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Dfnnual
'Report
X_»/971

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM




Jitter of Transmittal

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington, April 20, 1972

THE SPEAKER OF
THE HOUSE OF REPRESENTATIVES.

Pursuant to the requirements of Section 10 of the Federal Reserve
Act, as amended, I have the honor to submit the Fifty-Eighth Annual
Report of the Board of Governors of the Federal Reserve System.
This report covers operations of the Board during the calendar
year 1971.
Yours respectfully,
Arthur F. Burns, Chairman.




Contents
Part 1—Monetary Policy and the
U.S. Economy in
INTRODUCTION
PRINCIPAL FEDERAL RESERVE POLICY ACTIONS, 1971:
DIGEST
11

11
13
14
15

WAGES, PRICES, AND PRODUCTIVITY

Wages
Productivity and unit labor costs
Prices
Effect of the new economic program

19
21
22
24
26
28

DEMANDS FOR GOODS AND SERVICES
Residential construction
Consumer income and outlays
Business investment
Government
Manpower utilization

31
33
38

MONETARY AGGREGATES AND INTEREST RATES
Developments prior to August 15
Later developments

43
43
46
48
49

TOTAL CREDIT FLOWS AND THE FINANCING OF
PRIVATE INVESTMENT
Sources of credit supply
Private domestic financing
Saving and investment
Liquid assets

51
52
53
56
57

U.S. BALANCE OF PAYMENTS
Measures of August 15
Merchandise trade
Capital flows
Year-end perspective




Part 2—Records, Operations, and
Organisation
61

RECORD OF POLICY ACTIONS—BOARD OF GOVERNORS

103

RECORD OF POLICY ACTIONS—FEDERAL OPEN MARKET
COMMITTEE

203

FEDERAL RESERVE OPERATIONS IN FOREIGN
CURRENCIES

205

VOLUNTARY FOREIGN CREDIT RESTRAINT PROGRAM

209
209

LEGISLATION ENACTED
Purchase of Government obligations by Federal Reserve
Banks
Interest on deposits
Emergency Loan Guarantee Act
Export Expansion Finance Act of 1971
Economic Stabilization Act
Farm Credit Act of 1971
State taxation of national banks

209
209
209
209
209
210
211
211
211
212
212
212
213
213
214
217
217
218
219
219

LEGISLATIVE RECOMMENDATIONS
Lending authority of Federal Reserve Banks
Reserve requirements
Loans to bank examiners
Purchase of obligations of foreign governments by
Federal Reserve Banks
Interlocking bank relationships
Federal Reserve Bank branch buildings
Bank investments for community development
Miscellaneous amendments relating to bank holding
companies
LITIGATION
Bank holding companies: Antitrust actions
Review of Board actions
Bank merger
Margin requirements on securities credit
transactions




221
221
223
224
225
225
227
227
228
228
229
229

BANK SUPERVISION AND REGULATION BY THE
FEDERAL RESERVE SYSTEM
Examination of member banks
Federal Reserve membership
Bank mergers
Bank holding companies
Foreign branches of member banks
Acceptance powers of member banks
Foreign banking and financing corporations
Actions under delegation of authority
Bank Examination Schools
Truth in Lending
Fair Credit Reporting Act

231
231
231
231
232
233
234
234
235
236

FEDERAL RESERVE BANKS
Examination of Federal Reserve Banks
Miami office opened
Earnings and expenses
Holdings of loans and securities
Volume of operations
Payments mechanism developments
Loan guarantees for defense production
Foreign and international accounts
Bank premises

237
237

BOARD OF GOVERNORS
Income and expenses

242
244
248
249
250
251

STATISTICAL TABLES:
1. Detailed statement of condition of all Federal Reserve
Banks combined, Dec. 31, 1971
2. Statement of condition of each Federal Reserve Bank,
Dec. 31, 1971 and 1970
3. Federal Reserve Bank holdings of U.S. Government
and Federal agency securities, Dec. 31, 1969-71
4. Federal Reserve Bank holdings of special short-term
Treasury certificates purchased directly from the
United States, 1954-71
5. Open market transactions of the Federal Reserve System during 1971
6. Bank premises of Federal Reserve Banks and branches,
Dec. 31, 1971




STATISTICAL TABLES—Cont.
252
254
256
256
257
257
258
259
260
261
262
266
268
268
270

7.
7. Earnings and expenses of Federal Reserve Banks
during 1971
8. Earnings and expenses of Federal Reserve Banks,
1914-71
9. Volume of operations in principal departments of Federal Reserve Banks, 1968-71
10. Number and salaries of officers and employees of Federal Reserve Banks, Dec. 31, 1971
11. Fees and rates under Regulation V on loans guaranteed
pursuant to Defense Production Act of 1950,
Dec. 31, 1971
12. Margin requirements
13. Member bank reserve requirements
14. Federal Reserve Bank interest rates, Dec. 31, 1971
15. Maximum interest rates payable on time and savings
deposits
16. Principal assets and liabilities, and number of commercial and mutual savings banks, by class of bank,
Dec. 31, 1971, and Dec. 31, 1970
17. Member bank reserves, Federal Reserve Bank credit,
and related items—end of year 1918-71 and end of
month 1971
18. Changes in number of banking offices in the United
States during 1971
19. Number of par and nonpar banking offices, by Federal
Reserve district, Dec. 31, 1971
20. Number of par and nonpar banking offices, by State
and other area, Dec. 31, 1971
21. Description of each merger, consolidation, acquisition
of assets or assumption of liabilities approved by the
Board of Governors during 1971

292

MAP OF FEDERAL RESERVE SYSTEM—DISTRICTS

294
296
297
298

FEDERAL RESERVE DIRECTORIES AND MEETINGS:
Board of Governors of the Federal Reserve System
Federal Open Market Committee
Federal Advisory Council
Federal Reserve Banks and branches

322

INDEX




"Part 1
cMbnetarypolicy
and the
r
.£. Sconomy




in 1971

Principal Federal Reserve Policy Actions, 1971: Digest



Principal Federal Reserve Policy Actions, 1971: Digest
Period, or
announcement date

Action

Purpose

January 7

Reduced the discount rate from 5Vi per cent
to 5lA per cent at 10 Reserve Banks, effective
January 8. (By January 15, the 5V4 per cent
rate was in effect at all Reserve Banks.)

To bring the discount rate
into better alignment with
short-term interest rates, which
had declined further since the
previous reduction in the discount rate was announced on
November 30.

January

Directed that System open market operations
be conducted with a view to maintaining bank
reserves and money market conditions consistent with the objective of promoting accommodative conditions in credit markets and moderate expansion in monetary and credit aggregates.

To foster financial conditions conducive to the resumption of sustainable economic
growth, while encouraging an
orderly reduction in the rate
of inflation and the attainment of reasonable equilibrium
in the country's balance of
payments.

January 15

Amended Regulation M to permit U.S. banks
to count toward maintenance of their reservefree Euro-dollar bases any funds invested by
their overseas branches in Export-Import Bank

A further step to temper the
adverse impact of Euro-dollar
outflows on the U.S. balance
of payments.




securities offered under the program announced
on January 15 by the Export-Import Bank. For
those banks that have had a minimum (3 per
cent of deposits) reserve-free base, postponed
for 4 weeks, through the computation period
of February 17, 1971, the application of the
automatic downward adjustment of their bases.
January 18

Reduced the discount rate from 5lA per cent
to 5 per cent at 6 Reserve Banks, effective
January 19. (By January 29, the 5 per cent
rate was in effect at all Reserve Banks.)

To take into account the
further declines that had taken
place in short-term market
rates.

Early February
through early
April

Directed that System open market operations
be conducted with a view to maintaining prevailing money market conditions while accommodating downward movements in long-term
rates, with a provision for modification of operations if it appeared that the monetary and
credit aggregates were falling short of (after
early March, deviating significantly from) the
growth paths expected.

To foster financial conditions conducive to the resumption of sustainable economic
growth, while encouraging an
orderly reduction in the rate
of inflation and the attainment
of reasonable equilibrium in
the country's balance of payments.

February 12

Reduced the discount rate from 5 per cent to
4% per cent at 11 Reserve Banks, effective
February 13. (By February 19, the 4% per
cent rate was in effect at all Reserve Banks.)

To accord with the System's
recent practice of making small
changes in the discount rate to
keep it in closer alignment
with short-term market rates.




Principal Federal Reserve Policy Actions, 1971: Digest—Continued
Period, or
announcement date

Action

Purpose

April 1

Amended Regulation M to permit U.S. banks
to count toward maintenance of their reservefree Euro-dollar bases any funds invested by
their overseas branches in U.S. Treasury securities offered under the program announced
on April 1 by the Treasury.

To temper the adverse impact of Euro-dollar outflows
on the U.S. balance of payments.

Early April
through early
May

Directed that System open market operations
be conducted with a view to attaining temporarily some minor firming in money market
conditions, while continuing to meet some part
of reserve needs through purchases of coupon
issues in the interest of promoting accommodative conditions in long-term credit markets,
with a provision for modification of operations if it appeared that the monetary and
credit aggregates were deviating significantly
from the growth paths desired.

To foster financial conditions conducive to the resumption of sustainable economic
growth, while encouraging an
orderly reduction in the rate
of inflation, moderation of
short-term capital outflows,
and attainment of reasonable
equilibrium in the country's
balance of payments.

Early May through
late August

Directed that System open market operations
be conducted with a view to maintaining bank
reserves and money market conditions consistent with the objective of achieving more mod-

To foster financial conditions conducive to the resumption of sustainable economic
growth, while encouraging an




erate growth in monetary aggregates over the
months ahead, while taking account of developments in capital markets.

orderly reduction in the rate
of inflation, moderation of
short-term capital outflows,
and attainment of reasonable
equilibrium in the country's
balance of payments.

July 15

Raised the discount rate from 4% per cent
to 5 per cent at 4 Reserve Banks, effective July
16. (By July 23, the 5 per cent rate was in
effect at all Reserve Banks.)

To bring the discount rate
into better alignment with
short-term rates, which had
increased, and to reflect the
Board's concern over the continuation of substantial costpush inflation in the economy.

Late August
through late
September

Directed that System open market operations
be conducted with a view to achieving bank
reserve and money market conditions consistent with the objective of achieving more moderate growth in monetary and credit aggregates.

To foster financial conditions consistent with the aims
of the Government's new economic program, including sustainable real economic growth
and increased employment,
abatement of inflationary pressures, and attainment of reasonable equilibrium in the
country's balance of payments.

August 24

Amended the continuing authority directive
with respect to domestic open market operations to authorize outright operations in Federal agency securities.

To widen the base of System
open market operations and at
the same time add breadth to
the market for agency issues.




Principal Federal Reserve Policy Actions, 1971: Digest—Continued
Period, or
announcement date

Action

Purpose

Late September
through midNovember

Directed that System open market operations
be conducted with a view to achieving bank
reserve and money market conditions consistent
with the objective of achieving moderate growth
in monetary and credit aggregates, taking account (through mid-October) of developments
in capital markets.

To foster financial conditions consistent with the aims
of the new governmental program, including sustainable
real economic growth and increased employment, abatement of inflationary pressures,
and attainment of reasonable
equilibrium in the country's
balance of payments.

November 10

Reduced the discount rate from 5 per cent to
43A per cent at 7 Reserve Banks, effective
November 11. (By November 19, the 4% per
cent rate was in effect at all Reserve Banks.)

To bring the discount rate
into better alignment with
short-term rates generally, in
recognition of the reductions
that had taken place in those
rates.

Mid-November
through midDecember

Directed that System open market operations
be conducted with a view to achieving bank reserve and money market conditions consistent
with the objective of promoting somewhat

To foster financial conditions consistent with the aims
of the new governmental program, including sustainable




greater growth in monetary and credit aggregates over the months ahead.

real economic growth and increased employment, abatement of inflationary pressures,
and attainment of reasonable
equilibrium in the country's
balance of payments.

December 3

Reduced the margin requirement for purchasing or carrying stocks from 65 per cent to
55 per cent, effective December 6.
Reduced the required deposit on short sales
from 65 per cent to 55 per cent, effective
December 6.

To be less restrictive in
view of the moderate level of
outstanding stock market credit and the absence of indications of the excessive use of
such credit.

December 10

Reduced the discount rate from 4 3 4
to 4Vi per cent at 4 Reserve Banks,
December 13. (By December 24, the
cent rate was in effect at all Reserve

per cent
effective
4Vi per
Banks.)

To recognize the prevailing
levels of market interest rates
and to assist the progress of
economic expansion.

Mid-December
through year-end

Directed that System open market operations
be conducted with a view to promoting the
degree of ease in bank reserve and money market conditions essential to greater growth in
monetary aggregates.

To foster financial conditions consistent with the aims
of the new governmental program, including sustainable
real economic growth and increased employment, abatement of inflationary pressures,
and attainment of reasonable
equilibrium in the country's
balance of payments.




Introduction
In 1971 monetary policy encouraged further substantial growth in
bank reserves, money, and bank credit in helping to stimulate economic recovery from the mild recession of 1969-70. Monetary aggregates in general expanded somewhat more rapidly than they had
the year before. Interest rates fluctuated widely—reflecting, among
other things, shifts in inflationary expectations and large flows of
funds between the United States and foreign countries. After the
President's mid-August announcement of new economic policies,
which included a program of wage and price restraint and far-reaching international, measures to combat inflation and the deterioration
in the balance of payments, interests rates showed a declining trend,
and at the end of the year they were down somewhat, on the average,
from their beginning-of-1971 levels.
For 1971 as a whole the real gross national product rose only 2.7
per cent from the year before. Greatly increased spending for residential construction and larger expenditures by State and local governments helped to sustain economic activity. But economic recovery
was hampered by domestic and international economic uncertainties
and generally cautious attitudes on the part of both businesses and
consumers. Unemployment remained at about 6 per cent of the labor
force throughout the year. And prices, as measured by average
prices of the goods and services that make up the GNP, rose about
as much in the first half of the year, prior to the new economic program, as they had in 1970.
During the first half of the year, surveys of consumer attitudes
suggested that concern about rising prices, as well as fear of unemployment, was causing consumers to hold back on spending. Consumer outlays for goods and services didmise rather substantially, but
the increase reflected in large measure the first-quarter bulge in disposable personal income and auto sales following settlement of the
late-1970 auto strike, a Federal pay raise, and retroactive increases
in social security benefits. The personal saving rate remained exceptionally high.
With the strength of consumer spending uncertain, businessmen
pursued conservative inventory policies, although there was some




strike-related inventory-building during the first half of the year. In
addition, outlays for new plant and equipment were held down by
the sizable amount of excess manufacturing capacity already in place
and by the sluggishness of new orders for the output of these plants.
Defense and nondefense orders from the Federal Government remained at a reduced pace. The cumulative effect of rising costs and
prices limited the ability of U.S. industries to compete in foreign
markets, and in many cases to compete in domestic markets with
goods produced abroad.
During 1971 the U.S. balance of payments worsened dramatically.
The trade balance was only marginally in surplus in the early months
of the year; then it slipped into monthly deficits, making increasingly
evident the extent to which the competitive position of the United
States had eroded.
The worsening of the over-all balance of payments reflected also
the very large outflows of capital from the United States to foreign
countries that occurred in response to interest rate incentives and expectations of changes in currency values. In the early part of the
year U.S. interest rates declined much faster than those in leading
financial centers abroad, and U.S. banks continued to repay Eurodollar borrowings. Foreign official reserves were swollen by these and
other recorded and unrecorded flows of capital. German reserve
gains were especially large until the German mark was permitted to
float upward in May. As evidence of deepening difficulties for the
U.S. balance of payments mounted, international traders and investors shifted out of dollar assets into other currencies on a large scale.
From the end of 1970 to the end of July 1971, U.S. liabilities to
foreign official accounts increased by $12.5 billion to a level of $37
billion, while U.S. reserve assets fell by a little more than $1 billion
to $13.3 billion. In the first 2 weeks of August reserve liabilities
grew by a further $4.5 billion, while reserve assets dropped by another $1 billion.
The worsening in the balance of payments situation heightened
public concern about the effectiveness of policies being pursued to
contain inflation—a concern that was related to the continuation of
large wage settlements and to the lack of evidence that price increases were abating to any significant extent. Interest rates—which
had declined further in the very early months of the year—began to




1. SELECTED ECONOMIC DEVELOPMENTS
CHANGE, PER CENT

-440

-400

300

360
PER CENT PER ANNUM
10
CORPORATE Aaa

1970
1

1971

Excludes SDR allocations.
NOTE.—GNP and price data are based on seasonally adjusted annual rates data from
Bureau of Economic Analysis, Dept. of Commerce; changes from preceding quarter at
compounded annual rates; fixed-weight price index is for gross private product. For definitions of measures of money and credit, see Chart 12, p. 34; for Treasury bills and Aaa
bonds, see Chart 11, p. 32.




rise. Long-term rates in particular were affected by renewed resistance to fixed-income securities on the part of investors who feared
that the value of such securities would be eroded over time through
inflation.
The decline in short- and long-term market interest rates early in
the year had been accompanied by three successive reductions of XA
percentage point in the Federal Reserve discount rate, to a level of
4 3 4 per cent by mid-February. And the monetary aggregates expanded at rapid rates in the first quarter, with growth in Mx (currency and private demand deposits) reflecting increased transactions
demands and the lagged effects of previous declines in interest rates.
Expansion in the broader monetary aggregates was even more rapid
as low levels of market interest rates relative to offering rates on
time and savings accounts, together with the high rate of personal
saving, led to a very large rise in time and savings deposits at banks
and nonbank thrift institutions.
These inflows, and the accompanying easing of over-all credit
conditions, supported a substantial rise in private housing starts and
in expenditures for new residential construction; starts rose from 1.4
million units in 1970 to more than 2 million units in 1971 and exceeded a 2.2-million-unit annual rate in the fourth quarter. Residential construction outlays, along with rising expenditures by State and
local governments, were important forces contributing to economic
recovery during the year.
Growth in the monetary aggregates continued to be rapid in the
second quarter; growth in Mt accelerated to an annual rate of
around 10.5 per cent from its 9 per cent first-quarter pace. This, together with the disappointing performance of prices, was causing
some concern at home and abroad about the adequacy of public economic policies then in effect to contain inflation. At the same time,
the slack in the domestic economy made it clear that monetary policy needed to remain expansive. Under the circumstances, the Federal Reserve continued to provide reserves at a substantial rate, but
in the spring and early summer it did so less readily than earlier in
the year. This policy contributed to the rise in short-term rates that
developed during the second quarter. To bring the discount rate into
better alignment with market rates, the rate was raised by VA of a
percentage point in mid-July to 5 per cent.




In an effort to maintain accommodative capital market conditions,
in view of the comparatively weak expansion of the economy, the
Federal Reserve stepped up its purchases of longer-term Treasury securities during the first quarter. Later in the year, it extended its outright purchases of securities in the open market to include Federal
agency issues. These operations were adopted within the over-all
objectives of System open market operations, and they did not contribute, net, to faster growth in the System's total portfolio of securities or to expansion in bank reserves.
Developments over the first 7 months of the year brought increasingly into question whether conventional monetary and fiscal policies
alone were adequate to combat the cost-push inflation and the
deterioration in the U.S. balance of payments, while at the same time
continuing to promote more vigorous recovery in the domestic economy. The new economic policies initiated in mid-August broadened
the mix of public policy measures with a view to dealing more effectively with the Nation's diverse and, in the short run, partly conflicting objectives.
The basic elements of the new program were a temporary 90-day
freeze on wages and prices, to be followed by a more flexible system
of restraints in the second phase; suspension of the convertibility of
the dollar into gold or other reserve assets; imposition of a temporary surtax of up to 10 per cent on dutiable imports; and certain
fiscal measures designed to stimulate spending, including proposed
elimination of the excise tax on autos and an investment tax credit to
encourage business capital outlays. The program of tax incentives,
with some modifications, was enacted by Congress late in the year,
as was legislation authorizing the continuation of a program of restraint on wages, prices, rents, dividends, and interest. The 10 per
cent surtax was rescinded following the international monetary agreement reached on December 18 in Washington.
The new economic program recognized the need for a sizable and
broadly based revaluation of foreign currencies vis-a-vis the dollar to
help restore the international competitiveness of U.S.-produced
goods. But in addition the new program was intended to encourage
improvements in the Bretton Woods Agreements and to eliminate at
least some of the major foreign trade practices injurious to U.S. exports. After August 15 all major countries allowed their currencies




to rise somewhat in price relative to the dollar, although foreign
official institutions added substantially more to their holdings of dollars.
The monetary agreement signed in Washington in mid-December
allayed international uncertainties that had threatened to impede the
flow of trade and to hinder U.S. economic recovery. Major foreign
countries agreed to an adjustment of exchange rates, the over-all effect of which was to produce a substantial appreciation, on the average, of foreign currencies in relation to the dollar. The settlement
also included a widening of intervention bands to 2V\ per cent on either side of the new exchange rates (or parities) as well as an increase of 8.57 per cent—from $35 to $38 per ounce—in the dollar
price of gold to be requested from Congress.
The new domestic and international economic program was immediately reflected in renewed confidence in credit markets. After midAugust, interest rates declined as inflationary expectations abated
and as fears eased that the worsensing balance of payments might
lead to tighter financial conditions in the United States.
The new wage-price program effectively constrained wage and
price increases during the freeze period. After the freeze ended in
mid-November, some catch-up of wage and price increases developed. The Phase II program of wage and price restraint is being administered by a Pay Board and a Price Commission. The activities of
these two bodies, composed of private citizens, are coordinated by
the governmental Cost of Living Council. The objective of the Phase
II program is to hold average price increases to no more than 2.5
per cent per year, in conformity with the Council's goal of reducing
the rate of inflation to a range of 2 to 3 per cent by the end of
1972. Such an achievement would halve the rate of inflation that had
prevailed in 1970 and the first half of 1971. A Committee on Interest and Dividends was also formed as part of the Phase II program
to see that the behavior of dividends and interest rates—particularly
those that affect the American family, such as on mortgages and
consumer loans—is consistent with the program of wage and price
restraint.
The initial effects of the new economic program appear to have
been stimulative. Immediately after announcement of the price
freeze, there was a surge in purchases of new domestically produced




autos, and consumer purchases of other goods and services, in real
terms, also quickened. Employment gains accelerated as did the
over-all rate of economic activity. In the final quarter of the year,
real GNP rose at an annual rate of around 6 per cent, notably faster
than in the second and third quarters and the highest rate of gain,
except for the strike-recovery period in the first quarter of 1971,
since the first half of 1968.
Monetary developments in the latter part of 1971 were highlighted
by moderation in the growth rates of the monetary aggregates. In
particular, the level of the narrowly defined money stock (M 3 )
showed only a very minor increase from August to December. Following the sharp build-up earlier in the year, when economic uncertainties were pervasive, the public's demand for cash balances leveled
off, reflecting in part reductions in precautionary demands for liquidity as confidence increased. The broader measures of money
continued to expand at substantial rates in the latter part of the year,
although in these too the rate of growth moderated somewhat from
the rapid rates that had occurred in the first half.
At the same time sufficient bank reserves were being provided to
encourage the interest rate declines initially set in motion by the
wage-price freeze. By the year-end longer-term interest rates were
about 1 percentage point below their mid-August levels, and shortterm rates were down by about 1.5 percentage points over the same
period. And in mid-December the discount rate was reduced to AVi
per cent in recognition of the lower levels of market interest rates
and to assist in encouraging a more rapid economic expansion.
Developments in 1971 laid the basis for an accelerated rate of
economic recovery in 1972 and for further moderation of wage and
price pressures. To be sure, effective administration of the Phase II
wage and price program will be critical in maintaining public confidence in the containment of inflation. But this result should be encouraged also by basic economic forces, including continuation of an
ample supply of labor and materials, the absence of demand-induced
inflation generally, and the prospect that faster growth in productivity is likely to accompany more vigorous expansion in over-all
economic activity.
The outlook for a strengthening in demands for goods and services
appears highly favorable. Plant and equipment surveys suggest




greater capital outlays by business in 1972 than in 1971. Moreover,
the realignment of exchange rates should make domestically produced goods more competitive, thus enhancing the potential for exports by U.S. firms and perhaps shifting investment plans toward the
United States. And corporations are now in good financial positions
to expand operations—having worked over the past 2 years to restructure their debt and to improve their liquidity positions.
Residential construction outlays should increase somewhat further
in 1972, given the rising rate of housing starts in the latter part of
1971. The currently ample liquidity of banks and other financial institutions and the continuation of large net inflows of time deposits
suggest that credit will be available to finance construction activity
—even if there is a pick-up in business loan demands at banks. State
and local governments are also likely to increase their spending for
construction; these governments issued very sizable amounts of securities in 1971, and according to preliminary indications their demands
for funds will continue to be large in early 1972. Furthermore, the
Federal budget indicates a stimulative fiscal policy during 1972.
An acceleration of economic recovery will depend importantly on
a strengthening in consumer demands. The saving rate declined
somewhat in the latter part of 1971, suggesting an increased consumer propensity to spend and greater confidence in the longer-run
economic outlook. Increases in consumption together with increases
in construction, investment, and net exports would be likely to stimulate increased holdings of inventories since businesses have followed
comparatively conservative policies in this type of investment over
the past 2 years. Such a pick-up in inventory accumulation has been
a major feature of past cyclical recoveries, when it has played a significant role in inducing gains both in employment and in consumption expenditures.
Other sections of this report analyze developments in certain key
areas of the economy in 1971. A digest of the principal Federal Reserve policy actions in 1971 appears on pages I-VII following page

24.

10



•

Wages, Prices, and
Productivity
On the basis of past experience, the continued slack in labor and
product markets that typified the year 1971 should have generated a
pronounced slowdown in the rate of inflation. However, that did not
happen. Whereas the rate of price increase did moderate in some sectors early in the year, much of the improvement reflected the influence of special factors instead of the usual forces of demand and
supply. In general, wages and prices continued to increase at a rapid
rate throughout the first half of the year. Workers sought higher
wage increases to make up for past reductions in real purchasing
power and to protect future gains in wages from expected further inflation. But businessmen too expected that inflation would continue,
and since their profit margins were already low, they passed the
higher labor costs on in the form of higher prices, where possible.
WAGES
Despite the relatively large amount of unemployment, compensation
per manhour continued to grow at a rapid pace in the first half of
1971. Average hourly compensation in the private nonfarrn economy
increased at an annual rate of 7.2 per cent in this period, slightly
higher than the 7.0 per cent increase for 1970 as a whole. Relatively
large wage gains occurred in most industries, with the greatest being
in contract construction and in transportation and public utilities. In
manufacturing, average hourly earnings-—after allowance for changes
in the industrial composition of factory employment and for overtime
—increased at a rate of 7.0 per cent in the first 6 months of 1971.
One factor contributing to the high rate of wage increases was the
disproportionately large number of major long-term contracts expiring and new settlements negotiated in the latter part of 1970 and in
the first half of 1971, including contracts in such highly visible and
pattern-setting industries as autos,.railroads, containers, and communications.
Another factor was that wage increases of many union workers,
particularly in the manufacturing sector, had lagged behind price in-




11

2. COMPENSATION PER MANHOUR
Changes in Recent Business Cycles

r

57-'58 CYCLE

NOTE.—Bureau of Labor Statistics data, seasonally adjusted, for private nonfarm economy.
Periods covered are as follows:
1957-58 Cycle
1960-61 Cycle
1969-70 Cycle
Year before peak
1956 III-1957 III
1959 11-1960 II
1968 1V-1969 IV
Peak to trough
1957 III-1958 II
1960 11-1961 I
1969 IV-1970 IV
Year after trough
1958 11-1959 II
1961 1-1962 I
1970 IV-1971 IV

creases in the late 1960's. Consequently, there was strong pressure
by union members to catch up on their wages. As a result, contracts
were front-loaded—that is, they had larger increases in the first year
than in following years. In manufacturing, first-year increases averaged 8.7 per cent in the first half of 1971; in nonmanufacturing, they
were smaller than in 1970 but were still considerably larger than in
manufacturing.
Contract settlements in the construction industry, which had been
exceptionally high in recent years, moderated somewhat during
1971; this apparently reflected the efforts of the Construction Industry Stabilization Committee, which was set up in March 1971.
Nevertheless, wage increases allowed in the construction industry
continued to be much higher than the average for all workers.
A slowing in wage increases did become evident in some sectors.
In trade and services, which are typically not unionized, the rate of
advance in wage rates declined somewhat; among nonunion workers

12



3. AVERAGE HOURLY EARNINGS
PERCENTAGE CHANGE
10

CONTRACT CONSTRUCTION

MANUFACTURING

1967

1969

1971

NOTE.—Change from corresponding quarter a year earlier, calculated from BLS data
without seasonal adjustment.

in manufacturing also, wage increases moderated and were less than
for union workers. Still, movements in wage rates in 1971 generally
continued to respond less to slack demands for labor than in previous periods of relatively high unemployment.
PRODUCTIVITY AND UNIT LABOR COSTS
Despite continued rapid increases in wages, pressures on unit labor
costs eased somewhat in the first half of 1971 as a result of a faster
growth in productivity. Output per manhour in the private nonfarm
economy rose at an annual rate of about 3.5 per cent in the second
half of 1970 and the first half of 1971, after showing no gain in late
1969 and early 1970. Productivity increases for the manufacturing
sector of the economy were slightly higher. The higher rate of productivity gains stemmed mainly from cost-cutting efforts by business,
which sought to restrict increases in employment even after demand
and output had started to expand. Hence, increases in unit labor
costs slowed from a peak annual rate of more than 6 per cent for
the private nonfarm economy in 1970 to about 3.5 per cent during
the first half of 1971. Even though cost pressures were reduced,




13

4. OUTPUT PER MANHOUR AND RELATED DATA
PERCENTAGE CHANGE

OUTPUT PER
MANHOUR

COMPENSATION
PER MANHOUR

UNIT LABOR
COSTS

1969

1970

1971

NOTE.—Changes, expressed at annual rates, are based on half-year averages of BLS data
for the private nonfarm economy.

they were still strong enough to generate unacceptably high rates of
price increase—since business was experiencing unusually low profit
margins and was unwilling or unable to absorb higher costs.
PRICES
Against this background, only a few signs of abatement in the rate of
price inflation were apparent during the first half of 1971. A significant reduction did occur in the rate of increase of consumer prices in
the first quarter of 1971, but this improvement reflected in large part
a decline in mortgage rates. In the second quarter the general level
of consumer prices resumed a more rapid upward movement, increasing consumer and business doubts that inflation would be
brought under control in the near future.
Wholesale prices of farm products and food began to rise again in
early 1971. Inflationary tendencies were further intensified by a resurgence in the second quarter of price increases for industrial prod-

14




5. PRICES IN 1971
INDUSTRIAL WHOLESALE COMMODITIES

I

I

I

I

l

I

I

I

I

I

NOTE.—Month-to-month changes at compounded annual rate.

ucts included in the wholesale index; prices of these products had
leveled off in the second half of 1970 and in early 1971. The resurgence reflected in part an upturn in the prices of materials. Prices of
construction materials accelerated sharply as the housing boom
gained momentum, and steel prices were increased in response to the
build-up in inventories and in anticipation of higher labor costs.
The fixed-weighted deflator for gross private product—the broadest measure of the prices of goods and services produced in the private economy—also showed a continued rapid rate of increase. In
the first half of the year the rise was at an annual rate of 5.4 per
cent, more than the increase in 1970.

EFFECT OF THE NEW ECONOMIC PROGRAM
The acceleration of price increases in the second quarter was a factor in the re-evaluation of economic policy. The new economic program announced by the administration in mid-August included, as
noted earlier, measures that temporarily stabilized wages and prices
as part of a package to restrain inflation while promoting faster economic growth and restoring the basis for balance of payments equilibrium.
The 90-day wage-price freeze included in the program was quite
effective. Gross hourly earnings of private nonfarm workers rose at
an average annual rate of only 2.3 per cent between August and November. Wholesale prices of industrial commodities actually declined




15

during this period, while the rise in consumer prices slowed to a 1.7
per cent annual rate. Moreover, since some price changes in the consumer price index are recorded with a time lag, it is likely that the
rise in consumer prices slowed even more than suggested by the published figures.
Before the end of the freeze in mid-November, a Price Commission with seven public members and a Pay Board composed of five
representatives each from labor, management, and the public were
established. The goal of the Pay Board was to reduce increases in
annual wage rates to an average of 5.5 per cent, and the objective
set by the Price Commission was to reduce price increases on the average to a rate of no more than 2.5 per cent—a rate consistent with
the Pay Board's guideline, given the expectation of a growth in productivity at the long-term average rate of about 3 per cent per year.
The Price Commission stated that price increases generally would be
allowed to cover cost increases, but only after productivity gains had
been taken into account, and only so long as profit margins did not
rise above the average of any two of the previous three fiscal years.
It was expected that after the end of the freeze there would be a
period of transition—one in which wage and price increases would
exceed the guidelines in part because of a bunching of increases
deferred during the freeze. Also, in the early months the Pay Board
was expected to have difficulty holding wage increases within the
guideline because of wage contracts previously negotiated that called
for either deferred or retroactive increases of more than 5.5 per cent.
In December, the first full month after the freeze, average gross
hourly earnings for private nonfarm workers increased at an annual
rate of 6.8 per cent.
By the end of the year only a few decisions had been announced
by the Pay Board. In the decisions covering coal miners and railway
signalmen, wage increases well above the guideline were allowed because the contract settlements had occurred prior to the end of the
freeze. For aerospace workers, the Board rejected a 12 per cent,
first-year wage increase negotiated in a new contract concluded after
the freeze and limited any increase in a new contract to 8.3 per cent.
The contracts considered by the end of 1971 covered only a minor
portion of the work force. Moreover, a vast majority of workers are
employed by small companies that are excluded from the prenotifica-

16




tion requirement. Thus, it is still too early to judge the ultimate
effectiveness of Phase II in limiting wage rate increases.
The Price Commission requires that large firms give notification
of intended price increases, and by the end of December a large
number had filed such applications. The Commission appears to
have had some success in reducing requested price increases. Moreover, in some instances where price increases were approved by the
Commission, they have not been put into effect, due to competitive
pressures. However, as expected, an acceleration of price increases
occurred in the immediate postfreeze period. In December, the increase for consumer prices was 4.7 per cent at a compounded annual
rate (Table 1); and for all commodities excluding food, it was 4.2
per cent. Wholesale prices of industrial commodities advanced at an
annual rate of 3.2 per cent, with about half of the increase reflecting
a rise in prices of autos and trucks. The implicit deflator for GNP
rose at an annual rate of only 1.5 per cent in the fourth quarter—reflecting mainly the effects of the freeze.
In the second half of 1971, productivity rose at a 3.0 per cent annual rate in the private nonfarm economy while the rise in compensation per manhour slowed to a 5.5 per cent annual rate. As a
result, the increase in unit labor costs was reduced to a 2.5 per cent
annual rate. As economic activity continues to expand, productivity
gains at least as large as those experienced in 1971 seem likely.
Table 1: PRICE CHANGES
Per cent

1971, compounded
annual rate

Year
Series
1968

Wholesale prices, total
Industrial commodities
Farm products, processed foods,
feeds
Consumer prices, total
Food
Other commodities (less food)
Services

1969

1970

1971

DecAug.

Aug.Nov.

Nov.Dec.

2.5
2.6

3.9
3.3

3.7
3.8

3.2
3.6

5.1
4.9

-0.8
-1.3

8.9
3.2

and
2.4

5.4

3.4

2.0

5.9

4.2
3.6
3.6
5.2

5.4
5.1
4.2
6.9

5.9
5.5
4.2
8.1

4.3
3.0
3.8
5.6

3.8
4.7
2.4
4.5

28.2
1.7
1.7
3.1

4.7
8.3
4.2
3.7

NOTE.—Based on Bureau of Labor Statistics data.




17

18




Demands for Goods
and Services
The expansion in demands for goods and services was quite modest
during 1971. The year began with an upsurge in real GNP, which
increased at an 8 per cent annual rate in the first quarter following a
4 per cent decline in the preceding quarter. But this rise reflected in
considerable measure a rebound in auto output and sales after the
end of the auto strike in late 1970.
In the second quarter the increase in real GNP was less than half as
large as that in the first quarter despite an impressive gain in residential construction activity and stockpiling of steel inventories in anticipation of a possible strike in midsummer. Federal defense spending
continued to be cut, and a further deterioration in U.S. foreign trade
eliminated the positive balance in net exports of goods and services.

6. CHANGE IN GNP
BILLIONS OF DOLLARS

CURRENT-DOLLAR

20

.1

CONSTANT-DOLLAR

I

I

I

I
Ql

1969

1970

1971

Q2

Q3

Q4

1971

NOTE.—Based on quarterly data (seasonally adjusted annual rates) from BE A, Dept. of
Commerce.




19

Gains in industrial production were slight, growth in employment
was slow, and unemployment remained at around 6 per cent of the
civilian labor force. Furthermore, prices continued to increase rapidly during the first half.
The new economic program introduced on August 15 led to an
improvement in the outlook for economic activity. There were signs
that consumer confidence improved in response to the strong measures taken to control inflation. The prospect for consumer spending
was favorably affected by this as well as by fiscal measures included
in the program, such as proposals to remove the excise tax on autos
and to advance to the beginning of 1972 certain personal tax reductions previously scheduled for 1973. Prospective business spending on
capital goods was encouraged by a proposed investment tax credit.
The fiscal elements of the program were enacted, with some modifications, by Congress in December.
Final sales, measured in real terms, rose somewhat more rapidly
in the third quarter than in the second, spurred by a sharp increase
Table 2: GROSS NATIONAL PRODUCT
1971
Item

1969

1970

1971
III
In billions of dollars

GNP, current dollars
Inventory change
Final sales
Private 2
Federal
GNP, constant dollars

IV

1,072.9

l

929.1

974.1

1,046.8

1,020.8

1,040.0

1,053.4

7.4

2.8

2.2

3.1

4.6

-1.2

2.4

921.7
822.6
99.2

971.3
874.1
97.2

1,044.5
946.9
97.6

1,017.7
921.4
96.4

1,035.4
939.4
96.0

1,054.6
957.0
97.6

1,070.4
970.1
100.3

724.7

720.0

739.4

729.7

735.8

740.7

751.3

Percentage change from preceding period
(at annual rates)
GNP in current dollars
GNP in constant (1958) dollars. . .
GNP implicit deflator (1958 = 100).

1

7.5
2.6
4.8

4.8
-.6
5.5

7.5
2.7
4.6

Quarterly data are seasonally adjusted annual rates.
Adjusted to include State and local governments.
NOTE.—Basic data from Department of Commerce, BE A.

2

20




13.7
8.0
5.4

7.8
3.4
4.2

5.2
2.7
2.5

7.6
5.8
1.7

in purchases of domestically produced autos after announcement of
the new economic program. However, liquidation of inventories, particularly excess steel stocks, resulted in a further slowing of the
growth in GNP (Table 2 ) . Late in the year over-all economic activity accelerated as inventory accumulation was resumed, as outlays
for residential construction continued to rise, and as the rate of real
business capital spending picked up. Surveys made late in the year
indicated that businesses planned a sizable increase in outlays for
plant and equipment in 1972.
Although the economy was showing increased evidence of upward
momentum late in the year, this momentum was not yet reflected in
a significant reduction in the unemployment rate or in an increase in
the rate of capacity utilization in manufacturing. The unemployment
rate remained at 6 per cent as growth in new jobs was offset by an
increase in the number of new jobseekers.
RESIDENTIAL CONSTRUCTION
Residential construction continued to expand vigorously throughout
1971, as mortgage funds were in ample supply and interest rates
were declining. Private housing starts rose from an average annual
rate of 1.3 million units in early 1970 to an average rate of 2.2 million units in the final quarter of 1971. For the year as a whole, such
starts approached 2.1 million units—a new high, which surpassed by
7 per cent the record that had stood since 1950. There was some
shift in the mix away from the smaller, less expensive single-family
homes that had characterized the market in 1970 when subsidized
units had accounted for a larger proportion of the total. But builders
continued to feature a high proportion of townhouses and apartments
in an attempt to offset higher land and construction costs. In addition to the reqord number of housing starts, shipments of mobile
homes reached one-half million units, which also represented a new
high.
The improvement in housing starts was reflected in strong increases in residential construction expenditures, which were still rising as the year drew to a close. Spending for new homes also helped
to keep consumer outlays for such durable goods as furniture and
appliances on a generally upward path. For 1971 as a whole overall expenditures for residential construction were some $10 billion,




21

7. PRIVATE HOUSING ACTIVITY
MILLIONS OF UNITS

2.5

2.0
STARTS

1.5

1.0
^

I
1969

I
1970

^

0

1971

NOTE.—Bureau of the Census monthly data at seasonally adjusted annual rates, converted to quarterly averages by Federal Reserve.

or 34 per cent, larger than in 1970; in real terms this represented a
gain of about 27 per cent.
CONSUMER INCOME AND OUTLAYS
Because of tax cuts, a Federal pay raise, and an increase in wages
and salaries that reflected the resumption of auto production and related activities following the strike, disposable personal income rose
by more than $20 billion in the first quarter of 1971, almost twice
the average quarterly increase in 1970. The rise in consumption almost equaled that in disposable income, with more than half of the
increase being attributed to renewed auto buying. Sales of domestictype autos in the first quarter were at an annual rate of 8.4 million
units—up sharply from the 5.4 million annual rate of the strike-depressed fourth quarter of 1970. According to surveys, however, consumers continued to be concerned about inflation and unemployment. For the most part, therefore, they remained cautious, and the
saving rate remained above 8 per cent.
Growth in consumer spending tapered off in the second quarter
despite a sizable further rise in disposable income. In real terms such
spending increased at an annual rate of about 4 per cent, but this
was less than half the rate in the preceding quarter.

22




8. CONSUMER INCOME, OUTLAYS,
AND SAVING
PERCENTAGE CHANGE

15

1970

NOTE.—Based on seasonally adjusted annual rates data from BEA, Dept. of Commerce.
Income and expenditures are change from preceding quarter. Saving rate is percentage of
disposable personal income.

In response to the new economic program, sales of new domestictype autos, which had leveled off after the first quarter, spurted sharply to an average annual rate of 9.7 million units during the 90-day
period, mid-August to mid-November, when the price freeze and the
import surcharge were in effect and the proposal to remove the excise tax on autos was being considered. Sales of foreign auto models
fell during this period, in part because newly imported autos (subject
to the import surcharge) became more expensive relative to domestic cars during the freeze, and later because of limitations on supply
as a result of the dock strikes. In late November and in December,
after the price freeze had ended, sales of domestic units dropped
back to an average rate of 8 million units.
Purchases of durable goods other than autos and of nondurable
goods and services rose moderately in the latter half of the year
(Table 3), and in real terms increases in total consumer spending
continued at about the 4 per cent rate of the second quarter. The
saving rate remained above 8 per cent until the fourth quarter when
it edged down to about 7.8 per cent as gains in consumption ex-




23

Table 3: CHANGES IN MAJOR COMPONENTS OF GROSS NATIONAL
PRODUCT
In billions of dollars, except for saving rate
1971 i
Item

1969

1970

1971
I

Gross national product
Personal consumption expenditures
Durable goods
Nondurable goods
Services
.
Saving rate {level, in per cent)
Fixed investment
Residential structures
Nonresidential.

64.9
43.4
5.9
16.8
20.8

45.0
36.2
-1.3
17.1
20.4

II

III

IV

72.7

32.4

19.2

13.4

19.5

46.3
11.9
13.9
20.5

20.2
11.7
2.3
6.1

12.5
2.5
4.6
5.5

11.4
3.7
2.4
5.3

8.4

.8
3.1
4.5

6.0

7.9

8.2

8.1

8.6

8.1

7.8

11.5
9^8

2.1
-1.4
3.5

16.8
10.2
6.6

6.6
2.6
3.9

8.1
4.6
3.6

3.7
2.7
1.0

5.0
1.7
3.3

.3

-4.6

-.6

-.6

1.5

-5.8

3.6

Net exports of goods and services
Exports
Imports

-.5
5.0
5.5

1.6
7.3
5.7

-3.6
2.4
6.0

2.0
3.0
1.0

-4.6
.3
4.9

-.1
1.7
1.8

-4.6
-7.8
-3.2

Govt. purchases of goods and services
Federal
Defense
Other
State and local.

10.1
.4

9.7
-2.0
-3.0

13.6
.4
-4.0

4.2
.5
- 6

1.7
4
-1.2

4.2
1.6
-1.2

7.0
2.7

Inventory change

.1
.2
9.8

1.2

4.3

11.6

13.3

1.0
3.7

.9
2.0

2.8
2.6

1.2
1.5
4.3

1

Seasonally adjusted annual rates.
NOTE.—Based on data from BE A, Dept. of Commerce.

ceeded those in income and the increase in consumer instalment debt
accelerated.
BUSINESS INVESTMENT
The relatively small increases in 1971 in business spending for new
plant and equipment and for inventories were among the most important reasons for the sluggish economic growth during much of the
year. Business investment in new fixed capital, while increasing by
more than 6 per cent in current dollars, showed little change over
1970 in real terms. Businessmen's continued cautiousness in regard
to capital investment reflected several factors: the lack of ebullience
of consumer and business sales; the continued low rate of manufacturing capacity utilization—less than 75 per cent; and the continuation of before-tax corporate profits at levels significantly below those
of 1968-69, although such profits did show a notable improvement
through midyear.

24




Attempts were made to stimulate capital investment early in the
year through liberalization of depreciation allowances, but the measures proposed were subject to legal challenges until near the yearend when the allowances, in considerably reduced form, were included in the Revenue Act of 1971. This Act also included a 7 per
cent retroactive investment tax credit.
Investment was particularly weak in the manufacturing sector. Declines in spending were pronounced in the primary metals, machinery, and transportation equipment industries; these industries suffered
not only from cutbacks in spending for defense and for aerospace but
also from sluggish demands generally. Investment was also cut by
railroads, where cyclical problems predominated, and by airlines,
where seating capacity was well in excess of passenger traffic. Capital
spending by electric utilities, communications, and commercial firms,
however, remained relatively strong throughout the period.
9. BUSINESS INVESTMENT AND
CAPACITY UTILIZATION
BILLIONS OF DOLLARS

BUSINESS FIXED INVESTMENT
110

100

90

80

70
0
1969

1970

NOTE.—Fixed investment:
Commerce.




Seasonally

1971

adjusted

annual rates data from BEA, Dept. of

25

The relatively low rate of inventory investment, which totaled only
$2 billion for the year 1971, reflected the relatively high ratio of
inventories to sales with which businesses had started the year. In
contrast to experience in previous cyclical downturns, total inventories had not been reduced in 1970, and sluggish consumer demand,
lack of ebullience in capital spending, and the decline in spending for
defense purposes contributed to holding down inventory investment
in 1971.
Steel was stockpiled early in the year in anticipation that there
might be a strike in the steel industry when labor contracts expired
on July 31, but after that date steel stocks were sharply reduced, resulting in an over-all net inventory liquidation during the third quarter. Thus, stock/sales ratios, which had been declining irregularly
throughout 1971, ended the year at appreciably lower levels than
had prevailed at the beginning. Although inventory investment remained modest in the fourth quarter, the swing from liquidation to
accumulation contributed importantly to the acceleration of growth
in GNP.
GOVERNMENT
Federal Government purchases of goods and services showed relatively little net change from 1970 to 1971. Increased purchases for
nondefense purposes were about offset by further declines in defense
outlays. The average size of the Armed Forces was cut by nearly
371,000 from 1970, while civilian employment was little changed.
However, Federal spending was sustained by a Government-wide pay
increase early in the year and a further increase in pay of the armed
services in November; the latter increase was designed to facilitate
the building of an all-volunteer service.
On the other hand, purchases of military hardware declined further. The cumulative effects of such cutbacks were severe on the defense products industries and their suppliers. Production of defense
and space equipment edged down through April and remained sluggish thereafter, and at the year-end employment in defense products
industries was more than 100,000 below year-earlier levels.
In contrast to purchases of goods and services, total Federal Government expenditures rose substantially in the calendar year 1971
(Table 4 ) . Grants-in-aid to State and local governments, which ran

26




Table 4: FEDERAL GOVERNMENT RECEIPTS AND EXPENDITURES
Federal Sector NIA Accounts
In billions of dollars
Calendar year

1971 i

Item
1969
Receipts
Expenditures
Purchases of goods and
services
Other
Surplus or deficit

1970

1971

I

II

III

IV

196.9
189.5

191.5
205.1

198.7
221.4

196.5
212.7

197.7
221.4

197.8
224.6

2 202.8
228.7

99.2
90.3
7.3

97.2
107.9
-13.6

97.6
124.3
-23.1

96.4
116.3
-16.2

96.0
125.4
-23.7

97.6
127.0
-26.7

100.3
128.4
2 -25.9

1

Seasonally adjusted annual rates.
- Implied in calendar year totals.
NOTE.—Based on data from Dept. of Commerce, BEA. The Federal sector in the national
income accounts (J^JIA) measures Federal receipts and expenditures as they directly affect
private incomes in the national accounts. Thus it excludes all Federal lending, which affects
private debt but not incomes. Also the timing in some transactions is on an accrual basis;
in others, on a delivery basis.

$5 billion more than in 1970, together with higher social security
benefits and increases in other transfer payments, boosted Federal
Government expenditures by about $17 billion from 1970. At the
same time, additional tax reductions enacted during the year—including the auto excise tax reduction and the retroactive investment
tax credit—and a slower-than-anticipated rate of economic growth
caused increases in receipts to fall short of original expectations.
Consequently, the Federal budget deficit (national-income-accounts
basis) was $23 billion in calendar year 1971, nearly $10 billion
larger than in 1970.
The strong growth trend of recent years in purchases by State and
local governments continued in 1971; such purchases rose by over
$13 billion, nearly $2 billion more than the increase in 1970.
Wages paid by these governments continued to move up at a brisk
pace, but the gain in employment was somewhat less than the average for other recent years. This slowing reflected in large part resistance by taxpayers to higher costs and reduced needs for hiring new
teachers because of a smaller rise in school enrollments. New Federal legislation subsidizing specific kinds of public service employment in State and local government had only a limited impact,
mainly because the program was operational only in the last few
months of the year.




27

Although State and local government borrowing was facilitated by
easier conditions in financial markets and lower interest rates, a large
portion of the additional funds so obtained were apparently used to
strengthen financial positions, and construction expenditures appear
to have increased relatively little over the year as a whole.
MANPOWER UTILIZATION
The labor market continued slack in 1971 and unemployment remained relatively high (Table 5 ) . After a year of decline, nonfarm
payroll employment began to rise in early 1971, but the gains were
small and they were concentrated in the nonindustrial sectors of the
economy—particularly in services and in State and local government.
Manufacturing employment, which had fallen sharply throughout
1970, continued to edge down, and prior to the introduction of the
new economic program it was 1.8 million below the peak reached in
1969. Employment of both production and nonproduction workers
was cut as businesses continued to take measures to limit increases
in labor costs. Nor was there any indication at midyear that employers were lengthening the workweek, as was typical of previous recovery periods.
The unemployment rate, which had risen to slightly over 6 per
cent at the end of 1970, went no higher in the first half of 1971 because there was little growth in the civilian labor force. Many workers who might normally have sought jobs were discouraged from
Table 5: LABOR MARKET INDICATORS
Changes in thousands of persons, except for unemployment rate,
which is rate in final quarter of each year.
Year ending fourth quarter of—
Item
1969
2,339
-53

Total labor force
Armed Forces
Civilian labor force
Total civilian employment
Unemployment

rate

(per

Nonfarm employment:
Total
Manufacturing

cent)....

1970
1,330
-444

2,392
2,168
3.6

1,774
5.8

1,268
-352
1,620
1,428
5.9

2,033
187

-719
-1,473

893
-81

1971

NOTE.—Based on BLS data not adjusted for seasonal variation.

28




10. EMPLOYMENT AND UNEMPLOYMENT
CHANGE, MILLIONS OF PERSONS

NONFARM EMPLOYMENT

1969

1970

1971

NOTE.—Quarterly data, seasonally adjusted, from BLS.

doing so by high unemployment and by the lack of new hiring. At
midyear the unemployment rate of white workers was 5.5 per cent,
about the same as at the start of the year, but for Negroes and other
races combined it had reached a rate of about 10 per cent.
Nonfarm employment, after declining slightly in the third quarter,
began to rise again in the closing months of the year, as manufacturing employment stabilized and service-type industries continued to
add workers. By the year-end employment in service-type industries
had risen by 1.1 million from a year earlier, with both trade and
State and local governments showing sizable gains. But as economic
prospects improved in the second half, strong increases in total employment were matched by stepped-up growth of the civilian labor
force. As a result the unemployment rate continued at about the 6
per cent level. However, an increase in the average workweek after
September and a reduction in insured unemployment toward the yearend indicated some strengthening in the labor market.
•




29

Monetary Aggregates and
Interest Rates
The money and bank credit aggregates expanded substantially in
1971 (Table 6), while market interest rates receded further from the
already reduced levels of late 1970. During the year, however, both
interest rates and rates of growth in the aggregates varied over a wide
range.
Table 6: SELECTED MONETARY
AGGREGATES, 1971
Change, in per cent
Money stock:
Mi
Mi
Mz

6.2
11.1
13.3

Adjusted credit proxy

9.5

Total reserves

7.3

Nonborrowed reserves.

8.1

NOTE.—For definitions of the three measures of
the money stock and the credit proxy, see Chart
12, p. 34. Total reserves are required reserves held
against member bank deposits and nondeposit items
subject to reserves, plus excess reserves. Nonborrowed reserves are total reserves less member
bank borrowings from F.R. Banks.

In the early weeks of 1971 the cyclical decline in interest rates
that had accompanied the 1970 recession continued. And for a
while growth of the narrowly defined money stock (M x ) was sluggish. In the course of the first quarter, however, both of these tendencies were reversed. Money and bank credit aggregates showed
rapid growth until midsummer, and some interest rates—influenced
in part by disappointment as to progress in curbing inflation—rose
as much as 200 basis points to levels well above those that had prevailed at the end of 1970.
After the mid-August announcement of the new economic program, inflationary expectations abated and interest rates declined
again, reaching year-end levels generally below those that had pre-




31

vailed at the beginning of the year. At the same time, growth of the
money and bank credit aggregates slowed. The deceleration was particularly marked in the narrowly defined money stock, where there
had been a sharp build-up in cash balances earlier in the year. For
the year as a whole, Mi grew at an annual rate of 6.2 per cent,
somewhat more than in 1970, while M.2 (MA plus time and savings
deposits other than large negotiable certificates of deposit) and the
adjusted bank credit proxy grew by 11 and almost 10 per cent, respectively. Total reserves of member banks rose by over 7 per cent.
Strong demands for credit in 1971 were a factor limiting interest
rate declines, particularly in long-term markets. Total funds raised in
all credit markets exceeded the previous record, of 1970, by about
$50 billion. Borrowing by the Federal Government to finance a record postwar deficit accounted for a sizable part of this increase, but
private financing also expanded substantially. New records were set
11. INTEREST RATES
PER CENT PER ANNUM
LONG-TERM

1970

1971

1970

NOTE.—Monthly averages. Yields: U.S. Treasury bills, market yields on 3-month issues;
corporate bonds, weighted averages of new publicly offered bonds rated Aaa, Aa, and A
by Moody's Investors Service and adjusted to an Aaa basis; U.S. Govt. bonds, market
yields adjusted to 10-year constant maturity by U.S. Treasury; State and local govt. bonds
(20 issues, mixed quality), Bond Buyer. Home mortgages, FNMA auction; commitments
on 3-month maturities until mid-October 1971, and 4-month maturities thereafter.

32




in mortgage debt expansion; in total financing by nonfinancial corporations, including stocks and bonds; and in borrowing by State and
local governments.
Bank and nonbank thrift institutions were of particular importance
in supplying the increased volume of funds raised. The generally
easy and accommodative stance of Federal Reserve policy contributed to a sharp growth in thrift deposits at these institutions because
interest rates in short-term markets remained low relative to those
paid on time and savings accounts.
The ample availability of funds at commercial banks encouraged
sizable increases in real estate and consumer lending and in loan
commitments to business. Takedowns of business loan commitments were quite small, however, as businesses, in lieu of bank
credit, continued to rely heavily on capital market financing and as
they obtained increased amounts of funds internally through improved profits and rising capital consumption allowances. Banks also
channeled a large share of their deposit inflows into security investments, adding in the process to their own liquidity.
At nonbank thrift institutions too, heavy inflows of deposits supported an improvement in liquidity along with a large increase in
mortgage lending. In addition, mutual savings banks invested a substantial portion of their deposits in the corporate bond market. A
part of the improvement in liquidity reflected large paydowns by the
savings and loan associations of advances from the Federal home
loan banks. Reduced reliance on the home loan banks and on the
Federal National Mortgage Association permitted these institutions,
in turn, to reduce substantially their own demands on securities markets.
DEVELOPMENTS PRIOR TO AUGUST 15
Early in 1971 growth of the narrowly defined money stock remained
quite small, carrying over the pattern of sluggishness that had developed during the auto strike in late 1970. Once the sharp poststrike
catch-up in current-dollar GNP was under way, however, growth in
the money stock accelerated at a rapid pace. From February through
July, Mi grew at an unusually high annual rate, about 11 per cent.
To a considerable extent this expansion reflected the enlarged
need for transactions balances created by the rapid rate of growth in




33.

current-dollar GNP during the first half of 1971. In addition, the
over-all demand for money in this period appears to have been reinforced by the lagged effects of the sharp decline in short-term interest rates that had started in the summer of 1970 and had carried
through the first quarter of 1971. Finally, demands for liquidity may
also have been enhanced by prevailing uncertainties about the domestic economic and employment outlook and international financial
conditions.
The increased demand for liquidity was also reflected in public acquisition of thrift-type deposits at financial institutions. Such demands were reflected in the two broader measures of the money
stock, which grew even faster than M^ during the first half of 1971.
In addition to the general demand for liquidity—and the high rate of
consumer saving—the sharp growth in thrift accounts represented a
continuation of the expansion in such deposits that had been triggered by the drop in market rates of interest during the latter half of
1970. Since average rates paid on thrift accounts declined only a lit-

12. MONETARY AGGREGATES
Growth in 1971

L

Q2

MEASURES OF MONEY

Q4

ADJUSTED
CREDIT PROXY

Mi: Currency held outside the Treasury, F.R. Banks, and the vaults of all commercial
banks, plus demand deposits other than interbank and U.S. Government.
M-y. Mi plus time deposits at commercial banks other than large certificates of deposit.
Ms: M-2 plus deposits of mutual savings banks and savings and loan shares.
Adjusted credit proxy: Total member bank deposits subject to reserves, plus Euro-dollar
borrowings, bank-related commercial paper, and certain other nondeposit items.
NOTE.—Quarterly rates of growth derived from daily-average data for last month of the
quarter relative to that for last month of preceding quarter.

34







35

13. BANK FUNDS
Major Sources in 1971
BILLIONS OF DOLLARS

40

ALL MAJOR SOURCES
30

TIME AND SAVINGS DEPOSITS
EXCL. LARGE CD's

NONDEPOSIT SOURCES
I
D

I
J

I
F

I
M

A

I
M

I
J

I
J

I
A

I
S

I
0

I
N

D

NOTE.—Time and savings deposits other than large certificates of deposit and private
demand deposits are for all commercial banks. Time and savings deposits other than large
CD's exclude those due to domestic commercial banks and to the U.S. Government as well
as balances accumulated for repayment of personal loans. Large CD's are negotiable CD's
issued in denominations of $100,000 or more by major commercial banks. U.S. Government
deposits and nondeposit sources of funds data are for member banks only.

in a large debt refinancing and a pre-refunding at the time, the market was especially sensitive. Later, when it became apparent that
money market conditions were continuing to ease and that the basic
strength of the economy was subject to question—once allowance
had been made for the auto-strike catch-up—long-term rates declined again, notwithstanding the heavy volume of capital market
financing. This further decline was abetted by large Federal Reserve
purchases of longer-maturity Treasury securities.
After mid-March, however, both short- and long-term rates began
a sustained uptrend that extended to midsummer and again raised

36




rates generally to levels aboYe those of late 1970. A number of factors contributed to this over-all advance. One was the stronger-thananticipated demands for borrowing; in particular, capital market
financing by businesses and State and local governments became
larger and more sustained than had earlier seemed likely. At the
same time U.S. Treasury borrowing remained large, and estimates of
the volume of financing to be undertaken by the U.S. Government in,
the second half of the year expanded as the year progressed.
During the spring of 1971 the Federal Reserve, in an effort to
slow the continued rapid growth of the monetary aggregates^ began
to supply reserves less aggressively and thus contributed to a tightening of money market conditions. The accelerated rate of growth in
the monetary aggregates in the first quarter offset the relatively sluggish growth of the preceding quarter and supported the poststrike
catch-up In current-dollar GNP. But persistence of such rapid
growth rates into the spring raised questions in. the minds of some
observers as to the prospects both for success in controlling domestic
inflation and for the future course of monetary policy.
Over the second quarter, the gradual tightening of money market
conditions tended to accentuate the upward pressures on interest
rates being exerted by other factors. In an effort to promote accommodative conditions in longer-term markets, the System supplied reserves to the extent feasible through purchases of Treasury issues
maturing in. more than a year.
Market rates, particularly short-term rates, were also influencing,
and were being influenced by, international lows of liquid or speculative funds during this period. The marked further widening of
spreads between U.S. and foreign, interest rates that had developed in
..•arly 1971 appeared to be encouraging an increase in capital outflows over and above the large repayments of Eu.ro-doll.ar borrowing
by major banks. With deterioration of the trade balance also contributing to a marked over-all worsening in the U.S. balance of payments, large dollar outiows in anticipation of possible adjustments ie
exchange rates began to develop during April. Although these outflows subsided temporarily after seYeral key European currencies
were allowed to float or were revalued upward in May, uncertainties
about the international monetary outlook persisted.
Around midyear the pace of the general advance in interest rates




37

seemed about to quicken. At that time deepening concern about the
state of the U.S. trade balance appeared to be threatening a resurgence of speculative dollar outflows on an even larger scale than in
April. This trend, together with the continued active expansion of
the monetary aggregates and growing frustrations about the stubborn
persistence of wage and price pressures, seemed to presage an immediate further firming of money market conditions.
This market expectation was strengthened by an increase in the
discount rate in July by VA of a percentage point to 5 per cent. With
the period of heavy deficit financing by the Treasury just getting
under way, and with long-term rates remaining high in an environment marked by disappointment about the progress being made to
curb inflation under prevailing policies, further general rate increases
were beginning to seem inevitable.
LATER DEVELOPMENTS
Once the President had announced his new economic policies, however, interest rates reversed course. The ensuing downtrend reflected,
in large part, the diminution of inflationary expectations resulting
from the institution of wage-price controls. This, together \^ith the
new measures tg improve the balance of payments and the functioning of international exQjiarjge markets, also led market participants tg
modify their earlier view that monetary policy would have to seek
more restrictive money market conditions.
Treasury bill yields had declined somewhat even before the ^President's new policies were announced, and after the announcement
they dropped faster than other market rates of interest. The. decline
in bill yields in July reflected the relative ease with which the Treasury had met its first large financing needs of the new fiscal year, Purchases of Treasury bills by foreign offipial ^counts contributed t,o
the .easing of conditions in the bill market after midyear as foreign
official institutions were acquiring dollars in support of their own
currencies as speculation against the dollar; mounted.
,t
Dollar outflows continued at a high rate jfg>llo,wing the general floating of exchange rates in mid-August, and foreign official demand for
U.S. Government securities remained strong. At the same time, the
supply of new bill offerings in the market was substantially less than
had previously been anticipated because acquisitions of special issues

38







The initial phase of the slowdown appeared to be associated with the
Increased outflow of dollars during August. Speculators and liedgers
had sought to profit from, or protect themselves against, the expected
rise in value of foreign currencies relative to the dollar. Some domestic holdings of dollar balances were drawn down in the process, but
the bulk of the outflow was probably financed in other ways. For example, both domestic and foreign demands for loans at U.S. banks
increased sharply in August, and the proceeds of many of these
loans were used to prepay liabilities in foreign currencies or to acquire foreign currencies for future payment or to profit from future
revaluations.
The public's demand for money in the late summer and early fall
remained lower relative to income than it had been in preceding
months. In this period the public may ha¥e shifted out of cash balances built up earlier for precautionary reasons and into market securities in an effort to capture peak yields, in Yiew of the widespread
expectations that the new economic program would lead to lower interest rates. In addition, improved public confidence In both the
domestic and the international economic outlook probably reduced
the demand for liquidity. Finally, the increases in interest rates during the spring and early summer had made it cost more to hold
money, and this earlier rise in rates continued into the fall to affect
the demand for money.
By the third quarter the higher level of interest rates had already
contributed to a significant slowing of the growth in consumer-type
time and savings deposits at banks, despite a reversal of the scattered
rate cuts that had been instituted at a number of major institutions
in the spring. Inflows also had slowed at nonbank thrift institutions
—but to a lesser degree inasmuch as these institutions still paid
higher rates on deposits than banks did and fewer of them had reduced offering rates in the spring. With savings inflows thus more
moderate, growth of M2 and M 3 decelerated, although not so sharply
as Mx.

Growth in bank credit—as measured by the adjusted credit proxy
—did not fall off nearly so much in the third quarter as the money
stock aggregates. Cutbacks in the expansion of private demand and
consumer-type time deposits at banks were generally offset by an expansion, in large negotiable CD's (many of which were taken by for-

40




cit'll accounts), by increases In \ ^ O o ^ ; 5 merit deposits (arising
Hum the large foreign official purchases of special Treasury certificates), and by a virtual cessation of U.S. bank repayments of Eurodollar borrowings to their foreign branches.
Similarly, in the fourth qo.ai.ter, even though Mx expanded at an
annual, rate of only 1 per cent, the credit proxy rose at close to a 10
.
;vr cent annual rate, or a little faster than in the third quarter. This
fourth-quarter expansion reflected, a sharp acceleration in time and
savings deposits other than CD's to a 15 per cent annual rate; as a
result M2 in this period accelerated to an 8 per cent rate of growth,
despite the slow growth in M,,
Over 1971 as a whole, the monetary aggregates expanded substantially. While growth in M, was sluggish in the latter pail of the
year, it had been very rapid earlier in the period. Broader measures of
the money stock grew considerably faster than Mx and contributed to
greater public liquidity, while credit from banks and other financial
institutions remained ample throughout the year. By the year-end
most interest rates were at or near their lows for the year. Rates in
short-term markets had declined quite sharply as monetary policy
was directed toward promoting the degree of ease in bank reserves
that would lead the monetary aggregates to grow at a rate sufficient
to support accelerated economic recovery.
•




Total Credit Flows and the
Financing of Private
Investment
The net flow rif credit through domestic markets was at an unprecedented rate in 1971, both in dollar amounts and in relation to economic activity. Net funds reached a total of $15 f billion, about 50
per cent more than in any previous year. The total was 14 per cent
of GNP, well above the 1^968 high of 11 per cent and the 10 per
cent average for the 1960's.
This record volume of credit consisted mainly of a combination of
heavy Federal borrowing to cover the year's deficit, a volume of private financing that was large relative to capital outlays, and State
arid local government borrowing well in excess of fiscal needs. Foreign borrowing in U.S. markets was also sharply higher than in 1970
and earlier years, but it remained a small part of the total.
SOURCES OF CREDIT SUPPLY
The financing of such large credit flows was accomplished with market interest rates declining somewhat over the year, although sizable
fluctuations in such rates occurred during the year. Rates in shortterm markets Were unusually low relative to long-term rates—such
as those for mortgages and corporate bonds—and savings institutions
that lend predominantly in long-term markets offered yields on deposits that were very attractive relative to money market rates. In
view of this rate advantage, time and savings deposits grew by an
unprecedented 17 per cent in 1971, and these institutions were a
dominant source of funds to credit markets.
An important element in short-term markets and in the forms of
credit flow in 1971 was the very large volume of U.S. Government
securities purchased by foreign official reserve holders; sizable acquisitions of Treasury bills by foreign central banks accounted in
part for the decline in the Treasury bill rate relative to other market
rates. During the year these institutions bought $27 billion of U.S.




43

Government securities, more than total Treasury borrowing; over the
same period domestic private holdings of Treasury issues decreased.
In the absence of these outflows, private investment in U.S. markets
would have been larger and foreign official acquisitions of U.S.
Treasury securities smaller.
Purchases by foreign official accounts were the counterpart of the
weak current-account position in the U.S. balance of payments and
the large volume of private capital outflows. The capital outflows
took a variety of forms, such as bank repayment of foreign borrowings, loans to foreign borrowers, and liquidation of dollar assets held
by private foreigners. Some of the borrowing, both foreign and domestic, shown in Table 7 reflects the strong demand for foreign exchange, but there is a great deal of uncertainty as to the form of
much of the outflow.
The relation of foreign inflows to U.S. credit markets is indicated
in Table 8, where the sharp increase from 1970 in U.S. Government
borrowing is more than offset by larger foreign purchases. Private
domestic lending in credit markets increased less sharply than total
borrowing, and all of the domestic credit supply was in the form of
private loans and securities.
Although private domestic lending increased less, proportionately,
than total borrowing from 1970 (Table 8), the $112 billion flow
from the private sector was sharply higher in relation to activity and
income than in any other year of the preceding two decades. Moreover, the flow originated entirely in banks and nonbank financial inTable 7: FUNDS RAISED IN CREDIT MARKETS BY NONFINANCIAL
SECTORS
Amount
Sector

1970
Total *
. . . .
U.S. Government
State and local governments
Foreign
.
. . .
Households and nonfinancial business l
1

In billions of dollars

Percentage of GNP

1971

Percentage
change,
1970 to
1971

97.5
12.8
12.2
2.6

151.1
25.5
18.7
5.4

55.0
99.2
53.3
107.6

10.1
.9
1.1
.3

69.9

101.5

45.2

7.8

Includes net issues of corporate equities.

44




196670 avg.

1 0*71

14.4
2.4
1.8
.5
9.7

Table 8: TOTAL FUNDS RAISED AND PRIVATE DOMESTIC CREDIT
SUPPLY
Amount
(in billions of dollars)

Sector, or supplier

1969
A. Funds raised in credit markets by nonfinancial sectors. . .
B. U.S. Government.
C. Other l
D.
E.

Funds supplied directly by:
Foreign
Public agencies, net 2 .
.

F.
G.
H.

. . .

Private domestic lenders (A —D —E)
To: U.S. Government
Other. .

I.
J.
K.
L.

By: Commercial banks
Savings institutions
Other finance
Nonfinancial investors 3

1970

1971

Percentage
change,
1970 to
1971

90.4
-3.6
93.9

97.5
12.8
84.7

151.1
25.5
125.6

55.0
99.2
48.3

1.3
6.9

10.9
9.4

28.4
11.0

160.6
17.0

82.2
4.6
77.6

77.2
5.8
71.4

111.7
-6.0
117.7

44.7
-203.4
64 8

12.2
10.4
19.7
39.8

31.3
14.7
24.2
7.1

47.5
40.8
27.9
-4.5

51.8
177.6
15.3
-163.4

1

Includes corporate equities.
'- U.S. Government, federally sponsored credit agencies, and federal Reserve System. Net
of security issues by sponsored agencies.
3
Households, nonfinancial business, and State and local governments.

stitutions; nonfinancial investors liquidated holdings of credit market
instruments, net, over the year. The extent to which the domestic
credit supply was intermediated was as unprecedented as the size of
the flow for a period as long as a year, and it indicated the yield advantage of deposits over money market instruments as liquidity holdings during the period.
As indicated earlier in this report, the flow into time and savings
accounts supplied an unusually large volume of funds to lenders who
specialize in mortgage credit. Thus, it provided a strong financial
base for the high and rising rate of housing construction, which continued through the year, and also for some forms of business investment. Savings institutions were the source of 60 per cent of total
mortgage funds supplied in 1971, a higher proportion than in the
1961-65 period of rapid deposit growth, and mutual savings banks
also bought one-fifth of the net new corporate bond issues, and savings and loan associations repaid borrowings from the Federal home
loan banks. Commercial banks were also substantial lenders in mortgage markets, with loans on real estate absorbing a fourth of total
bank credit flows.




45

PRIVATE DOMESTIC FINANCING
Funds raised by households and nonfinancial business in credit and
equity markets were far larger than would have been expected, based
on past relationships to private saving or capital investment. Both
net residential mortgage financing and business credit flows were up
sharply from recent years in relation to capital spending (Table 9 ) ,
and the ratios for both types of financing were well above those for
any other year of either the 1950's or the 1960's. During the 1960's
total external financing by households and business had stayed within
a fairly narrow range of 31 to 34 per cent of total capital outlays on
an annual basis, in spite of wide variations in credit conditions and
in the relation between saving and capital spending. The 41 per cent
relationship in 1971 is a sharp departure from this experience.
The upward pace of residential mortgage flows in 1971 accompanied a sharp upsurge in outlays for construction of both single-family
and multifamily housing units. However, not all of the increase in
net flows of such credit reflected new lending to finance the record
Table 9: EXTERNAL FINANCING BY HOUSEHOLDS AND
NONFINANCIAL BUSINESS
Amount
(in billions of dollars)

Percentage
change,
1970
to
1971

1966-70
NET FUNDS RAISED:
A. Residential mortgages
B.
Percentage of residential construction
l

1970

1971

17.5
61

18.7
62

33.8
83

80.7

C. Corporate equities
D. Corporate bonds l
E. Business loans arid nonfesidential mortgages.
F. Total nonresidcntial business ,.
G. Percentage of nonresidential business capital expenditure

2.7
14.0
2Qfl

37.4
40

6.8
20.3
14.9
42.0
43

13.5
18.3
19.6
51.4
50

98.5
-9.9
31.5
22.4

H. Other external financing 2
I. Total external financing.
J.
Percentage of total capital outlays 3

12.5
67.4
33

9.2
69.9
32

16.4
101.5
41

78.3
45,2

33.6

CAPITA! OUTLAYS:
K. Residential construction
L. Ndnresjdential business plant and equipment outlays
and net inventory change.
M. Consumer durable goods and nonprofit-institution plant
and equipment.
Total..

N.
1

28.5

30.4

40.6

92.7

97.6

103.1

5.6

86.1

93.9

105.8

12.7

207.3

221.9

249.5

12.4

Nonfinancial corporations only.
Consumer credit, policy loans, and borrowing by nonprofit institutions.
Capital outlays include those for consumer durable goods and nonprofit-institution plant
and equipment.
2

3

46







Table 10: PRIVATE DOMESTIC SAVING AND INVESTMENT
Relative to GNP

Amount
In billions of dollars
Item
1970

1971

Per cent

Percentage
change,
1970 to
1971

1966-70
avg.

1971

Change
(percent age
points),
1966-70
avg. to
1971

Households and nonfinancial business:
A Gross saving

245.5

276.4

12.6

25.5

26.4

.9

B. Capital expenditures
C. Less: External financing
D. Equals: Internal financing (B — C)..

222.0
69.9
152.1

249.5
101.5
148.0

12.4
45.2
-2.7

24.1
7.8
16.3

23.8
9.7
14.1

-.3
1.9
-2.2

E. Net financial uses of funds (A — D)..

93.4

128.4

37.5

9.2

12.3

3.1

State and local governments:
F Net current surplus
G. External financing
H. Net financial uses of funds ( F + G ) .

-6.0
12.2
6.2

-4.0
18.7
14.7

-33.3
53.3
137.1

-.5
1.1
.5

-.3
1.8
1.4

.2
.7
.9

99.6
61.1
7.1
31.4

143.1
93.0
-4.5
54.6

43.7
52.2
-163.4
73.9

9.7
4.4
1.8
3.5

13.6
8.9
-.4
5.2

3.9
4.5
-2.2
1.7

Private financial investment:
I. Total net financial uses of funds
J.
K.
L.

(E-fH)

Currency and deposits
Credit market instruments
Other, net

opments generated a temporary surge in loans. There was very little
growth in commercial paper or in loans from nonbank financial institutions.
SAVING AND INVESTMENT
The high rates of external financing by households and business in
1971 relative to capital outlays were matched, for the group as a
whole, by comparably large flows into financial assets. Private saving increased by a somewhat larger amount than capital expenditures
from 1970, but each continued to have approximately the same relation to GNP as the average for 1966-70 (Table 10). Because the increase in external financing was larger in absolute amount than the
increase in outlays, financial uses of funds rose to an unprecedented
46 per cent of gross private saving, as compared with an average of
36 per cent for 1966-70.
State and local government financing was also very large in 1971
relative to the total need for funds. Municipal borrowing had picked
up sharply after mid-1970, when commercial banks increased their

48




purchases of tax-exempt securities, and by the end of 1970 the liquidity of State and local governments had recovered from a low position at the beginning of the year to a level that was more normal in
relation to expenditures. Early in 1971, however, net issues of municipal securities increased even further. Banks were able to absorb
most of the increase in offerings during the year, and there was little
incremental buying of such securities by nonfinancial investors.
With households, businesses, and State and local governments all
active during the year both as borrowers and as lenders, their total
financial uses of funds increased sharply from 1970 in dollar amount
and to a new high level in relation to GNP. Of total financial uses,
the flow into money, time deposits, and savings accounts was about
65 per cent—a higher proportion than for 1970 and also above the
1961-65 average, when institutional flows were also a large component of total credit flows.
Direct purchases of credit market instruments by private domestic
investors were negative in 1971, as was mentioned earlier. "Other"
financial uses of funds, however, were extremely large. These "other"
uses are to some extent unidentified in the statistics, and they probably include part of the private capital outflows to foreign countries,
both recorded and unrecorded, which rose to such large proportions
in 1971. Capital outflows were an important counterpart of foreign
official purchases of Treasury securities during the year.
LIQUID ASSETS
The total liquid asset position of the domestic private nonfinancial
economy increased slightly during 1971 as a result of the unusual
size and structure of flows. On the basis of a simple measure of liquid assets—holdings of money, time and savings accounts, U.S.
Treasury and agency securities, and commercial paper—the 1971
year-end total was slightly more than 83 per cent of GNP (Table
11). This represents a departure from a narrow range of 82 to 83
per cent of GNP, a level that has been maintained for well over a
decade, except in the two tight-credit periods of 1966 and 1969.
The deposit component of liquid assets rose sharply as a result of
institutional flows in 1971 and reached a level well above preceding
peaks. This rise was partly offset, however, by the decrease in holdings of Government securities and of commercial paper.




