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O n

a c h a n g i n g s tr u c tu r e
f o r c h a n g i n g ti m e s

Federal Reserve Independence

F e d e r a l R e s e r v e B a n k o f M in n e a p o lis
A n n u a l R e p o rt 1 9 7 6

Federal Reserve
a changing structure
for changing times

Federal Reserve Bank
of Minneapolis
Annual Report 1976

To provide for the establishm ent of
Federal reserve banks, to furnish an elastic
currency, to afford m e a n s of rediscounting
commercial paper, to establish a m ore effective
supervision of banking in the United States,
an d for other purposes.

Perspectives on Independence.

How Structure Affects the Function
of Monetary Policy
Our 200th year, p erh ap s m ore than m ost years, h as g enerated its
sh are of questions about m onetary policy an d about the role of the
Federal Reserve S ystem —the nation’s central b an k —in solving our
econom ic problem s.
Over the past few years, the dual problem s of inflation and un ­
em ploym ent hav e b een especially vexing. And questions about
how effectively our m oney m an agers are responding to such
problem s reflect the urgency an d com plexity of the inflation/
unem ploym ent dilem m a.
T hese questions also reflect increasing reliance on m onetary
policy—m anaging the supply of m oney an d credit—as a m ean s of
assuring national econom ic health. That em p h asis has grown as w e
have had to co p e with large deficits and difficult econom ic events
such as the energy crisis, fluctuating foreign currencies, and continu­
ing post-Vietnam adjustm ents.
The focus on m onetary policy h as g enerated questions not only
about policy actions, but about the structure an d pow er relationships
of the Federal Reserve System —questions about its “independence.”
Differences of opinion over m onetary policy actions are to be ex­
pected, regardless of how the System is structured. Given the limits of
h u m an w isdom an d the incom plete state of our econom ic knowl­
edge, such differences are normal an d inherent. That there is such
disagreem ent d o es not m ean the procedures are wrong or the
structure inappropriate.
If, on the other hand, the structural m ake-up of the System , or its
procedures, ten d s to inhibit d evelopm ent an d im plem entation of
good policy decisions, then w e can try to im prove those structures
an d procedures.
Since our world is changing an d issues seem to be getting more
com plex, it w ould be surprising if som e adjustm ents in the m ech a­
nism s for m onetary m an ag em en t might not prove useful. It’s against

this background that the various proposals to ch an g e the structure
an d limit the “in d e p e n d en c e” of the Federal Reserve System
d eserv e to b e discussed.

T h e S e m a n tic s o f F e d In d e p e n d e n c e
Quite probably the term “in d e p e n d e n c e ” has b een over used. It w as
a key concept in the design of our central banking sy stem —but in a
relative sen se, not as an absolute.
What d o es “in d e p e n d e n c e ” m ean? Is the Federal Reserve
accountable? Is it responsive to changing national priorities?
First, let’s b e clear on w hat in d ep en d en ce d oes not m ean.
It d oes not m ean decisions an d actions m ad e without account­
ability. By law and by established procedures, the System is clearly
accountable to C ongress—not only for its m onetary policy actions,
but also for its regulatory responsibilities an d for services to banks
an d to the public.
Nor d o es in d ep en d en c e m ean that m onetary policy actions
should be free from public discussion an d criticism—by m em bers of
Congress, by professional econom ists in an d out of governm ent, by
financial, business, an d com m unity leaders, an d by informed
Nor d o es it m ean that the Fed is in d ep en d en t of the governm ent.
Although closely interfaced with com m ercial banking, the Fed is
clearly a public institution, functioning within a discipline of respon­
sibility to the “public interest.” It h as a degree of in d ep en d en ce within
the g o vernm ent—w hich is quite different from being independent of
governm ent.
Thus, the Federal Reserve System is m ore appropriately thought
of as being “insulated” from, rather than in d ep en d en t of, politicalgovernm ent an d banking-special interest pressures. Through their
14-year term s an d staggered appointm ents, for exam ple, m em bers
of the Board of Governors are insulated from being d ep en d en t on or
beholden to the current adm inistration or party in power. In this and
in other w ays, then, the m onetary process is insulated—but not
isolated—from th ese influences.
In a functional sen se, the insulated structure enables m onetary
policy m akers to look beyond short term pressures an d political
expedients w h en ev er the long-term goals of sustainable growth and
stable prices m ay require “unpopular” policy actions. Monetary
ju d g m en ts m ust be able to w eigh as objectively as possible the merit
of short-term expedients against long-term c o n se q u e n c e s—in the on­
going public interest.

M o n etary P o w e r ...
M onetary decisions hav e special im portance b eca u se of their im pact
on all other asp ects of our econom ic life. In a very real way, the pow er
to create m o n ey also carries the pow er to destroy its value. Pushed to

Much a s they m ay contribute to the country’
progress, m onetary p o w e rs ... are not omnipotent.
To be effective... they m u st be closely coordinated
with the other m ajor pow ers a n d policies
of governm ent which influence the country’
econom ic life.
—President Franklin D. Roosevelt, 1 9 3 7

extrem es of m isjudgm ent or illadvised action, m isuse of m onetary
pow er can erode values an d destroy the econom ic fabric of the
society it serv es—by inflation, boom bust depression, im m oderate
stimulus, or by excessive restraint.

...And Its

L im its

While m onetary policym akers have great potential pow er over the
econom y, there is m isunderstanding about the practical limits of
such power. Typically, m onetary policy can restrain credit expansion
m ore effectively than it can stim ulate borrowing, it can control the
supply of m oney, but not the d em an d for it. It can influence interest
rates, but not control them . The central bank can influence only a few
of several factors that determ ine the course and vigor of econom ic
perform ance. The problem s are com plex an d constantly changing,
our know ledge is never com plete, and m echanism s for avoiding
harmful policy side-effects are not adequately developed. Finally, the
ultimate effects of m onetary actions are not precisely know n until
m onths later, if at all.
Thus, just as responsible m onetary policy m ust avoid extrem e
actions—w hich on b alan ce m ay be m ore harmful then helpful to the
eco n o m y —so m ust the public be restrained in its expectations as to
w hat m onetary policy alone, how ever well m anaged, can accomplish.

T h e L a w m a k e r s ’ R ole
Politicians, the elected representatives w ho m ake our law s and
determ ine public policy, are them selves subject to pressures
inherent in our structure of governm ent. They are expected to
respond to the desires an d n e ed s of their constituents. And constit­
uent expectations tend not to be tem pered by such realities as cost
an d resource limits. In short, politicians are under pressure to acco m ­
plish m ore than available resources permit. That can m ean attem pt­
ing m ore than w e can afford or are willing to pay for. Put another way:


it is easier to vote for n eed ed program s than for increased taxes. Such
pressures probably give our national policies an d goals an inflationary tilt.
This is especially true in a dem ocracy w here the powers
deleg ated to our elected officials m ust be affirmed by “back hom e”
constituents every two, four or six years. The n eed for our elected
representatives to b e responsive and “tuned in” to their constituents
is a vital function in our political process. It provides important
g u aran tees to citizens. But it m ay also limit the extent to which
elected representatives can afford to consider the long-term merits of
policies. Policy actions that m ay lead to defeat in the next election,
how ever valid, are not likely to be seen as attractive options.
B alanced policy therefore requires an institutional structure that
insulates m onetary policym akers from such short-term pressures—
w hich is to say, one that also insulates elected officials from the
negative electoral co n se q u en c es of policy decisions that m ay be
essential but unpopular.
Obviously, not all policy decisions pose this type of conflict. Not all
elected officials yield to short-run pressures or would need to. In any
case, the merits of a given policy are seldom unam biguous. But the
co n se q u e n c e s of persistently expansive m onetary policy are too
sev ere to risk procedures that co m pound a bias in favor of short-run
options an d produce short sighted results.

