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€annnal
Report
V_J 1073
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
cQztter of Transmittal
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington, May 30, 1974
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 Sixtieth Annual Report
of the Board of Governors of the Federal Reserve System.
This report covers operations of the Board during the calendar year
1973.
Yours respectfully,
Arthur F. Burns, Chairman
Contents
Part 1 —Monetary Policy and the
U.S. Economy in 1973
3
INTRODUCTION
12
14
17
19
21
22
23
24
DEMANDS FOR GOODS AND SERVICES
Consumer purchases
Residential construction
Business fixed investment
Inventories
Exports and imports of goods and services
Federal Government
State and local governments
26
EMPLOYMENT AND WAGES
29
31
33
PRICES, LABOR COSTS, AND PROFITS
First-half price developments
Second-half price developments
36
41
49
53
MONETARY POLICY AND FINANCIAL MARKETS
Monetary policy
Disintermediation
Aggregate flows of funds
60
62
66
INTERNATIONAL DEVELOPMENTS
Progress toward equilibrium
International monetary scene
Part 2—Records, Operations,
and Organization
73
RECORD OF POLICY ACTIONS—BOARD OF GOVERNORS
128
RECORD OF POLICY ACTIONS—FEDERAL OPEN MARKET
COMMITTEE
224
FEDERAL RESERVE OPERATIONS IN FOREIGN
CURRENCIES
226
VOLUNTARY FOREIGN CREDIT RESTRAINT PROGRAM
230
230
LEGISLATION ENACTED
Purchase of Government obligations by Federal
Reserve Banks
Interest on deposits
Regulating "NOW" accounts
Investment in State housing corporations
Gold Reserve Act of 1934
Par Value Modification Act
Foreign currency reports
Appointment of Alternate Governors of the
IMF and IBRD
State taxation of Federally insured financial
institutions
Loans in flood-prone areas
230
230
231
231
231
231
231
232
232
233
233
234
235
236
238
241
241
242
249
LEGISLATIVE RECOMMENDATIONS
Monetary policy—Reserve requirements
Regulation of foreign banks
Consumer affairs and public service
Proposals relating to the regulation of
bank holding companies
Supervisory and other recommendations
LITIGATION
Bank holding companies—Antitrust actions
—Review of Board actions
Other litigation involving challenges to Board
procedures and regulations
25 1
251
252
254
255
256
258
258
259
259
BANK SUPERVISION AND REGULATION BY THE
FEDERAL RESERVE SYSTEM
Bank holding companies
Examination of member banks
Federal Reserve membership
Bank mergers
Foreign branches of member banks
Foreign banking and financing corporations
Actions under delegation of authority
Bank Examination Schools
Troth in Lending
260
260
260
261
261
262
263
264
265
FEDERAL RESERVE BANKS
Examination of Federal Reserve Banks
Earnings and expenses
Holdlogs of loans aed securities
Volume of operations
Payments mechanism developments
Loan guarantees for defense production
Foreign and international accounts
Federal Reserve bank premises
BOARD OF GO¥EENORS
266
Income and expenses
STATISTICAL TABLES:
272
274
278
279
280
281
282
284
286
1. Detailed statement of condition of all Federal Reserve
Banks combined, Dec. 31, 1973
2. Statement of condition of each Federal Reserve Bank,
Dec. 31, 1973 and 1972
3. Federal Reserve Bank holdings of U.S. Government
and Federal agency securities, Dec. 31, 1971-73
4. Federal Reserve Bank holdings of special short-term
Treasury certificates purchased directly from the
United States, 1968-73
5. Open market transactions of the Federal Reserve System during 1973
6. Bank premises of Federal Reserve Banks and branches,
Dec. 31, 1973
7. Earnings and expenses of Federal Reserve Banks during 1973
8. Earnings and expenses of Federal Reserve Banks,
1914-73
9. Volume of operations in principal departments of Federal Reserve Banks, 1970-73
ST.A HS f KIAL TABLES—Continued
286
287
288
290
291
293
294
298
300
300
302
325
10. Number and salaries of officers and employees of Federal Reserve Banks, Dec, 31, 1973
1 !. Federal Reserve Bank Interest rates, Dec. 31, J973
12, Member bank reserve requirements
13. Maximum Interest rates payable on. time and savings
deposits
14. Margin requirements
15. Fees and rates under Regulation V on loans guaranteed pursuant to Defense Production Act of 1950,
Dec. 31, 1973
16. Principal assets and liabilities, and number of commercial and mutual savings banks, by class of back,
Dec. 31, 1973 and 1972
17. Member bank reserves, Federal Reserve Bank credit,
and related items—end of year 1918—73 and end
of month 1973
18, Changes in number of banking offices in the United
States during 1973 .
19. Number of par and nonpar banking offices, by Federal
Reserve district, Dec. 31, 1973
20. Number of par and nonpar banking offices, by State
and other area, Dec. 31, 1973
21, Description of each merger, consolidation, acquisition
of assets or assumption of liabilities approved by
the Board of Governors during 1973
MAP OF F E D I - W A J
<-: <\ ;.< s ',
" VSTEM—DISTRICTS
F E D E R A L EEE'I »:"*. = !.•':•:• i TORIES A N D M E E T I N G S :
328
330
331
332
356
Board of Governors of the Federal Reserve System
Federal Open Market Committee
Federal Advisory Council
Federal Reserve Banks and branches
INDEX
"Part 1
cMpnetaryJ^olicy
and the
ci. y Economy
in 1973
Introduction
In 1973 the U.S. economy was plagued by its worst inflation since
the end of World War II. Wholesale prices rose by 18 per cent during the year and consumer prices by nearly 9 per cent. At the end of
the year inflation was still running strong, led by sharply higher
prices for foreign crude oil and petroleum products in U.S. markets.
The economic expansion, under way since 1971, slowed markedly
over the course of 1973 in response to more restrictive national economic policies and the adverse effects of the rapid advance in prices
on consumer buying power. Activity was also dampened in the latter
part of the year by the energy shortage, which generated widespread
buyer uncertainty and seriously disrupted longstanding patterns of
demand for autos and other goods and services.
The exceptional strength of the 1973 inflation stemmed mainly
from extraordinary shortfalls relative to world demand in the output
of agricultural products and in supplies of energy. Prices of foods
and fibers were affected by worldwide shortages, largely the result of
poor crop yields during the 1972 growing season in many producing
countries. And fuel prices were boosted by shortages of oil, which
were serious at times early in 1973 and acute in late autumn, following the cutbacks in Middle East output.
The devaluation of the dollar in February 1973, and the further
J 1
-- *"-- *- -1- r neign exchange value of the dollar, which occurred
during the spring and summer, provided additional fuel for the inflation. Prices of foreign goods sold in the United States rose sharply,
and business demands for materials and supplies tended to shift to
this country from foreign sources. Moreover, the competitive position
of U.S. goods in world markets was enhanced further, stimulating
foreign demands for U.S. goods at a time when such demands were
already growing markedly in response to the previous devaluation of
the dollar in December 1971 and to the inflationary boom that was
under way in the economies of most industrial countries of the
world.
The economic situation that was developing in this country also
contributed to the inflation. The U.S. economy had expanded at a
very rapid rate in late 1972 and early 1973 as demands for goods
and services strengthened substantially further, partly in reaction to
public policies instituted to encourage greater utilization of the Nation's productive resources. And consumption demands were also
INDICATORS OF ECONOMIC PERFORMANCE
CHANGE, IN BILLIONS OF DOLLARS
PERCENTAGE CHANGE
REALGNP
P
-WEIGHTED PRICE INDEX
PRIVATE PRODUCT
1971
1972
1973
NOTE.—Changes for current-dollar GNP are from preceding quarter and are based
on quarterly data at seasonally adjusted annual rates. Changes for real GNP (based on
data expressed in 1958 dollars) are at annual rates. Data are from Dept. of Commerce.
Fixed-weighted price index: Change from preceding quarter compounded at annual
rates based on seasonally adjusted data from Dept. of Commerce.
Unemployment rate: Monthly data, seasonally adjusted, from Dept. of Labor.
buoyed In the first half of the year when households received unexpectedly large refunds of Federal income taxes.
The strong final demands In the United States and abroad bolstered the needs of manufacturers for a wide array of raw materials,
and even though production of such materials increased sharply, demands often exceeded the available supplies. Thus, many producers
of basic materials reached practicable capacity limits well before the
over-all output potential of the U.S. economy came under strain. Inflationary conditions may have been heightened also by public response to the liberalization of the wage-price controls program early
in the year. In retrospect, it appears that the move to Phase III of
the program, though intended to provide needed flexibility to changing economic conditions, was widely viewed as a virtual ending of
controls, and this attitude contributed to the beige in prices that eesuad.
Domestic economic stabilization policy could not have been expected to check fully these extraordinary forces of inflation. To have
halted the acceleration in the over-all price rise—influenced so importantly, as it was, by sharply higher prices for food, fuel, and
Internationally traded Industrial commodities—would have required
exceptionally stringent measures, with potentially disastrous consequences for employment and economic activity. Public policies did
move, however, to restrain the cumulative upward momentum in domestic economic activity—which had gained great force during the
previous fall and winter—and to dampen inflationary forces stemming from the overheating.
Monetary policy, which had begun to tighten in late 1972, became
progressively more restrictive through the summer of 1973. Thereafter, some actions were taken to moderate the intensity of monetary
restraint. Fiscal policy also turned somewhat more restrictive In
1973, as the rise in public expenditures was curbed and the volume
of tax receipts, produced by higher Incomes and higher profits, grew
more rapidly than outgo. And wage-price controls, reintroduced on a
strict mandatory basis following the temporary price freeze In. the
summer, were directed toward developing and making more diffuse
the price advances necessitated by continuing rapid increases, la production costs.
In the effort to avoid excessive monetary expansion during 1973
the Federal Reserve made use of all its instruments of monetary policy. Through much of the year open market operations were' directed
toward achieving adequate restraint on the growth in bank reserves
and in the monetary aggregates. In the process the Federal, funds
rate moved from around 5.5 per cent at the beginning of the year to
a high of nearly 11 per cent in September. In the late spring marginal reserve requirements were imposed on any expansion in certificates of-deposits (CD's) -and other money-market-sources--of funds
at large banks beyond the amounts outstanding a-s of mid-May, and
such requirements were increased further in September. In early July
reserve requirements were raised by Vi percentage point against the
demand deposits (above a $2 million base) of all member banks.
The Federal Reserve discount rate was raised, in successive steps,
from AV2 per cent at the beginning of the year to IV2. per.cent.from
August on, to keep the cost of borrowing more in line with market
rates. And margin requirements on stock market credit, which had
been increased to 65 per cent late in 1972? were kept at that level
throughout 1973, despite a steady downward trend in the use of
such credit.
As a result of these efforts, the growth in money and credit slowed
markedly relative to the continuing expansion in domestic spending.
The narrowly defined money stock (Mi),1 even after revision in early
1974 to reflect unexpectedly large growth in deposits at nonmember
banks, increased 6.1 per cent from the fourth quarter of 1972 to the
fourth quarter of 1973. If measures of money are expanded to include consumer-type time and savings deposits at banks (M,2) and at
other depositary institutions (M 3 ), the- resulting growth rates are 8.8
per cent and 8.9 per cent, respectively. In each case these increases
were well below the 11 per cent growth in the gross national product
(and total domestic expenditures) over the same period, and also
appreciably smaller than those recorded In 1972.
With significantly slower growth in money and continued rapid
growth in total spending, interest rates were subject to marked up1
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.
ward pressure over the first 9 months of the year. Short-term market
rates, as represented by 3-month Treasury bills, rose by nearly 400
basis points from the 1972 year-end level, peaking out at just above
9 per cent in August. The interest rate charged by banks on their
prime loans—those to large business customers with the highest
credit rating—increased by a similar amount, from 5% per cent to
MONEY STOCK AND THE FEDERAL FUNDS RATE
PERCENTAGE CHANGE
1972
1973
NOTE.—Money stock, annual rates of growth calculated from daily-average figures for
all 3 months of the quarter. Federal funds rate, monthly averages of daily figures. For
definitions of Mi and Mi, see notes to chart on p. 42.
10 per cent Long-term bond yields rose less dramatically but still
substantially, by around 100 basis points. And yields on FHA and
VA mortgages sold in the secondary market increased by about 150
basis points—to more than 9 per cent—before declining moderately
in the closing months of the year.
Because of the sharp rise in market yields, savings flows began to
shift increasingly into market instruments and away from the depositary institutions (where the interest rates that can be paid are constrained by regulatory ceilings). Accordingly, in early July the Board
and other Federal regulatory agencies, after consultation, raised rate
ceilings applicable to commercial banks, mutual savings banks, and
savings and loan associations. In addition, these financial institutions were permitted to issue ceiling-free, 4-year time deposit instruments, so that they could compete actively for funds against highyielding market instruments. This ceiling-free authority was
withdrawn later, following congressional action that required the imposition of ceiling rates on all deposits of less than $100,000. Bet
the array of rate ceilings applicable to the various types of time and
savings deposits issued by banks and nonbank institutions remained
significantly higher than it had been before midyear.
Partly as a result of these increases in maximum rates, deposit inflows to the institutions—though substantially slowed—dropped less
drastically than during tight money periods in, the 1960?s. Nevertheless, and despite a liberal lending policy by the Federal home loan
banks and support from the Federal National Mortgage Association
and other Federal agencies, a marked contraction developed in the
availability of mortgage credit and its cost rose sharply.
The tightening in mortgage credit, together with much higher
prices for houses and the sustained high level of building during the
two preceding years, combined to reduce housing starts sharply over
the course of the year. Declining residential construction, howe¥er?
was not the only source of, weakness in the economic situation. Newcar sales had begun to fall off even, before the news of a prospecti¥e
011 shortage, and they dropped sharply further thereafter. Growth in
consumer spending for other goods declined on balance in real terms
after the first quarter of 1973, reflecting higher prices and a gradual
reduction in real take-home pay of the average worker. In the autumn the de¥eloping energy shortage, resulting from the embargo on
direct and indirect shipments of oil from the Middle East to the
United States, created new uncertainties and new fears about continued economic stability both at home and abroad.
The result was a marked slowing in over-all economic growth as
the year progressed. Expansion in real GNP moderated from an unsustainably high 8.7 per cent annual rate in the opening months of
the year to an annual rate of about 3 per cent in the second and
third quarters combined. This reflected not only the leveling off in
consumer demands but also shortages in supplies of foodstuffs and
raw materials and the limitations of capacity in some critical industrial sectors. In the fourth quarter real growth slowed further, to
only about 1.5 per cent (annual rate). Growth in employment also
slowed toward the end of the year, and the unemployment rate—
which had declined through most of the year—began to rise.
In view of these developments monetary policy in the autumn
began to back away from its earlier posture of substantial restraint.
Open market operations became a little less restrictive, and interest
SELECTED INTEREST RATES
PER CENT PER ANNUM
1971
1972
N O T E . — F o r n o t e s see c h a r t o n p . 37.
1973
rates edged down In both long- and short-term markets, -Savings
flows to the depositary institutions improved as interest rates on market instruments were reduced, and the mortgage market eased in
terms, of .both interest rates and the availability, of. funds. In December the Board reduced the marginal reserve requirement on CD's
and other money market funds at large banks from 6 to 3 per cent,
and in early January 1974 it cut margin requirements on stock
market credit from 65 per cent to 50 per cent. The interest rate on
Federal funds declined from its September high of nearly 11 per cent
to about 9 per cent by February of 1974.
The move to a moderately less restrictive monetary policy was
warranted by the leveling-off in the economic expansion and by the
evidence of developing weakness in the economy caused by the oil
shortage and other factors. But the continuation of rapid inflation
and the persistence of serious supply shortages, not only in oil but
also in many other product lines, counseled against any aggressive
easing in'policy.
In early 1974, weakness in economic activity appeared to be
growing, dominated by a slowing in consumer expenditures for the
goods and services most closely associated with the use of gasoline
and oil products. This situation may worsen for a time; or the problem may wane, if consumers shift to the purchase of other goods and
services, or if the oil shortage is eased. There is also • uncertainty
about the prospects for the foreign trade balance following the dramatic improvement in the export position of the United States during
1973. The quantum jump in the price of foreign oil. will raise.the
Nation's bill for oil imports very substantially, even without a resumption of oil shipments from the Middle East. And the substantial
recovery in the international value of the dollar since the autumn of
1973, along with indications of economic slowing abroad, may curb
foreign demands for U.S. exports, though the effects of these factors
on the trade balance may be offset by a weakening in U.S. import
demands.
At the same time important sources of continuing support remain
in the U.S. economy. Business is planning sizable increases in capital
spending^ and additional projects may well be stimulated" by' efforts
to economize on the use of energy and by the evident need for a
major effort to expand domestic capacity in the energy field and in
10
other basic materials industries. Businesses generally have followed
conservative inventory policies, and with many commodities still in
very short supply, the ratio of stocks to sales remains close to its
lowest level in many years. Residential building activity is likely to
show some recovery later in the year from its present depressed
state, as there is further improvement in the availability of mortgage
money, materials, and labor.
The inflationary problems of the U.S. economy remain severe,
however. Prices of materials—not only of oil but also of many other
commodities—have continued to rise at a rapid pace. And many
shortages remain that are capable of disrupting production schedules
and deliveries. Moreover, the rise in unit labor costs has accelerated
in recent quarters as increases in wage rates have been substantial
and gains in productivity have come to- a halt.
The outlook for inflation is not entirely bleak, however. Adjustments in relative prices of the dimensions witnessed over the past
year should not be expected to continue indefinitely, since the effect
of the higher prices is to induce larger output and constrain demand. In the case of oil and other fuels, the price response to shortage conditions may still have some distance to go. In other areas,
however, the outlook seems more promising. Agricultural output has
been rising, and crop yields around the world generally appear to
have been much mo-re favorable in 1973. The upsurge in international demand for industrial raw materials shows clear signs of moderating, and the dollar has strengthened again in foreign exchange
markets. In any event, lasting improvement in supply conditions for
foods and other raw materials will be dependent on long-run structural processes that encourage increases in investment, output, and
efficiency in these sectors and economy in the use of their product.
The job for monetary policy—and for economic stabilization policy generally—therefore, is to steer a course that will not exacerbate
present and prospective inflationary forces, but at the same time will
avoid an unacceptably severe or extended weakening in economic activity that might develop from the energy crisis. Given the many uncertainties that confront the economy, this is not likely to be an easy
task. Monetary policy, however, is by its nature a flexible and adaptive instrument that can be shaped promptly to the Nation's
emerging economic needs.
11
Demands for Goods
and Services
1973 was a year of dramatic developments in the nonfinancial sector
of the economy. For the year as a whole, GNP in current dollars increased by about 11.5 per cent, but higher prices accounted for
nearly half of this rise. The increase of 6 per cent in real GNP was
about the same as in 1972. But after reaching exceptionally rapid
and unsustainable rates in late 1972 and the first quarter of 1973—
averaging about 8.5 per cent per year—growth in real terms slowed
abruptly. In the fourth quarter it was down to an annual rate of
about 1.5 per cent.
The rapid pace of expansion early in the year was broadly based
among consumers, business, foreign trade, and government. The subsequent slowing was attributable in part to the emergence of severe
pressures on supplies of many major materials, which acted to limit
output increases in key demand sectors. Output of materials was apTable 1: GROSS NATIONAL PRODUCT
1973 1
Type of measure
1971
1973
1972
I
II
III
IV
1,305
841
1,338
845
In billions of dollars
Current dollars
1958 dollars
1,056
745
1,155
791
1,289
837
1,243
829
1,272
834
Percentage change from preceding period
(at annual rates)
Current dollars
1958 dollars
8.0
3.2
9.4
6.1
11.6
5.9
15.2
8.7
9.9
2.4
10.6
3.4
10.5
1.6
Implicit deflator
4.7
3.2
5.4
6.1
7.3
7.0
8.8
1
Quarterly data are seasonally adjusted annual rates.
NOTE.—Dept. of Commerce data.
12
proaching practicable capacity limits by late spring, with capacity
utilization rates for major materials industries reaching their highest
levels since World War II. These pressures on capacity, and the related tightness of supplies, were maintained throughout the remainder
of the year. The moderation of expansion in aggregate real output
during 1973 was broadly paralleled by a slowing of growth in industrial production—to an annual rate of little more than 1 per cent
in the fourth quarter, from a 10 per cent rate in the first quarter.
Although supplies and capacity in a number of industries were
subject to severe strains in 1973, demands in some important sectors
moderated over the course of the year. In particular, the volume of
consumer real purchases slowed after an extraordinarily large increase in late 1972 and early 1973. Toward the close of the year—
when the oil shortage began to affect output and employment adversely, both directly and through its effects on expectations—sales
of large-size automobiles in particular were sharply reduced. Purchases of fuel and some services were also down, and for the fourth
quarter as a whole total consumer purchases in real terms declined.
Another factor contributing importantly to the over-all slowing in
INDUSTRIAL PRODUCTION
130
120
110
100
I
1970
'BUSINESS EQUIPMENT
I
I
1971
1972
1973
NOTE.—Federal Reserve indexes, seasonally adjusted.
13
real growth was a sharp drop in residential construction activity in
the second half of the year.
In contrast, business demands for fixed capital were strongly expansive throughout the year. In fact, business equipment was the
only major category of industrial production that increased virtually
throughout 1973. But here too there were indications late in the year
of a slowing in the rate of expansion, in part because of supply
factors. And until late in 1973, supply constraints held inventory
investment at exceptionally low levels for a period of cyclical expansion.
A major feature of 1973—and one that contributed materially to
over-all expansion—was a turnaround in net exports of goods and
services to surplus from a sizable deficit in 1972. Merchandise exports increased much faster than did imports, stimulated by strong
demand conditions in Western Europe and Japan, by crop shortfalls
in some countries, and by the decline in the value of the U.S. dollar
in foreign exchange markets.
Pressures on industrial resources, tight supplies of farm products
and other materials, strong demands abroad, and the oil crisis combined to intensify inflationary pressures. Increases in unit labor costs
were also an important factor in the price rise, as gains in productivity came to a halt after the first quarter of the year while increases in
average compensation per employee rose faster than they had in 1972.
Demands for labor continued very strong until late in the year.
Payroll employment showed an exceptionally large increase, and the
unemployment rate in the fourth quarter averaged 0.6 of a percentage point less than a year earlier; toward the end of the year, however, unemployment was moving upward.
CONSUMER PURCHASES
Consumer spending was a dominant factor in shaping the contour of
GNP expansion in 1973. Consumer purchases of goods and services
rose to a 15 per cent annual rate in the first quarter—equivalent to a
9 per cent rate after adjustment for price increases. These large increases were major influences in the strong first-quarter advance
shown in both current-dollar and real GNP. Expansion in consumer
spending slowed thereafter—to an annual rate averaging close to 10
14
per cent for the second and third quarters, and then to 4.5 per cent
for the fourth quarter. Moreover, continued price advances largely
eroded these increases. For the year as a whole, however, real consumer purchases increased by 5 per cent following a 6 per cent rise
in 1972.
The first quarter of 1973 was characterized by exceptionally
strong advances in consumer purchases of both durable goods and
nondurable goods. Continuation of the housing boom provided an
impetus to sales of furniture and appliances. In addition, unit sales
of new autos (domestic and foreign) reached a record 12V4 million
annual rate. A sharp increase in purchases of nondurable goods reflected in part an acceleration in food prices, but sales of some other
items—such as apparel—rose even faster in both current dollars and
real terms.
Outlays for both durable and nondurable consumer goods were
CONSUMER OUTLAYS AND SAVING RATE
.«•••••
PERCENTAGE CHANGE
OUTLAYS
CURRENTDOLLAR
CONSTANTDOLLAR
1972
1973
NOTE.—Outlays: Changes from preceding quarter based on quarterly data at seasonally
adjusted annual rates; constant-dollar changes are based on 1958 dollars. Saving rate is personal saving as a percentage of disposable personal income. All data are from Dept. of
Commerce.
15
maintained at relatively high levels during the second and third quarters. Auto sales eased somewhat, however, and there was some decline in real purchases of food, reflecting in part sharply rising prices
and the reduced availability of meat. Expenditures on services continued to increase throughout the first three quarters in both current
and constant dollars.
An outright decline—at an annual rate of close to 5 per cent—in
real consumer purchases in the fourth quarter, following the earlier
marked slowing, was attributable for the most part to emerging energy developments. Consumers cut back their purchases of new automobiles to an annual rate of 10 million units, off considerably from
the 11.7 million rate of the second and third quarters; smaller models were in strong demand, but dealers' stocks of large cars mounted.
Real purchases of gas and oil also declined, reflecting the administration's conservation program and rising prices.
AUTOS
MILLIONS OF UNITS
SALES
1970
1971
1972
1973
NOTE.—Sales: Monthly data at annual rates, seasonally adjusted by Federal Reserve;
domestic-type includes sales in the United States of cars produced in Canada. Inventory
data, seasonally adjusted, are for domestic-type cars only. Sales, from Ward's Automotive
Reports; inventories, from Motor Vehicles Manufacturers Association.
16
Contributing to the upsurge of consumer demands in early 1973
were large gains in employment and wages, as well as the anticipation of unusually large refunds of personal income taxes during the
first half of the year, resulting from a step-up in withholdings in
1972. Strong growth in income helped to provide the basis for a
sharp increase in spending financed with instalment credit. The large
increase in social security benefits in late 1972 also stimulated consumer spending to some extent.
Although consumer attitudes became more pessimistic as the year
progressed, consumer spending kept pace with the increase in nominal income in the middle two quarters, and the saving rate remained
close to the 5.9 per cent rate of the first quarter. With consumer demands weakening appreciably in the fourth quarter, the saving rate
rose sharply to more than 7 per cent.
RESIDENTIAL CONSTRUCTION
Outlays for private residential construction, which had advanced
steadily since mid-1970, peaked early in the first half of 1973 and
fell sharply in the fourth quarter. The decline reflected a slowing of
demands in response to sharply higher interest rates and less favorable nonrate mortgage terms as well as to a substantial further rise in
the costs of houses. The tightening of credit terms was particularly
evident after midyear as inflows of funds to mortgage lending institutions were adversely affected by high yields on competitive investments. For the year as a whole, however, construction outlays were
down only slightly from the 1972 total in real terms and were 7.5
per cent higher in current dollars.
Private housing starts held at a near-peak seasonally adjusted annual rate of 2.4 million units in the first quarter; after that they declined rapidly to an annual rate of less than 1.6 million units in the
fourth quarter. For the year the number of starts totaled around 2
million units, about the same as in 1971 but down appreciably from
the record 2.35 million in 1972. Multifamily structures, including an
increased number of condominiums, accounted for nearly 45 per
cent of total starts in 1973. The continued relatively high proportion
of multifamily units was in part a response to further advances in
costs, especially for land and for building materials.
17
RESIDENTIAL CONSTRUCTION
RATIO SCALE, BILLIONS OF DOLLARS
1971
1972
1973
NOTE.—Expenditures: Dept. of Commerce data at seasonally adjusted annual rates;
constant-dollar series is in terms of 1958 dollars.
Housing starts: Quarterly averages based on monthly figures at seasonally adjusted
annual rates from Dept. of Commerce.
Nonsubsidized starts, which include larger and more expensive
units, accounted for more than 90 per cent of the private residential
total—an appreciably higher figure than in other recent years. Federally subsidized starts—new commitments for which remained largely
under a moratorium instituted early in the year—were reduced to
the lowest level since 1968. Domestic shipments of new mobile
homes, which are not included in residential outlays or housing starts
even though they provide living accommodations, dropped considerably through 1973 after reaching a peak in the first quarter. Nevertheless, the annual total of mobile home shipments was slightly
above the previous record of 576,000 units in 1972.
Mortgage markets tightened markedly through the summer of
1973. Although interest rates in such markets showed some easing
during the fourth quarter, they still remained at historically high levels and continued to be a deterrent to new building and to sales of
old houses—particularly in States with relatively low usury ceilings.
By late in the year, moreover, the energy crisis had raised new questions about methods of heating and the adequacy of transportation
—creating uncertainties for the future plans of lenders, builders, and
potential home-buyers alike.
BUSINESS FIXED INVESTMENT
Business fixed investment continued to provide strong support to the
economy during 1973. For the year as a whole, such investment rose
15 per cent in current dollars and about 10 per cent in real terms.
Both major categories of investment—equipment and construction
—recorded current-dollar increases of about 15 per cent over their
1972 levels. Replacement needs and net expansion each continued to
absorb about one-half of total outlays.
Many producers, after having added little to their capacity in recent years, approached capacity constraints during the year. This was
particularly true of such major materials industries as steel, cement,
petroleum, and paper and was a significant stimulus to investment. A
strong corporate cash flow, a continued stimulus from the investment
tax credit, and a heightening of inflationary expectations also contributed to the increase in such spending. Had it not been for materials shortages—caused in part by increased demands from abroad
CAPACITY UTILIZATION RATE
95
1971
1972
1973
NOTE.—Average output of major materials industries, seasonally adjusted, as a percentage of their potential capacity output. Federal Reserve data.
19
and efforts on the part of domestic users to shift back to domestic
sources—capital spending probably would have shown an even
greater increase, as suggested by the fact that throughout the year
actual spending consistently fell short of earlier anticipations.
Plant and equipment expenditures rose much faster in manufacturing industries than in the nonmanufacturing sector, in contrast to the
pattern in 1972. Many manufacturers, particularly major materials
producers, increased outlays so that they could meet the strong demands for their products and also bring production facilities up to
the standards required by environmental regulation. Investment was
very strong for the primary metals, paper, and stone, clay, and glass
industries. Outside of the manufacturing sector, mining and public
utilities registered the strongest increases.
Toward the end of the year various surveys of plant and equipment spending all pointed to sizable further increases in such spending during 1974, with manufacturers expected to continue the strong
BUSINESS FIXED INVESTMENT
RATIO SCALE, BILLIONS OF DOLLARS
110
90
IN C O N S T A N T
DOLLARS
I
1971
1972
1973
NOTE.—Dept. of Commerce data at seasonally adjusted annual rates. Constant-dollar
investment is in terms of 1958 dollars.
20
advance of 1973. However, the surveys were conducted before the
impact of the energy shortage could have been fully reflected in business plans. Accordingly, as 1974 unfolds, further revisions in plans
are likely; some will be to take account of the availability and cost of
energy supplies, while others will be to meet the needs for increased
domestic energy output.
INVENTORIES
Inventory investment, which usually shows strong increases in a cyclical recovery, remained very modest during the first three quarters of
1973, averaging an annual rate of only $4.5 billion as measured in
BUSINESS INVENTORIES AND SALES
CHANGE, BILLIONS OF DOLLARS
I INVENTORIES
15
p
n
—
10
—
•n
i—I I—
__L 0
i
RATIO
INVENTORY/SALES
1.7
1.5
1972
1973
NOTE.—Inventory change (NIA), quarterly data at seasonally adjusted annual rates, from
Dept. of Commerce.
Inventories/sales ratio, based on Dept. of Commerce seasonally adjusted data—end-of
quarter book value for inventories, and quarterly averages of monthly data for sales—for
manufacturing and trade establishments.
21
the national income accounts (NIA). Increases in the book value of
inventories were much larger than the increases as measured on the
NIA basis; the difference reflected the very large inventory valuation
adjustments resulting from the sharp and widespread price increases
during the period. The dollar volume of sales advanced even more
rapidly than the book value of inventories, however, and the
inventory/sales ratio reached its lowest level since early in the Korean war.
Inventory accumulation was held to a low rate during most of the
year mainly by the influence of strong final demands and shortages
of major materials. Stocks of finished goods, for instance, were
drawn down in the primary metals and chemical industries; and unfilled orders rose by exceptional amounts in many industries.
In the fourth quarter of 1973, inventory investment accelerated to
an annual rate of $18 billion. The step-up in inventory accumulation
appears attributable for the most part to the slowing of final demands—particularly by consumers for large autos, and for residential construction. A large part of the accumulation was probably involuntary, notably for new large-size automobiles. Nevertheless, at
the end of the year the inventory/sales ratio for total manufacturing
and trade remained quite low by historical standards.
EXPORTS AND IMPORTS OF GOODS AND
SERVICES
The U.S. balance of trade position underwent a dramatic transformation during 1973. Exports of goods and services rose by around 40
per cent from the previous year, while imports were up about 25 per
cent. As a result the balance on goods and services shifted from a
deficit of close to $4.5 billion in 1972 to a surplus of around $6 billion in 1973. Net exports, which had risen throughout the year,
jumped in the fourth quarter to an annual rate of about $13 billion,
reflecting some special developments in the services sector as well as
an improved U.S. trade position. In real terms, exports of goods and
services rose by about 20 per cent, with gains continuing through the
year. Real imports rose by less than 5 per cent, but after reaching a
peak in the first quarter they drifted down. While the favorable trade
balance contributed to expansion of the economy in 1973, it also
22
added to inflationary pressures by placing further demands on already hard-pressed domestic capacity as well as on domestic supplies
of farm products and industrial products; in addition, the prices of
imports increased appreciably.
The turnaround in foreign trade reflected both the strong economic expansion in Western Europe and Japan and the cumulative
effects of the depreciation of the dollar in terms of foreign currencies. Expansion in exports was sharpest for agricultural products,
which were strengthened in part by widespread crop failures
abroad. But exports of nonagricultural products also rose sharply in
both current dollars and real terms. By year-end the value of the
dollar had risen substantially from its midyear low in terms of foreign
currencies. And large increases in the dollar value of imports were
in prospect because of sharp advances in petroleum prices.
FEDERAL GOVERNMENT
After registering a deficit of nearly $16 billion in calendar year
1972, the Federal budget (NIA basis) moved into balance in the
spring of 1973 and then into surplus in the second half of the year.
This shift was the result both of curbs on increases in expenditures
and of large revenue gains generated by rising incomes and prices.
Federal purchases of goods and services, which enter directly into
the GNP, rose by about 2 per cent in 1973, less than half as much
as in the previous year. In real terms, purchases declined about 6
per cent, as outlays for national defense dropped sharply. Nondefense purchases, which are much smaller in dollar terms, rose less
than in 1972. An increase in total Federal grants-in-aid to State and
local governments reflected the fact that general revenue sharing, introduced in the latter part of 1972, was in effect for all of 1973;
other grant-in-aid programs declined somewhat. A moderate increase
in wages and salaries paid by the Federal Government reflected
higher pay scales; during the year there was a slight decline in the
Federal civilian work force as a result of sharp cutbacks of civilian
employment in the Department of Defense.
Federal receipts rose by about $37 billion in 1973, compared with
$30 billion in 1972. Corporate profits tax accruals were up more
than 30 per cent for the year, although they changed little after the
23
Table 2: CHANGES IN MAJOR COMPONENTS OF GROSS
NATIONAL PRODUCT
In billions of dollars
1973 »
Item
1971
1972
1973
I
II
III
IV
G N P . . . .
78.4
99.7
133.9
43.3
29.5
32.5
33.0
Personal consumption expenditures .
Durable goods
Nondurable goods
Services
..
49.6
12.3
14.9
22.3
59.3
13.8
21.2
24.3
77.5
13.4
36.0
28.1
26.8
9.3
11.5
6.0
16.2
.6
8.1
7.6
20.4
.0
11.3
9.0
9.2
-7.2
8.0
8.4
Saving rate {level in per cent)
8.1
6.2
6.2
5.9
5.9
5.7
7.3
15.4
11.5
3.8
25.2
11.3
13.8
21.9
4.0
18.0
8.7
2.1
6.6
3.6
- .4
3.9
-1.4
-5.2
3.8
.2
13.3
4.8
7.3
2.6
5.2
11.9
6.6
3.7
.5
.0
- .4
4.2
6.6
.0
-1.2
1.1
6.6
.1
2.0
-3.6
3.8
.6
3.2
- .1
N e t exports of goods a n d services
. . . .
Exports
Imports
.
. . . .
-2.8
3.4
6.2
-5.4
7.2
12.6
10.4
28.5
18.1
3.5
10.0
6.5
2.8
7.5
4.7
Govt. p u r c h a s e s of g o o d s a n d services . . . .
Federal
Defense
. . . .
Other
State a n d local
14.8
1.9
-3.0
4.9
12.9
20.7
6.3
2.8
3.6
14.3
22.1
2.2
.5
2.6
20.0
7.9
2.8
1.9
.9
5.0
6.7
1.8
1.9
5.0
Fixed investment...
Residential structures
Nonresidential
Inventory change . .
1.6
-
-
-
1
Derived from quarterly totals at seasonally adjusted annual rates.
NOTE.—Dept. of Commerce data.
second quarter. Contributions for social insurance recorded similarly
large increases, in part because of an increase in tax rates. Personal
tax receipts and indirect business taxes, however, showed only moderate growth. In 1972, personal tax receipts had been boosted because of substantial overwithholding.
STATE AND LOCAL GOVERNMENTS
State and local government expenditures continued to be strongly expansive in 1973, rising by about 13 per cent. In real terms the
increase was about half of that. Employee compensation and purchases of goods and services accounted for the major portion of the
increase. Employment rose by nearly 400,000, a smaller advance
than that recorded in 1972. This smaller growth reflected a reduction
in the number of State and local employees hired under provisions
of the Public Employment Act. State and local construction expendi-
24
tures were up by 8 per cent in 1973, but most of this was the result
of increased prices.
During 1973 the States and localities combined recorded a budget
surplus of $11 billion, $2 billion less than in 1972. Federal general
revenue sharing helped these governments to maintain a strong iscal
position in 1973 and at the same time to reduce substantially the
amount of their long-term borrowing. Furthermore, it provided funds
that were used for tax relief, a trend that is expected to continue in
1974.
25
Employment and Wages
Labor markets continued to tighten through most of 1973. Strong
demands for workers were associated with a rapid expansion in employment and a moderate decline in unemployment. Near the yearend, however, a slowdown in production and the onset of the energy
crisis resulted in layoff announcements in automobiles, airlines, and
hotels and in a number of related industries. Growth in over-all employment slowed, and there was a rise in the unemployment rate.
The civilian labor force expanded sharply in 1973 in response to
the generally strong demands for labor. The increase of 2.7 million
during the year compares with 2 million in 1972 and an anticipated
normal growth of 1.6 million, based on long-term demographic and
participation-rate trends. Most significant in the sharper rise in 1973
was a speed-up in the number of women 25 to 54 years of age in
the labor force. The need to increase family income to help maintain real incomes in the face of sharply rising prices was a factor
in this trend, as was the strong demand for labor. Labor force increases for most other groups were at about the same pace as in
1972—with continued large increases among teenagers and young
adult women.
During the first part of the year gains in total employment about
matched the large increases in the labor force, and the unemployment rate remained at about 5 per cent. In the spring and early summer, labor force growth slowed a little and the unemployment rate
declined somewhat. In October the rate was 4.6 per cent, the lowest
in 3Vi years. Declines were evident among most labor force groups.
The unemployment rate for white workers edged down to 4.2 per
cent in the fourth quarter. Employment gains were also substantial
among black workers during 1973, and the jobless rate for such
workers declined to 8.6 per cent as compared with 9.9 per cent a
year earlier. Even so, over-all jobless rates remained well above
those that had been recorded during the period of extremely tight
labor markets from 1966 to 1969. Near the end of 1973 the unemployment rate began to edge up as demand for labor slackened
and layoffs increased; and in January 1974 there was a further substantial rise.
26
LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT
1970 QI=100
I UNEMPLOYMENT RATE
1970
1971
1972
1973
NOTE.—Seasonally adjusted data from Dept. of Labor.
The rapid increase in nonfarm payroll employment in 1973 continued an expansion that had begun in the fall of 1971; the total
rose by 2.7 million over the four quarters of 1973—about the same
increase as during the preceding year. The employment advance was
led by a vigorous increase—of three-quarters of a million—in manufacturing jobs, which brought factory employment back close to the
peak level reached in mid-1969. The rise in manufacturing employment was particularly rapid in the first half of 1973. Gains were concentrated in those industries most affected by strength in materials
output and business investment. But as production slowed in the latter half of the year, the pace of the increases in manufacturing employment also moderated and the factory workweek edged off from
the relatively high level reached earlier in the year.
Employment growth was also strong in nonindustrial activities in
1973. In services, finance, and trade the total number employed rose
by 1.3 million, slightly more than during 1972. Federal civilian employment edged off, continuing the downtrend that had begun in
27
1970, -State and-local governments-increased their payrolls substantially over the four quarters of 1973 but at a slower pace than In the
preceding year. '
In response to tightened labor .markets as well .as. rising. prices,
wages increased at a somewhat faster pace in 1973 than in 1972.
The increase was appreciably more rapid after the irst quarter than
earlier. Thus,, the adjusted hourly.earnings...index—the measure., that
most closely approximates average changes in wage rates—increased
by an average 7.5 per cent over the last three quarters compared
with about 5,5 per cent over the preceding five quarters. Gains in
money wage rates were eroded by accelerating prices and higher
social security taxes; the purchasing power of weekly take-home pay
was 3 per cent less at the end of 1973 than a year earlier.
Table 3: CHANGES IN AVEEAGE HOUELY EARNINGS INDEX
Seasonally adjusted annual rates, in per cent
Mar. 1973- • 1972 QIVDec. 1973 • 1973 QIV
Aug. 1970Aug. 1971
Aug. 1971Jan. 1972
Jan.1972Mar. 1973
Total private nonfanii
6.9
6,5
5.6
7 ,4
Mining
Construction
Manufacturing .
6,7
Industry
Transportation and public utilities
Wholesale and retail trade
Finance, insurance, and real
estate
Services
6.7
7.8
6.7
6.6
7.S
6,5
9.5
6.5
6.1
5.2
5.5
5.4
9 .4
7 .9
7. 1
8.7
5.*)
11.6
5,4
9.2
5.0
7 .6
7 0
7.7
6.8
t 9
1A
4.8
6.9
4.0
4.7
8
6 .9
5.8
6.1
:
NOTE.—Average hourly earnings of private nonfarm production and supervisory workers,
adjusted to exclude effects of shifts* oi worker* among Industries and fluctuation? in overtime premiums in manufacturing. Basic data from Dept. of Labor,
Contract bargaining acti¥ity was heavy in 1973 with about 4%
million workers affected in many of the key, pattern-setting industries.
In the environment of accelerating price increases, new or improved
cost-of-living clauses became a major bargaining issue. Negotiations
also focused on substantial gains in fringe beneits—particularly on
early retirement, higher pension payments, and increased medical
coverage.
Prices, Labor Costs, and Profits
Inflationary pressures were exceedingly strong in 1973, with prices
showing the largest sustained increases since 1946. The fixedweighted price index for private GNP—a broad measure of price
change—increased almost 8 per cent from late 1972 to late 1973,
more than double the increase over the preceding year, and wholesale and consumer prices rose at close to record rates. Strong demands in this country and abroad exerted extraordinary pressures on
supplies. World supplies of foodstuffs were short, and industrial activity rose to very high levels in Western Europe and Japan,
generating strong demands for U.S. exports and high prices for imports—a situation aggravated by the decline in the value of the dollar relative to other currencies. In this country, unit labor costs rose
much faster than in 1972. Supplies of livestock products declined,
and shortages of materials were acute throughout 1973. Late in the
year the embargo on oil shipments to the United States by Middle
East producers precipitated a crisis, and prices of petroleum and
products began to rise sharply.
Prices of raw materials soared in 1973, reflecting a business boom
of worldwide proportions. Spot prices of raw industrials rose nearly
60 per cent after an increase of about 25 per cent in 1972, with especially large increases for nonferrous metals, steel scrap, and cotton.
The cost of many semiprocessed materials, such as chemicals, textiles, and paper, also rose rapidly as operations neared the upper
limits of plant capacity. Wholesale prices of finished goods rose less
rapidly than did materials until an upsurge in prices of petroleum
products in the fourth quarter brought the increase for the year for
nonfood finished goods to about 15 per cent.
Unit labor costs exerted increasing pressure on prices in 1973.
In the fourth quarter such costs in the private nonfarm sector
were 7 per cent above their late 1972 level, compared with an increase of only about 2.5 per cent during the preceding year. Failure of productivity to grow in the private nonfarm economy was the
major factor in the acceleration of labor costs. Growth in output per
manhour came to a standstill in the second and third quarters, as the
29
expansion of real output slowed in the private nonfarm sector, and
in the final quarter there was an actual decline in productivity. Altogether, growth in productivity amounted to only 1 per cent from
late 1972 to late 1973. But in addition, growth in compensation per
manhour increased somewhat, from about 7 per cent during 1972 to
8 per cent in 1973, in part because of increased costs to employers
from higher social security taxes.
Part of the rise in prices in 1973 also reflected widening profit
margins. Corporate profits before taxes rose rapidly in the first half
of 1973, to an annual rate almost one-third above the 1972 level.
Then they leveled off. A good part of the gain in reported profits reflected the increased value of inventories resulting from sharply rising
prices. Adjusted for inventory valuation, the estimated rise for the
year 1973 was 20 per cent. The share of profits adjusted for inventory valuation in the value of output of nonfinancial corporations im-
LABOR COMPENSATION, PRODUCTIVITY, AND COSTS
PERCENTAGE CHANGE
1970
1972
1973
NOTE.—Annual rates of change for the private nonfarm economy; changes are from
preceding half year or quarter and are based on seasonally adjusted data from Dept. of
Labor.
30
proved slightly during the year. Nevertheless, it was less than it had
been in 1969 and was considerably smaller than in years prior
to 1969.
Table 4: PROFITS OF NONFINANGIAL
CORPORATIONS
Share of value of product, in per cent
Item
1969
1971
1972
1973.
Product originating 2
Profits before tax
Other charges against product. . .
Compensation of employees.
Interest
Indirect taxes 3
Capital consumption
allowances
100.0
12.5
87.5
65.7
2.5
9.3
100.0
10.7
89.3
65.9
3.0
9.9
100.0
11.1
88.9
66.2
2.8
9.5
100.0
11.7
88.3
66.3
2.8
9.2
9.9
10.5
10.4
10.0
22.4
21.2
21.4
21.7
Addendum: Profits plus capital
consumption allowances
1
2
;!
Preliminary.
Including inventory valuation adjustment.
Including transfer payments to persons less subsidies received.
NOTE.—Dept. of Commerce data.
FIRST-HALF PRICE DEVELOPMENTS
The first half of the year began with a liberalization of Phase II
price controls in early January and ended with a price freeze in
June. The sharp price rise in this period was led by an extraordinarily rapid increase in wholesale prices of farm products and foods—a
seasonally adjusted annual rate of almost 50 per cent from December to June. Prices of crops reacted to a rapid rise in the volume of
exports of wheat, corn, and soybeans—which brought stocks in this
country down to exceedingly low levels. Livestock prices also rose
very sharply, for the most part in response to declining supplies.
In order to restrain rapidly rising meat prices, ceilings on red meat
were imposed at the end of March for processors and distributors.
This slowed the increase for meats, but food prices as a whole continued to rise very fast until a general freeze was put into effect in
June. Unfortunately, price controls and the steep further climb in
prices of feeds and feed grains, which had begun in late 1972, contributed to the drop in supplies of livestock and also of poultry,
eggs, and milk.
31
WHOLESALE PRICES
JANUARY 1970=100
INDUS
1970
1971
1972
1973
1970
1971
1972
1973
N O T E . — B a s e d o n seasonally adjusted indexes f r o m D e p t . of L a b o r .
At the same time the rate of increase in prices of industrial commodities was accelerating to an annual rate of almost 13 per cent;
this contrasts with an increase of only 3.6 per cent for all of 1972.
The acceleration in 1973 followed the introduction of Phase III price
control regulations in early January. A temporary and short-lived
bulge in prices had been expected—to correct some of the distortions that had arisen under Phase II—but as the months progressed,
price advances showed no indications of slowing.
The underlying factors responsible for the stepped-up pace of the
increase in industrial prices were much more fundamental than relaxation of controls. As noted earlier, one important influence was that
the value of the dollar depreciated further in terms of other major
currencies to a level more than 20 per cent below its May 1970
value. In addition, a more rapid rate of price increase abroad than in
this country was helping to make U.S. exports generally more competitive in world markets while raising the dollar price of imports.
This shift in relative prices affected all traded commodities, but it
was most notable for materials costs, which soared in dollar terms in
response both to the drop in the foreign exchange value of the dollar
and to strong world demands.
32
CONSUMER PRICES
JANUARY 1970=100
NONFOOD COMMODITIES
I
0
I
1972
1973
1970
1971
1970
1971
NOTE.—Based on seasonally adjusted indexes from Dept. of Labor.
I
1972
I
1973
The rise in consumer prices also accelerated in the first half of
1973, reaching an annual rate of 8 per cent. Food prices, rising at
an annual rate of more than 20 per cent, contributed most to the
speed-up. The rise in prices of nonfood commodities, however, was
also faster than in 1972.
SECOND-HALF PRICE
DEVELOPMENTS
In an effort to brake the surge in prices, a general price freeze of 60
days was imposed in mid-June; the only exemptions among domestic
prices were rents and farm products at the initial point of sale.
The freeze in retail prices tended to hold down prices at the farm
level, and a profit squeeze on producers developed when feed and
other costs continued to rise. To avoid disruptions in supply, the
freeze on prices of food was relaxed in mid-July to allow retailers
and distributors to pass through to consumers the higher cost of
commodities at the farm level (except for beef). Prices of livestock
and meat rose dramatically after this move. At the same time world
shortages were causing a further upward surge in prices of wheat,
corn, and soybeans. Between mid-July and mid-August the increase in
prices of farm products was the most rapid since World War I.
33
Between mid-August and December the onset of favorable harvests removed fears of a serious shortage in food and feed' grains In
the 1973-74.crop year. Wholesale prices of farm..products.declined
accordingly, although they were still 36 per cent higher in December
than a year earlier.
Wholesale• prices of Industrial products increased, .relatively .little
during the freeze, but thereafter resumed a more rapid pace of advance In response to a continued increase in production costs. Price
Increases--were substantial and--widespread, -but--especially..large, increases were recorded late in the year for petroleum and other fuels.
Over the fourth quarter fuels accounted for more than half of the increase in/wholesale prices of-industrial-commodities.
In the latter half of the year controls were removed from such Important items as lumber, cement, fertilizers, and many nonferrous
metals' and-from new autos following-an-agreement with-major-producers to limit Increases during the 1974 model year. In early 1974
controls were removed from some other items and the administration
indicated that it planned to permit price-and--wage controls- to--lapse
after..the.April 30 expiration date of the enabling legislation—except
for health care and petroleum. But the administration also indicated
its intention to make additional exceptions if conditions-warranted. •
Consumer prices meanwhile Increased at an annual rate of 9.6 per
cent in the second half of the year, with retail prices of foods again
Table 5: PRICE CHANGES
In per cent
Dec.
1970Dec.
1971
Dec.
1971Dec.
1972
Dec.
1972Dec.
1973
Wholesale prices, t o t a l . . . . . . . .
Industrial coiitoiodltles......
• Farm products. , . . , , .
Processed foods and feeds....
4.0
3.2
8. 1
4.7
6.5
3.6
18.7
11.6
Consumer-prices, total.
Foods»,,.........,...... .
Other commodities i.iess foods
Services
3.4
4.3
2. 3
4. 1
3.4
4.7
2S
i'.6
Series
Noih.—Based on data from Dept. oi' Labor.
34
1973
(Seasonally, adjusted annual rates)
DecMar.
..Mar.June
18.2
14.8
36.1
20.3
21.1
10.2
77.3
37.1
23.4
14.9
61.0
31,9
13.2
15.5
4.5
31.3
.67.3. - 2 8 . 1
1.3
14,8
8.8
20.1
5.0
6.2
8.6
28.6
4.0
3.6
7.4
14.7
5.4
4.5
10.3
28.8
2.6
'7.4
JuneSept.
SeptDec,
9.0
9.2
7.9
9.4
accounting for the largest part of the rise. Meat prices declined moderately from August to December, but prices of most other foods
rose as processors and retailers were allowed to pass through labor
and other cost increases after August, For the entire year the Increase in retail food prices came to about 2*0 per cent—the fastest
rate since the early postwar period.
Consumer prices of services, except for rent, advanced more rapidly after midyear than during the irst half. Fourth-quarter increases
In prices of nonfood commodities were especially large, reflecting in
large part escalating prices for gasoline and fuel oil. Altogether, the
Increase In the consumer price index accelerated to nearly 9 per cent
during 1973, as compared with 3.4 per cent during 1972. Apart
from foods and petroleum products, however, the Increase over the
year amounted to less than 5 per cent.
35
Monetary Policy and Financial
Markets
In the early months of 1973 the need for further measures to restrain excessive economic expansion and a growing inflationary momentum seemed clear. Real output in the domestic economy was
growing at an unsustainably rapid rate, key industrial sectors were
approaching effective production ceilings, and prices were moving
sharply higher. Although much of the steep price advance in the first
half of the year resulted from increased dollar price quotations on
internationally traded commodities—reflecting the decline in the foreign exchange value of the dollar—general pressures on resources
from domestic demands were also high. Since money and credit had
grown rather rapidly in 1972, the need for slower growth in 1973
was evident.
The Federal Reserve began strengthening its resistance to excessive monetary expansion near the end of 1972. This shift was intensified early in 1973 and then extended through a series of tightening
actions until late summer. The principal policy thrust, as usual, came
from open market operations, but successive increases in the Federal
Reserve discount rate—from Al/i per cent at the end of 1972 to IV2
per cent in late August of 1973—supplemented and reinforced the
open market initiative. In addition, several selective increases in
bank reserve requirements were introduced in the late spring and
summer to reinforce the pattern of general tightening.
Late in the summer, with real growth in the economy having moderated and with further slowing apparently in prospect, the System
moved away from its policy of persistent tightening. This change was
prompted by concern that the cumulative effects of earlier restrictive
actions might eventually result in a greater dampening of real economic activity than was desired. Near the end of the year repercussions of the Middle East oil embargo added a special depressant to
domestic activity but at the same time heightened expectations of
further price increases.
During the period of policy tightening, growth in the key monetary aggregates slowed significantly, both in absolute terms and in re-
36
lation to the expansion of GNP. Ml9 for example, grew at an average
annual rate of about 5 per cent over the first three quarters of 1973,
while current-dollar GNP was expanding at close to a 12 per cent
annual rate. In contrast, during 1972 Mx had grown somewhat more
than 8.5 per cent, while GNP had increased 9.5 per cent.
For the shorter period from June to September of 1973, growth in
Mi dropped to around zero. Although it accelerated in the following
quarter to about a 7.5 per cent annual rate, temporary factors were
influencing the results in both quarters. A more accurate reflection of
the trend of policy is thus provided by the 3.7 per cent annual
growth rate over the two quarters combined. During 1973 as a
whole, Mt increased by 5.7 per cent; meanwhile the broader meas-
INTEREST RATES
PER CENT PER ANNUM
LONG-TERM
SHORT-TERM
1972
1973
1972
1973
NOTE.—Monthly averages except for home mortgages (based on quotations for one day
each month) and F. R. discount rate. Yields: U.S. Treasury bills, market yields on 3month issues; conventional mortgages, yields on first mortgages in primary markets, unweighted and rounded to nearest 5 basis points, from Dept. of Housing and Urban Development; Aaa utility bonds (Federal Reserve series), 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 a 20-year constant maturity by U.S. Treasury;
State and local govt. bonds (20 issues, mixed quality), Bond Buyer.
37
ures of money —M2 and Af3—both grew by a relatively moderate
8.6 per cent.
In the'course of policy tightening, interest rates trended upward
—especially in short-term markets where credit demands tended to
concentrate. The weekly average yield on 90-day Treasury bills, for
example, reached a peak of nearly 9 per cent by August, some 3.9
percentage points above its level at the end of 1972. Over roughly
the same period the comparable quotation on 90- to 119-day commercial -paper—to • which- some large commercial banks relate-their
prime lending rate—rose 4.9 percentage points to 10.5 per cent.
Until early summer bond yields showed a relatively small response
to the upward thrust of short-term rates. This sluggishness relected
the combination of a moderate volume of new bond offerings and
widespread market expectations that less rapid economic expansion
would lead to. lower interest rates late in the year. As the summer
progressed, however, sharp further increases in short-term rates were
reflected in sizable advances in both bond yields and mortgage rates;
the weekly quotation on new corporate bonds (adjusted to an Aaa
basis) rose to a peak of 8.52 per cent, and the FNMA auction yield
on FHA and VA home mortgage commitments rose to a high of 937
per cent.
These advances in rates during the summer were triggered primarily by a growing realization among market participants that inflationary pressures in the economy were much stronger than had been anticipated. With the monetary aggregates having grown rapidly during
the spring, market participants concluded that monetary policy
would be tight for a longer period than previously expected. Among
other things, this changed outlook raised questions whether financial
intermediaries might not be facing another round of disintermediation. Rising rates on market instruments had already produced a
moderate slowing of consumer savings flows to banks and other
thrift institutions during the first half of the year. The squeeze intensified rapidly in the early summer and brought threats of sizable net
outflows, particularly at nonbank institutions. In order to limit the
impact of sharply rising market rates on flows to intermediaries, Federal supervisory agencies raised ceiling rates payable on thrift accounts, effective in July.
38
Later, when it became evident that domestic economic expansion
was continuing to moderate, that growth in the monetary aggregates
had slowed, that the U.S. balance of payments was strengthening
dramatically, and that monetary policy was no longer tightening,
market interest rates receded significantly from their summer highs.
These declines, in combination with the earlier increases in ceiling
rates at thrift institutions, relieved pressures on the financial intermediaries. By the year-end short-term rates were generally 1.5 percentage points or more below their summer highs, with long-term rates
down roughly 0.5 of a percentage point from theirs.
A special factor affecting the structure of short-term credit flows
during the year was the program of the Committee on Interest and
Dividends (CID) regarding the rates that banks charge on loans to
their prime business customers. Early in the year, when CID constraints prevented the prime loan rate from keeping pace with advances in commercial paper rates, prime rate customers turned in-
BANK CREDIT, 1973
PERCENTAGE CHANGE
PERCENTAGE CHANGE
TOTAL
30
LOANS - MAJOR COMPONENTS
CONSUMER
Q4
REAL ESTATE
Q2
J? 30
Q4
NOTE.—Quarterly data; changes are based on seasonally adjusted totals at annual rates.
Total bank credit and business loans have been adjusted for transfers between banks and
their holding companies, affiliates, subsidiaries, or foreign branches.
39
creasingly to their bank lines as the cheaper source of credit. To
help meet these enlarged demands, banks were forced to bid aggressively for short-term funds at rising rates. Meanwhile the outstanding
volume of more costly commercial paper declined sharply.
When the resulting upsurge in bank credit began to produce an inordinate expansion of business loans at the expense of other borrowers, the CID in mid-April introduced a "two tier" approach to rates
on business loans. This system allowed rates on large prime loans to
move in concert with advances in market rates, but at the same time
limited rate increases on smaller loans. Changes in the outstanding
volume of large prime loans tend to be more volatile than for
other loans and thus frequently require banks to bid for needed
loan funds at high marginal rates—for example, in the market for
SHORT -TERM BUSINESS BORROWING
AND SELECTED INTEREST RATES
CHANGES, IN BILLIONS OF DOLLARS
BUSINESS BORROWING
1972
1973
NOTE.—Business borrowing: Quarterly changes in seasonally
industrial loans at commercial banks and in non-bank-related
through dealers. Interest rates: Monthly averages of daily figures
charged large-business customers with the highest credit rating)
(rate offered by dealers on 30- to 59-day paper).
40
adjusted commercial and
commercial paper issued
for bank prime rate (rate
and for commercial paper
large CD's. By late summer resulting upward adjustments in the top
"tier" had moved the prime rate back into fairly close alignment
with market rates. Subsequently, when market rates receded faster
than the prime rate, business loan growth at banks was substantially
reduced and commercial paper expanded again.
Two other financial developments in 1973 also bear special mention. One was the sharp reversal—from the first half to the second
half—in the value of the U.S. dollar in foreign exchange markets.
The other was the large decline in prices of corporate stocks in this
country.
Depreciation of the dollar during the first half of the year—in addition to having a major impact on commodity prices, as discussed
earlier—tended during the periods of peak dollar outflow to dampen
growth in the monetary aggregates and to widen spreads between
Treasury bill and other short-term interest rates. Bill rates rose less
than other short-term rates because foreign central banks concentrated their reinvestment of dollar acquisitions largely in Treasury
bills. Later in the year, when the dollar improved dramatically,
these temporary influences on the aggregates and on Treasury bill
rates reversed direction.
The drop in stock prices from the yearly high reached in January
to the yearly low of early December amounted to 25 per cent in the
New York Stock Exchange index, the largest downswing in this series since the 1969-70 recession. On other stock exchanges and in
the over-the-counter market price declines were even larger. This
general erosion of stock values was attributable to a complex of influences, including the energy crisis and the special economic uncertainties introduced by changes in the administration's price control
program, as well as the more traditional concerns about stock values
when interest returns on alternative types of investment instruments
are high and rising.
MONETARY
POLICY
The economic situation with which monetary policy was confronted
in 1973 was an exceptionally difficult one. Since so much of the inflationary pressure that emerged as the year progressed was the result of developments in world markets not directly amenable to U.S.
41
monetary controls, the Federal Reserve had to do its limited best to
constrain the pressures that were building up within the economy
while at the same time avoiding possible dislocations in the functioning of the domestic financial system.
In the day-to-day implementation of monetary policy, the Federal
Open Market Committee (FOMC) continued to rely on a number of
indicators to guide its actions. These included various measures of
the money stock; bank credit; interest rates; and bank reserves. Occasional erratic short-run behavior in each of these required a continuing check on changing relationships among all of them in order
to spot temporary aberrations in particular series. Thus, while a good
deal of emphasis was placed on growth in the narrowly defined
money stock as a guide to policy, this was always done within the
context of a continuing assessment of the relationship of this measure
to other key variables.
Monetary aggregates. The behavior of Mx in 1973 again gave rise
to difficulties in interpreting the short-run course of monetary policy.
GROWTH IN MONETARY AGGREGATES
|
1971
L
1972
1973
|
1971
1972
1973
M2
M E A S U R E S OF M O N E Y
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. Govt.
Mi\ Mi plus time deposits at commercial banks other than large certificates of deposit.
Mz: Mi plus deposits of mutual savings banks and savings capital of savings and loan
associations.
42
On both a month-to-month and a quarter-to-quarter basis its growth
pattern showed large variations attributable to special factors other
than basic transactions demand.
In January, for example, growth in Mx slowed when State and
local governments shifted revenue-sharing funds, which had been received in December, from demand deposits into time deposits and
other investment instruments. Also, speculation prior to and following the dollar devaluation in February, and the subsequent floating
of major currencies against the dollar, resulted in massive transfers
of private funds to foreign assets, which may have reduced holdings
of domestic cash balances temporarily.
The first-quarter slowing of growth in M1 was followed by an upsurge during the second quarter to an annual rate of about 11.5 per
cent. Although part of this acceleration may have reflected an adjustment to compensate for slower growth in money balances over the
previous 3 months, unusually large refunds of personal income taxes
in April and May also may have swelled demand balances and contributed to the faster second-quarter growth.
1971
1972
1973
I
I
1971
1972
1973
I
ADJUSTED
CREDIT P R O X Y
Adjusted credit proxy: Total member bank deposits subject to reserves, plus Eurodollar borrowings, bank-related commercial paper, and certain other nondeposit items.
NOTE.—Seasonally adjusted quarterly rates of growth derived from daily-average data
for last month of the quarter relative to those for last month of preceding quarter,
annualized.
43
Given this unusually strong April-May performance, some slowing
in the growth of the money stock during the second half was to be
expected, as the impact-of high and rising interest rates-in-the spring
and summer induced people to reduce non^nterest-earning cash balances to minimum levels consistent with transactions needs. While
the actual third-quarter slowdown was substantially larger than could
be accounted for by these influences, the subsequent acceleration of
growth in Mx during the fourth quarter also seems to have been affected, by special factors. Uncertainties related.to. the oil embargo
may have led the public to increase its desired holdings of cash during November and December. Also, the post-Christmas and postNew-Year holidays in Europe seem to- have led to- some temporary
build-up of uncleared foreign demand balances in U.S. banks at the
year-end.
Table 6; ALTERNATIVE MEAS1JEES OF
QUAET1ELY GROWTH IN
THE MONEY STOCK
Annual rates, In per cent
Mi
A/i
Period
1972—IV.
1973— I.
II.
Ill,
IV.
M
Q
M
9.9
3.8
11.5
8.4
7.0
7 5
5.5
3.9
10 6
6.9
11.1
5.2
10.1
l'.5
i
!
Q
10.2
8$
8.7
7.9
8.5
M
11.8
9.4
10.4
4.5
9.2
Q
11.8
10.7
9.1
7.2
7.3
X
M — Rates calculated from daily-average levels in the final months
of the current and the preceding quarters.
Q --- Rates calculated from daily-average levels for all 3 months* of *
the quarter.
Expansion in broader measures of the money stock also showed
considerable monthly and quarterly variation over the course of
1973—though to a lesser extent than Mt, While shifts in M;2 and M3
were affected by the underlying pattern of movements in Mu lows of
funds into * consumer-type time deposits - also exhibited significant
changes during the year. These variations in the growth of thrift accounts reflected changes in the relative appeal of such deposits to
savers, as spreads between ceiling rates on such accounts and the
44
yields on competing market securities widened and then narrowed
again over the course of the year.
The preceding reYiew of changing growth patterns in the monetary
aggregates has focused on rates of change between months at the
ends of successive quarters. Because this approach provides a relatively current measure of recent tendencies, it has often been stressed
by the FOMC in taking current policy action. To gain better
perspecti¥e on the longer sweep of growth trends in the aggregates,
however, it is useful to consider changes in average growth rates
from one quarter to the next, where all months in the quarter are included. While this approach does not give quite so timely a measure
of recent developments, it is less affected by temporary aberrations.
Thus it provides a better perspective on the underlying thrust of policy. When data for 1973 are arrayed on the latter basis, they show
more dearly (than the month-end to month-end measures) the underlying trend toward slower growth of the money stock during the
year. Recent changes for both measures are shown in Table 6.
Bank credit and bank reserves. Changes in the bank credit proxy
and in reserves against private noebaek deposits (RPD's) were also
affected by special influences O¥er the course of the. year. For example, during the first quarter of 1973 when commercial paper rates
rose relative to bank loan charges, encouraging such a rapid growth
in bank loans to businesses, the expanded sales by banks of large
CD's to accommodate these business demands contributed to' a sharp
acceleration in growth of the credit proxy. While this influence moderated significantly after introduction of the two-tier prime rate,
growth in the proxy remained quite rapid during the second quarter,
as the chart on page 43 suggests. In the fall, however, when commercial paper became cheaper than bank credit as a source of business
funds, growth in business loans at large banks, in CD's, and in the
credit proxy all slowed abruptly.
During 1973 the FOMC continued to use RPD's as an operating
tool to help guide the Manager of the System Open Market Account
in making the day-to-day adjustments in bank reserves needed to
achieve the Committee's objectives for longer-run growth in the
money and credit aggregates. However, relationships between given
changes in the supply of RPD's and desired growth rates in Ml9 M 2 ,
45
Table 7: GROWTH IN BANK RESERVES
Item
1972
1973
1973
II
I
III
IV
Annual rate, in per cent
Total reserves..
10 6
7.8
6.4
6.9
10 6
6.1
Reserves required to support private deposits
(RPD's)............ , . . . . . . , . . . . . . . . . , . , , .
10.1
9.3
7,8
12.5
14.2
1.4
1,086
111
288
In millionsi of dollars
Memoranda:
Total change in RPD's * . . . . . . . . . . . . . . . . . . . . . . 2,938
2,692
568
927
By type of deposit;
Required reserves for:
Private demand deposits*.....
Time fdeposits other than large negotiable
CD s..
Large negotiable CD's
and nondeposit
sources of f u n d s x . . . . . . . . . . . . . . . . . . . . .
Excess reserves
1
1,481
539
30
154
67
871
896
139
187
309
261
487
1,232
470
559
730
-527
100
25
-70
27
— ">1
89
Figures have been adjusted for changes in reserve requirements.
and the credit proxy were even more difficult to predict than usual.
The rapid expansion of large €D*s in the spring and early summer,
and their subsequent sharp contraction—at the higher marginal reserve requirement in effect since May—first absorbed and then later
released large amounts of reserves. Because of these added complications, greater stress was placed in the implementation of monetary
policy on the performance of the money and credit aggregates themselves as intermediate targets and less on RPD's.
Interest rates. In addition to focus-ing on the behavior of the
money and credit aggregates, the FOMC took into account movements in market rates of interest. In the short run the Federal funds
rate provides an especially sensitive guide to monetary policy since it
is directly responsive to Federal Reserve actions. This is the rate that
member banks that are temporarily short of deposits at the Federal
Reserve pay to borrow such reserves for one day from member
46
banks that have temporary excesses. When the System acts to expand or contract the total supply of reserves aYailable to banks, its
actions are quickly relected in changes in the level of the Federal
funds rate.
The general pattern of changes in interest rates also relects the
strength of credit demands. Consequently, when current and prospective credit demands are large, as they were in 1973, pressures OE the
financial institutions supplying funds tend to become cumulative and
to lead to general advances in the whole complex of interest rates.
This pattern of change is dearly indicated by the chart on page 37.
All short-term rates followed the steep rise of the Federal funds rate
during the Irst three quarters of 1973, although—for the reasons
noted earlier—the bank prime rate lagged behind the commercial
paper rate until early fall, and spreads between the Treasury bill rate
and other short-term rates varied at key points in the year. The abrupt rise in long-term rates during the summer—with home mortgage
rates experiencing the steepest advance—is also shown in the chart.
Some of the 1973 rise in interest rates to new historical highs undoubtedly reflected investor expectations of further inlation in domestic prices. However, long-term rates, which are the ones most
affected by inflationary expectations, showed a relatively modest increase until the third quarter. Although such rates did move up rapidly in that quarter, the increase was largely reversed after shortterm rates turned down in the fall.
Other policy actions. General advances in short-term market rates
and aggressive efforts by banks during the irst quarter of 1973 to
finance large demands for business loans forced rates on longermaturity bank CD's of $100,000 or more up against their regulatory
ceilings early in the second quarter, Since rate ceilings on shorterterm CD's had been suspended much earlier—in the summer of
1970—the question arose whether such ceilings should be reimposed
or whether the remaining CD ceilings should be suspended.
The Board of Governors elected in mid-May to suspend rate ceilings on all large CD's. This action was taken as part of a regulatory
approach designed to minimize distortions in financial markets by restraining credit expansion through rising costs of funds, rather than
47
through the quantitative limitations Inherent In interest rate ceilings.
To make this cost effect more slgni§eant? the Board imposed a, supplementary .reserve requirement .of 3.. percentage .points, on the
amount by which the outstanding volume of CD's and similar instruments exceeded the average of such deposits outstanding at midMay, or $10 million, whichever was greater.1 By late August, when
the offering rate on CD's reached 10.50 per cent, this action had Increased the cost of CD funds to banks by more than 35 basis points.
A further supplementary 3 per cent reserve requirement was imposed
in late September, following a sharp, further rise in outstanding
CD's, and then removed In early December when the Middle East oil
crisis raised questions about the economic outlook.
The suspension of rate ceilings and the imposition of supplementary reserve requirements on CD's had the combined effect of permitting banks to bid freely for CD funds, while at the same time Increasing the "cost of such funds.' These "costs were passed o n ' t o
customers—chiefly large business borrowers—in the form of higher
interest rates, and in this way they exerted a marginal constraint on
credit expansion. At the same time, adoption of this new technique
put the banks on notice that additional marginal Increases In reserve
requirements might be forthcoming If bank credit were to expand too
rapidly.
In addition to these marginal reserve requirement actions, a more
general change In reserve requirements was adopted In June (to become effective in July) as a means of reinforcing the increasingly restrictive thrust of open market operations. In this case reserve requirements were raised by ¥2 percentage point on all member bank
1
At the same time Euro-dollar reser¥e requirements were reduced from 20
to 8 per cent and the reserve-free base for Euro-dollars was reduced In several steps that would result in its complete elimination by March 1974. These
changes made the requirements on Euro-dollar funds comparable to those on
CD's and similar finance instruments (including the marginal 3 per cent
requirement).
When the Board imposed the new reserve requirement on member bank
CD's In May, Chairman Burns, on behalf of the Board, sent a letter to key
honmember"'banks ' requesting their cooperation "in ' conforming to the" new
regulations. Specifically, such banks were requested to hold reserve deposits
against increases In large CD's and in net borrowings from foreign banks in
excess of base-period levels.
48
MAJOR SOURCES OF BANK FUNDS, 1973
CUMULATIVE CHANGE, BILLIONS OF DOLLARS
TIME AND SAVINGS DEPOSITS
EXCL LARGE CD's
20
J
M
J
J
N
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. Govt. 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. Govt.
deposits and nondeposit sources of funds data are for member banks only.
demand deposits in excess of $2 million. The action absorbed a little
more than $850 million of bank reserves.
DISINTERMEDIATION
As noted earlier, rising market rates during the spring began to exert
growing pressures on flows of funds into consumer-type thrift accounts at financial intermediaries. Because the boom in the housing
market had created a huge demand for mortgage credit, and because
the level of mortgage commitments outstanding at savings and loan
49
associations...and mutual sa¥ings banks had expanded.to record levels, this deceleration in deposit growth placed these intermediaries in
a substantial bind. Moreover, it appeared that still greater pressure
was. likely, to..develop in the months ahead unless depositary institutions were given greater leeway to bid for funds. In these circumstances the Federal Reserve, Federal Home Loan Bank Board
(FHLBB), and the Federal Deposit Insurance Corporation (FDIC)
moved in early July to raise rate ceilings on thrift accounts.
Ceiling levels were increased for all maturities of time deposits—
in most instances by ¥2 percentage point. In all but two cases differentials favoring the nonbank thrift institutions were maintained or increased. One of the exceptions was the passbook rate differential,
which was cut from ¥2 to ¥4 percentage point; the other was that all
three types of institutions were permitted "to "issue a'new'category'of'
4-year, $1,000 minimum-denomination certificates on which no ceiling rate was specified. The new ceiling-free deposits were introduced
on an experimental basis. Their "'purpose'was to'allow ••institutions
greater room for innovation as a means of competing with market
instruments attractive as alternatives to saving in deposit form, and
at the'same'time to permit small savers an opportunity to "receive 'a
return on their savings more consistent with the value the market
was placing on those funds.
Following' the liberalization of rate • ceilings, • depositary institutions
moved aggressively to counter the effects of rising market rates on
their deposit fiows. Promotion of the 4-year? ceiling-free deposits was
particularly "•active. While there was' considerable variation in the
terms offered on such accounts—with a few institutions linking their
rates to price indexes, to market rate series, or to the commercial
bank' prime rate, and quoting rates as "high as 9 -per cent—the bulk
of the rates offered ranged between 7 and l¥z per cent.
During the summer all types of depositary institutions suffered declines in-passbook accounts. But these run-offs were offset in varying
degrees by inflows to certificate accounts^—largely the ceiling-free deposits. Commercial banks fared best—maintaining the same 10.4
per cent -seasonally adjusted annual rate-of-growth for all consumertype time and savings deposits as had been recorded in the second
quarter. Deposits at nonbank thrift institutions, which would have
50
registered a substantial decline had it not been for interest crediting
in this period, grew at a seasonally adjusted annual rate of only 2.0
per cent for the quarter.
Although rates on ceiling-free accounts that were tied to various
indexes were most prevalent at banks, thrift institutions generally
were offering average rates as high as, or higher than, those at
banks. This may indicate that banks had somewhat greater success
than thrift institutions in holding their old accounts. If so, the interSELECTED INTEREST RATES AND
THRIFT DEPOSIT GROWTH
^
^
^
^
^
^
^
^
^
^
^
^
^
^
PER CENT PER ANNUM
MTEREST RATES
1972
1973
NOTE.—Interest rates: Monthly data. Treasury bills, averages of daily rates on 6-month
bills. Thrift institutions, averages of highest ceiling rates payable on consumer-type
deposits at mutual savings banks and savings and loan associations. During the period
July 1-Oct. 31, 1973, when the rate ceiling on 4-year, $1,000 minimum-denomination
consumer-type certificates of deposit was suspended, most institutions offered rates no
higher than IVi per cent on these deposits.
Net flows are quarterly changes, at seasonally adjusted annual rates, in consumer-type
time and savings accounts at commercial banks, in total deposits at mutual savings banks,
and in savings capital at savings and loan associations.
51
est rate differential that has long existed In favor of the nonbank
thrift institutions may have resulted in a concentration of the more
interest-sensitive consumer-type funds in those institutions, 'which
would suggest that competition from high market rates was greater
for them than for banks. Active efforts by the nonbank institutions in
recent years to expand their high-yielding, certificate-type accounts
no doubt contributed to this apparently higher degree of interest sensitivity.
The lack of new deposit inlows necessitated sharp adjustments in
the portfolios of nonbank thrift institutions. Liquidity ratios declined
significantly, facilitated in the case of the savings associations by a
lowering of liquidity requirements by the FHLBB. Commercial bank
lines of credit were utilized, and the FHLB System provided a record amount of advances to its member associations.
As general pressures on. the. liquidity positions .of .depositary institutions intensiied, the Board of Governors on September 6 approved
in principle a contingency plan for emergency credit assistance to
savings and loan associations and other nonmember depositary institutions* Action to implement this plan? however, did not become
necessary in 1973.
At the start of the experiment with 4-year, ceiling-free accounts,
only savings and loan associations had been restricted as to the
amounts of such accounts they might offer; the FHLBB had established a limit at 5 per cent of an association's outstanding deposits.
Depositors sought the ceiling-free accounts in substantial volume,
however, and a number of associations soon found themselves close
to their limits and in a potentially weaker competitive position compared with other depositary institutions. To prevent distortions of
flows among institutions^ the Board and the FDIC placed comparable 5 per cent restrictions on ceiling-free accounts at commercial and
mutual savings banks.
Despite this regulation,, commercial banks achieved better deposit
flows than nonbank thrift institutions during the summer, and this
led in October "to legislation requiring' the' Federal regulatory bodies
to place rate ceilings on all categories of consumer-type time and
savings accounts. To implement this legislation^ ceilings of IVk per
cent for commercial banks and lYi per cent for mutual savings
52
banks and savings and loan associations were established on the 4year accounts, effective November 1.
By late September, however, the worst of the deposit outflow
problem for the nonbank thrift institutions had already passed. By
that time short-term interest rates had eased from their historic
peaks, and a considerable proportion of interest-sensitive deposits
apparently had been shifted into market instruments. Deposit growth
at thrift institutions accelerated in October and attained an 8.0 per
cent rate over the fourth quarter, while consumer-type time and savings deposits at commercial banks grew at a 12.5 per cent rate.
AGGREGATE FLOWS OF FUNDS
Funds raised by nonfinancial sectors of the economy during 1973 are
estimated to have totaled $183 billion, compared with $166 billion
in 1972. Although the increase in total funds raised was not appreciably different from the increase in 1972, there were considerable differences in credit market conditions in the 2 years. One clue to these
differences is that the ratio of the flow of funds to nonfinancial
sectors to GNP fell from 1972 to 1973, as it usually does during a
period of increased credit stringency, rather than rising as it had in
1972. Furthermore, while total funds raised increased persistently
from quarter to quarter in 1972, they dropped steadily in 1973 from
a first-quarter peak. And beneath the aggregate data there were
significant changes in the composition of fund flows that reflected
governmental policies on interest rate ceilings, the differential effects
of monetary policy on various sectors, and other factors.
One important change in the flow of funds in 1973 was the reduced role of the private financial institutions as providers of credit.
Commercial banks, thrift institutions, insurance and pension funds,
and other private financial intermediaries accounted for 66 per cent
of the credit obtained by nonfinancial sectors—down from 83 per
cent in 1972. In contrast, the portion supplied by private domestic
nonfinancial lenders—notably households and businesses—rose from
about 6 to 15 per cent. This, of course, is the counterpart of the
phenomenon of disintermediation noted earlier.
Another sector accounting for an increased proportion of the Nation's credit supply was the Federal Government and the Federally
53
sponsored credit agencies. Because of the important role that these
agencies have come to play in supplying credit to the secondary
mortgage market as well as to primary market lenders, the share of
total funds supplied by the Federal sector reached 20 per cent in the
third quarter, when deposit flows to thrift institutions were weakest;
this was a sharp rise from the first-quarter ratio of 7 per cent.
Table 8: FUNDS RAISED IN CREDIT AND EQUITY MARKETS
BY NONFINANCIAL SECTORS
In billions of dollars
1972
Sector, or type of instrument
Total funds raised
By sector:
U.S. Government*
Other
Nonfinancial business
....
State a n d local governments
Households.
. .
Foreign
.
1973
1973
I
II
III
IV
166.1
183.2
219.2
175.6
171.8
170.1
17.3
148.8
69.8
12.3
63.3
3.4
9.7
173.5
87.0
8.8
70.9
6.7
32.7
186.5
94.2
6.4
71.7
14.3
1.2
174.4
87.9
6.3
73.1
7.1
-9.7
181.5
91.8
12.1
77.0
.7
14.7
155.3
78.0
10.7
61.8
4.8
17.3
13.2
10.0
11.9
67.5
50.0
17.4
21.8
-1.6
19.2
7.0
9.7
11.8
5.5
8.9
72.2
52.0
20.2
41.3
2.5
22.9
8.5
32.7
8.7
4.0
6.1
68.3
50 5
17.8
75.1
-10.8
25.7
9.6
1.2
12.5
6.0
6.5
81.4
60.5
21.0
33.9
4.0
24.7
5.4
-9.7
13.5
3.9
12.3
80.0
56.8
23.2
36.4
4.0
22.5
8.9
14.7
16.1
8.2
10.7
59.0
40.4
18.6
19.8
12.8
18.8
10.0
By type of instrument:
U S. Government securities
Corporate and foreign bonds
Corporate equities
State and local govt. debt 2
Mortgages
Residential
Other
Bank loans n.e.c
Open market paper
Consumer credit
Other loans
1
Public debt securities and budget agency securities.
Includes both long- and short-term borrowing.
NOTE.—Data are from flow of funds accounts; quarterly figures are at seasonally adjusted annual
rates.
2
The proportion of credit supplied by the foreign sector changed
over the course of 1973; after an extended period as a net supplier
of funds, the rest of the world became a net demander during the
last three quarters. In 1972 and the first quarter of 1973—before the
U.S. dollar was allowed to float in foreign exchange markets—foreign central banks engaged in operations to support the dollar and
through these actions they accumulated large holdings of dollars.
These dollar accumulations were invested in U.S. securities, primarily
54
marketable and nonmarketable Treasury issues. As the year progressed, however, the U.S. dollar gained strength—first on the basis
of improved trade and balance of payments statistics, and later
because of the differential impacts of the Middle East oil embargo.
