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ANNUAL REPORT of FEDERAL RESERVE BANK OF MINNEAPOLIS to the BOARD OF DIRECTORS INDEX High Light s.......................................... 1 Directors arid O f f i c e r s .............................. 3 Changes of Directors and Officers.................... 6 Assets and Liabilities Capital Accounts . .................. .. .............................. .. 7 19 Dividends . .......................................... 22 Bank Premises.................. .....................23 Earnings . . . . . . . . . . . . . .................. 25 E x p e n s e s .................. * ................... .. . 30 Departmental and Other Comments ...................... 42 KIGB-LIGBTS OF 1947 Earnings from our participation in the System Open Market Account increased 11 percent over 1946. Approximately 90 percent of net earnings paid to Treasury Department, Repurchase option of Treasury Bills terminated. Federal Deposit Insurance Corporation stock held since 1933 canceled• First budget submitted since 19420 On January 2, 1943 Forth Dakota Trill have State member bank for first time since November 20, 1929*. Five State banks in North Dakota adopt par clearance. New volume records established. International Business Machines and Hecordak equipment being installed. Consumer Credit controls discontinued. Coin wrapping service offered to member banks„ Fiscal Agency operations at Helena Branch consolidated with Head Office. Redemption of Armed Forces Leave 3onds. Five-day week proves successful after yearns operation. Combined hospital and surgical benefits available to employees* Reduction in custodianship activities for account of Recon~ struction Finance Corporation. HEAD OFFICE DIRECTORS & MEMBER OF FEDERAL ADVISORY COUNCIL Tern Expires December 31 Directors Roger Bo Shepard, Chairman, and Federal Reserve Agent W 0 D. Cochran, Deputy* Chairman Class A F, Do McCartney, Vice President9 The First National Bank of Oakes, Oakes, North Dakota 1948 Clarence E, Bill, Chairman of the Board, Northwestern National Bank of Minneapolis, Minneapolis, Minn0 1949 Jo R* &cKnight, President, The Pierre National Bank, Pierre, South Dakota 1950 Class B Ray Co Iange, President, Chippewa Canning Co„, Chippewa Falls, Wisconsin 1948 Homer P. Clark, Chairman of the Board, West Publishing Co., St. Paul, Minnesota 1949 Walter H, McLeod, President, Missoula Mercantile Co., Missoula, Montana 1950 Class C Paul E. Miller, Director, Agricultural Extension Division, University of Minnesota, Minneapolis, Minnesota 1948 W 0 D« Cochran, Cochran Freight Lines, Iron Mountain, 1949 Mlcho Rpger B. Shepard, 322 Endlcott Building, St. Paul, Minn* 1950 Member of Federal Advisory Council Henry E a Atwood, President, First National Bank of Minneapolis, Minneapolis, Minnesota 1948 OFFICERS Jo Ho Peyton* President 0, S» Powell, Firet Vice President Ho G„ McConnell, Vice President Bank Examinations Security Exchange Act A 0 W 0 Mills, Vice President & Cashier General supervision over all internal operations Building Protection Purchasing Suggestions Otis R. Preston, Vice President Bank & Public Relations R., E« Towle, Vice President Assigned to Helena Branch Sigurd Ueland, Vice President & Counsel Legal Barry 1« Ziemer, Vice President Loans & Discounts H* C« Core, Personnel Officer Personnel Office Boys & Pages E. B» Larson, Assistant Vice President Fiscal Agency Purchase & Sale of Securities A 0 Re Larson, Assistant Cashier Check Collection Equipment Repairs Files & Old Records Ordinary Mail C, Jo Larson, Assistant Cashier Assigned to Helena Branch Wo* E c Peterson, Assistant Cashier Accounting Cafeteria Custodianships — RFC, CCC, and others Duplicating Telegraph, Transfers & Coding Withheld Taxes W 0 H„ Turner, Assistant Cashier Currency & Coin Noncash Collection Registered Mail Safekeeping of Securities Telephones Vault Mo E0 Lysen, Operating Research Officer Efficiency Studies Planning Procuresent of Furniture * Equipment Special Studies OFFICERS (Continued) Mo Ho Strothman, Jr«t Assistant Counsel Board*8 Letters Contracts Insurance Operating Letters & Circulars Regulations Paul W. McCracken, Director of Research Library Publications Research Statistics 0. W. Chnetad, Auditor HELEKA BRANCH DIRECTORS Term Expires December 31 Ra B« Richardson, Chairman Theodore Jacobs, President, First National Bank, Missoula, Montana 1948 E„ D. MaoHaffie, President, State Publishing Co*, Helena, Montana 1948 R» B. Richardson, President, Western Life Insurance Co., Helena, Montana 1948 B. Mo Harris, President, The Yellowstone Bank, Columbus, Montana, and President, The Yellowstone Bank, Laurel, Montana 1949 Malcolm E 0 Holts, Agriculturist, Great Falls, Montana 1949 CHANGES DIRECTORS AMD OFFICERS Changes In directors and officers of the bank included the re~ election in November of Mr. Je R. McKnlght, President of the Pierre National Bank, Pierre, South Dakota, as Class A director, by Group 2 member banks, and the election of MrP Halter H 0 McLeod, President of the Missoula Mer cantile Co., Missoula, Montana, as Class 8 director, by Group 3 member banks of the district. Both were elected for three-year terms beginning January 1, 1946o In December, Mr, Roger B„ Shepard, St„ Paul, Minnesota, was re appointed Class C director for a three-year term ending December 31, 1950, and was redesignated Chairman of the Board and Federal Reserve Agent for the year 1948* At the same time, Mr. W, D. Cochran, proprietor of W. D 0 Cochran Freight Lines, Iron Mountain, Michigan, was redesignated Deputy Chair man of the Board for the year 1948 0 Mr, Malcolm E 0 Holts, Great Falls, Montana, and Mr. B„ M, Harris, President of The Yellowstone Bank, Columbus, Montana, were reappointed to the directorship of the Helena Branch for two-year terms ending December 31 > 1949» Mr, Holts received his appointment from the Board of Governors and Mr. Harris was named by our directors. On April 30, Mr. Ernest W« Swanson retired as Vice President in charge of Bank Examinations. Mr. H» G. McConnell, Vice President, took over Mr, Swanson9s duties as the officer in charge of Bank Examinations. Mr* Henry E„ Atwood, President of the First Rational Bank of Minneapolis, was reappointed by our direotors to the Federal Advisory Council for the year ending December 31, 1948. MAJOR MONETARY DEVELOPMENTS IN 19A7 The Business Situation The major economic development of 1947 was the continued strong upward surge of the dollar volume business activity. Our gross national product was $232 billion for the year and was running at an annual rate substantially in excess of $24-0 billion by the latter part of 194-7. These represent very material increases over the 194-6 gr.’ oss national product of $204 billion, an increase of about 14. percent. While regional data are not yet available in detail, it seems evident that the business expansion in the district was at least as large as nationally, perhaps in some cases larger. The data in the table present Northwest Business Indexes (1935-39 • 100) 194.0 Bank Debits - 93 Cities Bank Debits » Farming Centers Ninth District Dept. Store Sales City Dept. Store Sales Country Dept, Store Sales Ninth District rapt. Store Stocks City Dept, Store Stocks Country Dept. Store Stocks Country Lumber Sales Miscellaneous Carloadings Total Carioad5.ngs (excl. misc.) Faro Prices 112 117 109 110 log 110 107 112 139 108 112 86 1S& 252 293 247 261 233 212 208 214 136 127 112 212 1947? 306 359 273 284 262 267 243 286 149 132 123 272 % Change *946-•£947 + 21 + 23 4 + 11 9 12 + 26 4- + 4 4- 17 34 10 ♦ 4 + 10 4 28 p - preliminary preliminary information for the major measures of district business activity which will be carried in the next issue of our Monthly Review. The least reassuring aspect of this business expansion was that it was largely a rise in prices rather than output; the "unit" or "physical" volume of production made only negligible gains during the year. The Fed« eral Reserve index of industrial production, seasonally adjusted, averaged 189.3 during the first quarter of 194-7 and 190*7 during the final quarter. (These are percentages of the average for 1935-39.) Agricultural produce tion was actually lower in 1947 than in the previous year. The construc tion industry, on a unit basis, made modest gains, as did also the public utilities0 The wholesale price index rose 15=5 percent during the year, about equal to the rise in the dollar volume of gross national product. A substantial part of this rise is to be explained by the price spurt during the latter half of the year. In fact, during April and May the wholesale index was declining persistently. In view of the considerable attention given to rising food prices during the latter part of the year, it is worth noting that the prices of almost all types of commodities were mov ing upward at a surprisingly even pace* From June to December, when about two~thirds of the price increase occurred, the general wholesale price index moved up 10<>2 percent. Farm products rose by the same amount (10.2 percent), and food prices by 10.4 percent. The average rise in all other groups was only negligibly lower, 10.1 percent. The cost of living index (technically the "consumers* price index for moderate*income families in large cities*) pushed rather per sistently upward again with the exception of April and May, concluding the year with an 8*5 percent rise; retail food prices rose slightly more rapid ly, 9o2 percent. In both cases a substantial part of the rise was con centrated in the latter half of 1947, The major characteristic of the 1947 business picture was, there fore, a levelling out of actual production, as capacity rates of output were achieved, and continued upward pressure on prices. Causes of Rising Prices What was the basic cause of our price inflation? After capacity rates of production had baen achieved, we still tried to spend in excess of our receipts or incomes. Since incomes and the dollar value of production must always be exactly equal, any attempt to spend in excess of incomes means that both the dollar volume of production and incomes on the next round must inevitably increase correspondingly. The response will take the form of increased real output, or increased prices or both. Since by 1947 we had apparently reached capacity rates of output, it is not surprising that virtually the whole response came in the form of higher prices. Businesses, for example, spent $25 billion on new plants, equip ment and inventions in 1947• Their reserves and retained earnings lacked $7 billion of being adequate to finance such expenditures. This $7 billion ^deficit”then had to be financed by borrowing or utilization of liquid assets- While such capital formation over the long pull is the principal means of raising our standards of living, it meant a net addition of several billion dollars of demand in 194-7 in excess of then current rates of production, with higher prices as a major result. Also during 194-7, commercial bank loans increased from $31°i billion to an estimated $38,5 billion, an expansion of 24 percent. In each individual case the new or expanded loan unquestionably could be called a sound, productive loan. Yet in the aggregate, the total effect of this ex pansion of what seemed to be productive loans did not expand production in 1947; as we have already seen, production made no (Tains of consequence dur ing 1947. Consumers too were trying to make good on the arrears of the war (and for housing the prewar decade also). While final data are not yet available, it seems evident that a substantial number of consumers cashed in bonds and drew down bank balances to buy houses and automobiles and other largely durable goods. Such withdrawals supplemented incomes by $10 billion in 1946; the amount in 1947 was probably of the same size order* In addition, a $3 billion increase in consumer credit provided a further supplement to incomes. When production is at capacity levels, such extensions of ex penditures beyond incomes are inevitably bound to call forth higher prices. In addition to this our extremely low imports, about 60 percent of an appropriate volume, together with exports perhaps 20 to 25 percent above a normal volume, created further upward pressure on prices. The transactions of the Federal government did provide some off set, to this general picture of excessive demands, through a $ 5.6 billion cash surplus. Thus the Federal government wa 3 taking from the public largely through taxes through expenditures. billion more than it was returning to the public This was a deflationary and presumably salutory de velopment since our uajor problem was one of inflation. Principles of Monetary Policy In a very real sense this posed, of course, a thoroughly ortho- 9 dox problem for monetary policy. It was in line with the long development, both in the principles and the practice of central banking, which conceived the central banking system*s major function to be to exercise a restraining influence when disproportionate booms threatened - and the opposite when depression was the problem. Such restraint was to be applied in two ways. If the commercial banks were borrowing from the Reserve banks, such borrowing should be made expensive enough to discourage further loan expansion at the commercial banks. This, of course, had limited application to the present situation because of the negligible volume of member bank borrowing. The second method was through open market operations. expansion created the same volume of additional deposits. A loan Additional de posits require additional member bank reserves at the Federal Reserve. The volume of member bank reserves can be increased or decreased by the pur chase or sale of securities by the Federal Reserve. Therefore, if a loan expansion threatens to augment inflationary pressures, member bank reserves should be held constant; if the situation warranted, they could be reduced. By the creation of a tight reserve position, further increases in bank loans could be restrained; theoretically they could even be reduced in this way* Of course, during a depression the appropriate policy, in the tradition of central banking, was Federal Reserve open market purchases to create an easy reserve position and low discount rates. In the prewar decade another recruit joined the ranks of Federal Reserve Policy objectives - the maintenance of orderly conditions in the money or capital markets* Federal Reserve purchases of U. S. Government securities for the primary purpose of tempering a cumulative decline in bond prices first occurred in early 1937, though pegging them at fixed levels was no part of the new policy. From February to April 1937 the average yield on long-term U. S. government bonds (all issues over 8 years) rose from 2.31 percent to 2.74 percent; their average price doclired from 107.2 in February to 102 <>6 in March. This is the genesis of the policy which has become paramount in recent years - Federal Reserve support of U. S„ government bond prices. While such did not occur prior to the war, it was predicted then that at some atage the objective of supporting the government bond market and the more traditional objective described above would clash. This occurred with a vengeance in 1947* Monetary Policy Steps in 1947 In a 3ense of separate actions the System, aided by Treasury debt redemptions, did follow a restrictive program of modest dimensions during 1947. First, the retirement of short-term bank-held debt out of Treasury surpluses, while not restrictive in a formal sense, did inject some added elements of caution by causing a relative lengthening of the commercial banks1 bond portfolios. The major question is whether this restrained bank credit expansion or accentuated the System’ s problem of supporting a weak market for long-term securities. The effect was probably not great either way. Second, the short-term rate was allowed to rise modestly to mitigate the difficult position arising out of a guarantee of a pattern of rate3 . (If securities of all maturities are guaranteed at par, there should logically be no buyers except for the longest maturity, highest rate issues.) On July 2 the Federal Open Market Committee directed the Federal Reserve banks "to terminate the policy of baying all Treasury bills offered to them at a fixed rate of 3/8 percent per annum and to terminate the repurchase option on Treasury bills.”