49

Table 11: PRIVATE LIQUID ASSET HOLDINGS
End-of-year figures as a percentage of fourth-quarter GNP, seasonally adjusted annual rate

Year

Total

Currency
and deposits

U.S. Govt.
securities 1

Commercial
paper

1959

82.0

59.7

22.1

.2

1965
1966 .
1967. .
1968
1969

82.8
80.6
82.5
82.4
80.4

66.3
64.0
66.9
66.7
63.2

15.6
15.5
14.4
14.1
14.8

.9
1.1
1.2
1.6
2.4

1970
1971

82.5
83.3

66.8
70.2

13.5
11.2

2.1
2.0

1

Includes Federal agency issues.

This measure of liquid assets probably understates to some extent
the 1971 position of private holders. As mentioned earlier, "other"
financial uses of funds by this group undoubtedly included part of
the unrecorded private capital flows that occurred in 1971. Insofar
as those funds were placed abroad in liquid forms for higher yields
and/or to await readjustments in exchange rates, they are statistically a missing component of private liquidity; they will appear in
the totals whenever they are returned to U.S. markets.
If allowance is made for unknown assets held abroad, it is probable that the large scale of private borrowing and lending during 1971
was sufficient to lift liquidity holdings of the nonfinancial economy
even further out of the narrow range of recent years. The heavy emphasis by business on long-term financing also reduced sharply the
position of short-term debt in business capital structures. Both of
these developments have put the private economy in a favorable
position for further growth of activity.
•

50




U.S. Balance of Payments
During 1971 it became evident that the balances of both current and
capital transactions between the United States and the rest of the
world had worsened to such an extent that conventional changes in
monetary or fiscal policies here or abroad could not be expected to
reverse the trend. In fact, the cyclical situation was adverse for the
balance of payments because demand in the United States was
strengthening whereas in most major foreign countries—where resource utilization was still relatively high—the pace of economic
advance was slowing.
The international monetary scene in the first half of the year was
dominated by huge flows of funds to Germany, as that country continued to pursue a relatively tight monetary policy, while the revaluation of the mark in 1969 did not appear to have diminished Germany's strong trade surplus. By April these flows reflected market
expectations that the mark would be revalued, and on May 10 the
German authorities allowed the mark to float; at the same time the
14. U.S. BALANCE OF PAYMENTS
SEASONALLY ADJUSTED ANNUAL RATES
BILLIONS OF DOLLARS

MAJOR COMPONENTSOFFICIAL SETTLEMENTS BALANCE

SEASONALLY ADJUSTED ANNUAL RATES
BILLIONS OF DOLLARS

OVER-ALL BALANCES

40

l

l

1969

1

i

1971

1969

l

l

1971

Excludes SDR allocations.




51

Netherlands guilder was allowed to float and Switzerland and Austria
revalued their currencies.
For a brief period thereafter there was a partial reversal of speculative flows and some relaxation of tensions in international markets,
but as evidence of the deepening troubles of the U.S. balance of payments mounted, another and much more massive flow of funds got
under way. Demands for the currencies of most other industrial
countries built up, and foreign official reserve accruals accelerated.
By the end of July U.S. liabilities to foreign official accounts stood at
$37 billion, compared with $24 billion at the end of 1970; meanwhile, U.S. reserve assets had fallen from $14.5 billion to $13.3 billion. In the first 2 weeks of August reserve liabilities grew by about
$4.5 billion, while reserve assets were reduced by $1.2 billion. Reductions in reserves occurred mainly in connection with repayments
by other countries to the International Monetary Fund. Moreover, the
United States made large drawings on swap lines with some countries
that were accumulating large holdings of liquid dollar assets.
MEASURES OF AUGUST 15
The external measures announced on August 15 as part of the new
economic program represented an effort by the United States to exercise an initiative to restore, via a change in the exchange rate for the
dollar, the country's competitive position in world trade, to obtain an
easing of restrictive trading arrangements, and to arrange for a more
equitable sharing of mutual defense expenditures. As a first step to
effect these changes, the U.S. Government suspended the convertibility of dollars held in foreign official reserves into gold and other reserve assets. Other actions taken—imposition of a temporary 10 per
cent surcharge on dutiable imports and the limitation of tax relief for
capital expenditures to domestically produced capital goods—were
intended to emphasize the seriousness with which the U.S. Government viewed the need for exchange rate adjustments. These measures
were eliminated once agreement on such adjustments was reached in
the meetings held in Washington on December 17 and 18.
In the period between August 15 and the weekend of December
17 and 18 the currencies of other industrial countries were allowed
to float above their previous parities. In most cases, however, the extent of the appreciations of these currencies was limited by official

52




intervention in the market or by various measures intended to limit
inflows of speculative and interest-sensitive funds. In that period the
outflow of funds from the United States (reflecting not only flows of
liquid funds but also leads and lags in payments of all kinds) was
again very great, and liabilities to foreign official accounts rose by almost $12 billion. Japan was the principal recipient, as that country
was reluctant to accept at an early stage the major revaluation that
was generally expected.
As negotiations toward a realignment of exchange rates proceeded,
the extent of the change in the U.S. balance of payments that was
required came to be better understood, though it was actively debated. In particular, the U.S. trade balance had clearly tended to deteriorate more rapidly in recent years than could be accounted for by
changes in general demand conditions here and abroad. By 1972 the
trade balance could be expected to register a deficit substantially
larger than that already in prospect for 1971. It also seemed clear
that, in the absence of major adjustments of exchange rates, the balance on current and long-term capital transactions would be headed
for a deficit even larger than in 1971, whereas a surplus of some size
for these transactions would be necessary to produce a satisfactory
balance on official settlements.
MERCHANDISE TRADE
The U.S. trade balance in 1971 dropped to a deficit of nearly $3 billion compared with a surplus of $2 billion in 1970 (Table 12). The
trade deficit stemmed from a very weak showing in exports, which
were only slightly higher in value than in 1970, while imports advanced sharply—by about 15 per cent. Part of the difference reflected a somewhat larger increase in import prices than in export
prices.
On the export side, increases in sales of agricultural commodities,
in sales of automotive vehicles and parts to Canada, and in deliveries
of commercial aircraft were just about offset by declines in shipments of machinery and industrial materials. The declines in these
exports were attributable mainly to the easing of demand in foreign
industrial countries. In volume terms, exports as a whole were
slightly lower in 1971 than in the previous year.
The gains in imports in 1971 were broadly based, with all major




53

Table 12: U.S. INTERNATIONAL TRANSACTIONS
In billions of dollars, seasonally adjusted
1971
Item

1970

1971
III

IV v
-1.5
9.6
11.1

2.1
42.0
39.9

-2.9
42.8
45.7

.3
11.0
10.8

-1.1
10.7
11.8

-.6
11.5
12.0

Services, remittances, pensions, net
U.S. Govt. grants and credits, net
Long-term private capital, net

.1
-3.8
-1.5

1.4
-4.2
-5.1

-1.0

.7
-1.1
-1.8

.2
-1.1
-1.7

Balance on current account and long-term
capital

-3.0

-10.9

-1.3

-3.2

-3.2

-3.2

-.5

-2.8
-9.3
-7.2

-.4
-1.0
-3.0

-.4
-2.3
.1

-1.2
-5.1
-2.8

-.9
-.8
-1.5

Merchandise trade balance
Exports
Imports

Nonliquid short-term private capital
Errors and omissions
Liquid private capital
Of which: Liabilities to foreign commercial
banks
Official settlements balance l

ii

-6.0

-1.0
-.5

-6.5

-6.6

-3.1

-.1

-2.1

1.3

-10.7

-30.3

-5.7

-5.9

-12.3

6.4

P Fourth-quarter data are partly estimated.
Excludes SDR allocations.
NOTE.—Dept. of Commerce data, with some Federal Reserve estimates. Details may not
add to totals because of rounding.
1

categories of goods—foods, industrial materials, capital equipment,
automobiles, and other consumer goods—increasing over 1970 levels. The greatest increase was in imports of autos, especially from
Japan. Despite this increase, sales of imported autos other than those
from Canada accounted for about the same share of total U.S. sales
of autos as they had in 1970—about 15 per cent of the number of
vehicles— but this was a much higher share than the 10 per cent average for 1967-69.
A rise in prices of foreign goods accounted for about one-third of
the increase in the value of imports in 1971, whereas in 1970 nearly
two-thirds of the increase in imports had stemmed from price increases—as measured by unit values.
Trade movements in 1971 were greatly affected at times by such
factors as actual or anticipated domestic strikes (mainly in port operations, steel, aluminum, and coal), anticipation that "voluntary"
controls would be imposed by foreign governments on their industries' sales to the United States, and the increasing possibility of
changes in currency values. Therefore it is difficult to determine how

54




15. INDUSTRIAL PRODUCTION

EEC

1969

NOTE.—Seasonally adjusted quarterly data from the Organization for Economic Cooperation and Development. Data for fourth quarter of 1971 partly estimated.

much of the 1971 deterioration in the U.S. trade position resulted
from these factors rather than from more enduring ones. In addition,
the deceleration in business activity abroad and the easing of supply
conditions in Europe and Japan were major causes for the downturn
in U.S. exports of machinery and industrial materials—and probably
also for the rise in imports, as foreign producers intensified their selling efforts in the United States. At the same time, however, continued sluggishness in domestic economic activity held imports to levels
below what they would have been if output and consumption here
had been more buoyant.
The steady deterioration in the trade balance of recent years is expected to be slowed or arrested in 1972 as the recently announced
changes in exchange rates begin to shift competitive advantages.
However, it may take 2 or 3 years before rearrangements of production and consumption patterns both here and abroad will have
gone far enough to produce substantial improvement. In the short
run, the U.S. trade balance is likely to be affected mainly by general
business conditions, as economic activity in the United States gains
momentum while foreign economic activity may remain below opti-




55

mal levels. Under such conditions, foreign demand for U.S. products
will be blunted, even at relatively favorable prices, while foreign suppliers to the U.S. market may be inclined to accept lower profit
margins.
CAPITAL FLOWS
The net outflow of private capital from the United States—taking
into account both recorded and unrecorded elements—reached enormous proportions in 1971. For most of the year there were interest
rate incentives for U.S. investors and banks to add to assets abroad
or repay foreign borrowings and for foreigners to borrow dollars.
Outflows spurted at times when the market became convinced that
appreciations of foreign currencies were imminent. Larger-than-usual
outflows, or smaller inflows, of private capital were recorded in all
major categories.
Recorded outflows of U.S. private capital reached about $10 billion—some $3 billion larger than in 1970 and more than double the
average of the 1960's. Outflows for direct investment rose, reflecting
both a further increase in outlays for foreign production facilities and
an extension until the end of February 1972 of the requirement to
meet the ceilings for 1971 under the direct investment controls. Net
additions to foreign assets reported by U.S. banks rose sharply to
about $3 billion, as relatively higher interest rates abroad focused
demands for funds on the U.S. market. The exemption of export
credits from the voluntary ceilings toward the end of the year may
also have led to increased foreign lending. Foreign claims reported
by U.S. nonbank institutions also rose, but it is believed that many of
the transactions affecting the foreign assets of U.S. corporations and
of other investors other than banks were of types that are not captured by the statistical reporting system, and are therefore reflected
in the residual "errors and omissions" in the balance of payments accounts.
The recorded inflow of foreign private capital (apart from liquid
assets in U.S. banks) dropped sharply from $5 billion in 1970 to
only about $2 billion in 1971. Foreign investors had placed substantial amounts in U.S. direct investments and corporate stocks in 1970,
but under the pressures of exchange rate uncertainties and a weak
U.S. economic performance in 1971, such inflows ceased, and at

56




times there were sizable net outflows. Borrowing abroad by U.S. corporations to finance overseas direct investment or for other purposes
also diminished in 1971.
U.S. banks further reduced their borrowings from the Euro-dollar
market in 1971, as the increase in the cost of funds in that market
relative to costs in the United States outweighed the advantages of
retaining the reserve-free Euro-dollar borrowing bases established by
the Federal Reserve with a view to moderating the liquidation of
such borrowing. By the end of the year borrowings of U.S. banks
from their foreign branches as registered in the U.S. balance of payments accounts had dropped to $1.3 billion, a reduction of $5.0 billion for the year and $14.1 billion from the peak in October 1969.
U.S. Government securities that had been offered to the branches at
attractive rates earlier in the year in order to slow the pace of the
withdrawal of funds borrowed abroad were allowed to run off after
mid-August.
In addition to tHe net recorded outflow of U.S. and foreign private
capital in 1971—which aggregated about $15 billion—the unrecorded payments element in the U.S. international accounts rose to
more than $9 billion. The combined total of $24 billion was about
$15 billion greater than the comparable figure for 1970. Such unrecorded net outflows reached their peak in the period of hectic speculation preceding the August 15 measures taken by the United States.
YEAR-END PERSPECTIVE
As 1972 began, the events of 1971 clearly had set in motion strong
forces tending to restore equilibrium in the U.S. balance of payments. The exchange rate realignments achieved in December were
substantial, and they could be expected over time to move the trade
balance into a surplus position more in accord with the normal role
of the United States as a supplier of real resources to less wealthy
countries. Moreover, such a realignment of rates should also have favorable effects on capital transactions—reducing the incentives for
outflows of U.S. capital and restoring the basis for resumption of sizable inflows of foreign investment capital to the United States. In addition, impetus has been given to work on remodeling the structure
of the international monetary system—especially regarding the management of international reserves and the process for adjusting ex-




57

58




"Parti
Operations, and
Organization




Record of Policy Actions of the
Board of Governors
JANUARY 5, 1971
REVISION OF FOREIGN CREDIT RESTRAINT PROGRAM
GUIDELINES
Effective immediately, the guidelines covering foreign credits and
investments by U.S. banks and other financial institutions were revised.
Votes for this action: Messrs. Burns, Daane,
Maisel, and Brimmer. Votes against this action:
None. Abstaining: Mr. Robertson. Absent and not
voting: Messrs. Mitchell and Sherrill.
The revised guidelines continued the program of voluntary restraint
that had been in effect since 1965. No change was made in the overall guideline ceilings already in effect, since the Board concluded that
the outlook for the U.S. balance of payments did not justify relaxing
significantly the degree of restraint under the voluntary foreign credit
restraint program. However, certain technical changes designed to
equalize treatment under the guidelines between banks and other
financial institutions and to give banks greater flexibility in using
their existing leeway under the general ceiling for export financing
were approved.
One revision excluded from the guidelines bonds and notes of
international institutions—such as the International Bank for Reconstruction and Development, the Inter-American Development Bank,
and the Asian Development Bank—of which the United States is a
member. Another exempted export credits from a subceiling that
limits short-term credits to residents of developed countries of continental Western Europe, although banks would still be required
to report these short-term export credits under their general ceiling.
Mr. Robertson abstained from this action on the grounds that no further relaxation of the guidelines could be justified in light of U.S.
balance of payments problems.
The revision also incorporated into the body of the guidelines




61

three amendments that had been adopted in 1970, and clarified the
language of several guideline provisions.
Announcement of the revised guidelines was coordinated with
announcement by the administration concerning its decision on other
aspects of the U.S. balance of payments program, particularly a
moderate relaxation of the foreign direct investment program administered by the Department of Commerce.

JANUARY 7, 1971
REDUCTION IN RATES ON DISCOUNTS AND ADVANCES
Effective January 8, 1971, the Bpard approved actions that had been
taken by the boards of directors of the Federal Reserve Banks of Boston,
New York, Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco establishing a rate of 5lA per
cent (a decrease from SVi per cent) on discounts for and advances
to member banks under Sections 13 and 13a of the Federal Reserve Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
The Board later approved similar actions by the directors of the Federal Reserve Bank of Atlanta effective January 11, and by the directors
of the Federal Reserve Bank of Dallas effective January 15, 1.971.
Effective the same dates the Board approved for the respective Federal
Reserve Banks a rate of 53A per cent (rather than 6 per cent) on advances to member banks under Section 10(b) of the Federal Reserve
Act. Rates on advances to individuals, partnerships, and corporations,
under the last paragraph of Section 13 of the Act, remained or were
established in a range of 7 to IVA per cent (rather than 7 to IVi per cent).
(In accordance with the*' provisions of the Federal Reserve Act, the
Federal Reserve Banks are required to establish rates on discounts for
and advances to member banks at least every 14 days and to submit
such rates to the Board for review and determination.)
The Board had previously approved a reduction in the discount
rate from 5% to 5Vi per cent on November 30, 1970. (See page
80 of the Board's ANNUAL REPORT for 1970.) Since that time avail-

62




able information continued to point to sluggishness in over-all economic activity and there had been some further declines in short-term
interest rates. The further reduction in the discount rate was made
in recognition of those declines and was in keeping with a desire to
maintain an appropriate alignment between the discount rate and
market rates.

JANUARY 15, 1971
AMENDMENT TO REGULATION M, FOREIGN ACTIVITIES OF
NATIONAL BANKS
Effective January 15, 1971, the Board amended Regulation M to
provide a means by which a member bank might retain its reserve-free
base with respect to its Euro-dollar borrowings from its foreign branches
by counting within its base the amount of purchases by its foreign
branches of certain Export-Import Bank obligations.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, and Maisel. Votes against this
action: None. Absent and not voting: Messrs.
Brimmer and Sherrill.
A matter of continuing concern to the Board was the deleterious
effect on the U.S. balance of payments of the rapid repayment by
U.S. banks of their Euro-dollar borrowings. The amendment now
adopted was a further step toward strengthening the inducement to
U.S. banks to retain their Euro-dollar liabilities.
Under the amendment U.S. banks were permitted to count toward maintenance of their reserve-free Euro-dollar bases any funds
invested by their overseas branches in special Export-Import Bank
securities under the program just announced by the Export-Import
Bank.
Euro-dollar borrowings by a member bank are subject to a 20
per cent reserve requirement to the extent that they exceed a bank's
reserve-free base.
Also, as detailed on pages 81 and 82 of its ANNUAL REPORT for
1970, the Board in November 1970 had amended its regulations,
effective January 7, 1971, with respect to member bank borrowings




63

of Euro-dollars. One of the earlier interrelated actions had been to
apply an automatic downward adjustment feature to minimum (3
per cent of deposits) bases after January 20, 1971. The Board now
postponed for 4 weeks, through the computation period ending February 17, 1971, the application of that automatic downward adjustment, thereby giving banks an opportunity to establish and preserve
bases.

JANUARY 18, 1971
REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY
FEDERAL RESERVE BANKS
Effective January 19, 1971, the Board approved actions that had been
taken by the boards of directors of the Federal Reserve Banks of Boston,
Philadelphia, Cleveland, Atlanta, Minneapolis, and Dallas establishing
a rate of 5 per cent (a decrease from 5lA per cent) on discounts for
and advances to member banks under Sections 13 and 13a of the Federal
Reserve Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action: None. Absent and not voting:
Mr. Sherrill.
The Board later approved similar actions by the directors of the Federal Reserve Bank of Chicago effective January 21, by the directors of
the Federal Reserve Banks of New York and San Francisco effective
January 22, and by the directors of the Federal Reserve Banks of Richmond, St. Louis, and Kansas City effective January 29, 1971.
Effective the same dates the Board approved for the respective Federal
Reserve Banks a rate of 5Vi per cent (rather than 53A per cent) on
advances to member banks under Section 10(b) of the Federal Reserve
Act. In addition the Board approved for all of the Banks a rate of 7 per
cent on advances to individuals, partnerships, and corporations other
than member banks under the last paragraph of Section 13 of the Act;
previously the rate on such advances had been in a range of 7 to 11A
per cent at the various Federal Reserve Banks.

64




A reduction in the discount rate from 5Vi to 5lA per cent had
previously been approved on January 7. Since then, interest rates
had declined further in all maturity areas of the market and major
commercial banks had announced two successive Vx percentage point
reductions in their prime lending rates. The further reduction in
the discount rate to 5 per cent gave recognition to the additional
declines that had taken place in short-term market interest rates.

JANUARY 19, 1971
AMENDMENTS TO REGULATION Z, TRUTH IN LENDING
Effective January 25, 1971, the Board approved amendments to Regulation Z resulting from the inclusion within the Truth in Lending Act
of special provisions regarding credit cards.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action in part: Mr. Sherrill.

Public Law 91-508, among other things, amended the Truth in
Lending Act so as to restrict the issuance of unsolicited credit cards
and in general to limit cardholder liability for unauthorized use to
$50. The purpose of the amendments to Regulation Z was to incorporate references to credit cards in an existing section outlining
the scope and purposes of the regulation; to specify that States might
apply for an exemption, under certain conditions, from the Federal
law; and to set forth in a new section the rules governing the issuance
of credit cards and conditions of liability, including liability for
their unauthorized use. A new Supplement IV outlined the procedures
and criteria necessary for a State to obtain an exemption.
Mr. Sherrill dissented only with regard to the manner in which
the term "credit card" was defined. He favored the use of a more
comprehensive definition than the one incorporated in the regulation.




65

J A N U A R Y 28, 1971
EMERGENCY CREDIT FACILITIES FOR NONMEMBER
DEPOSITARY INSTITUTIONS
The Board extended to August 1, 1971, its authorization to the Federal Reserve Banks to provide, in accordance with certain specified principles, emergency credit facilities to nonmember depositary institutions.
Votes for this action: Messrs. Burns, Daane,
Maisel, Brimmer, and Sherrill. Votes against this
action: None. Absent and not voting: Messrs.
Robertson and Mitchell.
As detailed on pages 92 and 93 of the Board's ANNUAL REPORT
for 1969, on December 24, 1969, the Board had authorized the
Federal Reserve Banks to provide emergency credit facilities, in accordance with specified principles, to nonmember depositary institutions that might encounter difficulty as to the adequacy of their
liquidity reserves. Such authority was effective until April 1, 1970.
In two separate actions the authority was subsequently extended,
first to August 1, 1970, and then to February 1, 1971.
No extensions of credit had been necessary under the authorized
arrangements, but it appeared desirable for the Reserve Banks to
continue to be in a position to respond quickly if an emergency
situation should arise. Accordingly, the authority originally granted
in December 1969 was again extended, this time to August 1, 1971.

FEBRUARY 4, 1971
AMENDMENTS TO REGULATION F, SECURITIES OF MEMBER
STATE BANKS
Effective February 4, 1971, Regulation F was amended in respect to
tender offers and other stock acquisitions.
Votes for this action: Messrs. Robertson, Mitchell, Daane, Brimmer, and Sherrill. Votes against
this action: None. Absent and not voting: Messrs.
Burns and Maisel.

66




In December 1970 the Securities Exchange Act of 1934 was
amended by Public Law 91-567 to require disclosure of certain
information concerning acquisitions or tender offers of more than 5
per cent of a class of equity securities registered pursuant to the
1934 Act (rather than 10 per cent as formerly). The major purpose
of the amendments now approved by the Board was to bring Regulation F into conformity with that Act as regards offerings of member
State banks, and to make certain procedural changes.

F E B R U A R Y 12, 1971
REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY
FEDERAL RESERVE BANKS
Effective February 13, 1971, the Board approved actions that had
been taken by the boards of directors of the Federal Reserve Banks of
Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis,
Minneapolis, Kansas City, Dallas, and San Francisco establishing a rate
of 43A per cent (a decrease from 5 per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal
Reserve Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action: None. Absent and not voting:
Mr. Sherrill.
The Board later approved similar action by the directors of the Federal Reserve Bank of New York effective February 19, 1971.
Effective the same dates the Board approved for the respective Federal
Reserve Banks a rate of 5lA per cent (rather than 5Vi per cent) on
advances to member banks under Section 10(b) of the Federal Reserve
Act. In addition the Board approved reductions to 63A per cent (rather
than 7 per cent) in rates on advances to individuals, partnerships, and
corporations other than member banks under the last paragraph of
Section 13 of the Act.




67

Since the Board's previous approval of a discount rate reduction
from 5lA to 5 per cent on January 18, interest rates had fallen
further in all maturity sectors of the market amid indications of continuing weakness in over-all economic activity and of a widespread
view that monetary policy was easing. The action to reduce the discount rate to A3A per cent served to bring the rate into closer alignment with short-term market interest rates, and it was also in keeping with the practice followed in recent months of making small and
relatively frequent changes in the rate to maintain such an alignment.
In reaching its decision, the Board also took note of the widely held
expectation that the discount rate would soon be reduced. In the
circumstances, it was thought likely that maintenance of the 5 per
cent rate would result in a reassessment of the outlook for monetary
policy and perhaps lead to an upturn in market interest rates.

F E B R U A R Y 25, 1971
AMENDMENTS TO REGULATION Z, TRUTH IN LENDING
Effective April 5, 1971, the Board amended Regulation Z: (1) to
require creditors to give 15 days' notice, rather than 30, to active
customers regarding a change in terms of an open-end credit account,
except that no notice was required for a reduction in the minimum
payment or in finance charges, (2) to modify the rescission notice used
in credit sales of vacant lots, (3) to permit farmers to obtain funds,
goods, and services in agricultural credit transactions prior to the expiration of the 3-day rescission period when their residence was part of the
collateral for credit, and (4) to provide special advertising requirements
for financing under FHA Section 235 assistance programs.
Votes for this action: Messrs. Robertson, Mitchell, Daane, Maisel, Brimmer, and Sherrill. Votes
against this action: None. Absent and not voting:
Mr. Burns.
The amendments were designed principally to simplify notices of
changes in the terms of open-end accounts, to clarify rescindable
transaction procedures, and to reduce existing burdens on creditors
and farmers by permitting immediate access to funds or services in
rescindable transactions.

68




Section 235 of the National Housing Act is a Government assistance program designed to aid low-income families to purchase
homes. The assistance is in the form of a subsidy for each monthly
payment, with the amount varying primarily with the size and income
of the family. Because of fluctuations in monthly payments and hence
the annual percentage rate, a single figure meaningful to all prospective customers could not be stated in an advertisement. The amendment allowed but did not require the annual percentage rate exclusive
of assistance, prohibited a rate that reflected the assistance, and required the amount of the payments to be related to the applicable
family size and income level.

M A R C H 11, 1971
UNDIVIDED PROFITS AS "CAPITAL STOCK AND SURPLUS11
The Board revised its position with respect to the question whether
a bank's undivided profits should be included within the definition of
"capital stock and surplus" for purposes of various provisions of the
Federal Reserve Act.
Votes for this action: Messrs. Burns, Mitchell,
Maisel, and Sherrill. Votes against this action:
Messrs. Robertson and Brimmer. Absent and not
voting: Mr. Daane.
The Board reexamined the question whether a member bank's
undivided profits should be considered as part of its "capital stock
and surplus" as that or similar terms are used in provisions of the
Federal Reserve Act that limit member banks with respect to the
following: loans to affiliates, purchases of investment securities, loans
on stock or bond collateral, deposits with nonmember banks, bank
acceptances, investments in and by Edge Act and "agreement" corporations, and the amount of paper of one borrower that may be discounted or accepted as collateral for an advance by a Federal Reserve
Bank.
On the basis of that reexamination, the Board concluded that its
negative view expressed in 1964 was unnecessarily restrictive in the
light of the congressional purpose in establishing limitations on bank




69

activities in terms of a bank's capital structure. Accordingly, the
Board decided that, for the purposes of the limitations set forth
above, undivided profits should be included as part of "capital stock
and surplus." Such a position was consistent with the views of the
other Federal bank supervisory agencies.
Messrs. Robertson and Brimmer agreed that uniformity among the
banking agencies on this question would be in the public interest.
However, they believed that the problem should be resolved through
legislation rather than by changing the Board's outstanding interpretation, which they considered to be a correct interpretation of the law
as presently written.

MARCH 18, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective March 18, 1971, the Board adopted an amendment to Regulation Y that spelled out procedures to be followed under Section 4(c)(12)
of the Bank Holding Company Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action: None. Absent and not voting:
Mr. Sherrill.

Section 4(c)(12) of the Bank Holding Company Act permits a
company that had become a bank holding company as a result of the
1970 amendments to retain or acquire any shares or to engage in any
activities until January 1, 1981, if the company complies with such
conditions as the Board may prescribe. The amendment to Regulation Y provided that if such a company elected to make an irrevocable declaration of intent to divest its bank by 1981, that company could acquire other businesses under a simple notification
procedure, and de novo expansion could be undertaken without
further approval. Acquisitions by companies that had not made such
a declaration would require the Board's approval; it was contemplated that acquisitions approved would normally be limited to those
that the holding company demonstrated were necessary to enable
the more efficient marketing of assets subject to divestiture.

70




MARCH 30, 1971
AMENDMENTS TO REGULATION G, SECURITIES CREDIT BY
PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS,
AND REGULATION U, CREDIT BY BANKS FOR THE PURPOSE
OF PURCHASING OR CARRYING MARGIN STOCKS
Effective March 30, 1971, the Board amended Regulations G and U
to implement a provision of the Securities Exchange Act of 1934 permitting an exemption from margin requirements for certain loans that
the Board may deem necessary or appropriate in the public interest or
for the protection of investors.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Brimmer, and Sherrill. Votes
against this action: None. Absent and not voting:
Mr. Maisel.
Pursuant to these amendments the Board, upon certification by
the Securities Investor Protection Corporation that circumstances
existed warranting such action, could exempt credit obtained for the
purpose of making a loan or providing capital to a broker or dealer
subject to Regulation T, Credit by Brokers and Dealers, from the
restrictions imposed by Regulations G and U.

A P R I L 1, 1971
AMENDMENT TO REGULATION M, FOREIGN ACTIVITIES OF
NATIONAL BANKS
Effective April 1, 1971, Regulation M was amended to provide a
means by which a member bank could retain its reserve-free base with
respect to its Euro-dollar borrowings from its foreign branches by counting within its base the amount of purchases by its foreign branches of
certain U.S. Treasury obligations.
Votes for this action: Messrs. Robertson,
Mitchell, Daane, Brimmer, and Sherrill. Votes
against this action: None. Absent and not voting:
Messrs. Burns and Maisel.
The amendment permitted foreign branches of U.S. banks to purchase and hold free of reserve requirements securities issued under




71

a current Treasury program, designed to deter the repayment of
Euro-dollar liabilities, even if the holdings of such securities, together
with head-office borrowings of Euro-dollars from their branches,
exceeded the reserve-free base. The Treasury offering of certificates
of indebtedness to overseas branches of U.S. banks was designed to
provide an investment outlet in the United States for Euro-dollars
acquired by the overseas branches. (On January 15, 1971, the Board
had made a similar amendment to Regulation M regarding ExportImport Bank securities offered to foreign branches of U.S. banks as
part of an effort to strengthen the inducement for such banks to
retain their Euro-dollar liabilities.)

A P R I L 1, 1971
EQUAL EMPLOYMENT REGULATIONS
The Board adopted regulations relating to equal employment practices of contractors and subcontractors performing under contracts with
the Board.
Votes for this action: Messrs. Robertson,
Mitchell, Brimmer, and Sherrill. Votes against this
action: None. Absent and not voting: Messrs.
Burns, Daane, and Maisel.
The regulations established a policy of promoting nondiscrimination in the employment practices of contractors and subcontractors
and set up detailed procedures for processing complaints relating
to alleged discrimination. Promulgation of the regulations was
prompted by the prospective construction of the annex to the
Board's building although the policy and procedures would apply
to all Board contracts. Previously the Board had included in its contracts provisions requiring contractors to refrain from discrimination.
Under the regulations a contract or subcontract may be cancelled
or terminated and the contractor barred from further Board contracts if it is found that the contractor or subcontractor has practiced
discrimination. Such sanctions are similar to those imposed by other
Government agencies and are in keeping with the spirit of published
Executive orders, with which it has been the practice of the Board
to conform.

72




APRIL 16, 1971
AMENDMENT TO REGULATION U, CREDIT BY BANKS FOR
THE PURPOSE OF PURCHASING OR CARRYING MARGIN
STOCK
Effective April 16, 1971, the Board amended Regulation U to grant
an exemption from initial margin requirements for credit by banks for
the purpose of providing capital to broker/dealer firms.
Votes for this action: Messrs. Robertson, Daane,
Maisel, and Sherrill. Votes against this action:
None. Absent and not voting: Messrs. Burns,
Mitchell, and Brimmer.
The amendment, issued pursuant to Section 7 of the Securities
Exchange Act of 1934, permitted banks to extend credit for the purpose of enabling a customer to contribute capital to a broker/dealer
firm, whether in the form of a subordinated loan, equities in the
accounts of partners, a purchase of stock in a corporation, or otherwise, without regard to the initial margin requirements. The action
was taken as an interim measure pending consideration of proposed
amendments to Regulations U, T, Credit by Brokers and Dealers,
and G, Securities Credit by Persons Other Than Banks, Brokers, or
Dealers, published in the Federal Register for comment. The proposed amendments set forth conditions under which credit might
be obtained for the purpose of providing capital to broker/dealer
firms without regard to initial margin requirements.

APRIL 29, 1971
OBLIGATIONS ELIGIBLE AS COLLATERAL FOR ADVANCES
The Board amended its interpretation of those portions of Regulation
A, Advances and Discounts by Federal Reserve Banks, relating to
obligations eligible as collateral for advances.
Votes for this action: Messrs. Burns, Robertson,
Daane, Maisel, and Sherrill. Votes against this action: None. Absent and not voting: Messrs.
Mitchell and Brimmer.




73

Section 13 of the Federal Reserve Act and Regulation A authorize
a Reserve Bank to make advances to member banks secured by
obligations eligible for Federal Reserve purchase under Section
14(b) of the Act. The latter section authorizes Federal Reserve purchase of any obligation of, or fully guaranteed by, the United States
or any agency thereof. The Board amended its outstanding interpretation listing eligible obligations so as to include obligations of the
Federal Home Loan Mortgage Corporation and of the United States
Postal Service and to cite as eligible the guaranteed certificates issued
by the Trustees of Penn Central Transportation Company. The Board
also retained on the list obligations of the Federal National Mortgage
Association.

M A Y 7, 1971
DISAPPROVAL OF PROPOSED DISCOUNT RATE INCREASE
The Board disapproved the action taken by the board of directors of
the Federal Reserve Bank of New York on May 6, 1971, establishing a
rate of 5VA per cent (an increase from 43A per cent) on discounts for
and advances to member banks under Sections 13 and 13a of the Federal
Reserve Act, along with appropriately corresponding subsidiary rates on
advances under other sections of the Act.
Votes for this action: Messrs. Burns, Maisel,
Brimmer, and Sherrill. Votes against this action:
None. Absent and not voting: Messrs. Robertson,
Mitchell, and Daane.
The directors of the New York Bank had proposed the action out
of concern over the current unsettlement in foreign exchange markets
and the attendant massive flows of dollars into a number of European
currencies, notably the German mark. The directors believed the
action could serve as an important signal to the international community that the United States intended to defend the value of the
dollar. In taking this action, the directors recognized that it posed
risks for the domestic financial markets, but they felt the risks of
some increase in domestic interest rates were outweighed by the
need to maintain international confidence in the dollar, particularly
against the background of rapid growth in monetary and credit
aggregates in recent months.

74




In arriving at its decision to disapprove the proposed rate increase,
the Board agreed that arguments could be made in favor of this action on international grounds, but it was not convinced that such
action would have any significant effect on European currency decisions. The Board believed that in the existing circumstances any
action to increase rates might be considered to be precipitate and
hence would present problems both domestically and internationally.
On domestic grounds the Board believed that the sensitive state of
U.S. debt markets argued strongly against the increase. It was also
thought that such an action could prove damaging to general confidence at a time when the economic recovery was still fragile and that
any sharp increase in interest rates might have severely adverse
effects on flows of funds to key sectors of the economy.
The result of the Board's action was to continue in effect the rates
on discounts and advances contained in the existing rate schedule of
the New York Bank.

M A Y 13, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective July 1, 1971, the Board amended Regulation Y to specify
the kinds of activities in which subsidiaries of bank holding companies
would be permitted to engage on the basis of Section 4(c)(5) of the
Bank Holding Company Act, as amended.
Votes for this action: Messrs. Burns, Mitchell,
Daane, and Maisel. Votes against this action:
Messrs. Robertson and Brimmer. Absent and not
voting: Mr. Sherrill.
As a first step in its plan to implement the 1970 amendments
to the Bank Holding Company Act, the Board had published for
comment in January 1971 a proposed list of activities that would
be regarded under Section 4(c)(8) of the Act to be so closely related
to banking or managing or controlling banks as to be permissible
for bank holding companies. Pursuant to Section 4(c)(8), the Board
is required to consider proposed acquisitions by a bank holding company not only from the standpoint of whether the activities of the
companies to be acquired are closely related to banking, but also




75

. • •m the standpoint of antitrust a ; ; - r tod public interest consid•
•mtions. In view of that responsibility, the Board believed that it
iiould exercise its general regulatory authority over holding com, 'tiies under Section 5 of the Act to limit the scope of activities
r n gaged In on the basis of Section 4(c)(5), which relates to the
•- juisition by a bank holding company of shares eligible for Invest•
•.••ml by a national bank.
,; ,. ., comment In Januan •; :': '•••*: .

The ori^'i:- r r; •-• < ;'•:',••,<'

t o l i m i t t h e I W H ? ^ ^ - - -,. . - V * - .
i h o l d i n g c o m p a n y s'vv-ir-'•'•*•
u n d e r S e c t ' »SJ . . / ' , - s ', •
•'•• • fiduciary a c t i v i t i e s c- • •• • " • • '
T
!
de n o v o , e \ >,.•;': >
.'•
•,
v o l v e d w e r e o f t h e '• • ' : : '
'
:
a m o u n t s e:-pMv" \ ,-—; — ,• •.-.*- *--.• -••-nent b y a n a t i o n a l b"./ ? . - :
<
1
• deral statute law. However, in tne light of comments subsequently
;. reived, and after further consideration, the Board concluded that
- M ,:h restrictions should not be applied at this time insofar as banks
> .'re involved. That decision was based on (1) considerations of
« ally as between, banks that were and were not members of holding
'
^upaiiy systems, and (2) lack of evidence that acquisitions by
» Iding company banks were resulting in evasion of the purposes
.'
>
• the Bank Holding Company Act.
Accordingly, under the amendment to Regulation. Y as adopted,
while acquisitions under Section 4 ( c ) ( 5 ) by holding companies and
'<« 'Ir subsidiaries that were not banks or subsidiaries of tanks were
:<: lited to shares of the kinds and amounts explicitly eligible for In- ;tment by a national bank under Federal statute law, national bar*'"
'•', a holding company system were permitted to acquire shares • •
• ,:ordance • with the rules of the Comptroller of the Currency a •
kit
'ite-chartered banks in a holding company system were permitted,
;
- • ofar as Federal lam/ was concerned, to acquire shares in accordance
••:li the rules of the Board.
It was believed that such a position would facilitate orderly administration of the Bank Holding Company Act by avoiding to the
• •\tent possible the need for interpretation of the scope of Section
' ? c) (5) relating to permissible activities.
Messrs. Robertson -<<' >!; mmer voted against the amendment.
i
» was their ¥lew that1 ; • - lhe prohibitions of Section 4 ap^ 1 " ^
direct or Indirect" accA'
s of stock by a holding compan; '




1

L

indirect acquisition refers principally to acquisition through a subsidiary, whether a national bank, State bank, or a nonbanking corporation; and (3) accordingly, the exemption provided by Section
4 ( c ) ( 5 ) would make no distinction between shares acquired by a
national bank subsidiary and those acquired by a State bank subsidiary. Consequently, in their judgment, the Board would not be
legally justified in interpreting Section 4 ( c ) ( 5 ) differently with respect to these two kinds of indirect acquisition.
In addition to their doubt as to the legality of the amendment,
Messrs. Robertson and Brimmer considered that, as a matter of
policy, it is inadvisable to draw a distinction, as the Board is doing
in this instance, between national banks and State banks, giving
national bank subsidiaries privileges that are denied to State bank
subsidiaries.

M A Y 20, 1971
AMENDMENTS TO REGULATION Y, BANK HOLDING
COMPANIES
Effective June 15, 1971, the Board amended Regulation Y to implement its regulatory authority with respect to nonbanking activities of
bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, as amended.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.
In January 1971 the Board had announced plans to amend
Regulation Y as a first step toward implementing the 1970 amendments to the Bank Holding Company Act. Proposed regulatory
amendments published for comment included a list of 10 activities
that would be regarded under Section 4 ( c ) ( 8 ) of the Act as so
closely related to banking or managing or controlling banks as to be
permissible for bank holding companies. The proposal also spelled
out the general procedures the Board would follow in processing
applications by individual companies to engage in those lines of
business.
Subsequently, a hearing was held regarding all issues raised by




77

in the manner authorized by State law so long as the institution
vM.-uld not both accept demand deposits and make commercial loans.
5. Acting as investment or financial adviser, Including (a) serving as the advisory company for a mortgage or a real estate investment trust and (b) furnishing economic or financial information.
6. Leasing personal property and equipment, or acting as agent,
broker, or adviser in leasing of such property, where at the Inception
of the initial lease the expectation had been that the effect of the
transaction and reasonably anticipated future transactions with the
same lessee as to the same property would be to compensate the
lessor for not less than his full investment in the property,
7. Making equity and debt investments in corporations or projects
designed primarily to promote community welfare, such as the
economic rehabilitation and development of low-income areas.
Although certain technical or clarifying changes were incorporated
in the amendments as adopted, the activities specified as permissible

78







• olished for
dtles—two
••ocessing—
•hat certain
rating as a
iser to an.
•jltant, and
• ;! a permis•".: provision
• individual
•»f t h e p e r -

try

iii-

-aeans of a
•.; proposed
would out; company
r
idled In the
•vas closely
pplications
procedures
)ne of the
^e provided

79

only if the Board believed there was a reasonable basis for the holding company's opinion that the activity applied for was closely
related to banking.

J U N E 10, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective July 1, 1971, the Board adopted an amendment to Regulation
Y outlining the type of data processing activities permissible for bank
holding companies under the 1970 amendments to the Bank Holding
Company Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Maisel, Brimmer, and Sherrill. Votes
against this action: None. Absent and not voting:
Mr. Daane.
The amendment added an eighth activity, as follows, to the list
of activities previously found by the Board to be so closely related
to banking or managing or controlling banks as to be permissible for
bank holding companies :
(1) providing bookkeeping or data processing services
for the internal operations of the holding company and its
subsidiaries and (2) storing and processing other banking,
financial, or related economic data, such as performing
payroll, accounts receivable or payable, or billing services.
Data processing was one of the 10 activities originally proposed
in January 1971 when the Board announced plans to amend Regulation Y as a first step toward implementing the 1970 amendments
to the Act. On the basis of the record of a hearing subsequently held
and of written comments received, the Board shifted its approach
to this activity from the types of customers for whom data processing services were performed to the kinds of data being processed.
Under the amendment as adopted, bank holding companies are
permitted, subject to Board approval in individual cases, to process
banking, financial, or related economic data for any type of customer.

80




J U N E 10, 1971
STATEMENT OF POLICY ON THE PAYMENTS MECHANISM
The Board authorized the issuance of a policy statement calling for
basic changes in the Nation's system for handling money payments.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Maisel, Brimmer, and Sherrill. Votes
against this action: None. Absent and not voting:
Mr. Daane.
The statement of policy, which was issued on June 17, 1971, reflected the Federal Reserve System's sense of urgency in modernizing the system for making financial payments throughout the United
States. The changes suggested were essentially transitional steps
that look toward the eventual replacement of checks in large part
by electronic transfers of funds. The statement pointed out that until
electronic facilities began to replace check transfers in substantial
volume the present check-clearing system was vulnerable to serious
transportation delays and manpower shortages. However, structural
changes in the present system could effect significant savings in manpower and in unnecessary handling of checks. These changes would
result in faster, more convenient, and more economical banking
services for the public and would reduce the cost of operations. The
Board therefore placed high priority upon efforts by the Federal
Reserve System to improve the Nation's means of making payments,
initially along the following lines:
1. Extending present clearing arrangements, in cities with Federal
Reserve offices, into larger zones of immediate payment.
2. Establishing other regional clearing facilities, in which settlements would be made in immediately available funds.
3. (a) Encouraging banks and their customers to make greater
use of the expanded capabilities of the Federal Reserve wire transfer system; (b) removing restrictions on third-party transfers of
demand deposits, and extending the time period in which the wire
transfer system could be used; and (c) expanding facilities at Reserve Bank offices, where justified by traffic potentials, to include
high-speed tape transmission and computer-to-computer communications.




81

In a further effort to expedite payment traffic by making financial
transactions for individuals and businesses quicker and cheaper, the
Board on August 11, 1971, authorized opening the System's recently expanded nationwide communications network for use, free
of charge, for wire transfers of $1,000 or more. Depositors in
Federal Reserve member banks were given direct access, through
their banks, to the System's network, and depositors in nonmember
banks could arrange for such transfers when the payment was made
via a correspondent member bank.

J U N E 22, 1971
DISAPPROVAL OF PROPOSED DISCOUNT RATE INCREASES

The Board disapproved the action taken by the board of directors of
the Federal Reserve Bank of Philadelphia on June 17, 1971, establishing
a rate of 5 per cent (an increase from 43A per cent) on discounts for
and advances to member banks under Sections 13 and 13a of the
Federal Reserve Act, along with appropriately corresponding subsidiary
rates on advances under other sections of the Act.
Votes for this action: Messrs. Burns, Mitchell,
Brimmer, and Sherrill. Votes against this action:
None. Absent and not voting: Messrs. Robertson,
Daane, and Maisel.
In proposing the increase in the discount rate, the directors of
the Philadelphia Bank indicated that they were concerned about the
persistence of inflationary pressures, and that they felt an increase in
the discount rate was a desirable way to signal such concern, particularly in view of the rapid expansion recently in the monetary
aggregates. The directors also noted that the proposed increase
could be justified as a move to maintain general alignment between
the discount rate and short-term market interest rates and that it
would be in keeping with their preference for a policy of flexibility
in adjusting the discount rate to changes in market rates.
In voting not to approve the proposed increase, members of the
Board were of the view that a higher discount rate would not prove

82




to be a constructive step in dealing with inflationary pressures at
this time. In reaching this conclusion they took into account the
currently sensitive state of the securities markets where short-term
rates had been under upward pressure in recent weeks. Since late
May, for example, the 3-month Treasury bill rate had risen from
around 43/s per cent to its current level of about 4% per cent. The
Board did not think, however, that the current levels of short-term
rates called for an increase in the discount rate. An additional consideration at this particular time was the desirability of avoiding a
change in monetary policy during the period when a Treasury financing operation was in progress.
On June 24, 1971, the executive committee of the board of
directors of the Federal Reserve Bank of St. Louis voted to establish a discount rate of 5 per cent (an increase from 4% per cent)
for reasons generally similar to those given by the Philadelphia Bank
directors. This proposed rate increase was likewise disapproved by
the Board.
The result of the Board's actions was to continue in effect the
rates on discounts and advances contained in the existing rate
schedules of these two Banks.

J U N E 30, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective June 30, 1971, the Board amended Regulation Y for the
purpose of clarifying the Board's intention that a company might fulfill
its commitment pursuant to its irrevocable declaration (filed under Section 4(c)(12) of the Bank Holding Company Act) that it would cease
to be a holding company by 1981 by demonstrating that it had divested
itself of control of its bank although it retained some minor interest in
the bank.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Maisel, Brimmer, and Sherrill. Votes
against this action: None. Absent and not voting:
Mr. Robertson.




83

Under procedures adopted by the Board to implement relevant
provisions of the 1970 amendments to the Bank Holding Company
Act, a company that filed an irrevocable declaration that it would
divest itself of its bank interests by January 1, 1981, was permitted
to acquire a nonbank concern 45 days after notifying the appropriate
Reserve Bank of its intention to make the acquisition unless in the
meantime the company was notified to the contrary. Under the terms
of the amendment now adopted it was made clear that a company
would fulfill its commitment to divest if it provided the Board with
convincing evidence that it did not exercise a controlling influence
over the management or policies of the bank even though it retained
some interest in the bank.

J U L Y 6, 1971
AMENDMENT TO REGULATION U, CREDIT BY BANKS FOR
THE PURPOSE OF PURCHASING OR CARRYING MARGIN
STOCKS
Effective July 10, 1971, the Board amended Regulation U to revise a
provision regarding exemptions from initial margin requirements for
credit by banks for the purpose of providing capital to broker/dealer
firms.
Votes for this action: Messrs. Robertson, Daane,
Maisel, and Sherrill. Votes against this action:
None. Absent and not voting: Messrs. Burns,
Mitchell, and Brimmer.
Proposed amendments to the Board's margin regulations setting
forth conditions under which credit might be obtained without regard
to initial margin requirements for the purpose of providing capital to
broker/dealer firms had been published for comment. Pending consideration of the proposals the Board, as an interim measure, had
amended Regulation U effective April 16, 1971, to grant exemptions
from initial margin requirements for such purpose. The effect of the
present amendment was to make clear that exempt credit would not
be available to finance public trading in stock of such firms.

84




JULY 15, 1971
INCREASE IN RATES ON DISCOUNTS AND ADVANCES BY
FEDERAL RESERVE BANKS
Effective July 16, 1971, the Board approved actions that had been
taken by the boards of directors of the Federal Reserve Banks of New
York, Philadelphia, St. Louis, and San Francisco establishing a rate of
5 per cent (an increase from 43A per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal
Reserve Act.
Votes for this action: Messrs. Robertson, Daane,
Maisel, Brimmer, and Sherrill. Votes against this
action: None. Absent and not voting: Messrs.
Burns and Mitchell.
The Board later approved similar actions by the directors of the Federal Reserve Banks of Boston, Atlanta, and Minneapolis effective July
19, and by the directors of the Federal Reserve Banks of Cleveland,
Richmond, Chicago, Kansas City, and Dallas effective July 23, 1971.
Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of SVi per cent (an increase from 5Vx per
cent) on advances to member banks under Section 10(b) of the Federal
Reserve Act; it also approved increases to 7 per cent (from 63A per cent)
in rates on advances to individuals, partnerships, and corporations other
than member banks under the last paragraph of Section 13 of the Act.
In reaching its decision, the Board took note of the sizable increases that had occurred recently in short-term market interest rates,
including a rise in the 3-month Treasury bill rate from around 4%
per cent in the latter part of June to 53/s per cent currently. The
prime lending rate charged by commercial banks had been raised
from 5Vi to 6 per cent in early July. The advance in these rates had
taken place against a background of rapid increases in the monetary
aggregates and of widespread concern about the persistence of inflation in the economy. In these circumstances the Board decided that
an increase in the discount rate would bring that rate into better
alignment with short-term market interest rates generally and would
serve to signal the Board's concern over the continuation of substantial cost-push inflation.




85

A U G U S T 5, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective September 1, 1971, the Board approved an amendment to
Regulation Y outlining the types of insurance agency activities permissible
for bank holding companies under the 1970 amendments to the Bank
Holding Company Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, and Brimmer. Votes against this action:
None. Absent and not voting: Messrs. Daane,
Maisel, and Sherrill.
The amendment added the following activity to the list of activities
previously found by the Board to be so closely related to banking
or managing or controlling banks as to be permissible for bank
holding companies under Section 4 ( c ) ( 8 ) of the Bank Holding
Company Act:
Acting as insurance agent or broker in offices at which
the holding company or its subsidiaries are otherwise
engaged in business (or in an office adjacent thereto) with
respect to the following types of insurance:
(i) any insurance for the holding company and its
subsidiaries;
(ii) any insurance that (A) is directly related to an
extension of credit by a bank or a bank-related firm of the
kind described in this regulation, or (B) is directly related
to the provision of other financial services by a bank or
such a bank-related firm, or (C) is otherwise sold as a
matter of convenience to the purchaser, so long as the
premium income from sales within this subclause (C)
does not constitute a significant portion of the aggregate
insurance premium income of the holding company from
insurance sold pursuant to this clause (ii);
(iii) any insurance sold in a community that (A) has
a population not exceeding 5,000, or (B) the holding
company demonstrates has inadequate insurance agency
facilities.

86




Insurance agency business was one of the 10 activities originally
proposed by the Board in January 1971 when it announced plans
to amend Regulation Y as a first step toward implementing the
1970 amendments to the Act. The original proposal would have
permitted a bank holding company to act "as insurance agent or
broker principally in connection with extensions of credit by the
holding company or any of its subsidiaries." However, in the light
of a hearing subsequently held and the written comments received, the
Board, in the amendment to the regulation now adopted, spelled out
in more detail the types of insurance agency activities that it found
to be closely related to banking. The Board had also considered, but
decided not to adopt at this time, a general regulatory provision as
to whether insurance underwriting activities are considered to be
closely related to banking.

A U G U S T 16, 1971
DISAPPROVAL OF PROPOSED DISCOUNT RATE INCREASES
The Board disapproved actions taken by the boards of directors of the
Federal Reserve Banks of St. Louis and Dallas on August 12, 1971,
establishing a rate of 5Vi per cent (an increase from 5 per cent) on discounts for and advances to member banks under Sections 13 and 13a of
the Federal Reserve Act, along with appropriately corresponding subsidiary rates on advances under other sections of the Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Maisel, and Brimmer. Votes against this
action: None. Absent and not voting: Messrs.
Daane and Sherrill.
The actions of the St. Louis and Dallas Banks were taken against a
background of continuing rapid growth in the monetary aggregates and
persisting concern about the rates of advance in prices and wages.
Most market interest rates had risen somewhat further since the
announcement of an increase in the discount rate from 4 3 4 to 5 per
cent on July 15. Rates on shorter-term Treasury bills had declined
slightly, however, as large purchases of such securities were made




87

by foreign central banks that acquired dollars being sold abroad in
anticipation of shifts in foreign exchange rates.
The Board's decision not to approve the proposed increases in the
discount rate was made in the light of the President's major economic
policy announcements on August 15. The Government's new economic program was thought likely to help moderate the rise in prices
and wages while stimulating economic activity, and early reactions
to the President's announcements suggested that a downward adjustment in market interest rates was developing. In these newly emerging circumstances the Board concluded that an increase in the discount rate would not be appropriate.
The result of the Board's action was to continue in effect the rates
on discounts and advances contained in the existing rate schedules
of the two Banks.

AUGUST 19, 1971
AMENDMENTS TO REGULATION Y, BANK HOLDING
COMPANIES
Effective September 1, 1971, the Board amended sections of Regulation
Y relating to procedural requirements in order to facilitate the processing
of certain types of applications filed under the Bank Holding Company
Act, as amended.
Votes for this action: Messrs. Burns, Mitchell,
Daane, and Maisel. Votes against this action in
part: Messrs. Robertson and Brimmer. Absent and
not voting: Mr. Sherrill.

The number of applications for approval of the formation of bank
holding companies had increased substantially following the enactment of the 1970 amendments to the Bank Holding Company Act,
and there had also been an increase in the number of requests for
approval of nonbanking activities pursuant to Section 4(c)(8) of
the Act.
In the Board's judgment, applications for the formation of onebank holding companies normally present no significant issues.
Accordingly, the Board delegated to the Federal Reserve Banks the
bulk of its authority to approve the formation of such holding com-

88




panics and dispensed with the publication of an order and state•• ;nt in cases approved by a Reserve Bank, More specifically, the
•
• legation authorized the Reserve Banks to approve the acquisition
a company of a controlling interest in the voting shares of one
. ok if (1) no objection to the proposed acquisition had been made
the bank's supervisory authority, (2) no significant policy Issue
•' -.s raised by the proposal as to which the Board apparently had not
' *d an opportunity to express Its views, and (3) neither the holding
• mpany nor any of Its subsidiaries or affiliates was engaged In any
: . :ivities other than those specifically designated as permissible for
• nk holding companies by either the Bank Holding Company Act
' • .julation Y.
'<• Board also eliminated some of the steps that bank holding
.-, nies had been, required to take In seeking to engage in certain
. , , jf activities that had been determined to be closely related to
.• '-g. Under those procedures, adopted In May 1971, a bank
T
- ' ! • g company was required to file a formal application to acquire
• •ablished concern to engage in a bank-related activity, and
•"•• • i '•'!..
. local newspaper when it proposed to enga..
1
a b - ''•
• • • vity either de novo or through an establish-. >
•
.
. mpa-. ~ > '"• . " now concluded that those steps were unnect^
•:y \* • ' • ' v • • T : ' 'Giving the public interest would normally be
'' /orai ',
Ace : • • •
' - " -' :empted the following activities from
such procedui •
; • • ' . . -ing or acquiring a finance company
with assets of •
• :" million., so long as the aggregate cost
of such transactions in any one year did not exceed $50 million; (2)
engaging in bank-related activities shifted from a bank in the holding
company system to the .holding company itself or to a nonbanking
, - , iary (this being limited to bank-related activities in which the
• " • ' engaged either de nova or as the result of a bank merger);
an , • • ngaging de novo in all kinds of insurance agency activities
de :.: • . I by the Board to be closely related to 'banking, except
where the holding company was required to demonstrate that 1' < *
community in which the Insurance was to be sold had inadequ;,v
insurance agency facilities. A bank holding company was still required to notify its Reserve Bank of Its intention to engage in such




activities 45 days before engaging in them, except where the company would operate a finance company with assets of less than $10
million. In that case, notice was required to be submitted to the
Reserve Bank within 30 days after consummation of the transaction,
and divestiture could be required whenever necessary to carry out the
purposes of the Bank Holding Company Act.
Messrs. Robertson and Brimmer dissented from the Board's action
relaxing procedural requirements with respect to acquisition of
finance companies on the grounds that such action would permit a
holding company to acquire existing finance companies without any
prior notice to the public or even to the Federal Reserve System.
Provisions for later requiring divestiture of an acquired company—
a difficult and time-consuming procedure—would be an inadequate
substitute for giving the public (or at least the Federal Reserve System) opportunity to object to such acquisitions before their consummation.
Mr. Robertson also dissented from that part of the action eliminating the requirement of prior public notice of proposed entry into
certain bank-related activities, either de novo or through acquisition
of an established company. He based his dissent on the ground
that, in the absence of compelling reasons, it is unwise to deprive
the public of prior notice of proposed acquisition and the opportunity
to present comments or objections.
Subsequently, in the light of developments, the Board in December
published for comment further proposed revisions of its rules permitting bank holding companies to make de novo entry into activities closely related to banking and to acquire small finance companies. At the same time, the Board suspended its existing simplified
procedures pending consideration of the new proposals.

SEPTEMBER 9, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective September 21, 1971, the Board amended Regulation Y to
specify the types of foreign business activities in which domestic bank

90




holding companies may engage under the 1970 amendments to the Bank
Holding Company Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action: None. Absent and not voting:
Mr. Sherrill.
Under the amendment adopted, bank holding companies may
acquire ownership or control of the shares of companies in which
Edge Act corporations may invest, if such acquisitions are made with
the Board's prior consent under procedures similar to those presently
governing investments by Edge Act corporations. This action implemented the Board's regulatory authority under Section 4 ( c ) ( 1 3 ) of
the Bank Holding Company Act to permit bank holding companies
to acquire shares of companies that do no business in the United
States except as an incident to such companies' international or
foreign business.
Edge Act corporations are generally subsidiaries of member banks,
established in the United States with specific Board approval, to
facilitate the foreign business of their parent banks. The corporations
are permitted to exercise broader powers in foreign operations than
are their parent banks, and in general they may invest in companies
engaged in international or foreign banking or other international or
foreign financial operations.

SEPTEMBER 10, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective September 21, 1971, the Board amended Regulation Y to
establish presumptions regarding control of a bank or other company.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Maisel, and Brimmer. Votes against this
action: Mr. Robertson. Absent and not voting: Mr.
Sherrill.
The purpose of the action was to define circumstances that might
be found to constitute control of a bank, or other company, in light




91

of the 1970 amendments to the Bank Holding Company Act. The
1970 amendments, in part, extended the provisions of the Act to
holding companies controlling only one bank and gave the Board
greater latitude to determine when control existed. The amendment
now adopted established as part of Regulation Y a series of presumptions, some conclusive and others rebuttable, regarding control of
a bank or other company. These presumptions, with certain exceptions, were generally those that had been proposed by the Board and
published for comment earlier this year. The proposals not included
in the regulation were made the basis of guidelines for use by the
Reserve Banks for investigation of control in individual cases.
Mr. Robertson based his dissent on the view that adoption of
regulations establishing such presumptions is beyond the powers conferred on the Board by the Bank Holding Company Act, and that at
least some of the presumptions are not in harmony with the realities
of corporate control.

OCTOBER 1, 1971
AMENDMENT TO REGULATION Z, TRUTH IN LENDING
Effective October 1, 1971, the Board amended Regulation Z in order
to add Columbus Day as a holiday for purposes of calculating the time
within which certain credit transactions may be rescinded.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, Brimmer, and Sherrill.
Votes against this action: None.

A footnote to Regulation Z provided that Sundays and the eight
Federal holidays authorized at the time the regulation became effective (July 1, 1969) would not be considered as business days when
determining the period within which certain credit transactions might
be rescinded. The present amendment, purely technical in nature, was
adopted for the purpose of aligning the regulation with the legal
public holiday schedule, to which a ninth public holiday, Columbus
Day, had been added through the enactment of Public Law 90-363,
effective January 1, 1971.

92




O C T O B E R 7, 1971
ADOPTION OF REGULATION X, RULES GOVERNING
BORROWERS WHO OBTAIN SECURITIES CREDIT
Effective November 1, 1971, the Board issued Regulation X to implement legislation requiring borrowers to comply with margin regulations in securities transactions.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action: None. Absent and not voting:
Mr. Sherrill.
Title III of the Foreign Bank Secrecy Act (Public Law 91-508),
which was enacted October 26, 1970, to become effective November
1, 1971, for the first time made margin regulations applicable directly
to U.S. borrowers (and to foreign borrowers whom they control or
who act for them). In July 1971 the Board published for comment
proposed amendments to its three existing margin regulations to
implement the new statute. However, comments received prompted
the Board to combine the changes in a new regulation, which was
designated Regulation X.
In essence, Regulation X provided that subject borrowers obtaining credit in the United States or abroad must comply with the
margin regulation applicable to the lender, or if none applied, they
must treat the borrowing as if it were subject to Regulation G, the
margin regulation applicable to extensions of credit by persons other
than banks, brokers, or dealers. Exemptions were provided for (a)
individuals permanently resident abroad who obtain $5,000 or less in
"purpose" credit at any one time or in any one year; (b) foreign
subsidiaries of U.S. corporations making markets in Euro-bonds;
and (c) extraordinary circumstances in which the Board may wish
to grant individual exemptions, by order, if the obtaining of the
credit is consonant with the purposes of the Foreign Bank Secrecy
Act.
Other proposed amendments, also published for comment in July,
relating to the application of margin regulations to foreign branches
of U.S. banks and to U.S. brokers and dealers were held for further
consideration.




93

O C T O B E R 26, 1971
AMENDMENT TO REGULATION J, COLLECTION OF CHECKS
AND OTHER ITEMS BY FEDERAL RESERVE BANKS
Effective October 26, 1971, the Board amended footnote 1 of Regulation J to include the Territory of American Samoa in the Twelfth
Federal Reserve District for check collection purposes.
Votes for this action: Messrs. Burns, Mitchell,
Daane, and Sherrill. Votes against this action:
None. Absent and not voting: Messrs. Robertson,
Maisel, and Brimmer.
This action was taken in order to make available in the Territory
of American Samoa certain of the System's check collection facilities.
Regulation J already included the Virgin Islands, Puerto Rico, and
Guam in Federal Reserve districts for the purposes of check collection. Public Law 91-609, Section 910, had recently been amended to
render banks in American Samoa eligible for Federal deposit insurance.

N O V E M B E R 4, 1971
AMENDMENT TO REGULATION Y, BANK HOLDING
COMPANIES
Effective December 1, 1971, the Board amended Regulation Y to
exempt foreign bank holding companies from prohibitions in the Bank
Holding Company Act with respect to certain of their nonbanking
activities and interests in the United States.
Votes for this action: Messrs. Burns, Daane,
Brimmer, and Sherrill. Votes against this action in
part: Mr. Mitchell. Abstaining in part: Messrs.
Mitchell and Maisel. Absent and not voting: Mr.
Robertson.
The action was taken to implement the Board's regulatory authority
under Section 4 ( c ) ( 9 ) of the Bank Holding Company Act, as
amended in 1970. This section pertains to acquisitions of companies
that do some business in the United States by foreign bank holding

94



---shed permitting foreign bank holding companies to apply to
<ard for special exemptions.
Mr. Mitchell dissented from that part of the action relating to the
provision that noncontrolling investments were permissible in foreign
companies engaged in nonbanking activities in the United States if
more than half of the business of those companies was done outside
the United States. He regarded such a standard as very permissive,
and expressed apprehension that minimal reporting requirements
involving a transaction, of that kind would not develop adequate information .regarding the activities of foreign, bank, holding companies
in the United States.
Messrs, Mitchell and Maisel abstained from that portion of the
action, exempting certain specialized investment companies that,




while principally engaged in financing or facilitating transactions in
international or foreign commerce, also conducted some purely
domestic business not otherwise exempted. In their view, the role
of the specialized investment companies in the U.S. financial structure
was not yet well enough defined to permit taking a position regarding
the appropriateness of the exemption.

N O V E M B E R 10, 1971
REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY
FEDERAL RESERVE BANKS
Effective November 11, 1971, the Board approved actions that had
been taken by the boards of directors of the Federal Reserve Banks of
Boston, Philadelphia, Cleveland, St. Louis, Minneapolis, Dallas, and San
Francisco establishing a rate of 43A per cent (a decrease from 5 per
cent) on discounts for and advances to member banks under Sections 13
and 13a of the Federal Reserve Act.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Maisel, Brimmer, and Sherrill. Votes against
this action: None. Absent and not voting: Mr.
Robertson.
The Board later approved similar actions by the directors of the Federal Reserve Banks of Richmond, Chicago, and Kansas City effective
November 12, by the directors of the Federal Reserve Bank of Atlanta
effective November 15, and by the directors of the Federal Reserve Bank
of New York effective November 19, 1971.
Effective the same dates the Board approved for the respective Federal
Reserve Banks a rate of 5V4 per cent (down from 5Vi per cent) on
advances to member banks under Section 10(b) of the Federal Reserve
Act. In addition the Board approved for all of the Banks reductions to
634 per cent (down from 7 per cent) in rates on advances to individuals,
partnerships, and corporations other than member banks under the last
paragraph of Section 13 of the Act.
The reductions in the System's lending rates were made in recognition of declines that had taken place in other short-term interest rates,
notably Treasury bill rates, and were intended to bring the System's

96




rates into better alignment with short-term rates generally. It was also
felt that the reductions, while in the nature of market-following
moves, would tend to have a favorable influence on business and
consumer confidence. The latter was being adversely affected by
uncertainties relating to the new, Phase II stabilization program for
prices and wages and by the unsettled international monetary situation.

N O V E M B E R 11, 1971
REVISION OF FOREIGN CREDIT RESTRAINT PROGRAM
GUIDELINE
Effective immediately, the Board revised the guidelines covering foreign
credits and investments by U.S. banks and other financial institutions
chiefly to bring the guidelines into conformity with recent legislation.
Votes for this action: Messrs. Burns, Daane,
Maisel, Brimmer, and Sherrill. Votes against this
action: None. Absent and not voting: Messrs.
Robertson and Mitchell.
Public Law 92-126 (the Export Expansion Finance Act of 1971),
which was enacted August 17, 1971, among other things directed the
removal of export credits from the voluntary foreign credit restraint
program. The Senate-House conferees who worked out the final
language of the legislation made it clear that the Board should be
allowed a reasonable period (up to 90 days) within which to make
modifications reflecting the exemption as well as any further changes
needed to continue the program in effect for nonexport financing.
Accordingly, on August 18 the Board requested commercial banks
and other financial institutions participating in the program to continue to comply with the existing program for the time being.
Principal features of the revised guidelines now adopted by the
Board were the exemption of export credits to foreigners by banks
and nonbank financial institutions, and the inclusion of a new formula
for calculating ceilings. The ceiling for nonexport financing of each
reporting bank would be the highest of the following: (a) 85 per cent
of its general ceiling as of September 30, 1971; (b) its general ceiling




97

as of September 30, 1971, minus any export credits subject to that
ceiling as of that date; or (c) 2 per cent of its total assets as of
December 31, 1970. The ceiling for nonexport financing of each
nonbank financial institution would be the higher of the following:
(a) its ceiling as of September 30, 1971, minus export credits subject
to that ceiling as of that date; or (b) 85 per cent of its ceiling as of
September 30, 1971.
The establishment of the new ceilings was designed to reduce
inequities among banks attributable to differing historical positions
and to the exemption accorded export credits. If there had been a
single ceiling that reduced a bank's lending authorization by the
amount of its export credits, a participating bank with substantial
export financing would have experienced a sharp reduction in its
over-all ceiling while a competitor that did little export financing
would have experienced only a slight reduction. Under the revised
guidelines each bank was permitted to adopt the ceiling most advantageous in its particular circumstances.
Certain technical changes were also adopted, including elimination
of the subceiling on short-term claims on residents of developed
countries of continental Western Europe, imposition of reporting
requirements for U.S. agencies and branches of foreign banks, and
modification of the nonbank guidelines to eliminate one feature of
the exemption for long-term credits to less developed countries.

N O V E M B E R 26, 1971
AMENDMENT TO REGULATION Z, TRUTH IN LENDING
Effective December 31, 1971, the Board amended Regulation Z to
permit creditors in making disclosures to disregard any variance in credit
terms caused by leap year.
Votes for this action: Messrs. Burns, Robertson,
Daane, and Brimmer. Votes against this action:
None. Absent and not voting: Messrs. Mitchell and
Maisel.
This technical amendment was adopted to facilitate the use of
preprinted disclosures without the need for preparation of new forms
solely because of the extra day in leap year.

98




DECEMBER 3, 1971
AMENDMENTS TO MARGIN REGULATIONS
Effective December 6, 1971, the Board lowered the margin requirement from 65 to 55 per cent for credit extended by brokers, dealers,
banks, and other lenders to finance the purchase or carrying of stocks,
and also reduced the required deposit on short sales from 65 to 55 per
cent. In making the reductions, the Board amended the Supplements to
Regulation G, Securities Credit by Persons Other Than Banks, Brokers, or
Dealers; Regulation T, Credit by Brokers and Dealers; and Regulation
U, Credit by Banks for the Purpose of Purchasing or Carrying Margin
Stocks. No changes were made in the 50 per cent margin requirement
applicable to loans made for purchasing or carrying convertible bonds or
in the 70 per cent retention requirement applicable to undermargined
accounts.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action: None.
The action covered new extensions of credit by brokers and dealers
(Regulation T) and loans by banks and other lenders (Regulations
U and G, respectively) for the purpose of purchasing or carrying
securities registered on a national stock exchange or named in the
Board's over-the-counter margin list. The change in margin requirements was the first since May 6, 1970, when they were reduced from
80 to 65 per cent.
In making the change, the Board acted under the authority
granted in the Securities Exchange Act of 1934 to prevent excessive
use of credit to finance transactions in securities. The Board took
note of the moderate level of outstanding stock market credit and
the absence of indications of the excessive use of such credit. Margin
credit extended by brokers totaled about $5 billion at the end of
October compared with the peak of about $6.5 billion reached during June 1968. At large banks, loans for the purpose of purchasing
or carrying securities currently amounted to about $2.5 billion.
In retaining the 50 per cent margin requirement on loans made
to purchase or carry convertible bonds, the Board took into account
the relatively low level of the current requirement and also noted that
most convertible bonds subject to the requirement were trading at




99

prices that tended to reflect their stock rather than their bond values.
The retention requirement applicable to undermargined accounts was
kept at 70 per cent, its level since November 6, 1963. That requirement specifies the proportion of the proceeds of a sale of securities
from a margin account that must be retained in the account if the
equity in that account does not match the margin requirements.

D E C E M B E R 10, 1971
REDUCTION IN RATES ON DISCOUNTS AND ADVANCES BY
FEDERAL RESERVE BANKS
Effective December 13, 1971, the Board approved actions that had
been taken by the boards of directors of the Federal Reserve Banks of
Boston, St. Louis, Kansas City, and San Francisco establishing a rate of
AVi per cent (a decrease from 43A per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal
Reserve Act.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Maisel, and Brimmer. Votes against this
action: None. Absent and not voting: Mr. Daane.
The Board later approved similar actions by the directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, and Chicago
effective December 17, by the directors of the Federal Reserve Banks of
Atlanta and Minneapolis effective December 23, and by the directors of
the Federal Reserve Banks of Richmond and Dallas effective December 24.
Effective the same dates the Board approved for the respective Federal Reserve Banks a rate of 5 per cent (a decrease from 5VA per cent)
on advances to member banks under Section 10(b) of the Federal
Reserve Act. In addition the Board approved for all of the Banks a
reduction to 6V2 per cent (from 63A per cent) in rates on advances to
individuals, partnerships, and corporations other than member banks
under the last paragraph of Section 13 of the Act.

Since the previous reduction in the discount rate from 5 to 4%
per cent was announced on November 10, most short-term interest
rates had declined slightly further on balance and some major banks

100




had reduced their prime lending rates. The Board's action was taken
in recognition of the prevailing levels of market interest rates, but also
to assist the progress of economic expansion. In the latter connection
it was noted that growth of certain key monetary aggregates—total
member bank reserves and demand deposits—had remained sluggish
in recent weeks, although growth in time and savings accounts at
banks and other thrift institutions had continued at a relatively fast
pace. In reaching its decision, the Board took account of the still
substantial underemployment of economic resources, including the
relatively high level of unemployment, and concluded that a reduction
in the discount rate would serve a useful purpose in signaling a more
aggressive monetary policy designed to stimulate desired expansion
of economic activity and employment.

D E C E M B E R 15, 1971
STATEMENT ON REAL ESTATE FINANCING
The Board authorized the issuance of a statement directing Statechartered member banks to give public notice, effective March 1, 1972
(effective date subsequently deferred to May 1, 1972), that their real
estate financing was nondiscriminatory.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Maisel, and Brimmer. Votes
against this action: None.
In its statement, issued December 17, 1971, the Board directed
that at a minimum all State-chartered member banks (1) post in the
lobbies of head offices and branches display-size notices announcing
that the lending institution was an "Equal Housing Lender" and
giving directions for filing complaints; (2) indicate prominently in
any advertising that the institution's real estate lending was free from
discrimination; (3) ban use of words, phrases, symbols, directions,
forms, models, or other means that would imply discrimination; and
(4) include in all advertising a logotype symbol indicating nondiscriminatory real estate lending.




101

This action, was taken as one of a series of affirmative steps toward
'.^plementation of the provisions of the 1968 Civil Rights Act
, ected at the real estate lending activities of financial institutions,
'.e objective was to Increase public awareness of nondiscrimination
1
.'.;uirements and to publicize complaint procedures. Similar statements were issued simultaneously by the Comptroller of the Currency
v. i'h respect to national banks, by the Federal Deposit Insurance
C -<rporation with respect to State-chartered nonmember banks, and
:
\ the Federal Home Loan Bank Board with respect to savings and
•••11 associations under its jurisdiction.
The Board had earlier taken other steps to implement civil rfgk>>,
"' "islation affecting real estate lenders, including the use of a d u ;
• ' 'fits questionnaire as an integral part of the bank examination piu> 4ure, and a special course of study in Federal Reserve schools for
h*;ak examiners.




Record of Policy Actions of the
Federal Open Market Committee
The record of policy actions of the Federal Open Market Committee
is presented in the ANNUAL REPORT of the Board of Governors pursuant to the requirements of Section 10 of the Federal Reserve Act.
That section provides that the Board shall keep a complete record of
the actions taken by the Board and by the Federal Open Market Committee on all questions of policy relating to open market operations,
that it shall record therein the votes taken in connection with the
determination of open market policies and the reasons underlying
each such action, and that it shall include in its ANNUAL REPORT to
the Congress a full account of such actions.
In the pages that follow, there are entries with respect to the policy
actions taken at the meetings of the Federal Open Market Committee
held during the calendar year 1971, including the votes on the policy
decisions made at those meetings as well as a resume of the basis
for the decisions. The summary descriptions of economic and financial conditions are based on the information that was available to the
Committee at the time of the meetings, rather than on data as they
may have been revised later.
It will be noted from the record of policy actions that in some
cases the decisions were by unanimous vote and that in other cases
dissents were recorded. The fact that a decision in favor of a general
policy was by a large majority, or even that it was by unanimous vote,
does not necessarily mean that all members of the Committee were
equally agreed as to the reasons for the particular decision or as to
the precise operations in the open market that were called for to implement the general policy.
Under the Committee's rules relating to the availability of information to the public, the policy record for each meeting is released
approximately 90 days following the date of the meeting and is subsequently published in the Federal Reserve Bulletin as well as in the
Board's ANNUAL REPORT.