This led foreign central banks that were seeking to maintain exchange parities of their currencies to liquidate large amounts of their
dollars assets.
The volume of credit supplied by the commercial banking sector
was exceptionally large, but it declined strikingly as the year progressed. Expansion of bank loans and investments occurred at a rapid
pace in the first quarter, moderated in the next two quarters, and
then slowed to a very modest rate in the last quarter of the year.
Loans outstanding increased by $69 billion over the year. While
Table 9: FUNDS SUPPLIED TO NONFINANCIAL SECTORS IN
CREDIT AND EQUITY MARKETS
In billions of dollars
Sector supplying
1972
1973
1973
i
II
III
IV
166.1
183.2
219.2
175.6
171.8
170.1
8.3
.2
10.7
21.7
9.3
4.6
14.9
20.5
36.7
23.2
3.5
-8.1
34.8
1.4
-7.6
14.3
12.0
-2.5
.
165.8
69.8
49.3
32.5
14 2
168.9
85.3
35.6
35.9
12.1
214.2
114.2
57.3
37.7
5.0
183.0
88 6
42.0
35.4
17 0
151.4
79.8
22.7
33.2
15 7
126.8
58 5
19.9
37.7
10 7
Net funds raised in credit and equity l
markets by financial institutions . . ..
28.4
48.7
50.3
55.2
69.9
19.3
Funds advanced by private domestic nonfinancial2 sectors in credit and equity
markets ...
Households
Nonfinancial business
State and local governments
9.6
3.1
4.6
28.3
12.5
14.3
38.9
13.0
19 5
1.5
29.2
16.0
15 4
-2.1
61.8
40.4
16 0
2.0
-16.7
-19.2
6.2
-3.7
5.3
6.3
102.2
90.6
124.7
97.0
66.8
74.0
All sectors
U.S. Govt. and sponsored credit agencies. .
Federal Reserve System
Foreign sources
Private financial institutions
Commercial banking
. .
Savings institutions
Insurance and pension funds
Other. . . .
.
.
.
MEMO: Net change in deposits and currency held by private domestic nonfinancial sectors
1
Bonds, notes, commercial paper, loans from home loan banks, equities, and mutual fund shares.
Includes borrowing by Federally sponsored credit agencies.
2
Total funds advanced less amounts supplied by groups above plus net credit and equity funds raised
by financial institutions.
NOTE.—Data from flow of funds accounts; quarterly data are at seasonally adjusted annual rates.
55
bank investments in "other" securities also expanded—by about $11
billion—all but $2 billion of this portfolio increase was offset by liquidation of Treasury issues.
In an examination of the composition of the demand for funds in
1973, strength of business, mortgage, and consumer instalment credit
stands out clearly, as the chart on page 39 shows. This strength was
most pronounced in the first half of the year when real economic activity was strongest and before interest rates rose to their highest levels. In contrast, the credit demands of State and local governments
and of the Federal sector were relatively moderate. Most State and
local units enjoyed more comfortable financial positions as a result of
Federal revenue sharing and of large tax revenues generated by rapidly rising incomes. The volume of tax-exempt bond offerings was
down slightly from 1972, despite the continued rapid growth of industrial revenue bonds for pollution control. In the Federal sector
rapid growth of tax revenues, in combination with restraints on expenditures, reduced the Treasury's unified budget deficit to a level
Table 10: U.S. GOVERNMENT FINANCE
In billions of dollars
Calendar year
Item
1971
Deficit
1972
24.8
17.4
24.8
15.3
7.9
.3
8.6
15.5
-11.9
4.5
3.4
-5.4
-4.1
10.9
2.2
3.9
3.8
5.6
3.2
1.1
3.5
16.3
.5
.8
.6
Amount financed by changes in cash
assets and other items
Total borrowing from public
Net Federal Reserve purchases of
Treasury securities
Net Treasury borrowing from private
investors:
Marketable: 1
Foreign
Other
Nonmarketable:
Foreign
Other
Memoranda:
Net borrowing by Government
sponsored agencies
Federal Reserve purchases of agency
issues
.
.
1973
7.9
2.1
8.1
-
1
Includes Treasury securities as well as securities issued directly by
budget agencies. The ownership distribution is approximate.
56
far below earlier projections; thus the limited demands of the Treasury proYided an offset to the substantial needs of Federally sponsored credit agencies.
Consumer demands for durable goods remained exceptionally
strong in the first quarter of the year. The $25.3 billion annual rate
of increase in consumer credit outstanding during that quarter was
only slightly below the record of the previous quarter; commercial
banks accounted for more than one-half of the gain. As was indicated earlier, the growth in consumer expenditures for durable goods
declined after the first quarter and became negatiYe in the fourth
quarter when auto sales declined markedly, for the most part because of the fuel shortage. As of mid-1973 the ratio of consumer
indebtedness to disposable personal income stood at a record high,
and loan delinquencies were unusually large for a business cycle
expansion.
Also adding to the debt burden of the household sector was the
massive growth of mortgage debt. Growth of such credit reached a
record volume in the second quarter of 1973, but it continued to expand at nearly as fast a pace in the third quarter, as borrowers took
down prior commitments for loans. As the year progressed, however,
the rate of growth in mortgage debt was affected by the cutback in
housing starts that had begun in the spring. While thrift institutions
played their customary role as the leading providers of residential
mortgage credit during 1973, commercial banks accounted for a substantial proportion of the flow of funds to the mortgage market. For
the year as a whole these banks supplied $18,9 billion of mortgage
credit, up from $16.8 billion in 1972; in contrast, the amount of
funds supplied by the thrift institutions declined, from $37.6 billion
to $32.3 billion. An increase in credit from Federally sponsored
agencies pro¥ided a partial offset to the reduced participation of the
thrift institutions.
The iiQiifinaecial business sector acquired $87 billion from the
credit and equity markets in 1973, a 25 per cent increase o¥er the
preceding year. The exceptionally large low to businesses in the first
quarter was attributable in part to the use of bank loans to finance
purchases of higher-yielding liquid assets, such as large CD's, and to
reduce outstanding commercial paper debt. For the year as a whole,
however, the dominant factor in explaining business demands in the
57
credit and equity markets was the growing gap between capital
outlays and internal funds generated. Needs for external funds normally expand at a rapid rate in the advanced stages of a business
cycle, but during 1973 special factors were also limiting the growth
of internal funds—notably, exhaustion of available tax-loss carryforwards and the liberalization in mid-1973 of CID restraints on
dividend payouts.
The external financing requirements of businesses in 1973 were
met largely in the debt markets—in particular, short-term debt markets. Equity financing was not attractive because share prices showed
substantial declines during most of the year. Offerings of corporate
bonds were considerably less than in 1972; in fact, the volume of
publicly offered bonds was the smallest since 1969, Given the
improvement in their liquidity positions over the period since 1970,
corporations apparently felt that they could, without undue risk?
postpone long-term financings in the hope of obtaining lower longterm rates later. As short-term rates remained relatively high toward
the end of 1973, and as prospects for inflation worsened, calendars
of issues of new corporate bonds began to build up—perhaps indicating a shift in interest rate expectations and a movement to fund
short-term debt.
The initial focus of the heavy demands by businesses for shortterm credit was on the commercial banking system. Restraints
imposed by the CID OE the bank prime rate had led, by late 1972,
to the development of a rate spread that favored borrowing from
banks as opposed to the sale of commercial paper. Thus large corporations were heavy demaeders of bank loans, and so too were
smaller firms for which banks are the only regular source of credit.
Furthermore, as market rates of interest rose and commercial banks
raised their offering rates on large CD's5 some prime borrowers perceived an opportunity to arbitrage by borrowing at the artificially low
prime rate and then Mending at the CD rate. As a result, the expansion of business loans at commercial banks reached a record level in
the first quarter of 1973 while commercial paper outstanding
dropped sharply. Total business credit, however, still increased at a
record rate.
During the late spring and summer, rate differentials began to shift
in the direction of favoring borrowing in the commercial paper mar-
58
ket—a moYement that was influenced by the two-tier prime rate concept introduced by the CID In April, and by the imposition of marginal reseiYe requirements on large CD's and selected nondeposit
liabilities, noted earlier. Growth in business loans at banks decelerated in the second and third quarters, while commercial paper gradually resumed a positi¥e trend. In September, howe¥er, market rates
of interest dropped sharply, causing commercial paper rates to
decline relative to the bank prime rate. During the fourth quarter
business loan growth at banks was quite moderate, as commercial
paper expanded rapidly.
International
Developments
During 1973 the U.S. balance of payments registered steady gains in
the goods and services balance, and net flows of private long-term
capital were inward for the year. As a result the basic balance
(current account plus long-term capital flows) for the year moved
into surplus for the first time since 1957, a striking reversal of the
$10 billion basic deficit in 1972.
In the early part of the year, however, confidence that the balance
of payments would recover was at a low ebb and massive flows of
funds into other currencies precipitated a second devaluation of the
dollar in February. Subsequently six of the members of the Euro-
U.S. BALANCE OF PAYMENTS
BILLIONS OF DOLLARS
40
1970
1971
1
1972
1973
Excludes SDR allocations.
NOTE.—Dept. of Commerce data at seasonally adjusted annual rates; fourth quarter
partly estimated.
60
pean Economic Community (EEC) allowed their currencies to float
against the dollar, while remaining fixed among themselves. After a
period of stability in the spring, the six EEC currencies, led by the
German mark, appreciated against the dollar as well as against the
Canadian dollar, the British pound, and the Japanese yen. By July
the dollar had dropped substantially relative to EHC currencies, and
on a weighted aYerage basis the dollar exchange rate against 10 leading foreign currencies was about 23 per cent below the level of May
1970 and 15 per cent below the level at the start of 1973,
Exchange rates stabilized after the middle of July following moderate amounts of intervention by the Federal Reserve and the
German Federal Bank. In the autumn the exchange rate for the
dollar began to appreciate markedly, selecting impro¥ement In the
U.S. trade balance. A major new impetus to the strengthening of the
dollar was Imparted by the actions of the Middle East oil producers
in announcing limitations on production in October, followed by the
more than threefold boost in the price of oil exports by the producing countries in two steps in October and December.
Limitations on supply, e¥en if applied most se¥erely to the United
States, were expected to be more harmful to the economies of other
countries more dependent on oil imports as a source of energy for
industry. When increases in production were resumed, attention
shifted to the huge increases in the monetary reserves of oil-producing countries that would result if the new price structure were sustained, and the general view was that these asset accumulations
would tend to strengthen the dollar reiati¥e to other currencies
because of the likelihood that U.S. money and capital markets would
provide the best opportunity for absorbing ie¥estment lows of such
potential magnitudes, both directly and through the Euro-dollar
market.
Recovery in the U.S. balance of payments was supported by the
continuing effects of the exchange rate changes that had begun in
1970, and also by the steep rise in the quantity, and price of agricultural exports. Economic actiYlty abroad continued to ad¥anceJ supporting export gains, while real output in the United States was
slowing down, reflecting in part supply bottlenecks. The improvement ie the trade balance during the year, in real terms, was a con-
61
siderable offset to the slackening in the growth of effective demand
in other sectors of the economy. However, while rising demands
abroad aided the U.S. trade balance, they also added to upward
pressures on prices, especially for world-traded basic commodities,
and helped to expose a growing problem of imbalances between
demand and available supply.
Despite supply problems and the gyrations in exchange rates,
world trade in real terms grew at a phenomenal rate in 1973. At
times pressures on particular exchange rates became severe and led
either to sizable interventions by monetary authorities or to wide fluctuations in exchange rates, but on the whole the successive crises
were accommodated by the market without major disruption.
As the year ended, the improvement in the exchange value of the
dollar accelerated, despite large sales of dollars by some foreign
monetary authorities. During January 1974 the weighted-average
exchange rate for the dollar came near the rate at the beginning of
1973. In view of the change in the balance of payments outlook, the
controls on outflows of U.S. private capital were relaxed in December 1973 and terminated in January 1974. A moderate drop in the
exchange value of the dollar followed the termination.
PROGRESS TOWARD
EQUILIBRIUM
The U.S. trade balance swung into a small surplus in 1973, the first
surplus in more than 2 years and a dramatic turnaround from the $7
billion deficit in 1972. Exports rose very steeply, by nearly 45
per cent, while imports increased by a more moderate 25 per cent.
The expansion in exports was paced by an exceptionally large rise
in shipments of agricultural commodities as harvests outside the
United States were far below normal and the U.S.S.R. and People's
Republic of China became large purchasers of U.S. farm products.
Price increases accounted for over two-thirds of the increase in the
value of agricultural exports in 1973, as world demand exceeded
available supplies.
Exports of nonagricultural commodities also rose quite sharply—
by over 30 per cent—in 1973. More than half of the increased value
of such exports reflected larger volume. Major reasons for the
growth in nonagricultural exports were the strong economic expansion abroad and the cumulative effects of the depreciation of the
62
GOODS AND SERVICES
BILLIONS OF DOLLARS
1970
1971
1972
1973
N O T E . — D e p t . of C o m m e r c e d a t a at seasonally adjusted a n n u a l rates.
dollar that had begun in 1970 and had made U.S. goods much more
competitive in world markets. Also the tightening of price controls in
June held domestic prices of some goods below world prices (in dollars) of comparable products, encouraging export sales at higher
dollar prices by domestic producers of fertilizers, chemicals, and various metals. This incentive to export was partially removed later in
the year as the Cost of Living Council removed or relaxed domestic
price controls on metals and fertilizers.
As a result of the exceptionally rapid growth in the volume of
U.S. exports of manufactures, the U.S. share of total world trade in
manufactures rose in 1973, after many years of decline.
The increase in the value of imports in 1973 stemmed almost
entirely from higher prices; import volume remained stable except
for fuels, which increased steadily throughout most of 1973. Near
the end of the year, however, the volume of oil imports dropped as a
consequence of the embargo by Middle East oil-producing countries.
The volume of nonfuel imports in 1973 was very slightly higher
than in 1972, and this behavior was evident in most major import
commodity categories—automobiles and other consumer goods,
industrial materials (other than fuels), and foodstuffs. Only in capi-
63
tal equipment did the Yolume of Imports rise strongly. The decline in
the import ¥olume of other types of inlshed goods is probably
attributable In large part to the Increasing effect of the dollar depreciations, combined with some supply difficulties encountered by foreign producers as they attempted to meet stronger domestic
demands.
With respect to nonfuel industrial materials, the quantity'imported
rose only slightly, much less than would ha?e been expected from
past relationships to the rate of domestic economic expansion. Shifts
of user demands to U.S. sources, as well as "worldwide shortages of
-these goods, apparently were responsible in part for this stability.
Increased availability of .some metals (particularly aluminum) from
U.S. Government stockpiles'may also'have been a factor.
Improvement in the U.S. trade balance in 1973 was reflected in
balances with most areas. The trade deficit with Japan, which
had persisted for many years and had totaled $4 billion, in 1972,
fell to about $114 billion in 1973, with only small monthly deficits
recorded in the second half. The trade balance with Western Europe,
which had shifted from a traditional surplus with those countries to a
deficit in 1972, swung back Into a substantial surplus in 1973. The
trade balance with the less deYeloped countries as a group also
impro¥ed in 1973. The balance with Latin America and the Middle
East countries improved despite the increase in oil imports from
those regions^ but a trade deficit with Africa de¥eloped because of
larger oil imports from that area. A considerably enlarged trade surplus with Eastern Europe in 1973 reiected the heavy shipments of
grain and soybeans to the U.S.S.R.
The outlook for the U.S. trade position in 1974 depends, to a
considerable degree^ on the effects of the present energy crisis. The
Import bill for petroleum could rise to more than $20 billion in 1974
compared with about $8 billion in 1973, e¥en if quantities continue
to be reduced by the embargo. Prospects for exports are clouded by
the possibly se¥ere effects of the energy problem on economic
growth in other industrial countries and on the import capabilities of
some developing countries whose oil import costs may be especially
burdensome. In addition, one effect of the reco¥ery In the ¥alue of
64
the dollar In the exchange markets since mid-1973 Is likely to be the
erosion of some of the competitive shift deriYed from the earlier rate
mGYements.
The usual U.S. surplus from investment Income and ser¥lces
Increased substantially ie 1973, rising to a total of nearly $6 billion, more than double the surplus in 1972. Returns oe U.S. investmeets abroad rose very sharply (In terms of dollar amounts) as a
result of the change in exchange rates, stronger economic activity
abroad, and higher petroleum prices. Interest payments to foreigners
on their assets In the United States also rose in 19735 but more moderately. Sales of military equipment to foreigners increased sharply
while military expenditures abroad showed little change. Also,
receipts from foreign. travelers to the United States rose more than
expenditures abroad by U.S. tra¥elers.
Flows of long-term private capital tended to strengthen the U.S.
balance in 1973, despite a major outflow of U.S. direct-investment
capital early In the year when further depreciation of the dollar was
expected. Thereafter outflows by U.S. investors diminished, while
foreign investors placed record amounts IE the United States to purchase equity securities and to finance growing foreign direct investments IE this country. Net foreign purchases of U.S. corporate stocks
were nearly $3 billion for the year.
Inflows of foreign capital for direct Investment, that Is, Investment
Involving a substantial voice IE management, appear to have
approached $2 billon in 1973—far exceeding -any previous experience. Such inflows were spurred IE part by the lower exchange value
of the dollar and the consequent rise In- the relative advantage of
producing goods In the United States. There may also have been
some Inflows directly or Indirectly out of the" rising revenues of the
oil-producing countries. However, a factor of growing Importance
may have been the restoration of conidence In the comparative
strength and stability of the U.S. economy.
Flows of U.S. private capital IE shorter-term'forms were strongly
outward In the first quarter of the year—including large unrecorded
outflows—but were a less significant element, thereafter. After market
rates of interest in the United States moved up sharply in the first
half of the years and the dollar strengthened in the market, there
were inflows of foreign funds to U.S. banks.
65
Table 11: U.S. BALANCE OF PAYMENTS
In billions of dollars, seasonally adjusted
Item
1972
1973
1973 •
III
Merchandise trade balance
Exports
Imports
- 6.9
48.8
55.7
70 .'3
69.6
- 1.0
15.3
16.3
Services, net
Balance on goods and services
2.3
- 4.6
5.8
6.4
1.1
.2
Remittances and pensions
U.S. Govt. grants and capital, net
Long-term private capital, net
- 1.6
- 3.5
.2
-
-
1.8
3.6
.9
-
.4
.7
-
.3
16.8
17.0
.7
18.2
17.4
20.0
18.9
.9
.7
2.2
2.3
3.5
.4
.6
.3
.4
.9
1.7
Balance on current account and long-term
capital
-
9.8
1.9
-
.9
-
.6
2.5
Nonliquid short-term private capital, net. .
Errors and omissions
Liquid private capital, net
-
1.6
3.1
3.5
4.0
5.8
2.6
-
1.8
3.8
3.9
-
1.4
.4
1.9
.2
1.2
.6
3.9
2.9
-11.1
5.3
Of which: Liabilities to foreign commercial banks
Official settlements
SDR allocations)
balance
(excluding
IV e
1.2
-
-
.6
1.5
1.0
1.2
4.0
3.2
-10.5
2.1
2.7
e
Estimated,
i Less than $50 million.
NOTE.—Dept. of Commerce data with some Federal Reserve estimates. Details may not add to
totals because of rounding.
Late in 1973 a broad relaxation of the restraints on capital outflows from the United States was announced—and such controls
were terminated in January 1974. At the same time other countries
were reducing their barriers against inflows of foreign capital, reflecting the shift that had been occurring in balance of payments positions.
INTERNATIONAL MONETARY SCENE
During 1973 financial and foreign exchange markets were affected
strongly by changes in the outlook for the balance of payments of
the United States and other major industrial countries. Early in the
year the U.S. dollar came under severe selling pressure, as there was
continuing skepticism about the prospect for adequate improvement
in the U.S. trade balance in response to the Smithsonian realignment
of exchange rates. Large flows of funds from the United States to
EEC countries with strengthening trade positions—notably Germany
66
—produced a U.S. deficit on official reserve transactions of more
than $8 billion in the first 2 weeks of February. Following the February 12 devaluation of the dollar by 10 per cent, there was a partial
reversal of the earlier flows, but by early March renewed heavy
demand for European currencies led to further large reserve gains by
EEC countries; all official intervention in exchange markets ceased;
and these markets were officially closed.
In early March six EEC countries (Germany, France, Belgium,
Luxembourg, the Netherlands, and Denmark) plus Norway and
Sweden agreed to maintain a fixed exchange rate relationship among
their currencies, while permitting them, as a group, to float against
the dollar. After exchange markets were officially reopened on
March 19 on the new basis, the exchange rate for the dollar against
these EEC currencies remained relatively stable until mid-May, when
demands for EEC currencies increased sharply, reflecting in part
political and economic uncertainties in this country and in part the
strong German trade account and the progressive tightening of financial policies in Germany.
With the demand for German marks pulling rates for all EEC currencies higher against the dollar than they otherwise would have
INTERNATIONAL VALUE OF THE U.S. DOLLAR
MAY 1970 PARITIES=100
IN TERMS OF 10 LEADING
FOREIGN CURRENCIES
1970
1971
1972
1973
NOTE.—Monthly-average market exchange rate of U.S. dollar against 10 major foreign
currencies weighted by foreign trade in 1972. The weight for each currency is the share
of that country's total trade (exports plus imports) in the total trade of the 10 countries
plus the United States.
67
been, by mid-1973 the dollar had depredated against the EEC currencies by an average of 15 per cent from Its February level. The
German mark was re¥alued at the end of June. However, the dollar
remained strong against the currencies of-our major trading partners
—Japan and Canada—and, refecting sales of dollars by Japan while
most other central banks were not intervening in Che market, there
was actually. a. reduction, in U.S. official reserve liabilities in the
second quarter of the year.
By early July exchange markets for the dollar against EEC currencies had become disorderly. Beginning July 10 the. Federal
Reserve undertook intervention to stabilize the exchange rate for the
dollar, drawing on recently enlarged swap lines, and sold $273 million of foreign currencies (marks, French francs, and Belgian
francs) by the end of the month. This action was reinforced by coordinated purchases of dollars by the German Federal Bank and relaxation of a credit squeeze in the German interbank market. The
appearance of central bank intervention, together with the joint statement on July 18 of the Chairman of the Federal Reserve Board of
Governors and the Secretary of the Treasury that intervention would
take place""in'"whate¥er amounts are "appropriate for maintaining
orderly market conditions/9 helped to restore exchange markets to
more normal functioning. The dollar strengthened by about 3 per
cent during the Irst weeks of August, and the Federal Reserve purchased the currencies required to repay the drawings it had recently
made on the swap network.
Thereafter-the exchange ¥alue of the dollar against EEC currencies changed little through late October; this stability reflected in part
further Federal Reserve intervention totaling $236 million in marks,
particularly-following the revaluation, of the Dutch guilder in-midSeptember. At that time there were large lows of funds among those
European countries that were maintaining fixed exchange rates,
although these, lows were smaller than the lows and reserve..changes
that had occurred in February when the exchange rate for the dollar
had also been fixed. The relatiYe stability of the dollar also reflected
continued sales of dollars by the Bank of Japan to support the yen.
These sales led to an official settlements payments surplus for the
United States of $2 billion in the third quarter.
68
At the end of October the demand for dollars began to Increase
markedly, selecting a fundamental reassessment of the underlying
strength of the U.S. balance of payments. The proximate cause for
the shift was publication of a large trade surplus for the month of
September, but of more lasting Importance was the shift in market
judgment concerning the Impact on International payments of sharply
higher oil prices. Between late October and the year-eo.d the dollar
had appreciated by 8 per cent on the a¥erage, despite central bank
sales of substantial amounts of dollars. As a result the United States
had a surplus of nearly $3 billion, in the official reserve transactions
balance during the final quarter of 1973. From year-end 1973
through late January 1974 the dollar appreciated still further,
accompanied by heavy foreign central bank intervention. Following
the remo¥al of U.S. capital controls on January 29? and the subsequent decline in U.S. interest rates, however, the dollar depredated
and by late February was back to slightly below its year-end levels.
The periods of exchange market pressure during the year were
accompanied by sharp increases in the market price of gold. When
exchange markets stabilized, these increases were partly reversed, but
the price of gold rose sharply again in early 1974. In mid-No¥ember
1973 the United States and the other participating European countries agreed to terminate the agreement of March 1968 regarding
official gold transactions, removing an obstacle to official sales in the
private market and thus permitting greater flexibility of action in the
future.
Against the background of adjustment and accommodation to the
strong forces that were influencing payments developments during
I ^73 ? officials continued to work on the development of agreed rules
under which the international monetary system might function with
more stability in the years ahead. The Committee of Twenty of the
International Monetary Fund presented a First Outline of Reform at
the Fund's annual meeting in Nairobi in September. This report
set forth the general shape of a possible reformed system. Among
other things it suggested a regime of stable but adjustable exchange
rates, with provision for floating exchange rates in particular situations. After the Nairobi meeting, technical groups were organized to
examine In detail various aspects of the system. These include the
69
process of adjustment of payments Imbalances; provisions for the
settlement of international payments imbalances and for official intervention in exchange markets; global liquidity and the possible consolidation of outstanding reserve currency balances; and the transfer
of real resources to developing countries.
While discussions of monetary reform issues look to the future
functioning of international economic relationships, they are continuously inluenced and modified by the changing economic environment and, in turn, provide one of the forums for dealing multilaterally with pressing current problems. The effects of the energy crisis
on economic activity, and especially on international trade and financial relationships, were a major concern of the meeting of the Committee of Twenty in January 1974 and of the special conference on
energy problems held in Washington In February.
70
"Parti
Operations, and
Organization
Record of Policy Actions of the
Board of Governors
JANUARY 2, 1973
AMENDMENT TO REGULATION T, CREDIT BY BROKERS AND
DEALERS
Effective January 2, 1973, the Board adopted a technical amendment
to Regulation T.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Brimmer, and Sheehan. Votes
against this action: None. Absent and not voting:
Mr. Bucher.
The purpose of this amendment was to make clear that the 90-day
restriction in a special cash account would begin with the trade date
of the sale of the security that the customer had not previously paid
for within the allotted seven business days, rather than with the trade
date of the purchase of the security.
JANUARY 9, 1973
RELEASE OF FINANCIAL REPORTS
Effective with year-end 1972, the Board adopted a policy of making
available to the public two financial reports filed with the Federal Reserve by State member banks.
Votes for this action: Messrs. Robertson, Mitchell, Daane, Sheehan, and Bucher. Votes against
this action: None. Absent and not voting: Messrs.
Burns and Brimmer.
The Board's action resulted in the release to the public, upon request, of (1) quarterly reports of condition, including detailed schedules of loans, cash assets, demand and time deposits, and other assets
and liabilities, beginning with reports for December 31, 1972, and
(2) annual reports of income, beginning with 1972. Previously, only
73
the face of the condition report had been available for public inspection.
Concurrent actions to make such reports available to the public
were taken by the Office of the Comptroller of the Currency and by
the Federal Deposit Insurance Corporation in connection with reports filed by national banks and by insured nonmember State banks,
respectively. Public disclosure of the reports had been under consideration since the adoption in 1969 of more uniform reporting requirements by the Federal bank supervisory agencies, and the move
was made in an effort to comply with the spirit and intent of the
Public Information Act.
J A N U A R Y 15, 1973
AMENDMENT TO RULES REGARDING DELEGATION OF
AUTHORITY
Effective with applications received by the Reserve Banks after January 15, 1973, the Board amended its Rules Regarding Delegation of Authority to delegate to the Federal Reserve Banks authority to approve the
acquisition by a bank holding company of additional shares in a bank,
whether or not the bank was a subsidiary, when the shares were acquired through the exercise of rights received as a shareholder.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Brimmer, Sheehan, and Bucher.
Votes against this action: None.
Authority to approve the acquisition of additional shares by a
bank holding company had previously been delegated to the Reserve
Banks only in instances in which the shares to be acquired were
those of subsidiary banks. Since there was no reason to differentiate
between subsidiary and nonsubsidiary banks, the amendment was designed to place both categories on the same footing.
J A N U A R Y 26, 1973
REGULATION K, CORPORATIONS ENGAGED IN FOREIGN
BANKING AND FINANCING UNDER THE FEDERAL RESERVE
ACT
The Board authorized issuance of an interpretation of Regulation K
that would permit Edge Act corporations to establish special-purpose
74
leasing corporations without specific Board approval. By reference the
Board also applied the interpretation to investments made directly or indirectly by bank holding companies under similar circumstances in special-purpose corporations that did no business in the United States other
than business that might be incidental to their international or foreign
business.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Brimmer, Sheehan, and Bucher. Votes
against this action: None. Absent and not Yoting:
Mr. Daane.
It is common practice for certain types of lease financings—for
example, in the leasing of commercial aircraft or vessels—to be
structured in such a way that legal title to the personal property or
equipment rests in a separately incorporated entity. Such special-purpose corporations may be used to reduce the potential exposure of
the parent financial institution to tort liability arising in connection
with the operation of an aircraft or vessel; to comply with the laws
of the various countries relating to registration of aircraft or vessels
or perfecting liens on equipment; or to minimize taxes upon rental
payments received under the lease.
The distinguishing feature of special-purpose corporations is that
they are formed for the purpose of engaging in a specific transaction
involving the financing of one or more items of personal property or
equipment and a single customer, rather than a general business.
It was the Board's opinion that such special-purpose corporations
represented credit facilities provided by the parent financial institution, either alone or in participation with others, and should be regarded as activities of the parent financial institution and not as investments requiring Board approval. For this--reason, the Board
concluded that no regulatory purpose would be served by having the
Board screen in advance each transaction entered into in this manner.
The Board understood that, in most cases, these special-purpose
corporations were established under an arrangement whereby the
creditors who made loans to such corporations did not have recourse
to the parent Edge corporation, or to its subsidiary engaged in the
general business of leasing or financing, for the repayment of such
loans. In those instances where the financing arrangement contem-
75
plated that creditors of the special-purpose corporation should have
recourse to the parent Edge corporation or its leasing or financing
subsidiary, borrowings by the special-purpose leasing corporation of
the type described in Section 211.4 of Regulation K should be regarded as if they were those of the guarantor and should not cause
the borrowings of the latter to exceed the amount previously approved by the Board. All assets and liabilities of special-purpose corporations should be fully reflected in consolidated financial statements of their parent institution(s) filed with Federal bank
regulatory authorities.
The parent Edge corporation should furnish the Board with such
information regarding the activities of each special-purpose corporation as the Board might require from time to time, and it should
maintain full information on such subsidiaries at its head office.
MARCH 23, 1973
AMENDMENT TO RULES REGARDING DELEGATION OF
AUTHORITY
Effective March 23, 1973, the Board amended its Rules Regarding
Delegation of Authority to delegate to the Federal Reserve Banks authority to grant to bank holding companies extensions of time in which
to file annual reports to the Board.
Votes for this action: Messrs. Robertson, Mitchell, Brimmer, Sheehan, and Bucher. Votes against
this action: None. Absent and not voting: Messrs.
Burns and Daane.
Instructions on the annual report form had limited a Reserve
Bank to the granting of one 30-day extension of time after the end
of the fiscal year for a bank holding company to file its annual report. The purpose of the amendment adopted was to enable a Reserve Bank to grant to a bank holding company an extension of up
to 90 days in which to file an annual report if the circumstances
warranted, and for good cause shown, to grant an additional extension of time not to exceed 90 days.
76
APRIL 3, 1973
REVISION OF REGULATION A, EXTENSIONS OF CREDIT
BY FEDERAL RESERVE BANKS
Effective April 19, 1973, the Board revised Regulation A, primarily
for the purpose of assisting smaller banks to meet the seasonal borrowing needs of their communities.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, and Sheehan. Votes against this
action: None. Absent and not voting: Messrs.
Brimmer and Bucher.
The Board's action was a further step toward implementing recommendations made by a System Steering Committee in a report entitled "Reappraisal of the Federal Reserve Discount Mechanism."
The revisions made a number of technical and clarifying changes
in the regulation and continued in effect the provisions for adjustment credit to assist a member bank to meet a temporary requirement for funds or to cushion more persistent outflows pending an orderly adjustment of a member bank's assets and liabilities. The
revised regulation reaffirms the System's readiness to extend credit to
member banks in emergency or unusual circumstances and to make
credit available in emergency situations to other financial institutions,
corporations, partnerships, and individuals on the security of Government obligations.
Member banks that lack reasonably reliable access to national
money markets may now arrange for seasonal credit accommodation.
The purpose of such credit is to assist those banks in meeting seasonal needs for funds arising from a recurring pattern of movements
in deposits and loans that persists for at least 8 weeks.
Under this arrangement an eligible bank is required to provide
part of its own seasonal needs—up to 5 per cent of its average total
deposits in the preceding calendar year. It may then meet its additional seasonal needs by borrowing from a Federal Reserve Bank.
The bank is required to arrange in advance with its Reserve Bank
for seasonal borrowing. Credit under this arrangement may be extended to member banks for periods of up to 90 days at a time.
Under ordinary circumstances a Federal Reserve Bank is prepared to
77
grant renewals extending the borrowing for the duration of the demonstrated seasonal need.
No change in monetary policy, for either the short or the long
run, was intended or expected to result from the announced revision
of the regulation. The revision adopted was in substantially the same
form as that previously proposed for comment.
A P R I L 4, 1973
LETTER ON LOAN COMMITMENTS
The Board authorized the sending of a letter regarding loan commitments to all State member banks with deposits exceeding $100 million.
Similar letters were sent to large national banks by the Comptroller of
the Currency and to large insured nonmember banks by the Federal
Deposit Insurance Corporation.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Brimmer, and Sheehan. Votes
against this action: None. Absent and not voting:
Mr. Bucher.
The purpose of the letter, which was sent over the Chairman's signature, was to express the Board's concern regarding the heavy volume of bank loan commitments then outstanding. The letter read as
follows:
I am writing to you about a matter of concern to all members of the
Board—the heavy volume of bank loan commitments to commercial
and industrial companies and financial institutions. Banks supervised by
other Federal banking agencies are receiving similar letters, so that the
attention of all banks likely to have substantial loan commitments will be
drawn to the need for appropriate loan commitment policies.
By loan commitments we refer to all of your bank's official promises
to lend which have been expressly conveyed to your customers, typically
by means of either a formally executed commitment agreement or a letter signed by one of your officers confirming the availability of a line of
credit of specified size.
There is no question as to the legitimacy of—and the need for—bank
loan commitments. They serve the purposes of sound business planning,
both for banks and their customers. It is the intention of the Federal
bank supervisors that this practice continue, but that it be based on care-
78
ful judgment, in the interests of a sound banking system and healthy
economic expansion. The apparent large volume of bank commitments
currently outstanding and sharply increased takedowns thereunder are indicative of the need for special attention to this subject at this time.
Each bank should maintain a record of the aggregate volume of its
commitments to lend. Furthermore, it should periodically make a careful
judgment as to the potential volume of takedowns of these commitments
under reasonably foreseeable circumstances, including periods of strong
as well as weak loan demand, and the appropriateness of the credit risks
involved to its overall capital position. Finally, it should give adequate
consideration as to how it would obtain the funds to meet such takedowns in sound and timely fashion, giving due allowance to the possibilities for changing conditions in the local and national economy and in
the central money markets.
Federal bank examiners will henceforth ask the management of each
bank they examine to demonstrate that it is giving adequate attention to
the above principles. Steps are also being taken by the bank supervisory
authorities to obtain current information periodically as to ongoing developments with respect to bank loan commitments.
We confidently expect that banks will cooperate in this program to
help insure that bank loan commitments play a sound and useful role in
the financing of business activity.
APRIL 10, 1973
AMENDMENT TO RULES REGARDING DELEGATION OF
AUTHORITY
Effective with applications accepted by Reserve Banks after April 23,
1973, the Board amended its Rules Regarding Delegation of Authority to
permit the Federal Reserve Banks to approve bank holding company formations involving more than one bank, acquisitions by bank holding
companies of existing banks, and certain types of bank mergers.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, and Bucher. Vote
against this action: Mr. Robertson.
The Board had previously delegated to the Reserve Banks, pursuant to specific guidelines, authority to approve formations of onebank holding companies and acquisitions by existing bank holding
companies of de novo banks. In a further effort to expedite handling
79
of the volume of applications received under the Bank Holding Company Act, as amended, the Board now made this "additional delegation, at-the-same time setting forth standards within'which this''authority--might be exercised. • Applications falling- -outside these
standards .were to.be.forwarded.to the Board for further consideration. The Board retained authority to deny an application.
. ..
Under the standards adopted, a Reserve Bank was authorized to
appro¥e the formation of a bank holding company through the acquisition by a company of a controlling interest in the voting shares
of one or"more banks,if all of the following conditions' were met:
(1 )• EG member of- the Board had indicated an objection prior to
the Reserve Bank?s. action;
•(2) all departments of the Reserve Bank appropriately involved
had recommended approval;
(3) no substantive objection to the proposal had been made by a
bank' supervisory authority, the U.S. Department of Justice, or
a member of the public;
(4) -no-significant-policy issue were raised by the proposal as to
which the Board had not expressed its view;
(5) any offer to acquire shares of the bank or banks involved
would be extended to all shareholders of the same class on a substantially equal basis;
(6) considerations relating to the convenience and needs of the
communities to'be served were consistent with or lent weight toward
approval -of- the application;
(7) in the-event -any debt were incurred by the holding -company
to purchase shares of any.bank involved in the proposal:
(a) an. agreed plan for amortization of the debt within., a. reasonable time existed, such period normally not exceeding. 12 years;.
(b) the interest rate on any loan to purchase the bank shares
would be comparable with that on other stock collateral loans by
the lender to persons of comparable credit standing;
( c ) n o compensating'balances, specifically attributable* to the
loan, would be deposited in-the lending institution, and the amount of
any. correspondent account that the proposed subsidiary bank- would
maintain with, the lending institution should not exceed the-amount
necessary to compensate the lending bank for correspondent services
rendered by it to the proposed subsidiary bank;
80
(8) the Reserve Bank determined that the managerial and financial resources, Including the equity to debt relationships, of the applicant, its existing subsidiaries, and any proposed subsidiary bank were
adequate, or would be adequate within a reasonable period of time
after consummation of the proposal, and any debt service requirements to which the holding company might be subject were such as
to enable it to maintain the capital adequacy of any proposed subsidlary baek in the foreseeable future;
(9) if the applicant or any of the applicant's existing or proposed
nonbanking subsidiaries competed in the same geographic and product market as any proposed subsidies kink, the resulting organization would control no more than h) j ^ r cent of that product or
service line after consummation, of fuc proposal;
(10) total noebaek gross re¥enues of the applicant and its subsidiaries did not exceed 10 per cent of total operating income of the
pioposed banking subsidiaries;
(11) if the applicant engaged, or were to engage, in nonbanking
activities requiring the Board's approval under Section 4 ( c ) ( 8 ) of
the Act, the Reserve Bank must also have delegated authority to approve the Section 4(c) (8) activities;
(12) if the proposal invoked the acquisition of the controlling
stock of only one bank, and any debt were incurred by the holding
company to purchase shares of that bank5 the amount of the loan
did not exceed 75 per cent of the purchase price of the shares of the
proposed subsidiary bank;
(13) if the proposal involved the acquisition of the controlling
stock of more than one bank, the following additional conditions
must be met:
I a) m the e¥eet any debt were incurred by the holding company to purchase shares of any proposed subsidiary banks ? the total
amount of the debt did not exceed 10 per cent of the equity capital accounts of the holding company;
(b) the applicant would control EO more than 15 per cent of
the total deposits in commercial banks in the State,
Reserve Banks were empowered under delegated authority to approve the acquisition by a bank holding company of a controlling interest In the voting shares of an additional bank, if all of the following conditions were met:
81
(1) through (7) plus (11) as listed previously, and;
(8) the'Reserve Bank determined that the managerial and
financial resources, including the equity to debt relationships, of the
applicant, its existing subsidiaries, and "any proposed "subsidiary bank
were adequate, or would be adequate within a reasonable period of
time after consummation of the proposal, and any debt service requirements to -which the holding • company might be subject "were
such as to enable it to maintain the capital adequacy of any existing
or proposed subsidiary bank in the foreseeable future;
(9) - if the-applicant or any of- the-applicant's--existing -or- proposed
noebanking subsidiaries competed in the same geographic and product market as any proposed subsidiary, the resulting organization
would.not .control more than 10 per cent- of that product or service
line after consummation of the proposal;
(10) total nonbank gross revenues of the applicant and its subsidiaries did. not.exceed 10 per cent of. total operating income..of the
company's existing or proposed banking subsidiaries;
(12) in the event any debt were incurred by the applicant to purchase shares of the bank, the resulting total acquisition debt of .the
holding company would not exceed 10 per cent of the company's equity capital accounts after consummation of the proposal;
(13) unless the proposed subsidiary were a proposed new bank,
the applicant would control no more than 15 per cent of the deposits
in the State after consummation of the proposal;
(14) if the bank to be acquired were an existing bank and if no
banking offices of applicant's existing subsidiary banks were located
in the same market as the proposed subsidiary, the proposed subsidiary had no more than $25 million in deposits or controlled no more
than-15--per cent of market deposits;
(15) if the bank to be acquired were an existing bank and if any
of the applicant's existing subsidiary banks were competing in the
same market -as the proposed subsidiary, the applicant -would control
no more than 10 per cent of market deposits after consummation;
(16) if the bank to be acquired were a proposed new bank, bank
subsidiaries of applicant would not hold in the aggregate- more- than
20 per cent of the commercial bank deposits in the relevant market
area and the applicant would not be one of the dominant banking
organizations in the State;
82
(17) the applicant had a proven record of furnishing to its subsidiaries, when needed, special services, management, capital funds,
and general guidance.
Authority to approve a merger, consolidation, acquisition of assets
or assumption of liabilities, where the resulting bank was a State
member bank, was delegated to the Reserve Banks if all of the following conditions were met:
(1) through (4) as listed earlier, and;
(5) if the banks did not have offices in the same market, the
bank to be acquired had no more than $25 million in deposits or
controlled no more than 15 per cent of market deposits;
(6) if the banks competed in the same banking market, the resulting bank would control no more than 10 per cent of market deposits;
(7) if a parent holding company or any of its subsidiaries competed in the same geographic and product market as the bank to be
acquired or any of its subsidiaries, the holding company would control no more than 10 per cent of that product or service line after
consummation of the proposal;
(8) the Reserve Bank determined that the managerial and financial resources, including the equity capital accounts of the resulting
bank, were adequate, or would be adequate within a reasonable period of time after the proposal was consummated;
(9) considerations relating to the convenience and needs of the
communities to be served were consistent with, or lent weight toward, approval of the application.
Governor Robertson based his dissent on the view that expansion
of bank holding companies through acquisition or merger was too
sensitive a matter to be delegated to the Reserve Banks.
M A Y 10, 1973
AMENDMENTS TO MARGIN REGULATIONS
The Board adopted amendments to its margin regulations designed to
prevent the excessive use of credit in connection with the sale of puts
and calls, which are options to sell or buy stocks. The amendments became effective on May 23, 1973, with respect to Regulation G, Securities
83
Credit by Persons Other Than Banks, Brokers, or Dealers, and Regulation T, Credit by Brokers and Dealers, and on June 16, 1973, with respect to Regulation U, Credit by Banks for the Purpose of Purchasing or
Carrying Margin Stocks.
Votes for this action: Messrs. Burns, Brimmer,
Sheehan, and Bucher. Votes against this action:
None. Absent and not voting: Messrs. Mitchell
and Daane.1
The amendments denied loan value to all puts and calls, including
those registered on a national securities exchange; stated that any
margin required in connection with the issuance, endorsement, or
guarantee of a put or call must not be used in a margin account to
purchase other securities; and included puts and calls within the definition of "equity security" to make it clear that bank loans on
puts and calls are subject to Regulation U. This last change brought
the definition of "stock" in Regulation U into conformity with the
statutory definition of equity security in accordance with an amendment, effective June 15, 1973, to Securities and Exchange Commission Rules.
M A Y 16, 1973
MONETARY POLICY ACTIONS
The Board took a series of actions designed to curb the rapid expansion in bank credit and help moderate inflationary pressures, and
at the same time to assure the availability of credit on a reasonable
scale.
Votes for these actions: Messrs. Burns, Daane,
Brimmer, Sheehan, and Bucher. Votes against
these actions: None. Absent and not voting: Mr.
Mitchell.1
The actions were taken against the background of an unusually
strong expansion in bank credit, stimulated to a considerable extent
by increased business spending for capital investment and inventory
accumulation. The actions were designed to help the existing policy
1
There was one vacancy on the Board at the time this meeting was held.
84
of monetary restraint moderate tils expansion. Recent growth in
bunk credit to major business corporations had been financed In
large part by increases in the issuance of money market instruments
of the kinds co¥ered by the actions taken.
Business borrowing from commercial banks had increased by
about $15 billion during the first 4 months of 1971. This increase
had been only partially offset by the reduced use of commercial
paper by businesses to obtain funds. To meet the demand for a rising volume of business loans, commercial banks had obtained funds
mainly through the sale of large negotiable certificates of deposit
(CD's), which also had increased by about $15 billion over this
period,
The actions taken were as follows:
1» Amendment to Regulation D, Reserves of Member Banks
Effective June 21, 1973, the Board amended the Supplement to Regulation D to establish a marginal resewe requirement of 8 per cent against
increases in. time deposits over the amounts outstanding during the computation period ending May 16, 1973.
The new 8 per cent marginal reserve requirement (which represented the previously established rescue of 5 per cent plus a supplemental 3 per cent) would be applied to the total of single-maturity,
large-denomination CD's and bank-related commercial paper issued
by a member bank beginning June 7, to the extent that this volume
exceeded the average amount outstanding in the statement week ending May 16. In no case would the marginal reseiYe apply to an.
amount outstanding of less than $10 million. Under the amendment
the base for computing the marginal reser¥e requirement remained
unchanged for each bank, regardless of the level of its holdings of
CD's and commercial paper in the future.
2. Amendments to Regulation D, Reserves of Member Banks, and
Regulation M, Foreign Activities of National Banks
The Board amended both the Supplement to Regulation D and Regulation M to reduce from 20 to 8 per cent the reserve requirement on
csTtain foreign borrowings of U.S. banks, primarily Euro-dollars, thus affording roughly parallel treatment with the marginal reserve requiren*ont on large-denomination CD's and bank-related commercial paper.
The Board also acted to eliminate gradually the reserve-free bases still
held hv sonic bonks subject to this measure.
85
la September 1972 the Board had published for comment a proposal to reduce from 20 to 10 per cent the reserve requirement on
Euro-dollar borrowings by member banks and on loans by their foreign' branches'to U.S. residents and "to" eliminate reserve-free 'bases,
which had been exempting from reserve requirements some portion
of those borrowings or loans. After consideration of comments recei¥ed? the Board acted (1) to' reduce the resewe requirement on
member banks' Euro-dollar borrowings and foreign branch loans to
U.S. residents from 20 to 8 per cent, (2) to eliminate the reservefree-bases-•• exempting from •• reserve requirements• some • portion of
member banks* foreign branch loans to U.S. residents, and (3) to
phase out over a period of approximately 8 months such reserve-free
bases. •
Under the amendments the reduced rate of reserve requirements
applied to reserves required to be maintained during the period beginning on June .21, 1973, which ..were...based on the computation .period
extending from May 10, 1973, to June 6, 1973, and the reserve-free
bases relating to member banks* foreign branch loans to U.S. residents were eliminated from calculations of this period and. thereafter.
In phasing out the reserve-free bases available to banks subject to
this marginal reserve requirement, bases were reduced by 10 per
cent in each 4-week computation period beginning with the period
starting July 5. According to this schedule the bases will be eliminated in the computation period beginning March 14, 1974.
3. Amendment to Regulation Q, Interest on Deposits
Effective immediately, the Board amended the Supplement to Regulation Q to suspend, for the time being, the limitation on the rate of
interest .that a member bank may pay on a single-maturity..time deposit
of $100,000 or more that matures in 90 days or more. Interest rate ceilings on large CD's with maturities of less than 90 days had been suspended in June 1970.
This action was taken to permit member commercial banks to
maintain a balanced structere of deposits. Because of recent advanc.es.in.market rates, the ceiling rates on longer-maturity .deposits
had practically precluded banks from using long-term CD's; hence
the great bulk of the large CD's being issued had maturities of less
than 90 days.
8l6
Interest rate ceilings remained unchanged on all other types of
bank deposits, including passbook accounts and consumer-type CD's
(those of less than $100,000).
4. Interpretation regarding ineligible acceptances
The Board issued an interpretation stating that, in the absence of any
indication of congressional intent for a broader application, only acceptances eligible for discount at Federal Reserve Banks would be subject to
limitations on amounts outstanding as set forth in Section 13 of the
Federal Reserve Act.
Previously both the Board and the Comptroller of the Currency
had ruled that banks within their supervisory jurisdictions might
make acceptances that were not of the type described in Section 13.
5. Letter urging cooperation
The Board urged all banks to observe the spirit, as well as the letter, of
the Board's actions in a concerted effort to curb bank credit expansion
and to moderate inflationary pressures.
In this connection the following letter signed by the Chairman was
sent to about 190 of the largest nonmember banks to seek their assistance and cooperation in ensuring the effectiveness of this program:
I earnestly seek your assistance and cooperation In ensuring that actions taken by the Federal Reserve System today in the Interest of a
healthy national economy can effectively accomplish this objective.
The Board of Governors of the Federal Reserve System has taken two
actions that affect large time certificates of deposit issued by member
banks. One action is to suspend maximum interest rate ceilings on such
deposits with maturities of more than 89 days; the ceiling rate of deposits of 30-89 day maturity had been suspended since June 27, 1970, The
Federal Deposit Insurance Corporation has taken a similar action with
respect to Insured banks that are not members of the Federal Reserve
System. With market interest rates relatively high, the suspension of ceilings across the board will enable banks to' compete in all maturity sectors
of the short-term market and thereby permit them to establish a balanced
maturity structure for outstanding large certificates of deposit.
The other action taken by the Federal Reserve Board has been to
Impose a marginal reserve requirement on the total of funds raised from
the Issuance of (1) single-maturity time deposits of $100,000 or more,
87
(2) deposits represented by certain commercial paper obligations such as
promissory notes, acknowledgements of advances, and due bills, and (3)
funds obtained by the bank from obligations issued by affiliates and subsidiaries of the bank. The Board has also published for comment a proposal to establish reserve requirements, including marginal reserve requirements, on funds obtained from the sale of finance bills (also termed
ineligible acceptances), the proceeds of which are used by the bank.
The marginal reserve requirement action means that member banks
must maintain additional reserves equal to 3 per cent of any growth in
the total of deposits and liabilities specified above in excess of a base
amount. The base for computing the marginal reserve will be the amount
outstanding in the week ended May 16, 1973, ~ * irk —•»•— —L^I
is greater. Thus, for a member bank the resei
to the excess of such deposits above the base level wouia generally oe »
per cent—the continuing 5 per cent requirement on large denomination
time deposits and other similar domestic money market instruments, plus
the marginal 3 per cent requirement.
The reserve requirement action was taken by the Board in an effort to
restrain bank credit growth as part of the nation's anti-inflationary program. The effectiveness of this action in the essential task of combating
inflation would be enhanced if it applied generally throughout the banking community. Accordingly, I very much hope you will see fit to conform to the additional 3 per cent marginal reserve as described above. A
copy of the Federal Register notice implementing the marginal reserve is
attached for your information and guidance.
For a nonmember bank, the additional marginal reserve should be
maintained with a member of the Federal Reserve System of your choosing. The member bank receiving the deposit will be expected to redeposit
these balances with its Federal Reserve Bank. Operating procedures will
be provided by the Federal Reserve Bank and your designated correspondent.
I assure you that the request I am now making of you will be withdrawn at the earliest possible time consistent with the national interest.
Your cooperation can play a significant role in restraining inflation and
in returning the economy to a more normal course.
MAY 21 AND MAY 29, 1973
LETTERS URGING LOAN RESTRAINT
On May 21, 1973, the Board authorized the sending of a letter signed
by the Chairman to all member banks requesting their cooperation in
assuring that the rate of credit extension be appropriately disciplined.
88
Votes for this action: Messrs. Bums, Daane,
Brimmer, Slieehan, and Bucher. Votes against this
action: None. Absent and not voting: Mr. Mitchell.1
The letter, which was Intended to complement the series of regulatory measures previously taken in an effort to curb the rapid expansion In bank credit, read as follows:
Some key segments of the Nation's economy are now growing at an
unsustainable pace, thereby adding substantially to inflationary pressures.
Since excessive bank loan expansion is a factor In this deYelopmeet, the
Federal Reserve last week supplemented its previous policy actions by
adopting several regulatory amendments with a Yiew to further curbing
such expansion. 1 am writing to you and e¥ery other member bank today
on behalf of the Board to give emphasis to these recent actions and to
mvite your personal cooperation In assuring that the rate of credit extension by your bank Is appropriately disciplined.
The national interest calls for bankers to exercise financial statesmanship at this time. You and your colleagues can meet this need by intensifying your scrutiny of credit applications and by resisting excessive credit
demands, A corollary requirement is the exercise of prudence in issuing
large-denomination certificates of deposit and in borrowing from eondeposit sources. It is also appropriate that banks, while exercising this restraint, continue to gi¥e special consideration in using their limited supplies of lendable funds to the accommodation of credit needs originating
within their local communities.
All of us haYe a stake in slowing the pace of inflation and achieving the basis for a lasting economic prosperity. Greater prudence In the
extension of credit can contribute importantly to that goal. I look forward
to yoer earnest cooperation in this endeavor.
On May 29, 1973, the Board also authorized the sending of a letter
signed by the Chairman to approximately 100 foreign-owned banking institutions in the United States, including agencies and branches of foreign
banks, subsidiary banks, and investment companies. The purpose of the
letter was to request their voluntary cooperation in assuring that the rate
of bank credit expansion in the United States be restrained.
Votes for this action: Messrs. Burns, Daane,
Brimmer, Sheehan, and Bucher. Votes, against this
action: None. Absent and not voting: Mr. Mitchell.1
1
There was one vacancy on the Board al the time thh meeting was held.
89
The letter read as fellows:
I am writing to seek your assistance in ensuring that recent actions
taken by the Federal Reserve System in the interest of a healthy national
economy can effectively accomplish this objective, Moderating iniation in
the United States will benefit not only this country but also other nations
and the international financial system,.
As you know, the Board of Governors of the Federal Reserve System
recently imposed a marginal reserve requirement of 3 per cent—over and
abo¥e the 5 per cent previously required—on further increases in the
total of funds raised by member banks from the issuance of (1) singlematurity time deposits of $100,000 or more, (2) deposits represented by
certain commercial paper obligations such as promissory notes, acknowledgements of advances, and due bills, and (3) funds obtained by the
bank from obligations issued by affiliates and subsidiaries of the bank. In
addition, the Board set the reserve requirement at 8 per cent on increases, aboYe a base that is being phased out, in certain foreign borrowings—primarily Euro-dollars—by U.S. member banks.
We believe that the effectiveness of the Board's recent actions in combating inflation would be substantially enhanced if you would conform to
the 8 per cent reserve on any increase in your borrowings from banks
abroad, including your head office. With respect to such increases, this
treatment would parallel the reserves maintained by member banks
against similar types of borrowings. For agencies, branches, investment
companies affiliated with foreign banks, and U.S. subsidiaries of foreign
banks, we would propose that the 8 per cent reserve be maintained
against any additional increases in net funds obtained from foreign banks
over the amounts obtained on average during the month of May. The
amounts to be included would consist of net balances due to directly related institutions abroad together with net time deposits of and net borrowings from other foreign banks.
In addition to your cooperation with regard to the 8 per cent reserve
on increased borrowings from foreign banks, we also invite your cooperation in conforming to the marginal reserve on deposits and liabilities
noted above (first sentence of the second paragraph). This marginal reserve, as it applies to member banks, means that they must maintain additional reserves equal to 3 per cent of any growth in the total of the deposits and liabilities specified above in excess of a base amount. The base
for computing the marginal reserve is the amount outstanding in the
week ended May 16, 1973, or $10 million, whichever is greater.
As in the case of domestic nonmember banks—whom I have already
requested to conform to the marginal reserve proposals—the additional
90
reserves maintained by an agency, branch, investment company, or subsidiary should be deposited with a member bank of the Federal Reserve
System of your choosing. The reserves as maintained would include the
8 per cent reserve on foreign borrowings and the 3 per cent marginal reserve on the other specified deposits and liabilities. The member bank receiving the deposit will be expected to redeposit 100 per cent of all such
balances with its Federal Reserve Bank. Operating procedures, and details regarding the appropriate bases, will be provided by the Federal
Reserve Bank.
I look forward to your cooperation in this voluntary program of credit
restraint. Success in combating excessive increases in credit in this period
is a matter of great national importance.
MAY 31, 1973
AMENDMENT TO REGULATION M, FOREIGN ACTIVITIES OF
NATIONAL BANKS
Effective June 21, 1973, the Board amended Regulation M so as to
exclude from the computation of reserve requirements thereunder credit
extended (1) in the aggregate amount of $100,000 or less to any U.S.
resident or (2) by a foreign branch that at no time during the computation period had had credit outstanding to U.S. residents exceeding $1
million.
Votes for this action: Messrs. Burns, Daane,
Brimmer, Sheehan, and Bucher. Votes against this
action: None. Absent and not voting: Mr.
Mitchell.1
The purpose of the amendment was to minimize the administrative
burden on member banks of complying with reserve requirements relating to extensions of credit by their foreign branches to U.S. residents. The amendment, which was to become effective on the same
date as previously adopted amendments to reserve requirement regulations, removed from the reserve requirements of Regulation M
credits extended that were of such small amounts as were unlikely to
be significant as a moderate restraint on over-all increases in member
banks' Euro-dollar borrowings.
1
There was one vacancy on the Board at the time this meeting was held.
91
MAY 31, 1973
REGULATION K, CORPORATIONS ENGAGED IN FOREIGN
BANKING AND FINANCING UNDER THE FEDERAL RESERVE
ACT, AND REGULATION M, FOREIGN ACTIVITIES OF
NATIONAL BANKS
The Board issued an interpretation of Regulations K and M in the
form of a statement of policy regarding availability of information pertaining to member banks' foreign branches and subsidiaries to enable
proper supervision of those operations. The purpose of the statement was
to give guidance to member banks having foreign operations.
Votes for this action: Messrs. Burns, Daane,
Brimmer, Sheehan, and Bucher. Votes against this
action: None. Absent and not voting: Mr.
Mitchell.1
The statement was as follows:
(1) The Board of Governors of the Federal Reserve System, as a central bank, is properly concerned with the preservation and promotion of
a sound banking system in the United States. The Board of Governors
and other Federal banking supervisory authorities have been given
specific statutory responsibilities to assure that banking institutions are
operated in a safe and prudent manner affording protection to depositors
and providing adequate and efficient banking services to the public on a
continuing basis. These responsibilities and concerns are shared by
central banks and bank supervisors the world over.
(2) Under Sections 25 and 25(a) of the Federal Reserve Act, the
Board has particular responsibilities to supervise the international operations of member banks in the public interest. In carrying out these
responsibilities, the Board has sought to assure that the international
operations of member banks would not only foster the foreign commerce
of the United States but that they would also be conducted so as not
to encroach on the maintenance of a sound and effective banking structure in the United States. In keeping with the latter consideration, the
Board believes it incumbent upon member banks to supervise and administer their foreign branches and subsidiaries in such a manner as to
1
There was one vacancy on the Board at the time this meeting was held.
92
assure that their operations are conducted at all times In accordance
with high standards of backing and financial prudence,
(3) Proper administration, and supervision of foreign branches and
subsidiaries require the use of effective systems of records, controls, and
reports that will keep the bank's management informed of the activities
and condition of its branches and subsidiaries. At a minimum, such
sy .stems should provide the following:
(a) Risk assets. To permit assessment of exposure to loss, information furnished or available to head office should be sufficient to permit
periodic and systematic appraisals of the quality of loans aad other
ottensions of credit. Coverage should extend to a substantial proportion
of the risk assets in the branch or subsidiary, and include the states of
all large credit lines and of credits to customers also borrowing from
other offices of the bank. Information, on credit extensions should include
( h a recent financial statement of the borrower and current information
on his financial condition; (ii) credit terms, conditions, and collateral;
(iii) data on any guarantors; (iv) payment history; and (v) status of
corrective measures employed,
(b) Liquidity. To enable assessment of local management's ability
to meet its obligations from available resources, reports should identify
the general sources and character of the deposits, borrowings, and so
forth, employed in the branch or subsidiary with special reference to
their terms and volatility, information, should be available on sources of
liquidity—cash, balances with banks, marketable securities, and repayment flows-—such as will reveal their accessibility in time and any risk
elements involved.
(c) Contingencies. Data on the Yolume and nature of contingent
items such as loan commitments and guaranties or their equivalents that
permit analysis of potential risk exposure and liquidity requirements.
(d) Controls. Reports on the internal and external audits of the
branch or subsidiary in sufficient detail to permit determination of conformance to auditing guidelines. Such reports should co¥er (i) verification and identification of entries on inancial statements; (ii) income and
expense accounts, including descriptions of signiicaet charge-offs and
recoveries; (iii) operation of dual-control procedures and other internal
controls; (iv) conformance to head-office guidelines on loans, deposits,
foreign exchange activities, proper accounting procedures, and discretionary authority of local management; (v) compliance with local laws
and regulations; and (vi) compliance with applicable U.S. laws and
regulations.
93
JUNE 18, 1973
AMENDMENT TO REGULATION D, RESERVES OF MEMBER
BANKS
Effective July 12, 1973, the Board amended Regulation D to provide
that funds raised by member banks through the use of acceptances of
the type not eligible for discount at a Federal Reserve Bank be made
subject to reserve requirements.
Votes for this action: Messrs. Burns, Mitchell,
Brimmer, Bucher, and Holland. Votes against this
action: None. Absent and not voting: Messrs.
Daane and Sheehan.
The amendment adopted was in the same form as the proposal issued for comment by the Board on May 16 and was part of a series
of actions designed to curb rapid expansion of bank credit, help
moderate inflationary pressures, and assure the availability of credit
on a reasonable scale.
Under the amendment the sale of finance bills was treated as
equivalent to deposits subject to reserve requirements if a member
bank made an acceptance that was not eligible for discount at a Federal Reserve Bank, sold the acceptance, and then used the proceeds
in its banking business. A basic 5 per cent reserve requirement was
applied to all outstanding finance bills that had a maturity of 30 days
or more at the time of sale. An additional 3 per cent reserve requirement was applied to the total of funds raised through (1) finance bills,
(2) large ($100,000 and over) CD's (or other single-maturity time
deposits of like size), and (3) bank-related commercial paper, to the
extent the total exceeded the level outstanding during the week ended
May 16 or $10 million, whichever was larger. Member banks were
required to include finance bills in their reserve calculations for the
week beginning June 28 and to hold the reserves in the week beginning July 12.
JUNE 29, 1973
AMENDMENT TO REGULATION D, RESERVES OF MEMBER
BANKS
Effective July 19, 1973, the Supplement to Regulation D was amended
to increase reserve requirements on all but the first $2 million of net demand deposits at member banks by Vi of 1 percentage point.
94
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
This action was taken as a further step in an effort to restrain
continuing excessive expansion in money and credit. The amendment
had the effect of requiring each member bank to maintain on deposit
with the Federal Reserve Bank of its district: (1) 8 per cent of its
net demand deposits if its aggregate net demand deposits were $2
million or less; (2) $160,000 plus lO1/^ per cent of its net demand
deposits in excess of $2 million if its aggregate net demand deposits
were in excess of $2 million but less than $10 million; (3) $1 million plus HV2 per cent of its net demand deposits in excess of $10
million if its aggregate net demand deposits were in excess of $10
million but less than $100 million; (4) $12.25 million plus 13V£ per
cent of its net demand deposits in excess of $100 million if its aggregate net demand deposits were in excess of $100 million but less
than $400 million; or (5) $52.75 million plus 18 per cent of its net
demand deposits in excess of $400 million.
J U N E 29, 1973
AMENDMENT TO REGULATION Z, TRUTH IN LENDING
Effective November 1, 1973, the Board amended Regulation Z for the
purpose of simplifying and clarifying advertising restrictions of the regulation.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
Regulation Z generally provides that if a specific credit term is advertised, the other credit terms applicable to the credit plan must
also be shown. Because of the amount of information required, creditors had for the most part stopped advertising open-end credit plans
—such as revolving charge accounts and bank credit cards—other
than in a general way.
The amendment reduced, to the minimum requirements of the
Truth in Lending Act, the amount of information a creditor must
furnish, once a specific term was used, in order to encourage creditors to advertise specific provisions of their credit plans, thus giving
95
consumers more useful information for comparison of credit terms.
The amendment also incorporated into the regulation several changes
in the advertising provisions relating to instalment credit, as well as
technical changes that had been suggested following publication of
the proposal for comment in December 1972.
At the same time an interpretation was issued specifying that answers to oral inquiries about the cost of consumer credit must be in
terms of "annual percentage rates" and not in terms of add-on or
discount rates.
JULY 5, 1973
AMENDMENT TO REGULATION 0, INTEREST ON DEPOSITS
Effective July 1, 1973, the Board amended the Supplement to
Regulation Q to increase the maximum rates of interest that member
banks may pay on time and savings deposits and to suspend the limitation on the rate of interest that a member bank may pay on a singlematurity time deposit of $1,000 or more with a maturity of 4 years or
more.
Effective immediately, the Board also amended its rules on the payment of time deposits by member banks prior to maturity.
Votes for this action: Messrs. Mitchell, Brimmer, Sheehan, and Holland. Votes against this action: None. Absent and not voting: Messrs. Burns,
Daane, and Bucher.
Revisions in the interest rate ceilings were designed (1) to provide
room within the ceilings for a greater measure of equity in the payment of interest to consumers, in an environment of generally rising
interest rates, and (2) to enable member banks to bid more effectively for consumer deposits in competition with the yields available
to savers on : arket securities.
The schedi e of ceilings, applicable to both single- and multiplematurity depc iits of less than $100,000 at member banks, was revised as follows:
96
Maturity
New ceilings
(per cent)
Old ceilings
(per cent)
Passbook accounts
5
W2
30 days to 89 days
5
4¥i
5
90 days to 1 year
5
1 year to 2Vi years
6
IVi years and over
6Y2
4 years and over
(for multiple-maturity
time deposits)
(for single-maturity
time deposits)
No ceiling with
minimum denomination of $1,000
31 •
{for deposits of 1
year to 2 years)
5% (for deposits of
2 years and over)
(for deposits of
2 years and over)
(for deposits of
2 years and over)
This action, was taken after consultation with the Federal Deposit
Insurance Corporation and the Federal Home Loan Bank Board,
which announced similar changes with respect to the Federally insured State-chartered eoemember banks, mutual sa¥lngs banks, and
savings and loan associations under their respecti¥e jurisdictions.
In a related action the Board amended Regulation Q to change
the rules governing payment of a time deposit before maturity. This
action was taken in an effort to achie¥e uniform standards among
the Federal supervisory agencies with respect to imposition of penalties for the withdrawal of time deposits before maturity. Formerly,
under Regulation Q, a time deposit could be paid before maturity
only in an emergency where it was necessary to prevent great hardship to the depositor. Under the revision adopted, a bank may pay a
time deposit at any time before maturity, but only at a reduced rate
of interest to the depositor. In such a case a member bank may pay
97
interest at the passbook rate on the amount withdrawn, provided the
depositor forfeits 3 months' interest at that rate. When a bank permits funds on deposit for less than 3 months to be withdrawn before
maturity, all interest is forfeited.
J U L Y 12, 1973
AMENDMENT TO REGULATION Z, TRUTH IN LENDING
Effective January 1, 1974, the Board amended Regulation Z regarding
disclosure of unearned finance charge rebates.
Votes for this action: Messrs. Mitchell, Daane,
Brimmer, Sheehan, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Burns.
The purpose of this amendment was to require creditors who do
not provide rebates of the unearned portion of a finance charge in
the event of prepayment in full of an instalment contract to disclose
this fact to consumers on the truth-in-lending disclosure form. Previously, Regulation Z had required those creditors who made rebates
to identify the rebate method, but it had not required the creditor
who did not make rebates to disclose that fact. As adopted, the
amendment included certain technical changes that were suggested
following publication of the proposal for comment in May 1973.
J U L Y 16, 1973
AMENDMENTS TO REGULATION D, RESERVES OF MEMBER
BANKS, AND REGULATION 0, INTEREST ON DEPOSITS
The Board adopted amendments to the Supplements to Regulation D
and Regulation Q designed to treat multiple-maturity time deposits in
the same manner as single-maturity time deposits.
Votes for this action: Messrs. Burns, Daane,
Brimmer, Sheehan, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Mitchell.
Recently, the Board had imposed an 8 per cent marginal reserve
requirement (which represented the previously established reserve of
98
5 per cent plus a supplemental 3 per cent) on the total of single-maturity, large-denomination time deposits, bank-related commercial
paper, and finance bills in excess of the amount of such instruments
outstanding during the week ending May 16, 1973, and had removed
interest rate ceilings on large ($100,000 or more) single-maturity
time deposits that mature in 90 days or more.
Under the action now taken, the Supplement to Regulation Q was
amended, effective immediately, to treat multiple-maturity time deposits in the same manner as single-maturity time deposits with respect to the maximum rates of interest payable by member banks on
such deposits. At the same time the Supplement to Regulation D was
amended, effective August 30, 1973, to apply the 8 per cent marginal reserve requirement to multiple-maturity time deposits of
$100,000 or more in the same manner as it is applied to singlematurity time deposits in such denominations. The amendment to
Regulation D also clarified the fact that marginal reserve requirements do not apply to time deposits of less than $100,000 on which
interest rate ceilings have been removed.
J U L Y 19, 1973
AMENDMENT TO VOLUNTARY FOREIGN CREDIT RESTRAINT
PROGRAM GUIDELINES
The Board authorized the issuance of a clarifying statement on the
voluntary foreign credit restraint (VFCR) program guidelines to provide
a specific formula for restraint of foreign lending and investment by
agencies and branches of foreign banks.
Votes for this action: Messrs. Burns, Daane,
Brimmer, Sheehan, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Mitchell.
Previously, agencies and branches of foreign banks had not been
assigned specific lending ceilings under the VFCR program, as was
the case with U.S. banks. Instead, they had been asked to conform
to the spirit of the guidelines, to consult with the Federal Reserve
Bank in their district about such guidelines, and to report monthly
on their foreign lending. As activities of the agencies and branches
grew, the lack of specific guidelines produced some unevenness in
99
observance of the program. This situation now prompted the Board
to request agencies and branches not to increase their foreign assets
covered by the program above the levels of June 30, 1973, except to
the extent that additional funds were obtained outside the United
States.
The amendment adopted did not change the degree of restraint on
covered institutions as a whole; rather, it was designed to ensure uniformity in observance of the program. The formula tied the restraint
to the amount of funds the agencies and branches might obtain from
their parent banks and other foreigners. Unlike U.S. banks, the agencies and branches rely mainly on foreign sources of funds for their
banking activities.
J U L Y 24, 1973
AMENDMENT TO REGULATION 0, INTEREST ON DEPOSITS
Effective immediately, the Board amended Regulation Q to clarify the
nature of the penalties—originally set forth in the amendment adopted
July 5—that apply to various types of deposit contracts if funds are
withdrawn before maturity.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Sheehan, and Bucher. Votes against this
action: None. Absent and not voting: Messrs.
Brimmer and Holland.
Under the early withdrawal rule that went into effect July 5, 1973,
a time deposit might be withdrawn before maturity only with a forfeiture of interest. In the clarifying action now taken, the Board
spelled out the types of contracts to which this new rule would
apply: namely, time deposits entered into after July 5; contracts
amended after July 5 to increase the rate of interest or to extend the
maturity of the deposit; and contracts renewed after July 5, whether
by automatic renewal or otherwise.
All other time deposit contracts continued to be subject to the old
rule, which states that a bank may pay a time deposit before maturity only in an emergency where it is necessary to prevent great
hardship to the depositor. In such cases, the depositor would forfeit
accrued and unpaid interest for a period of up to 3 months.
100
JULY 26, 1973
AMENDMENT TO REGULATION 0, INTEREST ON DEPOSITS
Effective immediately, the Board amended the Supplement to Regulation Q to impose a percentage limitation on the amount of time deposits
that may be issued by member banks in denominations of $1,000 or
more with maturities of 4 years or more on which no maximum rate of
interest is prescribed.
Votes for this action: Messrs. Burns, Mitchell,
Brimmer, Sheehan, and Bucher. Votes against this
action: None. Absent and not voting: Messrs.
Daane and Holland.
On July 5 the Board had increased the maximum rates of interest
that member banks might pay on savings and other consumer-type
deposits and had established a new category of time deposit—with
maturity of 4 years or more and minimum denomination of $1,000
—on which member banks were not limited as to the rate of interest
they might pay.
The action now taken limited the amount of such certificates that
a bank may issue to 5 per cent of its total time and savings deposits.
The purpose of this action was to provide for the introduction of
these new savings instruments at an orderly pace. Any of these certificates sold by a bank in excess of the 5 per cent limitation would
be subject to the existing interest rate ceiling of 6 ^ per cent applied
to time deposits maturing in IVi years or more.
A U G U S T 23, 1973
AMENDMENT TO REGULATION 0, INTEREST ON DEPOSITS
Effective September 10, 1973, the Board amended Regulation Q so as
to treat as a payment of a time deposit before maturity any amendment
to a time deposit contract that would result in either an increase in interest rate or a change in the maturity of the deposit.
Votes for this action: Messrs. Burns, Sheehan,
Bucher, and Holland. Votes against this action:
None. Absent and not voting: Messrs, Mitchell,
Daane, and Brimmer.
101
The purpose of this amendment was to apply the penalty provisions for early withdrawals of time deposits to changes in deposit
contracts. The amendment was in the same form as that previously
published for comment.
This action was taken after consideration of comments received,
and following consultation with the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board.
S E P T E M B E R 7, 1973
AMENDMENT TO REGULATION D, RESERVES OF MEMBER
BANKS
Effective October 4, 1973, the Board amended the Supplement to Regulation D to increase marginal reserve requirements on large-denomination CD's, bank-related commercial paper, and finance bills.
Votes for this action: Messrs. Burns, Mitchell,
Brimmer, and Holland. Votes against this action:
Messrs. Sheehan and Bucher. Absent and not voting: Mr. Daane.
This action was taken as a further move to curb the rapid expansion in bank credit, which growth had been financed in large part by
bank sales of CD's of $100,000 or more and similar money market
instruments. On May 16 the Board had imposed an 8 per cent marginal reserve requirement on further increases in time deposits in denominations of $100,000 or more and on bank-related commercial
paper (the previously established reserve of 5 per cent plus a supplemental 3 per cent); subsequently, a similar reserve requirement had
been applied to funds raised by banks through the sale of finance
bills. The Board now amended the Supplement to Regulation D to
increase the marginal reserve requirement from 8 to 11 per cent,
subject to the proviso that in no event should the reserves required
of a member bank on its aggregate amount of time and savings deposits exceed 10 per cent.
Messrs. Sheehan and Bucher dissented from this action on the
grounds that bankers were increasingly practicing self-restraint in the
issuance of large-denomination CD's and in the granting of credit to
business firms, and that such restraint, coupled with the restraints of
monetary policy already in effect, was sufficient under current conditions.
102
Subsequently, letters were sent over the signature of the Chairman
to certain nonmember banks requesting voluntary compliance with
the increased marginal reserve requirement.
S E P T E M B E R 11, 1973
AMENDMENT TO REGULATION 0 , INTEREST ON DEPOSITS
Effective September 18, 1973, the Board amended Regulation Q to
provide clear disclosure of interest rate penalties applicable in the event
a time deposit were paid before maturity.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, Bucher, and Holland. Votes against this
action: None. Absent and not voting: Messrs.
Daane and Brimmer.
Under the amendment a member bank was required (1) to disclose, in its advertising of interest paid on time deposits, that Federal
law and regulation prohibit the payment of a time deposit prior to
maturity unless substantial interest is forfeited, and (2) to give to
each bank customer who enters into a time deposit contract a written
statement specifying that the customer has contracted to keep funds
on deposit for a fixed period of time and describing how the early
withdrawal penalty would apply in the event the bank permitted payment before maturity.
The early withdrawal penalty, which is the subject of the disclosure provision, has two parts: (1) The rate of interest is reduced to
the maximum permissible passbook rate for the period the deposit is
held, and (2) interest for 3 months is forfeited.
As adopted, the amendment was in substantially the same form as
that previously proposed for public comment, although some technical changes had been made in light of comments received.
SEPTEMBER 14, 1973
AMENDMENT TO REGULATION G, SECURITIES CREDIT BY
PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS
Effective October 29, 1973, the Board amended Regulation G to delete the "single credit rule" in Section 207.4(a) (2) (i) and to substitute
the provision that each extension of credit pursuant to that section may
be treated separately.
103
Votes for this action: Messrs. Burns, Mitchell,
Daane, Bucher, and Holland. Votes against this action: None. Absent and not voting: Messrs. Brimmer and Sheehan.
The Board acted to relax Regulation G in order to remove certain
unnecessary hardships. Under the amended regulation, borrowers
who obtain credit regularly from their companies (or related planlender organizations) to buy their companies' stock under purchase
or option plans would be allowed to get the stock as soon as the prescribed repayments had been made over the 3-year period mentioned
in the regulation. Under the regulation as previously structured, a
borrower who had made more than one purchase of stock on credit
might have had to wait more than 3 years to get the stock.
SEPTEMBER 27, 1973
AMENDMENT TO REGULATION P, MINIMUM SECURITY
DEVICES AND PROCEDURES FOR FEDERAL RESERVE BANKS
AND STATE MEMBER BANKS
Effective November 1, 1973, the Board revised Appendix A of Regulation P in order to clarify the standards with which Federal Reserve
Banks and State member banks must comply (unless noncompliance is
fully explained) regarding the installation, maintenance, and operation of
security devices to discourage robberies, burglaries, and larcenies and to
assist in the identification and apprehension of persons who commit such
acts.
Votes for this action: Messrs. Mitchell, Brimmer, Sheehan, Bucher, and Holland. Votes against
this action: None. Absent and not voting: Messrs.
Burns and Daane.
The revisions adopted were mainly technical in nature and were
similar to the changes proposed for comment by the Federal Reserve, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board in January 1973. They included a definition of requirements for vaults as
distinguished from safes, protection standards for cash-dispensing
machines, and a clarification of the requirement that safe-deposit
boxes be stored in an approved vault or safe.
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Under Regulation P, if a bank decides not to install, maintain, or
operate devices that meet the minimum standards for bank security,
as defined in Appendix A of the regulation, it is required to forward
to the Reserve Bank in its district a statement of reasons for its
decision.
OCTOBER 12, 1973
AMENDMENT TO RULES REGARDING DELEGATION OF
AUTHORITY
Effective immediately, the Board amended its Rules Regarding Delegation of Authority to eliminate one of the criteria that Reserve Banks
must consider in processing applications under the Bank Holding Company Act.
Votes for this action: Messrs. Mitchell, Daane,
Sheehan, Bucher, and Holland. Votes against this
action: None. Absent and not voting: Messrs.
Burns and Brimmer.
In April 1973 the Board had delegated to the Reserve Banks authority to approve certain bank holding company formations and acquisitions involving existing banks, at the same time setting forth
criteria within which this authority might be exercised.
Under the amendment now adopted, the criterion that an equal
offer must be made to all shareholders of the bank to be acquired
was eliminated. This action represented acquiescence in a recent ruling by the U.S. Court of Appeals for the Tenth Circuit. The Court
held that the Board lacked statutory authority under the Bank Holding Company Act to apply as a determinative standard, in acting on
an application for a bank holding company acquisition, a requirement
of equal offer to all involved shareholders. Thus, denial of an application solely on this basis was held to be beyond the Board's statutory authority.
O C T O B E R 17, 1973
AMENDMENT TO REGULATION 0 , INTEREST ON DEPOSITS
Effective November 1, 1973, the Board amended the Supplement to
Regulation Q to prescribe a limit on the maximum rates of interest paya-
105
ble by member banks on time deposits with maturities of 4 years or
more and in denominations of at least $1,000 but less than $100,000.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
On July 5 the Board, the Federal Deposit Insurance Corporation,
and the Federal Home Loan Bank Board had established as an experiment a new category of savings instrument free of any interest
rate ceiling. The new category was limited to instruments having a
maturity of at least 4 years and a denomination of at least $1,000
but less than $100,000.
Subsequent legislation required the regulatory agencies to impose
an interest rate limitation on all time deposits issued in denominations of less than $100,000.
Under the amendment adopted in compliance with this legislation,
the Board set a ceiling rate of interest of 7V4 per cent on consumertype time deposits issued by member banks with a maturity of 4
years or more and a denomination of at least $1,000 but less than
$100,000. At the same time, the Board removed from the regulation the existing provision limiting issuance of such 4-year certificates
to 5 per cent of a member bank's total time and savings deposits.
The effective date of the amendment was deferred until November
1, 1973, to provide member banks an opportunity to terminate in an
orderly manner the offering of the "no ceiling" time deposits.
The Board's actions followed consultation with the U.S. Treasury
Department, the Federal Deposit Insurance Corporation, and the
Federal Home Loan Bank Board. The latter two agencies announced
similar actions for institutions under their respective jurisdictions.
NOVEMBER 6, 1973
AMENDMENT TO REGULATION Y, BANK HOLDING COMPANIES
Effective November 15, 1973, the Board amended Regulation Y to
permit bank holding companies to engage in the courier-service business
subject to an extensive set of limitations and conditions designed to enhance competition and ensure other public benefits.
106
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Bucher, and Holland. Votes
against this action; None, Absent and not voting:
Mr. Sheehan.
In November 1971 the Board had ordered a hearing to consider
whether armored car and courier services should be added to the list
of activities found by the Board to be permissible for bank holding
companies. After consideration of all relevant aspects, including the
record of hearings and written comments received, the Board concluded that certain courier services were closely related to banking or
managing or controlling banks and, accordingly, it acted to- add such
courier activities to the list of permissible activities for bank holding
companies. The Bo-ard took no action with regard to armored car
services since it found the hearing record inconclusive in this respect.
Under the amendment adopted, bank holding companies were permitted to provide, subject to approval of individual applications, courier services for (1) the internal operations of the applying holding
company and its subsidiaries; (2) checks, commercial papers, documents, and written instruments such as are exchanged among banks
and banking institutions (excluding currency and bearer-type negotiable instruments); and (3) data-processing materials, such as audit
and accounting media of a banking or financial nature, and business
records and documents used in processing such media.