^ The rate on bills rose then persistently to 0.950 per cent in December. On July 21 the Secretary of the Treasury announced that the oneyear certificates maturing on August 1 would be refunded into 7/8 percent certificates maturing in eleven months. Thus was begun the shift from a one-year 7/8 percent rate to higher rates which reached 1 l/8 percent at the year end. Third, on December 24 the Federal Open Market Committee lowered the support levels of U. S. government bonds, The price of the 2 l/2 per cent September 1967-72 securities dropped from 103,3 on December 23 to 1/ F.R.Bulletin, July 1947, p. 776 11 101 cl on December 24., the yie3.d rising from 2*29 to 2„43 percent. These policies had one important restrictive effect. By inject ing into the situation some movement in interest rates, the money market was kept in a state of uncertainty, thus increasing further the difficul ties business was having in raising funds in the capital market. While flotation of securities for new capital provided about §4 billion in 1947 (in 1946 it was $3.3 billion) much less equity capital was furnished. Further** more, of total financing requirements of business, issues for new capital supplied only one-sixth. type. Of the latter amount 30 percent were of the equity In 1929 new capital issues supplied 60 percent of total requirements and equity type issues constituted about 75 percent of this amount. Unless the capital-market picture clarifies itself in 194-8, it is not unreasonable to expect that businesses will continue to be in the market in a substantial way for bank credit in the coming year. And it follows that monetary policy may therefore be a more strategic factor in economic developments than has been true for some years. With this exegesis of monetary developments during 1947, the major changes in our own balance sheet items become clear. First, the large increase in our gold reserves is due to the gold inflow nationally, which would account for about half our increase, and the tendency during the year for funds to flow into our district from other sections of the country because of our abnormally large cash farm incomes. This heavy volume of business also helps to explain the continued upward surge of notes of this bank in circulation, reaching $627 million by the end of 1947. The increase of $34 million in member bank reserve balances carried at this bank is a reflection of the heavy open market purchases nationally, described earlier, plus also the tendency for funds to flow into the district* Bills purchased on repurchase option disappeared from our balance sheet through action taken last July by the Federal Open Market Committee to terminate it. COMPARATIVE STATEMENT OF ASSETS (In thousands of dollars) Inc. or Dec. 12-31-46 8inqe,12rJllr,46 12-31-47 Assets; Cash Reserves: Interdistrict Settlement Fund Gold Certificates with F.R. Agent Redemption Fund « F«R. Notes Total Gold Reserves $ 231,975 200,000 22.880 1 454,855 168,058 189,000 21.360 $ 378,418 6,793 5,734 ♦ 1,059 1,265 3,412 - 2,147 _ 298,577 223,788 48,618 93.936 $ 664,919 26,264 347,989 228,144 10,814 . 22.929 * 636,140 2 8,158 3 4,337 _ + 1 3,821 61,290 3,532 2.820 67,642 ♦ + * 56,887 3,129 2.203 62,2X9 4,403 403 617 5,423 + $ 2,497 1.257 1,240 Vault Cash Bills Discounted Foreign Loans on Gold U. S. Government Securities: Repurchase Agreement - Bills System Account Bills Certificates of Indebtedness Notes Bonds Total U. S. Government Securities Due from foreign banks F.R. Notes of other F.R. Banks Uncollected Items: Transit items Exchanges for clearinghouse Other cash items Total Uncollected Items $ Bank Premises Less reserve Bank Premises - Net 2,493 . 1.285 1,208 * Miscellaneous Assets: Fiscal Agency expense, reimbursable Interest accrued Premium on securities Deferred charges All other assets Total Miscellaneous Assets Total Assets 143 233 1,751 831 1,726 302 18 25 91 - XI _______ 3,656 * 1,475 $1,208,498 $1,092,978 1+ 63,917 + 11,000 + 1*520 76,437 — 26,264 49,412 - 4,356 + 37,804 71.007 *+ 28,779 - 4 - + + ♦ - 4 28 32 90 920 1,424 7 80 2,181 115,520 13 vfl AS SET S H COMPARATIVE STATEMENT OF LIABILITIES (In th 0U 8€UJd8 of dollars) Inc. or Dec. 12-31-46 since 12-31-46 12-31-47 Liabilities: % 592,688 Federal Reserve Notes in circulation $ 626,969 Deposits s Member bank - reserve accounts U. S. Treasurer - General account Foreign deposits Remember bank - clearing accounts Officers' checks Other deposits Total Deposits 398,588 450,542 20,506 43,975 11,914 6,225 852 1,805 452 189 ..1.242... ___ 522* 505,388 $ 433,535 Deferred availability i.wa*. U. S. Treasurer - General account All other Total Deferred Availability Items Miscellaneous Liabilities: Discount on securities Sundry items payable Total Miscellaneous Liabilities Total Liabilities Capital Accounts: Capital Stock paid In Surplus Fund - Section #7 Surplus Fund - Section #13b Reserve for Contingencies Total Capital Accounts Total Liabilities & Capital Accounts 3,680 $ i 57,023 1,658 % .._41.S21 48,689 170 319 548 867 % 285 ♦1,190,247 *1,075,197 $ » $ 4,294 11,232 1,073 1.652 18,251 $1,208,^98 $ 4,070 10,997 1,073 1.6U 17,781 $1,092,978 $+ 34,281 + 51,954 ♦ 23,469 - 3,689 953 ♦ 263 + 802 I* 71,853 ♦ 2,022 ♦ ___6^212 8,334 ♦ + ♦+ 149 422 582 t* 115,050 ♦ ♦ 1+ 224 235 11 470 $♦ 115,520 ZJD LIABILITIES Mns. #1,400 1,2 0 0 1,000 - 300 600 400 200 The most significant change in our balance sheet is the heavy in crease in our holdings of U, S. Treasury notes and bonds - $33 million and $71 million, respectively. Conversely holdings of U. S. Treasury bills de clined $76 million during the year, and certificate holdings were reduced by $4 million. The net result of these various changes was an increase in our portfolio of U, S. government securities of $29 million to $665 million by the year«end. These shifts in our portfolio from the short-term securi ties into notes and bonds reflect the heavy open market transactions, parti cularly during the latter part of 1947, in order to support bond prices. All during November and December the Federal Reserve had been supporting the long-term market heavily. System holdings of notes and bonds increased from $1,567 million on November 5 to $4,157 million on December 30, a rise of 156 percent. For this bank the corresponding figures are $48 million on November 5, $137 million on December 30, and a rise of 186 percent* While U. S. Government Security Holdings Federal Reserve System (In millions of dollars) l2-20ri7 $11,619 Bills Certificates Notes Bonds Total 6,840 1,477 2.680 J22,61<j 11-J>*47 $13,504 $ 7,048 859 708 $22,119 e Change - 1,885 208 ♦ 618 +1.972 + 497 Federal Reserve Bank of Minneanolia Bills Certificates Rotes Bonds Total $ $ 304 226 $ 348 214 49 26 667 9 610 88 $ ♦ + ♦ f + 44 12 23 66 57 holdings of short-term securities declined, the net effect of these open market transactions, largely In support of the bond market, during November and Decem ber, together with certain other changes, was an increase nationally of about $500 million in securities held by the System, an increase of $900 million in member bank reserves, and a temporary increase of $600 million in excess re serves. On balance the assets of the bank increased by $116 million in 1947 to a record $1,208 million by the end of 1947. Such an increase might normally be a development to which one would point with some justifiable measure of pride, About this further expansion in 19-47 one is less certain. In a very real sense it portrays the difficulties encountered by monetary, fiscal, and economic policies in coming grips with the substantial further inflation of the price level. CAPITAL ACCOONTS CAPITAL STOCK paid in totaled $4,294 thousand on December 31, 1947, an increase during the year of $223 thousand. SURPLUS ACCOONTS. Surplus (Section 7) was inoreased $236 thousand, which brought the total to $11,233 thousand on December 31, 1947* Surplus (Section 13b) remained unchanged at $1,073 thousand. CONTINGENCIES. No change was made during the year in the reserve of $1 million set aside for losses in excess of the blanket bond coverage or the reserve of $500 thousand earmarked for losses not covered by the Loss Sharing Agreement., The reserve for registered mail losses totaled $152 thousand on December 31, 1947, compared with $141 thousand for 1946, an increase of $11 thousand for the year* Below is a table shewing the changes made in this account during the year 1947: Reserve for registered mall losses beginning of year 1947 $141,259.23 Debits: Our proportional share of the retainer fee for advisory services from Harsh & HcLennon, Inc., for 1947 Total Debits Credits: Additional recovery received on loss of shipment of $5,000 in Cbe's and Five's to Northwestern National Bank, Litchfield, Minn., on December 17, 1945 Reserve for fiscal year, December 1, 1946, to November 30, 1947, based on total shipments for year of $564»462,3S7 at 2f per $1,000 Total Credits Net Additions during year Reserve for registered mall losses December 31, 1947 $11,291*25 11.264,02 $152,523.25 The following gives a detail of shipments made during the fiscal year December 1, 1946 to November 30, 1947: 1947 (OOP Qnltted) New F.R. currency from Washington Fit F.R. notes to bank of Issue Currency & coin between Minneapolis & Helena Other currency & coin outgoing — Minneapolis 6 Helena Other currency & coin Incoming — Minneapolis & Helena All Other: (Delivered or picked up by truck) Other currency ft coin outgoing - Helena Other currency & coin Incoming - Helena 125,900 38,934 4,898 1946 (OOP Chitted) ' $ 111,000 47,589 5,907 187,673 165,798 199,647 172,730 3,067 ..A,2il 2,589 2.944 564,462 * 508,557 The following table shows the disposition of 1947 net earnings and the changes made in the surplus accountss Net Earnings - 1947 Dividends Paid Raid U.S0 Treasury (Interest on F.R. Hotes) Paid U.S* Treasury (Section 13b) Transferred to Surplus (Section 7) $ 2,613,643.19 $ 253,251.30 2,124,282.37 500.00 2,378.033<>67 $ 235,609.52 Surplus (Section 7) December 31, 1946 Transferred from Earnings 1947 Surplus (Section 7) December 31, 1947 $10,996,957*86 235.609.52 $11,232,567.38 Surplus (Section 13b) December 31, 1946 Transferred from Earnings 1947 Surplus (Section 13b) December 31, 1947 $ 1,072,621.34 __ Hone $ 1,072,621.34 Reserve for Contingencies, December 31, 1947s Reserve for looses in excess of blanket bond coverage Reserve for losses not covered by Loss Sharing Agreement Reserve for Registered Mail Losses $ 1,000,000*00 500,000900 152,523«25* $ 1,652,523.25 "See analysis on the preceding page. Ob December 31, 1947, the accounts RFederal Deposit Insurance Corporation Stock" and "Reserve for Federal Deposit Insurance Corporation Stock" were closed out each in the amount of $3,509,467.65 as the result of the cancellation of such stock effective October 7, 1947® CM DIVIDENDS Thia year’ s payment of $253,251 is the largest ever paid by this bank for one year9s dividends, Baking a grand total of 16,165,589 since the organization of this bank, As of December 3-1, 1947, capital stock held by the 475 member banks totaled $4,293,650, which Is an increase of 4 banks and $223,100 over 1946* TABLE CF DIVIDENDS PAID SINCE ORGANIZATION 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 $ 57,719*87 363,894*19 168,102*97 180,186.21 195,870o65 211,657*03 213,774.01 212,732*68 202,827,98 193,559*46 187,609*25 180,726,51 181,202586 184,029o92 184,445.39 180,454*53 175,494o80 171,568,89 181,117*51 185,448*45 179,052*04 174,057*31 174,231.27 174,905*39 177,400, 58 179,789,68 183,336*33 190,924.19 206,158.74 221,686,96 238,372.30 253.251*30 $6,165,589*25 For period November 1, 1914 through June 30, 1915* For period July 1, 1915 through December 31, 1917c ($134*649*67 withdrawn from Surplus to pay dividenda) DISTRIBUTION Of 1947 DIVID SEP Michigan N&tlo Bks St. Mbrs* No* Natl* Banks Hoc State Members Minnesota No, Dakota So. Dakota Wisconsin Montana Total $10,748o45 $161,138.89 $13,241,95 $14,692*54 $10,925.51 $17,127.27 $227,874,61 3,479,68 5.044,84 -_______ 4.288,28 2,686,20 9.877,69 25.376,69 $l4f228ol3 $166,183*73 $13,241,95 $18,980 82 $13,611.71 $27,004.96 $253,251.30 26 180 41 35 26 39 347 Jtl 41 28 208 Biwm »i >ii mm None a -28 63 40 43 82 128 475 22 BANK PREMISES During 1947 no additions were Bade to the book value of bank buildings and fixed machinery and equipment, either at Head Office or Helena Branch, all expense being charged to repairs and alterations* Noraal depreciation charges of 2% on bank buildings at Minneapolis and Helena, and 10% on fixed machinery and equipment at Helena, were made. Ho addition to the reserve for fixed machin ery and equipment was made during the year of 1947 since the full reserve has already been established* Deductions of $4f00Q from both fixed machinery and equipment and its reserve at Minneapolis, representing the estimated original cost of four large exhaust fans sold, were made, These fans were located in the subbasement, had not been in operation since our air conditioning system was revamped in 1938, and were sold for $540p which was credited to Profit and Losso To relieve congestion in the basement and subbasement at the Head Officet the following steps were taken: 1* A concrete slab floor was constructed over a portion of the boiler room at the basement floor level, and a tile wall was erected on one side, making available for use approximately 550 square feet of floor space. 