Policy directives of the Federal Open Market Committee are issued
to the Federal Reserve Bank of New York as the Bank selected by




103

the Committee to execute transactions for the System Open Market
Account. In the area of domestic open market activities the Federal
Reserve Bank of New York operates under two separate directives
from the Open Market Committee—a continuing authority directive
and a current economic policy directive. In the foreign currency area
it operates under an authorization for System foreign currency operations and a foreign currency directive. These four instruments are
shown below in the form in which they were in effect at the beginning of 1971. No revisions were made in the foreign currency directive during the year; changes in the other instruments are shown in
the records for the individual meetings.
CONTINUING AUTHORITY DIRECTIVE WITH RESPECT TO
DOMESTIC OPEN MARKET OPERATIONS
(in effect January 1, 1971)

1. The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, to the extent necessary to carry
out the most recent current economic policy directive adopted at a
meeting of the Committee:
(a) To buy or sell U.S. Government securities in the open market,
from or to Government securities dealers and foreign and international
accounts maintained at the Federal Reserve Bank of New York, on
a cash, regular, or deferred delivery basis, for the System Open Market
Account at market prices and, for such Account, to exchange maturing U.S. Government securities with the Treasury or allow them to
mature without replacement; provided that the aggregate amount of
such securities held in such Account at the close of business on the
day of a meeting of the Committee at which action is taken with respect to a current economic policy directive shall not be increased or
decreased by more than $2.0 billion during the period commencing
with the opening of business on the day following such meeting and
ending with the close of business on the day of the next such meeting;
(b) To buy or sell prime bankers' acceptances of the kinds designated in the Regulation of the Federal Open Market Committee in the
open market, from or to acceptance dealers and foreign accounts
maintained at the Federal Reserve Bank of New York, on a cash,
regular, or deferred delivery basis, for the account of the Federal
Reserve Bank of New York at market discount rates; provided that
the aggregate amount of bankers acceptances held at any one time

104




shall n o texce<v i , ,
'
<.'.•••
•••' ent of the total of
bankers' acceptances outst;1 \ '!<). .'•<•>
-!> .aost recent accept;
ance survey conducted by ,. • .• ,• , :; •
• '"ink of N e w York,
whichever is the lower;
(c) To buy U.S. Government securities, obligations that are direct
obligations of, or fully guaranteed as to principal and interest by, any
agency of the United States, and prime bankers' acceptances with
maturities of 6 months or less at the time of purchase, from nonbank
dealers for the account of the Federal Reserve Bank of New York
UEcier agreements for repurchase of such securities, obligations, or
acceptances in 15 calendar days or less, at rates not less than (1) the
discount rate of the Federal Reserve Bank of New York at the time
such agreement is entered into, or (2) the average issuing rate on the
most recent Issue of 3-month Treasury bills, whichever Is the lower;
p r o v i d e d t h a t In t h e e v e n t G o v e r n m e n t s e c u r v . / • s .. , ' '••"
c o v e r e d b y a n y s u c h a g r e e m e n t a r e n o t repu: > i , . . < • • " .
.-' .
p u r s u a n t to t h e a g r e e m e n t o r a . r e n e w a l t h e r e i; -. "•
in the market or transferred to the System Oper, • • . •
provided further that in the event b a n k e r s ' a- • ;•
•
any such agreement are not repurchased by the
•••>•••

t i n u e t o b e h e l d b y t h e F e d e r a l R e s e r v e B a n k ••: -:•.•
open market.
2 , T h e F e d e r a l €v» i M , - > ; •' r v , , • V\ • . •:::• -;.•
F e d e r a l R e s e r v e B a o i <>< V v • •. - >.. r - ,' .• \ •is c l o s e d ,

a n yo t h e r

T r e a s u r y

f o r I t s o w i . •->;•••.•!...'

desirable,

to

issue

'' •

• ;;•
* "

",

J •„ ^ - i : o !•..•..';• •.•• ;"••.:•;••.
p s • . " . " . *;.••• '*;••'

>•.'.•!

»•,•..••

. • • - • - • .

s u c h a m o u n t s o f spe,•,•;•,! >\\x >• :••.
,
.
b e n e c e s s a r y f r o m t i m e to t i m e f o r t h e t e i i ; ; ; - .'..
• ••. •
the Treasury; provided that t h erate charged
:-;,''.••'
<'i a. r a t e ! 4 o f 1 p e r c e n t b e l o w t h e d i s c o u n t ••••••. i( :
;
' ; . ' i k o f N e w Y o r k a t t h e t i m e o f s u c h p u r c l - ; •.:-. •.":•'•• ••
;
, ••; t h e total a m o u n t o f s u c h c e r t i f i c a t e s fae';>.! ,;• •:/, .•••v,- •';••.•
. - ••'<,'] R e s e r v e B a n k s s h a l l n o t e x c e e d $ 1 b i l l i o n .
• ;-; o r d e r to I n s u r e t h e e f f e c t i v e c o n d u c t *•• ; - ' . . • •
•'
1
., r i s e r a i O p e n M a r k e t C o m m i t t e e a u t h o r i y * »,.>••
•
;*•" e r v e B a n k s t o l e n d U . S . G o v e r n m e n t s e c . 1 ' ' i ; !; '•- •
••; ;n M a r k e t A c c o u n t to G o v e r n m e n t secui'•(-••• .- <! ••
;•. ' i c i p a t l n g i n G o v e r n m e n t s e c u r i t i e s c l e a r i r . 1 - '.; ; .:„• ••.
t h r o u g h a F e d e r a l Reserve Bank, under such
mittee m a y specify from, time to time.




'

;•'*<<.;,. .

• •

(in elect January 1, 1971)
The Information reviewed at this meeting suggests that real output of
• '>ds and services has declined since the third quarter, largely as a con•., • <uence of the recent strike in the automobile Industry, and that unemployment has increased. Resumption of higher automobile production is
• \!>ected to result in a bulge In activity in early 1971. Wage rates gen• , lly are continuing to rise at a rapid pace, but gains In productivity ap;•• ir to be slowing the increase In unit labor costs. Movements in major
!•'. (ce measures have been diverse; most recently, wholesale prices have
•••• »wn little change while consumer prices have advanced substantially.
' !, irket interest rates declined considerably further in the past few weeks,
,-;•! Federal ReseFYe discount rates were reduced by an additional ooe<; ..liter of a percentage point Demands for feeds in capital markets have
>
:itinued heavy, but business loan, demands at banks have been weak,
' , owth in the money supply was somewhat more rapid on average in
'• member than. In October, although it remained below the rate prevailing in the first three quarters of the year. Banks acquired a substantial
volume of securities in November, and bank credit increased moderately
.tl.'er changing little In, October, The foreign trade balance in September
.,.J October was smaller than in any other 2-month period this year. The
\ jr-all balance of payments deficit oe the liquidity basis remained In
U.tober and November at about Its third-quarter rate. The deficit on the
^itcial settlements basis was very large as banks continued to repay Euro'•i'-i' ,', : •'>'lilies. In light of the foregoing developments, it is the policy
"' - .. ! -;.erai Open Market Committee to foster financial condition*
•'.;•; Jii.." . :o orderly reduction in the rate of inflation, while encouragii. •; resumption of sustainable economic growth and the attainment »
' asonable equilibrium in the country's balance of payments.
To implement this policy, System open market operations shall be con<h ^ted with a view to maintaining the recently attained money market
>
< '.Mditions until the next meeting of the Committee, provided that the ex; v.;ted rates of growth in money and bank credit will at least be achieved.

'• *' 1 ' 'ORIZATION FOR SYSTEM FOREIGN
CURRENCY OPERATIONS
(in elect January 1, 1,971)

1. The Federal Open Market Coniniitt.ee authorizes and directs the
Federal Reserve Bank of New York, for System Open Market Account,




to the extent
i "ective and express
A. To purchase
• : cable transfers • i
•.rket at home anci
;
ion Fund establis1
' :h foreign monet-'•-••rtlements:
An st r i an sc hill I n gs
Belgian francs
Ca n adia n d o 11 ars

Danish kroner
Pounds sterling
French francs
German murks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian, kroner
Swedish kroner
Swiss francs
lf

" ' • ' ' . • . . reign currencies listed in par,*,.v ;' - . •
, up to
the following limits:
( 1 ) C u r r e n c i e s p u r c h a s e d s p o t , i n c l u d i n ; •••• •. .
. rchased
f r o m t h e S t a b i l i z a t i o n F u n d , a n d s o l d f o r w a r d t o ; ;• >:. •..: ".. •. F u n d ,
u p *"^ *' 1 ^:-]V~ '• T , - V - ' ••yit;

' ' • > . • • • . . purchased spot or forward, up to the a m o u n t s
• '•! • . ; ; ' . : ' ,,; •. forward commitments;
v
«.5 •• "V " currencies purchased spot or forward, up to the
am '*- ,' ••• ' • '!•. {'•'• " ystem operations to exert a market influence but
•

nee;

no* / •, • < .'• -',250 million equivalent; and
• . v, ding purchased on a covered or guaranteed basis in terms
JL ,^: • ; . \ under agreement with the Bank of England, up to $200
• " r"
,

• . ; '•« . ' m t .

'". " ' ' /e outstanding forward commitments undertaken under
.
'". * i • .bove to deliver foreign currencies, up to the following
• '
• < •

umitments to deliver foreign currencies to the Stabiliza•; to the limit specified In paragraph 111(1) above; and




107

• • r - ""er forward commitments to deliver foreign currencies,
up t-,. .. •,..: tu.:t,on equivalent.
r w foreign currencies and to permit foreign banks to draw
• : . " - . •/," • he reciprocal currency arrangements listed in paragraph
below, proYicled that drawings by either party to any such arrangement shall be fully liquidated within 12 months after any amount out•i.:tiding at that time was first drawn, unless *jr* x' -^nmittee, because of
-optional circumstances, specifically authori; . s A il.iay.
!. The Federal Open Market Committee '.;>,' ' he Federal Reserve
'<- lk of New York to maintain reciprocal currency arrangements
: * ".wap" arrangements) for System Open Market Account for periods
»*i- to a maximum of 12 months with the following foreign banks, which
n, among those designated by the Board of Governors of the Federal
'."'. serve System under Section 214.5 of Regulation N, Relations with
Foreign Banks and Bankers, and with the approval of the Committee
to renew such arrangements on maturity:
': -rant of
'• •

sgement

<<'•* n n r

Foreign baok

doll*;

Austrian National Bank
x
. 'tional Bank of Belgium
' - -nk of Canada
sr
'tional Bank of Denmark
^;:tik of England
iiank of France
< j.rman Federal Bank
!< 'nk of Italy
n.tak of Japan
H,.nk of Mexico
Y
t \ therlands Bank
I1: iok of Norway
•''.ok of Sweden
~*. iss National Bank
H*-nk for International Settlements:
i->Lj«!ars against Swiss fraocs
''.'.'•• ars against authorized European
currencies other than, Swiss fraocs
3. Unless otherwise expressly authorized by the Comix •'•.
actions in foreign, currencies undertaken under paragra;*^




Of

«: >valent)

'• 0
1,000

! '0

• o

- 0
600
1,000
:: ,.nSj'hove

"-,"]-: -•• ••• prevailing market rates and no attempt shall be made to
•••aonsn ra*f-- fh?f appear to be out of line with underlying market
j
-ces.
4. It sha:- -T ----j practice to arrange with foreign central ban.ks for
--• coordination, of foreign currency transactions. In making .. .
- • angements with foreign central banks OD System holdings
• ^
-,-*rencies, the Federal Reserve Bank of New York shall r • . :
...jlf to maintain any specific balance, unless authorized by 1
/en Market Committee. Any agreements or understandings
•. administration of the accounts maintained by the Fedei
• • •" '
nk of New York with the foreign banks designated by th :
>vernors under Section 214.5 of Regulation N shall be referred for
- • and approYal to the Committee,
oreige currency holdings shall be invested insofar as practicable,
' " 'ring needs for minimum working balances. Such investments
:,-' "
accordance with Section. 14(e) of the Federal R,«
• ; .ct.
•' •'• Dcommittee consisting of the Chairman and the ^ .
• ' lir- ; Committee and the Vice Chairman of the Board * ~ > errs (or in the absence of the Chairman or of the Vice Chairman of
.•• Board of Governors the members of the Board designated by the
•airman as alternates, and in. the absence of the Vice Chairman of the
mmittee his alternate) is authorized to act on behalf of the Com•ttee when it is necessary to enable the Federal Reserve Bank of New
'• :rk to engage In foreign currency operations before the Committee
~T. be consulted. All actions taken by the* Subcommittee under this
•;?agraph shall be reported promptly to the Committee.
7, The Chairman (and ID his absence the Vice Chairman of the Com-*ttee, and In the absence of both, the Vice Chairman of the Board
- Governors) is authorized:
A. With the approval of the Committee, to enter into any needed
jr'eement or understanding with the Secretary of the Treasury about
I-*. dl¥ision of responsibility for foreign currency operations between
.•u System and the Secretary;
B. To keep the Secretary of the Treasury fully advised concerning
-item foreign currency operations, and to consult with the Secretary
:L such, policy matters as may relate to the Secretary's responsibilities;
•i

C. From, time to time, to transmit appropriate reports and inforn .
n to the National Advisory Council on International Monetary a
lancial Policies.
8. Staff offic "
'•" • • •, .
" , ' cl to transmit par-




109

tinent information on System foreign currency operations to appropriate
•* ..,..:.-^ :.- -Yeasury Department.
•• " ' ; " " " il Reserve Banks shall participate in the foreign currency
• • •- System Account in accordance with paragraph 3 G(l) of
1
\ i- :•: . i «.jovernors' Statement of Procedure with Respect to Foreign
^.vr"':^ 1 -;" '* • Federal Reserve Banks dated January 1, 1944.
• *'
!:<*. 5 ! . 7*->>.:dal Manager of the System Open Market Account for
"
:'; I.KI . »::!!,,•-ivy operations shall keep the Committee informed on condiUi.Mi', in ;.-\. ign exchange markets and on transactions he has made
•\ini sh;?il rcmHT such reports as the Committee may specify.

:.

M:-\iu-^n.

p i . ' i L . L ^ . : . ».;i . : ; . ? . U . M

-^!;r,i!nms

»<* ( u j , ' « t > 5 > v ' i * n : e n c i e s

are:

• *-~ "r»p safeguard the value of the dollar in International ex'
"
i» ifj :i-J in making the system of international payments more
< 'i;eient;
C. To further monetary cooperation with central banks of other
• - -mines haviog coiwertibte currencies, with the International Monetary
,
i.\:nd, and with other international payments Institutions;
D. To help insure that market movements in exchange rates, within
>)• •• limits stated in the Internationa! Monetary Fund Agreement or
r* ablished by central bank practices, reflect the interaction of underly-ii-; economic forces and thus serve as efficient guides to current financial
decisions, private and public; and
E. To facilitate growth In international liquidity In accordance with
; '" needs of an expanding world economy.
••
2, Unless otherwise expressly authorized by the Federal Open Market
( ^mmittee, System operations in foreign currencies shall by undertaken
^<-Iy when necessary;
A. To cushion or moderate fluctuations In the flows of international
twivmeiits, if such fluctuations (1) are deemed to reflect transitional
ri;, filial unsettlement or other temporary forces and therefore are ex;•> >;ted to be reversed in the foreseeable future; and (2) are deemed to
!."-. disequilibrating or otherwise to have potentially destabilizing effects
s
~ U.S. or foreign official reserves or on exchange markets, for example,
'•• occasioning market anxieties, undesirable speculative activity, or
:esslve leads and lags in international payments;
i




currency operations; and
D. To adjust System balances within the limits established le the
Authorlzalioe for System, foreign currency operations in light of probable future needs for currencies.
3. System drawings under the swap arrangements are appropriate
when necessary to obtain foreign, currencies for the purposes stated in
paragraph 2 above,
4. Unless otherwise expressly authorized by the Committee, transactions in forward exchange, either outright or in conjunction -with spot
•,•
idertaken only (i) to prevent forward premiums
• ng rise to disequilibrating movements of shorteiroize speculative disturbances; (Hi) to supple, •'. : • ,- •
.upplies of forward cover, directly or indirectly,
• •
:
•
"
,.\ • ing the retention or accumulation of dollar hold..
. •• • '
holders; (iv) to allow greater flexibility in cover" •
.
;y commitments, including commitments under
id to facilitate operations of the Stabilization
:•--.-• --•• •-- :••-'-•
the use of one currency for the settlement of
, , • nmitments denominated in other currencies; and
-=
- •-•- --:- • --i
>r System holding of foreign currencies.




MEETING HELD ON JANUARY 12, 1971
Authority to effect transactions in System Account.

The information reviewed at this meeting suggested that real output of
goods and services (real gross national product) had declined in the
fourth quarter of 1970, largely as a consequence of the strike in the
automobile industry that ended in late November. The resumption of
higher automobile production was expected to result in a bulge in
economic activity in early 1971. The rate of advance in major price
indexes appeared to have moderated recently, following substantial
increases earlier in the fall.
In December the labor market eased further, and the unemployment rate rose to 6.0 from 5.8 per cent in November. Although both
nonfarm payroll employment and industrial production increased, the
advances appeared to be attributable to the ending of the auto strike.
On the other hand, weekly data suggested that nonautomotive retail
sales might have been relatively strong during December. In November private housing starts had risen considerably further, to the highest
rate in nearly 2 years.
Average wholesale prices—which had declined from mid-October
to mid-November—were about unchanged in the following month,
when a further reduction in prices of farm products and foods about
offset an increase in prices of industrial commodities. Over the fourth
quarter as a whole wholesale prices rose much less than in the
preceding quarters of 1970 as a result of declines in prices of farm
products and foods. In November the rise in the consumer price
index slowed appreciably from the accelerated rate of the two preceding months.
Staff projections suggested that real GNP would rise sharply in the
first quarter in the aftermath of the auto strike, but that the pace of the
advance would then slow. For both the first and second quarters the
projections contemplated sizable increases in residential construction
expenditures and in State and local government outlays. Prospects
were for moderate increases in consumer spending, apart from the
anticipated return to a higher rate of new car purchases early in the
year. Neither defense spending nor business outlays on fixed investment were expected to contribute to expansion in GNP over the first

112




r. It was noted, however, that these projections did not
;e for the probability that steel users would accumulate
that metal as a hedge against a possible strike in the
at the end of July, when current wage contracts will

e m b e r e. .
over-ail

'

'

.

. r sugges..-.I

.

. •

•
?

...,..-•..:

/y r e p a y ]

• • • • •.

rate-

--•

•alf O f E

• '•>• -

for

•'

,

"'"".'
'

"

.

••

:

•'

' .
•
.

...

•-

-v ~

* -• -•

—•.._:..

.
:•-

"-

'...

:

" • ,"•

..;

.
r--

;

. .

.. . ..

-....:...,...,.

;

:

'
:

< •
^

...
'

..
• • • ' . •

"•• ,

•

•... .

.

••

" • •

.
•

•

Eur-1

•

.

•-eg seasc----:
)ecembe

"

.,:...:.'

' •

-

.
'

-

•; •

'

;,

reserv-

•rest

'

-;.--

a b o u t

--il

•

•''••'

•
••'-

•,
•••••'-

•--••'.:

, Board of Governors of certain measures designed to moderate
*aents of Euro-dollar borrowings by these banks. In gene.r--:
ige rates for major foreign currencies eased in early Deceml .
Euro-dollar Interest rates were rising; then toward the end ~~
"
;
•.
.ey firmed as Euro-dollar rates declii
" •
•/• '" '; .; Bank of France reduced its discount rr"~ ~*— • :ry w a s e x p e c t e d to a n n o u n c e o n J a n u a r
'

'

• • mid refund s e c u r i t i e s m a t u r i n g o n Febru. .

'•" " i t e r " "
"
•

includ-

• ..._ ..^IJLL'LJJ on the "liquidity" basis is measured by changes in U.S.
•;
•• •
•
liquid U.S. liabilities to all foreigners. The balance on, the
„!:__ A .•;_.. transactions" basis (sometimes referred to as the "official
settlements" basis) is measured by changes in U.S. reserves and in liquid and
certain nonliquid liabilities to foreign official agencies, mainly monetary
authorities. The latter balance differs from the former by (1) treating changes
In liquid U.S. liabilities to foreigners other than official agencies (including
liabilities to U.S. bank branches abroad) as ordinary capital lows, and (2)
treatlo.g changes in certain nonliquid liabilities to foreign, monetary authorities
as financing items rather than ordinary capital flows.




.•

• out $5 billion held by the public. It appeared likely that the
_ -:-.--r:ry WOuld decide at the same time to refund securities maturing
.:
.. -March, and perhaps also to pre-refund certain issues maturing
. < " • . the year.
In capital markets the strong rally that had been under way since
• .'S October halted In mid-December, but only temporarily; yields
• • >e on most types of long-term bonds during the closing weeks
(1
the year, but they turned down again in early January. Short-term
'Merest rates fclb'rrl z similar pattern. For example, the market
?• :.e on 3-moni.;- • ;. • bills reached a low of about 4.75 per cent
<
••Portly after ir:-; • . • :•. -IT, advanced to about 4.90 per cent near
rL.ar-end, and then declined to about 4.65 per cent on the day before
- "i.s meeting*
Various factors contributed to the upward pressures on. interest
i..:.es in late December. These included the very heavy recent and
< ospective volume of c o r p o r a t e a n d m u n i c i p a l b o n d offerings, 1-.1
•
,. ssibility t h a t t h e T r e a s u r y might pre-refund a sizable volume
.; ourities In c o n n e c t i o n with its mid-February financing, a n d — i n 1*- >
' : >vernment securities s e c t o r — u n c e r t a i n t i e s that existed for a tii», <>out the availability of i n s u r a n c e against loss o r theft. T h e renew <
•
-•- clines in m a r k e t Interest rates w e r e stimulated b y continur:-*
.sorts of sluggishness in e c o n o m i c activity, b y a n easing of conditic "
<
hi m o n e y m a r k e t s , a n d by further r e d u c t i o n s In t h e p r i m e lendi
.->-:e of commercial 'banks a n d i-- J ,
\- -• *ve d i s c o u n t r a t e s . I'^v:••: 'ine r a t e w a s l o w e r e d to 6 % , . • . •
•
•••'!• icember 2 2 , 1 9 7 0 , a«: '
i-1 . r.• • • ;>er cent o n Jan. .-: . •.• ? ! ;, a n d d i s c o u n t rates . .
'
: - i .;..,,.,- - - -.serve B a n k s w e . • • - M ••••••><-.•»-i 5 Vz t o 5lA p e r ct:• •
!;
• , : ,:< ry 8,
ir |«, > ;' . r interest r a t e s OJ- • • •.•- •..' . * ;tgages declined furtK •
-* ,—.p y'.i^^.iy m a r k e t s for cc
^ ; '---T
M--e l o a n s a n d s e c o n d a r y
;• , ;, ' . ' <>>, . i e r a l l y u n d e r w r i r . - i •-.•, ' N o n b a n k t h r i f t i n s t i t u •' • •. • ,.' •i .' < • > d to experlen.ce very h e a v y inflows of savings funds
M»:'*•-> '^^ — {*->er, a n d the net outflows following y e a r - e n d interest a n d
i i • . / ' • . ' f ; f ing were m u c h smaller than usual.
• '•.•..;•' . • ial banks substantial increases were recorded in, Decem':*••'> :-:- '''•'••' 'consumer-type t i m e a n d savings deposits a n d l a r g e !' • •;•••<<••< '•• certificates of deposit ( C D ' s ) . T h e v o l u m e of business
l o a n s outstand.'
• • .justed t o Include l o a n s that h a d b e e n sold t o
r




affiliates) declined for the fourth successive month, However, banks




• laily-average
^ments, plus
•ertaih other
, i use of this
Dping moveE very short
i
.v, and invest;
• :h are much
:he available
jf loans and
ay—of each
' .ember bank
eral Reserve
lonth of the

• npared with the rates around 5 per cent that had prevailed shortly
• bre the preceding meeting. During the interval the System supplied
»
ubstantial volume of reserves, partly through purchases of longer.j^m Treasury securities.
Staff analysis suggested that the bulge in economic activity antici<'*,.:ed for the first quarter would tend to produce more rapid growth
'• money and bank credit than had been recorded in the fourth
quarter. According to the analysis, however, some further easing of
mnncy market conditions probably would be required if M't were to
•.vf>and sufficiently over the first quarter—at an annual rate of about
•; per cent—to compensate for the shortfall in the fourth quarter
•
\ r- 'in the expected growth rate.
The Committee agreed that It would be desirable at this time to
promote accommodative conditions in credit markets and moderate
* mansion in monetary and credit aggregates. In the discussion, diver'• it ¥,Iews were expressed about the degree to which open market
• • orations during the period immediately ahead should be directed
(
-s/ard attaining specific objectives for various monetary and credit
./^regates. A number of members favored seeking growth rates In
^ , •firstquarter high enough to make up for the fourth-quarter short,. : in Mx. Others, while not necessarily opposed to such growth rates,
L
noted that their concern about the shortfall was mitigated by the
" • , > • relatively high, rates of expansion in M2 and the bank credit
; •• > • \, or by the fact that they did not attach great importan.ee in any
• • " fo short-run fluctuations in the growth rate of a single monetary
, .
• • . /ate.
<' ; he conclusion of the discussion the Committee agreed that the
• - ••..•, iient of its objectives for both credit conditions and the monetary
"•idit aggregates would be facilitated by some moderate easing of
> '«;n . market conditions; and that such easing should be accom;
, •• '•• ^ I soon, partly because It would become necessary to take'account
<
< -I- forthcoming Treasury financing later in the month. The mem•
•!so agreed that money market conditions should be eased some-: . ('arther if it appeared that the aggregates were expanding at rates
:•• ) . those consistent with making up the fourth-quarter shortfall In
<
ii_- following current economic policy directive was issued to the
< - !v('-, J Reserve Bank of New York:




The information reviewed at this meeting suggests that real output
of goods and services declined in the fourth quarter of 1970, largely
as a consequence of the recent strike in, the automobile Industry.
Unemployment Increased further in December. The resumption of
higher automobile production is expected to result in a bulge in
activity in early 1971. Wage rates generally are continuing to rise
at a rapid pace, but gains in productivity appear to be slowing the
Increase in unit labor costs. The rise in both wholesale and consumer prices appears to have moderated recently, following substantial Increases earlier In the fall. Most market interest rates
turned down,, again in recent clays, and Federal Reserve discount
rates were reduced by an additional one-quarter of a percentage
point. Demands for funds in capital markets have continued heavy,
but business loan demands at banks remain weak. Although growth
in the money supply accelerated in December, over the fourth
quarter as a whole It was at a rate below that; prevailing in the preceding three quarters. Banks made substantial further additions to
their holdings of securities in December, and bank credit increased
sharply. The foreign trade surplus has declined markedly in recent
months. The over-all balance of payments deficit on the liquidity
basis in, the fourth, quarter was apparently about as large as In the
third quarter. The deficit on the official settlements basis was very
large as banks continued to repay Euro-dollar liabilities. In light of
the foregoing developments, it is the policy of the Federal Open
Market Committee to foster financial conditions conducive to the
resumption of sustainable economic growth, while encouraging an
" !rrly reduction in the rale of inflation and the attainment of
•
••:•'• onable equilibrium in, the country's balance of payments.
- o implement this policy, the Committee seeks to promote ac>.modative conditions in credit markets and moderate expansion
•lonetary and credit aggregates. System, open market operations
until the next meeting of the Committee shall be conducted with a
view to maintaining bank reserves and money market conditions
consistent with those objectives, taking account of the forthcoming
Treasury financing.

Votes :--• '•'••- - ••'""• Messrs. Burns, Brimmer,
Daane, ! - ' •
:•;
" lltchell, Robertson, Swan,
•
Mayo, ar~' ;.-,••;-- -..•:«> against this action: Mr,

Francis,




Absent and not voting: Messrs. Hayes and Slierrill. (Mr. Treiber voted as alternate for Mr. He" -jand Mr. Mayo voted as alternate for the late ' '•,
Hickman.)
M r . F r a n c i s d i s s e n t e d f r o m this a c t i o n f o r r e a s o n s s:'
• ';*>se
u n d e r l y i n g h i s d i s s e n t f r o m t h e d i r e c t i v e a d o p t e d a t = ' ''<•',•' >- >er
m e e t i n g . I n M s judgment, if g r o w t h i n M x w e r e m«:- ."• ••;•, ti • ••rer
, , :ning m o n t h s a t a n a v e r a g e a n n u a l r a t e of approx'^- ••-• ;• p e r
, , i t - — a b o u t t h e average p r e v a i l i n g over t h e s e c o n d h : •• • '"';—.
'i. ' longer-run p e r f o r m a n c e of p r o d u c t i o n a n d p r i c e s *¥, *•'
''-Mter
'•' ,tn if m o n e y w e r e to e x p a n d a t s o m e faster r a t e . !• ;•;-.'-•-< h e
• r ored r e d u c i n g t h e e m p h a s i s g i v e n to m o n e y m a r k e t c o n d i t i o n s i n
• <plementing o p e n m a r k e t p o l i c y .




MEETING HELD ON FEBRUARY 9, 1971
1.

Authority to effect transactions in System Account.

Preliminary estimates of the Commerce Department indicated that in
the fourth quarter of 1970 real GNP had declined at an annual rate
of 3.3 per cent. The decline was attributable largely to the strike in
the automobile industry that had ended in late November. In the
current quarter, according to staff projections, real GNP was rising
again, primarily as a consequence of the resumption of higher automobile production. Wage rates were continuing to advance at a rapid
pace in most sectors of the economy, and relatively large increases
had recently been recorded in some major price measures.
Tentative estimates suggested that both retail sales and industrial
production had advanced in January, mainly as a result of the ending
of the auto strike. Nonfarm payroll employment increased moderately
—also largely because of higher auto production—and the unemployment rate declined to 6.0 per cent, from the (upward revised) December rate of 6.2 per cent. Private housing starts had risen sharply
further in December, the latest month for which data were available.
Average wholesale prices increased considerably from mid-December to mid-January as a result of a substantial advance in prices of
farm products and foods and a small rise in prices of industrial commodities. The rate of increase in the consumer price index, which
had slowed in November, stepped up again in December.
The staff's GNP projections had been reassessed in light of the
Federal budget estimates for the 1971 and 1972 fiscal years that were
presented by the administration in January, and in light of the probability that steel users would accumulate inventories of that metal as a
hedge against a possible strike in the steel industry at the end of
July, when current wage contracts will expire. Although modified in
some respects, the projections still suggested that real GNP would
rise markedly in the first quarter in the aftermath of the automobile
strike, and that the pace of the advance would slow in the second
quarter.
Resumption of a higher rate of automobile and truck purchases
was expected to result in a sharp increase in consumer spending and
some rise in business capital outlays in the first quarter, but it seemed




119

likely that consumer spending would increase only moderately further
in the second quarter and that business capital spending would level
off. An accelerated pace of business inventory Investment appeared
to be in prospect for the second quarter, reflecting in part a step-up
in the accumulation of steel stocks. In line with the new budget estimates, it was expected that defense spending would decline in be 1 ';
quarters, but that total Federal expenditures would rise considerably- • • -rgely because of increased transfer payments to individuals a-' *
i'K,nts to State and local governments. Outlays of State and lex. •
y/ernments were projected to Increase substantially, as were re
<»'•*•*-}' --^structionexpenditures.
:
'•• f.'-plus on U.S. foreign trade in the fourth quarter of 19<'"
. • * '.v> ; smaller than it had been earlier in the year. T h e over- : ; '
<w-.ance of payments deficit on the liquidity basis was little change*
• • • 'in the third-quarter level. T h e official settlements deficit re
•' : trply, however, as U.S. banks reduced their Euro-dollar borrowic 1 .
-ttU-u ^--der the stimulus of wide differentials between short-tern
'.-iV '••'
ces in the United States and in the Euro-dollar n- n', i
"< i-"- • i•'J'orentials had continued wide In recent weeks, whei P- •
>
? • S r>i«* -Juro-dollar Interest rates declined; b u t the spread br;*- '.vn
i h ^ . ; ,.».•* and the still higher rates in major European n<vr- ^-.
markets had become larger. Movements of funds in respo; •
interest rate differentials h a d tended to strengthen most major j> *.••*:•,";
currencies relative to the dollar and had contributed to further :'<- •
• . "• • • '. ,
lumber of central, banks.
r^.t^-*<*?•••!- --^^Qwlegs of U.S. banks increased seasonally In. t*r*
(
«'.! . ; ' ' ' " *
,
y when U.S. corporations were reversing year-e:; «<
' , ; • . : ' ' ' . ; • ' 'U s, but subsequently the decline in such borrowir-''
^ ^i\>~>*i -::. i.;,^ary 25 the Export-import Bank sold $1 billion. •••
-.;., ; .; - •, ^ -i ,
' foreign branches of U.S. banks and thereby help
>.>•,<>:•<>[ ?'. M " ." of funds to other countries. Effective January 2 '
ta* b " s - --: ••']•-'- lowered Its discount rate from 6 to 53A per cent,
;,-,«;,s (>;« i • •• > >;ay the National Bank of Denmark reduced its dis-.'•.•'i-ii'.A

i»'\-"

''(3 8 p e r

1l

cent.

^ 'rrr:i'
,. the Treasury announceci that in its mid-February
f"\" ^ ;;•/ M > s;,1 , offer two new securities—a 4Vi-year, 5% per cent
^
;,.!•.!><,: • ; •. • . 6XA per cent note—In exchange for nine outstanding issues, including three that would mature in mid-February or mid-




"
- -

"

'

ree each that would mature in November 1971 and,
I, This combination of a refunding and a prerefunding
:cessful. Of the $19,5 billion of eligible issues held by
:
•'
• ' • . • )iit $11 billion were exchanged for the new notes; and
.' .
. er cent of the issues maturing in February and March
eemed for cash, despite the fact that the new securities
,:
t include the customary short-term "anchor" issue.
•;e volume of current and prospective offerings of new
• ' ' municipal bonds had remained very heavy in recent
"
is well as short-term interest rates had fallen, consid•' . ;- • " since the January 12 meeting of the Committee. T h e
-reflected continuing reports of weakness In economic
1
; ther developments that tended to buttress market ex• 'ower rates to come. T h e latter Included two additional
• • the prime lending rate of commercial banks—from
'•" • , ••; cent on January 15 and then, to 6 per cent on January
•
. '. - - rut in Federal Reserve Bank discount rates, from 514
;
. • effective on various dates from. January 19 through
" :r.\ : ,
•" ad the progressive easing of money market conditions
• . '.red during the period, In short-term markets the rate
• ' •••,\ " '"'reasury bills had fallen, about 85 basis points in the
:•>:•'. . , :- , ;;o about 3,80 per cent on the day before this meeting.
• , •'
.es on residential mortgages continued downward in
.' • ;•
•- th primary and secondary markets. Inflows of savings
" -•: ' •
'
"»ank thrift institutions— which had been heavy in the
•' ;• • • ••:
of 1970—-reached, extraordinarily high levels during
.••••'•
' e yields available on. competitive market instruments
accnncu biiaiply further.
Commercial banks also experienced heavy inflows of consumr
type time and savings deposits In January. Growth in the volume •
large-denomination CD's slowed appreciably as banks reduced then
offering rates on such certificates, but the expansion in CD's was still
rapid by historical standards. The volume of business loans outstanding (adjusted to Include loans that had been, sold to affiliates) increased moderately in January after 4 months of decline, and banks
added considerably further to their holdings of securities.
The narrowly defined money stock—private demand deposits plus
currency in circulation, or If:1—increased less on the average in
.

i:




January than had been expected at the time of the preceding meeting of
the Committee, .«nd considerably less than it had grown in December.
However, M -• ik fined as Mt plus commercial bank time deposits
other than large-denomination CD's—expanded substantially further,
as did the adjusted bank credit proxy—daily-average member bank
deposits, adjusted to include funds from nondeposit sources.
System open market operations following the January 12 meeting
of the Committee had been directed initially at achieving somewhat
easier conditions in the money market. Further easing was sought
later in the period, as data that became available in late January and
early February offered increasing evidence that growth in, Mx was
falling short of Committee expectations. The effective rate on Federal
funds moved irregularly lower during the period; most recently it
had fluctuated around 3% per cent, compared with a range around
4V4 per cent shortly before the January meeting.
Staff analysis suggested that both Mt and M2 would grow signifi' cantly faster in February and March than, they had in January as a
consequence of the expected bulge in economic activity, and that the
adjusted credit proxy would, continue upward at a substantial pace,
According to the analysis, if prevailing money market conditions weiv
maintained M1 would expand at an annual rate of about 6 per cent
over the first quarter as a whole,1 This rate would be roughly the same
as the a¥erage for the first three quarters of 1970 and higher than 1lic
3.4 per cent rate recorded in the fourth quarter. For M2 and 1?»e
adjusted credit proxy, the analysis suggested {^--Tvv'h over the first
quarter at rates of about 15 to in ;vr ct/nt an*! ;O \o II per cent,
respectively.
The Committee agreed that in light of the economic situation and
outlook it would be desirable to accommodate further declines In longterm Interest rates at this time. Views differed, however, with respect
to the appropriate objectives for conditions In the money and shortterm credit markets and for growth rates in the monetary and credit
aggregates, A number of members advocated some further easing of
money market conditions in an effort to achieve growth rates in M±
over coming months that would tend to compensate for the recent
1

d i e t tilted on the basis of the daily-average level in the last month of the
quarter relative to that In the last month of the preceding quarter.

122




shortfalls. Other members Indicated that they would prefer to maintain prevailing money market conditions during corning weeks, at
least in the absence of developments militating strongly in favor of
further easing. Among the considerations stressed by these members
were the rapid recent and prospective growth rates In monetary and
credit aggregates other than Mx and the undesirable consequences for
international capital flows of further sizable declines In short-term
interest rates in the United States, There also was some sentiment for
letting less emphasis on short-run fluctuations in Mx In the period
<l
^ad.
At the conclusion of the discussion the Committee decided that
^••en market operations in the coming period should be directed at
..< antaining the prevailing conditions in the money market unless
rhore were indications of shortfalls in Mr and M2 from the growth
• fths expected on that basis.—in which case, money market condi'.' 'iis were promptly to be eased somewhat farther. The Committee
,i';.o agreed that its objectives for interest rates would be facilitated if,
:
" the extent feasible, needs to supply reserves were met by purchases
~if longer-term Treasury securities.
The following current economic policy directive was issued to the
* \ deral Reserve Bank of New York:
•
The information reviewed at this meeting suggests that real output of goods and services, which declined in the fourth quarter of
1970, is rising in the current quarter primarily because of the
resumption of higher automobile production. The unemployment
rate remained high in January. Wage rates in most sectors are
continuing to rise at a rapid pace, and recent Increases in some
major price measures have been relatively large, Interest rates have
fallen considerably further in recent weeks despite continued heavy
demands for funds In capital markets, and differentials between
interest rates In the United States and those in major foreign cc"*v
tries have widened further. Federal Reserve discount rates v/- •
reduced by an additional one-quarter of a percentage point t > '•
<
per cent, Bank credit increased considerably further in Janu t, ^
as business loan demands strengthened somewhat and banks m * \:
>
substantial further additions to their holdings of securities. The
money stock narrowly defined grew modestly in January following
a stronger December rise, but money more broadly defined expanded sharply further as a result of continued rapid growth In




123

consumer-type time and savings deposits. The over-all balance of
payments deficit in the fourth quarter was about as large as in the
third quarter on the liquidity basis; on the official settlements basis
the deficit increased further from the very high third-quarter level
as banks continued to repay Euro-dollar liabilities. More recently,
the issuance of a special Export-Import Bank security to foreign
branches of U.S. banks helped to moderate the flow of dollars to
foreign central banks. In light of the foregoing developments, it is
the policy of the Federal Open Market Committee to foster financial
conditions conducive to the resumption of sustainable economic
growth, while encouraging an orderly reduction in the rate of inflation and the attainment of reasonable equilibrium in the country's
balance of payments.
To implement this policy, System open market operations until
the next meeting of the Committee shall be conducted with a view
to maintaining prevailing money market conditions while accommodating additional downward movements in long-term rates; provided
that money market conditions shall promptly be eased somewhat
further if it appears that the monetary aggregates .are falling short of
the growth path desired.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Daane, Heflin, Maisel, Mitchell, Sherrill,
Swan, and Mayo. Vote against this action: Mr.
Francis.
Absent and not voting: Mr. Robertson. (Mr.
Mayo voted as alternate for the late Mr. Hickman.)
Mr. Francis dissented from this action for reasons similar to those
underlying his dissents from the directives adopted at the two preceding meetings. Briefly, he favored placing less emphasis on money
market conditions in implementing policy, and he thought that expansion in Mx at an annual rate of about 5 per cent would be best
suited to the needs of the economy.
2.

Ratification of an action with respect to continuing authority
directive.

The Committee ratified an action taken by members on January 22,
1971, suspending a provision of paragraph l ( a ) of the continuing
authority directive (the provision limiting exchanges with the Treasury

124




Votes for ratification of this .action; Messrs,
Burns, Hayes, Brimmer, Daane, Francis, Heflin,
Maisel, Mitchell, Robertson, Sherrill, Swan, and
Mayo. Votes against ratification of this action;
None,
(Mr. Mayo voted as alternate for the late Mr.
Hickman.)




MEETING HELD ON MARCH 9, 1971
1.

Authority to effect transactions in System Account.

Revised official estimates indicated that real output of goods and
services had declined at an annual rate of 3.9 per cent in the fourth
quarter of 1970. It appeared that real GNP would rise substantially
in the current quarter, largely as a result of the recovery of production in the automobile industry following settlement in late November
of the strike at a major producer.
According to preliminary indications industrial production declined
slightly in February, following 2 months of advance, as further
increases in output of motor vehicles and steel were more than offset
by continued reductions in output of business and defense equipment.
Employment also declined in February, but because there was an even
larger decline in the labor force the unemployment rate edged down
to 5.8 from 6.0 per cent in January. Weekly data suggested that
retail sales had risen in February at both automobile dealers and
other types of stores. Apart from autos, however, it appeared that
average retail sales in January and February were little changed from
the fourth quarter. In January private housing starts fell sharply—
reversing the unusually large increase of the previous month—but
they remained at a high level.
Recent movements in major price indexes had been diverse.
Average wholesale prices rose substantially from mid-January to
mid-February, as a result of a marked increase in prices of farm
products and foods; prices of industrial commodities rose less than
in most other recent months. In January the advance in the consumer
price index moderated from the sharp December increase. Meanwhile, wage rates continued to rise rapidly in most sectors of the
economy.
Staff projections suggested that growth in real GNP would slow
in the second quarter from its current high rate, mainly because the
post-strike recovery in the automobile industry would no longer be
providing unusual stimulus to consumer and business spending on
autos and trucks. In addition, defense outlays were expected to
decline. On the other hand, it seemed likely that residential construction expenditures and State and local government outlays would con-

126




tinue to rise at substantial rates, and that the stockpiling of steel in
anticipation of a possible strike in that Industry in August—-which
already was making an appreciable contribution to over-all business
investment in Inventories—would Increase in Importance. Also, It
was expected that some strength would be Imparted to consumer
spending by payments late in the quarter of an anticipated increase
in social security benefits retroactive to the beginning of the year.
The U.S. foreign trade surplus narrowed further in, January,
extending the trend begun in mid-1970. The chief factor in the
deterioration was a sharp rise in the total value of imports. The
\) 4 er-all balance of payments in the January-February period connauecl very heavily in deficit on. the official settlements basis. On the
fluidity basis the deicit was at a rate much larger than in the second
(-.(if of 1970, re.lecti.Eg for the most part adverse capital lows stem'•ung from the wide differentials between short-term interest rates
:i; the United States and abroad.
Sho.rt-te.rni interest rates in Britain, had risen since the beginning
of the year, and .rates in Germany had fallen less than U.S. rates
.M'-d Euro-dollar rates. Largely in consequence of iEterest rate difv rences, the dollar was at the floor against nearly all major currencies
• •> the exchange markets in February. The Bank of Canada reduced
.
:;% discount rate by lA percentage point in mid-February and by a
'tijther Vi point, to 5¥$ per cent, effective February 24. On Febra;."/ 26, the Export-Import Bank offered, an additional %Vi billion of
; ecial securities to overseas branches of U.S. banks, for payment
iv if eli 3.

In domestic financial markets short-term Interest rates had con'.nued to decline In. recent weeks. For example, the market rate on.
^nonth Treasury bills, at 3.32 per cent on the day before this meet™
'<$;, was 50 basis points below its level 4 weeks earlier. Discount rates
.«, Federal Reserve Banks were reduced by anoH>> v • garter of a
••rrcentage point, to 4M per cent, effective February I,;» i February 19
i \ the New York Reserve Bank), and commerce: ^ m o lowered
tl.dr prime lending rate again, from 6 to 5% per cent, effecti¥e Febru:f)ir 16, Further declines also had. been recorded, recently in bank
* waring rates on large-denomination CD's and in rates on commercial
and. finance company paper.
In contrast, yields on new issues of corporate and municipal bonds




127

—which, also had been declining earlier—turned up in early February and rose considerably over the course of the following wee!
These yield increases reflected the continuing ¥ery heavy calendar ^'
•: w offerings—particularly of corporate bonds—and apparently al . . * growing belief among investors that long-term Interest rates were < •
v near their cyclical lows. Yields rose only slightly on iong-tei:^
i, easury bonds and they moved down on intermediate-term Treasi-; •
» ' ties, In part because of sizable purchases of such securities by the
'. deral Reserve.
Interest rates on residential mortgages declined further in Febru7 in secondary markets for federally Insured loans, and on February
< - the celling rate on. such loans was reduced by administrative action
..•an 7 ! /i to 7 per cent—the third half-point cut in 3 months,
' v.posit Inflows at nonbank thrift Institutions, which had reached
< craordinarily high rates in January, continued large in tii- ILJL
" 41 of February,
<
At commercial banks the rate of growth in consumer-typ. '-.<*•
, id savings deposits was exceptionally rapid in February, but the
., h pansion in large-denomination CD's slowed somewhat further. The
v l u m e of business loans outstanding (including loans that had been
< >d to affiliates) increased substantially, following a moderate
• - s in January and declines in the four preceding months. Banks
.i-<itin made sizable additions to their holdings of securities.
Total bank credit, as measured by the adjusted proxy series—
' 'ily-a¥erage member bank deposits, adjusted to include funds from
^-•ndeposit sources—increased considerably further on the a¥erage
\>> February. Sharp increases also were recorded for two key measures
<•• the money stock—Ma, deined as private demand deposits plus
^"rrency in circulation, and M2, defined as Mt plus commercial bank
• ;ue deposits other than large-denomination CD's. For all of these
•:"gregates the growth rates in February exceeded those expected at
:•(•.! time of the preceding meeting of the Committee. For both of the
•• oney stock series, however, earlier estimates of the increase in
\ "iuary had been revised downward somewhat, and for Mi the
"H. binary expansion followed a ..number of months in which, growth
i.,id fallen well short of Committee expectations. The strength of the
.,. |i*egates In, February appeared to be related to the step-up in the
growth of business loans at banks and, niore generally, to the first-




quarter bulge in economic activity in the aftermath of the auto strike.
System open market operations had been, directed at achieving
• '.newhat easier conditions in the money market shortly after the
• bruary 9 Committee meeting, when revised data for late January
;
"•• :l tentative estimates for early February suggested that both
iVit and M2 were growing less rapidly than, desired. Subsequently,
however, new data becoming available indicated that these aggre. • ;es were currently expanding at rates at or above those desired, and
"'^rations were directed at maintaining prevailing conditions. The
i . deral funds rate fluctuated rather widely during the period, but
'.' >st recently it had. averaged about 3!/2 per cent, compared with
; : average of about 3 % per cent that had. prevailed shortly before
•;»\> February 9 meeting. In recent weeks needs for reserves had been
-' -X to an Important extent by System purchases of intermediate- and
long-term Treasury securities.
Staff analysis suggested that, if prevailing money market conditions were maintained, both Mx and. M2 would expand considerably
less in March than they had in February, and that over the first
.'.•arter as a whole they would grow at annual rates of about 7 and
I! •• per cent, respectively. The adjusted bank credit proxy was pro^ ted. to continue upward in March at a pace dose to that of
r.:bruary, and to increase at about a 12 per cent annual rate over
« M ixst quarter. It was noted that, while the outlook for the monetary
<•:- .jregates in the second quarter was highly uncertain at this juncture,
; M .;sent indications suggested that Mx would grow more rapidly than
••• the first quarter if money market conditions remained unchanged,
and that M2 and the proxy series would grow a little less rapidly.
In the Committee's discussion considerable concern, was expressed
about the recent sharp increases in corporate and iiiijni.ci.pal bond.
\ ""Ids, and the members agreed that it would be desirable to accommo^ ce renewed declines in long-term interest rates generally. At the
same time, there was widespread sentiment to the effect that further
• -./able declines in short-term Interest rates would not serve a useful
. '.rpose. Indeed, in light of the expected growth rates in the monetary
«,<•<:! credit aggregates and the recent large capital outflows, a number
. .i* members thought that some modest increase in short-term rates
vi >uld be desirable if—as they considered likely—such a development
*: < >uld not be inconsistent with a downdrift in long-term rates. How-




ever, other members believed that any significant rise in short-term
fates at this time would risk putting upward pressure on long-term
rales.
The members also expressed diverse views about the emphasis that
should be placed on the behavior of the monetary and credit aggregates in making open market operating decisions during coming
weeks, and about the appropriate rates of growth in the aggregates
over the mouths ahead, la the latter connection, some members
expressed concern about the relatively high growth rates projected
by the stall for the period through the second quarter on the assumpiioii of unchanged money market conditions, and especially about
the- acceleration anticipated in Mx. Others, however, stressed the
uncertainties attached to the projections for the later months of the
period covered and indicated that they were not disturbed -by the
near-term outlook for the aggregates—particularly in light of the
shortfalls in M1 experienced in other recent months.
At the conclusion of the discussion the Committee decided that
open market operations at present should be directed at maintaining
pre¥ailing money market conditions while accommodating any downward movements in long-term interest rates, A pro¥iso was added
calling for modification of money market conditions if during coming
weeks the monetary and credit aggregates appeared to be de¥iating
widely from the growth paths consistent with the first-quarter rates
of expansion cited above. Specifically, money market rates were to
be increased somewhat if the aggregates were rising considerably
faster than expected, but in light of recent declines ia such rates they
were to be shaded down only slightly if growth were markedly below
expectations, The Committee also agreed that its objectives for
interest rates would be served if, to the extent feasible, needs to
supply reserves continued to be met by purchases of longer-term
Treasury securities.
The following current economic policy directive was issued to
the Federal Reserve Bank of New York:
The information reYiewed at this meeting suggests that real
output of goods and services, which declined in the fourth quarter
of 1970, is rising in the current quarter primarily because of the
resumption of higher automobile production. Although the unemployment .rate has edged down, recently, it remains high. Wage rates

130




in most sectors are continuing to rise at a rapid pace. Movements
in major price measures have been diverse; most recently, the rate
of advance moderated for consumer prices and wholesale prices of
industrial commodities, but wholesale prices of farm products and
foods rose sharply. Bank credit increased considerably further in
February, as business loans strengthened substantially and banks
again made sizable additions to their holdings of securities. The
money stock both narrowly and broadly defined expanded sharply
in February. Short-term interest rates and mortgage rates have
fallen further in recent weeks but yields on new issues of corporate
and municipal bonds have risen considerably, in part as a result
of the very heavy calendar of offerings. The over-all balance of payments deficit in January and February was exceptionally large.
Imports increased more rapidly than exports in January, and capital
outflows have been stimulated by widened short-term interest rate
differentials. In light of the foregoing developments, it is the policy
of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth,
while encouraging an orderly reduction in the rate of inflation and
the attainment of reasonable equilibrium in the country's balance
of payments.
To implement this policy, System open market operations until
the next meeting of the Committee shall be conducted with a view
to maintaining prevailing money market conditions while accommodating any downward movements in long-term rates; provided that
money market conditions shall be modified if it appears that the
monetary and credit aggregates are deviating significantly from the
growth paths expected.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, Robertson, and Sherrill. Votes
against this action: None.
2.

Amendment to authorization for System foreign currency
operations.

On recommendation of the Special Manager of the System Open
Market Account the Committee amended paragraph 3 of the
authorization for System foreign currency operations to authorize
the purchase of currencies to be used for the liquidation of System




131

vne exchange rate as that employed in the drawing to be liquivtecl. Prior to this amendment, the paragraph had specified that
•ijless otherwise expressly authorized by the Committee all transacT ^iis in lv>< r- > .••"•;.;.
• \ taken under paragraph 1(A) of
i
:-^ author:,-1"', <, ").;•;.< . •• .•, availing market rates. As a result
\ t h i s a c t i c : , , , ..' , , .:•- *
• ;ollows:
3. Cu< i •',.-•.', •
' - • ijuidation o f S y s t e m s w a p c o m m i t ments m > :"• , *. /•! •'••• > ! "-\ •'<&foreign,central bank drawn on,
'
"
at the same exchange rate as that employed in the drawing to be
liquidated. Apart from any such purchases at the rate of the
drawing, all transactions In foreign currencies undertaken under
paragraph I (A) above shall, unless otherwise expressly authorized
by the Committee, be at prevailing market rates and no attempt
shall be made to establish rates that appear to be out of line with
underlying market forces.
Votes for *,:,-. ..~tion: Messrs. Burns, Hayes,
Brimmer, Cl.
v.. Me, Kimbrel, Maisel, Mayo,
Mitchell, Me ••• \ >bertson, and Sherrill. Yotes
against this action: None.
Discussions had been under way recently with certain, central
- • iks la the System's swap network regarding the possibility of using
;-if procedures In connection with, the liquidation of System swap
•.iwings in cases in which it was necessary to obtaiE the foreign
'. TTency required for liquidation by purchasing it directly from the
~<~ritral bank drawn on. It had been noted that both parties were
i -;jx)sed to a risk of loss If such, transactions could be made only
' the rate pre¥aillng In the foreign exchange market at the time
'-' repayment, and that such risks could be avoided if It were
understood in advance that the currency could be purchased from
:['-) foreign central bank at the samr •• • '•,„>•„ rate as that em*v*->yed in the drawing to be liquidate-i * *-- * "-nmittee concurred
• !) the judgment of the Special Manage ' i •• ""-aid be appropriate
: • • enter into such understandings with, foreign central banks at the
; r i e a System drawing was made if the foreign bank were agreeable.
• was specified that such tiiiderstaediiigs should not preclude Fed' il Reserve repayment of swap dra--1 '• •,• on or before maturity




through purchase of the foreign currency required at market
rates in the foreign exchange market or elsewhere.
3.

Review of continuing authorizations.

This being the first meeting of the Federal Open Market Committee following the election of new members from the Federal
Reserve Banks to serve for the year beginning March 1, 1971,
and their assumption of duties, the Committee followed its customary
practice of reviewing all of its continuing authorizations and directives. The action taken with respect to the authorization for System
foreign currency operations has been described in the preceding
portion of the record for this date. Except for the change resulting
from that action, the Committee reaffirmed the authorization, and
also the foreign currency directive and the continuing authority
directive with respect to domestic open market operations, in the
form in which they were outstanding at the beginning of the year
1971.
Votes for these actions: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, Robertson, and Sherrill. Votes
against these actions: None.
In connection with the review of the continuing authority directive
for domestic operations, the Committee took special note of paragraph 3, which authorized the Reserve Banks to engage in lending
of U.S. Government securities held in the System Open Market
Account under such instructions as the Committee might specify
from time to time. That paragraph had been added to the directive
on October 7, 1969, on the basis of a judgment by the Committee
that in the existing circumstances such lending of securities was
reasonably necessary to the effective conduct of open market operations and to the effectuation of open market policies, and on the
understanding that the authorization would be reviewed periodically.
At this meeting the Committee concurred in the judgment of the
Manager of the System Open Market Account that the lending
activity in question remained necessary and, accordingly, that the
authorization should remain in effect subject to periodic review.




133

MEETING HELD ON APRIL 6, 1971
Authority to effect transactions in System Account.

Information reviewed at this meeting suggested that real output of
goods and services had risen substantially in the first quarter primarily because of the post-strike recovery of production in the automobile industry, but that the unemployment rate had remained high.
Growth in real GNP was expected to slow in the current quarter.
While wage rates were continuing to rise at a rapid pace in most
sectors of the economy, the rate of advance in some major price
indexes seemed to have moderated recently.
In March nonfarm payroll employment was about unchanged, and
the unemployment rate moved back up to 6.0 per cent after having
dipped to 5.8 per cent in February. Incomplete data suggested that
retail sales had risen moderately and that industrial production had
remained near the February level. Apart from fluctuations related
to the auto strike, it appeared that in the first quarter as a whole
retail sales were about the same as in the fourth quarter of 1970 and
that industrial production had declined somewhat further. On the
other hand, private housing starts continued at the high January rate
in February and may have increased further in March.
Wholesale prices of industrial commodities rose further from midFebruary to mid-March, but the increase in that period—and over
the first quarter as a whole—was at a rate below the average pace of
1970. The rate of advance in the consumer price index slowed in
February for the second successive month.
Expansion in real GNP was expected to moderate in the second
quarter mainly because consumer and business spending on motor
vehicles would be increasing much less rapidly than it had in the first
quarter in the aftermath of the auto strike. In addition, defense
spending was expected to decline further. As before, however, the
staff projections suggested that residential construction expenditures
and State and local government outlays would continue to rise at
substantial rates, and that business inventory investment would be
augmented by continued stockpiling of steel in anticipation of a
possible strike in that industry at the beginning of August.
The possibility of a steel strike lent a high degree of uncertainty

134




to the economic outlook for the second half of 1971. However, the
average growth rate in real GNP ewer the second half was projected
1,1 be somewhat higher than, the rate now anticipated for the second
»jharter, on the assumption that the deration of any such strike would
'V limited to about 60 days. It was expected that expansion in conMi mer spending would be sustained in part by the recently enacted
increase in social security benefits, under which payments retroactive
t > January 1 were scheduled to be made in late June; possibly by a
<
;>i,Hilary pay increase around midyear; and possibly by some decline
in the personal saving rate in the third and fourth quarters. In line
v, tth the results of the latest Commerce-SEC survey of business
spending plans, taken in February, growth in business ixed Investment outlays was projected to increase moderately over the second
iMlf. Continued sizable gains appeared to be in prospect for State
ji'id local government outlays, but it seemed likely that residential
'/instruction expenditures would expand more slowly than earlier
»ii the year.
The U.S. foreign, trade surplus was very small in January and.
fr'Vbruary. With respect, to the over-all, balance of payments, it seemed
«:i:ely that in the first quarter as a whole the deficit on the liquidity
basis was at a rate higher than in the first half of 1970 and much
digher than in the second half of that year. The worsening reflected
tit incipally an increase in net capital outflows.
On the official settlements basis, the first-quarter deficit in the
,.:*yments balance was exceptionally large. International flows of in»«.trest-sensitive funds continued heavy in March, and major European
>.\mn tries experienced very substantial reserve gains. Recently, several
i uropean central banks had lowered their discount rates; In particular, the German Federal Bank and the Bank of England had
made reductions of a full percentage point cm April 1, These actions
1
v nded to narrow the wide differentials between short-term interest
rates in Europe and, the United States. Nevertheless, exchange market
demands for German marks were very strong at the beginning of
April, and there were indications of speculative and hedging activity.
At the time of thr rncr^ng, lioweYer, the m«°r1:^tr arpc^rrd tn be
quieting.
On April 1 tU* i • ;"•), i"*casury announced an oiL-nnu ^L i;.! . * h'Jion
*
of special securities to foreign branches of U.S. banks, for payment




135

i! 9. Like similar Export-Import Bank issues earli*
©tiering was intended to help 1- ' ^ ^ ' the flows of •
In domestic securities markets, I1- IV., -sury annoiJB^o fu .Onryh
:, that it would offer $5 billion of new bills in three segments: n
?

: J. billion addition to the outstanding tax-anticipation bills that we r .
>
^
UJ mature on April 22, to be auctioned on March 24; a strip of b r h
.Maturing from Jul> •< *o September 16, totaling $2.2 billion, to nc
auctioned on Mart > ; 1 • ,md $200 million increments to four coni
'-ocutive weekly i^u'^rr?, of 6-month Mis, beginning with the
^areli 22 offering. The Treasury was expected to announce on
April 28 the terms on which it would refund notes maturing in midMay, including $5.8 billion held by the public.
Interest rates on most types of short-term, securities had risee on
balance in recent weeks. For example, the market rate on 3-month
Treasury bills, at about 3.70 per cent on the day before this meeting
of the Committee, was approximately 40 basis points above its level
at the time of the March 9 meeting. The upturn in short-term yielu ,
reflected in part the additions to the outstanding supply of bi!<resulting from the Treasury's new offerings and the somewhat finr,< r
money market conditions that developed during the period,
in March public offerings of new corporate bonds—which h>u{
been very large In recent months—expanded to an unprecedent • a
.
volume, and offerings of State and local government issues continual
heavy. Nevertheless, yields on new corporate and. municipal bor ^
declined sharply after early March, reversing the advance of prece**
ing weeks; and yields on Treasury notes and bonds also moved lower.
The capital market rally was apparently a consequence of reports
suggesting that the economy was recovering less rapidly than many
market participants had anticipated and, more generally, of a modification of earlier Yiews that long-term Interest rates had already
passed their cyclical lows. Although bond yields subsequently advanced somewhat, they still were well below the levels of 4 weeks
earlier at the time of this meeting.
Interest rates on conventional home mortgages continued to iL
cline in February. Yields in secondary markets for federally insm ed
mortgages, which also had' declined further in February, remaii<ou
about unchanged over the course of March. At iioiibank thrift institu-

136




at an extremely rapid pace In March, according to incomplete data
for that month.
Although, many commercial banks reduced their offering rates on
consumer-type time and savings deposits during March, inflows of
such deposits remained heavy at banks also. However, large-denomination CD's expanded only moderately further. The volume of business loans outstanding (including loans that had been sold to
affiliates) declined during the month, and on March 11 major banks
again reduced their prime lending rates—some by ¥2 of a percentage
point, to 5!4 per cent, but most by ¥4 of a point. On March 19 the
5V4 per cent prime rate became general. Banks continued to increase
their holdings of securities at a substantial pace and to reduce their
reliance OE nondeposit sources of funds, including borrowings of
Euro-dollars from their foreign branches.
Preliminary estimates indicated that there had been a substantial
;, or ease from February to Maxell in total bank credit, as measured
« . the adjusted proxy series—daily-average member bank deposits
adjusted to include feeds from nondeposit sources. However, the
increase was less than that expected at the time of the March 9
meeting of the Committee and also less than the rise recorded in the
previous month. Like bank credit, both the narrow and broader measures of the money stock—Mx and M2—rose substantially on the
average in March, although less sharply than in February, In contrast to bank credit, however, bot'i .'-' • defined as private demand
deposits plus currency in circulate •• '
i M2 (defined as Mx plus
commercial bank time deposits ott,- '• '••.•:•••. • -; .:••', • • CD's)
increased considerably m o r e than ].-•;
"' i'• <;•..•.>
,' • •• J r a t e s
of growth over the first quarter as a w •'
.•>
• •••,>• . . about
11 per eeet for the proxy series and •'•-.- : '• •••,>'
'.c cent,
respectively, for M x and M 2 ,
System open market operations since, the preceding meeting of
the Committee had been directed at achieving a slight firming of
money market conditions, as incoming data Indicated that Mx and M2
1

Calculated OE the basis of the daily-average level In the last month of the
quarter relative to that in the last month of the preceding quarter.




were growing considerably faster than expected. At the same time,
efforts were made during the period to counter repetitive tendencies
toward undue firmness that arose from market factors affecting reserves. The Federal fends rate, which had averaged about SVi per cent
shortly before the March 9 meeting, subsequently fluctuated mostly
around 3 % per cent—although it rose to 4 per cent or abewe on a
number of days in mid-March and again in late March, and early
April. As in other recent weeks, an important part of reseiYe needs
was met by System purchases of Intermediate- and long-term Treasury
securities.
Staff analysis suggested that, if preYailing money market conditions
*vcre maintained, Mt would continue to rise rapidly early in the
second quarter and would grow somewhat faster o¥er the quarter
'<\+ a whole than it had in the first quarter. The analysis also suggested
that expansion in time and savings deposits other than large-denomination CD's would slow substantially in coming months, in part
because of the spreading practice among banks of reducing rates
offered on such deposits. As a result, it was expected that growth in
M.» woeld moderate in the second quarter from its exceptionally
rapid first-quarter pace. In addition, it appeared likely that the
volume of CD's outstanding would increase relatively little farther
over the quarter and that this development, along with slower
expansion of other time deposits, would contribute to an expected
moderation in the pnwtli of the adjusted bank credit proxy.
The Commit lo. decided that open market operations at present
should be diret.u.J at attaining temporarily some minor firming of
money market conditions. Some members favored this course primarily for the purpose of achieving less rapid growth in the monetary
aggregates than the staff analysis indicated might eventuate in the
second quarter under unchanged money market conditions. Others
placed main emphasis on the objectlYe of contributing, at least
marginally, to a narrowing of the differentials between short-term
interest rates in this country and abroad, in the interest of moderating
capital outflows. In the former connection, the Committee indicated
that it would like to see more moderate expansion in the monetary
aggregates in the second quarter than had occurred in the first. As a
step in that direction it was felt that growth in Mt in April at a
slower rate than in March and more in line with the first-quarter rate

138




would be d^-irable, and various members expressed a desire :.<<!*
further slowing in M1 as the quarter progressed. It was recognized tlr-i
the aggregates were likely to increase at faster rates in April tli i«over the second quarter as a whole. The Committee agreed that
money market conditions should be modified somewhat if the monetary and credit aggregates appeared to be deviating substantially
from the growth paths desired.
The Committee also decided that needs for reserves should continue to be met to the extent feasible by purchases of long-term
Treasury securities, in,, the interest of promoting accommodative
conditions in long-term credit markets. It was noted that later in
April even-keel considerations related to the forthcoming Treasury
refunding would begin to place constraints on operations in coupon
issues, as well as on operations directed at modifying money market
conditions.
IIic following current economic policy directive was issued to the
f Vderal Reserve Bank of New York:
The information reviewed at this meeting suggests that real output
of goods and services rose substantially in the first quarter primarily
because of the resumption of higher automobile production, but that
the unemployment rate remained high. More moderate growth in
real GNP appears to be in prospect for the current quarter. Wage
rates in most sectors are continuing to rise at a rapid pace. The rate
of advance in consumer prices and In wholesale prices of industrial
commodities appears to haYe moderated recently. In March bank
credit and the money stock both narrowly and broadly defined
again expanded substantially, although the Increases were less sharp
than, in February. Inflows of consumer-type time and savings funds
to banks and nonbank thrift Institutions reached unusually high
levels in the first quarter as interest rates on competitive short-term
market instruments declined considerably further. In, recent weeks,
however? key short-term interest rates have moved up somewhat on,
balance, Yields on new issues of corporate and municipal bonds
declined during much of March despite a continuing heavy calendar
of offerings,, bet most recently long-term market yields have also
risen somewhat. The over-all balance of payments deficit In the first
quarter was exceptionally large. The trade surplus for the first two
months was very small, and capital outflows haYe been stimulated by
wide short-term interest rate differentials. Despite recent reductions




139

ciiuctia iraiKitii wiUc. m ligut iii like itJitigtimg tieVeiupilients, it is tiifc

policy of the Federal Open Market Committee to foster financial
conditions conducive to the resumption of sustainable economic
growth, while encouraging an orderly reduction in the rate of inflation, moderation of short-term capital outflows, and attainment of
reasonable equilibrium in the country's balance of payments.
To Implement this policy, while taking account of the Treasury
financing the terms of which are to be announced late in the month,
System open, market operations until the next meeting of the Committee shall be conducted with a viewtoattaining temporarily some
minor firming in money market conditions, while continuing to meet
some part of reserve needs through purchases of coupon issues in
the ioierest of promoting accommodati¥e conditions in long-term
credit markets; provided that money market conditions shall be
modified If it appears that the monetary and credit aggregates are
deviating significantly from the growth paths desired.
Votes for this action: Messrs. Burns, Brimmer,
Clay, Daane, Maisel, Mayo, Morris, Robertson, and
Sherrill. Votes against this action: Messrs. Hayes
and Kimbrel.

Absent and not voting; Mr. Mitchell.
In dissenting, Messrs. Hayes and Kimbrel noted that they favored
more firming of money market conditions than, contemplated under
f
.:ective, although not so much firming as to cause serious re; : • - • • ions In bond markets. Mr. Hayes thought the directive gave
•••' * — fuate recognition to the need for moving toward somewhat
i
..'<:;her short-term interest rates in light of the international financial
1
1
lation, and lie also expressed concern about the risk of excessive
>wth in the money stock. Mr. Kimbrel belieYed that higher shortni Interest rates would be desirable mainly to hold growth in the
• >netary and credit aggregates to a moderate pace in order to avoid
; • ekindling of inflationary expectations.




MEETING HELD ON MAY 1 1 , 1971
Authority to effect transactions in System Account.

Preliminary estimates of the Commerce Department indicated that
real output of goods and services had increased at an annual rate of
6.5 per cent in the first quarter, after having declined at a 3.9 per
cent rate in the fourth quarter of 1970. The strength of the firstquarter rise was attributable primarily to a resumption of higher
automobile production following the strike in that industry, and more
moderate growth of real GNP appeared to be in prospect for the
current quarter.
In April nonfarm payroll employment again remained about unchanged and the unemployment rate edged up to 6.1 from 6.0 per
cent in the previous month. Tentative estimates indicated that industrial production had risen somewhat. The latest data for retail sales
suggested that there had been a pick-up in consumer spending, apart
from the post-strike recovery in automobile purchases; revised figures
revealed that nonautomotive sales had strengthened somewhat more
over the course of the first quarter than had been thought earlier,
and according to preliminary indications for April such sales were
continuing at about the level they had reached in March. Private
housing starts increased substantially further in March.
Wholesale prices of industrial commodities rose sharply in April,
after having advanced at a moderate pace earlier in the year. The rate
of increase in the consumer price index slowed in March for the third
successive month, reflecting to an important extent a further decline
in mortgage interest costs. Wage rates continued to rise rapidly.
Growth in real GNP was projected to slow in the second quarter
mainly because of the waning effect of the post-strike recovery in the
automobile industry. In light of the recent strengthening of retail
sales, the projected amount of improvement in personal consumption
expenditures had been raised somewhat, although it remained well
below the gain recorded in the first quarter. The staff projections
continued to suggest a further decline in defense spending and further
substantial increases in residential construction expenditures and
State and local government outlays—and also a step-up in business
inventory accumulation, in part reflecting stockpiling of steel in




141

anticipation of a possible strike in the industry when current wage
contracts expire at the end of July.
While the possibility of a steel strike continued to cloud the outlook
for the second half of the year, the average rate of growth was still
expected to be somewhat higher than in the second quarter if the
duration of any such strike did not exceed 60 days or so. It appeared
likely that the rate of growth In residential construction outlays would
slacken as the year progressed. However, prospects were for further
large increases in State and local government expenditures and moderate gains in outlays for business fixed investment. Various- developments were expected to help sustain expansion in consumer spending
during the second half of the year: the recently enacted increase
in social security benefits, under which payments retroactive to January 1 were scheduled to be made in late June; a possible increase
in military pay scales around midyear; and a possible decline in the
rate of personal saving in the third and fourth quarters.
Although the U.S. merchandise trade balance improved somewhat
in March, exports exceeded Imports by only a small margin over the
first quarter as a whole. The over-all payments balance was in extremely large deicit during the quarter on both the liquidity and official settlements bases, and tentative estimates indicated that the deficit
was again very large in April. In great part the deterioration of the
payments balance in the irst 4 months of 1971 reflected outflows of
short-term capital, at first primarily in response to higher interest
rates abroad and later also in response to a growing belief that there
might be increases in the exchange rates for certain European
currencies.
Movements from the dollar into the German mark and some other
European currencies, which had been particularly heavy in the first
few days of April, subsided during the next 3 weeks. The atmosphere
in foreign exchange markets .remained uneasy, however, and a new
wave of uncertainty was evidenced late in the month by EE upsurge of
demands for forward marks. On April 28 the German monetary authorities announced that they were discontinuing forward sales of
marks; and during the next few days? against the background of ¥arious public statements and market rumors regarding possible exchange
rate policies, upward pressures intensified on. the exchange rate for
the mark and for several other European currencies. Flows of funds,

142




particularly into marks, reached massive proportio1. .",- Wi,\ 4 and
*, and on the latter date the central banks of Germany, Switzerland,
{]•>:• Netherlands, Belgium, and Austria suspended sales of their curj.'ucies for dollars. On Sunday, May 9, announcements were made
.' •; it exchange rates for the German, mark and the Dutch guilder
would be allowed to float for the time being, and that the Swiss franc
and Austrian schilling were being revalued upward, by 7,07 and
5.05 per cent, respectively.
On April 28 the Treasury announced the terms on which it would
: 'iiind securities maturing in mid-May, including $5.8 billion held by
To public. Holders of the maturing obligations were offered the
risoice of two relatively short-term notes—a new. 15-month, 5 per
vv<it note priced at par and a reopened issue of SYi year, 5% per
,,\ Tit notes priced to yield about 5.88 per cent. Although the outcome
* • the financing was affected adversely by the developments in for{
/j.'n exchange markets around the May 5 dosing date for subscripi'' mSj the proportion of publicly held maturing issues redeemed for
* \ > ;h—-about 30 per cent—was less than many observers had ex»voted under the circumstances.
The atmosphere of crisis In foreign exchange markets in early May
'j'.'ded to uncertainties already prevailing in. domestic financial mar\i ;:s. Interest rates on most types of short- and long-term securities
lu'd risen sharply in recent weeks, reflecting continued heavy demands
i-'V funds in capital markets and growing expectations on the part of
>>rirket participants of higher rates to come. Contributing to the
* -¥<ange in market psychology were favorable business developments,
!h.i recent Inning of money market conditions, and the belief that the
! . deral Reser¥e would seek still firmer conditions in light of current
t \Lnd rates of growth in the monetary aggregates and of developments
m international financial markets. Market rates on short-term Treasury
i'»ils shared in the general uptrend through most of April; for example,
ir-i rate on 3-month bills advanced from about 3,70 per cent on the
\\>>y before the April 6 meeting of the Committee to slightly more than
\ xr cent near the end of the month. Subsequently, however, the 3pionth rate declined—-to about 3.85 per cent on the day before this
> Meeting—partly as a result of large-scale bill purchases by foreign
;
> 4tidal accounts.
Interest rates on conventional new-home mortgages declined fur-




".. )r In March, but more slowly than earlier In. the yt-a< \ iclds in
- .:ondary markets for federally insured mortgages, whicii iiad leveled
• M't In March, advanced in late April. Incomplete data for April sug~
;.'.;>ted that Inflows of funds to nonbank thrift institutions were re• i lining close to the extraordinarily high monthly volume recorded in
< !'o first quarter.
At commercial banks, inflows of consumer-type time and savings
;i.'posits slowed substantially in April from, their very high firstjr'arter pace, partly in. response to reductions in rates offered on such
• ivv posits. 'The volume of large-denomination CD's outstanding de• 'itied slightly. Business loans outstanding (including loans that had
*- en sold to affiliates) changed little over the course of the month,
<mer having declined in March. On April 22 and 23 a number of
*;«.ijor banks announced an increase in their prime lending rates from.
"••' 4 to 5 Yi per cent, and by the date of this meeting the higher prime
ii*te had become general. This increase, which followed a series of
>•' ductions during the fall and winter months, was attributed to the
;-/'vance in short-term market interest rates that had occurred since
r
-e last such reduction in March.
Commercial bank holdings of Treasury securities declined during
April, following a substantial, rise in the first quarter, and holdings of
•!•!• i securities expanded at a somewhat slower pace than earlier in.
;hr vr-ar, Banks continued to reduce their use of funds from non.depiMt .ources. Most of the reduction in April was associated with.
«/•' <fhes in head-office liabilities to foreign branches, largely in CGIItu1; \.\.a with branch acquisitions of the $1.5 billion of special certifiv.tk"* offered to them by the Treasury for payment on April 0. (jrowth
in f;)i;sl bank, credit, as measured, by,the adjusted proxy series -d:uly:; ,i; ;:e member bank deposits, adjusted to include funds iVr»n) nonuq «.'-«t sources—slowed further from March to April.
.L.V-^mates of the average March level, of both the narrow and
htiu'fier measures of the money stock—Mi and M2—had been re~
v!^.?ii upward somewhat since the preceding meeting of the ComM'iii-«.-c. It now appeared that Mx (pri¥ate demand deposits plus curt\m:\ in circulation) had increased at an annual rate of about 9 per
cent over the first quarter as a whole 1 an.d that M2 (M x plus commer1

Calculated on, the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.

