here,
there is a natural desire to
p a y o ff th e se Euro-dollar
loans. B e c a u s e of the
potential th re a t to the
U n ite d S ta te s balance of
p a ym e n ts position if this
is done too rapidly, the
Fed eral R e s e rv e S y s te m
view of Euro-dollar
b o rro w in g w a s re ve rs e d
in part, d rivin g home the
point th a t indeed these
fu n d s did not pro vid e a
“free lunch.” We hope this
latest round of liquidity
problem s will be resolved
w itho u t undue difficulty.
T h e o ther c o n c e r n -t h a t
of continuing inflationary
p re s s u re s in an eco no m y




w ith o ve r 5 p e rc e n t
u n e m p lo y e d -is alm ost
intractable. T h e
inflationary e x u b e ra n c e
in re ce n t ye a rs m asked to
m any the fa c t th a t w a g e
increa se s have e x ce e d e d
p ro d u c tivity gains. T h a t
this should continue
d uring a period of rising
unem ploym ent d o es not
cre a te the b e s t o f all
possible w o rld s. W ide­
sp re a d s u p p o rt has
d eve lo ped fo r som e so rt
of incom es policy to
re sto re a reasonable
relationship of w a g e s ,
p ro d u ctivity , and prices
m ore quickly than will be
possible fo r conventional
m on etary and fiscal
m easures. T h e A m erica n
citizen has not been noted
fo r his patience. It is not
enough to join in the good
fight fo r an incom es policy;
its form has to be carefully
th o u g h t out. H e re too,
there is no “free lunch.”
T o another m atter:
National banks and sta te
m em ber b an ks have
alw a ys know n th a t their
m em bership in the S y s te m
involved a real econom ic
co st. We re co gn ize
com m ercial b an ks are
fa cing in creasing co m ­
petitive p re s s u re s and
rising c o s ts . Intensive
e ffo rts at the Fed eral
R e s e rv e B a n k o f M inne­
apolis have been pu sh ed




fu rth e r d uring the ye a r to
s e rve m em ber b anks
b e tte r. We held fo u r m ore
m em ber bank s e rvice
co n fe re n c e s in Sioux Falls,
F a rg o , H ib bing, and Iron
M ountain to acq uaint our
m em bers with the variou s
w a y s th at the F e d can be
helpful in its s e rvice s. In
addition, our o fficers
calling on m em ber banks
p ro vid e co m p u te r print­
o u ts on individual m em ber
bank re s e rv e m anagem ent
and o pe ra ting ratios. T h e
C h e c k D ep artm en t, in
N o ve m b e r, s ta rte d d o o rto -d o o r d elivery of ch e ck
shipm ents to the U p p e r
Peninsula, an area plagued
b y uncertain mail deliveries.
B e gin nin g in Ja n u a ry 1971,
arm ored ca rrie r routes
fo r c u rre n c y and coin will
be e x te n d e d into the
D a k o ta s , bringing to 2 8 3
the num ber o f m em ber
ba n ks in the Ninth D istrict
so s e rve d . T e s tin g of new
coin w ra p p in g m achinery
w a s co m ple te d d uring the
ye a r and new equipm ent
on o rd e r a s s u re s th a t this
se rvic e will continue.
O u r d ire cto rs have also
been co n ce rn e d w ith doing
as m uch as possible to
ease the burd en of
m em bership. A d ire cto rs
com m ittee co n sistin g of
Jo h n Bailey, d ire cto r from
Elk River, and Jo h n
B o s s h a rd , d ire cto r from
L a C ro s s e and B a n g o r,
W isconsin, w o rkin g with

m anagem ent, s u rv e y e d
different w a y s in w hich
m em bership m ay be
enhanced. T h e B o a rd
a d o p te d recom m endations
at the D e c e m b e r m eeting
w hich m ay result in the
B a n k ’s assum in g m any
ch a rg e s on m em ber bank
tra n s a ctio n s th a t fall into
the p e tty an n o yan ce
ca te g o ry . In addition, our
B o a rd of D ire c to rs has
re p e a te d ly u rg e d early
adoption of the d isco u n t
s tu d y recom m endations
m ade in 1968.
While w aiting fo r
refinem ent of the d isco u n t
s tu d y recom m endations
and their h o p e d -fo r
adoption, the S y s te m has
anno u nced several
ch a n g e s (e ffe ctive
F e b ru a ry 4, 1971) th at will
eliminate som e of the
rigam arole co n n e cte d with
b o rro w in g at the d isco u n t
w ind o w . A continuing
lending ag ree m e nt and
pledge of securities will
take the place of individual
notes and securities
d e scrip tio n s. In addition,
in terest will be paid at the
com pletion o f the loan
ra th er than d isco u n te d in
a d va n c e and the d isco u n t
rate fo r o u tsta n d in g loans
will follow ch a n g e s th a t
o c c u r d uring their term .
T h e lo n g -ra n g e planning
and interm ediate planning
e ffo rts s ta rte d at the
M inneapolis B a n k in 1969