In connection with the action taken, the Board also issued an interpretation regarding the scope of courier activities it intended to
permit, and set forth the following three principles intended to minimize the possibility of unfair competition among couriers: (1) A
holding company courier subsidiary should be a.separate independent corporate entity, not merely a servicing arm of a bank; (2) as
such, the subsidiary should exist as a separate, profit-oriented operation, and it should not be subsidized by the holding company system,;
and (3) services performed should be explicitly priced; they should
not be paid for indirectly—as for example, on the basis of deposits
maintained at, or loan arrangements with, affiliated banks.
In accordance with those principles, the Board indicated that it
would condition applications for entry of holding companies into
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courier activities on the basis of Section 4(c)(8) of the Bank Holding Company Act as follows:
The courier subsidiary shall perform services on an explicit fee basis
and shall be structured as an individual profit center designed to be operated on a profitable basis. The Board may regard operating losses sustained over an extended period as being inconsistent with continued
authority to engage in courier services.
Courier services performed on behalf of an affiliate's customer shall be
paid for by the customer on a direct basis, and not by indirect arrangements.
The courier subsidiary should make publicly known its minimum rate
schedule for performing services; must furnish comparable services at
comparable rates for any requesting bank or data-processing firm providing financially related data-processing services unless compliance would
be beyond the courier subsidiary's practical capacity; and will be expected to maintain, for at least 2 years, any applications for service that
it denies, together with its reasons.
NOVEMBER 6, 1973
LIMITATION ON ACTIVITIES OF FORMER MEMBERS AND
EMPLOYEES OF THE BOARD
Effective November 6, 1973, the Board adopted rules to limit personal
appearances before the Board or a Federal Reserve Bank by former
members and employees of the Board in matters connected with their
duties or official responsibilities while serving with the Board.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Sheehan.
Although the Federal Criminal Code applies criminal sanctions
against former officers and employees of the Government whose activities involve a conflict of interest or an appearance of such conflict, the Board concluded that the imposition of limitations on personal appearances before the Board or the Federal Reserve Banks
would provide additional protection to the public as well as to both
present and former employees.
108
As adopted, the amendment was in substantially the same form as
that proposed for comment on September 21.
N O V E M B E R 26, 1973
AMENDMENT TO REGULATION D, RESERVES OF MEMBER
BANKS
The Board amended Regulation D to clarify the definition of "gross
demand deposits" for purposes of calculating reserves.
Votes for this action: Messrs. Daane, Sheehan,
Bucher, and Holland. Votes against this action:
None. Absent and not voting: Messrs. Burns,
Mitchell, and Brimmer.
Under the amendment adopted, gross demand deposits include any
obligation to pay a check (or other instrument, device, or arrangement for the transfer of funds) drawn on a member bank, where the
account of the bank's customer has already been debited but payment on the check has not yet been made.
Previously, upon being presented with checks from another bank
in the late afternoon or evening, some member banks had been following the practice of debiting their customers' checking accounts on
the day the checks were received, while not making settlement with
the presenting bank until the following business day. Under this
practice, those banks would temporarily balance their books by crediting an "other liability" account; on the next business day, the
"other liability" account would be debited and the presenting bank
would be paid. The action now taken defines this type of "other liability" as a deposit, subject to reserve requirements.
A number of considerations underlay the Board's action. Use of
an "other liability" account for the purposes mentioned could deprive customers of the use of funds in a way that would be misleading and difficult to detect. Furthermore, the practice outlined above
impeded the pursuit of an effective monetary policy by understating
the reported money stock. Finally, the practice resulted in a level of
required reserves lower than the Board had intended.
The amendment adopted was in the same form as that previously
published for comment.
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DECEMBER 4, 1973
AMENDMENT TO REGULATION T, CREDIT BY BROKERS AND
DEALERS
Effective June 21, 1974, the Board amended Regulation T to withdraw
permission for brokers and dealers to sell certain kinds of investment
contract securities on credit.
Votes for this action: Messrs. Mitchell, Brimmer, Sheehan, and Bucher. Votes against this action: None. Abstaining: Mr. Burns. Absent and
not voting: Messrs. Daane and Holland.
The amendment to Regulation T related to, but was not limited
to, the arrangement for credit by securities brokers and dealers in the
sale of certain investment contract securities, such as programs to
own and feed cattle, or to own and rent, through a related rental arrangement, condominium units. Previously, the Board had held that,
in most cases, securities brokers and dealers were not permitted,
under Regulation T, to arrange credit for the sale of investment contract securities involving the sale of property together with a separate
management contract. An exception had been permitted, however,
when the property sale and the management contract were separate
items and the credit involved was connected only with the property.
The purpose of this amendment was to negate that exception and
to make the extension of credit on any part of such an investment
contract an extension of credit on the entire contract in a manner
consistent with that followed by the Securities and Exchange Commission. Thus, securities brokers and dealers could no longer arrange
for such credit unless collateral were supplied that met the requirements of the regulation.
The amendment was adopted in substantially the same form as
that published for comment in July. Chairman Burns abstained
from this action inasmuch as he had not been present at earlier
Board discussions of this matter.
D E C E M B E R 4, 1973
AMENDMENT TO REGULATION 0, INTEREST ON DEPOSITS
Effective January 1, 1974, the Board amended Regulation Q to prescribe rules governing the use of accounts subject to negotiable orders of
withdrawal (NOW accounts) within Massachusetts and New Hampshire.
110
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, and Bucher. Votes
against this action: None. Absent and not voting:
Mr. Holland.
This amendment was designed to implement a new Federal law,
which went into effect in mid-September, authorizing all depositary
institutions—except credit unions—in Massachusetts and New
Hampshire to offer interest-bearing accounts from which a depositor
may make transfers of funds by negotiable orders of withdrawal. The
rules set forth in the amendment were formulated following careful
consideration of the history of the legislation and comments received
on a tentative statement of proposed policies issued by the Board on
September 14. Prior to adoption of these rules, the Board had
consulted with the other concerned Federal regulatory agencies—
the Federal Deposit Insurance Corporation and the Federal Home
Loan Bank Board—which also issued regulations effective January 1, 1974, covering NOW accounts issued by institutions under
their respective jurisdictions in Massachusetts and New Hampshire.
With regard to member commercial banks, the amendment provided that the maximum interest payable on NOW accounts was 5
per cent; ownership of NOW accounts was limited to natural persons
(or fiduciary accounts for individuals) and nonprofit associations eligible to maintain savings accounts; and the number of NOW's that
might be processed against an individual NOW account should not
exceed 150 per year. In addition, the advertising provisions of Regulation Q were amended to restrict the advertisement, announcement,
and solicitation of NOW's by member banks to media directed toward residents of Massachusetts and New Hampshire so as to confine use of NOW's to persons residing or employed in those two
States and to current customers of member banks in those States.
D E C E M B E R 6, 1973
AMENDMENT TO REGULATION G, SECURITIES CREDIT BY
PERSONS OTHER THAN BANKS, BROKERS, OR DEALERS
Effective immediately, the Board amended Regulation G to provide
for the transfer of credits between persons registered pursuant to the
regulation. This action was taken for the purpose of relieving undue
hardship.
Ill
Votes for this action: Messrs. Brimmer, Sheehan,
Bucher, and Holland. Votes against this action:
None. Absent and not voting: Messrs. Burns,
Mitchell, and Daane.
Regulations T, Credit by Brokers and Dealers, and U, Credit by
Banks for the Purpose of Purchasing or Carrying Margin Stocks, provide for the transfer of loans among creditors within a given class,
even though the transferred account is undermargined. Regulation G
had no similar provision for transfer of loans. In the event that a
creditor wished to transfer a loan on an undermargined account to
another creditor, the borrower was required to bring his account up
to the margin before the transfer could be made. This imposed a
hardship on the borrower. For these reasons and since the borrower
might not be able to exercise control over the creditor's decision to
transfer a credit, the Board found that an undue hardship existed and
acted to relieve that hardship.
D E C E M B E R 7, 1973
AMENDMENT TO REGULATION D, RESERVES OF MEMBER
BANKS
Effective December 13, 1973, the Board amended the Supplement to
Regulation D to lower the marginal reserve requirement on large-denomination CD's, bank-related commercial paper, and finance bills.
Votes for this action: Messrs. Burns, Daane,
Brimmer, Bucher, and Holland. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Sheehan.
In May 1973 the Board had announced an 8 per cent marginal
reserve requirement (the regular 5 per cent plus a supplemental 3 per
cent) against time deposits in denominations of $100,000 or more
and similar financial instruments, and in September 1973 it had
increased the marginal reserve requirement from 8 to 11 per cent,
subject to the provision that in no event should the reserves required
of a member bank on its aggregate amount of time and savings
deposits exceed 10 per cent.
112
Under the amendment now adopted, the Board re-established an 8
per cent reserve requirement on those classes of liabilities that had
been subject to the 11 per cent marginal reserve requirement. The
action was taken in recognition of the moderation in growth of bank
credit achieved over recent months. The amount of large-denomination CD's outstanding had dropped substantially; business loan expansion at banks had been at a much slower pace than earlier in the
year; and extensions of other forms of bank credit had also slowed.
The action taken also affected certain nonmember State banks, as
well as agencies and branches of foreign banks that had been voluntarily holding marginal reserves on large CD's at the request of the
Board. The special marginal reserve held by these institutions was
reduced from 6 to 3 per cent.
DECEMBER 13, 1973
REGULATION Y, BANK HOLDING COMPANIES
In an interpretation of Regulation Y, the Board concluded that the issuance and sale of short-term, small-denomination debt obligations
(thrift notes) by a bank holding company, in the circumstances of a specific proposal, would not be permissible under Section 20 of the Banking
Act of 1933 (the Glass-Steagall Act).
Votes for this action: Messrs. Mitchell, Daane,
Brimmer, Sheehan, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Burns.
A request had been received from a bank holding company for
the Board's views with respect to a proposed sale of "thrift notes"
for the purpose of supplying capital to its wholly-owned nonbanking
subsidiaries. The bank holding company planned to issue the thrift
notes in denominations of $50 to $100, with no aggregate limitation
on the amount to be issued. The notes would be sold to the public in
a continuous offering, initially would have maturities of 12 months
or less, and would bear interest at a variable rate according to
money market conditions. There would be no guarantee or indemnity
of the notes by any of the banks in the holding company system, and
113
the notes would be sold only at offices of the holding company and
its nonbanking subsidiaries. The thrift notes would bear the name of
the holding company, which name was substantially similar to that of
the holding company's affiliated banks.
The Board found that the issuance and sale of thrift notes, in the
specific manner proposed, is within the scope of Section 20 of the
Glass-Steagall Act—that is "the issue, flotation, underwriting, public
sale or distribution . . . of . . . notes, or other securities, . . .".
Further, the Board found that because continued issuance and sale
of such securities would be necessary to permit maintenance of the
bank holding company's activities without substantial contraction,
the bank holding company would be "principally engaged" in such
securities activities.
In reaching this conclusion, the Board distinguished between the
proposed activity and the issuance of commercial paper by a bank
holding company, which the Board concluded was not an activity intended to be included within the scope of Section 20.
D E C E M B E R 20, 1973
AMENDMENT TO VOLUNTARY FOREIGN CREDIT RESTRAINT
PROGRAM GUIDELINES
Effective January 1, 1974, the Board amended the voluntary foreign
credit restraint (VFCR) program guidelines to increase foreign lending
and investment ceilings for banks and other financial institutions subject
to the guidelines and to eliminate differences in the degrees of restraint
on lending in developed countries.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Sheehan.
Under the amendments adopted, (1) the ceiling for each commercial bank was increased to $10 million or to an amount 4 per cent
above the ceiling in effect immediately prior to the present revision;
(2) the request that banks refrain from making nonexport loans with
maturities of more than 1 year (term loans) to residents of the developed countries of continental Western Europe was eliminated;
114
(3) agencies and branches of foreign banks were allotted a ceiling of
at least $10 million for making foreign loans and other investments
of types restrained under the guidelines; (4) agencies and branches
were permitted to recalculate their base "net foreign position," which
determines the relationship between their foreign lending and foreign
borrowing, by deducting from covered assets 96 per cent of their
total foreign liabilities as of June 30, 1973; (5) the restraint against
term loans to the developed countries of continental Western Europe
was dropped for agencies and branches, as it was for banks; (6) the
ceiling of each nonbank financial institution (including, among others, insurance companies, finance companies, and mutual funds) was
increased to an amount 5 per cent above that in effect at the end of
1972, or to $2 million, whichever was higher; (7) the request that
nonbank financial institutions refrain from increasing their loans and
investments in the developed countries of continental Western Europe beyond the amount held at the end of 1968 was eliminated;
and (8) periodic reports would continue to be filed by all banking
institutions with $500,000 or more in foreign assets, and by all nonbank financial institutions with $500,000 or more in foreign assets of
types subject to restraint or with $5 million or more of total foreign
assets.
Liberalization of the VFCR guidelines, announced December 26,
was coordinated with actions by the Treasury and Commerce Departments to relax capital controls through changes in the Interest
Equalization Tax and the Foreign Direct Investment Program, respectively. The three programs constitute a set of restraints on capital outflow that are part of an over-all Government program to help
the U.S. balance of payments.
D E C E M B E R 21, 1973
AMENDMENT TO REGULATION H, MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM
Effective December 21, 1973, the Board adopted an amendment to
Regulation H that waived the requirement for the submission of reports
of affiliates of State member banks, unless such reports were specifically
requested by the Board.
115
Votes for this action: Messrs. Burns, Daane,
Brimmer, Bucher, and Holland. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Sheehan.
The purpose of this amendment was to relieve the reporting burden on State member banks; the information supplied by the report
of an affiliate is normally available in more detail from other reports
by such banks.
1973—DISCOUNT RATES
During the first 8 months of 1973 the discount rate—the rate
charged member banks for borrowing from their district Reserve
Bank—was increased in a series of steps from AV2 to IVi per cent.
In this period there were even sharper advances in short-term market
rates and in bank lending rates; such increases reflected the continued
expansion in economic activity, growing pressures on prices and
costs, and associated heavy demands for bank credit.1 Monetary policy moved in a progressively restrictive direction, but tightening
actions were initiated mainly through open market operations and
other instruments of monetary policy rather than through the discount rate. Throughout the period, adjustments in that rate tended to
lag behind advances in other interest rates.
In late summer and early fall short-term market rates declined
somewhat from their peaks, but most of these rates tended to stabilize over the balance of the year at levels that were still well above
the discount rate. Partly because of those declines, the Board in
September disapproved actions by the directors of a number of Re1
The general economic and financial conditions that the Board considered
in arriving at its discount rate decisions during 1973 are reviewed in more
detail elsewhere in this ANNUAL REPORT, particularly in the discussion of the
U.S. economy contained in Part I and in the policy record of the Federal
Open Market Committee in Part II.
116
serve Banks to raise the discount rate further. Subsequently, several
actions to reduce the discount rate voted by the directors of one
Reserve Bank were disapproved by the Board in circumstances characterized by continued rapid advances in prices and costs.
APPROVAL OF INCREASES, JANUARY-AUGUST
On December 18, 1972, and again on January 2, 1973, the Board
disapproved actions taken by a number of Federal Reserve Banks to
raise the discount rate from \¥i per cent, the level that had been
established in December 1971. Evidence of continuing strong expansion in economic activity, a sizable rise in short-term interest rates,
and the resumption of rapid growth in the monetary aggregates had
suggested to the Board that a higher discount rate might well be
desirable in the near future. However, the Board decided not to
approve the pending increases in view of the sensitive conditions then
prevailing in financial markets and in light of the important financings undertaken by the Treasury around the year-end.
By mid-January it appeared to the Board that the market and
Treasury financing constraints cited above were no longer compelling, and on January 12 it approved an increase in the discount rate
from AVi to 5 per cent. The major reason for the increase was to
bring the rate into better alignment with short-term market rates,
which had risen further in early January. The widened gap between
the discount rate and rates on other sources of bank funds had encouraged a sharply higher level of member bank borrowings in
the preceding weeks.
On February 23 the Board approved a further increase in the discount rate to 5Vi per cent. In reaching its decision, the Board took
account of the continuing rise in short-term interest rates fostered by
strong credit demands associated with rapid economic expansion, of
the renewed surge in member bank borrowings, and of the quickening pace of advance in a number of sensitive price indicators. In
this situation the Board concluded that an increase in the discount
rate would underscore the System's determination to further the
objectives of economic stabilization and would also have a favorable
impact on the dollar in foreign exchange markets.
In light of further advances in short-term market rates and in bank
lending rates during the weeks that followed, the Board approved an
117
Increase of lA percentage point In the discount rate to 5% per cent
on April 20. An increase of Vi percentage point was also considered
by the Board. It was observed that the magnitude of the recent
increases in market and bank rates, especially when ¥iewed against
the background of pronounced advances in prices., and costs and
vigorous expansion in bank credit, might well have called for a ¥2
percentage point adjustment...in the discount rate...The Board, concluded, however, that an increase of more than VA percentage point
under .prevailing circumstances .might precipitate further expectational increases in interest rates not consistent with the current stance
of monetary, policy. A minority-of • the-Board members,-while-voting
to approve a ¥4 percentage point increase, indicated that they would
also have voted to move the rate-up to 6 per cent in order to-provide
a stronger signal of the System's determination to use the various
policy-instruments at its disposalto-resistinflationary pressures in the
economy.
Subsequently, on May 10, the Board approved another 14 percentage point increase in the discount rate to 6 per cent. As had been
the case 'a few weeks earlier,' the' Board favored a modest move to
bring the discount rate into better alignment with short-term market
rates without precipitating further advances in those rates or in bank
lending rates.
In the second half of May the Board disapproved actions by a
number of Reserve Banks to raise the discount rate to 614 or 6¥i
per cent. It was the Board's" judgment that more time was needed to
assess the impact of the series of tightening actions taken by the Federal Reserve in preceding weeks involving open market operations
and reserve requirements as well as discount rates. In addition, it was
noted that conditions in the money market were highly sensitive and
that short-term rates were still advancing. In these circumstances the
Board felt that a further increase in the discount rate—following so
soon after the recent ones—might lead to a misreading, of .the current
posture and outlook for monetary policy and might cause undue
expectational increases in interest rates.
. .
Subsequently, on June 8, the Board approved an increase of ¥2
percentage, point in the discount rate to 6¥i per cent, The increase
was small relative to the rise that had recently occurred in key money
118
market rates. The action was taken amid indications of accelerating
advances in prices and of severe pressure on the dollar in foreign
exchange markets. The Board was especially concerned about the
recent very high rates of growth in. money and bank credit, and it
concluded that the discount rate action would help to affirm the
System's determination to pursue an anti-inflationary policy.
Indications of continuing excessive growth in money and bank
credit led to Board approval on June 29 of a further increase in the
discount rate to 7 per cent, and to concurrent action to increase
reserve requirements on most categories of demand deposits by ¥2
percentage point. These actions were consonant with the decision of
the Federal Open Market Committee at its meeting 10 days earlier
to seek bank reserve and money market conditions consistent with
somewhat slower growth in the monetary aggregates.
The timing of this discount rate increase was dictated in part by
the rapid changes that were occurring in the money market. Just a
few days earlier, conditions in the money market had been unsettled,
and on June 25 and 26 the Board had disapproved pending increases
at two Reserve Banks because of the risk that undue reactions might
occur in the market. Moreover, at that time growth rates in reset¥es
against private deposits and in the monetary aggregates still appeared,
according to staff estimates, to be holding within acceptable ranges
as determined by the Federal Open Market Committee at its meeting
on June 19. However, data that became available after June 26
suggested that key aggregates were in fact growing at rates in excess
of acceptable ranges. In, this new situation the Board approved an
increase in the discount rate to 7 per cent.
The final increase in the discount rate during 1973 was approved
on August 13 when the level was raised from 7 to IV2 per cent.
Short-term market rates had risen substantially further since late
June, and by midsummer the spread between those rates and the
discount rate was the widest on record. In part as a consequence,
System lending to member baeks had risen to unusually high levels.
In this situation, an increase of ¥2 percentage point was viewed by
the Board and by the Reserve Banks as a passive adjustment; but it
was considered to be desirable in order to emphasize that the System
was holding firm to its present posture of monetary restraint. On the
119
other hand, the increase was not thought likely, nor was it intended,
to be regarded as a move toward further restraint, and it was not
expected to foster further advances in market or bank lending rates.
As had been true earlier in the year, market conditions and
Treasury financing constraints played a role in the timing of the
August increase. Previously, on July 27 and again on August 3, the
Board had disapproved pending increases to IV2 per cent at a number of Reserve Banks because of unsettled conditions in the debt
markets and because of the major Treasury financings that were
conducted in late July and the first part of August. By the middle
of the month the atmosphere in the debt markets had improved and
the new issues offered by the Treasury had been successfully absorbed
by investors.
DISAPPROVAL OF CHANGES, SEPTEMBER-DECEMBER
Over the remainder of the year the Board disapproved actions by
several Reserve Banks to change the discount rate, including both
increases and decreases.
During September the directors of five Banks voted to increase the
rate from IVi to 8 per cent. They felt it would be desirable to provide
a strong signal of the System's determination to maintain a restrictive
monetary policy to help bring inflation under control. Pending actions
by four Banks were denied on September 14. In the circumstances
then prevailing, the Board felt that the announcement of another
tightening action might have a highly adverse impact on financial
markets, including repercussions on the cost and availability of funds
in the residential mortgage market. More generally, the Board decided that additional restraint was not warranted in light of the recent
moderating tendencies in the economy and the apparently weaker
performance of the monetary aggregates. Subsequently, on September
27, a majority of the Board voted to disapprove pending increases at
two Reserve Banks because of the accumulating evidence of substantial slowing in the growth of the monetary aggregates and the large
recent declines in short-term market rates.
Governor Brimmer, who dissented from this action, felt the
increase would have been consistent with the maintenance of a
restrictive posture of monetary policy and would have tended to have
a moderating effect on inflationary expectations. In his view the
recent sharp reductions in market interest rates had been stimulated
120
by anticipations of a significantly easier monetary policy and he did
not want to see such expectations sustained.
In the period from early October to late November the Board disapproved several actions by one Reserve Bank to reduce the discount rate from IVi to 1V\ per cent. The directors of that Bank
had communicated the view that a move toward a somewhat less
restrictive monetary policy would be desirable in light of what they
believed were increasing prospects of a growth recession, or perhaps
an actual recession, in 1974. In reaching its decision the Board took
note of emerging uncertainties associated with the energy situation,
but it concluded that a reduction in the discount rate would be premature, especially in light of the strong pressures on prices and costs and
the strengthening of the monetary aggregates as the autumn progressed.
The individual Board decisions in 1973 and the votes taken follow.
VOTES ON RESERVE BANK ACTIONS TO
CHANGE THE DISCOUNT RATE
In accordance with the provisions of the Federal Reserve Act, the
boards of directors of 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 votes listed below are those that involved approval or disapproval of actions to change the rate. Specific
reference is made to the rate on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act.
Appropriately corresponding changes in rates on advances to member banks under Section 10(b) of the Act and on advances to
individuals, partnerships, and corporations other than member banks
under the last paragraph of Section 13 of the Act were also included
in each action.
J A N U A R Y 2, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Chicago on December 28, 1972, to raise the discount
rate to 43A per cent (an increase from 4Vi per cent).
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Brimmer, and Sheehan. Votes
against this action: None. Absent and not voting:
Mr. Bucher.
121
JANUARY 12, 1973
Effective January 15, 1973, the Board approved actions taken by the
directors of all the Federal Reserve Banks to raise the discount rate to
5 per cent.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Sheehan, and Bucher. Votes
against this action: None. Absent and not voting:
Mr. Brimmer.
FEBRUARY 23, 1973
Effective February 26, 1973, the Board approved actions taken by the
directors of the Federal Reserve Banks of New York, Philadelphia, St.
Louis, and Kansas City to raise the discount rate to 5Vi per cent.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Brimmer, Sheehan, and Bucher.
Votes against this action: None.
The Board later approved similar actions taken by the directors of the
Federal Reserve Banks of Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and Dallas, effective February 27; the Federal Reserve Bank of
Boston, effective February 28; and the Federal Reserve Bank of San
Francisco, effective March 2.
APRIL 20, 1973
Effective April 23, 1973, the Board approved actions taken by the
directors of the Federal Reserve Banks of Philadelphia, Cleveland, Richmond, Atlanta, Minneapolis, Kansas City, and San Francisco to increase
the discount rate to 53A per cent.
Votes for this action: Messrs. Burns, Robertson,
Mitchell, Daane, Brimmer, Sheehan, and Bucher.
Votes against this action: None.
The Board later approved similar actions taken by the directors of the
Federal Reserve Banks of Chicago, St. Louis, and Dallas, effective April
27; the Federal Reserve Bank of Boston, effective May 1; and the Federal
Reserve Bank of New York, effective May 4.
122
MAY 10, 1973
Effective May 11, 1973, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia,
Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas,
and San Francisco to raise the discount rate to 6 per cent.
Votes for this action: Messrs. Burns, Brimmer,
Sheehan, and Bucher. Votes against this action:
None. Absent and not voting: Messrs. Mitchell
and Daane.1
The Board later approved a similar action taken by the directors of
the Federal Reserve Bank of Kansas City, effective May 18.
MAY 17, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Kansas City on May 17 to raise the discount rate to 6lA
per cent.
Votes for this action: Messrs. Burns, Daane,
Sheehan, and Bucher. Votes against this action:
None. Absent and not voting: Messrs. Mitchell
and Brimmer.1
MAY 25, 1973
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Chicago and Minneapolis on May 24 and 25, respectively, to increase the discount rate to 6XA per cent, and by the directors
of the Federal Reserve Bank of St. Louis on May 24 to increase the
discount rate to 6Vi per cent.
Votes for this action: Messrs. Burns, Brimmer,
Sheehan, and Bucher. Votes against this action:
None. Absent and not voting: Messrs. Mitchell and
Daane.1
1
There was one vacancy on the Board at the time this meeting was held.
123
JUNE 8, 1973
Effective June 11, 1973, the Board approved actions taken by the
directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and
San Francisco to raise the discount rate to 6 ^ per cent.
Votes for this action: Messrs. Burns, Brimmer,
Sheehan, and Bucher. Votes against this action:
None. Absent and not voting: Messrs. Mitchell and
Daane.1
The Board subsequently approved similar actions taken by the directors of the Federal Reserve Bank of Richmond, effective June 12, and
the Federal Reserve Bank of Kansas City, effective June 15.
J U N E 25, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Kansas City on June 22 to raise the discount rate to 7
per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
JUNE 26, 1973
The Board disapproved an action taken by the directors of the Federal Reserve Bank of Boston on June 25 to increase the discount rate to
7 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
JUNE 29, 1973
Effective July 2, 1973, the Board approved actions taken by the directors of all the Federal Reserve Banks to raise the discount rate to 7 per
cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
1
There was one vacancy on the Board at the time this meeting was held.
124
JULY 27, 1973
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of Chicago, St. Louis, Minneapolis, and Dallas on July 26
to raise the discount rate to IV2 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
AUGUST 3, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of San Francisco on August 2 to raise the discount rate to
IV2 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Sheehan, and Bucher. Votes against this action:
None. Absent and not voting: Messrs. Daane,
Brimmer, and Holland.
AUGUST 13, 1973
Effective August 14, 1973, the Board approved actions taken by the
directors of the Federal Reserve Banks of New York, Philadelphia,
Cleveland, Richmond, Chicago, St. Louis, Minneapolis, Kansas City,
Dallas, and San Francisco to raise the discount rate to IVi per cent.
Votes for this action: Messrs. Burns, Brimmer,
Sheehan, Bucher, and Holland. Votes against this
action: None. Absent and not voting: Messrs.
Mitchell and Daane.
The Board later approved similar actions taken by the directors of the
Federal Reserve Bank of Atlanta, effective August 16, and the Federal
Reserve Bank of Boston, effective August 23.
SEPTEMBER 14, 1973
The Board disapproved actions taken by the directors of the Federal
Reserve Banks of New York and Chicago on September 6 and by the
directors of the Federal Reserve Banks of Cleveland and St. Louis on
September 13 to increase the discount rate to 8 per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Bucher, and Holland. Votes against this
action: None. Absent and not voting: Messrs.
Brimmer and Sheehan.
125
SEPTEMBER 27, 1973
The Board disapproved actions taken by the directors of the Federal
Reserve Bank of Kansas City on September 20 and by the directors of
the Federal Reserve Bank of Chicago on September 27 to raise the discount rate to 8 per cent.
Votes for this action: Messrs. Mitchell, Sheehan,
Bucher, and Holland. Vote against this action: Mr.
Brimmer. Absent and not voting: Messrs. Burns
and Daane.
OCTOBER 4, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Boston on October 3 to reduce the discount rate to IV*
per cent.
Votes for this action: Messrs. Mitchell, Daane,
Brimmer, Sheehan, and Holland. Votes against
this action: None. Absent and not voting: Messrs.
Burns and Bucher.
OCTOBER 17, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Boston on October 15 to reduce the discount rate to
1XA per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Sheehan, Bucher, and Holland.
Votes against this action: None.
NOVEMBER 1, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Boston on October 29 to reduce the discount rate to
1V<\ per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Brimmer, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Sheehan.
126
NOVEMBER 15, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Boston on November 12 to reduce the discount rate to
IVA per cent.
Votes for this action: Messrs. Burns, Mitchell,
Daane, Sheehan, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Brimmer.
NOVEMBER 27, 1973
The Board disapproved an action taken by the directors of the Federal
Reserve Bank of Boston on November 26 to reduce the discount rate to
IVA per cent.
Votes for this action: Messrs. Burns, Mitchell,
Brimmer, Sheehan, Bucher, and Holland. Votes
against this action: None. Absent and not voting:
Mr. Daane.
127
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 1973, 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.
128
Policy directives of the Federal Open Market Committee are Issued
to the Federal Reserve Bank of New York as the Bank selected by
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 1973. Changes in the instruments during the year, including
changes in titles made in March, are reported in the records for the
individual meetings.
CONTINUING AUTHORITY DIRECTIVE WITH RESPECT TO
DOMESTIC OPEN MARKET OPERATIONS
(in elect January 1, 1973)
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;
(b) To buy or sell prime bankers' acceptances of the kinds designated in the Regulation of the Federal Open Market Committee in the
129
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
shall not exceed (1)--$125 million or (2) 10'per cent of the total of
bankers' acceptances outstanding as shown in the most recent acceptance survey conducted by the -Federal Reserve -Bank of • New York,
whichever is the lower;
(c) To buy U.S. Go¥ern.ment 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
under agreements for repurchase of such securities, obligations, or
acceptances in 15 calendar days or less? at-rates that, unless-otherwise
expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on. the volume
of agreements with individual dealers; presided that in the event
Government securities or agency issues covered by. any such agreement are not repurchased by the dealer pursuant to; the agreement
or a renewal thereof, they shall be sold in the market or transferred
to the System Open Market Account; and provided further that in
the event bankers* acceptances covered by any such agreement are
not repurchased by the seller? they shall continue to be held by the
Federal Reserve Bank or shall be sold in the open market.
2. The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, or, if the New York Reserve 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 VA 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 $1 billion.
3. In order to insure the effective conduct of open market -operations,
the Federal Open Market Committee authorizes and directs the Federal
Reserve Banks to lend U.S. Government securities held in the .System
130
Open Market Account to Government securities dealers and to banks
participating In Government securities clearing arrangements conducted
through a Federal Reserve Bank, under such Instructions as the Committee may specify from time to time.
CURRENT ECONOMIC POLICY DIRECTIVE
(In elect January 1, 1973)
The information reviewed at this meeting, including strong recent
gains in Industrial production, employment, and retail sales, suggests that
real output of goods and services Is growing more rapidly in the current
quarter than in the third quarter. The unemployment rate has declined.
Wage rates increased little in November, following 2 months of large
increases. Consumer prices rose considerably again in October, and
wholesale prices rose sharply In November. The over-all deficit in the
U.S." balance of payments has remained substantial In recent months,
but there has been a moderate reduction in the excess of U.S. merchandise Imports over exports since last spring and summer.
in November rates of growth in the monetary aggregates generally
remained moderate, but expansion In the narrowly deieed money
stock quickened In early December. In. recent weeks most market Interest
rates have tended upward.
In light of the foregoing developments, It is the policy of the Federal
Open Market Committee to foster financial conditions conducive to
sustainable real economic growth and Increased employment, abatement
of Inflationary pressures, and attainment of reasonable equilibrium In.
the country's balan.ce of payments.
To Implement this policy, while taking account of Treasury financing
operations and possible credit market developments, the Committee seeks
to achieve bank reserve and money market conditions that will support
slower growth In monetary aggregates over the months ahead than
appears indicated for the second half of this year.
AUTHORIZATION FOE SYSTEM FOREIGN
CUEEENCY OPERATIONS
(In elect January 1, 1973)
1. The Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York, for System Open Market Account,
to the extent necessary to carry out the Committee's foreign currency
directive and express authorizations by the Committee pursuant thereto:
131
A, To purchase and sell the following foreign currencies in the
form of cable transfers through spot or forward transactions on the open
market at home and abroad, including transactions with the U.S. Stabilization Fund established by Section 10 of the Gold Reserve-Act of 1934,
with foreign monetary authorities, and with the Bank for International
Settlements:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kroner
Swiss francs
B, To hold foreign currencies listed in paragraph A above, up to
the following limits:
(1) Currencies purchased spot, including currencies purchased
from, the Stabilization Fund? and sold forward to the Stabilization Fund,
up to SI billion equivalent;
(2) Currencies purchased spot or forward, up to the amounts
necessary to fulfill other forward commitments;
(3) Additional currencies purchased spot or forward, up to the
amount necessary for System operations to exert a market influence but
not exceeding $250 million equivalent; and
(4) Sterling purchased on a covered or guaranteed basis in terms
of the dollar, under agreement with the Bank of England, up to $200
million equivalent.
C, To have outstanding forward commitments undertaken under
paragraph A above to deliver foreign currencies, up to the following
limits:
(1) Commitments to deliver foreign currencies to the Stabilization Fund, up to the limit specified in paragraph 1B(1) above; and
132
(2) Other forward commitments to deliver foreign currencies, up,
to $550 million equivalent.
D. To draw foreign currencies and to permit foreign banks to draw
dollars under the reciprocal currency arrangements listed in paragraph 2
below, provided that drawings by either party to any such arrangement
shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn, unless the Committee, because of
exceptional circumstances, specifically authorizes a delay.
2. The Federal Open Market Committee directs the Federal Reserve
Bank of New York to maintain reciprocal currency arrangements ("swap"
arrangements) for the 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 maturity:
Amount of
Foreign bank
arrangement
(millions of
dollars equivalent)
Austrian National Bank
National Bank of Belgium
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements:
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs
200
600
1,000
200
2,000
1,000
1,000
1,250
1,000
130
300
200
250
1,000
600
1,000
3. Currencies to be used for liquidation of System swap commitments
may be purchased from the foreign central bank drawn on, at the same
133
exchange rate as that employed le the drawing to be liquidated. Apart
from any such purchases at the rate of the drawing, all transactions in
foreign currencies undertaken under paragraph 1 (A) above shall, unless
otherwise- expressly authorized' by the Committee, be at pre¥'ailing market
rates and no attempt shall be made • to establish rates that- appear to be
out of line with underlying market forces.
4. It shall be the practice to arrange with foreign central banks for the
coordination of foreign currency transactions. In making operating
arrangements'with foreign'central'banks on System' holdings of'foreign
currencies,- the Federal Reserve Bank of New'York shall-not commit
itself to.maintain any specific balance,.unless .authorized by the FederalOpen Market Committee. Any agreements or understandings concerning
the administration of the accounts maintained by the Federal Reserve
Bank of' New York with the foreign banks' designated by the Board of
Go¥ernors• under Section 214.5--of Regulation N shall-be referred'for
review and approval to the Committee.
. .
5. Foreign currency holdings shall be invested insofar as practicable,
considering needs for minimum working balances. Such investments
shall'be in'accordance with Section 14(e) of the Federal Reserve Act.
6.- A Subcommittee consisting of the Chairman and the Vice'Chairman of the Committee and the Vice Chairman of the Board -of -Governors (or in the absence of the Chairman or of the Vice Chairman of
the Board of Governors the members of the Board designated by the
Chairman' as alternates, ao.d in the absence of the Vice Chairman of
the Committee Ms alternate) is authorized • to act on behalf' of the
Committee .when it is necessary to enable the Federal Reserve Bank of
New York to engage in foreign currency operations before the Committee can be consulted. All actions taken by the Subcommittee under this
paragraph" shall be reported promptly to' the Committee.
7. The Chairman (and in Ms absence the Vice Chairman "of' the
Committee, and in the absence of both? the Vice Chairman of the Board
of Governors) is authorized:
A. With the approval of the Committee, to- enter into any needed
agreement or understanding with the Secretary of the Treasury about
the division' .of responsibility for foreign currency operations between
the System and the Secretary;
B. To., keep the Secretary of the Treasury fully ad¥ised concerning
System foreign currency operations, and .to. consult with the Secretary
on such policy matters as may relate to the Secretary's responsibilities;
and
C. From time to time, to transmit appropriate reports and informa-
134
tion to the National Advisory Council on International Monetary and
Financial Policies,
8. Staff officers of the Committee are authorized to transmit pertinent
information on System foreign currency operations to appropriate officials of the Treasury Department.
9. All Federal Reserve Banks shall participate in the foreign currency
operations for System Account in accordance with paragraph 3G(1)
of the Board of GoYernore' Statement of Procedure with Respect to
Foreign Relationships of Federal Reserve Banks dated January 1, 1944.
10. The Special Manager of the System Gpee Market Account for
foreign currency operations shall keep the Committee informed on conditions in foreign exchange markets and on transactions he has made
and shall reader such reports as the Committee may specify.
FOEEIGN CURRENCY DIRECTIVE
(in elect January 1, 1973)
1. The basic purposes of System operations in foreign currencies are:
A. To help safeguard the value of the dollar in international exchange markets;
B. To aid in making the system of international payments more
efficient;
C. To further monetary cooperation with central banks of other
countries having con¥ertible currencies, with the International Monetary Fund, and with other International payments Institutions;
D. To help insure that market mo Yemenis in exchange rates, within
the limits stated in the International Monetary Fund Agreement or
established by central bank practices, reflect the interaction of underlying 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
the needs of an expanding world economy.
2. Unless otherwise expressly authorized by the Federal Open Market
Committee, System operations in foreign currencies shall be undertaken
only when necessary:
A. To cushion or moderate luctuations in the flows of international
payments, if such fluctuations (1) are deemed to reiect transitional
market unsettlement or other temporary forces and therefore are expected to be reversed in the foreseeable future; and (2) are deemed
to be disequilibrating or otherwise to have potentially destabilizing
effects on U.S. or foreign official reserves or on exchange markets, for
135
example, by occasioning • market anxieties, undesirable speculate activity, or excessive leads and lags in international payments;
B. To temper and smooth out abrupt changes in spot exchange'
rates, .and to. moderate forward premiums- and -discounts-judged-to--be
disequilibrating. Whenever supply or demand persists in influencing
exchange rates in one direction, System transactions' should '"be modified or curtailed unless upon review and reassessment of the situation
the Committee directs otherwise;
• C. To -aid in avoiding disorderly conditions in exchange markets.
Special factors that might make for exchange market instabilities include (1) responses to- short-run increases- in international political
tension, ..(2) differences in-phasing-• of international economic- activity
that give rise to unusually large interest rate differentials between
major -markets, and (3) market rumors' of a character likely to stimulate speculative transactions, .Whenever, .exchange, market instability
threatens to produce disorderly conditions, System transactions may
be undertaken if the Special Manager' reaches "a judgment that they
may help to reestablish supply and demand balance at a level more
consistent with the prevailing flow of underlying payments.. In such
eases,- the Special Manager shall consult as soon as practicable -with
the Committee or, in an emergency, with the members of the Subcommittee 'designated for that purpose in paragraph 6 of the Authorization for System foreign currency operations; and.
D. To adjust System balances within the limits established in the
Authorization 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
transactions, may be undertaken only (i) to prevent forward premiums
or discounts from giving rise to disequilibrating movements "of'short-term
funds; (ii) to minimize speculative disturbances; (iii) to supplement
existing market supplies of forward cover, directly or indirectlys as a
means of-encouraging the retention or accumulation of dollar • holdings
by private foreign holders; (iv) to allow greater flexibility in covering
System or 'Treasury commitments, including commitments under swap
arrangements, and to facilitate operations of the Stabilization Fund;
(v) to facilitate the use of one currency for the settlement of System or
Treasury commitments denominated in other currencies; and (vi) to
provide cover for System holdings of foreign currencies.
136
MEETING HELD ON JANUARY 16, 1973
Current economic policy directive
The information reviewed at this meeting suggested that growth
in real output of goods and services (real gross national product)
had accelerated appreciably in the fourth quarter of 1972 from an
annual rate of nearly 6.5 per cent in the third quarter. Staff
projections for the first half of 1973 continued to suggest that growth
in real output—while slowing from the high rate that seemed
indicated for the fourth quarter of 1972—would remain rapid.
In December industrial production continued to expand at a fast
pace, and growth from the third to the fourth quarter was substantial. Total nonfarm payroll employment rose little in December,
following sizable gains over the preceding 4 months. The unemployment rate, at 5.2 per cent, was unchanged from November
but was well below the level prevailing from June through October.
According to the advance report, retail sales increased slightly in
December after having declined somewhat in November; nevertheless, sales were considerably higher in the fourth quarter than
in the third.
Average hourly earnings of production workers advanced sharply
in December. From August to December the average rate of gain
was considerably higher than it had been earlier in 1972. Wholesale
prices of industrial commodities increased little in December, but
those of grains, livestock, meats, and other farm and food products
rose very sharply, in part because of adverse weather during the
autumn months. In November, when retail prices of foods had
increased substantially, over-all consumer prices had continued to
rise at about the same average rate as earlier in the year.
The latest staff projections for the first half of 1973 were very
similar to those of 4 weeks earlier although business fixed investment now was expected to expand at a somewhat faster pace, as
suggested by the latest Department of Commerce survey of business
spending plans. It was still anticipated that consumption expenditures would remain strong, in part because of large refunds of
personal income taxes withheld in 1972; that State and local
government purchases of goods and services would continue to
grow rapidly; and that business inventory investment would in-
137
crease further. The projections also suggested that outlays for
residential construction would turn down.
On January 11 the President announced the third phase of the
economic stabilization program—which had been inaugurated in
August 1971—and requested legislation to authorize extension of
the program for an additional year in order to reduce inflation,
minimize unemployment, and improve the Nation's competitive
position in world trade. With respect to inflation, "the President
established a goal of a further reduction in the over-all rate of
increase in prices to 2.5 per cent or less by the end of 1973.
U.S. merchandise imports rose appreciably more than exports
in November, and the trade deficit increased sharply after a gradual
improvement that had begun at midyear. In the fourth quarter the
over-all deficit in the U.S. balance of payments was still substantial,
despite large foreign purchases of U.S. corporate stocks and some
inflows of liquid funds such as usually occur near the end of the
year. Exchange markets had been quiet in recent weeks, and rates
for the dollar against most other major currencies had changed
little on balance.
At U.S. commercial banks expansion in loans outstanding to
businesses slowed in December from an exceptionally high rate
in November, while real estate and consumer loans continued to
grow rapidly. Bank holdings of U.S. Government securities again
increased by substantial amounts in association with two Treasury
financings during the month,
Growth in the narrowly defined money stock (Mj)! accelerated
sharply ie December, after having been moderate on average during
the August-November period; over the second half of the year
growth was at an annual rate of about 8.5 per cent.2 Although
a part of the growth in Mx during December could be attributed
to a large increase in demand deposits of State and local governments following initial distribution of funds under the Federal
'Currency held oytside the Treasury, Federal Reserve Banks, and the vaults
of ail commercial banks, plus demand deposits other than interbank, and U.S.
Government.
2
Growth rates cited are calculated on the basis of the daily-average level in the
last month of-the period relative to that In the last month of the preceding period;
Moreover, they are based on revised series for the monetary aggregates, which
were released to the public In early February.
138
revenue-sharing program, expanding transactions demands for
money associated with the high and rising level of economic
activity may have been a major factor.
Inflows of consumer-type time and savings deposits to commercial banks also accelerated In December, and the broadly defined
money stock (M2):l grew much more rapidly than In the Immediately
preceding months; growth of M2 over the second half of the year
was at ae annual rate of about 11 per cent. U.S. Government
deposits declined in December, but the outstanding volume of
large-denomination CD's increased, and the bank credit proxy4
grew a little more rapidly than in November.
Inflows of savings funds to nonbank thrift institutions were
maintained from November to December, after having moderated
earlier in the fourth quarter, and they remained large by historical
standards. Contract Interest rates on conventional mortgages and
yields In the secondary market for Federally insured mortgages
were again virtually stable ie December.
In capital markets the over-all volume of new public offerings
of corporate aed State and local government bonds was reduced
substantially in December by the holidays. Although the volume
was expected to rebound in January, it appeared likely to remain
well below the monthly average for 1972. On December 27 the
Treasury announced an auction of a long-term bond ie which, for
the first time, the lowest bid price accepted would be the price
on all accepted teeders. In the auction, which was held on January
4, $625 million of a 20-year bond was sold at a price to yield
6.79 per cent. The Treasury was expected to announce on January
31 the terms on which it would refund securities maturing on
February 15, Including $4.8 billion held by the public.
System open market operations since the'December 19 meeting
had been guided by the Committee's decision to seek bank reserve
aed money market conditions that would support slower growth
in monetary aggregates over the months ahead than appeared to
be indicated for the second half of 1972. Operations had been
:l
Mi plus time and savings deposits at commercial banks other than large-denomination certificates of deposits CCD's).
4
DaIly-average member bank deposits, adjusted to Include funds from
nondeposit sources.
139
directed toward fostering growth In reserves available to support
private nonbank deposits (RPD's) at an annual rate within a range
of 4 to 11 per cent in the December-January period, while avoiding
marked changes in money' market conditions and taking account
of Treasury financing operations and possible credit market developments-.
Early in the inter-meeting period data becoming available had
suggested that the rate of growth in RPD's would be substantially
above the specified range. Consequently, the System had acted to
restrain expansion in reserves provided through open market
operations—to the extent feasible in light of the even-keel constraint
associated with the Treasury's auction of the Jong-term, bond—and
money market conditions had firmed-over the period. The Federal
funds rate had risen to about 5% per cent-in the days before this
meeting from around 5% per cent at.the time of the. preceding
meeting, and member bank borrowings had increased to an average
of about $1,200 million in the 4 weeks ending January 10 from
an average "of about $600 million in the preceding 4 weeks. At
the time of this meeting it still appeared'that in the December—January period RPD's would grow at a rate- well above the -specified
range.
Short- and long-term market interest rates in general had risen
moderately further since the Committee's meeting on December
19. In short-term markets demands for Treasury bills and some
other instruments were strengthened by State and local government
investment of receipts from Federal revenue sharing. On the day
before this meeting the market rate on 3-month Treasury bills was
5,27 per cent, compared with 5.17 per cent 4 weeks earlier, In
recognition of the substantial rise in short-term market interest rates
that had occurred over recent months and the sharply increased
level of member bank borrowings, Federal Reserve discount rates
were raised one-half of a percentage point to 5 per cent, effective
January-15.
The Committee, agreed that the economic situation continued to
call, for growth in the monetary aggregates over the months ahead
at slower rates than those recorded in the second half of 1972.
The members took note of a staff analysis of prospective reserve-deposit relationships, which suggested that more moderate
rates of monetary growth might be achieved in the January-Feb-
140'
ruary period by fostering growth in RPD's in that period at an
annual rate within a range of 9 to 11 per cent. In view of the
very rapid monetary expansion in December, however, the
members concluded that open market operations should be directed
at achieving still greater restraint and that reserve-supplying operations that would result in ae easing of money market conditions
should be avoided unless the annual rate of RPD growth appeared
to be dropping below 4.5 per cent. Specifically, they decided that
operations should be directed at fostering RPD growth during the
January-February period within a range of 4.5 to 10.5 per cent,
while continuing to avoid marked changes in money market conditions. They also agreed that in the conduct of operations account
should be taken of the forthcoming Treasury financing and possible
credit market developments, and that allowance should be made
in operations if growth in the monetary aggregates appeared to
be deviating from, an acceptable range. It was understood that the
Chairman might consider calling upon the Committee to appraise
the need for supplementary instructions before the eext scheduled
meeting if significant inconsistencies appeared to be developing
among the Committee's various objectives and constraints.
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 expanded much more rapidly in the fourth
quarter than in the third quarter, and the unemployment rate declined. Wage rates have increased more rapidly in recent months
than earlier in the year. Consumer prices rose considerably again
in November. Wholesale prices of farm and food products advanced
sharply in December but those of industrial commodities increased
little. On January 11 the President announced Phase III of the
economic stabilization program, which has among its major objectives a further reduction in the rate of inflation. The over-all deficit
in the U.S. balance of payments has remained substantial in recent
months, and U.S. merchandise imports rose more than exports in
November,
Growth in the narrowly and broadly defined money stock was
exceptionally rapid in December, after having been moderate on
average during the preceding 4 months. In recent weeks interest
rates on both short- and long-term securities have risen moderately.
141
Effective January 15, Federal Reserve discount rates were raised
one-half of a percentage point to 5 per cent.
In light- of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions eonsonant with the aims of the economic stabilization program, including further abatement of inflationary pressures, sustainable growth
in- real output and employment, and' progress toward "equilibrium
in the country's balance of payments, •
To implement this policy, while taking account of the forthcoming
Treasury financing and possible credit market developments, the
Committee seeks to achieve bank reserve and money market conditions that will support slower growth in monetary aggregates over
the months ahead than occurred in the second half of-last year.
Votes for this action: Messrs. Burns, Brimmer,
Bucher, Cold well, Daane,. Eastburn, MacLaury,
Mitchell, Robertson, Sheehan, Winn, and Treiber.
Votes against this action: None.
Absent and not voting: Mr. Hayes. (Mr. Treiber
voted as his alternate,)
142
MEETING HELD ON FEBRUARY 13, 1973
Current economic policy directive
Estimates of the Commerce Department indicated that real output
of goods and services had grown at an annual rate of 8.5 per cent
in the fourth quarter of 1972, and growth appeared to be continuing
at a substantial, although less rapid, rate in the first quarter of
1973. Staff projections suggested that real growth in the second
quarter would remain close to the first-quarter rate.
In January retail sales rose sharply, according to the advance
report, after having increased considerably more in December than
had been indicated by earlier data. Industrial production continued
to expand—reflecting gains in consumer goods and business equipment—and nonfarm payroll employment rose further; however, the
pace of expansion in output and employment in both December
and January was less rapid than over the four preceding months.
The unemployment rate declined slightly further to 5.0 per cent.
Labor costs per unit of output in the private nonfarm economy—
which had changed little in the second and third quarters of
1972—turned up in the fourth quarter as the advance in output
per manhour slowed and the rise in wage rates accelerated. Average
hourly earnings of production workers continued to rise at a
relatively rapid rate in January. In December the rise in over-all
consumer prices slowed; while retail prices of nonfood commodities
and of services advanced at a faster pace than earlier in the year,
average retail prices of foods were about stable. In wholesale
markets, however, prices of meats, eggs, and some other foods
and foodstuffs rose sharply in December, and the rise continued
in January.
The latest staff projection of real growth in the first half of 1973
was about unchanged from that of 4 weeks earlier, but now the
expected rise in average prices was somewhat larger, in part
because of the substantial increases that had already occurred in
prices of foods and foodstuffs. It was still expected that expansion
in consumption expenditures, business fixed investment, and State
and local government purchases of goods and services would
remain strong and that business inventory investment would increase further. It was also anticipated that outlays for residential
construction would level off and then turn down.
143
In foreign exchange markets the relative calm that had prevailed
for a number of months was shattered in late January by a series
of developments, including a decision by the Italian Government
to--create a dual market for the lira in response to capital outflows,
a decision by the Swiss Government to float the franc-in response
to large capital Inflows, .and release of U.S. foreign-trade statistics
revealing that the deficit—which had worsened In November. after
having improved gradually from June through October—had remained large in December. Heavy speculative flows out of dollars
into the German mark and some-other currencies developed, culminating in very large -purchases of dollars by many central banks
in the -process of maintaining their exchange rates within the
internationally agreed limits. On .February 12, after consultations
with other major countries., the Secretary of the Treasury announced
that the United States would devalue the dollar by 10 per cent.
At U.S. commercial banks, credit demands—which had eased
in December—expanded substantially in January in all major Industrial categories and in all regions of the country,' and outstanding
business loans rose -at -a record pace. Real estate --and consumer
loans continued to grow at-rapid rates, while bank • holdings of
securities; increased little. In association with the strong demand
for loans and further advances in market Interest rates, some banks
announced Increases In their prime rates from 6 to 6lA per cent
at the beginning of February, but In cooperation with the Government's stabilization program, the banks rescinded the"increases
pending evaluation of-data on costs and earnings.
The narrowly.defined.money.stock (Mi)1 changed-little in January
after having Increased sharply in December, and growth over, the
2 months combined was at an annual rate of about 6.5 per
cent—about the same as the rate over the whole 6-month period
from July ' 1972 to January 1973.2 Part of the recent fluctuation
in the growth rate was- attributable to a temporary Increase In
demand deposits of State-and local governments In association with
initial .distributions of funds under the Federal revenue-sharing
1
Private demand deposits plus currency In circulation.
Growth rates are calculated on the basis of the daily-average level in the
last month of the period relative to that in the last month preceding -the period.
Moreover, they are based on revised series for the monetary aggregates, which
were released to the public in early February.
2
144
program and subsequent shifts of some of these funds Into earning
assets, Including time deposits. Inflows of time and savings deposits
other than large-denomination CD's increased from. December to
January, moderating the deceleration in growth In the more broadly
defined money stock (M2).3 Growth in M2 over both the December-January and the July-January periods was at an annual rate
of about 9.5 per cent.
Inflows of savings funds to eonbank thrift Institutions also rose
substantially from December to January. Contract Interest rates on
conventional mortgages apparently changed little In January and
yields In the secondary market for Federally insured mortgages
also remained stable.
On January 31 the Treasury announced that in Its mid-February
financing it would offer holders of maturing notes an opportunity
to exchange their holdings for a 3%-year, 6% per cent note priced
to yield about 6.60 per cent and that it would auction about $1
billion of 6%-year, 6% per cent notes. As had been expected In
the market, a relatively large part—$2.2 billion, or 47 per cent^of
the $4.8 billion of maturing notes held by the public was redeemed
for cash.
System open market operations since the January 16 meeting
had been gelded by the Committee's decision to seek bank reserve
and money market conditions that would support slower growth
In monetary aggregates over the months ahead than the rates
recorded over the second half of 1972. Operations had been directed
toward fostering growth In reserves available to support private
nonbank deposits (RPD's) at an annual rate in a range of 4.5 to
10.5 per cent In the January-February period, while avoiding
marked changes In money market conditions and taking account
of Treasury financing operations.
The System had acted early in the inter-meeting period—prior
to announcement of the terms of the Treasury financing—to restrain
expansion In reserves provided through open market operations,
and money market conditions had firmed. The Federal funds rate,
which had been about 5% per cent In the days before the January
meeting, rose to about 6% per cent in the latter part of the month
and then fluctuated around that level. Member bank borrowings
3
Mi. plus commercial bank time and savings deposits other than large-denomination CD's.
145
averaged about $1,235 million in the 4 weeks ending February
7, compared with about $1,200 million in the preceding 4 weeks.
At the time of this meeting It appeared that In the January-February
period-RPP's-would grow-at a rate near the middle of the specified
range.
Market Interest rates had continued to rise sin.ce the Committee's
January meeting, reflecting the further tightening In. money market
conditions, widespread expectations of vigorous economic expansion,, and uncertainty about the effectiveness of Phase III of the
economic stabilization program. Short-term rates had risen considerably. In early February, however, the market for Treasury bills
was strengthened by actual and expected purchases of bills by
foreign central banks In, association with the speculative outflows
from dollars •into other currencies. On February 9, the last market
day before this meeting, the rate on 3-month bills was 5.44 per
cent, down from. 5.76 per cent on February 1 but up from 5.2?
per cent on the day before the January meeting.
The rise In Interest rates was more moderate for long-term than
for most short-term securities. The volume of new public offerings
of corporate bonds, which had been • reduced In December-by the
holidays, failed to rebound in January and appeared likely to remain
at a reduced level in February, The volume of new State and local
government.bonds also changed little in January, and It .appeared
likely to decline In February.
The Committee agreed that the economic situation called for
growth In the monetary aggregates over the months ahead at
somewhat slower rates than had occurred on average In the past
6 months. The members took note of a staff analysis suggesting
that the sharp further advance In short-term Interest rates that had
occurred in recent months would probably retard growth in the
demand for money over the months ahead. The analysis also
suggested that In the February-March period the Committee's
objectives for monetary growth might be fostered by pursuing
growth In RPD's at an annual rate within a range of 0.5 to 2,5
. per cent and that attainment of RPD growth In that range probably
would, be ..associated with some, additional firming of money market
conditions and some upward pressure on long-term Interest rates.
The Committee concluded that active reserve-supplying operations should be avoided unless RPD's In the February-March period
146
appeared to be declining at an anneal rate of more than 2.5 per
cent. Specifically, the members decided that operations should be
directed at fostering RPD growth during that period within a range
of —2.5 to +2.5 per cent, while continuing to avoid marked
changes in money market conditions. They also agreed that ie the
conduct of operations account should be taken of possible credit
market developments and international developments, and that
allowance should be made ie operations if growth ie the monetary
aggregates appeared to be deviating from an acceptable range. It
was understood that the Chairman might consider calling upon the
Committee to appraise the need for supplementary instructions
before the next scheduled meeting if significant inconsistencies
appeared to be developing among the Committee's various objectives and constraints.
The following current economic policy directive was issued to
the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests continued
substantial growth in real output of goods and services in the current
quarter, although at a rate less rapid than in the fourth quarter of
1972. The unemployment rate has declined slightly further. In recent
months wage rates have increased at a relatively rapid pace, and
unit labor costs turned up In the fourth quarter of 1972. The rise
In consumer prices slowed in December when retail prices of foods
changed little, but prices of foods and foodstuffs at earlier stages
of distribution rose sharply In both December and January. The
excess of U.S. merchandise imports over exports remained large
In December. Heavy speculative movements out of dollars into
German marks and some other currencies developed in late January
and early February. On February 12 the Government announced
that the United States would devalue the dollar by 10 per cent.
The narrowly defined money stock changed little in January after
having increased sharply in December, and growth over the 2
months combined was at an average annual rate of about 6¥i per
cent. Growth in the more broadly defined money stock slowed less
abruptly from December to January as Inflows of consumer-type
time and savings deposits to banks accelerated. A sharp and pervasive increase has taken place in bank loans to businesses. In recent
weeks market interest rates generally have risen further, with increases substantial for short-term rates and relatively moderate for
long-term rates. Most recently, however, Treasury bill rates have
moved back down under the influence of foreign official buying.
147
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions consonant with the aims of the economic stabilization program, including further abatement of inflationary pressures, sustainable growth
in real output and employment, and progress toward equilibrium
in the country's balance of payments.
To implement this policy, while taking account of possible
domestic-credit market and international-developments, the Committee seeks to achieve bank reserve and money market conditions
that- will support somewhat slower growth in monetary aggregates
over the months ahead than occurred on average in the past 6
months.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Bucher, Coldwell, Eastburn, MacLaury,
Mitchell, Robertson, Sheehan, and Winn. Votes
against this action: None.
Absent and not voting: Mr. Daane.
Developments subsequent to the meeting made it appear that
RPD's would grow in the February—March period at an annual
rate in excess of 2.5 per cent, even though money market conditions
had firmed and the Federal funds rate had averaged close to 6%
per cent "for two successive weeks'.'On"March 1, 1973, the members
agreed that the weekly average Federal fends rate should be
permitted to rise somewhat further if necessary to limit growth
in RPD's.
148
MEETING HELD ON MARCH 19-20, 19731
1. Domestic policy directive
The information reviewed at this meeting suggested that real output
of goods and services, which had expanded at an annual rate of
8.0 per cent in the fourth quarter of 1972, was growing at a
substantial but less rapid rate in the first quarter of 1973. Staff
projections for the second quarter suggested that real growth would
remain close to the first-quarter rate.
In February industrial production continued to expand, reflecting
mainly substantial further gains in output of consumer goods and
business equipment; increases in over-all output of materials, which
had been sizable in late 1972, were small in the first 2 months
of this year. Nonfarm payroll employment rose sharply in February.
The civilian labor force also increased substantially—after having
declined in January—and the unemployment rate, at 5.1 per cent,
was about the same as in the preceding 3 months. Retail sales
declined in February, according to the advance report, but the
decline followed an exceptionally large advance from November
to January.
Retail prices of foods rose sharply in January—the latest month
for which such price data were available. In February wholesale
prices of farm and food products increased substantially for the
third successive month. Moreover, average wholesale prices of
industrial commodities rose by an unusually large amount, reflecting sizable increases in shoes and other apparel, petroleum products, machinery, and a number of industrial materials. The advance
in average hourly earnings of production workers on nonfarm
payrolls, which had been large in the last 4 months of 1972, was
moderate in the first 2 months of this year.
The latest staff projection of real growth in the second quarter
of 1973 was little different from that of 4 weeks earlier. It was
still expected that expansion in consumption expenditures, business
fixed investment, and State and local government purchases of
1
This meeting was held over a 2-day period beginning on the afternoon of
Mar. 19, 1973, in order to provide more time for the staff presentation concerning
the economic situation and outlook and the Committee's discussion thereof.
149
goods and services would remain strong and that outlays for
residential construction would turn down. However, -the increase
in business inventory investment projected for the second quarter
was somewhat larger than- before; ie the first quarter inventory
accumulation appeared to be falling short of earlier projections as
the expansion in final sales seemed to be exceeding expectations.
Following the- announcement on February 12 that- the -United
States would devalue the dollar by 10 per cent, most continental
European countries retained their currency par values in terms of
SDR's or gold, Japan .and Italy freed their currencies, to..float, and
the United Kingdom, Switzerland, and Canada continued to allow
their currencies to float. Exchange markets in major countries—
which since February 9 had been closed ie the sense that central
banks had not intervened—reopened on February 14 and 15. After
about a week of relative calm in the markets, during which a sizable
volume of funds flowed back into dollars and the Japanese yen
floated'up by 16 to' 17 per cent, a new speculative movement out
of dollars and into German marks and some other currencies
developed; on March 1 and 2 most major exchange markets closed
again.
The new disturbance in foreign exchange markets led to a series
of international conferences and to a number of measures aimed
at. maintaining orderly • international monetary arrangements.-On
March 12 six of the nine members of the European Community
announced their decision to participate in a joint float—after a 3
per cent upward revaluation of the German mark—while maintaining rates between their own currencies within bands of 2% per
cent, and they were subsequently joined by two other European
countries; the United Kingdom, Italy, and Ireland—the remaining
three members of the Community—decided to continue to allow
their currencies to ioat independently. After a meeting ie Paris
on March 16, the United States, other Group of Ten countries,
other EC countries, and Switzerland announced that they had agreed
that 'official intervention in exchange markets might be useful at
times to facilitate the maintenance of orderly conditions and to
facilitate the reiow of speculate funds into dollars. Intervention
might be financed through the use of mutual credit facilities, if
necessary; in order to assure adequate financial resources, enlargement of some of the existing "swap*' facilities was .envisaged.
150
At U.S. commercial banks, expansion In business loans—already
at a record rate In January—rose sharply further In February. A
sizable share of the Increase In outstanding loans was attributable
to a shift In business borrowing from the commercial paper market
In response to a rise In short-term interest rates In the market relative
to bank lending rates. Loans to foreign commercial banks also
expanded considerably, and consumer and real estate loans continued to grow at a fast pace. To accommodate the strong loan
demand, banks sharply Increased the outstanding volume of largedenomination CD's and reduced their holdings of Treasury securities.
The narrowly defined money stock (M|),2 which had grown
rapidly in December and then changed little in January, expanded
moderately In February; over the 3 months combined, growth was
at an annual rate of about 6.5 per cent—little changed from the
rate over the preceding 3 months,3 Inflows of time and savings
deposits other than large-denomination CD's slowed sharply In
February as market Interest rates advanced, and the more broadly
deieed money stock (M2)4 grew at an annual rate of about 6 per
cent, compared with a rate of about 6.5 per cent In January; over
the 6 months through February, growth was at a rate of about
8.5 per cent. In February, however, the bank credit proxy5 expanded at a very fast pace, reflecting the large Increase In the
outstanding volume of large-denomination CD's.
System open market operations since the February 13 meeting
had been guided by the Committee's decision to seek bank reserve
and money market conditions that would support somewhat slower
growth in monetary aggregates over the months ahead than had
occurred on the average In the past 6 months. Operations had been
directed toward fostering growth in reserves available to support
private nonbaek deposits (RPD\s) at an annual rate In a range of
2
Private demand deposits plus currency In circulation.
Growth rates are calculated on the basis of the daily-average level in the last
month of the period relative to that in the last month preceding the period.
Moreover, they are based on revised series for the monetary aggregates, which
were released to the public in early February.
4
Mj plus commercial bank time and savings deposits other than large-denomination CD's.
5
DaiJy-average member bank deposits, adjusted to include funds from
nondeposit sources.
3
151
— 2.5 to +2.5 per cent In the February-March period, while
avoiding marked changes in money market conditions.
Early in the, inter-meeting period it had appeared that growth
in the monetary aggregates would remain strong and" that bank sales
of CD's, in association with the larger-than-expected demands for
bank credit, might result in growth in RPD's in the February—March
period at- an annual rate -in -excess of 2.5 per cent. Consequently,
the System had acted promptly to slow the expansion in RPD's,
and the Federal funds rate rose to about 6% per cent for the statement .week ending February 21 from around 6% per cent in the
days before the February meeting. After March 1— when Committee
members agreed that the weekly average rate for Federal funds
should, be permitted to rise somewhat further if necessary, to .limit
growth in RPD's—the rate lucteated around a level slightly above
7 per cent. Member bank borrowings averaged about $1,665 million
in the 5 weeks ending March 14, compared with about $1,235
million in the preceding 4 weeks.
Since the Committee's February meeting short-term market interest rates in general had risen substantially further as money
market' conditions continued to firm and as the persistent expansion
in demands for bank credit induced banks to issue large amounts
of CD's and to liquidate holdings of short-term Treasury securities.
Rates on CD's with maturities between 90 and 179 days reached
the Regulation Q ceiling of 63/4 per cent, and rates on those with
maturities between 30 and 89 days—which are not subject to
ceilings—rose to 11A per cent. Banks generally raised their prime
rates from 6 to 6V4 per cent in late February, and on March 19
a number of banks announced that they would raise rates further
to 6% per cent.6 On that day the market rate on 3-month Treasury
bills was 6.22 per cent, compared with 5.44 per cent 5 weeks
earlier. Federal Reserve discount rates were raised ¥2 percentage
point, to 5% per cent, at four Reserve Banks on February 26 and
at the remaining eight Banks by March 2.
Yields on long-term securities also had continued to rise since
the February meeting, but the increase remained relatively moderate, especially for Treasury and corporate issues. Upward'pressures
6
By March 27, in cooperation with the Government's stabilization program,
these banks had rolled back their rates to 6V£ per cent.
152
on long-term yields were limited by foreign official demands for
Treasury coupon issues and by a sharp drop in the volume of new
public offerings of corporate bonds in February and the prospect
that the volume would only recover in March. For State and local
government bonds, the volume of new issues declined more moderately in February and appeared likely to rise again in March;
moreover, commercial bank demands for these securities receded
as loan demands expanded.
Contract interest rates on conventional mortgages rose somewhat
in February, after 4 months of stability, while yields in the secondary market continued to change little. Inflows of savings funds
to nonbank thrift institutions, like those to banks, slowed considerably as yields on market securities became increasingly attractive
to savers.
The Committee agreed that the economic situation called for
growth in the monetary aggregates over the months ahead at
somewhat slower rates than had occurred on the average in the
past 6 months. The members took note of a staff analysis suggesting
that the cumulative impact of the advance in short-term interest
rates that had already occurred would probably slow growth in
the monetary aggregates over the months ahead. Nevertheless a
relatively rapid rate of growth in RPD's was projected for the
March-April period, chiefly because the substantial increase in the
outstanding volume of large-denomination CD's that had occurred
in recent weeks would affect required reserves with a lag and further
expansion in the outstanding volume was expected. Therefore, the
Committee's objectives for monetary growth might be fostered by
pursuing growth in RPD's in the March-April period at an annual
rate within a range of 14 to 16 per cent. The analysis also suggested
that attainment of RPD growth In that range might be associated
with some further increase in some short-term interest rates and
probably also in long-term rates.
The Committee concluded that active reserve-supplying operations should be limited unless RPD's in the March-April period
appeared to be growing at an annual rate of less than 12 per cent.
Specifically, the members decided that operations should be
directed at fostering RPD growth during that period at a rate within
a range of 12 to 16 per cent, while continuing to avoid marked
changes in money market conditions. They also agreed that in the
153
conduct of operations account should be taken of possible credit
market 'developments and ' international developments, and that
allowance should be made in operations if growth in the monetary
aggregates appeared to be deviating from, an acceptable range. It
was understood that the Chairman might consider calling upon the
Committee to appraise the need for supplementary instructions
before the next scheduled meeting.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The Information reviewed at this meeting suggests continued substantial growth in real output of goods and services in the current
quarter, although at a rate less-rapid-than in the fourth -quarter• of
1972. Over thefirst2 months of this year, employment rose strongly
but ..the unemployment rate remained about 5 per cent. The- advance
in wage rates moderated from the earlier rapid pace, while the rate
of increase in prices accelerated... Prices of foods continued.to .rise
sharply both at wholesale and retail; in February, moreover, increases in wholesale prices of industrial commodities were large
and widespread. Another wave of speculative movements out of
dollars Into German marks and some other currencies developed
at the beginning of March' and led to a decision by a number of
European countries to float their currencies jointly. On March 16,
after-a series of meetings, officials of leading industrial "countries'
announced a program aimed at maintaining orderly international
monetary arrangements.
The narrowly defined money stock expanded moderately ie February,, after having changed little in January, and growth .over recent
months remained at an average annual rate of about 6.5 per cent.
The more broadly defined money stock continued.to grow.at .a
moderate rate in February as Inflows of consumer-type time and
savings deposits to banks slowed sharply. However, in the face
of strong loan demand from businesses, and also from foreign banks,
U.S. banks sharply increased their issuance of large-denomination
CD's and the bank credit proxy expanded very rapidly. In recent
weeks short-term market interest rates have risen substantially further while the rise in long-term rates has remained more' moderate.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions'consonant with the aims of the economic stabilization program, including abatement of inflationary pressures, sustainable growth in real
154
output and employment, and progress toward equilibrium in the
country's balance of payments.
To Implement this policy, while taking account of possible
domestic credit market and international developments, the Committee seeks to achieve bank reserve and money market conditions
that will support somewhat slower growth in monetary aggregates
over the months ahead than occurred on average in the past 6
months.
Votes for this action: Messrs. Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Francis, Mayo,
Mitchell, Morris, Robertson, and Sheehan. Votes
against this action: None.
On April 11, 1973, less than one week before the date scheduled
for the Committee's next meeting, the System. Account Manager
reported that In light of the latest estimates for RPD's and the
monetary aggregates, he interpreted the Committee's instructions
to call for reserve-supplying operations consistent with an easing
in money market conditions. On that day a majority of the members
concurred in a recommendation by the Chairman that such operations not be undertaken prior to the next meeting, when the
Committee would have an opportunity to deliberate on the appropriate policy course.
2. Ratification of earlier action
On March 15. 1973, Committee members had voted to increase
from $2 billion to $3 billion the limit oe changes between Committee meetings in System Account holdings of U.S. Government
and Federal agency securities specified in paragraph l(a) of the
continuing authority directive with respect to domestic open market
operations, effective immediately, for the period ending with the
close of business on March 20, 1973.
Votes for this action: Messrs. Hayes, Balles,
Brimmer, Bucher, Francis, Mayo, Mitchell, Morris,
and Robertson, Votes against this action: None.
Absent and not voting: Messrs, Burns, Daane,
and Sheehan.
This action, which was ratified by unanimous vote at this meeting, had beee taken on recommendation of the System Account
155
Manager. The Manager had advised that a substantial volume of
open market purchases of Treasury and Federal agency securities
had been required in the period since the Committee's previous
meeting in order to offset the reserve absorption caused by a sizable
unanticipated rise in Treasury balances at Federal Reserve Banks,
an increase in currency in circulation, and changes in certain other
market factors, and that a temporary increase in the leeway for
System purchases appeared desirable in light of the prospective
near-term needs to supply reserves.
3. Review of and amendments to continuing authorizations
This being the irst 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, 1973, and their
assumption of duties, the Committee followed its customary-practice of reviewing all of its continuing authorizations and directives.
The Committee concurred in a staff recommendation'that, in
the interest of simplicity and logic, the titles of three of these
instruments should be changed and that corresponding amendments
should be made in the text passages of certain instruments that
referred'to other instruments by title. The changes in titles were
as follows: from 4'continuing authority directive with respect to
domestic open market operations" to "authorization for domestic
open market operations"; from ''current economic policy directive" to "domestic policy-directive"; and from "authorization for
System foreign currency operations" to 44 authorization for foreign
currency operations," The text passages amended to reflect these
title changes were paragraph I of the authorization for domestic
open market operations and paragraphs 2C and 2Dof the foreign
currency directive.
The Committee also amended its authorization for' foreign currency operations in two respects to remove certain duplications
that resulted from revisions made earlier in the year in'its""Rules
of Organization and Rules of Procedure.7 The amendments involved
7
Revised Rules of Organization, Rules of Procedure, and Regulation relating
to Open Market Operations of Federal Reserve Banks, as well as miscellaneous
amendments to the Rules Regarding Availability of Information, as approved by
the Committee on Jan. 16, 1973, effective Feb. 1, 1973, were published in the
Federal Register for Jan. 30, 1973,
156
deletion of paragraph 10 and a revision of paragraph 6 to read
as follows:
The Subcommittee named in Section 272.4(c) of the Committee's
Rules of Procedure Is authorized to act on behalf of the Committee
when it is necessary to enable the Federal Reserve Bank of New
York to engage in foreign currency operations before the Committee
can be consulted. All actions taken by the Subcommittee under this
paragraph shall be reported promptly to the Committee.
Except for the changes resulting from these actions, the Committee reaffirmed its domestic and foreign currency authorizations
and its foreign currency directive In the form In which each was
outstanding at the beginning of the year 1973.
Votes for these actions: Messrs. Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Francis, Mayo,
Mitchell, Morris, Robertson, and Sheehan. Votes
against these actions: None.
157
MEETING HELD ON APRIL 17, 1973
1. Domestic policy directive
The information reviewed at this meeting suggested that in the
first quarter of 1973 expansion in consumption expenditures had
been substantially larger than estimated 4 weeks earlier and that
real output of goods and services had continued to grow rapidly.
Moreover, the rise in prices had accelerated sharply. Staff projections for the current quarter suggested that growth in real output,
while slowing from the high rate in the preceding two quarters,
would continue relatively high.
Retail sales expanded substantially in March, according to the
advance report, and sales for February were now reported to have
risen appreciably rather than to have declined; for the first quarter
as a whole, the gain was exceptionally large. Industrial production
continued to expand in March, reflecting substantial increases in
output of consumer goods, business equipment, and materials.
Nonfarm payroll employment rose considerably further, and for
the first quarter as a whole the advance was rapid. However, the
civilian labor force also increased substantially in the quarter, and
the unemployment rate remained at around 5.0 per cent.
The advance in average hourly earnings of production workers
on nonfarm payrolls moderated in the first quarter of the year from
the rapid rate in the final months of 1972. However, total payroll
costs per manhour rose sharply, reflecting the increase in social
security taxes at the beginning of the year. In March, as in
February, wholesale price increases were reported for many industrial materials and finished goods—including metals, lumber, petroleum products, motor vehicles, machinery, and clothing. The
rise in prices of farm products and foods remained rapid, in large
part because of continuing increases in prices of livestock, poultry,
and meats.
The latest staff projection of growth in real output in the second
quarter of 1973 was about the same as that of 4 weeks earlier.
Now, however, the projected increase in business inventory investment was larger—following a reduction in the estimated rate at
which businesses had added to inventories in the first quarter—
while the expansion in final purchases was smaller. Expectations
were that Federal purchases of goods and services would change
158
little, after apparently increasing somewhat more in the first quarter
than projected, and that consumption expenditures would rise less
sharply, following the exceptional advance ie the first quarter. It
was still anticipated that expansion ie business fixed investment
and in State and local government purchases of goods and services
would remain, strong and that outlays for residential construction
would turn down.
According to staff projections, growth ie real GNP would moderate in the second half of the year. It was expected that residential
construction outlays would decline further from the second-quarter
rate; that both fixed investment and inventory investment by businesses would expand less rapidly; aed that the rise ie disposable
income and consumption expenditures would slow substantially.
Foreign exchange markets in Europe and Japan—which had
officially closed on March 1 and 2—reopened on March 19, but
trading volume remained considerably below normal. There was
a moderate flow of funds into dollars—following the enormous
outflows that had occurred in February and early March-—and the
dollar strengthened against most major foreign currencies. In recent
weeks the over-all U.S. balance of payments had been in surplus.
Merchandise exports in the first 2 months of 1973 were up sharply
from the rate in the fourth quarter of 1972, reflecting substantial
gains among agricultural commodities, industrial materials, and
machinery. The rise in imports was not quite so large, and the
trade deficit for the 2 months was below the rate of the fourth
quarter.
At U.S. commercial banks, expansion in business loans moderated somewhat in, March, but it remained very strong by historical standards. Growth in real estate aed consumer loans remained
rapid, and bank holdings of U.S. Government securities—which
had declined sharply in February—increased by a moderate amount.
To accommodate the strong demand for loans, banks continued
to expand rapidly their outstanding volume of large-denomination
CD's. Since interest rates on CD's with maturities of more than
90 days had reached Regulation Q ceilings, the great bulk of CD's
issued in March had maturities between 30 and 89 days.
The narrowly defined money stock (MO1 changed little in March,
1
Private demand deposits plus currency Ie circulation.
159
and although iniows of time and savings deposits., other than
large-denomination CD's increased from a sharply reduced rate in
February, growth in the more broadly defined money'stock (M2)2
moderated slightly further. Over the irst quarter of 1973..as a whole,
growth in Mt and M2—at annual rates of about 2 and 6 per cent,
respectively-—was markedly below the high rates that had prevailed
toward the end of 1972.3 However, the bank credit, proxy4 grew
rapidly both in March and over the irst quarter as a whole,
reflecting the' sharp expansion in the outstanding volume of largedenomination CD's.
.
....
Short-term interest rates continued to rise until early April, but
then'rates declined—especially those for Treasury bills—in'part
because, of market expectations that a stronger wage-price control
program was about to be introduced and that money market conditions would not soon tighten further. On the ' day before this
meeting, the market rate.on 3-month Treasury bills .was 6.19 per
cent, down from 6.55 per cent on April 3 but about the same
as on--the day before the March meeting. Over the inter-meeting
period, on balance, fates declined for Treasury bills and for Federal
agency issues with maturities of 6 months to a year, and rates
advanced for large-denomination CD's not subject to Regulation
Q ceilings.
Since the last meeting of the Committee, yields on intermediate and long-term securities had declined on balance—changing little
while short-term rates were rising and then declining along with
short-term rates. As in the period between the February and March
meetings, -markets for these securities had been strengthened by
foreign official buying of Treasury coupon issues and by light
corporate demands for funds in the capital rn.ar.ket. The volume
of-new- offerings of corporate bonds, which had been-unusually
small in February, was moderate in March and appeared likely
to change little in April. For State and local government bonds,
2
Mt plus commercial bank time and savings deposits other than large-denomination CD's.
3
Growth rates cited are 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,
4
Daily-average member bank deposits, adjusted to include funds from
nondeposit sources.
160
the volume of new Issues was large In March but seemed likely
to decline moderately in April.
The Treasury was expected to announce on April 25 the terms
of Its mid-May refunding. Of the maturing Issues, $4.3 billion
were held by the public.
Contract Interest rates on conventional mortgages and yields In
the secondary market for Federally Insured mortgages both rose
somewhat In March. Inflows of savings funds to eonbank thrift
Institutions remained at around the slower pace to which they had
fallen In February.
System open market operations since the meeting on March
19-20 had been guided by the Committee's decision to seek bank
reserve and money market conditions that would support somewhat
slower growth In monetary aggregates over the months ahead than
had occurred on the average In the preceding 6 months. Operations
had been directed toward fostering growth In reserves available
to support private nonbank deposits (RPD's) at an annual rate In
a range of 12 to 16 per cent In the March—April period, while
avoiding marked changes In money market conditions.
Toward the end of March, Incoming data began to suggest that
RPD's might grow at a rate below the specified range because
of weaker-than-expected expansion In private demand deposits, and
System operations were directed toward somewhat less tautness
In bank reserve and money market conditions. In early April,
available data continued to suggest that growth In. RPD's In the
March-April period would be below the specified range, but on
April l l a majority of the Committee members agreed that bank
reserve and money market conditions should not be eased further
in the few days before the next meeting. In those remaining days,
the Federal funds rate was about 7 per cent, down slightly from
the level prevailing in the days before the March meeting. In the
4 weeks ending April 11, member bank borrowings averaged about
$1,850 million, compared with an average of $1,665 million in
the preceding 5 weeks.
The Committee agreed that the economic situation and prospects
called for moderate growth in the monetary aggregates over the
months ahead, continuing the policy course agreed upon at the
preceding meeting. The members took note of a staff analysis
suggesting that the demand for money was likely to be stronger
161
over the near term than It had been in the first quarter of the year,
reflecting • the unusually large Federal tax refunds—which would
add to demand deposits temporarily—and continued strong expansion in-economic activity. Although it was likely "that expansion
in the outstanding volume of large-denomination CD's would slow
from" the rapid pace in February and March, the increase was still
expected to be large. Therefore, a relatively rapid rate of growth
in RPD's in the April-May period was projected to "be consistent
with moderate growth in the monetary aggregates over the months
ahead. The' analysis also suggested that such a rate of growth in
RPD's might be associated with little change in money market
conditions 'and short-term interest rates in general.