144




i i e mf k f*11pIT




to slow expansion in M, sufficiently during the rest of the second
quarter to achieve n substantial moderation of growth over the
quarter as a whole.
In the discussion Committee members expressed concern both
about the recent high rates of growth in the monetary aggregates and
about the marked increases that had occurred in long-term interest
rates. The Yiew was widely held among members that expansion in
Mx at the first-quarter pace for an extended period would be inconsistent with an orderly reduction in the rate of inflation. Also widely
held, however, was the view that sharp increases in long-term rates
at this juncture might have adverse consequences for spending,
particularly In. the residential construction and State and local government sectors, and might thus pose a threat to the economic recovery
under way.
Although there were some rather marked differences in the stress
that individual members placed on these two types of considerations,
the Committee agreed that it would not be desirable at present either
to re¥ert to the money market conditions that had prevailed until
the end of April or to se-ek the amount of finning that evidently
would be required to achieve a substantial slowing of growth In the
aggregates over the second quarter. Instead, the Committee decided
that in the early part of the coming period, when open market operations in any case would be conditioned by even-keel considerations
related to the current Treasury refunding, the objective should be to
maintain the money market conditions currently prevailing. Similar
conditions were to be sought later if the monetary aggregates appeared to be on paths consistent, with gradual moderation of growth
during the second quarter. If the aggregates appeared to be deviating
significantly from, such paths, the objective was to be modified accordingly—except that any firming of money market conditions directed
at slowing excessive growth was to be carried out cautiously, with a
view to a¥G.id.iiig undue reactions in capital markets.
The Committee agreed that, in light of the uncertainties prevailing
in,, domestic financial markets and in foreign exchange markets, the
Account Manager should have more than, the usual degree of dk
cretion In making day-to-day operating decisions. However, the Committee also agreed that it would be advisable at present for the System to engage in purchases of longer-term Government securities on

146




a smaller scale than in recent months in the process of meeting needs
for reserves.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York:
The Information reviewed at this meeting suggests that real output of goods and services rose substantially in the first quarter primarily because of the resumption of higher automobile production,
and more moderate growth appears to be in prospect for the current
quarter. The unemployment rate remained high in April. Wage
rates in most sectors are continuing to rise at a rapid pace. The rate
of advance in consumer prices and in wholesale prices of industrial
commodities moderated In the first quarter, but the rise in Industrial
prices stepped up again in April, The money stock both narrowly
and broadly defined expanded substantially further In April but
growth in. bank credit slowed. Inflows of consumer-type time and
savings funds to banks moderated, partly as a result of reductions
in the Interest rates offered by banks, but flows to nonbank thrift
Institutions continued heavy. Interest rates on most types of shortand long-term, market securities rose sharply in April and early
May, .reflecting uncertainties about domestic, and more recently international, financial prospects. The over-all balance of payments
deficit in. the first four months of 1971 was exceptionally large, in
great part reflecting short-term capital outflows. Recently, after
further large International flows of funds, several European central
banks suspended sales of their currencies for dollars; subsequently,
announcemei"- • . ; ide that the German mark and Dutch
guilder woulr k v\ .,.-.' d to float for the time being, and that the
Swiss franc £> I V- ;:. • schilling were being revalued. In light of
•
the foregoing developments, it is the policy of the Federal Open
Market Committee to foster financial conditions conducive to the
resumption of sustainable economic growth, while encouraging an
orderly reduction ID. the rate of inflation., moderation of short-term
capital outflows, and attainment of reasonable equilibrium in the
country's balance of payments.
To implement this policy, the Committee seeks to moderate
growth in monetary and credit aggregates over the months ahead,
taking account of the current Treasury financing, developments in.
capital markets, and uncertainties in foreign exchange markets.
System open market operations until the next meeting of the Committee shall be aimed initially at maintaining currently pre¥ailieg




money market conditions, and thereafter conducted with a Ylew to
maintaining bank reserves and money market conditions consistent
with the above-died objectives.
Votes for this action: Messrs. Bums, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, Robertson, and Sherrill. Votes
against this action; None.




MEETING HELD ON JUNE 8, 1971
1. Authority to effect transactions in System Account.

According to revised official estimates, real output of goods and
services had increased at an annual rate of 7.1 per cent in the first
quarter, somewhat more than preliminary estimates had indicated.
The size of the advance was primarily a consequence of the poststrike recovery of production in the automobile industry, and real
GNP appeared to be rising at a slower pace in the second quarter.
In May expansion in the labor force exceeded growth in employment, and the unemployment rate edged up further to 6.2 from 6.1
per cent in April. Industrial production, which had increased only
a little in March and April, was tentatively estimated to have advanced
at a somewhat faster pace in May. According to weekly figures retail
sales were about unchanged in May. In April private housing starts
remained close to the very high level they had reached in March.
Wholesale prices of industrial commodities, which had risen at a
moderate pace in the first quarter and then advanced sharply in April,
increased considerably further in May. However, average prices of
farm products and foods declined in May, and the over-all wholesale
price index rose at a slower pace than in the first 4 months of the
year. In April, as in the first quarter, the rate of advance in the
consumer price index was less than earlier largely because of a decline
in mortgage interest costs. Wage rates recently had continued to
increase at a rapid pace.
Despite the upward revision in the official estimates of GNP for
the first quarter, staff projections continued to suggest that activity
would expand at a relatively moderate rate over the rest of 1971.
Prospects still favored further large increases in outlays by State and
local governments and in expenditures on residential construction.
As before, the advance in housing activity was expected to slow as the
year progressed; but the projected rates of growth had been increased
significantly in light of the recent strength of housing starts, the large
volume of outstanding mortgage commitments, and the continued
heavy flows of savings funds to nonbank thrift institutions.
On the other hand, it now appeared from various kinds of evidence




149

!iu>1

rvsiv-p"

n-,

i ' h . v1 J i . u I M . n i ! , , !

^ <!:;!'•

^ p i u k l

liliL

o w *

the

siA'-onci half of the year. The latest Commerce-SEC survey, taken in
"M'ly, re¥ealed that since February businesses had revised downward
their planned spending on new plant and equipment in 1971; and a
fecent survey by the National Industrial Conference Board indicated
ihut in the first quarter manufacturers had reduced their appropriations
f*n" new plant and equipment—the sixth such reduction in the last
se¥en quarters.
The rate of increase In consumer spending was still expected to
moderate considerably in the second quarter—mainly because outlays on new cars were no longer rising sharply In the aftermath of the
auto strike—and then to step up somewhat In the second half of the
war. It was anticipated that growth in consume!* spending during the
second half would be sustained In part by the recently enacted increase
in social security benefits, including retroactive payments scheduled
im" late June; by a possible military pay raise around midyear; and by
some decline in the personal saving rate. The possibility of a steel
strike at the end of July lent an element of uncertainty to the outlook
for the rest of 1971. It appeared, however, that if the duration of any
.such strike were limited to 2 months or less, the effect on the average
rate of growth in real GNP In the third and fourth quarters taken.
together would not be great.
Following the small surplus of the first quarter, U.S. merchandise
trade moved into deficit in April as a result of a large increase in
Imports and an even larger decline in exports. The deficit in the
over-all balance of payments, which had been extremely heavy
earlier in the year, reached enormous proportions in late April and
early May as a consequence of capital outflows In response to expectations of upward revaluations In the exchange rates of the German
mark and some other European currencies. Since May 9—when it
was announced that the mark and the Dutch guilder would be
allowed to float for the time being and that the Swiss franc and
Austrian schilling were being revalued—there had been, some capital
flows Into Japanese yen and probably also into Euro-dollars. Although
the differentials between short-term interest rates in. the United States
and in major foreign countries had narrowed on. balance in April and
May, the spread between rates In the United States and. those in the

150




Euro-dollar market had been widened by si- ; \ increases In the latter
in. early May.
In recent weeks the mark had fluctuated lit a iinge up to 4,6 per
cent above Its par value, and. the guilder also had traded beyond its
normal margin, above par. In the week before this meeting the
German Federal Bank had reentered the exchange market, buying
marks for dollars at rates above the previous ceiling.
Interest rates on most types of domestic market securities, which
had been, under upward pressure since mid-March, rose sharply further during much of May. In the third week of the month—against
the background of uncertainties in foreign exchange markets, expectations of increased monetary restraint, and continuing heavy
demands on capital markets—yields on Treasury and corporate bonds
reached new peaks for the year and municipal bond yields held at the
highs they had attained in the previous week, Subsequently, however,
a rally developed in bond markets and long-term, bond yields declined
to or below the levels prevailing at the time of the May 11 Committee
meeting. In. contrast, short-term interest rates had, advanced further
on balance In recent weeks. For example, the market rate on 3-month
Treasury bills, at about 4,45 per cent on the day before this meeting,
was 60^ basis points above the level of 4 weeks earlier.
Interest rates on conventional new-home mortgages declined much
less in April than in earlier months of the year, and there were
scattered, reports of advances during May. Secondary-market yields
on, federally Insured mortgages turned up in late April and, rose to a
high, for the year In early June. Inflows of savings funds at nonbank
thrift institutions slowed in May from, the exceptionally high rates that,
had prevailed earlier In the year, but they still were large.
Inflows of consumer-type time and savings deposits at commercial 'banks continued in May at about the same rate as in .April, which
was quite high by historical standards but well below the firstquarter pace. The volume of large-denomination CD's outstanding
rose in May by about as much as it had declined in April, reflecting to
a large extent an increase in holdings of foreign official institutions.
Banks lifted their offering rates on such CD's during the month, and
holdings of domestic depositors also increased. Business loans outstanding (including loans that had been sold to affiliates) expanded
sharply after having changed little in April, While banks continued




- v tl bank credit, as measured by the adjusted proxy series—
-• :•••- '-verage member bank deposits, adjusted to Include funds from
•j- ';- :i "5Osit sources—increased moderately from April to May, accord-1-"' !-- preliminary estimates. However, sharp increases were recorded
"
.:-:h the narrow and broader measures of the money stock—M 2
'--••v•••;•: -'-'-r-—-* -,---.'•- plus currency in circulation) and M2 (M 2
"'"••• : .-.r- — - -,-;-,' - •• - i e deposits other than large-denomination
' '"7 - : :.*'*'•••
' "gates, the advance in May was substantially
:
-'•'•":•• : •! i: *
. '
ected at the time of the previous meeting

System open market operations had been directed, at maintaining
• availing money market conditions in the period immediately follow. .5 the May 11 meeting, in light of the Treasury financing then, in
• • :>cess and the sensitive state of conditions in. capital markets. Sub.juently, as the atmosphere in capital markets improved and incom'!•;£ data indicated that the monetary aggregates were expanding sig, i'.icantly faster than had been expected, operations were directed -••
.•..hieving a g r a d u a l firming of m o n e y n 1 - - r -L • - - " - t i o n s . T h e Fede:* il>
:i:ads r a t e , w h i c h h a d fluctuated arou--- •'-•-• ;—-; c e n t e a r l y i n 1" •
---riod, later m o v e d into a r a n g e aro---" J •-•••• ;-er c e n t . I n t h e "
-'•,jeks e n d i n g J u n e 2 m e m b e r b a n k b o r r o w i n g s a v e r a g e d a b o u t $ 3 ">''
• -llion, compared with about $150 million in the preceding 4 wee]'"
Staff analysis suggested that, if prevailing money market condition
were iii.aintaiD.ed, Mx would .rise rapidly in June although not • •
•
rapidly as in May; and that it would ex{3aecl at an annual rate
about 12 per cent over the second quarter as a whole, following the
9 per cent increase of the first quarter.1 Growth in M2 and the bank
credit proxy, which had. been, at annual .rates of 18 and 11 per cent,
respectively, in the first quarter, was expected to be somewhat more
moderate in the second. As to the third quarter, tentative projections
suggested that under prevailing money market conditions Mx would
continue to grow rapidly over the quarter as a whole—at a rate of
1

Calculated on the basis of the daily average level, in the last, month of the
quarter relative to that in the last month of the preceding quarter.




rhaps 10 or 11 per cent—but that the pace of the expansion would
- w as the quarter progressed.
'" :*
.''.' • • lalysis also suggested that, if somewhat firmer money
• •" "
'.>'• ons were attained during coming weeks, the effect on
•' ^8 of the aggregates in June and over the second quar•..' ' : would be slight. It appeared, however, that the .rates
• • •. • • . '. the third quarter might be reduced, by about 1 perT • 'v~ r ".:mittee's discussion considerable concern was expressed
about the rapid growth of the monetary aggregates, and the members
agreed that it would, be desirable to seek somewhat slower growth over
coming months than appeared likely to eventuate if prevailing money
market conditions were maintained. At the same time, a number of
members stressed the importance of moving gradually and cautiously
in attaining somewhat Inner money market conditions, in order to
minimize any resulting upward pressures on. long-term interest rates.
The Committee agreed that account should be taken of devel.oprn.ents
in capital markets in the conduct of open market operations.
The following current economic policy directive was issued to
the Federal Reserve Bank of New York;
The information reviewed at this meeting suggests that real output
of goods and. services is expanding moderately in. the current quarter,
following the first-quarter surge that primarily reflected the resump-

tion of higher automobile production. The unemployment rate remained high in. May, Wage rates in most sectors are continuing
to .rise at a .rapid pace. In the first four .months of 1971 the consumer
price index Increased at a slower pace than, earlier, in considerable
part because of a decline In. mortgage interest rates; the rate of
advance In wholesale prices of industrial, commodities, which had
moderated in the first quarter, stepped up again in April and May,
The money stock both narrowly and broadly defined expanded even
more rapidly in May than in April but growth in the bank credit
proxy remained moderate. Interest rates on most types of market
securities rose sharply further during much of May, reflecting continuing uncertainties about domestic and international financial,
prospects; more recently rates on long-term securities have declined
on balance, but mortgage rates have risen,. The U.S. merchandise
trade balance, which was in sin all surplus in the first quarter,




worsened in April. The deficit in the over-all balance of payments
has diminished since early May, when capital outflows were swollen
by expectations of changes in foreign exchange rates, but it remains
large. Differentials between short-term interest rates in the United
States and in major foreign countries narrowed on balance in April
and May, but differentials between rates in the United States and in
the Euro-dollar market recently have widened as rates in that market
moved up sharply in early May. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to
foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction in the
rate of inflation, moderation of short-term capital outflows, and
attainment of reasonable equilibrium in the country's balance of payments.
To implement this policy, the Committee seeks to moderate
growth in monetary aggregates over the months ahead, taking account of developments in capital markets. System open market
operations until the next meeting of the Committee shall be conducted with a view to achieving bank reserve and money market
conditions consistent with those objectives.
Votes for this action: Messrs. Burns, Brimmer,
Clay, Daane, Kimbrel, Maisel, Mayo, Mitchell,
Morris, Robertson, Sherrill, and Treiber. Votes
against this action: None.
Absent and not voting: Mr. Hayes. (Mr. Treiber
voted as his alternate.)

2. Amendment to continuing authority directive.

The Committee amended paragraph 2 of its continuing authority
directive to the Federal Reserve Bank of New York with respect to
domestic open market operations, to increase the dollar limit on
Federal Reserve Bank holdings of short-term certificates of indebtedness purchased directly from the Treasury from $1 billion to $2
billion. With this change, paragraph 2 read as follows:
The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, or, if the New York Reserve

154




Bank Is dosed, any other Federal Reserve Bank, to purchase directly
from the Treasury for its own account (with discretion, in cases
where it seems desirable, to issue participations to one or more
Federal. Reserve Banks) such, amounts of special short-term certificates of indebtedness as may be necessary from time to time for
the temporary accommodation of the Treasury; provided, that the
rate charged on. such certificates shall be a rate !4 of 1 per cent
below the discount rate of the Federal Reserve Bank of New York
at the time of such purchases, and provided further that the total
amount of such certificates held at any one time by the Federal
Reserve Banks shall not exceed $2 billion.
Votes for this action: Messrs, Burns, Brimmer,
Clay, Daane, Kimbrei, Maisel, Mayo, Mitchell,
Morris, Robertson, Sherrill, and Treiber. Votes
against this action; None.
Absent and not voting: • h ! i i /es. (Mr. Treiber
>
'
voted as his alternate.)
This action was taken on 'recommendation of the System Account
Manager, who advised that an expected sharp decline in the Treas•ii / s cash balances ie the period before the mid-June tax-payment
t'li-e probably would necessitate temporary borrowing from the Sysd 10, and that the Treasury's needs might well exceed the existing $1
billion limit on such borrowing. It was anticipated that the $1
limit would be restored at the next meeting of the Committee.




MEETING HELD ON JUNE 29, 1971
1. Authority to effect transactions in System Account.

Information reviewed at this meeting suggested that real output
of goods and services was expanding moderately in the second quarter,
after having risen sharply earlier in the year under the stimulus of the
post-strike recovery in the automobile industry. Continued moderate
gains in activity appeared to be in prospect for the rest of 1971.
Retail sales had declined in May, but according to weekly data
they turned up in the first half of June. It appeared likely that the
volume of retail sales in the second quarter as a whole would be appreciably above that of the first quarter. According to tentative
estimates, industrial production was rising in June at a slower rate
than in May. Conditions in labor markets remained slack; both the
number of persons receiving unemployment insurance benefits and
the number making initial claims for such benefits had increased further in recent weeks. In May private housing starts remained close to
the advanced level that had been reached in the two preceding months.
Both consumer prices of goods and services and wholesale prices
of industrial commodities increased sharply in May—the latter for
the second successive month—after having risen at moderate rates
earlier in the year. Wage rates continued to advance rapidly in most
sectors of the economy.
The expectation that over-all economic activity would continue a
gradual expansion in the second half of 1971 was based in part on
the assumption that there would not be a strike in the steel industry
when wage contracts expired at the end of July—or that if there were
a strike, it would not be of long duration. The latest staff projections,
like those of 3 weeks earlier, suggested that the rise in residential
construction outlays would slow as the year progressed but would
remain sizable, and that expenditures by State and local governments
would continue to expand at a substantial rate. As before, it appeared
that business fixed investment outlays would increase relatively little
in the second half. And it was still anticipated that growth of consumer spending would be sustained in part by the recent increase in
social security benefits, including retroactive payments made in late

156




... rsonal saving rate.
The U.S. merchandise trade balance, which had shifted from a
small surplus in the first quarter to a large deficit in April, remained
:.. substantial deficit in May as a rise in exports was matched by
-- -oughly equal rise in imports. The over-all balance of payments on
,->-> official settlements basis had been in surplus in recent weeks, in
<-,-rt because of some reversal of earlier speculative outflows of short--•.in capital from the United States. Funds moved out of Germany
•«. the German Federal Bank bought a large amount of marks (sold
*--Jlars) at rising exchange rates for the mark; the rate currently was
----out 4.7 per cent above its par value, compared with. 3.8 per cent In
- --*ly June. The outflow from Germany depressed ¥ery short-term
r-erest .rates in the Euro-dollar market, and this decline In Euroi- 'liar .rates apparently had been, a factor contributing to the upturn In
—cent weeks in the liabilities of U.S. banks to their foreign branches.
¥
-*e exchange rate for the Dutch guilder had increased sharply when
••• J German Federal Bank began, to sell dollars, "but latex it declined
• •' 1.6 per cent above par.
In connection with its sales of dollars in foreign exchange markets,
• - t German Federal Bank not only sold U.S. Treasury bills but also
• leemed a substantial volume of special nonmarketable U.S. Treasury
~
"purities it had acquired earlier. In part for this reason, the Treasury's
>h balance was drawn down to a very low level prior to the iiild",,ne tax date, and in the period June 3—1.6 the Treasury financed
;'.:rt of Its cash needs temporarily through the sale of special certificates of indebtedness to the Federal Reserve Banks.1
To replenish Its cash balance, on June 22 the Treasury auctioned
'• 'lA billion of 16-month, notes for payment on, the day of this meet•',5, and on June 30 it was scheduled to auction for payment on
My 6 SIM billion of tax-anticipation Mils due in. September. Also,
• > the day before this meeting the Treasury announced that the Germ Federal Bank would acquire up to $5 billion of special medium, -in U.S. Treasury securities In an operation to be completed within
•T 5 next few weeks, and that the FH^r^ Bank had already acquired
1
' billion,, of the contemplated tot " ''vs acquisition was financed
1

The maximum volume of such c e i ^ ^ ^ outstanding In the Jun_ ;.'
period was $610 million, on June 10.




in part ^\ the sale of $1 billion of Treasury bills in the market, thus
acidinu :t like amount to the Treasury balance, and in part by the
redemption of about $2 billion of short-term special Treasury securities the Ivderal Bank had acquired earlier in the year.
Interest rates on most types of long- and short-term market securities had Increased on balance since the June 8 meeting of the Committee. Contributing to the upward rate pressures were investor concern about the size of the Treasury's potential needs for cash and
indications that the Federal Reserve was fostering firmer money
market conditions in an effort to moderate the growth of the monetary
aggregates. The market for State and local government bonds rent allied under pressure throughout the period, but conditions In the
market for new corporate bonds—and to a lesser extent in that for
I of ig-term Treasury securities—improved somewhat after midmonth,
mainly as a result of some indicated reduction In the forthcoming
'volume of new corporate issues.
In short-term markets, rates on Treasury bills were subject to
additional pressures arising out of actual and anticipated sales of
hiilg by foreign official accounts. The market rate on 3-month bills,
at about 4.95 per cent on the day before this meeting, was roughly
50 basis points above its level of 3 weeks earlier. During June banks
raised further their offering rates on large-denomination CD's, and
early in the month several medium-sized banks increased their prime
U:riding rate from 53A to 6 per cent, However, at the time of this
meeting most banks were maintaining a 5 3 4 per cent prime rate.
Contract interest rates on conventional new-home mortgages edged
up during May after trending down for nearly a year. In the more
sensitive secondary market for federally insured mortgages, yields had
turned up in late April and had reached a new high for 1971 in early
June, Secondary-market yields later stabilized, apparently in part as
;i result of a special FNMA auction of purchase commitments on
Sum 9, which was aimed at reducing iEYentories of mortgage companies and other institutions that originated loans for resale, Inflows
of savings fends to nonbank thrift institutions remained large during the Irst half of June.
Tentative estimates for June suggested that consumer-type time
and sa¥ings deposits at commercial banks were continuing to expand
at the relatively rapid rate of the two preceding months and that the

158




volume of large-denomination CD's outstanding was rising somewhat
MUIII Its average level in May. It appeared from data for weekly
tt porting banks that the sharp increase In business loans recorded in
x
» ly was not continuing in June. Total bank credit, as measured
H the adjusted proxy series—daily-average member bank deposits,
'H justed to include funds from nondeposit sources—was tentatively
•"•••.imated to have risen at an annual rate of about 7.5 per cent from
V'riy to June and about 7 per cent over the second quarter as a
*vrole.2 Over the first quarter, the adjusted bank credit proxy had
"vxeased at a rate of approximately 11 per cent.
Both the narrow and the broader measures of tie money stock—
Mx (pri¥ate demand deposits pies currency in circulation.) and M2
' 1 (1 plus commercial bank time deposits other than large-denominaiMtt CD's)—appeared to be growing rapidly on the average in June,
• •'•hough not so rapidly as in May, For the second quarter as a
.' nble, Mx was currently estimated to have expanded at a rate of about
11.5 per cent, and M2 at a 13 per cent rate.
System, open market operations in the period since the June 8
• <j-.-eting of the Committee had been directed at attaining somewhat
I1; >ner conditions in the money market in light of the continued rapid
i^.jwtli of the monetary aggregates. The Federal funds rate, which
hud been fluctuating around 4% per cent shortly before the precedm:\ meeting, rose gradually over the period to the neighborhood of
' • 8 per cent. In the 3 weeks ending June 23 member bank borrow?ft;|s averaged about $390 million, compared with about $330 million
«< the preceding 4 weeks.
!
Staff analysis suggested that, if conditions in the money market
were similar to those that had prevailed on the average during the
jvriod since the previous meeting, Mx would grow slightly less in the
nnrd quarter than it had In the second., and growth In M2 also would
v<iw somewhat. In. contrast, the adjusted bank credit proxy was ex\K cted to expand more rapidly in the third quarter than it had in the
• A;ond. According to the analysis, if money market conditions were
••<-?newhat firmer, it was likely that both M\ and M2 would expand at
rates in the neighborhood of 9 per cent over the third quarter,
2
Calculated on the basis of the daily-average level In the last month of the
quarter relatiYe to that in the last month of the preceding quarter.




159

1'it that growth in these aggregates would recede to quite modest
I H-» }\ h n i it vr In the final quarter of the year.
in «s*' * \Miimittee's discussion considerable concern was exj!«'."««.*J >'' 'in the rapid growth in the monetary aggregates, particuisnU U\ U:M> uf the persistence of iniationary pressures and expectant^-, M fh- same time, concern was expressed about the recent
,!K\>!\! i">v<s sures on Interest rates, in ¥lew of the depaicleece of the
. «i»«*'.!-««' i .V'i>\»nic recovery on continued expansion in such interestsensitive sectors of the economy as residential construction.
While the members agreed that an unduly sharp inning of money
market conditions should be avoided because of the risk of undeshvvJ
rv percussions on market Interest rates, the Committee decided tluj.
npen market operations in the coming period should be directed at
achieving more moderate growth In monetary aggregates over the
months ahead. As at the preceding meeting, it was agreed that account should be taken of developments in capital markets In the conduct of operations.
The following current, economic policy directive was issued to- the
Federal Reserve Bank of New York:
The information re¥iewecl at this meeting suggests that real output of goods and services is expanding moderately in the current
quarter and that the unemployment rate has remained high. Wage
rates In most sectors are continuing to rise at a rapid pace. The
rate of advance in both consumer prices and wholesale prices of
Industrial commodities has stepped up again recently after moderating earlier in. the year. In June, according to tentative estimates,
the money stock both narrowly and broadly defined Is still growing
rapidly on average, although less than in May; growth in the bank
credit proxy remains below the first-quarter rate. Interest rates on
most types of market securities have Increased on, balance In recent
weeks. The market exchange rate for the German mark lias advanced, and a substantial low of funds from Germany to other
mi fleets lias occurred in recent weeks. In consequence of a partial
K*\orsal of the earlier speculative outflows of short-term capital
from the United States and of an increase in Euro-dollar borrowings
*,;! IJM, banks, there has been a surplus in the U.S. payments balance
on the official settlements basis in this period. The U.S. merchandise trade balance, which had been in small surplus in, the first

160




quarter, was in deficit in April and May. In light of the foregoing
developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the resumption of sustainable economic growth, while encouraging an orderly reduction
in the rate of inflation, moderation of short-term capital outflows,
and attainment of reasonable equilibrium in the country's balance
of payments.
To implement this policy, the Committee seeks to achieve more
moderate growth in monetary aggregates over the months ahead,
taking account of developments in capital markets. System open
market operations until the next meeting of the Committee shall
be conducted with a view to achieving bank reserve and money
market conditions consistent with those objectives.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Maisel, Mayo, Mitchell,
Morris, Robertson, Sherrill, and Coldwell. Votes
against this action: None.
Absent and not voting: Mr. Kimbrel. (Mr.
Coldwell voted as his alternate.)

2. Amendment to continuing authority directive.

The Committee amended paragraph 2 of its continuing authority
directive to the Federal Reserve Bank of New York with respect to
domestic open market operations, to reduce the dollar limit on Federal Reserve Bank holdings of short-term certificates of indebtedness
purchased directly from the Treasury from $2 billion to $1 billion.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Maisel, Mayo, Mitchell,
Morris, Robertson, Sherrill, and Coldwell. Votes
against this action: None.
Absent and not voting: Mr. Kimbrel. (Mr.
Coldwell voted as his alternate.)
The dollar limit in question had been increased to $2 billion at
the preceding meeting of the Committee, after the System Account




161

Manager advised that an expected sharp decline in die Treasury's
cash balance in the period before the mid-June tax payment dale
might necessitate temporary borrowing by the Treasury from the
System In an amount exceeding the then-existing $1 billion limit. If
had been anticipated at the time of that action that the $1 billion
limit would be restored at today's meeting.

162




MEETING HELD ON JULY 27, 1971
Authority to effect transactions in System Account.

Preliminary estimates of the Commerce Department indicated that
real output of goods and services had increased at an annual rate of
3.6 per cent in the second quarter, after having risen sharply—at a
rate now estimated at 8.0 per cent—in the first quarter when automobile production and sales were recovering from the strike of late
1970. Growth in real GNP was expected to continue at a moderate
pace during the remainder of 1971.
Retail sales increased considerably in June from April and May
levels that had been revised upward, and sales in the second quarter
as a whole were appreciably higher than in the first quarter. Industrial
production continued to rise moderately in June, but payroll employment declined in both manufacturing and other nonfarm sectors. A
reported drop in the unemployment rate to 5.6 from 6.2 per cent in
May appeared to bt attributable in large part to technical measurement problems. The volume of private housing starts was again very
high in June.
Wholesale prices of industrial commodities and consumer prices
rose substantially further in June. Over the second quarter as a whole
both price measures increased appreciably faster than they had earlier
in the year. Wage rates continued to advance rapidly.
Staff projections suggested that growth in real GNP would slow a
little from the second to the third quarter, and then step up in the
final quarter of the year. Although it was assumed that there would
not be a strike in the steel industry when wage contracts expired at
the end of July, it appeared likely that efforts of steel users and producers to work off excess stocks accumulated earlier against the threat
of a strike would temporarily depress the rate of over-all inventory
investment in the third quarter. Projections of gains in consumer
spending for both the third and the fourth quarters had been raised
somewhat as a result of the recent vigor in retail sales, even though it
was now believed that the military pay increase—previously assumed
to take effect around midyear—was not likely to occur until early
October. The latest projections, like those of 4 weeks earlier, sug-




163

,i • • ted that the rise In residential construction outlays would slow . > •
tUv. year progressed but would remain sizable; that State and loc«'
i'^vernment expenditures would expand at a substantial rate, and tbn
business ixed investment outlays would increase little in the secor-.'
half of the year.
The deficit in the U.S. balance of payments was agaie extraordinarily large in the second quarter. The merchandise trade balance,
which had been in smalt surplus In the first quarter, moved into substantial deicit in the second quarter as exports declined and the earlier
uptrend in Imports accelerated sharply. Outflows of capital remained
heavy. Relative to those of the first quarter, the second-quarter outflows were occasioned less by interest rate differentials and more by
"* pectations of shifts in exchange rates.
In,, July foreign exchange markets experienced renewed tensions,
,mJ the dollar weakened again*' .•; . > * :s>.i;or foreign currencies. The
•
c < .Tman mark rose to a new faij!1, \<i ;"•• . ent above parity.
On July 21 the Treasury aon. m^V'1 • Le terms on which it would
refund securities maturing In, mid-August, including $4.1
Kid by the public. Holders of the maturing obligations were
<ho choice of a 51 -month, 7 per cent note priced to yield. 7,06 ps't
:.vut and a 10-year, 7 per cent bond priced to yield 7.11 per cent. Tn •
bond, which was the first long-term security to be Issued since thr
f i easury received legislative authority to sell a limited number * *
(•onds at interest rates above the 414 per cent celling, was also offered
M individuals for cash subscription in amounts up to $1,0,000,
Short-term interest rates generally had risen further since the Comnuttee meeting of June 29. For example, the market rate on. 3-month
I reasury bills, at 5.45 per cent on, the day before this meeting, was
V' basis points above its level 4 weeks earlier. The rate advances
»v fleeted additional- heavy sales of Treasury bills by foreign official
lu'counts early In the period, the emergence of firmer money market
^»nditions after mid-July, and Invest"; * •,•• ctations of large-scale
{•Herings of short-term securities by tlv ; ^ > ;ury during the rest of
Wti year, Against the background of I,-;*" -iiort-term market rates,
:iiv)st major commercial banks increased their prime lending rate from
; ! I to 6 per cent in early July. Federal Reserve discount rates were
•;u.sed !4 of a percentage point, to 5 per cent, at four Reserve Banks
OE July 16 and at the other Banks during the following week.

164




Yields on long-term market securities had changed little on. balance
"•• recent weeks, after having Increased substantially during the sec-/,d quarter. The volume of public offerings of new corporate bonds
•••dined in July, and It appeared that offe..,._:.. :.. *• ••. ; would re' de below the -high rates of the i r s t half •- -1- • [ -'*•-- oond flota•• .ns by State and local governments s • . - : - — -moderating
•• n e w h a t .

Contract interest rates on conventional new-home mortgages and
• • • :ondary-market yields on federally Insured mortgages rose some1
',at further in June. Inflows of consumer-type savings funds at non• • :ik thrift Institutions continued rapid in June, but over the second
. • i arter as a whole such Inflows—although strong—were below the
^ -optionally high rate of the first quarter.
At commercial banks also, inflows of consumer-type time and
r
• -ings deposits had. moderated from the first to the second quarter.
V>,ese inflows appeared to be slowing sharply further in July. How- ^;r, expansion in total time and savings deposits at commercial banks
v.-*s still relatively large in July, as a result of a substantial further
increase in the volume of large-denomination CD's outstanding.
Growth in the narrow measure of the money stock (jr " ' •' . • :
•
>
,:,. posits plus currency in circulation, or Mi) increased • ;
. - K',
:,-^arte:r to an annual rate of about 11.5 per cent from : r '.: .-.'«; '
• ,: Irst quarter.1 Growth in the broader measure of ni'^-.j * ^ ^.t-*
1
nmercial bank time deposits other than large-denomination CD's,
. : M2) also was rapid in the second quarter—at an ; s,<; ! - "ate of
.{.-out 12.5 per cent—but it was appreciably below th ' < . \x cent
'
- r e reached in the first quarter, reflecting the less ra,--' ..;::JWS of
.'- asumer-type time and savings deposits. Expansion ie the adjusted
1
ik credit proxy (daily-average member bank deposits, adjusted to
::,Jude funds from, nondeposit sources) moderated to-a 6.5 per cent
annual rate ie the second quarter from 11 per cent in the first.
According to partial data for July, Mi and the adjusted proxy series
were continuing to expand at approximately their rates in the second
quarter. Growth in ML>, hcjwever, was slowing further.
Following the June 29 meeting of the Committee, when data becoming available for late June suggested that the rise in the monetary
1
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.




165

aggregates might be moderating, System open market operations had
been directed at maintaining money market conditions similar to those
pre¥alling shortly before that meeting. Later, however, data for early
July revealed that the aggregates—particularly M^—were again rising
strongly, and somewhat firmer money market conditions were sought.
The effecti¥e rate oe Federal funds, which had fluctuated around 514
per cent in late June and early July, moved up to the neighborhood
of SVz per cent after mid-July, With the Federal funds rate well aboYe
the discount rate, member bank borrowings rose substantially during
ihe period; for the 4 weeks ending July 21, borrowings a?eraged
a hunt $885 million compared with about 55455 million In the preceding 4 weeks.
Staff analysis suggested that if prevailing monc\ market conditions
were maintained, Mt and M-> would expand at annual rates of about
9 and 8 per cent, respectively, over the .third quarter as a whole, and
at substantially lower rates over the inai 3 months of the year. On the
other hand, expansion in, bank credit was expected to step up temporarily in the third quarter, selecting In part anticipated bank purchases of new securities to be offered by the Treasury. According to
the analysis, if somewhat firmer money market conditions were
attained in coming weeks, the expected rates of .growth in the monetary and credit aggregates would 'be reduced slightly In the third
quarter and more significantly in, the fourth,
The Committee decided that the achievement of more moderate
growth in the monetary aggregates over the months ahead remained
the appropriate objective of System open market operations. At the
same time. It was noted that operations during the period until the
next meeting would be influenced by even-keel considerations related
to the current Treasury financing. Also, as at other recent meetings,
the members agreed that account should be taken of developments in
capital markets in the conduct of operations. In these circumstances,
the Committee decided that the Manager should be given more than
the usual amount of discretion to make operating decisions in light of
actual market developments during the coining period.
The following current economic policy directive was issued to the
Federal Reserve Bank of New Y.u'k.:
The information review ;d a* this meeting suggests that moderate expansion in real output of goods and services Is continuing

166




and that unemployment remains substantial. Wage rates in most
sectors are continuing to rise at a rapid pace. The rate of advance
In both consumer prices and wholesale prices of industrial commodities has stepped up again recently after moderating earlier In
the year. In. the second quarter Inflows of consumer-type time and
savings funds at banks and nonbank thrift institutions were large,
but below the unusually rapid first-quarter pace. Growth In bank
credit and the broadly defined money stock slowed in the second
quarter, but the rate of expansion in the narrowly defined money
stock increased. In July, according to partial data, it appears that
both 'bank credit and the narrowly delned money stock are growing
at rates dose to those of the second quarter, but that expansion in
broadly delned money is slowing. While Interest rates on most types
of long-term market securities have changed relatively little on balance in recent weeks, short-term interest rates have risen, further. In.
mid-July Federal Reserve discount rates were increased by onequarter of a percentage point to 5 per cent. The deficit In the U.S.
balance of payments remained extraordinarily large In the second
quarter, mainly reflecting capital outflows related to expectations of
shifts in foreign exchange rates and the de¥elopmeni of a substantial
deficit In the merchandise trade balance. In. light of the foregoing
developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable economic growth, while encouraging an orderly reduction in the rate of
inflation, moderation of short-term capital outflows, and attainment
of reasonable equilibrium in the country's balance of payments.
To implement this policy, taking account of the current Treasury
financing and of developments in capital markets, the Committee
seeks to achieve more moderate growth in monetary aggregates over
the months ahead. System open market operations until the next
meeting of the Committee shall be conducted with a view to achieving bank reserve and money market conditions consistent with those
objectives.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, Robertson, and Sherrill. Votes
against this action: None.




MEETING HELD ON AUGUST 24, 1971
1. Authority to effect transactions in System Account.

Real output of goods and services, which had increased at an annual
rate of 4 per cent in the second quarter, apparently was expanding at
a somewhat slower pace in the third quarter, mainly because steel
users and producers were working down excess stocks following the
August 1 agreement on a new labor contract in the steel industry.
Expectations of faster growth in real GNP during the rest of 1971
were enhanced when the President announced a new economic program on August 15. In addition to a number of fiscal proposals, the
program included a 90-day freeze on prices and wages, a temporary
surcharge of 10 per cent on dutiable imports, and suspension of full
convertibility of dollars into gold and other reserve assets for settlement of international transactions.
Industrial production dropped in July, reflecting mainly reductions
in output of steel and some other industrial materials. Nonfarm payroll employment declined substantially further, and the unemployment
rate rose to 5.8 per cent; in June the unemployment rate had fallen
0.6 percentage point to 5.6 per cent, but that decline apparently was
attributable in part to technical measurement problems. Retail sales,
which had increased considerably in June, declined in July to about
the average monthly level in the second quarter. The volume of private housing starts advanced sharply further.
The rise in consumer prices slowed in July from the rapid pace
of the second quarter, but the increase in wholesale prices of industrial commodities accelerated. Over the 6 months through July wholesale industrial prices had risen more than in any comparable period
since 1956. Major labor contract settlements of recent months continued to provide for large increases in wage rates.
According to a tentative staff reappraisal of the outlook for the rest
of 1971 in light of the new economic program, growth in real GNP
would moderate less in the third quarter and speed up considerably
more in the fourth quarter than had been anticipated earlier. Also,
the rate of advance in prices was now expected to slow significantly.
As a consequence of the changed outlook for prices, the projected
increases in current-dollar GNP for both quarters had been reduced
somewhat.

168




It now appeared that the real volume of consumer purchases would
;; • e more than had seemed likely earlier, as a result of the stimulus
• < automobile sales of the proposed elimination—retroactive to A*'
.
"
:ast 15—of the Federal excise tax on autos and the more gene J
• 'imulus provided by improved consumer confiden.ee. it was expect;1.:
r
n-it business inventory investment would decline in t h e thi:>'<
;;uarter—not only because stocks of steel would be worked down. l>*;<
;-'.0 because part of any step-up in final sales probably would be met
ir-tially out of inventories—and that such investment would rebound
;*' the fourth quarter. The growth in Federal outlays projected for
in4li quarters had been, reduced, reflecting the various economy measures Included in the .new program and the assumption that the military
i .jy Increase, previously assumed to take effect in early October,
would be deferred until the beginning of 1972.
The projections for other key sectors of activity had been changed
h'-atively little. Thus, it was still anticipated that the rise in residential
v,. fist ruction expenditures would slow as the year progressed but
w 5 *iiid remain sizable, and that State and local government outlays
\v:»iiici expand at a substantial rate. Also, the projections continued to
•-iggest little change in capital outlays -by business in the third and
i- -arth quarters, on the assumption that the proposed investment tax
•. »v,dit would not significantly increase outlays before 1972.
The deficit in the U.S. balance of payments, which had 'been
1
.cremely large In. the first and second quarters, increased sharply
•<*ther after midyear mainly because of an acceleration of capital
^'-tflows in anticipation of shifts in exchange rates. In, the first half of
vigust the deficit reached massive proportions.
Following the mid-August suspension of dollar convertibility, all
• ;•,'.; • European central banks discontinued operations in their foreign
* • •• "ige markets, These markets were reopened on August 23 under
•
u'-. • • > arrangements, including a continuation of floating rates for the
<
\ >.r;'» in mark and the Dutch guilder; suspension of the upper inter•> JV'^II limit for the British pound; and a dual exchange rate system,
v
•.;* /';:.";ting commercial from other transactions, for the French franc,
' :n : iu. day of this meeting rates of exchange between these currencies
..:'.' *f>e dollar were all somewhat above the previous upper Intervention limits, at least for certain types of transactions.
In contrast to the European markets, the Japanese exchange market




169

had remained open throughout the period, and the Bank of Japan
had purchased a large amount of dollars in pre¥entlng the yen from
moving above its upper intervention limit. Japanese exchange controls were tightened further during the period.
In the Treasury's mid-August refunding,. $2.7 billion of tie $4.1
billion of maturing securities held toy the public were exchanged for
the new Issues—$251 .million for the 10-year bonds and the remainder
for tie 51-month notes. Cash subscriptions for the bond by individuals, which were permitted in amounts up to $10,001), totaled $192
million. On August 5, to cover the attrition in the refunding and to
raise additional cash, the Treasury auctioned $2.5 billion of ! 8-imnilh,
Ci'/i per cent notes at an aYerage yield of 6,54 per cent.
In July business credit demands at banks and in the commercial
paper market remained moderate and the volume of new corporate
bond issues declined to the lowest level in 16'.months. The volume of
corporaic bond offerings In prospect for August and September also
was appreciably below tie monthly aYerage in the first half of ttie
year. Bond flotations by State and local governments, while still large,
appeared to be moderating slightly.
Despite the easing of such credit demands, interest rates on most
types of market securities had remained steady or had increased somewhat further In the interval between the July 27 meeting of the Committee and the President's announcement of the new economic program. Among the contributiEg factors were the continuation of rapid
advances in prices and costs, the further firming of money market
conditions that occurred during the period, and the uncertainties
generated by developments in international financial markets.
Following the an.nounce.ment of the new economic program, interest rates on long-term market securities declined sharply? reflecting
the improved prospects for more effective control of inflation and of
the balance of payments problem. For the most part, rate declines:on
short-term securities were much less pronounced. However, Treasury
hill yields—which, In an exception to the general trend, had been
moving down earlier as a result of heavy demands from foreign official
accounts—fell considerably further. For example, on the day before
this meeting the market rate on 3-month bills was 4.75 per ceat, 40
basis points lower than on August 13 and 75 basis points lower than,
on the day before the July 27 meeting.

;o



Contract Interest rates on conventional new-home mortgages and
secondary market yields on federally Insured mortgages rose somewhat further in July. Inflows of savings funds to non-bank thrift institutions were again large.
At commercial banks, inflows of consumer-type time and savings
deposits slowed markedly in July. The volume of large-denomination
CD's outstanding increased substantially further, however, and growth
In total time and sa¥ings deposits remained relatively large, 4ithough
business loans rose considerably, the expansion was only a little
greater than the contraction that had occurred in June and if appeared
to relect Irregular and seasonal, influences rather than a significant
strengthening in underlying demands. Holdings by banks of U.S. Government securities declined sharply, but their holdings of other securities increased substantially.
The narrow measure of the piotw nipply (private demand deposits
plus currency in circulation, or M ) v ^tinned to grow rapidly in July,
at an annual rate only slightly fv*ww the 11.5 per cent pace ot the
second quarter,1 The broader measure of money (Mi plus c^mFKfciai
bank time deposits other than large-denomination CD's, or - * < ? r.todV
erated from the 12.5 per cent second-quarter rate as a resui; »* the
*
marked slowing of inflows of consumer-type time and savings deposits.
Total bank credit, as measured by the adjusted credit proxy—dailya¥erage member bank deposits, adjusted to include funds from nondeposit sources—increased slightly faster than, in the second quarter,
when It had expanded at a rate of 6,5 per cent.
System open market operations in the period immediately following
the July 27 meeting had been directed at maintaining prevailing money
market conditions, against the background of the Treasury financing
then In process. Later, as incoming data Indicated that the monetary
aggregates—in particular My—were continuing to grow at a mful
pace, slightly Inner money market conditions were sought, For t!$;
period as a whole the average Federal fiMds rate was somewhat
higher than SVi per cent, compared with 5V4 per cent in the preview
periods between meetings. Member bank -bor.rowings, which hail

1
Calculated on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.




increased substantially in the preceding period, declined somewhat; in
the 4 weeks ending August 18, borrowings averaged $770 million
compared with $880 million In the preceding 4 weeks.
Staff analysis suggested that the new economic program, along with
other forces—including lagged reactions to earlier increases in sho*"term interest rates—should tend to produce lower rates of growth in
ilu monetary aggregates over the rest of the year. The new program
was expected to reduce transactions demands for money insofar as i(
Jed to a smaller rise in prices and thus to slower growth in currentdollar GNP; and to reduce desired money holdings generally insofar
as it allayed uncertainties about the economic and financial outlook
HI id moderated expectations of continuing inflation and further firming
of money market conditions.
It was noted, however, that because of the difficulties of assessing
the precise Impact of such forces, aey projections of the monetary
aggregates at this time were subject to larger-than-usual margins of
error. According to tentative staff projections, if prevailing money
market conditions were maintained growth la Mi would moderate
somewhat in August and September and would slow substantially
further in the fourth quarter. Growth in M 2j which was projected to
remain near the July pace during the rest of the third quarter,
a ppeared likely to moderate less than Af i in the fourth quarter because
banks were expected to be reasonably successful in competing for
consumer-type time and savings deposits. The rate of growth In the
bunk credit proxy over the latter half of the year was projected to
i emaiii somewhat above that of the second quarter, in part because
prospects favored some strengthening of the demands for bank credit
end, therefore, more aggressive solicitation, of funds by banks through
Stiles of large-denomination CD's.
It was noted In the Committee's discussion that, while the new ec> <
nomic program had profoundly affected the economic atmosphere an!
outlook, the ultimate consequences for business activity and prices—
Di id therefore the implications for monetary policy o¥er the longer
i tin,—could not yet be assessed with assurance. Accordingly, it was
> uggested that any marked change in the stance of policy would be
premature. Some members placed particular stress on the risk that an
overt easing of money market conditions at this time, against the background of the recent rapid growth in 'Mu could rekindle inflationary




- pectations and thus nullify the favorable impact that the announce•
? mt of the new program had had on confidence.
The Committee agreed that open market operations should COE-ue to be directed at achieving growth rates In, the monetary aggre:;:es over the months ahead, well below the rapid rates recorded in
'.-lent months. The following current economic policy directive was
• lied to the Federal Reserve Bank of New York:
The information reviewed at this meeting indicates that real output of goods and services has been expanding moderately, that
unemployment has remained substantial, and that prices and wages
have been rising rapidly on average in recent months. However, the
economic program announced by the President on August 15 enhances prospects for higher rates of growth in real economic activity, increased job opportunities, and curtailed inflationary pressures.
In July inflows of consumer-type time and savings funds slowed
markedly at banks, but inflows to nonbank thrift institutions continued large. Growth in the narrowly defined money stock remained
rapid in July, but growth in broadly defined money slowed and
bank credit, continued to expand at about the second-quarter pace.
Interest rates on most types of market securities declined sharply in
the days following the announcement of the new program. The
deficit in. the U.S. balance of payments reached extraordinarily
large proportions in early August, mainly reflecting an acceleration
of capital outflows related to expectations of shifts In. foreign exchange rates. Following the suspension of convertibility of the dollar
into gold and other reserve assets, major European centra! banks
discontinued foreign exchange market operations for a week. When
most of the European, rn.ark.ets were reopened on August 23 these
central banks pursued diverse exchange rate policies, but all allowed
at least some types of market transactions to take place at rates of
exchange for "their currencies relative to the dollar above previous
upper intervention limits. In light of the foregoing developments, it
is the policy of the Federal Open Market. Committee to foster financial conditions consistent with the aims of the new governmental
program, including sustainable real economic growth and increased
employment, abatement of inflationary pressures, and attainment of
reasonable equilibrium, in the country's balance of payments.
To implement this policy, the Committee seeks to achieve m '
»
moderate growth, in monetary and credit aggregates over the nion.!




1.73

ahead. System open market operations until the next meeting of the
Committee shall be conducted with a view to achieving bank reserve
and money market conditions consistent with that objective.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, Robertson, and Sherrill. Votes
against this action: None.
2. Amendment to continuing authority directive.

At this meeting the Committee amended paragraph l(a) of its continuing authority directive to the Federal Reserve Bank of New York
with respect to domestic open market operations to authorize outright
operations in securities issued by Federal agencies. With this amendment, the first part of the directive read as follows:
1. The Federal Open Market Committee authorizes and directs
the Federal Reserve Bank of New York, to the extent necessary to
carry out the most recent current economic policy directive adopted
at a meeting of the Committee:
(a) To buy or sell U.S. Government securities and securities that
are direct obligations of, or fully guaranteed as to principal and
interest by, any agency of the United States in the open market,
from or to securities dealers and foreign and international accounts
maintained at the Federal Reserve Bank of New York, on a cash,
regular, or deferred delivery basis, for the System Open Market
Account at market prices and, for such Account, to exchange
maturing U.S. Government and Federal agency securities with the
Treasury or the individual agencies or to allow them to mature without replacement; provided that the aggregate amount of U.S. Government and Federal agency securities held in such Account at the
close of business on the day of a meeting of the Committee at which
action is taken with respect to a current economic policy directive
shall not be increased or decreased by more than $2.0 billion during
the period commencing with the opening of business on the day following such meeting and ending with the close of business on the
day of the next such meeting.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, Robertson, and Sherrill. Votes
against this action: None.

174




This action, which was taken under legislation enacted in September 1966, was for the purpose of widening the base of System open
market operations and at the same time adding breadth to the market
for agency securities. In November 1966 the Committee had authorized repurchase agreements in agency Issues, and on a number of subsequent occasions It had considered the desirability of also authorizing
outright transactions. The' decision to do so at this time was taken
against the background of the substantial growth in the market for
agency Issues in recent years, and the consequent reduction of the
risk that System purchases or sales could dominate the market.
The Committee also approved certain Initial guidelines for the conduct of open market operations in agency issues, with the understanding that they would be subject to review and re¥lsion as experiencewas gained. These initial guidelines were as follows:
1. System open market operations in Federal agency Issues are an
integral part of total System, open market operations designed to
influence bank reserves, money market conditions, and monetary
aggregates.
2. System open market operations in Federal agency Issues are
not designed to support individual sectors of the market or to channel funds into issues of particular agencies,
3. As an initial objective, the System would aim at building up a
modest portfolio of agency issues, with the amount and timing
dependent on the ability to make net acquisitions without undue
market effects.
4. System holdings of maturing agency issues will be allowed to
run off at maturity, at least initially,
5. Purchases will te limited to fully taxable Issues for which there
is an active secondary market. Purchases will also be limited to
issues outstanding in amounts of $300 million or over In cases
where the obligations have a maturity of 5 years or less at the time
of purchase, and to issues outstanding in amounts of $200 million
or over in cases where the securities have a maturity of more than
5 years at the time of purchase,
6. System holdings of any one issue at any one time will not
exceed 10 per cent of the amount of the issue outstanding. There
will be no speciic limit on aggregate holdings of the Issues of any
one agency.




7. No new issue will be purchased in the secondary market until
at least 2 weeks after the Issue date,
8. All outright purchases, sales and holdings of agency Issues will
be for the System Open Market Account.
3^ Amendment to authorization f i r System
foreign currency operations.
Tlk; Committee ratified actions taken by members on, August 9 and
)], I1)]], to* increase the System's swap arrangements with the
National Bank of Belgium from $500 million, to | 6 0 0 million anil
with the Swiss National Bank from $600 million to $1 billion, and lu
make corresponding amendments to paragraph 2 of the authorization
for System foreign currency operations. As a result of these actions,
which were effecti¥e August 12, 1971, paragraph 2 of the authorization read as follows:
2, Tie Federal Open Market Committee directs the Federal
Reserve Bank of New York to maintain reciprocal currency arrangements ("swap95 arrangements) for System Open Market Account for
periods up to a maximum of 12 months with the following foreign
banks, which are among those designated by the Board of Governors
of the Federal Reserve System under Section 214.5 of Regulation N,
Relations with Foreign Banks and Bankers, and with the approval
of the Committee to renew such arrangements on matunly;
Amount of

Foreign bank

arrangement
(millions of
dollars equivalent)

Austrian National Bank ........................................
National Bank of Belgium ....................................

200
600

Bank, of Canada .................................................... 1,000

National Bank of Denmark ..................................
Bank of England ....................................................
Bank of France ......................................................
German Federal Bank ..........................................
Bank of Italy
Bank of Japan ........................................................
Bank of Mexico




200
2,000
1,000
1,000
1,250
1,000
130

bank

mnt of
auaugement
(millions of
dollars equivalent)

Netherlands Bank .................................................. 300
Bank of Norway
200
Bank of Sweden. .................................................... 250
Swiss National Bank
1,000
P-nryU.for International Settlements:
illars against Swiss francs .............................. 600
>llars against authorized European
currencies other than, Swiss francs ................ 1,000
Votes for ratification of these actions; Messrs.
Boras, Hayes, Brimmer, Clay, Daane, Kimbrel,
Maisel, Mayo, Mitchell, Morris, Robertson, and
Sherrill. Votes against ratification of these actions:
None.
• • . ctions had been recommended by the Special Manager af.
• - •.:; i > with the Treasury Department. The Special Manager h .
n
,'vised that the swap line increases in question should prove help:
avoiding further immediate drains on U.S. reserve assets.




177

MEETING HELD ON SEPTEMBER 2 1 , 1971
Authority to effect transactions in System Account.

Information reviewed at this meeting suggested that real output of
goods and services was expanding in the third quarter at a pace
significantly slower than the annual rate of 4.8 per cent now estimated
for the second quarter. Growth in real GNP was expected to accelerate in the fourth quarter, owing in part to the Government's new
economic program.
In August industrial production declined further, mainly because
output of steel was curtailed sharply as producers and users worked
down the inventories they had accumulated against the possibility of
a strike. Nonfarm payroll employment was unchanged following 2
months of decline. The unemployment rate rose further to 6.1 per
cent, nearly equaling the high of last spring. Retail sales, which had
declined in July, rose sharply in August, and the average for those
2 months was appreciably above that for the second quarter. Sales of
new automobiles were exceptionally strong in late August and early
September, no doubt in part because of expectations of rebates of
Federal excise taxes. The volume of private housing starts, already
at a very high level in July, edged up in August. Wage rates and
wholesale prices of industrial commodities continued to rise rapidly
prior to the imposition of the wage-price freeze in mid-August.
The business outlook continued to be more uncertain than usual
because various elements of the new economic program remained to
be determined and because only limited information was as yet available on the program's initial effects. Staff projections—which were
still highly tentative—suggested that growth in real output would be
appreciably faster in the fourth quarter of 1971 and the first half
of 1972 than had been expected before announcement of the program, and that the rise in prices would be significantly slower.
For the most part, the projections for the fourth quarter were similar to those prepared 4 weeks earlier, shortly after the President's
mid-August address. The real volume of consumer purchases was
expected to rise substantially, not only because of the proposed elimi-

178




nation of the auto excise tax but ah., L-1 -:use of the general stimulus
that a slower rise in prices and improveu consumer conidence were
expected to provide. It was still anticipated that residential construr
tion expenditures and State and local government outlays woi'.M
expand appreciably further, and that business capital, outlays wovid
change little. Business inventory investment was projected to r.v
moderately in the fourth quarter.
The deicit in the U.S. balance of payments was still large in late
August and early September, although It was well below the extraordifMiily high level of the first half of August. Outlows of speculate-:
. i pital moderated after mid-August, as a result of the policy measui\ •
•
."iopted In this country and the decisions taken, abroad to allow son;'.1
rrpreciation of exchange rates and to raise barriers against capital
•'/.lows. In July the U.S. merchandise trade balance had been 1^
••fbstantial deficit for the fourth successive month.
In foreign exchange markets, the Bank of Japan, permitted the rate
'• r the yen to rise above its former intervention limit on August 28,
,,'id at the time of this meeting the yen was, slightly more than. 6 per
cent above that limit. Most other major currencies were at rates
_u.ainst the dollar a few per cent higher than on August 13, prior to
\'.\z suspension of dollar convertibility. Earlier in September, negotiations had begun on additional measures to reduce payments imbalances and on other improvements in the International monetary
Interest rates on short- and, long-term i--> i<:< * securities generally
had fluctuated irrejmiariv since the Augus ' • • voting of the Committee, after having ;.<!.v«' , vreciably in r» \p -i: , to the mid-August
announcement of th:- *v^ •-. ?*uomic program. Rates on Treasury bills
continued to decile :-: • ;«;Cie after the August meeting, in large
part because of pe^i^M!- v.-.ag demands for bills from foreign central banks. Subsequently, those demands subsided as dollar inflows to
foreign central banks moderated, and on the day before this meeting
the market rate on 3-month bills was about 4.70 per cent, only a few
basis points below its level 4 weeks earlier.
In capital markets the volume of nev. i-.v <vi.1. of corporate and State
and local government bonds changed li;:! ( " .\i July to August. How•
e¥er, the declines In yields following r<T:f!{v:n<:ement of the Government's new economic program,, stimulated additional offerings of




r> ••> •;.» >,• ite bonds, and It appeared that the volume of new issues would

I'1- '-.iii'-stantially higher in September and October.
i-iM:tract interest rates on conventional new-home mortgages
V</;" .>eci slightly further in August, but yields edged down in the
>!<-»re sensitive secondary market for federally insured mortgages,
• • <lows of savings fueds to nonbank thrift iEstitutions moderated
< • < ther from the ¥ery high rates recorded earlier In the year.
kt commercial banks, business loans expanded by an extraordinary
1
; i; lount In August, apparently as a result of borrowings by domestic
M\d foreign corporations la connection with developments In foreign
< change markets during the month. The Treasury sold a large vol*
'.;ue of special securities to certain Ic^-iw! ;\n'-al banks that had
' H > p e r i e n c e d h e a v y i n f l o w s o f d o l l a r s , £ ^ » ! . N' < *> rvernment d e p o s i t s
•
•n. T e a s e d s h a r p l y . T h e r a t e o f i n c r e a \ . .-> ;»:,./ t i m e a n d s a v i n g s
u, posits declined as the volume of large-denomination CD's outsending expanded much less than in July and Inflows of consumer; • yte time and sa¥iegs deposits remaieed near the reduced rate of
* I * nt month.
Relatively low growth rates were recorded in August for both the
narrow and the broader measures of the money stock—Mi (private
demand deposits plus currency in circulation) and M2 (Mi plus comr-^rcial bank time deposits other than large-denomination CD's). \\
f •»./ time of the previous meeting of the Committee it had be%s r

-•\ pected that growth in Mt would slow from, the a¥erage annual xu\
\:i 10 per cent recorded In the first 7 months of the year, in part ui
:: lagged response to earlier increases in short-term, interest rates, m\(l
'iut M 2 would contieue to expand at about the moderate rate tip?
\y\i emerged in July. For both measures, however, actual grem-'N
<'.<'es in August were lower than had been anticipated partly for rea'•• is related to the lows of funds into foreign currencies. Growth In
•he, adjusted bank credit proxy—daily-average member bank deposi - adjusted to include funds from nondeposit sources—was faster
t!. in In July mainly because of the sharp Increase in Government
d' posits.
System open market operations in. the period immediately following
\ « August 24 meeting had been directed at maintaining prevailing
money market conditions, Latex, when data becoming available indicated that the monetary aggregates were growing more slowly than




• d been expected, slightly easier money market conditions were
jglit. Operations were complicated in early September by persistent
••. )ney market pressures partly related to international flows of funds,
. .:!, • > : -.deral funds rate—which had been fluctuating between SVi
'
•'.•>!J ""' . «er cent in the period before the preceding meeting—rose
*~ * * • "~r cent for a time. Subsequently, however, the funds r p ^
.
; u
' - — '--'-vn to around 514 per cent. In the 4 weeks ended Septe.«
:..'; ,.'. *.;ember bank borrowings averaged $675 million, compai •
i"
' million in the preceding 4 weeks.
•'•e previous meeting, staff analysis suggested that the effects
of the new economic program on, demands for money, together with
' -;ged reactions to earlier Increases in short-term, interest rat • •
•'iould tend to produce much lower average rates of growth In t*^
monetary aggregates over the rest of 1971 than, had been record- ^
• .r-'lier in the year. Including rough estimates for September, ,:
s p e a r e d that Mt and M2 would expand over the third quarter at
, nual rates substantially below those of 11.5 and 12.5 per cent
; corded in the second quarter. 1 According to the analysis, if pre• ling money market conditions were maintained growth in M]
•>uld slow further in the fourth quarter.
It was noted in the Committee's discussion that an appropriate
r-;x of fiscal and monetary policies would be required if the Go¥. -iment's new economic program was to be successful. A number
.;. members stressed the difficulties of determining the proper longeri stance of monetary policy at this juncture In light of the existing
^r*certainties about the nature of the fiscal measures that would be
• • • icted, the general outlines of the post-freeze stabilization effort,
. • i the manner in which the economy would respond to the new
;• ngram.
The Committee decided that open market operations in the period
immediately ahead should be directed at achieving moderate growth
in the monetary and credit aggregates, while taking account of de¥elopments in. capital markets. Although It was recognized that the
pursuit of these objectives might involve operations designed to attain
• '• ''• easier money market and reserve conditions, the members
' ^' • •'-, ed on the basis of the daily-average level in the last month of the
quarter relative to that in the last month of the preceding quarter.




agreed that aggressive easing operations should be aYoidecl in order
to minimize the risk of rekindling inflationary expectations. Also, the
sentiment was widespread among members that, in view of the
i in usually rapid growth in M1 through July, relatively low rates of
expansion for a few months would not be inconsistent with the
Committee's general objectives for the monetary aggregates.
The following current economic policy directive was issued to the
Federal R e s e n t Bank of New York:
The information re¥.Ieweci at this meeting suggests that the Government's new economic program lias reduced inflationary expectations and has improved prospects for higher rates of growth in
real economic activity and employment. In the current quarter,
however, real output of goods and services is expanding modestly
and unemployment remains substantial. Prior to the imposition of
the 90-day freeze, prices and wages were rising rapidly on a¥erage.
In August inflows of consumer-type time and savings funds to nonbank thrift institutions moderated and inflows to banks remained
at a reduced rate. Growth in the narrowly defined money stock,
which had been rapid through July, slowed sharply in August; and
growth in, broadly defined money continued to slacken. BfoweYer,
the rate of expansion in the bank credit proxy stepped up, mainly
reflecting a marked rise in U.S. Government deposits, Market
Interest rates, which declined sharply following the announcement
of the new program, ha¥e since fluctuated irregularly. The U.S.
balance of payments continues to be in a position of substantial
basic deficit. Speculative capital outflows have diminished recently.
Most major foreign currencies are trading in the exchange markets
at rates against the dollar a few per cent higher than on August 13.
Negotiations have begun on additional measures to reduce payments
imbalances and on other improvements in the international monetary system. In light of the foregoing cieYelopmeiits, it is the policy
of the Federal Open Market Committee to foster financial conditions consistent with the aims of the new governmental program,
including sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium In the country's balance of payments.
To Implement this policy, the Committee seeks to acMe¥e moderate growth in monetary and credit aggregates, taking account of
developments in. capital markets, System open market operations

182




until the next meeting of the Committee shall be conducted with a
Yiew to achieving bank reserve and money market conditions
consistent with that objective.
Votes for this action.: Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, Robertson, and She trill, Votes
against this action: None.




MEETING HELD ON OCTOBER 19, 1971

Authority to effect transactions in System Account.

Information reviewed at this meeting indicated that the increase in
real output of goods and services in the third quarter was of only
modest proportions, in part because of reductions in steel inventories
after the threat of a steel strike was eliminated by the August 1
agreement on a new labor contract. However, there were indications
of a strengthening in economic activity following the mid-August
announcement of the Government's new economic program. Staff
projections suggested that real GNP would grow considerably faster
in the current quarter and in the first half of 1972 than it had in the
third quarter, and that the rise in prices would be appreciably slower.
In September retail sales expanded further, mainly because of the
sharp rise in purchases of new domestic automobiles that had begun
in mid-August. Retail sales were considerably higher in the third
quarter as a whole than in the second quarter. Industrial production,
after having declined in July and August, increased somewhat in
September, chiefly as a result of partial recovery in output of steel.
Total nonfarm payroll employment rose appreciably, in part because
of widespread gains among manufacturing industries, and the unemployment rate edged down to 6.0 from 6.1 per cent in August despite
a sizable increase in the civilian labor force. Although the number
of private housing starts fell in September, the total for the third
quarter was a record high.
Wholesale prices of industrial commodities declined slightly from
mid-August to mid-September—the first monthly decrease in several
years. The number of increases among classes of industrial commodities dropped sharply, reflecting the 90-day freeze, and prices of motor
vehicles were reduced as the 1971 model-year came to an end. The
rise in wage rates apparently also slowed significantly following imposition of the freeze. The general framework of the post-freeze stabilization program, including provision for a Price Commission and a
Pay Board, was described in an address by the President on October 7
and in subsequent statements by administration officials.

184




The latest su/l isi actions for the fourth quarter contemplated a
larger increase *» • t O^raJ expenditures than, those prepared 4 weeks
• "
• .»rlier, mainly bcuiu^e It was now assumed that the military pay
.vise associated with the development of a volunteer armed force
* 'Uild be effective in mid-November rather than on January 1, Expan'
ds-;n in residential construction outlays was expected to be substantial,
.<!• hough well below the unexpectedly large gain in the third quarter,
I T other sectors, projections were about the same as 4 weeks earlier.
Fhus, it was anticipated that the real volume of consumer spending
-vuld increase appreciably; that State and local government expend!'•M'es would continue to expand at a substantial rate; that business
. :pital outlays would change little; and that inventory investment
•\'»uld rise.

The expectation, that real GNP would continue to grow in the
• - st half of 1972 at about the rapid rate anticipated for the fourth
*
»,carter was based in part on the assumption that tax measures along
<!f*; lines of those recently approved by the House of Representatives
'•vould be enacted into law, It was expected that consumer expenditures would rise substantially further as a result of advances in di;\»sable Income that reflected cuts in personal Income taxes as w-.:i
-i1- increases in employment; and it appeared likely that a renew*, i
- ' pansion In business outlays for plant and equipment would be stim.
ulated by the upswing In production., along with the investment tax
ufedit. Also, business inventory Investment was projected to Increase
o >asiderably in response to the rise In final sales and the need for the
•'a;toindustry to replenish depleted stocks.
U.S. imports again exceeded exports by a substantial margin in
August, and In July and August together the trade deficit remained
>> about the second-quarter rate. Contributing to the July-August
°i
'.irficit was an acceleration in imports in anticipation of the East
'.oast port strike, which began on October 1. Outflows of short-term
• apital in September were much smaller than the massive outflows
«n August.
In foreign exchange markets, rates for most major currencies h;t<«
\ f"en further against the dollar in recent weeks. Some foreign cent.;^
.mnks acquired substantial amounts of dollars in September and eaiiy
October in the process of limiting appreciation of their currencies.
Interest rates on market securities had declined In recent weeks to




185

k*vds somewhat below tho>»e io which ificy had tftopped immediately
after announcement of tie new economic program In mid-August,
Among the factors contributing to the declines were the developments
with respect to the post-freeze stabilization program and growing
expectations of a more stimulative monetary policy in the light of
recent slackening in the expansion of the monetary aggregates and
moderate easing of money market conditions. Although the Yolume of
now issues of corporate bonds rose substantially from August to September and that of State and local government issues also increased,
it appeared that total offerings In those sectors would decline somewhat in October and November.
The market for Treasury bills was influenced not only by the easing
of money market conditions but also by t i e continuing demands for
Mils on the part of foreign central banks. On the day before this
meeting the market rate on 3-month bills was 4.45 per cent, about
25 basis points lower than 4 weeks earlier and 70 basis points kwer
than on August 13.
The Treasury was expected to announce on October 27 the terms
on which it would refund securities maturing on November ! 5, including about $3,H billion, held by the public. Market participants expected
the Treasurv to pre-refund some issues and to offer some longer-term
Issues, making further use of the limited authority to sell bonds with
a yield above 4!4 per cent.
Contract interest rates on conventional new~tiome mortgages, which
had risen over the preceding 4 months, were unchanged In Septemher. Yields in the more sensitive seconders market for federally
insured mortgages edged down for the second eonsecutive month.
Inflows of savings to nonbaak thrift institutions Increased In September, but for tie third quarter as a whole they were well below the
extraordinary rates in the first two quarters of the year.
At commercial banks, business loans rose moderately In September
following the very large Increase that l a d occurred in August in connection with developments in foreign exchange markets. Other categories of loans—especially real estate, consumer, and security loans—
expanded appreciably. Banks acquired sizable amounts of short-term
municipal securities but reduced their holdings of U.S. Government
obligations for the third consecutive month.
The narrowly deieed money stock (private demand deposits plus

186




ciifftiK'V

m

virciilaiiuii,

<ir Mi1:

chv'-n^i

si' S :j«i,/i.'i!v

f

;'Lv

kivjit!

increased at a sharply reduced rate In August. Inflows of consumerK'()c lime and savings deposits remained relatively small, and tie
broadly defined money stock (M:1 plus commercial bank time deposits
of ha* I ban large-denomination CD's, or M 2 ) increased only slightly,
Owf the third quarter Mi and M2 grew at annual rates of about 3
vtitd 4,5 per cent, respectively, compared with rates of 11.5 and 12.5
fvi cent In the second quarter. 1
Against the background of strong over-all demands for loans, banks
raised offering rates on large-denomination CD's early In September,
antf i lie volume of such certificates outstanding rose considerably
iliirli}? the month. Consequently, expansion in. the bank credit proxy
—daily-average member bank deposits, adjusted to include funds
^oiii nondeposit sources—remained relatively rapid in September.
Over the third quarter the proxy series rose at a rate of 9 per cent
'•'Mnpared with 6.5 per cent in. the second quarter. Late In September
«/. nne banks reduced offering rates on. CD's.
System opee market operations In the period since the September
2 I meeting of the Committee had been directed at encouraging some
what easier conditions in the money market, in light of the continuing
cadency of the monetary aggregates to fail short of the expected
l"itlis. The Federal funds rate, which had been fluctuating around
:•' 2 per cent at the time of the September meeting, edged down to
-<found 5!4 per cent, la the 4 weeks ending October 13 member bank
borrowings aYeraged about $380 million, compared with $675 milhoti In the preceding 4 weeks. In the latter part of September the
S):>tem purchased about $96 million of Federal agency securities,
fhese were the first operations conducted pursuant to the Committee's action of August 24, 1971, authorizing outright operations in
agency Issues.
Staff analysis suggested that if prevailing money market conditions
were maintained, growth in both Mt and M2 would remain relatively
slow In October and November but would quicken o¥er the course
of the following se¥eral months. It was noted that the precise timing
«<?' ?!v step-up in moneian. i^owth rates was particularly difficult to
1

t .tSculated on. the basis of tee daily-average level in the last month of the
ivrcr relative to that In the last month of the preceding quarter.




anticipate because of the many prevailing uncertain!;*' I ?<wv\er, the
analysis suggested that o¥er the fourth quarter Mi and M 2 might
expand at rates dose to those recorded in the third, and that Mi
might increase more rapidly in the first quarter of 1972. Growth n
the bank credit proxy was expected to slow in the fourth quarter :r>
a result of a reduction m U.S. Government deposits from their recent
unusually high level"
It was noted in the Committee's discussion that the 90-day freeze
on prices and wages had been effective thus far and that the announcement concerning the framework of the post-freeze stabilization program seemed to have been generally well received. However, tik.
details of the program remained to be filled in, and there appear* x*J
to be widespread uncertainty about how the program would operate
and how effective It might pro¥e to be. As to economic acti¥ity? the
('ommittee agreed that a strengthening was under way but some members voiced doubt that real GNP was rising as much in the current
quarter as the staff projections suggested.
Against this background the Committee decided that open market
operations in the period until the next meeting should be directed at
achieving moderate growth in monetary and credit aggregates ewer
the months ahead, taking account of the forthcoming Treasury financing. The members agreed that, while some easing of money market
conditions in the coining period might be indicated by unfolding
developments with respect to the aggregates, a marked easing designed
u» stimulate faster growth in the near term, would not be warranted,
particularly in light of the very high rates of monetary expansion
earlier in the year. The members also agreed that a continued downdrift in market interest rates would be constructive, but that aggressive efforts to stimulate rate declines would risk both a resurgence of
iuilationary expectations and the development of conditions that could
eliminate in rising rates.
The following current economic policy directive was issued to the
Federal Reserve Bank of New York;

The information reviewed at this meeting Indicates that real output
of goods and services expanded modestly in. the third quarter and
that unemployment remained substantial. Howe¥er, there are indica-




announcement of the Government's new economic program. The
90-day freeze has thus far effectively limited increases in prices and
wages, and the general framework of the post-freeze stabilization
program has been established. The narrowly defined money stock,
which had grown rapidly through July, Increased much less in August
and declined in,. September. The broadly defined money stock
increased slightly In September as inflows of consumer-type time
and savings deposits to banks continued at the moderate August
• •'.-. However, the volume of large-denomination CD's outstanding
--- c sharply, and the rate of expansion In the bank credit proxy
1
•'.!'«ained relatively rapid. Market Interest rates have declined in
::-\nt weeks and are appreciably below their mid-August levels. The
' • *:, foreign trade balance remained in heavy deficit in August. Out'"• -/s of short-term, capital, which had been massive in August, were
much smaller in September. In recent, weeks the market exchange
rates for some foreign, currencies against the dollar rose further,
while foreign official reserve holdings Increased substantially. In light
of the foregoing developments, It is the policy of the Federal Open
Market Com.mltt.ee to fosterfio.anci.alconditions consistent with the
aims of the new governmental program., including sustainable real
economic growth and. increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the coun,
; , " 'iance of payments.
i" ••itpJenteet this policy, the Committee seeks to achieve moder, . / • .''th in monetary and credit aggregates over the months ahead.
-.'..i'.jj open, market operations until the next meeting of the ComAiuilCw 5iiall be conducted with a view to achieving bank .reserve and
money market conditions consistent with that objective, taking
account of the forthcoming Treasury .fin.and.ng.
Votes for this action; Messrs. Burns, Hayes,
Brimmer, Clay, Kimbrel, Maisel, Mayo, Mitchell,
Morris, Robertson, a - f .* n';( • •"" Votes against this
action,: None,
Absent and not YQLM




*.t;. < • , me.

MEETING HELD ON NOVEMBER 16, 1971
Authority to effect transactions in System Account.

Preliminary estimates of the Commerce Department indicated that
expansion in real output of goods and services had slowed to an
annual rate of about 3 per cent in the third quarter, in part because
producers and users of steel were working down inventories accumulated earlier against the threat of a steel strike. Growth in real output
appeared to be accelerating in the fourth quarter, and staff projections
suggested that a faster pace of expansion would be sustained in the
first half of 1972.
In October industrial production increased slightly as widespread
gains among industries were offset in large part by a strike-induced
curtailment in coal. Because of the coal and dock strikes, employment
fell in the mining and transportation sectors, and total nonfarm payroll employment changed little following a sizable gain in September.
The unemployment rate declined to 5.8 from 6.0 per cent, in part
because expansion in the civilian labor force slowed considerably.
According to early estimates, retail sales increased slightly further
in October to a level appreciably higher than the monthly average for
the third quarter. The volume of private housing starts, which had
fallen in September from a record high level, rose somewhat in
October.
Price developments from mid-September to mid-October—the
middle period of the 90-day freeze—continued to be characterized
by a sharply reduced number of increases, and the wholesale index
for industrial commodities was stable following a slight decline in
September. The rise in average wage rates slowed sharply in September and October. In early November the Price Commission and the
Pay Board announced the basic policies and initial regulations for the
post-freeze phase of the stabilization program.
The latest staff projections for the fourth quarter of 1971 and the
first half of 1972 were similar to those of 4 weeks earlier, although
the rate of expansion in real GNP now anticipated was not quite so
large as before. In the current quarter growth appeared to be accelerating mainly because of faster expansion in the real volume of consumer spending and an increase in inventory investment from the

190




rate of the third quarter. Federal outlays were expected to
'"'• e in part because of the military pay increase that became effective
i;>5
mid-November.
For the first half of 1972, the projections continued to suggcs;
substantial further growth in consumer spending—in response to gair^
a, disposable income arising from tax reductions and increases i?1
Mfdai security benefits as well as from expansion in output a^u
•.',itployment—and further increases in inventory investment. It m,t>.
anticipated also that business capital outlays would pick up, tl.v,»
Suite and local government expenditures would continue to expa^.l
*;tpidly, and that residential construction would advance moderately
nt rtfier.
The flow of merchandise through East Coast and Gulf ports was
accelerated in September In anticipation of the dock strike that began
m October? but the acceleration in exports far exceeded that in
imports and the trade balance shifted into surplus. For the third
quarter as a whole imports exceeded, exports, although by less than
Hio large margin in the second quarter.
In late October and early November trading generally was thin in
H
!< reign exchange markets, and on occasion rates moved sharply as
i riders attempted to assess the progress in negotiations on new
v \change rate relationships. The outflow of short-term capital de,:i'i.ed further, and the rise in reserves of foreign central banks slowed,
'•rarkediy. On a weighted average basis, rates for major foreign curi v ncies changed little against the dollar.
On October 27 the Treasury announced that In its mid-November
hnancing It would offer two new securities—a 7-year, 6 per cent note
priced to yield 6,04 per cent and a 15-year, 6Vs per cent bond priced
*> yield 6,15 per cent—In exchange for notes and bonds maturing
»
m November 1971 and in May and August 1972. This coraMiiatiGE
of a refunding and a pre-refunding was well recei¥ed. Of the nearly
%
l2 billion of eligible Issues held by the public, $5.8 billion were
* \changed for the new issues, and only $1.3 billion,.—34 per cent—
i>( the Issues maturing in November were redeemed for cash even
* hough the offering did not include a short-term issue. To cover the
redemptions and to raise additional cash, on November 9 the
11 easury auctioned $2% billion of a 4% per cent, 15-month note at
an. average yield of 4,91 per cent.