have continued. D urin g the
year, s tu d y p a p e rs
com m issioned on a va rie ty
of su b je c ts related to the
Fed eral R e s e rv e and the
financial com m unity in
1990 w e re re ce ive d. T h e s e
are being a n alyze d and a
re p o rt will be available in
1971. In addition, tw o
sem inars g ro w in g out of
th e s e e ffo rts w e re held one on bank operations
and fu tu re tech no lo gy, and
one on regional econom ic
policy. A n o th e r is planned
on bank s tru c tu re and
regulation. A t m id-year, a
T w in C ity area p a ym e n ts
m echanism s tu d y gro u p
w a s form ed to a s s u re that
the Ninth D is trict s ta y s in
the fo re fro n t o f national
d eve lo pm e nts in the
p a ym e n ts m echanism . A t
ye a r end, our vice
p re sid e n t in c h a rg e of
ch e ck operations took on
som e S y s te m w id e
responsibilities in this area.
C lo s e r at hand, both
ge ogra ph ica lly and in time
as well, our immediate
planning e ffo rts u n de r our
Planning, Program m ing,
and B u d g e tin g S y s te m
h a ve p ro g re s s e d on
schedule. D epartm ental
o fficers ha ve d eve lo ped
goals and o b je ctive s in line
w ith B a n k w id e goals w hich
are un de r c o n s ta n t review .
D urin g the n ext year, goals
and o b jective s will be
d eve lo ped fo r the inter­
m ediate range u n de r the

re vie w and s c ru tin y of
our B o a rd o f D ire cto rs.
T h e co n ce rn of our
d ire cto rs a b o ut their role
and their participation in
the m on etary policy and
m anagem ent affairs of the
B a n k have been h e art­
ening. We have m oved
to w a rd s g re a te r rotation of
d ire cto rs, particularly
am ong m em ber bank
d ire cto rs, in o rd e r to
a s s u re w id e r m em ber bank
participation. A s a result,
the valuable s e rvic e s of
W arren V a u g h a n (G ro u p 1
C la s s A b a n ke r d ire cto r)
cam e to an end upon
com pletion of his term on
D e c e m b e r 31. H is s u c ­
c e s s o r will be Philip N a so n
from S t. Paul. T h e a d v is o ry
com m ittee of m em ber
b an k ers w ho s u g g e s t
nam es fo r nomination
recom m ended to our
B o a rd th a t w hen the'
d ire cto r of this cla ss
com es from the T w in Cities,
the F ed eral A d v is o ry
Council m em ber be
s electe d from o utside
the m etropolitan area. T h is
recom m endation w a s
follow ed, and the d ire cto rs
s e le cte d T h o m a s R e ard o n
of Sioux Falls to be the
F A C m em ber from the
N inth D is trict fo r 1971.
A ls o at ye a r-e n d , tw o
o u tsta n d in g M ontana
b an kers, Glenn L a rs o n and
C h a rle s B rocksm ith,




com pleted their s e rvice
on the Helena B ra n ch
B o a rd of D ire cto rs. T h e ir
s u c c e s s o rs selected b y
the Minneapolis B o a rd will
be E. L o w ry K unkel of
B u tte , and R o b e rt Penner
of Wolf Point.
F o r the p a s t six ye a rs,
B y ro n R e e ve has been a
sta lw a rt on our B o a rd .
A p p o in te d b y the B o a rd of
G o ve rn o rs in 1965 as a
C la s s C d irecto r, he has
re p re s e n te d the U p p e r
Peninsula of M ichigan and
s e rve d as actin g chairm an
on several o cca s io n s with
distinction. H is s u c c e s s o r
appointed b y the B o a rd of
G o ve rn o rs com m encing
Ja n u a ry 1, 1971, is R u s s
H a rt from Billings,
M ontana.
A ls o at ye a r-e n d , the
B o a rd of G o ve rn o rs
anno unced the a p po int­
m ent of D avid Lilly as
Chairm an and Federal
R e s e rve A g e n t with B ru c e
D a y to n as D e p u ty
Chairm an, our o ther tw o
C la s s C d irecto rs.
We are pleased th at Dale
A n d e rs e n of Mitchell, S o u th
D ako ta, w a s reelected.
N o t only did this make it
possible to continue our
e ffo rts to ha ve e v e ry sta te
re p re s e n te d , but it a s s u re d
us o f his co ntinued
p re s e n ce as a co n trib utin g
m em ber of the B oard.