2« A doorway was cut into an obsalete, horizontal air duct at the boiler r~ai level and a new one-position gun range was constructed in this area, This eliminated the old gun range, which was located in the subbasement, and made available an additional 1,500 square feet of floor space„ 3» The sale and removal of four large exhaust fans made available 800 square feet of floor space., 4« Approximately 2,200 square feet of storage space was rented from the Minneapolis Van & Warehouse Company at an annual rental of $1,320 for the storage of old records, of which 70% is reimbursable* 5c Approximately 440 square feet of additional storage space was rented from the Minneapolis Van & Warehouse Company at $55 per month far storage of Fiscal Agency-owned surplus furniture and equipment« Sale* transfer* or removal from storage of this furniture had reduced the rental to $7*50 by year-end0 All of this expense was reimbursable* A detail of changes in the bank premises account is shown on the following page0 23 Head Office BANK BUILDING: Gross Book Value: Beginning of 1947 Additions during year Deductions during year End of Year Allowance for Depreciation: Beginning of 1947 Credits a* Normal depreciation b Other Debits End of Year Net book value December 31, 1947 Total Helena Branch $1,283,281.50 $101,000,00 - - $1,384,281.50 $ 1 ,283,281.50 $101,000.00 $ 577,393.56 1 564,643.56 f 12,750*00 25,665.60 2,019.96 £1,384,281.50 - 27,685.56 - - $ 605,079-12 S 590,309.16 $ u , 769.96 e 779,202,. 38 * 692,972,34 $ 86,230,04 $ 702,171.34 £ 664,969,35 $ 37,201,99 4.000,00 4c000*00 $ 698,171.34 e 660,969,35 $ 679,735,26 $ FIXED MACHINERY AND EQUIPMENT: Gros3 Boo1: Value; Beginning of 1947 Additions during year Deductions during year (estimated original cost of exhaust fans and motors sold) End of Year Allowance for Depreciation: Beginning of 1947 Credits a 0 Normal depreciation b 0 Other End of Year Net book value December 31, 1947 664*969*35 $ 14,'765,91 3,720,24 3,720.24 Debits (estimated original cost of exhaust fans and motors sold) $ 37,201,99 4*000*00 4 .000.00 $ 679,455.50 $ 660*969o35 $ 18,486,15 $ 18,715.84 $ - $ 18,715,84 $ -410,520,66 $ 400*520*66 $ 10*000*00 $1,208*438o88 ^1,093,493.00 $114,945088 LAND; Net book value December 31, 1947 TOTAL BANK PREMISES; Net hook value December 31, 1947 NET EARNINGS & PROFITS Net earnings and profits totaled $2*614 thousand during 1947, an increase of $248 thousand compared with 1946* Compared with 1946, total current earnings increased $434 thousand, represented by an increase in earnings on bills discounted $16 thousand, interest from securities in the Open Market account $473 thousand, deficient reserve penalties $4 thousand, reductions in interest on foreign loans on geld $8 thousand, and interest on bills held under repurchsse agreement $50 thousand. Our net expenses increased $309 thousand, dividends paid $15 thous and (due to an increase in capital stock of $223 thousand), and interest on Federal Reserve notes $2,124 thousand* The Profit and Loss account, as shown in the table below, was $123 thousand more compared with 19469 due to an increase in additions to current net earnings consisting of net profit on U„ S. securities sold $24 thousand, decreased deductions from current earnings for charge-off on bank premises (second floor addition at Helena Branch) $27 thousand, retirement system salary computation adjustments $73 thousand, and an increase in deductions for reserve for registered mail losses $1 thousand Inc. or Dec, 1247 Current earnings Current expenses Current Net Earnings 54,613,108 2 063.098 $2,550,010 . Additions to Current Net Earnings: Profit on U.S.SeCo sold, net $74,733 All Other 782 Total Additions $75,515 + 23,685 w 559 + 23,126 Deductions from Current Net Earnings: Charge-offs on bank premises Reserve for registered mail losses 11,289 Retirement System salary com putation adjustment All Other 593 Total Deductions $11,882 60 27,314 + 1,118 * 72,807 496 $ - 99,499 + 122,625 Net Additions to Current Net Earnings Net Earnings & Profits $ + 433,749 + .308,561 $ «• 125,188 $2,613,643 $ + 247,813 C<D ^ RET CURRENT EARNINGS / . „ \ CURRENT EARNINGS The table beloT? giyes a breakdown of the Profit and Los3 transactions during 1947: Head Office Helena Branch 202 $74,733 20& O ^ 30 540 30 540 10 10 $75,519 $11,289 11 80 ?02 $ $11,882 $11,289 11 70 505 $11,875 $63,633 £63,644 $ - 11 Total Additions to Current Net Earnings: Profit on U„S. Govt* Sec,, sold, net Profit on mutilated currency & coin Recovery of items previously charged to Profit & Loss Exhaust fans and motors sold Credit for check returned - endorsing bank unknown Total Additions Deductions from Current Net Earnings: Reserve for registered mail losses Discount on foreign currency & coin Loss on counterfeits Difference account Total Deductions Net Additions to Current Net Earnings $74,733 $75,515 cm $ • A oc 10 - 3 $ - 7 EARNINGS Earnings from current operations totaled $4,613 thousand during 1947v an increase of $434 thousand over one year earlier. The largest source of earnings in 1947 was from U. S„ Government securities - System account, $4,422 thousand, an increase of $473 thousand over last year. A table of earnings is shown belowx 1?47 Discounts $ 80,910 Foreign loans on gold 15,534 U vSo Sec, - System Account 4,422,404 84,266 U.S. Sec, * Repurchase Option Deficient Reserve Penalties 8,782 Sale of wastepaper, money bags, 620 etc. Service charge * Safekeeping 5 Commission on bills bought for foreign banks 169 Clearinghouse fines 182 Savings in Registration Fees, etc., on registered mail shipments for 206 member banks Interest on personal loans to employees ______ 3Q $4,613,108 Inc, or Dec. from 1946 $ ♦ 16,305 8,250 + 472,632 - 50,146 + 3,604 + 364 - + + 115 36 902 * . _2 $ ♦ 433,749 Our average daily holdings of bills discounted for the year 1947 were $8,213 thousand, with earnings of 080,910 compared with last year’ s totals of $7,331 thousand, with earnings of $64,605. percent. The return is one Average daily participation in foreign loans on gold during 1947 was £1,493 thousand compared with a daily average of $2,341 thousand in 1946o The earnings received on these loans during 1947 totaled $15,534 28 compared with $23,784 earned for the year 194.6. The yield for 19-47 was 1.059 percent«, Average daily participation in Open Market securities and bills held under repurchase option totaled $642 million, a daily average increase of $8 million compared with the year 1946 * with an average yield of .703 percent this year against *648 percent for the year 1946 „ The earnings on these securities for this year were £4,507 thousand compared with $4,084 thousand last year. For the year 1947 the average yield from loans to Ninth District banks, foreign loans on gold, and U. S. securities was „708 percent compar ed with .654 percent for the year 19460 On the last day of the year 1947, compared with the same day a year ago. Open Market account bonds increased $71 million, and notes $38 million, while decreases occurred in Open JSarket account bills $49,412 thousand, certificates of indebtedness $4,356 thousand, and bills held under repurchase agreement (which was discontinued as of October 2, 1947* because this agreement was of war-time duration only) $26,264 thousand. The table below shows our participation in the System Open Market account and bills held under repurchase agreement for the last business day of 1947 and 1946; 12-31-47 (000 omitted) Bonds Notes Bills Certificates of Indebtedness Bills - Repurchase Option I 93,936 48,618 298,577 223,788 12-31-46 (000 omitted) $ 22,929 10*814 347,989 228,144 Earnings from deficient reserve penalties for the period Decem ber 16, 1946 through December 15, 1947, totaled $8„781<.49, an increase of $3,603»48 over last year's earnings of $5j.l78o01e While this year*s earnings are the largest since 1932, the increase is largely due to three banks in Montana being penalised a total of 25 timos, amounting to $4*320,62. During 1947, a total of 134 banks were penalized 276 times, com pared with 114 banks ana 208 penalties in 1946. Comparative Report of Deficient Reserve Penalties Penalties Assessed No,> ...1947 Michigan 34 Minnesota 86 No.Dakota 17 So*Dakota 41 Wisconsin 24 Head Office Totals 202 Montana Combined Totals 74 t 522.94 1,016,83 587.69 1,107.22 416,23 No,y______ No. 34 e 721.71 11 70 1,494°87 44 18 455 *88 3 26 22 696.80 11 530.20 18 $3,650.91 170 $3 ,899.46 5.130.58 Penalties Waived 38 1.278.55 1947 1946 8 $ 15.12 $ 18.83 126.71 35 156.31 33«01 11*25 9 12 24.52 20 c43 4.36 24.91 6 1947 1946 1947 m 17 47 42 10 10 12 12 9 30 3 9 14 109 90 65 5.39 25 24 $235.41 74 $238.71 134 114 87 $202.13 17 33*28 276 £8»7Sio49 208 $5,178.01 104 No,. Number of Banks Affected Assessed Waived 70 $233.32 f 4 23 11 15 6 31 8 9 6 60 4 78 64 No changes were made in the percentage of reserve required al though one change was made in authorized deductions„ Under the supplement to Regulation D dated April 13, 194-3, War Loan deposits and Series E Bond account became exempt from reserve requirements until six months after the cessation of hostilities of World War II* On December 31, 1946, the President of the United States proclaimed the cessation of hostilities as of noon that date? therefore, effective July 1, 194-7, such deposits ceased to be deductible when computing net deposits subject to reserves. NONREIMBURSABLE EXPENSES Inc. or Dec* Head Office Helena Branch 194.7 $1,859,542 203.556 $27063^093 $ + 279,047 + 29* 5L6. $ 7308t#l Head Office expense, after deduction of reimbursable expense, increased $279 thousand compared with the year 1946. Principal increases over last year were in salaries; retirement system contributions; travel** ing expense; postage and expressage; telephone and telegraph; printing, stationery and supplies; insurance; taxes on bank premises; light, heat, power and water; miscellaneous expense; assessment for estimated expenses of the Board of Governors .of the Federal Reserve System* and cost of Federal Reserve currency. Rental of space received from Government agencies in creased, thereby reducing expense by a like amount* Helena Branch costs increased $30 thousand over last year. The 30 I larger increases were in salaries, postage ard expressage, telephone and telegraph, insurance, and depreciation on barJc building* Decreases occurred in repairs and alterations, furniture and equipment, and miscellaneous expenses Rental of space received from governmental agencies decreased, thereby reduc~ ing the deduction from expense by a like amount, SALARIES Inc, or Dec, 1947 from 1946 $1,066,713 $ + 177,172 112,936 + 21.745 $1,179,6,*9 * ♦ 198,917 Head Office Helena Branch Head Office salaries for 1947 totaled $1,067 thousand (which in cludes $20 thousand overtime), an increase of $177 thousand over last year. Salaries increased $186 thousand, while overtime payments decreased $9 thousand. This increase in salaries is due to the two blanket increases to employees effective in 1946, merit increases, and a small increased number of employees in some departments because of the five day week, Helena Branch salaries for the same period increased $22 thousand, due to the same reasons mentioned above. RETIREMENT SYSTEM CONTRIBUTIONS Inc, or Dec, 1947 from 1946 Head Office $ 95,586 $ + 16,394 Helena Branch 9.530 + 2,460 $105,116 $ + 18,854 Head Office retirement system contributions totaled $95,586, an increase of $16 thousand compared with 1946, due to increased salaries and to the change in the rate of contributions from 9 ,01% to 9 .62%, effective July 1, 1946, Helena Branch costs increased $2,460 for the same period, DIRECTORS * FEES & EXPENSES Head Office Helena Branch 1947 $11,087 4.530 $15,617 Inc, or Dec, from 1946 $ ♦ 1,432 ±1,067 $ + 2,499 Directors" fees and expenses totaled $16 thousand, an increase of $2,499 over the year 1946„ This increase is due partly to the following re vised schedule of fees, allowances, etc* for Head Office and Helena Branch directors from this district, effective February 15, 1947s 32 Directors’meeting of Head Office directors — A daily fee of $25»00 to Head Office directors residing within 25 miles, and $50o00 residing more than 25 miles from place of meeting. Directors5 meeting of Helena Branch directors — A daily fee of $25*00 to Helena Branch directors residing within 25 miles„ and $30*00 residing more than 25 miles from the place of meeting. Committee meetings of Head Office or Helena Branch directors — A daily fee of $25*00 provided only one fee will be paid for each day of meeting, regardless of the number of meet ings o If there is a difference in the amount of fee pay able for two meetings on one day*, the larger fee shall be paid. Allowances for expenses — For all directors residing 25 miles or more from the place of meeting there shall be paid necessary transportation expense* plus a subsistence allowance of $15.00 for each day, or portion of a day, during which the director is away from his home city. FEDERAL ADVISORY COUNCIL FEES & EXPENSES 1947 $1*843 Head Office Inc. or Dec. from 1946 $ ♦ 283 Federal Advisory Council fees and expenses totaled $1,843, an increase of $283 over last year due to the change in fees and allowances for representatives on the Federal Advisory Council from this district. The following schedule for out-of-town meetings was effective February 15, 1947: a daily fee of $50o00 for each day, or portion of a day, of meeting, together with necessary transportation expense and a subsistence allowance of $15*00 for each day, or portion of a day, during which the member is away from his home city* TRAVEL 1947 Head Office Helena Branch Inc 0 or Dec from 1946 $35,9X9 $ + 4,351 -I»g3-Q- !