The Committee decided that operations should be directed at
fostering RPD growth during the April—May period at an annual
rate within a range of 10 to 12 per cent, while continuing to avoid
marked changes in money market conditions. The members also
agreed that, in the conduct of operations, account should be taken
of the forthcoming Treasury financing and of deviations in monetary
growth from an acceptable range. It was understood that the
Chairman might consider calling upon the Committee to appraise
the need for supplementary instructions before the next scheduled
meeting.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests continued rapid
growth in real output of goods and services in the irst quarter,
spurred by an extraordinary increase in consumption .expenditures.
Over the first 3 months of this year, employment rose strongly but
the unemployment rate remained about 5 per cent. The recent
advance in wage rates has been more moderate than in the latter
part of 1972, but the increase in social security taxes in January
added significantly to payroll costs. The rate of increase in prices
stepped up very sharply ie the first quarter. Prices of foods have
continued to rise at wholesale and retail, and in both" February and
March increases in wholesale prices of industrial commodities were
large and widespread. Foreign exchange markets' have'"been relatively quiet since mid-March, and there has been a moderate reflow
into-dollars. The U.S. merchandise trade balance improved a-little
in January-February, when both exports and imports were sharply
higher than in the fourth quarter of 1972.
162
Growth in both the narrowly and more broadly defined money
stock slowed markedly in the first quarter following a bulge toward
the close of last year. However, in the face of strong loan demand-—especially from businesses--—banks sharply increased their
issuance of large-denomination CD's, and the bank credit proxy
expanded very rapidly. Short-term market interest rates continued
to rise until the beginning of April, but since then some rates—particularly those on Treasury bills—have declined. Rates on long-term
market securities have moved down oe balance in recent weeks.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a more sustainable
rate of advance in economic activity, and progress toward equilibrium in the country's balance of payments.
To implement this policy, while taking account of forthcoming
Treasury financing, the Committee seeks to achieve bank reserve
and money market conditions consistent with moderate growth in
monetary aggregates over the months ahead.
Votes for' this action: Messrs. Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Francis, Mitchell, Morris, Robertson, Sheehan, and Wien.
Votes against this action: None.
Absent and not voting: Mr. Mayo. (Mr. Winn
voted as his alternate.)
2. Rewision of guidelines for operations in
Federal agencf issues
At this meeting the Committee revised the third and fourth of the
guidelines for the conduct of System operations in securities issued
by Federal agencies. Initial guidelines had been approved on August
24, 1971, with the understanding that they would be subject to
review and revision, and guidelines 5 and 6 had been revised on
February 15 and April 17, 1972, respectively. Prior to today's
action, guidelines 3 and 4 had contained references to "initial"
activities. Thus, number 3 read k%As an initial objective, the System
would aim at building up a modest portfolio of agency issues,
with the amount and timing dependent oe the ability to make net
acquisitions without undue market effect," and number 4 read
"System holdings of maturing agency issues will be allowed to
ran off at maturity, at least initially." The revision of guideline
163
3 consisted of eliminating the outdated reference to building up
a portfolio, and the •••revision in guideline 4 consisted of'deletion
of the phrase **at least Initially."
Votes for this action: Messrs. Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Francis, Mitchell, Morris, Robertson, Sheehan, and Winn.
Votes against this action: None.
Absent and not voting: Mr, Mayo. (Mr. Winn
voted as his alternate.)
164
MEETING HELD ON MAY 15, 1973
Domestic policy directive
Estimates of the Commerce Department indicated that real output
of goods and services had grown at an annual rate of 8 per cent
in the first quarter, the same rate as in the fourth quarter of 1972.
Growth appeared to be moderating somewhat in the current quarter,
and staff projections continued to suggest that it would moderate
further in the second half of 1973.
In April industrial production continued to expand at a high rate,
reflecting further substantial gains in output of consumer goods,
business equipment, and materials. Employment in manufacturing
establishments also rose appreciably, and the average factory
workweek advanced to the highest level since late 1966. However,
total nonfarm payroll employment rose less rapidly than in the first
3 months of the year, and the unemployment rate remained at 5
per cent. Retail sales declined in April, according to the advance
report, after having increased sharply in the first quarter.
The advance in average hourly earnings of production workers
on nonfarm payrolls stepped up in March and April, following
only modest increases in the first 2 months of the year. The
consumer price index continued to rise rapidly in March, as retail
prices of foods soared for the third successive month and prices
of other consumer goods and services continued to move up at
substantial rates. In April wholesale prices of consumer foods rose
considerably further. As in February and March, moreover, increases among wholesale prices of industrial commodities were
large and widespread.
The latest staff projection of growth in real output in the second
quarter of 1973 was essentially unchanged from that of 4 weeks
earlier, although the projected increase in inventory investment was
somewhat larger. It was still expected that the rise in consumption
expenditures would be substantial, but not so large as the extraordinary increase in the first quarter; that expansion in business fixed
investment and in State and local government purchases of goods
and services would remain strong; and that outlays for residential
construction would turn down.
For the final two quarters of the year, expectations were that
residential construction outlays would decline further; that fixed
165
investment and inventory investment of businesses would-expand
less rapidly; and that the rise in disposable income and consumption
expenditures would slow considerably.
U.S. merchandise exports rose substantially in- March, led by
a large further increase in agricultural commodities. Imports remained at the January—February level, and the trade deficit dropped
sharply. For the first quarter as a whole, the trade deficit was well
below that in the fourth quarter of 1972.
Exchange markets had been quiet in late April and early May,
and the dollar had firmed against most other major currencies—
especially just after the announcement, on April 26, of the U.S.
foreign trade statistics for March. On the day before this meeting,
however, new speculate pressures developed and the dollar dedined "markedly against major European currencies.
At U.S. commercial banks, expansion in business loans, although still substantial, moderated further in April in association
with a reduction in business • substitution of bank credit- for commercial paper financing. Growth in real estate and consumer loans
remained rapid, while bank holdings of securities declined somewhat.
Growth in the narrowly defined money stock (Mi),1 which had
been at an annual rate of less than 2 per cent in the Irst quarter,2
picked up in April. Reflecting the faster rate of expansion in Ml9
growth in the more broadly defined money stock (M 2 ) 3 also increased; inflows of time and savings deposits other than large-denomination CD's were about the same as in March. The increase
in the outstanding ¥olume of large-denomination CD's, although
still large, was below the record March expansion, and U.S.
Government deposits declined. Consequently, the bank credit
proxy4 grew much less rapidly-than in March.
lelows of savings to eonbank thrift institutions slowed coesid™
1
Private demand deposits plus currency in circulation.
Growth rates cited are 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. .
3
Mi plus commercial bank time and savings deposits other than large -denomination CD's.
4
Daily-average member bank deposits, adjusted to include funds from
nondeposit sources.
2
166
erabiy in April, In part because of earlier Increases In market Interest
rates. Mortgage Interest rates continued to edge up.
The Treasury announced on April 25 that In Its mid-May financing It would auction a 7-year, 6% per cent note and a 25-year,
7 per cent bond to refund up to $2.65 billion of the $4.30 billion
of publicly held notes maturing oe May 15; the balance of the
maturing notes held by the public would be redeemed for cash.
In the auctions, held OE May 1 and 2, $2 billion of the note was
sold at an average price to yield 7.01 per cent, and $650 million
of the bond was sold at the lowest bid price (paid by all successful
bidders) to yield about 7.11 per cent. In addition to the cash
redemption of part of the notes maturing in mid-May, the Treasury
announced that, in view of its strong cash position, It would reduce
the size of the weekly auction of 6-moeth bills by $100 million
and that it foresaw EG need to borrow new money until August.
System open market operations since the meeting oe April 17
had been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with moderate growth ie
monetary aggregates over the months ahead. Soon after the April
meeting, It appeared that the monetary aggregates would grow le
the April-May period at rates In excess of an acceptable range
even though estimates suggested that reserves available to support
private noebaek deposits (RPD's) would grow in that period at
an annual rate below the range of 10 to 12 per cent specified by
the Committee. The divergent tendencies were attributed to two
main factors: Banks' excess reserves were lower than anticipated
and currency IE circulation was growing more rapidly than expected.
In view of the strength in the monetary aggregates, System
operations had been, directed toward limiting growth In reserves,
while continuing to avoid marked changes Ie money market conditions and while taking account of the Treasury financing. At the
time of this meeting, It. still appeared that growth in RPD's would
fall somewhat short of the speclied range. The Federal funds rate
was about 7% per cent In the days before the meeting, compared
with about 7 per cent shortly before the preceding meeting, le
the 4 weeks ending May 9, member bank borrowings averaged
about $1,715 million, compared with an, average of about $1,850
million in the preceding 4 weeks.
167
Short-term market interest rates, which had risen sharply earlier
in the year, advanced little further on balance in the inter-meeting
period, despite the substantial increase in the Federal funds rate.
Markets, -especially for--Treasury bills, were • strengthened by a
shortage in the market supply of bills and by current and prospective
Treasury Inancing operations. On the day before this meeting, the
market rate on 3-month Treasury bills was 6.17 per cent,.compared
with 6,19 per cent on the day before the April meeting. Federal
Reserve discount rates were raised lA percentage point, to 53A per
cent, at all Reserve Banks on April 23 and % point further, to
6 per cent, at 11 of the Reserve Banks on May 11.
Interest rates on long-term securities had changed little since
the April meeting of the Committee, as demands for funds in the
capital markets had remained moderate. The over-all volume of
new public offerings of corporate and State and local government
bonds had declined substantially in April, and although a partial
recovery'was in prospect, it appeared likely" that" the volume in
May would be close to the reduced monthly rate in the first quarter.
The Committee agreed that the economic situation and prospects
called for somewhat slower growth in the monetary aggregates over
the months immediately ahead than had occurred on average in
the past 6 months. A staff analysis suggested that the unusually
large refunds of Federal personal income taxes .had .added, temporarily to both demand deposits and consumer-type time and savings
deposits and that as such refunds diminished growth in the demand
for money would tend to moderate in the period immediately ahead.
The analysis also suggested that the lagged effects of recent increases in interest rates would work in the direction of moderating
the demand for money. Faced with sustained strong demands for
credit, banks were likely to continue to increase substantially the
outstanding volume of large-denomination CD's. Therefore, according to the analysis, relatively rapid growth in RPD's in the
May-June period was likely to be consistent with-somewhat- slower
growth in the monetary aggregates than had occurred on average
over the past 6 months. The staff analysis also indicated that such
a slowing in monetary growth would probably be associated with
further increases in short-term interest rates and also with some
rise in longer-term rates.
The Committee decided that operations should be directed at
168
fostering RPD growth during the May-June period at an annual
rate within a range of 9 to 11 per cent, while continuing to avoid
marked changes In money market conditions. The members also
agreed that allowance should be made In operations If growth In
the monetary aggregates appeared to be deviating from an acceptable range and that In the conduct of operations account should
be taken of International and domestic financial market developments. It was understood that the Chairman might call upon the
Committee to consider the need for supplementary Instructions
before the next scheduled meeting if significant Inconsistencies
appeared to be developing among the Committee's various objectives and constraints; the chances seemed greater than usual that
such consultation would be needed.
The following domestic policy directive was Issued to the Federal
Reserve Bank of New York:
The Information reviewed at this meeting suggests that growth
In real output of goods and services Is likely to moderate somewhat
In the current quarter from an exceptionally rapid pace In the two
preceding quarters. Over the first 4 months of this year, employment
rose considerably but the unemployment rate remained about 5 per
cent. Retail prices of foods continued upward at an extraordinary
pace in March, and in April average wholesale prices of consumer
foods rose further. Increases in wholesale prices of Industrial commodities were large and widespread in April, as in the two preceding
months. In foreign exchange markets, which had been relatively
quiet since mid-March, speculative pressures have developed in
recent days and exchange rates for major European currencies have
appreciated against the dollar. The U.S. merchandise trade balance
improved considerably in the first quarter, reflecting In part an
especially large Increase In agricultural exports.
In April growth in the narrowly defined money stock picked up
from its low first-quarter rate, and growth in the broadly defined
money stock also Increased. Growth in business loans at banks
slowed, and banks reduced the pace at which they Issued large-denomination CD's; consequently, the bank credit proxy expanded
somewhat less than in other recent months. In recent weeks Federal
Reserve Bank discount rates have been increased In two .steps of
one-quarter point to 6 per cent by May 11. Most short-term market
interest rates, which had risen sharply earlier, have advanced slightly
169
further. Interest rates on long-term market securities have- been
relatively stable.
In -light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a more sustainable
rate of advance in economic activity, and progress toward equilibrium in the country's balance of payments.
To implement this policy, while taking account of international
and domestic financial market developments, the Committee, seeks
to achieve bank reserve and money market conditions consistent
with somewhat slower growth in monetary aggregates -over the
months immediately ahead than occurred on average in the past
6 months.
Votes for this action: Messrs. Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Francis, Mayo,
Morris, and Sheehan. Votes against this action:
None.
Absent and not votio,g: Mr. Mitchell.
Subsequent to the meeting it appeared that in the May-June
period'the annual rate of growth in RPD's would be above 11
per cent and that growth in. the monetary aggregates would exceed
an acceptable range, even though money market conditions continued to--tighten. On May 24, 1973, and again on June 8, a majority
of the members concurred in a recommendation by. the Chairman
that money market conditions should be permitted to tighten still
further if necessary to-limit -growth in RPD's.
170
MEETING HELD ON JUNE 18-19, 19731
1. Domestic policy directive
The information reviewed at this meeting suggested that real output
of goods and services, which had expanded at an annual rate of
8 per cent in both the last quarter of 1972 and the first quarter
of 1973, was growing at a less rapid pace in the current quarter.
Staff projections continued to suggest that growth would moderate
further in the second half of the year.
In May industrial production continued to rise—reflecting for
the most part further gains in output of consumer goods and
business equipment—but the pace of expansion was less rapid than
it had been earlier in the year. The value of new construction put
in place in both April and May changed little from the monthly
average for the first quarter. Growth in nonfarm payroll employment
slowed from the high rate in the first quarter of the year, but the
unemployment rate remained at 5 per cent. Retail sales rose in
May, according to the advance report, after having declined more
sharply in April than had been reported earlier; the average for
the 2 months was close to the average for the first quarter.
The advance in average hourly earnings of production workers
on nonfarm payrolls, which had been moderate in the first 4 months
of 1973, remained so in May. However, this year's upward spiral
in the wholesale price index continued, reflecting another substantial rise in prices of industrial commodities as well as a large
increase in prices of farm and food products. In April the uptrend
in the consumer price index was sustained at about the fast pace
of the preceding 3 months. On June 13 the President announced
that prices of all goods and services—except for rents and for prices
of raw agricultural commodities sold at the farm level—would be
frozen for a period not to exceed 60 days while a new and more
effective system of controls was being devised to replace the
economic stabilization program's third phase, which had been
introduced in mid-January. Wages, profit margins, dividends, and
lr
This meeting was held over a 2-day period beginning on the afternoon of
June 18, 1973, in order to provide more time for the staff presentation concerning
the economic situation and outlook and the Committee's discussion thereof.
171
interest rates remained subject to the controls that had existed-under
Phase III.
The latest staff projections for the second half of 1973 were
very similar to those of 4 weeks earlier, although business-fixed
investment now was expected to expand at a somewhat less rapid
pace, as suggested by the latest Department of Commerce survey
of business speeding plans. It was still anticipated that-residential
construction outlays would decline appreciably, that business inventory Investment would increase less rapidly, and that the rise
in disposable income and consumption expenditures would slow
considerably.
In foreign exchange markets, the dollar came under strong selling
pressure in early May,, chiefly against those continental European
currencies that were jointly floating against the dollar. Speculative
demands were reflected "in appreciation of those currencies floating
against the. dollar rather than in additions to foreign official holdings
of dollars. By the date of this meeting, several of the European
currencies' had appreciated by as much as 7 to 10 per cent since
early. May.
• ••
The U.S. merchandise trade balance, which had improved substantially in March, was in surplus in April for the first'time in
about a year and a half. Exports of nonagriculturai .goods., rose
further while those of agricultural goods were near the high level
reached in March. The value of imports declined, even though
import prices rose sharply as a result largely of the .devaluation
of the dollar in February.
At U.S. commercial banks, total loans expanded sharply further
in May, reflecting large increases in business loans .and in.Joans
to nonbank financial institutions. Banks' holdings of securities rose
somewhat, although-their holdings of U.S. Government securities
declined appreciably. Faced with strong demands for loans and
with rising market interest rates, banks raised the prime rate
applicable to large corporations in three steps of lA of a percentage
point each, from 6% per cent at the end of April to IVi per cent
in early June.
Growth in the narrowly defined money stock (MO,2 which had
been very slow in the first quarter of the year and had picked up
in April, was rapid in May and early June. The more broadly
2
Private demand deposits plus currency in circulation.
172
defined money stock (M2):l also grew in May at a faster pace than
it had earlier, reflecting solely the accelerated expansion in Mt;
iniows of time and savings deposits other than large -denomination
CD's were about the same as in April. However, growth in the
bank credit proxy4 continued to moderate as the outstanding volume
of large-denomination CD's grew less rapidly than it had earlier
in the year. It appeared that over the first half of 1973, Mj, M2,
and the credit proxy would grow at annual rates of about 5.5,
7.5, and 13.0 per cent, respectively.5
Inflows of savings to noebaek thrift institutions—which had
slowed considerably in April, ie part because of earlier increases
in market interest rates—picked up somewhat ie May. Mortgage
interest rates continued to edge up.
System open market operations since the meeting on May 15
had been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with somewhat slower
growth in the monetary aggregates over the months immediately
ahead than had occurred on average ie the preceding 6 months.
Operations had been directed toward fostering growth in reserves
available to support private noebank deposits (RPD's) at an annual
rate ie a range of 9 to 11 per cent in the May-June period, while
avoiding marked changes In money market conditions.
Soon after the May meeting, it had appeared that in the May-June
period the monetary aggregates would grow at rates in excess of
acceptable ranges and that RPD's would grow at an annual rate
above the range that the Committee had specified. Consequently,
the System had acted promptly to resist the expansion in RPD's,
and the Federal funds rate rose from around 73A per cent in the
days before the May meeting to an average slightly above 8 per
cent in the statement week ending May 23. On May 24 and again
on June 8, a majority of the Committee members concurred in
recommendations by the Chairman that money market conditions
should be permitted to tighten still further "if necessary to limit
s
Mt plus commercial bank time and savings deposits other than large-denomination CD's.
4
Daily-average member bank deposits, adjusted to Include funds from
eoedeposit sources.
5
Growth rates cited are calculated on the basis of the daily-average level ie
the last month of the period relative to that in the last month preceding the period.
173
growth in RPD's, and the Federal funds rate rose to around EYi
per cent in the days before this meeting. In the 5 weeks ending
June-13, member bank-borrowings averaged about $1,855 -million,
up from about $1,715 million in the preceding 4 weeks.
In the inter-meeting period, short-term market interest rates
advanced-considerably further-as money market conditions continued to firm and private credit demands remained strong. On May
16, moreover, imposition of marginal reserve requirements on
large-denomination CD's was announced and the remaining-Regulation Q ceilings on such CD's were suspended. The yield on
3-month Treasury bills—which had been relatively low, for the
most part because of a shortage- of bills in the market—rose more
than other short-term rates as the market supply increased, mainly
because of System sales of bills for its own account and that of
foreign central banks; the market-rate on such bills-advanced from
6,17 per cent on the day before the May meeting to 7.20 per cent
on the day before this meeting. Federal Reserve discount rates were
raised ¥2 percentage point, to -6% per cent, at 10- Re-serve -Banks
on June 11 and at the remaining two Banks by June 15.
In long-term markets, increases in interest rates were moderate,
despite .the- further tightening-of- money market -conditions- and
further increases in short-term interest rates. The over-all volume
of new' public offerings of corporate and State and local government
bonds had changed little, in May, and although a rise-was in prospect
for June, the volume for the second quarter as a whole appeared
to be low for that season of the year.
The Committee agreed that the. economic situation and prospects
called for somewhat slower growth in monetary aggregates over
the months immediately ahead than appeared indicated for the first
half of. the year. A staff analysis suggested that expansion in the
demand for money was likely to slow considerably from the high
rate'indicated'for the second quarter In response to the anticipated
moderation in.GNP.growth, to the sharp rise in short-term.interest
rates that had occurred in recent months, and to the running down
of the' deposits that had been built up in association with the
unusually large refunds of Federal income taxes in the second
quarter. Moreover, net expansion in consumer-type time and savings deposits at commercial banks was expected to slow appreciably
as a consequence of the recent rise in short-term, market interest
174
rates. It was noted, however, that projections of the demand for
money were subject to more uncertainty thae usual because of the
unknown effects of the short-term, freeze oe prices and the lack
of information concerning the elements of the price and wage
stabilization program to follow.
The staff analysis also indicated that demands for bank credit
were likely to remain, strong and that banks probably would con™
tinue to add substantial amounts to the outstanding volume of
large-denomination CD's. Therefore, a relatively rapid rate of
growth In RPD's In the June-July period—at ae annual rate In
a range of 9.5 to 11.5 per cent—was projected to be consistent
with somewhat slower growth in the monetary aggregates over the
months Immediately ahead thae appeared indicated for the first
half of the year. The analysis suggested that such a rate of growth
In RPD's might be associated, with little change In money market
conditions but that short- and long-term market Interest rates In
general might be subject to additional upward pressures In further
adjustment to the finning In money market conditions that had
occurred In recent weeks.
In view of the rapid monetary expansion in the second quarter
and uncertainty about the demand for money in the months ahead,
the Committee agreed that the lower end of the range specified
for the annual rate of RPD growth In the June-July period should
be lower thae that projected In the staff analysis. Specifically, the
members decided that operations should be directed at fostering
RPD growth during that period at ae annual rate within a range
of 8 to 11,5 per cent. They agreed that money market conditions
might be permitted to vary somewhat more In the inter-meeting
period than had been contemplated at other recent meetings, If
such variation appeared Indicated In the conduct of operations
directed toward achieving RPD growth In the desired range.
The members also agreed that, In. the conduct of operations,
account should be taken of international and domestic financial
market developments and of deviations in monetary growth from
an acceptable range. It was understood that the Chairman might
call upon the Committee to consider the need for supplementary
instructions before the next scheduled meeting if significant Inconsistencies appeared to be developing among the Committee's
various objectives and constraints.
175
The following domestic policy directive was issued to the Federal
Reserve Bank of New York;
The Information reviewed at this meeting, including recent developments in industrial production, employment, and'retail sales,
suggests that growth in economic activity Is slowing In the current
quarter from an exceptionally rapid pace in the two preceding
quarters. The unemployment rate.has remained at 5 per -cent. Wage
rates have advanced moderately thus far this year, but the rise in
both wholesale and retail prices has been exceptionally rapid. On
June 13 the President announced that prices will be frozen for a
maximum of 60 days while a new and more effective system of
controls is developed. Phase III • controls affecting wages, profit
margins, dividends, and Interest rates remain In effect. In foreign
exchange markets, several European currencies have appreciated
against the dollar by 7 to 10 per cent since early May,. The U.S.
merchandise trade balance continued to Improve In April, as exports
other than agricultural products Increased sharply further and imports
dipped.
Following relatively slow growth earlier In the year, the narrowly
defined money stock rose sharply in May and early June. Growth
in consumer-type time and savings deposits changed little, while
banks* net sales of large-denomination CD's declined further. On
May 16 marginal reserve requirements were imposed on large-denomination CD's and the remaining Regulation Q ceilings on such
CD's were suspended, Business loan demands have remained
strong, and since mid-May short-term market interest rates have
advanced considerably further. Interest rates on long-term market
securities in general have risen somewhat. On June 11 Federal
Reserve discount rates were raised one-half point to 6% per cent.
In light of the foregoing developments, it is the policy .of the
Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a more sustainable
rate of advance in economic activity, and progress toward equilibrium in the country's balance of payments.
To implement this policy, while taking account of international
and domestic financial market developments, the Committee seeks
to achieve bank reserve and money market conditions consistent
with somewhat slower growth in monetary aggregates, over the
months immediately ahead than appears indicated for the first half
of the year.
176
Votes for this action: Messrs. Bums, Brimmer,
Bucher, Daane, Francis, Holland, Mayo, Mitchell,
Morris, Sheehan, Clay, and Debs. Votes against
this action: None.
Absent and not voting: Messrs. Balles and Hayes,
(Messrs. Clay and Debs voted as alternates for
Messrs. Balles and Hayes, respectively.)
Subsequent to the meeting It appeared that in the June-July
period the annual rate of growth In RPD's would be above 11.5
per cent and that growth In the monetary aggregates would exceed
an acceptable range, even though money market conditions had
continued to tighten. On July 6, 1973, a majority of the members
concurred In a recommendation by the Chairman that money market
conditions should be permitted to tighten still further If necessary
to limit growth In RPD's.
2. Authorization for domestic open market operations
On July 6, 1973, Committee members voted to Increase from $2
billion to $3 billion the limit on changes between Committee
meetings In System Account holdings of U.S. Government and
Federal agency securities specified in paragraph l(a) of the authorization for domestic open market operations, effective Immediately,
for the period ending with the close of business on July 17, 1973.
Votes for this action: Messrs. Burns, Balles,
Brimmer, Francis, Holland, Mitchell, Sheehan,
Debs, and Winn. Votes against this action: None.
Absent and not voting: Messrs. Bucher, Daaee,
Hayes, Mayo, and Morris. (Messrs. Debs and Winn
voted as alternates for Messrs. Hayes and Mayo;
respectively.)
This action was taken on recommendation of the System Account
Manager. The Manager had advised that a substantial volume of
open market purchases of securities had been required In the period
since the Committee's meeting on June 19 in order to offset the
reserve absorption caused by a rise In Treasury balances at Federal
Reserve Banks, an Increase in currency in circulation, and a decline
in Federal Reserve float, and he further advised that a temporary
177
Increase In the leeway for System purchases appeared desirable
in light of the prospective near-term needs to supply reserves.
3. Authorization for foreign currency operations • •
Effective July 10, 1973, the table contained in paragraph- 2 of the
authorization for foreign currency operations was amended to
reflect increases in most of the System's swap arrangements. With
these changes, paragraph 2 read as follows:
The'Federal Open Market Committee directs the Federal Reserve
Bank of New York to maintain reciprocal currency arrangements
( " s w a p " arrangements) for the 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 oe maturity:
Foreign bank
Amount of
arrangement
(millions ofdollars equivalent)
Austrian National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
National Bank of Belgium . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
National Bank of Denmark . . . . . . . . . . . . . . . . . . . . . . . .
Bank of England . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of F r a n c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
German Federal Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank .of Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank of S w e d e n , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss National Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank for International Settlements:
Dollars against Swiss f r a n c s . . . . . . . . . . .
.......
Dollars against other European
currencies.......................................
178
250
1,000
2,000
250
2,000
2,000
2,000
2,000
2,000
180
500
250
300
1,400
600
1,250
The Increases—ranging in size from. $250 million to $1 billion—in the swap arrangements with the Bank for International
Settlements and with the central banks of Belgium, Canada, France,
Germany, Italy, Japan, the Netherlands, and Switzerland were
made pursuant to an action the Committee had taken by unanimous
vote at Its meeting oe March 20, 1973. In that action, the Special
Manager was authorized to undertake negotiations looking toward
Increases in System swap lines not exceeding $6 billion In the
aggregate, oe the understanding that Increases In individual lines,
and the corresponding amendments to the foreign currency authorization, would become effective upon approval by Chairman Bums,
after consultation with the U.S. Treasury. The remaining Increases—of $50 million each—in the swap arrangements with the
central banks of Austria, Denmark, Mexico, Norway, and Sweden
were authorized by unanimous vote of the Committee at Its meeting
on June 19, 1973, OE the understanding that they would become
effective on the same date as the swap line increases for which
negotiations had been authorized oe March 20.
This expansion of the System's swap network was carried out
in conformity with the policy that had been agreed to at the meeting
of Finance Ministers and central bank governors ie Paris on March
16, 1973.
179
MEETING HELD ON JULY 17, 1973
Domestic policy directive
The information reviewed at this meeting suggested that growth
in real output of goods and services, which had expanded at an
annual rate of 8 per cent in both the last quarter of 1972 and the
first quarter of 1973, had grown at a much less rapid pace in the
second quarter. Staff projections continued to suggest that growth
would moderate further in the second half of the year.
Retail sales declined in June, according to the advance report,
and in the second quarter as a whole they were about the same
as in the first quarter. Industrial production continued to rise in
June—reflecting further gains in output of business equipment and
industrial materials—but the advance was somewhat less rapid in
the second quarter than in the first. Nonfarm employment again
rose substantially in June, but as in April and May, the pace of
expansion was much less rapid than it had been earlier in the year.
The unemployment rate declined to 4.8 per cent after having been
5.0 or 5.1 per cent for 6 months.
The advance in average hourly earnings of production workers
on nonfarm payrolls, which had been moderate in the first quarter
of the year, was more rapid in the second quarter. Wholesale prices
of both industrial commodities and farm and food products rose
sharply further from mid-May to mid-June, prior to the imposition
of the price freeze announced by the President on June 13. The
increase in the total wholesale price index during the first half of
the year was extraordinarily large. In May the consumer price index
continued to rise at about the high average rate prevailing in the
first 4 months of the year; increases in retail prices were widespread
and were particularly large among foods.
The latest staff projections for the second half of 1973 were
similar to those of 4 weeks earlier. The anticipated expansion in
business fixed investment, although substantial, was much less
rapid than in the first half of the year. Moreover, it was expected
that residential construction outlays would decline appreciably; that
180
business inventory investment would increase less rapidly than in
the second quarter; and that growth in personal consumption
expenditures would be well below the pace in the first half.
U.S. merchandise exports continued to expand in May, but
imports rose sharply—in large part because of increases in import
prices—and the trade balance slipped back into deficit after having
been in small surplus in April. However, the average deficit for
the 2 months was substantially below that in the first quarter of
1973, which in turn was much lower than the deficit in the fourth
quarter of 1972.
Since the June 18-19 meeting of the Committee, the exchange
rate for the dollar had declined sharply further against those
continental currencies that were floating jointly against the dollar;
the decline had been most severe in the 2 weeks after June
26—when the U.S. trade deficit for May was announced—and in
the week ending July 6 trading was characterized by large and
erratic movements in rates. Subsequently, the dollar recovered
somewhat on the basis of market expectations of official intervention to support the dollar. On July 10 the System announced that
its swap arrangements with other central banks had been increased
by substantial amounts. Throughout the period, the dollar had been
firm against the currencies of Canada, the United Kingdom, and
Japan-—countries that account for the bulk of U.S. foreign trade.
At U.S. commercial banks, both total loans and holdings of
securities changed little in June after having expanded sharply in
May, as indicated by data for the last Wednesday of each month;
over the 2 months the average rate of growth was relatively high.
The rate of expansion in business loans in June, although substantial, was well below that earlier in the year. Banks raised the prime
rate applicable to large corporations from 7% per cent in early
June to 8lA per cent by early July.
Growth in the narrowly defined money stock (Mi),1 which had
accelerated in April and May, stepped up somewhat further in June.
Although iniows of time and savings deposits other than large-denomination CD's slackened, growth in the broadly defined money
1
Private demand deposits plus currency In circulation.
181
stock (M2)2 remained at the relatively high rate recorded in May.
Expansion in the outstanding volume of large-denomination CD's
slowed sharply, but growth in the bank credit proxy3 remained
relatively fast. Over the first half of the year, M1? M2, and the
proxy grew at anneal rates of around 6, 7.5, and 14 per cent,
respectively.4
Iniows of savings to nonbank thrift institutions, which had
picked up in May, remained relatively strong in June, despite
continuing advances in market interest rates. In early July, ceilings
were removed from interest rates on consumer-type time deposits
of at least $1,000 having maturities of 4 years or more—-at commercial banks as well as at nonbank thrift institutions, At the same
time maximum rates that could be paid on time and savings deposits
with shorter maturities were raised. Mortgage interest rates generally continued to rise.
System open market operations since the meeting on June 18-19
had been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with somewhat slower
growth in monetary aggregates over the months immediately ahead
than appeared to be indicated for the Irst half of the year. Operations had been directed toward fostering growth in reserves available to support private nonbank deposits (RPD's) at an. anneal rate
in a range of 8 to 11.5 per cent in the June-July period, while
avoiding unduly sharp changes in money market conditions.
Soon after the June meeting, available data suggested that in the
June-July period RPD's would grow at an annual rate above the
range that the Committee had specified and that Mt would grow
at a rate in excess of an acceptable range. Data that became
available after the July 4 holiday continued to suggest excessive
strength in RPD's and the monetary aggregates in the June-July
period, even though money market conditions had continued to
tighten, and on Friday, July 6, a majority of Committee members
concurred in a recommendation by the Chairman that money market
2
Mi plus commercial bank time and savings deposits other than large-denomination CD's.
3
Daily-a¥erage member bank deposits, adjusted to include funds from
eondeposit sources.
4
Growth rates cited are calculated on the basis of the daily-average level in
the last month of the period relative to that ie the last month preceding the period.
182
conditions should be permitted to tighten to a greater extent than
had been contemplated at the June meeting. The Federal funds
rate, which had been about 8% per cent in the days before the
June meeting, was close to 9% per cent during most of the week
preceding this meeting, and in the last few days It had risen further.
In the 4 weeks ending July 11, member bank borrowings averaged
about $1,965 million., up from about $1,855 million In the preceding 5 weeks.
As money market conditions continued to firm In the Inter-meeting period and private credit demands remained strong, short-term
interest rates rose sharply further—in general to levels close to
or above the peaks of late 1969 and early 1.970. Other policy actions
also affected market attitudes and developments, On June 29 reserve
requirements on all but the first $2 million of net demand deposits
at member banks were Increased by ¥2 percentage point, applicable
to average deposits In the week beginning July 5, and Federal
Reserve discount rates were raised ¥2 percentage point, to 7 per
cent, effective July 2. The market rate on. 3-month Treasury bills
rose from 7.20 per cent on the day before the June meeting to
a peak of 7.98 per cent In early July, and on the day before this
meeting It was 7.85 per cent. Over the whole period, Increases
in rates on bank CD's and other private Instruments were larger
than those for Treasury bills.
In long-term markets, Interest rates le general advanced considerably, despite continuation of moderate demands for funds In the
capital markets. Although the over-all volume of new public
offerings of corporate and of State and local government bonds
rose somewhat In June, the volume for the second quarter as a
whole was low for that season of the year, and a moderate decline
was in prospect for July.
The Treasury was expected to announce oe July 25 the terms
of Its mid-August refunding. Of the maturing issues, $4.5 billion
were held by the public.
The Committee agreed that the economic situation and prospects
called for slower growth in monetary aggregates over the months
Immediately ahead than had occurred 00, average in the first half
of the year. A staff analysis suggested that expansion In the demand
for money was likely to slow considerably from the high rate
recorded In the second quarter—In response to the anticipated
183
moderation in GNP growth and to the sharp rise in short-term,
interest rates that had occurred in recent months. Because of the
rise in short-term, market rates, moreover, net expansion in consumer-type time and savings deposits at commercial banks was
expected to slow appreciably despite the increase in rate ceilings
announced in early July. As a consequence, it was anticipated that
banks would attempt to expand the outstanding volume of largedenomination CD's; the increase in these issues in the July-August
period was expected to remain relatively large.
The staff analysis suggested that a relatively rapid rate of growth
in RPD's in the July-August period—at an annual rate in a range
of 11% to 13% per cent—would be consistent with slower growth
in the monetary aggregates over the months immediately ahead
than had occurred in the first half of the year. The analysis also
suggested that such a rate of growth in RPD's might be associated
with little change in money market conditions but that short- and
long-term market interest rates in general might be subject to
additional upward pressures in further adjustment to the firming
in money market conditions that had occurred in recent weeks.
The Committee decided that operations should be directed at
fostering RPD growth during the July—August period at an annual
rate within a range of 11% to 1.3% per cent, while avoiding unduly
sharp changes in money market conditions. The members also
agreed that, in the conduct of operations, account should be taken
of international and domestic financial market developments, of
the forthcoming Treasury financing, and of deviations in monetary
growth from an acceptable range. It was understood that the
Chairman might call upon the Committee to consider the need for
supplementary instructions before the next scheduled meeting if
significant inconsistencies appeared to be developing among the
Committee's various objectives and constraints.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting, including .recent developments ie industrial production, employment, and retail sales,
suggests that growth in. economic activity moderated ie the second
quarter from the exceptionally rapid pace of the two preceding
quarters. Increases in employment were relatively substantial, how-
184
ever, and ie June the unemployment rate dropped below 5 per cent.
Wage rates advanced at a faster pace during the second quarter than
earlier in the year. In the months immediately preceding the price
freeze imposed in mid-June, the rise in prices of both industrial
commodities and farm and food products remained extraordinarily
rapid.
The U.S. merchandise trade balance worsened ie May as import
prices rose sharply further, but the trade deficit remained well below
the first-quarter average. In. foreign exchange markets, the jointly
floating continental European currencies rose sharply further against
the dollar in early July. After the first week in July, the dollar
recovered somewhat on the basis of market expectations of official
intervention. On July 10 the Federal Reserve announced substantial
increases ie its swap arrangements with other central banks.
Both the narrowly and more broadly defined money stock rose
sharply ie May and June, although inflows of consumer-type time
and savings deposits slackened somewhat in the latter moeth. Expansion in bank credit continued at a substantial pace. Since mid-June
both short- and long-term market interest rates have advanced considerably further, with the sharpest increases in the short-term sector.
On June 29 increases were announced in Federal Reserve discount
rates, from 6% to 7 per cent, and in member bank reserve requirements; on July 5 ceiling interest rates were increased on time and
savings deposits at commercial banks and other thrift institutions.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a more sustainable rate
of advance in. economic activity, and progress toward equilibrium
in the country's balance of payments.
To implement this policy, while taking account of international
and domestic financial market developments and the forthcoming
Treasury financing, the Committee seeks to achieve bank reserve
and money market conditions consistent with slower growth in
monetary aggregates over the months immediately ahead than occurred on average in the first half of the year.
Votes for this action: Messrs. Burns, Hayes, BaiJ.es,
Brimmer, Bucher, Daane, Hollaed, Mayo, Morris, and
Sheehan. Vote against this action: Mr, Francis.
Absent and not voting: Mr, Mitchell.
Mr. Francis dissented from this action not because he disagreed
with the objectives of the policy adopted by the Committee but
185
because he believed that—as had proved to be the case following
other recent meetings—the objectives would not be achieved becaese of the constraint on money market conditions.
Subsequent- to the meeting' it'appeared that in the July-August
period the- annual rate of growth in RPD's and in-the monetary
aggregates .might exceed • acceptable ranges, even though money
market conditions had continued to tighten. Oe August 3,. 1973,
the available members—with the exception of Messrs. Bucher and
Sheehan—concurred in a recommendation by the Chairman, that
money market conditions should be permitted to tighten still further
if necessary to limit growth' in 'RPD's.
186
MEETING HELD ON AUGUST 21, 1973
Domestic policy directive
Estimates of the Commerce Department indicated that real output
of goods and services had increased at an annual rate of only about
2.5 per cent in the second quarter of the year, after having grown
at a rate of about 8.5 per cent in the first quarter and of 8.0 per
cent in the last quarter of 1972. Staff projections continued to
suggest that growth would be moderate in the third quarter.
In July retail sales rose sharply, recovering much more than they
had declined in June. Expansion in industrial production picked
up somewhat, reflecting widespread gains among consumer goods,
business equipment, and industrial materials. Nonfarm payroll
employment changed little, after having expanded at a more moderate pace during the spring than in earlier months, but the average
factory workweek lengthened. The civilian labor force declined,
and the unemployment rate edged down further to 4.7 per cent.
Average hourly earnings of production workers on nonfarm
payrolls advanced in July at about the moderate average rate of
the first 6 months of the year. Between mid-June and mid-July
average wholesale prices of farm and food products fell sharply,
in large part because of the imposition of export controls on some
commodities; decreases were especially large for animal feeds,
grains, and oil seeds. However, the temporary price freeze imposed
on June 13 was lifted for most foods on July 18, and wholesale
prices of farm and food products adjusted sharply upward. Moreover, crop conditions as of August 1 suggested that the 1973
harvests—although still at record levels—would not be quite so
large as had been expected, and prices of corn, wheat, and soybeans
soared. Wholesale prices of industrial commodities changed little
from mid-June to mid-July; the freeze on these prices remained
in force until August 12.
The latest staff projections suggested that growth in real GNP
over the balance of the year would be somewhat greater than the
slow pace in the second quarter. It was anticipated that business
187
fixed Investment would expand more rapidly and that inventory
investment would increase appreciably; in. the second quarter
growth in fixed investment had slowed and inventory investment
had changed little. It was also expected that personal consumption
expenditures would rise at a slightly faster pace'but that residential
construction outlays would decline substantially.
In June the value of U.S. exports continued to expand-while
the value of imports changed little, and the deficit in-merchandise
trade declined appreciably. The trade deficit in the second quarter
as a whole was well below that in the first quarter—which in turn
was much lower than the deficit in the fourth quarter of 1972—and
the balance on goods "and services moved into surplus for the first
time since • the third quarter -of 1971.
The evidence of progress toward equilibrium in the U.S. balance
of payments—along . with a rise in interest rates-relative--to those
abroad—had contributed to a strong recovery in the exchange rate
for the dollar against continental European currencies since the end
of July and also to a continued firming against sterling, the Japanese
yen, and the Canadian dollar. In the first half of August, moreover,
the -over-all balance of payments on an official settlements" basis
was in surplus. By mid-August, the price of gold had fallen about
one-fourth from a peak in early July.
At U.S. commercial banks, business loans expanded sharply
further in July, and growth in both real estate and consumer
loans—although below the average rates in the second quarterremained strong. Banks liquidated a substantial amount from their
holdings of Treasury • bills, but the increase in total bank credit
remained large. The prime rate that banks applied to-large corporations was raised in four steps from 8lA per cent in mid-July to
914 per cent in mid-August.
Growth in both the narrowly defined money stock (Mi)1 and
the broadly defined money stock (M2)?2 which had been rapid in
June and during the second quarter as a whole, slowed markedly
in July. Inflows of time-and savings deposits other than large-denomination CD's slackened further. After the Regulation Q- actions
1
Private demand deposits plus currency in circulation.
M't plus commercial bank time and savings deposits other than large-denomination CD's,
2
188
of early July—In which rate ceilings were removed on consumertype time deposits in denominations of at least $ 1,000 having
maturities of 4 years or more and maximum rates were raised on
time and savings deposits with shorter maturities—many banks
increased their offering rates, and net inflows of such deposits
picked up in late July and early August. Banks also raised the
rates paid on large-denomination CD's, and the outstanding volume
of such CD's expanded by a substantial amount; as a result, growth
in the bank credit proxy3 remained relatively rapid despite a sizable
drop in U.S. Government deposits. Over the first 7 months of the
year, M t , M2, and the proxy grew at annual rates of about 6.0,
7,5, and 13 per cent, respectively.4
Nonbank thrift institutions experienced net outflows of savings
in July for the first time since January 1970, even though these
institutions, like commercial banks, generally had raised rates paid
on deposits following changes in rate ceilings effective at the
beginning of July. To meet deposit withdrawals and mortgage
commitments made earlier, savings and loan associations borrowed
a record amount from Federal home loan banks. Contract interest
rates on conventional mortgages and yields in the secondary market
for Federally insured mortgages rose sharply.
On July 25 the Treasury announced that on July 31 it would
auction up to $2 billion of an existing issue of 7% per cent notes
due to mature in 4 years and that on August 1 it would auction
up to $500 million, of 20-year, l^i per cent bonds (callable in
15 years) to refund part of $4.7 billion of publicly held securities
maturing on. August 15. In those auctions the Treasury sold $2
billion of the notes at an average price to yield 8.03 per cent and
$500 million of the bonds at the lowest bid price (paid by all
successful bidders) to yield about 8.00 per cent; of the bonds,
$240 million were acquired by Government accounts. The Treasury
also announced on July 25 that oe August 8 it would auction $2
billion of 35-day tax-anticipation bills, dated August 15; the bills
were sold at an average price to yield 9.80 per cent. In the interim,
3
Daily-average member bank deposits, adjusted to include funds from nondeposit sources.
4
Growth rates cited are calculated on the basis of the daily-average level in
the last month of the period relative to that in the last month preceding the period.
189
the Treasury experienced an unexpected one-day cash need, which
it financed by selling $351 million of special certificates of indebtedness to the Federal Reserve Banks on August 15; the certificates
were redeemed the next day. On August 20 the Treasury announced
that in. a new cash financing on August 24 it would"auction $2
billion of 25-month -notes.
System open market operations sin.ce the meeting-on July 17
had been guided by the,Committee's decision to seek bank reserve
and money market conditions consistent with slower growth, in
monetary aggregates over the months immediately ahead than had
occurred on average in the first half of the year. Operations had
been directed toward fostering growth in reserves' available to
support-private nonbank deposits (RPD's) at an -annual rate in a
range of 11% to 13% per cent in the July-August-period, while
avoiding unduly sharp changes in money market ..conditions.
During the first 2 weeks after the July meeting, available data
had suggested that in the July-August period RPD's would grow
at a rate' above the range that the Committee had specified and
that" the 'monetary aggregates would grow at rates in excess of an.
acceptable range. Therefore, the System had acted promptly to limit
expansion in RPD's, and the Federal funds rate—which had
averaged around 10!4 per cent in the statement week ending. July
18—rose to around 10% per cent in the next two statement weeks.
On. August 3, a majority of the Committee members had concurred
in a recommendation by the Chairman, that money market conditions should be permitted to tighten still further if necessary to
limit growth in RPD's and in the monetary aggregates, but-in light
of subsequent developments, tighter conditions were not.sought
and the funds rate remained close to tOVi per cent. In the 5 weeks
ending August 15, member bank borrowings averaged around
$1?965 million, about the same as in the preceding 4 weeks.
The additional tightening in money market conditions early in
the inter-meeting period along with sustained strength.' ie ' credit
demands led to further sharp increases in short-term-market interest
rates until mid-August, and then rates turned down.- The market
rate on 3-month Treasury bills rose from 7.85 per cent on. the
day before the July meeting to a high of 9.05 per cent on August
14 and then fell back to 8.79 per cent on the day before this
meeting. On August 13 increases in Federal Reserve discount rates
190
from 7 to IVi per cent were announced, effective at 10 Reserve
Banks on August 14; shortly thereafter, rates were raised at the
two remaining Banks.
In long-term, markets, interest rates also rose sharply further from
mid-July to mid-August, apparently in reaction to the advance in
short-term rates. Later, however, long-term, rates fell back appreciably. The over-all volume of new public offerings of corporate
and State and local government bonds declined moderately in July,
and little change in the volume was ie prospect for August.
The Committee agreed that the economic situation and prospects
called for slower growth in monetary aggregates over the months
immediately ahead than had occurred on average thus far in 1973.
A staff analysis suggested that despite the substantial growth
expected in nominal GNP the demand for money in the period
ahead would be limited by the sharp- rise in short-term interest
rates that had occurred in recent months. In the immediate future,
moreover, monetary growth was likely to be restricted by a downward adjustment in the public's demand for cash balances ie
response to the increases in rates paid oe time and savings deposits.
The analysis also suggested, however, that business demands
for bank loans would remain strong and that banks would continue
to expand the outstanding volume of large-denomination CD's at
a relatively fast pace. Reflecting the expansion in such CD's and
also the imposition ie late June of marginal reserve requirements
on them, a relatively rapid rate of growth in RPD's ie the August-September period—at an annual rate in a range of 13 to 15
per cent—was thought likely to be consistent with slower growth
in monetary aggregates over the months immediately ahead.
In view of the rapid pace at which RPD's had grown in recent
months, the Committee decided that open market operations should
be directed at fostering RPD growth during the August-September
period at ae annual rate within a range of 11 to 13 per cent, while
avoiding marked changes in money market conditions. The members also agreed that, in the conduct of operations, account should
be taken of international and domestic financial market developments, of the forthcoming Treasury financing, and of deviations
in monetary growth from ae acceptable range. It was understood
that the Chairman might call upon the Committee to consider the
need for supplementary instructions before the eext scheduled
191
meeting if significant inconsistencies appeared to be developing
among the.. Committee's various objectives and constraints. •
The following domestic policy directive was issued to the .Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that growth
in -real output of goods and services, which slowed in the second
quarter from the exceptionally rapid - pace of the two preceding
quarters, will be moderate in the third quarter. Increases in. n.onfarm
employment also have slowed in recent months, but the unemployment rate has declined. The rate of rise in. wage rates has remained
relatively moderate. The exceptionally rapid advance in prices was
interrupted. in July by the temporary freeze imposed in mid-June.
However, farm and food prices adjusted sharply upward .after
mid-July, when the freeze was lifted on most such products. The
U.S. merchandise trade balance improved in June, and the balance
on goods and services was in surplus in the second quarter for the
first time in nearly two years. Since the end of July the dollar .has
strengthened markedly in foreign exchange markets, and the price
of gold has dropped sharply.
Both the narrowly and more broadly defined money stock," which
had increased rapidly in May and June, grew more slowly in July.
Inflows of consumer-type time and savings deposits strengthened
again at banks in late July and early August, while net outflows
were experienced at nonbank thrift institutions. Expansion in bank
credit has continued at a substantial pace. Since mid-July short-term
market interest rates have advanced considerably further on-balance.
Long-term rates also rose substantially for much of that period,
but most recently they have declined in the course of a sharp market
rally. On August 13 increases were announced in Federal Reserve
discount. rates from 7 to 7 % per cent.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a sustainable rate of
advance-in economic activity, and progress toward equilibrium in
the country's balance of payments.
To implement this policy, while taking account of international
and domestic financial market developments and the forthcoming
Treasury financing, the Committee seeks to achieve bank reserve
and money market conditions consistent with slower -growth in
monetary aggregates over the months immediately ahead than has
occurred on average thus far this year.
192
Votes for this action: Messrs. Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Holland, Mayo,
Morris, and Sheehan. Vote against this action: Mr.
Francis.
Absent and not voting: Mr. Mitchell.
Mr. Francis dissented from this action, although he agreed with
the objectives of the policy adopted by the Committee, because
he could not accept the constraint placed on money market conditions.
193
MEETING HELD ON SEPTEMBER 18,1973
Domestic policy directive
The information reviewed at this meeting suggested that growth
in real output of goods and services, which had dropped to an
annual rate of about 2.5 per cent in the second quarter from rates
above 8.0 per cent in the two preceding quarters, would pick up
somewhat in the current quarter. Staff projections suggested that
growth in real output would slow slightly in the fourth quarter
and would slacken further in the first half of 1974; the rise in
prices was expected to remain rapid.
In August industrial production declined slightly as output of
automobiles and trucks was reduced sharply by shortages of parts,
hot weather, and work stoppages. Nonfarm payroll employment,
which had been stable in July, increased appreciably, although
employment in manufacturing continued to change little; over the
latest 3 months, the rate of growth in nonfarm employment was
about two-thirds of the rate over the preceding 9 months. In August
the unemployment rate edged up to 4.8 per cent. Retail sales,
according to the advance report, remained at the high level reached
in July, and the average for the 2 months was above that for the
second quarter.
Average hourly earnings of production workers on nonfarm
payrolls advanced moderately in August, but increases in June and
July were now reported to have been larger than had been indicated
by earlier data; as a result, the rise over the 3-month period was
more rapid than that earlier in the year. Wholesale prices of farm
and food products rose sharply between mid-July and mid-August,
after the temporary price freeze that had been imposed on June
13 was lifted for most foods on July 18. Later, prices of grains,
livestock, poultry, and other farm products dropped, but in general
prices of farm and food products remained far above pre-freeze
levels. Wholesale prices of industrial commodities increased ap-
194
preciably between mid-July and mid-August, although for these
commodities the freeze remained in force until August 12. Reflecting the freeze, the rise in the consumer price index had slowed
markedly in July.
Staff projections for the fourth quarter suggested that residential
construction outlays would decline substantially and that consumption expenditures would expand at a rate below that in the third
quarter. It was also expected, however, that both Federal and State
and local government purchases of goods and services would rise
substantially and that business inventory investment would increase
further.
U.S. merchandise exports continued to expand in July—reflecting sustained gains in exports of nonagricultural goods—and imports declined; the trade balance, after registering progressively
smaller deficits from the fourth quarter of 1972 to the second quarter
of 1973, shifted into surplus. Net foreign purchases of U.S. equity
securities, which had fallen sharply in the second quarter, rose
substantially in July.
Foreign exchange markets in general had been quiet in recent
weeks, although a 5 per cent revaluation of the Dutch guilder
announced on the weekend before this meeting provoked some
speculation that other continental currencies also would be revalued. The exchange rates for the dollar against major foreign
currencies-—which had strengthened significantly in the first half
of August—had changed little since then. In August, moreover,
the U.S. balance of payments on an official settlements basis was
in surplus, after having been, in small deficit in July.
At U.S. commercial banks, business loans expanded at a very
rapid rate in August—although the expansion appeared to have
slackened late in the month—and growth in other types of loans
remained strong. Banks continued to liquidate substantial amounts
from their holdings of Government securities, but total bank credit
increased considerably further. The prime rate that banks charged
on loans to large corporations was raised in three steps from 9lA
per cent in mid-August to 10 per cent in mid-September.
The narrowly defined money stock (Mi),1 which had grown at
an annual rate of about 10.5 per cent in the second quarter and
1
Private demand deposits plus currency in circulation.
195
of 5 per cent In July,2 declined somewhat in August. Inlows of
time and savings deposits other than large-denomination CD's
increased sharply—reflecting in part inflows into 4-year time deposits in response to the higher interest rates generally being offered
on these instruments, which had been exempted from Regulation
Q ceilings at the beginning of July—and the more broadly defined
money -stock- (M2)3 grew at a -slightly higher rate in -August- than
in July. Banks raised further the rates paid on large-denomination
CD's, and the outstanding volume of such CD's expanded by a
substantial-amount In August, as in-July; growth In the-bank credit
proxy4 was rapid. On September 7 the Federal Reserve announced
an increase from 8 to 11 per cent In marginal reserve requirements
on large-denomination CD's,-effective-In the statement-week beginning October 4 against deposits held 2 weeks earlier.
Nonbank financial Institutions, like commercial banks, raised
rates-after the 4-year deposits were exempted from--rate-ceilings,
but they experienced net outflows of total deposits in the July-August period. In both July and August savings and loan associations
borrowed large-amounts from Federal home loan-banks-to-meet
mortgage commitments, and they sharply reduced their new commitments. Contract Interest rates on conventional mortgages and
yields In the secondary -market for Federally Insured mortgages
rose sharply further In August.
In the Treasury's cash financing of August 24, which had been
announced on August 20, $2 .billion of a 25~month, 8% -per -cent
note were auctioned at a price to yield 7.94 per cent. The Treasury
financed additional cash needs by selling special certificates of
Indebtedness.to the Federal.Reserve Banks; such certificates were
outstanding on several days, and their volume reached a peak of
$443 million on September 11.
System open market operations since the meeting on-August 21
had been guided by the Committee's decision to seek bank reserve
and money market conditions consistent with slower growth in
2
Growth rates cited are calculated on the basis of the daily-average level In
the last month of the period relative to that in the last month preceding the period.
3
Mi plus commercial bank time and savings deposits other than large-denomination CD's.
4
Daily-average member bank deposits, adjusted to Include funds from
nondeposlt sources.
196
monetary aggregates over the months Immediately ahead than had
occurred on average in the first 7 months of the year. Operations
had been directed toward fostering growth in reserves available
to support private nonbank deposits (RPD's) at an annual rate In
a range of 11 to 13 per cent during the August-September period,
while avoiding unduly sharp changes in money market conditions.
Soon after the August meeting, available data suggested that
in the August-September period RPD's would grow at a rate above
the range that the Committee had speciled and that the monetary
aggregates would grow at rates in excess of an acceptable range.
Therefore, the System had acted promptly to limit expansion In
RPD's, and the Federal funds rate—which had been around IQVi
per cent at the time of the August meeting—rose to about 10%
per cent in the statement week ending August 29. Later data
suggested that growth in the monetary aggregates was slowing and
that RPD's would grow In the August-September period at a rate
within the specified range. The Federal funds rate remained about
10% per cent. In the 4 weeks ending September 12, member bank
borrowings averaged $2,135 million, compared with $1,965 million
In the preceding 5 weeks.
Short-term market interest rates, especially rates for Treasury
bills, declined just after the August meeting of the Committee,
in large part because of growing expectations among market participants that the maximum, degree of monetary restraint had been
reached. However, rates rose again In association with the further
tightening of money market conditions early in the Inter-meeting
period and with the September 7 announcement of the Increase
In reserve requirements against large-denomination CD's. The
market rate on 3-month Treasury bills dropped from 8.79 per cent
on the day before the August meeting to 8.46 per cent a few days
afterwards, rose to a high of 9.04 per cent on September 11. and
then fell back to 8.70 per cent oe the day before this meet ing.
Yields on long-term securities, which had turned down in early
August, continued to decline through most of the inter-meeting
period—in part, like short-term rates, because of market expectations that the maximum degree of monetary restraint had been
reached, but also because of light offerings of new securities. The
volume of new public offerings of corporate bonds declined more
than seasonally in August, and the recovery in the volume in
197
prospect for September was less than seasonal. In the week before
this meeting, long-term rates edged up.
The Committee agreed that the economic situation and prospects
called for moderate growth lit monetary aggregates over the months
ahead. A staff. analysis indicated that, although transactions • demands for money probably would expand, growth in the money
stock in" the months ahead was' likely ""to be limited in lagged
response to the rise In short-term .Interest, rates that had ..occurred
In recent months. Consequently, achievement of moderate growth
In monetary aggregates within an acceptable period of time was
likely to.require .some easing In.money .market, conditions...In the
current environment of unusual sensitivity of expectations in financial markets, however, signs that monetary 'policy was' moving
toward a significant easing in money market conditions might result
in large expectational declines In short-term Interest rates and also
In further declines In. long-term rates, tending to erode the'existing
degree of monetary restraint.
The staff analysis also Indicated that completion of the realignment in''consumers' holdings of financial assets—which had'been'
taking place in response to changes In. the structure, of interest
rates—was likely to slow the growth In consumer-type time and
savings deposits • even If market Interest rates'declined moderately.'
It was expected that growth In business loans, although slowing
from the exceptionally rapid pace in August, would remain relatively rapid and that banks' demands for funds would continue
strong; however, expansion in the oustanding volume of large-denomination CD's was likely to be tempered by the recent Increase
in'the marginal- reserve requirement against-such CD's. In large
part because of the reserves required against the expanding volume
of large-denomination. CD's, rapid growth In RPD's In the September-October period—at an annual rate in a range of 15- to- 17
per cent—was thought likely to be consistent with moderate growth
in the narrowly and the more broadly defined money stock over
the months- ahead.
In view of the relatively weak behavior of the monetary aggregates in August and prospects for limited expansion in the months
immediately ahead, the Committee-concluded that reserve-supply-leg operations should not become restrictive unless RPD's in the
September-October period appeared to be growing at an annual
198
rate of more than 18 per cent. Specifically, the Committee decided
that operations should be directed at fostering RPD growth during
that period within a range of 15 to 18 per cent, while taking account
of deviations in monetary growth from an acceptable range and
avoiding unduly sharp changes in money market conditions. Although the members recognized that pursuit of the objective for
RPD's might be associated with some easing in money market
conditions, a number of them cautioned against the risk of generating market impressions that monetary restraint was being relaxed
significantly, and it was agreed that, in the conduct of operations,
account should be taken of domestic financial market developments.
As at other recent meetings, the Committee also agreed that account
should be taken of international financial market developments. It
was understood that the Chairman might call upon the Committee
to consider the need for supplementary instructions before the next
scheduled meeting if significant inconsistencies appeared to be
developing among the Committee's various objectives and constraints.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that growth
in real output of goods and services, which slowed in the second
quarter from the exceptionally rapid pace of the two preceding
quarters, will be moderate in the third quarter. Although nonfarm
employment rose sharply in August, the average gain in recent
months has been smaller than earlier and the unemployment rate
has changed little at a level somewhat below 5 per cent. The
exceptionally rapid advance in prices was Interrupted in, July by
the temporary freeze imposed in mid-June. However, farm and food
prices surged after mid-July—when the freeze was lifted oe most
such products—and despite later appreciable declines, they remained
far above pre-freeze levels. The U.S. merchandise trade balance
improved further in July, and net foreign purchases of U.S. stocks
increased. In recent weeks exchange rates for the dollar against
most foreign currencies have changed little on balance after
strengthening in the first half of August, and the balance of payments
has been in surplus on an official settlements basis.
The narrowly defined money stock, which had increased moderately in July, dedieed somewhat in August. The more broadly
deined money stock continued to expand as a result of net inflows
199
at banks of consumer-type time deposits. Nonbank thrift institutions
experienced net deposit outflows in the July-August period..Expansion in bank credit has continued at a substantial pace, On September.
7 the Federal Reserve announced, an increase from. 8 to-11 per cent
in marginal reserve requirements on large-denomination CD's. Interest .rates on long-term -market securities declined from early
August to early September, partly because of growing expectations
that-the maximum degree of monetary restraint had been'reached.
•Later," however, such expectations'weakened and some long-term
rates turned'up. Short-term'rates'generally remained under upward
pressure in recent weeks.
In light of the foregoing developments, it is the policy of the
Federal Open.Market .Committee.to foster financial conditions• conducive ...to. abatement .of. inflationary pressures, a sustainable rate of
advance in economic activity,- and continued progress toward equilibrium in the country's-balance-of payments.
To implement this policy, while taking account of international
and domestic financial market'developments, the Committee seeks
to achieve bank reserve and money market conditions consistent
with' moderate growth in monetary aggregates over the months
ahead.
Votes for this action: Messrs. Burns, Balles,
Bucher, Daane, Francis, Holland, Mayo, Mitchell,
Morris, Sheehan, and Debs. Votes against this
action: None.
Absent and not voting: Messrs. Brimmer and
Hayes. (Mr, Debs voted as alternate for Mr. Hayes.)
On October 1 the System-Account Manager reported that significant inconsistencies had developed among the Committee's various
objectives and constraints; Incoming data had suggested' that in
the September-October period the annual rate of growth in RPD's
would..fall well below the range specified by the Committee at
the September 18 meeting and that growth in both M t and M2
would-fall short of acceptable-ranges. In domestic financial markets,
however, short-term interest rates had dropped very sharply—although the Federal funds rate had remained close ..to. .10%. per
cent—and long-term rates had continued to decline as many market
participants had become convinced that the System had relaxed
its policy of restraint and that in general interest rate peaks had
been passed.
200
The Committee held a telephone meeting on October 2, In which
all members other than Chairman Burns participated. A minority
of the members—Messrs. Balles, Bucher, Francis, Morris, and
Sheehan—favored proceeding to provide reserves at a rate consistent with an easing in money market conditions to the degree
considered acceptable at the meeting on September 18, provided
that market conditions did not become disorderly and that growth
in the aggregates appeared to remain below acceptable ranges. The
majority of the members, however, concluded that at least over
the next few days money market conditions should be allowed to
ease less than originally considered acceptable and then only If
that did not threaten to relnvlgorate the sharp rally In markets for
short-term securities. It was understood that further consultation
was likely to be desirable before the meeting scheduled for October
16.
The Committee held another telephone meeting on October 10,
In which all members participated. The additional week's data
available by then suggested that In the September-October period
growth in RPD's and the monetary aggregates would be still weaker
than had been, expected earlier. Although System operations had
supplied large amounts of reserves and short-term market Interest
rates had declined further on. balance, the Federal funds rate on
most days through October 8 had remained near 10% per cent.
Committee members agreed unanimously that reserves should be
supplied at a rate consistent with some easing in money market
conditions beyond that decided upon on October 2 and that conditions should be eased somewhat further If the recent weakness in
RPD's and In the monetary aggregates should be confirmed by
data that would become available after the meeting.
201
MEETING HELD ON OCTOBER 16, 1973
Domestic policy directive
The information reviewed at this meeting suggested that growth
in real output of goods and services—which was estimated to have
picked up somewhat in the third quarter from an annual rate of
about 2.5 per cent in the second quarter—would remain moderate
in the current quarter. Staff projections continued to suggest that
growth in real output would slacken in the first half of 1974 and
that the rise in prices would remain rapid.
In September industrial production rose appreciably, owing to
a partial recovery in output of motor vehicles—following a sharp
reduction in August caused by shortages of parts and by other
temporary influences—and to further gains in output of business
equipment and industrial materials. Nonfarm payroll employment
continued to rise, but expansion during the third quarter was well
below the rapid pace earlier in the year, reflecting in large part
a leveling-off in employment in manufacturing. The unemployment
rate remained at 4.8 per cent. Retail sales declined in both August
and September, but sales in the third quarter as a whole were
moderately above the second-quarter level.
Wholesale prices of farm and food products declined substantially in September—for the most part because of sizable decreases
in prices of meat, poultry, and eggs—but the decline was small
in relation to the extraordinarily large increase in August. The rise
in wholesale prices of industrial commodities, which had slowed
for 2 months after mid-June when the freeze was imposed, accelerated in September. From mid-July to mid-August the consumer
price index had risen sharply, reflecting not only a record increase
in prices of foods following the relaxation of food price controls
on July 18 but also exceptionally large advances in average prices
of other consumer goods and of consumer services. The index of
average hourly earnings of production workers on nonfarm payrolls
202
had advanced at a faster pace in recent months than it had earlier
In the year.
Staff projections for the current quarter in general were similar
to those of 4 weeks earlier. It was expected that both Federal and
State and local government purchases of goods and services would
rise appreciably, that consumption expenditures would expand at
a moderate pace, and that business inventory investment would
increase further. It was also anticipated, however, that residential
construction outlays would decline substantially.
Exchange rates for the dollar against most foreign currencies
had changed little since mid-August, following a significant
strengthening earlier in the month. In September, as in August,
the U.S. balance of payments on ae official settlements basis was
in surplus,
U.S. merchandise exports expanded substantially further in August, reflecting increases in both prices and the physical volume
of agricultural commodities; however, imports rose even more—for
the most part owing to a large increase in imports of fuels following
a dip in July—and the trade balance slipped back into deficit. For
July and August combined, the trade balance was close to zero.
Net foreign purchases of U.S. equity securities, which had risen
considerably in July, remained large in August.
At U.S. commercial banks, expansion in loans to business
slowed in September to the lowest rate in more than a year, in
part because business borrowers shifted to the commercial paper
market in response to declines in market interest rates relative to
effective rates on bank loans. Most other types of bank loans
continued to expand rapidly, but banks again liquidated substantial
amounts of their holdings of Government securities. Altogether,
the increase in total bank credit was small.
The narrowly defined money stock (Mi)1 declined in September
for the second successive month; Mt changed little over the third
quarter, after having grown at a rate of about 10.5 per cent in
the second quarter.2 Inflows of time and savings deposits other
1
Private demand deposits plus currency in circulation.
Growth rates cited are calculated on the basis of the daily-average level in
the last month of the quarter relative to that in the last month preceding the
quarter.
2
203
than large-denomination-CD's were substantial in September—although well below the high rate of August—and the more broadly
defined • money stock' (M2)3 expanded slightly. The outstanding
volume of large-denomination CD's continued to., rise in early
September, but the volume, declined after midmonth • as- -banks
reduced the rates paid on such CD's in response-to the weakening
in -business • loan demand;- over the whole month, the outstanding
volume changed little, and growth'in the bank credit proxy4 slowed
markedly.
Nonbank thrift institutions .experienced a net increase in-savings
deposits in September—even--after adjustment for the- crediting of
interest and other seasonal Influences—following net outflows of
funds in August. Although outstanding borrowings by savings and
loan associations from, the Federal home- loan banks., rose .substantially, in .September, the. increase-was below- that- in each of the
two•-preceding months. Mortgage • interest rates rose' appreciably
further.
Short-term market interest rates began to decline sharply, soon
after the Committee's meeting on September 1.8, in- large part
because .of. widespread market expectations that the recent-weakness
in the behavior of -the monetary aggregates would "lead to more
aggressive System efforts to supply reserves and, consequently,
to an easing in money market conditions. The market, rate on
3-month Treasury bills was 7.19 per cent on the day.before this
meeting, compared with 8.70 per cent on the -day before the
September meeting aed with an inter-meeting period low of '6.96
per- cent- on September 27.
Yields on' long-term securities, which had turned down in early
August, declined moderately further after the September, meeting—although the decline, as usual, was not so sharp -as-that for
short-term- instruments. The volume of new public offerings of
corporate bonds fell contraseasonally in September, following a
more-than-seasonal reduction in August, but a substantial rise in
the volume was in prospect for October.
3
Mi plus commercial bank time and savings deposits other than, large-denomination CD's.
4
Daily-average member bank deposits, adjusted to Include funds from
nondeposit sources.
204
The Treasury was expected to announce on October 24 the terms
of its mid-November refunding. Of the maturing issues, $3.6 billion
were held by the public.
System open market operations since the meeting on September
18 had been guided by the Committee's decision to seek bank
reserve and money market conditions consistent with moderate
growth in monetary aggregates over the months ahead, while taking
account of international and domestic financial market developments. Operations initially had been directed toward fostering
growth in reserves available to support private nonbank deposits
(RPD's) at an annual rate in a range of 15 to 18 per cent, while
avoiding undiily sharp changes in money market conditions.
In late September incoming data suggested that ill the September-October period growth in both Mt and M2 would fall short
of acceptable ranges and that RPD's would grow at a rate well
below the range that the Committee had specified, in part because
of the decline in the outstanding volume of large-denomination
CD's that began in late September. The System Open Market
Account had been avoiding overly aggressive reserve-supplying
operations because of the substantial declines in market interest
rates that had occurred and a concern that such operations would
contribute to further declines in interest rates. The Federal funds
rate remained at about 10% per cent. On October 1 the Account
Manager reported that significant inconsistencies existed among the
Committee's various objectives and constraints, and the Committee
held a telephone meeting on October 2,
Following the telephone meeting, at which the majority of the
members concluded that money market conditions should be allowed to ease somewhat if such easing did not- threaten to reinvigorate the sharp rally in markets for short-term securities, the
System became somewhat more aggressive in supplying reserves.
Short-term interest rates in general declined further, but the Federal
funds rate on most days through October 8 remained close to 10%
per cent. Moreover, incoming data indicated that growth in RPD's
and the monetary aggregates would be even weaker in the September-October period than had been expected a week earlier.
On October 10 the Committee held another telephone meeting,
at which the members agreed that in the few days remaining until
this meeting, reserves should be supplied at a rate consistent with
205
some easing in money market conditions beyond that decided upon
on October 2. In the days just before this meeting,, the Federal
funds rate was .around. 10 per cent. In the 4 weeks-ending October
10, member bank borrowings-averaged about $1,690 million; down
from-an average of $2,135 million in the preceding'4'weeks.
At this meeting the Committee agreed that the economic situation
and prospects continued to call for moderate growth, in.monetary
aggregates over the months ahead.- A-staff-analysis-indicated that,
although the transactions demand for money would probably expand, the sharp rise in short-term interest rates that had'occurred
through early September would tend to dampen the .demand for
money in the months ahead. Consequently,...achievement of -moderate .growth in monetary aggregates was- likely to require some easing
in money market conditions.
The'staff' analysis also indicated that growth of consumer-type
time and savings deposits probably .would strengthen and that
expansion in the outstanding volume, of large-denomination--CD's
would be resumed in-response-to-moderate growth in business loan
demand-. • However, because • of • the • recent weakness in' the aggregates in" combination with lagged reserve accounting, relatively
slow growth in RPD's in the October—November period.—at an
annual rate in a range of .2 to 4 .per cent—was.thought-likely to
be consistent with moderate growth in both the narrowly defined
and- the- more broadly defined money stock over the months
ahead,
In view of the weak behavior of the monetary aggregates in
August and September, the Committee concluded that -reservesupplying operations should not become restrictive- unless RPD's
in the • October-November period appeared to be growing at an
annual rate of more than 5 per cent. Specifically, the members
decided that operations should be directed at fostering RPD..growth
during that period within a range of 2 to 5 per cent, while avoiding
unduly sharp changes in money market conditions. The "members
also- agreed that, in the conduct of operations, account should be
taken'of international and domestic financial market, developments,
of the forthcoming Treasury financing, and of deviations-in monetary growth from an acceptable range. It was understood--that the
Chairman might call upon the Committee to consider'the'need for
supplementary instructions before the next scheduled meeting if
206
significant inconsistencies appeared to be developing among the
Committee's various objectives and constraints.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that growth
in real output of goods and services in the fourth quarter is likely
to remain at about the moderate rate indicated for the third quarter.
In recent months manufacturing employment has leveled off and
total nonfarm employment has expanded less rapidly than earlier;
the unemployment rate has remained at 4.8 per cent. The advance
in wage rates has been somewhat faster than earlier. In September
wholesale prices of industrial commodities rose appreciably; farm
and food prices declined, but by far less than they had risen in
August. The U.S. merchandise trade balance weakened slightly in
August. Net foreign purchases of U.S. stocks continued large,
however, and the balance of payments on an official settlements
basis was in surplus in both August and September. Exchange rates
for the dollar against most foreign currencies have changed little
since mid-August,
The narrowly defined money stock, which had risen sharply
during the second quarter, declined in -September for the second
successive month. The more broadly defined money stock expanded
slightly in September as a result of net inflows at banks of consumer-type time deposits. The deposit experience at nonbank thrift
institutions Improved somewhat in September following a period
of sizable outflows. Bank credit-—which had been expanding rapidly—increased little as business loan growth slowed markedly, and
after mid-September the outstanding volume of large-denomination
CD's declined substantially. Short-term market interest rates fell
sharply from mid-September to early October, partly as a result
of a shift in market expectations regarding monetary policy, and
rates oe long-term market securities declined moderately further.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a sustainable rate of
advance in economic activity, and continued progress toward equilibrium in the country's balance of payments.
To implement this policy, while taking account of the forthcoming
Treasury financing and of international and domestic financial market
207
developments, the Committee seeks to achieve bank reserve and
money market conditions consistent with moderate growth in monetary aggregates over the months ahead.
Votes for this action: Messrs, Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Francis, Holland,
Mayo, Mitchell, Morris, and Sheehan; Votes
against this action: None.
208
MEETING HELD ON NOVEMBER 19-20, 19731
Domestic policy directive
The information reviewed at this meeting suggested that growth
in real output of goods and services—which had risen to an annual
rate of about 3.5 per cent in the third quarter from about 2.5 per
cent in the second quarter—would remain moderate in the current
quarter. Staff projections continued to suggest that, in the absence
of an oil crisis, growth of real output would slacken in the first
half of 1974 and that the rise in prices would remain rapid. It
was also suggested that continuation of the embargo on the flow
of Arab oil to the United States—announced in the latter part of
October—could have significantly adverse effects on the U.S.
economy.
In October industrial production continued to grow at a substantial pace, reflecting advances in output of business equipment and
consumer goods; output of materials, which was pressing against
the limits of capacity in some industries, changed little. Employment expanded in manufacturing, after a 3-month period of little
change, and total nonfarm payroll employment increased appreciably. The unemployment rate dropped from 4.8 to 4.5 per cent,
the lowest rate in 2>lh years. And advance reports indicated that
retail sales rose substantially during the month, although sales of
new automobiles declined significantly.
The index of average hourly earnings of production workers on
nonfarm payrolls continued to advance at a relatively fast pace
in October. During the third quarter compensation per manhour
in the private nonfarm sector of the economy increased substantially
more than output per manhour, and unit labor costs rose sharply
further.
J
This meeting was held over a 2-day period beginning on the afternoon of
Nov. 19, 1973, in order to provide more time for the staff presentation concerning
the economic situation and outlook and the Committee's discussion thereof.
209
The uptrend In wholesale prices of industrial commodities accelerated in October, reflecting a large rise in prices of -petroleum
products and other fuels and widespread increases among other
commodities. Wholesale prices of farm, and food products fell
substantially for the second consecutive month, as a result of
marked decreases for livestock, •'meats," poultry, and "soybeans;
however, the index remained well -above • the pre-freeze level of
early. June. In September the rate of -advance of the-consumer-price
index slowed as retail prices of foods, declined slightly after having
risen sharply in August.
Staff projections for thefirsthalf of 1974 suggested that business
fixed investment would rise considerably further, that State and
local'government purchases of goods and services would continue
to grow at a substantial rate, and that • consumption expenditures
would expand at about the- moderate-pace of the second -half- of
1973. However, it was also anticipated.that the.decline in-residential
construction outlays woeld persist and .that business, .inventory
investment would level off.
U.S. merchandise exports rose sharply further in September—
relecting for the most part "considerable increases in exports of
capital equipment and industrial materials—while imports declined.
As. a .result,-the trade balance moved into-substantial -surplus. For
the third .quarter as a whole, the.trade surplus was.sizable for the
first time in 3 years. The over-all balance of payments on an official
settlements basis also was in substantial surplus in the third quarter,
and it 'remained so in October.
Following the announcement in late October of the large U.S.
trade surplus, demand for dollars-rose-considerably, and-exchange
rates for the dollar appreciated against major foreign- currencies.
The dollar registered a further sizable. appreciation after the development of the oil crisis, which was interpreted in the markets as
creating particularly severe problems for the economies of Western
Europe and Japan.
Outstanding business loans of U.S. commercial banks, which
had • Increased little in September, were un.cha.nged-in'October.
Business borrowers continued to shift to the commercial- paper
market as market interest rates declined further relative to.effective
rates on bank loans—-even though most banks lowered the .prime
rate applicable to large corporations from 10 to 934 per cent during
210
the month and a few reduced the rate to 9Vi per cent. Expansion
in most other types of loans slowed in October, and banks continued
to liquidate substantial amounts of their holdings of Government
securities. Bank holdings of other securities—primarily Federal
agency issues—rose appreciably, but the increase in total bank
credit remained moderate.
The narrowly defined money stock iMtr rose moderately in
October, following 2 months of declln.es. Preliminary calculations
based on new benchmark data indicated that the level of the money
stock in recent months would be adjusted upward and that monetary
growth over the year ending in October had been, somewhat faster
than the rate of 5 I per cent suggested by the currently published
data.3 Inflows of time and savings deposits other than large-denomination CD's picked up sharply, and the more broadly defined
money stock (M2)4 grew at a rapid pace. The outstanding volume
of large-denomination CD's declined substantially further as banks
continued to reduce the rates paid on such CD's, in response to
the further weakening in business loan demand at banks, to the
large inflows of consumer-type time deposits, and. to the effect
oe the cost of such funds of the recent increase in. marginal reserve
requirements against large-denomination CD's. As a result, the
bank credit proxy5 increased relatively little.
Net deposit inflows at nonbank thrift institutions improved
somewhat further in October, and the measure of the money stock,
that includes such deposits (M3)6 rose appreciably after having
grown at a slow pace over the third quarter. Contract interest rates
on conventional mortgages and yields in the secondary market for
Federally insured mortgages declined.
On October 24 the Treasury announced that on October 30 and
2
Private demand deposits plus currency in circulation.
The measure of the money stock has been revised annually to incorporate
new seasonal adjustment factors and, among other things, benchmark adjustments
for deposits at nonmember banks on the basis of data reported for 2 days a year,
the last day of June and the last day of December; for member banks, deposits
are averages of daily igures. The growth rate cited. Is calculated on the basis
of the daily-average level in October 1.973 relative to that-in October 1972.
4
Mi plus commercial bank time and savings deposits other than large-denomination CD's.
5
Daily-average member bank deposits adjusted to include funds from nondeposit
sources.
B
M2 plus time and saYings deposits at mutual savings banks and at savings
and loan associations.
3
211
31 it would auction up to $1.5 billion of 25%-month .notes, up
to $2.0 billion of 6-year notes, and up to $300 million of 19%-year,
7%. per. cent bonds to refund $3.6.. billion of publicly-held-bonds
maturing on November 15; on October 29 the Treasury set coupon
rates of 7 per cent for both of .the note.issues. In.the auctions
the Treasury sold $1.5 billion of the 25%-month note at an average
price to yield 6.91 per cent, $2 billion of the 6-year note-at an
average price to yield 6.82 per cent, and $300 million of the bond
at a price to yield 7.35 per. cent-to maturity.- In addition-, the
Treasury raised $1.2 billion, of new cash by auctioning bills on
No¥ember.9 and 1.2; the funds were-raised to meet-cash needs
generated by redemptions of special Treasury securities by some
foreign -monetary authorities,- -which in- turn resulted ••from- the
surplus in the U.S. balance of payments, and also to increase
Treasury cash balances because the authority to borrow directly
from Federal Reserve Banks had expired on October 31.
• Short-term market interest--rates in-general declined further in
the Irst week after the Committee's meeting oe October 16, in
large part because •-of •• continued market- expectations that • the
weakness of recent months In the behavior of the monetary aggregates- would lead to more aggressive System efforts to supply
reserves and, consequently, to an. easing in money market conditions. Later, however, when the-aggregates strengthened and money
market conditions remained relatively stable, market expectations
changed and interest rates turned up. After the-Treasury's early
November announcement of the sale of bills to raise new cash,
short-term rates—especially those on Treasury bills—rose further
to or above their levels of mid-October. Just before this meeting
the market rate on 3-month Treasury bills was 7.50 per cent,- up
from a recent low of 7.02 per cent on October 24 and 7.19 per
cent on the day before the October meeting.
In long-term markets interest rates advanced somewhat in the
inter-meeting period in association with the rise in short-term rates
and with the expansion of demands for funds in the capital markets.
The volume of new public offerings of corporate bonds rose sharply
in October, and a further increase was in prospect for November.
The volume of new State- and local government "bonds" also expanded substantially in October, but the volume appeared likely
to iall off in. November.
212
Soon after the October meeting, available data suggested that
in the October-November period the monetary aggregates would
grow at rates within acceptable ranges but that reserves available
to support private nonbank deposits (RPD's) would grow at a rate
below the range that the Committee had specified because an
anticipated upturn in the outstanding volume of large-denomination
CD's had not developed. Data becoming available later, however,
suggested that the monetary aggregates would grow at rates in
excess of acceptable ranges. System action to limit such monetary
expansion was tempered by the Treasury refunding that was in
process and by the unsettled conditions that developed in the
Government securities market for a time after the early November
announcement of Treasury sales of bills to raise new cash. The
Federal funds rate, which had been about 10 per cent at the time
of the October meeting, was at or above 10 per cent in the days
preceding this meeting. In the 5 weeks ending November 14,
member bank borrowings averaged about $1,446 million, down
from an average of $1,690 million in the preceding 4 weeks.
The Committee agreed that the economic situation and prospects
continued to call for moderate growth in monetary aggregates over
the months ahead. A staff analysis suggested that in the near term
the demand for money would expand in response to the sizable
increase in nominal GNP estimated for the fourth quarter and to
the uncertainties generated by the oil shortage. The analysis also
suggested that growth of consumer-type time and savings deposits
at banks would moderate from the high rates of recent months.