T h e vitality of the
Federal R e s e rve B a n k of
Minneapolis is a reflection
of the d ire cto rs w ho
s e rve d so ge ne ro usly on
the B o a rd and g a ve so
unstintingly of their time.
O n e of the m ost valued
s o u rc e s of inspiration to
m anagem ent and his fellow
d ire cto rs w a s our Chairm an
of th e se p a s t several
ye a rs, B o b L e a c h , w ho
died D e ce m b e r 10. H e
inspired us b y his exam ple,
infected us with his
enthusiasm , and his
m em ory will sustain our
e ffo rts in the ye a rs ahead.
T h o s e of us w ho knew and
loved him will m iss him
alw a ys.

H u g h D. G alusha, Jr.
P re sid e n t

Statement of Condition
Dec. 31, 1969

ASSETS
Total G old C e rtifica te A cco u n t

$

1 3 1 ,2 3 6 ,9 1 9

S p e c ia l Draw ing R igh ts C e rtifica te A cco u n t

Dec. 31, 1970
$

160,661,886

—
2 0 ,6 6 5 ,7 8 0

6,424,132

3 ,4 5 0 ,0 0 0

Other cash

30,853,250

3 ,392 ,5 41

Federal Reserve Notes of other Federal Reserve B an ks

7,000,000

500,000

D isco u n ts and advances
Secured by U.S. s e cu ritie s
Other

-

-

U nited States G overnm ent se cu ritie s

1 ,1 4 9 ,6 2 9 ,0 0 0

1,218,595,000

Total loans and s e cu ritie s

1 ,1 5 3 ,0 7 9 ,0 0 0

1,219,095,000

4 5 ,2 1 8 ,0 0 0

—

4 3 1 ,5 1 0 ,6 4 6

466,578,833

5 ,5 3 3 ,2 7 9

11,503,438

10,53 1,551

16,947,483

1 ,8 0 1 ,1 6 7 ,7 1 6

1,919,064,022

Foreign cu rre n cie s
Cash item s in process of c o lle c tio n
Bank prem ises
Other assets

Total Assets

LIABILITIES
Federal Reserve N otes in actu a l c irc u la tio n

$

8 1 8 ,6 4 6 ,1 7 6

$

875,075,663

Deposits:
M em ber banks - reserve a cco u n ts

5 3 7 ,6 1 7 ,7 6 5

623,255,884

4 9 ,1 7 1 ,5 8 4

48,641,969

Foreign

2 ,9 9 0 ,0 0 0

2,750,000

O ther de p o sits

5 ,9 5 4 ,8 7 9

5,575,318

5 9 5 ,7 3 4 ,2 2 8

680,223,171

3 4 4 ,5 0 1 ,9 3 2

320,269,838

1 2 ,3 0 0 ,8 8 0

11,899,350

1 ,7 7 1 ,1 8 3 ,2 1 6

1,887,468,022

C ap ital paid in

1 4 .9 9 2 .2 5 0

15.798.000

S u rp lu s

14 .9 9 2 .2 5 0

15.798.000

1 ,8 0 1 ,1 6 7 ,7 1 6

1,919,064,022

U nited States Treasurer — general a cco u n t

Total depo sits
Deferred a v a ila b ility cash item s
Other lia b ilitie s

Total Liabilities

CAPITAL ACCOUNTS

Total Liabilities and Capital Accounts
Ratio of gold ce rtifica te reserves to
Federal Reserve Note lia b ilitie s




16.0%

18.4%

Earnings and Expenses
CURRENT EARNINGS

1969

1970

$ 1,990,330

$ 1,387,356

62,198,740

74,457,250

2,853,116

1,127,708

67,042,186

76,972,314

10,644,094

12,530,328

Assessment for expenses of Board of Governors

344,600

476,800

Federal Reserve Currency

376,622

414,201

11,365,316

13,421,329

792,671

863,575

10,572,645

12,557,754

56,469,541

64,414,560

(Loss)— 119,195

165,029

136,311

80,772

UN ITED STA TES TREASURY

56,486,657

64,660,361

PAYMENTS TO U.S. TREASURY

55,080,773

62,925,367

DIVIDENDS PAID

888,334

929,244

TRANSFERRED TO SURPLUS

Discounts and advances
United States Government securities
All other

Total Current Earnings

CURRENT EXPENSES
Operating Expenses

Total Current Expenses
Less: reimbursement for certain fiscal agency
and other expense

Net Expenses

CURRENT NET EARNINGS
NET ADDITIONS TO CURRENT NET EARNINGS
Profits on sales of U.S. Government securities (net)
All other
N ET EARNINGS BEFORE PAYMENTS TO