__ 228 $39,749 t * 4,879 Travel expense at the Head Of. totaled $36 thousand, an increase of $4,351 over the year 19460 The larger increases in travel expense are Bank Examination $2,500, and Bank Relations $2 thousand * Helena Branch cost was $528 more for the same period. POSTAGE & EXPRESSAGE Head Office Helena Branch 194.7 $191,117 32.908 £224,025 Inc, or Dec. from 19^6_ +' 28,675 * 31260 # + 31,935 Postage and expressage for the Head Office totaled $191,117, an increase of £29 thousand compared with 1946. in postage on; The largest increases occurred incoming currency $ 5 ,600, outgoing currency $4 ,000, and ordinary mail postage $15,500 (which includes the reimbursement to member banks of £1,500 for postage and expressage on cash items routed direct to other Federal Reserve bank3 and branches); express on: incoming currency $1,200, and incoming coin $4,100o Postage on outgoing coin shows a decrease of $2,500o TELEPHONE & TELEGRAPH Head Office Helena Branch 1947 $ 7,485 7 n286 $14*771 Inc* or Dec, from 1946 $ + 2,945 + l t,6l5 $ + 4,560 Telephone and telegraph expense at the Head Office totaled $7,485, an increase of $2,945 compared with the year 1946* This increase is due to the increase in commercial wire rates effective December 29, 1946, and to a change in the Board’ s MANUAL effective April 1, 1947, governing reimbursement for telephone stations used by the various government agencies. The charge per station prior to that date was $4.50, which included some of the telephone operators’1 salaries. Operators* salaries were eliminated as a reimbursable expense which reduced our recovery to $2*79 per station* Helena Branch costs increased $1,615 for this period. PRINTING, STATIONERY & SUPPLIES Head Office Helena Branch Inc0 or Dec, 1947 from 1946 $ 58,789 $ + 13,940 7 ,100 + 135 $ 55^889 $ + 14,075 Printing^ stationery and supplies at the Read Office totaled $58,789* an increase of $13,940 compared with the year 194.6. This increase is due to a change in our procedure whereby we now charge reimbursable units for supplies as they are requisitioned out of "Stock1* rather than when supplies are purchased , to increased costs of printing, stationery and supplies over the year 1946, and to the purchase of some items in 1947 for which there wa3 not comparable expense in 1946, such as; uniforms for guards £800, bronze memorial plaque (with names) for lobby $400, pre«*crimped coin wrappers $1 ,400, book "The Rising Tide of Bank Lending11, by Paul McCracken §900, coin bags $1,700 and a large order of Recordak film and spools paid for in December 1947, $3,500 (to be used by Transit when the installation is complete on the 24 Recordak machines), QTHSR INSURANCES (Does not include insurance on currency, coin and securities0) Head Office Helena Branch $14,373 la662 #16,035 Inc0 or Dec. from 1946 t * 5#86l ± lll96 $ ♦ 7,057 Other insurance expense for the Head Office totaled $14,3739 an increase of $5$861 compared with a year ago* lo The largest changes are; Effective April 1, 1947, the bank began absorbing approximately two-thirds of the expense in connection with Blue Cross and Surgical Benefit insurance offered to employees and dependents, The gross expense of the Blue Cross and Surgical Benefit insurance plan for the nine months of 1947 ^as $13<>331? of which $4*698 was paid by the employees, $1,710 was recovered from the various government agencies, leaving a net amount of $6,923 absorbed by the banko 2o Group Life insurance gross expense totaled $17,860 for 1947, an increase of $2,361 over last yearQ Of this gross amount, $8,471 was paid by the employees^ leaving a net amount of $9*389 absorbed by the bank for the year 1947# an increase of $1,219 compared with 1946„ A dividend of $8,810 was received from the Equitable Life Assurance Society for the policy year ended April 1, 1947 and for the third successive year, the employees were given benefits of this dividend totaling $2*764 as compared with $2,452 in 194.6o Distribution of the employees * share >f the dividend was made by the bank absorbing the employees’ share of the premium for the months of August, September and October. 3* Military Service insurance totaled $470 for the year 194-7, a de crease of $2,570 when compared with 1946„ This decrease was expeoted since most of the service personnel returned in 1946. VJith all military personnel returned, this expense will be completely eliminated in 1948» Helena Branch insurance costs increased Cl,196 for the same period. The largest changes are; lv Blue Cross and Surgical Benefits insurance became effective April 1, 1947, and gave the employees the same benefits as those at the Head Office, The net amount absorbed by the Branch was $679. 2o Group Life insurance gross expense totaled §1,416 for the year 1947, which is the same as for the year 1946. Of this amount $690 was paid by the employees, leaving a net amount of 6726 absorbed by the bank for the year 1947 compared with $718 for the year 1946 a A dividend of $817 was received from the Equitable Life Assurance Society for the policy year ended April ly 1947, and for the third time the employees were given the benefit of this dividend by the bank absorbing the employees * share of the premium for the three months of August, September and October, totaling $289 in 1947 compared with $216 for 1946, TAXES ON BANK PREMISES Head Office Helena Branch Inc* or Dec„ 1947 from 1946 $ 80,960 t ♦ 3,765 3 ,.983 + 187 £ 84,943 t + 3,952 Taxes on Head Office bank premises totaled $80,960, an increase of $3 *765 over the year 1946 due entirely to the increase in tax rate to 129 mills for 1947 compared with 123 mills in 1946a Helena Branch cost was $187 more for the same period due to an in crease in tax rates and a higher valuation on the building because of the second floor addition« DEPRECIATION O N BANK G U L P I N G AND FIXED MACHINERY & EQUIP! 1EKT Inc. or Dec* 19^7 from 1946 $25^666 $ .J: «74Q + 2.320 Head Office Helena Branch $31,406 $ * 2,320 Depreciation on bank building at the Head Office shows no change compared with 1946, while Helena Branch depreciation increased $2,320 ($520 on building and $ 1,800 on fired machinery and equipment) due to the second floor addition to the Helena Branch building during 19460 LIGHT« HEAT. POTTER & WATER 19£Z $22,691 2 M286 $24,977 Head Office Helena Branch Inc. or Dec. from 1946 1 + 2,597 » 196 £ + 2,401 Light, heatP power and water at the Head Office totaled $22,691, an increase of $2,597 compared with the year 1946, The classifications under this heading showing the largest increases are: (l) light and power $900, and (2) fuel oil $1 ,600, due to increase in price from .045 cents per gallon in November 1946 to a09 cents per gallon at the time of the last purchase, Helena Branch cost decreased $196 for this period* REPAIRS & ALTERATIONS Head Office Helena Branch Inc. or Dec. 1947 from 1946 $21,574 $ ♦ 1,381 ___570 - 3.456 $22,144 $ - 2,075 Cost of repairs and alterations at the Head Office totaled $21,574, an increase of $1,381 compared with the previous year* The largest items in repairs and alterations during 1947 are; 10 A new reinforced concrete sidewalk and curb was laid for $7,435« 20 Construction of a concrete slab over a portion of the boiler room at basement level with a carrying capacity of approximately 150 lbs, per square footo Tile walls erected inside of the new space were plastered, a door was installed and pipes and air ducts were moved * Total cost of this work was *2 ,222o 3 7 3„ After motors and fans were taken out of old air conditioner in sub~ basement and sold for $540,00s the net cost of connecting the return air ducts in subbasement was $922. Helena Branch costs decreased $3,4-56 because of repairs and altera* tions made to the original building at the t.ime of the second floor addition in 1946o FURNITURE & EQUIPMENT Inc, or Dec, 1947 from 1946 113,664 I ♦ 12 1.642 - lft463 $15,306 $ - 1,451 Head Office Helena Branch ■«'» » ' f i -j 1 1 i » w w — 1■»W i 11n>t n JPi< Furniture and equipment purchased at the Head Office totaled $13,664, an increase of only $12 compared with 1946, during 1947 were: The largest purchases four Remington typewriters $563, three coin wrapping machines $2,739, a Bunn tying machine $680, six ?/onroe adding machines $2,381,, and four 8-compartment money counting machines $7i>091. Obsolete furniture and equipment, such as adding machines, type writers, chairs, desks, etc,, sold during 1947 totaled $2,322. RENTAL OF OUTSIDE SPACE Inc, or Dec. 1947 $ 452 Head Office fro $ ♦ 452 Effective February 15, 1947, an agreement was consummated with the Minneapolis Van & Warehouse Company for the lease of approximately 2,200 square feet of space in their warehouse located at 100 First Avenue North at an annual rental of $1,320. This space is used for the storage of old records of the bank as well as for reimbursable functions,. the year was $452. The nonreimbursable expense for This lea3© is on an annual basis, giving us an option to renew at the end of one year. MISCELLANEOUS NET EXPENSE Head Office Helena Branch 19A7 $81,189 11.013 $92,202 Inc. or Dec, from m e $ + 12,089 -• 3.198 $ + 8,891 Miscellaneous net expense at the Hoad Office totaled $81,189* an Increase of $12 thousand compared with the year 1946. The items showing the largest increases during 3.947 are: 1. $8,152, Rental, repairs and maintenance of furniture and equipment increased Of this amount $3,100 was for rental since April 1, 1947 of Internationa al Business Machines for safekeeping records, $3,400 for rental since July 1947 of International Business proof machines for listing city and country checks, and $760 for a yearns rental on coin wrapping machines, 2. Foreign — Our pro rata share of the operating expenses of the Foreign Department by the Federal Reserve Bank of New York totaled $9,072, an increase of $1,300 over the previous year* 3* Membership dues to the Minnesota Bankers Association totaled $750, an Increase of $500 over 1946* 4o Ninth District Conference expense totaled $12,365, an increase of $351 over the year 1946* 5o Federal Reserve Forum expenses totaled $7,007, an increase of $2,116 over the cost of the first forum held in 1946» BOARD ASSESSMENT Head Office 1%7 $65,186 Inc, or Dec, from 1946 $ + 9,856 The assessment for expenses of the Board of Governors of the Federal Reserve System totaled $65,186, an increase of $10 thousand over the previous year. The Board of Governors of the Federal Reserve System levies semi™ annually upon the Federal Reserve banks, in proportion to capital stock and surplus, an assessment sufficient to pay estimated expenses and salaries of Its members and employees for the half-year succeeding the levying of such assessment, together with any deficit carried forward from the preceding halfyear O The basis for our assessments for the years 1947 and 1946 is shown below: First Half Capital Stock Surplus (Section 7) Surplus (Section 13b) 1947 $ 4,070,550 10,996,958 1,072,621 $16,140,129 1946 $ 3,861,350 8,869,500 1„072,621 $13,803,471 m i ,00204 (Cont'd) Assessment Rate .00161 Total Assessment for First Half $32,925.86 $22,223.59 Second Half Capital Stock Surplus (Section 7) Surplus (Section 13b) t 4,223,300 10,9*56,958 $ 3,963,100 8,869,500 1.072.621 $13,910,221 $16,292,879 .00198 Assessment Rate $32,259o90 Total Assessment for Second Half .00238 $33,106,33 COST OF FEDERAL RESERVE CURRENCY Inc. or Dec, 194-7 from 194.6 Original cost (including shipping charges) $ 90,473 $ - 2,384 Redemptions (including shipping charges) 18 a610 + 5,'4.05 $109*083 $ + 3,021 The cost of new currency totaled $90,473, a decrease of $2,38-4 compared with the year 1946« Printing cost decreased $5,500 compared with 194-6, while postage and surcharges increased $3,100 due to the $15 million increase of new money received in 19-47 over 194-6„ Redemption costs, including shipping charges, increased $5,405 compared with the previous year due to the assessment for expenses of re demption of Federal Reserve nctesc In addition to payment of $3,552 for the fiscal year ended June 3 0 # 194-7 we paid $1,686 for the year ended June 30, 1946, and $1,800 for the first half of the fiscal year ending June 30, 1948. RENTAL RECEIVED' 1947 $41,753 3,566 $45,319 Head Office Helena Branch Inc* or Dec, from 1946 $ + 5,057 • 3 >247 9 ♦ 1,810 Rental received from government agencies for space and furniture and equipment, which is deducted from total expenses, totaled $45,319 during 1947 for tho Head Office and Helena Branch, an increase of $1,810 compared with the previous year. Rental for space at the Hsad Office totaled $37,422, an increase of $6,061 over a year age due to units of the Fiscal Agency Depart ment returning to the bank from the annex. Helena Branch rental of space decreased $2,550 because of Fiscal Agency activities being transferred to the Head Office on June 1, 1947* This transfer also caused a decrease of $700 in rental received for the use of furniture and equipment at the Helena Branch c REIMBURSABLE EXPENDITURES Inc„ or Dec, from 19-46 1947 Public Debt $ 562,611 ** «~ 151,O H + 1,673 9,967 Withholding Taxes • 292 Foreign Funds Control Currency Reports 269 174 Reconstruction Finance Corp, - 11,168 45,392 Federal Farm Mortgage Corpe 79 323 Federal Land Banks 109 913 + Federal Intermediate Credit Banks 2420 + Federal Public Housing Authority 12 24 8,200 Commodity Credit Corporation 34,219 Maritime Commission 180 - 2,406 War Department 371 • Navy Department 4-40 • Office of Price Administration 4,905 4,403 • Federal Works Agency 78 19 Home Owners Loan Corporation 53 105 + Leased Wire Service 2,881 715 Photostat Service 1,310 619 + Coin Wrapping Service „ 4*225 $ 199,784 640,344 $ Reimbursable expenditures at the Head Office and Helena Branch totaled $640 thousand9 a decrease of $200 thousand compared with the year 1946c The agencies showing the greatest decreases ares Public Debt $151 thousands Reconstruction Finance Corporation $11 thousand? Commodity Credit Corporation $34 thousand, War Department $2 thousand, and Office of Price Administration 04- thousand,, wrapping service,, We received $4 thousand from banks for coin DEPARTMENTAL AND OTHER COMMENTS Accounting . . . . . .................................... A3 Armored Car Service ............................ Bank and Public Relations 4*3 ...............................44- C a f e t e r i a ........ ..................................... 4-7 Check Collections ................................. 4.8 Consumer C r e d i t ................................ .. 50 Currency and Coin Discounts Duplicating ...................................... 50 .......................... ................ . 5 3 ...................... .....................54. Examinations .................................... .. . . . 54Fiscal A g e n c y .......................................... 56 Industrial Advances .................................... 60 Interest on Federal Reserve Notes Noncash Collections ...................... 61 .................................... 64. Personnel........ .. ........................... .. 65 Protection........ ............................. .. 69 Purchasing . . . ............................ . . . . . . 70 Reconstruction Finance Corporation ...................... 70 Research . . . . . . . . ................ . . . . . . . . 7 3 Sa f e ke epi ng........................................ .. . 