While the outstanding volume of large-denomination CD's was
expected to expand toward the end of the year in response to a
renewal of growth in business loans at banks, it was anticipated
that required reserves against such CD's would drop further in the
November-December period. Consequently, negative growth in
RPD's in that period—at an annual rate within a range of — 1 to
— 3 per cent—was thought likely to be consistent with moderate
growth in both the narrowly and the more broadly defined money
stock over the months- ahead. It was expected that such a change
in RPD's would be associated with little change in money market
conditions.
The Committee decided that operations should be directed at
fostering growth in RPD's during the November-December period
213
at an -annual rate within-a range
avoiding unduly sharp -changes"in
members-also agreed that, in-the
should be-taken of international
developments,-of the forthcoming
of —1 to —3 per cent, while
money market conditions. The
conduct of operations," account
and domestic financial market
Treasury financing, and of de-
viations-in-monetary growth from an' acceptable ' r a n g e . ' I t w a s
understood that the Chairman might call upon the Committee to
consider the -need for supplementary instructions before the next
scheduled meeting if" significant inconsistencies appeared to be
developing among the Committee's various objectives and constraints .
The following domestic policy directive was issued to the Federal
Reserve'Bank of New 'York:
The information reviewed at this meeting suggests that growth
in economic activity in .the fourth quarter is likely, to remain-at
about the moderate rate of the third quarter, but curtailment, of. oil
supplies from abroad has generated considerable uncertainty. about
subsequent prospects. In October total nonfarm employment, expanded substantially further, and the unemployment rate dropped
from'4".8 to 4,5 per cent. The advance in. wage rates has remained
relatively"rapid, and unit labor costs have been increasing at a fast
pace/Wholesale prices of industrial commodities rose sharply in
October, reflecting in, part large increases for petroleum' products;
although -farm and food prices declined considerably further, they
remained., well above the• pre-freeze level of early June.-In foreign
exchange markets, the..dollar appreciated against major-foreign
currencies following aneoun.cein.ent ie late October of a large surplus
in the U.S. merchandise-trade balance, and the dollar strengthened
markedly further in early November as expectations grew that the
developing oil crisis would create particularly severe problems for
Western Europe and Japan, In the third quarter and in October,
the balance of payments on an official settlements basis was in
substantial surplus.
The narrowly defined money stock, which had declined in August
and 'September, rose moderately in October, The more broadly
defined- money stock expanded sharply as a result of large net inflows
at banks- of consumer-type time deposits. Net deposit'inflows at
nonbank - thrift institutions improved somewhat further. Bank'credit
expansion remained moderate in. October, reflecting in- part a lack
of .growth in business loans as -borrowers shifted to the commercial
paper market. The outstanding volume of large-denomination-CD's,
214
which had begun to decline in late September, fell substantially
further. Short-term market Interest .rates, while fluctuating widely,
rose on balance from mid-October to mid-November, Rates on most
types of long-term market securities also advanced somewhat.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a sustainable rate of
advance in economic activity, and equilibrium in the country's
balance of payments.
To implement this policy, while taking account of international
and domestic financial market developments, the Committee seeks
to achieve bank reserve and money market conditions consistent
with moderate growth in monetary aggregates over the months
ahead.
Votes for this action: Messrs. Burns, Hayes,
Balles, Brimmer, Bucher, Daane, Francis, Hollaed,
Mayo, Mitchell, and Sheehan. Vote against this
action: Mr. Morris.
Mr. Morris dissented from this action because he felt that in
view of the marked deterioration in the economic outlook that had
occurred over the past few weeks, stemming from the energy crisis,
a modest move in the direction of a more stimulative monetary
policy was appropriate.
Subsequent to the meeting it appeared that in the November-December period growth ie the monetary aggregates might exceed
acceptable ranges. In view of that behavior, the System, under
ordinary circumstances, would have become somewhat more restrictive in. its reserve-supplying operations, expecting that money
market conditions would tighten somewhat. On. November 30,
however, the available members concurred in a recommendation
by the Chairman, that, in light of current uncertainties regarding
the economic outlook and the sensitive state of financial market
psychology, the System aim to maintain, current money market
conditions for the time being.
215
MEETING HELD ON DECEMBER 17-18, 19731
1. Domestic policy directive
The information reviewed at this meeting suggested that growth
in real output of goods and services, which had been at an annual
rate of about 3.5 per cent in the third quarter, was slowing
appreciably in the current quarter. Staff projections suggested that
economic activity would weaken further in the first half of 1974
and that prices would rise appreciably, in part because of curtailment in oil supplies.
In November industrial production expanded slightly. Increases
in output in September and October were considerably less than
had been reported previously, however, and growth over the
3-month period was well below the pace of advance earlier in the
year. The value of new residential construction activity declined
further in November. Total nonfarm payroll employment continued
to rise, reflecting gains in manufacturing as well as in trade,
services, and State and local government. However, the unemployment rate—which had declined to 4.5 per cent in October—
moved back up to 4.7 per cent, about the rate that had prevailed
since June. Retail sales were unchanged in November, according
to the advance report; sales of new automobiles remained at the
reduced level of October.
Wholesale prices of industrial commodities continued to rise
sharply in November, reflecting extraordinarily large increases in
prices of gasoline and other petroleum products and also sizable
advances among metals, machinery, textiles, chemicals, and paper
products. Wholesale prices of farm and food products declined for
the third consecutive month, largely as a result of decreases in
prices of cattle, poultry, grains, fats and oils, and cotton. In October
the rate of increase in th~ consumer price index accelerated after
having slowed in September, as costs of fuels, health services,
and homeownership rose appreciably.
Staff projections of growth in real GNP in the first half of 1974
suggested that the shortfall in supplies of petroleum products then
1
This meeting was held over a 2-day period beginning on the afternoon of
Dec. 17, 1973, in order to enable the Committee to consider certain procedural
matters without infringing on the time available for its deliberations on current
monetary policy.
216
envisioned would have its greatest impact on expenditures for
automobiles and various other travel-related goods and services;
as a result, the slower rate of growth in consumption expenditures
that had been developing in the current quarter was likely to persist
in the irst half of 1974. It was also anticipated that the decline
in residential construction would be larger than had appeared likely
4 weeks earlier—because of the adverse effects of the oil shortage
on building in the more remote suburban, areas and on. construction
of vacation homes—and that the expansion in business fixed investment would be somewhat less vigorous. State and local government purchases of goods and services were still expected to
grow at a substantial rate.
In most other industrial countries, the prospect of a sustained
cut in oil supplies threatened even greater economic disruptions
than in the United States. From. mid-November to mid-December,
major foreign currencies depreciated significantly further against
the dollar, and a number of foreign monetary authorities continued
to intervene in the exchange markets, selling dollars to prevent
their currencies from depreciating even more. The U.S. merchandise trade balance, which had been improving since early 1973,
was in large surplus in both September and October.
Outstanding business loans at U.S. commercial banks increased
in November—following 2 months of little or no change—in
association with, a rise in. interest rates in the commercial paper
market relative to effective rates on bank loans. However, total
bank credit expansion remained moderate, as growth in most other
types of loans slowed further and banks liquidated significant
amounts of their holdings of Government and other securities.
The narrowly deleed money stock (Mx),2 after changing little
over the third quarter, grew moderately in October and rapidly
in November. It appeared that the November rate of growth had
been affected by such temporary influences as expansion, ie precautionary balances held by the public in response to the new economic
uncertainties and increases in deposits of foreign commercial and
central banks. Inflows of time and savings deposits other than
large-denomination CD's—while down from the October l e v e l were still large, and growth in the more broadly defined money
2
Private demand deposits pies currency in circulation.
217
stock (M2)3 remained substantial. The outstanding volume of
large-denomination CD's declined further in November, on, the
average, although the volume turned up around the middle of the
month as banks raised the rates paid on such CD's in response
to the expansion in business loan demand at banks. Treasury
deposits also declined, and the bank credit proxy4 changed little
for the second consecutive month. On December 7 the Federal
Reserve announced a reduction from 11 to 8 per cent in marginal
reserve requirements on large-denomination CD's, effective in the
statement week beginning on December 27, against deposits held
2 weeks earlier.
Net deposit inflows at nonbank thrift institutions improved
somewhat further in November, and expansion in the measure of
the money stock that includes such deposits (M3),5 like growth
in M2? remained substantial. Contract interest rates on conventional
mortgages and yields in the secondary market for Federally insured
mortgages declined for the second consecutive month.
Since the Committee's meeting oe November 19-20 most shortand long-term, market interest rates had luctuated in response to
changing expectations with regard to monetary policy and to the
impact of the fuel shortage on economic activity. Short-term rates
in general had fallen following the December 7 announcement of
the reduction in marginal reserve requirements against large-denomination CD's, and on balance, most had declined somewhat
over the inter-meeting period. Just before this meeting, the market
rate on 3-month Treasury bills was 7.47 per cent, compared with
an. interim high of 7.82 per cent on November 23 arid with 7.50
per cent just before the November meeting.
In long-term markets, some rates had increased slightly since
the November meeting while others had declined, and on balance,
rates had changed little. The volume of new public offerings of
corporate bonds—which had risen sharply ie October—increased
somewhat further in November, and a less-than-seasonal.decline
3
Mi plus' commercial bank time and savings deposits other than' large-denomination CD's.
4
Daily-average member bank deposits, adjusted to include funds, from
nondeposit sources.
5
M 2 plus time and savings deposits at mutual savings banks and at savings
and loan-associations.
218
was in prospect for December. The volume of new State and local
government bonds remained high in November, and a seasonal
decline appeared likely in the current month.
System open market operations since the meeting in. midNovember had been guided by the Committee's decision to seek
bank reserve and money market conditions consistent with moderate
growth in monetary aggregates over the months ahead, while taking
account of international and domestic financial market developments. Soon after the November meeting, available data suggested
that growth in Mt and M2 in the November-December period might
exceed acceptable ranges. Although it appeared that growth in
reserves available to support private nonbank deposits (RPD's)
would fall below the range of — 1 to —3 per cent that the Committee
had specified, for the most part the shortfall was attributable to
a larger-than-expected drop in required reserves against large~denomination CD's.
In view of the behavior of the monetary aggregates, the System,
under ordinary circumstances, would have become more restrictive
in its reserve-supplying operations, expecting as a resell that money
market conditions would tighten somewhat. On November 30,
however, the available members of the Committee concurred in
a recommendation by the Chairman that, in light of current uncertainties regarding the economic outlook and the sensitive state of
financial market psychology, current money market conditions be
maintained for the time being. In the two statement weeks preceding
this meeting, the Federal fueds rate averaged about 10% per cent,
little changed from the rate prevailing in the days preceding the
November meeting. In the 4 weeks ending December 12, member
bank borrowings averaged about $1,410 million, close to the
average of about $1,446 million, in the preceding 5 weeks.
A staff analysis suggested that, if prevailing money market
conditions were maintained, the rate of growth of the narrowly
defined money stock would be dampened over the months ahead
because of the effects on transactions demands for money of the
anticipated weakening in economic activity. Some easing of money
market and reserve conditions, and the further declines in short-term
market rates of interest likely to accompany such easing, would
help to sustain moderate growth in Mt and also—by encouraging
expansion in consumer-type time and savings deposits at banks
219
and nonbank thrift Institutions—in M2 and M3. The analysis also
suggested that the outstanding volume of large-denomination CD's
would grow moderately, selecting continuation of fairly strong
business demands for short-term credit and also the lower net cost
of such deposits to banks resulting from the recent reduction in
marginal reserve requirements against large-denomination CD's.
• The• Committee concluded that the economic situation 'and' outlook called for a modest easing of monetary policy. The members
decided that for the period until the next meeting somewhat more
emphasis • should be placed on money- market conditions than hadbeen the case In recent months; specifically, they decided that
operations should be directed toward achieving some easing In bank
reserve and money market conditions,, provided that, the monetary
aggregates did not appear to be growing excessively. Taking Into
account the staff analysis, the members expected that pursuit of
that objective would be consistent with growth in, RPD's In the
December—January period at ae annual rate within a range of 8!4
to 11 per cent. They agreed that, In the conduct of operations,
account should be taken of international and domestic financial
market 'developments, and as at "other'recent meetings,"it"was
understood that the Chairman might call upon the Committee to
consider the need for supplementary Instructions before the next
scheduled meeting if significant -Inconsistencies appeared to be
developing among the Committee's Yarious objectives and constraints .
The following domestic policy directive was Issued to the Federal
Reserve Bank of New York:
The Information reviewed at this meeting—including recent developments in industrial production, residential construction; and
retail sales—suggests that growth in economic activity Is slowing
In the fourth quarter. A further weakening in activity and an
appreciable rise In prices are in prospect because of the curtailment
In oil supplies. In November nonfarm payroll employment expanded
further, but the unemployment rate, which had dropped in October,
rose again to about the level that had prevailed since midyear.
Wholesale prices of industrial commodities continued to 'rise sharply
In November, reflecting large additional increases for petroleum
products and widespread advances among other commodities; farm
and food prices declined further.
220
In nearly all industrial countries abroad, concern has grown that
a sustained cut in oil supplies will disrupt economic activity. Major
foreign currencies have depreciated further against the dollar, and
intervention sales of dollars by foreign monetary authorities have
continued. The U.S. merchandise trade balance registered a strong
surplus In the September—October period.
The narrowly defined money stock, following little net change
over the third quarter, has grown at a relatively rapid pace over
the past 2 months. Growth in the more broadly defined money stock
has also been substantial, as net Inflows at banks of consumer-type
time deposits have been large. Net deposit inflows at nonbank thrift
institutions improved somewhat further. Bank credit expansion
remained moderate in November, although business loans increased
after 2 months of little or no growth. On December 7 the Federal
Reserve announced a reduction from 11 to 8 per cent in marginal
reserve requirements on large-denomination CD's, Most short-term
market interest rates have declined somewhat on. balance in recent
weeks, while movements in long-term market rates have been
mixed.
In light of the foregoing developments, it is the policy of the
Federal Open Market Committee to foster financial conditions conducive to resisting inflationary pressures, cushioning the effects on
production and employment growing out of the oil shortage, and
maintaining equilibrium in the country's balance of payments.
To Implement this policy, while taking account of international
and domestic financial market developments, the Committee seeks
to achieve some easing in bank reserve and money market conditions,
provided that the monetary aggregates do not appear to be growing
excessively.
Votes for this action: Messrs. Burns, Balles,
Brimmer, Bucher, Daane, Hollaed, Mayo, Mitchell, Morris, Sheehan, and Kimbrel. Vote against
this action: Mr. Hayes.
Absent and not voting: Mr. Francis. (Mr. Kimbrel voted as an alternate for Mr. Francis.)
Mr, Hayes dissented from this action because, with the problems
of inflation increasing rather than abating and with the monetary
aggregates apparently growing more rapidly in 1973 than the
Committee had considered desirable, he favored a continuation of
the current degree of monetary restraint without noticeable relaxation unless signs of weakening in the economy became more
221
apparent.- He believed that, while there was not much that monetary
policy could do to relieve the economic problems arising from the
oil shortage, a premature easing of policy could exacerbate the
problems of inflation.
Subsequent to the meeting it appeared that in the December—January period the annual rate of growth in RPD's might be
close to the -upper limit of the. range that- had been- specified by
the Committee and that rates of growth in Mi and M2 might exceed
acceptable ranges, although a significant part of the growth in the
monetary aggregates could.be attributed toan-unanticipated increasein deposits of foreign commercial banks at U.S. banks. On January
11 the'available members—with the exception of Mr. Francisconcurred in .a recommendation,-by the-Chairman that, in-view of
the sensitive state of financial markets and the general economic
situation,' the System aim, to maintain prevailing money market
conditions for. the time being.
2. 'Authorization for domestic open market operations
On January 4, 1974, a majority'of'Committee members''voted
to increase. from $2 billion to $3 billion the limit. on changes
between Committee meetings in System Account holdings of U.S.
Government'and Federal agency securities specified'" in paragraph
l(a) of the authorization for domestic open .market operations,
effective immediately, for the period ending with the close of
business • on • January 22, 1974.
Votes for this action: Messrs. Burns, Hayes,
Brimmer, Holland, Mayo, Mitchell, Morris, Sheehan, and Clay. Vote against this action,: Mr.
Francis.
Absent and not voting: Messrs. Balles, Bucher,
and Daane. (Mr, Clay voted as alternate for Mr.
Balles.)
This action was taken on. recommendation of the System Account Manager. The Manager had advised that a substantial
volume -of • open market purchases of-securities had been required
in the period since the Committee's meeting on December 18, 1973,
in order to offset reserve absorption resulting from, market factors
and- that a near-term need to supply-reserves was- in -prospect; 'he
222
had further advised that strength of the dollar in foreign exchange
markets suggested that foreign official sales of U.S. Treasury bills
might be heavy and that the System, should be in a position to
acquire some of those bills while offsetting any undesired effects
on bank reserves by other means.
Mr. Francis dissented from this action because, In view of his
concern over the continuing rapid rate of growth in the monetary
aggregates, he preferred that additional reserves necessary to meet
requirements over the next few weeks be obtained through member
bank borrowings rather than provided through additions to System
holdings of securities. Moreover, he believed that foreign official
sales of Treasury bills should be absorbed. In the market.
223
Federal Reserve Operations
in Foreign Currencies
Intervention in the exchange markets by the Federal Reserve was on
a larger scale in 1973 than in other recent years. In late January
and early February when the dollar came under heavy selling pressure in the exchanges, the Federal Reserve sold $292 million equivalent of marks for the System account in order to support the dollar
at its lower limit. At the same time the German Federal Bank purchased large amounts of dollars in the Frankfurt market. The Federal
Reserve also sold $20 million equivalent of Dutch guilders and—as
agent for the U.S. Treasury—sold $47 million equivalent of marks
for Treasury account. The System financed its sales of marks by
drawing down its mark balances ($167 million) and by drawing on
its swap line with the German Federal Bank ($105 million); guilder
sales were financed entirely from balances; and sales for the Treasury
were made from Treasury balances.
Following a 10 per cent devaluation on February 12, 1973, the
U.S. dollar temporarily moved to its new upper limit, and the System
repurchased sufficient marks to repay its swap drawings. However,
renewed market sales of dollars against currencies of the European
Community (EC) soon culminated in the joint float of several European currencies against the dollar.
After a period of relative calm in the exchange markets, the dollar
began to weaken further in the late spring against EC currencies
until by early July it was depreciating rapidly in disorderly markets.
On July 10 the System announced an increase in the swap network
from $11.7 billion to nearly $18 billion, and from July 10 through
the end of the month it sold $273 million equivalent of foreign currencies—$220 million of German marks, $47 million of French
francs, and $6 million of Belgian francs—all financed by swap draw^
ings on the foreign central banks of issue. By late July the dollar had
stabilized against EC currencies; it recovered strongly during early
August, thereby enabling the System to repurchase sufficient amounts
of foreign currencies to repay its July drawings.
224
The exchange markets became unsettled following the surprise revaluation of the Dutch guilder on September 15. As a result the
System sold substantial amounts of foreign currencies in the latter
half of September and smaller amounts in mid-October. In these 2
months total sales of foreign currencies amounted to $189 million
equivalent, of which $185 million was financed by Federal Reserve
swap drawings. By the end of October the System had purchased
sufficient foreign, currency balances to repay those drawings.
During the course of the year the System drew a total of $617
million equivalent on. the swap lines to finance exchange market sales
of foreign currencies. All of these drawings were repaid within a
month or two. In addition, the System acquired through market purchases sufficient foreign currencies to repay $158 million equivalent
of pre-August 15, 1971, swap drawings, bringing the outstanding
total of System swap indebtedness at the year-end to $1,427 million
equivalent. There were no drawings by foreign central banks during
the year.
225
Voluntary Foreign Credit
Restraint Program
During 1973 the level of restraint asked of U.S. banks and U.S.
nonbank financial institutions under the Voluntary Foreign Credit
Restraint (VFCR) guidelines remained unchanged. On December
26, 1973, however, it was announced that the level of restraint would
be substantially relaxed, effective January 1, 1974, as part of the
general relaxation of the U.S. capital controls programs.
The guidelines were amended only once during the year. That
amendment—July 19, 1973—formalized the method of restraint that
had been applied to U.S. agencies and branches of foreign banks since
the last substantial revision of the guidelines in late 1971. According
to that amendment, agencies and branches could increase their claims
on non-U.S. residents to the extent that they increased the funds they
borrowed from their own parent banks and from other non-U.S.
sources. June 30, 1973, was set as the base for calculating changes in
FOREIGN ASSETS OF U.S. BANKS
1972,
Dec. 31
Number of reporting banks
222
1973
Mar. 31
June 30
227
226
Sept. 30 Dec. 31
229
229
M illions of dollars
Aggregate ceiling
Assets held for own account subject to restraint
Aggregate leeway
10,276
10,328
10,316
10,351
10,367
9,189
1,087
9 ,630
698
9 ,425
890
9,382
985
Assets exempted from VFCR
Canadian assets
Export credits other than to residents of
Canada
Other
5,339
927
4,213
199
5,908
855
4 ,843
210
14,529
15,538
6,962
807
5,930
225
16,387
9 ,186
1 ,165
6,559
713
5,585
261
15,745
17,019
TOTAL assets held for own account
226
7,637
1,134
6,252
251
foreign assets of types subject to restraint and changes in offsetting foreign liabilities. The amendment did not, and was not intended
to, change the degree of restraint that U.S. agencies and branches of
foreign banks were asked to observe.
Aggregate VFCR ceilings of commercial banks participating in the
program reached a level of $10.4 billion at the end of 1973. This
was approximately $100 million above the end-of-1972 level, an
increase attributable to adoption of guideline ceilings by banks that
were expanding their foreign activities. The degree of ceiling utilization remained steady throughout the year. Assets subject to restraint
rose by only $193 million during the year, and the aggregate leeway
was $102 million lower on December 31, 1973, than it had been a
year earlier.
However, during periods of exceptional activity in international
money markets, U.S. banks experienced substantial pressures on
their lending restraints. Most notably in February and in May, unan-
FOREIGN ASSETS OF U.S. AGENCIES AND BRANCHES
OF FOREIGN BANKS
Item
Number of reporting
institutions
1972,
Dec. 31
62
1973
July 31
Aug. 31
Sept. 30
Oct. 31
Nov. 30
67
65
68
69
71
72
Dec. 31
Millions of dollars
Assets held for own account
subject to restraint
Foreign liabilities
Net foreign position
Base net foreign position
on 6/30/73
Aggregate leeway
Assets exempt from VFCR.
2,994
n.a.
n.a.
4,256
9,134
-4,878
4,489
9,332
-4,843
4,587
9,549
-4,962
4,991
10 193
-5,202
5,179
10,442
-5,264
5,839
10,812
-4,973
n.a.
-4,623
-4,550
-4,551
-4,551
-4,605
-4,605
n.a.
255
293
410
650
659
368
1,819
2,743
2,665
2,706
2,639
2,724
2,688
Canadian assets
Export credits other
than to residents of
Canada
409
543
473
440
464
432
385
1,410
2,200
2,192
2,266
2,175
2,292
2,303
TOTAL assets held for
own account
4,812
7,000
7,155
7,293
7,630
7,902
8,527
n.a. Not available.
227
ticipated drawings on lines of credit established by foreign • customers
caused. many • banks to go temporarily over their VFCR- ceilings.
In most -eases the banks- were able t o correct their positions rapidly.
U.S. • banks • were active in- the-field-of'export financing, •'which is
exempt from -restraint. In 1973, export "credits to others "than residents of Canada increased by $2 billion, an increase of nearly 50 per
cent.
U.S." agencies and branches of foreign' banks started reporting in
July under the" system described earlier lor'"netting increased foreign
liabilities against increased foreign, assets. For the year, their holdings
of assets "of the types subject to restraint nearly doubled. In the
period July-December, the increase in their foreign liabilities outstripped the increase of assets subject to restraint by $368 million.
This figure represented leeway available to the agencies and branches
for further lending.
Like U.S. banks, the agencies and branches vigorously expanded
their export financing activities to others than residents of..Canada.
However, their holdings of such credits increased even faster than,
those of.U.S..banks—that is, by 63 per cent.
Foreign .asset holdings, of U.S. .nonbank financial institutions
changed little in 1973. As of the end of the year, their holdings- of
foreign.assets subject to restraint stood at $1,149 million, $20 million
less than..at the end of 1972. With aggregate ceilings remaining unchanged, the.institutions had an aggregate leeway of $800 million as
of the end of 1973.
The holdings of assets exempt from restraint increased by more
than $800. million. Here too, export credits showed a large relative
increase—63 -per cent. However, at the end of the year total-holdings
of-export-credits of the VFCR-reporting nonbank financial institutions
were only $158 million.
•On December 26, 1973? the Board announced several amendments
to the guidelines. The amendments represented a relaxation in' restraint effective January 1, 1974, and were announced simultaneously
with the reduction in the rate of the Interest Equalization Tax and
with the'relaxation of the Foreign Direct Investment "Program, which
are -administered by the Treasury Department and the Department
of Commerce, respectively.
For "the VFCR-partlcipatieg financial institutions, one element of
228
FOREIGN ASSETS OF U.S. NONBANK FINANCIAL INSTITUTIONS
AND NONPROFIT ORGANIZATIONS
1972,
Dec. 31
Item
Number of reporting institutions
317
1973
Mar. 31
321
June 30
Sept. 30
322
Dec. 31t>
317
327
Mi lions of do liars
Assets subject to restraint
Deposits and money market instruments. . .
Short- and intermediate-term credits
Long-term investments
1,169
69
141
961
1,145
69
141
935
1,164
87
142
935
1,150
92
145
913
1,149
99
147
903
Ceiling
Foreign borowing offset
1,732
1,728
1,732
1,703
159
187
200
206
1,722
233
. . . .
Aggregate leeway
721
770
768
759
806
Assets exempted from VFCR
Export credits
Investments in Canada, other than export
credits
Direct obligations of international
institutions
Long-term investments in developing
countries other than export credits
Other nonexport investments
15,572
97
15,861
131
12,020
16,033
139
12,118
16,223
140
12,177
16,414
158
12,226
1,232
1,219
1,218
1,193
1,174
1,312
1,066
1,328
1,164
1,310
1,248
1,370
1,344
1,405
1,451
TOTAL assets held for own account
16,741
17,006
17,197
17,372
17,563
11,864
p Preliminary.
relaxation was a rise in the minimum ceiling applicable to foreign
assets of the types subject to restraint. These minimums were raised
from $500,000 to $10 million for banks; from $1 million to $10
million for U.S. agencies and branches of foreign banks; and from
$500,000 to $2 million for U.S. nonbank financial institutions.
For institutions with ceilings higher than the new minimum ceilings, the ceilings were raised by 4 per cent for U.S. banks and for
U.S. agencies and branches of foreign banks, and by 5 per cent for
U.S. nonbank financial institutions.
For all financial institutions participating in the VFCR program,
subsidiary restraints regarding loans to residents of developed countries of continental Western Europe were abolished.
On January 29, 1974, the Board announced termination of the
VFCR program, effective immediately. This action was coordinated
with the simultaneous lifting of the capital outflow restraint programs
administered by the Treasury and Commerce Departments.
229
Legislation
Enacted
Purchase of Government obligations by Federal Reserve
Banks
An Act of Congress approved August 14, 1973 (Public Law 93-93),
extended through October 31, 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 July 6, 1973 (Public Law 93-63),
the Congress extended until August 1, 1973, the flexible authority
of the Board of Governors, the Federal Deposit Insurance Corporation (FDIC), and the Federal Home Loan Bank Board (FHLBB)
to regulate the maximum rates of interest or dividends payable by
insured banks and by savings and loan associations on deposit or
share accounts. By an Act approved August 16, 1973 (Public Law
93-100), the Congress further extended this authority until December 31, 1974, and broadened it to include rates paid on deposits by
certain noninsured banks. By Joint Resolution approved October 15,
1973 (Public Law 93-123), the Congress directed the Board of
Governors, the Secretary of the Treasury, the FDIC, and the FHLBB
to limit the rates of interest or dividends that may be paid on all time
deposits of less than $100,000, thereby ending the experiment with
4-year accounts that were free of governmentally imposed interest
and dividend ceilings.
Regulating "NOW" accounts
An Act of Congress approved August 16, 1973 (Public Law 9 3 100), permits the offering—subject to regulation—of interest- or
dividend-bearing accounts with negotiable-order-of-withdrawal features (so-called "NOW" accounts) by depositary institutions in Massachusetts and New Hampshire. On December 4, 1973, the Board
issued an amendment to its Regulation Q governing these accounts
(see page 110 of this REPORT).
230
Investment in State housing corporations
By an Act approved August 16, 1973 (Public Law 93-100), the
Congress authorized national banks and Federal savings and loan
associations to invest in State housing corporations and directed the
Board of Governors, the Federal Savings and Loan Insurance Corporation (FSLIC), and the FDIC to regulate such investment by the
financial institutions that they supervise.
Gold Reserve Act of 1934
Congress amended the Gold Reserve Act of 1934 by an Act
approved September 21, 1973 (Public Law 93-110), which permits
private citizens to hold gold when the President finds that the elimination of regulations on private ownership of gold will not adversely
affect the U.S. international monetary position.
Par Value Modification Act
By an Act of Congress approved September 21, 1973 (Public Law
93-110), the Par Value Modification Act was amended to establish
a new par value of the dollar at 0.828948 Special Drawing Right or
the equivalent in terms of gold of $42% per fine troy ounce of gold.
Foreign currency reports
To assist in the collection of data on capital flows, by an Act of
Congress approved September 21, 1973 (Public Law 93-110), the
Secretary of the Treasury was directed to supplement regulations
requiring the submission of reports on foreign currency transactions.
Appointment of Alternate Governors of the IMF and IBRD
By an Act of Congress approved August 15, 1973 (Public 93-94),
the Bretton Woods Agreements Act was amended to authorize the
President to appoint an alternate for the Governor of the International Monetary Fund (IMF) and an alternate for the Governor
of the International Bank for Reconstruction and Development
(IBRD). The President appointed Arthur F. Burns to be U.S. Alternate Governor of the IMF for a term of 5 years, and on September
19, 1973, the Senate confirmed this nomination.
231
State taxation of Federally insured financial institutions
By an Act of Congress approved August 16, 1973 (Public Law
93-100), the Congress has prohibited States and political subdivisions from imposing—until January 1, 1976—any tax that is measured by income or receipts or imposing any other "doing business"
tax on an out-of-State financial institution that is a member of a
Federal home loan bank or the deposits or accounts of which are
insured by the FSLIC or are covered under the Federal Deposit
Insurance Act. The Act directed the Advisory Commission on Intergovernmental Relations to study the application of State "doing business" taxes to these institutions and to make recommendations to the
Congress by December 31, 1974.
Loans in flood-prone areas
By an Act approved December 31, 1973 (Public Law 93-234), the
Congress enacted the Flood Disaster Protection Act of 1973, which
required the Board of Governors and other Federal authorities that
regulate financial institutions to direct their supervised or insured institutions not to lend on improved real estate, or a mobile home, in an
identified flood-hazard area unless the property is covered by appropriate flood insurance. On February 6, 1974, the Board issued an
amendment to its Regulation H to implement the Act with respect to
State member banks.
232
Legislative Recommendations
Monetary policy—Reserve requirements
On January 25, 1974, the Board of Governors sent to the Congress
draft legislation designed to implement the Board's recommendation
to extend reserve requirements set by the Federal Reserve to deposits
in nonmember financial institutions that serve a checking account
function.
The Board's proposal has two over-all objectives. First, to achieve
better control over the flow of money and credit in the economy;
second, to provide a more equitable sharing of the reserve requirements burden among financial institutions that offer similar deposit
services. The basic principle underlying the second objective is that
reserve requirements in the form of an account with a Federal
Reserve Bank should apply to all deposits that effectively serve as a
part of the public's money balances, regardless of the type of institution that holds those balances.
The Board included in its draft legislation several provisions
intended to preserve the present structural balance inherent in the
dual banking system. Specifically, there is no requirement that nonmember institutions must join the Federal Reserve System.
The legislation effectively exempts more than 3,300 small nonmember banks from carrying reserve requirements by means of a
provision that no required reserves need be held by nonmember institutions against the first $2 million of their net demand deposits or
NOW accounts. (NOW accounts may be offered only in Massachusetts and New Hampshire.)
An existing provision of law and Federal Reserve regulations
state that currency and coin held by member banks may be counted
toward their Federal Reserve reserve requirements. Assuming prevailing reserve requirements of the Federal Reserve are continued
on demand deposits, the excess of required reserves over the vault
cash now held by nonmember banks aggregates about $2.3 billion.
The presence of this vault cash, combined with the exemption of
the first $2 million of net demand deposits mentioned above, means
that only about 38 per cent of the present nonmember banks would
233
be subject, to reserve requiremeets ewer and above their present holdings of-currency-and coin.
Also,. the legislation prcwides. a 4-year transition period,- during
which--reserves would be gradually phased in-by the institutions that
would be required to establish reserve accounts with the. Federal
Reserve.... .
Nonmember institutions and their communities stand to benefit
from, a provision in the Board's draft legislation that permits-Federal
Reserve credit to be made available, under-rules to be" established, to
institutions' required to maintain reserves.with...the.Federal Reserve,
At present,--credit may be extended to nonmember-institutions-only
in unusual 'circumstances and under highly restrictive conditions imposed by law. .
Viewed in-all its aspects^ the Board's proposal balances the necessity of improving control over, money, and credit, .and the., desirability
of fostering--equity among financial institutions, against the-equally
important "goal' of retaining' the 'present'"supervisory. structure, .of.
financial institutions.
Regulation of foreign banks
The Board believes that legislation is desirable to clarify- the statesof-foreign -banks in the United States and" to assure' a "more uniform'
regulatory treatment of their activities in ...this country, ...The Board •
further-believes that any such-legislation-should be based-on the
principle-' of nondisciitnination. That'is to'say, foreign and domestic,
institutions, should have the same privileges and be subject -to- thesame • rules,- so that comparable institutions could compete on "equitable terms In our national market. Implementation of this principle
in the. .United - States would not only offer public-benefits-in the
domestic context; it would also set a standard for other countries, on
the treatment we would expect to be afforded to U.S. banks- operatingwithin their territories,
'The Board intends to recommend legislation that will regulate
foreign banks-conducting banking operations in the-United'States.
The' broad objectiYes of the bill are to achie¥e equality.of treatment
between, domestic ..and foreign banks, to provide a Federal presence
in-the lice-using--and supervision of foreign banks, and to bring fpr-
234
elgn banks' operations In the United States within the purview of
Federal Reserve regulations.
Consumer affairs and public service
Truth in Lending. As stated in its Annual Report on Truth in
Lending, sent to Congress on January 3, 1974, the Board recommends certain legislative changes in that area, particularly legislation
to require suitable disclosures in connection with consumer leases.
The Board believes that consumer leasing programs need to be
accompanied by adequate cost disclosures so that the consumer may
intelligently shop this expanding market.
Bank investments for community development. As leading
Institutions In their communities, banks are expected to participate in programs for the improvement of the community. In
some cases this responsibility can be Milled by contributing funds
or services. In others, 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 are in the public interest and
should be encouraged by appropriate legislation.
To an extent this was accomplished by enactment of Public Law
93—100, which authorized Investment In State housing corporations
established for the limited purpose of providing housing and Incidental services, particularly for families of low or moderate Income.
The Board believes, however, that this authorization should be expanded to cover investments in community corporations that could
engage more broadly in community welfare, regardless of whether
established by private or governmental authorities. To assure that
such Investments do not have an adverse effect on the soundness of
the Nation's banks, Investments would be regulated by the Comptroller of the Currency, the Board of Governors, and the Federal
Deposit Insurance Corporation with regard to banks under their
respective jurisdictions, as is the case under Public Law 93-100.
Real estate loans by national banks. The Board believes It is
desirable to provide national banks with. sufficient, flexibility le
making real estate loans to meet the changing needs of borrowers
for both residential and noeresldeetlal mortgage • credit. At present,
235
the mortgage Investment powers of national banks are' contained
In Section '24 of the Federal Reserve Act. Through "the years this
section has been amended numerous times, in a fragmentary manner,
to meet changing conditions. In the field of real estate loans, there
have been so many developments in, the past few decades that the
existing Section 24 has become obsolete in some respects.
The Board believes that the present Section 24 should be deleted
from the Federal Reserve Act and that, instead, national banks
should be permitted to make loans on the security .of .real estate..to
the extent authorized by regulations prescribed by the Comptroller
of the Currency, This approach would provide the supervisory authority primarily responsible for. the safety .and., soundness .of
national banks with greaterflexibility,while at the same time allowing for protection of the public interest. .This, approach...also- recognizes that real .estate loans to one class..of. borrowers, such -as-home
buyers, may., require a different set of rules--than - those applied to
more sophisticated borrowers, such as homebuilders.
Proposals., relating to the regulation of -bank -holding companies
a* Cea$e~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 banks). The Board may" either refer the violation, to
the Department of Justice 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 prevent 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; and to issue appropriate ceaseand-desist orders against any bank holding company or nonbank subsidiary thereof under the Act.
b. Acquisition by holding company. of.... a "failing, bank" The
Board.recommends that Section 11 (b). of the Bank.Holding Company Act be amended to include provisions, similar to those in the
236
Bank Merger Act, under which (1) comments by a bank supervisor
on a proposed takeover of a "failing" bank may be required to be
submitted within. 10 days (rather than the usual 30^ days); (2) the
Board may Inform the Attorney General of an emergency requiring
expeditious action and thereby shorten from 30 to 5 the number of
days between approval of the transaction by the Board and the day
consummation becomes permissible; and (3) the Board may dispense
with comments from the bank supervisors and the Attorney General
where immediate action has been found to be necessary to prevent
a probable bank failure and the transaction may be consummated
Immediately upon approval by the Board.
c. Retention by holding company of bank stock acquired as a
result of a debt previously contracted. Section 4 of the Bank
Holding Company Act authorizes the Board to extend from 2 to 5
years the time within which to' dispose of stock in eonbanking
organizations acquired by a holding company pursuant to a debt
previously contracted. The reasons underlying that authorization
seem equally applicable in the case of bank stock. Accordingly, the
Board recommends that Section 3 be amended to parallel the proYislons of Section 4 in this respect.
d. Intercorporate dealings. Section 23A of the Federal Reserve
Act (12 U.S.C. 371c) limits the extension of credit between banks
and their affiliates, including bank holding company parents and collateral affiliates. The Board fa¥ors legislation to extend this provision
to cover some purchases of assets by banks from affiliates, sales by
banks to affiliates, or fees or other charges paid to affiliates. In the
Board's judgment such legislation may be necessary in some instances to prevent misuse of bank resources.
e. Limitations on reducing, lending on, or paying out a bank
holding company's capital. Under the Bank Holding Company Act,
the Board is required- to take into consideration "the financial and
managerial resources and future prospects of the company" in connection with the formation' of bank holding companies and their
acquisition of banks. Such analysis includes an assessment of the
capital position of the holding company. An inquiry with respect to
similar factors is made in connection with applications to acquire
or retain nonbank subsidiaries. Although the capital of the holding
237
company may be deemed .sufficient at the time of ..an .approval- by
the-Board,-there is-BO-assurance that the capital-position •will not
change "at a later date to the detriment of the entire, holding, company
system. The Board believes there is a need for some--limitation on
bank-holding companies so- as to prevent the undermining of their
capital position.
Supervisory and other recommendations
Interlocking 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-purpose -of the law would-be-better served by limiting the-applicability
•of-the prohibition to service as' a "director or an officer..or an employee with, management functions.-"
Loans-•• to- executive officers. Loans to executive" officers of
member banks are subject to restrictions under Section. -22(g) • of
.the- Federal Reserve Act. The concern over possible -self-dealing and
conflict' of interest that may be harmful to the banking., system.,, which
is., the basis, .for these restrictions, is also applicable to loans by both
member-and-nonmember bank subsidiaries of bank "holding companies to executive officers of both holding companies •-and-other
bank-and nonbank subsidiaries of holding companies,"and'the Board
^recommends an appropriate modification of these., restrictions.. At
the ..same, time the Board believes that the limitations-under-Section-22 (g) -are unnecessarily restrictive and could be relaxed without
weakening the protection sought by the provision.
238
Loans to hank examiners. Title 18 of the U.S. Code, "Crimes
and Criminal Procedure," prohibits loans to a bank examiner by
any bank that the examiner Is authorized to examine. For several
years the Board has fa¥ored modification of this prohibition, to permit a Federally Insured bank to make a home mortgage loan to a
bank examiner under appropriate statutory safeguards. The Board
also beileYes that a bank examiner may experience difficulties in
being prevented from obtaining other forms of bank credit, such
as loans to finance the education of his children, automobile loans,
home improvement loans, credit-card loans, and other types of consumer credit. For that reason, the Board fa¥ors legislation to permit
loans to a bank examiner to be made In accordance with regulations
prescribed by the agency employing the examiner.
Lending authority of Federal Reserve Banks, As a complement to the Board's recommendation regarding the extension of
reserve requirements to financial Institutions offering checkingaccount-type services and the extension of Federal Reserve Bank
borrowing privileges to these same institutions, the Board again
urges enactment of legislation that would permit Institutions to borrow from their Reserve Banks on the security of any sound assets
without paying a "penalty" rate of interest whenever technically
ineligible paper is presented as collateral. Under Section 13 of the
Federal Reserve Act, Federal Reserve Banks may extend short-term
credit to member banks on their promissory notes secured by obligations eligible either for purchase or for discount by the Reserve
Banks.
Obligations eligible for purchase include those issued or fully
guaranteed as to principal and interest by the United States or any
agency thereof, cable transfers, bank acceptances, bills of exchange,
and certain municipal warrants. Obligations eligible for discounting
are limited to notes that are issued or drawn for agricultural, industrial, or commercial purposes and that ha?e a maturity at the time
of discount of not more than 90 days (or 9 months in the case of
agricultural paper).
Under Section 10(b) Reserve Banks are authorized to extend
credit to member banks secured simply by collateral viewed as satisfactory by the Reserve Banks. However, Section 10(b) also pro¥ides
that such credit extensions "shall bear interest at a rate not less than
239
one-half of 1 per centum per annum higher than the highest-discount
rate.in. effect" at the....Reserve"Bank making the loan. The result of
this provision, is. that many-perfectly-sound member -bank loans cannot:'qualify., as..security for Federal Reserve advances--except vat the
penalty, rate--of interest-prescribed in-Section 10(b). This is "true
even, though the quality-of the- "ineligible" collateral may.be equal
to that of presently "eligible"; paper.
Examples of currently "ineligible" paper include'home mortgages
and -municipal-• obligations.:.Presumably,.:"all -FHA-insured -and VAguaranteed; loans would.'become'eligible as collateral-lor-advances
under .the .Board's proposal;...'such--a development -would-tend to
encourage member banks to increase -their portfolios of such' obligations:,. Moreover, the-Board could, by regulation, prescribe/limitations
on'.'the. extensions of such- credit to -prevent abuses.
Federal Reserve /Bank" branch . buildings. Under Section -10
of -the-Federal Reserve'Act. the. aggregate costs of branch- bank-buildings constructed by "the .Federal Reserve System after-July 30,-1947,
may not" exceed $60'..million,-This amount has been-almost fully
utilized, or'earmarked'.for-construction projects,--thus making it
necessary for. the Board---to- -seek additional legislative' authority.
Branches'." of. Federal Reserve Banks perform important'public services',, including especially--the-handling of currency 'and'coin .and the
processing•• of-checks. As-the economy grows, the .workload", of: the
Banks--and-branches also--expands. The Board estimates'.that. $80
million-will be- needed over the next 5 years to: fund"..."building
proper" -costs -for branch bank building programs. Analysis- of- the
System's building needs is continuing to ensure the maximum-public
benefits -for each dollar spent. Accordingly, the Board • recommends
an increase of $80 million in the amount authorized -for branch
bank buildings.
240
Litigation
Bank holding companies—Antitrust actions
During 1973 the Federal courts announced decisions in two cases
brought by the U.S. Department of Justice to prevent the consummation of bank acquisitions by registered bank holding companies. A third case was dismissed by the court at the request of
the Government. Another antitrust case filed by the Department of
Justice is pending in a Federal court. In two other cases the time
to appeal court decisions rendered in 1972 expired. In each case
the complaint alleged that the effect of the proposed acquisition,
which previously had been approved by the Board, 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
caption of each case and a brief description of its status follow:
United States v. First National Bancorp oration, Inc., et ah,
filed July 1970, U.S.D.C. for the District of Colorado. This case
was dismissed by the district court on the grounds that the Government had 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 a direct appeal to
the U.S. Supreme Court which that Court accepted for review. The
district court decision was affirmed per curiam by an equally divided
Supreme Court, February 28, 1973.
United States v. First National Bancorporation, Inc., et al.,
filed December 1970, U.S.D.C. for the District of Colorado. The
proceedings in this case (relating to Security State Bank of Sterling,
Colorado) were suspended pending the outcome of the Greeley
case referred to in the preceding paragraph, and the suit was dismissed after the Supreme Court decision in that case.
United States v. United Virginia Bankshares Incorporated,
et al, filed February 1970, U.S.D.C. for the Eastern District of
Virginia. A stay against consummation of the acquisition was lifted
by the district court in February 1971. The case was then tried and
241
dismissed by the district court on the grounds that the.Government
had- failed to prove that the acquisition would substantially lessen
competition' or tend to create a monopoly in commercial banking In
the Prince William County market (Memorandum Order- September
1972). The-time to-file-an appeal expired during 1973V
Untied" States v. Trans Texas Bancorp oration, lnc,.9 #/..#/. .This
case was tied in March 1972, U.S.D.C. -for the Western-District of
Texas,-to-prevent formation of a'proposed bank holding company, to
consist, of four banks in the El Paso..market. The case--was then
tried -and-dismissed by the district court on the grounds that the
Government"had failed to prove, .that, the .proposal .would substantially, lessen competition or -tend-to create- -a -monopoly- in -commercial - banking in the El Paso'"market' (Memorandum^..Order
November 1.972). In. May 197.3 the Supreme-Court-accepted-reviewof the-case- and, in a per curiam- opinion, -affirmed the ruling'of'the
district court.
United States v. County National- Bancorporation. This case
was- iled in April 1972, U.S.D.C. for the' Eastern"District' of
Missouri, toy prevent consummation .by the...County National. Ban- •
corporation, -Clayton, Missouri,- of -the - acquisition- of-Big Bend Bank,
located in Webster Groves, Missouri. The case was tried..and dismissed by the .district court on the. grounds thatthe-Government had
failed-to -prove that the acquisition-would substantially lessen competition" or tend to create a monopoly in commercial ..banking in the
St.. Louis market (Memorandum Order -December -1972). The time
tofile-an- appeal expired during 1973.
United States v. Michigan National .Corporation, .et ml. This
antitrust action was lied on No¥ember 14,-1973, in-the-U.S.D.C.
for the Eastern District of Michigan,' to prevent consummation.by
Michigan National Corporation, Bloomleld Hills, Michigan, • of -the
acquisition- of four banks in East Lansing, Saginaw; Grand'Rapids,
and Wyandotte, Michigan., The Government.alleges that the.acquisitions .would not only eliminate existing competition and-the potential'
for'increased competition but "also' increase 'concentration in commercial banking in the Sagieaw, Grand Rapids, and Lansing markets.
Bank holding companies—-Review of Board actions
Nineteen civil actions raising questions. under the Bank Holding
Company Act were filed during 1973 and one early in 1974. Four
242
of these cases were dismissed by the courts at the request of petitioners, and no decisions were rendered in the others.
Fi¥e cases that had been lied in 1972 were decided during 1973.
In one of these cases the Board's Order was set aside; in two the
courts remanded the cases to the Board for further findings (one at
the request of the Board); and in the remaining two cases they
acted favorably to the Board.
One case filed in 1971 was suspended pending Board action on
proposed regulatory amendments. The caption of each case and a
brief description of its status follow:
In National Association of Insurance Agents, Inc. v. Board
of Governors, iled September 1971, U.S.C.A. for the District of
Columbia Circuit, petitioner asked the court to review and set aside
a regulatory action by the Board to simplify certain procedures in
connection with applications under Sections 3(a)(l) and 4(c)(8)
of the Bank Holding Company Act. In December 1971 the Board
suspended the operation of that regulatory action as it relates to
Section 4(c) (8) and published proposed regulatory amendments that
include modifications of the suspended procedures. The court proceedings ha¥e been suspended pending final outcome of the Board's
proposed amendments. (For the action establishing the procedures,
see the Federal Reserve Bulletin for September 1971, page 723; for
the proposed amendments, see the Federal Register for December 28,
1971, page 25048.)
In National Association of Insurance Agents, I me* v. Board
of Governors, iled October 1972, the U.S.C.A. for the District of
Columbia dismissed petitioner's request for review of a Board interpretation (Federal Reserve Bulletin for September 1972, page 800)
relating to the types of insurance agency activities considered by the
Board to be closely related to banking. The court based its dismissal
on the grounds that the challenged statement appeared to be an
interpretation rather than a formal regulation; that as an interpretation there was serious doubt as to its reviewability by a court under
the Bank Holding Company Act; and that the petition for review
was premature since no specific application was before the Board.
In National Association of Insurance Agents, Inc. v. Board
of Governors, iied- September 1973, U.S.C.A. for the District of
Columbia Circuit, ' petitioner requested the court to review the
Board's Order, dated March 28, 1973, permitting U. B. Financial
243
Corporation, Phoenix, Arizona, to retain voting shares of H. S.
Pickrejl Company, Phoenix,. Arizona. The petition for judicial- review,
on -agreement-of the parties, was' dismissed'by the court in November' 1973.. ..
In Bank America
Corporation
y*. Board
.of Governors,
filed
M y 1972-, the U.S.C.A. for the Ninth- Circuit, • in a decision-lied
January' 1974, affirmed a Board Order, .'dated....June 29, 1972,-that
denied- an-application of BankAmerica Corporation, San" Francisco,
California,, to engage in certain, .personal property leasing -activities.
The- court rejected petitioner's arguments that, the Board had Improperly .denied-petitioner a hearing, that-the-Board's Order-had
failed to'include sufficient findings of fact, ..and...that, in weighing the
application- the -Board had -used- an -improper standard not authorized
by the Bank Holding Company Act..
....
••
• •••
In- Gravois Bank, et al, v. Bi)ord of Governors, filed July 1972,
the U.S.C.A.. lor the Eighth Circuit, in--a-decision-filed-April- 275
1973, remanded the case to the Board for' further consideration.. (478
F. 2d.. .546,'...Eighth Cir. 1973).-The--court--held that the Federal
Reserve Bank of St. Louis,' acting .pursuant .to. delegated.auihority in
approving the application-of--Manchester Financial • Corporation, St.
Louis, Missouri, to acquire the .National Bank of- Alton, • Aflfcon,
Missouri, a proposed new bank, had failed to consider whether the
acquisition. would violate Missouri's law prohibiting branch-banking.
The matter is pending before the Board.
In. Western Bane shares, Inc. v. Board of Governors, filed
September 1972, U.S.C.A. for the Tenth Circuit, petitioner.requested
the court.to- review and set aside an Order of the Board"'(Federal
Reserve' Bulletin for September 1972, page 843) denying--applications- for retention of a bank and continuation of the acuities' of., a
general'.insurance agency. In an opinion iled June 21, •••1973 (480
F 2d.- 749), the court held that the Board lacked statutory.'.authority
to' deny. an application under Section 3 of the Bank Holding Company Act solely on the ground that an equal offer had not been -made
to all-shareholders. The court set aside the Board's'Order.
In 'Lewis, & Clark State Bank v. Board of Governors, et-aL,
iled-Oetober 1972, U.S.C.A. foe the District of Columbia' Circuit,
petitioner, requested judicial re¥iew of a Board Order (Federal Reserve- 'Bulletin for October 1972, page 923) approving the applica-
244
tion of Boatmen's Bancshares, Inc., St. Louis, Missouri, to acquire
Boatmen's National Bank of North St. Louis County, a proposed
new bank. In July 1973, on motion of the Board, the court remanded this case for further consideration. In December 1973 the
Board issued an Order approving the acquisition (Federal Register
for January 4, 1974, page 1120).
In United Tennessee Bancshares Corporation v. Board of
Governors, filed My 1973, U.S.C.A. for the Sixth Circuit, petitioner requested the court to review and set aside a Board Order
(Federal Reserve Bulletin for July 1973, page 530) denying petitioner's application to merge with American National Corporation,
Chattanooga, Tennessee. Upon motion of petitioner, the court dismissed the case in November 1973.
In First Oklahoma Bancorporation, Inc. v. Board of Gover^
nors, filed February 1973? U.S.C.A. for the Tenth Circuit, petitioner
requested the court to re¥iew and set aside a Board Order (Federal
Reserve Bulletin for March 1973, page 217) concluding that petitioner was not eligible for "grandfather" privileges under Section
4(a)(2) of the Bank Holding Company Act. In May 1973 the
court, on motion of petitioner, dismissed the petition for re¥iew.
In Cosmopolitan State Bank, ei ol. v. Board of Governors,
filed March 1973? U.S.C.A. for the District of Columbia Circuit,
petitioners requested the court to' review and set aside a Board Order
(Federal Reserve Bulletin for March 1973, page 194) permitting
Northwest Ban-corporation, Minneapolis, Minnesota, to acquire
Farmers and Merchants State Bank of Stillwater, Stillwater, Minnesota. In May 1973 the court, on motion of petitioners, dismissed
the petition for judicial review.
In NCNB Corporation v. Board of Governors, filed April
1973, U.S.C.A. for the District of Columbia Circuit^ petitioner has
requested the court to review and set aside a Board Order (Federal
Reserre Bulletin for April 1973, page 305) permitting petitioner
to engage in a general trust business in South Carolina to the extent
permitted by State law. The court has granted petitioner's motion
to hold this proceeding in abeyance pending the outcome of a suit
filed in U.S.D.C. for the District of South Carolina, challenging the
constitutionality of the State statute restricting trust company activities of out-of-State banking organizations.
245
In Bankers Trust New York Corporation v. Board of
ernors, filed May 1973? U.S.C.A. for the Second Circuit, petitioner
has requested, the. court to review and- set aside a Board Order (-Federal Reserve Bulletin for May 1973,-page 364)--denying petitioner's
application'to'engage in investment advisory activities through a
newly'formed subsidiary corporation at /Palm Beach,. Florida... The
First National Bank in Palm Beach -and- The Florida-Bankers Association- have been-granted leave-to intervene, • In October'1973 the
court' granted' petitioner's motion to hold' the""proceedings in abeyance until 40 days after the judgment of the U.S.D.C. for the Northern District, of Florida in .a suit challenging.-the constitutionality- of
the Florida -statute-that prohibits out-of-State-banking organizations'
from performing investment 'advisory'activities in" Florida,' the statute
on which "the' Board based its denial of petitioner's application.
In Lake. County National Bank. w^Bmrd.of Governors, filedAugust 1973,- U.S.C.A. for the District of-Columbia-Circuit, petitioner-has-challenged four Board'Orders, dated July 20, 1973 (Federal" Register 'for July 30, 1973, page 20293) approving several
related applications that effectuate., the ...corporate .reorganization .of
The Cleveland Trust Company, Cleveland, -Ohio.
In Lorain- County Savings and' Trust Go.'\. Board of Cover"
nors9' lied 'August 1973, U.S.C.A. for'the District' of' Columbia
Circuit, petitioner challenged the same Board Orders described above
In Lake .County. National B.ankv. Boar.d..of Governors. On February 4 r -1974j the court granted petitioner's motion to hold the proceedings in-abeyance until 40 days "after'the Judgment of the Supreme'
Court of'Ohio in a suit challenging, as a violation of State branching
laws, issuance of the State banking charters necessary for the., reorganization.. The court has also ordered the- petitioners in this suit
and those in the Lake County National-Bank case to show cause
why the' two "appeals should not be consolidated.
In East Lansing State Bank v. Board, of. Governors, filed
December 1973, U.S.C.A. for the-Sixth-Circuit,-petitioner has-asked
the court to-review and set aside a Board Order (Federal Reserve
Bulletin for November 1973? page 819)' permitting Michigan National Corporation to acquire four.. banks, including First National
Bank of East .Lansing, East La.nsin.g-, Michigan. The court-has granted
a stay of proceedings pending the-outcome of a suit'lied by the
246
Department of Justice challenging these acquisitions as violations of
the antitrust laws.
In Anthony R. Martin-Trigona v. Board of Governors, filed
August 1973, U.S.C.A. for the District of Columbia Circuit, petitioner requested the court to review and set aside the Board action
denying petitioner's request for a hearing in the matter of the application of BankAmerica Corporation, San Francisco, California, to
acquire GAC Finance, Inc., Allentown, PeensyiYanla. Petitioner
also requested the court to review and set aside a Board Order (Federal Reserve Bulletin for September 1973, page 687) approving this
acquisition. BankAmerica Corporation has been granted leave to
intervene.
In Anthony R. Martin-Trigona v. BankAmerica
Corporation,
et al.y filed August 1973, U.S.D.C. for the District of Columbia,
petitioner has brought an action challenging the acquisition of GAC
Finance, Inc., Allentown, Pennsylvania, by BankAmerica Corporation, San Francisco, and seeking to compel the Department of Justice
to bring suit -under the antitrust laws of the United States to block
this acquisition, which had been approved by the Federal Reserve
Board of Governors.
In Patagonia Corporation v. Board of Governors, filed August
1973, U.S.C.A, for the Ninth Circuit, petitioner has requested the
court to review and set aside a Board Order (Federal Reserve Bulletin for July 1973, page 539) concluding that petitioner is not entitled to Indefinite grandfather privileges under Section 4 ( a ) ( 2 )
of the Bank Holding Company Act with respect to certain of Its nonbanking activities.
In Cameron Financial Corporation v. Board of Governors,
filed August 1973, U.S.C.A. for the Fourth Circuit, petitioner has
requested the court to review and set aside a Board Order, dated
July 20, 1973, concluding that petitioner is not entitled to Indefinite
grandfather privileges under Section 4 ( a ) ( 2 ) of the Bank Holding
Company Act with respect to Its subsidiary, Courier Express Corporation.
In Iowa Independent Bankers v. Board of Governors, filed
September 1973, U.S.C.A. for the District of Columbia Circuit, petitioner has requested the court to review and set aside a Board Order
(Federal Register for August 9, 1973, page 21530) permitting North-
247
west Bancorporation, Minneapolis, Minnesota, to acquire.Bettendorf
Bank and Trust, Bettendorf, Iowa, and Security State Bank, Keokuk,
Iowa, • -on the ground' that the Iowa statute permitting. out-of-State
holding..companies to acquire Iowa banks is unconstitutional. In
September-1973, the court granted Northwest Bancorporation leave
to intervene.
. . ....
In Independent Bankers Association of Georgia- w. Board of
Governors, iled September 1973, ' U.S.C.A. for the ' District, of
Columbia. Circuit, petitioner has. requested the court to • review and
set aside a Board Order, dated August 31, 19735 permitting Citizens
and Southern Holding Company, Atlanta,. Georgia, to engage denovo
in mortgage banking activities. Citizens-and Southern Holding Company has 'been granted leave to intervene.'
In American Bancorporation^. et.al. v. Board of Governors,
Iled-September 1973? U.S.C.A, • for • the Eighth • Circuit, and in
Springsted, Inc., et al. v. Beard of Governors, .Iled .September
1973,. TJ.S.CA. for the Eighth, Circuit, petitioners-have-asked the
court to review and set aside the Board'Order (Federal Reserve Bulletin for;'September 1973,.. page.701).. approving the acquisition• by
Northwest-Bancorporation, Minneapolis, Minnesota, of T. GvEvensoii
& Associates,' Inc., Minneapolis, Minnesota. In October 197.3. the
court Issued .orders consolidating the two -separate actions and granting -Northwest- Bancorporation leave to intervene.
In' Independent Bankers Association of America,-Inc. v.
Board of -Governors, iled December 1973? U.S.C.A. for the District of Columbia Circuit, and in National Courier Association, et
al. v, Board of Governors^ filed December 1973, U.S.C.A.-for the
District of Columbia Circuit, petitioners, in separate suits, are' seeking
judicial re¥iew of a Board Order, dated November 15, 1973, determining that certain courier service activities are so-closely-related to
banking" or'managing or controlling banks as to be a proper incident
thereto. ..(The Board's amendment of its Regulation Y appears-in the
Federal Reserve Bulletin for December 1973? page 892.)' '' '
In "Memphis Bank and Trust Company v. Board of...Governors, Blzd January 1974? U.S.C.A. for the District of Columbia
Circuit, petitioner has requested the court to review and set. .aside
a Board Order, dated December 21, 1973, granting the-application
of First Amtenn Corporation, Nashville, Tennessee, to acquire City
248
National Bank of Memphis, Memphis, Tennessee, a proposed new
bank (Federal Register for January 4, 1974, page 1123).
Other litigation involving challenges to Board procedures
and regulations
In Community Bankf et al. v. Board of Governors, filed
September 1972, U.S.C.A. for the Ninth Circuit, and in Independent
Bankers Association of America, et al. v. Board of Governors,
filed September 1972, U.S.C.A. for the District of Columbia Circuit,
plaintiffs have appealed district court decisions granting the Board's
motions for summary judgment and dismissing these separate actions
brought to challenge certain amendments to the Board's Regulation
J that require payment of cash items on the day of presentment.
In Consumers Union of the United States, Inc., ei al. v.
Board of Governors, filed September 1973, U.S.D.C. for the
District of Columbia, plaintiffs have brought suit under the Freedom
of Information Act to compel the Board of Governors to' release
certain data furnished by individual banks that are used to compile
the Board's composite G-10 statistical release.
In Donald K. Gear hart, et al. v. Board of Governors, et oL,
filed September 1973, U.S.D.C. for the Southern District of Ohio,
plaintiffs have brought a class action on behalf of purchasers of
bank certificates of deposits (CD's) in face amounts of less than
$100,000 and savings account depositors at certain Cincinnati banks
named as defendants, alleging that the Board, through its Regulation
Q, accords preferential treatment to purchasers of CD's in face
amounts of $100,000' or more by permitting banks to pay higher rates
of interest on this category of deposits.
In Leslie P. Spelmamf et al. v. Bank of America National
Trust and Savings Association, et al., filed October 1973,
U.S.D.C. for the Southern District of California, plaintiffs haYe
filed a class action on behalf of all persons who deposit their taxes
with member banks of the Federal Reserve System that are qualified
Federal tax depositories, alleging that these member banks are
unjustly enriched because they haYe the use of taxpayers' money
interest free.
In Universal Air Travel Plan, et al. v. Board of Governors,
et al., filed December 1972, U.S.D.C. for the District of Columbia,
249
plaintiffs have brought suit challenging an amendment to the .Board's
Trath-in-Lending Regulation Z which, clarifies that aft-credit cards—
whether-issued or used for personal, family, household,' agricultural,
business, or commercial purposes—are' covered by" the'maximum
liability limit of $50 for unauthorized use. (For the Board's amendment, .see., the Federal Reserve Bulletin for-November 1972,-page
979-,) By-order issued September 1973, the Court-has-stayed action on
cross motions for summary judgment iled by' the'parties, pending
the decision of'the U.S.C.A. for the District of Columbia. Circuit, in
a separate.case involving similar issues.
http://fraser.stlouisfed.org/
250
Federal Reserve Bank of St. Louis
Bank Supervision and
Regulation by the
Federal Reserve System
Bank holding companies. During 1973, pursuant to the provisions
of the Bank Holding Company Act of 1956, as amended, the numbers of proposals acted on by the Board, and by the Federal Reserve
Banks under delegated authority, were as follows:
Reserve Banks
Board
Section
Section 3(a)(l)
3(a)(3)
3(a)(5)
4(c)(8)
4(c)(12)
4(d)
Approved
Denied
Approved
57
288
9
332
1
18
1
143
89
91
3
Permitted
495
52
In addition to the above, 20 determinations were made by the
Board pursuant to Section 4(a) (2) of the Act.
Board statements and/or orders with respect to applications,
whether approved or denied, are released immediately to the press
and the public, and the orders, some accompanied by statements,
are published in the Federal Reserve Bulletin. Actions by the Federal Reserve Banks also are reported to the press and the public
and appear in the Federal Reserve Bulletin and in the Board's
weekly H.2 release. Board actions on applications under Sections
4(c) (9) and 4(c) (13) are not published, but reports of such actions
are available for inspection upon request.
Annual reports for 1972 were obtained from all registered bank
holding companies pursuant to the provisions of Section 5(c) of
the Act. At the end of 1973, there were 1,677 bank holding companies in operation.
251
In processing the increasing number of applications lied under
the Act, the Board has emphasized public benefits, increased convenience and need, and improved financial services to the public.
Some cases decided by the Board during the year, lor example, have
led to the Introduction of new financial services Into a market while
other holding company acquisitions have encouraged an increased
supply of -credit'In a particular' area. 'In cases Involving 'credit life
and credit accident and health insurance underwriting, the Board
has required holding companies to specify reduced premium rates,
Increased policy benefits, or both.
Competition has been increased In some markets either-through
de nova entry by a holding company, which adds a competitor to a
market, -or-by-limiting-holding-company acquisitions to-organizations
that are relatively small. In other cases, holding companies have
been permitted to acquire financially weak institutions, thus giving
them, the ability to become more viable competitors.
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 36 of the 1,076 State
member banks were examined during 1973.
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
252
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 public disclosure
requirements of the Securities Exchange Act of 1934, as amended,
with respect to equity securities of State member banks within its
jurisdiction under the 1934 Act, and the provisions of the Act giving
responsibility to the Board for regulating security credit transactions;
prescribes regulations pursuant to the Truth In Lending Act for
financial institutions and other Inns engaged in extending consumer
credit and administers these regulations In their application to State
member banks; administers the provisions of the Fair Credit Reportleg Act, the Currency Transaction Reporting Act, and the Civil
Rights Act of 1968 in their application to State member banks; 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) iiwest in bank premises an
amount in excess of 100 per cent of a bank's capital stock.
By Act of Congress approved September 12, 19'64 (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 1973, 24 such
changes in ownership of the outstanding Yoting 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 seed
copies of all reports they receive to the appropriate district office of
the Federal Deposit Insurance Corporation, the Regional Adminis-
253
trator of National Banks (Comptroller of the Currency), and the
State bank supervisor.
Upon receipt of reports involving changes in control of State
member banks, the Reserve Banks are under instructions to forward
such reports promptly to the Board, together with a statement
(1) that the new owner and management are known and acceptable
to the Reserve Bank or (2) that they are not known and that an
investigation is being made. The findings of any investigation and
the Reserve Bank's conclusions based on such findings are forwarded
to the Board.
By Act of Congress approved July 3, 1967 (Public Law 90-44),
each member bank of the Federal Reserve System is required to
include with (but not as part of) each report of condition and copy
thereof a report of all loans to its executive officers since the date
of submission of its previous report of condition. Since the Board's
1972 ANNUAL REPORT was released, member banks have submitted,
as required by law, the data that appear in the accompanying table.
LOANS TO EXECUTIVE OFFICERS
Period covered
(condition report
dates)
Oct. 1, 1972—
Dec. 31, 1972
Jan. 1, 1973—
Mar. 28, 1973
Mar. 29, 1973—
June 30, 1973
July 1, 1973—
Oct. 17, 1973
Oct. 18, 1973—
Dec. 31, 1973
Total loans to
executive officers
Range of
interest rate
charged (per cent)
Number
Amount (dollars)
6,993
23,105,396
1-18
7,450
25,388,389
1-24
7,841
28,994,876
1-24
8,483
29,268,677
1-24
7,110
26,379,504
1-24
Federal Reserve membership. As of December 31, 1973, member banks accounted for 40 per cent of the number of all commercial banks in the United States and for 61 per cent of all commercial
banking offices, and they held approximately 77 per cent of the total
254
deposits in such banks; these igeres compare with 41 per cent,
61 per cent, and 78 per cent, respectively, at the end of 1972. State
member banks accounted for 11 per cent of the number of all State
commercial banks and 24 per cent of the banking offices, and they
held 48 per cent of total deposits in State commercial banks.
Of the 5?737 banks that were members of the Federal Reserve
System at the end of 1973, there were 4,661 national banks and
1,076 State banks. During the year there were net increases of 48
national and net declines of 16 State member banks. The decline
in State member banks was offset in part by the organization of 90
new national banks and by the conversion of 8 nonmember banks
to national banks. The decrease in. State member banks relected
mainly 28 withdrawals from membership and 8 conversions to
branches incident to mergers and absorptions.
At the end of 1973 member banks were operating 18,966
branches, facilities, and additional offices, 1,012 more than at the
close of 1972. During the year member banks established 1,088
de novo' branches and 4 facilities.
Detailed figures on changes in the banking structure during 1973
are shown in Table 18, pages 298 and 299.
Bank mergers. Under Section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828 ( c ) ) , the 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,"
255
may be approved only if the Board of Governors is able to find that
the anticompetitive effects of the transaction would be clearly 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
from 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
the 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 1973 the Board approved 20' of these applications, and it
submitted 147 reports on competitive factors, to the. Comptroller, of
the Currency and 130 to the Federal Deposit Insurance Corporation.
In addition, the Federal Reserve Banks approved nine merger applications on behalf of the Board of Governors pursuant to delegated,
authority. As required by Section 18(c) of the Federal Deposit
Insurance Act, a description of each of the 29 applications approved
by the Board or the Reserve Banks, together with other pertinent
information, is shown in Table 21, pages 302-24.
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. These statements and/or
orders set forth the- factors considered, the conclusions reached, and
the vote of each Board member present.
Foreign branches of member banks. At the end of 1973, 125
member banks had in active operation a total of 699 branches in 76
foreign countries and overseas areas of the United States; 95 national banks-were operating "625 • of "these branches, and 30 State-
member banks were operating 74 such branches. The number and
location of these foreign branches were as shown in the tabulation
on page-257.
Under the provisions of the Federal Reserve Act (Section 25 as
to national banks and Sections 9 and 25 as to State member banks),
the Board of Governors during the year 1973 approved 91 -applications made by member banks for permission to establish branches in
foreign countries and overseas areas of the United States. During
the year, member banks opened 91 branches overseas-and closed 19.
256
[Tabulation referred to on preceding page.]
Abu Dhabi . . . . . . . . . . . .
Argentina . . . . . . . . . . . . .
Austria . . . . . . . . . . . . . . .
Bahamas . . . . . . . . . . . . . .
Bahrain . . . . . . . . . . . . . . .
Barbados . . . . . . . . . . . . . .
Brunei . . . . . . . . . . . . . . . .
Belgium
..............
Bolivia . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . .
Canal Zone . . . . . . . . . . . .
C a y m a n Islands . . . . . . . .
Colombia
.............
Dominican Republic . . . . .
Dubai . . . . . . . . . . . . . . . .
Ecuador . . . . . . . . . . . . . .
El Salvador . . . . . . . . . . . .
Fiji Islands . . . . . . . . . . . .
France . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . .
Greece . . . . . . . . . . . . . . . .
Guam . . . . . . . . . . . . . . . .
Guatemala . . . . . . . . . . . . .
Guyana . . . . . . . . . . . . . . .
Haiti . . . . . . . . . . . . . . . . .
Honduras . . . . . . . . . . . . .
Hong Kong . . . . . . . . . . . .
India . . . . . . . . . . . . . . . . .
Indonesia . . . . . . . . . . . . . .
Ireland . . . . . . . . . . . . . . .
Israel . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . .
Jamaica . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . .
Lebanon . . . . . . . . . . . . . .
1
38
1
91
2
4
2
9
3
21
2
32
32
16
3
15
1
4
15
30
16
7
3
1
2
3
23
11
6
4
2
8
9
23
3
3
Liberia . . . . . . . . . . . . . . . .
Luxembourg . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . .
Mariana Islands . . . . . . . .
Marshall Islands . . . . . . . .
Mexico . . . . . . . . . . . . . . .
Monaco . . . . . . . . . . . . . . .
Netherlands
...........
Netherlands Antilles . . . . .
Nicaragua . . . . . . . . . . . . .
Okinawa . . . . . . . . . . . . . .
Pakistan . . . . . . . . . . . . . .
Panama . . . . . . . . . . . . . . .
Paraguay . . . . . . . . . . . . . .
Pera . . . . . . . . . . . . . . . . . .
Philippines . . . . . . . . . . . .
Puerto- R i c o . . . . . . . . . . . .
Qatar . . . . . . . . . . . . . . . . .
Saudi Arabia . . . . . . . . . . .
Singapore . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . .
Trinidad and Tobago . . . .
T r a d a l State of S h a r j a h . .
T r u k Islands . . . . . . . . . . .
United Kingdom . . . . . . . .
Uruguay . . . . . . . . . . . . . .
Venezuela . . . . . . . . . . . . .
Vietnam . . . . . . . . . . . . . . .
Virgin Islands (U.S.) . . . .
Virgin Islands (British) . .
2
6
5
1
1
5
1
6
3
3
2
4
33
6
6
4
22
1
2
14
9
5
2
6
1
1
52
5
4
3
21
3
Other (West Indies) . . . . .
14
Total
.................
699
257
Foreign banking and financing corporations. At the -end of
1973 there were fi¥e corporations operating under agreements with
the Board pursuant to Section 25 of the Federal Reserve Act..relating
to investment, by member banks-in the-stock of corporations engaged
principally in international or foreign banking. Three of these "agreement" corporations were examined during the.year by examiners-for
the Board of Governors. Another such corporation closed during
the year,'The remaining agreement corporation, is a national., bank
in the Virgin Islands and is owned-by a State member bank in
Philadelphia,
During. 1973, under the provisions of-Section 25 (a) of the-Federal
Reserve Act, the Board issued final permits'to 12 corporations to
engage in" international or foreign banking, or other international or
foreign financial operations, • Twelve corporations began operations,
while one was merged into- another corporation and ceased to..exist.
At the end.of. the year there .were 98. corporations in--active operation under Section 25 ( a ) . Nine-of these corporations operate a total
of 14 overseas branches. Examiners for the Board of Governors examined.. 86 of these corporations during-1973.-•
••
Actions' under delegation of authority. Pursuant to the provisions of Section 11 (k) of the . Federal. Reserve Act, the Board of
Governors has delegated to the Reserve Banks (1) authority to approve, on behalf of the Board, certain applications of.State, member
banks to. establish domestic branches, to invest in bank-premises, to
declare certain dividends, and to- grant or deny 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.. 244
branch applications, 101 investments in bank premises, 10 applications • of State member banks to declare certain dividends, and
approved 10 and denied 15 waivers of notice of intention, to withdraw -from membership in the Federal Reserve System. Under
authority granted in (2) above? the Reserve Banks approved 1,62.3
applications.
The • Board has delegated certain authorities to the Director or
Acting... Director of the Division of Supervision and Regulation.
Under this authority 279 actions were taken. In addition, the Director
or Acting Director of the Division of Supervision and Regulation is
258
authorized under Section 18(c)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1828(c)(4)) to furnish to the Comptroller of
the Currency and the Federal Deposit Insurance Corporation reports
on competitive factors involved In a bank merger required to be
approved by one of those agencies if each of the appropriate departments or divisions of the appropriate Federal Reserve Bank and the
Board of Governors are of the view that the proposed merger either
would have no adverse competitive effects or would have only slightly
adverse competitive effects, 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 262 competitive factor
reports were -approved.
Bank Examination Schools. In 1973 the Board's Bank Examination School conducted two sessions of the School for Examiners, three
sessions of the School for Assistant Examiners, and one session of
the 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 Federal Deposit Insurance Corporation.
Since the establishment of this program, 5,001 persons have attended the various sessions. This number includes representatives of
•the Federal bank supervisory agencies; the State Banking Departments of Arizona, Arkansas, California, Connecticut, Florida,
Georgia, 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 22
foreign countries.
Truth in Lending. A report entitled Annual Report to Congress
on Truth in Lending for the Year 1973 was submitted separately,
pursuant to the Truth in Lending Act (Title I of the Consumer Credit
Protection Act (Public Law -90-321)).
259
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 8 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.
Earnings and expenses. The accompanying table summarizes
the earnings, expenses, and distribution of net earnings of the Federal Reserve Banks for 1973 and 1972.
Current earnings of $5,017 million in 1973 were 32 per cent
higher than in 1972. The principal changes in earnings were increases
EARNINGS, EXPENSES, AND DISTRIBUTION OF NET EARNINGS
OF FEDERAL RESERVE BANKS 1973 and 1972
In thousands of dollars
1973
1972
Current earnings
Current expenses
5 ,016,769
495,117
3,792,334
414,606
Current net earnings
Net deduction from current net earnings
4 ,521,652
-80,654
3,377,728
-49,616
Net earnings before payments to U.S. Treasury....
Dividends paid
Payments to U.S. Treasury
(interest on F.R. notes)
4 ,440,998
49,140
3,328,112
46,183
4 ,340,680
3,231,268
51,178
50,661
Item
Transferred to surplus
260
of $1,125 million on U.S. Government securities, and $95 million on
loans.
Current expenses were $495 million, or 19 per cent more than
in 1972. Statutory dividends to member banks amounted to $49 million, an increase of $3 million from 1972. This rise in dividends
relected 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 $4,341 million for the year, compared with $3,231 million
in 1972. This amount consists of all net earnings after dividends and
the amount necessary to bring surplus to the level of paid-in capital.
A detailed statement of earnings and expenses of each ReserYe
Bank during 1973 is shown in Table 7, pages 282 and 283, and a
condensed historical statement in Table 8, pages 284 and 285.
Holdings of loans and securities. The table on page 262 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 1973
amounted to $77,837 million—an increase of $6,446 million over
1972. Holdings of U.S. Government securities increased $5,078
million, loans $1,356 million, and acceptances $12 million.
The average rates of interest on holdings were up from 5.31 per
cent to 6.44 per cent on U.S. Government securities, from 4.47
per cent to 6.52 per cent on loans, and from 4.61 per cent to 7.62
per cent on acceptances.
Volume of operations. Table 9 on page 286 shows the volume
of operations in the principal departments of the Federal Reserve
Banks for 1970-73.
Both the number and dollar amounts of loans increased during
the year as the number of borrowing banks rose to 1,803, compared
with 810 in 1972.
Improvements in the payments mechanism (discussed below) and
faster movement of funds resulting from new regional check processing centers and changes in Regulation J are reflected in the 17 per
cent increase in the number of checks handled. A further indication
of growth in the movement of funds is the 23 per- cent increase in
the volume of transfers of funds through the Federal Reserve com-
261
RESERVE BANK EARNINGS ON LOANS AND
SECURITIES, 1971-73
Item and year
Total
Loans
Acceptances
U.S.
Govt.
securities *
In millions of dollars
Average daily holdings:
1971
1972
1973
2
Earnings:
1971
1972
1973
65,820
71,391
77,837
.. .
3,719.6
3,789.7
5,013.6
413
81
322
1,678
89
101
20.9
14.4
109.4
4.0
4.1
7.7
65,326
70,980
76,058
3,694.7
3,771.2
4,896.5
In per cent
Average rate of interest:
1971
1972
1973
1
2
5.65
5.31
6.44
5.06
4.47
6.52
4.94
4.61
7.62
5.66
5.31
6.44
Includes Federal agency obligations.
Based on holdings at opening of business.
munications network. Also, with the continuing expansion of the food
stamp program, the number of food coupons redeemed increased
10 per cent.
Payments
mechanism
developments.
During 1973 the Fed-
eral Reserve Banks continued the programs announced in a policy
statement that the Board of Governors had issued on June 17, 1971.
This statement placed a high priority on improving the Nation's
check collection system and on encouraging the expansion of facilities in the Reserve System's wire network.
In 1973, 12 regional centers were established to provide increases
in overnight clearings of checks. Including the 23 centers previously
established, a total of 35 regional clearing centers were operational
at the end of the year. Seven of these centers are operated at remote
sites, in cities other than the 36 locations of Federal Reserve Banks
and branches. An additional 12 centers are under consideration for
1974, four of which are planned for operation at remote sites.
262
Two Federal Reser¥e offices installed automated-communicationsswitching facilities in 1973, increasing the total number of offices
equipped in this manner to seven. By mid-1974 six additional offices
plan to install such facilities. At that time the 12 Federal Reserve
Banks and the communications center at Culpeper, Virginia, will be
capable of high-speed, interregional transfers of funds and settlement
of balances between member banks and their customers.
In addition to the establishment of more regional clearing centers and to further developments in the Reserve System's wire network, the Federal Reserve Bank of Atlanta initiated operation of
an automated clearing house in 1973. ReserYe offices in San Francisco and Los Angeles had begun such operations in the latter part of
1972. These facilities provide the means for member banks and their
customers to transfer funds on magnetic tape in lieu of paper checks.
Other Federal Reser¥e offices are considering the initiation of such
operations in 1974.
In concert with the above developments, the Board of Governors,
in November 1973? published for comment proposed regulatory
changes concerning the legal framework for electronic transfers of
funds OE the Reserve System's expanded wire network. The Board
requested comment not only OE the speclics of the regulatory changes
but also* on broader Issues such as the appropriate roles of the Federal
Reserve and financial institutions in the ownership and operation of
an electronic payments system, the extent and conditions of access
to the system, and how the costs for the system should be allocated.
Loan guarantees for defense production. Under the Defense
Production Act of 1950, the Departments of the Army, Navy, and
Air Force, the Defense Supply Agency of the Department of Defense,
the Departments of Commerce, Interior, and Agriculture, the 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 1973 the guaranteeing agencies authorized the issuance
of two new guarantee agreements. Loan authorizations outstanding
on December 31, 1973, totaled $53 million, of which more than $51
263
million-represented-outstanding loans and $1.6 million •••represented
additional credit available to borrowers. Of total loans outstanding,
13 per cent on the average was guaranteed. During the year approximately--$-5 million-was disbursed on guaranteed loans, all of-which
are revolving credits.
Authority for the V-loan program, unless extended, will terminate
on June-30, 1974. • •
Table 15 on page 292 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--$3,703
million in 1973, of which $1,262 million represented an increase
in'the value'of earmarked gold resulting from the change in the
par .value of the U.S. dollar in October 1973. At-the -end of the year
such assets amounted to $68,859 million; $251 million in dollar
deposits; $12,532 million of earmarked gold; $52,070 ' million of
U.S. .Treasury securities (including - securities payable--in- foreign
currencies); $581 million of bankers' acceptances purchased through
Federal Reserve Banks; and $3,425 million of miscellaneous assets.
The.latter..item consists mainly of dollar bonds- issued--by foreign
countries and international organizations and debt securities issued
by U.S.'Federally sponsored agencies and U.S. corporations.