O th er M o n ey
Historically, w e h av e used a variety of m echanism s to m anage
m o n ey —a stock of silver an d gold bullion or currency backed by
metals. T hese m ech an ism s regulated the m oney supply according
to irrelevant ch an g es in our stock of m etals and offered little or no con­
sideration of actual n ee d s of the econom y, short- or long-term.
Our ow n history, and the experiences of other nations, are replete
with exam ples of ru n a w a y inflation and econom ic chaos that
develo p ed b ec a u se the lure of superficial solutions outw eighed
responsible but less popular policy actions.
Out of long experience, our m onetary system h as evolved so that
the supply of m oney and credit are “m a n a g e d ” at levels intended to
b e m ost conducive to stability, growth, an d a high level of production
an d em ploym ent in our national econom y. That responsibility
requires not only a high d eg ree of technical know ledge about the
econom y an d the interaction of its different elem ents and forces but
also requires objective, “in d ep en d en t” judgm ents about the best
m onetary adjustm ents to help achieve those national goals.

H isto ry o f R efo rm s
Over the years the Federal Reserve System has proved rem arkably
ad ap tab le to changing needs. Both policies an d procedures have
b e en altered w h en the n eed for ch an g e b ecam e clear—som etim es


by statutes or am e n d m en t to the Federal Reserve Act, often by policy
an d adm inistrative im plem entation within the authority of the Act.
The Federal R eserve System w as barely in operation w hen it
b e c a m e app aren t that p u rch ases of governm ent securities, now the
m ain m echanism for influencing the m oney supply, ad d e d to bank
reserves an d thus b e ca m e an unexpected m echanism for effecting
m onetary expansion.
The Banking Acts of 19 33 an d 1935 reaffirmed and strengthened
the Federal R eserve’s in d e p en d e n ce from the executive branch—
they rem oved the Comptroller of the Currency and the Secretary of
the Treasury from the Federal Reserve Board—and affirmed its inde­
p en d en t budget an d incom e procedures. They delegated to the Fed
the pow er to control stock margin requirem ents and to regulate
savings interest rates.
World War 11 saw the central bank directly supporting the
financing of u n p reced en ted w ar expenditures with su b seq u en t
m onetization of that d eb t after the war. in the fam ous “accord” of
1 9 5 1, after lengthy d e b ate both public and within governm ent, it w as
agreed that the Federal Reserve w ould no longer support (by its
p u rch ases of governm ent securities) the artificially low interest rates
and par values for financing governm ent debt. Thus e n d e d the
dom ination of m onetary policy by the Treasury’s n ee d s to finance its
m assive war-born debt.
The Em ploym ent Act of 19 4 6 affirmed “m axim um em ploym ent”
as one of the goals of Federal Reserve policy, establishing formally
that m onetary policy has a responsibility to support and help
im plem ent national objectives.
In m ore recent developm ents, Congress h as delegated addi­
tional authority to the Fed un d er the C onsum er Protection Act to regu­
late “Truth in Lending,” “Equal Credit Opportunity” an d other
co n su m er interests.
Over the years, it b ec a m e clear that m onetary policy had to be
uniform throughout the nation, that regional variations w ere not
possible. Yet the concept of a “federal” system , with input from
various regional perspectives, w as important in the policy process.
The establishm ent of the so-called Federal Open Market Com m ittee
(FOMC), com bining the Board of Governors and five Federal Reserve
Bank presidents as the major policy-making body, represented a
major structural innovation that accom m odated the n e e d e d change.

I n d e p e n d e n t... F ro m W h o m
R epresentative Carter Glass an d his congressional contem poraries
w orked out the rem arkably durable provisions of the Federal
Reserve Act within the context of our federal system of structural
ch eck s an d balances. The term s of the sev en Federal R eserve Board
m em b ers ( 14 years*) are not so long or u n ch an g eab le as the life-time
'O r ig in a lly B o a r d t e r m s w e r e 1 0 y e a r s , c h a n g e d to 1 2 y e a r s in 1 9 3 3 a n d to 1 4 y e a r s in 1 9 3 5 .


Federal R eserve C hairm an A rthur B urns testified before congressional
com m ittees 13 tim es in 1976. Other m em b e rs of the Board a lso m ake
frequent a p p e a ra n c e s before Congress.

ap pointm ents of justices to the S uprem e Court, but are long enough
to m ake the partisan political prospects of a next election substan­
tially irrelevant.
Ultimately the System is accountable to Congress, not the execu­
tive branch, ev en though Reserve Board m em b ers and the chair­
m an are president-appointed. The authority and delegated policy
pow ers are subject to review by the C ongress—not the president, the
Treasury D epartm ent, nor by banks or other interests.
B ecause the Federal Reserve System finances its operations
from internally gen erated incom e, it d oes not d e p e n d on congres­
sional budget appropriations. This is an essential elem ent of “insula­
tion,” since the pow er to appropriate budgets is the pow er to control.
This principle w as reaffirmed in the Banking Act of 19 3 5 an d again in
the G overnm ent Corporation Control Act of 195 4.


The ch eck an d b alance structure extends in other w ays. Direc­
tors of regional b anks are required to represent borrowers an d the
general public as well as b an k s and lenders. The regional structure
itself en su res the representation of varied regional interests in
econom ic research an d policy formulation, as well as directly on the
FOMC. M em bers of the Board of Governors m ust them selves be
geographically representative.
Finally, an im portant elem ent of insulation results from the ability
to h av e policy deliberations conducted in a m an n er an d clim ate that
en su res m axim um candor by all staff and officials involved. Alterna­
tive policies cannot be discussed fully and realistically without such