75 42 ACCOUNTING DEPARTMENT For the firot tine since 1942 all Federal Reserve banks were asked to resume the submission of annual budgets which had been temporarily discontinued because of the difficulty of estimating, in advance, the cost of various war activities, The responsibility for the compilation of the figuresy as well as the analysis of the monthly expenditures, is being handled by this department, During the year, the MANUAL OF INSTRUCTIONS GOVERNING THE PREPA RATION OF FUNCTIONAL EXPENSE REPORTS was completely revised. more important changes weres Some of the (a) with certain exceptions, dally time records are to be maintained by each employee where time is devoted to more than one unit, (b) reports are to be submitted monthly on a noncumulative basis plus an annual copulative report for each year, and (c) formal functional expense report forms and records of a permanent nature are to be maintained by all banks and branches covering the distribution of salaries and other expense items9 daily time records sod volume of work figures« The primary object of these changes is to unify the cost system so that costs may be more accurately compared with those of other Federal Reserve banks, ARMORED CAR SERVICE Negotiations were conducted during the year with Brink's Incorpo rated to amend a clause in the contract limiting its liability to losses caused by the negligence or misconduct of its employees so that Brinks Incorporated would aseua© the entire liability up to $5 million for any loss of any property while in the possession of its employees* The contract was amended to provide such coverage effective August 1, 1947, and the necessary changes were made in our operating procedure to make thit additional coverage effective 0 BANK AND PUBLIC REUTIOflS The program of visits to Ninth District banks by representatives of the Federal Reserve Bank, begun in 1933, was continued during the year. In 19-47 a record number of 2,360 bank calls were made by officers and senior members of our bank staff* Twenty sen form the bank relations group which is responsible for the program* The five States in the district served by our Head Office have been divided Into sections with two men ordinarily assigned to call on all the banks In a particular section. The program, therefore, calls for two visits to each bank, except those in Montana and the Twin Cities, each year* There are 1,134 such banks, and in 1947 all except 12 were visited at least twice, The remaining 12 were visited once. Ther3 were also 104 calls to branches, stations, and offices of banks during the year. This year's total of 2,360 calls under the program compares with 2,143 In 1946, 1,175 in 1945, and 411 in 1944* Not included in the above total, since they were not a part of the regular program, were approximately 35 calls made by Head Office representatives on Montana banks, 45 on Twin City banks, and numerous others which were made incidental to speaking en gagements, attendance at conventions and meetings, research trips, membership calls, bank open house and anniversary celebrations, etc* The bank was also represented by one or more men at each of the State Bankers Conventions of the six States in the District, the National A.B.A. Convention, and practically all group, clearinghouse$ and study conference meetings* In some cases where banks held individual celebrations of anniversaries, openings, or new or re modeled quarters, and where this bank was not represented, letters of con gratulation or citations were sent. In conjunction with the program of calling on banks, bank relations men encourage bankers to call at the Federal Reserve Bank whenever they are in Minneapolis, and during 1947 many bankers made tours of our bank and had luncheon with our officers* On April 26, the seventh Federal Reserve Conference for Ninth District bankers was held* representing 885 backso Conference registration included 948 bankers The program consisted of a reception at the bank, lunch at the Nicollet Hotel, an afternoon of addresses followed by & reception at the hotel, dinner9 and the Ice Follieso After opening re marks by President Peyton, the speaking program Included addresses by Dr„ Austin A* Dowell of the University of Minnesota; Mr, Vernon Lo Peterson of the DuPont Corporation; Mr* Leonard W 0 Brookington, promi nent member of the Canadian Bar; and a panel discussion on questions submitted by the bankers9 in which five of our people participated — Paul McCracken, Franklin Parsons, Harold McConnell, Sigurd Ueland, and Oliver Pcwell, On Friday evening preceding the conference, a compli mentary dinner iras held at the Minneapolis Club for the Commissioners of Banks in the District, the officers of the State Bankers Associations, the Directors of the Federal Reserve Bank and the Helena Branch, and Governor Clayton* After the dinner* brief talks were made by Governor Clayton and by Mr* George L* Peterson, Associate Editor of the Minneapolis Star0 The second Federal Reserve Forum for supporting executives of member banks In the Ninth Federal Reserve District was held on September 18 and 19? There were in attendance 422 men and wouen other than Federal Re serve personncd* This was an Increase of 7 ever the 3946 attendance. An analysis of the member bank officers who attended reveals a larger propor tion of cashiers and vice presidents and a smaller percentage of junior officers attending in 1947 as oenpared with 1946c Ob October 7* the members of the Congressional Committee con ducting price hearings In Minneapolis that week and 25 Twin City business men were guests of the bank at a dinner at the Minneapolis Club. The members of the Congress&on&l party also were our guests at luncheon at the bank on October 7* 8 and 9o Thirteen additional luncheons were held at the bank, with commercial bank officials„ prominent businessmen, and University professors as our guests^ At each luncheon a guest speaker discussed some topic of the day* There were 57 bank tours made by high school, college, and other student group3* Five of these groups were our guests at luncheon* Bank officers and representatives delivered 91 addresses to an estimated audience of 9f394 people0 The attendance at showings of the Federal Reserve Bank movie during 1947 was 13P378, bringing the cumulative total to 491 thousand0 The bank continued its cooperation with the Wisconsin Bankers Association with regard to showing of the Federal Reserve movie and furnished them two new prints to meet the demands for bookings and supplement the print they have had for distribution since 1940* This is the eleventh year of showings of this movie0 Sixty-six requests were received for 750 copies of the picture book "Your Money and The Federal Reserve System" in 1947* This booklet was completed and first distributed in Hay 1942a The operating ratio statement covering 194-6 operations of member banks in this district was mailed out to all member banks. Special studies of operating ratios were computed for the State Banking Departments of North Dakota and South Dakota and in Wisconsin for Ninth District banks in that state? as well as for fifty-three State banks in Minnesota who requested it» Two indu*trial tours were arranged, including visits to Minneapolis-Moline Implement Company and the Foley Manufacturing Company» The officers fluid public relations men also made a one-day trip to visit three ’scientific farms near Oiratonnao The year saw some progress in the trend toward par clearance in the district and increases in the capital accounts of many banks to a point where they are eligible for Federal Reserve membership* The last nonpar bank in Montana went on the par list in March, making that State along with the Upper Penlnsual of Michigan, one hundred per cent par. Late in the year there was a movement for par clearance in North Dakota. Five State banks in North Dakota went on the par list in 1947 and five mere announced par clearance as of January 2, 1948* As reported by the Examination Department, six State banks joined the Federal Reserve System during the year0 and, as of January 2, 194-3; we will have a State member in North Dakota for the first time since November 20, 1929, whan the Farmers State Bank, Fullerton, North Dakota, voluntarily withdrew fro* the System. At the close of the year there were 1,285 banks in the district as compared with 1,279 at the close of 1946* Of the 1947 total* there were 347 national banks, 128 State member banks, and 810 nonmembers with 140 of those on the par list and 670 nonpar. of 1946 was as follows: The breakdown at the end 348 national banks, 123 State members8 and 808 nonmembers, of which 128 were par banka and 680 were nonpar. Of the 140 banks now on the par list* 103 have sufficient capital funds and are otherwise eligible for membership, and of the 670 nonpar banks 571 now have sufficient capital funds to belong to the Federal Reserve System„ Both figures on eligible banks show Increases ever last year. CAFETERIA On January 1, 1947, Urs, Eelen Pearson succeeded Miss Esther Bisenbarth as menager of the cafeteria under the same arrangement as theretoforeo Because of rising food and operating coatst with a correspond ing increase in the monthly deficit being absorbed by the bank, the coet of a complete meal to an employee was raised 7£ to 10£ in February (depend ing upon the choice of dessert)0 Howevere no substantial reduction in the; deficit resulted? and in May and June a survey was made to determine what might be done to bring about a more economical operation, A detailed study was made covering food purchases and costs8 menus and food values9 returns against costp and a program of purchasing and menus worked out which appeared to be satisfactory, Hiss llinda Anderson, who had been the first assistant of the previous operators, succeeded Mrs® Pearson as manager of the cafeteria. CHECK COLLECTION DEPARTMENT The year of 1947 was one in which nearly all previous high volume figures were shattered. During 1947 the Check Collection Department func tioned 46,542 thousand itemsf which is an increase of 5»6£ over the 1946 total of 44*077 thousand items* When compared with the previous high prewar year (1941)» this year’ s total is 44 1/2J& greater. Breaking down the 1947 volume into various sections, it is in teresting to note that country checks numbered 32,376 thousand items which reflects an increase of 9% over the 1946 number of 29,625 thousand items and an increase of U7% over the 1941 figures of 22*010 thousand items* The month of October was rather unusual because on the 14th a new high of 169,009 country checks was established., This record, h orever, lasted only one day because on the 15th% 172,600 checks were functionedc Country oheck records were not the only ones to break previous marks because during 1947 a total of 7*207 thousand Twin City clearing items were handled* This total repre sents an increase of lt>8£ over the 1946 total of 7,080 thousand and a 39£ increase over the 1941 total of 5,177 thousand „ Here again the month of October was outstanding when on October 17 a new high in clearing checks was reached with 60,671 iteas being functioned* Checks returned to depositors during 1947 also increasede although this trend is normal due to the increased volume of country and clearing items«, During 1947 the 452 thousand items returned represents an increase of 6$ over the 1946 total of 426 thousand and a 23 1/2% increase over the 366 thousand items in 1941o The volume of Treasury checks dropped, with 6,436 thousand items handled, showing a decrease of 6„3% from the 1946 total of 6,872 thousand, but an increase of U5% over the 1941 total of 4,577 thousand. Drafts drawn on this tack fluctuated slightly during the year 1947. The 71 thousand items handled is 3 thousand items less than in 1946 and 7 thousand less than in 1941* To bring our Check Collection Department up to date on new procedure and equipment, a comprehensive study of methods used by other Federal Reserve banks m s Bade, a result, a number of new machines have been installed* with more on order0 During the period of July to September, ten I.B.tf. proof machines were installed, The machines were first used for instruction and practice by our employees, as we did not have experienced operators on our staff« After a number of operators were trained in the touch system for operating the 10 key adding machine and the 24 interdepartment selector keys on the proof machines, the machines were utilised for handling clearing items„ At present approximately 75% of the clearing items volume is being handled in this manner, The machines are also being used for proving deposits of country checks, with a few being assigned to handle deposits of Michigan and Wisconsin banks* As a result of this arrangement, items on a number of the larger country banks are being listed9 proved, and endorsed in one operation without being rehandled as was formerly the case* An additional ten I.B.M. proof machines are scheduled for delivery in March 1948 The Reserve banks plan to discontinue their requirement that member banks describe deposits of country cash items or that member banks be in a position to furnish suoh description upon request. In preparation for this additional service at the Head Office, twenty-four Hecordak machines for photographing all country checks, Government checks, and drafts on us are being installed, Upon completion of the installation, items forwarded to drawee banks will be listedv photographed front and back, and endorsed in one handling* In order to permit this plan of operation, special adding machine stands are being constructed and seme improvements are being made on the Recordak equipment * The classified check volume figures for the years 1941 through 1947 inclusive, are given in the following table* dumber of Checks Handled (In thousands) 19a 1942 1943 1944 1945 1946 1947 Country Clearing Drafts Return UoS* Treas, U.S. Treas. Total of On Us Checks Paper Checks Card Checks All Checl Checks Cheoks 22,010 5,177 78 366 4,577 32,208 4,960 23,057 3,928 64 32,303 294 23,232 246 4,998 5,417 91 33,984 80 6,673 2,357 23,675 265 3,909 36,959 7,158 86 1,676 5,852 40,487 311 25,404 7,080 426 29,625 5,437 44,077 74 1,435 32,376 7*207 71 452 926 5*510 46,542 4 9 CONSUMER CREDIT In view of congressional determination that consumer credit should not be regulated after Hoveaber 1, 1947, field investigations were discontinued as of August 1P 19470 During the first seven months of 1947 the bank9s consumer credit (Regulation W) representatives called on 1,772 lenders and vendors in 102 communities in the Kinth Federal Reserve District, Of the concerns visited, 817 appeared not to be engaged in making extensions of credit of the kind subject to the ter®a of Regulation W a At 955 establishments which were engaged in such business, 59,838 credit transactions were reviewed by the representatives0 There were 3,523 instances of violation noted at 77 con cerns* All were classified as "Class k Violators"; that is, those whose violations are consequential but are not such as to call for any action other than discussion in the field or a letter from the bank. No violator was reported whose violations appeared to call for disciplinary conference or other more drastic actionD CDRRSfiCY & COIN Shipments of currency and coin received during 1947 Increased in number and amount as compared with 1946 and previous years„ Receipt of 22,757 currency shipments in the amount of #324,217 thousand during 1947 reflected an Increase of 4$ in number of shipments and 11$ in dollar amount over 1946o Receipt of 3,169 coin shipments totaling $7,065 thousand repre sented an Increase of 34$ in number of