517,550

805,750

SURPLUS January 1

14,474,700

15,798,000

SURPLUS December 31

14,992,250

15,798,000

Volume of Operations*
r

.. .
Number
1969

Discounts and advances

Dollar Amount
1970

1970

1969

81,164,812

87,912,316

556,615,325

613,174,846

Coin received and counted

231,344,143

270,427,398

26,830,236

28,263,503

Checks handled, total

329,598,740

358,372,947

79,851,442,208

77,852,735,345

855,607

845,230

1,127,334,789

1,268,434,167

Collection items handled
Issues, redemptions, exchanges
of U.S. Government securities

5,892,588**

5,760,027

3,039,609,000

1,352,157,000

700

Currency received and counted

$

$

1,144

11,963,832,800**

15,601,359,115

Securities held in safekeeping

344,171

337,309

2,076,225,860

2,475,131,569

Transfers of funds

239,758

271,090

203,748,723,303

260,568,120,527

*AII figures are for M inneapolis and Helena com bine d.
FRASER D ecem ber estim ate.
♦•Includes

Digitized for


FEDERAL RESERVE BANK MINNEAPOLIS

HEAD OFFICE
DIRECTORS

Class A — Elected by Member Banks
Gustav A. Dahlen, President, The First National Bank, Ironwood, Michigan

Term Expires
December 31
1971

John Bosshard, Executive Vice President, First National Bank, Bangor, Wisconsin

1972

Philip H. Nason, President, The First National Bank, Saint Paul, Minnesota

1973

Class B - Elected by Member Banks
John H. Bailey, President, The Cretex Companies, Inc., Elk River, Minnesota

1971

David M. Heskett, President, Montana-Dakota Utilities, Inc., Bismarck, North Dakota

1972

Dale V. Andersen, President, Mitchell Packing Company, Mitchell, South Dakota

1973

Class C — Appointed by Board of Governors
Bruce B. Dayton, Chairman of the Board, Dayton Hudson Corporation,
Minneapolis, Minnesota

1971

David M. Lilly, Chairman of the Board, Toro Manufacturing Corporation,
Minneapolis, Minnesota

1972

Russ B. Hart, President, Hart-Albin Company, Billings, Montana

1973

OFFICERS

Hugh D. Galusha, Jr., President; Maurice H. Strothman, Jr., First Vice President; Earl O. Beeth,
Assistant Vice President; Carl E. Bergquist, Assistant Vice President; Christopher E. Bjork, General
Auditor; Melvin L. Burstein, Assistant Gejieral Counsel and Assistant Secretary; Frederick J. Cramer,
Vice President; Ralph J. Dreitzler, Vice President; Leonard W. Fernelius, Vice President; Lester G.
Gable, Vice President; Thomas E. Gainor, Assistant Vice President; Roland D. Graham, Vice President
and General Counsel; Harold 0. Hallin, Emergency Operations Officer; Richard C. Heiber, Assistant
General Auditor; Douglas R. Hellweg, Vice President; Richard J. Herder, Assistant Research Director;
Ronald 0. Hostad, Assistant Vice President; LeRoy G. Hughes, Building Officer; Arthur I. Lee, Assist­
ant Vice President; John A. MacDonald, Senior Vice President; David R. McDonald, Vice President;
Clarence W. Nelson, Vice President and Director of Research; William A. O’Brien, Assistant Vice Pres­
ident; John P. Olin, Vice President and Secretary; Richard B. Thomas, Assistant Vice President;
Clement A. Van Nice, Senior Vice President; Joseph R. Vogel, Chief Examiner; Robert W. Worcester,
Vice President

HELENA
BRANCH
DIRECTORS

Appointed by Board of Governors

Term Expires
December 31

William A. Cordingley, Publisher, Great Falls Tribune Company, Great Falls, Montana

1971

Warren B. Jones, Secretary-Treasurer, Two Dot Land & Livestock Company,
Harlowton, Montana

1972

Appointed by Board of Directors, Federal Reserve Bank of Minneapolis
Richard D. Rubie, Chairman of the Board, Montana BanCorporation,
Great Falls, Montana

1971

E. Lowry Kunkel, President, First National Bank, Butte-Anaconda, Butte, Montana

OFFICERS

1972

Robert I. Penner, President, Citizens First National Bank, Wolf Point, Montana

1972

Howard L. Knous, Vice President; Bruce J. Hedblom, Assistant Vice President;
John D. Johnson, Assistant Vice President

Member of Federal Advisory Council
Thomas M. Reardon, Chairman of the Board, Western Bank, Sioux Falls,
South Dakota
Ja n u a ry 1 ,1 9 7 1




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