P r e s s u r e s fo r R eform
Pressures for reform of the Federal Reserve System stem from three
kinds of concerns: (a) disagreem ent with m onetary policy, (b) dis­
ag reem en t with how the System functions in a procedural context,
an d (c) d isagreem ent as to its accountability—to Congress, to the
executive branch, to the public.
D isagreem ents over m onetary policy are inherent. Knowledge­
able m onetary experts an d econom ic professionals can an d often do
disagree over appropriate action, timing, m ethods of im plem entation
and d eg ree of em phasis. Typically, there is m ore disagreem ent
over the precise degree of restraint or stim ulus than over the direc­
tion of policy, w h eth er restraint or stimulus. But disagreem ent over
policy is normally healthy disagreem ent. It does not in itself justify
reform unless policies are clearly bad, and clearly bad for reasons of
structural dysfunction.
Critics of m onetary policy often cite the n eed to coordinate m o n e­
tary with other national econom ic policies: the various agencies of
governm ent should not work at “cross-purposes.” Working at cross
purposes can be w asteful an d inefficient. It m ay be an indication of
bad policy on the part of one ag en cy or on the part of all. But agreed
upon policy objectives often conflict in im plem entation—as w hen
w e seek m ore “good things” than limited resources can provide, or
w h en lower interest rates also m ean m ore inflation. The populist
goals of readily available credit at low interest on the one hand, and
the d an g ers of rising prices, inflation an d su b seq u en t recession on
the other, are the classic issues of m onetary/econom ic policy
d eb ate, about w hich there is not only honest argum ent but also
inherent conflict.
At times, rapid increases in federal expenditures—an d deficits—
h av e forced over-reliance on m onetary restraint to curtail inflation. In
the context of ch eck s an d balances, it can be prudent to have a sys­
tem w h ere not all agencies or bran ches of governm ent are required
to arrive at the sa m e judgm ent concerning the nation’s econom ic
n e e d s an d prospects.


Other criticisms stem from the fact that the Federal Reserve Sys­
tem , as our central bank, is institutionally related to banking—e sp e ­
cially m em b er banks. M ember b anks elect six of the nine directors of
each regional Federal Reserve Bank. And each m em b er bank ow ns
nom inal stock in its district Federal Reserve Bank. Boards of regional
Federal Reserve Banks have been, de facto, largely representative of
banking, financial an d business interests—m ore or less by deliberate
policy. U nderstandably, the boards of regional Reserve Banks m ust
include know ledgeable banking and business leaders, since one of
the regional B ank’s major functions is to work jointly with and
through m em b er com m ercial b anks in providing financial services
to business, governm ent, agriculture an d the district econom y. In
practice, this has m ean t that they have not b een specifically
representative of the interests of consum ers, organized labor, minor­
ities, or w o m e n —how ever those interests m ay be defined. But this is
in process of change.

R ece n t P r o p o s a ls
Several suggestions for reform of the Federal R eserve System have
b een proposed, so m e of w hich seem acceptable, even if not offering
substantive im provem ents. Collectively, they might en h a n c e the
public’s understanding of the Federal Reserve as a public institution
an d its functioning as the “su p rem e court”of m onetary policy. Among
the recent proposals are:
• The term of the chairm an of the Federal Reserve Board should
be coterm inous with the p resid en t’ Som e have suggested that a
six or tw elve-m onth overlap w ould be w ise an d in the interest of
stability, allowing a new president to be deliberate in selecting a new
chairm an. Others note that the current procedure h as not caused
problem s an d m ay h av e merits worth preserving.
• There sh o u ld be broader representation am o n g district Bank
directors. This proposal s e e m s desirable an d in keeping with a legiti­
m ate concern for the interests of consum ers an d minorities.
Historically, educators and farm er-ranchers have been well
represented on the M inneapolis Bank’s Board of Directors. Expand
ing the n u m b er of board m em b ers—a proposal that w as m ade last
y ear—w ould m ak e it possible to ad d persons with a broader range of
backgrounds an d experience without losing the contributions of
present representation.
• The m em ber bank stock arrangem ent sh o u ld be eliminated.
This suggestion w ould see m to h ave little material effect. It m ay now
b e regarded as an incidental asp ect of m em bership, thought useful
at the tim e the Federal Reserve Act w as enacted. It is not an essential
m ech an ism for Federal Reserve m em bership, but a useful one and
certainly not harm ful in symbolizing the stake an d the participation
that com m ercial banking h a s in the central bank process.


In contrast, the issue of Federal R eserve m em bership is of major
significance. Both equity an d efficiency require that com peting finan­
cial institutions b e subject to broadly similar reserve requirem ents.
This issue b eco m es m ore im portant as other non-bank financial insti­
tutions (such as savings an d loans) expand their role.
• There sh o u ld be fuller d iscu ssio n s of policy deliberations an d
m ore im m ediate reporting of FOMC policy decisions an d plans. This
recom m endation h as m uch broader significance. More public
know ledge an d discussion of Federal R eserve policy would lead to a
m ore inform ed public and m ore sophisticated understanding of the
issues. Clearly a desirable result. At the sa m e time, reforms should
not destroy the freedom of policy m akers to explore and discuss all
policy options without the inhibiting influence of exposure to public
m isinterpretation or criticism during the formulative process.
• There sh o u ld be full a n d frequent reporting to Congress of
policy actions a n d expectations. This proposal would seem to be
helpful to all concerned. The current procedure of regularly reporting
to Congress on the “targets” of m onetary growth has b een generally
constructive. Time an d experience with this procedure m ay suggest
w h eth er m ore detailed reporting w ould be useful.

I n s u la tio n ... h o w it w o rk s
Being “in d ep en d en t within” the governm ent m ean s a m onetary
function that is insulated from, yet fully aw are of, other essential
n e ed s su ch as national defense, foreign policy and trade, resource
d e v e lo p m e n t, h o u sin g , a n d e m p lo y m e n t. C o n stru ctiv e policy
d eriv es from a stru ctu re w hich c an b e both coordinative an d
in d ependent, within governm ent an d also beyond governm ent.
It will b e helpful, then, to exam ine such co o p erativ e/in d ep en d ­
ent relationships b etw een the Federal Reserve System and the
other elem en ts with w hich it m ust coordinate. T hese include:
a. T h e e x e c u tiv e b ra n c h , in c lu d in g th e p re s id e n t a n d his
advisors, the Treasury D epartm ent an d other agencies.
b. The Congress.
c. Banking an d private financial institutions.
d. Structural relationships within the Federal R eserve System

With th e E x ec u tiv e B ra n c h
In d ep en d en ce from the executive branch of governm ent w as a m ain
concern during the d evelopm ent of the Federal R eserve System , as it
h as b e e n since. Yet it is essential that the m onetary function work in
cooperation with the president an d his econom ic advisors an d with
the m ajor agen cies of the executive branch, principally the Treasury
D epartm ent.
Given the pow er an d influence of the presidency, that office can
exert strong pressure and influence on any agency. By an d large,

presidents h av e b ee n careful not to a b u se this power, respecting the
n eed for an in d ep en d en t m onetary authority.
Following World War II it ap p ears that President Trum an did, for a
time, support the Treasury D epartm ent in its need to finance the
public d eb t an d approved the then subordinate role of the Federal
R eserve System in supporting that effort. W hen this im passe w as
resolved, the Federal R eserve’s responsibility and accountability for
m onetary actions w ere restored. Since then, the “in d ep en d en t”
relationship b etw een the two agencies has functioned well.
There are an y n u m b er of linkages betw een the Federal Reserve
an d the econom ic ag en cies of the executive branch. They are formal
an d informal an d they function at both the policy and staff levels. The
chairm an of the Board of Governors, for exam ple, joins the Secretary
of the Treasury, the chairm an of the Council of Economic Advisors,
an d the director of the Office of M anagem ent an d Budget in m eetings
of the so-called Quadriad. W hen the Federal Open Market Committee
takes policy actions w hich it believes to be in the best interest of the
nation, it d oes so with full know ledge of the adm inistration’s plans
an d objectives.