Interest rates on market securities generally had continued to
decline following the October 19 meeting of the Committee, The
course of rates was influenced by a gradual easing in money market
conditions during the period and by market expectations of further
easing. Downward pressure on short-term rates was intensified by
the relatively small market supply of Treasury bills, which resulted
in part from purchases of short-term Treasury securities by foreign
central banks. On the day before this meeting the market .rate on
3-month Treasury bills was about 4,15 per cent, 30 basis points below
Its level 4 weeks earlier. Federal Reserve discount rates were reduced
!4 of a percentage point, to 4% per cent, at se?en Reserve Banks
on November 11 and at four additional Banks in the period through
the date of this meeting.
In capital markets, the estimated 'volume of new corporate and
State and local government bonds issued in October was smaller than
in September, However, declining yields apparently stimulated offerings, and the volume of new Issues expected during the rest of the
year remained relatively large.
Contract interest rates on,, conventional new-home mortgages edged
lower in,. October, marking the first decrease since last spring. Yields
in. the more sensitive secondary market for federally insured mortgages, which had, turned down in August, continued to decline.
Inilows of sa¥ings funds to nonbank thrift institutions slowed somewhat in October but were close to the average rate of the third
quarter.
At commercial baeks, business loans outstanding rose relatively
little during October. Major banks reduced their prime lending rates
from 6 to 5% per cent late In the month and then to SYi per cent
in early November, and some banks announced that they were adopting a "floating" prime rate, Real estate and consumer loans continued
to expand rapidly in October, and banks again reduced their holdings of U.S. Government securities and Increased their holdings of
other securities.
According to preliminary estimates, the narrowly defined money
stock (private demand deposits plus currency in circulation, or Mi)
declined further in October. The broader measure of money (Mi plus
commercial bank time deposits other than large-denomination CD's,
or M-2) increased as a result of a marked expansion of inflows of

192




• >nsumer-type time and savings deposits, but the rise In JM2 was somewhat smaller than had been expected. Growth in the bank credit
i^roxy—daily-average member bank deposits, adjusted to include
fluids from nondeposit sources—slowed substantially, as U.S. GoverniiMnt deposits declined and. the volume o r kuTr-denomination CD's
outstanding increased less than, in September Offering rates on such
</Q's had been reduced late in September MK! Hicy were cut further
during October.
System open market operations in the period since the October 19 meeting of the Committee had been directed at achieving
a gradual easing of money market conditions in light of the continuing tendency of the monetary aggregates to fall below expected paths.
The Federal funds rate declined from about 5!4 per cent shortly
before the preceding meeting to about 4% per cent. In the 4 weeks
ending November 10 member bank borrowings averaged, about $27U
million, compared with about $380 million in the preceding 4 weeks.
Staff analysis suggested that the effects of two factors that had
been tending in. recent months to hold down demands for m o n e y moderation of inflationary expectations as a result of the new economic program, and. lagged reactions to the high short-term interest
i;»res of late spring and early summer—probably had about run their
'-•nurse. According to the analysis, if money market conditions were
Mmilar to those prevailing or slightly easier, M3 would begin to grow
ntvain in December and would expand faster over the first quarter—
.'it a pace more nearly in line than recently with growing transactions
• irtnands. For M2, prospects favored a fourth-quarter rate of growth
somewhat above the 4.5 per cent annual, rate recorded in the third
quarter. 1 Only a small further step-up in growth of M2 was anticipated in. early 1972, however, because inflows of consumer-type
if rue and. savings deposits were expected to slow as consumer spendnh; expanded, As to the bank credit proxy, it appeared likely that the
r^e over the fourth quarter would be held to modest proportions by
;t decline In U.S. Government deposits from their high September
Wei.
In the Committee's discussion, it was noted that business and
' i Hculated OE the basis of the daily-average level in the last month of the
\.>i ?<T relative to that of the preceding quarter.




consumer confidence was being adversely affected by widespread
uncertainties connected with the transition from the 90-day freeze
to the post-freeze stabilization program and with the unsettled international monetary situation. The view was expressed that It would
be particularly unfortunate In this climate for the recent weak performance of the monetary aggregates to persist for long? since 'the
lack of significant growth In the aggregates could become an Important independent source of uncertainty. At the same time, some
members cautioned against unduly aggressive action to stimulate
monetary expansion.
The Committee decided that open market operations in the coming period should be directed at promoting somewhat greater
growth in monetary and credit aggregates ewer the months ahead?
recognizing that pursuit of that objective might require appreciably
easier money market conditions. The following current economic
policy directive was issued to the Federal Reserve Bank of New
York:
The information. reYlewed at this meeting indicates that real
output of goods and services expanded modestly In the third quarter,
but greater growth appears In prospect for the current quarter.
Although the unemployment rate has declined recently, it remains
high. Available data indicate that the 90-day freeze effectively
limited increases in prices and wages, and basic policies for the
post-freeze stabilization program have been announced. The narrowly defined money stock declined further in October, but inflows
of consumer-type time and savings deposits to banks expanded
considerably and the broadly defined money stock increased moderately. Expansion In the bank credit proxy slowed substantially as
the volume of large-denomination CD's outstanding rose less than
in September and as U.S. Government deposits were reduced. Interest rates on both short- and long-term market securities have continued to decline in recent weeks and Federal Reserve discount rates
were reduced by one-quarter of a percentage point to 4% per cent.
The IXS. foreign trade balance was raised in September by -a sharp
acceleration of export shipments in adYance of an East Coast port
strike. In recent weeks net outflows of short-term capital apparently
have diminished further, market exchange rates for foreign currencies against the dollar on average have not changed much, and
foreign official reserve holdings have increased less than they did

194




in September. In light of the foregoing de¥elopments, it is the policy
of the Federal Open Market Committee to foster financial conditions consistent with the aims of the new governmental program,
including sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments.
To implement this policy, the Committee seeks to promote somewhat greater growth in monetary and credit aggregates o¥er the
months ahead. System open market operations until the next meeting of the Committee shall be conducted with a Yiew to achieving bank reserve and money market conditions consistent with
that objective.
Votes for this action.; Messrs. Burns, Hayes,
Brimmer, Clay, Daane, Kimbrel, Maisel, Mayo,
Mitchell, Morris, and Robertson. Votes against
this action: None.




MEETING HELD ON DECEMBER 14, 1971
1. Authority to effect transactions in System Account.

The latest estimates of the Commerce Department indicated that
real output of goods and services had risen at an annual rate of
about 4 percent in the third quarter of 1971 despite the sharp cut
in inventory investment associated with elimination of the steel
strike threat on August 1. It appeared that real GNP was increasing
at a more rapid rate in the fourth quarter—mainly because of an
upturn in inventory investment and a greater gain in the real volume
of consumer spending—and that prices were rising at a relatively
slow pace from the third to the fourth quarter. Staff projections
suggested that the faster rate of growth in real GNP would be sustained in the first half of 1972.
In November industrial production rose substantially further,
reflecting gains in output for both finished goods and materials in
addition to expansion in coal mining after the strike settlement in
midmonth. Nonfarm payroll employment advanced moderately,
but the unemployment rate rose from 5.8 to 6.0 per cent as growth
in the civilian labor force picked up again after having slowed in
October. Contrary to earlier indications, it now appeared that total
retail sales had declined in October, but early estimates for November suggested an upturn despite some slackening in sales of new
automobiles.
Industrial commodity prices and average hourly earnings in manufacturing changed little from October to November. During the period of the 90-day freeze—mid-August to mid-November—the rate
of increase in prices and wages was sharply lower than earlier in the
year. In late November and early December, after the freeze ended,
the Price Commission received requests for increases from many of
the companies required to obtain prior approval. Some requests were
granted in full and some in part, and others were held in abeyance
pending receipt of additional information. Thus far the Pay Board
had announced only a few decisions under the post-freeze guidelines.
The latest staff projections for the first half of 1972 were generally
similar to those of 4 weeks earlier, although—in line with recent
surveys of business spending intentions—the projected rise in busi-

196




1

f
ss capital outlays had been revised upward somewt- . •• ' • > -re,
'
' was anticipated that the rate of expansion in consumer speeding
v >uld remain substantial, reflecting reductions in,, taxes and assumed
\ :reases in social security benefits as well as gains in wage and salary
,-. yments; that State and local government expenditures would con• ue to grow rapidly; that residential construction would advance
:- )derately; and that business inventory investment would increase
1
-.rther.
The flow of U.S. merchandise trade declined sharply in October,
''•:er having accelerated in September in anticipation of the strike
•• East Coast and Gulf ports that began, on October 1. The decline—
i i«e the earlier rise—was greater for exports than for imports. Moreover, exports in October were adversely affected, by the coal strike,
and they benefited less than imports from, the resumption of work at
West Coast ports, Consequently, the trade surplus that had emerged
in September was succeeded in. October by a deficit of record proportions.
In foreign exchange markets attitudes had been influenced in, recent weeks by the introduction of legislation that would give the
' 'esident authority to change the dollar price of gold and by reports
• ; progress in international negotiations at the Rome meeting of the
••"oup of Ten,. These developments were interpreted as enhancing
r-ospects for a near-term realignment of exchange rates in which
.."ost major currencies would appreciate further against the dollar.
•Ss a consequence, outflows of short-term capital from the United
Sites were substantial in late November and early December. Offi•ril reserves of some countries increased, considerably and market
change rates for most major currencies appreciated against the
••'liar. Another meeting of the Group of Ten was scheduled to begin
in Washington on December 17.
In domestic financial markets, interest rates on lo.ng-te.rm bonds
;*'d on. Treasury bills rose in late November, but they turned down.
i 'ain in early December and by midmonth they were close to or
••.low the levels of 4 weeks earlier. In capital markets dealers'
"• /entories of U.S. Government securities increased sharply following the Treasury's mid-November financing—which included a prerefunding of Issues maturing in May and August 1972—and. the
volume of new offerings of corporate and State and local gove.miii.ent




bonds rose moderately from. October to MoYember. These developments contributed to the upward pressures on bond yields in late
November, but thereafter markets were strengthened by reports of
progress at the Group of Ten meeting in Rome and by Federal
Reserve purchases of Treasury coupon Issues for System account
and for foreign official accounts.
The rise in Treasury bill rates In late No¥ember was related in
part to a large issue of tax-anticipation bills, and the subsequent
decline to a sharp expansion In demands for bills by the foreign
central banks experiencing gains in reserves. The market rate oil
3-month bills was about 3.95 per cent on the day before this meeting
of the Committee, compared with 4.15 per cent 4 weeks earlier.
Federal Reserve discount rates, which had beem reduced VA of a percentage point in mid-November, were lowered by an additional 14 of
a point, to Wi per cent, at four Reserve Banks effecti¥e December 13.
Yields in the secondary market for federally insured mortgages
apparently declined further in November. According to preliminary
estimates, inflows of sa¥ings to nonbank thrift institutions continued
to slow.
At commercial banks, business loans declined somewhat in November, and total loans advanced relatively little even though real
estate and consumer loans continued to expand rapidly. Banks increased their holdings of securities.
The narrowly defined money stock, (private demand deposits plus
currency in circulation, or Mi) changed little from October to
November and had not grown on balance since August. The broader
measure of money (M f plus commercial bank time deposits other
than large-denomination CD's, or M 2 ) continued to expand at a
moderate rate, howe¥er, as inflows of consumer-type time and saYings
deposits remained rapid. Growth in the adjusted bank credit proxy
—daily-a?erage member bank deposits, adjusted to include funds
from nondeposit sources—rose sharply, reiecting expansion in U.S.
Government deposits and in nondeposit liabilities. Owing in part
to the weakness in business loan demands, banks had reduced
offering .rates on large-denomination CD'sJn September and October,
and the aYerage volume of such CD's outstanding declined in
November.
System open market operatloEs in the period sin.ee the last meeting

198




of the Committee had been directed at achieving a further gradual
relaxation of money market conditions, with cognizance being taken
of the behavior of the monetary aggregates, particularly the continuing lack of growth in M 5 . Operations were complicated In. late
November by an unanticipated shortfall in nonborrowed reserves,
and the Federal funds rate and member bank borrowings increased
temporarily. At the time of this meeting the funds rate was about
4 V8 per cent, down from the level of about 4% per cent prevailing
shortly before the preceding meeting. In the 4 weeks ending December 8, borrowings averaged about $395 million, compared with
•ibout $270 million in the preceding 4 weeks.
Staff analysis suggested that an, easing of money market conditions
during coming weeks probably would be required if Mi were to
vNpand at moderate rates in. December and January, and that such
inning would be associated with some step-up in the rate of growth
In M 2 . It was noted, however, that the outlook for the monetary
aggregates was particularly uncertain at this time because of factors
rJated to possible International flows of funds. It appeared likely
'but an agreement on new exchange rates in the current negotiations
would stimulate reflows of funds from abroad, which in tern could
hitve substantial—if perhaps temporary—effects on the monetary
aggregates. However, the size and timing of any such reflows could
not be foreseen with assurance. In addition, there was considerable
uncertainty about the extent to which recent amendments to regulations of the Office of Foreign Direct Investment would delay the
usual year-end corporate repatriation, of liquid funds.
In the Committee's discussion a number of members expressed
the view that more aggressive actions to stimulate monetary growth
were needed,, at this time in the interest of fostering the desired
expansion of economic activity and employment. In their judgment
ihc risk of rekindling inflationary pressures and expectations by such
scions was considerably less now than it had been earlier in the year.
Considerable concern was expressed about the persistent weakness
of key monetary aggregates despite the progressive easing of money
market conditions in recent months. Reference was made in this connection not only to the absence of net growth in Mi since August
Nit also to the low average rate of increase in total member bank
reserves during that period.




Other members, while agreeing that it would be desirable to promote adequate growth in the aggregates over coming months, ad¥ocated more cautious and gradual measures. They noted that the rate
of increase in M\ had been very high in the first 7 months of the
year, and they expressed concern, about unduly aggressive action to
case money market conditions at this time in part because of the
risk that such action might generate excessive rates of monetary
growth in. the near future. They also suggested that substantial weight
should be given to the behavior of other key aggregates, noting in this
connection that M2 and the bank credit proxy had been expanding
more rapidly than Mi in recent months.
At the conclusion of the discussion the Committee agreed that
open market operations should be directed at promoting the degree
of ease in, bank reserve and money market conditions essential to
greater growth in monetary aggregates over the months ahead. The
following current economic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real output of goods and services is Increasing more rapidly in the current
quarter than it had in the third quarter, but the unemployment rate
remains high. Increases in. prices and wages were effeetlYely limited
by the 90-day freeze, which ended in mid-November. Since then
some wage and price increases have occurred, but other increases
requested have been cut back or not approved by the Pay Board
and the Price Commission. The narrowly defined money stock
changed little in November and has not grown on balance since
August, Inflows of consumer-type time and savings deposits to banks
remained rapid in November and the broadly defined money stock
continued to In.crea.se moderately. Expansion in the bank credit
proxy stepped up as U.S. Government deposits and nondeposit liabilities increased on average. After advancing In the latter part of
November, most market io.te.rest rates have been, declining recently,
and discount rates at four Federal Reserve Banks were reduced by
an. additional one-quarter of a percentage point. The U.S. foreign
trade balance was heavily In deficit in October. In .recent weeks net
outflows of short-term capital apparently have been substantial, market exchange rates for foreign, currencies against the dollar on average have risen further, and official reserve holdings of some
countries have Increased considerably. In light of the foregoing

200




developments, it is the policy of tli'e Fed -mi Open Market Committee to foster financial conditions consistent with the aims of the
new governmental program, including sustainable real economic
growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's
balance of payments.
To implement this policy, the Committee seeks to promote the
degree of ease in bank reserve and money market conditions essential, to greater growth In monetary aggregates over the months ahead.
Votes for this action.: Messrs. Burns, Hayes,
Brimmer, Clay, Daaoe, Kimbrel, Maisel, Mayo,
Mitchell, Morris, and Robertson, Votes against
this action.: None.
Subsequent to this meeting, on December 20? ! V / 1 . Committee
iilumbers voted unanimously to amend this current economic -policy
directive by adding the clause "while taking account of international
developments" at the end of the final sentence. As amended, that
sentence read as follows:
To implement this policy, the Committee seeks to promote the
degree of ease in bank reserve and money market conditions essential to greater growth in monetary aggregates over the months
ahead, while taking account of international developments.
This action was taken, following the announcement that agreement regarding exchange rates and related matters had been reached
\n\ December 18 at the Group Ten meeting in Washington. The
Manager had advised that, if the agreement was followed by substantial reflows of funds to the United States, considerable flexibility
in open market operations might be required to cope with the resulting churning in, domestic financial markets. The members decided
that the directive should be amended to affirm the Committee's intention to authorize the operations that might be needed.

2, Action with respect to continuing authority directiwe.
On December 23, 1971, a majority of Committee members voted
to suspend, until dose of business on. the day of the next meeting of
flic Committee, the lower limit (set forth in paragraph l ( c ) of the
continuing authority directive with respect to domestic open market




%

i 1;

operations) on Interest rates on repurchase agreements arranged by
the Federal Reser¥e Bank of New York with nonbank dealers.
The suspended pro¥ision specified that such repurchase agreements were to be made "at rates not less than (1) the discount
rate of tie Federal Reser¥e Bank of New York at the time such
agreement Is entered into, or (2) the average issuing rate on the
most recent Issue of 3-month Treasury bills, whichever is the lower."
This action was taken after the Manager had ad¥lsed that occasions might arise in the next few weeks when it would be desirable
to make fairly extensive use of repurchase agreements in. order
to supply reserves on a flexible temporary basis, in anticipation of
possible large-scale sales of U.S. Treasury bills by foreign central
banks; and that in light of prevailing costs of funds to dealers it
was doubtful that the New York Reserve Bank would be able to
arrange repurchase agreements in any significant volume under
existing rate limitations. It was understood that the authority
to make repurchase agreements at rates lower than those authorized
previously would be used sparingly, and only as deemed necessary
to accomplish Committee objecti¥es; and that rates below 3 %
per cent would not be employed without prior notification to the
Committee.
Votes for this action: Messrs, Brimmer, Clay,
Daane, Kimbrel, Maisel, Mayo, Mitchell, Morris,
and Treiber. Vote against this action: Mr.
Robertson.
UnaYallabie and not voting: Messrs. Burns and
Hayes. (Mr. Treiber voted as alternate for Mr,
Hayes.)
Mr. Robertson dissented from this action because he believed
that the desired Injection of funds Into the market by the Federal
Reserve should be through the outright purchase of U.S. Government securities rather than through repurchase transactions which, In
his judgment, actually constituted low-rate loans to securities dealers.
He indicated that he was reluctant to increase the profits of dealers
by providing them with low-cost Federal Kese.f¥e funds merely to
avoid temporarily raising the price (lowering the yield) of Treasury
securities by purchasing them outright,

202




Federal Reserve Operations
in Foreign Currencies
In 1971 the Federal Reserve System made extensive use of the
reciprocal swap network with central banks to supplement the use
of official reserve assets in financing the very large U.S. balance of
payments deficit. System drawings of foreign currencies totaled
$3,565 million between January 1 and August 13; after that further
drawings were suspended as part of the President's package of economic measures, which included the suspension of convertibility of
the dollar into reserve assets. There were no drawings on the Federal
Reserve by our foreign central bank swap partners in 1971, except
for minor amounts drawn overnight by the Bank for International
Settlements (BIS) for technical reasons.
At the beginning of the year the System had $810 million in swap
indebtedness outstanding to the central banks of Switzerland, the
Netherlands, and Belgium. Further reserve gains by these countries
early in the year—the result of interest-induced capital flows and,
later, speculative flows associated with inflows into German marks—
necessitated further drawings on these swap lines. Despite the repayment of some drawings through the use of U.S. reserve assets, the
System still had $590 million in outstanding drawings on the Belgian
and Swiss central banks at the end of the second quarter. In addition,
the Federal Reserve had $60 million in swap debt to the German
Federal Bank as the result of drawings made to cover System sales
of forward marks in the New York market in April in its cooperative
effort with the German Federal Bank to reduce flows of private funds
into Germany.
In July and early August, as the dollar came under widespread
speculative attack, reserve gains by several central banks resulted in
requests by them for swap drawings by the System of an additional
$2,395 million in Swiss francs, Belgian francs, and sterling. On
August 13 System drawings outstanding totaled $3,045 million.
As drawings matured after August 13, they were renewed for
additional 2- to 3-month periods by mutual agreement. During the
period of more or less floating exchange rates—from August 13 to




203

December 18—the System purchased Belgian francs in the New York
market from time to time at the request of the Belgian National Bank
and repaid some $145 million equivalent of Belgian franc swap drawlegs. The System used existing German mark balao,ces to repay $10
million equivalent of mark drawings in November; and in December,
subsequent to the establishment of new central values and margins of
variation for foreign currencies, the System—with the consent of the
Bank of England—purchased sterling la the market at the new lower
limit for that currency and repaid $35 million of sterling swap drawings, Total System, swap drawings outstanding at the year-end were
ihus reduced to $2,855 million, valued at the exchange rates at the
litues the drawings were initiated. Owing to the Increased dollar
pjices of currencies drawn—Swiss francs, Belgian francs, German
fiMfks, and sterling—the System's loss upon liquidation of these
drawings Is presently estimated at less than $200 million.
•

204




Voluntary Foreign Credit
Restraint Program
On January 7, 1971, the Board issued guidelines to modify and
continue the Voluntary Foreign Credit Restraint (VFCR) program.
Under this program, inaugurated in early 1965 as part of the Government's over-all effort to protect the balance of payments by
limiting capital outflows, the Board requests banks and nonbank
financial institutions to limit both their lending to foreigners and
their other investments in foreign countries other than Canada. The
January revision made only minor changes in the level or the form
of restraint; however, a further revision of the guidelines on November 11 did alter significantly the degree of program restraint.
The January revision did not make any changes in the over-all
level of guideline ceilings. But for banks it did entail some liberalization by specifically excluding from restraint bonds and other direct
obligations issued by the International Bank for Reconstruction and
Development (IBRD) and by other international institutions of which
the United States is a member. In addition, export credits were exempted from a subceiling that restrained short-term credits to residents of the developed countries of continental Western Europe.
In August legislation was enacted that exempted from the guideline ceilings all credits to finance U.S. exports. On November 11, following a preparatory period contemplated in the congressional action,
the Board issued revised guidelines that exempted export credits from
the VFCR guideline ceilings. Export credits were defined to include
credits that financed both the shipment of goods produced in the
United States and the performance abroad of services by U.S. nationals. Export credits could be either direct credits that financed
U.S. exports or indirect credits to foreign financial institutions that
in turn would utilize these funds to finance U.S. exports.
The November revisions in the guidelines made other changes in
the VFCR program. For banks, the Export Term-Loan Ceiling for
export credits of over 1 year was eliminated, since export credits
were now exempt from the guideline restraint. Other changes included: (1) elimination of the subceiling on short-term bank claims
on residents of continental Western Europe, (2) the request that U.S.




205

FOREIGN ASSETS OF U.S. BANKS
Item

Number of reporting banks

1970,
Dec. 31
171

1971
Mar. 31

June 30

Sept. 30

169

174

183

Dec. 31
188

Millions of dollars
Guidelines in effect through Nov. 10, 1971
General ceiling:
Aggregate ceiling
Assets under ceiling
Change from previous date
Apparent leeway
Export Term-Loan (ETL) ceiling:
Aggregate ceiling
Assets under ceiling
Change from previous date
Apparent leeway..
Total General and ETL ceilings:
Aggregate ceiling
Assets under ceiling
Change from previous date
Apparent leeway
Guidelines in effect beginning Nov. 11, 1971
Ceiling:
Aggregate ceiling
Assets under ceiling
Apparent leeway
Memorandum item:
Export credit to foreigners other than
Canadians

9,968
9,306
-43
662

9,908
9,116
-190
793

9,935
9,187
+71
748

9,967
9,641
+454
326

1,423
190
+ 174
1,234

1,442
248
+ 58
1,194

1,495
342
+94
1,153

1 512
406
+64
1,107

11,391
9,496
+ 131
1,896

11,350
9,364
-132
1,987

11,430
9,529
+ 165
1,901

11,493
10,047
+ 518
1,433

»8,955
1,027

3,295

1
As of Nov. 11, 1971, export credits were exempted from restraint, and new Ceilings were calculated
for all banks in place of General Ceilings and Export Term-Loan Ceilings.

agencies and branches of foreign banks report monthly on their
foreign lending positions, and (3) a narrowing of an exemption so
that a nonbank financial institution would charge to its ceiling longterm investments to finance oil tankers owned or chartered by a
subsidiary of a U.S. oil company in a developing country unless the
oil company took a corresponding charge under the Foreign Direct
Investment Program administered by the Department of Commerce.
The November revisions also amended the manner in which banks
and nonbank financial institutions could calculate their ceilings for
nonexport foreign lending and investing. Henceforth, a bank could
adopt a ceiling based on the most favorable of (1) 85 per cent of
its General Ceiling as of September 30, 1971; (2) its General Ceiling as of September 30, 1971, minus export credits outstanding
thereunder as of that date; or (3) 2 per cent of its total assets as

206




of December 31, !*>'"r0. The last option was initiated to allow small
and medium-si'ai banks without historical lending bases to establish
themselves in I ho tVlu of foreign financing. Noebank financial Institutions wei,' p \ e p :he option of calculating their ceilings as either
i heir ceilings (adjusted-base-date holdings) as of September 30? 1971,
minus export credits subject to restraint, or of using 85 per cent of
iheir ceilings on that same date.
At the end of 1970, the approximately 170 banks reporting under
ihe program had aggregate General Ceilings and Export Term-Loan
1 Vilings of $11.4 billion, with an apparent leeway of about $0.7
bMlion under the former and $1.2 billion under the latter. At the end
t>f 1971 the approximately 190 VFCR reporting banks had latitude
In extend about Si0.0 billion of nonexpert foreign credits, of which
'W.O billion was bain; utilized.1 Therefore, at the end of the year,
hanks had an. apparent leeway of $1.0 billion to extend nonexport
credit to foreigners other than Canadians and unlimited leeway to
ovtend credits of all types to Canadians and export credit to other
foreigners. At the end of 1971 the amount of export credits outstanding at reporting banks was about $3.3 billion, part faa¥ing been
restrained, and part exempted, under the previous guidelines.
In August many banks went o¥er their General Ceilings to a
large extent as the result of speculative outflows by foreign customers
making sudden drawings on established lines of credit. In October
there was a rapid correction of positions. Again, in December there
wits a substantial outflow, but there was no excess over the aggregate
new ceiling for nonexport credits. Only a minor fraction of the increased outflow was in,, export credits of the type exempted by the
November revision, the bulk being attributable to speculative pressure thai dvHcIopeil before the Smithsonian Agreement jinl to other
factors.
During \^'!\ ihe nonbiink financial institutions reduced their holdings of foreign assets subject to On. junJeLite ceiling. At the end of the
vear, such holdings amounted i«* M,>. ivilion, well below the guideline ceiling of $1.8 billion an«! jbou; \200 million, below amounts
outstanding at the end of 1970. A small part of this decline, approximately $?0 million, was due to the removal of export credits from
• \n estimated S M billion of export credit was eliminated from guideline
>
T

e-41;ti!i; hv t h e ?Tv»M«)tm a p p r o v e d fm N n v




11

1071

the guideline ceilings. The holdings of foreign assets that were not
subject to the guideline ceiling increased during the year by about
$300 million; nearly half of this increase represented additional longterm investments in developing countries.
FOREIGN ASSETS OF U.S. NONBANK FINANCIAL INSTITUTIONS
AND NONPROFIT ORGANIZATIONS REPORTING UNDER
VFCR GUIDELINES
Amounts shown in millions of dollars

Item

Amount
Dec. 31,
1971

Change from Dec. 31,
1970
Amount

Per cent

ASSETS SUBJECT TO CEILING

Deposits and money market instruments, foreign countries, except
Canada
Short- and intermediate-term credits, foreign countries except
Canada 1
Long-term investments, developed countries except Canada:
Net investment in subsidiaries, affiliates, and branches 2
Long-term bonds and credits
Stocks 3
TOTAL holdings of assets subject to ceiling.

18

-17

152

-29

169
531
432

+ 19

1,302
1,784

Ceiling.

TOTAL holdings of assets not subject to ceiling.

MEMO: Total holdings of foreign assets. ..
1
2

-106
* -211
-132

ASSETS NOT SUBJECT TO CEILING

Export credits 5
Investments in Canada:
Deposits and money market instruments
Short- and intermediate-term credits l
Net investment in subsidiaries, affiliates, and branches 2
Long-term bonds and credits
Stocks
Direct obligations of international institutions of which U.S. is
a member
Long-term investments in developing countries;
Net investment in subsidiaries, affiliates, and branches 2
Long-term bonds and credits
Stocks
Otherwise "covered" stocks acquired after Sept. 30, 1965, in U.S.
markets from U.S. investors
Otherwise "covered" assets acquired after Dec. 31, 1967, as "free
delivery" items

-79

80

-48.6
-16.0
+ 12.7
-13.0
-19.7

6

-6.9

+80

+ 110.5
+ 23.7
+44.4
-1.7
-8.6
-1.2
-4.9
+ 15.6
+ 20.4

322
193
872
8,523
1,269

+ 169
+ 37
+ 268
-147
-119

1,029

-12

39
895
130

-2
+ 121
+ 22

885

+70

+ 8.6

38

+ 14

14,275

+526

+ 58.3
+3.8

15,578

+ 316

+2.1

Bonds and credits with final maturities of 10 years or less at date of acquisition.
Net investment in foreign branches, subsidiaries, or affiliates in which the U.S. institution has an
ownership interest of 10 per cent or more.
3
Except those acquired after Sept. 30, 1965, in U.S. markets from U.S. investors.
4
The amount outstanding on Dec. 31, 1970, included an undeterminable amount of export credits
that were believed to have been approximately $20 million and that were removed from the ceiling in
November 1971 (see note 5); both the absolute and percentage declines are, therefore, slightly overstated.
5
Up to November 1971 export credits were subject to ceilings, except for those that were related to
Export-Import Bank or to Department of Defense financing programs.
6
Export credits exempted by reason of being related to the Export-Import Bank or to the Department of Defense amounted to approximately $60 million.

208




Legislation Enacted
Purchase of Government obligations by Federal Reserve
Banks. An Act of Congress approved July 2, 1971 (Public Law
92-45), extended through June 30, 1973, the authority of the Federal Reserve Banks under Section 14(b) of the Federal Reserve Act
to purchase and sell direct or fully guaranteed obligations of the
United States directly from or to the United States.
Interest on deposits. By Joint Resolution approved March 31,
1971 (Public Law 92-8), Congress extended until June 1, 1971,
the flexible authority of the Board of Governors, the Federal Deposit
Insurance Corporation, and the Federal Home Loan Bank Board in
regulating the maximum rates of interest or dividends payable by
insured banks and savings and loan associations on deposit or share
accounts. By Act approved May 18, 1971 (Public Law 92-15),
Congress further extended this authority until June 1, 1973.
Emergency Loan Guarantee Act. By Act approved August 9,
1971 (Public Law 92-70), Congress established the Emergency
Loan Guarantee Board, which is empowered to guarantee emergency
loans not to exceed $250,000,000 to major business enterprises. The
Board comprises the Secretary of the Treasury, as chairman, the
Chairman of the Board of Governors of the Federal Reserve System,
and the Chairman of the Securities and Exchange Commission.
Export Expansion Finance Act of 1971. An Act of Congress
approved August 17, 1971 (Public Law 92-126), includes a provision that removed export credits from limitations in connection with
the Voluntary Foreign Credit Restraint program administered by the
Board of Governors.
Economic Stabilization Act. By Act approved December 22,
1971 (Public Law 92-210), Congress amended the Economic Stabilization Act of 1970 and extended its effectiveness until April 30,
1973. Both the first and second phases of the Nation's anti-inflation
program were launched under authority of that Act, which, among
other things, authorizes the President to issue such orders and regulations as he deems appropriate to stabilize interest rates.
Farm Credit Act of 1971. By Act approved December 10, 1971
(Public Law 92-181), Congress revised and expanded the farm
lending activities of the cooperative Farm Credit System. Included




209

among the provisions of the Act Is authority for member banks to
purchase obligations issued under the Act and authority for the
Reserve Banks to purchase such obligations to the same limited
ex lent as they may purchase municipal warrants under Section 14(b)
of the Federal Reserve Act, The Act also amended Section 15 to
authorize the Reserve Banks to act as depositaries for and fiscal
<igcnts of institutions of the Farm Credit System.
State taxation of national banks. By Act approved December 22,
1071 (Public Law l )2 2 1 3 ) . C ongress extended from January 1,
I 4 )72 ? to Januarv K 1^73, the thfe upon which a national bank will,
tor the purposes of any Stale lax law, be treated as a bank organized
itiicier the law of the State within which its principal office is located.

21(1




Legislative Recommendations
Lending authority of Federal Reserve Banks. Under present
law, when a member bank borrows from its Reserve Bank on collateral other than obligations that are eligible for purchase by Reserve
Banks (mainly U.S. Government obligations) or short-term promissory notes of the member bank's customers that meet certain
"eligibility" requirements, it must pay interest at a rate not less than
Vi of 1 percentage point higher than the Reserve Bank's basic discount rate. For several years the Board of Governors has urged
legislation that would permit a member bank, subject only to regulations by the Board, to borrow on any security satisfactory to its Reserve Bank without the necessity of paying a higher rate of interest
simply because the security is not of a specified type.
The need for enactment of such legislation has increased as member banks have reduced their holdings of U.S. Government securities
and broadened the scope of their lending in order to meet the expanding credit demands of their customers. Many of these loans
cannot qualify as security for Federal Reserve advances except at
the "penalty" rate of interest, although their quality may be equal to
that of presently "eligible" paper.
To enable the Federal Reserve System always to be in a position
to carry out promptly and efficiently one of its principal responsibilities—the extension of credit assistance to enable the banking system
to meet the legitimate needs of the economy—and to avoid penalizing those uses of credit that generate sound paper that is not
"eligible" under existing law, the Board again urges legislation that
would authorize the Reserve Banks to extend credit on any sound
collateral at a uniform rate of interest.
Reserve requirements. For several years the Board has recommended legislation that would make Federal Reserve reserve requirements applicable to all federally insured banks, rather than to member
banks only. The reasons for that change in the structure of reserve
requirements have become stronger with the passage of time, and the
Board now believes that those requirements should apply to demand
deposits in all institutions that accept deposits subject to withdrawal
by check (demand deposits).




211

Because demand deposits held by any Institution are part of the
country's money supply just as are those in member banks, applying
the same demand-deposit reserve requirements to all such Institutions
would facilitate the effective implementation of monetary policy. The
most rational, and equitable system of reserve requirements for this
purpose would be based on the amount of an Institution's deposits,
without regard to the location of the institution.
Also as a matter of rational and equitable application of the laT\
the Board believes that any institution that Is subject to Fedeiai
K'-serve reserve requirements should be granted access to Federal P,c
^•rve credit on the same terms as member banks.
A.*<M H^.: ,!i- FM ,'N! .recommends that legislation be enacted
H i h'- JJSJIU ( t", vh\ -ystem of .reserve requirements to the deiKsruf ,.!•}•<>•..>'> ,•• «'* >'M*positary institutions that accept deposits
•lib}--, i (o ^A':!",:; s../ h. check, and (2) to authorize the Reserve
*unk& io extend a. eo.it to such inst:+*Ttion~ r>r, +be ~nmr hisis as they
vwcend credit to member banks.
Loans to bank examiners, Tii- i * <J n, f ' '< \ ,•<!£, "Crimes
<
;;fici Criminal Procedure," prohibits loans to a bank examiner by any
K;nk that the examiner is authorized to examine. For several years
lito Board has favored modification, of this prohibition to permit a
U derally insured bank to make a home mortgage loan to a bank
"\aminer under appropriate statutory safeguards. The Board again
recommends that modification.
Pm-rchase of obligations of foreign governments by Federal
Banks. Under present law, balances that the Reserve Banks
in foreign central banks in connection with the System's
foreign currency operations may be invested in prescribed kinds of
''ills of exchange and acceptances. On occasion these investment
media have not been conveniently available. To facilitate economic
use of such balances, for several years the Board has favored enactment of legislation that would permit Reserve Banks, subject to regiikuion of the Board, to invest in obligations of foreign, governments
vr monetary authorities that will mature within 12 months and are
uiyable in a convertible currency. The Board again recommends
•••ich legislation.

Interlocking bank relationships. Section 8 of the Clayton Act
generally prohibits interlocking relationships between a member bank




and any other bank: located in the same or an adjacent community.
During 1970 the Federal Reserve System made an extensive review
of interlocking bank relationships and concluded that Section 8
should be amended in several respects to protect the public against
situations arising in which the risk of abuse of an Interlocking relationship outweighs the likelihood of benefit. The major extension
favored by the Board would apply the prohibition to interlocks between any depositary institutions In the same or an adjacent community, with an. appropriate delay to permit a gradual phasing out
of prohibited relationships.
In one respect the Board considers that the present law is unnecessarily .restrictive. The law presently prohibits Interlocking service as
a "director, officer, or employee." The Board believes that the pur, • sse of the law would be better served by limiting the applicability
- the prohibition to service as a "director or an officer or an em;• jyee with management functions."
Federal Reserve Bank branch buildings. Under Section, 10 of
• 'MJ Federal Reserve Act, the aggregate of costs incurred by the
>' serve Banks for the construction of branch buildings after July 30,
•
i ^47, is limited to $60 million. 'This amount has been almost fully
'j'flized, and the remaining amount is insufficient to permit construe; n of facilities necessary to continue to provide services that are
; • * :essary to keep the Federal Reserve .responsive to the needs of the
n-bJic. The Board believes that the dollar limitation on the cost for
. • istruction of Federal Reserve Bank branch buildings is unnecessary
• •;(d recommends that it be repealed.
The Reserve Banks would still need the Board's approval of their
branch-building programs, under the third paragraph of Section 3 of
']•'• * Federal Reserve Act, The Board would continue to consider each
•
;n:)posed construction or improvement in the light of the needs of the
'•: inch, the type of proposed construction, the reasonableness of the
< . >sts, and whether the proposal is generally in keeping with the prevailing economic situation,

Bank investments for community development, As leading Inr utions in,, their communities, banks are expected to participate in
;' )grams for the improvement of the community. In some cases this
, • ponsibility can. be fulfilled by contributing feeds or services. In
" • ters, the appropriate form of participation is an investment in. stock




of a corporation established for a particular purpose, such as to promote the economic rehabilitation and development of low-Income
areas. In. the Board's judgment, limited investments in such corporations axe in the public Interest and should be encouraged by appropi iate legislation.
Accordingly, as a method of encouragement, the Board recommends legislation, expressly to authorize national banks to Invest in
community corporations established by them or by other local organizations. Such legislation would not itself authorize State member
banks to invest in such corporations, because the corporate powers
of a State-chartered bank are a matter of State law. Nonetheless, it
would encourage investments by banks in those States that do not
prohibit banks from making such investments. It should also encourage States that do prohibit such investments to re-examine their
position.
l\t assure that the investments cb not have an adverse effect on
the soundness of our Nation's banks, the Comptroller of the Currency
and the Board of Governors should "be authorized to impose limitations on the nature and scope of those investments by national
banks and State member banks under their respective jurisdictions.

Miscellaneous amendments relating to bank holding companies',
«. "C ease-and-desist orders/' Under present law, there Is no
Federal administrative remedy for violations of law by a bank holding
company or any of its nonbanking subsidiaries (that are not also
subsidiaries of bank>.}. Hie Board may either refer the violation to
the Department of Jusho. as a criminal violation or work the matter
out with the holding company, or it may take no action. The Board
recommends that the Financial Institutions Supervisory Act of 1966
be expanded to authorize the Board to initiate cease-and-desist proceedings to prevent an unsafe or unsound practice in conducting the
business of the holding company or to present violations by the holding company of a law, rule? or regulation, or any condition imposed
by the Board in connection with the granting of any application or
other request by the holding company.
h* Acquisition
by holding t'*tn/f>ttny of "failing bank." The
Board recommends that Section \\ih)
of ibe Bank Holding Company Act be amended to include provisions similar to those In the

214




B;<.nk Merger Act, under which j I ; '/omments by a bank supervisor
» n a proposed take-over of a 'tailing" bank may be required to be
>
submitted within 10 days (rather than, the usual 30 days) and (2)
\ii 5 Board may inform the Attorney General of an emergency re~
quiring expeditious action, and thereby shorten from 30 to 5 the iiueik r of days between approval of the transaction by the Board and the
>i;ty consummation becomes permissible,

c. "Retention by holding company of hank stock acquired as
a result of a debt previously contracted," Section 4 of the Bank
Molding Company Act authorizes the Board to extend, from 2 tc :
\vars the time within which to dispose of stock In. nonbanki'it;
1
M ganizations acquired by a holding company pursuant to a dc i :
previously contracted. The .reasons underlying that authorizatl <
i
xcm equally applicable In the case of bank stock. Accordingly, t'u
lizard recommends that Section, 3 be amended to parallel thi p^<
v - -.IOES of Section 4 in this respect.




Litigation
Bank holding companies—Antitrust actions. During 1971 the
Federal courts announced actions in four cases brought by the U.S.
Department of Justice to prevent the consummation of bank acquisitions by registered bank holding companies. In each case the complaint alleged that the effect of the proposed acquisition would be
substantially to lessen competition, or to tend to create a monopoly
in violation of Section 7 of the Clayton Act (15 U.S.C. 18). The
captions of the cases and the actions by the courts are as follows
(for further identifying details, see the ANNUAL REPORT for 1970,
page 192):
United States v. First National Bancorporation, Inc., et al. This
case was dismissed by the District Court on the grounds that the
Government failed to prove that the acquisition would substantially
lessen competition or tend to create a monopoly in commercial banking in the Greeley, Colorado, market or substantially lessen competition in the correspondent banking field (329 F. Supp. 1003
(1971)). In November 1971 the Department of Justice filed an
appeal, which the U.S. Supreme Court has accepted for review.
United States v. First National Bancorporation, Inc., et al. The
proceedings in this case (relating to Security State Bank of Sterling,
Colorado) have been suspended pending the outcome of the Greeley
case referred to in the preceding paragraph.
United States v. United Banks of Colorado, Inc., et al. The District
Court denied defendant's motion to overturn a stay of consummation
of the proposed transaction after ruling that the defendant had not
established that the Government's complaint was frivolous. Defendant subsequently abandoned its proposal for acquisition of the bank,
and the action was dismissed in August 1971.
United States v. United Virginia Bankshares Incorporated, et al.
A stay against consummation of the acquisition was lifted by the
District Court in February 1971. The holding company had filed a
plan that, in the Court's judgment, would permit orderly divestiture
of the bank if the Department of Justice is successful on the merits
of the case. The case has been tried and is awaiting decision.




217

B a n k h o l d i n g r o w p a n i c s A V r / V i v of i i ^ d f d i t c r i o n s , t ' i \ e e i \ i f
actions .raising questions under the Bani Holding Company Act were
decided; one remains pending.
In The Commercial

National

Hunk <>/ 1 .idle Ri>ck, et at, \

Htnird

of Governors (see the ANNUAL REPORT for 1970, page h n i . the
Court of Appeals for the Eighth Circuit upheld the Boards Order.
In a case involving the formation of First Arkansas BankM^k Corporation, the Court held (h;ii formation of a multibank holding compaay in Arkansas does not violate that State's prohibition against
branch banking and thai the Board had not violated the constitutional
rights of the banks opposed to the formation by denying them a trialtype hearing (451 K 2J 8n). Parties in the Commercial National
case were also parties in Merchants and Planters Bank, et al. v.
Hoard of Governors, filed July 1971, U.S.C.A. for the Eighth Circuit.
I it that case the Court was asked to re¥iew and set aside an Order
of the Board granting the application of First Arkansas Bankstock
Corporation to acquire an additloeai bank, The Stephens Security
Bank, Stephens, Arkansas, (For the Board's Order, see the Federal
Reserve Bulletin for July 1971, page 623.) Following its decision in
the Commercial National case, the Court dismissed the petition, in
Merchants and Planters in November 1971.
In Robert A, Browm v, Board of Governors, filed September 1971,
U.S.C.A, for the First Circuit, the Acting Bank Commissioner for the
State of Maine petitioned for review of the Board's Order of August
12, 1971, appro¥ieg the application,, of United Bancorp of Maine,
Portland, Maine, to acquire 51 per cent of the Yoting shares of Central National. Bank, Water¥ille? Maine, a proposed new bank. (For
the Board's Order and Statement, see the Federal Reserve Bulletin
for September 1971, page 727.) On December 16, 1971, the
petition for re¥iew was dismissed for want of prosecution.
In Union Bank and Trust Company, et al. v. Board of Governors,
filed May ll)7f, U.S.C.A. for the District of Columbia, petitioner
requested the Court to reYiew and set aside the Board's Order of
April 20, 1971, approving the application of First Alabama BaiichliaivH, in;:,, Birmingham, Alabama, to become a bank holding company, (F<T the Board's c )rder and Statement, sec the Federal Reserve
Bulletin tor May nPi, page 404.) On August VK 1971. the Court
granted petitioner's motion to dismiss the petition.

218




la '\\i(t,>leon A, Marcou, et at v. Board of Governors, filed March
"~'T;, U.S.C.A. for the First Circuit, petitioner sought Court review
u> Sw'i ai-ide an Order of the Board approving the application vf
Merrill Bankshares Company, to acquire shares of Federal TmM
Company, Waterville, Maine, (For the BouwY Oul« j and Statement,
^ o the Federal Reserve Bulletin for Mar-:1: iv. i. nage 2 6 2 . ) The
•ratter was dismissed by stipulation,, of the »*:t:*i*• ~ s:: \ugust 1971.
In National Association a* «''--,^."/. - Agents, Inc. v. Board of
i-itvernors, filed Septemb< < I'-'Cl, s . ^ . C A for the District of

i J u m b i a , p e t i t i o n e r a s k e . 1 ; i x ( 'Mr-" ,»> r e v i e w a n d s e t a s i d e a
r e g u l a t o r y a c t i o E b y t h e B<* < v n> M»\"pi«~ c e r t a i n p r o c e d u r e s in, c o n s e c t i o n w i t h a p p l i c a t i o n s undr» M 1 -linir. 3 ( a ) ( l ) a n d 4 ( c ) ( 8 ) **
;
ih-i Bank Holding Company A; ; f > ; V. mber 1971 the Board sui,
"
;>^nded the operation of that I V / ' J J ^ M > ^ tion as it relates to
•h c) (8) and published proposed regulatory amendments that i
/modifications of the suspended, procedures. The Court proceeding
h'AVQ been suspended pending final outcome of the Board's propose;
".piendments. (For the action establishing the procedures, see IK
S:deral Reserve Bulletin for September 1971, page 723; for the prof-^sed amendments, see the Federal Register for December 28, 1971,
puge 25048.)

Bank merger. In United States v. Trust Company of Georgia, et
,/('., filed May 1971, U.S.D.C. for the Northern. District of Georgia,
)ho Department of Justice sued under Section 7 of the Clayton Art
• 15 U.S.C. 18) to praYeiit Trust Company of Georgia from acquir
vig the assets and assuming the liabilities of the Peachtree Bank a">i
I j'ust Company, Chamblee, Georgia. (For the Board's actions on tL<
matter, see the Federal Reserve Bulletin for Marc! f '•; I , p.^;e 2^.v.
April 1971, page 333; and June 1971, page '>' " = M-i'endi ?n
ii^andoned its m e r g e r p l a n s , a n d t h e a c t i o n w a s dis- 11 -:-''/.! h\ ^.tipulai}nn in, August 1971,
M a r g i n r e q u i r e m e n t s o n s e c u r i t i e s c r e d i t transax ?:* •'<-. n)
» -ordon cfc Co,, Inc., et al. v. Board of Governors (set V • s. w
.
REPORT for 1970, page 1 9 3 ) , an Order of dismissal was K HU ^a K
!hc District Court following a stipulation by the parties o;s; u,tw • is




Bank Supervision and Regulation
by the Federal Reserve System
Examination of member banks. Each State member bank is subject to examinations made by direction of the Board of Governors or
the Federal Reserve Bank of the district in which it is located by
examiners selected or approved by the Board. The established policy
is for the Federal Reserve Bank to conduct at least one regular examination of each State member bank, including its trust department,
during each calendar year, with additional examinations if considered
desirable. In most States concurrent examinations are made in cooperation with the State banking authorities, while in others alternate
independent examinations are made. All but 18 of the 1,128 State
member banks were examined during 1971.
National banks, all of which are members of the Federal Reserve
System, are subject to examination by direction of the Board of Governors or the Federal Reserve Banks. However, as a matter of practice they are not examined by either, because the law charges the
Comptroller of the Currency directly with that responsibility. The
Comptroller provides reports of examination of national banks to the
Board upon request, and each Federal Reserve Bank purchases from
the Comptroller copies of reports of examination of national banks
in its district.
The Board of Governors makes its reports of examination of State
member banks available to the Federal Deposit Insurance Corporation, and the Corporation in turn makes its reports of insured nonmember State banks available to the Board upon request. Also, upon
request, reports of examination of State member banks are made
available to the Comptroller of the Currency.
In its supervision of State member banks, the Board receives, reviews, and analyzes reports of examination of State member banks
and coordinates and evaluates the examination and supervisory functions of the System. It passes on applications for admission of State
banks to membership in the System; administers the disclosure requirements of the Securities Exchange Act of 1934 with respect to
equity securities of State member banks within its jurisdiction under




221

the 1934 Act; and under provisions of the Federal Reserve Act and
other statutes, passes on applications for permission, among other
things, to (1) merge banks, (2) form or expand bank holding companies, (3) establish domestic and foreign branches, (4) exercise
expanded powers to create bank acceptances, (5) establish foreign
banking and financing corporations, and (6) invest in bank premises
an amount in excess of 100 per cent of a bank's capital stock.
By Act of Congress approved September 12, 1964 (Public Law
88-593), insured banks are required to inform the appropriate Federal banking agency of any changes in control of management of such
banks and of any loans by them secured by 25 per cent or more of
the voting stock of any insured bank. In 1971, 31 such changes in
ownership of the outstanding voting stock of State member banks
were reported to the Reserve Banks as changes in control of these
member banks. Arrangements continue among the three Federal
supervisory agencies for appropriate exchanges of reports received
by them pursuant to the Act. The Reserve Banks send copies of all
reports they receive to the appropriate district office of the Federal
Deposit Insurance Corporation, the Regional Administrator of National Banks (Comptroller of the Currency), and the State bank
supervisor.
LOANS TO EXECUTIVE OFFICERS
Total loans to
executive officers

Period covered
(condition report
dates)

Ranges of
interest rate
charged (per cent)

Number
Oct. 29, 1970—
Dec. 31, 1970
Jan. 1, 1971—
Apr. 20, 1971
Apr. 21, 1971—
June 30, 1971
July 1, 1971—
Sept. 30, 1971
Oct. 1, 1971—
Dec. 31, 1971

Amount (dollars)

5,981

16,888,929

1-18

7,998

22,639,646

1-18

6,922

18,908,673

1-18

7,663

22,799,739

1-18

«

O

O

Compilation of data for condition report of Dec. 31, 1971, has no t been completed.

222




jM-r n i:ils the Reserve Banks are under instructions to T^r^uid such
rfpftns (>»umptly to the Board, together with a statemern i I \ inat the
mv. tAvr^r and management are known and acceptable f . ?h.e R e <>
\er\i* B.trk: or ( 2 ) that they are not known and that an u>VvVJtMiuin
is. hcuig made. The findings of any investigation ano \U, l ^ v r u 1
H;ink\ conclusions based on. such findings are forw ;•»;< K** *** h(v
'
B«>ard.
By Act of Congress approved July 3, 196? (Public I 'tw "0. 44 <,
vaoh member bank of the Federal Reserve System is i-Appr-.M h» >u*
chide with (but not as part of) each report of condit?ro ,.n.-i cor- v
thereof a report of all loans to its executive officers since the date of
M 5 Emission of its previous report of condition. Since the Board's 1970
A:\si -\« Rt I'ORT was released, member banks have submitted, as
,':i|!H!V(I l^v f iw, the data that ^MVV,.< *^ 'ii' i.Me '<n rii^s ?22.
}"iulrral h'i>serve membershtp,
^ , > 1 >., ,• jiiibc* '*;. i : ' " i , niem!*"•'- biiik- aicounted for 42 pei »..-!;»• *»t I'v number o! ,»<! •; jp.unercial
^ m k s in the United States arid *.vt ^^ ^-,j .'ent « ? ;•;} > «»<>uaercial
<
b.taking offices, and they held approximately 80 pei '.'.-n' '-•« H»e total
• U-posits In such banks; these figures compare with •, IVJ ^cnt, 62
; v r cent, and 80 per cent, respectively, at the ejui ^4 \^"u. State
iitumber banks accounted for 13 per cent of the ni:.j>Jv; i»i *ll State
commercial banks and 26 per cent of the banking "Uw\ s. -u»d they
he id 51 per cent of total deposits In State c o m m e r c e ! h j j ^ ^
Of the 5,727 banks that were members of the Federal Reserve
system at the end of 1971, there were 4,599 national banks and
1.128 State baaks. During the year there were net declines of 21
national ain1 ^ State member banks. The decline in the number of
national banks r:i)ected 51 conversions to branches incident to mergL*M and abi.ojpLic.uis and 21 conversions to nonmember banks. The
J-'dina wa% oft'-,'- in part by the organization, of 37 new national
hanks and the cofweraon of 7 nonmember banks to national banks.
The decrease in State member banks reiected mainly 20 withdrawals
h o m membership and 6 conversions to branches incident to mergers
:t'»,*! absorptions.
At t i e end of 1971 member HnnVs were operating ^ ",u>^h I'Manches,
;
"'/-s more than at the close '/«'' J } >/0; this incluJ«.''.' ' : -'•' de novo
establishments.




223

Detailed figures on changes in the banking structure during 1971
are shown In Table 18, pages 266 and 267.
Bank mergers. Under Section IK (c) of the Federal Deposit Insurance'Act (12 U.S.C. 1828 (c) K ihc prior written consent of the
Board of Governors of the Federal Reserve System must be obtained
before a bank may merge, consolidate, or acquire the assets and
assume the liabilities of another bank if the acquiring, assuming, or
resulting bank is to be a State member bank.
In deciding whether to approve an application, the Board Is required by Section 18(c) to consider the impact of the proposed
transaction on competition, the financial and managerial resources
and prospects of the existing and proposed institution? and the convenience and needs of the community to be served. The Board is
precluded from approving "any proposed merger transaction which
would result in a monopoly, or which would be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States." A
proposed transaction "whose effect in any section of the country may
be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade,"
may be approved only if the Board of Governors is able to find that
the anticompetitive effects of the transaction would be dearly outweighed in the public interest by the probable effect of the transaction
in meeting the convenience and needs of the community to be served.
Before acting on each application the Board must request reports
iVoin the Attorney General, the Comptroller of the Currency, and the
Federal Deposit Insurance Corporation on the competitive factors involved in each transaction. The Board in turn responds to requests by
(ho Comptroller or the Corporation for reports on competitive factors
involved when the acquiring, assuming, or resulting bank is to be a
national bank or an insured nonmember State bank.
During 1971 the Board disapproved two and approved 16 of these
applications, and it submitted 106 reports on. competitive factors to
the Comptroller of the Currency and 63 to the Federal Deposit Insurance Corporation. As required by Section 18(e* of the Federal
Deposit Insurance Act, a description of each of the 16 applications
approved by the Board, together with other pertinent information, is
shown in Table '! I, p»ges 270-91.




Statements and/or orders of the Board with respect to all bank
merger applications, whether approved or disapproved, are released
immediately to the press and the public and are published in the Federal Reserve Bulletin. These statements and/or orders set forth the
factors considered, the conclusions reached, and the vote of each
Board member present.
Bank holding companies. During 1971, pursuant to the provisions of the Bank Holding Company Act of 1956, as amended, the
numbers of proposals acted on by the Board, and the Federal Reserve Banks under delegated authority, were as follows:
Reserve Banks

Board
Section
Approved
Section 3(a)
3(a)
4(c)
4(c)
4(d)

(1)
(3)
(8)
(12)

Denied

Approved

51
143
6
1
2

2
15
1

14

Permitted

71
45

Board statements and/or orders with respect to applications,
whether approved or denied, are released immediately to the press
and the public and are published in the Federal Reserve Bulletin. The
statements and/or orders set forth the factors considered, the conclusions reached, and the vote of each Board member present. Federal Reserve Bank actions are made available to the press and the
public in the Board's weekly H.2 publications.
Annual reports for 1970 were obtained from all registered bank
holding companies pursuant to the provisions of Section 5(c) of the
Act. At the end of 1971, there were 153 multibank holding companies in operation. In addition, pursuant to the Bank Holding Company Act Amendments of 1970, approximately 1,450 one-bank
holding companies had filed registration statements with the Federal
Reserve System.

Foreign branches of member banks. At the end of 1971, 91
member banks had in active operation a total of 577 branches in 67
foreign countries and overseas areas of the United States; 67 national




225

[Tabulation referred to on facing page.]

Abu Dhabi . . . . . . . .
Argentina
.......
Austria . . . . . . . . .
BahamaN . . . . ....
Bahrain
..........
Barbados
.......,.
Belgium . . . . . . . .
Bolivia . . . . . . . . . . .
Brazil . . . . . . . . . . . .
C a n a l Z o n e . , . ..
Chile
............
Colombia . , . . . . ..
Dominican Republic
Dubai . . . . . . . . . . . .
Ecuador . . . , , . , . , .
f:l S a h a d o r . . . . . . .
Fiji IslatuK . , . . . , . ,
F;rance . . . . . . . . . .
Germany ...... .
Greece
..........
Guam ......... .
Guatemala . . . . . . .
Guyana
..........
Haiti . . . . . . . . . .
Honduras . . . . . . .
Hong Kong ......
India
...".......
Indonesia . . . . . . . .
Ireland ...
..,.,,
Israel . . .
......
I tidy . . . . . .
.....
Jamaica . . . . . . . .
Japan . , . . . . , , . . .
Korea . . . . . . . . . .
Lebanon
.......
Liberia
.._......

226




1
38

15
22
13
4

II
b
3

!5
3
2

Luxembourg . . . . . . .
Malaysia.
,.,....,...
Mariana Islands . . . . . .
Marshall Islands . . . . .
Mexico . . . . . . . . . . . . .
Netherlands
.........
Netherlands Antilles . .
Nicaragua
..........
I )klnawa
...........
Pakistan . . . . . . . . . . . .
Panama ...
........
Paraguay
...........
Peru . . . . . . . .
......
Philippines . . . . . . . . . .
Puerto Rico . . . . . . . . .
Qatar . . . . . . . . . . . .
Saudi Arabia . . . . . . . .
Singapore
..........
Switzerland
.........
1 aiwan . . . . . . . . . . . . .
1 hailand , . . . . . . . . .
Trinidad and Tobago ..
T r a c i a l Slate oi S h a r j a h
Truk islands . . . . . . . .
I 'ulted K i n g d o m . . . . .
Uruguay . . . . . . . . . . . .
\cnezuela
...,.,...,
Vietnam . . . . . . . . . . . .
Virgin Islands ( U . S . ) .
Virgin Islands (British)

Other (West Indies)

Total

............

3
3
2
4
29
6
X
4

S

2
2
1
1
45
4
4
2
19
3

10

577

hanks were operating 527 of these branches, and. 24 State member
natiks were operating 50 such branches. The number and location.
of these foreign branches were as shown in the tabulation on page
Under the provisions of the Federal Reserve Act • Section 25 as
;
to national banks and Sections 9 and 25 as to Stale member banks),
I he Board of Governors during the year 1971 approved 69 applications made by member banks for permission to establish branches in
foreign countries and overseas areas of the United States, During
1 he year, member banks opened 57 branches overseas and closed 16.
Acceptance powers of member banks. During 1.971 the Board
approved the application of four member banks, pursuant to the pro\isions of Section 13 of the Federal Reserve Act, for increased acceptance powers; it granted the banks permission to accept commercial drafts or bills up to 100 per cent of paid-up and unimpaired
capital stock and, surplus.
Foreign banking and financing corporations. At the end of
1^71 there were five corporations operating under agreements w.?th
the Board pursuant to Section 25 of the Federal Reserve Act relating
lo investment by member banks in the stock of corporations engage J
principally in international or foreign banking. Three of these "agre»i •
ment" corporations have head offices in New York, and, one h<i:
its head office in Miami, Florida. The four corporations were examined during the year by examiners for the Board of Governors.
The fifth agreement corporation is a national, bank in the Virgin
Islands and is owned by a State member bank in Philadelphia.
During 1971, under the provisions of Section ?>(a) of the Fedoral Reserve Act, the Board issued final permits u> 10 corporations
in engage in international or foreign banking or other international
or foreign financial operations, and 10 corporations commenced operations. At the end of the year there were 80 corporations in active
operiflion under Section 2 5 ( a ) ; 36 haw home offices in New York.
Cilv. 5 each in Philadelphia and Miann; 4 each in Boston, Chicago,
1 os Anodes, and San,, Fran.ci.sco; 3 in iVUoit; 2 each in Atlanta,
Dallas, and Seattle; and one each in Cu •^•lund, Indianapolis, Minneapolis, Norfolk, Pittsburgh, Portland (Oregon}, Richmond, St. Louis,
and Winston-Salem. One of the corporations with headquarters in
Seattle has 5 branches in Hong Kong; one of the corporations in




227

Philadelphia and one in New York operate branches in London;
one New York corporation and two Detroit corporations operate
branches In Nassau; and one New York corporation operates a
branch in, Luxembourg. Examiners fo? \\a B«i.\K* H Governors examined 79 of these corporations during i°"l

Actions under delegation of auth"r?f\\ P'lra^nt to the provisions of Section l l ( k ) of the Federal RWMM- ^ C the Board of
Governors has delegated to the Resent bank:* i I I authority to apl*'iove, on behalf of the Board, certain applications of State member
iv.mks to establish domestic branches, to Invest in bank premises, to
ik-clare certain dividends, and to grant a waiver of 6 months' notice
by a bank of its intention to withdraw from membership In the Federal Reserve System, and (2) certain other authorities. Under authority granted in (1) above, the Reserve Banks approved 205
bianch applications, 57 investments in bank premises, and 16 waivers
.»!' notice of intention to withdraw from membership in the Federal
Reserve System,. Under authority granted in i 2) above, the Reserve
I<anks approved 843 applications.
The Board has delegated to the Director or Acting Director of the
Division of Supervision, and Regulation authority to approve certain
applications to establish domestic brandies and various other authorities. Under this authority 7 branches were approved and 450 other
actions were taken. In addition, the Director or Acting Director of
the Division of Supervision and Regulation Is authorized under Seclion !8{V)(4) of the Federal Deposit Insurance Act (12 U.S.C.
IS2N(c) ( 4) } to furnish to the Comptroller of the Currency and the
Fixleral Deposit Insurance Corporation reports on competitive f e tors Involved In a bank merger required to be approved by one i*f
those agencies if each of the appropriate departments or divisions ^i
the appropriate Federal Reserve Bank and the Board, of Governor
v, of the view that the proposed merger either would have no advei v
competitive effects or would have only slightly adverse competiti •, o
cfleets, and If no member of the Board has Indicated an objection
prior to the forwarding of the report to the appropriate agency. Under this authority 127 competing IM-VK reports were approved.
Bank Examination Schools. \.\ 19 -;! the Board's Bank Examination School conducted one sesM^n ^» <n<: School, for Examiners, two
sessions of the School for Assistant Examiners, and one session of the

228




School for Trust Examiners. The Bank Examination School was
established in 1952 by the three Federal bank supervisory agencies,
and from 1962 through 1970 was conducted jointly by the Federal
Reserve System and the Federal. Deposit Insurance Corporation.
Since the establishment of this program, 4,608 persons have attended the various sessions. This number includes representatives of
the Federal bank supervisory agencies; the State Banking Departments of Arkansas, Arizona, California, Connecticut, Florida, Idaho,
Indiana, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey,
New Mexico, New York:, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, and Wyoming; the
Treasury Department of the Commonwealth of Puerto Rico; and 19
foreign, countries.
Truth In Lending, A report entitled Annual Report to Congress
on Truth in Lending -. . . L i L .„; ,J:i
was submitted separately,
pursuant to the Truth • < ', .-.u! ':•- ' r< " :le 1 of the Consumer Pro»
tection Act (Public La • l< > '
Pair Credit Repo
<',e ».• \ \ ,* '< oard of Governors of the
Federal Reserve System, e • ( • ' - ; . . • ! '
of the Currency, the Federal Deposit Insurance Corporation, and the Federal Home Loan
Bank Board joined in issuing the pamphlet, Financial Institutions and
the Fair Credit Reporting Act. This pamphlet, designed to assist financial Institutions in developing a working knowledge of the Act
and its requirements, Indicates how the four Federal agencies view
f.jovisions of t.U : :• '. ' :•<• H , ;> r i n g Act (Public Law 91.-508)
<
'"^r enforceme: ! }"•'." «... , '•.- < <; • •.• ncy distributed copies of the
/.'imphlet in M « ' i ;
< • -'i ;•,.<« ,al institutions under its super'•; ion.
D




229

Federal Reserve Banks
Examination of Federal Reserve Banks. The Board's Division
of Federal Reserve Bank Operations examined the 12 Federal
Reserve Banks, 24 branches, and 2 facilities during the year, as
required by Section 21 of the Federal Reserve Act. In conjunction
with the examination of the Federal Reserve Bank of New York,
the Board's examiners also audited the accounts and holdings related
to the System Open Market Account and the foreign currency
operations conducted by that Bank in accordance with policies formulated by the Federal Open Market Committee, and rendered
reports thereon to the Committee. The procedures followed by the
Board's examiners were surveyed and appraised by a private firm
of certified public accountants, pursuant to the policy of having
such reviews made on an annual basis.
Miami office opened. In October 1971 the Federal Reserve
Bank of Atlanta announced the opening of a new office in Miami,
Florida, the first new office to be established for the provision of
services to commercial banks since the Charlotte Branch of the
Federal Reserve Bank of Richmond was opened in 1927.
The Miami office is providing currency and coin, and check
collection services to the following 13 counties in southern Florida:
Broward, Charlotte, Collier, Dade, Glades, Hendry, Indian River,
Lee, Martin, Monroe, Okeechobee, Palm Beach, and Saint Lucie.
The Miami office provides currency and coin services in the same
manner as provided by all Federal Reserve Banks and branches.
Check collection services provide that all commercial banks in the
area served settle their depositors' checks on the day of presentation.
Earnings and expenses. The table on page 232 summarizes
the earnings, expenses, and distribution of net earnings of the
Federal Reserve Banks for 1971 and 1970.
Current earnings of $3,723 million in 1971 were 4 per cent lower
than in 1970. The principal decreases in earnings were as follows:
on U.S. Government securities, $77 million; on foreign currencies,
$46 million; and on discounts and advances, $30 million.
Current expenses were $56 million, or 17 per cent, more than in




231

1970. Statutory dividends to member banks amounted to $43
million, an increase of $2 million from 1970. This rise in dividends
reflected an increase in capital and surplus of member banks and a
consequent increase in the paid-in capital stock of the Federal
Reserve Banks.
Payments to the Treasury as interest on Federal Reserve notes
totaled $3,357 million for the year, compared with $3,494 million
in 1970. This amount consists of all net earnings after dividends
and the amount necessary to bring surplus to the level of paid-in
capital.
EARNINGS, EXPENSES, AND DISTRIBUTION OF NET EARNINGS
OF FEDERAL RESERVE BANKS, 1971 AND 1970
In thousands of dollars
Item

1971

1970

Current earnings
Current expenses

3,723,370
377,185

3,877,218
321,373

Current net earnings
Net addition to current net earnings

3,346,185
94,266

3,555,845
11,442

Net earnings before payments to U.S. Treasury
Dividends paid
Payments to U.S. Treasury (interest on F.R. notes)

3,440,451
43,488
3,356,560

3,567,287
41,136
3,493,571

40,403

32,580

Transferred to surplus

A detailed statement of earnings and expenses of each Federal
Reserve Bank during 1971 is shown in Table 7 on pages 252 and
253 and a condensed historical statement in Table 8 on pages
254 and 255.
Holdings of loans and securities. The table on page 233 shows
holdings, earnings, and average interest rates on loans and securities
of the Federal Reserve Banks during the past 3 years.
Average daily holdings of loans and securities during 1971
amounted to $65,820 million—an increase of $6,748 million over
1970. Holdings of discounts and advances decreased $413 million,

232




RESERVE BANK EARNINGS ON LOANS AND
SECURITIES, 1969-71

Total

Item and year

Discounts
and
advances

Acceptances

U.S.
Govt.
securitiesl

In millions of dollars
Average daily holdings:2
1969
1970
1971

55,198
59,072
65,820

Earnings:
1969
1970
1971

3,250.8
3,827.1
3,719.6

1,102
826
413
65.3
50.6
20.9

67
65
81
4.7
4.7
4.0

54,029
58,181
65,326
3,180.8
3,771.8
3,694.7

In per cent
Average rate of interest:
1969
1970
1971
1
2

5.89
6.48
5.65

5.93
6.13
5.06

7.01
7.23
4.94

5.89
6.48
5.66

Includes Federal agency obligations.
Based on holdings at opening of business.

whereas there were increases of $7,145 million in U.S. Government
securities and $16 million in acceptances.
The average rates of interest on holdings were down from 6.13
per cent to 5.06 per cent on discounts and advances, from 7.23 per
cent to 4.94 per cent on acceptances, and from 6.48 per cent to 5.66
per cent on U.S. Government securities.
Volume of operations. Table 9 on page 256 shows the volume
of operations in the principal departments of the Federal Reserve
Banks for 1968-71.
Both the number and dollar amount of loans declined again as
the number of banks borrowing dropped from 1,416 to 892.
Continuing growth in the movement of funds is reflected in significant increases in the volume of checks handled and in transfers
of funds. Of the total checks handled, 323,718,000 items or 4.20
per cent, were processed by the new regional clearing facility at




233

Miami, the expanded metropolitan clearing arrangement at Denver,
and the Washington/Baltimore regional clearing center. The volume
of food stamps redeemed again rose sharply to just under 2 million.
On t i e other hand, the number of transactions in U.S. Government
securities decreased to the lowest level in 4 years. Although the
number of coins received and counted by the Reserve Banks was
only slightly higher, a significantly greater number of coles were
shipped to the Banks and paid out to the public, including approximately $ 1 11 million in new Elsenhower dollars during the last 2
mohths of the year.
For the first time, Table 9 shows the volume and dollar amount
of unit currency verified and destroyed by the Rese,r¥e Banks and
branches, The volume of this activity has been increasing steadily,
reflecting the larger amounts of currency In circulation.

Payments mechanism developments. A Board of GoYeriiors
policy statement issued on June 17, 1971. placed, high priority on
Federal Reserve System efforts to i nip rove the Nation's payments
system by extending the present clearing arrangements In cities with
Federal Reserve offices and by establishing other regional clearing
facilities. In May 1971 the Denver Branch extended clearing
arrangements to Include 110 hanks located on the eastern slope
of the Rocky Mountains. Clearing arrangements surrounding the
Kansas City, Minneapolis, and Baltimore Federal Reserve offices
had been expanded in 1969 or 1970; As previously noted, a new
facility at Miami was opened in October 1971 by the Federal Reserve
Bank of Atlanta to provide currency and coin and check collection
services for 13 counties In southern Florida.
The Federal Reser¥e Bank of San Francisco announced that,
beginning In 19725 all commercial banks within the Twelfth District
would settle checks on the day of presentation by Federal Reserve
offices,
A simulation model of the Nation's check collection system was
constructed for the Board by TRW of Redondo Beach, California.
The System Steering Committee OE Impro¥lng the Payments Mechanism, will use the model to evaluate potential lmpro¥ements in the
payments mechanism.

Loan guarantees for defense production. Under the Defense
Production Act of 1950, the Departments of the Army, Navy, and

234




Aii

F o i e e , t h e iicfVnsc

Sup»H\

/ N t ' r n v \ of" Ms*.* h t j ^ j i M i u i l

-I <^

(ease, the Departments ot Commerce, Interior, and Agriculture, trie
General Services Administration, the National Aeronautics and
Space Administration, and the Atomic Energy Commission, are
authorized to guarantee loans for defense production made by
commercial banks and other private financing institutions. The
Federal Reserve Banks act as fiscal agents of the guaranteeing
agencies under the Board's Regulation V.
During -1971 the guaranteeing agencies authorized the issuance
of one new guarantee agreement covering a loan of $85,000, Loan
authorizations outstanding on December 31, 1971, totaled $53
million, of which more than $52 million represented outstanding
loans and $200,000 represented additional credit available to borrowers. Of total loans outstanding, 18 per cent on. the average was
guaranteed. During the year approximately $12 million was disbursed on guaranteed loans, most of which are revolving credits.
Authority for the V-loan program, unless extended, will terminate
on June M)A 1972.
Table 11 on page 257 shows guarantee fees and maximum.
interest rates applicable to Regulation V loans.
Foreign and international accounts. Assets held for account of
foreign countries at the Federal Reserve Banks increased $28,108
million in 1971. At the end of the year they amounted to $56,398
million: $10,632 million of earmarked gold; $43,195 million, of U.S.
Government securities (including securities payable in foreign, currencies); $294 million in dollar deposits; $254 million of bankers'
acceptances purchased through Federal Reserve Banks; and $2,023
million of miscellaneous assets. The latter item consists mainly of
dollar bonds Issued by foreign countries and international organizations. Assets held for international and regional organizations, including IMF gold deposits, ir<uv;!M'd Sj.7*>2 million to $ I ! . : ' [ .
million.
In ! ( )7I a new account wa^ upcircJ in \lic name of tiu \ ^:>' •
t*iijTt*iie\ Board. An account in the name of the National BM>\ O|
the C/itfifjp was changed to the Bank of Zaire.
I he 1 ederal Reserve Banks did not make any loans oe gold in
I*;?!.
ilic iVderal Reserve Bank of New York continued to act as de-




235

positary and fiscal agent for international and regional organizations.
As fiscal agent of the United States, the Bank con.tln.ued to operate
the Exchange Stabilization Fund pursuant to authorization and Instructions of the Secretary of the Treasury, Also on behalf of the
'heasury Department, it administered foreign assets control regulations pertaining to assets in the United States of North Vietnam,
C uba, the People's Republic of China (pertaining to assets b l o c k s
K fore May 7, 1971), and North. Korea, and their nationals, and
transactions with those countries and their nationals. The Foreign
Assets Control Regulations were amended to remove controls on ti"1
use of dollars in transactions with the People's Republic of Chi>.:«
and its nationals entered into on or after May 7, 1971.
Bank premises. With the approval of the Board,, the Boston
K'deral Reserve Bank acquired the ren.iaIni.Eg parcel of land needed
l o t * i t s tu;Vw J M I t i d i n g s i t e ,

1'iihic o on \\ige 251 shows the cost and "book value of bank
promises cuit^d and occupied by the Federal Reserve Banks a:H
i-f real estate acquired for banking-house purposes.

236




Board of Governors
Income and expenses. The accounts of the Board for the year
1971 were audited by the public accounting firm of Lybrand, Ross
Bros. & Montgomery.
ACCOUNTANTS' OPINION

Board of Governors of the
Federal Reserve System
We have examined the balance sheet of the Board of Governors of
the Federal Reserve System as of December 31, 1971, and the related
statement of assessments and expenses for the year then ended. Our
examination was made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting records
and such other auditing procedures as we considered necessary in the
circumstances.
In our opinion, the balance sheet and related statement of assessments
and expenses present fairly the financial position of the Board of Governors of the Federal Reserve System at December 31, 1971 and the
results of its operations for the year then ended, in conformity with
generally accepted accounting principles applied on a basis consistent
with that of the preceding year.
Lybrand, Ross Bros. & Montgomery
Washington, D. C.
February 8, 1972




237

BOARD m

GOVERNORS O»- H I E

B-\!

\Nt'E

FEDERAL RESERVE SYSTEM

SHEET

DK-I-MBER 31,

1971

ASSETS
OPERATING

FUND:

Cash....................................................
M i s c e l l a n e o u s receivables a n d a d v a n c e s . . . . . . . . . . . . . . . . . . . . .
S t o c k r o o m a n d cafeteria Inventories a t first-in, first-out c o s t . . .
Total operating
PROPERTY

fund..............................