Assets held for international and regional organizations - amounted
to $15,342 million at the end of 1973, an increase of $2,151 million.
The increase included a rise of $453 million in the value of earmarked-gold resulting from the change in the par value-of the-U.S.
dollar and an increase of $754 million in dollar holdings of the International Monetary Fund, representing the increase in the amount payable to maintain the value of IMF holdings of U.S. dollars,- • • •
The Federal Reserve Banks did not make any loans against gold
collateral in 1973.
The-Federal Reserve Bank of New York continued to act as
depositary and Iscal agent for international and regional organizations. As fiscal agent of the United States, the Bank continued to
operate the Exchange Stabilization Fund pursuant' to' authorization
and instructions of the Secretary of the Treasury... Also.on .behalf
of the Treasury Department, it administered foreign assets control
regulations pertaining to assets in the'United States of 'North 'Vie t-
264
nam, Cuba, the People's Republic of China (pertaining to assets
blocked before May 7, 1971), and North Korea, and their nationals,
and to transactions with those countries and their nationals.
Federal Reserve bank premises. During 1973 the Minneapolis Bank occupied its new banking quarters; the ¥acated Cincinnati
Branch building was sold; and with the appro¥al of the Board, the
Charlotte Branch acquired property for a future building site.
Table 6 on page 281 shows the cost and book value of bank
premises owned and occupied by the Federal Reserve Banks and of
real estate acquired for banking-house purposes.
265
Board of Governors
Income and expenses. The accounts of the Board for the year
1973 were audited by the public accounting firm of Touche Ross &
Co.
ACCOUNTANTS' OPINION
Board of Governors of the
Federal Reserve System
Washington, D.C.
We have examined the balance sheet of the Board of Governors of
the Federal Reserve System as of December 31, 1973 and 1972, and
the related statements of assessments and expenses, and changes in financial position for the years 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 aforementioned financial statements present fairly
the financial position of the Board of Governors of the Federal Reserve
System at December 31, 1973 and 1972, and the results of its operations and the changes in its financial position for the years then ended,
in conformity with generally accepted accounting principles applied on
a consistent basis.
Touche Ross & Co.
Certified Public Accountants
Washington, D.C.
January 30, 1974
266
B O A R D O F G O V E R N O R S O F T H E F E D E R A L R E S E R V E SYSTEM
BALANCE
SHEET
D e c e m b e r 31
1973
1972
$ 8 , 5 1 3 , 248
7 3 , 705
$ 5,564,301
92,076
88, 605
51,950
, 6 7 5 ? 558
5,708,327
792, 852
4 ,396, 950
2 ,126, 172
35
3 5 ,,660022, , 065
065
792,852
4,298,315
2,015,858
22,031,509
42
039
29,138,534
$51,593,597
$34,846,861
$ 2,127,548
'231,867
505,801
1,662,319
S 2,827,929
' 187,054
368,533
1,662,319
4,527,535
5,045,835
F u n d balance:
Balance, beginning of y e a r , . . . . . . . . . . . . . . . . . .
Assessments over (under) e x p e n s e s . . . . . . . . . . . .
662,492
3,485,531
3,390,015
(2,727,523)
Balance, end of y e a r , . . . . . . . . . . . . . . . . . . . . . . .
4,148,023
662,492
Total operating f u n d . . . . . . . . . . . . . . . . . .
8,675,558
5,708,327
29,138,534
16,522,347
13,829,796
(50,291)
12,699,379
(83,192)
Net increase. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,779,505
12,616,187
Total property fund, end of year. . . . . . . . . . . . .
42,918,039
29,138,534
$51,593,597
$34,846,861
ASSETS
OPERATING
FUND:
Cash...,..,....,..,,....,.,......,,.,.,,.,..
Miscellaneous 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 i n v e n t o r i e s — a t cost ( i r s t in, first-out m e t h o d ) . . . . . . . . . . . . . . . . . . . . . . . .
00
Total operating f u n d . . . . . . . . . . . . . . . . . .
|
PROPERTY F U N D :
Land and i m p r o v e m e n t s . . . . . . . . . . . . . . . . . . . . . . .
Building.....................................
Furniture and e q u i p m e n t . . . . . . . . . . . . . . . . . . . . . .
Constructioe-in-progress. . . . . . . .
..........
Total property f u n d . . . . . . . . . . . . . . . . . .
LIABILITIES AND FUND BALANCES
OPERATING FUND:
Accounts payable and accrued e x p e n s e s . . . . . . . . .
Income taxes withheld. . . . . . . . . . . . . . . . . . . . . . . .
Accrued p a y r o l l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retention on c o n s t r u c t i o n - i e - p r o g r e s s . . . . . . . . . . .
PROPERTY F U N D :
F u n d balance:
Balance, beginning of y e a r . . . . . . . . . . . . . . . . . . .
Additions—at c o s t . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals—at c o s t . . . . . . . . . . . . . . . . . . . . . . . . . .
See notes t o financial statements.
267
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF ASSESSMENTS AND EXPENSES
Year ended December 31
1973
J972
ASSESSMENTS- L E V I E D O N F E D E R A L RESERVE B A N K S :
F o r B o a r d -expenses a n d a d d i t i o n s t o p r o p e r t y . . . . $ 4 4 , 4 1 1 , 7 0 0
F o r expenditures m a d e o n behalf of t h e F e d e r a l R e • serve-Banks-................................
31,658,174
$35,234,500
"28,957,493
Total assessments. . . . . . . . . . . . . . . . . . . . • 76,069,874- ' 64,191,993
EXPENSES:
For the Board:
Salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement- a n d i n s u r a n c e c o n t r i b u t i o n s . . . . . . . Travel e x p e n s e s . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. Legal, c o n s u l t a n t a n d a u d i t f e e s . . . . . . . . . . . . . .
Contractual s e r v i c e s . . . . . . . . . . . . . . . . . . . . . . . .
Printing a n d b i n d i n g — n e t . . . . . . . . . . . . . . . . . . .
E q u i p m e n t , office space a n d o t h e r r e n t a l s . . . . . .
Telepfione a n d t e l e g r a p h . . . . . . . . . . . . . . . . . . . .
' P o s t a g e and' e x p r e s s a g e . . . . . . . . . . . . . . . . . . . . . .
• Stationery, office a n d o t h e r s u p p l i e s . . . . . . . . . . .
H e a t , • light' a n d p o w e r . . . . . . . . . . . . . . . . . . . . . . . .
O p e r a t i o n of c a f e t e r i a — n e t . . . . . . . . . . . . . . . . . . '
• Repairs, maintenance and a l t e r a t i o n s . . . . . . . . . .
Books-and s u b s c r i p t i o n s . . . . . . . . . . . . . . . . . . . . .
S y 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 . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous—net.........................
18,882,255
17", 1"67 f 836
1,738,258
782,253
469,217
258,951
73-6,876
2,720,257
396,612
331,094
183,807
106,745
165,938
83,778
60,183
1,605,754
• -718,917
535,104
400,714
663,988
.2,658,376
304,183
298,855
217,391
103,566
134,438
222,274
56,472
43,872
141,617
• 27 ? 645
168,796
27,101,71.3 . .25,284,309
F o r a d d i t i o n s t o p r o p e r t y — n e t of recovery o n d i s posals' of $5,340 in 1973 a n d $21,665 in 1 9 7 2 . . . . .
E x p e n d i t u r e s for printing, issue a n d r e d e m p t i o n of
. F e d e r a l Reserve N o t e s , p a i d o n behalf of t h e
Federal. Reserve B a n k s . . . . . . . . . . . . . . . . . . . . . .
Total e x p e n s e s . . . . . . . . . . . . . . . . . . . . . . .
13,824,456
12,677,714
40,926,169
37,962,023
31,658,174 • 28,957,493
72,584,343
•66,919,516
$ 3,485,531. $(2,727,523)
See notes to financial statements.
268
B O A R D O F G O V E R N O R S OF THE F E D E R A L RESERVE SYSTEM
STATEMENT OF C H A N G E S IN F I N A N C I A L POSITION
Y e a r j a i d e d D e c e m b e r 31
1973
1972
S O U R C E OF F U N D S :
Assessments over (under) e x p e n s e s . . . . . . . . . . . . . .
Net increase In p r o p e r t y fund. . . . . . . . . . . . . . . . . .
Increase in accrued p a y r o l l . . . . . . . . . . . . . . . . . . . .
Increase in income taxes w i t h h e l d . . . . . . . . . . . . . . .
Decrease In miscellaneous receivables a n d advances
Increase In retention on c o n s t r u c t i o n - i n - p r o g r e s s . .
Increase in accounts payable a n d accrued expenses.
$ 3,485,531
13,779,505
137,268
44,813
18,371
...........
...........
$ (2,727,523)
12,616,187
40,931
29,057
...........
1,662,319
1,105,915
17,465,488
12 ? 726,^
Additions t o property—net:
Construction-in-progress. . . . . . . . . . . . . . . . . . . .
Furniture and e q u i p m e n t . . . . . . . . . . . . . . . . . . . .
Building...................................
13,570,556
110,314
98,635
12,259,794
342,259
14,134
Decrease in accounts payable a n d accrued expenses
Increase in s t o c k r o o m a n d cafeteria i n v e n t o r i e s . . .
Increase In. miscellaneous receivables a n d advances
13,779,505
700,331
36,655
...........
12,616,187
...........
12,755
33,854
14,516,541
12,662,796
A P P L I C A T I O N OF F U N D S :
INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S 2,948,947
S
64,090
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1973 AND 1972
SIGNIFICANT ACCOUNTING POLICIES
Assessments made by the Board on the Federal Reserve Banks for Board
expenses and additions to property are calculated based upon expected cash
needs and are accrued when assessed. Board expenses and property additions
are recorded on the accrual basis of accounting.
Assessments and expenditures made on behalf of the Federal Reserve
Banks for the printing, issue 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.
The Board does not charge depreciation as an operating expense. Property
additions are charged to expense in the Operating.Fund in the year of acquisition; recoveries on the disposal of property are recorded as a reduction in
expense in the Operating Fund in the year of disposal. When property is
acquired or sold,'the property accounts in the Property' Fund are increased or
reduced at full cost, with a corresponding increase or decrease in the property
fund balance. Because of the short duration -and • temporary nature of the
Board's leases, leasehold improvements ha¥e not., been capitalized in the
Property Fund.
269
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
NOTES TO FINANCIAL STATEMENTS—Continued
The Board Is self-insured ..against loss- of Its 'building • and furniture and
equipment from, .fire .or. -other .casualty. The construction-in-progress is covered
.by. builder's. risk insurance- for-the cost of the work to December 31, 1973.
Coverage., for other customarily insured-risks,-such as workmen's- compensation
insurance -and- comprehensive • general liability insurance, "is carried by'the
Board.
CONSTRUCnpN-IN-PROGRESS
The.. Martin • Building and North Garage • are currently under construction.
The estimated cost is $44,000,000, -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.
The -retention on construction-in-progress'"represents five per cent of the
amount-of-the original general construction "contract and is to be paid at satisfactory completion' of the contract, expected to be during 1974..
LONG-TERM LEASES
• The • Board • leases outside office and parking space under leases, expiring
from December 31,' 1973 to December 31, 1977. Because the leases may .be
terminated with six months'notice commencing in 1974,..at December "31,.. 1973,
the only''fixed"future rental commitment is $7.51,000. for. 1.974,. .Rent, expense
for'outside office "and parking space for the years ended December..31, -1973
and 1972"was'approximately $'l,064>000 and $862,000. respectively.
RETIREMENT- PLANS
There "are two contributory retirement programs, for employees of...the.
Board.""About 84'% 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
Government service. Employee contributions, are... the same under both plans,
and benefits..are similar, being based..upon.the Civil--Service-Man.- •
' Under'.the Civil Service Plan, Board .contributions -match- employee payroll
deductions, .while., under the Federal .Reserve. Plan, Board •• contributions-are
actBarially. .determined annually.
•
•
• ••
•
Additionally, employees of the Board -participate- in the -Federal -Reserve
System's.. Thrift Plan. Under this plan, the Board adds a fixed - percentage to
allowable .employee savings.
•
.Board-contributions to these plans totaled $1,494,707 in 1973 and $T,394,03'6
in. 1972, There--was [sic] no unfunded-prior--service-costs'under either'plan.'
COMMITMENTS AND CONTINGENT LIABILITIES. . . .
.The. Board..has authorized the purchase of a computer -and certain peripheral --equipment • for approximately $4fWQfiW. The equipment is' to be
delivered-in April 1974.
Litigation-•• involving the Board generally arises' from challenges to, or
appeals- from actions or proposed actions' of "the 'Board pursuant to statutory
or -regulatory -requirement or authorization." "In essence,' such lawsuits . seek
injunctive or 'declaratory relief against the ' Board" rather than . monetary
awards. • In''1973, however, one class "action ' case joining as defendants the.
Board,''the'Secretary'of the Treasury and several .commercial, banks. requests.
substantial" monetary award. Based upon realistic appraisal ..of the., real potential" for recovery' and upon the Board's previous.experience, in .suits--involving
gross claims,'Board counsel is of. the., opinion that the suit is-sufficiently--lacking in merit as to present no real probability .of substantial - liability to the
Board.
270
(Statistical Tables
1. DETAILED STATEMENT OF CONDITION OF ALL FEDERAL
EESEE¥E BANKS COMBINED,. DECEMBER 31, 1973.
••{In thousands-of dollars)
ASSETS
Gold certificates on h a n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gold-certificates-due from U . S . T r e a s u r y :
Interdistrict settlement f o n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F.R, Agents* f u n d , . . . . . , . , . , . . , . . . , , . , . , , , . , . . . . . . . . . , . . , . . . . , .
1,278
8,904,121
2S555fOOO
. . T o t a l gold certificate a c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Drawing Rights c e r t i l c a t e a c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F . R . n o t e s of other F . R . B a n k s , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
O t h e r cash:United S t a t e s . n o t e s . . . . . , , . . , , , . , . , , » . . . . . . , . , , , , , . . . . . . . , , . , , , .
244
Silver c e r t i f i c a t e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
N a t i o n a l bank' notes a n d F . R , Bank n o t e s . , , . . . , . . » . , . , , . , . , . . , , , .
92
Coin...,,,.,.............,,,.-.-...............................
270,732'
11,460,399
• 400,000
1,207,557
Total other c a s h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
L o a n s t o m e m b e r Banks secured b y —
U-S. -Govt* a n d agency o b l i g a t i o n s . . . . . . . . . . . . . . . . . . .
310,290
O t h e r eligible p a p e r . . . . . . . . . . . . . . . ; . . . . . . . . . . . . . . . .
834 1 579
O t h e r p a p e r (Sec. 1 0 ( b ) ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,726
1,257,595
271,120
L o a n s to o t h e r s . , . . , . . , , . . , , . . . , . . . . . . , , . . . . . , . , . , , . , . . . , , . . » . » , , , .
Foreign loans on g o l d . . . , . . , . . , , , , , » . . . . , . , . . . . . , , . . . . . . . » . , , . . » , » .
.,..,,...,
..........
• Total l o a n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acceptances: Bought o u t r i g h t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Held 'under repurchase a g r e e m e n t , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal agency-obligations:
''
.. Bought o u t r i g h t , , . » , , » . . , . . , . , . - . , , . . , . , . , . , . . , . » . . . . . . . . . . . . . . .
Held under repurchase a g r e e m e n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U . S . G o v t . securities:
-Bought outright:
Bills..............................
36fS97»i#5
Certificates........................
..........
Notes. / . . , . . . . . . . . , , . , . . , . , , . . , . . .
3S»412»23f
Bonds..,».,..,........,....,....,
3,148,§15
Total bought o u t r i g h t . . . . . . . . . . . . .
— — — —
78,458,219
Held under repurchase a g r e e m e n t . . . . . . . . . . . , » . . . . » . . »
58,000
1,257,595
Total U.S..Govt. s e c u r i t i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6Sf0t4
.,.....».»
1,937,500
42,000
78,516,219
T o t a l loans a n d s e c u r i t i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C a s h items In- process of collection:
Transit i t e m s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchanges for clearing h o u s e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-cash i t e m s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81»821,32S
T o t a l cash items in process of c o l l e c t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank premises:
Land.........................................................
67,477
Buildings (including v a u l t s ) . . . . . . . . . . . . . . . . . . . . . . . . . .
131,294
Fixed machinery a n d e q u i p m e n t . . . . . . . . . . . . . . . . . . . . .
8! ,743
Construction a c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,735
§,853,218
Total b u i l d i n g s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less depreciation a l l o w a n c e s . . . . . . . . . . . . . . . . . . .
280,772
126,682
154SG9G
• Total bank p r e m i s e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
O t h e r assets:
D e n o m i n a t e d in foreign c u r r e n c i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,357
R e i m b u r s a b l e expenses a n d other items r e c e i v a b l e . . . . . . . . . . . . . . . . . .
9,695
..Interest a c c r u e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
732,586
P r e m i u m on s e c u r i t i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,275
Deferred c h a r g e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,292
Real estate acquired for banking-house p u r p o s e s . . . . . . . . . . . . . . . . . . .
2,800
. Suspense.account..............................................
72,855
Overdrafts....................................................
53,049
' 'AH o t h e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,324
221,567
T o t a l other a s s e t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
t2§»273
Total a s s e t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106,164,462
272
I.-—CONTINUED
LIABILITIES
F.R. notes:
O u t s t a n d i n g (Issued t o F . R . B a n k s ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Held by issuing F . R . B a n k s . , , . . . . . . . . . . . . , , . , .
2,607,093
Forwarded for r e d e m p t i o n . , . . . , . . . . , , , , . . , , , .
82,729
68,160»683
2,689,822
F.R. notes, n e t (Includes notes held b y U . S . Treasury
a n d b y F . R . B a n k s o t h e r than issuing B a n k ) . . . . , , . . . . . . , . . . . . . , , . . . . . . . , , , . .
Deposits:
Member bank r e s e r v e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D u e t o other F . R . B a n k s collected f u n d s . . . . . . , , . . . . . . . . . . . , , . . , . .
U.S. Treasurer—General a c c o u n t , . . . . , , . , . . . , , , . . , . . . . . , . , . . , , , . .
Foreign.......................................................
Other deposits:
Nonmember bank—Clearing a c c o u n t s , , , . . . . . , . . .
2,409
Officers* a n d certified c h e c k s . . . . . . . . . . . . . . . . . . . . .
14,857
Reserves of corporations doing foreign b a n k i n g or
financing....................................
146,698
International o r g a n i z a t i o n s . . . . . . . . . . . . . . . . . . . . . .
130,551
Secretary of T r e a s u r y special a c c o u n t . . . . . . . . . . . . .
267,860
All o t h e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
488,664
Total other d e p o s i t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,759,98#
579,187
2,543,459
250,?75
1,051,039
Total d e p o s i t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred availability cash i t e m s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
O t h e r liabilities:
Unearned d i s c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on s e c u r i t i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sundry Items p a y a b l e . . . . . . . . . . . . . . . . .
Suspense accounts.
AH o t h e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
§5,47©»§61
31»1S5,O46
#,§40,746
511
914,785
13, ?34
4 ^ , 305
428
Total other l i a b i l i t i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
979,763
Total l i a b i l i t i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,476,416
CAPITAL
ACCOUNTS
Capita! paid i n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surplus
............................
Other capital accounts ! . . . . . . . . . . . . . . . . . .
....................................
T o t a l liabilities a n d capital a c c o u n t s . . . . . . . . . . . . . .
.....................
C o n t i n g e n t liability o n a c c e p t a n c e s p u r c h a s e d f o r foreign c o r r e s p o n d e n t s . .
...........
844,023
844,023
..... ....
106,164,4#2
581,095
1
D u r i n g t h e year this i t e m Includes t h e net o f earnings, expenses, profit a n d loss i t e m s , a n d a c c r u e d
d i v i d e n d s , w h i c h a r e c l o s e d o u t o n D e c . 3 1 ; s e e T a b l e 7, p p . 2 8 2 a n d 2 8 3 .
N O T E . — - A m o u n t s In b o l d f a c e t y p e i n d i c a t e Items s h o w n In the B o a r d ' s weekly s t a t e m e n t o f c o n d i t i o n
of the F . R . Banks.
273
2. STATEMENT OF CONDITION OF EACH FEDERAL R1SERYE BANK, DECEMBER 31, 1973 AND 1972
(In millions of dollars unless otherwise indicated'!
Total
Boston
New York
Philadelphia
Item
Cleveland
Richmond
1973
1972
504
23
169
14
3,231
93
198
19
2,064
93
206
17
817
23
63
2
632
23
54
10
827
33
89
32
885
33
76
39
1,283
36
109
28
1,013
36
121
36
59
63
422
926
18
1
93
95
194
6
47
52
68
70
36
62
477
42
332:
13;
106
72
149
98
147
98
3:»6S0
3,281
19,314
58
17,702'
98
4,296
3,841
6,016
5,225
5,959
5,216
73,318
3,782
3,402
20,444
19,177
4,421
4,006
6,260
5,517
6,159
5,366
10,782
194
361
' 44
376
29
2,575
10
2,543
7
394
10
447
5
445
27
597
27
790
14
965
13
4
925
192
874
39
9
41
207
50
211
48
10
45
65
17
71
67
10
' 71
Total a s s e t s , . . . . . . . . . . . . . . . . . . . . . . . . . . 106,163
97,533
4,751
4,567
26,778
24,368
5,778
5,232
7,779
7,262
8,486
7,631
1973
1972
1973
11,460
400
1,208
271
10,303
400
1,157
313
391
23
96
15
385
872
1,975
7
9
2
... .
68
70
36
Federal, agency obligations:
Bought outright,.,
. . .
Held under repurchase a g r e e m e n t s , . . . . . . . . . .
1,937
42
1,311
13
91
78,458
58
69,808
98
Total loans and securities . » • . , . .
SI,820
Cash items In process of collection ».,» »
...
Bank p r e m i s e s . . . . . . . . . . . . . . . . . . . . , . . , , , , , . .
Other assets i
#
Denominated
in foreign currencies..... . . . . .
All1 o t h e r , . . : . . . . . . . . . . . . . . . . . . . . . ' . . . . . . . . .
9,852
223
1972
1973
1972
1973
1972
1973
1972
ASSETS
Gold certificate account.
Special Drawing Rights certif. acct
F.R. notes of other F.R. B a n k s . . . . . . .
Other c£tsh
•
Loans: •
Secured by U.S. Govt. and agency obligations.
Other »
Acceptances:
Bought o u t r i g h t . . . . . . » , » » , » . , . , , , . , .
Held under repurchase agreements •,
U.S. Govt. securities;1
Bought outright
Held under repurchase a g r e e m e n t s . . . . . . .
LIABILITIES
65,470
59,914
3,257
3,116
16,082
14,809
3,647
5,243
4,752
5,844
5,315
26,759
2,542
251
1,633
25,505
1,855
325
840
771
188
11
21
936
110
13
12
7,780
394
59
674
7,073
388
111
570
1,029
1,011
139 ;
121
13
15
39 I
24
1,701
151
24
31
1,552
144
26
21
1,350
365
13
50
1,248
164
15
31
31,185
28,525
991
1,071
8,907
8,142
1,220 I 1,171
1,907
1,743
1,778
1,458
6,839
981
6,951
557
391
44
285
27
1,118
241
863
140
307
29
407
74
701
69
734
40
104,475
95,947
4,683
4,499
26,348
23,954
5,154
7,631
582
41
7,118
8.392
7,547
844
844
793
793
34
34
215
215
207
207
42
42
39
39
74
74
72
72
47
47
42
42
Total liabilities a n d capital a c c o u n t s . . . . . 106,163
97,533
4,751
4,567
26,778
24,368
5,778
5,232
7,262
8,486
7,631
8
152
47
16
30
9
5,482
F.R. n o t e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits:
Member bank r e s e r v e s . . . . . . . . . . . . . . . . . . . .
U.S. Treasurer—General a c c o u n t . . . . . . . . . . .
F o r e i g n . . 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AH o t h e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits.
Deferred availability cash I t e m s . . . . . . .
Other liabilities a n d accrued dividends.
Total l i a b i l i t i e s . . . . . . . . . . . . . . .
4,092
331
51
CAPITAL ACCOUNTS
Capital paid i n , . . . . . . .
Surplus..............
Other capital accounts.
Contingent liability on acceptances purchased for
foreign c o r r e s p o n d e n t s . . . . . . . . . . . . . . . . . . . . . . .
53
581
179
68,161
62,492
3,393
3,306
16,698
15,482
4,174
3,725
5»4f>4
4.^29
6,033
2,691
2,578
136
190
616
673
82
78
22!
177
189
167
65,470
59,914
3,257
3,116
16,082
14,809
4,092
3,647
5,243
4,752
5,844
5,315
2,555
66,335
2,561
61,015
175
3,230
250
3,070
i5*, 560*
400
3,800
600
3,300
350
5,200
350
4,700
750
5,340
68,890 ! 63,576
3,405
3,320
15,560
4,200
3,900
5,550
5,050
6,090
50!
5,025
5,526
F.R. N O T E S T A T E M E N T
F.R. notes;
Issued t o F . R . Bank by F . R . Agent and outstanding »
Less held by issuing Bank, and forwarded for
redemption.............................
F.R. notes, net 8 ..
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.
16,850
2. STATEMENT OF CONDITION OF EACH FEDEEAL RESERVE BANK, DECEMBER 31, 1973 AND 1972—Continued
(In millions of dollars unless otherwise1 indicated)
Atlanta
Chicago
St. Louis
Kansas City
Minneapolis
D a lias
San Francisco
Item
1973
1972
1973
1972
1973
1972
1973
1972
1973
1972
1973
1972
1973
19*72
ASSETS
416
15
62
32
433
15
to
78
7
27
5
52
10
*>
16
1!
72
47
40
26
11,231
2,935
2,508
1,611
13,293
11,704
3,028
2 f 607
1,288
16
1,459
16
463
14
444
15
59
13
43
i
132
29
126
6,656
5,872
16,497
15,392
189
39
647
22
166
40
1,595
70
69
33
1,846
70
102
40
59
50
88
7
38
158
262
Federal agency obligations:
Bought outright, . . . . .
.
Held under repurchase agreements . . .
111
72
316
211
U.S. Govt. securities:
Bought outright 1 ..
. . . .
Held under repurchase a g r e e m e n t s . . . . .
4,506
3,831
12,781
T o t a l loans a n d s e c u r i t i e s . . . . . . . . .
4,726
3,998
C a s h items i n process of c o l l e c t i o n . . . . . . . . .
B a n k premises
Other assets:
D e n o m i n a t e d In foreign c u r r e n c i e s . , . . .
All o t h e r . . .
.,
.......
759
15
928
15
Gold certificate account
,.....,,,...,.
Special Drawing Rights certif. a c c t . . . . . . . ,
F.R. notes of other F.R, Banks
.
Other cash
Loans:
Secured by U.S. Govt. and agency obligations.
Other
847
359
15
49
19
534
\5
35
21
114
7
27
253
14
86
14
378
14
44
14
1,327
49
171
23
7
15
21
41
53
140
76
52
89
57
263
184
1,367
3,091
2,753
3,593
3 048
10 6%
9 805
1,681
1,395
3,194
2,812
3,720
3,146
11,112
10,183
400
36
457
30
602
17
678
17
562
12
707
12
1,213
8
1,181
32
7
27
50
4
18
32
8
35
'"""38*
10
35
1
156
25
151
3,979
3,705
2,325
2,021
4,370
4,079
4,360
14,065
13,044
18
42
1,289
49
i 18
35
Acceptances:
Bought outright.,.
Held under repurchase agreements, ,
Total a s s e t s . , , . . . ,
. .
4,699
§
LIABILITIES
!
2,315
2,489 '
2,298
7 ,660
7 ,046
1,067 1
114 j
1! !
1,003
102
12
12
I 4 9 6 • 1,373
130 '
124
14
16
17
4 ,840
4 ,748
6
q
549 1
52 •
7 1
6
349
32
71
174
37
66
976
721
614 |
1,208 .
1,129
i,662 J
335
20
368
23
315
15 (
3.651
2,285
27
20
20
3,705
2.325
F.R. notes . . . . .
. . .... . .
Deposits:
Member bank r e s e r v e s . . . . . . . . . . . . . . .
U.S. Treasurer—General a c c o u n t . . . . . .
Foreign.
.....,.., .
All o t h e r 2 . . . . . . . . . . . . . . . . . . . . . . . .
3 .560
3. 191
10,926
10,064
2,602
2,320
1,171
1 ,819
1,682
3, 516
144
20
2(1
208
41
438
771
178
9
15
814
142
10
10
619
237
18
247
3,516
190
43
51
Total d e p o s i t s . . . . . . . . . . . . . . . . .
2 ,321
1,866
4. 203
3,800
973
Deferred availability cash i t e m s . . . . . . . . . . . .
Other liabilities and accrued d i v i d e n d s . . . . . .
584
67
672
33
953
151
1,192
88
311
35
3,921
5,762
6,532
Total liabilities
CAPITAL ACCOUNTS
\
1 ,985 j
16]
511 !
37 ;
4,300'
6,656 j
55
55
132
132
124
124
,025
751
146
698
77
4 274
13,849
12 ,8*6
43
41
108
108
99
99
4,c?99 I 4,360 , 14,065
13 ,044
1,530
413
43 j
4 OH |
4.607
5,872
16,497
15,392
3,979
41
12
27
20
3,399
11,242 , 10,399
2,728
33
33
35
35
,021 .
4,370 i
,
Contingent liability on acceptances purchased!
for foreign correspondents. .
. .'
5 ,292
422
24
546
23
!
Capital paid I n . . . . . . . . . . . . . . . . . . . . . . . . . . . j
62 I
Surplus
,\
62 ;
Other capital a c c o u n t s . . . . . . . . . . . . . . . . . . . . j . . . . . .
T o t a l liabilities and capital a c c o u n t s , j
16.2*3 , 15,144 |
1 0H 1 2,544 i
46 •
46 |
4,079 ,
^
(
I
]
24
,
__
,
„
_ _
31
10
73
2,638
2.4i*
8, HO
;
(
90 ,
149
450
l
8
23
F.R. NOTE STATEMENT
F.R. notes:
1
issued to F.R, Bank by F.R. Agent andj
outstanding....
. . .. i
Less held by Issuing Bank, and forwarded;
for redemption.... . . . .
•
3
F.R. notes, net . . . .
...
20S
3,560
3,191
Collateral held by F.R. Agent foi notes issued.
\
to Bank:
1
!
Gold certificate account.
.. j . . . . . . ! . . . . . . .
U.S. Govt. securities. . . . . . . . . . . . . . ! 3,900 ' 3,500
Total collateral
|sj
•<j
•<!
....
3,900 '
3,500
316
335
126
111
10,926
10,064
2,602
2,320 :
700
10,600
700
9,900
175
2,620
155
2,330
2,7^5 •
2,485 ',
11,300
10,600 I
1
Includes securities loaned—fully secured by U.S. Govt. securities pledged with
F.R. Banks.
2
Includes certain deposits of domestic nonmember banks and ioreign-ovvntd banking
Institutions held with member banks and redepostted in full with F R. Banks in connec-
2,431
1,222
51 I
1.171
1,078 '
37 ;
2,660 I
116
1,041
2,544 '
1,240
1,100
2,700
I 240 \
1,100 I
2,700 ,
2,405
2,315
2,450
120 '
7,438
392
2 489 '
2,298
7,660
7,046
2,655 |
2,480 ,
S.200
7,600
2,660 i
2,485 i
8.200 ;
7,600
tion with voluntary participation by nonmember institutions In the Federal Reserve
System's program of eiedit restiaint.
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, 1971-73
(In millions'of dollars)"
Type of issue
and date
December 31
1973
Treasury bonds:
1967 72 June.
1967 -72 Sept.
3 967 -72 Dec.
1972 Feb
1972 Aug. , . .
[973 Aug
1973 Nov.,.,.,.
1974 F e b . . . . .
1974 M a y , , , ,
1974 N o v . , . . ,
1975-85......
1978-83..,,..
1980. Feb...,.,
1980 N o v . . . . .
1981 A u g . . . . .
1982 .Feb,,....
1984 Aug.
1985 M a y . . , .
1986-Nov.-.•..
1987-92....,,
1988-93,.,...
19S8-93,•,..,.
1989-94......
1990 F e b . . . . .
1993- F e b , . . . .
1993-98......
1995 F e b . , . . .
•1998 Nov.-.-.-.
4 1 ."H
4H
3%
4M
2
7
6*8
6H
3k
4M
4
6%
1
3
V4
Total.
Treasury notes:
Feb. 15, 1 9 7 2 — A . . . . . .
Feb.-IS,-1972—C......
A p r . 1, 1 9 7 2 — E A . . . . .
May
May
Aug.
Nov.
15, 1972—B
15,1972—D
15, 1972—E
15, 1972—F
210
337
68
140
78
150
74
121
348
329
47
301
504
24
125
77
84
23
M a y 15, 1 9 7 3 — A . . . . . .
May ..15, 1973—E
Aug. 15, 1973—B
Feb. 15, 1 9 7 4 — C . . . . . .
May 15, .1974—D
Aug.
Sept.
Nov.
Dec.
Feb.
Feb.
15, 1974—B. . . . . .
30, 1974—E
15,1974—A.
31, 1974—F
15, 1975—A..
15... 1 9 7 5 — E . . . . . .
May 15, 1975—B
May 15, 1975—F
Aug. 1 5 , - 1 9 7 5 — C . . . . . .
Nov. 15. 1975—D.
Dec. 31, 1 9 7 5 — H . . . . . .
Feb.
Feb.
May
May
Aug.
15, 1 9 7 6 — A . . . . . .
15, 1976—F
15, 1976—B
15,1976—E. .
15, 1976—C
Aug.
Nov.
Feb.
Aug.
Feb.
Nov.
Aug.
Nov.
Nov.
May
15, 1 9 7 6 — G . . . . . .
15,1976—D.
15, 1 9 7 7 — A . . . . . .
15, 1977—B. . . . . .
15, 1978—A.
15, 1978—B.
15, 1 9 7 9 — A . . . . . .
15,1979—B
..
15, 1979—C.
15, 1 9 8 0 — A . . . . . .
Total.
278
1972
1971
33 S
411
200
304
68
132
78
145
74
114
270
283
47
292
496
24
2
31
2
31
3,149
3,462
3,286
122
1,770
414
1%
S%
1
1
6?4
SH
6*2
1%
614
6
6M
W
10
33
325
999
5,305
94
1,891
34
1,095
106
3,780
119
2,388
464
193
2,507
934
345
462
720
1,605
49
2,451
805
2,573
2,440
512
844
220
3 1
20
12
7
9
• 78-
46
270
283
9
8
85
34
125
5
-313
-140
-234
-2
-2,381
82
-1,345
-43
40
52
1,718
2,618
2,626
2,513
232
284
963
5,233
223
250
952
--129
-122
»l»770
-2,626
-2,513
-232
41
36-
••
72
94
5, IS©
1,876
1,849
1,087
90
3,728
67
2,372462
1,076
313,722
2,314
390
2,507
898
345
456
714
2,507
*"*335*
657
16
2,392
309
47
2,448
336
2,568
2,425
176
140
234
2
2,381
• 2,462
2,201
•• • 1 5
34
8
•
16
52
52
16
2
193
36
6
6
1,605
2
3
469
5
15
512
8
2,513
9
34
• 1 1
53
••27
11
59
6
67
5872
898
10
456
57
31
56
27
106
224
512
844
220
.155
5,155
38,412
•
2
23"
1
129
1,345
43
6
SH
6
5%
SH
SM
5%
6
5%
-411 •
— 130
-197
-149
67
23
75
4%
6M
7k
-331
72
84
7.4
7M
-89
— 108
47
207
462
24
77
84
1972
1973
108
130
ll>7
S49
2o4
380
180
292
68
124
76
122
73
105
75
2
31
F e b . •• 1 5 , - 1 9 7 - 3 — C . . . . . .
Feb. 15, 1973—D
i Increase or decrease ( —)
during-—
: Rate of
interest
lper cent]
36,681
|
35,554
1,731
1,127
3.—CONTINUED
Type of issue
and date
1 reasury bills:
Tax anticipation.
Other, due—
Within 3 mos..
3-6 m o s . . . . . .
After 6 mos.. .
Total.
Repurchase agreements.,..
U.S. Govt securities--Total.
Maturing—Within 90 days . . . . . .
91 days to ! year,. . . .
Gver 1 year to 5 years
Over 5 years to 10 years
OYCF 10 y e a r s . . . . . . . . .
Federal agency obligations:
Held outright:
Banks for c o o p s . . . . . .
Export-Import Bank. ,
Fed. home loan banks..
Fed. intermediate
credit banks. . . . . . .
Federal land banks....
Farmers Home Admin.[
Fed. Natl. Mort. Assn.
Govt.Natl.Mort.
j
Assn.—PC's
,
U.S. Postal Service...
Wash, Metro. Area
Transit Authority...
General Services
Admin.............
Total,
Held under Rp*s..
4. FEDERAL RESERVE BANK HOLDINGS OF SPECIAL SHORT-TERM
TREASURY CERTIFICATES PURCHASED DIRECTLY FROM THE
UNITED STATES, 1968-73
(In millions of dollars)
Date
Amount
1988
Sept. 9
Dec. 10
12
13
14
15*
16
17
87
92
45
430
430
430
447
596
1969
Apr. 8
9
10
1!
12
151
519
490
976
976
Date
19G9
Apr. 13 i
14
15
16
Sept. 5
6
7i
g
9
10
11
12
13
14 i
15
Amount
976
514
627
322
122
322
653
830
1,102
862
759
75 CQ)
75
513
Date
1969
Sept. 16
1970
1971
June 8
9
It)
1!
12
13 i
14
15
16
Amount
972
Date
Amouni
1972
Sept. 12
38
none
79
SK2
610
593
593
593
243
588
349
1973
Aug. 15
Sept. 7
8
91
10
11
12
14
15
16
351
73
73
73
42
485
169
319
319
319
1
Sunday or holiday.
NOTE.—Under authority of Section 14(b) of the Federal Reserve Act.
Throughout the period shown the interest rate was \.{ per cent below prevailing discount rate of
F.R. Bank of New York, For data for prior years, beginning with 1942, sec previous ANNUAL R:.EPOETS.
No holdings on date not shown.
279
5. OPEN MARKET TRANSACTIONS OF THE FEDERAL RESERVE
SYSTEM DURING 1973
.'In millions of dollars?
Outriuht transactions in U.S. (jovt. securities, by muturit\
•"icxcludinp matched sale-purchase transactions)
:asury bills
Others within 1 year
l
1-5 years
Month
Gross
sales
January,,..
February.,.
March.,.. .
April.
May,..,.. .
June.......
July
August
September,.
October....
November.
December..
1,855
1,558
1,569
1,377
717
1,047
1,640
655
480
2,117
583
1,919
Total..
15,517
Gross
purchases
j Redempj tions
530
695
260
200
200
51
600
163
60
456
564
*623*
218
495
945
401
153
4,880
Gross
purchases
Gross
siiles
January
February...
March
April
May,,,,...
June.......
July..
August
September.
•October....
November.
December,.
4,361
-813
41
75
1,515
34
125
116
680
-140
579
-2t028
-4,812
-23
Matched
sale-purchase
transactions
(Treasury bills)
Total outright
Gross
Exch.
or maturity
shifts
530
*623
218
495
945
401
153
489
70
87; U ,121
4,880
"25
129;.
Federal agency obligations
,664
,379
,621
,651
2,234
8,220
6,637
9,523
•3,309
74,7 t >5 •
Outright
Gross
purchases
2,116
599
1,656
1,218
~1,367
893
2.076
-1,005
72
2,325
-1,360
1,387
I . . . . ....
!........
!
229
!
174
I...... .
........
176
74
j
212
8,610
h65
Sales or
redemptions
,
........
18
14
19
21
19
6
20
30
4
84
Repurchase
agreements,
net
•1,205
4,521
1,941
2,101
1,105
4,630
3,405
9,632
6,981
• 4,735
Bankers*
acceptances,
net
Repurchase
agreements
Outright
11
2
-1
7
— I
23
95
^66
-36
-52
-i7
157
-95
-- 20
20
- ! 26
1,205
4,521
1,941
2,101
1,105
4,630
3,405
9,632
6,981
4,735'
2,089
3,435
1,101 2,089
10 3,435
4,592 45,780 45,780
48
-28
61
-65
-29
106
Gross
purchases
Gross
sales
200
200
51
600
163
60
807
1,400
695
260
717
35 . .
Redemp-
Gross
Sides
,274
,666
,006
,316
2,117
1,116
2,145
100
895
Gross
purchases
1,855
1,754
1,569
t»584
5,105
78
74,755
-1,316
123
27
351
836
1,396
Net
change
in U.S.
Govt.
securities
Total... .
3,476
Over 10 years
.i-2,220
Exch.
maturity
shifts
61
-3,829
17
Exch.
or maturity
shifts
Total.,
January»»,...
February,
March,,,..,,
April,,......
May.,.....,.
June.........
July...,...,.
August......
September. . .
October.
November. . .
December.,,.
Gross
sales
127
-2,068
331
35
Gross
purchases
-1,408
Outright transactions (com.)
5™ 10 years
Exch.,
maturity
shifts, or
redemptions
50
1,101
10
3,405
70
Gross
sales
-
12
—7
_ i )
8
7K*
-41
69
46
-36 !
Net
change
2
2,197
644
1,636
1.106
- 1,470
1 ,085
2.416
-915
7
2.440
—i.307
1,3X6
9,227
1
Includes special certificates acquired ---when the I reasur> borrows directly from the federal Reserve, ,'is follows: Aug., 351 million, and Sep.., 836 million,
2 Net change in U.S. Govt, securities. Federal agency obligations, and bankers* acceptances.
Digitized for NOTE,—Sales,
FRASER redemptions, and negative figures reduce System holdings; other figures increase them.
6. BANK PREMISES OF FEDERAL RESERVE BANKS AND
BRANCHES, DECEMBER 31, 1973
(In dollars'}
C<
F.R. Bank
or branch
I and
Buildings
(including
vaults) 3
Fixed machinery and
equipment
Total
Net
book value
24,020,212
25,142,571
3,136,208
Mew Y o r k . . . . . . . . . . . . . . . . .
Annex........
........
Buffalo
6,328,700
592,679
673.076
15,337,497
1,491,116
2,562,224
8,078,616
716,472
1,565,400
29,744,813
2,800,267
4,800,700
7,153,365
477,863
2,435,467
Philadelphia
Boston....................
43,796,428
....
3.254.353
11,930,822
2,154,452
17,339,627
10,435,069
Cleveland... . . . .
.........
Cincinnati.......... . . . . . .
Pittsburgh.................
1,295,490
I,479,874
1,667,994
6,658,601
13,532,143
4,256,874
3,572,665
7,518,690
2,525,243
11,526,756
22,530,707
8,450,111
1,074,121
21,508,195
4,182,642
Richmond.................
Annex I
I
Annex 2
, ..1
Baltimore. .
. . . , . ....
Charlotte
2.342.774
146,875
394.763
801,779
347,07 i
5,837,820
256,000
3,579,167
2,009,381
1,069,026
2,500,68!
2 311
2,903,991
1,163,973
625,121
10,681,275
405 188
6,877,921
3,975,133
2 041,218
4,769,400
174 608
5,801,622
1,772,929
1 033,976
Atlanta..
Birmingham...............
Jacksonville..,,,....,,....
Annex.............
....
Nashville.............. . ,
Mew O r l e a n s . . . . . . . . . . . . . . .
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
2,754,272
3,558,580
1,019,618
778,871
15,843
1,098,924
1,448,181
10,668,113
3,431,012
2,649,669
200,004
3,165,944
5,760,116
5,825,076
1,687,193
1,189,150
170,209
1,624,617
4,244,180
Chicago
.
. ......
Annex..................
Detroit
..
. . . . . . . .
6,275,490
50,000
1,147,734
17,755,795
173,197
3,062,834
10,703,360
58,282
1,680,387
34,734,645
281,479
5,890,955
13,396,208
267,947
2,551,123
St. L o u i s . . . . . . . . . . . . . . . . . .
Little R o c k
Louisville......
...........
Memphis
1,675,780
800,104
700,075
!,135,623
3,171,719
1,979,782
2,859,819
4,216,382
2,941,024
965,202
1,056,659
2,086,133
7,788,523
3,745,088
4,616,553
7,438,138
1,286,941
2,884,954
2,675,702
6,974,315
Minneapolis...
Helena
1,189,784
15,709
34,673,109
126,401
62,977
35,862,893
205,087
35,503,393
43,711
Kansas C i t y . . . . . . . . . . . .
. ,
Denver....................
Oklahoma C i t y . . . . . . . . . . . .
Omaha
1,340,561
2,997,746
647»686
996.489
8,613,168
3,203,270
1,551,512
1,613,49!
3,053,232
2,307,214
853,051
748,915
13,006,961
8,508,230
3,052,249
3,358,895
6,108,697
7,100,762
1,724,391
2,064,002
Dallas
E i P a s o . . ,.
Houston...
San Antonio.
..........
..
.............
..............
3,723,160
262,477
1,959,770
448,596
4,826,832
787,728
1,454,321
1,400,390
3,570,804
393,301
714,187
570,846
12,120,796
1,443,506
4,128,278
2,419,832
6,434,569
897,173
3,106,499
1,506,136
San Francisco . , ,
,,......
Annex......
...
.......
Los Angeles.
.............
Portland..................
Salt Lake City
Seattle........
...........
684.340
247,201
1,022,696
207,380
480,222
274,772
3,783,530
124,000
4,103,844
1,678,512
1 878,238
1,890,966
1,925,551
30,000
1,608,576
649»432
707,575
1,058,744
6,393,421
401,201
6,735,116
2,535,324
3,066,035
3,224,482
521,083
334,001
2,608,926
1,124,967
1,794,993
1,301,002
..........
......
..........
Total.
OTHER
,
..........
REAL
75,766,499 212,409,459
ESTATE
ACQUIRED
FOR
82,129,294 370,305,252 221,567,605
BANKING-HOUSE
PURPOSES
Boston
Cleveland
.............
Richmond. , . . . . . . . . .
Charlotte
..,.....,,
4tianta
Helena...................
60,705
395,875
326,403
I,452,630
452 827
H I , 739
60 70 *
195,875
326,403
1,432,630
4*>2 827
131,739
60,705
395,875
326,403
1,432,630
452,827
131,739
Total...........
2,800,179
2,800,179
2,800,179
* Includes expenditures for construction at some offices pending allocation to a p p r o p r i a t e accounts.
7, EARNINGS AND EXPENSES OF FEDERAL RESERVE BANKS DURING 1973
(In dollars)
Total
Item
Boston
New
York
Philadelphia
Cleveland
Richmond
Atlanta'
Chicago
St. Louis
Minneapolis
Kansas
City
Dallas
San
Francisco
: CURRENT EARNINGS
Loans.
Acceptances
U.S. Govt. securities
Foreign currencies
All other
Total
21,586,85$ 6,449,366 7,136,299 10,025*720 10,801,593 16,287,284: 3,498,812 1,792,426; 7,686,648, 6,247,513 10,304,015
109,430,582 7,614,050
7,710,730
I . _7,71G»730
4,896,508,414 221,873,896 1,317,088,878 257,976,379 362,859,741 351,002,336 262,347,634 778,388,289 177,084,559 97,099,794 192,124,993:212,600,020 666,061,895
31,080
23,34!
449,269
22,568
40,969
69,226
: 15,194
18,949'
19,313
117,203
10,307!
24,403
56,716
4ls2G3
57,169
285,432
2,670,335
146,103
237,953|
1,302,998
66,264
74,396
87,053
113,041
156,360
102,363,
5,016,769,330 229,548,462 1,347,806,665 264,505,482 370,183,112 361,117,661 273,336,667 795,030,231 180,672,961 99,140,480; 199,932,953 218,958,989 676,535,667
CURRENT EXPENSES
Salaries:
Officers
Employees.
Retirement and other benefits, ..
Fees—Directors and others
Traveling expenses.
Postage and cxprcssuge
Telephone and telegraph
Printing and supplies.
Insurance
Taxes on real estate
Depreciation..................
Light, heat, power, and water..»
Maintenance and repairs
Rent,
Furniture and equipment:
Purchases.
Rentals. .
,
....
All other
Inter-office expenses. . . . . . . . . . .
'•
Subtotal
........
F.R. currency
Assessments
for
Board
of
Governors: % .
Operating e i p e n s e s . . . . . . . .
Construction expenses
Total...............
Less • reimbursement for certain
fiscal agency and ether expenses^. . . : . . . . . . . . . ; . . .
Net expenses.,.
16,834,795 1» 107,634
216,321,186 14,518,976
40,570,742 2,885,313
4,608,281
185,955
5,085,469
379,504
57,449,688 3*300,495
5,587,862
'292,938
19,408, S40 1,195,504
804,116
52,000
11,171,872 2*561,346
6,591,264
136,156
4,595,244
265,999
3,233,478
:276»42©
5,264,156 1,049,445
10,485,160
31,179,009
9,196,736
474,745
2,399,252
'865,377
99,417
448,447,898 32,046,476
33,826,299 1,580,049
27,193,200 )
f 1,857,600
17,218,500 j . :
526,685,898 35,484,125
31,568,524
1,758,482
495,117,374 33,725,643
3,476,858 1,086,768 1,006,540 1,528,856 1,348,376 1,571,595 1,226,757
882,159 1,171,780 1,007,557 1,479,915
53,098,352 10,843,787 13,586,409 17,337,798 18,000,906 28,160,993 12,360,012 8,249,664 12,250,077 10,425,002 17,489,210
9S429»129 2,011,831 2,601,051 3,180; 147 3,287,320 5,181,768 2,366,508 1,520,526 2,300,532 2,028,838 3,777,779
1,779,944
332,557
298,554
177*837
255,526
130,434
126;O96
377,240
159,108
398,051
386,979
•827,678
193,977
327,934
375,025
547,396
330,531
298,346
563,535
295,997
356,201
589,345
7,633,417 2,636,908 5,306,387 6 s l06 s 26i 6,621,759 : 7,089,704 4,176,730 2,390,366 i 3,493,989 : 3,102,343 5,591,329
l,07i 5 l7S
207,548
330,810
472,267
721,919
495,570
426,825
676,156
312,988
241,981
337,682
3,576,248 1,012,778 l,00g,073 1,899,273 2,359,483 :2S496»245 1,333,844
902,453 1,610,136
782,933 : 1,231,870
^157,995
30,030
70,223
' 65,880
70,49!
56,791
42,327
76,030
' 57,162
30,025
95,162
1,682,808
202,713 •' 721,433 : 357,237 • 5 2 4 , 6 1 3 1,533,729
548,252
407,119
443,345 1,467,177
722,098
534,138
76,596 ; 1,396,913
520,198
64S,539
831,182
339»:131
633,065
831,327
361,520
282,499
814,385
188,610
620,766
358.-818
375,905
381,272
212,520
553,448
345.631
222,117
255,773
;
847»873
173,246
221,426
334,550
211,686
119,677
94,385
260,239
320,566
104,158
: 269,252
2,791,266
297,848
154,226
143,821
488,2S9
12,380
3,036
276,246
: 45,070
217
2,312
4,139,253
5,009,411
2,177,574
-1,454,353
415,833
2,088,790
568,669
118,000
:
549,458 '. 415,311
2,522,270 2,641,286
561,762
370,309
217,461 -285,961
1,156,925
2,619,107
797,885
203,825
922,730
4,117,375
1,508,117
382,557
341,717
1,681,897
254357
95,388
500,977
1,282,771
426,996
63,219
554,702
2,383,100
362,823
113,612
509,532
2,004,271
798,860
141,615
503,977
2,429,479
503,807
305,220
.97,593,154 22,486,491 31,501,696 35»99S,913 40,239,950 56,380,772 26,648,604 19,281,058 26,768,574 22,870,256 36^631,954
6,237,084 2,052,861 2,078,256 3,500,418 3,569,407 3,927,084 1,593,075
842,609 1,976,685 1,865,504 4,603,267
. 11,498^900 2,192,099
4,008,800
2,355,300
3,131,800
6,961,600
1,508,800
1,023,500
•1,866,300
2,422,502
5,584,500
115,329,138 26,731,451 37,588,752 41,854,631 46,941,157 67,269,456 29,750,479 21,147,167 30,611,559 27,1,58,262 46,819,721
6,481,055
1,396,991
2,732,466
1,971,469
2,776,124
5,315,358
1,958,990
'892,736
2,100,513
974,748
3,209,592
108,848,083 25,334,460 34»856$2$6 39,883,162 44,165,033 61,954,098 27,791,489 20,254,431 28,51:1,046 26,183,514 43,610,129
PROFIT AND LOSS
Current net earnings
4,521,651,953 195,822,819 1,238,958,582 239,171,021 335,326,826 321,234,499 229,171,632 733,076,133 152,881,473 78,886,049 171,421,907 192,775,474 632,925,538
Additions to current net earnings:
All o t h e r . . . , , . , . . . . . , . . . ,
2,336,124
84,751
503,461
71,440
899,838
95,140
102,827
145,672
61,838
69,899
96,446
81,479
123,333
Total additions......
2,336,124
84,751
503,461
71,440
899,838
95,140
102,827
145,672
61,838
69,899
96,446
81,479
123,333
Deductions from current net
earnings:
Losses on sales of U.S.
Govt. s e c u r i t i e s . . . . . . . . .
Losses on foreign exchange
transactions,............
All o t h e r . . . . , . . . . , . . . . , , .
35,241,103
1,00,658
9,281,164
1,894,162
2,625,734
2,529,866
1,869,963
5,659,178
1,292,199
700,901
1,416,118
1,546,151
4,825,009
47,416,528
331,981
1,991,494
30,248
12,375,714
60,105
2,323,410
24,406
4,314,904
4,904
2,465,659
52,397
3,319,157
35,642
7,444,395
30,350
1,612,162
19,269
1,090,580
16,762
1,991,494
12,966
2,560,493
37,724
5,927,066
7,208
82,989,612
3,622,400
21,716,983
4,241,978
6,945,542
5,047,922
5,224,762 13,133,923
2,923,630
1,808,243
3,420,578
4,144,368 10,759,283
Total deductions
Net deduction from (—) current
net e a r n i n g s . . . . . . . . . . . . . . . . -80,653,489 -3,537,648 -21,213,522 -4,170,538 -6,045,704 -4,952,782 -5,121,935 -12,988,251 -2,861,793 -1,738,344 -3,324,132 -4,062,890 -10,635,950
Net earnings before payments to
U.S. T r e a s u r y . . . . . . . . . . . . . . . 4,440,998,464 192,285,170 1,217,745,060 235,000,484 329,281,122 316,281,717 224,049,697 720,087,882 150,019,680 77,147,705 168,097,775 188,712,584 622,289,588
49,139,683 2,018,707
12,549,890 2,416,994 4,400,130
DiYidends p a i d , . » , . . , , . , . . . . . ,
2S 684,548 3,565,229 7,729,090 1,666,567 1,147,795 2,053,131 2,686,541 6,221,061
Payments to U.S. Treasury (interest on F.R'. n o t e s ) . . . . . . . . . 4340,680,483 189,416,364 1,196,836,370 229,888,440 322,347,692 308,264,120 213,799,618 704,086,842 146,823,563 74,484,209 164,539,344 183,063,194 607,130,727
Transferred to surplus.
Surplus, January 1 , . . . .
850,100
51,178,3a)
792,845,050 33,507,650
8,358,800 2,695,050 2,533,300! 5,333,050 6,684,850 8,271,950 1,529,550 1,515,700 1,505,300 2,962,850 8,937,800
206,603,950 38,896,550 71,794,750' 41,564,950 55,319,550 124,150,150 26,955,100 18,132,600 33,396,800 43,153,350 99,369,650
Surplus, December 31.
844,023,350 34,357,750
214,962,750 41,591,6
1
See pp. 268-70 for additional details.
NOTE,—-Details may not add to totals because of rounding,
74,328,050 46,898,000 62,004,400 132,422,100 28,484,650 19,648,300 34,902,100; 46,116,200'108,307,450
8. EARNINGS AND EXPENSES OF FEDEEAL EESEEVE BANKS, 1914-73
(In dollars)
Net earnings
before payments to
U.S. Treasury i
earnings
Current
expenses
AH F.R. Banks,
by years:
1914-15,...
1916.......
1917..,.,,.
1918,.
,
1919.......
2,173,252
5,217S398
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
1920.
1921.
1922
1923.
1924.
1925.
1926.
1927.
1928.
1929..
181,296,711
122,865,866
50,498,699
50,708,566
38,340,449
41,800,706
47,599,595
43,024,484
•64,052,860
70,955,496
28,258,030
34,463,845
29,559,049
29,764,173
28,431,126
27,528,163
27,350,182
27,518,443
26,904,810
29,691,113
149,294,774
«• 82,087,225
16,497,736
12,711,286
3,718,180
9,449,066
16,611,745
13,048,249
32,122,021
36,402,741
1930.
1931.
1932.
1933.
1,934.
1935.
1936.
1937.
1938.
1939.
36,424,044
29,701,279
50,018,817
49,487,318
48,902,813
42,751,959
37,900,639
41,233,135
36,261,428
38,500,665
28,342,726
27,040,664
26,291,381
29,222,837
29,241,396
31,577,443
29,874,023
28,800,614
28,911,600
28,646,855
7,988,182
2,972,066
22,314,244
7,957,407
15,231,409
9,437,758
8,512,433
10,801,247
9,581,954
12,243,365
10,268 ,.598
10,029 ,.760
9,282 ,244
8,874 ,262
8,781
8,504 [974
7,829 ,581
7,940 ,966
8,019 ,137
8,110 ,462
43,537,805
41,380,095
52,662,704
69,305,715
104,391,829
142,209,546
15O»3855O33
158,655,566
304,160,818
316,536,930
29,165,477
32,963,150
38,624,044
43,545,564
49,175,921
48,717,271
57,235,107
65,392,975
72,710,188
77,477,676
25,860,025
• 9,137,581
12,470,451
49,528,433
58,437,788
92,662,268
92,523,935
95,235,592
197,132,683
226,936,980
8,214.,971
8,429,,936
8,669.,076
8,911 342
9,500,,126
10,182! 851
10,962! 160
11,523! 047
11,919, 809
12,329! 373
Current
Period or Bank
1940..,. . . .
1941
1942..
1943...
1944
1945.......
1946.......
1947.......
1948.......
1949.......
Dividends
paid
217,463
1,742,775
6,804,186
5,540,684
5,011,832
5,654 ,018 !
6,119. ,673 i
6,307' ,035 I
6,552 ,717 i
6,682 ,496 ;
6,915 ,958 j
7,329 ,169
7,754 ,539
8,458 ,463
9,583 ,91!
Pa\merits ro I' S, treasury
Under
Sec. 13b
Franchise
tax
Transferred
to surplus
(Sec. 13b)
Interest on
F.R. notes
1,134:,234
* 48,334,341
70,651,778
1.134,234
6 0 , 7 2 4 , 7 4 2 !.
59,974,466 . . . . . . . . . . . . . I
10,850,605 !I. . .
3,613,056
113,646
59,300
818,150
249,591
2,584,659
4,283,231
82,916,014
'15,993,086
-659,904
2,545,513
-3,077,962
2,473,808
8,464,426
5,044,119
21,078,899
22,535,597
!
17,308
2,011,418 I
Transferred
to surplus
(Sec. 7)
..
297.667
227.448
176,625
119,524
24 579
82,1^2
141,465
197.672
244,726
326,717
247,659
67,054
35,605
-60,323
27,695
102,880
" • • •
•
•
"
*
*
'
•
75,223,818
166,690,356
193,145,837
67,304
-419,140
-425,653
-54,456
-4,333
49,602
135,003
201,150
262,133
27,708
86,772
-2,297,724
-7,057,694
11,020,582
r -916,855
'6,510,071
§07,422
352,524
2,616,352
1,862,433
4,533,977
17,617,358
570,513
3,554,101
40,237362
48,409,795
81,969;625
81»467,:013
8,366,350
18,522,318
21,461,770
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959,
196 628,858 '
... •
21,849,490
275,838,994
394,656,072
456,060,260
513,037,237
438,486,040
412,487,931
595,649,092
763,347,530
742,068,150
886,226,116
80,571 771
95,469 ,086
104,694 ,091
113,515 020
109,732 931
110,060 ,023
121,182 496
131,814 003
137,721 655
144,702, 706
1960
1961.
1962,
1963
1964,
1965
1966,.
1967 ,
1,103 ,385,257
941 648,170
1,048 508,335
1,151 120,060
1 »343 747,303
1,559 484,027
1,
499,896
2,190 403,752
2,764 445,943
3,373 360,559
153,882,275
161,274,575
176,136,134
187,273,357
197,395,889
204,290,186
207,401,126
220,120,846
242,350,370
274,973,320
963,377,684
783,855,223
872,316,422
964,461,538
1.147,077,362
1,356,215,455
1,702,095,000
1.972,376,782
2,530,615,56*
3,0T7,829,686
687,393,3^2 ! .
.
70,892,300
799 365,981
' 45,538,200
879,685,2!1) '
.
" 55,864,300
f ,582,118,614 /
.,-465,322,800
1,296,810,053 ,.
.
. . .
27,053,800
1,649,455,164 '.
. .
. .."
18,943,500
1,907,498,270 I
. s 29,851,200
2,463,628,98* ,.. .
, i 30,027,250
3.5.9.160,63S . . . .
« 39,432,450
1970
197! .
1972
W73.
3,877,218,444
3,723,369,921
3,792,334,523
5,016,769,328
321,373,386
377,184,800
414,606,351
495,117,376
3»567,286,8H7
3,440,451,196
3,328,112,382
4,440,998,464
3.493.570.636 1. . .
....
3,356,559,873
,
. . f
3,231,267,663 ' .
. .
4,340,680,4^2'
.. .
«
T o t a l 1914-73 , 1 4 1 , 9 7 1 , 1 8 9 , 0 9 9
Aggregate tor each
F.-R. Bank, 1914-73
Bostop. ,
MewYotk. , . . . . . .
Philadelphia . . . .
Cleveland...
Richmond, . . . . . ,
Atlanta....
. , . ,
Chicago
254,873,588
291,934,634
342,567,985
276,289,^57
251,740,721
401,555,581
542,708,405
524,058,650
. . ........
1 , , . .....
,
..
...
'
..
I
. . i
J.
..i
I
.|
,
',
910,649,768 ,
.
, .' -93,600,791
896,816,359 '
5 , 9 1 5 . 3 2 3 , 1 0 5 I 36,103,146 741 [ 94**, 0 4 8 , 6 8 2 '
149.138 100
34,032,078,974 ,
28,320,759
46,333,735
40,336,862
35,887,775
32,709,794
53,982,682
61,603,682
59,214,569
,.|
- 3 bf
i
42,613,100
32,579,700
40,403,250
50,661,000
51,178,300
972,695,549
2,301,227,555
1,370,940,466
2,899,400,892
2,241,661,167
194,975 582
1,277,756*492
332,033,017
478,592,855
435,595,288
414,139,990
I ,790,376,494
9,473,153,397
1,976,291,277
2,894,903,4^8
2,469,120,101
1,826,637,819
1,687,008,423
8,874,514,85V
1,851,282,095
2,713,179,195
2,365,445,2^
1,701,387,036
44,452,575
252,219,321
55,921,822
87,561,843
52,777,808
67,270,940
6,838,952,048
1,608,404,227
902,777,903
1,719,247,821
1,776,027,508
5,395,701,294
818,626,411
329,030,982
216,317,610
339,384,757
294,106,733
584,763,388
§,023,891,037
1,280,115,561
688,490,837
1,381,039,516
1,482,879,245
4,816,247,969
5,722,348,7^5
1,211,305,680
637,616,750
1,297,563,161
1,385,457,562
4,584,970,22^
147,750,854
33,604,278
23,525,513
39,042,050
50,393,678
4! ,971,189,099
5,915,323,105
2 182,193 ^22
10,734f654,296
.......
St. Louis,. ,
Minneapolis , ..
Kansas City ,
Dallas... . . . .
San Francisco. . .
Total.
231,561 ,340 I 13,082,9^1
13,864,750
297,059 ,097
352,950 ,157 ! 14,681,788
398,463 224 j '15,558,377
16,442,236
328,619 468
17,711,937
302,162 ,452
474,443 160 ! 18,904,897
20,080,527
624,392 613 i
21,197,452
604,470 670
839,770 663 ! 22 721,687
36,103,146,741 , 947.048,682 I 149,138,300 i
r1 Revised.
Current earnings less current expenses, plus or minus adjustment for profit and loss
items
^
2 The $972,695,549 transferred to surplus was reduced by direct charges of $500,000
DO for charge-off on Bank premises (1927), $139,299,557 for contributions to capital of the
2,188,8^3 , 34,032,078,974 I
118,174,867
--3.657
3 . 6 5 7 ii ^972,695,
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 $844,023,350, on Dec. 31, 1973.
NOTE.—Details may not add to totals because of rounding.
9. VOLUME OF OPERATIONS • IN PRINCIPAL DEPARTMENTS OF
FEDERAL RESERVE BANKS, 19?§-73
(Number In thousands; amounts In thousands of dollars)
Operation
1973
NUMBER OF PIECES
HANDLED *
Loans.........................
Currency received and counted . , .
Currency verified and destroyed. . .
Coin received and c o u n t e d . . . . . . .
Checks handled:
•'U.S. Oovt. c h e c k s . . . . . . . . . . . . .
Postal money orders.
All other f. . ...................... .
Collection items handled:
U.S.Govt. coupons paid
AH other.........,................ .
Issues, redemptions, and exchanges
of U.S. Govt. securities
Transfers, of funds,,.,,.,.
Food stamps r e d e e m e d . . . . . . . . . .
34
6,711,253
2,6t3»?65
15,877,724
1972
1971
1970
6
.. 6,453,899
2,246,740
14,716,546
7
6,270,732
2,446,244
13,736,840
6,029-, 373
• 2,174,444
13,402,165
617,408
177,257
8.,451,176
628,602
181,054
. 7,704,742
622,144
183,574
• 7,158,441
10,443
25,764
11,911
.25,720
13,523
26,928
14,210
• 27,364
278,048
11,633
2,038,092
258,947
. .9,494
1,849,647
258,152
8,148
l t 842 f 026
276,172
7,363
1,277,007
649,424
168,116
9,976,962
r
13
AMOUNTS HANDLED
245,074,209
129,578,588
85,254,860
Loans,...,..,»..,,,.
61,620,130
56,837,822 . . 51,535,480 • 48,783,022 ••• 45,718,990
Currency received and counted...,
Currency verified and destroyed...
14,460,303
12,092,137
12,068,786
13,261,100
1,533,972
Coin recei¥ed and counted
2,462,923
1,755,727
1,602,994
Checks handled: . .
208,858,062
263,439,104
235,163,523
211,996,633
U.S. Govt. checks.
4,736,564
Postal money o r d e r s . . . . . . . . . . .
4,814,561
4,806,963
4,718,577
All other.a,.. ,.,..,..
3,845,234,479 3,317-, 873-,664 3,824,868,058 •3,330,673,690
Collection items handled:
5,702,894
5,825,599
6,239,761:
U.S. Govt, coupons paid
6,322,475:
All other..,,..
23,O13,3O9-1 • 24,770,140 • 20,879,11V • 21,022,409
Issues, redemptions, and exchanges
of U.S. Govt, securities. . . . . . . . 2,617,455,702' 2,052,735,038 1,951,122,313 1,433,11.8,703
23,479,745,788 7.916,041,090 14,858,172,824 12.332,001,3£6
Transfers of funds
4,030,228
3 , ^25 , 38 *
3.116,904
1 .840 ,10'J
Food stamps redeemed
«• Revised".
* Packaged Items handled as a single item are counted as one piece,
Exclusive of checks drawn on the F.R. Banks. "
2
10. NUMBER AND SALARIES OF OFFICERS AND EMPLOYEES OF
' FEDERAL RESERVE BANKS, DECEMBER 31, 1973
Federal Reserve
Bank (including
branches)
President
Annual
• salary
Ot! er officers
Number
Annual
salaries
FJ npioyees
Number-
l
Annual
salaries
$ 1,089,939 1,729 $ 15,096,760
53,818,013
3,-603,200 5,173
11,303,541
968,956 1,352
13,260,322
920,250 1,596
18,455,085
1,502,400 2,278
19,466,431
1,246,150 ••2,588
Total
Number
Annual
salaries
1,773 $ 16,244,449
57,511,213
5,281
1,432
12,323,497
$ 57,750
90,000
51,000
107
39
Cleveland.........
Richmond..«.,.,.
Atlanta,,...-.....-. •
55,750
50,000
55,750
38
61
55
Chicago........ .
St. Louis. . • . . . . . • ; .
Minneapolis,.....
73,000
61,600
53;600
59
48
29
l f 498 f 225 3,538
1,164,9-50 1,642
801,800
972
29,637,667
12,271,789
8,312,225
Kansas City........ • 61,-600
54,000
Dallas
70,000
San Francisco.....
48
41
1,128,425 1,595
982,129 1,372
1,417,350 2,141
12,302,123 • T;644 • • 13,492,148
11,595,299
10,559,170 1,414
19,350,€05
17,863,255 2,201
Boston. . . . . - . . • . . . ,
New Y o r k . , » , , . . .
Philadelphia......
Total
1
$734,350
43
59
627
Includes 1,103 part-time employees.
286
SI 6.323.774 26.016 S22\34*,381
14,236,322
1,635
20,007,485
2,340
2,644 - 20,768,331
3,598
1,691
1,002
31,208,892
•• 11,498,339
9,167,625
26,655 5239,404.205
11. FEDERAL RESERVE BANK INTEREST MATES,
DECEMBER 31, 1973
(Per cent per annum)
Loans to m e m b e r banksFederal Reserve
Bank
L o a n s t o all o t h e r s
u n d e r l a s t p a r . S e c , 13
3
Boston....,,,.,,..
New Y o r k . . . . . . . . .
Philadelphia........
Cleveland
.........
Richmond..,.,.,,.
Atlanta.....,...»,.
4 9 1 <,
i 9] I
Chicago, . . . . . . . . . .
St. L o u i s . . . . . . . . . . .
Minneapolis........
Kansas C i t y . . . . . . . .
Dallas . . . . . . . . . . . .
San Francisco ..
1
Discounts of eligible paper and advances secured b} such paper 01* 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 felly guaranteed as to principal and interest by, the U.S. Govt. or any
agency
thereof. Maximum maturity: 90 days.
4
As of Aug. 14, 1973 (except for Boston, Aug. 23; and Atlanta, Aug. 16), a rate of 114, per cent was
approved on advances to nonmember banks, to be applicable in special circumstances resulting from
implementation of changes in Regulation J, which became effective on Nov. 9, 1972,
287
12. MEMBER BANK RESEE¥E REQUIREMENTS
' Per cent of deposits1
fhrough Jul v 13, 1966
Net demand deposit;
Effective date l
1917—June
1936—Aug.
1937—Mar.
Mav
1938—Apr.
1941—Nov.
1942—Aug.
Sept.
. Oct.
1948—Feb.
June
Sept.
1949—May
June
Aug.
Aug.
Aug.
Aug.
Sept.
1951—Jan.
Jan.
1953—July
1954—June
July
195g_Feb.
Mar.
Apr.
Apr.
i960—Sept.
Nov.
Bee.
1962—July
Oct.
('entral reserve
vity banks
Reserve city
banks
Country
banks
13
19ȣ
10
15
17 y2
20
nil
:
21
!
16
1
!
16
1
20
...
14
:
3
27
1
SI
24, 16
=
5, 1
;
30, Juiv 1 . . . .
1
11, 16
18
2.5
1
11, 16
25 Feb. 1
9, I
24, 16
29 Aim, 1 •
27 Mar. 1 .. :: *
20, Apr. 1 . . . . . . : . . •
17
24
!
1
24
1
28
2> Nov. 1 .
26
22?^
26
24
22
20
22
24
26
24
3
7
¥
14
12
14
17 j-4
20
5
6
.........
'••"22"""
21
20
231.;
16
15
14
13
12
19 1 " 2
is"2
19
20
22
23
24
22
18
5
6
5
12
11 U
11
17 ! 4
17"*
18l-2
6
13
14
13
19
20
t9K
19"
18
I'ime deposits
(ail classes'
of banks)
16H
/
12
4
July 14, 1966, through Nov. 8, 1972
(Deposit intervals are in millions of dollars)
Time deposits 4
(all classes of banks)
Net demand
deposits 2
Effective date *
Reserve
city banks
0-5
Over
5
Country
banks
0-5
Over
5
12
121-2
13
1966—July 14»21.
Sept. 8, 15.
1967—Mar. 2.
Mar. 16,
1968—Jan, 11, 18,
1969—Apr. 1 7 . , , . ,
1970—Oct. 1 . , . . .
For notes see opposite page.
288
Other
time
Savings
0-5
Over
5
2.—CONTINUED
Beginning Nov. 9, H?2
{Deposit intervals are in millions of dollars)
N e t d e m a n d cle£ o s i t S
r
Time deposits 4
-'
Other time
Effective d a t e
0
1972—Nov. 9 . . . . . . .
,
.....
2
2-10
8
iu
X
it)1 ?
1(11-3
10100
12
Nov 16
1973—Jul>
19. . . . .
........
I n effect D e c . 3 1 , 1 9 7 3 . . . . . .
1004<M)
Savings
Over
0--5 1 5 '
„ 3
•16'
J1
ni:
J "> i .,
Over
4110
IK
18
5 1
5 S
s
3
Legal requirements—Dec. 31, 1973:
Minimum Maximum
Net demand deposits:
Reserve city b a n k s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other banks, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time d e p o s i t s . . . . , . . » . . , , . , . , . .
.. ..,,.,.. ..... , ..,,.,, . .
10
7
3
22
14
10
1
When two dates are shown, the first applies to the ehatigc at central reserve or reserve city banks
and the second to the change at country banks.
'- (a) 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).
(b) 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 2J4 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.
(c) When requirement schedules are graduated, each deposit interval applies to that part of the
deposits of each bank.
(d) Since Oct. 16, 1969, member banks have been required under Regulation M to maintain reserves against foreign branch deposits computed on the basis of net balances due from domestic offices
to their foreign branches above a specified base and against foreign branch loans to U.S. residents,
which until June 21, 1973, were also maintained above a specified base.- The reserve-free base relating
to net balances due from domestic banks to foreign branches is being reduced gradually beginning
July 5, !973» and will be eliminated by Apr. 1974, Loans aggregating $100,000 or less to any U.S. resident are excluded from computations, as are total loans of a bank to U.S. residents if not exceeding $1
million. The applicable reserve percentage, originally 10 per cent, was increased to 20 per cent on Jan. 7,
1971, and effective June 21, 1973, was reduced to 8 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. The reserve-free base related to this type of borrowings is being reduced gradually and will be
eliminated by Apr. 1974. For details, see Regulations D and M as described in the Record of Policy
Actions of the Board of Governors, on pp. 85, 86, and 91 of this REPORT and in previous ANNUAL
REPORTS.
3
Authority of the Board of Governors to classify or reclassify cities as central reserve cities was
terminated effective July 28, 1962.
4
Effective Jan. 5, 1967, time deposits such as Christmas and vacation club accounts became subject
to the same requirements as savings deposits.
For other notes, see 2(b), 2(c), and 2(d) above.
s
See columns above for earliest effective date of this rate.
e Effective Nov. 9, 1972, a new criterion was adopted to designate reserve cities, and on the same
date requirements for reserves against net demand deposits of member banks were restructured to
provide that each member bank will maintain reserves related to the size'of its net demand deposits.
The new reserve city designations are as follows; A bank having net demand deposits of more than
$400 million is considered to have the character of business of a reserve-city bank, and the presence of
the head office of such a bank constitutes designation of that place as a reserve city. Cities in which
there are F.R. Banks or branches are also reserve cities. Any banks,. wherever located, having net demand deposits of $400 million or less are considered to have the character of business of banks outside
of reserve cities and are permitted to maintain reserves at ratios set for banks not in reserve cities.
7
Beginning June 21, 1973, member banks, except as noted below, became subject to a marginal
reserve requirement against increases in the aggregate of (a) outstanding time deposits of $100,000 or
more, (b) outstanding funds obtained by the bank through issuance by a bank's affiliate of obligations
subject to the existing reserve requirements on time deposits, and (c) funds from, sales of finance bills.
For the period June 21 through Aug. 29, 1973, (a) Included only-single^maturity time deposits, The requirement applies to balances above a specified base, but it is not applicable to banks that have obligations of these types aggregating less than $10 million. On Dec. 31, 1973, the requirement was 8 per cent.
Previous requirements have been: 8 per cent for (a) and (b) from June 21 through Oct. 3, 1.973, and for
(c) from July 12 through Oct. 3, 1973; 11 per cent from Oct. 4 through Dec, 26, 1973; and 8 per cent
beginning Dec. 27, 1973, For details, see Record of Policy Actions'of the Board of Governors on
pp, 85, 94, 98, 102, 112, and
113 of this REPORT.
8
The 16M per cent requirement applied for 1 week, only to former reserve city banks. For other
banks, the 13 per cent requirement was continued in this deposit Interval,
289
13. MAXIMUM INTEREST RATES PAYABLE 'ON TIME AND
SAYINGS DEPOSITS
(Per cent per annum)
1933 - Jul> 19, 1966
fype ot" deposit
Nov. 1,
1933
Savings deposits:
12 months or more
Less than 12 months. . ..
Postal saYings deposits: l
12-months or more
\
Less than 12 months.. . .
Other time deposits: 2
12-months or more
|
6-12 months.
90 days to 6 m o n t h s . . . .
Less than- 9§ d a y s . . . . . .
(30-89 days)
\
3
Feb. 1, Jan. 1, J a n . 1, J a n . 1, July 17, N o v . 24, Dec. 6,
1964
1957
1962
1963
1965
1935
1936
j
3
2^2
2 l-o
3
l
3
2
3
3
2 l '>
2l^
••'>
21->
2
l
i
\
4
332
3L2
f
\
4
3'
4
31 2
f
4
3
3
•;'>
4
2
;,
2
2*2
T
I
\
4
4
\
4
4
4
4,1 2
1
4
5 s (>
1
j
July 20, 1966—June 30, 1973
Effective date
Type of deposit
July 20,
1966
Savings d e p o s i t s . . .2. . . . . . .
Other time deposits:' 8
Multiple maturity:
30-89 days....
90 days to'' I year.,,
1 year to 2 years
2 years or m o r e . . . .
Single-maturity;
Less than $100,000:
30 days to 1 year. ..
1 year to 2 years
2 years or m o r e . . . .
$100,000 or more:
' 30-59'days.,.'..
60-89 days....
90-179 days.,
180 days' fo"l year..
1 year or more
532
Beginning July 1, 1973
Effective date
Type of deposit
Savings -deposits-.,
Other time deposits (multiple- and singlematurity) :
Less than-$100,000:
30-89 days.....
90 days to 1l year
1- year-to 2 /% years.
2 §4 years or more
4 years or more in minimum denomination
•of $1,000.....
$100,000 or more.
,
July 1,
1973
Nov. 1»
1973
5
5
5
5
•
6
6) 2
1
Closing date for the Postal Savings System was Mar. 28, 1966.
- \'ov exceptions with respect to foreign time deposits, see ANM AI. RI.POKIS Tor 1^62. p. !29; 19b5,
p. 233;aud>196H» p. 69.
For additional notes see opposite page.
290
14. MARGIN REQUIREMENTS
(Per cent of market value)
Foi credit extended under Regulations T {brokers and dealers),
U (banks), and G (others tiiaii brokers, dealers, or banks)
Period
On margin stocks
Beginning
date
1937—Nov.
Ending
dak
i
1945—Feb.
On convertible bonds
On short sales
50
4
50
75
100
75
50
50
75
100
75
50
19
3
22
15
75
50
60
70
75
50
60
70
1958—Jan. 16
Aug. 5
Oct. 16
Aug. 4
Oct. 15
I960—July 27
50
70
90
50
70
90
I960—July 28
1962—July 10
1963—Nov. 6
1962—July 9
1963—Nov. 5
1968—Mar. 10
70
50
70
70
50
70
1968—Mar. II
June 8
1970—May
6
1971—Dec. 6
1972-^Nov. 24
June
1970—May
1971—Dec.
1972—Nov.
1974—Jan.
1945--Feb. 5
July
5
1946—Jan. 21
1947—Feb. 1
1949_Mar. 30
July 4
1946—Jan. 20
1947—Jan. 31
1949—Mar. 29
1951—Jan. 16
1951—Jan. 17
1953—Feb. 20
1955—Jan.
4
Apr. 23
1953—Feb.
1955—Jan,
Apr.
1958—Jan.
7
5
3
22
2
Effective Jan. 3, 1974
80
65
55
65
50
60
50
50
50
70
80
65
55
65
50
NOIL,—Regulations G, T, and U, pi escribed in accordance with the Securities Exchange Act of 1934,
limit the amount of' credit to puichase and carry margin stocks that may be extended on securities
as collateral by prescribing a maximum loan value, which is a specified percentage of the market value
of the collateral at the time the credit is extended; margin requirements are the difference between the
market value (100 per cent) and the maximum loan value. The term margin stocks is defined in the
corresponding regulation.
Regulation G and special margin requirements for bonds convertible into stocks were adopted by
the Board of Governors effective Mar. 11, 1968,
For earlier data, see Banking and Monetary Statistics, 1943, Table 145, p. 504.
Notes to Table 13 on opposite page
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
Maximum rates on single-maturity time deposits in denominations of $100,000 or more have been
suspended. Rates that were effective Jan, 21, 1970, and the dates when they were suspended are:
30-59 days
6}£ per cent
June 24, 1970
60-89 days
6M per cent
90-179 days
6% per cent'
May 16, 1973
180 days to 1 year
7 per cent •
1 year or more
7)4 per cent
Rates on multiple-maturity time deposits in denominations of $100,000 or more were suspended
July
16, 1973, when the distinction between single- and multiple-maturity deposits was eliminated.
5
Between July 1 and Oct. 31, 1973, there was no ceiling for 4-year .certificates with minimum denomination of $1,000. The amount of such certificates that a bank could issue was limited to 5 per cent of its
total time and savings deposits. Sales in excess of that amount were subject to the 6 Yz per cent ceiling
that applies to time deposits maturing in 2)4, years or more,
Effective Nov. 1, 1973, a ceiling rate of 7J4 per cent was imposed on certificates maturing in 4 years
or more with minimum denomination of $1,000. There is no limitation on. the amount of these certificates
that banks may issue.