C hairm an.
Federal Reserve
Board of G overnors


of the T reasury

C hairm an,
Council of
E conom ic A dvisors

Director of the
Office of M anagem ent
a n d Budget


Neither the Treasury nor the Board of Governors
should be subordinated to the other. It is vitally necessary,
however, that m onetary policy, fiscal policy, a n d all
the other econom ic policies of the governm ent should
be coordinated so that they will m ake a m eaningful
whole, working in the direction of price stability, highlevel em ploym ent, a n d a dynam ic, free-enterprise
—from th e congressional S ubcom m ittee of the Joint
C om m ittee on the Econom ic Report, 1952

... A n d

th e T re a s u ry

The central b an k is in constant contact with the Treasury Depart­
m ent which, am o n g other things, is responsible for the m an ag em en t
of the public d eb t and its various cash accounts.
Prior to th e e x isten c e of th e F ed eral R eserve S ystem , the
Treasury actually carried out m an y m onetary functions. And even
since, the Treasury h as often b een deeply involved in m onetary func­
tions, especially during the earlier years.
At the beginning of World War 11, it ap p eared desirable that the
Treasury be able to issue d eb t at relatively low interest cost an d also
on a b a s is th a t a s s u r e d p u r c h a s e r s th a t s e c u ritie s w o u ld b e
m arketable at near face value. B ecause of the urgency of this need,
the policy w as agreed to an d continued after the w ar until 1951.
During this period, the Treasury w as, in effect, deciding the m onetary
policy of the country as it m ad e its decisions as to how m uch debt
n e ed e d to be funded. B ecause the central bank supported the
m arket for governm ent securities, it w as forced to purchase am ounts
of securities n ecessary to m aintain low interest rates and the par
value of securities. Thus, as the Treasury issued additional debt, the
central b an k w as forced to acquire part of that debt. This process
resulted in direct addition to b an k reserves.
Follow ing th e 195 1 acco rd b e tw e e n th e T reasury a n d the
Federal Reserve System , the central b an k w as no longer required to
support the securities m arket at any particular level. In effect, the
accord established that the central bank would act independently
and exercise its ow n ju d g m en t as to the m ost appropriate m onetary
policy. But it w ould also work closely with the Treasury and would be
fully inform ed of a n d sy m p a th e tic to th e T reasu ry ’s n e e d s in
m anaging an d financing the public debt. In fact, in special circum ­
stan ces the Federal R eserve w ould support financing if unusual
conditions in the m arket c a u sed a n issue to b e poorly accep ted by
private investors.
i i

The Treasury an d the central bank also work closely in the
T reasury’s m an a g em en t of its substantial cash p ay m en ts and with­
draw als of Treasury Tax an d Loan account balan ces deposited in
com m ercial banks, since th ese cash flows affect bank reserves.

With th e C o n g re s s
A seco n d major relationship, of course, is with the Congress—the
branch of governm ent that specifically delegated, in the form of the
Federal R eserve Act, the responsibility for m anaging m onetary
policy in the interests of the nation. At the sa m e time, Congress re­
tained responsibility for the taxing an d spen d in g decisions of the
federal governm ent.
W hen the b alan ce b etw een spending an d taxation results in
governm ent deficits, the Treasury h as to issue additional public debt.
In a m onetary sen se, the failure to tax ad eq u ately to cover the
expenditures of the Federal governm ent is an invitation for “printing
m o n ey ” through the issuance of federal debt. D epending on the
p h a se of the business cycle, this tends to increase the m oney supply
and, w ithout offsetting action by the central bank, can result in an
inflationary rise in prices. The result is “hidden taxation”—which
takes aw ay from taxpayers in the form of lower purchasing pow er
(higher prices) w hat they would h av e paid in additional taxes had the
ex p en d e d funds b e e n obtained through that source.
Thus there is an im portant linkage b etw een the taxing and
sp en d in g pow ers of Congress a n d the m onetary pow ers as dele­
gated to the Federal Reserve System . In principle, it is the job of Con­
gress an d the executive branch jointly to define the econom ic policy
objectives of our national governm ent, and to support those objec­
tives with appropriate fiscal m easures. Then the central bank can co­
ordinate m onetary policy in a m an n er w hich serves those national
W hen fiscal policy d o es not m atch spending appropriately to tax
revenues, then the m onetary authority is faced with a difficult choice:
(a) how severely should it restrain the inflationary forces that m ay
develop, an d (b) to w hat extent should it perm it inflationary forces to
h av e their effect in higher prices? W hen the failure to provide
appropriate tax rev en u es g en erates acute forces of inflation, then
ev en the b est com prom ise m ay require sev ere m onetary restraint.
This h a s the effect of appearing to be at cross-purposes with congres­
sional intent an d can also produce severe disruptions in som e areas
of the private sector such as housing.
Thus, the Congress and the Federal Reserve System m ay not
alw ays ap p e a r to agree in their policy actions, but they have a su b ­
stantial com m on interest in coordinating such policies. Monetary
policy can be less extrem e w h en fiscal policy is doing “its share.”
A nother reason for delegating the m onetary responsibility to an
authority not directly a part of the governm ent is the high degree of


technical expertise required to analyze econom ic data, trends, and
other information related to appropriate m onetary decisions. While
the Federal Reserve h as b e en called the m onetary “ag en t” of Con­
gress an d is subject to its ultim ate control, its special responsibilities
require a separation in carrying out its unique functions. Congress
can n o t effectively legislate day-to-day m onetary decisions, nor even
provide operating m andates.
In the dialogue b etw een the Congress and the central bank, both
the intent of the national policy an d the rationale for appropriate
m onetary policy m ust be com m unicated. To accom plish this, the
Federal Reserve System reports regularly to the Congress with
regard to its conduct of m onetary policy. Over the years, exhaustive
h earin g s h a v e b e e n held by the S e n a te a n d H ouse b an k in g
com m ittees regarding the functions an d procedures of the Federal
Reserve System . The Joint Economic Com m ittee an d other com ­
m ittees of Congress frequently call on Federal Reserve representa­
tives to discuss both policy an d operational matters.