,2tf

58
39 , il>5
5 Sill

FUND:

792 ,852
284 , 18!
hi 3 . 599
i.
9, 77! ,715

Land and improvements......
Building....................
Furniture and e q u i p m e n t . . . . .
C o n s t r u c t i o n in, p r o g r e s s . . . . .
Total property

16, 522 ,347

fund.

S22,

LIABILITIES A N D F U N D
OPERATING

,975

BALANCES

FUND:

C u r r e n t liabilities:
Accounts payable a n d accrued expenses. . . . . . . . .
I n c o m e taxes w i t h h e l d . . . . . . . . . . . . . . . . . . . . . . . .
Accrued p a y r o l l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,722,014
157,997
327,602
S 2,207,613

Fund balance:
B a l a n c e , J a n u a r y 1, 1 9 7 1 . . . . . . . . . . . . . . . . . . . . . .
Excess of a s s e s s m e n t s o v e r expenses for t h e y e a r
ended December 31, 1 9 7 1 . . . . . . . . . . . . . . . . .

1,120,546
2,269,469
3,390,015

Total operating f u n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTY

5,597,628

FUND:

Fund balance:
B a l a n c e , J a n u a r y 1, 1 9 7 1 . . . . . . . . . . . . . . . . . . . . . .
Additions.................................
Property adjustments and d i s p o s a l s . . . . . . . . . . .

8,868,106
7,720,419
(66,178)

16,522,347
S22,IIM,975
The accompanying notes are an integral part of the financial statements.
[See page 240 for notes.]

238




BOARM « i» I n VERNORS OF THE FEDERAL RESERVE SYSTEM

STATEMENT OF ASSESSMENTS A N D EXPENSES
FOR THE Y E A R E N D E D DECEMBER 31,
1971

ASSESSMENTS LEVIED O N FEDERAL RESERVE B A N K S ;

F o r Board expenses a n d additions t o p r o p e r t y . . . . . . . . . . . . . . . . . .
F o r expenditures m a d e o n behalf of t h e Federal Reserve B a n k s . . . . .

$32,634,000
22,882,713

Total a s s e s s m e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55,516,713

\ PENSES :

I '.xpenditures for printing, issue a n d r e d e m p t i o n of Federal R e s e r v e
N o t e s , paid o n behalf of t h e Federal Reserve B a n k s . . . . . . . . . .
For the Board;
S^iries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,101,752
Hi urement a n d insurance contributions, . . . . . . . .
2,005,986
I i»vel e x p e n s e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
687,419
I ual, c o n s u l t a n t a n d a u d i t f e e s . . . . . . . . . . . . . . . .
431,034
i i 'Utractual s e r v i c e s . . . . . . . . . . . . . . . . . . . . . . . . . . .
346,746
I* ' s i t i n g a n d b i n d i n g — n e t . . . . . . . . . . . . . . . . . . . . .
628,287
I jtiipment a n d other r e n t a l s . . . . . . . . . . . . . . . . . . .
2,189,655
! -lephone a n d t e l e g r a p h . . . . . . . . . . . . . . . . . . . . . .
27l~ , 4 8 9
V tstages a n d e x p r e s s a g e . . . . . . . . . . : . . . . . . . . . . . .
227,229
s ! • t i o n e r y , office a n d either s u p p l i e s , . . . . . . . . . . . .
194,298
iK ut, light a n d p o w e r . . . . . . . " " . . . . . . . . . . . . . . . .
93,778
< »i o r a t i o n o f c a f e t e r i a — n e t . . . . . . . . . . . . . . . . . . . .
121,319
Repairs, maintenance and a l t e r a t i o n s , . . . . . . . . . . .
194,128
!!• Hiks a n d s u b s c r i p t i o n s . . . . . . . . . . . . . . . . . . . . . . .
52,855
S ' ^ t e m m e m b e r s h i p , C e n t e r for Latin A m e r i c a n
' Monetary S t u d i e s . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,338
Miscellaneous—net...........................
135,977

22,882,713

"??.Till. 2911
7 , (-.^4 , 241

For property a d d i t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total e x p e n s e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I \CESS

O F ASSESSMENTS O V E R EXPENSES, . . . . . . . . . . . . . . . . . . . . . . . . .

'^",247,214
\

2

KM.

iw

T h e a c c o m p a n y i n g notes a r e a n integral p a r t of t h e financial statements.




(See p a g e 2 4 0 f o r not.es.]

239

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

NOTES TO FINANCIAL STATEMENTS
ACCOUNTING METHODS

The Board has consistently followed the practice of not providing for
depreciation on fixed assets. Acquisitions are charged to expense and proceeds
from sales of fixed assets are recorded as income. The property accounts are
increased or reduced at full cost, with corresponding increases or decreases In
the property fund balance when property is acquired or sold,
Assessments and expenditures made on behalf of the Federal Reserve
Banks for the printing, issuance and redemption of Federal Reserve Notes are
recorded on. the cash basis and produce results which are not materially different from, those which would have been produced on the accrual basis of
accounting.
LONG-TERM LFASES

The Board leases outside office space at an annual rental of $667,918
under leases -expiring in 1973. These leases may be terminated with six months
notice.
CONSTRUCTION

The Martin Building and North Garage are currently under construction.
Estimated cost is $39,400,000, a portion of which will be recovered from the
Department of Interior under an agreement whereby the Board will build the
North Garage (including the above ground park). The garage will be for the
use of both Federal Reserve and Department of Interior employees.
RETIREMENT PLANS

There are two contributory retirement programs for employees of the
Board, About 77% of the employees are covered by the Federal Reserve Board
plan. All new members of the staff who do not come directly from a position
in the Government are covered by this plan. The second, the Civil Service
Retirement Plan, covers all new employees who come directly from Go¥ernment
service. Employee contributions and benefits are the same under both plans
aiiit are based upon the Civil SerYice Plan.
Under the Civil Service Plan, Board contributions match employee payroll
deductions while under the Federal Reserve Plan, Board contributions are
actuarially determined annually.
Additionally, employees of the Board have been authorized to- participate
in the Federal Reserve System's Thrift Plan. Under this plan, the Board adds
a fixed percentage to allowable employee savings.
Total Board contributions to these plans In 1971 totaled $1,831,173,
There are no unfunded prior service costs under either plan,

240







(Statistical Tables

1. DETAILED STATEMENT OF CONDITION OF ALL FEDERAL RESERVE BANKS COMBINED, DECEMBER 31, 1971
(In thousands of dollars)

Gold certificates on hand
Gold certificates due from U.S. Treasury:
Interdistrict settlement fund
F.R. Agents' fund

ASSETS

1,278
7,204,114
2,670,000

Total gold certificate account
Special Drawing Rights certificate account
F.R. notes of other F.R. Banks
Other cash:
United States notes
Silver certificates
National bank notes and F.R. Bank notes
Coin

9,875,392
400,000
1,134.453
146
18
25
259,819

Total other cash
Discounts and advances secured by U.S. Govt. obligations:
Discounted for member banks
Discounted for others

:
39,337

Other discounts and advances:
Discounted for member banks
Foreign loans on gold

160

Total discounts and advances
Acceptances:
Bought outright
Held under repurchase agreement
Federal agency obligations:
Bought outright
Held under repurchase agreement
U.S. Govt. securities:
Bought outright:
Bills
Certificates
Notes
Bonds

485,010
101,400
30,155,445
35,553.883
3.286,326
68,995,654
1,222,305
70,217.959
71.104.448
14,797,423
299,567
552,283

Total cash items in process of collection
Bank premises:
Land
Buildings (including vaults)
Fixed machinery and equipment
Construction account

15,649.273
114,347
72,381
46,622

Total buildings
233,350
Less depreciation allowances
119,336
Total bank premises
Other assets:
Claims account closed banks
,
Denominated in foreign currencies
Gold due from U.S. Treasury for account International Monetary Fund
Reimbursable expenses and other items receivable
Interest accrued
,
f
Premium on securities
,..
Deferred charges
Real estate acquired for banking-house purposes
Suspense account
AH other

242




160

79,663
180,919

Total loans and securities
Cash items in process of collection:
Transit items
Exchanges for clearing house
Other cash items

Total assets

39,337

39,497

Total bought outright
Held under repurchase agreement
Total U.S. Govt. securities

Total other assets.

260,008

,

,
,,...,,.

,

37,621

114,014
151,635
17,109
143,914
7,750
615,876
61,920
3,415
22,697
39,265
5,430
917,376
99,492,585

I.—CONTINUED

LIABILITIES
F.R. notes:
Outstanding (issued to F.R. Banks)
Less: Held by issuing F.R. Banks
Forwarded for redemption

2,506,942
26,523

57,489,206
2,533,465

F.R. notes, net (includes notes held by U.S. Treasury
and by F.R. Banks other than issuing Bank)
Deposits:
Member bank reserves
U.S. Treasurer—General account
Foreign
Other deposits:
Nonmember bank—Clearing accounts
Officers' and certified checks
Reserves of corporations doing foreign banking or
financing
International organizations
Secretary of Treasury special account
All other

54.955,741
27,747,574
2,027,019
294,042
55,445
13,659
79,185
249,554
267,860
708,544

Total other deposits

1,374,247

Total deposits
Deferred availability cash items

31.442.882
10,962,678

Other liabilities:
Accrued dividends unpaid
Unearned discount
Discount on securities
Sundry items payable
Suspense accounts
All other

503
592, 367
11, 559
41, 314
1, 173
646 .916

Total other liabilities.

<
>8.008 .217

Total liabilities

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts x
Total liabilities and capital accounts
Contingent liability on acceptances purchased for foreign correspondents

742,184
742,184
99,492,585
254,486

1
During the year this item includes the net of earnings, expenses, profit and loss items, and accrued
dividends, which are closed out on Dec. 31; see Table 7, pp. 252 and 253.

NOTE.—Amounts in boldface type indicate items shown in the Board's weekly statement of condition
of the F.R. Banks.




243

•^ 2. STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1971 AND 1970
(In millions of dollars unless otherwise indicated)
Total

Boston

New York

Philadelphia

Richmond

Cleveland

Item
1971

1970

9,875
400
1,135
261

10,457
400
1,063
221

39

22
312

80
181

1970

1,957
93
164
21

1,942
93
187
20
16
88

80
181

57

1971

17

1970

1971

57

1970

1971

1970

1971

1970

1971

ASSETS
Gold certificate account
Special Drawing Rights certif. acct
F.R. notes of other F.R. Banks
Other cash
Discounts and advances:
Secured by U.S. Govt. securities
Other
Acceptances:
Bought outright
Held under repurchase agreements

.

..

Federal agency obligations:
Bought outright
Held under repurchase agreements

485
101

U.S. Govt. securities:
Bought outright
Held under repurchase agreements

1

Total assets




591
23
131
10

*

117
101

23

1

471
23
82
11

721
23
60
10

973
33
69
27

1,095
33
67
25

*

894
36
100
38

1,044
36
83
13

3

39

27

36

3,334

3,040

16,714
1,222

15,844

3,823

3,261

5,492

4,848

5,162

4,626

62,533

3,357

3,040

18,432

16,005

3,850

3,261

5,531

4,848

5,201

4,626

15,648
150
. . .

62,142

71,104

Total loans and securities
Cash items in process of collection
Bank premises
Other assets:
Denominated in foreign currencies .
IMF gold deposited 2
All other

572
23
144
9

14,249
128

840
2

780
2

2,922
8

2,810
8

803
3

694
3

981
24

912
12

1,088
13

996
11

17
144
757

257
166
572

1

12

68
166
145

13

2

23

1

13

42

4
144
183

1

58

39

30

54

43

53

45

99,491

90,046

5,006

4,631

23,928

21,444

5,283

4,815

7,694

7,058

7,424

6,867

68,996
1,222

LIABILITIES
54,954

5 1 , 386

2,925

2,919

13,462

12, 196

3,237

? 934

4 473

4, 198

4 803

4 604

27,748
2,020
294

24, 039
1
148

1,116
149
13

875
52
6

6,960
387
88

6, 162
337
56

1,164
155
14

163
64
6

969
164
?5

1, 813
76
11

515
98
14

1, 307
39
7

144
1,237

166
1, 067

17

15

144
706

166
571

24

31,443

?6, 576

1,295

948

8,285

7, 292

1,357

Deferred availability cash items
Other liabilities and accrued dividends

10,963
647

10, 098
582

689
29

669
29

1,627
168

1, 439
147

Total liabilities

98,007

88 64?

4,938

4,565

23,542

742
742

70?
702

34
34

33
33

99,491

90, 046

5,006

254

250

57,490
2,536
54,954

F.R. notes
Deposits:
Member bank reserves
U S Treasurer—General account
Foreign
.
Other:
IMF gold deposits 2
All other

. . .

Total deposits

41

29

668

1 382

764
46

834
43

767
42

7 ,558

6, 932

7, 348

6 795

36
36

68
68

63
63

38
38

36
36

5,283

4 ,815

7 ,694

7, 058

7, 424

6 867

66

13

13

23

22

13

13

14,063

12, 811

3,335

3 ,003

4 691

4, 368

4, 962

4 741

601

615

98

69

218

170

159

137

2,919

13,462

12, 196

3,237

2 ,934

4 ,473

4 198

4, 803

4 604

175
3,000

250
2,840

500
13,800

500
12, 400

300
3,150

300
2 ,800

350
4 ,400

510
3 900

485
4 520

610
4 160

3,175

3,090

14,300

12, 900

3,450

3 ,100

4 ,750

4 410

5 005

4 ,770

33

24

250

2 ,191

1, 924

581
32

529
30

847
47

2 1 , 074

5,207

4 743

193
193

185
185

38
38

4,631

23,928

2 1 , 444

12

12

66

745

3,107

3,055

2, 359

182

136

51, 386

2,925

2,670
55,875

3 330
51 415

58,545

54, 745

17
j

j

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts
Total liabilities and capital accounts.
Contingent liability on acceptances purchased for
foreign correspondents
F.R. NOTE STATEMENT
F.R. notes:
Issued to F.R. Bank by F.R. Agent and 3Utstanding....
Less held by issuing Bank, and forwarded for
redemption
F.R. notes, n e t 3
Collateral held by F.R. Agent for notes issued to
Bank:
Gold certificate account.
U.S. Govt. securities
Total collateral

For notes see end of table.




2. STATEMENT OF CONDITION OF EACH FEDERAL RESERVE BANK, DECEMBER 31, 1971 AND 1970—Continued
(In millions of dollars unless otherwise indicated)

Item

Atlanta
1971

St. Louis

Chicago

1970

1971

1970

1,785
70
82
28

2,210
70
60
32

3

Minneapolis

1970

3
224

1971

Kansas City

1970

1971

1971

San Francisco

Dallas

1970

1971

1970

1971

1970

1,833
49
129
30

1,046
" 49
113
32

ASSETS
Gold certificate account
Special Drawing Rights certif. acct
F.R. notes of other F.R. Banks. . .
Other cash

375
22
205
32

555
22
222
30

Discounts and advances:
Secured by U.S. Govt. securities
Other

469
15
32
12

25
7
31
8

161
7
31
6

546
15
41
26

424
15
37
17

*

346
15
40
17

1

*

5

3

98
14
48
14

199
14
40
14

10

Acceptances:
Bought outright
Held under repurchase agreements
Federal agency obligations:
Bought outright
Held under repurchase agreements

27

U.S. Govt. securities:
Bought outright
Held under repurchase agreements

3,784

3,229

11,282

9 786

2 649

2,279

1 252

1 219

2,795

2 427

3 180

2 814

9 529

8 769

3,811

3,229

11,364

10 013

2 668

2,279

1,262

1,219

2,820

2 430

3 202

2 814

9 606

8 769

1,528
16

1,456
17

2,498
16

2,327
17

854
15

671
12

709
19

467
12

969
17

929
18

1,102
9

874
8

1,354
8

1,333
8

Total loans and securities
Cash items in process of collection
Bank premises
Other assets:
Denominated in foreign currencies
IMF gold deposited 2
All other
Total assets




79

19

9

20

22

67

1

17

2

38

1

9

*

6

1

11

1

14

2

33

41

28

113

86

26

20

15

10

28

21

33

25

114

77

6,031

5,576

15,958

14,853

3,982

3,519

2,076

1,919

4,463

3,902

4,521

4,002

13,125

11,460

LIABILITIES
F R notes
Deposits:
Member bank reserves
U S Treasurer—General account
Foreign
Other:
IMF gold deposits2
All other

2,809

...

2,645

9 573

9,003

2,119

1,951

914

875

,045

1 ,878

133

946

6,461

6,237

1,725

1,606

3,430

1,015
154
10

623
49
3

1 ,328
164
12

1 ,104
96
5

1 437
83
16

3,814

103
19

682
59
6

5,086

79
8

885
74
4

1 257

139
19

3 ,751
255
42

57
7

213
35

130
16

57

15

137

282

27

11

13

5

81

12

20

15

81

71

1,940

1,708

4 185

3,834

1,206

974

760

680

1 ,585

1 ,717

1 556

1 336

5,415

4,031

1,150
32
5,931

1,100
29

1 ,884

94

1,714
92

585
22

525
21

356
12

320
12

746
23

724
23

715
35

617
25

949
110

930
86

5,482

15 ,736

14,643

3,932

3,471

2,042

1,887

4 ,399

3 ,842

4 ,439

3 924

12,935

11,284

50
50

47
47

111
111

105
105

25
25

24
24

17
17

16
16

37
32

30
30

41
41

39
39

95
95

88
88

Total liabilities and capital accounts.

6,031

5,576

15 ,958

14,853

3,982

3,519

2,076

1,919

4 ,463

3 ,902

4 ,521

4 ,002

13,125

11,460

Contingent liability on acceptances purchased
for foreign correspondents

17

16

38

37

9

8

6

5

11

11

14

14

32

33

3,039

2,857

9 ,909

9,340

2,212

2,037

948

911

,124

1 ,956

,061

6,825

6,605

230

212

336

337

93

86

34

36

79

78

142

115

364

368

2,809

2,645

9 ,573

9,003

2,119

1,951

914

875

2 ,045

1 ,878

2 ,133

1 ,946

6,461

6,237

3,100

2,900

700
9 ,300

1,000
8,450

2,130

1,930

970

930

2 ,175

1 ,975

5
2 ,330

5
2 ,130

7,000

7,000

3,100

2,900

10 ,000

9,450

2,285

2,085

970

930

2 ,175

1 ,975

2 ,335

2 ,135

7,000

7,000

Total deposits
Deferred availability cash items
Other liabilities and accrued dividends
Total liabilities
CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital, accounts

F.R. NOTE STATEMENT
F.R. notes:
Issued to F.R. Bank by F.R. Agent and
outstanding. .
Less held by issuing Bank, and forwarded for redemption
F.R. notes, net 3 . . .
Collateral held by F.R. Agent for notes
issued to Bank:
Gold certificate account
U.S. Govt. securities
Total collateral

• Less than $500,000.
* Includes securities loaned—fully secured by U.S. Govt. securities pledged
with F.R. Banks.
2
Gold deposited by the IMF to mitigate the impact on the U.S. gold stock of
purchases by foreign countries for the purpose of making gold subscriptions to




155

155

the IMF under quota increases. The United States has a corresponding gold
liability to the IMF.
3
Includes F.R. notes held by U.S. Treasury and by F.R. Banks other than the
issuing Bank.

3. FEDERAL RESERVE BANK HOLDINGS OF U.S. GOVERNMENT
AND FEDERAL AGENCY SECURITIES, DECEMBER 31, 1969-71
(In thousands of dbllars)

Type of issue
and date

Rate of
interest
(per cent)
1971

Total

248



155,007
58,066
88,652
125,358

196,650
149,250
264,150
379,950
180,300
291,850
67,500
124,440
76,250
121,700
73,450
105,000
46,800
206,770
462,165
24,300
71,625
84,250
2,100
30,750

Total.
Treasury notes:
May 15, 1970—B..
May 15, 1970—C..
Aug. 15, 1970—D..
Nov. 15, 1970—A..
Feb. 15, 1971— C.
Feb. 15, 1971—D..
May 15, 1971—A..
May 15, 1971—E..
Aug. 15, 1971—F..
Nov. 15, 1971— B . .
Nov. 15, 1971—G..
Feb. 15, 1972—A..
Feb. 15, 1972—C.
Apr. 1, 1972—EA
May 15, 1972—B..
May 15, 1972—D..
Aug. 15, 1972—E..
Nov. 15, 1972—F..
Feb. 15, 1973—C.
Feb. 15, 1973—D..
May 15, 1973—A..
Aug. 15, 1973—B..
Feb. 15, 1974—C.
May 15, 1974—D..
Aug. 15, 1974—B..
Nov. 15, 1974—A..
Feb. 15, 1975—A..
Feb. 15, 1975—E..
May 15, 1975—B..
Aug. 15, 1975—C.
Nov. 15, 1975—D..
Feb. 15, 1976—A..
May 15, 1976—B..
Aug. 15, 1976—C.
Nov. 15, 1976—D..
Feb. 15, 1977—A..
Aug. 15, 1977—B..
Feb. 15, 1978—A..
Nov. 15, 1978—B..

1970

89,066
107,652
130,358

Treasury bonds:
1965-70
1966-71
1967-72 June
1967-72 S e p t . . . . . .
1967-72 Dec
1970 Feb
1970 Aug
1971 Aug
1971 Nov
1972 Feb
1972 Aug
1973 Aug
1973 Nov
1974 Feb
1974 May
1974 Nov
1975-85
1978-83
1980 Feb
1980 Nov
1981 Aug
1985 May
1986 Nov
1987-92
1988-93
1989-94
1990 Feb
1995 Feb
1998 Nov

3,286,326

5
53A
5M
5V8
1V2
\XA
6%
6

1

Increase or decrease (—)
during—

December 31

188,400
259,650
196,650
125,950
199,150
312,400
140,900
254,450
52,700
98,740
18,750
73,200
40,950
31,300
337,900
23,500
45,350
80,450
2,100
30,750
2,940,323

73,590
63,400
1,577,650
455,799
285,890
80,650
7,232,950
'139,866'
137,300
224,990
233,790
1,800
1,800
2,381,460 2,370,610
111,500
128,500
1,345,449
43,200
81,600
1,718,000
2,618,093 2,607,793
222,500
201,500
249,750
180,750
951,750
888,250
5,179,982 5,005,282
1,849,000 1,103,150
1,075,550
994,550
31,000
3,721,797 3,707,297
2,313,797
389,815
2,506,500 2,506,000
334,550
307,600
656,700
608,700
15,500
2,391,900
;.356
309,200
217,000
2,461,650
2,201,250
35,553,883

1969

1971

573,540
154,007 - 1 5 5 ,007
55,566
31 ,000
47,552
19 ,000
99,858
5 ,000
107,850
169,750
184,400 ' - i 8 8 ,'406"
255,900 - 2 5 9 ,650
165,650
120,050
23,300
179,150
65,000
295,350
67,550
123,650
39,400
239,650
37,400
46,700
14,800
90,340
25,700
6,250
57,500
66,200
48,500
33,850
32,500
105,000
15,500
27,800
206,770
285,200
124,265
23,500
800
42,350
26,275
3,800
74,450
2,100
25,750
3,496,413

346,003

1970

573,540
1,000
2,500
41,100
25,500
107,850
169,750
4,000
3,750
31,000
5,900
20,000
17,050
17,250
14,800
6,000
8,400
12,500
7,000
7,100
3,500
52]700'
3,000
6,000
5,000
-556,090

-5,297,750
5,297,750
-6,123,543
6,123,543
-305,590
305,590
-1,179,250
1,179,250
3,000
70,590
-73,590
17,000
46,400
-63,400
5,800
1,571,850 -1,577,650
20,200
435,599
-455,799
285,890
-285,890
79,650
1,000
-80,650
-7,232,950 7,232,950
18,000
2,500
"ii9,"3oo"
224,990
8,800
1,800
2,357,660
10,850
i2,950
17,000
111,500
,345,449
43,200
81,600
1,718,000
130,500"
10,300 2,477,293
21,000
201,500
69,000
180,750
63,500
888,250
174,700
66,900
'4,'938,'382'
1,092,050
11,100
745,850
954,650
81,000
39,900
31,000
14,500
3,692,297
15,000
2,313,797
389,815
2,506,666
500
292,100
15,500
26,950
196,900
411,800
48,000
15,500
99,550 2,292,350
217,000
92,200
2,461,650
2,201,250

33,236,351 31,391,861

2,317,532

1,844,490

3. —CONTINUED

Type of issue
and date

Rate of
interest
(per cent)

Increase or decrease (—)
during—

December 31
1971

1969

1970

1971

1970

Treasury bills:
Tax anticipation
Other due—
Within 3 mos
3-6 mos
After 6 mos

606,500

-649,850

144,750

18,670,225 14,128,084 12,522,479
7,825,570 7,740,070 6,679,301
3,345,450 2,456,956
3,558,250

4,542,141
85,500
212,800

1,605,605
1,060,769
888,494

Total

30,155,445 25,964,854 22,265,236

4,190,591

3,699,618

101,400

751,250

1,222,305

Repurchase agreements.

1,222,305

Total holdings

70.217.959 62,141.528 57.153,510

8.076.431

4.988.018

Maturing—
Within 90 days
91 days to 1 year. . . .
Over 1 year to 5 years.
Over 5 years to 10 yrs.
Over 10 years

19,741,270 14,670,481 13,315,369
16,583,455 21,667,359 22,707,140
25,099,634 19,089,048 12,811,264
7,664,150 6,045,800 7,641,947
1,129,450
677,790
668,840

5,070,789
-5,083,904
6,010,586
1,618,350
460,610

1,355,112
-1,039,781
6,277,784
-1,596,147
-8,950

Federal agency issues:
Held outright
Held under Rp's..

485,010
101,400

485,010
101,400

4. FEDERAL RESERVE BANK HOLDINGS OF SPECIAL SHORT-TERM
TREASURY CERTIFICATES PURCHASED DIRECTLY FROM THE
UNITED STATES, 1954-71
(In millions of dollars)
Amount

Date

Jan.

1954
14

22
169
169
169
323
424
323
306
283
283
283
203
3
134
190

15
16
17*
18
19
20
21
22
23
24*
25
26

Mar.

15
16

1955
1956
1957
1958
Mar. 17
18

]

\ none

1959
1960
1961
1962
1963
1964
1965

1966
Dec. 9
10
11*

1967
Mar. 10

11
12*

June 15
Sept. 8
143
207

Amount

Date

9
10*

I

1 none
•

Date
1968
Sept. 9
Dec. 10

12
13
14
15*
16
17

Amount

87
92
45
430
430
430
447
596

169
169
169

1969
Apr. 8
149
149
149
87
153
153
153

9
10
11
12
13*
14
15
16

151
519
490
976
976
976
514
502
627

Date
1969
Sept. 5

6
7*
8
9
10
11
12
13
14*
15
16

1970
1971
June 8

9
10
11
12*
13*
14
15
16

Amount

322
322
322
653
830

1,102
862
759
759
759
513
972

none
79
582
610
593
593
593
243
588
349

* Sunday or holiday.
NOTE.—Under authority of Section 14(b) of the Federal Reserve Act. On Nov. 9, 1953, the F.R.
Banks sold directly to the Treasury $500 million of Treasury notes; this is the only use that has been
made under the same authority to sell U.S. Govt. securities directly to the United States.
Interest rate 34 per cent through Dec. 3, 1957, and 34 per cent below prevailing discount rate of
F.R. Bank of New York thereafter. Rate on purchases in 1958 was 2 per cent. For data for prior years
beginning with 1942, see previous ANNUAL REPORTS. N O holdings on dates not shown.




249

5. OPEN MARKET TRANSACTIONS OF THE FEDERAL RESERVE
SYSTEM DURING 1971
(In millions of dollars)
Outright transactions in U.S. Govt. securities by maturity
Treasury bills

Total

Other within 1 year

Month
Gross
purchases

Gross
sales

January
February
March
April.
May..
June
July
August. . . ; .
September...
October
November...
December...

1,515
5,832
3,142
2,229
1,291
1,955
2,067
1,818
2,102
772
1,883
3,160

1,547
5,153
2,523
1,298
248
1,165
1,617
1,024
1,088
1,133
1,070
1,981

Total...

27,765

Redemp- Gross
purtions
chases

19,847

1,515
5,347
2,600
2,033
1,163
1,893
2,067
1,709
1,818
772
1,129
3,055

327
240
50
37
127
83
200
1,064

25,101

Exch.
or
maturity
shifts

Gross
purchases

174
263
119
46
38

4,092

189
205
62
82
11

84
189

-444
-104

406
21

1,478
-130

16
34
267
67

1,338

4,672

Gross
sales

-2
-136
-82

Repurchase
agreements
(U.S. Govt. securities)

Gross
purchases

Gross
sales

Net
change
inU.S.
Govt.
securities

Gross
sales

Gross
sales

327

Exch.,
maturity
shifts,
or
redemp.

-3,732

240
50

2
464
82

37
127
83

46

991
104

200

24
11

-3,548
130

1,064

81

-5,507

Over 10 years
Exch.
or
maturity
shifts

933

Gross
purchases

Total...

1, 547
5, 153
2, 523
i , : 19%
248
L, L65
l,<517
l,<)24
)88
l,( 133
I, )70
M>81
•c
19,847
5-10 years

1-5 years

January
February
March
April
May
June
July
August
September...
October.
November...
December...

Redemp- Gross
purtions
chases

Gross
sales

Gross
purchases

-360

Gross
sales

Exch.
or
maturity
shifts

121
74
16

-327

14

-547

8
14

i,920

58
6

150

685

311

150

Federal agency
obligations (net)

Outright

January
February
March
April
May
June
July
August
September...
October
November...
December...

2,298
4,183
6,561
5,085
4,076
1,165
3,044
2,184
3,697
2,616
5,003
4,830

2,298
4,183
5,242
6,404
4,076
1,165
3,044
1,951
3,930
2,616
5,003
3,607

-359
679
1,698
-439
1,043
754
323
1,027
698
-361
613
2,401

61
35
244
145

Total...

44,741

43,519

8,076

485

Repurchase
agreements

186
-186

69
-69

Bankers' acceptances

Outright,
net

2
-5
3
8
-1
—7
-3

101

1
6
22

101

22

Under
repurchase
agreements,
net

Net
change 1

181

-357
673
1,968
-707
1,099
705
316
1,148
634
-326
862
2,850

181

8,866

85
-85
48
-48
55
-55

* Less than $500,000.
Net change in U.S. Govt. securities, Federal agency obligations, and bankers' acceptances.
NOTE.—Sales, redemptions, and negative figures reduce System holdings; all other figures increase
such holdings.
1


9SO


6. BANK PREMISES OF FEDERAL RESERVE BANKS AND
BRANCHES, DECEMBER 31, 1971
(In dollars)
Cost
F.R. Bank
or branch

Land

Buildings
(including
vaults)!

Fixed machinery and
equipment

Total

Net
bock value

Boston

1,628,132

5,929,169

2,943,179

10,500,480

2,241,147

New York
Annex
Buffalo

5,215,656
592,679
673,076

13,601,153
1,491,116
2,562,224

7,753,680
716,472
1,565,400

26,570,489
2,800,267
4,800,700

5,264,520
477,863
2,537,675

,

Philadelphia

1,884,357

5,993,559

2.154,452

10,032,368

3,281,013

Cleveland
Cincinnati..
Pittsburgh

1,295,490
1,332,666
1,667 994

6,635,177
20,004,899
3,116,297

3.572,665
1,587,495
2,525.243

11,503,332
22,925,060
7 309,534

1,015,798
20,078,233
3,162.177

Richmond. .
Annex 1
Annex 2
Baltimore
Charlotte...

2,342,774
146,875
388,263
801,779
347,071

4,546,360
256,000
3,435,090
2,009,381
1,069.026

2,500,681
2,313
2,885,898
1,097,455
625.121

9,389,815
405.188
6,709,251
3,908,615
2,041,218

3.624,550
225,808
6,351,960
1,786,786
1.076,737

Atlanta.. .
Birmingham...
Jacksonville
Annex.
Nashville . .
New Orleans

1 304,755
410,775
164,004
107,925
592,342
1,557,663

5,804,778
2,000,619
1,706,794
76,236
1,474,678
2,754,271

3.558,580
1.019,618
778.871
15,842
1,098,924
1,448,181

10,668,113
3,431,012
2,649,669
200.003
3,165|944
5,760,115

6,545,994
1,763,424
1,276,581
176,427
1,683,604
4,843,987

6,275.490
1,147,734

17.656,976
3,036,377

10,423,477
1,641,650

34,355,943
5,825,761

13,868,270
2,607,666

1,675,780
800,104
700,075
731,122

3,243,488
1,963,152
2,859,819
6,862,578

2,589,232
965,202
1,056,659
218,883

7,508,500
3,728,458
4,616,553
7,812,583

1,429,274
3,139,891
2,790,094
7,322,669

,

358 014
15,709

18 326,366
126,401

62,977

18 684 380
205,087

18 684,380
47,751

Kansas C i t y . . .
Denver
Oklahoma City.
Omaha

1,340,561
2,997,747
647,686
996 489

7,465,459
3,239 882
1,511,600
1 585 536

3,035,260
2,233,403
853,051
731,925

11,841,280
8,471 032
3,012,337
3 313.950

5,813,503
7 646 220
1,872]311
2,075 564

Dallas
El Paso
Houston. . .
San Antonio

713,302
262,477
1,915,716
448,596

4,922,659
789,199
1,408,575
1,442,742

3,570,804
393,301
714,187
570,847

9,206,765
1,444,977
4 038 478
2,462,185

3,679,723
831,111
3 190 878
1,471,221

684,339
247,201
777,614
207,380
480,222
274,772

3,783,530
124,000
4,103,844
1,678,512
1,878,238
1,890,966

1,801,463
30,000
1,608,576
649,432
707,575
1,058,744

6,269,332
401,201
6,490,034
2,535,324
3,066,035
3,224,482

644,322
338,961
2,527,998
1,192,107
1,870,123
1,376,641

Chicago
Detroit

,

...

St. Louis
Little Rock.
Louisville
Memphis,
Minneapolis
Helena

San Francisco
Annex
Los Angeles
Portland. . .
Salt Lake City
Seattle
Total

....

46,152,406 174,366,726

72,766,718 293,285,850 151,634,962

OTHER REAL ESTATE ACQUIRED FOR BANKING-HOUSE PURPOSES
Boston
Philadelphia
Cleveland
Richmond
Charlotte
Helena
Los Angeles
Total
1

20,061,816
1,374,515
395,875
326,403
195,404
53,770
245,082
22,652,865

38i,666

381,000

20,061,816
1,374,515
776,875
326,403
195,404
53,770
245,082

20,061,816
1,374,515
440,325
326,403
195,404
53,770
245,082

23,033,865

22,697,315

Includes expenditures for construction at some offices pending allocation to appropriate accounts.




251

7. EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1971
(In dollars)

Total

Item

Boston

New
York

Cleveland

Philadelphia

Richmond

Atlanta

Chicago

St. Louis

Minneapolis

Kansas
City

Dallas

San
Francisco

CURRENT EARNINGS
591,732
602,930
968,532 i.120,367 8,733,021
73,777
87,784
20,785,310 1,621,592 4,926,126
326,985
4,017,310
4,017,310
3,694,676,122 178,996,770 948,998,950 192,791,951 284,093,700 270,720,510 185,193,555 600,673,056 136,656,592 72,376,648 144,523,731
135,077
124,890
237,964
176,638
2,648,052
696,980
135,076
90,051
395,960
60,509
111,240
27,018
31,448
67,431
34,681
74,526
36,041
1,243,127
145,150
70,693
53,090
592,373

Discounts and advances
Acceptances
U.S. Govt. securities.. .
Foreign currencies
All other

398 419

1,334,045
509,924,388
335,348
65,883

3,723,369,921 180,774,700 959,231,739 193,545,778 285,002,025 271.858,799 186,565,086 609,947,187 136,856,461 72,595,634 145,015,046: 170,317,802 511,659,664

Total.

CURRENT EXPENSES
Salaries:
Officers
Employees
Retirement and other benefits..
Fees—Directors and others
Traveling expenses
Postage and expressage
Telephone and telegraph
Printing and supplies
Insurance
Taxes on real estate
Depreciation (buildings)
Light, heat, power, and water. .
Repairs and alterations
Rent
Furniture and equipment:
Purchases
Rentals
All other
Inter-Bank expenses
Subtotal
F.R. currency
Assessment for expenses
Board of Governors

of

Total.




929,259 3,086,718
14,802,481
171,903,441 10,978,342 44,160,844
34,193,811 2,312,721 8,088,689
126,130 1,308,553
3,594,882
705,391
292,822
4,511,495
2,538,146 4,916,748
39,994,681
875,947
208,652
4,031,183
823,513 2,681,730
14,446,257
146,746
40,476
638,896
940,578 1,349,216
8,347,964
171.664
825,755
5,246,584
216,254
617,874
3,365,213
63,439
248,054
2,173,458
424,546 1,852,027
2,694,100
12,188,682
19,328,125
6,662,779

328,556 2,317,296
1,158,212 2,666,867
410,623 1,529,582
110,028 -1,442,039

986,454
854,151 1,248,156 1,171,194 1,356,750
7,830,591 10,778,588 13,490,323 12,614,779 23,301,248
1,575,149 2,296,178 2,749,093 2,529,595 4,363,985
195,809
157,019
348,413
173,024
249,329
157,653
581,967
313,790
360,770
512,804
1,447,744 3,379,861 4,726,117 3,942,585 4,961,391
163,518
177,032
519,131
351,196
468,018
736,512
840,846 1,429,139 1,381,964 1,948,924
56,882
21,136
47,034
44,938
56,371
485,857 1,494,045
202,716
490,388
343,465
780,812
76,596
214,529
520,510
662,271
298,581
129,380
337,312
295,347
461,093
123,500
119,858
365,002
122,903
235,588
138,304
102,850
32,384
55,727
68,779

1,223,904
9,593,667
2,021,137
146,379
290,713
2,736,394
245,800
1,022,559
44,957
333,200
254,494
217,637
353,985
11,130

6,606,427
1,315,621
344,147
329,825
1,763,778
149,781
603,351
26,527
999,328
62,957
136,492
50,475
582

222,764
1,078,089
389,835
115,670

960,414
1,371,848
348,400
91,015

145,847
864,356
264,938
59,886

440,038
883,016
521,325
207,535

792,399
1,883,694
277,877
-197,998

841,194
1,511,669
296,361
171,603

1,048,000
3,060,847
1,377,149
347,942

111,642

1,006,007
9,962,016
2,046,057
157,576
298,724
2,599,748
1,061,977
36,678
579,533
850,290
302,951
132,566
4,269

883,114 1,279,132
7,712,050 14,874,566
1,585,403 3,310,183
156,620
231,833
245,067
421,969
2,325,536 4,656,633
265,776
295,578
690,638 1,225,104
33,072
84,079
757,053
372,585
379,528
447,178
191,825
160,467
142,675
215,413
1,639
1,863

4,155,797
2,065,912
477,478
106,950

413,621
1,160,988
515,823
139,520

310,754

522,756
1,622,627
253,388
289,886

348,124,031 22,073,961 75,935,998 15,505,201 22,093,929 28,955,902 27,794,392 45,974,534 21,267,633 14,501,960 26,155,283 17,257,084 30,608,154
688,853 1,035,019 1,437,203 3,093,535
24,942,528 1,473,226 5,176,618 1,508,467 1,495,287 2,203,948 1,956,256 3,611,569 1,262,547
32,634,002

1,518,000

8,560,400

1,679,798

2,946,100

1,674,400

2,190,200

4,893,000

1,112,700

737,700

1,381,700

1,820,004

4,120,000

405,700,561 25,065,187 89,673,016 18,693,466 26,535,316 32,834,250 31,940,848 54,479,103 23,642,880 15,928,513 28,572,002 20,514,291 37,821,689

Less reimbursement for certain
fiscal agency and other expenses
..
Net expenses

28,515,761

1,431,540

6,002,321

1,264,157

2,609,734

1,671,533

2,252,481

5,076,057

1,730,477

848,145

1,911,651

953,323

2,764,342

377,184,800 23,633,647 83,670,695 17,429,309 23,925,582 31,162,717 29,688,367 49,403,046 21,912,403 15,080,368 26,660,351 19,560,968 35,057,347
PROFIT AND LOSS

Current net earnings
Additions to current net earnings:
Profits on sales of U.S.
Govt. securities
Allother
Total additions
Deductions from current net
earnings:
Losses on foreign exchange
transactions
All other
Total deductions. . . .
Net addition
earnings

to current net

3,346,185,122 157,141,053 875,561,044 176,116,469 261,076,444 240,696,083 156.876,719 560,544,140 114,944,059 57,515,266 118,354,694 150,756,834 476,602,317

101,969,630
7,599,394

5,079,942 26,059,947
46,386
100,663

5,217,742
2,445

7,866,249
470,646

7,629,142
117,202

5,071,922 16,418,733
16,400
30,270

3,766,685
2,975

2,032,385
6,766,167

3,983,060
21,422

4,646,106 14,197,717
8,287
16,531

109,569,024

5,180,605 26,106,333

5,220,187

8,336,895

7,746,343

5,088,322 16,449,003

3,769,661

8,798,552

4,004,482

4,654,393 14,214,248

215,503
3,020

188,175
6,763,515

343,624
9,236

458,165
6,847

1,030,871
22,394

218,523

6,951,690

352,860

465,012

1,053,265

3,551,138

1,846,862

3,651,622

8,118,845
7,184,102

384,531
32,960

2,151,738
58,665

417,257
3,143

736,336
96,102

417,257
53,180

548,161
55,749

1,227,227
79,291

15,302,947

417,491

2,210,403

420,400

832,438

470,437

603,910

1,306,518

4,763,114 23,895,930

4,799,787

7,504,457

7,275,906

94,266,076

4,484,412 15,142,485

4,189,381 13,160,982

Net earnings before payments to
U.S. Treasury

3,440,451,196 161,904,,167 899,456,974 180,916,256 268,580,901 247,971,989 161,361,130 575,686,625 118,495,196 59,362,128 122,006,316 154,946,215 489,763,299

Dividends paid
Payments to U.S. Treasury (interest on F.R. notes)

3,356,559,873 159,040,740 880,050,249 176,241,396 259,851,138 243,122,856 154,897,299 563,996,366 115,887,429 57,273,629 118,376,272 150,657,531 477,164,968

43,488,074

2,004,027 11,341,925

2,237,610

3,957,512

2,261,033

2,951,631

6,485,409

1,474,167

991,349

1,844,745

2,418,835

5,519,831

Transferred to surplus
Surplus, January 1

40,403,250
859,400 8,064,800 2,437,250 4,772,250 2,588,100 3,512,200 5,204,850 1,133,600 1,097,150 1,785,300 1,869,850 7,078,500
701,780,800 32,777,350 184,789,650 35,971,650 63,109,650 35,700,550 46,865,800 105,455,600 24,042,500 15,798,000 29,742,150 39,144,850 88,383,050

Surplus, December 31

742,184,050 33,636.750 192,854,450 38,408,900 67,881,900 38,288,650 50,378,000 110,660,450 25,176,100 16,895,150 31,527,450 41,014,700 95,461,550

NOTE.—Details may not add to totals because of rounding.




8. EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS, 1914-71
(In dollars)
Net earnings
before payments to
U.S. Treasury 1

Dividends
paid

Payments to U.S. Treasury

Current
earnings

Current
expenses

2 173 252
5 217,998
16,128,339
67 584,417
102,380,583

2 320 586
2,273,999
5,159,727
10,959,533
19,339,633

-141,459
2,750,998
9,582,067
52,716,310
78,367,504

217,463
1,742,775
6,804,186
5,540,684
5,011,832

2,703,894

1,134,234
48,334 341
70,651,778

1920
1921
1922
1923
1924

181,296,711
122 865 866
50 498,699
50,708,566
38 340,449

28,258,030
34 463,845
29,559,049
29,764,173
28 431,126

149,294,774
82,087,225
16,497,736
12,711,286
3,718,180

5,654,018
6,119,673
6,307,035
6,552,717
6,682,496

60,724,742
59 974 466
10,850,605
3,613,056
113,646

82,916,014
15 993 086
-659,904
2,545,513
-3,077,962

1925
1926
1927
1928
1929

41 800,706
47 599 595
43 024,484
64,052,860
70 955,496

27,528,163
27 350 182
27,518,443
26,904,810
29 691,113

9,449,066
16 611 745
13,048,249
32,122,021
36,402,741

6,915,958
7,329,169
7,754,539
8,458,463
9,583,911

59,300
818 150
249,591
2,584,659
4,283,231

2,473,808
8 464 426
5,044,119
21,078,899
22,535 597

1930
1931
1932
1933
1934

36 424 044
29,701,279
50 018 817
49,487,318
48,902,813

28 342 726
27,040,664
26 291 381
29,222,837
29,241,396

7 988 182
2,972,066
22 314 244
7,957,407
15,231,409

10,268,598
10,029,760
9,282,244
8,874,262
8,781,661

17,308
2,011,418
-60,323

-2,297,724
-7,057,694
11,020,582
-916,855
6,510,071

1935
1936
1937
1938
1939

42,751,959
37 900,639
41,233,135
36,261,428
38,500,665

31,577,443
29 874 023
28,800,614
28 911 600
28,646,855

9,437,758
8 512 433
10,801,247
9 581 954
12,243,365

8,504,974
7,829,581
7,940,966
8,019,137
8,110,462

297,667
227,448
176,625
119,524
24,579

27,695
102,880
67,304
-419,140
-425,653

607,422
352,524
2,616,352
1,862,433
4,533,977

1940
1941
1942
1943
1944

43,537,805
41 380 095
52,662,704
69 305 715
104,391,829

29,165,477
32 963 150
38,624,044
43 545 564
49,175,921

25,860,025
9 137 581
12,470,451
49 528 433
58 437 788

8,214,971
8,429 936
8,669,076
8 911 342
9,500,126

82,152
141 465
197,672
244 726
326,717

-54,456
-4,333
49,602
135,003
201,150

17,617,358
570,513
3,554,101
40,237,362
48,409,795

1945 .
1946
1947
1948
1949

142 209 546
150,385,033
158 655 566
304,160,818
316,536,930

48 717,271
57,235,107
65 392 975
72 710,188
77,477,676

92 662 268
92,523,935
95 235 592
197 132,683
226,936,980

10,182,851
10,962,160
11,523 047
11,919,809
12,329,373

247,659
67,054
35 605

262,133
27,708
86,772

81,969,625
81,467,013
8,366,350
18,522,518
21,461,770

Period or Bank

All F.R. Banks,
by years:
1914-15
1916
1917
1918
1919




Franchise tax

Under
Sec. 13b

Interest on
F.R. notes

Transferred
to surplus
(Sec. 13b)

1,134,234

75 223 818
166,690,356
193,145,837

Transferred
to surplus
(Sec. 7)

1950
1951
1952
1953
1954

275,838,994
394,656,072
456,060,260
513,037,237
438,486,040

80,571,771
95,469,086
104,694,091
113,515,020
109,732,931

231,561,340
297,059,097
352,950,157
398,463,224
328,619,468

13,082,991
13,864,750
14,681,788
15,558,377
16,442,236

196,628,858
254,873,588
291,934,634
342,567,985
276,289,457

21,849,490
28,320,759
46,333,735
40,336,862
35,887,775

1955
1956
1957
1958
1959

412,487,931
595,649,092
763,347,530
742,068,150
886,226,116

110,060,023
121,182,496
131,814,003
137,721,655
144,702,706

302,162,452
474,443,160
624,392,613
604,470,670
839,770,663

17,711,937
18,904,897
20,080,527
21,197,452
22,721,687

251,740,721
401,555,581
542,708,405
524,058,650
910,649,768

32,709,794
53,982,682
61,603,682
59,214,569
-93,600,791

1960
1961
1962
1963
1964

1,103,385,257
941,648,170
1,048,508,335
1,151,120,060
1,343,747,303

153,882,275
161,274,575
176,136,134
187,273,357
197,395,889

963,377,684
783,855,223
872,316,422
964,461,538
1,147,077,362

23,948,225
25,569,541
27,412,241
28,912,019
30,781,548

896,816,359
687,393,382
799,365,981
879,685,219
1,582,118,614

42,613,100
70,892,300
45,538,200
55,864,300
-465,822,800

1965
1966
1967
1968
1969
1970
1971

1,559,484,027
1,908,499,896
2,190,403,752
2,764,445,943
3,373,360,559
3,877,218,444
3,723,369,921

204,290,186
207,401,126
220,120,846
242,350,370
274,973,320
321,373,386
377,184,800

1,356,215,455
1,702,095,000
1,972,376,782
2,530,615,569
3,097,829,686
3,567,286,887
3,440,451,196

32,351,602
33,696,336
35,027,312
36,959,336
39,236,599
41,136,551
43,488,074

1,296,810,053
1,649,455,164
1,907,498,270
2,463,628,983
3,019,160,638
3,493,570,636
3,356,559,873

27,053,800
18,943,500
29,851,200
30,027,250
39,432,450
32,579,700
40,403,250

33,162,085,248

5,005,599,378

28,334,035,895

851,725,281

149,138,300

2,188,893

26,460,130,829

-3,657

870,856,249

Aggregate for each
F.R. Bank, 1914-71:
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta

1,776,591,268
8,415,551,751
1,836,675,189
2,710,007,003
2,258,182,445
1,765,567,727

335,349,389
1,078,833,943
286,010,074
415,642,170
361,876,187
334,492,528

1,452,427,763
7,386,485,008
1,564,385,964
2,307,358,998
1,908,938,310
1,438,573,479

47,362,270
253,998,709
57,753,903
80,641,125
39,492,113
42,205,037

7,111,395
68,006,262
5,558,901
4,842,447
6,200,189
8,950,561

280,843
369,116
722,406
82,930
172,493
79,264

1,353,806,268
6,834,433,310
1,447,320,971
2,140,686,710
1,818,976,570
1,331,688,585

135,411
-433,413
290,661
-9,906
-71,517
5,491

43,731,575
230,111,021
52,739,122
81,115,693
44,168,458
55,644,540

Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

5,431,767,457
1,286,187,734
729,588,921
1,365,176,301
1,385,115,803
4,201,673,649

702,349,409
277,482,269
178,800,870
286,047,820
245,397,859
503,316,860

4,752,803,166
1,013,899,426
555,653,355
1,085,578,092
1,147,457,533
3,720,474,801

113,459,965
29,258,441
19,826,132
33,421,907
41,104,437
93,201,242

25,313,526
2,755,629
5,202,900
6,939,100
560,049
7,697,341

151,045
7,464
55,615
64,213
102,083
101,421

4,487,877,745
951,608,680
509,731,475
1,009,494,148
1,060,343,447
3,514,162,920

11,682
-26,515
64,874
-8,674
55,337
-17,089

125,989,204
30,295,728
-20,772,363
35,667,400
45,292,178
105,328,967

Total

33,162,085,248

5,005,599,378

28,334,035,895

851,725,281

149,138,300

2,188,893

26,460,130,829

-3,657

2 870,856,249

Total 1914-71.

1
Current earnings less current expenses, plus or minus adjustment for profit and loss
items.
2 The $870,856,249 transferred to surplus was reduced by direct charges of $500,000
for charge-off on Bank premises (1927); $139,299,557 for contributions to capital of the
Federal Deposit Insurance Corporation (1934), and $3,657 net upon elimination of




Sec. 13b surplus (1958), and was increased by $11,131,013 transferred from reserves for
contingencies (1945), leaving a balance of $742,184,050 on Dec. 31, 1971.
NOTE.—Details may not add to totals because of rounding.

9. VOLUME OF OPERATIONS IN PRINCIPAL DEPARTMENTS OF
FEDERAL RESERVE BANKS, 1968-71
(Number in thousands; amounts in thousands of dollars)
Operation

1970

1971

1969

1968

NUMBER OF PIECES
HANDLEDi
Loans
Currency received and counted....
Currency verified and destroyed...
Coin received and counted
Checks handled:
U.S. Govt. checks
Postal money orders
All other 2
Collection items handled:
U.S. Govt. coupons paid
All other
Issues, redemptions, and exchanges
of U.S. Govt. securities
Transfers of funds
Food stamps redeemed

7
6,270,732
2,446,244
13,736,840

13
r 6,029,373
2,174,444
• 13,402,165

23
5,720,499
2,115,564
12,873,277

11
5,561,500
2,057,607
10,957,259

628,602
181,054
7,704,732

622,144
183,574
'7,158,441

575,118
187,123
6,503,449

554,813
195,871
5,904,929

13,523
26,994

' 14,210
r 27,364

13,118
27,895

13,255
26,299

258,174
8,148
1,842,026

' 276,172
'27,364
r 1,277,007

283,175
6,662
519,595

267,826
5,894
384,763

AMOUNTS HANDLED
Loans
84,525,110
129,578,588
154,305,388
85,254,860
Currency received and counted....
45,718,990
43,273,577
40,585,320
48,783,022
Currency verified and destroyed...
12,092,137
11,832,628
13,261,100
10,548,073
Coin received and counted
1,533,972
1,602,994
1,432,623
1,173,761
Checks handled:
208,858,062
208,155,031
U.S. Govt. checks
190,653,523
211,996,633
4,736,564
Postal money orders
4,603,938
4,640,992
4,806,963
All other 2
3,822,111,968 '3,330,673,690 2,774,422,163 2,350,761,951
Collection items handled:
5,702,894
6,849,373
6,765,295
U.S. Govt. coupons paid
6,239,761
21,022,409
22,103,954
19,782,240
19,865,950
Allother
Issues, redemptions, and exchanges
1,951,122,313 '1,433,118,703 1,151,579,538 1,055,426,914
on U.S. Govt. securities
14,858,172,824 12,332,001,386 9,800,324,538 7,727,430,821
Transfers of funds
694,394
3,116,904
r 1,840,100
513,618
Food stamps redeemed

' Revised.
1
Packaged items handled as a single item are counted as one piece.
2 Exclusive of checks drawn on the F.R. Banks.

10. NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF
FEDERAL RESERVE BANKS, DECEMBER 31, 1971
Other officers

President
Federal Reserve
Bank (including
branches)

Annual
salary

Annual
salaries

Number

Boston
New York
Philadelphia

$ 50,000
90,000
45,000

38
97
37

Cleveland. .
Richmond
Atlanta

51,000
51,000
51,000

35
51
53

831,500
1,178,300
1,127,000

Chicago
St. Louis
Minneapolis

67,500
56,000
45,000

53
48
30

Kansas City
Dallas
San Francisco

56,000
48,000
67,500

42
38
55

$678,000

577

Total

1

Includes 1,002 part-time employees.

256



$

Employees l
Number

Annual
salaries

Total
Number

Annual
salaries

918,600 1,341 $ 10,470,517 1,380 $ 11,439,117
2,983,100 4,717
44,413,234 4,815
47 486 334
861,900 1,025
7,535,795 1,063
8,442,695
1,342
1,889
1,952

10,661,037
13,786,628
13,047,820

1,378
1,941
2,006

11,543,537
15,015,928
14 225 820

1,254,100 3,046
1,099,025 1,374
733,400
800

22,790,419 3,100
9,699,453 1,423
6,458,300
831

24,112,019
10,854,478
7,236,700

921,200
846,300
1,205,900

9,644,880
7,925,953
14,424,018

10,622,080
8,820,253
15,697,418

1,413
1,093
1,899

1,456
1,132
1,955

$13,960,325 21,891 $170,858,054 22,480 $185,496,379

11. FEES AND RATES UNDER REGULATION V ON LOANS GUARANTEED PURSUANT TO DEFENSE PRODUCTION ACT OF 1950,
DECEMBER 31, 1971
Fees Payable to Guaranteeing Agency by Financing Institution on Guaranteed Portion of Loan
Guarantee fee
(percentage of
interest payable
by borrower)

Percentage of loan guaranteed

70 or less
75
80
85
90
95
Over 95

Percentage of
any commitment
fee charged
borrower

10
15
20
25
30
35
40-50

. . . .

. . .

10

15
20
25
30
35
40-50

Maximum Rates Financing Institution May Charge Borrower
1Y2 per cent per annum l
Y2 per cent per annum

Interest rate
Commitment rate.

1
Except that the agency guaranteeing a particular loan may from time to time prescribe a higher raie
ibe highe
if it determines the loan to be necessary in financing any contract or other operation deemed by such
agency to be essential to the national defense.
NOTE.—In any case in which the rate of interest on the loan is in excess of 6 per cent, the guarantee
fee shall be computed as though the interest rate were 6 per cent.

12. MARGIN REQUIREMENTS
(Per cent of market value)
Period

For credit extended under Regulations T (brokers and dealers).
U (banks), and G (others than brokers, dealers, or banks)
On margin stocks

Beginning
date
1937—Nov.
1945—Feb.
July
1946—Jan.
1947—Feb.
1949—Mar.
1951—Jan.
1953—Feb.
1955—Jan.
Apr.
1958—Jan.
Aug.
Oct.
1960—July
1962—July
1963—Nov.

1
5
5
21
1
30
17
20
4
23
16
5
16
28
10
6

Ending
date
1945—Feb.
July
1946—Jan.
1947—Jan.
1949—Mar.
1951—Jan.
1953—Feb.
1955—Jan.
Apr.
1958—Jan.
Aug.
Oct.
1960—July
1962—July
1963—Nov.
1968—Mar.

On convertible bonds
On short sales
(T)

T

4
4
20
31
29
16
19
3
22
15
4
15
27
9
5
10

June 7
1968—Mar. 11
June 8 1970—May 5
1970—May 6 1971—Dec. 3
Effective Dec. 6, 1971

U

G

T

U

40
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70

G
50
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70

70
80
65
55

50
60
50
50

70
80
65
55

corresponding regulation.
Regulation G and special margin requirements fc bonds convertible into stocks were adopted by
argin
for
the Board of Governors effective Mar. 11, 1968.
For earlier data, see Banking and Monetary Statistics, 1943, Table 145, p. 504.




257

13. MEMBER BANK RESERVE REQUIREMENTS
(Per cent of deposits)
Through July 13, 1966
Net demand deposits 2
Effective date

l

Central reserve Reserve city
city banks
banks
10
15
17

13
J
22
26

1917—June 21
1936—Aug. 16
1937—Mar. 1
May I.'.'.'.'.'.'.'.
1938—Apr. 16
1941—Nov. 1
1942—Aug. 20
Sept. 14
Oct. 3
1948—Feb. 27
June 11
Sept. 24, 16
1949—May 5, 1
June 30, July 1. .
Aug.
Aug. 11," 16'.'.'.'.'.!
Aug. 18
Aug. 25
Sept. 1
1951—Jan. 11, 16
Jan. 25, Feb. 1..
1953—July 9, 1
1954—June 24, 16
July 29, Aug. 1.
1958—Feb. 27, Mar. 1.
Mar. 20, Apr. 1.
Apr.
Apr.
1960—Sept.
Nov.
Dec. 24
1962—July 1
Oct. 28

Country
banks

20
17
20

14
12
14

22
21
20

24
22
20
22
24
26
24

Time deposits
(all classes
of banks)

16
15
14
13
12

23H
23

19
19
20
19

13
14
13

is

23
24
22
21
20

12

17H

12

25, N o v . 1.

Beginning July 14, 1
966
Time deposits *•6 <
(all classes of banks)

Net demand
deposits 2> *

Effective date *

1955—j^y 14 21
Sept. 8, 15

Reserve
city banks

Country
banks

6 16^

6 12

Other
time deposits
Savings
Under Over Under Over depos- Under Over
$5 mil- $5 mil- $5 mil- $5 milits
$5 mil- $5 million
lion
lion
lion
lion
lion
64

6 4

3H

1967—Mar. 2
Mar 16
1968—Jan. i l , 18
1969—Apr. 17
1970—Oct. 1

16H
17

17
17^

12
12H

In effect Dec. 31, 1971

17

17^

ny2

13

3H

3

3

5

3
10

3
10

3
10

\iy22
13

Legal requirements—Dec. 31, 1971:
Minimum
Maximum
For notes see opposite page.

258




5
6

10
22

7
14

5

14. FEDERAL RESERVE BANK INTEREST RATES,
DECEMBER 31, 1971
(Per cent per annum)
Loans to member banks
Federal Reserve
Bank

Loans to all others
under last par. Sec. 13 3

Under
Sees. 13 and 13a 1

Under
Sec. 10(b) *

Boston
New York
Philadelphia

4H
4K

5
5
5

Cleveland
Richmond
Atlanta

4M
W2
W2

5
5
5

6y2

Chicago
St. Louis
Minneapolis

434
4K
4^

5
5
5

6V2
6V2
6V2

Kansas City
Dallas
San Francisco

4H
W2
4H

5
5
5

6V2
6V2
6V2

6V2

1
Discounts of eligible paper and advances secured by such paper or by U.S. Govt. obligations or
any other obligations eligible for Federal Reserve Bank purchase. Maximum maturity: 90 days except
that discounts of certain bankers' acceptances and of agricultural paper may have maturities not over
6 months and 9 months, respectively.
2
Advances secured to the satisfaction of the F.R. Bank. Maximum maturity: 4 months.
3
Advances to individuals, partnerships, or corporations other than member banks secured by direct
obligations of, or obligations fully guaranteed as to principal and interest by, the U.S. Govt. or any
agency thereof. Maximum maturity: 90 days.

Notes to Table 13 on opposite page.
1
When two dates are shown, the first applies to the change at central reserve or reserve city banks
and the second to the change at country banks.
2
Demand deposits subject to reserve requirements, which beginning with Aug. 23, 1935, have been
total demand deposits minus cash items in process of collection and demand balances due from domestic
banks (also minus war loan and Series E bond accounts during the period Apr. 13, 1943—June 30,
1947).
3
Authority of the Board of Governors to classify or reclassify cities as central reserve cities was
terminated effective July 28, 1962.
4
Since Oct. 16, 1969, member banks have been required under Regulation M to maintain reserves
against balances above a specified base due from domestic offices to their foreign branches. Until
Jan. 7, 1971, the applicable reserve percentage was 10 per cent; effective that date it became 20 per cent.
Regulation D imposes a similar reserve requirement on borrowings above a specified base from foreign
banks by domestic offices of a member bank. For details concerning these requirements, see amendments to Regulations D and M as described in earlier ANNUAL REPORTS.
5
Effective Jan. 5, 1967, time deposits such as Christmas and vacation club accounts became subject
to 6the same requirements as sayings deposits.
See columns above for earliest effective date of this rate.

NOTE.—All required reserves were held on deposit with F.R. Banks, June 21, 1917, until late 1959.
Since then, member banks have also been allowed to count vault cash as reserves, as follows: country
banks—in excess of 4 and 2x/2 per cent of net demand deposits effective Dec. 1, 1959, and Aug. 25,
1960, respectively; central reserve city and reserve city banks—in excess of 2 and 1 per cent effective
Dec. 3, 1959, and Sept. 1, 1960, respectively; all member banks were allowed to count all vault cash
as reserves effective Nov. 24, 1960.




259

O 15. MAXIMUM INTEREST RATES PAYABLE ON TIME AND SAVINGS DEPOSITS
(Per cent per annum)
Rates Nov. 1, 1933—July 19, 1966

Rates beginning July 20, 1966

Effective date
Type of deposit

Saving deposits:
12 months or more
Less than 12 months

Postal savings deposits: 1
12 months or more
Less than 12 months
Other time deposits:2
12 months or more
6 months to 12 months
90 days to 6 months
Less than 90 days
(30-89 days)

Nov. 1,
1933

Feb. 1,
1935

} '

2M

Jan. 1,
1957

2lA

} '

Jan. 1,
1936

3

23/2

3

} 3

2H

2Yi

3

3

2V2
2V2

2
1

2XA

Effective date

Jan. 1,
1962

July 17,
1963

/

4

4

I

3^

3H

4
33^

{ 3K

/
\

Nov. 24, Dec. 6,
1964
1965

}*
}*

4

4

4

3H
2H

4H
) :

4

\ sy2

Type of deposit

Savings deposits
Other time deposits:23
Multiple maturity:
30-89 days
90 days-1 year
1 year to 2 years
2 years and over
Single maturity.
Less than $100,000:
30 days to 1 year
1 year to 2 years
2 years and over
$100,000 and over:
30-59 days
60-89 days
90-179 days
180 days to 1 year. . . .
1 year or more

July 20, Sept. 26, Apr. 19, Jan. 21,
1966
1968
1970
1966
4

4

4

4

4

4

5

5

VA

5

5

f 534

}•
1 5V2

5V2
5V2

5V2

6

}6X

4^

(44)
()

/ ?A

\ 11A
1
Closing date for the Postal Savings System was Mar. 28, 1966.
2
For exceptions with respect to foreign time deposits, see ANNUAL REPORTS for
1962, p. 129; 1965, p. 233; and 1968, p. 69.
3
Multiple-maturity time deposits include deposits that are automatically renewable
at maturity without action by the depositor and deposits that are payable after written
notice of withdrawal.
4
The rates in effect beginning Jan. 21 through June 23, 1970, were 634 per cent on
maturities of 30-59 days and 6H per cent on maturities of 60-89 days. Effective June 24,
1970, maximum interest rates on these maturities were suspended until further notice.




NOTE.—Maximum rates that may be paid by member banks as established by the
Board of Governors under provisions of Regulation Q; however, a member bank may
not pay a rate in excess of the maximum rate payable by State banks or trust companies
on like deposits under the laws of the State in which the member bank is located. Beginning Feb. 1, 1936, maximum rates that may be paid by nonmember insured commercial banks, as established by the FDIC, have been the same as those in effect for
member banks.

16. PRINCIPAL ASSETS AND LIABILITIES, AND NUMBER OF COMMERCIAL AND MUTUAL SAVINGS BANKS,
BY CLASS OF BANK, DECEMBER 31, 1971, AND DECEMBER 31, 1970
(Asset and liability items shown in millions of dollars)
Commercial banks
All
banks

Item

Mutual savings banks

Member banks

Total
Total

National

Nonmember banks
State

Total

Insured

Insured

Total

Noninsured

Noninsured

December 31, 1971 i
600,670
410,180
190,490
68,400
122,090
101,260

Loans and investments, total
Loans.
.
Investments
U.S. Treasury securities
Other securities
Cash assets
Deposits, total
Interbank
Other demand
Other time
Total capital accounts
Number of banks

....

514,170
345,530
168,640
64,550
104,090
99,830

404,189
277,323
126,866
47,132
79,734
85,838

610,660
30,670
226,810
353,180
54,770

529,390
30,670
226,730
271,990
48,630

14,272

13,783

5,727

109,981
68,207
41,774
17,418
24,356
13,992

419,789
28,583
180,787
210,419
37,110

n.a.

n.a.

n.a.

n.a.

1,1:>8

8,056

n.a.

n.a.

81,270

109,601
2,087
45,943
61,571
11,520
4,5S)9

86,500
64,650
21,850
3,850
18,000
1,430

80

81,190
6,140
7,8'75

U$1

489

3:>6

163

66,300
52,749
13,551
2,364
11,187
1,115

10,248
7,599
2,649
708
1,941

62,680

9,402

December 31, 1970
Loans and investments total
Loans
Investments.
U.S. Treasury securities
Other securities
Cash assets

461,998
314,138
147.860
61,742
86,118
93,643

366 520
254,516
112,004
45,399
66,604
81,500

271 760
187,554
84,207
34,203
50,004
56 028

94,760
66,963
27,797
11,197
16,600
25,472

95,478
59,622
35,856
16,342
19,514
12,143

92,399
57,489
34,910
16,039
18,871
11,208

3,079
2,133
946
304
642
935

76,548
60,348
16,199
3,072
13,127
1,244

Deposits, total
Interbank
..
Other demand
Other time
Total capital accounts

to

538 546
374,487
164,059
64,814
99,245
94 887
553,826
31,171
218,987
303,668
48,669

481,745
31,168
218,375
232,201
42,958

385,176
29,674
175,419
180,083
34,100

283,664
18,493
127,444
137,726
24,868

101,512
11,181
47,975
42,357
9,232

96,568
1,494
42,956
52,118
8,858

93,998
1,180
41,491
51,327
8,326

2,570

72,081

314

3

3

1,464
792
532

611
71,467
5,711

593
62,083
4,857

17
9,383
854

14,179

13,686

5,767

4,620

1,147

7,919

7,735

184

493

328

165

Number of banks
n.a. Not available,
i Estimated.




NOTE.—All banks in the United States.

128

17. MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT,
AND RELATED ITEMS—END OF YEAR 1918-71 AND
END OF MONTH 1971
(In millions of dollars)
Factors supplying reserve funds
F.R. Bank credit outstanding
Period

U.S. Govt. securities

Total

Bought
outright

!

Held
under
repurchase
agreements

Discounts
and
advances

Float

Other
F.R.

All
other

Gold
stock
Total

5

Spe- Treasury
cial
Draw- curing rency
Rights outcertif. standing
acct.

1918.
1919.

239
300

239
300

1,766
2,215

199
201

294
575

2,498
3,292

2,873
2,707

,795
,707

1920.
1921.
1922.
1923.
1924.

287
234
436
134
540

287
234
436
80
536

2,687
1,144
618
723
320

119
40
78
27
52

262
146
273
355
390

3,355
1,563
1,405
1,238
1,302

2,639
3,373
3,642
3,957
4,212

,709
,842
,958
2,009
2,025

1925.
1926.
1927.
1928.
1929.

375
315
617
228
511

367
312
560
197
488

643
637
582
1,056
632

63
45
63
24
34

378
384
393
500
405

1,459
1,381
1,655
1,809
1,583

4,112
4,205
4,092
3,854
3,997

1,977
1,991
2,006
2,012
2,022

1930.
1931.
1932.
1933.
1934.

729
817
1,855
2,437
2,430

686
775
1,851
2,435
2,430

251
638
235
98
7

21
20
14
15
5

372
378
41
137
21

1,373
1,853
2,145
2,688
2,463

4,306
4,173
4,226
4,036
8,238

2,027
2,035
2,204
2,303
2,511

1935.
1936.
1937.
1938.
1939.

2,431
2,430
2,564
2,564
2,484

2,430
2,430
2,564
2,564
2,484

5
3
10
4
7

12
39
19
17
91

38
28
19
16
11

2,486
2,500
2,612
2,601
2,593

10,125
11,258
12,760
14,512
17,644

2,476
2,532
2,637
2,798
2,963

1940.
1941.
1942.
1943.
1944.

2,184
2,254
6,189
11,543
18,846

2,184
2,254
6,189
11,543
18,846

3
3
6
5
80

80
94
471
681
815

2,274
2,361
6,679
12,239
19,745

21,995
22,737
22,726
21,938
20,619

3,087
3,247
3,648
4,094
4,131

1945.
1946.
1947.
1948.
1949.

24,262
23,350
22,559
23,333
18,885

24,262
23,350
22,559
23,333
18,885

249
163
85
223
78

578
580
535
541
534

1
2 .

25,091
24,093
23,181
24,097
19,499

20,065
20,529
22,754
24,244
24,427

4,339
4,562
4,562
589
598

1950.
1951.
1952.
1953.
1954.

20,778
23,801
24,697
25,916
24,932

20,725
23,605
24,034
25,318
24,888

53
196
663
598
44

67
19
156
28
143

1,368
1,184
967
935

3
5
4
2
1

22,216
25,009
25,825
26,880
25,885

22,706
22,695
23,187
22,030
21,713

4,636
4,709
4,812
4,894
4,985

1955.
1956.
1957.
1958.
1959.

24,785
24,915
24,238
26,347
26,648

24,391
24,610
23,719
26,252
26,607

394
305
519
95
41

108
50
55
64
458

1,585
1,665
1,424
1,296
1,590

29
70
66
49
75

26,507
26,699
25,784
27,755
28,771

21,690
21,949
22,781
20,534
19,456

5,008
5,066
5,146
5,234
5,311

1960.
1961.
1962.
1963.
1964.

27,384
28,881
30,820
33,593
37,044

26,984
28,722
30,478
33,582
36,506

400
159
342
11
538

33
130
38
63
186

1,847
2,300
2,903
2,600
2,606

74
51
110
162
94

29,338
31,362
33,871
36,418
39,930

17,767
16,889
15,978
15,513
15,388

5,398
5,585
5,567
5,578
5,405

1965.
1966.
1967.
1968.
1969.
1970.
1971.

40,768 40,478
44,316 43,655
49,150 48,980
52,937 52,937
57,154 i<>57,154
62,142 1062,142
70,804 1069,481

290
661
170

137
173
141
186
183
335
39

2,248
2,495
2,576
3,443
3,440
4,261
4,343

187
43,340
193
47,177
164
52,031
56,624
58
64 2,743 63,584
57 1,123 67,918
261 1,068 76,515

13,733
13,159
11,982
10,367
10,367
10,732
10,132

5,575
6,317
6,784
6,795
6,852
400 7,149
400 7,710

,323

For notes see last two pages of table.


262


17.—CONTINUED

Factors absorbing reserve funds

Currency
in

circulation

Treasury

cash
holdings7

Deposits, other
than member bank
reserves,
with F.R. Banks

Treasury

Foreign

Other
F.R.

Other4

Other
F.R.
liabilities
and 4
capital

Member bank
reserves
With
F.R.
Banks

4,951
5,091

288
385

51
31

96
73

25
28

118
208

.636
,890

5,325
4,403
4,530
4,757
4,760

218
214
225
213
211

57
96
11
38

51

5
12
3
4
19

18
15
26
19
20

298
285
276
275
258

,781
,753
,934
898
21220

4,817
4,808
4,716
4,686
4,578

203
201
208
202
216

16
17
18
23
29

8
46
5
6
6

21
19
21
21
24

272
293
301
348
393

4,603
5,360
5,388
5,519
5,536

211
222
272
284

3,029

19
54
8
3
121

6
79
19
4
20

22
31
24
128
169

5,882
6,543
6,550
6,856
7,598

2,566
2,376
3,619
2,706
2,409

544
244
142
923
634

29
99
172
199
397

8,732
11,160
15,410
20,449
25,307

2,213
2,215
2,193
2,303
2,375

368
867
799
579
440

1,133

28,515
28,952
28,868
28,224
27,600

2,287
2,272
1,336
1,325
1,312

977
393
870

27,741
29,206
30,433
30,781
30,509

1,293
1,270
1,270

Currency
and

Required

Ex-

1,585
1,822

51
68

1,654

99

1,884
2,161

l
59

2,212
2,194
2,487
2,389
2,355

2,256
2,250
2,424
2,430
2,428

-44
-56
63
-41
-73

375
354
355
360
241

2,471
1,961
2,509
2,729
4,096

2,375
1,994
1,933
1,870
2,282

96
-33
576
859
1,814

226
160
235
242
256

253
261
263
260
251

5,587
6,606
7,027
8,724
11,653

2,743
4,622
5,815
5,519
6,444

2,844
1,984
1,212
3,205
5,209

1,360
1,204

599
586
485
356
394

284
291
256
339
402

14,026
12,450
13,117
12,886
14,373

7,411
9,365
11,129
11,650
12,748

6,615
3,085
1,988
1,236
1,625

821

862
508
392
642
767

446
314
569
547
750

495
607
563
590
706

15,915
16,139
17,899
20,479
16,568

14,457
15,577
16,400
19,277
15,550

1,458
562
1,499
1,202
1,018

761
796

668
247
389
346
563

895
526
550
423
490

565
363
455
493
441

714
746
777
839
907

17,681
20,056
19,950
20,160
18,876

16,509
19,667
20,520
19,397
18.618

1,172
389
-570
763
258

31,158
31,790
31,834
32,193
32,591

767
775
761
683
391

394
441
481
358
504

402
322
356
272
345

554
426
246
391
694

925
901
998
1,122
841

19,005
19,059
19,034
18,504
18,174

310

18,903
19,089
19,091
18,574
18,619

102
-30
-57
-70
-135

32,869
33,918
35,338
37,692
39,619

377
422
380
361
612

485
465
597
880
820

217
279
247
171
229

533
320
393
291
321

941
1,044
1,007
1,065
1,036

17,081
17,387
17,454
17,049
18,086

2,544
2,823
3,262
4,099
4,151

18,988
20,114
20,071
20,677
21,663

637
96
645
471
574

668
416

150
174
135
216
134
148
294

355
588
653
747
807
1,233
999

211

18,447
19,779
21,092
21,818
22,085
24,150
27,788

4,163
4,310
4,631
4,921
5,187
5,423
5,743

22,848
24,321
25,905
27,439
28,173
30,033
32,496

-238
-232
-182
-700
-901
-460
1,035

42,056
44,663
47,226
50,961
53,950
57,093
61,068

760

1,176
1,344

695
596
431
460

1,123

1,123

703

1,312
1,156
2,020

774
793

-147
-773

-1,353

1,919
1,986
2,131

For notes see last two pages of table.




263

17. MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT,
AND RELATED ITEMS—END OF YEAR 1918-71 AND
END OF MONTH 1971—Continued
(In millions of dollars)
Factors supplying reserve funds
F.R. Bank credit outstanding
Period

U.S. Govt. securities

Total

1971—
Jan. .
Feb..
Mar..
Apr..
May.
June.
July..
Aug..
Sept..
Oct. .
Nov..
Dec.