291
15. FEES AND EATES UNDER REGULATION ¥ ON LOANS GUAR' ANTEED PURSUANT TO DEFENSE PRODUCTION ACT OF 1950,
DECEMBER 31, 1973
uv; Ayene> b\ Hrunwinu Institution on Guaranteed Portion of Loan
Fees Pavabie to
Percent.i.->e )1 i
70 or less...... .
75....
80,
8 5 . . . . . . . . . . . . . . . . . .... .
90
95...
Over 95,.
......
(iuar;imoe ee
' peivent.igt of
merest puv ibie
by borrower)
Percentage of
any commitment
fee charged
borrower
10
15
20
25
30
35
10
15
20
25
30
35
40-50
40-50
M a x i m u m Rates Financing Institution M a y Charge Borrower
Interest r a t e . . . . . . . . . . . .
Commitment rate. . . . . . .
7)J 2 per cent per annum l
, 2 per cent per annum
1
Except that the agency guaranteeing a particular loan may from time to time prescribe a higher rate
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.'
6. PRINCIPAL ASSETS AND LIABILITIES, AND NUMBER OF COMMERCIAL AND MUTUAL SAYINGS BANKS,
BY CLASS OF BANK, DECEMBER 31, 1973 AND 1972
('Asset a n d liability i t e m s s h o w n in millions of dollars!
Commercial banks
All
banks
Item
Mutual savings banks
Member banks
Nonniember banks
Total
Total
Insuied
Noninsured
j
Total
National
l !
Total
State
Insured
Noninsured
December 31, 1973
^oans a n d investments, t o t a l , . , , . ,
Loans
.
. . . , , . .
. . . ,.
Investments
....... .
U . S . Treasury securities . . . .
O t h e r securities . . .
. , .,
Tasti a s s e t s . . . .
. .
. . . . . .
786,628
5^2,546
214,083
65,271
148,812
120,251
684,306
495 454
188,851
58,277
130,574
118,276
528,476
391,384
137,092
41,494
95,598
100,098
398, 236
293.
104, 68*1
30, 962
"71 718
70! 711
Deposits, total
Interbank
,,
Other demand.. ,
Other t i m e . . . . . . . .
Total capital a c c o u n t s . .
779,513
41,680
275,401
462.431
65 719
682,353
41,680
274,51.1
366 162
58 127
527,188
38,924
211,905
276,359
44.741
?95,
23.
159,
213
33,
14 652
14.171
5.735
"Jumber ot b a n k s
767
376
189
202
125
4, 650
'
;
j
'
,
130»240
97,828
32,411
10,531
21,880
2l), 387
155,830
104,070
51,759
16,783
34,976
18,1.78
149,638
99,143
50,495
16,467
34,027
16,167
6 192
4,927
1.265
316
131,421
15,548
52,716
63,157
11,617
155,165
2,756
62,606
89,803
13,386
150,170
1,957
60,636
87,576
12,862
4,996
798
1 ,970
1,076
8,436
2 010
102.321
77 092
25,231
6,994
18,238
1,975
88,900
67,119
21,871
5,971
15,900
1,844
13,333
9,0 73
3,360
1 022
2.338
131
^7,159
84,883
12,276
96,269
7,59!
* 881 *
84 001
6.512
12,268
1 078
207
321
160
December 31, 1972
_oans a n d investments, t o t a l .
Loans
.........
. . . . .
Investments... .....
...
U . S . Treasur} securities.
Other secunties.. . . . . .
Hash a s s e t s . . . . . . . . . . . . . .
3eposits t o t a l . . . .
........
Interbank
Other demand . . . . .
O t h e r time . . . .
Fotal capital a c c o u n t s
..."
d u m b e r of banks. . . . . . . . . . . . . . . . . I
L\Utides one national bank
1
696,208
485.842
210,366
74,616
135,750
114,772
590,367
415,255
184,112
67,028
117,084
113,128
466,169
329,930
136,239
48,716
87,524
96,566
350,743
247,041
103.702
37,185
66,516
67.390
15,426
82,8©
32,538
11,530
21,008
29,176
133,198
85,325
47,873
18,313
29,559
16,562
128,333
81 s 59s;
46,738
17,964
28,774
14,767
865
731
134
349
785
794
96,841
7i»,S87
26,254
7,588
18,666
1,644
84,177
61,540
22,637
6.386
16,251
1,519
12,663
9.U47
3 617
1.202
2 415
124
708,815
36,314
265,261
407,240
59,618
616,596
36,314
264,466
315,816
52,658
482,505
34,055
207,966
240,484
41 228
359,319
20,525
153.975
184,819
30,342
123,186
13,529
53,992
55,665
10.886
134,091
2,259
56,499
75,332
11 429
130,316
1,865
54,752
73,690
10,938
3 775
394
1 ,747
1,634
491
92,219
80,565
11,653
795
91,423
6,960
790
79,775
5,963
"5
11.649
997
14.412
13/) 27
4,612
1 092
8,223
8 017
206
485
325
160
5,704
in the Virgin Islands and one in Puerto Rico, which are included in Table 18,
NOTE,—All banks in the United States.
17. MEMBER BANK RESERVES, FEDERAL RESERVE BANK CREDIT,
AND'' -RELATED" ITEMS—END OF YEAR 1918-73 AND
END OF MONTH 1973
(In millions of dollars)
Factors supplying reserve funds
Period
F.R. Bank credit outstanding
_ _
___
.
U.S. Govt. securities l i
!
Total
1918.
1919.
1920;
1921.
1922.
1923.
1924.
1925.
1926.
1927.
1928.
1929.
Bought
outright
Held
under
Loans i Float
All
other
I
chase
Other
F.R.
assets
4
Total
1,766
2,215
199
201
294
575
• -287 • - -287
2,687
1,144
119
40
78
27
'52
262
146
273
355
390
2,498
3,292
3,355
1,563
1,405
1,238
1,302
63
45
63
24
34
378
. 384
393
500
405
21
20
14
.. 15
372
378
41
137
234
436
134
234
436
80
618
723
320
' ' '540 - ' ' 536
375
315
367
511
312
560
197
488
' '729
'686
817
775
' ' 617
228
643
637
582
1,056
632
6
8
239
300
239
300
Gold
stock
Spe- Treasury
cial
Draw- curing
rency
Rights outcertif. standacct.
ing
2,873
2,707
1,795
1,707
2,639
3,373
3,642
3,957
4,212
1,709
1,842
1,958
2,009
2,025
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
4,306
4,173
4,226
4,036
8,238
2,027
2,035
2,204
2,303
2,511
1930.
1931.
1932.
1933..
1934.
1,855
1,851
2,437 . .2,435
2,430
2,430
251
638
235
98
7
5
21
1,373
1,853
2,145
2f688
2,463
1935.
1936.
1937.
1938.
1939.
2,430
2,431
2,430 . . 2,430
2,564
2,564
2 f 564
2,564
2,484
2,484
5
3
10
4
7
12
3919
17
91
38
28
19
16
11
2,486
2,500
2,612
2,601
2,593
10.125
11-, 258
12,76©
14,512
17,644
2,476
2,532
2,637
2.79S
2,963
1940.
1941,
1942.
1943,
1944.
2,184
"2,184
2,254
2,254
6,189
6,189
11,543. • 11,543
18,846 18,346
3
3
6
5
80
80
94
471
681
815
2,274
2,361
6,679
t2,239
19,745
21,995
22,737
22,726
21,938
20,619
3,087
3,247
3,648
4,094
4,131
1945.
1947.
1948.
1949.
24,262 24,262
23-,-350 •23,350
22,559 22,559
23,333 23,333
18,885 18,885
249
163
85
223
78
578
580
535
541
534
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
4,589
4,598
1950.
1951.
1952.
1953.
1954.
20,778 20,725
23,801 23'» 605
24,697 24,034
25v916 •- 25,318
24,932 24,88S
67
If
156
28
143
1 ,368
1 ,184
967
808
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 24,391
24,915 • 24,610
24,238 23,719
26,347 26,252
26,648 26,607
108
50
55
64
458
1 ,585
1 ,665
1 ,424
1 f 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 26,984
28,881 28,722
30,820 30.47S
33,593 " 33,582
37,044 36,506
33
1,847
2 ,300
2 ,903
2 ,600
74
51
29,338
31,362
33,871
36,418
39,930
17,767
1,30
16,889
15,978
15,513
15,388
5,398
5,585
5,567
5,578
5,405
1946. •
For notes see last two pages of table.
294
38
63
186
'935
2 ,606
no
162
94
?.—CONTINUED
Factors absorbing reserve funds
Currency
In
circulation
Treasury
cash
hold-7
ings
Deposits, other
than member bank
reserves,
with F.R. Banks
Other
F.R.
accounts 4
31
96
73
25
28
118
203
t, 636
I ,890
18
298
38
51
12
3
4
19
285
276
275
253
1 ,781
1,753
1 ,934
1,898
2,220
272
293
301
348
393
175
Other *
Excess 9
1,654
99
14
59
2,212
2,194 . . . . . . . .
2,487
2,389
2,355
1.884
2,161
2,256
2,250
2,424
2,430
2,428
-44
-56
63
_4|
-73
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
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
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
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
15,5^0
1,458
562
1,499
1,202
1,018
565
363
455
493
441
714
746
111
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
402
554
925
322
426
901
19,005
19,059
19,034
18,504
18,174
18,903
19,089
19,091
18,574
18,619
102
~30
-57
-70
-135
18,988
20,114
20,071
20,677
21,663
637
96
645
471
574
4,817
4,808
4,716
4,686
4,578
203
201
208
202
216
16
17
18
21
29
8
46
5
6
6
15
26
19
20
2!
19
21
21
24
4,603
5,360
5,388
5 519
5,536
211
222
272
284
3,029
19
54
8
3
12!
6
79
19
4
20
22
31
24
128
169
355
360
241
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
226
160
235
242
256
8 732
11,160
15,410
20,449
25,307
2 213
2,215
2,193
2,303
2,375
368
1,133
774
793
1,360
1,204
599
867
799
579
440
586
485
356
394
28,515
28,952
28 868
28,224
27 600
2,287
2,272
I 336
1,325
1 312
977
393
870
1,123
821
862
508
392
6'42
767
27,741
29,206
30,433
30 781
30,509
1,293
1,270
1,270
761
796
668
247
389
346
563
895
526
550
423
490
767
761
683
391
394
441
481
358
504
356
272
345
246
391
694
998
1,122
841
377
422
380
361
612
485
465
597
880
820
217
279
247
171
229
533
^20
393
291
321
941
1,044
1,007
1,065
1,036
32,S69
33 918
35,338
37,692
39,619
Required *
51
68
218
57
96
Currency
and
coin 8
1 ,585
1 ,822
5,325
4,403
4,530
4,757
4,760
775
With
F.R,
Banks
Foreign
288
385
31 158
31'790
31,834
32,193
32,591
Member bank
reserves
Treasury
4,951
5,091
214
225
213
211
Other
F.R.
liabilities
and 4
capital
354
....
... « , . .
17,081
17,387
17,454
17,049
18,086
"jid*
2t544
2,823
3,262
4,099
4,151
For notes see last two pages of table.
295
17. MEMBER BAMK EESERVES, FEDEEAL EBSBRYB BANK CEEDIT,
AND EELATED ITEMS—END OF YEAE 1918^73 AND
END OF MONTH 1973rrrContiuued
(In millions of dollars)
Factors supplying reserve funds
F.R. Bank credit outstanding
U.S. G
Period
Total
I Held
Bought i under
outrepurright
chase
agreements
1965....
1966....
1967....
1968....
1969....
40,768 40,478
44,316 43,655
49,150 48,980
•52t937 •52,937
57,154 "57,154
1970....
1971...,
1972,...
1973....
62,142
70,804
71,230
..80,495
1973—
Jan... 73,394
Feb.. 73,947
Mar.. 75,650
Apr.. 76,785
-May.. -75,368
June,, 76(471
July.. 78,821
Aug.. 77,953
Sept.. 77,900
Oct.. 80,378
79,107
Nov.
Dec... 80.495
;
290
661
170
Other
Loans • Float
j All
F.R.
2
I other s assets
Total
j Special
DrawGold 1 ing
stock I Rights
certif.
Treas-
13,733
13,159
it,982
10 ,-367
10,367
5,575
6,317
6,784
6,795
6,852
7,149
7,710
currency
stand-
137 2,248
173 2,495
141 2,576
186 •• 3,443
183 3,440
43,340
47,177
52,031
• 58
56,624
64 2,743 63,584
335
39
4,261
4,343
3 f 974
3,099
57
261
106
.68
2,339
2,795
1,845
1,195
2,718
2Ȥ48
2,170
1,605
2,511
141 1,339 78,573 10,410
400 8,343
735 79,274 10,410
400 8,378
233
915 80,623 10,410
400 8,420
165
400 8,455
136 1,128 80,960 10,410
'83
809 ' 80,201 10,410 ' 400 8,498
400 8,531
66 1,135 81,489 10,410
400 8,546
132 1,307 84,656 10,410
400 8.5S5
750 S3,234 10,410
84
400 8,614
974 83,090 10,410
145
400 8.649
1,265 86.602 11,5^7
84.!3 i U . 567
400
71
86,072
400 8! 7 1 6
i
i.567
68
62,142
69,481 *"i*323
111
71,119
.80,395
100
1,981
1,253
950
72,444
73»2S6
661
1,269
74,381
75,895
890
•75,368
76,471
77,750 * *!*07i
76,984
969
76,469
1,431
78.606 1 _ 772
"8.2'13
'404
100
so. 3;*
1,310
1,564
2,048
1,716
1,223
1,769
2,226
2t842
1,560
*> 107
i1.25S
, s '!5
2, 1 24
187
193
164
•• •
1,123
1,068
1,260
1,152
67,918
76,515
78,551
,86».072
10,732
10,132
10,410
11,567
400
400
400 8 , 3 1 3
.400. .8,716
1
U.S. (iovt. securities include Kdur.,1' .iiicnc- o!"*liuati<ms held uneer iepun.hase nureement beginning
Dec. 1, 1966, and Federal agency Issues bought outright beginning Sept. 29, 1971.
2
. . - Begianing with-1960 .reflects a minor change in .concept;-see -Feb.-1961 Federal Reserve Bulletin,
P. 164-
*4 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."
'' ^Before
Jan. 30, 1934, included gold held'by'F.R, Banks and In'circulation,'
8
Includes currency and coin—other than gold—issued* directly by the Treasury, The largest components
are fractional and dollar coins. For details see "Money in Circulation** in the Treasury Bulletin.
7
Presently consists of the coin and paper currency held by the Treasury as well as Treasury gold
holdings in excess of the gold that serves as security against gold certificates.
296
17.—CONTINUED
Fin; tors i bsorbing tescrve tu ids
Currencv
in
Cll-
cula-
Treasury
cash
holdings "
tton
Deposits, other
than member bank
reserves,
will F.R. Bi nks
accounts
Foreign
668
416
1,113
703
355
588
653
747
807
ury
1,176
1,344
695
596
1,312
150
174
135
216
134
57,093
61,068
66,516
72,497
431
460
345
317
1, i 56
2,020
1,855
2,542
148
2<>4
325
251
1,233
64,312
64,696
65,180
66,094
67,161
67,771
68,223
68,376
68,217
69,043
70,296
72,497
372
379
407
415
2,747
2,073
2,881
4,163
3,243
4,039
2,865
310
455
327
328
289
334
280
259
250
426
420
674
633
696
773
692
717
369
323
346
361
342
317
317
848
I ,624
I ,837
1,945
2,542
and
With
F.R.
Banks
Currency
and
quired '* cess '•'•u
18,447
19,779
21 ,(f)2
21,818
?2.O85
4,163
4,310
4,631
4,921
5,187
22,848
24,321
25,905
27,439
28,173
2,131
2,143
2,669
2 U 50
27,788
25,647
27,060
5,423
5,743
6,216
6,781
30,033
-460
32,496
1,035
98
32,044
35,268 -1,360
2,576
2,574
2,648
2,753
2,839
2,783
3,005
3,086
3,021
3,065
3,025
2.60')
26,733
27,l>53
27,713
25,700
24,892
24,817
28,495
28,955
28,240
31,787
28,108
27,060
6,450
s.789
5,858
5,951
6,139
6,226
6.372
6, H7
6,516
6,498
1,364
32,098
31,305
2,416
32,079
1,664
32,271
^448
31,819
-616
32,695 - 1 , 5 4 0
33,554
1,425
33,637
1 ,777
34,216
624
34,777
3,592
129
34,468
35,268 - 1 , 3 6 0
Otltet *
42,056
44,663
47,226
50,961
53,950
760
1
capital *
Treas-
999
840
1,419
" 821
760
798
719
672
1,419
211
-147
-773
- t .35*
.. . ,
. . . . .
.......j
,,....
Member bank
reserves
Other
F.R,
liabilities
Othi r
r.R.
.[
........
i ,(m
1 .M86
(>,405
6.781
Re-
-238
-232
-182
-700
-901
>» Part allowed as reserves Dec. 1, 1959—Nov. 23, I960; all allowed thereafter. From Jan. 1963 to
Sept, 11, 1968, figures are estimated. Beginning Sept. 12, 1968, amount is based on close-of-business
figures for reserve period 2 weeks previous to report date,
» 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-businessfiguresfor
reserve
period 2 weeks previous to report date.
10
Beginning 1969 includes securities loaned—fully secured by U.S. Govt. securities pledged with
F.R.
Banks,
11
Beginning with week ending Nov. 15, 1972, includes $450 mil.
dllion of reserve deficiencies on which
F.R.
are ttuuwcu
allowed to
penalties for
a transition
period ui
in connection
with bank adaptation to
r.Jtv. Banks
Dtiiuvs ttic
MJ waive
waive yciiaiucs
iui a.
iiaiisiuuu pciiuu
tunuctui
/able deficiencies included are
Regulation J as amended, effective Nov. 9, 1972, Beginning 1973, allowabl
(beginning with first statement week of quarter): Ql, $279 million; Q2» $172
NOTE.—-For description of figures and discussion of their significance, see "Member Bank Reserves
and Related Items," Section 10 of Supplement to Banking and. Monetary Statistics, Jaa, 1962.
297
00
18. CHANGES IN NUMBER OF BANKING OFFICES IN THE UNITED STATES DURING 1973*
Commercial hanks (inch stock savings
banks and: nondeposit trust companies;
Nature of
change
Type .of
office
Alt.
banks
Member
!
Mutual
savings
banks
Nonmember
Total
National !
Total
BANKS . . . . . .
...
,.
....
Dec. 3 1 , 1972. .
. . . . . . . . . .
Changes during 1973:
New banks §
Suspensions
»«
»
Consolidations and absorptions;
Banks converted into branches.
Other
Interclass changes:
Nonmember t o National :
St&fe: member
State member to—
:
!
Niitlonal
Nonrnember
National to nonmember
Nonfnsured to—•
Insured
N&tionul
Stiite member
Net change.
13,§28
5,705
4,613
1,092
8,017
206
344
344
-3
116
90
26
216
12
-44
—4
-36
—2
-8
2
-42
8
3
8
-91
— 10
— 10
240
1
1
32
244
....
•25,760
24,414
1,968
93
-80
-7
. . .
Noninsured
325
160
_4
-8
—8
— 28
-21
28
21
9
Changes during 1973;
De novo.. , . . . . . . . . » . . . . . » . . , , .
Bunks converted
Discontin ued
Sail' of : branch
.,,......,
.
-1
Insured
3
8
— 28
-.21
14,172
BRANCHES AND
ADDITIONAL O F F I C E S . Dec. 3 1 , 1972 »
Noninsured
14,413
14,653
Dec. 3 1 , 1973
Insured
State
1,833
• ' 89:
—79:
_7.
;
1
—1
1
48
1
-16
5,737
4*661
1,076
17,778
13,810
3,968
6,591
874
51
—42
-id
214
3
-21
- 5
1,088
54
— 63 :
_4
in
8,229
744
35
— 16
8
206
321
45
1,113
1
126
4
—1
160
242
9
leterclass changes:
Nonmember to—
National,, ...
. .,.,,,
State member
State member t o —
National
Nonmember
, ..
National to —
State member, , , . . .
Nonmember.
...
Facilities reclassified as
branches........ .. . . , , . ,
Other
.
....
Net change
Dec, 3 1 , 1973 *
BANEING
FACILITIES
Dec. 3 1 , 1972 *
,
......
Changes durin.a 1973:
Established . . . . . , , . , . . . . . .
Discontinued
Facilities redasstfied as
b nine lies
Other
.
.........
Net clianue . . . . . . . . . . . .
Dec. 3 1 , 1973
J
!
81
10
io
44
— 90
_44
*»
—2
1,974
_44
-90
->
_44
— 81
— 10
.,
90
......
i
44
|
•j
i
1
1,020
_4
950
i
70
2
816
1
-128i
9
26,251
18,798
14,760
4,038
7,407
46
1.241
251
208
176
164
12
32
-1
1,837
27,743
208
. . . . . .
. . j . . . .
. . . .
i
7
7
— 10
-10
2
-j
4
9
—1
4
-9
__. "^
1
c
-5
-8
_8
203
203
168
156
Includes I national bank (8 branches5 in the Virgin Islands and 1 national bank In Puerto Rico; other banks or branches located in the possessions
are2 excluded.
Exclusive of new banks organized to succeed operating banks,
3
Excludes banking facilities
vo
81
1
3
12
35
i
*
1
Provided at military and othei Government establishments through airangemen ts nude by the Treasury.
Noil.—One noninsured member kink m New York District not shown in
above figures.
19. NUMBER OF PAR'AND NONPAR BANKING OFFICES,
BY FEDERAL RESERVE-DISTRICT, DECEMBER 31, 1973
Par
Nonpar
(nonmember)
Total
Total
F.R. district
Member
Nonraember
Branches
Branches
Branches
Branchesl
Branches
Banksj & offices Banks; & offices Banks & offices Banks & offices! Banks & offices
DISTEICT
Boston,......
383
480
New Y o r k . , . .
Philadelphia, . • 421
i»883
4,121
1,935
383
480
421
1,883
4,121
1,935
212
333
281
t» 305
171
147
140
676
525
630
769
. .761
1,831
2,323
3,f "
2,078
769
753
1,787
2,323
2*01.7
456
379
607
1, 881' ' ' 313
374
2 , 376
1, 238 1,180
442
1,431
779
8
44
i
61
2,76:
1,16*
33'
460
298
5,483
936
431.
501
1, 783
587
174
1,708
929
•S85
980
580
163
49
15
816
642
143
261 1,324
.728
148.
279
4 , 459
199
150
1 074
46
16
26,594
5.737
7.57<)
147
Cleveland...'..
Richmond
Atlanta,,,,,..
2.644
Chicago.
St. L o u i s . . . . . 1,409
Minneapolis, . i»3E6
2,763 2,644
1,182 1,360
337 13S6
Kansas City.-. 2-, 140
D a l l a s . . . . . . . . 1,416
422
San Francisco'.
5,483
460 2,140
314
1,370
422
26,68'
Total
1,
3, 596
19.015
»,178
20. NUMBER OF PAR AND NONPAR- BANKING OFFICES,
BY-STATE AND OTHER AREA,-DECEMBER 31, 1973 "
Par
rot ti
State, or
other area
Branches
Banks! & offices
Member
Nonpar
(nonmember i
Nonmember
Branches
Branches
Branches
Branches
?anks & offices Banks & offices Banks & offices Banks & offices
;
STATE
Alabama...
Alaska . . . . . .
Arizona....
287
10
15
Arkansas.
California. ..
Colorado..,
Connecticut.
Delaware..,
District' of
Columbia,
Florida
• 255
174
Georgia
Hawaii....,
Idaho,».,,.
Illinois.
Indiana
Iowa
Kansas.
Kentucky,..
Louisiana..,
Maine.
436
8
24
1,167
409
668
612
342
245
44
255
68
18
15
640
300
369
73
405
227
3,393
42
518
118
287
10
15
206
174
255
6S
18
117
67
558
436
1.47
8
179
24
175 1,167
777
409
369
668
89
612
424
342
490
167
260
44
15
640
369
73
405
212
in
264
65
176
5
105
4
11
123
109
112
42
13
12S
79
442
18
202
114
3,393
83
65
143
26
5
280
133
2,951
24
316
4
117
67
13
108
42
518
118
558
147
179
175
777
369
89
424
413
260
284
72
2
10
491
178
148
196
91
61
23
8l
12
2
9
356
55
359
10
154
103
470
• 109
49
• 247
254
15!
364
6
14
676
231
52§
416
251
106
21
199
137
25
72
307
• 260
40
177
159
1(19
49
15
78
77
§.—CONTINUED
JJ a r
T otal
State, or
other area
Total
Nonpar
(nonmember^
Member
Nonmember
Branches
| Branches
Branches
Brandies
Branches
Banks & offices Banks & offices Batiks & offices Banks & offices Banks & offices
STATE—
Cont
11.2
643
852
1
|
256
2201...... i........
264
11
248
130
3
22
....
24
449
203
12
56
96
46
92
206
226
48
171
98
13!
5
80
89
50
75
30
14
221
73
299
1,251
1,069
2,881
154
41
230
2,705
67
32
69
182
68
176
1,445
89
1,445
28
727
61
74
74
2,059
207
16
207
47
329
209
8
280
5
16
2,059
169
498
448
46
419
114
122
169
239
38
139
11
58
248
33
119
587 . . . . . .
93 . . . . . . | . . . . . . . .
83
548
159
108
320
658
108 i ,253
53
171
38
109
1,045
271
87
638
210
15
616
309
2
71
547
108
658
108
171
109
356
76
373
29
123
43
793
530
5
97
1
59
99
238
663
37
16
114
58
86
455
16
191
32
285
79
48
66
252
108
10
212
1
7
19
!
13
1881
Maryland.....
Massachusetts.
Michigan.
Minnesota....
Mississippi,. , .
Missouri
Montana.....
Nebraska.....
NeYada.......
New Hampshire . . . . . . .
112
153
119
739
181
683
149
444
8
643
852
1,400
24
449
203
12
56
96
153
339
739
181
683
149
444
8
80
89
New Jersey. . .
New M e x i c o . .
New York . . .
North
Carolina....
North
Dakota....
Ohio....
Oklahoma... .
Dregon.......
Pennsylvania..
Rhode Island..
221
73
299
1,251
177
2,881
89
169
4<)g
448
46
419
16
South
Carolina....
South D a k o t a .
Tennessee....
Texas
Utah.....
Vermont
Virginia......
Washington.. .
West Virginia.
Wisconsin....
Wyoming.....
91
159
320
1,265
53
38
271
87
210
616
71
1,525
91
400
1,400
177
1,525
91
400
1,045
638
15
309
2
24
60
82
590
16
22
157
29
124
161
55
387
632
1,136
13
201
71
9
34
K3
109
1,277
58
281
1,472
66
61
133
513
133
512
51
313
15
1
j
718
si
1
12'
OTHER
AEEA
American
Samoa 2
Guam ^ . . . . . .
Puerto Rico ' .
Virgin
Islands 3 . . . .
1
14
1
7
207
'" "i
14
1
7
207
8
30
8
30
I
7
1
1
1
2
Includes 18 New York City branches o( 3 insured nonmember Puerto Rkan banks.
American Samoa and Guam assigned to the San Francisco District for check clearing and collection
purposes.
All member branches in Guam are branches of California and New York banks.
3
Puerto Rico and the Virgin Islands assigned to the New York District for check clearing and collection purposes. All member branches in Puerto Rico and all except 8 in the Virgin, Islands are branches
of banks located in California, New"York, and Pennsylvania, Certain branches of Canadian banks (2
in Puerto Rico and 5 in the Virgin Islands) are included above as nonmember banks; and nonmember
tranches in Puerto Rico include 8 other branches of Canadian banks.
NOTE.—Comprises all commercial banking offices on which checks are drawn, including 203 banking
facilities. Number of banks and branches differs from that in Table 18 because this table includes banks
in Puerto Rico and the Virgin Islands but excludes banks and trust companies on which no checks are
drawn.
301
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION/ACQUISITION OF-ASSETS-OR-ASSUMPTION OF LIABILITIES APPROVED
BY -THE--BOARD OF GOVERNORS DURING 1973
CONTENTS
APPLICANT BANK
OTHER BANK
Alabama- Bank of Guin, Guin,
Ala.. .
Marion County Banking Company, Guin, Ala.-
306
lank ' of Fulto-n
Point, Ga. '
East
First Georgia Bank, Atlanta,
Ga.
309
Bank of- Kokomo, Kokomo, Ind.
Union Bank and Trust Company, Kok-omo, Ind.
'304
Brownsburg State Bank, Brownsburg, Ind.
Hendricks County Bank. and..
Trust Company, Plainfield, Ind.
322
Cheboygan, • State Bank, -Cheboy- • Cheboygan Bank, • Cheboygan,
gan, Mich..
Mich.
307
County,
Page
Citizens "Bank of Poquoson, Poquoson, Va.
First Virginia Bank of the Peninsula, Hampton, Va.
.31!
Cleveland Trust. Company of Loraln, Lorain, Ohio
Company,
313
Cleveland' Trust" Company of
Painesvitte, • Painesville, Ohio
Cleveland
Trust
Cleveland, OhioCleveland
Trust
Qe¥eland5 Ohio-
Company,
314
Cuyahoga Bank, Cleveland, Ohio
Cleveland
Trust
Cleveland, Ohio
• Company,
314
Delta Bank, Delta, Ohio
Peoples Savings Bank
pany, Delta, Ohio
Com-
304
FBT Bank, Fremont, Mich.
Fremont Bank and Trust Company, Fremont, Mich.
316
Genesee County Bank, Flint, Mich.
Genesee Merchants Bank' '&
Trust Co., Flint, Mich.
306
Interim Bank of Oxford, Oxford,
Ala.
First State Bank of. Oxford,.
Oxford, Ala.
320
Menominee "State "Bank, Menominee, M-ich,
Commercial Bank of Menem• -inee, Menominee, Mich;
308
Montana Street State Bank, El
Paso, Tex.
Bank of I I Paso, El Paso, Tex..
309
Mountain • Bank? Moanoke, Va,
Mountain Trust Bank, Roanbke,
Va.
315
302
21.—CONTINUED
CONTENTS—Continued
APPLICANT BANK
OTHER BANK
New Corpus Christi Bank and
Trust, Corpus Christi, Tex.
Corpus Christi Bank and Trust,
Corpus Christi, Tex.
307
New Victoria Bank and Trust
Company, Victoria, Tex.
Victoria lank and Trust Company, Victoria, Tex.
324
North Moore Street Bank, Arlington, Va.
Bank of Arlington, Arlington,
Va.
305
OPTS Bank, Oak Park, 111.
Oak Park Trust & Savings
Bank, Oak Park, III.
322
Peoples Bank and Trust Company, Selma, Ala.
Peoples Bank at Selma Mall,
National Association, Selma, Ala.
321
Peoples Bank of Stark County,
Canton, Ohio
Peoples-Merchants Trust Co.,
Canton, Ohio-
315
Peoples SaYings Bank Company,
Delta, Ohio
Farmers State Bank of Lyons
Ohio, Lyons, Ohio
318
PSB Bank, Holland, Mich,
Peoples State Bank of Holland,
Holland, Mich.
318
RI Bank, Rock Island, 111.
Mock Island lank and Trust
Company, Rock Island, 111.
323
Mice Avenue State Bank, Bellaire,
Tex.
First State lank of Bellaire,
Bellaire, Tex.
317
Texas Bank & Trust Company of
Dallas, Dallas, Tex,
New Texas Bank & Trust Company of Dallas, Dallas, Tex.
312
United Virginia Bank/Citizens of
South Boston, South Boston^ Va.
Citizens lank of South Boston,
South Boston, Va.
312
West Branch Bank, West Branch,
Mich.
State Savings Bank of West
Branch, West Branch, Mich.
316
Page
303
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, -ACQUISITION OF ASSETS-OR ASSUMPTION OF LIABILITIES'APPROVED
BY-THE BOARD OF-GOVERNORS DURING 1973 ^—Continued
Name of bank, and t>pc of transactionJ
(in chronological order of-determination)
Resource.**
{.in millions
of dollars)
Banking offices
In •
operation
No. 1—The Delta Bank,
Delta, Ohio,
to merge with
The Peoples Savings Bank
Company,
Delta, Ohio
To be
operated
(Newly organized bank;
not in operation) • •
12
SUMMARY REPORT BY THE ATTORNEY GENEEAL (11-17-72)
The proposed merger' is' part of' a plan through which The Peoples
Savings- Bank- Company-would--become'a subsidiary of'BaricOhio' Corporation,-•• a • bank holding company•«•-The••instant 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 BancOhio
Corporation, it would have no -effect on competition.
BASIS FOR-APPROVAL BY THE-BOARD OF GOVERNORS (1-2-73)
The proposal Is a transaction to .facilitate the acquisition of The Peoples
Savings Bank Company, Delta,. Ohio, by BancOhio Corporation, Columbus, Ohio, 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.
No. 2—Bank • of Kofeomo,
Kokomo, Ind.,
(Newly organized bank;
not in operation)
• to -merge with
Union Bank and Trust Company,
Kokonto, Ind.
SUMMARY REPORT BY THE ATTORNEY GENERAL (2-12-73)
The proposed merger is part of a plan through which Union Bank and
Trust Company would become a subsidiary of Ubantco -Corporation, a
.[proposed] ..bank holding company. The instant 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 Ubantco
Corporation, it would have no effect on competition.
For notes see p. 324.
304
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 FEDERAL RESERVE BANK ON BEHALF OF BOARD
OF GOVERNORS UNDER DELEGATED AUTHORITY (3-12-73)
The proposal is a transaction to facilitate the acquisition of Union
Bank and Trust Company by Ubantco' Corporation, 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. 3—Morth Moore Street Bank,
Arlington, ¥a,?
to merge with
The Bank of Arlington,
Arlington, Va,
(Newly organized bank;
not in operation)
SUMMARY REPORT BY THE ATTORNEY GENERAL (1-19-73)
The proposed merger is part of a plan through which The Bank of
Arlington would become a subsidiary of Northern Virginia Bankshares
Incorporated, a bank holding company. The instant 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
Northern Virginia Bankshares Incorporated, It would have no effect on
competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (3-13-73)
The proposed merger is a transaction by which Northern Virginia
Bankshares Incorporated, Arlington, a bank holding company that currently owns 50.88 per cent of the shares of The Bank of Arlington, which
opened for business on February 1, 1971, would acquire the remainder
of the outstanding shares of stock of the bank, Seven individuals supplied
the principal capitalization for The Bank of Arlington, with an informal
understanding that when the holding company- was- established it would
buy their stock in the bank. Go October 5, 1971, the Board of Governors
approved the application by the holding company "to acquire 41.96 per
cent or more of the voting shares of The Bank of Arlington.
Consummation of the proposed merger, in itself, would have no adverse
effect on banking competition or on the convenience and needs of the
area. The banking factors are regarded as satisfactory.
For notes see p. 324
305
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION,. ACQUISITION OF ASSETS OE ASSUMPTION OF LIABILITIES APPROVED
BY THE'BOARD OF GOVERNORS DURING
im1—Continued
Banking oilices
Name of bank, and i>pc of transaction"
(in chronological order of determination)
No. 4—Alabama Bank of Guin,
Guin, Ala,,
to merge with
Marlon County Banking Company,
G i Ala.
Resources
(in millions
of dollars)
In
operation
To be
operated
(Newly organized bank;
not in operation)
19
SUMMARY REPOET BY THE ATTORNEY GENERAL (1-16-73)
The proposed merger is part of a plan through, which Marion County.
Banking 'Company would become "a' subsidiary of The Alabama Financial
Group, Inc., a bank holding company, -The- instant 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 The Alabama- Financial Group, Inc., it would-have no 'effect 'oa competition.
BASIS FOR APPROYAL BY THE BOARD OF GOVERNORS (3-13-73).
The proposal is a transaction to facilitate the acquisition of Marion
County Banking Company by The Alabama Financial Group,. Inc., Birmingham, Alabama, a bank holding' company.
- -The proposed merger would, in itself, ha¥e no adverse--competitive
effects. The banking and convenience and needs factors are consistent
with approval of the application.
No. 5-—Genesee'County Bank,
Flint, Mich.,
to consolidate with
Genesee Merchants Bank &
(Newly organized bank;'
not in operation) •
469
3T
31
T r u s t C o . , ••
Flint, Mich.
. SUMMARY REPORT BY THE ATTORNEY GENERAL (1-19-73-)-
The proposed transaction is part of a plan through which Genesee
Merchants Bank & Trust Company would-become-a -subsidiary -of United
Michigan Corporation, a [proposed] bank holding, company... The instant.
transaction, however, would merely combine an existing bank with a nonoperating-institution; as such, and-without regard to the"acquisition'of the
surviving bank by United Michigan. Corporation, it would have no- effe-et
on competition.
For notes see p. 324.
306
1.—CONTINUED
Name of bank, and i>pe of transaction-'
(in chronological order of determination)
Banking otficcs
(in millions
of dollars)
To be
operated
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-6-73)
The proposal is a transaction to facilitate the acquisition of Genesee
Merchants Bank & Trust Co-, by United Michigan Corporation, Flint,
Michigan, a proposed bank holding company,
The proposed consolidation would, in itself, have no adverse competitive
effects. The banking and convenience and needs factors are consistent
with approval of the application.
No. 6—Cheboygan State Bank,
Cheboygan, Mich.,
to merge with
Cheboygan Bank,
Cheboygan, Mich.
(Newly organized bank;
not in operation)
19
SUMMARY REPORT BY THE ATTORNEY GENERAL (3-6-73)
The proposed merger is part of a plan through which Cheboygan Bank
would become a subsidiary of First National Financial Corporation, a
bank holding company. The instant merger, however, would merely com. bine an existing bank with a nonoperating institution; as such, and without regard to the acquisition of the surviving bank by First National
Financial Corporation, it would have no* effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (4-10-73)
The proposal is a transaction to facilitate the acquisition of Cheboygan
Bank by First National Financial Corporation Kalamazoo, Michigan, 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.
No. 7—New Corpus Christ! Bank and
Trust,
Corpus Christi, Tex.5
to acquire ike assets and assume
the deposit liabilities of
Corpus Christi Bank ani Trust,
Corpus Christi, Tex.
(Newly organized bank;
not in operation)
135
For notes s,ee p. 324.
307
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION,-ACQUISITION OF-ASSETS OR ASSUMPTION -OF LIABILITIES APPROVED
BY THE-BOARD OF GOVERNORS DURING 1973 ^—Continued
Banking of!ices
Resource^
Name ol' bank, and t>pc of t
(in chronological order of determination) • • (in millions
•of dollars)
To be
operated
SUMMARY REPORT BY THE ATTORNEY. GENERAL (4-4-73)
The proposed transaction is part of a.plan through which Corpus Christ!
Bank' and Trust would become a subsidiary of First City Bancorporation .
of Texas,'Inc., a bank holding "company. The instant transaction, .however,
would merely combine 'an'existing"bank witli a nonoperating institution;
as -such,-and without regard to' the"acquisition of "the surviving bank by
•First- City Bancorporation of Texas, Inc.,' it' would have no effect on
competition.
BASIS FOR APPROVAL BY THE BOARD OF'GOVERNORS (5-3-73)
The • proposal is a transaction to facilitate--the acquisition "of Corpus
Christi. -Bank- and Trust by First City Bancorporation of Texas, Inc.,
Houston, Texas, a bank holding company. • •
•
The proposed transaction would, in itself, have no adverse competitive
effects. The banking and convenience and needs factors are consistent
with approval of the application.
No, 8—Menominee State Bank,
Menominee, Mich.,
to merge- with
The Commercial Bank of
'(Newly organized bank;
not in operation)'
13
. Menomineer..
Menominee, Mich.
SUMMARY REPOET BY THE ATTORNEY GENEEAL (2-8-73)
The proposed merger is part of a plan, through which The-Commercial
Bank of Menominee would become a subsidiary of..First National Financial Corporation, a bank holding company.. The instant.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 First
National Financial Corporation, it would have no effect on competition.
"BASIS FOR'APPROVAL BY THE BOAED OF GOVERNORS (5-3-73) ..
The proposal is a transaction to facilitate the acquisition of The .Commercial Bank' of Menominee by First 'National Financial Corporation,
Kalamazoo, Michigan, 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.
For notes see p. 324.
308
1.—CONTINUED
Name of bank, and type of transaction2
(in chronological order of determinatioE)
Banking offices
Resources
(in millions
of dollars)
In
operation
No. 9—Montana Street State Bank,
El Paso, Tex.5
to merge with
The Bank of El Paso,
El Paso, Tex,
To be
operated
(Newly organized bank;
not in operation)
41
SUMMARY REPORT BY THE ATTORNEY GENERAL (4-4-73)
The proposed merger is part of a plan through which The Bank of
El Paso would become a subsidiary of First International Bancshares, Inc.,
a bank holding company. The instant 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 First International Bancshares, Inc., it would have no effect on competition.
BASIS FOR APPROVAL BY THE BOAID OF GOVERNORS (6-25-73)
The proposal is a transaction to facilitate the acquisition of The Bank
of El Paso by First International Bancshares, Inc., Dallas, Texas, 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.
No. 10—Bank of Fulton County,
East Point, Ga.,
to merge with
First Georgia Bank,
Atlanta, Ga,
39
51
SUMMARY REPOET BY THE ATTORNEY GENERAL (2-9-73)
BFC [Bank of Fulton County, hereinafter. BFC] and First Georgia
[Bank] both operate In. Fulton County, which encompasses most of the
city of Atlanta, They each hold slightly over 1 per cent of Fulton County
deposits. Although' the' closest offices of the-parties are 8,3 miles apart,
there Is some existing competition between the- 2 • banks which would be
eliminated by the -merger.
. .
This is the 3rd merger recently proposed by BFC. In the first two
instances, BFC sought to merge with the 2nd and 5th largest banks, respecti¥ely, in the Atlanta area. Both proposed mergers were abandoned
For notes see p. 324.
309
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION" OF ASSETS''OR ASSUMPTION OF LIABILITIES APPROVED
• BY'THE BOARD OP GOVERNORS DURING 1973 ^—Continued .
\
Name of bank, and type of transaction(in chronological order of determination)
'
Resources
(in millions
' of dollars)
Banking offices
In"
operation
To be
operated'"
SUMMARY-REPORT BY THE ATTORNEY • GENERAL—Continued *
after-competitive objections were raised by the •'Department [of'Justice].
Unlike the earlier-proposals, the-instant transaction will combine'2 'banks
with very -small • shares of commercial banking business in" the' Atlanta
area.
. We conclude that the proposed transaction would not ha¥e any- adYerse
competitive impact.
BASIS FOR. APPROVAL BY THE BOARD OF GOVERNORS (6-25-73)
Bank of Fulton. County (hereinafter East.. Point-Bank) operates 2 offices
in East Point, Georgia, and holds 0.9. per ...cent .of. total deposits* in the
Atlanta area, thereby ranking as.the 10th.largest .banking organization inthe Atlanta Standard Metropolitan Statistical.Area...(S.MSA).. First Georgia
Bank" (hereinafter" Atlanta Bank) operates 6 -offices, located in the. city,
of Atlanta," and holds 1.2 per cent of area deposits, thereby ranking .as
the "8th largest'banking organization "in "the Atlanta SMSA,
Although-East Point Bank and Atlanta Bank both operate In the Atlanta
banking •••market,-there is no overlap of the primary service "areas of the
2 banks; East Point Bank serves southern Fulton County "and" Atlanta' Bank
serves .northern Atlanta. Neither bank- -derives--a significant amount of
deposit, or Joan..business from the service • area -of the other.--It- therefore
appears, that no .meaningful competition--exists -between -these banks.--East
Point Bank is. not. an aggressive competitor,-, has-exhibited reluctance-toexpand into Atlanta, and is not considered, a likely, entrant into- Atlanta
Bank's service area. Atlanta Bank lacks the .financial and. managerial resources'to expand into other geographic areas. The prospect., for .meaningful competition developing in the future between these .banks appears
remote.""The resulting bank would hold 2.1 per cent of the total deposits
in -the'Atlanta' SMSA and would rank as the 7th largest banking organization in • the' area. It is the Board's judgment that approval of the proposed
formation would have no significant adverse effects on competition in any
area of- the State.
The -financial- condition and managerial resources of East Point Bank
are ...generally- satisfactory and consistent with approval of the application;
The. financial .condition of Atlanta Bank is considered fair at this time
and should improve upon consummation- of the proposed transaction. • •
. .Consummation of. the proposal will result in- immediate benefits relating
to....the. convenience, and needs of the communities to be served• by • the
resulting.bank...The new bank should be able to serve better- the- bankingneeds of its customers and to provide a.more convenient alternative-source
of banking services, including certain services that neither bank., presently
offers. Considerations relating to convenience and needs are regarded.as
faYoring approval of the application.
For notes see p. 324.
310
21.-—CONTINUED
Name of baek5 and type of transaction2
(in chronological order of determination)
No. 11—Citizens Bank of Poquoson,
Poquoson, Va.5
to merge with
First Virginia Bank of the
Peninsula,
Hampton, Va.
Resources
(In millions
of dollars)
Banking offices
In
operation
To be
operated
II
3
SUMMAEY REPORT BY THE ATTORNEY GENERAL (5-30-73)
Both of these banks are wholly owned subsidiaries of First Virginia
Baekshares, Inc. [First Virginia Bankshares Corporation]. The proposed
merger is simply a combination of the 2 subsidiary banks into 1. As such,
It is merely a corporate reorganization and will have no effect on competition.
BASIS FOE APPROVAL BY FEDERAL RESERVE BANK ON BEHALF OF BOARD
OF GOVERNORS UNDER DELEGATED AUTHORITY (6-28-73)
Both Citizens Bank of Poquoson (hereinafter Poquoson Bank) and
First Virginia Bank of the Peninsula (hereinafter Peninsula Bank) are
wholly owned subsidiaries of First Virginia Bankshares Corporation, Falls
Church, Virginia ("First Virginia"), a bank holding company. Poquoson
Bank was acquired by First Virginia in January 1970; Peninsula Bank
was opened in August 1971 as a subsidiary of First Virginia. As of December 31, 1972, First Virginia, with deposits of $706 million, was the
6th largest banking organization in Virginia, holding 6.6 per cent of total
commercial bank deposits in the State.
The relevant geographic market for purposes of the proposed merger
is the Newport News-Hampton Standard Metropolitan Statistical Area
(SMSA), which includes York County except for the extreme northern
sections, in addition to the cities of Newport News and Hampton. Poquoson Bank and Peninsula Bank each operate 1 office in this area; combined, the 2 banks ranked 8th out of 12 banking organizations competing
in the relevant market on June 30, 1972, accounting for only 2.7 per cent
of total deposits. The merger would have no adverse effect on banking
competition.
The financial and managerial resources and the convenience and needs
factors are consistent with approval.
For notes see p. 324,
311
21, DESCRIPTION OF EACH MEEGER, CONSOLIDATION, ACQUISITION OF ASSETS- OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF-GOVERNORS DURING 197$*—Continued
Name of bunk, mid t>pe of transaction" (In chronological order of determination)
No. 12- -Texas Bank & Trust Company
of Dallas,
Dallas, Tex.»
to merge with
•New Texas'Bank & Trust
Company of Dallas,
Dallas,. Tex.
Banking oilices
(in millions
of dollars)
In/
operation
'To be
operated
296
(Newly organized bank;
not in operation) '
SUMMARY REPORT BY THE ATTORNEY GENERAL (4-4-73)..
The proposed merger is" part of a plan through which Texas' Bank &
Trust Company of Dallas- would become a subsidiary of First City Bancorporation of Texas, • Inc.-, a bank holding company. The-instant 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' First City ' B incorporation, Inc., it would have no effect on
-competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNOES (6-29-73)
The proposal is a transaction to facilitate the acquisition .of .Texas Bank
& Trust Company of Dallas by First City Bancorporation of Texas,. Inc.,
Houston, Texas, 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.
No. 13—United Virginia Bank/Qfiiens
of South Boston, •
. South Boston, Va.,
to merge, .with.
Citizens Bank of South Boston,
'South Boston,'Va.'
(Newly organized bank;
not in operation)
16
SUMMARY REPORT BY THE ATTORNEY GENERAL (5-30-73)
.The proposed merger is part of a plan through which Citizens • Bank of
South Boston would become a subsidiary of United Virginia. Ba.nkshar.es
Incorporated, a bank holding company. The instant 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
United Virginia Bankshares Incorporated, it would have no effect on
competition.
For notes
p. 324.
312
21.—CONTINUED
Name of bank, and t>pe of transaction*
(In chronological order of determination)
Resources
(in millions
of dollars)
Banking offices
In
oiieration
To be
operated
BASIS FOR APPROVAL BY FEDERAL RESERVE BANK ON BEHALF OF BOARD
• OF GOVEENORS UNDER DELEGATED AUTHOMTY (7-16-73)
The proposal is a transaction to facilitate the acquisition of Citizens
Bank of South Boston, by United Virginia Bankshares Incorporated, Richmond, Virginia, 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.
No. 14—The Cleveland Trust Company
of Lorain,
Loraie, Ohio,
to acquire certain assets of and
assume certain liabilities of
The Cleveland Trust Company,
Cleveland, Ohio
(Newly organized bank;
not in operation)
30
SUMMARY REPORT BY THE ATTORNEY GENERAL
(Nof report received.)
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (7-20-73)
CleveTrust Corporation, Cleveland, Ohio-, is a proposed bank holding
company that requests permission to acquire The. Cleveland Trust Company, Cleveland, Ohio. In addition, the corporation has formed a new
bank—The Cleveland Trust Company of Lorain—which would acquire
the assets and assume the liabilities that are attributable to The Cleveland
Trust Company's branch office located In Lorain-County.
At the present time, Ohio banks may open de novo branches in the
county in which the bank is headquartered. By virtue of a grandfather
clause, The Cleveland Trust Company has branches in Lorain and Lake
Counties as well as in its home office county of Cuyahbga. By converting
the Lorain Branch of The Cleveland Trust Company into a bank, the proposed holding company will have a vehicle -through which to-' establish
additional offices in Lorain County, HoweYer, any additional offices will
have to receive the prior approval of the State Banking Department and
of the Board of Governors.
Consummation of the proposed acquisition of the Lorain County Branch
of The Cleveland Trust Company by The Cleveland Trust Company of
Lorain would not have adverse competitive effects nor significantly affect
the convenience and needs of the area.
For notes see p. 324.
313
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION-OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNOES DURING 1973 *—Continued.
Name of bank, and t>pc of transaction"
(in chronological order of determination)
No. 15—The Cleveland Trust Company
of Painesvilie,
Painesville, Ohio,
to acquire cerioin assets of
and assume certain liabilities of
Tie Cleveland Trust Company,
' Cleveland, Ohio
Resource^
(in millions'
of dollars)
Banking oilkcs
In
operation
To'be
operated
(Newly organized bank;
not in operation)
72
SUMMARY REPORT BY THE ATTORNEY GENERAL
(No report received.)BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (7-20-73)
QeveTrast Corporation, Cleveland, Ohio, is- a proposed bank holding
company that requests permission to- acquire .The Cleveland ••Trust Company, Cleveland, Ohio. In addition,, the. corporation, has.-formed-a-new
bank—The Cleveland Trust Company, of Painesville—that would...acquire,
the assets and' assume the liabilities attributable to The Cleveland Trust
Company's 2' branch offices located in Lake County.
At the'present' time, Ohio banks may' open "de novo branches in the
county- in--which the bank is headquartered,"'By' virtue of a grandfather
clause. The -Cleveland Trust Company has "branches in 'Lorain' and Lake
Counties as well as in its home office county of Cuyahoga. 'By'converting
the Lake County- branches of The Cleveland Trust- -Company "into a bank,
the proposed- holding company will -have-legal - grounds for establishing
additional offices in Lake County. -However, any--additional' offices• "will
have .to .receive the. prior approval of the State-Banking Department andof the Board of Governors.
Consummation of the proposed acquisition of the.Lake County branches
of The Cleveland Trust Company by. The.. Cleveland Trust .Company-of
Painesville would not have adverse, competitive effects nor significantly
affect' the convenience and Heeds of the area.
No.
Cuyahoga Bank,
•Cleveland, Ohio,
to merge- with
The-Cleveland Trust Company,
Cleveland, -Ohio
(Newly organized bank;
not in operation)
3,097
83
SUMMARY REPORT BY THE ATTORNEY GENERAL
(No- report received.)
For notes >cc p. 324-.
314
80
21.—CONTINUED
Name o! bank, and t>pc of transaction"
(in chronological order of determination)
Banking ottiees
(in millions
of dollars)
in
operation
To be
operated
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (7-20-73)
The proposal is a transaction to facilitate the acquisition of The Cleveland Trust Company by CleveTrust Corporation, 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. 17—Mountain Bank,
Roanoke, Va.5
to merge with
Mountain Trust Bank,
Roanoke, Va.
(Newly organized bank;
not in operation)
94
SUMMARY REPORT BY THE ATTORNEY GENERAL
(No report received.)
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (8-8-73)
The proposal is a transaction to facilitate acquisition of Mountain Trust
Bank by First <& Merchants Corporation, Richmond, Virginia, 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.
No. 18—Peoples Bank of Stark County,
Canton, Ohio,
to merge with
The Peoples-Merchants Trust Co.,
Canton, Ohio
(Newly organized bank;
not in operation)
137
SUMMARY REPORT BY THE ATTOENEY GENERAL (7-3-73)
The proposed merger is part of a plan through which Peoples-Merchants
Trust Co. would become a subsidiary of Union Bancshares Company, a
bank holding company. The instant 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 Union Bancshares
Company, it would have no effect on competition.
For notes see p. 324,
315
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION/ ACQUISITION.. OF ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS .DURING 1973 i—Continued-
Name of bank, and t>pe of transaction(in chronological order of determination)
Banking oftice
(in millions
of dollars)
BASIS FOR APPROVAL BY FEDERAL RESERVE BANK ON BEHALF OF BOAMP
' ' OF'GOVERNORS UNDER .DELEGATED AUTHOEITY (8-16-73)
The proposal is a transaction to . facilitate the acquisition, of.. The
Peoples-Merchants Trust Co, by Union Bancshares Company, Steubenville, Ohio,-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, '"
No. 19—FBT Bank,
Fremont, Mich,,
to....consolidate with
Fremont Bank and Trust Company,
Fremont, Mich.
(Newly organized bank,
not in operation)
16
SUMMARY REPORT BY THE ATTORNEY GENERAL (7-31-73)
The proposed consolidation..is. part of a plan through which Fremont
Bank and Trust Company would become a subsidiary of Old Kent Financial-Corporation, a bank ""holding'company. The instant'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
Old'" Kent Financial Corporation, It would have no effect on competition.
BASIS FOR APPROVAL BY FEDERAL RESERVE BANK ON BEHALF OF- -BOARD
OF GOVERNORS UNDER DELEGATED AUTHORITY (9-12-73)
The. proposal is a transaction to facilitate the acquisition--of-Fremont
Bank and Trust Company by Old Kent Financial Corporation, Grand
Rapids, Michigan, a bank holding company.
The proposed consolidation would, in itself, have no adverse- competitive
effects. The banking and convenience and needs factors are consistent
with approval of the application.
No. 20—West Branch lank.
West Branch, Mich.,
to consolidate with
The State Savings Bank of
West Branch,
West'Branch, Mich.
For notes see p. 324.
316
(Newly organized bank;
not in operatioE)
21
21<—CONTINUED
Name of bank, and type of transaction"
(in chronological order of determination)
Resources
(in millions
of dollars)
Banking offices
In
operation
To be
operated
SUMMARY REPORT BY THE ATTORNEY GENERAL (7-19-73)
The proposed consolidation Is part of a plan through which The State
Savings Bank of West Branch would become a subsidiary of Peoples
National Corporation, a [proposed] bank holding company. The Instant
consolidation, however, would merely combine an existing bank with a
eonoperatlng Institution; as such, and without regard to the acquisition
of the surviving bank by Peoples National Corporation, it would have
no effect on competition.
BASIS FOR APPROVAL BY FEDERAL RESERVE BANK ON BEHALF OF BOARD
OF GOVERNORS UNDER DELEGATED AUTHORITY (9-26-73)
The proposal Is a transaction to facilitate the acquisition of The State
Savings Bank of West Branch by Peoples National Corporation, Bay
Gity, Michigan, a proposed .bank holding company.
The proposed consolidation would, in itself, have no adverse competitive
effects. The banking and' convenience and needs factors are consistent
with approval of the application.
No. 21—Mice Afenue State Bank,
Bellaire, Tex.,
(Newly organized bank
not in operation)
to merge with
First State Bank of Bellaire,
Beilaire, Tex.
75
SUMMARY REPORT BY THE ATTORNEY GENEEAL (7-19-73)
The proposed merger is part of a plan through which First State Bank
of Bellaire would become a subsidiary of First International Bancshares,
Inc., a bank holding company. The instant 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 First International Bancshares, Inc., it would have no effect on competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-1-73)
The proposal is a transaction to facilitate the acquisition of First State
Bank of Bellaire by First International Bancshares, Inc., Dallas, Texas, 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.
For notes see p. 324,
317
21. DESCRIPTION O F EACH MERGER, CONSOLIDATION, ACQUISITION OF ASSETS-Oft ASSUMPTION OF LIABILITIES APPROVED
BY THE 'BOARD OF GOVERNORS DURING 1973.l—Continued
Name of bank, and t>pc of transaction'1
(in .chronological order of determination)
Banking offices
Resources
(in millions
of dollars)
•
• • I n
operation
No. 22—PSB Bank,
Holland, Mich.,
to consolidate with
The Peoples State Bank of
Holland,"
'Holland, Mich.
• To" be
' operated
(Newly organized bank;
not in operation)
59
. .SUMMARY REPORT-BY THE ATTORNEY GENERAL-(5-11-73)
The proposed transaction • is part of a plan through which The' Peoples
State-Bank of- Holland-would-become a subsidiary of Old Kent "Financial
Corporation,-a bank-holding-company,"The instant transaction,""however,
would-merely combine an-existing bank with a nonoperating "institution;
• as-such,-and without •regard' to "the' acquisition of "the surviving bank ...by
•Old Kent'Financial'Corporation,"it would have no'.'effect on.competition.
.. BASIS FOE APPROVAL BY THE BOARD OF GOVERNORS (10-12-73)
The proposal is a transaction to-facilitate the acquisition'of The Peoples
State-Bank--of Holland-by Old Kent Financial Corporation, Grand" Rapids,
Michigan, a -bank holding company."
• • The-proposed consolidation" would, in itself, have no adverise "competitive
effects. The banking • and - convenience and needs factors ' are consistent
with approval -of the application.
No. 23—The Peoples Savings Bank
12
Company,.
Delta, Ohio,
. to merge with •
The- -Farmers State Bank of
-Lyons O h i o , • • •
••Lyons,-Ohio
SUMMARY REPORT BY THE ATTORNEY GENERAL (9-20-73.)
. .
The parties to this merger are situated about 13 miles ...apart, with no
competitive alternatives in the intervening area. While 2. BancQhio. Corporation subsidiaries are located in the adjacent counties .of.. Henry....and
Wood,' the application indicates ..that neither subsidiary derives • any substantial deposit or loan volume, from the area served by--Farmers--Bank
[The. Farmers State Bank of Lyons Ohio],. Thus,, while the proposed- merger
may eliminate, a limited amount of. existing competition-between-Peoples
For notes see p. 324.
318
1.—CONTINUED
Name of bank, and type of transaction2
(in chronological order of determination)
Banking offices
Resources
(in millions J
of dollars)
In
operation
To be
operated
SUMMARY REPORT BY THE ATTORNEY GENERAL—-Continued
[The Peoples Savings Bank Company] and Farmers Bank, it does not
appear that the proposed transaction would substantially Increase banking
concentration in any relevant market.
Therefore, we 'conclude that the proposed merger would not have a
substantial competitive impact.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (10-29-73)
The Peoples Savings Bank Company (hereinafter Delta Bank) is a subsidiary of BancOhio Corporation, Columbus, Ohio, the second largest
banking organization in Ohio, controlling, approximately 9 per cent of
total deposits of commercial banks in the State. Delta Bank operates
1 banking office located in Delta, Ohio, and holds approximately 11 per
cent of total deposits of commercial banks in the Fulton County, Ohio,
banking market (which includes most of Fulton County, Ohio, and portions of Lenawee County, Michigan) and is the 4th largest of 8 banks
operating in that market. As a result of consummation of the proposed
merger of Delta Bank with The Farmers State Bank of Lyons Ohio
(hereinafter Lyons Bank), the parent holding company's share of total
deposits in the State would increase by only ,01 percentage points and
Delta Bank's share of deposits in the relevant market would increase to
15 per cent. Delta Bank will become the 3rd largest bank in this market.
Lyons Bank operates 1 banking office in. the predominantly rural north
central portion of the Fulton County banking market and is the 7th
largest of 8 banks operating in that market. The single office of Lyons
Bank is located approximately 13 miles from Delta Bank.
Although located' in the same banking market, little competition exists
between Delta Bank and Lyons Bank as their service areas do not overlap
to a significant extent. Delta Bank and Lyons Bank are 'permitted by Ohio
law to branch into each -other's service area. However, the record indicates
little likelihood -of such expansion -occurring in the foreseeable future.
The population to banking office ratio of the area served, by Lyons Bank
is significantly below the average for Fulton County and far below the
average for the State. Although 2 bank subsidiaries of BancOhio Corporation are located in counties adjacent to Fulton.. County? no substantial
competition exists between these banks and Delta Bank or Lyons Bank.
Accordingly, the Board concludes that consummation- of the proposed
acquisition would have only a slightly adverse effect on existing competition in the Fulton' banking market. The proposed' 'merger, however, by
increasing the competitive capability of Delta .Bank, ..may result in increasing future competition among the largest 'banks in the Fulton banking market.
The financial and managerial resources of both Delta Bank and Lyons
Bank are satisfactory. Consequently, banking factors are consistent with
For notes sec p. 324
319
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION .OF .ASSETS OR ASSUMPTION OF LIABILITIES APPROVED
BY THE BOARD OF GOVERNORS DURING 1973 *—Continued "
Name of. bank, and l>pe of
(in chronological order of determination).
Resource^
(In millions
of dollars)
Banking oflices
In-
•
operation
••To b e
operated
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS—Continued
approval of the -application.'It'is'proposed that consummation of the proposal herein will result in-an-increase in ' the "range of banking" services
available to customers now served by Lyons Bank. Delta'Bank'presently
provides-a wide range of consumer-savings accounts, instalment' and" commercial. . loan services and-credit-card services, some-of which"'are' .not
offered .by .Lyons Bank, These services would- become available-upon, consummation... of. this proposal. I n addition,-through its parent holding-company, Delta Bank presently, .offers. .farm equipment leasing services that
could become more readily ...available. to residents of the Lyons area uponconsummation of the proposed merger. Considerations .relating to theconvenience"and needs of the communities to be served are...consistent
with approval'of the application and lend some weight thereto.
No. 24—Interim'Bank of Oxford,
•Oxford, Ala.,
to- acquire the assets 'and
assume the deposit liabilities"of
..The First State Bank of Oxford,
.Oxford, Ala.
(Newly organized bank;
not in operation)
16
.SUMMARY REPORT BY THE ATTORNEY GENEEAL (10-15-73)
The proposed., acquisition, is..part of a plan through which--The-First
State Bank of Oxford would become a subsidiary of .Central. Bancsfaares
of the South, Inc., a bank holding company. The instant proposal, ..how-.
everf would merely combine an existing bank with a nonoperating institution; as"" such, 'and without regard to the acquisition of.. the.. surviving
bank by" "Central Bancshares of the South, Inc., it would have no. effect
on "competition,'
BASIS FOE APPROVAL BY THE BOARD OF GOVERNORS (11-26-73).
The proposal is a transaction to facilitate the acquisition of The First
State Bank of Oxford by Central Bancshares of the South5 Inc., Birmingham.--Alabama, a bank holding company.
• -The- proposed • acquisition would,' in itself, have no adverse competitive
effects. •• The banking and convenience and needs factors "are consistent
with approval of the application.
For notes see p. 324.
320
2\.—CONTINUED
Name of bank, and type of transaction'*
(in chronological order of determination)
No. 25—The Peoples Bank and Tryst
Company,
Seima, Ala.,
to acquire the assets and assume
(he deposit liabilities of
The Peoples Bank at Seima Mall,
National Association,
Seima, Ala.
Resources
(in millions
of dollars)
Banking offices
In
To be
operation j operated
46
SUMMARY REPORT BY THE ATTORNEY GENERAL (10-31-73)
The parties to this acquisition are located about 2 miles apart in the
city of Seima (population approximately 28,000). Thus, it appears that
the proposed acquisition would eliminate some existing competition in the
concentrated Seima market However, in view of the small absolute size
of the bank to be acquired, we conclude that the effect of the transaction
on existing competition will not be significantly adverse.
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (11-27-73)
The Peoples Bank and Trust Company (hereinafter Applicant Bank)
and The Peoples Bank at Seima Mall, National Association (hereinafter
PBSM), are both located in Dallas County, which is the relevant banking
market. Applicant Bank has approximately 34 per cent of total deposits
in the market, while PBSM has a market share of a little more than 1
per cent. However, even though Applicant Bank and PBSM. are in the
same banking market, there has been little competition between them
since the latter bank was opened in 1972. This has been due to the
nature of their relationship: PBSM was founded by principal shareholders
of Applicant Bank and 11 officers and directors of ..Applicant Bank own
aboet 90 per cent of the shares of PBSM. Both banks also share common
management; the chairman of the board, president, vice president, and
directors hold comparable positions in both banks. On the facts before
the Board of Governors, including the strong existing ties between these
banks, there is little probability that disaffiliatiori between them will occur
in the reasonably foreseeable future. The Board therefore concludes that
competitive considerations are consistent with approval of the application.
The financial and managerial resources and future' prospects of Applicant Bank and PBSM appear to be generally satisfactory and are consistent with approval. of. the application. Considerations relating to the
convenience and needs of the community are also consistent with approval.
For notes see p. 324,
321
21. DESCRIPTION OF EACH . MERGER, CONSOLIDATION, ACQUISITION OF ASSETS OR-ASSUMPTION OF LIABILITIES APPROVED
BY -THE -BOARD OF GOVERNORS DURING 1973 *—Continued '
Banking offices
Name of bank, and t> pc oi tru
(in. chronological order of determination)
Resource^
(in millions
of dollars)
••In
-
operation
No. 26—OPTS Bank,
Oak Park, 111.,
•To be
operated
(Newly organized bank;
not in operation)-"
to merge with
Oak Park Trust & Savings Bank,
'Oak Park, III
148
SUMMARY REPORT BY THE ATTORNEY GENERAL (10-26-73).
The proposed merger Is part of a plan through which Oak Park Trust
& Savings Bank would.'become'a"subsidiary of Oak Park'Bancorp, Inc.,
a--[proposed]"-bank holding company.'The'instant merger, however, would
merely combine an-existing •bank'with"'a nonopefating institution; "as'such
and -without regard to-the-acquisition-of-the surviving bank "by Oak'Park
Bancorp, -Inc., it would-have-no- effect on- competition.
BASIS FOR APPROVAL BY . FEDERAL. .RESERVE BANK ON BEHALF- OF BOARD
OF GOVERNORS UNDER DELEGATED AUTHORITY (11-29-73)- • •
The proposal is a transaction to facilitate the acquisition..of Oak Park
Trust "& Savings'Bank "by Oak Park Bancorp, Inc., 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. 27—Brownsburg State Bank,
Brownsburg, Ind.,
12
to- merge- with
Heniricks-County Bank and
Trust -Company,
Plainfield, Ind.
SUMMARY REPORT BY THE ATTORNEY GENERAL (11-20-73)
The applicant banks are situated about 10 miles apart with -some- -competitive .alternatives in the intervening area. It appears-that the-proposed
transaction ...would, eliminate only .a limited amount of existing-competition.
Accordingly, we conclude that the proposed merger would not have a
substantial competitive impact.
For notes see p. 324.
322
1.—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 FEDERAL RESERVE BANK ON BEHALF OF BOARD
OF GOVERNORS UNDER DELEGATED AUTHORITY (12-10-73)
Brownsburg State Bank (hereinafter Applicant Bank) is a unit bank and
the only bank located in the town of Brownsburg in eastern Hendricks
County, Indiana. The county adjoins Marion County (Indianapolis), and
Applicant Bank ranks as the 24th largest among 41 banks in the banking
market approximated by the Indianapolis Standard Metropolitan Statistical
Area (SMSA), with 0.36 per cent of the area's deposits. .Hendricks County
Bank and Trust Company (hereinafter Hendricks Bank) is the smaller
of 2 unit banks in Plainield. Hendricks Bank 'also competes in the
Indianapolis banking market, where it is currently the 38th largest bank
with 0.15 per cent of total deposits. Upon consummation of the proposed
merger, the resulting bank would rank as the 19th largest bank and
account for only about one-half of 1 per cent of market area deposits.
The offices of Applicant Bank and Hendricks Bank are located only
about 10 miles apart. The service areas of the 2 banks do not overlap,
however, and no significant competition exists between the banks at the
present time. Moreover, it appears that the proposed merger would not
foreclose substantial potential competition given the presence of intervening banking offices and the small size of the resulting bank relative to the
market.
Based upon all the facts revealed in the record, it is concluded that the
merger would not have an adverse effect on competition in any relevant
area. Convenience and needs considerations are consistent with approval.
Financial and managerial resources of the participating banks are considered satisfactory.
No. 28—RI Bank,
Rock Island, III,
to merge with
Rock Island Bank and
Trust Company,
Rock Island, 111.
(Newly organized bank;
not in operation)
78
SUMMARY REPORT BY THE ATTORNEY GENERAL (11-26-73)
The proposed merger is part of a plan through which Rock Island Bank
and Trust Company would become a subsidiary of. Financial Services
Corporation of the Midwest, a [proposed] bank holding company. The
instant merger, however, would merely combine an existing bank with a
For notes see p. 324.
323
21. DESCRIPTION OF EACH MERGER, CONSOLIDATION, ACQUISITION OR. ASSETS OR ASSUMPTION-OF LIABILITIES" APPROVED•
BY THE BOARD OF GOVERNORS DURING 197$'^
.Name of batik, and t>pc of transaction"
(in chronological.order of determination)
Resources
• (in millions
of dollars)
Bunking offices
Inoperation
To be
operated
SUMMARY REPOET BY THE ATTORNEY GENERAL—Continued
nonoperatieg- institution; as such,' and" without regard to the' acquisition
of the- surviving- bank by Financial Services Corporation of the Midwest,
it would have no effect on competition.
BASIS-•-FOR APPROVAL BY FEDERAL • RESERVE BANK ON BEHALF OF BOARD
OF- GOVERNORS UNDER-DELEGATED AUTHORITY" (12-10-73)''
The. .proposal.is .a.transaction--to facilitate the -acquisition of-Rock Island
Bank ...and. Trust Company by. Financial - Services Corporation -of the-Midwest, 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. 29—New ¥ictorla Bank and Trust
Company,
Victoria, Tex.,
to merge with
Victoria Bank ami Trust
Company,'
Victoria, -Tex.
(Newly organized- -bank;
not in operation)
131
SUMMARY REPOET BY THE ATTORNEY GENERAL (11-6-73')'
The proposed merger is part of a plan through which • Victoria Bank
and . Trust. Company would become a subsidiary -of Victoria Bankshares, •
Inc.,...a ..[proposed] bank holding company. The instant -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
Victoria Bankshares, Inc., it would have no effect CM competition.BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (12-27-73)
The proposal is a transaction to facilitate the acquisition, of • Victoria
Bank and Trust Company by Victoria Bankshares, Inc., Victoria,....Texas,
a proposed bank holding company.
'''TOe' proposed merger would, in itself, have no adverse, competitive
effect's. "The 'hanking and convenience and needs factors are consistent
with approval of the application.
!
As required by Section !8<e) of the Federal Deposit Insurance Act. nil of the transactions
that were approved by the Board are described in .this table.
2
Each"
transaction was proposed to be effected under the charter of the first-named bank,
3
Although--The- Cleveland Trust Company' actually ' has 83 offices""in operation, only the
office in Lorain...County .and the 2 offices in Lake County are shown here,-because-they
are the oaes to be acquired by the new banks—The Cleveland Trust Company of Lorain
and The Cleveland Trust'Company of Painesville, respectively.
324
•[ THE
FEDERAL RESERVE
SYSTEM
BOUNDARIES OF FEDERAL RESERVE DISTRICTS AND THEIR BRANCH TERRITORIES
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
• Federal Reserve Bank Facilities
zfederal 'Reserve
'Directories and
BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
(December 31, 1973)
Term expires
ARTHUR F. BURNS, of New York, Chairman*
January 31, 1984
GEORGE W. MITCHELL, of Illinois, Vice Chairman* . . January 31, 1976
J. DEWEY DAANE, of Virginia
ANDREW F. BRIMMER, of Pennsylvania
JOHN E. SHEEHAN, of Kentucky
JEFFREY M. BUCHER, of California
ROBERT C. HOLLAND, of Nebraska
January
January
January
January
January
31,
31,
31,
31,
31,
1974
1980
1982
1986
1978
DAVID C. MELNICOFF, Managing Director for Operations and Supervision
J. CHARLES PARTEE, Managing Director for Research and Economic Policy
**ROBERT SOLOMON, Adviser to the Board
ROBERT L. CARDON, Assistant to the Board
JOSEPH R. COYNE, Assistant to the Board
JOHN J. HART, Special Assistant to the Board
FRANK O'BRIEN, JR., Special Assistant to the Board
JOHN S. RIPPEY, Special Assistant to the Board
OFFICE OF MANAGING DIRECTOR FOR OPERATIONS AND
SUPERVISION
DAVID C. MELNICOFF, Managing Director {Operations and Supervision)
DANIEL M. DOYLE, Deputy Managing Director
GORDON B. GRIMWOOD, Assistant Director and Program Director for
Contingency Planning
WILLIAM W. LAYTON, Director of Equal
Employment
BRENTON C. LEAVITT, Program Director for Banking Structure
OFFICE OF MANAGING DIRECTOR FOR RESEARCH AND
ECONOMIC POLICY
J. CHARLES PARTEE, Managing Director (Research and Economic Policy)
STEPHEN H. AXILROD, Adviser to the Board
ARTHUR L. BROIDA, Assistant to the Board
MURRAY ALTMANN, Special Assistant to the Board
OFFICE OF THE SECRETARY
CHESTER B. FELDBERG, Secretary
THEODORE E. ALLISON, Assistant Secretary
NORMAND R. V. BERNARD, Assistant Secretary
ELIZABETH L. CARMICHAEL, Assistant Secretary
LEGAL DIVISION
THOMAS J. O'CONNELL, General Counsel
PAULINE B. HELLER, Assistant General Counsel
JOHN NICOLL, Assistant General Counsel
ROBERT S. PLOTKIN, Assistant General Counsel
BALDWIN B. TUTTLE, Assistant General Counsel
ANDREW F. OEHMANN, Special Assistant to the General Counsel
DIVISION OF RESEARCH AND STATISTICS
J. CHARLES PARTEE, Director
LYLE E. GRAMLEY, Deputy Director
SAMUEL B. CHASE, Associate Director
JAMES L. PIERCE, Associate Director
PETER M. KEIR, Adviser
STANLEY J. SIGEL, Adviser
MURRAY S. WERNICK, Adviser
KENNETH B. WILLIAMS, Adviser
* The designations as the Chairman and the Vice Chairman expire January 31, 1974,
and April 30, 1977, respectively, unless the services of these members of the Board shall
have terminated sooner.
** On leave of absence.
328
DIVISION OF RESEARCH AND STATISTICS—Continued
JAMES B. ECKEET, Associate Adviser
ROBERT J, LAWRENCE, Associate Adviser
JOSEPH S. ZEISEL Associate Adviser
EDWARD C. ETTIN, Assistant Adviser
ELEANOR J. STOCKWELL, Assistant Adviser
STEPHEN P. TAYLOR, Assistant Adviser
Louis WEINES, Assistant Adviser
LEVGN H. GARABEDIAN, Assistant Director
DIVISION OF INTERNATIONAL FINANCE
RALPH C. BRYANT, Director
JOHN E. REYNOLDS, Associate Director
ROBERT F, GEMMILL, Adviser
REED J. IRVINE, Adviser
SAMUEL I. KATZ, Adviser
BERNARD NORWOOD, Adviser
SAMUEL PIZER, Adviser
GEORGE B. HENRY, Associate Adviser
HELEN B. JUNZ, Associate Adviser
*NORMAN S. FIELEKE, Assistant Adviser
DIVISION OF FEDERAL RESERVE BANK OPERATIONS
RONALD G. BURKE, Director
E. MAURICE MCWHIRTER, Associate Director
WALTER A. ALTHAUSEN, Assistant Director
HARRY A. GUINTEE, Assistant Director
JAMES R. KUDLXNSKI, Assistant Director
P, D. RING, Assistant Director
DIVISION OF SUPERVISION AND REGULATION
FREDERIC SOLOMON, Director
BRENTON C. LEAVITT, Deputy Director
FREDERICK R. DAHL, Assistant Director
JACK M. EGERTSON, Assistant Director
JANET O. HART, Assistant Director
JOHN N. LYGN, Assistant Director
JOHN T, MCCLINTOCK, Assistant Director
THOMAS A. SIPMAN, Assistant Director
WILLIAM W. WILES, Assistant Director
GRIFFITH L. GAR WOOD. Adviser
DIVISION OF PERSONNEL
KEITH D. ENGSTROM, Director
DIVISION OF ADMINISTRATIVE SERVICES
WALTER W. KREIMANN, Director
DONALD E, ANDERSON, Assistant Director
JOHN D. SMITH, Assistant Director
OFFICE OF THE CONTROLLER
JOHN KAKALEC, Controller
JOHN M. DENKLER, Assistant Controller
DIVISION OF DATA PROCESSING
JEROLD E. SLOCUM, Director
CHARLES L, HAMPTON, Associate Director
GLENN L. CUMMINS, Assistant Director
HENRY W. MEETZE, Assistant Director
WARREN N, MINAMI, Assistant Director
RICHARD S. WATT, Assistant Director
* On loan from Federal Reserve Bank of Boston,
329
FEDERAL OPEN MARKET COMMITTEE
(December 31, 1973)
MEMBERS
ARTHUR F. BURNS, Chairman (Board of Governors)
ALFRED HAYES, Vice Chairman (Elected by Federal Reserve Bank of New
York)
JOHN J. BALLES (Elected by Federal Reserve Banks of Minneapolis, Kansas
City, and San Francisco)
ANDREW F. BRIMMER (Board of Governors)
JEFFREY M. BUCHER (Board of Governors)
J. DEWEY DAANE (Board of Governors)
DARRYL R. FRANCIS (Elected by Federal Reserve Banks of Atlanta, St. Louis,
and Dallas)
ROBERT C. HOLLAND (Board of Governors)
ROBERT P. MAYO (Elected by Federal Reserve Banks of Cleveland and
Chicago)
GEORGE W. MITCHELL (Board of Governors)
FRANK E. MORRIS (Elected by Federal Reserve Banks of Boston, Philadelphia,
and Richmond)
JOHN E. SHEEHAN (Board of Governors)
OFFICERS
MURRAY ALTMANN,
ARTHUR L. BROIDA, Secretary
LEON ALL C. ANDERSEN,
Assistant Secretary
NORMAND R. V. BERNARD,
Assistant Secretary
THOMAS J. O'CONNELL,
General Counsel
EDWARD G. GUY,
Deputy General Counsel
JOHN NICOLL,
Assistant General Counsel
J. CHARLES PARTEE,
Senior Economist
STEPHEN H. AXILROD,
Economist (Domestic Finance)
* ROBERT SOLOMON,
Associate Economist
RALPH C. BRYANT,
Associate Economist
ROBERT W. EISENMENGER,
Associate Economist
GEORGE GARVY,
Associate Economist
LYLE E. GRAMLEY,
Associate Economist
JOHN E. REYNOLDS,
Associate Economist
KARL A. SCHELD,
Associate Economist
KENT O. SIMS,
Economist (International Finance)
Associate Economist
ALAN R. HOLMES, Manager, System Open Market Account
CHARLES A. COOMBS, Special Manager, System Open Market Account
PETER D. STERNLIGHT, Deputy Manager, System Open Market Account
DAVID E. BODNER, Deputy Special Manager, System Open Market Account
Meetings of the Federal Open Market Committee are generally held at
monthly intervals. (See Record of Policy Actions taken by the Committee in
1973 on pp. 128-223 of this REPORT.)
* On leave of absence.
330
FEDERAL ADVISORY COUNCIL
(December 31, 1973)
MEMBERS
District No. 1—JAMES F. ENGLISH, JR., Chairman of the Board, Connecticut
Bank and Trust Company, Hartford, Conn.
District No. 2—GABRIEL HAUGE, Chairman of the Board, Manufacturers Hanover Trust Company, New York, N.Y.
District No. 3—G. MORRIS DORRANCE, JR., Chairman of the Board and
President, The Philadelphia National Bank, Ardmore, Pa.
District No. 4—CLAIR E. FULTZ, President, Huntington Bancshares, Inc.,
Columbus, Ohio
District No. 5—THOMAS I. STORRS, President, NCNB Corporation and North
Carolina National Bank, Charlotte, N.C.
District No. 6—HARRY HOOD BASSETT, Chairman of the Board, The First
National Bank of Miami, Miami, Fla.
District No. 7—ALLEN P. STULTS, Chairman of the Board, American National Bank and Trust Company of Chicago, Chicago, 111.
District No. 8—DAVID H. MOREY, Chairman and Chief Executive Officer, The
Boatmen's National Bank of St. Louis, St. Louis, Mo.
District No. 9—CHESTER C. LIND, President and Chief Executive Officer, First
American National Bank of Duluth, Duluth, Minn.
District No. 10—MORRIS F. MILLER, Chairman of the Board and Chief Executive Officer, The Omaha National Bank, Omaha, Neb.
District No. 11—LEWIS H. BOND, Chairman of the Board and Chief Executive Officer, The Fort Worth National Bank, Fort Worth, Tex.
District No. 12—H. A. ROGERS, President, Peoples National Bank of Washington, Seattle, Wash.
OFFICERS
G. MORRIS DORRANCE, JR., President
HARRY HOOD BASSETT, Vice President
HERBERT V. PROCHNOW, Secretary
WILLIAM J. KORSVIK, Assistant Secretary
EXECUTIVE COMMITTEE
G. MORRIS DORRANCE, JR., ex officio
HARRY HOOD BASSETT, ex officio
JAMES F. ENGLISH, JR.
DAVID H. MOREY
MORRIS F. MILLER
Meetings of the Federal Advisory Council were held on February 1-2,
May 3-4, September 6-7, and November 1-2, 1973. The Board of Governors
met with the Council on February 2, May 4, September 7, and November 2.