With B a n k in g
A third area of in d e p en d e n ce relates to com m ercial banking and
other private financial institutions.
It w as no accident that the Federal Reserve System w as struc
tured to include direct representation from com m ercial banking, for
without a so u n d banking system m onetary policy could not operate.
W hen the central bank takes action to restrict or expand the m oney
supply, the multipliers set in motion are leveraged through the
banking sy stem —often to the discomfort of bankers them selves.
W hen m onetary policy is restrictive, the restrictive action takes place
at the loan d esk s of com m ercial b anks w here, with greater d em an d
for funds and limited m oney to lend b eca u se of the restrictive policy,
ban k ers are forced to decline so m e loans that both they an d their

Congress, recognizing that restrictive m onetary
policies m u st som etim es be strongly stated to control
inflation, h a s chosen to endow the System with
a considerable degree of independence. But under the
Constitution this independence can never rise
above the relationships of a faithful a n d trustworthy
servant a n d a responsible, watchful master,
in this case the Congress.
—R epresentative Wright P atm an, 1 9 5 4


custom ers might otherwise consider prudent. Thus is expansion of
the m oney supply restrained.
All national banks and m any state-chartered b an k s are m e m ­
bers of the Federal Reserve System . It is essential that the majority of
bank deposits in the country be subject to Federal R eserve require­
m ents in order that the reserve m ech an ism s for controlling the
m o n ey supply can function well and equitably. In addition, the
central b an k is charged to perform other services for m em b er banks
such as supplying coin and currency, clearing checks, transferring
funds, an d m aking loans to m em ber b an k s under special circum ­
stances. T hese services require direct working relationships with
com m ercial banks. The Federal R eserve’s supervisory role (and also
the central b a n k ’s ultimate role as the lender of last resort) reflects
both the public need and the m onetary n eed for so und banking.
Through all these close ties an d relationships, it is essential that
the central b an k deal “at arm ’s length” with com m ercial banking in
general an d that it not be dom inated or m a d e subservient to banking
interests. This also has been a major concern of Congress over the
years an d is a concern that is reflected in its design of the Federal
Reserve Act. It is one of the reasons w hy the Federal R eserve’s bank
supervision an d regulatory functions are structurally accountable to
the Federal Reserve Board rather than to regional b an k boards.

W ithin Itself
One other area in which sep arate n ess an d in d e p e n d e n c e have
significant m eaning is within the Federal R eserve System itself.
As originally conceived, the regional Federal R eserve Banks
w ere largely autonom ous: a federation of regional institutions m ad e
up the Federal Reserve System. As time an d experience brought
chan g es, it b e ca m e necessary to coordinate m onetary policy on the
national level, while continuing to perform central bank services for
m em b er banks, including the discount (lending) function at the
regional level.
Regional Federal Reserve b anks are regularly exam ined by the
Board of Governors to confirm the internal quality an d integrity of
each B ank’s operations and also to en su re that regional Banks are
com plying with all statutory regulatory requirem ents of the System .
An im portant feature within the Federal R eserve is that the chair­
m an of the Board of Governors, though sp o k esm an for both the
seven-m an Board and the Federal Open Market Comm ittee, d oes not
h av e in d ep en d en t authority. He cannot establish policy himself nor
control policy decisions. He is subject to an d limited by the majority
vote of the councils of which he is part.
Thus, there exists within the System itself ch eck s an d balan ces
w hich limit the authority and the pow er of its different elem ents.
T hese relationships are significant w h en structural c h an g es are
u nder consideration.


The Board subm its regular a n d frequent reports
to C ongress on econom ic data a n d financial matters.
Indeed, the detail in which financial data are
p ublished is greater than for any other central bank
in the world.
—Arthur Burns, congressional testim ony in January 1 9 7 6

P e rs p e c tiv e s o n In d e p e n d e n c e
Our central b an k structure—functioning in an environm ent reaso n ­
ably insulated from the day-to-day pressures of partisan politics and
short-term ex p ed ien cy —w as born out of d e c a d e s of experience with
b o o m /b u st recessions, financial panics, an d m onetary instability.
Over the years, the System and its vital m onetary function have
b e e n u n d er co n stan t scrutiny and review by Congress, by profes­
sional econom ists, by banks and financial experts as well as by the
public. H earings by S enate and House banking com m ittees on
F e d e ra l R e se rv e resp o n sib ilities a n d p ro c e d u re s h a v e b e e n
Such studies h av e produced innum erable ch an g es in respon­
sibilities, authority an d procedures. It is through su ch efforts that our
m onetary m ech an ism s have kept pace with the changing n eed s of
the tim es. While m an y problem s persist, it is also true that over the
p a st th re e d e c a d e s —a n d d esp ite so m e pretty difficult tim es—
recessions h av e b e e n m oderate, and severe panics and disruptions
h av e b e e n largely avoided.
W hether the proposals currently suggested are useful rem ains to
b e se en . But the role of the Federal Reserve System in carrying out
the exacting responsibilities of m anaging the nation’s m onetary
policy re q u ire s th e b est structural an d p ro ced u ral fram ew ork
p o ssib le to d o th at job. The record su g g e sts th at a d e g re e of
“in d e p e n d e n c e ” is essential for effective execution of its m onetary
role. T here is a recognized need for professionalism in analysis and
formulation of policy—free of p artisan/expediency considerations
an d free of distraction from other responsibilities.
Urgent a n d changing econom ic needs call for frequent review,
evaluation, a n d suggestions for reform—relying on the tested lessons
of p ast ex p erien ce a s w e learn to understand an d cope with new
ch an g es.


A System that provides responsible policy m ust serve the broad
public interest, rem aining objective a n d rem oved from special
interest, yet ultimately accountable to a n d in dialogue with the
realities of changing times, h u m an values, an d econom ic conditions.


*Robert w. Worcester, vice president at the Federal Reserve Bank of Minneapolis, provided
valuable assistance in preparing this text for publication.


1976 in Review
Each y ear the Bank develops a set of objectives to identify those
efforts w hich, in the judgm ent of m anagem ent, constitute the B ank’s
m ost im portant n ew undertakings for the com ing year. As a part of
this process, a m ore detailed structure of sub-objectives is developed
by the various d ep artm en ts of the Bank w hich directly supports
th ese m a n a g e m e n t level priorities and in other w ays contributes to
the B ank’s longer-term m issions identified in its statem ent of goals.
Over the past few years, our bank objectives have focused
increasingly on the efficiency and effectiveness of internal op era­
tions: in 1 9 7 6 four of five Bank objectives w ere internally oriented.
This em p h asis reflects the S ystem ’s determ ined effort to m ake
Federal R eserve Banks both efficient and productive in keeping with
the b est applications of good m anagem ent and available tech­
nology. S u ch co n sid eratio n s m ust alw ay s be w eig h ed ag ain st
service n e e d s of the financial com m unity, our role in serving the
public interest a s the nation’s central bank, and our responsibilities
for setting national m onetary policy.
The stated Bank objectives for 1976 and a sum m ary review of
ach iev em en t are set forth below.
To limit the increase in total net controllable expensesfor 19 7 6 to
8 percent above net controllable expenses in 1975.
This objective w as achieved as net controllable ex p en ses in
1 9 7 6 w ere 7.2 p ercent above net controllable ex p en ses in 197 5 . Net
controllable ex p e n se s are those costs rem aining after excluding cost
item s over w hich m an ag em en t has very limited short-run control
(e.g., real estate taxes, building depreciation, new currency costs, etc.).
This w as accom plished in spite of increasing costs, normal volum e
in creases w hich w ere approxim ately 7 percent above 19 75 levels,
and n ew responsibilities in so m e functions such as increased
activity related to consum er protection legislation.
The prim ary offset to th ese factors w as the continuing effort on
the part of the Bank to hold the line on ex p en ses through productivity
and efficiency in the various operating an d support areas, mainly by
im proved technology and procedures. Contributing to this continuing
effort h a s b e en the developm ent of m an ag em en t talent and tools.
Salary ex p en ses, which constitute over 5 0 percent of control­
lable ex p en ses, increased by 7.3 percent — exactly the figure
projected. The total Bank staff declined just slightly for the year.