Bought
outright

61,783
62,462
64,345
63,721
64,764
65,518
65,841
66,937
67,627
67,301
68,157
70,804

0 61,783
0 62,462
0 62,841
0 63,721
0 64,764
065,518
0 65,841
0 66,635
0 67,627
0 67,301
168,157
io69,481

l

Held
under
repurchase
agreements

1,504

302

1,323

Discounts
and
advances

308
263
391
81
1,051
446
778
858
198
212
146
39

2

2,750
2,832
2,550
2,824
2,414
2,549
2,618
2,250
3,139
3,585
2,707
4,343

All
other

Other
F.R.
assets

3

Float

Spe- Treascial
ury
Draw- curing rency
Gold
stock Rights outcertif. stand5
acct.
ing

4

59
54
138
56
112
62
55
107
51
52
58
261

1,267
832
997
1,169
927
1,086
1,209
786
1,001
1,208
841
1,068

Total

6

66,167
66,443
68,421
67,851
69,268
69,661
70,501
70,938
72,016
72,358
71,909
76,515

10,732
10,732
10,732
10,732
10,332
10,332
10,332
10,132
10,132
10,132
10,132
10,132

400
400
400
400
400
400
400
400
400
400
400
400

7,172
7,213
7,270
7,329
7,390
7,420
7,445
7,479
7,504
7,526
7,563
7,710

1
U.S. Govt. securities include Federal agency obligations held under repurchase agreement as of
Dec. 1, 1966, and Federal agency issues bought outright as of Sept. 29, 1971.
2
Beginning with 1960 reflects a minor change in concept; see Feb. 1961 Federal Reserve Bulletin,
p. 3164.
Principally acceptances and industrial loans; authority for industrial loans expired Aug. 21, 1959.
The total of F.R. Bank capital paid in, surplus, other capital accounts, and other liabilities and
accrued dividends, less the sum of bank premises and other assets. Beginning Apr. 16, 1969, "Other
F.R. assets," and "Other F.R. liabilities and capital" are shown separately; formerly, they were netted
together and reported as "Other F.R. accounts."
5
Before Jan. 30, 1934, included gold held by F.R. Banks and in circulation.
6
The stock of currency, other than gold, for which the Treasury is primarily responsible—silver
bullion at monetary value and standard silver dollars, subsidiary silver and minor coin, and United
States notes; also F.R. Bank notes and national bank notes for the retirement of which lawful money
has been deposited with the Treasurer of the United States. Includes currency of these kinds held in
the Treasury and the F.R. Banks as well as that in circulation.

264



17.—CONTINUED

Factors absorbing reserve funds

Currency
in
circulation

55,348
55,611
56,304
56 592
57,393
58 393
58,558
58,890
58,757
59,157
60,558
61,068

Treasury
cash
holdings 7

Deposits, other
than member bank
reserves,
with F.R. Banks

Treasury

467
471
483
509
507
454
479
452
453
477
442
460

976
1,064
858
1 322
805
1,274
1,115
987
2,102
1,876
1,996
2,020

Foreign

129
147
201
162
208
199
162
122
166
135
177
294

Other 4

769
776
794
730
676
688
754
669
111
733
697
999

Other
F.R.
;; accounts

Other
F.R.
liabilities
and
capital

2,217
2,309
2,255
2 246
2,302
2,256
2,291
2,361
2,374
2,337
2,351
2,131

Member bank
reserves

With
F.R.
Banks

Currency
and
coin 8

Required 9

Excess 9

24,565
24,409
25,932
24 752
25,499
24,550
25,321
25,467
25,424
25,697
23,782
27,788

5,449
5,022
5,124
5 283
5,219
5 372
5,438
5,354
5,508
5,548
5,490
5,743

29,723
29,376
29,567
30 418
29,992
30 050
30,461
30,199
30,782
30,563
30,689
32,496

291
155
1,489
—383
726
— 128
298
622
150
682
-1,417
1,035

7
Gold other than that held against gold certificates and gold certificate credits, including the reserve
against United States notes and Treasury notes of 1890, monetary silver other than that held against
silver certificates and Treasury notes of 1890, and the following coin and paper currency held in the
Treasury; subsidiary silver and minor coin, United States notes, F.R. notes, F.R. Bank notes, and
national bank notes.
8
Part allowed as reserves Dec. 1, 1959—Nov. 23, 1960; all allowed thereafter. Beginning with Jan.
1963, figures are estimated. Beginning Sept. 12, 1968, amount is based on close-of-business figures for
reserve period 2 weeks previous to report date.
9 These figures are estimated through 1958. Before 1929 available only on call dates (in 1920 and. 1922,
the call dates were Dec. 29). Beginning Sept. 12, 1968, amount is based on close-of-business figures for
reserve period 2 weeks previous to report date.
10
Includes securities loaned—fully secured by U.S. Govt. securities pledged with F.R. Banks.
11
Includes (1) securities sold, and scheduled to be bought back, under matched sale/purchase
transactions, and (2) securities loaned—fully secured by U.S. Govt. securities pledged with F.R. Banks

N O T E . — F o r description of figures and discussion of their significance, see "Member Bank Reserves
and Related Items," Section 10 of Supplement to Banking and Monetary Statistics, Jan. 1962.




265

18. CHANGES IN NUMBER OF BANKING OFFICES IN THE
UNITED STATES DURING 19711
Commercial banks (incl. stock savings
banks and nonde posit trust companies)
Type of office
and change

All
banks

Member

Number of banks,
Dec. 31, 1970

Nonmember

Total
National l

Total

14,181 13,688

5,678

Noninsured

Insured

State

4,621

Mutual
savings
banks

1,147

7,735

Noninsured

Insured

185

328

6

165

2

Changes during 1971
New banks 2
Suspensions.
Reopening of suspended banks
Consolidations and absorptions:
Banks converted into
branches
Ceased banking
operations
Other 8
Voluntary liquidations.
Interclass changes:
Nonmember to—
National
State member..
State member to—
National
Nonmember
National to nonmember
Noninsured to insured
Net change

203
-4

46
-1

1

201
-4
1

-87

-83

-45

-1
-15
-3

37
-1

149
-2

1

-39

-8

-5

7
4

-13
-3

9

7

-20

3

-6
-3

4
-3
-20

-37
-5
-1

-1
-1
-2

-2

-2

-2

—7
-4
20

— 21

— 21

96

-40

-21

-19

6
140

-6
-4

-2

-2

14,273 13,784

5,728

4,600

1,128

7,875

181

326

163

Number of branches and
additional offices,
Dec. 31,1970 4 . . . . . 22,727 21,643 16,191 12,536

3,655

5,404

48

891

193

90
3
-1

19
1

Number of banks,
Dec. 31, 1971

92

21

Changes during 1971
De novo
Banks converted
Discontinued 4
Sale of branch
Interclass changes:
Nonmember to—
National
State member
State member to—
National
Nonmember
National to—
State member
Nonmember
Noninsured to
insured
Noninsured mutual
savings to insured
mutual savings ...
Facilities reclassified as
branches

1,602
90
- 9 7i

For notes see end of table.

266




1,493
86
-96

947
65
-73
-4

743
51
-53

21
16

21

-24
-26

204
14
-20
-4

546
21
-22
4

16

-21
-16

20

-20
-24

24

-2
-26

2

-1
-1

26
7

-7
1

3

3

3

3

-1

18.—CONTINUED

Commercial banks (incl. stock savings
banks and nondeposit trust companies)
Type of office
and change

All
banks

Member

Nonmember

Total
National l

Total

Mutual
savings
banks

Insured

State

-21
736

-10
158

6
575

Number of branches and
additional offices,
24,083 22,888 16,902 13,102
Dec. 31, 1971 *

3,800

5,946

12

Noninsured

Insured

Noninsured

_1
92

19

983

212

33

Other
Net change

Number of banking facilities, Dec. 31,1970*

-25
1,572

219

-24
1,461

219

-31
894

186

174

-8
40

Changes during 1971
1

Established
Discontinued . ..
Other
Facilities reclassified as
branches

6
-2
-4

6
-2

6
2

A

A

-3

-3

-3

-3

Net change

-3

-3

-3

-4

1

Number of banking facilities, Dec. 31, 1971

216

216

183

170

13

5
-2
-4

33

1
Includes a national bank (8 branches) in the Virgin Islands; other banks or branches located in the
possessions are excluded.




267

19. NUMBER OF PAR AND NONPAR BANKING OFFICES,
BY FEDERAL RESERVE DISTRICT, DECEMBER 31, 1971
Par
Total

Nonpar
(nonmember)

F.R. district

Member

Total

Nonmember

Branches
Branches
Branches
Branches Banks Branches
& offices Banks & offices
Banks & offices Banks & offices Banks & offices

DISTRICT
Boston
New Y o r k . . . .
Philadelphia. .

373
477
441

1,685
3,650
1,691

373
477
441

1,685
3,650
1,691

227
340
306

1,229
3,210
1,211

146
137
135

456
1440
480

Cleveland....
Richmond....
Atlanta

789
735
1,691

2,074
3,244
1,641

789
702
1,582

2,074
3,201
1,560

468
360
562

1,707
1,967
1,039

321
342
1,020

367
1,234
521

33
109

43
81

Chicago
St. Louis
Minneapolis. .

2,591
1,517
1,370

2,435 2,591
935 1,453
301 1,370

2,435
903
301

941
458
490

1,594 1,650
490
995
145
880

841
413
156

64

32

Kansas City. .
Dallas
San Francisco.

1,969
1,358
391

321
270
5,049

1,969
1,302
391

321
256
5,049

796
633
147

201 1,173
135
669
4,193
244

120
121
856

56

14

23 ,296 13,440

23,126

5,728

17,121 7,712

6,005

262

170

Total....
1

13,702

Includes 15 New York City branches of 3 insured nonmember Puerto Rican banks.

20. NUMBER OF PAR AND NONPAR BANKING OFFICES,
BY STATE AND OTHER AREA, DECEMBER 31, 1971
Par
Nonpar
(nonmember)

Total
Member

Total

State, or
other area

Nonmember

Branches
Branches
Branches
Branches
Branches
Banks & offices Banks & offices Banks & offices Banks & offices Banks & offices
STATE
Alabama
Alaska
Arizona
Arkansas
California....
Colorado
Connecticut...
Delaware
District of
Columbia
Florida

273
11
13
252
144
235
62
18

303
65
347
175
3,171
28
469
99

216
11
13
188
144
235
62
18

281
65
347
143
3,171
28
469
99

108
5
4
81
66
140
29
7

226
58
248
104
2,810
20
363
47

108
6
9
107
78
95
33
11

55
7
99
39
361
8
106
52

14
534

108
41

14
534

108
41

12
240

101
13

2
294

434
7
24
1 132
407
665
603
343
235
40

412
434
141
7
165
24
122 1 132
671
407
328
665
73
603
361
343
414
145
238
40

412
141
165
122
671
328
73
361
341
238

70

282
9
144
80
420
91
42
212
223
174

364
6
11
639
224
517
404
249
86
15

130
132
21
42
251
237
31
149
118
64

22

64

32

90

73

7
28

Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky. . . .
Louisiana....
Maine

57

For notes see end of table.

268




13
493
183
148
199
94
59
25

20.—CONTINUED

]Par

Nonpar
(nonmember)

Total
Nonmember

Member

Total

State, or
other area

Branches
Branches
Branches
Branches
Branches
Banks & offices Banks & offices Banks & offices Banks & offices Banks & offices
STATE—
Cont.
Maryland....
Massachusetts.
Michigan.....
Minnesota
Mississippi. . .
Missouri
Montana
Nebraska
Nevada
New Hampshire

112
158
330
731
183
669
143
439
8
73

69

73

69

New Jersey.. .
New Mexico..
New Y o r k . . . .
North
Carolina. . .
North
Dakota
Ohio
Oklahoma
3regon
Pennsylvania..
Rhode Island.

209
68
305

1,096
140
2,553

209
68
305

1,096
140
2,553

93

1,222

72

1,183

24

168
514
436
46
451
13

72
1,368
71
358
1,823
179

168
514
436
46
451
13

72
1,368
71
358
1,823
179

46
336
213
8
309
5

87
457
159
100
309
527
86 1,196
50
148
41
89
885
245
587
91
6
199
285
608
2
71

453
100
527
86
148
89
885
587
6
285
2

South
Carolina. . .
99
159
South Dakota.
309
Tennessee....
1,214
Texas
50
Utah
41
Vermont. .
Virginia
245
Washington...
91
West Virginia.
199
Wisconsin....
608
Wyoming. . . .
71

568
780
1,254
17
369
99
10
45
89

112
158
330
731
183
669
143
439
8

568
780
1,254
17
369
99
10
45
89

220
176
226
9
209
58
2
18
11

348
604
1,028
8
160
41
8
27
78

66
60
125
508
138
500
51
304
3

49

57

24

12

153
40
239

949
88
2,402

56
28
66

147
52
i 151

610

48

573

14
1,150
51
259
1,350
97

122
178
223
38
142
8

58
218
20
99
473
82

25
57
91
579
15
26
146
31
119
166
55

261
66
331
29
108
50
645
499
2
89
1

62
102
218
617
35
15
99
60
80
442
16

192
34
196
57
40
39
240
88
4
196
1

19

13

167

1

25

7

46
98
205
223
45
169
92
135

21

39

12

4

" " is

OTHER
AREA
Puerto Rico 2 .
Virgin
Islands 2 . . . .

13

186

13

186

8

25

8

25

1
Includes 15 New York City branches of 3 insured nonmember Puerto Rican banks.
2 Puerto Rico and the Virgin Islands assigned to the New York District for check clearing and collec\rt mirnncpc

A l l mAmhpr Virdnr^h^c i n "Pm»i*t/"% T?ir*^* anH all pvp^nf £ i n tV»o \/ifnrin Tclo

NOTE.—Comprises all commercial banking offices on which checks are drawn, including 216 banking
facilities. Number of banks and branches differs from that in Table 19 because this table includes banks
in Puerto Rico and the Virgin Islands but excludes banks and trust companies on which no checks are
drawn.




269

2L DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED BY THE BOARD OF GOVERNORS DURING 1971

CONTENTS
APPLICANT BANK

OTHER BANK

Page

Chemical Bank and Trust Company, Midland, Mich.

Commercial Savings Bank of
St. Louis, St. Louis, Mich.

271

Citizens Central Bank of Arcade,
Arcade, N.Y.

Bank of Elba, Elba, N.Y.

282

Commercial Trust Company of
New Jersey, Jersey City, N.J.

Bergen County National Bank
of Hackensack, Hackensack,
N.J.

280

Connecticut Bank and Trust Company, Hartford, Conn.

North Side Bank and Trust
Company, Bristol, Conn.

287

Farmers Savings and Trust Company, Mansfield, Ohio

Lucas State Bank, Lucas, Ohio

277

HTS Bank, Chicago, 111.

Harris Trust and Savings Bank,
Chicago, 111.

291

Huron County Banking Co., Norwalk, Ohio

Savings and Loan Banking Co.,
New London, Ohio

289

Manaport Bank, Manassas, Va.

First Manassas Bank and Trust
Company, Manassas, Va.

278

Nortrust Bank, Chicago, 111.

Northern Trust Company, Chicago, 111.

284

Perry County Bank, New Lexington, Ohio

Peoples Bank, Thornville, Ohio

285

Peachtree Bank and Trust"]
Co., Chamblee, Ga.
Trust Company of Georgia, Atlanta, Ga.

Trust Company of Georgia f
Bank of Sandy Springs,
Sandy Springs, Ga.
J

274

Trust Company of Georgia
Bank of DeKalb, Atlanta,
Ga.

Western Greenbrier Bank, Rainelle, W. Va.

270



Stanford Bank, Palo Alto,
Calif.

273

Bank of Long Beach, N.A.,
Long Beach, Calif.

Union Bank, Los Angeles, Calif.

279

275

Bank of Rainelle, Rainelle,
W. Va.

282

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

No. 1—Chemical Bank and Trust Company,
Midland, Mich.,
to consolidate with
The Commercial Savings Bank of
St. Louis,
St. Louis, Mich.

Banking5 offices
Resources
(in millions
of dollars)

In
operation

77.0

6

18.0

1

To be
operated

7

SUMMARY REPORT BY THE ATTORNEY GENERAL (11-3-70)

Chemical Bank's closest offices to Commercial Bank and Gladwin
Bank are 22 and 18 miles apart, respectively. Both Gratiot and Gladwin
Counties are adjacent to Midland County, Gratiot to the south and Gladwin to the north. Chemical Bank estimates that it receives approximately
$22,000 in deposits from the service area of Commercial Bank and places
$6,000 in loans in that service area. Chemical Bank also draws some deposits and places loans in Gladwin County. There would, therefore, be
some elimination of existing competition as a result of the proposed
merger.
Michigan law allows banks to branch anywhere within the county in
which the home office is located and also into all counties adjacent to the
one in which the home office is located, but only within a 25-mile radius
of the home office. There is also branch- and home-office protection,
which precludes Chemical Bank from branching de novo into either St.
Louis or Beaverton.
Chemical Bank, as of June 30, 1968, was the largest bank in Midland
County, holding around 65 per cent of the total deposits held by commercial banks. As of that same date, Gladwin County had 2 banks with
combined deposits of $11.6 million. The Gladwin Bank held approximately 40 per cent of those deposits. The home-office and branching protection under Michigan law of the 2 largest communities (Gladwin and
Beaverton) located in a sparsely populated county results in the absence
of a nearby community of sufficient size to support de novo branching by
Chemical Bank. Hence, the proposed merger with Gladwin Bank 3 would
not appear to eliminate potential competition.
Gratiot County, as of June 30, 1968, had 5 banks, with total deposits
of $72.1 million. Commercial Bank, the 3rd largest in the county, held
22 per cent of those deposits. Because there are several nonprotected
towns in Gratiot County, de novo branching by Chemical Bank would
be feasible. It is, therefore, possible that the proposed merger with the
Commercial Bank would eliminate potential competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (1-28-71)

Chemical Bank operates its head office and 2 branches within the city
limits of Midland (population 34,000), and an additional branch office to
the south of, and in close proximity to, Midland. It also operates 1
branch in Fisherville, 7 miles east of Midland, and 1 branch in Sanford,
8 miles northwest of Midland. Chemical Bank is the larger of the 2
For notes see p. 291.




271

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

banks in Midland, holding more than twice the amount of deposits held
by the only other local bank, the $31-million-deposit First National Bank
& Trust Company.
The Commercial Savings Bank of St. Louis (hereinafter St. Louis
Bank) operates its sole office in Saint Louis, Michigan (population
4,000), which is located about 23 miles to the southwest of the city of
Midland. The banks serve separate markets, and there is no substantial
existing competition between them.
There are 6 commercial banks located in the Saint Louis area that are
considered to be in direct competition with St. Louis Bank: Bank of
Alma and Central National Bank of Alma, both in Alma, 3 miles to the
southwest of Saint Louis; Commercial National Bank in Ithaca, 8 miles
to the south of Saint Louis; Shepherd State Bank, 9 miles to the northwest of Saint Louis; Farmers State Bank in Breckenridge, 6 miles east of
Saint Louis; and Farmers & Merchants State Bank in Merrill, 14 miles
east of Saint Louis. No adverse impact on these banks is foreseen arising
from consummation of the consolidation of Chemical Bank and St. Louis
Bank. Further, under current Michigan banking law providing home-office
and branch-office protection, Chemical Bank would be prohibited from
establishing a de novo branch office in the communities in which St.
Louis Bank and its competitor banks are located. Since the other areas
intervening between Midland and Saint Louis are sparsely settled, it appears unlikely that Chemical Bank would establish a de novo branch in
these areas. There is, therefore, no significant potential for competition
between Chemical Bank and St. Louis Bank.
The financial condition, management, and prospects of Chemical Bank
are satisfactory. The financial condition and management of St. Louis
Bank are reasonably satisfactory. The proposed consolidation would appear to enhance its future prospects.
Consummation of the proposed transaction would not affect present
customers of Chemical Bank. The proposed consolidation would make
available to present customers of St. Louis Bank increased lending limits
and a relaxation of restrictive lending policies that have been followed by
St. Louis Bank in the granting of agricultural, mortgage, and consumer
instalment credit. While there is no evidence in the record to indicate
that the major financial needs of the Saint Louis area are, at present,
going unserved, the factors set forth above lend slight weight toward approval of the application.
The proposed consolidation would eliminate no substantial existing or
potential competition between the banks. The banking and convenience
and needs factors lend some weight toward approval of the application.
The Board concludes, therefore, that the application is in the public interest and should be approved.
For notes see p. 291.

272




21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

No. 2—Union Bank,

Banking offices
Resources
(in millions
of dollars)

In
operation

2,000.0

26

28.1

To be
operated

1

Los Angeles, Calif.,
to merge with
The Stanford Bank,

27

Palo Alto, Calif.

SUMMARY REPORT BY THE ATTORNEY GENERAL (2-16-71)

Stanford Bank is located 24 miles northwest of Union's San Jose
branch, situated in central Santa Clara County. Numerous banking alternatives intervene. Neither bank derives significant deposits or loan business from the area of Santa Clara County served by the other. Therefore,
the proposed merger would not have an adverse effect upon existing competition.
Within the last 2 years, Union has acquired banks in the San Francisco
Bay area with total deposits in excess of $175 million. In addition, Union
has entered San Jose by de novo branching, and it can enter other areas
of Santa Clara County by the same technique. Presently, Union is the
largest bank operating offices in the San Francisco Bay area which does
not operate offices in the Palo Alto area. Banking in this area is dominated by 3 banks which, as of June 29, 1968, controlled over 80 per cent
of deposits in commercial banking offices in this area. Stanford Bank was
the 4th largest bank in this area, with almost 7 per cent of such deposits.
This merger, therefore, eliminates Union as a potential de novo entrant
into the Palo Alto area.
In addition, Stanford Bank is 1 of only 4 small banks headquartered in
Santa Clara and San Mateo Counties. This merger has the effect of eliminating one of the few remaining footholds by which smaller banks serving other areas of the State might have entered this portion of the San
Francisco Bay area. For these reasons, this merger would have some adverse effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (2-11-71)

Union Bank is the 7th largest bank in California, having about 3.3 per
cent of the commercial bank deposits in the State. It operates its main
office and 16 branches in southern California; in northern California it
maintains 8 offices in and in close proximity to San Francisco and 1
office in San Jose. The Stanford Bank operates its sole office in Palo
Alto, and it competes with 43 offices of 11 banks, including 35 offices of
5 of the 6 largest banks in the State, in a geographic area that lies between the communities of San Jose and San Francisco. The nearest
offices of Union Bank to The Stanford Bank are the recently opened
(September 14, 1970) office of Union Bank in San Jose, 24 miles southFor notes see p. 291.




273

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING
197V—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

east of Palo Alto, and its offices in downtown San Francisco, 30 miles
north of Palo Alto. There are numerous offices of other banks located in
the densely populated areas intervening between the present offices of
Union Bank and The Stanford Bank. There is, therefore, no substantial
existing competition between Union Bank and The Stanford Bank.
Under California law both Union Bank and The Stanford Bank could
be permitted to establish de novo branch offices in the areas served by
the other. The Stanford Bank is unlikely to establish such a de novo
branch office, and it does not appear probable that Union Bank would establish a de novo branch in the area served by The Stanford Bank in the
immediate future. The largest shares of deposits in the market area
served by The Stanford Bank are held by offices of large banking institutions—Bank of America, Wells Fargo Bank, and Crocker-Citizens National Bank. The Stanford Bank is the 7th largest bank in its market area
in terms of deposits. In these circumstances, the amount of potential
competition between the merging banks that would be eliminated by the
proposed transaction is not significant; at the same time, Union Bank's
entry into the market by acquisition of The Stanford Bank would likely
result in increased competition between it and the larger banks located in
this market.
Based upon the foregoing, the Board concludes that consummation of
the proposal would not eliminate significant exisiting or potential competition. Considerations relating to the financial and managerial resources
and future prospects of the banks involved are consistent with approval
of the application. Customers of The Stanford Bank would benefit by the
merger because Union Bank would offer them a wider range of banking
services and through its larger lending limit would be better able to meet
the needs of medium-sized business customers. Convenience and needs
considerations are, therefore, consistent with approval of the application.
No. 3 and 4—Trust Company of Georgia,
Atlanta, Ga.,
to acquire the assets and assume the
deposit liabilities of
Peachtree Bank and Trust Company,
Chamblee, Ga.,
and
Trust Company of Georgia Bank
of Sandy Springs,
Sandy Springs, Ga.

695.0

20

17.0

2

5.0

1

SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
For notes see p. 291.

274




23

21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (2-22-71)

Trust Company was instrumental in organizing Peachtree Bank and
Trust Company of Georgia Bank of Sandy Springs (hereinafter Sandy
Springs Bank) in 1960 and 1966, respectively, in communities situated
several miles outside the city limits of Atlanta (population 487,600) and
has had a strong degree of influence over them since they opened for
business. It seems likely that were it not for the restrictions placed on
branching under Georgia statutes at the time Peachtree Bank and Sandy
Springs Bank were organized, Trust Company would have established
branches at such locations. Effective January 1, 1971, countywide branching was permitted in Georgia. Trust Company would operate branches at
the present offices of Peachtree Bank and Sandy Springs Bank. There is
no effective competition existing among proponents, and there is little
likelihood of potential competition developing among them due to their
long-standing close relationship. The banking and convenience and needs
factors are consistent with approval.
No. 5—Union Bank,
Los Angeles, Calif.,

2,000.0

27

18.4

2

29

tp mei-ge with

Bank of Long Beach, N.A.,
Long Beach, Calif.

SUMMARY REPORT BY THE ATTORNEY GENERAL (3-5-71)

Union Bank operates 21 [27] branches throughout southern California.
As of June 1968, it held about 7.5 per cent of Los Angeles County total
deposits. Union Bank does not have a branch in Long Beach, however,
and its closest office to an office of Bank of Long Beach, N.A., is 12
miles away.
Bank of Long Beach, N.A., is the 8th largest of 12 banks in Long
Beach and has about 2 per cent of Long Beach total deposits. The application states that as of June 30, 1970, Bank of Long Beach, N.A., had
about 3.1 per cent of total IPC 4 demand deposits in Long Beach.
Union Bank, according to the application, derives about Vi of 1 per
cent of its total deposits from the Long Beach area. This would be equal
to about $8 million or 50 per cent of Bank of Long Beach, N.A.'s, deposits. Each of these banks also derives some loan business from the other's service area. The proposed merger would eliminate this existing competition.
Union Bank is the 6th largest bank in California and the largest bank
having no offices in Long Beach. In 1964 it applied for a branch in Long
Beach and, after approval, withdrew its application in 1966. Under California law, Union Bank could establish de novo branches in Long Beach.
For notes see p. 291.




275

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

Long Beach banking is highly concentrated, the 4 largest banks having
over 80 per cent of total Long Beach deposits. Union Bank is the most
likely de novo entrant into banking in the Long Beach area.
The proposed merger would, therefore, eliminate the potential independent entry of Union Bank into Long Beach. In addition, the elimination of Bank of Long Beach, N.A., a 4-year-old bank, which has experienced rapid deposit growth, will remove one of the few smaller
independent competitive forces in this market and one of the few footholds by which smaller banks not serving the Long Beach area might
make more effective entry.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-12-71)

Union Bank (deposits of $1.5 billion) is the 7th largest bank in California, having about 3.3 per cent of the commercial bank deposits in the
State. It operates its main office and 16 branches in southern California;
in northern California it maintains 10 offices and has recently (February
11, 1971) received approval to operate another office as an incident to a
merger. Bank of Long Beach, N.A. (deposits of $16 million), operates 2
offices in Long Beach, California, and has received approval to operate
an office in the downtown district of that city.
Bank of Long Beach, N.A., with about 2.5 per cent of market deposits,
ranks 8th among the 12 banks (total of 50 offices) operating in its market area, which includes the cities of Long Beach, Lakewood, and Signal
Hill. Among the competitors of Bank of Long Beach, N.A., are 5 of the
largest banks in the State; these 5 banks operate 64 per cent of the
offices and control about 69 per cent of the deposits in the area.
The office of Union Bank located nearest to an office of Bank of Long
Beach, N.A., is in Torrance, which is about 12 miles west of Long
Beach. A large number of offices of other banks are located in the
densely populated areas intervening between the present offices of Union
Bank and Bank of Long Beach, N.A. There is, therefore, no substantial
existing competition between these 2 banks.
Under California law each bank could be permitted to establish de
novo branch offices in the areas served by the other. Because of the small
size of Bank of Long Beach, N.A., it appears unlikely that that bank
would in the near future establish a de novo branch outside its market. It
also does not appear probable that Union Bank would establish a de
novo branch office in the Long Beach area. In 1966 Union Bank withdrew an application to establish such a branch because a large-scale real
estate development did not progress beyond the planning stages; since
that time, Union Bank indicates that the area is not sufficiently attractive
for establishment of a de novo office. Furthermore, since Bank of Long
Beach, N.A., has only a very small share of the deposits in its area, the
For notes see p. 291.

276




21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

amount of potential competition between the merging banks that would
be eliminated by the proposed transaction is not significant; at the same
time, Union Bank's entry into this market by acquisition of Bank of
Long Beach, N.A., would likely increase competition among the large
banks there.
On the basis of the foregoing, the Board concludes that consummation
of the proposal would not eliminate significant existing or potential competition. Considerations relating to the financial and managerial resources
and future prospects of the banks are consistent with approval of the application. Customers of Bank of Long Beach, N.A., would benefit by the
merger because Union Bank plans to offer them an additional source of
a wider range of banking services, such as computer and trust services,
and through its larger lending limit would be better able to meet the
needs of medium- and large-sized business customers. Therefore, convenience and needs considerations lend support to approval of the application. It is the Board's judgment that consummation of the proposed
merger would be in the public interest, and that the application should
be approved.
No. 6—The Farmers Savings and Trust
Company,
Mansfield, Ohio,

50.0

to merge with

The Lucas State Bank,
Lucas, Ohio

4.0

SUMMARY REPORT BY THE ATTORNEY GENERAL (3-3-71)

The head office of Farmers Trust in Mansfield is 7 miles distant from
State Bank's single office in Lucas, with no banking offices in the intervening area. However, Farmers Trust and State Bank have had common
ownership and management since the latter bank commenced business in
1929. At all times, officers and directors of Farmers Trust have owned or
controlled more than two-thirds of State Bank's stock and every president
of State Bank, including the incumbent, has been either the president or a
senior officer of Farmers Trust. In view of this long-standing affiliation
between the 2 banks, we conclude that the proposed merger is not likely
to have an adverse effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-12-71)

The Farmers Savings and Trust Company (hereinafter Farmers Bank),
the 3rd largest of 7 banks located in Richmond County, holds about 17
per cent of Richmond County commercial banking deposits. Lucas Bank
For notes see p. 291.




277

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 197V—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

is the smallest of the 7 institutions located in Richmond County. Farmers
Bank is a subsidiary of First Bane Group of Ohio, Inc., Columbus, Ohio,
which is the 4th largest registered bank holding company in the State,
controlling about 3 per cent of deposits in the State of Ohio. Consummation of the proposed merger would not increase substantially the concentration of banking resources in any relevant area.
Farmers Bank was instrumental in organizing Lucas Bank in 1928 and
provided Lucas Bank with its initial management. Since that time applicant and Lucas Bank have been closely associated, and each president of
Lucas Bank has been either a president or senior officer of applicant.
There is no indication that this close relationship between applicant and
Lucas Bank is likely to change in the foreseeable future, regardless of the
Board's action with respect to the present application. In view of the
close relationship between the 2 banks, it may be reasonably concluded
that present and potential competition would neither be foreclosed by approval of the application nor encouraged by its denial. It does not appear
that competition with and between other banks in Richmond County
would be affected in any significant way by consummation of the proposal.
The Board concludes that consummation of the proposed merger would
not have an adverse effect on competition in any area. The financial and
managerial resources and prospects of the merging banks and the resulting bank are satisfactory and consistent with approval of the application.
Consummation of the merger would provide customers of Lucas Bank
with certain additional banking services; the convenience and needs aspects of the proposal lend weight, therefore, to approval of the transaction. Based upon the foregoing, it is the Board's judgment that consummation of the proposal would be in the public interest and that the
application should be approved.
No. 7—Manaport Bank.
Manassas, Va.,

0.1

to merge with

First Manassas Bank and Trust
Company,
Manassas, Va.

1.6

(Newly organized
bank; not in
operation)
1
1

SUMMARY REPORT BY THE ATTORNEY GENERAL (2-3-71)

The proposed merger is part of a plan under which Northern Virginia
Bankshares, Inc., a registered bank holding company, proposes to acquire
all of the voting shares of First Manassas Bank and Trust Company, and
For notes see p. 291.

278




21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

as a contemporaneous transaction, to effect the merger of Manaport Bank
and First Manassas Bank and Trust Company. The effect of these transactions will be to transfer control of an existing bank to a registered bank
holding company. In and of itself, however, the proposed merger would
merely combine an Existing bank with a nonoperating institution; as such,
and without regard to acquisition of the surviving bank by Northern
Virginia Bankshares, Inc., the proposed merger would have no effect on
competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-8-71)

Manaport Bank, Manassas, Virginia, a nonoperating bank applying
concurrently for membership in the Federal Reserve System, proposes to
merge First Manassas Bank and Trust Company, Manassas, Virginia.
The proposal is a transaction to facilitate the acquisition of First Manassas Bank and Trust Company by Northern Virginia Bankshares, Inc.,
Baileys Crossroads, Virginia, a proposed bank holding company.
The proposed merger would, in itself, have no adverse competitive effects. The banking and convenience and needs factors are consistent with
approval of the application.
No. 8—Trust Company of Georgia,
Atlanta, Ga.,
to acquire the assets and assume the
deposit liabilities^ of
Trust Company of Georgia
Bank of DeKalb,
Atlanta, Ga.

695.0

21
24

26.0

SUMMARY REPORT BY THE ATTORNEY GENERAL (4-27-71)

Since 1954, Trust Company's wholly owned subsidiary has owned at
least 70 per cent of the outstanding stock of DeKalb Bank. Since that
time, DeKalb Bank has been controlled and operated by Trust Company
as a subsidiary. This merger, therefore, is essentially a corporate reorganization and as such will have no effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (5-6-71)

Trust Company of Georgia has been affiliated with DeKalb Bank since
1954, when its wholly owned subsidiary, Trust Company of Georgia Associates, acquired 85 per cent of DeKalb Bank's capital stock. DeKalb
For notes see p. 291.




279

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In

operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

Bank's 3 offices are in unincorporated areas of DeKalb County, outside
the city limits of Atlanta (population 487,600). There is no effective
competition existing between proponents and there is little likelihood of
potential competition developing between them due to their long-standing
close relationship. The banking and convenience and needs factors are
consistent with approval.
No. 9—Commercial Trust Company of
New Jersey,

204.0

14

Jersey City, N.J.,
to acquire the assets and assume the
deposit liabilities of^
Bergen County National Bank of
Hackensack,

15

27.0

Hackensack, N.J.
SUMMARY REPORT BY THE ATTORNEY GENERAL (4-13-71)

During 1970 Commercial Trust opened 3 de novo branches in southern
Bergen County. The closest of these to Bergen National is located in
Hasbrouck Heights, approximately 5 miles away. There are several commercial bank offices located in the intervening area. Commercial Trust's
main office is approximately 16 miles from Bergen National. Bergen National derives about 1 per cent of its total deposits from the service area
of Commercial Trust, mostly from Hasbrouck Heights. Commercial
Trust's Hasbrouck Heights office draws about 1.6 per cent of its total deposits from Hackensack. This branch was opened on November 14, 1970,
however, and it can be expected to increase its draw from this area in
the future. Therefore, a limited amount of direct competition between the
2 banks will be eliminated by consummation of the proposed merger.
Commercial Trust is the 11th largest commercial bank in New Jersey's
First Banking District. At present, it holds a very small share of Bergen
County deposits, attributable to its recently opened branches. Under New
Jersey law commercial banks are allowed to branch freely throughout the
banking district in which they are located, with certain home-office- and
branch-office-protection limitations. Commercial Trust cannot branch de
novo into Hackensack, although the increasingly popular holding company device may provide some opportunity for expansion. Bergen National is the smallest bank in Hackensack and one of the smaller banks
in Bergen County, with less than 1.2 per cent of total county deposits. In
view of this fact and the existence of many other larger banks in the
First District, the amount of potential competition eliminated is unlikely
to be significant.
For notes see p. 291.

280




21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (5-13-71)

Commercial Trust operates 6 offices in Jersey City and 5 additional
offices elsewhere in Hudson County; during 1970 Commercial Trust
opened 3 branch offices in Bergen County. The principal area served by
Commercial Trust is Jersey City and the southeastern part of Hudson
County, from which it derives over 90 per cent of its deposits and wherein it ranks as the 2nd largest of the 12 area banks, controlling approximately 17 per cent of area deposits.
Bergen Bank maintains its sole office, and is the smallest of 4 banks, in
the city of Hackensack (Bergen County). Commercial Trust holds 5.5
per cent of the deposits in the combined Hudson-Bergen County area. Its
share of such deposits would increase to 6.3 per cent upon consummation
of the proposed acquisition. Approval of the proposed transaction would
not increase substantially the concentration of banking resources in any
area.
The competitive effect of this proposal would be confined principally to
the city of Hackensack. Commercial Trust has recently opened 3 offices
in Bergen County that are situated 9, 7, and 5 miles from Hackensack, in
areas that serve mainly as a base for those who commute to New York
City for employment. Neither Bergen Bank nor Commercial Trust derives
any significant portion of its business from the areas served by the other
bank, and the banks serve essentially separate banking markets. Consequently, there is no substantial existing competition between Commercial
Trust and Bergen Bank. Moreover, it does not appear that significant potential competition would be eliminated by consummation of this proposal, since under the home-office protection afforded by State law, Commercial Trust could not be permitted to branch de novo into the city of
Hackensack. Bergen Bank is not an aggressive competitor to the 3 larger
Hackensack banks, and consummation of this merger could serve to enhance the ability of the resulting banking office to compete in the area.
On the basis of the foregoing, the Board concludes that consummation
of the proposal would not eliminate significant existing or potential competition. Considerations pertaining to the financial and managerial resources and future prospects of the banks are consistent with approval of
the application. Although the banking needs of the residents of Hackensack are being adequately served at the present time by many banking
offices of large organizations, it appears that the proposed acquisition
would replace a conservatively operated institution with a more aggressive
competitor in the Hackensack area, enlarge present services offered to
Bergen Bank's customers, and provide another source of specialized services now being offered only by the larger Hackensack banks. Therefore,
convenience and needs considerations are consistent with and lend some
support to approval of the application. It is the Board's judgment that
consummation of the proposed merger would be in the public interest,
and that the application should be approved.
For notes see p. 291.




281

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 197V—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking\ offices
Resources
(in millions
of dollars)

In

operation
No. 10—The Western Greenbrier Bank,
Rainelle, W. Va.,
to acquire the assets and assume the
deposit liabilities of
The Bank of Rainelle,
Rainelle, W. Va.

7.0

To be
operated

1
1

5.0

1

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-2-71)

The service areas of Bank of Rainelle and Western are coextensive. No
other banks are located in this area, and it does not appear that the closest banks in other areas do any meaningful business or exert any meaningful competitive pressure in the Rainelle area. Therefore, the proposed
transaction would eliminate essentially all banking competition in the Rainelle area, with Western acquiring a monopoly position.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-5-71)

Proponents operate the only banking offices in Rainelle (population
1,800), and the nearest office of another bank is 25 miles distant. Bank
of Rainelle throughout its existence has been used primarily as a depository for the convenience of a lumber company, control of which was
purchased during 1970 by Georgia-Pacific Corporation and its subsidiary
Georgia-Pacific Timber Company. Since these firms do not wish to be
subject to the nonbank restrictions of the Bank Holding Company Act,
they decided to either sell the bank or to liquidate it. All efforts to sell it
to residents of the Rainelle area and to banks other than Greenbrier
Bank were unsuccessful.
Consummation of the proposed transaction would avoid the public inconvenience and confusion that would be brought about by liquidation of
Bank of Rainelle.
No. 11—The Citizens Central Bank of
Arcade,
Arcade, N.Y.,
to merge with
Bank of Elba,
Elba, N.Y.

40.3

2.9

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-6-71)

Citizens' main office in Arcade and its branch in Silver Springs are its
closest offices to Elba, at approximate distances of 46 and 41 miles. The
3 largest banks in the district all operate offices in Batavia, between Arcade and Elba. Other banking alternatives are also located between Citizens and the Bank of Elba. The merging banks draw little banking busiFor notes see p. 291.

282




21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

ness from each other's service areas, and other subsidiaries of Charter
[New York Corporation] do only limited business in the Elba area. Therefore, it is unlikely that the proposed merger would eliminate substantial
existing competition.
Under present New York law, which permits intradistrict branching
subject to home-office protection, Citizens could be permitted to open
new branches in Genesee County. Although the town of Elba itself is
closed to branching, the nearby and significantly larger community of
Batavia is open. Citizens clearly has the ability to open de novo
branches, particularly in view of its affiliation with Charter. However, in
view of the relatively stable economy and population in the Elba-Batavia
area, and the size and relative market position of the Bank of Elba, we
do not believe that the proposed merger would have a significantly adverse effect on potential competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-5-71)

Citizens Bank, a Subsidiary of Charter New York Corporation, New
York, with deposits of $35 million, is the 11th largest of 32 banks headquartered in New York's Ninth Banking District, wherein it operates 5
banking offices in 3 0f the district's 8 counties. Elba Bank, with deposits
of $2 million, operates its sole office in Elba and is the only bank serving
the town. It is the smallest of 3 banks domiciled in Genesee County,
wherein it holds 11 per cent of total county deposits. The nearest offices
of Citizens Bank to Elba Bank are its main office in Arcade and its
branch in Silver Springs, located 46 and 41 miles, respectively, from
Elba. In the intervening area there are 8 banking offices, which include
branches of the 3 largest Buffalo-based banks.
The relevant market within which the competitive effects of the proposed merger are to be assessed is the Batavia banking market, which encompasses an area approximately half the distance between Rochester and
Buffalo, consisting of Genesee County and the towns of Bennington, Attica, Middleburg, and Covington, in Wyoming County. Elba Bank is the
7th smallest of 8 banks represented in the market and controls only 1.9
per cent of the market's total deposits.
The merging banks do not compete with one another in the relevant
market, and there is no significant competition between other subsidiary
banks of Charter New York Corporation and Elba Bank. Further, no
substantial potential competition would be foreclosed by consummation of
the proposed merger considering Elba Bank's size, the economy of the
area, and the restrictions placed on branching into Elba by New York
State banking laws. Consummation of the proposed transaction would not
result in a substantial increase in concentration levels on a local or statewide basis. Based upon all the facts revealed in the record, the Board
concludes that the merger would not have an adverse effect on competition in any relevant area.
For notes see p. 291.




283

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED

Name of bank; and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

The financial and managerial resources and prospects of the merging
banks and the resulting bank are satisfactory and consistent with approval
of the application. Considerations under the convenience and needs aspects of the proposal lend some support in favor of approval since consummation of the merger would provide customers of Elba Bank with a
more varied range of banking services than is presently offered them.

No. 12—Nortrust Bank,
Chicago, 111.,
to merge with

The Northern Trust
Company,
Chicago, 111.

(Newly organized bank;
not in operation)
2,000.0

SUMMARY REPORT BY THE ATTORNEY GENERAL (9-30-71)

The proposed merger is part of a plan through which Nortrust Bank
would become a subsidiary of Nortrust Corporation, a bank holding company. The proposed merger, however, would merely combine an existing
bank with a nonoperating institution; as such and without regard to the
acquisition of the surviving bank by Nortrust Corporation, it would have
no effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-26-71)

Nortrust Bank, Chicago, Illinois, an organizing bank applying concurrently for membership in the Federal Reserve System, has requested prior
written consent of the Board of Governors to merge with The Northern
Trust Company, Chicago, Illinois, under the charter of Nortrust Bank
and with the title The Northern Trust Company. The Northern Trust
Company operates 1 domestic office and has total deposits of $1.9 billion.
The proposed merger is a transaction to facilitate the acquisition of
The Northern Trust Company by Nortrust Corporation, Chicago, Illinois,
a bank holding company.
The proposed merger would, in itself, have no adverse competitive effects. The banking and the convenience and needs factors are consistent
with approval of the application.
For notes see p. 291.

284




2l._CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

No. 13—The Perry County Bank,
New Lexington, Ohio,

Resources
(in millions
of dollars)

Banking offices
In
operation

9.0

1

5.6

1

2

to merge with

The Peoples Bank,
Thornville, Ohio

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL (7-23-71)

The 2 merging banks are located 18 miles apart, and 2 banks are located in the intervening town of Somerset (population 1,417). According
to the application, the primary service areas of the merging banks do not
overlap. Nonetheless, Peoples Bank, because of an aggressive policy (for
example, Peoples Bank has no service charges on checking accounts),
draws deposits from a rather broad area, including the towns of Lancaster, Newark, and Zanesville; BancOhio Corporation presently has subsidiaries in each of these towns. Moreover, Perry Bank does some deposit
and loan business with Thornville customers. Because of BancOhio Corporation's complete ownership of Perry Bank and other banks competing
with Peoples Bank, this merger will eliminiate the existing competition
generated by an independent, aggressive Peoples Bank in Thornville.
In Perry County, BancOhio Corporation's present subsidiary, Perry
Bank, is currently the largest of the 8 commercial banks in the county.
Based on June 30, 1970, deposit figures, Perry Bank and Peoples Bank
each had slightly more than 16 per cent of the deposits held by Perry
County banks. Consummation of this merger would give BancOhio Corporation control of over 32 per cent of the deposits in Perry County
banks.
We conclude that this merger is likely to have an adverse effect on
competition in Perry County.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-4-71)

The Perry County [Bank (hereinafter New Lexington Bank) is a subsidiary of BancOhio i Corporation, Columbus, Ohio (hereinafter BancOhio). BancOhio is trie 2nd largest banking organization in Ohio, with
28 subsidiary banks folding aggregate deposits in excess of $1.5 billion,
representing 7.2 per c^nt of State commercial bank deposits. The Peoples
Bank (hereinafter Thornville Bank) is located 18 miles northwest of New
Lexington Bank. Althpugh New Lexington Bank and Thornville Bank are
both located in Perry! County, there is little existing competition between
them because they serve essentially separate banking markets. However,
within a radius of 10 miles from Thornville Bank, there are 3 branches
of BancOhio subsidiaries that compete to some extent with Thornville
For notes see p. 291.




285

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

Bank. They are the Buckeye Lake office of The First National Bank of
Newark (located 6 miles northwest of Thornville) and the Pleasantville
and Baltimore offices of The Hocking Valley National Bank of Lancaster
(located within Fairfield County, 8 miles southwest and 10 miles west of
Thornville, respectively).
Thornville Bank is located at the periphery of the Newark banking
market, the relevant market, which is approximated by Licking County
and the extreme northwestern section of Perry County. The First National Bank of Newark, with 6 offices, all located in Licking County, and
total deposits of $44.6 million, has the 2nd largest share (23.7 per cent)
of commercial bank deposits within the relevant market.
Thornville Bank has 2.7 per cent of market deposits; approval of the
application will increase BancOhio's share of market deposits to 26.3 per
cent, and it would remain the 2nd largest banking organization in the
market.
BancOhio subsidiaries hold at least 20 per cent of commercial bank deposits in areas contiguous to the relevant market in Fairfield County,
Muskingum County, and Perry County. In addition, BancOhio subsidiaries hold approximately 42 per cent of commercial bank deposits in an 8county area surrounding Columbus, Ohio, and may be considered the
dominant banking organization in central Ohio. Because of the increased
concentration within the relevant market and the substantial shares held
by BancOhio subsidiaries in nearby markets, the Board concludes that the
proposed merger would have an adverse effect on competition. However,
the Board is required to consider whether other aspects of the proposed
transaction are such that approval would be in the public interest despite
the adverse competitive finding.
The Thornville Bank has serious management problems. Despite efforts
to recruit successor management, Thornville Bank has been without a
chief executive officer of its own since early 1970. It has relied on management assistance provided by BancOhio since April 1970. Prior to seeking management assistance from BancOhio, Thornville Bank had had severe management problems that had left the bank in a weakened
financial condition. The bank's condition improved only with BancOhio's
assistance. Since Ohio law permits only countywide branching, merger
with a bank outside Perry County is not feasible. Because of the relatively small size of all other banks located within Perry County, a merger
with any of these banks would not appear to be the solution to Thornville Bank's management problems. Acquisition by a holding company
other than BancOhio might alleviate Thornville Bank's management problems, but other holding companies in the area contacted by Thornville
Bank expressed no interest in acquiring the bank.
For notes see p. 291.

286




21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

In the light of Thornville Bank's prior difficulty in securing a chief executive officer on its own, there is no assurance that capable management
can be attracted to the bank in the absence of approval of the proposed
transaction. Consequently, the Board has concluded that the financial and
managerial factors lend substantial weight for approval. Since approval of
the proposed transaction appears the only method whereby the continued
existence of banking facilities in Thornville can be assured, the convenience and needs of the community outweigh the adverse competitive consequences of this proposed merger. Based upon the foregoing, it is the
Board's judgment that consummation of the proposal would be in the
public interest and that the application should be approved.

No. 14—The Connecticut Bank and Trust
Company,
Hartford, Conn.,
to merge with
The North Side Bank and Trust
Company,
Bristol, Conn.

1,177.0

59

15.1

62

SUMMARY REPORT BY THE ATTORNEY GENERAL (8-19-70)

A distance of about 18 miles separates the head offices of the merging
banks. Six of CBT's [The Connecticut Bank and Trust Company] branch
offices are within 15 miles of Bristol, and its new Avon office, not yet
open, will be only 10 miles distant. However, several independent banks
operate offices in the intervening area, and data from the application suggest that neither of tjhe merging banks obtains significant business from
areas immediately served by offices of the other. Consequently, it seems
doubtful that the proposed merger will eliminate substantial existing competition.
Connecticut law d^es not permit a commercial bank to establish de
novo branch offices jn a township where there is already located the
home office of another bank. Under this law, Bristol is presently closed
to de novo entry by CBT. If the proposed merger is approved, Bristol
will be open to de novo branching by any commerical bank. Of the 6
townships surrounding Bristol separating it from townships where CBT
has offices, 3 are also closed. CBT could, however, be permitted to enter
For notes see p. 291.




287

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

the remaining 3 townships de novo, and as Connecticut's 2nd largest
bank, it would appear that it has the resources and capability for such
entry.
Two commercial banks operate offices in Bristol; a 3rd bank is located
in Plymouth. As of June 30, 1968, these 3 banks held total deposits of
about $43 million. The largest of these 3 was the Hartford-based United
Bank and Trust Company, whose 4 offices in Bristol controlled about
54.0 per cent of these deposits. North Side Bank, the 2nd largest, held
27.2 per cent of these deposits.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-9-71)

The Connecticut Bank and Trust Company (hereinafter CBT) is one
of Connecticut's two largest commercial banks. North Side Bank is comparatively modest in size. Although CBT's operations are centered in the
Hartford standard metropolitan statistical area (SMSA), it derives about
$1.4 million in deposits and $4.3 million in loans from the Bristol-Plymouth SMSA, where North Side Bank's operations are primarily located.
Of this $1.4 million in deposits, $1.07 million are in demand deposits,
half of which are in 3 large commercial accounts and the remainder in
300 other accounts; $176,000 are in 353 savings accounts, and $172,000
in 29 time deposits. Of the $4.3 million in loans that CBT derives from
the Bristol-Plymouth area, $3.1 million are in loans that exceed North
Side Bank's lending limit.
At the request of the Board, the Federal Reserve Bank of Boston conducted a survey of Bristol, Connecticut, to determine whether Bristol is
becoming a part of the same banking market as the Hartford SMSA. To
obtain information on banking habits of different types of customers,
three groups were sampled—households, businesses, and professionals;
businesses were subdivided into large and small. Less than 10 per cent of
the households surveyed had their major checking account in the Hartford SMSA, and 4.7 per cent had this account in Hartford itself. Of this
sample, 5.3 per cent had their major savings account in the Hartford
SMSA, and 3.2 per cent had this account in Hartford itself. Among professionals working in Bristol, only 5.4 per cent had a checking account in
the Hartford SMSA. Among small businesses in Bristol, only 4.8 per cent
had their major banking relationship in the Hartford SMSA. Although
large businesses had somewhat more banking relationships within the
Hartford SMSA, nonetheless, only 25 per cent indicated they used a
Hartford SMSA bank for their primary source of banking services. Thus,
the survey results suggest that Bristol is not integrated into the banking
market approximated by the Hartford SMSA.
The Board has considered that Connecticut law presently prohibits the
establishment of de novo offices in Bristol because it is the location of
the home office of North Side Bank. The effect of the present proposal in
For notes see p. 291.

288




21.—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

eliminating home-office protection in Bristol would be to open up that
city to competition from other Connecticut banks. The Colonial Bank
and Trust Company, Waterbury ($225 million in deposits), has an application pending for a de novo branch in Bristol- that is contingent upon
approval of this application. Thus, consummation of the present proposal
would serve to stimulate competition in Bristol. Indeed since Bristol is on
the fringes of the Hartford SMSA, the intensification of competition
among banks in Bristol may even serve to stimulate competition among
banks in the highly concentrated Hartford area, where the 2 largest banks
now control 85 per cent of area deposits.
The Board has considered whether home-office protection might be
eliminated by alternative means. Although North Side Bank has received
expressions of interest in a merger from other banks from time to time,
all of these banks were in adjacent markets. In any case, North Side
Bank has not received a firm offer for a merger, and this transaction
does not present such anticompetitive effects as to require that it be evaluated by measuring it against hypothetical transactions.
The Board is of the view that consummation of the present proposal
would not have anticompetitive effects, and indeed, elimination of homeoffice protection would have a procompetitive effect.
The financial condition, management, and future prospects of CBT and
North Side Bank are satisfactory regardless of whether the proposed
merger is consummated. Consequently, these considerations are consistent
with approval.
The banking needs of the Bristol area are being adequately served by
the banking organizations located therein and in nearby communities. The
convenience and needs factors are consistent with, but lend no weight toward, approval of the proposal.

No. 15—The Huron County Banking Co.,

Norwalk, Ohio,
to merge with
The Savings & Loan Banking Co.,

New London, Ohio

34.3
10.2

SUMMARY REPORT BY THE ATTORNEY GENERAL (9-27-71)

Seventeen miles separate the offices of the 2 banks. There are no banks
in the intervening area. There is a banking alternative in Norwalk (Citizens Bank, total deposits: $17 million). In addition, there are other banking offices which are closer to New London than is the office of Huron
County Bank. Although the banks contend that there is no competition
For notes see p. 291.




289

21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 19711—CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Banking offices
Resources
(in millions
of dollars)

In
operation

To be
operated

SUMMARY REPORT BY THE ATTORNEY GENERAL—Cont.

between them, each draws some deposits from the area of the other and
each could expand that competition by branching into the other's territory. As a result, this merger would eliminate some existing competition
and the potential for increasing it.
Huron County Bank is presently the largest of 8 banks serving Huron
County. It has some 24 per cent of county deposits. S&L Bank [The Savings & Loan Banking Co.] is the 6th largest bank with 6 per cent of
county deposits. Presently, the 4 largest banks in the county hold 70 per
cent of all deposits; that share would go to 76 per cent after this merger,
and Huron County Bank would be almost twice the size of any other
bank in the county. Thus, consummation of this merger would result in a
substantial increase in concentration in Huron County. Furthermore, several bank holding companies have considered acquiring S&L Bank. Thus,
this merger will eliminate a vehicle by which banking organizations not
serving Huron County might have entered by acquisition of a footholdtype bank.
In conclusion, we believe that this merger will have an adverse effect
on banking competition in Huron County.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-9-71)

The Huron County Banking Co. (hereinafter Norwalk Bank), with deposits of $32 million and 2 banking offices, is located in Huron County
and operates in the Sandusky banking market, which consists of all of
Erie County and the northern portion of Huron County. Norwalk Bank
is the 4th largest of 13 banks headquartered in the Sandusky banking
market, holding 11.1 per cent of the deposits in that market. The Savings
& Loan Banking Co. (hereinafter New London Bank), with deposits of $9
million, operates its sole office in New London. Although located in
Huron County, this bank operates in a separate banking market consisting of New London and its immediate surroundings. The nearest offices
of Norwalk Bank to New London are 17 miles distant. Although there
are no banking offices in the territory between New London and Norwalk, there are offices of other banks that provide alternative banking
services to residents of New London and that are located closer to New
London Bank than is Norwalk Bank.
There is no substantial existing competition between New London Bank
and Norwalk Bank. Although Norwalk Bank could branch de novo into
the New London banking market, substantial potential competition would
not be foreclosed by consummation of this proposal because of the small
size of New London Bank and because of the rural nature and modest
growth prospects of the New London area, which make branching into
that market by Norwalk Bank unlikely. Consummation of the proposed
transaction would not result in a substantial increase in concentration lev-

For notes see p. 291.

290




2i._CONTINUED

Name of bank, and type of transaction2
(in chronological order of determination)

Resources
(in millions
of dollars)

Banking offices
In
operation

To be
operated

BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Cont.

els in any relevant area. Based upon all the facts revealed in the record,
the Board concludes that the merger would not have an adverse effect on
competition in any relevant area.
The financial and managerial resources and future prospects of the
merging banks and the resulting bank are satisfactory and consistent with
approval of the application. Considerations relating to the convenience
and needs of the community lend some weight toward approval since the
merger would increase the lending limit of New London Bank. New London Bank would, as a result, be able to serve more adequately the credit
needs of the New London community. Based upon the foregoing, it is the
Board's judgment that consummation of the proposal would be in the
public interest and that the application should be approved.
No. 16—HTS Bank,
Chicago, 111.,

0.4

to merge with

Harris Trust and Savings Bank,
Chicago, 111.

2,042.0

(Newly organized
bank; not in
operation)
1
1

SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (12-22-71)

HTS Bank, Chicago, Illinois, a nonoperating bank applying concurrently for membership in the Federal Reserve System, proposes to merge
Harris Trust and Savings Bank, Chicago, Illinois, which has deposits of
$1.6 billion and operates 1 domestic office.
The proposal is a transaction to facilitate the acquisition of Harris
Trust and Savings Bank by Harris Bancorp., Inc., Chicago, Illinois, a
bank holding company.
The proposed merger would, in itself, have no adverse competitive effects. The banking and convenience and needs factors are consistent with
approval of the application.
1
During 1971 the Board disapproved 2 merger applications. However, under Section
18(c) of the Federal Deposit Insurance Act. only those transactions approved by the
Board must be described in its ANNUAL REPORT to Congress.
2
Each transaction was proposed to be effected under the charter of the first-named
bank.
3
Application by Chemical Bank and Trust Company for consolidation with Gladwin
Bank was denied.
4
The abbreviation "IPC" designates deposits of individuals, partnerships, and corporations.




291

VO




•[ THE

FEDERAL RESERVE SYSTEM ]•

BOUNDARIES OF FEDERAL RESERVE DISTRICTS A N D THEIR BRANCH TERRITORIES

Q

HAWAII

©
July 1971

Legend
• Boundaries of Federal Reserve Districts
- Boundaries of Federal Reserve Branch Territories
© Board of Governors of the Federal Reserve System
® Federal Reserve Bank Cities
• Federal Reserve Branch Cities

zfederal 'Reserve
'Directories and




BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
(December 31,1971)
ARTHUR F. BURNS of New York, Chairman
J. L. ROBERTSON of Nebraska, Vice Chairman
GEORGE W. MITCHELL of Illinois
J. DEWEY DAANE of Virginia
SHERMAN J. MAISEL of California
ANDREW F. BRIMMER of Pennsylvania
ROBERT C. HOLLAND, Executive Director
J. CHARLES PARTEE, Adviser to the Board
ROBERT SOLOMON, Adviser to the Board
HOWARD H. HACKLEY, Assistant to the Board
CHARLES MOLONY, Assistant to the Board
ROBERT L. CARDON, Assistant to the Board
DAVID B. HEXTER, Assistant to the Board
EDWIN J. JOHNSON, Assistant to the Board

Term expires
January 31, 1984
January 31, 1978
January
January
January
January

31,
31,
31,
31,

FRANK O'BRIEN, JR., Special Assistant to the Board
JOSEPH R. COYNE, Special Assistant to the Board
JOHN S. RIPPEY, Special Assistant to the Board
OFFICE OF EXECUTIVE DIRECTOR
ROBERT C. HOLLAND, Executive Director

DAVID C. MELNICOFF, Deputy Executive Director
GORDON B. GRIMWOOD, Assistant Director and Program Director for
Contingency Planning
HARRY J. HALLEY, Program Director for Management Systems
WILLIAM W. LAYTON, Director of Equal Employment Opportunity
BRENTON C. LEAVITT, Program Director for Banking Structure
OFFICE OF THE SECRETARY
TYNAN SMITH, Secretary

KENNETH A. KENYON, Deputy Secretary
MURRAY ALTMANN, Assistant Secretary
NORMAND R. V. BERNARD, Assistant Secretary
ARTHUR L. BROIDA, Assistant Secretary
ELIZABETH L. CARMICHAEL, Assistant Secretary

LEGAL DIVISION
THOMAS J. O'CONNELL, General Counsel

ROBERT F. SANDERS, Deputy General Counsel
PAULINE B. HELLER, Adviser

DIVISION OF RESEARCH AND STATISTICS
J. CHARLES PARTEE, Director

STEPHEN H. AXILROD, Associate Director
SAMUEL Bk CHASE, Associate Director
LYLE E. GRAMLEY, Associate Director
STANLEY J. SIGEL, Adviser
MURRAY S. WERNICK, Adviser
KENNETH B. WILLIAMS, Adviser

JAMES B. ECKERT, Associate Adviser
PETER M. KEIR, Associate Adviser
JAMES L. PIERCE, Associate Adviser
EDWARD C. ETTIN, Assistant Adviser
STEPHEN P. TAYLOR, Assistant Adviser

Louis WEINER, Assistant Adviser
JOSEPH S. ZEISEL, Assistant Adviser
LEVON H. GARABEDIAN, Assistant Director

294




1976
1974
1972
1980

DIVISION OF INTERNATIONAL FINANCE
ROBERT SOLOMON, Director

JOHN E. REYNOLDS, Associate Director
ROBERT L. SAMMONS, Associate Director
JOHN F. L, GHIARDI, Adviser

A, B. MERSEY, Adviser
REED J. IRVINE, Adviser
SAMUEL I. KATZ, Adviser
BERNARD NOEWOOD, Adviser
RALPH C. WOOD, Adviser

RALPH C. BRYANT, Associate Adviser
R O B E R T F . G E M M I L L , Associav

**r>

*•- <

SAMUEL PIZER, Associate Advi-<; /
D I V I S I O N O F F E D E R A L RESEKN i
JAMES A, MCINTOSH, Director

H - i \ \ OPERATIONS

JOHN N. KILEY, JR., 'Associate .'>••' - f "
W A L T E R A . A L T H A U S E N , Assisi>ir'
.'»,-», « •,D O N A L D G . B A R N E S , Assistant
/><>< • •' >

HARRY A. GUINTER, Assistant iJnt-tJuf

P, D. RING, Assistant Director
JAMES L, VINING, Assistant Director
CHARLES C. WALCUTT, Assistant Director

LLOYD M. SCHAEFFEE, Chief Federal Reserve Examiner
DIVISION O F SUPERVISION

\ N i ) K* G U L A T I O N

F R E D E R I C S O L O M O N , Dim '<
I E E N T O N C . L E A V I T T , Depu"

n>,< < »
*«

FREDERICK R. DAHL, Assistant Director
JACK M. EGEITSON, Assistant Director
JOHN P. FLAHERTY, Assistant Director
JANET O. HART, Assistant Director
TOHN N. LYON, Assistant Director
l

»rHN T. MCCLINTOCK, Assistant Director

I i IOMAS A. SIDMAN, Assistant Director

OF PERSONNEL ADMINIST); ' V ^ \
G. BUMKE, Director

I' »HN J. HART, Assistant Director
DIVISION OF ADMINISTRATIVE SERVICES
!«>SEPH E. KELLEHER, Director

I MNALD D. ANDEESOM, Assistant Director
^••HN D. SMITH, Assistant Director

OV-IU E OF THE CONTROLLER
JOHN KAKALEC, Controller

HARIY J. HALLEY, Deputy Controller

DIVISION OF DATA PROCESSING
JEEOLD E. SLOCUM, Director

CHARLES L. HAMPTON, Associate Director
GLENN L, CUMMINS, Assistant Director
BENJAMIN R. W. KNOWLES, JR., Assistant Director
HENRY W, MEETZE, Assistant Director
RICHARD S. WATT, Assistant Director




295

FEDERAL OPEN MARKET COMMITTEE
(December 31, 1971)

MEMBERS
ARTHUR F. BURNS, Chairman (Board of Governors)
ALFRED HAYES, Vice Chairman (Elected by Federal Reserve Bank of New
York)
ANDREW F. BRIMMER (Board of Governors)

GEORGE H. CLAY (Elected by the Federal Reserve Banks of Minneapolis,
Kansas City, and San Francisco)
J. DEWEY DAANE (Board of Governors)

MONROE KIMBREL (Elected by the Federal Reserve Banks of Atlanta, St. Louis,
and Dallas)
SHERMAN J. MAISEL (Board of Governors)

ROBERT P. MAYO (Elected by the Federal Reserve Banks of Cleveland and
Chicago)
GEORGE W. MITCHELL (Board of Governors)

FRANK E. MORRIS (Elected by the Federal Reserve Banks of Boston, Philadelphia, and Richmond)
J. L. ROBERTSON (Board of Governors)

OFFICERS
ROBERT C. HOLLAND, Secretary
ARTHUR L. BROIDA,

Deputy Secretary
NORMAND R. V. BERNARD,

Assistant Secretary
CHARLES MOLONY,

Assistant Secretary
HOWARD H. HACKLEY,

General Counsel
DAVID B. HEXTER,

Assistant General Counsel
J. CHARLES PARTEE,

Economist
STEPHEN H. AXILROD,

Associate Economist
ROBERT W. EISENMENGER,

Associate Economist

GEORGE GARVY,

Associate Economist
LYLE E. GRAMLEY,

Associate Economist
A. B. HERSEY,

Associate Economist
JOHN E. REYNOLDS,

Associate Economist
KARL A. SCHELD,

Associate Economist
ROBERT SOLOMON,

Associate Economist
CHARLES T. TAYLOR,

Associate Economist
CLARENCE W. TOW,

Associate Economist

ALAN R. HOLMES, Manager, System Open Market Account
CHARLES A. COOMBS, Special Manager, System Open Market Account
During 1971 the Federal Open Market Committee held 13 meetings, generally at intervals of four weeks, as indicated in the Record of Policy Actions
taken by the Committee (see pp. 103-202 of this Report).

296




FEDERAL ADVISORY COUNCIL
(December 31, 1971)

MEMBERS
District No. 1—Mark C. Wheeler, President, New England Merchants National
Bank, Boston, Mass.
District No. 2—John M. Meyer, Jr., Chairman of the Board, Morgan Guaranty
Trust Company of New York, New York, N.Y.
District No. 3—G. Morris Dorrance, Jr., Chairman of the Board and President,
The Philadelphia National Bank, Philadelphia, Pa.
District No. 4—John S. Fangboner, Chairman of the Board and Chief Executive Officer, The National City Bank of Cleveland, Cleveland, Ohio.
District No. 5—Joseph W. Barr, President, American Security and Trust Company, Washington, D.C.
District No. 6—Harry Hood Bassett, Chairman of the Board, First National
Bank of Miami, Miami, Fla.
District No. 7—Gaylord Freeman, Chairman of the Board, The First National
Bank of Chicago, Chicago, 111.
District No. 8—Allen Morgan, Chairman of the Board, The First National
Bank of Memphis, Memphis, Tenn.
District No. 9—T. M. Reardon, Chairman of the Board, Western Bank, Sioux
Falls, S. D.
District No. 10—Morris F. Miller, Chairman of the Board and Chief Executive Officer, The Omaha National Bank, Omaha, Neb.
District No. 11—John E. Gray, Chairman of the Board and Chief Executive
Officer, First Security National Bank of Beaumont, Beaumont, Tex.
District No. 12—A. W. Clausen, President and Chief Executive Officer, Bank
of America National Trust and Savings Association, San Francisco, Calif.

OFFICERS
JOHN M. MEYER, JR., President
HERBERT V. PROCHNOW, Secretary

A. W. CLAUSEN, Vice President
WILLIAM J. KORSVIK, Assistant Secretary

EXECUTIVE COMMITTEE
JOHN M. MEYER, JR., ex officio
MARK C. WHEELER

A. W. CLAUSEN, ex officio
ALLEN MORGAN

JOHN E. GRAY

Meetings of the Federal Advisory Council were held on February 4-5,
June 17-18, September 16-17, and November 4-5, 1971. The Board of Governors met with the Council on February 5, April 20, June 18, September 17,
and November 5. The Council is required by law to meet in Washington at
least four times each year and is authorized by the Federal Reserve Act to
consult with and advise the Board on all matters within the jurisdiction of the
Board.




297

FEDERAL RESERVE BANKS AND
BRANCHES
(December 31, 1971)

CHAIRMEN AND DEPUTY CHAIRMEN OF
BOARDS OF DIRECTORS

Boston
New York..
Philadelphia
Cleveland
Richmond.
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas....
San Francisco

Chairman and
Federal Reserve Agent

Deputy Chairman

James D. Duesenberry
Albert L. Nickerson
Bayard L. England
Albert G. Clay
Wilson H. Elkins
Edwin I. Hatch
Emerson G. Higdon
Frederic M. Peirce
David M.Lilly
Robert W. Wagstaff
Chas. F. Jones
O. Meredith Wilson

Federal Reserve
Bank of—

Louis W. Cabot
Roswell L. Gilpatria
D. Robert Yarnall, Jr.
J. Ward Keener
Robert W. Lawson, Jr.
John C. Wilson
William H. Franklin
Sam Cooper
Bruce B. Dayton
Willard D. Hosford,Jr.
Philip G. Hoffman
S. Alfred Halgren

CONFERENCE OF CHAIRMEN
The Chairmen of the Federal Reserve Banks are organized into a Conference
of Chairmen that meets from time to time to consider matters of common
interest and to consult with and advise the Board of Governors. Such a meeting, attended also by Deputy Chairmen of the Reserve Banks, was held in
Washington on December 2-3, 1971.
Mr. Clay, Chairman of the Federal Reserve Bank of Cleveland, who was
elected Chairman of the Conference and of its Executive Committee in December 1970, served in that capacity until the close of the 1971 meeting. Mr.
Nickerson, Chairman of the Federal Reserve Bank of New York, and Mr.
Wilson, Chairman of the Federal Reserve Bank of San Francisco, served with
Mr. Clay as members of the Executive Committee; Mr. Nickerson also served
as Vice Chairman of the Conference.
On December 3, 1971, Mr. Wilson was elected Chairman of the Conference
and of its Executive Committee to serve for the succeeding year; Mr. Lilly,
Chairman of the Federal Reserve Bank of Minneapolis, was elected Vice
Chairman of the Conference and a member of the Executive Committee; and
Mr. Wagstaff, Chairman of the Federal Reserve Bank of Kansas City, was
elected as the other member of the Executive Committee.

298




F.R. BANKS AND BRANCHES—Cont.

DIRECTORS
Class A and Class B directors are elected by the member banks of the district.
Class C directors are appointed by the Board of Governors of the Federal Reserve
System.
The Class A directors are chosen as representatives of member banks and, as
a matter of practice, are active officers of member banks. The Class B directors
may not, under the law, be officers, directors, or employees of banks. At the time
of their election they must be actively engaged in their district in commerce, agriculture, or some other industrial pursuit.
The Class C directors may not, under the law, be officers, directors, employees,
or stockholders of banks. They are appointed by the Board of Governors as representatives not of any particular group or interest, but of the public interest as a whole.
Federal Reserve Bank branches have either five or seven directors, of whom a
majority are appointed by the Board of Directors of the parent Federal Reserve
Bank, and the others are appointed by the Board of Governors of the Federal
Reserve System.

DIRECTORS
Class A:
John Simmen
William M. Honey
Ralph A. Mclninch

District 1—BOSTON

Term
expires
Dec 31

Chairman of the Board and Chief Executive
Officer, Industrial National Bank of Rhode
Island, Providence, R.I
1971
President, The Martha's Vineyard National
Bank, Vineyard Haven, Mass
1972
President, Merchants National Bank of Manchester, N.H
1973

Class B:
W. Gordon Robertson. .General Trustee, Bangor Punta Corporation,
Bangor, Maine
1971
F. Ray Keyser, Jr
Vice President, Vermont Marble Company,
Proctor, Vt
1972
G. William Miller.
President, Textron, Providence, R.I.
1973
Class C.James S. Duesenberry... Professor of Economics,-Harvard University,
Cambridge, Mass.
1971
Louis W. Cabot
Chairman of the Board, Cabot Corporation,
Boston, Mass
1972
John M. Fox
President and Chief Executive Officer, H. P.
Hood & Sons, Charlestown, Mass
1973




299

F.K. BANKS AND BRANCHES- Com.

DIRECTORS—Cont.

District 2—NEW YORK

Term
expires
Dec, 31

Class A:
C, E. Trernan, Jr.,..,.
Arthur S. Hamlin
William S, Renchard..

I*iv\UU:nt. Ioi««pk»ns C o u n t y T r u s t C o m p a n y ,
Ith:tca, N / i ,
.........................
197!
President, I he Canandaigua N a t i o n a l B a n k a n d
I rust C o m p a n y , Canandaigua, N . Y , . . . . . . . 1972
i lutirman of t h e B o a r d , C h e m i c a l B a n k , N e w
York, N . Y . .
1973

Class B:
Milton C. Mumford. .
M a u r i c e R. F o r m a n . .

t h<iirman of t h e B o a r d , Lever B r o t h e r s
( ompany, N e w Y o r k , N . Y , . . . . . . . . . . . . . . .
C h a i r m a n o f t h e Board, B. Forman C o . ,
Rochester, N . Y .
............
,

N?f
hJ?2
1973

(Vacancy*...........

Class C:

. P a r t n e r , Cravath, Swaine & M o o r e , A t t o r n e y s ,
New York, N.Y,
, Former Chairman of the Board, Mobil Oil
Corporation, New York, N . Y . . . . . . . . . . . . .
A l b e r t L. N i c k e r s o n . .
.President, Carnegie Corporation of New
York, N.Y.
. ..................
A l a n J. Pifer.. . . . . . . .

K t ^ w e l ! f,. Giipatric. .

1971
1972
1973

BUFFALO BRAM !II
Appointed by Federal i?c',vrnv Hank:
James I. Wyckoff..
C hairman of" tlu: Bottrd, The National Bank
iff Geneva. N.Y
.................
David J, L a u b . . . .
(t;:iirman of the Board, Marine Midland BankWestern, Buffalo, N . Y . . . . .
William B. Anderson.
President, The First National Bank of Jamestown, N . Y . .
Angelo A. Costanza
President and Chief Executive Officer, Central
Trust Company, Rochester, N . Y . . . . . . . . . . .

1971
1972
1973
1973

Appointed by Board of Governors:
N o r m a n F . B e a c h , . . . . .Vice President a n d G e n e r a l M a n a g e r , K o d a k
P a r k Division, E a s t m a n K o d a k C o m p a n y ,
R o c h e s t e r , N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . 197!
M o r t o n A d a m s . . . . . . . General M a n a g e r , Pro-Fac C o o p e r a t i v e Inc.,
R o c h e s t e r , N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
R u p e r t W a r r e n . . . . . . . . 1 'resident, Trice* P r o d u c t s C o r p o r a t i o n , Buffalo,
N.Y..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973

300



DIRECTORS—Cont.

'-DELPHIA

t

Class A:
Harol' • v» • Jr.....

Term
expires
Dec. 31

tJ • > dent, Central Perm National Bank, Phila'.Mphia, P a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 7 1

William l'; - ;• by. . . . - "r.'.-rman o f t h e B o a r d , P r i n c e t o n B a n k a n d
Richard A. Herbster. .

!
: list C o m p a n y , P r i n c e t o n , N . J . . . . . . . . . . . .
< ' sclent, Lewistown T r u s t Company, Lewis•
.'vn, P a . . . . .

1972
1973

Class B:
C. Graham Berwind, Jr.

President a n d Chief Executive Officer, Berwind
Corporation, Philadelphia, P a , . . . . .

Chairman and Chief Executive Offic •
Edward J. Dwyer.
Incorporated, Philadelphia, P a . . . . . .
Chairman of the Board and Presidents I . n
Philip H. Glatfelter, III
Glatfelter Co., Spring Grove, Pa.., .

' >' 1
;u

'2

"3

Class C;
D. ROI-.M.

N

.'»;-..iall, Jr...

Bayard L. England

.President, Yarway Corporation, Blue Bell,
' P a , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1971
Former Chairman of the Board, Atlantic City
Electric Company, Atlantic City, N.J.. . . . . . 1972
President, Haverford College, Haverford, Pa,. . 1973

John R. Coleman..... .

Dlsti •
Class A:
George F. Karebt,

David L, Brumback.
Edward W. Barker. .

' ''ELAND
•

.Chairman of the Board and Chief Executive
Officer, The Cleveland Trust Company,
Cleveland, O h i o . . . . . . . . . . . . . . . . . . . . . . . . . 1971
/President, Van Wert National Bank, Van
Wert, Ohio.
1972
.President, First National Bank of Middletown,
Ohio....
1973

Class B:
J.Wm. Henderson, Jr., . .Henderson & Associates, Columbus, Ohio. .
1971
R. Stanley Lalng.
. President, The National Cash Register Company, Dayton, O h i o . . . . . . . . . . . . . . . . . . . . . 1972
John L, Gushman.
.Chairman, of the Board and Chief Executive
Officer, Anchor Hocking Corporation, Lancaster, O h i o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973




301

>»M

,.u> < ,..,

H -I * i '. ^ { f . ' c r

expires
.Dec, 3!