deposits and 65% in value0 Outgoing shipments of currency to banks and others in Head Office territory nuribered 24,119 for $320,499 thousand, composed of 54,250 thousand bills during 1947, and represented a decrease of 7$ in number of shipments but an increase of 9 1/2$ in dollar amount as compared with 1946. The princi pal reason for the increase in the dollar amount of ehlpments during 1947 was the preparation for and redemption of Armed Forces Leave bonds. Currency shipments to the Helena Branch and to member banks in the Chicago Reserve district during 1947 numbered 564 totaling $36,587 thousand, and represented an increase over 1946 with 556 shipments totaling $32,625 thousand0 Outgoing coin shipments during 1947 decreased 15 per cent in number and in amount 13 1/2 per cent as compared with 1946, the 1947 volume figures being 11,877 shipments in the amount of $6,475 thousand* The number of bills received and counted during 1947 was 57,536,478* which represented an all time high and a slight increase over 19460 The number of bills reh&ndled (5*435*559)t however, and the number of notes verified by hand (4 *646*427) reflected decreases when compared with 1946. A wrapped coin service was offered to member banks effective May lf 1947,, 0to the basis of our estimated out-of-pocket expenses for performing the services the schedule of charges adopted and still In effect per $1,000 arex Cents Nickels Dimes Quarters Halves $10a60 2*80 1.50 .70 .70 Member banks are utilising this service to an increasing extent? and by the close of the year 50 per cent of the member banks had made use of it* To provide wrapped coin during the eight months the service was offered, 35*767*200 coins were wrapped amounting to $1,572f410* principally in cents, nickels and dimes0 Service charges received during the year amounted to $3,768.32, It is apparent that to date country member banks have not deposited loose coin in order to obtain wrapped coin* as the number and amount of coin shipments made has decreased as compared with 1946* Further* outgoing shipping charges during the second half of 1947 were less than similar expenses during the first half of the year before banks were making substantial use of the service. The volume of coin received and counted during 1947 increased substantially» An abnormal quantity of nickels* dimes and quarters were received as a result of the enforcement of restrictions on pin ball and slot machines in Minnesotau Sufficient coins in the nickel and quarter denominations were received In deposits for the full year's requirements, and of dimes and halves for the first half of the year's needs. During the year, $400 thousand in cents, $550 thousand in dimes and $400 thousand in halves were received from the mints or other Federal Reserve banks 5 1 The Currency and Coin Department retires froa ciroul&tion unfit and uncurrent currency and coin, During the year the department retired froa circulation 28,261,951 bills aggregating $111,904,300 and 1,945,000 coin* with a value of $83,475. Three Sattley coin counting and wrapping machines were purchased during the year and four Brandt machines rented to handle the coin wrapping service and additional volume of coin., Four currency counting machines were received at the close of the year and will be installed during 1948. Volume figures for the principal operations of the departnent followt Currency Paid Out to Hlnth Dlstrlot Commercial Banks & Governmental Agenolea 1947 1946 l's and 2's $ 28,995,091 9 28,030,000 5's 49,439,000 46,501,000 10's 103,069,000 91,021,000 20's 90,474,000 82,374,000 50's 9,342,000 8,155,000 100’ s 34,987,000 32,268,000 500's 1,612,000 1,480,000 1000‘ s 2.581.000 2.844.000 $ 320,499,091 $ 292,673,000 Outgoing Shipments ......1947.............. .... 1946........ Hunber Amount Humber Amount 24,119 $320,499,091 25,889 $292,673,316 Currency paid out Currency shipped to Helena Branch and for other F. R. banks 564 Coin 11.877 IL JEZ 36,560 36,587,000 6,474.988 $363,561,079 556 13.906 13.906 40,351 32,625,000 7-489.0; 7,489,044 $332,787,360 Incoming Shipments * e• eeee19^7t Hunber 22,757 3.169 25,926 Currency Coin Amount $324,217,322 - 7,065,350 $331,282,672 eeeee• •1%^« Hunber 21,890 -2x272 24,262 Amount $291,556,463 ..4,.2SP ,2.2^ $295,846,692 Hunber & Amount of Pieces Handled Currency Billa received * counted Bills rehandled Hand vertification of bills ,1947.... ............. ,1946, Amount Humber Hunber Amount 57,536,478 $354,384,710 57,485,763 $311,349,910 66,103,950 6,366,970 70,920,530 5,435,559 4.646.427 . M u m J i L Q 3.213.313 ___________ 67,618,464 $504,562,310 69,066,046 $455,034,480 Humber & Amount of Pieces Handled Colo Coles received & counted Coins rehandled Coins wrapped ...... 1947...... Niaiber Aaount 35*225,185 |6K462,046 4,369,740 918,045 .JSJfiZAQO 1^7^410 125,362,125 #8,952,501 ...... 1946....... Humber Aaount 47,978,790 $3,806,903 6,762,045 1,510,035 Hone Hone 54,740,835 »5,316,938 Aaount of Coin Received f r o U. S. Mints 1947 $1,350,000 DISCOUNT DEPARTMENT During the year 1947 the discount rate reaalned at 1 per cent. At the Head Office fifteen banks took advantage of loan privileges during 1947, borrowing an aggregate aaount of #969 Billion, all of which was represented by member bank bills payable with United States Government ob ligations as collateral security. The large total was caused by one bank borrowing in large amounts for one day only, Eleven million eight hundred fifty thousand dollars of the total advanced represented borrcarings of members other than Twin City banks. to the extent of $1,009 million. In 1946, fifteen banks were accommodated As of December 31, 1947, there was no member bank Indebted to us, which was also true on the same date one year earlier0 Collateral to secure bills payable voluntarily offered by two Twin City banks amounted to $31,921 thousand as of December 31, 1947. Six teen million dollars of that aaount is held for us by the Chase National Bank of Hew Torko At the Helena Branch, $4,655 thousand was discounted during 1947 compared with $8,525 thousand in 1946c United States Treasury bills bought under repurchase option totaled $394 million during 1947 compared with $709 million during 1946«> The policy of buying all Treasury bills offered to Federal Reserve banks at a fixed rate of 3/8 per cent per annum under repurchase option was terminated with the bills maturing October 2t 19470 5 3 No industrial advances ware nade in 1947y and no industrial loan applications were under consideration as of December 31* 1947. As of December 31, 1947, there was one Regulation V loan outstand ing in the amount of $104,927*78, of which $77,646.58 is guaranteed by the Department of the Any, DUPLICATING The Duplicating Department is an Important service unit within the bank. During the year 1947 this department reproduced the staggering total of 3,295,480 copies of 4,474 different forms, and 12,017 photoetatic copies of various documents were made. In addition, the department addresso- graphed daily about 2,100 envelopes and 3,800 forms. As will be noted from the table below the bulk of the photostatic work was done for organizations other than our own bank , War Assets Administration Fiscal Agency Department Bank work Commodity Credit Corporation Department of Internal Revenue Commercial banks R.F,C, Loan Agency Personal 7,232 1,717 1,251 679 449 326 284 79 12,017 During the year 1947 there was an average of eight employees assigned to thli* department* EXAMIKATICB DEPARTMENT On December 31, 1947, there were 347 national and 128 State mem* ber banks in our district as compared with 348 national and 123 State member banks a year ago* During 1947 all State member banks were examined once by our bank examiners and, in addition, the trust departments of thirteen State member banks exercising trust pewers were examined, are not exercising their trust posers* Nine other State member banks There are three holding company affiliates within this district — the Northwest Bancorporation, Bank Shares, Inc., and the First Bank Stock Corporation,, Only the latter two were examined during 1947. On December 31, 1946, there were five applications for member ship still pending. Of the five, one application was withdrawn and the other four became members* Four applications for membership were received during 1947• Two of these have been approved and the banks admitted as members, one was withdrawn, and while the remaining one has been approved, membership was not effective until January 2, 1948* A total of 336 applications for adjustment of holdings of Federal Reserve bank stock was received from member banks during the year. Stock was Issued to six new member banks and two banks surrendered their stock as a result of liquidation and consolidation No applications for national bank charters were referred to the bank by the comptroller's office during 1947* During the year, three calls for a report of condition of each member bank were issued0 In addition, all member banks were required to submit semiannual reports of earnings and dividends* The condition reports and the reports of earnings and dividends were checked and recorded. Total membership in this bank was increased by a net total of four banks during the year 1947. The tables below show the banks which terminated their menbership and the banks which became members* MEMBER BANKS SEVERING CONNECTIONS WITH THIS FEDERAL RESERVE BARK DURING 1947 NATIONAL BANKS ABSORBED BT OTHER NATIONAL BANKS Date Name of Bank Location 6/24/47 First National Bank in Deer Greek, Minn. No. of Shares Surrendered 23 (Absorbed by The First National Bank in Wadena, Hinn.) STATE MEMBER BANKS TAKEN OVER BY OTHER STATE MEMBER BANKS 1/20/47 The Hill County State Bank of Havre, Mont. (Assets purchased and liabilities assumed by Cltlaens Bank of Montana, Havre, Montana.) 90 STATE BANKS TfllCB BECAME MEMBERS PUKING 1947 Name of Bank Location Grand Maraia State Bank Liberty County Bank Culbertson State Bank of Culbertson First State Bank of Froid Livingston State Bank Bank of Sheridan Grand Marais, Minnesota Chester, Montana Cullertson, Montana Froid, Montana Livingston, Montana Sheridan, Montana FISCAL AGENCY During the year, three major changes have been Bade in the operations of the Fiscal Agency Department* First, in conformity with the economy program, the Treasury Department requested that consideration be given to consolidating with the Head Office certain Fiscal Agency activities which had been temporarily assigned to the various branch banks during the war period. After having considered? in the light of banking relationships, service to issuing agents9 paying agents and the general public, certain consolidations were found to be practical. Consolidation date was as of May 31, 1947. Prior to May 31, 1947* all banks and others concerned were Informed by the Helena Branch regarding the consolidation and were furnished with specific instruc tions for handling transactions affecting Savings bonds and that the War Loan accounts were to be transferred to the Head Office. Under the present setup, the Helena Branch acts in the same capacity as any other issuing agent, except that it has authority to Issue Series F and G bonds, in addition to Series E0 Bonds received for redemption which the Branch as paying agent is not authorized to pay, and all bonds received for reissue, are forwarded to the Head Office after they have passed on the sufficiency of evidence and the forms required„ The Branch also answers inquiries re ceived regarding Savings bonds* Its safekeeping facilities continue to be available to all holders of Savings bonds* Because of the small volume of work being handled by the Helena Branch, this consolidation was made without hiring additional personnel0 Second, as the volume of work declined, divisions of this de partment that had been located in the War Savings Bond Annex were gradually transferred to the main office, the Savings Bond Redemption Division being the last to move over0 The annex was completely vacated as of February 15, 1947 O Third, Armed Forces Leave bonds were Bade payable on demand starting September 2, 194-7P Any qualified paying agent of Savings bonds was authorized to act as paying agent* The procedure and Instructions con formed substantially to those prescribed for the payment of Savings bonds. Treasury Issues and Exchanges. — During the year 1947 the Treas ury Department offered in addition to Treasury bills, Savings bonds and Savings notes, only one issue of securities for cash subscription» That issue was the 2 1/2$ Treasury bonds, Investment Series A-1965* Subscrip tions to this issue of securities were restricted to insurance companies, savings banks, savings and loan associations, building and loan associations and other similar organizations having funds eligible for long-term invest ment, Commercial banks were eligible to subscribe according to a formula based on their time certificates of deposits and savings deposits« The total amount of subscriptions received and allotted to this bank for this issue aggregated $35,325 thousand, which was 3*6$ of the national total of $970,220 thousand. The total number of subscriptions received by this bank was 965, of which 922 were from banks 0 These bonds were issued in registered form only and are not transferable* They may be redeemed prior to maturity on or after April 1, 1948, at the owners option, on the first day of any calendar month, on one month#s written notice, at fixed redemp tion values* During the year, 1,218 tenders for Treasury bills aggregating $260,669 thousand were received, of which $209,799 thousand were accepted. The total tenders received represented 1,223 subscribers as compared with 1,840 tenders in 1946 covering 1,845 subscribers, totaling $391,368 thousand of which $294*522 thousand was accepted 0 After the unpegging of the rate of 3/8$ on Treasury bills which began with the issue of bills dated July 10* 194-7* the average equivalent rate of discount increased until it reached *951% for the issue of bills dated December 26, 1947. With the unpegging of the Treasury bill rate, tenders for $200 thousand or less were accepted at the average rate on a noncompetitive basis without a stated price. There were 12 exchange offerings during the year .1947, consisting of two issues of Treasury notes and 10 issues of certificates of indebtedness* The total number of subscriptions received by this bank for all such issues irae 9,787* of which 9,194 were from banks. Exchange subscriptions received during 1947 totaled $760*849 thousand e with an aggregate allotment of $696,199 thousandj, compared with $766,678 thousand with an allotsient of $573*775 thousand in 1946, U. S Savings Bonds. — A new procedure authorized by the Treasury Department was instituted August 19 1947* for the handling of the payment of U, So Savings bonds, Series F and Q, permitting the Federal Reserve banks to approve (1) the request for payment, (2) the supporting evidence required, and (3) the Banner in which checks should be drawn * This eliminates the necessity of approval for the same requirements by the Treasury Department and places more responsibility on the Federal Reserve banks. The number of qualified Issuing agents of Series E Savings bonds in this district, exclusive of branches acting under the quslifioatlons of the parent organisation, was 1,429 as of December 31, 1947, compared with 1*453 on the same date in 1946* These agents issued 1,063,801 Series £ Savings bonds totaling $176,555 thousand (issue price) compared with 1*303,723 totaling $132*865 thousand (issue price) in 1946*, In addition, this bank Issued On S Savings bonds* Series E, F and G* in the amount of $123,123 thousand (issue price) involving 299*564 pieces compared with $116,998 thousand (issue price) involving 385,892 pieces for 1946*, During the year 1947, 0, S. Savings bonds, Safekeeping Division* received an average of 3,127 pieces per month compared with 4,926 during 194.6* The monthly average number of bonds released fran safekeeping was 3,080 pieces in 1947 compared with 4,207 in 1946* The number of pieces held in safekeeping decreased while the dollar value based on issue price increased to $30*439 thousand in 1947 compared with $29,407 thousand in 19460 The daily average number of bonds redeemed during 1947 was 11,907 compared with 14,662 in 1946? These figures include redemptions by paying agents and direct redemptions by this bank, On December 31? 