To com plete scheduled deuelopm ent a n d im plem entation of
the new Federal Reserve Planning a n d Control System (PACS)at
M inneapolis an d Helena.
The new Federal Reserve Planning an d Control System is
desig n ed to facilitate planning, budgeting, an d e x p en se control
throughout the Federal Reserve System, in 19 7 6 efforts w ere directed
to the d evelopm ent and im plem entation of the internal ex p en se
accounting an d reporting com ponent of the system . In addition to
providing better internal ex p en se and b udget information for Bank
an d line m anagem ent, the new system will also provide im proved
com parability am ong Reserve Banks for ex p en se an d productivity
data. The ex p en se accounting and reporting co m p o n en ts h av e b een
im plem ented during 19 7 6 and began fully functioning on January l
of 1977. D evelopm ental work on the entire Planning an d Control
System will continue through 1977.
To rank above the first quartile in all currently m onitored
production a n d cost areas according to the 19 7 6 a n n u al System
ranking, while allow ing no deterioration of System ranking in
those areas representing l.o percent or m ore of total controllable
B ecause of the unique nature of our central b an k operations and
functions, m any of the com m on w ays of m easuring organizational
ach iev em en t—profit, share of market, or return on equity—are not
available to us. Thus, w e look to other m easu res an d stan d ard s as
proxies to a sse ss our operational effectiveness. One of th ese is by
com paring our efficiency and productivity with the other 1 1 Federal
R eserve Banks, all of w hom are providing essentially the sam e
kinds of services.
At the en d of 19 7 5 the Bank’s perform ance, in five of so m e two
dozen operational areas in which w e can b e co m p ared with other
Reserve Banks, show ed that w e ranked in the low est quartile—tenth,
eleventh, or twelfth—in term s of either productivity or cost. Our
objective w as to concentrate on im provem ent in those areas w here
relative m easu res indicated m ost im provem ent w as need ed , while
ex p erien cin g no deterioration in p erfo rm an ce else w h e re . Infor­
m ation available in January 1977 indicates that our objective w as
achieved in four of the five areas.
To develop an d im plem ent a com prehensive training a n d
developm ent program for Bank officers a n d staff which will set
guidelines for participation in various types of developm ental
program s.
During 19 7 6 our efforts toward this objective focused principally
upon developing an operating fram ew ork for an integrated staff
d ev elo p m en t an d training program —o n e that helps us identify


B ankw ide training an d developm ent n eed s an d also the best
vehicles to m eet those needs.
T his fra m e w o rk o u tlin e s th e v ario u s lev els a n d ty p e s of
d e v e lo p m e n t p ro g ram s a n d their relationship to the identified
training needs.
While full d evelopm ent of the total program outlined will extend
into 1 9 7 7 an d beyond, a num ber of im portant elem ents w ere
im p lem en ted in 1976. These include in-house supervisory and
m a n a g e m e n t training, presentational speaking, and better use of
various m a n a g e m e n t schools.
During the y ear w e com pleted the com prehensive redesign of
our job evaluation structure and procedures, including a com pletely
n e w s e t of jo b d e sc rip tio n s, n ew g ra d e stru c tu re s, a n d final
reevaluation of all non-official jobs. Our Bankw ide perform ance
review program , an d formalization of job-posting procedures, w ere
also modified during the year.
To com plete research stu d ies identifying public policy problem s
relevant to the Ninth District an d developing p ro p o sals for
a c tio n s to c h a n g e law s of regulative p ro ced u res affecting:
(a) E F T s y s t e m s d e v e lo p m e n t th ro u g h o u t th e D istrict,
(b) state banking structure an d perform ance (Minnesota only,
this year) a n d (c) risk exposure and contingency p rep ared n ess of
larger b an k s in the District.
in general, the studies done in furtherance of this objective have
provided the public an d this Bank with a basis for evaluating current
public policy issues.
Four background studies in the area of electronic funds transfer
(EFT) w ere p ro d u ced by various departm ents of the Bank during
1. A Survey of Significant EFT D evelopm ents in the Nation
a n d the Ninth Federal Reserve District
2. EFTS: Public Policy Issues
3. C o m p e titiv e A s p e c ts of E le c tr o n ic F u n d s T r a n s f e r
System s
4. L egal D im e n sio n s of E lectronic F u n d s T ran sfer in th e
Ninth District
E x e r p ts fro m th e first tw o s tu d ie s w e r e p u b lis h e d in
the Ninth District Quarterly and the first paper w as published in full as
part of our EXPONENT series, entitled, Electronic F unds Transfer: The
Future is Now. A co n d en sed version of the third pap er exam ining
ch a n g e s in the com petitive relationships am ong financial institu­
tions that m ay result from EFT system developm ents is sch ed u led for
publication early in 1977. The fourth study rem ains an internal
w orking d o cum ent.
Two stu d ies on state banking structure are being published early
in 1977. T he first—“The Philadelphia National Bank Case Revisited”—


review s the analysis used by the S uprem e Court in its landm ark
decision (1973) concerning the Philadelphia National Bank. A key
asp ect of that decision w as that com m ercial banking w as con­
sidered a distinct line of com m erce. The appropriateness of this
definition, b ased on a type of institution rather than a type of service
offered, is looked at in light of the changing environm ent in w hich
financial institutions are increasingly com peting across traditional
The second study is a follow-up to an earlier publication by this
Bank w hich characterized M innesota’s banking structure as “ex cep ­
tional.” This follow-up, which takes into account a broader array of
financial institutions in the state, and a com parison with different
states, generally finds that the structure of financial institutions in
M innesota is not exceptional if com pared with states w h ere branch
banking is permitted.
Over the past two years w e have b een in touch with the larger
Twin Cities banks concerning contingency plans for dealing with
possible runoffs of interest sensitive funds. A form w as devised and
tested by a n u m b er of these banks that w ould show the exposure of
the bank to such runoffs under various hypothetical situations.
Variations of this contingency approach h av e b een ad o p ted by som e
Twin Cities banks.

Operational Highlights
In addition to the progress achieved on special B ankw ide objectives,
other operational and staff developm ents are sum m arized below.
• Gross earnings of the Minneapolis Federal Reserve Bank for
1976, consisting mainly of interest on U.S. G overnm ent an d Federal
ag en cy securities, w ere $ 1 4 5 .4 million, up $ 1 2 .5 million from 1975.
Net total ex p en ses w ere $ 2 6 million in 1976, up 9.2 percent. This
includes an increase of $ 8 0 7 ,0 0 0 in the cost of printing Federal
Reserve currency. The statutory 6 percent dividend paid to m em b er
b an k s on their required holding of Reserve Bank capital stock totaled
$ 1,643,000. The Bank’s surplus w as increased by $ 2 ,4 9 7 ,0 0 0 , an d the
b alan ce of net earnings, $ 1 1 4 million, w as paid to the United States
Treasury as interest on Federal Reserve Notes.
• Conventional check volum e at M inneapolis increased 6 percent,
from 5 1 2 million items in 19 7 5 to 5 4 2 million item s in 19 7 6 , averaging
about two million checks each working day. Efforts to cope with this
growing volum e include continued autom ation of the check clearing
process a n d step s to reduce the growth of ch eck s as a m e a n s of
m o n ey transfer.