M i M r i r t .J»»-U i ' / E L A N D — C o n t .
•'!,;•,."< , the Board and Chief Executive
. )i'" '. ! }•' \V Inc.. Cleveland Ohio.
„,,

1 . ;.;,.,.'»-

.\u,^i; u s , . "

...

1971

1973

CINCINNATI BRANCH
Appointed by Federal Reserve Bank:
R o b e r t B . J o h n s o n . . . . . P r e s i d e n t , P i k e v i l i e M a ; - . .>.», M , • • • ' . ^
f rust
C o m p a n y , Pikevilie, K .
...
Paul W. Christensen, Jr..President, T h e Cincin>»'.t! C^;.{
«'.".»•..any,
Cincinnati, O h i o , . . .
...
R o b e r t E, H a l l . . . . . . . . . P r e s i d e n t , T h e F i r s t N a ^ ^ n i ^ar.- -MM, i rust
C o m p a n y , T r o y f Ohic
.
.
...
W i l l i a m S. R o w e . . . . . . . P r e s i d e n t , T h e Fifth IT.,*.! H.-'^K 1 •• -..^lati,
•
Ohio.,... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1971
1972
1972
1973

Appointed by Board of Governors:
G r a h a m E. M a r x . . . . . . . P r e s i d e n t a n d G e n e r a l M a n a g e r , T h e G . A .
G r a y C o m p a n y , Cincinnati, O h i o . . . . . . . . . .
Phillip R. S h r i v e r . . . . . . / P r e s i d e n t , M i a m i University, O x f o r d , O h i o , . .
Clair F. V o u g h . . . . . . . . .Vice P r e s i d e n t , Office P r o d u c t s
Division,
I B M Corporation, Lexington, K y . . . . . . . . . .

PITTSBURGH BRANG H
Appointed by Federal Reserve Bank:
Charles H. Bracken... , .President and Chief Executive Officer, Marine
National Bank, Erie, P a . . . . . . . . . . . . . . . . . .
Robinson F. B a r k e r . . . . Chairman of the Board and Chief Executive
Officer, PPG Industries, Inc., Pittsburgh,
Pa.....................................
John. W. B i n g h a m . . . . . . President, T h e Merchants and




1973

1971

1972

Manufacturers

National Bank of Sharon, Pa...
.......
Merle E. Gilliand........President and Chief Executive Officer, Pittsburgh National Bank, Pittsburgh, P a . . . . . . . .

302

1971
1972

1972
1.973

:rtct

DIRECTORS -Cont.

Term
expires
Dec, 31

4—CLEVELAND—O >
•

PITTSBURGII BRANCH—Con 1:.

Appointed by Board of Governors:
Richard M, Cyert
/Dean, Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Pa,.
197!
Lawrence E. Walkley. . . President and Chief Executive Officer, Westinghouse Air Brake Company, Pittsburgh, Pa. 1972
Robert E. K i r b y . . . . . . . .President, Industry and Defense Company,
Westinghouse Electric Corporation, Pittsburgh, P a . . .
1973

•National Bank, Kiln-

I ' '.«' •/...• , J r .

Executive Officer, ';
<, Charleston, W. V
Mational Bank, We-'

Hugh A,. C u r r y . . . . . . . .
Thomas P .
Class B:
Charl<- • k

McLachlen.

J

Potomac Edison Co-

•' -n . . . . . .

• • d . . . . . . . . . . . . . . . .

Robert

O.

kJIliCtil

. . . . . . .

;'i

- .

Mills

.

1

Incorporaicu,
1972

ephone and Telegraph

H. Dail H o l d e r n e s s . . . .
Company,

1973

Class C:
W i l s o n , H. Elkins

.President, L
University of Maryland, College
Park, Md.
.. .....
.............
Robert W. Lawson, Jr., .Managing Partner of Charleston. Office, Steptoe
& Johnson, Attorneys at Law, Charleston,
W. V a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stuart Shumate
President, Richmond, Fredericksburg and
Potomac Railroad Company, Richmond, Va.




1971

303

ru.

DIRECTORS—Cont.

I'htrict 5—RICHMOND—Cont.

Term
expires
Dec. 3!

BALTIMORE BRANCH
Appointed by Federal Reserve Bank:
Tilton H. D o b b i n . . . . . . President and C h a i r m a n of t h e Executive
Committee, M a r y l a n d N a t i o n a l B a n k , Baltimore, M d . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J. E . Chaffinch, J r . . . . . .Executive Vice President, T h e Denton National
Bank, D e n t o n , M d . . . . . . . . . . . . . . . . . . . . . . .
James J, R o b i n s o n , . . . . .Executive Vice President, B a n k of Ripley,
W. V a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J. Stevenson P e c k . . . . . . P r e s i d e n t , U n i o n T r u s t C o m p a n y of M a r y l a n d ,
Baltimore, M d . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appointed by Board of Governors:
James M, J a n - i s . . . . . . . . Chairman of the Board, Crane Construction
Company, Clarksburg, W. V a . . . . . . . . . . . . .
Arnold J. Kleff, Jr.. . . . . Former Manager, Baltimore Refinery, American Smelting and Refining Company, Baltimore, M d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John H. Petting, J r . . . , . .President, A. H. Petting Company, Baltimore,
Md....................................

1971
1972
1973
1973

1971

! 972
1973

CHARLOTTE BRANCH
Appointed by Federal Reserve Bank;
L. D . Coltrane, I I I . . . . . President, T h e C o n c o r d N a t i o n a l Bank, C o n cord, N . C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J. Willis Cantey. . . . . . . . C h a i r m a n a n d Chief Executive Officer, T h e
Citizens & Southern N a t i o n a l B a n k of S o u t h
Carolina, C o l u m b i a , S . C . . . . . . . . . . . . . . . . . . .
C. C, C a m e r o n , . . . . . . . .Chairman of the B o a r d a n d President, First
U n i o n N a t i o n a l B a n k of N o r t h Carolina,
Charlotte, N . C . . . . . . . . . . . . . . . . . . . . . . . . . .
H. Phelps Brooks, J r . . . . President, T h e Peoples National Bank, Chester,
S.C....................................

1971

1972

1973
1973

Appointed by Board of Governors:
J o h n L. F r a l e y . . . . . . . . . President, Carolina Freight Carriers C o r p o r a tion, Cherryville, N . C . . . . . . . . . . . . . . . . . . . . 1971
F, Craig Wall, S r , . . . . . .Chairman of the Board, C a n a l Industries, Inc.,
Conway, S.C.,
1972
Charles W. DeBell..... .General Manager, North Carolina Works,
Western Electric Company, Inc., Winston-

304




District 6—ATLANTA

DIRECTORS -Cont.

Term
expires
Dec. 31

Class A:
John W» Gay
William B. Mills. . .
A. L. Ellis

.

Class B.Owen Cooper.

Philip J. L e e . . . . . . .

. President, The First National Bank of Scottsboro, A l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.President, The Florida National Bank, Jacksonville, F l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. Chairman of the Board, First National Bank,
T a r p o n Springs, Fla.

1971
1972
1973

. President, Mississippi Chemical C o r p o r a t i o n
and Coastal Chemical Corporation, Yazoo
City, Miss.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1971
.Vice President, Tropicana Products, Inc.,
Tampa, F l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972

Hoskins A, Shadow.

.President, Tennessee Valley Nursery, Inc.,
Winchester, Teen.
1973

i ', wv I, H a t c h , . . .
"

.President, Georgia Power Company, Atlanta,
Ga.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1971
.President, Milliken and Farwell, Inc., New

1
-

; ,ans Farwell. , .

Orleans, L a . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
'. •'<;« C. Wilson, . , .

1972

.President, Home-Wilson, Inc., Atlanta, Ga., . . 1973

BIRMIN

, l i •. .< )*>! • < O H

Appointed by Federal Reserve .Bank:
K. M. Varner, J r . . . . . . .President, T h e F i r s t N a t i o n a l B a n k o f Aubi»rs
Ala.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
H a r v e y T e r r e l l . . . . . . . . . C h a i r m a n of the B o a r d , T h e First National
B a n k of Birmingham, A l a . . . . . . . . . . . . . .
\VM!r«ee D . Malone, Jr.. .President a n d Chairman, of t h e B o a r d , r! K.
First N a t i o n a l B a n k of D o t h a n , A l a . . . . .
• '* «.gan T a y l o r . . . . . . . C h a i r m a n of the B o a r d , T h e First S t a t e Bunk
of Oxford, A l a . . . . . . . . . . . . . . . . . . . . . . .

i'M
i J /.'
••/,•*
< '• '

Appointed by Board of Governors:
'A .-turn C. B a u e r . . . . . . . P r e s i d e n t , South Central Bell Telephone Company, Birmingham, A l a , . . . . . . . . . . . . . . . . . . 1971

r M.mley Robbins. .. . .President, National Floor Products Company,




305

F H, H

DIRECTORS—Cont.

fli^frki ft— Vll \ \ T V~~CoitL

Dec, 31

JACKSONVILLE BRANCH
Appointed by Federal Reserve Bank:
Edward W. Lane, Jr.... .President, The Atlantic National Bank of
Jacksonville, F l a . . . . . . . . . . . . . . . . . . . . . . . . . 1971
James G . Richardson, . . C h a i r m a n of t h e B o a r d a n d President, T h e
Commercial B a n k a n d Trust C o m p a n y of
Ocala,FIa.. . . . . . . . . . . . . . . . . . . . . . . . . .
lu72
Malcolm C. B r o w n . .» , .President a n d C h a i r m a n of the Board, F l o i u h
First N a t i o n a l B a n k a t Brent, Pensact > i
i
Fla..................................
:'V73
A i'kw .-. H o w e l l . . . . . . .President, M a r i n e B a n k & Trust Company
Tampa, Fla.
1973
Appointed by Board of Governors:
Castle W . J o r d a n . . . . . . .President, A O Industries, Inc., Coral Gables,
F l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1971
Henry K . Stanford. . . . .President, University of M i a m i , Coral Gables,
F l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
Henry C r a g g . . . . . . . . . . . Vice President, T h e Coca-Cola C o m p a n y F o o d s
Division, Winter P a r k , F l a . . . . . . . . . . . . . . . .
1973

NASHV1T ),!• m<ANGH
Appointed by Federal Reserve Bank :
H u g h M. W i l l s o n . . . . . . .President, Citizens National Hunk, Athens,
Tenn...................
. . . 1971
E d w a r d C. Huffman, . . . C h a i r m a n of t h e B o a r d ami M« VSMMH, first
N a t i o n a l Bank., Shelbyville h h*i,
. . . 1972
D a n B. A n d r e w s . . . . . . .President, First N a t i o n a l H^n^,,
{)«t-j..son,
Ten,n.
. . . 1973
E d w a r d G . N e l s o n . . . . . . E x e c u t i v e V i c e P r e s i d e n t , C - - - u a •>:».• t ' a i o n
Bank, Nashville, Tenn.. r .. T . . . . . . . . . . . . . . . 1 9 7 3
Appointed by Board of Governors:
E d w a r d J. B o l i n g . . . . . . .President, T h eUniversity o f Tennessee, Knoxville, T e n n , . . . . . . . . . . . . . . . . . . r . . . : . . . . . . 1 9 7 1
John C . Tune, J r . . . . . . . . Partner, Butler, M c H u g h , Butler, T u n e &
W a t t s , Attorneys-at-Law, Nashville, T e n n . . . 1972
James W . L o n g . . . . . . . . President, Robertson County F a r m Bureau,
Springfield, T e n n . . f r . . . . . . ; . . . . T . r . . . . . . 1973

30-6




Term
expires
Dec, 31

DIR ECTORS- -Con t.

Appointed by Federal 1
v

v. Haining.

.President, T h e First N a t i o n a l B a n k of Vicksburg, M i s s . . . . . . . . . . . . . . . .
..........
'•' V Heidelberg, J r . . . . . President, Pascagoula-Moss P o i n t B a n k , Pascagoula, M i s s , . . . . . . . . . . . . . . . . . . . . . . . . . .
T o m A . F l a n a g a n , J r . , . . President, L a k e s i d e N a t i o n a l B a n k of L a k e
Charles, L a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
L a w r e n c e A. Merrigan. .President, T h e B a n k of N e w Orleans a n d T r u s t
Company, New Orleans, L a , , . . . . . . . . . . . . .

1971
1972
1973
1973

., 'Governors:
Cal-Maine Foods, Inc., Jackson,
1971

, -a Manager, Kleinpeter F**rm<; Dairv,
) * tton R o u g e , L a . . . . . . . . .
-''.. Dillard University, N <*-

Class A;
Floyd F., Whit more.
Edwai '
Melvi

5 < >.. . - S m i t l

* - ;;ard.

Class B:
Joseph O. Waymire..
William H. Davidson
Howard M. Packard.

4

^. i•; ^ ,-

. i National Bank,
. . . . . . . . . . . . . . . . 1971
• •' e Northern Trust
. . . . . . . . . . . . . . . . 1972
.-..k, Mattoon, 111.. . 1973
. Former Vice President for Finance and Treasurer, EH Lilly Company, Indianapolis, l e d . . . 1971
.President, Harley-Davidson Motor Co., Inc.,
Milwaukee, W i s . . . . . . . . . . . . . . . . . . . . . . . . .
1972
.Vice Chairman, S. C, Johnson & Son, Inc.,
Racine, Wis... . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973

Class C:
William H. Franklin.

. President, Caterpillar Tractor Co,, Peoria, III... 1971

Emersoni G. Higdon,

. President, T h e M a y t a g C o m p a n y , N e w t o n ,
I o w a . . . . . . . . . . . . . . . ' . . . . . . . . . . . . . . . . . . . . 1972

John W, Baird.

. President, Baird Si Warner, Inc., Chicago, 111... 1973




30?

DIRECTORS—Cont.

D i s t r i c t 7 — C H I I 'Mil I — i o u t .

Term
expires
Dec, 31

DETROIT liiLiXUii
Appointed by Federal Reserve Bank:
B. P . S h e r w o o d . J r . . . . . .President, Security First B a n k & T r u s t C o m pany, G r a n d Haven, M i c h . . . . . . . . . . . . . . . .
George I . \ \ h > H
President, G e n e s e e M e r c h a n t s B a n k & T r u s t
t \>mpany, Flint, M i c h , . . . . . . . . . . . . . . . . . . .
R o l a n d A. Mew IKt-i
C h a i r m a n , M a n u f a c t u r e r s N a t i o n a l B a n k of
i ktrolt, M i c h , . . . . . . . .
...,,.,,.
,
Ellis B. \toty> . .
C h a i r m a n of t h e B o a r d , N a t i o n a l B a n k of
Detroit, M i c h . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appointed by Board of Governors:
Peter B . C l a r k . . . . . . . . . C h a i r m a n of t h e B o a r d a n d President, T h e
Evening News A s s o c i a t i o n , D e t r o i t , M i c h , . .
W . M . D e f o e . . . . . . . . . . C h a i r m a n of t h e B o a r d , D e f o e S h i p b u i l d i n g
C o m p a n y , Bay City, M i c h , . . . . . . . . . . . . . . .
L. W m . S e i d m a n . . . . . . . R e s i d e n t P a r t n e r , S e i d m a n & S e i d m a n , G r a n d
Rapids, M i c h . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1971
1972
1972
1973

1971
H7 >
j'P *

District 8—ST. L O U I S
Class A;
James P. Hickok
Cecil W . Cwpp, J r . . .

Hsuvtm. Hrsi National Bank in St. Louis,
\K».
....................
Ph>iJept. \r\ uiivi". B'ink & Trust Co<]>o;tn\,
H o i

Bradford B r e t t . . . . .

SpjiML's. A « k .

. . . . . . . . . . . . .

1971
L>?2

Ipi~k~>!'J.;jti. ! 'if I-J{ ,i W'tcional B a n k of M c s i c u .
Mo.. . . . . . . . . . . . . . . . . . . . . . . . . . . .
.

W 3

Lhiun'tiini
of t h e B o a r d a n d Presider»i. D F
< on>p»jter S e r v i c e s , I n c . , Evansville, iiul
.

ilh'l

Class B:
Sherwood J, Smith,
Edward J. Schnuck.
Fred I, Brown, Jr., .

< 11 J ••;.»».i i i of t h e B o a r d , S c h n u c k Markef %. f i n . ,
lit i,.i -«;ion, M o , . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
IV* UM'H!. A r k a n s a s F o u n d r y C o m p a n y , Little
K,».k. \ r k . . . . . . . . . . . . . . ' . . . . . . . . . . . . . . . . 1973

Class C
u; M. Peirce..

Sam

Cooper.......

Harry M. Young, Jr.

308




<.n.'HFu,.v-» \'i' t h e B o a r d a n d Chief Executive
OHui-i, ' f<jaeral A m e r i c a n Life I n s u r a n c e
\ Mt>vvi:, St. L o u i s , M o . . . . . . . . . . . . . . . . . . 1971
i^'.nhi1
H a m K o P r o d u c t s , Division of
k i « ! ( % ) C o r p o r a t i o n , \ I \ i i v l ' L T< ,MI
]Q7"
\ k t/t )•' f :111us, H e r n d o * , ^.'.
iM? ?

H A N K S , \ ' V | j JU

DIRECTORS—Cont.

expires
Dec, 31

Districi K—Si. : i H r IN—< ant,
LI r » I ' f- v« H ,

f .RANCH

Appointed by Federal Ju , • *-.- r.ink:
Louis E, Hurley. , , .
C;: 'irman of the Board and Chief Executive
t .'.ficer, The Exchange Bank & Trust Comj»-«ny, El Dorado, Ark.
Ellis E. Shelton.....
IV- sclent, The First National Bank of Pay.'ueville, Ark.. . .
Wayne A. S t o n e . , . .
t (<.:.»rman of the Board and Chief Executive
Officer, Simmons First National Bank of
Pine Bluff, Ark,
Edward M. Penick.... . .President and Chief Executive Officer, Worthen
Bank & Tryst Company, Little Rock, Ark., .

1971
1972

1972
1973

Appointed by Board of Governors:
A l Poll,I'd

. . . . . . . . . President,

\»

Pollard

&

Associates,

Little

Rock, A n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J a k e riart/.

Ir.........

.President,

Jacob

Hartz

Seed

Co.,

Inc.,

gart, A r k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rolanti

R

fVnimel. . . . .Chairman

of

the

Board,

Southland

1971

Stutt1972

Building

Products C o , , Little R o c k , A r k . . . . . . . . . . . .

LOUISVILLE BRANCH
Appointed, by Federal Reserve Bank:
Hugh JVL Shwab. . . . . . .Chairman of the Boards, First National Bank
of Louisville and. The Kentucky Trust Company, Louisville, Ky.

1973

1971

P a u l C h a s e . . . . . , . . . , . . P r e s i d e n t , T h e Bedford N a t i o n a l B a n k , B^.iford, Ind..,,,, .......................
I9"'2
H e r b e r t J. S m i t h . . . . . . . P r e s i d e n t ,

The

American

Trust Company
H a r o l d E, J a c k s o n . . . . . . President,

The

National

Bank

A;

of Bowling Green, K y , . . . . .
Scott

County

State

19 72

Bank,

Scottsburg, I n d . . . . . . . . . . . . . . . . . . . . . . . . . .

1973

Appointed by Board of Governors:
J o h n E, S h e e h a n . . . . . . . P r e s i d e n t a n d C h i e f E x e c u t i v e Officer,
Refractories
J o h n G. B e a m . . . . . . . . .President,

Company,

Thomas

Corhart

Louisville, K y . . . . . .

Industries

Inc.,

1971

Louisville,

Ky... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
W i l l i a m H . S t r o u b e . . . . . A s s o s 1 . ."s ; < -\\ \ '>>:<•'. •<* S J , - K I
!••' I \\xn o ' i ' i ^ . V * - *\ * i\ K • *.>,>,,!«,•> t is , n »>*. , \ U - \ \ r -




309

A D

S r

DIRECTORS—Cont.

Appointed

by Federal

James R. Fitzhugh..
Wayne W. Pyeatt...

i

J. J. White,,... .. . .

:

r

f ,1II I S — I ! • » ! ,

Jv \« •"
•<

Wade W. Hollowell.

Appointe. /

Term
expires

'.v' itU :>', T h e F i r s t National B a n k of G r e e n u l k . Miss.-.,, . . . . . . . . . . . . . . . . . . . . . . . . . .
U ^ . M I , ' , Vice President, B a n k of R i p l e y ,
h'!«:i . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i* *hk'»«t. N a t i o n a l B a n k o f Commerce, Mernr»h>,, f e n n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
f,' ?vi,-»:: H e l e n a N a t i o n a l B a n k , HeieEa, A r k .

1971
1972
1972
1973

^ '/«\< 'YI o f (^>\<

C, Whi'ucv Hr* '\vn..
William I (» ivs. . .
Alvin Mil'h \u ? Jr..

u-siJv••«:, v< ( I ^ M ,\ < <i»M«{M«ty, M e m p h i s ,
Ir-Mh.
...........
M'.isU'iii. M r f'.^j *''. Stub: U n i v e r s i t y , S t a t e
I ( o«kvi, M i ^ . . . . . . . . . . . . . . . . . . . . . . . . . . . .
f-. \uUi\i,
Huffman Brothers Incorporated,
I Biytheville, A r k . . . . . . . . . . . . . . . . . . . . . . . . . .

1

1971
1972
1973

District 9 — M I N N E A P O L I S
:im \ :
G. A, D a b l e n . . . . . . . . . .President, First N a t i o n a l B a n k of I r o e w o o d ,
Mich... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J o h n B o s s h a r d . . . . . . . . . Executive Vice President, F i r s t N a t i o n a l B a n k
of Bangor, W i s . . . . . . . . . . . . . . . . . . . . . . . . . .

1971
1972

Philip H. N a s o n . . . . . . . .President, The First National Bank of St. Paul,
M?rr .

...........

l'n -.ul.'i'i
i l',v, % : i>i v \ \ '.»i,^«-Mes, I n c . , E l k
River, i V i m n , . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M Heskett. . . . . .President, M o n t a n a - D a k o t a Utilities C o . , Bismarck, N . D . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aadersen. . . . . .President, Mitchell Packing C o m p a n y , Inc.,
Mitchell, S . D . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1973

John H . B a i l e y . . . . . . . .
i )j\n\
Dale

v

1971
1972
1973

t U-r,

ijiuwe B . D a y t o n . . . . . . . C h a i r m a n o f t h e B o a r d , D a y t o n H u d s o n
Corporation, Minneapolis, M i n e . . . . . . . .
D a v i d M . L i l l y . . . . . . . . . C h a i r m a n of the Board, The T o r o Compauv,
Minneapolis,

Ml)




Mien.....................

? "<7!
I vV

i§—Cont.

DIRECTORS—Com,

Term
expires
Dec. SI

HELENA BRANCH

Appointed by Federal Reserve Bank ;
R i c h a r d D . R u b l e . . . . . . P r e s i d e n t , M i s s o u l a B a . - • >r ' ' < • • ' . • , • M i s soula, M o n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Lowry K u n k e l . . . . . . . President, First N a t i o n a l B a n k , Butte, M o n t . , .
R o b e r t I. Penner. . . . . . .President, Citizens First N a t i o n a l B a n k , W o l f
Point, M o n t . . , . ,

1971
1972
1972

Appointed by Board of Governors:
William A. Cordingley. .Publisher, Great Falls Tribune, Great Fails,
Mont...................................
Warren. B. J o n e s . . . . . . . S e c r e t a r y - T r e a s u r e r , T w o D o t L a n d a n d Livestock C o m p a n y , Harlowton, M o n t . . . . . . . . .

1971
1972

N . ^ f '<<«-.'* * '.«-;AS C I T Y
Class A.John A , O'Leary. ...

Roger I). Knight, Jr.
•-<• ?se Miller.

' : ,'rman of the Board, T h e Peoples State
«
Bank, Luray, K a n . . . . . . . . . . . . . . . . . . . . . . .
. . President, 'United Banks of C o l o r a d o , Inc.,
Denver, C o l o . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman of the Board a n d President, T h e
F a r m e r s a n d M e r c h a n t s State Bank, Colby,
Kan.,... . . . . . . . . . . . . . . . . . . . . . . . . . . . ...\

1971
1972

1973

Class B:
Stanley L e a r n e d . . . . .
Cecil O , Emrich. ....
A'!'1^.1 s
Cla
'
p,»;,,<;• \y

f

ordan. ...

. .Consultant, Phillips Petroleum C o m p a n y , Bartlesville, G k i a , . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .President, C. O. Emrlch Enterprises, Norfolk,
Nebr., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .Vice President, T r a n s World Airlines, Inc.,
Kansas City, M o , . . . . . . . . . . . . . . . . . . . . . . .

1971
1972
1973

Wagstaff.

. C h a i r m a n of t h e B o a r d a n d P r e s i d e n t , T h e
C o c a - C o l a B o t t l i n g C o m p a n y of MidAmerica, I n c . , K a n s a s City, M o . . . . . . . . . . .
Willard D . Hosford, Jr. \ <• • ;<; detent a n d G e n e r a l M a n a g e r , J o h n
•




1971

i'.k

HANKS AXl'i ttf* . \ M ,i M'>

DiRECTORS-Cont.

District 10—K WSAS CITY—Cont.

DENVER BRANCH
Appointed by Federal Reserve Bank :
Armln B, Barney, . . . . . .Chairman of the Board, The Colorado S p r i n t
National Bank, Colorado Springs, Colo.,
Robert L. T r i p p . . . . . . . .President, Albuquerque National Bank, Albuquerque, N. M e x . . . . . . . . . . . . . . . . . . . . .
Dale R. H i n m a n . . . . . . .President, The Greeley National Bank, Greeic;.
Colo..

Term
expires
Der.il

* •)? 1
1972
\-)ll

Appointed by Board of Governors:
Cris D o b b i n s , . . . . . . . . . F o r m e r C h a i r m a n of t h e B o a r d , Ideal Basic
I n d u s t r i e s , Inc., D e n v e r , C o l o . . . . . . . . . . . . .
D a v i d R . C . B r o w n , . , . .President, T h e A s p e n Skiing C o r p o r a t i o n ,
Aspen, C o l o . . , , . . . . . . . . . . . . . . . . . . . . . . . . .

OKLAHOMA CITY BRANCH
Appointed by Federal Reserve Bank:
W. H. M c D o n a l d . . . . . . Chairman of the Executive Committee, The
First National Bank and Trust Company of
Oklahoma City, Okia....
,
........
Marvin Millard. . . . . . . .Chairman, of the Board, National Bank of
Tulsa, Okla..
Hugh C. Jones. . . . . . . . .Executive Vice President, The Bank of Woodward, O k l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A pointed

1971
1972

1971
1972
1972

by Board of 6i;« t mot y ;

C. W. Flint, Jr.. . . .

(

hiurman of the Board, Flint Steel Corporaturn, Tulsa, O k l a . . . . . . . . . . . . . . . . . . . . . . . . .
Florin W. Zaloudek. . . .Manager, J. I. Case Implements, Kremlin,
Okia.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1971
W'l

OMAHA BRANCH
Appointed by Federal Reserve Bank:
J o h n W , H a y , J r . . . . . . . . President, R o c k Springs N a t i o n a l B a n k , R o c k
Springs, W y o . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S, N , W o l b a c h . . . . . . . . . President, T h e First N a t i o n a l B a n k of G r a n d
Island, N e b r . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E d w a i i t W I viiian
i ' j v - . . i d e n t , T h e ; n . n • M . i i f . \ - n «i» *• H , « » . \ u f




1971
197!

DIRECTORS—com.

District 10

K'^SAS CITY—Cont.

Term
expires
Dec. 31

OM * a '• -«Ji \NCH—Cont.

Appointed by Board of Governors:
A, James E b e l , . . , . , , . .Vice President and General Manager, Cornhusker
fVirMs-iw; Corporation, Lincoln,
Nebr...
....................
Henry Y. Kieinkauf. . . .President, N >4>»r -v •" o.npany, O m a h a , N e b r . .

1971
1972

District 11—DALLAS
Class A:
A. W. Riter, J r . . . . . . . . . President, T h e Peoples N a t i o n a l B a n k of
Tyler, T e x , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M u r r a y K . y g e r . . . . . . . . . C h a i r m a n of the Executi¥e Committee, T h e
First National Bank of F o r t W o r t h , Tex.. . .
J. V. K e l l y . . . . . . . . . . . . . President, T h e Peoples N a t i o n a l Bank of
Belton, T e x , . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.971
1972
1973

Class B:
Hugh F . Steen. . . . . . . .

"!*• d e n t . E l P a s o N a t u r a l G a s C o m p a n y ,
r
> Paso, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1971
C -1, *'-»Mjm, J r . . . . . . . >'•' >.dent a n d C h i e f E x e c u t i v e O f f i c e r , T e x a s
u
\ 'ilities C o m p a n y , D a l l a s , T e x . . . . . . . . .
>"2
C " '"l • n e w t o n . . . . . . . % '."'.'irman o f t h e B o a r d , F o x - S t a n l e y Ph<>i<»
P r o d u c t s , I n c . , San. A n t o n i o , T e x . . . . . . .
i'.-7!

CIH^

> t o n e s . . . . . . . . . V i c e C h a i r m a n o f t h e B o a r d , H u m b l e O i l ,'<•
Reining Company, Houston, T e x . . . . . . . .
!''? I
Phiii|/ O . H o f f m a n . . . . . .President, University o f H o u s t o n , T e x . . . . . . . .
ID72
J o h n L a w r e n c e . . . . . . . . . C h a i r m a n of t h e Board, Dresser Industries,
Inc., D a l l a s , T e x . . . . . . . . . . . . . . . . . . . . . . . . . 1973

EL PASO BRANCH

Appointed by Federal Reserve Bank:
Joe B . Sisler. . . . . . . . . . . P r e s i d e n t , T h e C l e v i s N a t i o n a l B a n k , Clovis,
N. M e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A r c h i e B, S c o t t . . . . . . . . . P r e s i d e n t , T h e Security S t a t e B a n k of P e c o s ,
Tex.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S a m D . Y o u n g , J r . . . . . . P r e s i d e n t , El P a s o N a t i o n a l B a n k , Ei Pn>c.
Tex,. . . . . . . . . . . . . . . . . . . . . . . . . . . .
C u i i e e J. K e l l y . . . . . . . . . P r e s i d e n t , T h e First N a t i o n a l B a n k of MidJ.uvi.
Tex.. . . . . . . . . . . . . . . . . . . . . . . . . . . .




1971
1972
- / .'2
i^n

DIRECTORS—Cont.

• \ }''$.''

\S

Term
expires
Dec, 31

Appointed by Board of Governors:
Joseph. M . R a y . . . . . . . . .Benedict Professor of Political Science, T h e
University of Texas at El Paso, T e x . . . . . . . . 1971
Allan B. B o w m a n . . . . . . President and General Manager, Banner Mining
C o m p a n y , Tucson, A r i z . . . . . . . . . . . . . . . . . . 1972
Herbert M . Schwartz. . .President, Popular D r y G o o d s C o . , Inc.,
El Paso, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973

HOUSTON BRANCH
!

J

Appt>Ui '..* '\ federal Reserve
Bank:
Bt-nn \\ Clay, . . . . . . . . P r e s i d e n t , First Bank & Trust, Bryan, Tex..... 1971
V
( » rS"»< c i i e l l . . . . . . .Chairman of the Board and President, The
First National Bank of Port Arthur, Tex,. . . 1972
J<.)u; ». V v h i t m o r e . . . . . C h a i r m a n of the B o a r d , Texas C o m m e r c e B a n k
N a t i o n a l Association, H o u s t o n , T e x . , , , . , . . 1972
K l i n e M c G e e . . . . . . . . .Chairman of t h e B o a r d , S o u t h e r n N a t i o n a l
B a n k of H o u s t o n , T e x . . . . . . . . . . . . . . . . . . . . 1973
Appointed by Board of f"f >
E. M. Buckley,
Geo. T, Morse, Jr...

M. Steele Wright, Jr

!

i>'*,jdent a n d Director, Eastex Incorporated,
V s b e e , T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1971
•, i. Chairman of t h e Board a n d Chief Oper.ii: ng Officer, Peden Industries, l a c , H o u s t o n ,
'i- K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
i«,{ rnian of the Board, Texas F a r m Products
C o m p a n y , Nacogdoches, T e x . . . . . . . . . . . . . . 1973

SAN ANTONIO BRANCH
Appointed by Federal 3;<
James T. Denton, Jr

W, O. Roberson . . .

n -nk:
ir.irman of the Board a n d Chief ExecutiYe
'J'Scer, Corpus Christi B a n k a n d Trust,
i \ >rpus Christi, T e x . . . . . . . . . . . . . . . . . . . . . .
: \ riiiae of t h e Board, T h e Frost National
B 4iik of San Antonio, T e x . . . . . . . . . . . . . . . .
j . --dent, First National Bank a t Brownsville,

Ray M. Keck, Jr....

Union National Bank of L a r e d o ,

Tom C, Frost, Jr,. .

1971
1972
1972




Tex..

1973

DIRECTORS—Cont.

Term
expires
Dec, 31

Distric

SAM A .

Appointed by Board of Governors:
Francis B. May. . . . . , Professor of Business Statistics, The University
of Texas, Austin, T e x , . . . . . . . . . . . . . . . . . . . . 1971
W. A. Belcher...... , , Veterinarian, and Rancher, Brackettville, Tex.., 1972
. .Chairman of the Board and Chief Executive
Irving A, Mathews.
Officer, Frost Bros., Inc., San Antonio, Tex.. 1973

Class A:
Ralph V. Arnold.

1

! • • . : . ! Chief E«.

^ , x LL>L . u U v i ^ ^^Jc and

Carroll F. Byrd.
Ralph J. Voss...

M-fd, O r e g . .

''!••>•;
•>• ';'•''•'

i!

*. 'Qstrong.

Tro

• )ntario, C a l i f . , , , . . . . , . . . . . .
--"A o f t h e B o a r d a n d Preside
national Bank of Willows, Cal
. First National Bank of <
.................

\

• i ." • , S t a n d a r d Oil C o m p a n y of Cali;- - }*r * S a n F r a n c i s c o , C a l i f . . . . . . . . . . . . . . .
•• - . a t t . . . . . i ! • • . • <
- Chairman of the Board, T h e Elmco
. .'.,*. ation, Salt L a k e C i t y , U t a h , . . . . . . . .

1971
1972

Marron Kendrick. . . . . !*-.••,*'<: a n d Chairman of t h e B o a r d , Schlage
Lock Company, San Francisco, C a l i f . . . . . . . 1973

Class C.Bernard T. Rocca, Jr., . Director and Consultant, Paciic Vegetable Oil
Corporation, San Francisco, C a l i f . . . . . . . . .
.Senior %FIee President and Director, Carnation.
S. Alfred Halgren
Company, Los Angeles, C a l i f , . . . . . . . . . . . . .
O. Meredith Wilson. . .President and Director, Center for Advanced
Steely in the Behavioral Sciences, Stanford,
Calif...................................




1971
1972

1973

K.K. Vf,\ShS AM)
Term
expires
DIRECTORS—Com. District 12—SAN FRANCIS^ >~-Out.

Dec. 3!

LOS AMGELES BRANCH
Appointed by Fedeml Reserve Bank:
Sherman Hazeltine
, , Chairman of the Board a n d Chief Executive
Officer, First National Bank of Arizona,
Phoenix, A r i z . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carl E. Schroeck-r
President, T h e First National Bank of Orange
County, Orange, C a l i f . . . . . . . . . . . . . . . . . . . .
Linus E, Southwiek.
President, Valley National Bank, Giendale,
Calif...................................
Carl E, Hartnack.
President, Security Pacific National Bank, Los
Angeles, C a l i f . . . . . . . . . . . . . . . . . . . . . . . . . . .

1971
1972
1973
1973

>lf'pointed by Board of Governors:
} , Ltiland A t w o o d , . . . . .Senior C o n s u l t a n t , N o r t h American Rockwell
C o r p o r a t i o n , L o s Angeles, C a l i f . . . . . . . . . . . 1971
Lcland D . P r a t t . . . . . . . .President, Kelco C o m p a n y , San Diego, Calif,., 1972
E d w a r d A . S l o a n . . . . . . .President, Sloan's D r y ' C l e a n e r s , L o s Angeles,
Calif.
.. .. 1973
PORTLAND BMANCB
Appointed by Federal M( serve Bank:
LeRoy B. Staver. . .
C h a i r m a n of t h e B o a r d a n d Chief Executive
<Officer, U n i t e d States N a t i o n a l B a n k of
O r e g o n , P o r t l a n d , O r e g . . . . . . . . . . . . . . . . . . . 1971
J a m e s H . S t a n a r d . . . . . . Vice President, First N a t i o n a l B a n k of M c M i n n ville, O r e g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
F r a n k L . S e r v o s s . . . . . . . President, Crater N a t i o n a l B a n k of M e d f o r d ,
O r e g . . ' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ' 1972
Appointed by Board of Governors:
Frank Anderson.
, , F a r m e r , H e p p n e r , O r e g . . . . . . . . . . . . . . . . . . . . . 1971
J o h n R . H o w a r d . . . . . . .President, Lewis a n d C l a r k College, P o r t l a n d ,
O r e g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
SALT LAKE CITY BRANCH
Appointed by Federal Reserve Bank:
William E, I r v i n . . . . . . . . F o r m e r C h a i r m a n o f t h e Board, T h e I d a h o
First National Bank, Boise, Idaho . . . , . . , . . 1971
Roderick H . Browning, . President, Bank of Utah, Ogden, U t a h , . . , . , . 1972
R o y W . S i m m o n s . . . . . . President, Zions First N a t i o n a l Bank, Salt L a k e
City, U t a h . . . . . . , . . , , . , , , . .
1972

316



FM, HANKS A;\T!.I BH4NCHHS- • 4 ,'om.

Terra
exp/res
DIRECTORS—Cont. District 12—SAN FRANCISCO—Cont.

Dec. 3!

SALT LAKE CITY BRANCH—Cont.

Appointed by Board of Governors:
Royden G. D e r r i c k . . . . . President and General Manager, Western Steel
Company, Salt Lake City, U t a h . . . . . . . . . . . 1971
John, H. Breckenriclge.. .President, L. L. Breckenridge Company, Twin
Falls, Idaho. .
. 1972

SEATTLE BRANCH
Appointed by Federal Reserve Bank:
J o s e p h C . Baillargeon. . . C h a i r m a n of the B o a r d a n d Chief Executive
Officer, Seattle T r u s t & Savings B a n k ,
Seattle, W a s h . . . . . . . . . . . . . . . . . . . . . . . . . . . 1971
A. E. S a u n d e r s . . . . . . . . .Vice C h a i r m a n of the B o a r d , Puget Sound.
N a t i o n a l B a n k , T a c o m a , W a s h , . . . . . . . . . . . 1972
Philip H . S t a n t o n . . . . . . .President, W a s h i n g t o n T r u s t B a n k , S p o k a n e ,
W a s h , , . , , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1972
Appointed by Board of Governors:
Francis G. C r a n e , . . . . . .Manager, Crane and Crane Orchards a n d Cold
Storage, Brewster, W a s h , . . . . . . . . . . . . . . . . . 1971
C. Henry B a c o n , J r . , . . .Vice Chairman o f t h e B o a r d , S i m p s o n T i m b e r
C o m p a n y , Seattle, W a s h . . . . . . . . . . . . . . . . . . 1972




F.R. BANKS AND BRANCHES—Cont.

PRESIDENTS AND VICE PRESIDENTS
(December 31,1971)
Federal
Reserve
Bank

President
First Vice President

Vice Presidents

or branch
Boston

Frank E. Morris
E. O. Latham

New York... Alfred Hayes

William F. Treiber

Buffalo

Daniel Aquilino
D. Harry Angney
Lee J. Aubrey
Ansgar R. Berge
Norman T. Byrnes R. W. Eisenmenger
Luther M. Hoyle, Jr. Niels O. Larsen
Donald A. Pelletier Maurice P. Shea, III
Laurence H. Stone J. M. Thayer, Jr.
James T. Timberlake Richard A". Walker
Parker B. Willis
David E. Bodner
W. H. Braun, Jr.
John J. Clarke
Charles A. Coombs
Richard A. Debs
Peter Fousek
Edward G. Guy
Marcus A. Harris
Alan R. Holmes
John T. Keane
Robert G. Link
Fred W. Piderit, Jr.
Everett B. Post
Peter D. Sternlight
T. M. Timlen, Jr.
Thomas O. Waage
Angus A. Maclnnes, Jr.
Hugh Barrie
Joseph R. Campbell
Norman G. Dash
William A. James
G. William Metz
Kenneth M. Snader

Philadelphia.

David P. Eastburn
Mark H. Willes

Edward A. Aff
Edward G. Boehne
Joseph M. Case
Ralph E. Haas
A. A. Kudelich
L. C. Murdoch, Jr.
James V. Vergari

Cleveland...

Willis J. Winn
W. H. MacDonald

George E. Booth, Jr. Paul Breidenbach
Roger R. Clouse
Elmer F. Fricek
R. Joseph Ginnane W. H. Hendricks
John J. Hoy
William J. Hocter
Harry W. Huning
Frederick S. Kelly
Clifford G. Miller
Robert D. Duggan
Fred O. Kiel
James H. Campbell
Charles E. Houpt
Clifford B. Beavers John G. Deitrick
Welford S. Farmer H. Ernest Ford
William C. Glover Arthur V. Myers, Jr.
John L. Nosker
James Parthemos
John F. Rand
R. E. Sanders, Jr.
Aubrey N. Snellings William F. Upshaw

Cincinnati
Pittsburgh
Richmond. . . Aubrey N. Hefiin

Robert P. Black

318




F.R. BANKS AND BRANCHES—Cont.

PRESIDENTS AND VICE PRESIDENTS—Cont.

Federal

Reserve
Bank
or branch

President
First Vice President

Vice Presidents

Richmond—

Cont.
Baltimore

H. Lee Boatwright, III
A. A. Stewart, Jr.
Stuart P. Fishburne
Jimmie R. Monhollon
J. Gordon Dickerson, Jr.

Charlotte
Culpeper1
Atlanta

Birmingham
Jacksonville
Miami1
Nashville
New
Orleans
Chicago

Monroe Kimbrel
Kyle K. Fossum

Edward C. Rainey
W. M. Davis
Jeffrey J. Wells
Arthur H. Kantner
Robert P. Mayo
Ernest T. Baughman

Carl E. Bierbauer
George W. Cloos
LeRoy A. Davis
Elbert O. Fults
Victor A. Hansen
Edward A. Heath
Ward J. Larson
R. A. Moffatt
James R. Morrison R. M. Scheider
Karl A. Scheld
Harry S. Schultz
Bruce L. Smyth
Lynn A. Stiles
Jack P. Thompson Allen G. Wolkey
William C. Conrad
Daniel M. Doyle
Ronald L. Zile

Darryl R. Francis
Eugene A. Leonard

Leonall C. Andersen
Joseph P. Garbarini
Jerry L. Jordan
D. W. Moriarty, Jr.
Charles E. Silva
Howard H. Weigel

lviiiie

Rock
Louisville
Memphis
1

Robert P. Forrestal
Billy H. Hargett
R. E. Moody, Jr.
Richard A. Sanders
Charles T. Taylor

Dan L. Hendley

Detroit
St. Louis

Harry Brandt
George H. Gaffney
J. E. McCorvey
Brown R. Rawlings
R. M. Stephenson

Gerald T. Dunne
W. W. Gilmore
John W. Menges
F. G. Russell, Jr.
Harold E. Uthoff
Joseph C. Wotawa

John F. Breen
Donald L. Henry
L. Terry Britt

Not considered a branch.




319

F.R. BANKS AND BRANCHES—Cont.

PRESIDENTS AND VICE PRESIDENTS—Gont.

Federal
Reserve
Bank
or branch

President
First Vice President

Minneapolis . Bruce K. MacLaury
M. H. Strothman, Jr.

Helena
Kansas City. George H. Clay
John T. Boysen

Denver
Oklahoma
City
Omaha
Dallas

Vice Presidents

Frederick J. Cramer Ralph J. Dreitzler
L. W. Fernelius
Lester G. Gable
Roland D. Graham Douglas R. Hellweg
John A. MacDonald David R. McDonald
Clarence W. Nelson John P. Olin
C. A. Van Nice
R. W. Worcester
Howard L. Knous
W. T. Billington
Joseph R. Euans
J. David Hamilton
M. L. Mothersead
Clarence W. Tow
George C.

Raymond J. Doll
Roger Guffey
Wayne W. Martin
Robert E. Thomas
1
Rankin

Howard W Pritz
(Temporarily vacant)
Philip E. Coldwell
T. W. Plant

El Paso
Houston
San
Antonio
San
Francisco.. Eliot J. Swan
A. B. Merritt

Los
Angeles
Portland
Salt Lake
City
Seattle

320



Robert H. Boykin
Leon W. Cowan
Larry D. Higgins
W. M. Pritchett
T. R. Sullivan
Fredric W.
J. L. Cook

James L. Cauthen
Ralph T. Green
James A. Parker
Tony J. Salvaggio
E. W. Vorlop
Reed

Carl H. Moore
J. Howard Craven
H. B. Jamison
D. V. Masten
Louis E. Reilly
J. B. Williams

D. M. Davenport
G. R. Kelly
Rix Maurer, Jr.
R. G. Retallick

P. W. Cavan
W. G. DeVries
W. M. Brown
A. L. Price
W. R. Sandstrom

F.R. BANKS AND BRANCHES—Gont.

CONFERENCE OF PRESIDENTS
The Presidents of the Federal Reserve Banks are organized into a Conference of Presidents that meets from time to time to consider matters of common
interest and to consult with and advise the Board of Governors. At the December 14, 1970, meeting, Mr. Galusha, President of the Federal Reserve Bank of
Minneapolis, and Mr. Francis, President of the Federal Reserve Bank of St.
Louis, were elected Chairman and Vice Chairman, respectively, for the remainder of that Conference year and the forthcoming Conference year, ending
with the March 1972 meeting. Mr. Galusha served as Chairman until his death
on January 31, 1971. At a meeting on February 9, 1971, the Conference elected
Mr. Francis and Mr. Kimbrel (President of the Federal Reserve Bank of
Atlanta) Chairman and Vice Chairman, respectively, for the remainder of the
year, and for the forthcoming Conference year, ending with the March 1972
meeting.
Mr. Melvin L. Burstein of the Federal Reserve Bank of Minneapolis and
Mr. Joseph P. Garbarini of the Federal Reserve Bank of St. Louis were appointed Secretary of the Conference and Assistant Secretary, respectively, in
December 1970. At the February and March 1971 meetings, Mr. Garbarini
and Mr. H. Terry Smith of the Federal Reserve Bank of Atlanta, were appointed Secretary and Assistant Secretary, respectively.

CONFERENCE OF FIRST VICE PRESIDENTS
In 1969 a Conference of First Vice Presidents was organized to meet from
time to time, primarily for the consideration of operational matters. Effective
March 11, 1970, Mr. MacDonald, First Vice President of the Federal Reserve
Bank of Cleveland, and Mr. Strothman, First Vice President of the Federal
Reserve Bank of Minneapolis, were elected as Chairman of the Conference
and Vice Chairman, respectively. Mr. Lester M. Selby and Mr. Melvin L.
Burstein were appointed Secretary and Assistant Secretary, respectively.
Effective March 1, 1971, Mr. Lewis, First Vice President of the Federal
Reserve Bank of St. Louis, and Mr. Fossum, First Vice President of the Federal
Reserve Bank of Atlanta, were elected Chairman and Vice Chairman of the
Conference. Mr. Joseph P. Garbarini and Mr. H. Terry Smith were appointed
Secretary and Assistant Secretary, respectively. On August 3, 1971, Mr.
Leonard, First Vice President of the Federal Reserve Bank of St. Louis, was
elected Chairman to succeed Mr. Lewis, who retired on July 31, 1971.




321

Index
Page
Acceptance powers of member banks
227
Acceptances, bankers':
Authority to purchase and enter into repurchase agreements . . . . . .104-05
Federal Reserve Bank holdings
233, 242, 244, 246
Federal Reserve earnings on
233, 252
Open market transactions during 1971
250
Repurchase agreements
105. 242, 244, 246, 250
Agriculture:
Farm Credit Act of 1971
209
Assets and liabilities:
Banks, by classes
261
Board of Governors
238
Federal Reserve Banks
242-47
Balance of payments {See U.S. balance of payments)
Bank Examination Schools
228
Bank examiners, home mortgage loans to, legislative recommendation . . 212
Bank holding companies:
Board and Reserve Bank actions with respect to
225
Legislative recommendation
214
Litigation
217-19
Regulation Y, amendments
70, 75, 77, 80, 83, 86, 88, 90, 91, 94
Bank mergers and consolidations
219, 224, 228, 270-91
Bank premises, Federal Reserve Banks and
branches
236, 242, 244, 246, 251
Bank supervision and regulation by the Federal Reserve System
221-29
Banking offices:
Number, changes
266
Par and nonpar, number
268
Board of Governors:
Audit of accounts
237
Delegation of certain authority, actions under
225, 228
Foreign credit restraint program
61, 97, 205-08, 209
Income and expenses
.237-40
Legislative recommendations
211-15
Litigation
217-19
Members and officers
294
Policy actions
61-102
Regulations {See Regulations)
Report to Congress
229

322




INDEX
Page
;><:./'.'

',

•;•..• U "u

-

•'• -

> ted

;

:i i n L e n d i ? '

S;jf-:;r.
5

........

.•,(':' . . - . ! • , . : •

Branch

, •,,

•

.......................

239

\

banks;

Bank*
;- !•
• • i > •, • I n n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . .
266
Fedei M IB a - ) , • ., ,-•.: .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236, 251
Br; '.• !• ' • • ; . ' . , i s- • / 'ive r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . .
213
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299-317
V i c e P r e s i d e n t s i e c h a r g e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 i—20
F o r e i g n b r a n c h e s of m e m b e r b a n k s , n u m b e r a n d l o c a t i o n . . , , , . . , 2 2 5 - 2 7
Capital accounts:
B a n k s , b y classes . . . . . . . . . . . .
Federal Reserve Banks . . . . . . .
C h a i r m e n a n d D e p u t y C h a i r m e n oi

;

.. .<.

.................
261
. . . . . . . . . . 243, 245, 247
• Banks . , , . , . . . . , .
298

. ,-.'.>

Clearing and collection:
C o l l e c t i o n , a m e n d m e n t of Regu< '<
•
....,...,,,,...,.
P a y m e n t s m e c h a n i s m , s t a t e m e n t •.<, .••• ,
i ' .ii:velopments . . . . . 8 1 , 2 : '
¥ o l u m e of o p e r a t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 .Commercial banks:
A s s e t s a n d liability
B a n k i n g offices, ch.inr.r

w. '•<,•..<

.,

F o r e i g n c r e d i t r e s t f ;•.»!'{ ^ < ' . y - i {
N u m b e r , b y c l a s s c ; ,••"'•»

< : •;'• :{<l « » > > 0 9
,
>61

C o n d i t i o n s t a t e m e n t •. •. '• >.\\ ; i i v. -\ •
C r e d i t (See also

261
166

l{ -.»

,' <,,::A7

,

Loans);

Emergency:
Facilities for n o n m e m b e r depositary institutions, extension . . . . . . . .
66
L o a n g u a r a n t e e s to b u s i n e s s , legislation . . . . . . . . . . . . . . . . . . . . . .
209
E x p o r t E x p a n s i o n F i n a n c e A c t of 1971 . . . , . , , . . . , . . . , . . . . . , . , .
209
F a r m C r e d i t A c t of 1971 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
209
S t o c k m a r k e t c r e d i t (See S t o c k m a r k e t c r e d i t )
T o t a l i o w s a n d t h e financing of p r i v a t e i n v e s t m e n t . . . . . . . . . . . . . . 4 3 - 5 0
T r u t h in L e n d i n g (See T r u t h i n L e n d i n g )
Defense production loans

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234, 257

D e m a n d s for goods a n d s e m e e s

................................

19-29

............................................

261

Deposits:
B a n k s , b y classes

F e d e r a l ReserYe B a n k s . . . . . . . . . .
R e s e r v e r e q u i r e m e n t s (See R e s e r v e r e




" •,, 2 4 5 , 2 4 7 , 2 6 3 , 2 6 5
,
•

•• , .

INDEX
Page
Deposits——Continued
T i m e a n d savings deposits:
M a x i m u m p e r m i s s i b l e i n t e r e s t rates on,:
F l e x i b l e a u t h o r i t y t o set, extension, of l a w . . . . . . . . . . . . . . . . . . .
Table ' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D e p u t y Chairmen of F e d e r a l Reserve B a n k s . , . . . . . . . . . , , . . , . . . . . , .

209
260
298

Directors, Federal Reserve Banks a n d branches , . . . . , , , . . , , . . . , . ,299-317
Discount rates at Federal Reserve Banks:
Increases:
Approval . , . . , . , . . , . . . , . . , , , , . , . . , , , . , . , . . . . . . , , , , . . . . . . , .
85
Disapprovals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74, 825 87
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62, 64, 67, 96, 100
Table of rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259
Discounts a n d advances by Federal Reserve Banks:
H o l d i n g s a n d earnings o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233, 2 5 2
Volume . . . . . . . . . . . . . . . . . . . . . . . . . . .233, 242, 244, 246, 256, 262, 264
! >ividends, F e d e r a l R e s e r v e B a n k s . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1 , 2 5 3 , 2 5 4
Earnings, F e d e r a l Reserve Banks

. . . . . . . . . . . . . . . . . . . . . . . . .231, 252, 254

Economic Stabilization Act, amendment a n d extension . . . . . . . . . . . . . . .
Euro-dollar

borrowings

209

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 71

F'^ animations:
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
231
F o r e i g n banking a n d financing corporations . , . . . . . , . . , . . . , « . , . . . . 2 2 7
Member banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
221
State member banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
221
E x e c u t i v e officers o f m e m b e r b a n k s , l o a n s t o , r e p o r t i n g
requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222, 2 2 3
Expenses:
B o a r d of G o v e r n o r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 7 - 4 0
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1 , 252, 2 5 4
Fair Credit Reporting A c t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

229

Federal Advisory Council , . , . , , , . . . . . . , , , . , . . . , . » , . « . , , , . . . , . , » .

297

Federal agency obligations:
F e d e r a l Reserve Bank holdings a n d earnings . . . . . 2 3 3 , 2 4 2 , 2 4 4 , 246? 2 4 8
O p e n market transactions of Federal Reserve System during 1971 . . . 2 5 0
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . 242, 2 4 4 , 2 4 6 , 2 4 9 , 2 5 0
Federal Open Market Committee:
A u d i t of System A c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
231
Continuing authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133
Foreign currency operations, review , . . » . . . , , . . , » . . . . , . . . . . , » . » . 2 0 3
Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,2 9 6

324




INDEX
Page
Federal O p e n M a r k e t Commit* '•

• •"(.tinned

M e m b e r s a n d officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
296
Policy a c t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 3 - 2 0 2
Federal Reserve Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
298
Federal Reserve Banks:
A d v a n c e s by, a m e n d m e n t of I n t e r p r e t a t i o n and. legislative
recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73, 2 1 1 , 212
A s s e s s m e n t for e x p e n s e s of B o a r d of G o v e r n o r s . , . . . , , . . . , . , . . 2 3 9 , 2 5 2
A u t h o r i t y t o p u r c h a s e G o v t . o b l i g a t i o n s directly from U . S . , e x t e n s i o n
of l a w . . . ' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
209
B a n k premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 6 , 2 4 2 , 2 4 4 , 2 4 6 , 251
B r a n c h e s (See B r a n c h b a n k s , F e d e r a l R e s e r v e )
Capital a c c o u n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
243, 245, 247
Chairmen and D e p u t y Chairmen, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
298
Condition statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4 2 - 4 7
D e l e g a t i o n by B o a r d of c e r t a i n a u t h o r i t y to, a c t i o n s u n d e r . . . . . . . 2 2 5 , 2 2 8
Directors

.................................................

299-317

D i s c o u n t r a t e s (See D i s c o u n t r a t e s )
Dividends

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231, 253, 254

Earnings a n d expenses

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231, 252, 254

E m e r g e n c y credit facilities f o r n o n m e m b e r d e p o s i t a r y i n s t i t u t i o n s ,
extension
Examination

...,...,........,,,...,,.,...,....,,.....,.,....,

66

................................................

231

F e d e r a l agencj .• MW.
Foreign

\ M > .. , ! / . ' * . . ,

a n d i.-i.»M,iv,> -t. J

*•',.-.

• .'.•,><)?

".<

,

Lending autho-'^
.
M i a m i o f f i c e o ; • >,.»i
O f f i c e r s a n d e i < > r ; I%
'-'"{> «''^ "• '><. !
P r e s i d e n t s a n d v - ?',•!-:.•«,•

!,;>,«;• <
,

.

...

,
,

>' .-.• *

,

,

235

. .7->,,:•'i. 2 1 2
, 2 3 1
.
.156
. ...
'< ! , v: .--20

Profit a n d loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

,

,

.153

P u r c h a s e of foreign, govt. o b l i g a t i o n s , legislative r e c o m m e n d a t i o n . . . .

212

U'.S, Govt, securities (See U . S . G o v t . s e c u r i t i e s )
V o l u m e of o p e r a t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 3 , 2 5 6
Federal Reserve notes:
C o n d i t i o n statement d a t a

....................................

C o s t of p r i n t i n g , Issue, and r e d e m p t i o n
Interest paid to Treasury

242-47

.....,...,....,,..,....,..

.............................

239

. 2 3 2 , .253, 2 5 4

Federal Reserve System:
Bank Examination Schools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank supervision and regulation by . . . . . . . . . .

f

,....,..,,»,,..

f

228

,221-29

F o r e i g n c r e d i t r e s t r a i n t (See F o r e i g n credit r e s t r a i n t p r o g r a m )
F o r e i g n c u r r e n c y o p e r a t i o n s (See F o r e i g n currency o p e r a t i o n s )
M a p of F e d e r a l R e s e r v e districts




,,,,.,,,,......,.,....».,,.,..

292

325

INDEX
Page
F e d e r a l Rest ^

H

. ^ u:

- > • ' <' , d
'

Membersh-p
................................ 223
P o v r n e n t s ,D»\ \< ,>\%^U,
«•>,<> >>.\ * o f p o l i c y , a n d d e v e l o p m e n t s . . . . . . 8 1 , 2 3 4
' i »;i.ing * - . . . < : ^
...'....*.'........................ ' 228
I ••j*-"-'n a n d i n t e r n a t i o n a l a c c o u n t s o f F e d e r a l R e s e r v e B a n k s . . . . . . . . 2 3 5
i u , . ; u * b a n k i n g a n d financing c o r p o r a t i o n s , e x a m i n a t i o n a n d o p e r a t i o n 2 2 ?
! "K't^n b r a n c h e s o f m e m b e r b a n k s , n u m b e r a n d l o c a t i o n . . , , . . . , . . 2 2 5 — 2 ?
* .'K'i-.\i c r e d i t r e s t r a i n t p r o g r a m . . . . . . . . . . . . . . . . . . . . . 6 1 , 9 7 , 2 0 5 - 0 8 , 2 0 9
I ^ !;."• c u r r e n c y o p e r a t i o n s :
A u t h o r i z a t i o n a n d d i r e c t i v e . . . . . . . . . . . . . . . . 1€N, , "-H, • i i : •; " 3 3 , 1 7 6
F e d e r a l Re-serve e a r n i n g s o n foreign currencies . ,
. 252
I n v e s t m e n t of R e s e r v e Banks' foreign c u r r e n c i e s in u H, u • i i; i .i i • r !
f o r e i g n govts., legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . 2 1 2
Jleview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0 3

r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .? I I
Interest on deposits:
K v s i b l e authority f o r s u p e r v i s o r y a g e n c i e s to set m a x i m u m r a t e s
n d e p o s i t s o r s h a r e r<.:?p"jri?- :*"'"?> r t r 7 ; r , r ! i T f j a w . . . . . . . . . . . . . . . . . 2 0 9
i;,i> i t<"v» r a t e s (See also I n t r ; * ••<• <»»: -h r v v > - » ,

Defense production loan

. . . . . . . . . . . . . . . . * .234, 25?

Discount rates at Reserve HMIK - » \ , \ > ,A r.mi rates)
,
E c o n o m i c S t a b i l i z a t i o n i \ M .-tr^v -«.!th* »•: .+ n u r x t e n s i p ' t
Maximum

p e r m i s s i b l e r a i c ^ o n t u t u , i t i i d &<tvui^s dept«•'{."»

.
{-fwU

/uv
.

.'^0

M o n e t a r y aggregates a n d . . . . . . . . . . . . . . . . . . . . .
. . . . . _ , . 31 I i
I n t e r l o c k i n g b a n k r e l a t i o n s h i p s , legislative recommenc-iiK'ii
. .'. H ,
Interpretations, Board of G o ¥ e r n o r s ;
Ad¥ao.ces b y R e s e r ¥ e B a n k s , o b l i g a t i o n s eligible a s c o l l a t e r a l ,
a m e n d m e n t of i n t e r p r e t a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
C a p i t a l s t o c k a n d s u r p l u s , undivided profits a s . . . . , . . . . , . . , , , , , . . .
69
Investments:
Bank

Investments

recommendation
B a n k s , b y classes
Business

for community

development,

legislative

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

213

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

261

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Reserve Banks
Total credit

flows




. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 \

a n d the financing of p r i v a t e

investment

. . . . .

24
'. hJ

!46

• •-50
<

INDEX
Page
; v,.s<,''ion:
•l •
I n v e s t m e n t s for c o m m u n i t y development, legislative
recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E c o n o m i c S t a b i l i z a t i o n A c t , a m e n d m e n t a n d extension . . . . . . . . . . . . .
Emergency Loan Guarantee Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E x p o r t E x p a n s i o n F i n a n c e A c t of 1971 . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Credit Reporting Act, p a m p h l e t on . . . . . . . . . . . . . . . . . . . . . . . . .
F a r m C r e d i t A c t of 1971 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Reserve Banks;

213
209
209
209
229
209

F e d e r a l s u p e r v i s o r y a g e n c i e s to set m a x i m u m , e x t e n s i o n . . . . . .
R e a l e s t a t e , h o m e m o r t g a g e l o a n s to b a n k examiners, legislative
recommendation
.......................................
R e s e r v e requirements, g r a d u a t e d , on. d e m a n d d e p o s i t s , legislative
recommendation
.......................................
S t a t e t a x a t i o n of n a t i o n a l b a n k s , , . . . . . , , . . , , . , , . . . . . , . . , , . , .
Litigation:

M a n p o w e r utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Margin requirements:

28

E x e m p t i o n of c e r t a i n credit e x t e n d e d to a broker o r d e a l e r ,
a m e n d m e n t of R e g u l a t i o n s G a n d U . . . . . . . . . . . . . . . . . . . . . 7 1 , 7 3 , 84




32?

INDEX
Page
Margin requirements—Continued
L i t i g a t i o n c o n c e r n i n g securities credit t r a n s a c t i o n s . . . . . . . .
...
R e d u c t i o n o n s t o c k s , a m e n d m e n t of R e g u l a t i o n s G , T , a n d ! . . . .
R u l e s g o v e r n i n g b o r r o w e r s , a d o p t i o n of R e g u l a t i o n X. , . , . . . . . , . . , . .
Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

219
9.9
93
257

M e m b e r b a n k s (See also N a t i o n a l B a n k s ) :
Acceptance powers . , . , . , , . . . . . , , . . , . . . . .
.
.
,
.127
A d v a n c e s by R e s e r v e B a n k s . . . . . , , . . , . . , . ,
.
. T * 2 ; {, 2 1 2
A s s e t s , liabilities, a n d c a p i t a l a c c o u n t s . . . . . .
.
.
*!6i
B a n k i n g offices, c h a n g e s in n u m b e r . , . , . , » . .
..
.
.
t€6
C a p i t a l s t o c k a n d s u r p l u s , undivided profits as i n k ipit'iatioii
..
69
Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.,
. .
.!21
E x e c u t i v e officers of, l o a n s t o , r e p o r t i n g requiu-mui.'.
. . I'l? 223
F a r m C r e d i t A c t of 1971 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
209
F o r e i g n branches, number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 5 - 2 7
I n t e r l o c k i n g r e l a t i o n s h i p s , legislative r e c o m m e n d a t i o n . . . . . . . . . . . .
212
Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 3 , 261

Reserve requirements (See Reserve requirements)
Reserves a n d r e l a t e d items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 2 - 6 5
S t a t e m e m b e r b a n k s (See S t a t e m e m b e r b a n k s )
Membership in F e d e r a l Reserve S> -,wa\
•Mergers

and

consolidations

iau-

223

219, 224, 228, 27Q-91
..........................

,31-41

I».MI,-\

D.ycM

i d pifsK ipiii

Is'c'v.cu
MutJial

.........................

,

Monetary a g g r e g a t e s a n d inteuM
Monci in

.

.

i.f

vi\i!l!^

A s s t i - % Aini

p / h v\ iii'Ui/i^

sl'/i

.

A s s e t s itrtil

'^

. .

. . , , ,

.

I- \ if { lax'nii:

, ,

, ,

. ,

kc-.c-\ r




r

»'iflit'!Ufi!i»'!il

I ' i J i M J P t >'

iiahihiios

328

.

h si*; >
.

.

.

.

,

.

Ul k c y t i t a t i v i '
.

.

.

.

,

.

SH
liJ>

, .

2hl

.

,
.

- M)
3

2ft I .

\f
.

prfi.vj

. . . .

. . .

iia!--ili!ji-.

t-Mih/itv'i,

A«<\.-\1K"t>

,

. . . . . . . . . .

{'...I.LN

F O f i 1 il< > 11 * i T hot i i*\^ .la \
J'i'iOii'Jt

.

. . .

, 6 ? , ,Vi
" ? 5 '!-'

INDEX
Page
k**ir a n d n o n p a r

b a n k i n g offices, n u m b e r

..........................

268

r<*!icy actions, Board of Governors:
A d v a n c e s by R e s e r v e B a n k s , obligations eligible as c o l l a t e r a l ,
a m e n d m e n t of i n t e r p r e t a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
C a p i t a l s t o c k a n d s u r p l u s , u n d i v i d e d profits as, revision of
Board position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
D i s c o u n t r a t e s at F e d e r a l R e s e r v e B a n k s :
Increases:
Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85
D i s a p p r o v a l s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74, 82, 87
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62, 64, 67, 96, 100
E m e r g e n c y credit facilities f o r n o n m e m b e r d e p o s i t a r y institutions,
extension . . . , , . . , . , . . . , , , , , . . , , . , , , . , . . . , . . . , , . , , . , , . . . , , .
66
Equal employment
regulations
................................
72
Foreign credit restraint p r o g r a m guidelines, revisions . . . . . . . . . . . . . . 6 1 , 97
Payments mechanism, statement of policy . , . . . , . . , , . . . . . . . . . . . . . ,
81
Real estate
financing,
statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101

Regulations (for details of Board actions, see Regulations,
Board of Governors)
Policy actions, digest of principal
Federal Reserve actions . . . . . . . . . . . . . . . . . . . . . . . .1—VII (facing page 24)
Policy actions, Federal Open Market Committee:
A u t h o r i t y t O e f f e c t 5; l J U - / > ; h < 1 h
, 0 s s ' >•! \ • v s n - s . ' t , ]\ } i ; i .
c u r r e n t e c o n o m i • \-*-','•, -. v V , : v ~ ,
.
C o n t i n u i n g a u t h o r * ! ' . . - < : ' . u » ' • • . » • * , ! » • • •>, ,i
operations
..... .
..
S " ,, : ~ • : ' \ > ',; w,\
C o n t i n u i n g a u t h o r i '•.»{»• <?'•*
.
,
F o r e i g n c u r r e n c y <>!• T . t f i i - i v
"^ii.> , ' : ( * v
a n d d i r e c t i v e . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 4 , 1 0 ' > - ! i «I
Presidents a n d Vice Presidents of Federal Reserve Banks:
C o n f e r e n c e of Presidents a n d C o n f e r e n c e of K;>! \ i
List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries of Presidents . . . . , . . . . . . , . , . . . . , .
Prices, wages, a n d productivity

]

~ >

......

!02

201
' 3 1 -

i • >. I "'•»

> ^(«-,uf'"),^
.

.............

Profit a n d loss, F e d e r a l R e s e r v e B a n k s

ltii

12!
:; - - 2 0
L56

.

> ' -18
,,

P r o f i t s , u n d i v i d e d , a s c a p i t a l s t o c k a n d s u r p l u s , tn-t : t-t--» -.'."»«t

>53
69

Real estate:
B a n k e x a m i n e r s , h o m e rn.ort.gage l o a n s t o , l e g i s l a t i v e r e c o m m e n d a t i o n
B o a r d s t a t e m e n t o n real e s t a t e
financing
........................

212
101

Record of policy actions (See Policy actions)




329

INDEX
Page
Regulations, Board of G o v e r n o r s :
A, Advances and Discounts by Federal Reserve Banks;
. ,*aendment of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
I ,».'curities of Member State Banks:
r iMider offers and other stock acquisitions, amendments . . . . . . . .
66
i . "<'Curities Credit by Persons Other Than Banks, Brokers,
•>r Dealers:
- Kemption of certain, credit extended to a broker or dealer from
onargin requirements, a m e n d m e n t . . . . . . . . . . . . . . . . . . . . . . . . . .
71
M»cks, reduction in m a r g i n r e q u i r e m e n t s , a m e n d m e n t . . . . . . . . . .
99
K i E l e c t i o n of C h e c k s a n d O t h e r Items b y F e d e r a l R e s e r v e B a n k s ;
•\ i aendment t o include American S a m o a in t h e T w e l f t h F e d e r a l
Reserve District for collection, p u r p o s e s , . . . . . , . . . , . . , . . . , , .
94
>. t f o r e i g n Activities of N a t i o n a l B a n k s :
iburo-dollar b o r r o w i n g s , amendments . , . . , . , , . , . , . . . . , , . , . , . . 6 3 , 71
i'. * redit by B r o k e r s a n d D e a l e r s :
,v :icks» r e d u c t i o n in m a r g i n .'requirements, a m e n d m e o t . . , , , . , . , .
99
I •. * redit by Banks for the P u r p o s e of Purchasing or C a r r y i n g
.
Margin Stocks:

!'\emption from margin requirements of certain credit extended
to a b r o k e r o r dealer, a m e n d m e n t s . . . . . . . . . . . . . . . . . . . . 7 1 , 7 3 , 8 4
,S:oeks, r e d u c t i o n in m a r g i n r e q u i r e m e n t s , amendment . . . . . . . . . .
99
X, \<tiles Governing B o r r o w e r s W h o Obtain. Securities C r e d i t ;
AJoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
V Hank H o l d i n g C o m p a n i e s :
c ontrol of b a n k or c o m p a n y , p r e s u m p t i o n s r e g a r d i n g , a m e n d m e n t .
91
1 * reign activities of domestic h o l d i n g c o m p a n i e s , a m e n d m e o t . . . . .
>
90
1 >*reign b a n k h o l d i n g c o m p a n i e s , n o n b a n k i n g a c t i v i t i e s , a m e n d m e n t
94
J t v . i h U-'H d e c l a r a t i o n , p r o c e d u r e s to b e f o l l o w e d a n d clarification
.'<'?(»• .?«! v, a m e n d m e n t s . , . . . . , , . . , . . . . . . . , , . , . . » , . . . » » , » . 7 0 , ;< >:
K ? n ^ s; ' a n k i n g a c t i v i t i e s p e r m i t t e d . , . . . . , , . , . . . . . » , . . . , » . ,
'*'•
\^",>.u>Vr-.
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7 , 8 0 , 8 6 , (J;
St;«M IIT' i ;«»n o f p r o c e d u r e s . . . . . . , , . . . . . . , , . , . , , , , , , , . » , , , , .
;••':••'
7 T : 11',',* in » e n d i n g :
\ . I M ..-.:.*.•. is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 , 6 8 ? 9 2 , 9 8
Repurchase agreements:
Bankers' acceptances . . . . . . . . . . . . . . . .
;v", 242, 244, 2 4 6 , 2 5 0
rvJi-ral a g e n c y o b l i g a t i o n s . . . . . . . . . .
. v-;, 2 4 4 , 2 4 6 , 2 4 9 , 2 5 0
* k- G o v t . s e c u r i t i e s . . . . . . . . . . . . 1 0 5 , :: K s. i-. .'-.'s 2 4 9 , 2 5 0 , 2 6 2 , 2 6 4
K 's. 1 ''. o r e q u i r e m e n t s :
G r a d u a t e d , o n d e m a n d d e p o s i t s , l e g i s • . * ; i ^. L * J c o m m e n d a t i o n . . . . . . . . . 2 1 1

Member banks;

330




INDEX
Page
.'•' serves:
Vfember b a n k s :
R e s e r v e r e q u i r e m e n t s (See R e s e r v e requirements)
Reserves a n d related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.262-65

Salaries;
B o a r d of G o v e r n o r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
239
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256
Securities {See also U . S . Govt. s e c u r i t i e s ) :
Eligible for a d v a n c e s by R e s e r v e B a n k s (See F e d e r a l R e s e r v e B a n k s )
r
:
V<:
->ency o b l i g a t i o n s (See F e d e r a l a g e n c y o b l i g a t i o n s )
.' ••. !%- Mate b a n k s , t e n d e r offers w i t h r e s p e c t t o securities of . . . . . .
66
'".•
• • J bonds {See S t o c k m a r k e t c r e d i t )
' . . «.• s ' • .wing R i g h t s . . . . . . . . . . . . . . . . . . . . . . . . 2 4 2 , 2 4 4 , 2 4 6 , 2 6 2 , 2 6 4

.,.,_ ..i:._.jsr banks:
A s s e t s a n d liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
261
B a n k i n g offices, c h a n g e s In n u m b e r . , . , . , . . . . . . . . , . . , , . , , . . . . . . .
266
C h a n g e s in c o n t r o l , r e p o r t i n g r e q u i r e m e n t s . . . . . . . . . . . . . . . . . . . . . .
222
Examination . , . , . . . . . . . . , . . , . . . . . . . , , . . . . , . . . . , . . . , . . . , . . . , .
221
Foreign branches, number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225-27
Investments f o r c o m m u n i t y d e v e l o p m e n t , legislative r e c o m m e n d a t i o n
214
Mergers a n d consolidations . . . . . . . . . . . . . . . . . . . . .219, 224, 228, 270-91
Number
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 3 , 261
T e n d e r offers with r e s p e c t t o securities of , . . , . . . . . . . . . . , . , . . , , .
66
Stock m a r k e t credit:

Marein requirements:
;i

emption of c e r t a i n credit e x t e n d e d to a lireamendment of R e g u l a t i o n s G a n d U . . . .
•• ,' igation
.............................

!•', d u c t i o n o n s t o c k s , a m e n d m e n t o f R e g u l a *
-•
•'•'..•les g o v e r n i n g b o r r o w e r s , a d o p t i o n o f R e ' • • • ' ;

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System Open M a r k e t A c c o u n t ;
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
231
A u t h o r i t y t o effect t r a n s a c t i o n s in . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,0=3-202
F o r e i g n c u r r e n c i e s , r e v i e w of o p e r a t i o n s . . . . . . . . . . . . . . . . . . . . . . . .
203
T e n d e r offers w i t h r e s p e c t t o securities of m e m b e r State b a n k s ,
a m e n d m e n t of R e g u l a t i o n F . . , , . . . . , , . . , , . . » , , . . , . . . . . , , , . , , , ,
66
T r a i n i n g activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
228
Truth in L e n d i n g :
Regulation Z, amendments
'•• •:>•• 9 2 , 9 8
Report to Congress . . . . . .
,
. 229




INDEX
Page
I VS. balance of payments:
Euro-dollar borrowings, amendment of Regulation M . . . . . . . . . . . . 6 3 , 71
Foreign credit restraint program (See Foreign credit restraint program)
Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51-58
U.S. Govt. securities;
A u t h o r i t y of R e s e r v e B a n k s t o p u r c h a s e d i r e c t l y f r o m
U.S., e x t e n s i o n of l a w . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
209
B a n k h o l d i n g s , b y class of b a n k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
261
Federal Reserve Bank earnings o n , . . , , . . , . . . , . » , . , . , . . , . 2 3 1 , 2 3 3 , 2 5 2
F e d e r a l R e s e r v e B a n k h o l d i n g s . . . . . . 2 3 3 , 2 4 2 , 2 4 4 , 246 ? 2 4 8 , 2 6 2 , 2 6 4
Open market operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103-202, 250
R e p u r c h a s e a g r e e m e n t s . . . . . . . . . . 105, 2 4 2 , 2 4 4 , 2 4 6 , 2 4 9 , 2 5 0 , 2 6 2 , 2 6 4
S p e c i a l certificates p u r c h a s e d d i r e c t l y f r o m t h e U n i t e d S t a t e s . . . . . . .
249
U.S.
G o v t . a g e n c y obligations (See F e d e r a l a g e n c y o b l i g a t i o n s )
V l o a n s (See D e f e n s e p r o d u c t i o n l o a n s )
Voluntary foreign credit restraint p r o g r a m . . . . . . . . . . . . 6 1 , 97, 2 0 5 - 2 0 8 . 209
Wages, prices, a n d productivity

332




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