1947, there were 1*244 incorporated banks with 106 branches and 27 miscellaneous paying agents qualified to redeem certain classes of S, Savings bonds* Series A through E* compared with 1^225 banks with 99 branches and 20 miscellaneous paying agents as of the same date in 1946 These paying agents were reim bursed $320,316 for 2*450*211 pieces handled, Included in these figures Is $11*927 reimbursed to paying agents by Helena Branch before consolidation,. There are cases where it is necessary to reissue Savings bonds because of a change made on the bond* such as: to add, omit, or substitute a beneficiary; add a co»owner or change a beneficiary to a co-owner; or when original bonds have been Incorrectly inscribed; and many other types of cases where it becomes necessary to issue a new bond in order to effect the proper change, During the year 1947 there were 92,806 reissues far one purpose or another, totaling $11,898 thousand (maturity value) compared with 85$462 totaling $11f001 thousand in 1946, Armed Forces Leave Bonds. — Since September 2, 1947, 205,112 Armed Forces Leave bonds totaling $43,787 thousand have been redeemed by us and lp383 paying agents* Reimbursement to the paying agents is on the same basis as U» S a Savings bonds» Government Coupons., — During the year 1947, 545,823 government coupons totaling $42,063 thousand were redeemed compared with 581,78: totaling $46,695 thousand in 19460 In addition, 14,272 government agency coupons totaling $445 thousand were redeemed compared with 12,657 totaling $275 thousand in 1946» There were 155 employees assigned to the Fiscal Agency Depart ment on December 31$ 1947* compared with 181 in 19460 INDUSTRIAL APVAKCSS UND5H SECTION 13b AND CANCBLLATIOH OF faDJ.C, STOCK The aot of Juno 19 9 193**e added to the Federal Reserve Act a new section, known as section 13b, under which in exceptional circumstances and pursuant to authority granted b y the Federal Reserve Board, a Federal Reserve bank could on a reasonable and sound basis make loans to or purchase obliga tions of an established industrial or commercial business which is unable to obtain requi&ite financial assistance from the usual sources, for the purpose of providing such business with working capital, and could make commitments with respect to such loans or purchases, subject to a limitation of 5 years upon the maturity of any such obligation or commitment. Federal Reserve banks were also authorized by this act to acquire such working oapltal obligations of such businesses from banks or financing institutions by discount or pur chase, to make loans on the security of such obligations, and to make com mitments with respect to such discounts, purchases, or loans. Under the law each such financing institution uiust obligate Itself to the Federal Reserve bank for at least 20 percent of any loss which may be sustained upon any such obligation or, in lieu thereof, furnish at least 20 percent of the working capital advanced to such established industrial or commercial business. In order to enable the Federal Reserve banks to make the industrial advances described, the Secretary of the Treasury was authorized by the law to pay to each Federal Reserve bank a sum equal to but not In excess of the par value of Its holdings of stock (All reserve banks, $139 Billion - Our portion $3«509t467»65) In the Federal Deposit Insurance Corporation, upon agreement by the Federal Reserve bank to hold such stock unencumbered and to pay to the United States all proceeds thereof. The provisions of this aot were to remain in force until final liquidation of such stock by the Federal Deposit Insurance Corporation. In his budget message delivered in January of 19**7» the President of the United States recommended that Congress authorize the Federal Deposit Insurance Corporation to repay the $139,000,000 of capital furnished by the Federal Reserve banks and accepted the proposal of the Board of Governors that Congress at the same time authorize the payment of this suit to the Treas ury of the Federal Reserve hacks. Phis recommendation was pat into bill form, paesod by both houses and signed toy the President on August 5» 19^7 As a result of this action* the Federal Deposit Insurance Corporation stook was canceled as of October 7, 19^7» and payments under section 13b(o) were no longer required. Under the provision of this act, a total of $l<f007,71*6.96 of the authorised allotment of $3* 5^9* **67*65 *&s received from the Secretary of the Treasury* These funds were received in four equal installments of $251,93607^ during 193** and 1935 and were set up in the account. Surplus Fund, Section 13b„ In making loans, these funds were used in conjunction rith our own and distribution of profits or losses were made on a ratio basis,, The aggregate of the daily amount of funds received from the Secretary of the Treasury compared with the aggregate amount of Federal Reserve Bank funds used determined the ratio for distributing the net profits, losses, or reserves. During the years which the provisions of this act were In force, a total of 19^ industrial loans and 7 commitments were made* In all, a total of $131*689,60 in profits were realized and distributed aB follows: Federal Reserve Banlre share $ 11 A**' Paid to Secretary of the Treasury Credited to Surplus, Section 13b 64.87^.,38 $131.&9.60 The balance of $1,072,621*3*1 will remain in the account, Surplus Fund, Seotion 13b until instructions as to final disposition are received, INTEREST OS FEDERAL RESERVE HOTES On April 21** 19^7* the Board of Governors of ths Federal Reserve System announced that it had decided to invoke the authority granted to it under Section l6(U) of the Federal Reserve Act and to levy an interest charge on the dally average of Federal Reserve notes not covered by gold certificates The purpose of the charge is to pay Into the Treasury Department approximately 90% of the net earnings of the Reserve banks for 19^7* As a result a total of $2*12^,262*37 was transferred to the Treasury during the year , The table below ehows the payments and the rate of interest charged in determining these amounts: Bate of Paymen & k-zk-kj 7-31-*/ 10- 30-47 12-31-47 Period Covered First Quarter Second Quarter. laird Quarter Fourth Quarter Daily Avg. FcR, Hotes not Secured by Gold Ctfs. $ 418.1HS,369 418,714,776 424.635,593 444.27;>,t>20 Amount Rate .44* .35 .54 .6492 $ 453.955=27 365.371.66 577.969.76 1& & 1 - M $2,124,282,37 The authority to levy an interest charge on Federal Reserve notes not covered by gold certificates haB not been used previously, chiefly because of the ex~» istence prior to 1933 oi ® so-called franchise tax. Provisions of the franchise tax came into existence on June 21, 1^17* when Section 7 of the Federal Reserve Act was emended to read as follows: “ After all necessary expenses of a Federal Reserve Bank have bean paid or provided for, the stockholders shall be entitled to receive an annual dividend of 6$ on the paid-in capital stock, which dividend shall be cumulative* After the aforesaid dividend claims have been fully mete all the net earnings shall be paid to the U. S, Government as a franchise taxD except that one~half of such net earnings shall be paid into a surplus fund until it shall amount to U0$ of the paid-in capital stock of such bank*" While operat ing under the foregoing provisions, only the Federal Reserve Bank of New York paid a franchise tax during the year of 1917 but during 1918 several more reserve banks* Including Minneapolis, reached a point where their surplus was greater than Ubfi of the paid-in capitals On March 3* 192-99 slq amendment to Section J of the Federal Reserve Act w&s enacted whereby all net earnings, after a deduction of for dividends* were to bo paid into a surplus fund until such fund reached 100£ of the total subscribed capital, and that thereafter 10$ of such net earnings was to be carried to surplus, while the remainder was to be paid as a fran chise tax to the governments As a result of this change, and as noted in ths table shown on the next page this bank did not pay a franchise tax for the year 1919# although payments were made for each successive year with the exception of 1931* For the year 1931 our net earnings available for dividendsB surplus and franchise tax was only $45DSQ^aS6 making It necessary to transfer from surplus* $13^*6*49*67 *° P8^ annual dividend of $lSQeU54053 which dropped the surplus account below 100$ of our subscribed capital<» The provisions of this Act remained In force until June l68 1933» when the Banking Act of 1933 was passed, 71tn the establishment of the Fed eral Deposit Insurance Corporation* all Federal Reserve banks were required by Section 12B of the Federal Reserve Act to subscribe to shares of capital stock of the FBIC in an amount equal to one-half of their surplus. The entire stock subscription amounted to $139*299*557* of which we Invested $3«509^67. This, of course, reduced the surplus of the Federal Reserve basks to less than one^half of their subscribed capital and prompted Congress to eliminate the payment of a franchise tax, Net earnings for the next 10 years were relatively small; in fact, at the end of 19*& the combined surplus of the Federal Reserve banks was less than 75 Percent of their subscribed capital* However, during the next two years* net earnings increased substantially through system account open market operations. was The bulk of these net earnings .transferred to surplus accounts, and at the end of 19^6 the combined surplus of the Federal Reserve banks was once again greater than 100 percent of tho subscribed capital<, It is interesting to note that out of the net earnings for 19^7* sho^n on the table below we paid to the Treasury9 $2,12^*000 which is only $ 13*000 less than our franchise tax payments for the years 1922 through 1932c STATEMENT OF TOTAL FRANCHISE TAX PAID SINCS ORGANIZATION 12-31-IS 1919 12- 31-20 6- 30-21 12-31-21 12*"31*”^2 12- 31-22 12- 31-23 12-31-2* 12- 31*25 12- 31-26 12- 31-27 12*31-25 12- 31*29 12- 31-30 12- 31-31 12-31-32 •Underpayment years 1920 and 1921 $ 37,500*00 Non# 521*. 233-5» i ,2 sM 97,62 1 , 166, 1*68.98 52, 1*23. 36' 512. 028.98 101. 1*50.25 113, 61*6.58 37, 255. 01* 231*,380.91 103. 815.90 390, 150.58 51*9, 658.58 3,229.60 None ____ 8.1d58..5!t $5, 202, 898.50 MOMCASH COLLECTIOK DEPARTMENT During 19U7 'tilla department handled $QJs22^ grain drafts totaling $1,082 million which is an all time high both in number and dollar amount* This was an increase of 99?521 in number of items handled and an increase in dollar valua of $39^ million, There was a small increase of l60 items in city collections and a decrease of 2,7*12 items in country collections compared with 19^S» Security collections showed a decrease of 60 items, although the dollar value Increased about $2 million* Our member banks forwarded 2,6H6 direct-sent collections to other Federal Reserve banks as compared to 4,2^9 during 19^6« The dollar value of these collections totaled $12 million for 19^7 as compared to $20 million for 1946. fixelusive of dlrect»sent collections, this department handled during 19^7 a total of l901*>fi998 items with a dollar value of $1*399 million. This is an Increase of 9^»^79 items handled and in dollar value, an in-* crease of $35*+ million. Comparison of dumber of Items Received for collection City Collections Country Collections Security Collections 1957 ipE Ip 7 Humber of Items Grain Drafts 907,22$ S0Jt 70k City Items 28«S86 ._as„726 *936.111 S357530 53.969 Dollar Value (000 Omitted) Grain Brafts$lf081,915 $637*856 City Items __ 2>*L?M 28^528 $1,329.1* W K W $52,789 1955 191*7 lpS 56.711 25.918 25.978 $55,181 $17,218 $15,381 PERSONNEL DEPARTMENT Head Gffice personnel as of December 31* 1947y totaled 602 s a de<= crease of 34 from the December 31, 1946 figure of 636, and a decrease of 126 from the 1945 year-end figure of 728, A comparison with the war-time peak of 909 reached on July 1, 1943, as shown below* indicates that a decline of 307 fro® the peak may bs attributed to decreased activity in Fiscal Agency and Reconstruction Finance Corporation * Commodity Credit Corporation func« tions: Head Gffice Personnel Officers Bank General. Transit and Mail Fiscal Agency RoF.C. « C.C.C, 12-31-47 16 254 170 154 8 602 7-1-43 17 248 153 344 m 909 Inc* or 1 1 + 6 + 17 - 190 139 - 307 The chart below illustrates the growth and decline of the number of Head Office officers and employees over the past nine years. Number of Head Office Officers & Employees The labor market, exceptionally tight during the war* has remained unexpectedly competitive, particularly for fesaale fcelpo Beginning girl clerks or typists, as well as experienced stenographers, have been very scarce whenever we have sought to employ them. For the past two years it has been necessary to employ new help at beginning levels at almost a constant rate to meet the demands of heavy work in many of the regular operating departments * However, declining personnel requirements for Fiscal Agency post-war operations and a declining turnover of employees were helpful factors* The five day week, which the bank placed in effect December 1, 1946, proved itself an employment aid during 194-7* Frequently applicants for employment here had left other offices in search of a five day week. The chart below depicts separations and accessions by years since 1939. TOTAL SEPARATIONS AND ACCESSIONS BY YEARS 600 IPARATION 3 500 I___I- A-SESSIONS 400 300 200 100 1 1939 1940 1 1941 1942 I 1943 1944 1945 1946 1947 66 During the latter half of Haroh the bank announced ite offer of combined hospltal-surgical benefits for employees and their dependents, two-thirds of the cost of this protection to be paid by the bank, and one~ third by the employee. The benefits* a combination of Minnesota Hospital Service Association'a broadest contract and a surgical schedule through the Connecticut General Life Insurance Company, became effective April 1, 19470 The table below indicates the number and dollar amount of surgical claims paid during the past nine Months. Employees Dependents Number 28 31 62 Total Paid $1,300 1.197 $2,497 Average Claim $46.42 35.21 $40,27 F nal steps were completed on our Job Evaluation project and a special report was mailed to the Board of Governors at Washington during the latter part of July* This report includedi 1, Copies of our Job Evaluation procedural manual, 2* Copies of our Job Evaluation forms. 