During 19 7 6 the Regional Check Processing Center at our Bank
w as e x p a n d e d to include an additional 41 Wisconsin banks. It now
includes all b an k s within a 7 5 mile radius of Minneapolis, plus major
cities su ch as Eau Claire, La Crosse, Rochester, Austin, Willmar, St.
Cloud, Duluth, an d Superior. More than 7 0 percent of the dollar
volum e of ch eck s draw n on banks in the Minneapolis territory are
eligible for im m ediate (sam e day) credit to the depositing bank.
The Duluth Regional Check Clearing Arrangem ent, com m only
called the Duluth Plan, w as in operation for the full year 1976,
handling an a v erag e of 2 0 ,0 0 0 items per day w hich w ere formerly
p ro cessed at the Minneapolis Fed. The Duluth Plan, including the Iron
R ange an d northw estern Wisconsin, now serves about 5 5 banks.
A utom ated clearing house (ACH) operations in 19 7 6 saw further
e x p a n s io n in b o th c o m m e rcial en trie s a n d F e d e ra l recu rrin g
p ay m en ts. In the latter category, Social Security p aym ents and
several other sm aller program s w ere ad d ed to our initial program of
processing Air Force payrolls.
• District-wide distribution of the new $2 currency denom ination
w as initiated early in the year as part of the national effort to re-institute
the u se of the $2 denom ination. The objective is to reduce the total
n u m b er of bills in circulation with com m ensurate reductions in
printing an d handling costs. The Treasury D epartm ent is considering
other c h a n g e s in coin denom inations and usage that m ay further
en co u rag e $2 bill usage.
Minting of bicen ten n ial-d esigned q u arters, half-dollars, an d
dollars, first issued in 1975, will be discontinued in 1977.
Overall currency and coin volum e increased during 1 9 7 6 by
roughly l o percen t for currency handling and by 14 percent for coin.
• The volum e of Treasury securities issues and redem ption rose
m arkedly during 1 9 7 6 reflecting the major increase in Treasury
financing over the past two years. The dollar volum e of issues
redem ption an d exchanges roughly doubled over 1975, an d the
n u m b e r of transactions w as up one-fifth.
Late in the year, the Treasury D epartm ent began issuing 52w eek Treasury bills on a book-entry-only basis. This significant step
will b e ex ten d ed to other bill issues in 19 77 and eventually to other
types of Treasury securities.
• With the grow ing complexity of consum er-related regulations,
the Bank h a s had to increase its efforts to provide information to
co n su m ers an d others about such regulations. Bank representatives
sp o k e to approxim ately l ,8 0 0 people on the Equal Credit Opportunity
Act, Fair Credit Billing Act, and The Federal Trade Com m ission’s
Holder in-Due C ourse Regulation. Our c o n su m e r specialists also
an sw ered telep h o n e inquiries from bankers an d investigated all
co n su m er com plaints involving state m em ber banks.
• L ate in 1 9 7 6 tw o experim ental m eetin g s w ere held with
m e m b e r b an k ers in Michigan an d Wisconsin to (a) u p d ate m em ber


b an k s on recent developm ents in R eserve Bank services and
program s, an d to (b) provide a forum for b an k ers to express their
views, suggestions, and criticisms about Fed operations an d services.
T hese m eetings, which w ere d e em ed productive, will b e continued
in 1977.
Our series of informational conferences for bank directors
(started in 1974) w as continued in 1 9 76 with m eetings in Rapid City
an d Sioux Falls. Similar conferences are p lan n ed for 1977.


F e d e ra l R e s e rv e B a n k o f M in n e a p o lis
F in a n c ia l S ta te m e n t

S ta te m e n t o f C o n d itio n

(In T h o u sa n d s)

D ecem ber 31



A ssets
Gold Certificate Account .......................................
In te rd istric t Se ttle m e n t F u n d ................................
Sp ecial D ra w in g R ig h ts Certificate Account . . .
Fe d e ra l R e se rv e N otes of Other
Fe d e ra l R e se rv e B a n k s ......................................
O ther C a sh ..................................................................
L o a n sto M e m b e rB a n k s .......................................
S e c u r it ie s ....................................................................
Fe d e ra l Agency O bligations ............................
U.S. G o vernm ent S e c u r it ie s ..............................
To ta l S e c u ritie s .....................................................
Cash ite m s in P ro c e s s o f C o lle c tio n .....................
B a n k P re m ise s N e t...................................................
O ther A s s e ts ..............................................................
To ta l A s s e t s ........................................................


22 1,457
2 4 ,0 0 0


2 0 5 ,4 8 9
3 0 2 ,1 3 9

4 3 ,4 8 6
15,10 9
4 1,875

2,13 2,514


4 5 4 ,022
30,9 3 9
43,01 l

2,02 6,644
4 9 8 ,5 7 1
32 ,3 9 9
33 ,0 4 4

$3,332,0 12

$3,2 0 8 ,7 5 6

Fe d e ra l R e se rv e N o t e s ...........................................
D e p o sits
M em ber B a n k R e se rv e A c c o u n ts...................
Due to Other Fe d e ra l Re se rve
Banks-C ollected F u n d s ....................................
U.S. Tre a su ry-G e n e ra l A cco unt........................
Fo re ig n ....................................................................
O ther D e p o s it s .......................................................

$ l ,749,458

$ 1,586,070

6 0 4 ,1 8 5

7 0 7 ,6 8 7

4 2,3 37
3 9 8 ,2 4 5
6,6 0 0

3 67 ,4 1 2
5 ,24 6

To ta l D e p o s its .........................................................
D eferred A v a ila b ility Cash It e m s ........................
O th e rLia b ilitie s .........................................................

l ,0 7 1,024
4 3 2 ,4 8 3
2 1,867

4 5 8 ,7 4 7
25,1 0 6

To ta l L ia b ilit ie s ...................................................

$3,2 74,83 2

$3,1 5 6 ,5 7 0

Capital Paid I n ............................................................
S u r p lu s ........................................................................

2 8,5 90
2 8,5 90

26.0 93
26 .0 9 3

To ta l Capital .......................................................
To ta l L ia b ilitie s and Capital A c c o u n ts.......

5 7 ,1 8 0
$3,3 32,01 2

5 2 ,1 8 6
$3,2 0 8 ,7 5 6


CMpital A ccounts


E a rn in g s a n d E x p e n s e s

(In T h o u s a n d s )

For the Year E n d ed D ecem ber 31



Current Earnings

In te re st on L o a n sto Mem ber B a n k s ...................
Intere st on U.S. Governm ent Se c u ritie s
and Federal Agency O b lig a tio n s.......................
A llO th e rE a rn in g s .....................................................