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.
331
FEDERAL RESERVE BANKS AND
BRANCHES
(December 31, 1973)
CHAIRMEN AND DEPUTY CHAIRMEN OF
BOARDS OF DIRECTORS
Federal Reserve
Bank of—
Chairman and
Federal Reserve Agent
James S. Duesenberry
Roswell L. Gilpatric
John R. Coleman
Horace A. Shepard
Robert W. Lawson, Jr.
John C. Wilson
William H. Franklin
Frederic M. Peirce
David M. Lilly
Robert W. Wagstaff
Chas. F. Jones
O. Meredith Wilson
Boston
New York . .
Philadelphia .
Cleveland . . .
Richmond . . .
Atlanta
Chicago
St. Louis
Minneapolis .
Kansas City .
Dallas
San Francisco
Deputy
Chairman
Louis W. Cabot
Frank R. Milliken
Edward J. Dwyer
J. Ward Keener
Stuart Shumate
H. G. Pattillo
Peter B. Clark
Sam Cooper
Bruce B. Dayton
Robert T. Person
John Lawrence
Joseph F. Alibrandi
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 meetings, attended also by Deputy Chairmen of the Reserve Banks,
were held in Washington on June 21 and on November 29 and 30, 1973.
Mr. David M. Lilly, Chairman of the Federal Reserve Bank of Minneapolis, who was elected Chairman of the Conference and of its Executive Committee in December 1972, served in that capacity until the close of the 1973
meetings. Mr. Robert W. Wagstaff, Chairman of the Federal Reserve Bank
of Kansas City, and Mr. John C. Wilson, Chairman of the Federal Reserve
Bank of Atlanta, served with Mr. Lilly as members of the Executive Committee; Mr. Wagstaff also served as Vice Chairman of the Conference.
On November 30, 1973, Mr. Wagstaff was elected Chairman of the Conference and of its Executive Committee to serve for the succeeding year; Mr.
Roswell L. Gilpatric, Chairman of the Federal Reserve Bank of New York,
was elected Vice Chairman of the Conference and a member of the Executive
Committee; and Mr. William H. Franklin, Chairman of the Federal Reserve
Bank of Chicago, was elected as the other member of the Executive Committee.
332
F.R. BANKS AND BRANCHES—Continued
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.
Term
expires
DIRECTORS
District 1—BOSTON
Dec. 31
Class A:
Ralph A. Mclninch
Mark C. Wheeler
William M. Honey
President, Merchants National Bank of Manchester, Manchester, N.H
1973
President, New England Merchants National
Bank, Boston, Mass
1974
President, The Martha's Vineyard National
Bank, Vineyard Haven, Mass
1975
Class B:
G. William Miller
President, Textron, Providence, R.I
1973
W. Gordon Robertson. . General Trustee, Bangor, Maine
1974
Alfred W. Van Sinderen.President, The Southern New England Telephone Co., New Haven, Conn
1975
Class C.John M. Fox
President and Chief Executive Officer, H. P.
Hood & Sons, Charlestown, Mass
1973
James S. Duesenberry.. Chairman, Department of Economics, Harvard University, Cambridge, Mass
1974
Louis W. Cabot
Chairman of the Board, Cabot Corporation,
Boston, Mass
1975
333
F.R. BANKS AND BRANCHES—Continued
Term
expires
DIRECTORS—Com.
District 2—NEW YORK
Dec. 31
Class A:
David C. Rockefeller.... Chairman of the Board, The Chase Manhattan Bank, N.A., New York, N . Y . . . . . . . . . . . . 1973
Norman Brassier. . . . . . Chairman of the Board' and Chief Executive
• • Officer, • Mew • Jersey Bank, N.A., • Passaic,
N J . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Newman E. Wait, J r . . . . President, Adirondack Trust Company, Saratoga Springs, N . Y . . . . . . . . . . . . . . . . . . . . . . . 1975
Class B:.
Maurice F. Granville... .Chairman of the Board, Texaco,. Inc., New.
York, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
William S. S n c a t h . . . . . . President, Union Carbide Corporation, New
York, ' N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Jack B. J a c k s o n . . . . . . . . P r e s i d e n t , J. C. Penney Company,' Inc., New
York, - N Y . .....................•..•.•..••.:.
1975
Class C.Alan J. P i f e r . . . . . . . . . . . President, Carnegie Corporation of New York,
New York, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . 1973
Roswell L. G i l p a t r i c . . . .Partner, Cravatfa, Swaine& Moore 5 Attorneys,
New York, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Frank R. M i l l i k e n . . . . . . President, Kennecott Copper Corporation,
New'York, N . Y . . . . . . . . . . . . . . . . . . " . . . . . . . 1975
BUFFALO BRANCH
Appointed by Federal Reserwe Bank:
WilliamB.'Anderson... .'President, The First National Bank of Jaroes• town,- Jamestown, N . Y . . . . . . . . . . . . . . . . . . . " 1973
Angelo A. Costanza. . . .President-and Chief Executive Officer, Central
Trust Company, Rochester, N . Y . . •,••. • . , , . . - . . 1973
Theodore M. McClure. .President, The Citizens National Bank .and.
Trust Company, Wellsville, N . Y . . . . . . . . . . . . 1974
Claude F, Shuchter..... President and Chief Executive Officer, Manufacturers and Traders Trust Company,
Buffalo, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Appointed by Board of Governors:
Rupert W a r r e n . . . . . . . . . President, Trico Products Corporation, Buffalo,
N . Y . . . ' . ; . . . . . . . . . . . . . . . . ' . . . . . . . . . " . . . . ; . 1973
Norman F . Beach. . . . . .Vice President and Genera! Manager,"Kodak
Park • Division, Eastman Kodak • Company,
..Rochester, N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Donald Nesbltt. . . . . . . . O w n e r - O p e r a t o r , Silver Creek Farms, Albion,.
N . Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
334
F.R. BANES AND BRANCHES—Continued
DIRECTORS—Cant.
District 3—PHILADELPHIA
Term
expires
Dec. 31
Class A:
Richard A. H e r b s t e r . . . . President, Lewistown Trust Company, Lewistown, P a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John C. Tuten. . . . . . . . . C h a i r m a n , and Chief Executive Officer, National
Centra! Bank and National Central Financial Corp., Lancaster, P a . . . . . . . . . . . . . . . . . .
John H. H a s s l e r . . . . . . . . President, The City National Bank and Trust
Company of Salem, Salem, N. J . . . . . , , . , . . .
1973
1974
1975
Class B;
William S. M a s l a n d . . . . .President, C. H. Masland and Sons, Carlisle,
Pa.....................................
C. Graham Berwind, Jr.. President and Chief Executive Officer, Berwind
Corporation, Philadelphia, P a . . . . , . , , . . . . . .
Bernard D. B roe ke r..... Executive Vice President, Bethlehem Steel Corporation, Bethlehem, P a . . . . . . . . . . . . . . . . . . .
1973
1974
1975
Class C:
John R. C o l e m a n . . . . . . President, Haverford College, Haverford, Pa.. . 1973
E. W. Robinson, Jr.. . .President, Provident Home Industrial Mutual
Life Insurance Co., Philadelphia, P a . . . . . . . . 1974
Edward J. D w v e r . . . . . .Chairman and Chief Executive Officer, ESB
Incorporated, Philadelphia, P a . . . . . . . . . . . . . 1975
District 4r-CLEVELAND
Class A:
Edward W. Barker
.Chairman and Chief Executive Officer, First
National Bank of Middletown, Mid'dletown,
O h i o . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
A. Bruce Bowdcn
Retired Vice Chairman of the Board, Mellon
Bank, N. A., Pittsburgh, P a . . . . . . . . . . . . . . . . 1974
David L. Brumback, Jr.. President, Van Wert National Bank, Van Wert,
O h i o , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Class B:
.Chairman of the Board and Chief Executive
Officer, Anchor Hocking Corporation, Lancaster, O h i o . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
President and Chief Executive Officer, RubberDonald E. Noble.
maid Incorporated, Wooster, O h i o . . . . . . . . 1974
Rene C. McPherson. . . Chairman and Chief Executive Officer, Dana
Corporation, Toledo, Ohio. . , . . . . . . . . . . , , 1975
John L. Gushman.
335
F.R. BANKS AND BRANCHES—Continued
—Co/ir.
District 4—CLEVELAND—Continued
Term
expires
D-ec* 31
Class C:
J. Ward K e e n e r . , . . , , . , Retired Chairman of the Executive Committee,
The B. F. Goodrich Company, Akron., Ohio. 1973
Horace .A. Shepard. . . . .Chairman, of. the-Board--and Chief ExecutiveOfficer, TRW Inc., Cleveland, Ohio . . . . . . .
1974
Otis A. Singletary. . . . . .President, University of Kentucky, Lexington,
Ky...........-..:...•....•;..........•.....
1975"
CINCINNATI BRANCH
Appointed, by Federal Reserve Bank:
William S. R o w e . . . . . . . President, The Fifth Third Bank, Cincinnati,
O h i o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . '1973
E. Paul W i l l i a m s . . . . . . . President, Second National Bank, Ashland, Ky/ 1974
Paul W. Christensen, Jr.. President, The.Cincinnati Gear Company, Cincinnati, O h i o . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
Robert E. H a l l , . . . . . . . . P r e s i d e n t , The First National Bank and Trust
Company, Troy, O h i o , . . . . . . . . . . . . . . . . . . . . 1975Appointed by Board of Governors:
Clair F. V o u g h - . . . . . . . . . V i c e President, Office Products Division, IBM
Corporation, Lexington, Ky. . , . . . . , » . . . . .
Graham E. M a r x . . . , , . , President and General Manager, The G. A.
Gray Company,Cincinnati, O h i o . . . . . . . . . .
Phillip R. Shriver.......President, Miami University, Oxford, O h i o , . .
1973
1974
1975
PITTSBURGH BRANCH
Appointed by Federal Reserve Bank:
Merle E. G i l l i a n d . . . . . . . Chairman of the Board and Chief Executive
Officer, Pittsburgh National Bank, Pittsburgh, P a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ; • • . • -1973Charles F. W a r d . . . . . . . President, Gallatin National Bank, Uniontown,
Pa.....................................
1974
Robinson F."Barker. . . .Chairman of the Board and Chief Executive'
Officer, PPG Industries, ; Inc., Pittsburgh,-Pa. • 1975
Jerry A. H a l v e r s o n . . . . . President, The First National Bank and Trust
Co. of Wheeling, Wheeling, W. V a . . . . . . ' . . . ' 1975
336
F.R. BANKS A N D BRANCHES—Continued
DIRECTORS—Cont.
District 4—CLEYELAND—Continued
Term
expires
Dec. 31
PITTSBURGH BRANCH—-Continued
Appointed by Board of Governors;
Robert E. K i r b y . . . . . . . . P r e s i d e n t , Industry and Defense Company,
Westinghouse Electric Corporation, Pittsburgh, P a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard M. Cyert. . . . . .President, Carnegie-Mellon University, Pittsburgh, P a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas Grymes, . . . . . . P r e s i d e n t , Koppers Company, Inc., Pittsburgh,
Pa..
1973
1974
1975
District 5—RICHMOND
Class A;
Thomas P. McLaeMen. .President, MeLachlen National Bank, Washington, D . C . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edward N, E v a n s . . . . . . President, Farmers & Merchants National
Bank of Cambridge, Cambridge, M d . . . . . . .
John H. L u m p k i n . . . . . . Chairman and Chief Executive Officer, The
South Carolina National Bank, Columbia,
S.C.. .
1973
1974
1975
Class B;
H. Dail Holderness
President, Carolina Telephone and Telegraph
Company, Tarboro, N . C . . . . . . . . . . .
...
Henry C. Hofheimer, I I . . Chairman, Virginia Real Estate Investment
Trust, Norfolk, V a . . . . . . . . . . . . . . . . . . . . . . .
Osby L. W e i r . . . . . . . . . . General Manager, Metropolitan WashingtonBaltimore Area, Sears, Roebuck and Co.,
Bethesda, M d . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class C.Stuart S h u m a t e . . . . . . . . President, Richmond, Fredericksbtirg and
Potomac Railroad Company, Richmond,
Va.....................................
E. Craig Wall, S r . . . . . . . C h a i r m a n of the Board, Canal Industries, Inc.,
Conway, S.C.
Robert W. Lawson, J r . . , Senior Partner, Charleston Office, Steptoe &
Johnson, Attorneys, Charleston, W. V a . . . . .
1973
1974
1975
1973
1974
1975
337
F.E. BANKS AND BRANCHES-~Co»J»jfife</
District 5—RICHMOND—Continued
Term
expires
Dec, 31
BALTIMORE BRANCH
Appointed by Federal Reserwe Bank:
J, Stevenson Peck, . . . . .Chairman, of the.Board, Union. Trust Company
of Maryland, Baltimore, M d . . . . . . . . . . . . . .
James J. R o b i n s o n . . . . . .ExecutiYe Vice President, Bank of Ripley,
1973
R i p l e y , - W . V a . . . . . ; . . . . . . . . . ....-..:...•..•• 1 9 7 3
J. Pierre B e r n a r d , . . , . . , Chairman of the Board, The Annapolis Bank- .
Ing and Trust Company, Annapolis, M d . . . . 1974
J. R. Chaffinch, J r . . . . . .President,The Detiton National Bank, Denton,
Md....................................
1975
Appointed by Board of Governors:
John H. -Petting, J r . . . . . . President, A, H. Fetting Company, Baltimore,
Md.
1973James G, H a r l o w , . . . . .President, West Virginia University, Morgantown, W. V a . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1974
David W. -Barton, J r . . . . President, Barton-Gillet Company, Baltimore, • •
Md....................................
1975
CHARLOTTE BRANCH
Appointed by Federal Reserwe Bank:
H. Phelps Brooks, J r . . . . President, The Peoples National Bank, Chester,
S.C....................................
1973
C.' C. C a m e r o n . . . . . . . . . Chairman of the Board and President, First
Union National Bank of North Carolina,
Charlotte, N . C , . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
L. D, Coltrane, I I I . . . . . President, The Concord National Bank, Concord, N . C , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ' . 1974
William W. B r u n e r . . . . . Chairman and President, First National Bank
of South Carolina, Columbia, S . C . . . . . . . . . .
1975
Appointed by Board of Governors:
Charles W. DeBell...... General Manager, North Carolina Works,
Western Electric Company, Inc., WinstonS a l e m , N . C . . . . . . . . . . . . . . . . . . . . . . . . : . . . . 1973
Charles F..Benbow. . .. .Senior Vice President, R. J. Reynolds Industries, Inc., Winston-Salem ? N . C . . . . . . . . . . . . . 1974
Robert C. E d w a r d s . . . . . President, Clemson UniYersity, Clemson, S.C... 1975
338
F.R. BANKS AND BRANCHES—Continued
Term
expires
DIRECTORS—Com.
District i—ATLANTA
Bee. 31
Class A;
A, L. E l l i s . . . . . . . . . . . . . C h a i r m a n of the Board, First National Bank,
Tarpon Springs, F l a . . . . . . . . . . . . . . . . . . . . . .
Jack P. Keith. . . . . . . . . . P r e s i d e n t , First National Bank of West Point,
West Point, G a . . . . . . . . . . . . . . . . . . . . . . . . . .
Sam I. Y a r n e l l . . . . . . . . . Chairman, American National Bank and Trust
Co., Chattanooga, T e n n . . . . . . . . . . . . . . . . . .
Class B:
Hoskles A. S h a d o w . . . . .President, Tennessee Valley Nursery, Inc., Winchester, T e n n . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owen C o o p e r . . . . . . . . . . President, Mississippi Chemical Corporation
and Coastal Chemical Corporation, Yazoo
City, M i s s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
George W. Jenkins. . . . .Chairman, Publix Super Markets, Inc., Lakeland, F l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
1974
1975
1973
1974
1975
Class C;
John C. Wilson. . . . . . . . P r e s i d e n t , Home-Wilson, Inc., Atlanta, G a . . . . 1973
H. G. P a t t i l l o . . . . . . . . . . P r e s i d e n t , Pattillo Construction Company, Inc.,
Decatur, G a . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
F. Evans F a r w e l l . . . . . . .President, Milliken and Farwell, Inc., New Orleans, L a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
BIRMINGHAM BRANCH
Appointed by Federal Reserve Bank:
Wallace D. Malone, Jr.. . President and Chairman of the Board, The First
National Bank of Dothan, Dothan, A i a . . . . .
C. Logan T a y l o r . . . . . . Chairman of the Board, The First State Bank of
Oxford, Oxford, A i a . . . . . . . . . . . . . . . . . . . . .
W. Eugene M o r g a n . . . . .President aEd Chief Executive Officer, The
First National Bank of Huntsville, Huntsville, A i a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John T. Oliver. . . . . . . . . P r e s i d e n t , First National Bank, Jasper, Aia...
1973
1973
1974
1975
Appointed by Board of Governors:
David M a t h e w s . . . . . . . . President, University of Alabama, University,
A l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
William C. B a u e r . . . . . . . P r e s i d e n t , South Central Bell, Birmingham,
A l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
( V a c a n c y ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
339
F.R. BANKS AND BRANCHES—Continued
Term
expires
DIRECTORS—Cont,
District §—ATLANTA—Continued
'Dec. 31
JACXSOHYILLE BRANCH
Appointed by Federal Reserve'Bank;
Malcolm C. B r o w n . . . . . President and Chairman of the Board, Florida •
•First National Bank at Brent, Pensaeola, Fla. 1973
A. Clewis-Howell.......President,'Marine 'Bank & Trust Company,
Tampa, Fla,, . . . . . . . . .
. . . . . . . . . , . . , . . • • -1973
Guy W. B o t t s . . . . . . . . . . V i c e - Chairman of the Board, Barnett -Bank of "
• Jacksonville, N.A., Jacksonville,'Fla,.'..... 1974
Michael JV F r a n c o . . . . . .Chairman of the Board, City National Bank of
. .Miami, Miami, F l a . . . . . . . . . . . . . . . . . . . . . . . • 1975
Appointed 'by Board of Governors:
Henry C r a g g . . . . . . . . . . . . V i c e President, .The Coca-Cola Company Foods •
• Division, Winter Park, F l a . . . . . . . . . . . . . . . . 1973
Gert H. W. Schmidt. . . ; President, TeLeVision 12 of Jacksonville, Jack-.
sonville, F i a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
James E...Lyons..........President, Lyons Industrial Corporation, Winter- Haven, F l a . . . . . . . . . . . . . .
. . . . . . . . . 1975
NASHYILLE BRANCH
Appointed by Federal Reserve Bank:
Dan B. . A n d r e w s . . . . . . . P r e s i d e n t , First National Bank, Dickson, Tenn.Edward G. N e l s o n . . . . . . President, Commerce Union Bank," Nashville,
Term... . . . . . . . . . . . . . . . . . . . . . . . . . . . ' . . . . . . , . ' .
W. Bryan W o o d a r d . . . . . President, Kingsport National Bank, • Kingsport, T e n n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert E. Curry
. . . . President, First National Bank of Pulaski,
Pulaski, T e n n . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
1973
1974
1975
Appointed by Board of Governors:
James W. L o n g . . . . . . . . President, Robertson County Farm Bureau,
Springield, T e n n . . . . . . . . . . . . . . . . . . . . . . . . 1973
Edward J. B o l i n g . . . . . . .President, The University of Tennessee, Knox-.
ville, T e n n , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
John C Tune . . . . . .....Partner, Butier5 McHugh 5 Butler, Tune &
Watts, Attorneys, Nashville, T e n n . . . . . . . . . . 1975
340
F.R. BANKS A N D
DIRECTORS—Cont.
BRANCHES—Continued
District 6^ATLANTA—Continued
Term
expires
Dec. 31
NEW ORLEANS BRANCH
Appointed by Federal Reserve Bank:
Tom A. Flanagan, Jr... .President, Lakeside National Baok of Lake
Charles, Lake Charles, La.
Lawrence A, Merrigan. .President, The Bank of New Orleans and Trust
Company, New Orleans, L a , . . . . . . . . . . . . . .
Archie R. McDonnell.. .President, Citizens National Bank, Meridian,
Miss...................................
Ernest F. Ladd, J r . . . . . . Chairman, The • Merchants National Bank,
Mobile, A l a . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appointed by Board of Governors:
Broadus N. B u t l e r . . . . . .President, Dillard University, New Orleans, La.
Fred Adams, J r . . . . . . . . . P r e s i d e n t , Cal-Maine Foods, Inc., Jackson,
Miss...................................
Edwin J. Caplae. . . . . . .President, Caplan's Men's Shops, Inc., Alexandria, L a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
1973
1974
1975
1973
1974
1975
District 7—CHICAGO
Class A:
Melvin C. L o c k a r d . . . . .President, First National Bank, Mattoon, 111...
Floyd F. W h i t m o r e . . . . .President, The Okey-Vernon National Bank,
Coming, I o w a . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edward Byron S m i t h . . . . Chairman of the Board, The Northern Trust
Company, Chicago, 111.
Class B:
Howard M. P a c k a r d . . . .Vice Chairman, S. C. Johnson & Son, Inc.,
Racine, Wis.
John T. H a c k e t t . . . . . . . . Executive Vice President, Cummins Engine
Company, Inc., Columbus, I n d . . . . . . . . . . . .
Oscar G. Mayer
Chairman of Executive Committee, Oscar
Mayer & Company, Madison, W i s . . . . . . . . .
Class C.John W. Baird
. . . . .President, Baird& Warner, Inc., Chicago, 111...
William H. F r a n k l i n . . . . Chairman of the Board, Caterpillar Tractor
Co., Peoria, 1 1 1 . . . . . . . . . . . . . . . . . . . . . . . . . .
Peter B. Clark. . . . . . . . .Chairman of the Board, President and Publisher, The Evening News Association,
Detroit, M i c h . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
1974
1975
1973
1974
1975
1973
1974
1975
341
F.R. BANKS AND BRANCHES—Continued
Term
• expires
DIRECTORS—COM.
District 7—CHICAGO—Continued
Dec. 31
DETROIT BRANCH
Appointed by Federal Reserve Bank:
Ellis B. M e r r y , . . . . . . . . , Directorf National Bank of Detroit, Detroit
•
M i c k . -...••. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harold A. E l g a s . . . . . . . . President, .Gaylord State Bank, Gaylord, Mich..
Joseph B. Foster, . . . . . . P r e s i d e n t and Chief Executive Officer, Ann
Arbor'Bank, Ann Arbor, M i c h . . . . . . . . . . . .
Roland A. Mewhort... .Chairman, Manufacturers National Bank of
Detroit, Detroit, M i c h . . . . . . . . . . . . . . . . . . . .
1973
1974
1975
•
1975
Appointed by Board of Governors:
L. Wm, Seidman. . . . . . . R e s i d e n t Partner, Seidman & Seidman, Grand
• Rapids, Mich. . . . . . . . . . . . . . . . . . . . . ; . . / , . ' 1973
Tom K i i l e f e r . . . . . . . . . . . Yice President-Finance, and General Counsel,
Chrysler Corporation, Detroit, M i c h . . . . . . . 1974
W. M. Defoe. . . . . . . . . . C h a i r m a n of the Board, Defoe Shipbuilding
. Company, Bay City, Mich, . . . . . . . . . . . . . . . . . 1975
District 8—ST. LOUIS
Class A:
, President, The First National Bank of Mexico,
Mexico, M o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
Edwin S. J o n e s . . . . . . . .Chairman of the Board, First National Bank in
St. Louis, St. Louis, M o . . . . . . . . . . . . . . . . . . 1974
Wm. E. Weigel....... ..Executive Vice President, 1st National Bank
and Trust Company, Centralia, 1 1 1 . . . . . . . . . 1975
Bradford. Brett.
Class B:
Fred I. Brown, Jr..... ., President, Arkansas Foundry Company, Little
Rock, A r k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 1973
James M. Tuholski. .. .. President, Mead Johnson & Company, Evansville, I n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ' 1974
Edward J. Schnuck,.. , .Chairman of the Board, Schnuck Markets,
Inc., Bridgeton, M o . . . . . . . . . . . . . . . . . . . . . .
342
1975
F.R. BANKS AND BRANCHES—Continued
Term
expires
DIRECTORS—Com.
District 8—ST. LOUIS—Continued
Dec. 31
Class C.Harry M. Young, J r . . . . .Melrose Farm, Herndon, K y . . . . . . . . . . . . . . . . . 1973
Frederic M. P e l r c e . . . . . .Chairman of the Board and Chief Executive
Officer, General American Life Insurance
Company, St. Louis, M o . . . . . . . . . . . . . . . . . 1974
Sam C o o p e r . . . . . . . . . . . President, HumKo Products, Division of
Krafteo Corporation, Memphis, Term..... 1975
LITTLE ROCK BRANCH
Appointed by Federal Reserve Bank:
Edward M. P e n i c k . . . . . .President and Chief Eiecutive Officer, Wortfaee
Bank & Trust Company, N.A., Little Rock,
Ark....................................
(Vacancy)......................................................
Thomas G. V I n s o n . . . . .President, First National Bank, Batesviiie, Ark.
Field W a s s o n . . . . . . . . . . President, The First National Bank, Slioam
Springs, A r k . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
1974
1975
1975
Appointed by Board of Gowernors:
Roland R. R e m m e l . . . . .Chairman of the Board, Southland Building
Products Co., Little Rock, A r k . . . . . . . . . . . . 1973
Al P o l l a r d . . . . . . . . . . . . . P r e s i d e n t , Ai Pollard & Associates, Little Rock,
A r k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
W. M. Pierce. . . . . . . . . . P r e s i d e n t , Arkansas Business Development
Corporation, Little Rock, Ark .
. . . . . . . 1975
LOUISVILLE BRANCH
Appointed by Federal Reserve Bank:
Harold E. J a c k s o n . . . . . . President, The Scott County State Bank, Scottsburg, Ind.
Hugh M. Shwab. . . . . . .Chairman of the Boards, First National Bank
of Louisville and The Kentucky Trust Company, Louisville, K y . . . . . . . . . . . . . . . . . . . . . .
Herbert J. Smith. . . . . . . P r e s i d e n t , The American National Bank &
Trust Company, Bowling Green, K y , . . . . . .
Tom G. V o s s . . . . . . . . . . President, The Seymour National Bank, Seymour, I n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
1974
1975
1975
343
F.E.
BANKS AND BRANCHES--Co«!i«ff*<f
Term
expires
DIRECTORS—Cont.
District 8—ST. LOUIS—Continued
-Bee. 31
LOUISYILLE BRANCH— Continued
Appointed, by .Board of Governors:
William H . S t r o u b e . . . . .Associate'Dean, 'College of Science and. Technology, Western Kentucky University, Bowling Green, K y . . . . " . , , , ; , " " . . . . . . . . . . . . . . . . . . ' 1973
James C . Hendershot. . . President and Chief-Operating Officer, -Reliance
Universal Inc.,"Louisville, K y . . , . ' . . " . . ' . , . ' . ' . 1974
James H . D a v i s . . . . . . . . C h a i r m a n and. Chief Executive Officer, Porter •
Paint-Company, Louisville, K y , . . . . . . . . . . . 1975
MEMPHIS' BRANCH
Appointed by Federal Reserve Bank:
J. J. W h i t e . . . . . . . . . . . . . P r e s i d e n t , . H e l e n a . . N a t i o n a l Bank, Helena, Ark. 1973
Garner L ^ H i c k m a n . . . . .-Chairman"and President, The First National
"Bank of Oxford, Oxford, Miss.................. .. 1974
Ridley A l e x a n d e r . . . . . . . Chairman, The Second National Bank of Jack- • •
son,' Jackson,, Tenn.
1975
C. Bennett Harrison, . . .Chairman.of the Board, Union Planters Na- tionai Bank of Memphis, Memphis, Tenn.... 1975'
Appointed "by Board of Governors:.
Alvin-Huffman j Jr.. ..-. .President, Huffman Brothers Incorporated,
• •
Blytheyille,; A r k . . . . . . . . . . . . . . . . " . . . , . . . . . , . . 1 9 7 3
C. Whitney B r o w n . . . . . . President, S. C. Toof & Company, Memphis,
T e n n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ; . . ' 1974
Jeanne L. H o l l e y . . . . . . . . A s s i s t a n t Professor of Business Education-and
Office-Administration, University of Missis-. .
sippi, University, M i s s . . . . . . . . . . . . . . . . . . . . 1975
District 9—MINNEAPOLIS
Class A:
Philip H . N a s o n . . . . . . . . C h a i r m a n of the Board, The First .National
Bank of Saint Paul, St, Paul, M i n n . . . . . . . . .
Roy H . J o h n s o n . . . . . . . . P r e s i d e n t , The First National Bank of .Negaunee, Negaunee, M i c h , . . . . . . . . . . . . . .-.-.•....
David M. S m i t h . . . . . . . . President, 1st National Bank, River Falls, Wis..
•
• 1973
1974
1975
Class B:
Dale-V/Andersen. . . . . .President, Mitchell Packing Company, Inc.,..
Mitchell, S. D a k , . . . . . . . . . . . . . . . . . . . . . . . . • 1973
John H. B a i l e y . . . . . . . . . P r e s i d e n t , The Cretex Companies, Inc., Elk
River, M i e n , . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
David M, Heskett. . . . . .President, Montana-Dakota Utilities Co.;Bismarck, N . Dak..
. . . . ' . - . 1975
344
F.E. BANKS AND BRANCHES—Continued
DIRECTORS—COM.
District 9—MINNEAPOLIS—Continued
Term
expires
Dec. 31
Class C:
Russ B. H a r t . . . . . . . . . . P i e s i d e n t , Hart-Alble Company, Billings,
Mont..................................
1973
Bruce B. Dayton. . . . . . . C h a i r m a n of the Board, Dayton Hudson Corporation, Minneapolis, M i n n . . . . . . . . . . . . . . 1974
David M. L i l l y . . . . . . . . . C h a i r m a n of the Board, The Toro Company,
Minneapolis, M i n e . . . . . . . . . . . . . . . . . . . . . . . 1975
HELENA BRANCH
Appointed by Federal Reserve Bank:
Richard D. R u b i e . . . . . . President, Missoula Bank of Montana, Missoula, M o n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
Robert I. Penner. . . . . . . P r e s i d e n t , Citizens First National Bank, Wolf
Point, M o n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
John R e i c h e l . . . . . . . . . . . P r e s i d e n t , 1st National Bank in Bozeman,
Bozeman, M o n t . . . . ' . . . . . . . . . . . . . . . . . . . . . 1974
Appointed by Board of Governors:
William A. Cordiegley, .Publisher, Great Falls Tribune, Great Falls,
M o n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
Warren B. Jones. . . . . . .Sscretary-Treasurer, Two Dot Land and Livestock Company, Harlowton, M o n t . . . . . . . . . 1974
D i s t r i c t 10—KANSAS C I T Y
Class A:
C. Mose M i l l e r . . . . . . . . . Chairman of the Board and President, The
Farmers and Merchants State Bank, Colby,
K a n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
John A. G'Leary. . . . . . .Chairman of the Board, The Peoples State
Bank, Luray, E.ans. . . . . . . . . . . . . . . . . . . . . . 1974
Roger D. Knight, J r . . . . .Chairman of the Board, United Banks of
Colorado, Inc., Denver, C o l o . . . . . . . . . . . . . . 1975
Class B:
Alfred E. Jordan. . . . . . . V i c e President, Trans World Airlines, Inc.,
Kansas City, M o . . . . . . . . . . . . . . . . . . . . . . . . 1973
Frank C. L o v e . . . . . . . . . P r e s i d e n t , Kerr-McGee Corporation, Oklahoma City, O k l a . . . ' . . . . . . . . . . . . . . . . . . . . . . 1974
Cecil O. E m r i c h . . . . . . . . P r e s i d e n t , C. O. Emrlch Enterprises, Norfolk,
Nebr............................
1975
345
F.R. BANKS AND BRANCHES—Continued
DIRECTORS—Cont.
District il^KANSAS CITY—Continued.
Term
expires
Dec. 31
Class C.Robert T. P e r s o n . . . . . . . President and Chairman of the Board, Public
Service Company of Colorado, Dewer,
C o l o . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . - . . - • : . . 1973
Robert W. Wagstaff, . . .Chairman of the Board and President,' CocaCola' Bottling 'Company of Mid-America,
Kansas City,'Mo. . . ' , . . . . . . , . . , . . . , . . ' . . . . 1974
Harold W. Andersen... .President, World Publishing Company, Omaha
World Herald, Omaha, M e t o r . . . . . . . . . . . . . . . 1975
DEN¥EE BEAMCH
Appointed by Federal Reserve Bank:
John W, Hay, J r . . . . . . . . P r e s i d e n t , Rock Springs National Bank, Rock
S p r i n g s , W y o . . . . . . . . . . . . . . . . . . . . . , . - . • . - . - ; . • • 1973
Dale R. Hinman, . . . . . . C h a i r m a n of the Board, The Greeley National
• Bank, Greeley, C o l o , . . . . . . . . . . . . . . . . . . . / . 1974
Robert L. T r i p p . . . . . . . . Chairman of the Board and Chief Executi¥e
'Officer, Albuquerque National Bank, Albuquerque, N. M e x . . . . . . . . . . . . . . . . . . . . . . . . 1974
Appointed by Board of Governors:
Maurice B. Mitchell. . . .Chancellor, University of Dower, Indian Hills,
C o l o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
Edward R. L u c e r o . . . . . .Executive Director, Colorado Economic Development Association, Lakewood, C o l o . . . 1974
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, Oklahoma City, Okia.«..... 1973
Hugh C. J o n e s . . . . . . . . . Executive Vice President, The Bank of Woodward, Woodward, O k l a . . . . . . . . . . . . . . . . . . . 1974
Marvin Millard. . . . . . . . C h a i r m a n of the Board, National Bank of
Tulsa, Tulsa ? O k l a . . . . . . . . . . . . . . . . . . . . . . . 1974
Appointed by Board of Governors:
Joseph H. W i l l i a m s . . . . . President and Chief Operating Officer, The
Williams Companies, Tulsa, O k l a . . . . . . . . . 1973
Harley C u s t e r . . . . . . . . . . General Manager, Oklahoma Livestock- Marketing Association, Oklahoma City, Okla... 1974
346
F.R. BANKS AND BRANCHES—Continued
Term
expires
DIRECTORS—Con/.
District 10^KANSAS CITY—-Continued
Dec. 31
OMAHA BRANCH
Appointed by Federal Reserve Bank:
S. N . Wolbacfa. . . . . . . . . President, The First National Bank of Grand
Island, Grand Island, N e b r . . . . . . . . . . . . . . . . 1973
Glenn Y a u s s I . . . . . . . . . . Chairman of the Board, National Bank of
Commerce Trust & Savings, Lincoln, Nebr.. 1973
Edward W. L y m a n . . . . .Chairman, The United States National Bank of
Omaha, Omaha, N e b r . . . . . . . . . . . . . . . . . . . . 1974
Appointed by Board of Governors:
A. James Ebel. . . . . . . . . V i c e President and General Manager, Corahusker Television Corporation, Lincoln,
Nebr...................................
1973
Edward F. O w e n . . . . . . . President, Paxton & Vlerllng Steel Company,
Omaha, N e b r . . . . . . . . . . . . . . . . . . . . . . . . . . .
1974
D i s t r i c t 11—DALLAS
Class A:
J. V. Kelly. . . . . . . . . . . .Chairman of the Board, The Peoples National
Bank of Belton, Belton, T e x . . . . . . . . . . . . . . . 1973
A. W. Riter, J r . . . . . . . President, The Peebles National Bank of Tyler,
Tyler, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Robert H. Stewart, I I I . .Chairman of the Board, First International
Bancshares, Inc., Dallas, T e x . . . . . . . . . . . . . . 1975
Class B:
Carl D . N e w t o n . . . . . . . . C h a i r m a n of the Board, Fox-Stanley Photo
Products, Inc., San Antonio, T e x . . . . . . . . . . 1973
Hugh F . S t e e n . . . . . . . . . President, El Paso Natural Gas Company,
Ei Paso, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Thomas W. Herrick. . . .President, Mesa Agro Inc., Aniarillo, T e x . . . . . 1975
Class C.John L a w r e n c e . . . . . . . . .Chairman of the Board, Dresser Industries,
Inc., Dallas, Tex. . . . . . . . . . . . . . . . . . . . . . . . 1973
Cfaas. F . J o n e s . . . . . . . . . Dean, College of Business Administration,
University of Houston, Houston, T e x . . . . . . . 1974
Charles T. B e a l r d . . . . . . .Chairman of the Board, Beaird-Poulan Division, Emerson Electric Co., Shreveport, La. 1975
347
F.R. BANKS AND BRANCHES—Con/ifiM^
Term
expires
DIRECTORS—Cont.. •
D i s t r i c t 11—DALLAS—Continued
Dec. 31
EL PASO BRANCH
Appointed by Federal Reserve Bank:
Cullen J. K e l l y . , . . , . , . . President and Vice Chairman of the Board,
The First National-Bank of Midland, Midland, Tex, . . . . • . . . • • . : . • . : : . . . . . . . . . . . . . . . . .
Wayne S t e w a r t . , , . . , . , . President, First National Bank in Alamogordo,
Alamogordo., N . M e x . . . . . . . . . . . . , . , . , , , . . . .
Reed H. Chittim. . . . . . . P r e s i d e n t and- Chief Executive Officer, First
National Bank of Lea'County, Hobbs,"N.
Mex.......................................
Sam D . Young, J r . . . . . . President,. El Paso National Bank, El Paso,
Tex.. . . . . - . . : . . . . . . . • . . . . . . . . . . . . . . . . . . . .
1973
1974
1975
1975
Appointed by 'Board of Governors:
Herbert M. Schwartz... .President, Popular Dry Goods Co., Inc.,
El Paso, T e x , . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
Gage H o l l a n d . . . . . . . . . . Owner, Gage' Holland Ranch, Alpine, T e x . . . . . 1974
Allan B, B o w m a n . . . . . . P r e s i d e n t , Amax Arizona s Inc., Tucson, Ariz,,, • 1975
HOUSTON BRANCH
Appointed by Federal Reserve Bank:
Kline M c G e e , , . . . . . , . . Director, Southern National Bank of Houston,
....
Houston, T e x . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seth W. D o r b a n d t . . . . . . Chairman of the Board and President, First
National Bank in Conrae ? Conroe, Tex.......
Bookman Peters
President, The City National Bank of Bryan,
Bryan, T e x , . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nat S. R o g e r s . . . . . . . . . . President, First City National Bank of Houston, Houston, Tex. . . . . . . . . . . . . . . . . . . * . , . . •
1973
1974
•
1975
1975
Appointed by Board of Governors:
M. Steele Wright, Jr.. » . ; Chairman of the Board, Texas Farm Products
Company, Nacogdoches, T e x , . . . . . . . . . . . . . 1973
Carl B.-Sherman. . . . . . . P r e s i d e n t , Houston Lighting & Power Company, Houston, T e x . . . . . . . . . . . . . . . . . . . . . . 1974
Alvin I. T h o m a s . . . . . . . . President, Prairie View A&M University,
Prairie View, T e x , . . . . . . . . . . . . . . . . . . . . . . . 1975
348
F.R. BANKS AND BRANCHES—Continued
Term
expires
DIRECTORS—Cont.
District 11—DALLAS—Continued
Dec. 31
SAM ANTONIO BRANCH
Appointed by Federal Reserve Bank:
Ray M. Keck, J r . . . . . . . . C h a i r m a n of the Board and President, Union
National Bank of Laredo, Laredo, T e x . . . . .
Leon S t o n e . . . . . . . . . . . . P r e s i d e n t , The Austin National Bank, Austin,
Tex....................................
Richard W. Calvert
President, National Bank of Commerce of San
Antonio, San Antonio, T e x . . . . . . . . . . . . . . .
W. O. R o b e r s o n . . . . . . . . C h a i r m a n of the Board, First National Bank at
Brownsville, Brownsville, T e x . . . . . . . . . . . . . .
1973
1974
1975
1975
Appointed by Board of Governors:
Irving A. Mathews. . , . .Chairman of the Board and Chief Executive
Officer, Frost Bros., San Antonio, T e x . . . . . 1973
Marshall Boykin, I I I . . . .Partner, Wood, Boykin & Wolter, Lawyers,
Corpus Christ!, T e x . . . . . . . . . . . . . . . . . . . . . . 1974
Pete J. Morales, J r . . . . . . President and General Manager, Morales
Feedlots, Inc., Devine, T e x , . . . . . . . . . . . . . . . 1975
D i s t r i c t 12—SAN
FRANCISCO
Class A:
A. W. C l a u s e n . . . . . . . . . President and Chief Executive Officer, Bank of
America N T & SA» San Francisco, Calif... 1973
Carl E. Schroeder. . . . . .President, The First National Bank of Orange
County, Orange, C a l i f , . . . . . . . . . . . . . . . . . . . 1974
James E. P h i l l i p s . . . . . . . President, First National Bank in Port Angeles,
Port Angeles, W a s h . . . . . . . . . . . . . . . . . . . . . . 1975
Class B:
M a r r o n K e n d r i c k . . . . . . President a n d C h a i r m a n of t h e B o a r d , Schlage
L o c k C o m p a n y , S a n F r a n c i s c o , C a l i f . . . . . . . 1973
Charles R . D a h l . . . . . . . . President a n d Chief Executive Officer, C r o w n
Zellerbach, S a n Francisco, C a l i f , . . . . . . . . . . 1974
Joseph R o s e n b l a t t . . . . . . H o n o r a r y C h a i r m a n of t h e B o a r d , T h e E i m c o
C o r p o r a t i o n , Salt L a k e City, U t a h . . . . . . . . . 197.5
349
F.E. BANKS AND BRASCHBS—Continued
DIRECTORS—Cowl. District 12—SAN FRANCISCO—Continued
Term
expires
Dec. 31
Class C:
O. Meredith W i l s o n . . . . President and Director, Center for Advanced
Study in the Behavioral Sciences, Stanford,
Calif.. . . . . . . . . . ' . . . 7 . . . " . ' . . . . . . . . . . . . . . . . . 1973
Mas O j i . . . . . . . . . . . . . . . P r e s i d e n t , Oji Bros. Farm, Inc., Yuba City,
C a l i f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Joseph F. A l i b r a n d i . . . . . President, Whittaker Corporation, Los Angeles, C a l i f . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . 1975
LOS ANGELES BRANCH
Appointed by Federal Reserve Bank:
Carl E. .Hartnack.......President, Security • Paciic National Bank,
Los Angeles, C a l i f . . / , . , . . . . . . . . , . . . . . . . .
Linus E. Southwick..... President, Valley National Bank, Glendale,
Calif.........,.....-./..................
Rayburn S, Dezember.. . Chairman of the Board and President, American National Bank,'Bakersfield, C a l i f . . . . . . .
W. Gordon Ferguson. .. President, National Bank of Whittier, Whittier,
Calif............;..-.....................
1973
1973
1974
1975
Appointed by Board of Governors:
Edward A. S l o a n . . . . . . . President, Sloan's Dry Cleaners, Los Angeles,
. .
C a l i f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1973
Joseph R. Vaugfaan..... President, Knudsen Corporation, Los Angeles,
C a l i f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
Leland D. P r a t t . . . . . . . . P r e s i d e n t , Kelco Company, San Diego, Calif,.. 1975
POETLAND BRAMCH
Appointed by Federal Reserve Bank:
LeRoy.B. Staver. . . . . . . C h a i r m a n , of the Board and Chief Executive
Officer, United States National Bank of Oregon, Portland, O r e g . . . . . . . . . . . . . . . . . . . . . . . 1973
Frank L, S e r v o s s . . . . . . . P r e s i d e n t , Crater National Bank of Medford,
Medford, O r e g . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
James H. S t a n a r d . . . . . . Vice President, First National Bank of
McMinnville, McMInnYille, O r e g , . . . . . . . . . 1974
Appointed by Board of Governors:
F r a n k A n d e r s o n . . . . . . . . F a r m e r , H e p p n e r , O r e g . . . . . . . . . . . . . . . . . . . . . 1973
J o h n R . H o w a r d . . . . . . . P r e s i d e n t , Lewis a n d C l a r k College, P o r t l a n d ,
O r e g , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
350
F.E. BANKS AND BRANCHES—Continued
Term
expires
DIRECTORS—Co/i/. District 12—SAN FRANCISCO—Continued
Dec, 3!
SALT LAKE CITY BRANCH
Appointed by Federal Reserve Bank:
J o s e p h B i a n c o . . . . . . . . . C h a i r m a n o f t h e B o a r d a n d President, B a n k o f
I d a h o , Boise, I d a h o . . . . . . . . . . . . . . . . . . . . . . 1973
R o d e r i c k H . B r o w n i n g .President, B a n k o f U t a h , O g d e o , U t a h . . . . . . . 1974
R o y W . S i m m o n s . . . . . . President, Zions First N a t i o n a l B a n k , Salt L a k e
City, U t a h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 7 4
Appointed by Board of Governors:
Theodore C. Jacobsen.. .Chairman of the Board, Jacobsee Construction
Company, Inc., Salt Lake City, U t a h . . . . . . 1973
Sam H. Bennion. ......Secretary-Treasurer, ¥-1 Oil Company, Inc.
and Weatfaertite Block Co., Idaho Falls,
I d a h o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1974
SEATTLE BRANCH
Appointed by Federal Reserve Bank:
Joseph C. Baillargeon.. .Chairman of the Board and Chief Executive
Officer, Seattle Trust & Sa¥ings Bank, Seattle,
Wash..................................
Harry S. Goodfeiiow... .President, Old National Bank of Washington,
Spokane, W a s h . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert C. Whitwam, . . .President, American National l a n k of Edmonds, Edmonds, W a s h , . . . . . . . . . . . . . . . . .
Appointed by Board of Governors:
Thomas T. H i r a i . . . . . . . President, Quality Growers Company, Inc.,
WoGdievilte, W a s h . . . . . . . . . . . . . . . . . . . . . . .
C. H e n r y B a c o n , J r . . . . . Vice C h a i r m a n , 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1973
1974
1974
1973
1974
351
F.R. BANKS AND BRANCHES—COJI/IJ*«^
PRESIDENTS AND VICE PRESIDENTS
(December 31, 1973)
Federal
Reserve
Bank
President
First Vice President
Vice Presidents
or branch
Boston
Frank E. Morris
James A. Mclntosh
New York.. . Alfred Hayes
Richard A. Debs
Buffalo
D. Harry Angney
Lee J. Aubrey
F. K. Cummings
L. M. Hoyle, Jr.
Niels O. Larsen
Richard E. Randall
J. M. Thayer, Jr.
Richard A. Walker
Daniel Aquilino
Norman T. Byrnes
R. W. Eisenmenger
Thomas F. Hunt, Jr.
Donald A. Pelletier
Laurence H. Stone
James T. Timberlake
David E. Bodner
W. H. Braun, Jr.
Charles A. Coombs Richard G. Davis
Karl L. Ege
Peter Fousek
George Garvy
Edward G. Guy
Alan R. Holmes
John T. Keane
Leonard Lapidus
Paul Meek
Fred W. Piderit, Jr. Everett B. Post
A. Marshall Puckett Thomas C. Sloane
F. L. Smedley
Peter D. Sternlight
T. M. Timlen, Jr.
Thomas O. Waage
H. David Willey
Angus A. Maclnnes, Jr.
Philadelphia.
David P. Eastburn
Mark H. Willes
Hugh Barrie
Joseph M. Case
D. Russell Connor
Richard W. Epps
H. H. Holloway
Joseph R. Joyce
G. William Metz
William E. Roman
Robert R. Swander
Cleveland. .
Willis J. Winn
W. H. MacDonald
John E. Birky
George E. Booth, Jr.
Paul Breidenbach
R. Joseph Ginnane
W. H. Hendricks
William J. Hocter
Harry W. Huning
R. Thomas King
T. E. Ormiston, Jr. Lester M. Selby
R. E. Showalter
Donald G. Vincel
Charles A. Cerino
Fred O. Kiel
Samuel G. Campbell
Robert D. Duggan
Robert P. Black
(Temporarily vacant)
L. W. Bostian, Jr.
John G. Deitrick
H. Ernest Ford
A. V. Myers, Jr.
James Parthemos
John F. Rand
Aubrey N. Snellings
Cincinnati
Pittsburgh
Richmond. .
352
Edward G. Boehne
Hugh Chairnoff
Thomas K. Desch
W. Lee Hoskins
William A. James
A. A. Kudelich
L. C. Murdoch, Jr.
Kenneth M. Snader
W.T.CunninghamJr.
Welford S. Farmer
William C. Glover
John L. Nosker
C. D. Porter, Jr.
R. E. Sanders, Jr.
Andrew L. Tilton
F.R. BANKS AND BRANCHES—Continued
PRESIDENTS AND VICE PRESIDENTS—Continued
Federal
Reserve
Bank
or branch
President
First Vice President
Richmond—
Cont.
Baltimore
H. Lee Boatwright, III
Gerald L. Wilson
Boyd Z. Eubanks
J. R. Monhollon
Stuart P. Fishburne
J. Gordon Dickerson, Jr.
Albert D. Tinkelenberg
Charlotte
Culpeper 1
Atlanta
Birmingham
Jacksonville
Miami *
Nashville
New
Orleans
Chicago
Monroe Kimbrel
Kyle K. Fossum
Charles D. East
Billy H. Hargett
Arthur H. Kantner
Brown R. Rawlings
Charles T. Taylor
Edward C. Rainey
W. M. Davis
Jeffrey J. Wells
George C. Guynn
Robert P. Mayo
Ernest T. Baughman
Carl E. Bie-bauer
George W. Cloos
LeRoy A. Davis
R. W. Dybeck
Edward A. Heath
Ward J. Larson
R. A. Moffatt
J. R. Morrison
Louis J. Purol
R. M. ScheideKarl A. Scheld
Harry S. Schultz
Roby L. Sloan
Bruce L. Smyth
Jack P. Thompson Allen G. Wolkey
William C. Conrad
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
Little
Rock
Louisville
Memphis
1
Harry Brandt
Robert P. Forrestal
Robert E. Heck
J. E. McCorvey
Richard A. Sanders
Pierre M. Viguerie
Hiram J. Honea
Detroit
St. Louis
Vice Presidents
Not considered a branch
Ruth A. Bryant
W. W. Gilmore
John W. Menges
F. G. Russell, Jr.
Harold E. Uthoff
John F. Breen
Donald L. Henry
L. Terry Britt
F.R. BANKS AND BRANCHES—Continued
PRESIDENTS AND VICE PRESIDENTS—Continued
Federal
Reserve
Bank
President
First Vice President
Vice Presidents
or branch
Minneapolis . Bruce K. MacLaury
M. H. Strothman, Jr.
Helena
Kansas City.. George H. Clay
John T. Boysen
Denver
Oklahoma
City
Omaha
Dallas
Frederick J. Cramer Ralph J. Dreitzler
L. W. Fernelius
Lester G. Gable
Thomas E. Gainor Roland D. Graham
Douglas R. Hellweg John A. MacDonald
D. R. McDonald
Clarence W. Nelson
John P. Olin
C. A. Van Nice
R. W. Worcester
Howard I^. Knous
W. T. Billington
Thomas E. Davis
Joseph R. Euans
J. David Hamilton
G. H. Miller, Jr.
Sheldon W. Stahl
George C.
H. R. Czerwinski
Raymond J. Doll
J. Roger Guffey
Wayne W. Martin
M. L. M othersead
Robert E. Thomas
Rankin
William G . Evans
Robert D. Hamilton
Philip E. Coldwell
T. W. Plant
El Paso
Houston
San
Antonio
Robert H. Boykin G. C. Cochran, III
Leon W. Cowan
Ralph T. Green
Larry D. Higgins
James A. Parker
W. M. Pritchett
T. J. Salvaggio
T. R. Sullivan
E. W. Vorlop, Jr.
Frederic W. Reed
James L. Cauthen
Rasco R. Story
Carl H. Moore
San
Francisco.. John J. Balles
John B. Williams
Los
Angeles
Portland
Salt Lake
City
Seattle
James M. Brundy A. S. Carella
Wesley G. DeVries Robert C. Dietz
W. H. Hutchins
Richard C. Dunn
H. B. Jamison
Thomas E. Judge
D. V. Masten
Rix Maurer, Jr.
Kent O. Sims
Louis E. Reilly
William J. Sumner
James M. Davis
Gerald R . Kelly
W. M. Brown
A. Grant Holman
Paul W. <"avan
James J. Curran
F.R. BANKS AND BRANCHES—Continued
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 a
meeting on March 20, 1972, Mr. Monroe Kimbrel and Mr. Philip E. Coldwell, Presidents of the Federal Reserve Banks of Atlanta and Dallas, were
elected Chairman and Vice Chairman, respectively, for the forthcoming Conference year. At the meeting on March 19, 1973, Mr. Coldwell and Mr. Frank
E. Morris, President of the Federal Reserve Bank of Boston, were elected
Chairman and Vice Chairman, respectively, for the forthcoming Conference
year, ending with the March 1974 meeting.
At the March 1972 meeting, Mr. H. Terry Smith and Mr. Robert Smith, III,
of the Federal Reserve Banks of Atlanta and Dallas, were appointed Secretary
and Assistant Secretary, respectively. At the March 1973 meeting, Mr. Robert
Smith, III, and Mr. Herbert F. Wass, Federal Reserve Bank of Boston, were
appointed Secretary and Assistant Secretary, respectively.
CONFERENCE OF FIRST VICE PRESIDENTS
The Conference of First Vice Presidents of the Federal Reserve Banks
was organized in 1969 to meet from time to time, primarily for the consideration of operational matters. Effective May 2, 1972, Mr. Kyle K. Fossum
(First Vice President of the Federal Reserve Bank of Atlanta) and Mr.
T. W. Plant (First Vice President of the Federal Reserve Bank of Dallas)
were elected Chairman and Vice Chairman, respectively, of the Conference.
Mr. H. Terry Smith and Mr. Robert Smith, III were appointed Secretary and
Assistant Secretary, respectively.
On May 1, 1973, the Conference elected Mr. Plant as Chairman and Mr.
Earle O. Latham (First Vice President of the Federal Reserve Bank of Boston
until his retirement) as Vice Chairman, to be succeeded by Mr. James A.
Mclntosh, upon his appointment as First Vice President of the Federal Reserve
Bank of Boston, effective June 15, 1973; and appointed Mr. Robert Smith,
III, and Mr. Herbert F. Wass, as Secretary and Assistant Secretary, respectively, for the forthcoming Conference year.
355
Index
Page
Acceptances, bankers':
Authority to purchase and enter into repurchase agreements
129-30
Federal Reserve Bank earnings
261, 262, 282
Federal Reserve Bank holdings
261, 262, 272, 274, 276
Open market transactions during 1973
280
Repurchase agreements
130, 272, 274, 276, 280
Acceptances made by State member banks, interpretation
87
Assets and liabilities:
Banks, by classes
293
Board of Governors
267
Federal Reserve Banks
272-77
Balance of payments {See U.S. balance of payments)
Bank Examination Schools
259
Bank examiners, loans to, legislative recommendation
239
Bank holding companies:
Board and Reserve Bank actions with respect to
251
Delegation by Board of certain authority to Federal Reserve
Banks regarding, amendment of rules
74, 76, 79, 105
Legislative recommendations
236—38
Litigation
105, 241-49
Regulation Y, amendment and interpretation
106, 113
Bank mergers and consolidations
255, 258, 302-24
Bank premises, Federal Reserve Banks and branches .265, 272, 274, 276, 281
Bank supervision and regulation by Federal Reserve System
251-59
Banking offices:
Number, changes in
298
Par and nonpar, number
300
Board of Governors:
Audit of accounts
266
Delegation of certain authority:
Actions under
251, 258
Amendment of rules
74, 76, 79, 105
Financial reports filed with Federal Reserve by State member
banks, release
73
Foreign credit restraint program
99, 114, 226
Income and expenses
266-70
Legislative recommendations
233-40
Letters to banking institutions
78, 87, 88-91
Litigation
241-50
356
INDEX
Page
Board of Governors-—Continued
M e m b e r s , appointment of C h a i r m a n Burns as Alternate
G o v e r n o r , International M o n e t a r y F u n d . . . . . . . . . . . . . . . . . . . . . . 2 3 1
M e m b e r s a n d employees, former, limitation on activities . . . . . . . . . . 1 0 8
M e m b e r s a n d officers, list . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 8
Policy actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3 - 1 2 7
Regulations a n d Rules (See Regulations)
Report t o Congress o n T r u t h in Lending . . . . . . . . . . . . . . . . . . . . . 2 3 5 , 2 5 9
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 8
Branch banks:
Banks, by classes, changes in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 8
Federal Reserve:
Bank premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265, 2 8 1
Buildings, legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . . 2 4 0
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 3 - 5 1
Vice Presidents in charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 2 - 5 4
Foreign branches of m e m b e r banks:
Board policy statement concerning, interpretation . . . . . . . . . . . . . .
92
N u m b e r a n d location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256, 2 5 7
Reserve requirements, a m e n d m e n t of Regulations D a n d M . . . . . 85, 9 1
Burns, A r t h u r F . , a p p o i n t m e n t as Alternate G o v e r n o r ,
International M o n e t a r y F e n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Capital accounts:
Banks, b y classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 3 , 2 7 5 , 2 7 7
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 of Federal Reserve Banks . . . . . . . . . . 3 3 2
Clearing a n d collection:
Payments mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261, 262
Regulation J, litigation
249
V o l u m e of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 1 , 2 8 6
C o m m e r c i a l banks (See also Foreign b a n k s ) :
Assets a n d liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
Banking offices, changes in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 8
Foreign credit restraint p r o g r a m . . . . . . . . . . . . . . . . . . . . . . . . . 99, 114, 2 2 6
N u m b e r , by class of b a n k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
Reserve requirements against certain d e m a n d deposits, legislative
recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
C o m m e r c i a l paper issued by m e m b e r banks, reserve requirements
against, a m e n d m e n t of Regulation D . . . . . . . . . . . . . . . 8 5 , 9 4 , 9 8 , 1 0 2 , 1 1 2
Condition statement of Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . 2 7 2 - 7 7
357
INDEX
Page
Credit (See also L o a n s ) :
Federal ReserYe Banks, lending authority . . . . . . . . . . . . . . . . . . . . . . 77, 239
Stocks (See Stock market credit)
Truth in Lending, Regulation Z (See Regulations, Board of Governors)
Defense production loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263, 292
Demands -for goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-25
Deposits:
Banks, by classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
293
Federal ReserYe Banks . . . . . . . . . . . . . . . . . . . . . . . . 2 7 3 , 275, 277, 295, 297
Interest rates (See Interest on deposits)
Reserve requirements (See Reserve requirements)
Deputy Chairmen of Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . .
332
Directors, • Federal Reserve • Banks and branches . . . . . . . . . . . . . . . . . . . 333-51
Discount rates at Federal Reserve Banks (See Interest rates)
Discounts and advances'by'Federal Reserve Banks (See Loans)
Dividends, Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . 260, 283, 284
Earnings of Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . 260, 282f 284
Electronic funds transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
262
Employment and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-28
Euro-dollar borrowings and foreign branch loans to U.S.
residents by • member banks, • amendment of regulations . . . . . . . . . . . .
85
Examinations:
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
260
Foreign banking and financing corporations . . . . . . . . . . . . . . . . . . . . . . .
258
Member banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252
State . member banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252
Executive officers of member banks, loans to . . . . . . . . . . . . . . . . . . . . 238, 254
Expenses:
Board of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266-70
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 0 , ' 282, 284
Federal Advisory Council . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal agency obligations:
Authority to purchase and enter into repurchase
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129-30-, 1 5 5 , 177,
Federal Reserve Bank holdings and earnings . 2 6 1 , 262, 272, 274, 276,
Guidelines' for operations in, revision . . . . . . . . . . . . . . . . . . . . . . . . . . .
Open market transactions of Federal Reserve System during 1973 . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . 130, 272, 274, 276, 279,
358
331
222
278
163
280
280
INDEX
Page
Federal Open Market Committee:
A u d i t of System A c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 0
C o n t i n u i n g authorizations, review a n d c h a n g e in titles . . . . . . . . . . . . 1 5 6
F o r e i g n currencies, review of o p e r a t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 4
Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128, 3 3 0
M e m b e r s a n d officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33©
Policy actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 8 - 2 2 3
Federal Reserve Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
F e d e r a l Reserve B a n k s :
Assessment f o r expenses of B o a r d of G o v e r n o r s . . . . . . . . . . . . . . 2 6 8 , 2 8 2
A u t h o r i t y t o p u r c h a s e G o v t . obligations directly f r o m U . S . . . . . . . . . 23©
Bank premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .265, 272, 274, 276, 2 8 1
B r a n c h e s (See B r a n c h b a n k s )
Capital a c c o u n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 3 , 2 7 5 , 2 7 7
Chairmen and Deputy Chairmen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
C h e c k clearing a n d collection, Regulation J, litigation . . . . . . . . . . . . 2 4 9
Condition statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272-77
D e l e g a t i o n b y B o a r d of certain a u t h o r i t y t o . . . . 7 4 , 7 6 , 7 9 , 105, 2 5 1 , 2 5 8
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 3 - 5 1
D i s c o u n t rates (See Interest rates)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 0 , 2 8 3 , 2 8 4
E a r n i n g s a n d expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 0 , 2 8 2 , 2 8 4
Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26§
F o r e i g n a n d international accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 4
Lending authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77, 239
Officers a n d employees, n u m b e r a n d salaries . . . . . . . . . . . . . . . . . . . . . 2 8 6
Payments mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261, 262
Presidents a n d Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 2 - 5 4
Profit a n d loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 8 3
Security devices, technical revision of R e g u l a t i o n P . . . . . . . . . . . . . . . . 1 0 4
U . S . G o v t . securities (See U . S . G o v t . securities)
V o l u m e of o p e r a t i o n s . . . . . , . . , . . , . . , . . . . . . . , . . . , . . , . . . . . , . . 2 6 1 , 2 8 6
F e d e r a l Reserve n o t e s :
Condition statement data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272-77
Cost of printing, issue, a n d r e d e m p t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 8
Interest paid t o T r e a s u r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26D, 2 8 3 , 2 8 4
F e d e r a l Reserve System:
B a n k E x a m i n a t i o n Schools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 9
B a n k supervision a n d regulation b y . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1 , 2 5 1 - 5 9
F o r e i g n credit restraint p r o g r a m . . . . . . . . . . . . . . . . . . . . . . . . . 9 9 , 114, 2 2 6
F o r e i g n c u r r e n c y operations (See 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 )
359
INDEX
Page
F e d e r a l Reserve System—Continued
M a p of Federal Reserve districts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 5
Membership . . , . , . , , , . . . . , . , , . . , , . . . . . . . . . . . . . . , . . . . , . . . . , . . . 2 5 4
• -Payments m e c h a n i s m . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -.261, 2 6 2
Finance bills, reserve requirements against, a m e n d m e n t of
....
Regulation D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4 , 9 8 , 1 0 2 , 112
Financial markets a n d m o n e t a r y policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 - 5 9
Foreign a n d international accounts of Federal. Reserve Banks . . . . . . . . . 2 6 4
Foreign banking a n d financing corporations:
Examination a n d operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 8
Interpretation of Regulation K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
Foreign .banking Institutions in U.S., letter from Board . . . . . . . . . . . . . . 8 9 - 9 1
Foreign banks:
Agencies a n d branches, voluntary reserves, Board action reducing . . . . 1 1 3
• • Regulation,- legislative recommendation . . . . . . . . . . . . . . . . . . . . / . Y . . . 2 3 4
Foreign.. credit restraint p r o g r a m . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9 , 1 1 4 , 2 2 6
Foreign currency operations:
Authorization a n d directive . . . . . . . . . . . . . . . . . . . . 129, 131-36, 1 5 6 , 178
F e d e r a l Reserve earnings -on foreign currencies . . . . . . . . . . . . . . . . . . 2 8 2
Reports, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 4
Gold:
P a r Value Modification Act, a m e n d m e n t . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Tables showing gold certificate accounts of Reserve Banks a n d
gold- stock . . . . . . . . . . . . . . . . . . . . . . .272, 2 7 4 , 2 7 5 , 276, '277, 2 9 4 , 2 9 6
G o l d Reserve A c t of 1934, a m e n d m e n t . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Insured commercial banks:
Assets a n d liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
Banking offices, changes in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298
State taxation, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 2
Interest on'deposits:
Flexible -authority for supervisory agencies t o set m a x i m u m
rates o n deposit o r share accounts, extension and
broadening of law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 §
Negotlable-order-of-wlthdrawal accounts, a m e n d m e n t of
• Regulation Q , a n d legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110, 2 3 0
T i m e and savings deposits:
Increase, a m e n d m e n t of Regulation Q . . . . . . . . . . . . . . . . . . . . . . . .
96
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4 9
Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
36'0
INDEX
Page
Interest o n deposits—Continued
T i m e deposits:
Multiple-maturity treated same as single-maturity,
a m e n d m e n t of Regulation Q , , . . . . . . , . , . » . . . . . . . . . , . , , . , . .
98
$1,000 b u t less than $100,000, with maturities of 4 years o r m o r e ,
a m e n d m e n t , Regulation Q, a n d legislation . . . . 96, 9 9 , 1 0 1 , 105, 230
P a y m e n t before maturity, a m e n d m e n t of Regulation Q . 9 6 , 100, 1 0 1 , 103
Single-maturity, $100,000 o r m o r e , with maturity of 9 0 days
or m o r e , suspension of rate ceilings, a m e n d m e n t of
Regulation Q . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86, 9 9
Interest rates (See also Interest o n deposits):
Defense production loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 2
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 6 - 2 7 , 287
Interlocking bank relationships, legislative recommendation . . . . . . . . . . 2 3 8
International developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 0 - 7 0
International M o n e t a r y F u n d , appointment of C h a i r m a n Burns as
Alternate G o v e r n o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Interpretations, Board of Governors:
Acceptances m a d e by State m e m b e r banks, a m o u n t limitations . . . . . .
87
Bank holding companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74, 1 1 3
Foreign operations of m e m b e r banks . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Investments:
Banks:
By classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
F o r c o m m u n i t y development, legislative r e c o m m e n d a t i o n . . . . . . . . 2 3 5
Federal Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7 2 , 2 7 4 , 2 7 6
State housing corporations, authorization . . . . , . . . , . . . . , , . . . « . . » , . 2 3 1
L a b o r costs—prices a n d profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 - 3 5
Legislation:
Alternate G o v e r n o r s for I M F a n d I B R D , appointment authorized .. . 2 3 1
Bank holding companies, recommendations . . . . . . . , . , , , . . . , , . , . 2 3 6 - 3 8
Federal Reserve Banks:
Authority to b u y Govt. obligations, directly, extension . . . . . . . . . . 2 3 0
Branch buildings, r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4 0
Lending authority, r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 9
Foreign currency reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
G o l d Reserve A c t of 1934, a m e n d m e n t . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Interlocking b a n k relationships, recommendation . . . . . . . . . . . . . . . . . . 2 3 8
Investments:
C o m m u n i t y development, r e c o m m e n d a t i o n , . . . . . , » , . . . . . . . , . . . . 2 3 5
State housing corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
361
INDEX
Page
Legislation—Continued
Loans:
B a n k examiners, r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 9
Executive officers of m e m b e r banks, r e c o m m e n d a t i o n . . . . . . . . . . . . 2 3 8
F l o o d Disaster Protection A c t of 1973 . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 2
Real estate, b y national banks,, r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . 2 3 5
Negotiable-order-of-withdrawal accounts ( N O W ' s ) . . . . . . . . . . . . . . 1 1 0 , 2 3 §
P a r V a l u e ' M o d i i c a t i o n ' Act,' a m e n d m e n t . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
R a t e ceilings- o n deposit o r s h a r e accounts, flexible authority f o r •
F e d e r a l supervisory agencies to set m a x i m u m . , . , . . , . , . . . . . . » . . 2 3 0
Regulation of foreign b a n k s , r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . 2 3 4
Reserve requirements, r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 3
State taxation of F e d e r a l l y insured financial institutions . . . . . . . . . . . 2 3 2
T r u t h in Lending, Regulation Z , r e c o m m e n d a t i o n . . . . , . . . , » , . , . , . , 2 3 5
Litigation:
B a n k holding c o m p a n i e s :
Antitrust actions a n d review of B o a r d ' s actions . . . . . . . . . . . . . . 2 4 1 , 2 4 2
Policy action resulting from . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 5
Involving challenges t o Board p r o c e d u r e s a n d regulations . . . . . . . . . . 2 4 9
Loans:
B a n k examiners, legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . 2 3 9
Banks, b y classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
Defense p r o d u c t i o n loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 3 , 2 9 2
Executive- officers of m e m b e r banks . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 8 , 2 5 4
F e d e r a l Reserve B a n k s :
H o l d i n g s a n d earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 1 , 2 6 2 , 2 8 2
Interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ' 2 8 7
L e n d i n g authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7 , • 2 3 9
V o l u m e . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 1 , 272, 274, 276, 286, 2 9 4 , 2 9 6
F l o o d - p r o n e areas, legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 2
•Letters t o b a n k i n g institutions from B o a r d . . . . . . . . . . . • . : . . . 7 8 , ' 8 7 , 8 8 - 9 1
R e a l estate, legislative r e c o m m e n d a t i o n s . . . . . . . . . . . . . . . . . . . . . . . , 2 3 5 , 2 3 9
Stocks (See Stock m a r k e t credit)
M a r g i n requirements:
P u t s a n d calls 5 loan value, a m e n d m e n t , Regulations G , T , a n d U . » . .
Table
T r a n s f e r of loans a m o n g creditors, a m e n d m e n t of Regulation G . . . .
M e m b e r -banks (See also N a t i o n a l b a n k s ) :
Assets, liabilities, a n d capital accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
B a n k i n g offices, changes in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
' B o r r o w i n g from Reserve Banks, legislative r e c o m m e n d a t i o n . . . . . . . .
Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
362
83
291
Ill
293
298
239
252
INDEX
Page
Member banks—Continued
Executive officers, loans to, legislative r e c o m m e n d a t i o n a n d
reporting requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238, 2 5 4
F o r e i g n b r a n c h e s , n u m b e r a n d location. . . . . . . . . . . . . . . . . . . . . . . 2 5 6 , 2 5 7
Interlocking relationships, legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . 2 3 8
Litigation c o n c e r n i n g F e d e r a l t a x depositories . . . . . . . . . . . . . . . . . . . . 2 4 9
L o a n c o m m i t m e n t s a n d restraint, letters f r o m B o a r d . . . . . . . . . . . . 7 8 , 8 8
Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 4 , 293
Reserve r e q u i r e m e n t s (See Reserve r e q u i r e m e n t s )
Reserves a n d related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 4
State m e m b e r b a n k s (See State m e m b e r b a n k s )
M e m b e r s h i p i n F e d e r a l Reserve System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 4
M e r g e r s a n d consolidations . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 5 , 2 5 8 , 3 0 2 - 2 4
M o n e t a r y policy, review of 1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 7 0
M o n e t a r y policy actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84—88
M o n e t a r y policy a n d financial m a r k e t s . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 - 5 9
M u t u a l savings b a n k s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3 , 2 9 8
N a t i o n a l b a n k s (See also M e m b e r b a n k s ) :
Assets a n d liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
B a n k i n g offices, c h a n g e s in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 8
F o r e i g n activities, a m e n d m e n t a n d interpretation. Regulation M . . 85, 9 1 , 9 2
Foreign branches, number
256
I n v e s t m e n t s , a u t h o r i z a t i o n a n d legislative r e c o m m e n d a t i o n . . . . . . . 2 3 1 , 2 3 5
Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 5 , 293
R e a l estate l o a n s by, legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . 2 3 5
N e g o t i a b l e - o r d e r - o f - w i t h d r a w a l a c c o u n t s ( N O W ' s ) . . . . . . . . . . . . 110, 2 3 0 , 2 3 3
Nonmember banks:
Assets a n d liabilities . . . . . . . . . . . . " . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 3
B a n k i n g offices, c h a n g e s in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 8
B o r r o w i n g f r o m Reserve Banks, legislative r e c o m m e n d a t i o n . . . . . . . . 2 3 9
L o a n restraint, letter f r o m B o a r d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87
M a r g i n a l reserves o n large certificates of deposit, v o l u n t a r y . . . . . . . . 1 1 3
Reserve r e q u i r e m e n t s , legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . 2 3 3
P a r a n d n o n p a r b a n k i n g offices, n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . 3©§
P a r V a l u e Modification A c t , a m e n d m e n t . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Payments mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261, 262
Policy a c t i o n s :
B o a r d of G o v e r n o r s :
A c c e p t a n c e s , ineligible, interpretation . . . . . . . . . . . . . . . . . . . . . . . . . .
87
D i s c o u n t rates at F e d e r a l Reserve B a n k s . . . . . . . . . . . . . . . . . . . . . 1 1 6 - 2 7
363
INDEX
Page
Policy actions—Continued
Board of Governors—Continued
'Financial reports, release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
Foreign credit restraint program guidelines, amendments . . . . . . . . . . 9 9 , 114
Loan commitments, letter .to. certain State member banks . - . . , . . . . - .
78
Loan restraint and curbing -of -bank credit expansion, letters
• to- banking institutions . . . . . • . , . , . . v . . . . . . . . . . . . . . . . . . . . 87, 88-91
Members and employees, former, limitation on activities , . . ' . . . . . .
108
Monetary policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84-88
Regulations and Rules (See Regulations, Board of Governors).
Federal Open Market Committee;..
Authority.to effect transactions in-System Open Market Account:-.
Domestic operations . . . . . 1 2 9 - 3 1 , 137, 143, 149, 155, 156, • 158, 165,
171, 177, 180, 187, 194, 202,"209,"216,'222
' Foreign currency operations . . . . . . . . . . . . . . . . 129, 131-36, 156, 178
ReYiew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 156
Guidelines for operations in Federal agency obligations, revision . . .
163
Presidents, .and Vice Presidents-of Federal Reserve Banks;
Conference of Presidents- and- Conference of First Vice Presidents . ,
355
List . . . . . . . . . . . . . . . . . . . . . . . . . . . .V. . . . . . . . . . . . . . . . . . . ; . . . , . . . .352-54
Salaries of Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286
Prices,' labor costs, and profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 2 9 - 3 5
Profit 'and' loss. Federal Reserve Banks
283
Proits—prices and labor costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-35
Meal .estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .235, 239
Record of policy actions (See Policy actions)
Regulations, Board of Governors:
A,•-Extensions of Credit by Federal Reserve Banks: Revisions . . . . . . . .
77
D, Reserves of Member Banks:
Commercial paper issued by member bank, amendments . . . . 85* • 94, 9S»
102, 112
Demand deposits, gross, definition, amendment . . . . . . . . . . . . . . . .
109
Demand deposits, net, above $2 million, increase, amendment . . . .
94
Euro-dollar borrowings, reduction, amendment . . . . . . . . . . . . . . . .
85
Finance bills not eligible for discount, requirements against
outstanding bills, amendments . . . . . . . . . . . . . . . . . . . . . 9 4 , 98, 102, 112
Marginal requirements against certain time deposits and • application
to certain deposits formerly exempt, establishment, increase, and
reduction, amendments . . . . . . . . . . . . . . . . . . . . . .'85, 94, 98, 102, 112
Multiple-maturity time deposits treated same as
single-maturity, amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
364
INDEX
Page
Regulations, Board of Governors—Continued
Delegation of authority: Amendment of rules . . . . . . . . . . . .74, 76, 79, 105
G, Securities Credit by Persons Other Than Banks, Brokers, or Dealers:
Extension of credit under, amendment . . . . . . . . . . . . . . . . . . . . . . . .
163
Puts and calls, loan value, amendment' . . . . . . . . . . . . . . . . . . . . . . . .
83
Transfer of loans among creditors, amendment . . . . . . . . . . . . . . . .
Ill
H, Membership of State Banking Institutions in the Federal Reserve
System: Affiliates, submission of reports, amendment . . . . . . . . . .
115
J, Collection of Checks and Other Items by Federal Reserve Banks:
Effect of changes in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
261
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
249
K, Corporations Engaged in Foreign Banking and Financing Under
the Federal Reserve Act:
Policy statement on availability of information to facilitate supervision, interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Special-purpose leasing corporations and investments by bank holding companies in certain special-purpose corporations, interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
M, Foreign Activities of National Banks:
Policy statement on availability of information to facilitate supervision? interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Reserve requirements, amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 85, 91
P, Minimum Security Devices and Procedures for Federal Reserve Banks
and State Member Banks: Technical revisions . . . . . . . . . . . . . . . . .
104
Q, Interest on Deposits:
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
249
Negotiable-order-of-withdrawal accounts (NOW's), rules governing,
amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11©, 23©
Time and savings deposits, increase in maximum rates, amendments
96
Time deposits:
Multiple-maturity treated same as single-maturity, amendment . .
98
$1,000 but less than $100,000, with maturities of 4 years or more,
amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . .96, 99, 1§1» 105, 230
Payment before maturity, amendments . . . . . . . . . . 96, 100, 101, 103
Single-maturity, $100,00*0 or more, with maturity of 90 days or
more, suspension of rate ceilings, amendments . . . . . . . . . . . . . 86, 99
T, Credit by Brokers and Dealers:
Investment contract securities, withdrawal of permission for sale of
certain kinds on credit, amendment . . . . . . . . . . . . . . . . . . . . . . . . .
110
Puts and calls, loan value, amendments . . . . . . . . . . . . . . . . . . . . . . .
83
Technical amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
U, Credit by Banks for the Purpose of Purchasing or Carrying Margin
Stocks: Puts and calls, loan value, amendments . . . . . . . . . . . . . . .
83
365
INDEX
Page
Regulations, Board of G o v e r n o r s — C o n t i n u e d
' Y , Bank Holding C o m p a n i e s :
N o n b a n k i n g activities, courier-service business, a m e n d m e n t . . . . . . . 106
Thrift notes, interpretation concerning issuance a n d sale . . . . . . . . 113
Z, T r u t h in Lending:
A m e n d m e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95, 98
Legislative r e c o m m e n d a t i o n and litigation . . . . . . , , . . . , « . . . .".235, 2 5 0
Report t o Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235, 2 5 9
Repurchase agreements:
Authority to purchase a n d enter into . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Bankers* acceptances . . . . . . . . . . . . . . . . . . . . . . . . . 130, 2 7 2 , 2 7 4 , 2 7 6 , 28©
Federal agency obligations . . . . . . . . . . . . . . . 130, 272,. 274,.. 276,.. 279, 28©
U.S. Govt. securities . . . . . . . . . . . . 13©, 2 7 2 , 2 7 4 , 276, 279, 28©, 2 9 4 , 2 9 6
Reserve requirements:
Legislative r e c o m m e n d a t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 3
Member-banks:
Changes, a m e n d m e n t of Regulation D (See Regulations, Board of
Governors)
National banks, a m e n d m e n t of Regulation M . . . . . . . . . . . . . . . . . . 8 5 , 9 1
Table' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V . . . . . . . . . ' 288
Reserves, m e m b e r b a n k s ;
Reserve requirements (See Reserve requirements)
Reserves a n d related i t e m s . , . . . , , . , . . . . . , . . , . . . , . , . . . . . , , . . . . • , 2 9 4
Salaries;
Board of G o v e r n o r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 8
Federal -Reserve Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 8 i
Securities (See specific types)
Special Drawing Rights ' . . . . . . . . . . . . . . . . . . . . 2 3 1 , 2 7 2 , 274,' 276, 2 9 4 , 2 9 6
State m e m b e r banks (See also M e m b e r b a n k s ) :
Acceptances m a d e by, a m o u n t limitations, interpretation . . . . . . . . . .
87
Affiliates, submission of reports, a m e n d m e n t of Regulation-H , . . . , - . 115
Assets a n d liabilities . . . . . . . . . . . , . . . . . , . . , . , . . . , . . . , . . » , , . . . . . 2 9 3
Banking • offices, changes in n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 8
Control, changes, reporting requirements" . . . . . . . . . . . . . . . . . . . . . . . . 2S3
Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 2
Financial reports filed with Federal Reserve, release by Board . . . . . .
73
Foreign branches, n u m b e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 6
Investments, community development, legislative recommendation . . 2 3 5
L o a n commitments a n d restraint, letters from Board . . . . . . . . . . . . . 7 8 , § 8
Mergers a n d consolidations . . . . . . . . . . . . . . . . . . . . . . . . . . . 2S5, 258, • 3D2-24
Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 5 , 293
Security devices, technical revision of Regulation P . . . . . . . . . . . . . . 1 0 4
366
INDEX
Page
Stock m a r k e t credit:
E x t e n s i o n of credit u n d e r R e g u l a t i o n G , a m e n d m e n t . . . . . . . . . . . . . .
I n v e s t m e n t c o n t r a c t securities, a m e n d m e n t of R e g u l a t i o n T . . . . . . . .
Puts and call's, loan value, amendment of Regulations G, T, and U . .
Special cash account, amendment of Regulation T . . . . . . . . . . . . . . . .
Transfer of loans among creditors, amendment of Regulation G . . . .
System Open Market Account:
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Authority to effect transactions i n Domestic operations . . 129-31, 137, 143, 149, 155, 156, 158, 165,
177, 180, 187, 194, 202, 209, 216,
Foreign currency operations . , , . . , , . . . . . . . . . . . 129, 131—36, 156,
Foreign currencies, review of operations . . . . . . . . . . . . . . . . . . . . . . . . .
Training activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Truth In Lending, Regulation Z (See Regulations, Board of Governors)
103
110
83
73
Ill
2m
171,
222
178
224
259
ILS. balance of payments:
Foreign credit restraint program . . . . . . . . . . . . . . . . . . . . . . . . . 99, 114, 226
Review of 1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 0 - 7 0
U.S. Govt. securities:
Authority of Reserve Banks to purchase directly from United States,
extension of law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
238
Authority to purchase and enter into repurchase agreements . . . . . . 129-30,
155, 177, 222
Bank holdings, by class of bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
293
Federal agency obligations (See Federal agency obligations)
Federal Reserve B a n k Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260, 261, 262, 282
Holdings . . . . . . . . . . . . . . . . . . . .261, 262, 272, 274, 27«» 278, 294, 296
Open market operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128-223, 28©
Repurchase agreements . . . . . . . . . 13©, 272, 274, 276, 279, 28©» 294, 296
Special certificates purchased directly from United States . . . . . . . . . . . . 279
U.S. Govt. agency obligations (See Federal agency obligations)
V loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
292
Voluntary foreign credit restraint program . . . . . . . . . . . . . . . . . . 99, 114, 226
Wages and employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-28
367
@FedFRASER