2 17

82 1


2,8 4 5



T o ta lC u rre n tE a rn in g s ....................................



Current E xpenses
Sa la rie sa n d Other B e n e fits ....................................
Postage and E x p re ssa g e .......................................
Te le p h o n e and T e le g ra p h ....................................
P rin tin g a n d S u p p lie s .............................................
Real Estate T a x e s .....................................................
F u rn itu re and Operating Eq u ip m e n t—P u r­
chases, Rentals, Depreciation, Maintenance ..
Depreciation—B a n k P r e m is e s ............................
U t ilit ie s ..........................................................................
Other Operating E x p e n s e s ....................................
Federal R e se rve C u rre n c y ....................................
To ta l Current E x p e n s e s ..................................
E x p e n se s R e im b u rsa b le or Recoverable .

2 7 ,4 8 6
( 1,437)

25,1 12
(1,31 7)

N e tE x p e n se s .....................................................

2 6 ,0 4 9

2 3 ,7 9 5

Current Net Earnings .......................................
Net Profit (or L o s s ) ...................................................
A sse ssm e n t for E x p e n se s of
Board of G o vernors ...............................................
D iv id e n d s P a id ..........................................................
P a ym e n ts to U.S. T re a s u ry ....................................

1 19,3 13

(4,9 18)

( 1,1 76)
( 1,643)
( 1 14,37 1)


Tra n sfe rre d to S u rp lu s ....................................
S u rp lu s, January 1 ...................................................


2 1,731

S u rp lu s,D e c e m b e rs l ...........................................

$ 2 8 ,5 9 0

$ 2 6 ,0 9 3

V o lu m e o f O perations*
For the Year E nded D ecem ber ;i I

N um ber

Dollar A m ount
10 7 5

L o a n sto M e m b e rB a n k s ................
C urrency Received a n d Verified . 145 million 12 8 million
C o in R e c e iv e d a n d C o u n te d ........ 5 3 8 million 481 million
C hecks H andled, T o ta l.................... 6 1 4 million 5 8 2 million
.3 million
.4 million
Collection Item s H a n d le d ..............
Issues, R edem ptions, E xchanges
ofU .S .G overnm entS ecurities. . . 9.0 million 7.6 million
4 4 9 .5 2 6
4 3 2 ,0 5 4
Securities Held in S a fe k e e p in g ...
6 2 7 ,3 4 7
7 8 5 ,3 3 1
T ransferof F u n d s ..............................



$ 4 6 6 million $ 6 9 0 million
9 7 1 million
l.l billion
7 0 million
7 5 million
1 6 0 billion
177 billion
1.3 billion
1.4 billion
5 2 .4 billion
9 .4 billion
5 7 6 billion

2 8 .4 billion
8 .0 billion
4 9 5 billion

'M i n n e a p o l i s a n d H e l e n a c o m b i n e d


Directors of the
Federal Reserve Bank of Minneapolis

J a n u a ry 1 9 7 7

T erm e x p ire s D e ce m b er 3 1 o f in d ic a te d y e a r

Jam e s P. McFarland, Chairm an and Federal Reserve Agent
S tep h en F. Keating, Deputy Chairman
C lass A—Elected by Member Banks
William E. Ryan, President (1977)
Citizens State Bank, Ontonagon, Michigan
John S. Rouzie, President (1978)
First National Bank, Bowman, North Dakota
Nels E. Turnquist, President (1979)
National Bank of South Dakota, Sioux Falls, South Dakota
C lass B—Elected by Member Banks
Donald P. Helgeson, Secretary-Treasurer ( 1977)
Jack Frost, Inc., St. Cloud, Minnesota
Russell G. Cleary, Chairm an an d President (1978)
G. H eilem an Brewing Com pany, Inc., La Crosse, Wisconsin
W arren B. Jones, Secretary-Treasurer (1979)
Two Dot Land & Livestock Com pany, Harlowton, Montana
C lass C—A ppointed by Board of Governors
S tep h en F. Keating, Chairm an (1977)
Honeywell, Inc., Minneapolis, Minnesota
Jam e s P. M cFarland, Chairm an (1978)
G eneral Mills, Inc., Minneapolis, Minnesota
Charles W. Poe, Jr., President (1979)
Metropolitan Econom ic D evelopm ent Association (MEDA)
M inneapolis, M innesota
M ember of Federal Advisory Council
Richard H. V aughan, President
N orthwest Bancorporation, Minneapolis, Minnesota

Directors of the Helena Branch
Patricia P. Douglas, Chairm an
Norris E. Hanford, Vice Chairm an
A ppointed by Board of Directors
Federal Reserve Bank of M inneapolis
Donald E. Olsson, President (1977)
Ronan State Bank, Ronan, Montana
William B. A ndrew s, President (1978)
N orthw estern Bank of Helena, Helena, Montana
George H. Selover, President & General M anager (1978)
Selover Buick-Jeep, Inc., Billings, Montana
A ppointed by Board of Governors
Norris E. Hanford, in d ep en d en t grain operator (1977)
Fort Benton, M ontana
Patricia P. Douglas, Assistant to President and Professor ( 19 7 8 )
University of M ontana, Missoula, Montana


Officers of the
Federal Reserve Bank of M inneapolis

J a n u a ry 1 9 7 7

Bruce K. MacLaury, President
Clem ent A. Van Nice, First Vice President
T hom as E. Gainor, Senior Vice President
Roland D. Graham , Senior Vice President
John A. MacDonald, Senior Vice President
Melvin L. Burstein, Vice President and General Counsel
Frederick J. Cramer, Vice President
Leonard W. Fernelius, Vice President
Lester G. Gable, Vice President
Bruce J. Hedblom, Vice President
Douglas R. Hellweg, Vice President
Howard L. Knous, Vice President and General Auditor
David R. McDonald, Vice President
Clarence W. Nelson, Vice President
an d Director of Research
Robert W. Worcester, Vice President
S heldon L. Azine, Secretary and Assistant Counsel
Earl O. Beeth, Assistant Vice President
Jam es u. Brooks, Assistant Vice President
Phil C. Gerber, Assistant Vice President
Gary P. Hanson, Assistant Vice President
Richard C. Heiber, Assistant Vice President
William B. Holm, Assistant Vice President
Ronald E. Kaatz, Assistant Vice President
Michael J. Pint, Assistant vice President
an d Assistant Secretary
Ruth A. Reister, Assistant Vice President
an d Assistant Counsel
Charles L. Shromoff, Assistant Vice President
Colleen K. Strand, Assistant Vice President
Richard B. Thom as, Assistant Vice President
Joseph R. Vogel, Chief Examiner

Officers of the Helena Branch
John D. Johnson, Vice President
Ronald O. Hostad, Assistant Vice President
Betty J. Lindstrom, Assistant Vice President


F o r additional copies:
Office of Pu b lic Info rm a tion
Fe d e ra l R e se rv e B a n k of M inneapolis
M innea p olis, M innesota 5 5 4 8 0

Illustrations a d a p te d w ith p e rm issio n
of the N ational G eographic Society

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