3* Charts and schedules specifically prepared to illustrate the Minneapolis Job Evaluation plan, Formal approval of our plan was received from the Board of Governors August 28, 1947* Forms and schedules were prepared for use in departmental salary administration,, Personnel Department records were revised to Job Evalu ation titles» salaries were studied and reviewed in light of Job Evaluation salary rangesy and trial schedules were run, During the year, 181 suggestions were submitted by employees, including 105 suggestions submitted during a special suggestion contest conducted for a three-month period in the spring. Thirty-eight suggestions were approved* the regular awards paid therefor aggregating $282*500 In additionf special awards of $100, $75 and $50 were paid to the employees placing first* second and third* respectively„ in the suggestion contest* All awards and special awards were net to the recipients* the bank having paid the normal federal income tax thereon, At tbs present tine there are two organizations within the bank — the Federal Reserve Club and the twenty Year Club* The Federal Reserve Club encompasses nearly all officers and e&plcyees of the bank0 Membership dues in this club sure $2 a year, with the bank contributing the additional funds p according to an approved bud get, to carry out a well rounded calendar of social activities0 During 1947 the social activities Included a winter carnival, nixed bowling party, a sports event (hockey game) and a summer picnic* In addition* there were separate women^s activities, such as a bowling league, picnic, theater party and game party, For the men there wore two bowling twos in the Bankers League and two stags. The Christmas party is the climax of the social season and consists of a dinner* entertainment and dancing, The expense of this function is borne entirely by the bank. The Twenty Year Club is, as the name implies, a group of officers and employees who have twenty or more years of service with the bank* At present there are 99 members of this select group,, The social activities of the club are limited to an annual bank-sponsared dinner party. While the Amerioan Institute of Banking is an organization outside of the bank, it is made up of bank employees with education the primary pur pose, Its numerous activities serve to bring the employees of banks together in a social way. Each member is assessed dues of $4 a year which are returned in the form of activities other than education. The educational expense of instructors, etcop is largely borne by the banks in proportion to the number of eligible officers and employees of eaoh Minneapolis banko During 1947 this bank contributed $2,460 for that purpose* As an added incentive to our employee members,,the bank in most cases refunds the tuition fees and in 1947 this bank refunded $414*50 to A.I.B. students who successfully completed courses of study. PROTECTION During the paot year several of the Federal Reserve banks arranged for surveys of their protection system by agents of the Federal Bureau of Investigation, The reports and recommendations resulting froa the survey were shared by all banks, and as a result of our participation and review of all findingsv several charges were made in the protection procedure* lo Some of the more important changes are as follcarss The use of female messengers for delivery of securities was discontinued., 2S A direct line to the Police Department was installed, 3, Floodlights were installed over the garage doors on the alley side and are left on from darkness until dawn, ^11 guards are given training on all firearms as well as their sldearms* 5* New gas masks were purchased and all posts equipped,, Additional masks are stored in the guardroom to be used in emergency,, 6, All gas bombs and cartridges were renewed* 7* Weekly6 old ammunition is fired and new ammunition issued« 8<, All bank personnel were issued general instructions as to their activities and responsibilities in the event of an emergency,. In addition to these changes, an additional precaution has been taken; that isf pictures of new employees are turned ever to the Protection Department and are posted in the guardroom for all guards to see. Also, an investigation of all new employees is made at the Identification Bureau of the Minneapolis Police Department* PURCHASING The Purchasing Department is operated with a full-time purchasing agent, a full-time stock clerk and a part-time general clerk* In 1947 purchase orders were placed for 2,250 items, and during the year the departments of the bank requisitioned from the stockroom a total of 9*200 itemsy listed an 4*276 requisitions0 Many items were still scarce and difficult to obtain. Perhaps the most difficult items to obtain were gummed tape, wrapping paper* en velopes and currency straps. Prices continued to rise throughout the year* The table below shows the price increase on a few items since O.P.A. con trols were dropped: 3W gummed Kraft tape, per 600 s roll Kraft wrapping paper, per CWT Regular #11 white envelopes, printed,, per M Heavy brown Kraft envelope 6 1/2"x 12 1/2" for mailing large check collection letters, per M #6 industrial fuel oil, per gallon 16 lb* #4 white sulphite paper, per lb, Lead seals f per IE Lead pencils imprinted for F.R.B,, per gross Rubber bandss per lbQ Last price under O.P.A* controls $ .535 80 850 Highest price paid during 1242_________ $ 1.12 13.60 3.160 3o76 60810 =055 7„97 ,09 ,120 9c350 11*95 2o350 ,634 2o75 *70 .16 1/2 Since we now have a rather good Inventory on handtf It will not be necessary to spend much for supplies during the first half of 1948* CUSTODIANSHIP OF RECONSTRUCTIOS FINANCE CCR- ORATION __________ AND OTHER GOVERNMENTAL AGENCIES________ The Corporation is effecting a decentralization of its activities; more responsibility is being placed in Its Loan Agencies; certain accounting records heretofore maintained by Federal Reserve banks as custodians are also being transferred to the Loan Agencies* After these changes are completed on or about January 15, 1943* the Federal Reserve banks will .issue checks against requisitions, have custody of documents and handle collections of iteas, cash and noncash. This depart ment apparently will continue to handle certain transactions whioh never have been handled by or through the Loan Agencies, Some of the var programs were discontinued and activity in other programs was less than formerly, last year has been clean-up work* A considerable part of the volume this The personnel of the department has been reduced from time to time accordingly* As of January 22, 1947, the Blanket Participation Loan Program was terminated as to further agreements or commitments thereunder* The agreements effected remained in force as to all commitments and loans which had been made thereunder0 In this district the Corporation, to date, has been called on to purchase its agreed participation in only six loans with aggregate unpaid principal balances of $237,371*99, of which the Corporation's share was $175,667*49* The present unpaid balance of the Corporation's share in these loans is $137,920c53• When the Blanket Participation Agreements Program was terminated, a similar program (not blanket) called "Small Loan Participations”was offered. Under the Small Loan Participations Program9 the Corporation has been called on to purchase its agreed participation in only one loan with an unpaid balance of $100 thousand* The Corporation's share was $75 thousand, now reduced to $60 thousand* While it appeared that payments of subsidies were about finished a year agoP we are still disbursing for claims (principally meat) on which payment was deferred pending audits of the claims0 The Reconstruction Finance Corporation Mortgage Company purchased a number of Veterans Home Loans prior to its absorption on June 30, 1947, by the Reconstruction Finance Corporation, Since then the Reconstruction Finance Corporation has made purchases in those cases where the Reconstruc tion Finance Corporation Mortgage Company had committed itself to purchase. The lent Reconstruction Finance Corporation audit at Minneapolis, covering i^er four years* activity, was made as of September 28, 1945, and completed on April 30, 1946* Recently the Reconstruction Finance Corpora tion advised the Board of Governors (Federal Reserve System) that audits of Federal Reserve banka revealed few exceptions, which evidenced effective internal controls and, therefore* no further audits at Federal Reserve banks would bo aadej this was agreeable to the Board, The decentralization program tends to ?aake such audits less valuable or necessary. Details as to reports and methods of operation to be used after decentralization is completed have not been received. Commodity Credit Corporation operations were light during 1947, Because of the price situation loans were not advantageous to producers and operations were mostly purchases of grains„ etc. Our activities have been mostly Halted to issuance of checks against requisitions and collection of its itess, cash and noncash3 Outstanding drafts for the Emergency Wheat, Daijy Production, Sheep, I&mb end Beef Production programs (subsidies) were paid in the usual manner until Kay 29, 1947; thereafter, such items were returned for presentment to the County Committees, which directed them to the local Commodity Credit Corporation office which requisitioned checks from us to cover. During the year the first sight drafts under the Wool Program were paid* This prograss has not been active0 A trend toward having each Regional Office handle Commodity Pro grams in its osrn district is seen in the transfer as of February 1, 1947, frcsa the Chicago to the for this districtdecentralized* oneapolis Regional Office of the Potato Program The Corn Program, we understand, will also be similarly Thus far, this has not added much to our volume as activity has been limited to purchases* Activities for other government agencies, such as the Public Hous ing Administration and Federal Works Agency, have been very light this last year* 72 RESEARCH DEPARTMENT The department continued to emphasise its extension or public relations activities. During the year members of the department partici pated in 67 speaking engagements with a combined audience of approximately 7,000c This does not include certain other bank conferences In whose program members of the department participated« It has continued to be the policy of the department, wherever possible, to satisfy the demands for speakers — particularly when requests come from bankers in the distrlct and when the Individuals concerned may make some contribution to the subject in question. Two members of the department have had charge of A.I.B, classes in Minneapolis this year, Franklin Parsons, Agricultural Economist, has been teaching a course In Principles of Economics, and Oscar Lltterer, In* duetrial Economist* has been teaching a course in Money and Banking. The major special study which the department completed in 1947 was an analysis of the structure of commercial loans at member banks in our district. The results of this study were published in the form of a pamphlet, "The Rising Tide of Bank Lending,”by Paul V, McCracken, with an appendix on sampling methodology by J c A, MacDonald, Later in the year an analysis of loans to farmers was begun, and the results of this survey will be published as soon as this material can be written up* A major proportion of the research activities of the Research Department this year found their market, as in the past, in special arti cles appearing in our "Monthly Review of Business Conditions”, A list of these special articles in the 1947 Reviews is as follows$ March April June August September Qstober "Food Relief and Ninth District Agriculture” "Bank Earnings Leveling Off” "Industrial Growth Can Stabilize Economy” "Rapid Price Rise Upsets Price Relationships" "Urban Realty Prices Display Spotty Rise" "What About Farm Programs * "Federal Tax Impact Greater Than Collections" "Economy Expands Despite Population Drop" F. L. Parsons Banking Section 0, F, Lltterer 0, F. Lltterer 0, F, Lltterer F. L. Parsons 0. F, Lltterer 0. F. Lltterer In addition to these materials, three articles were published In the Hew York Commercial and Financial Chronicle during the year on various phases of banking and business conditions* 7 3 During 1947 we experienced a considerable demand for oar regular publications on business activity* The circulation of our Monthly Review increased from 5,537 in 1946 to 6,538 at the end of 1947, There was a particularly large relative increase in requests from foreign sources to be placed on our wailing list* A further major change in typography in the Monthly Review was developed in 1947 when we shifted fro® a two column to a three column makeup« This was done in an effort to augment the read ability and appearance of the publication0 The largest relative expansion in circulation was enjoyed by our Farm News which during the year considerably more than doubled ita mailing list* Farm News circulation rose from lp664 in 1946 to 4»474 by the end of the year0 The Library Letter has been issued monthly except during the summer months and has resulted in some further demand for our library services. While there has been a considerable emphasis on regional research during the past year, members of the department have participated actively in System-wide research work. The various members of the department are at present members of the following Federal Reserve System committees * 1. Paul W, McCracken a<, System Research Advisory Committee bo Subcommittee of the Presidents' Conference Committee on Research c0 Executive committee of the Subcommittee of the Presidents4 Conference Committee on Research do Banking and Credit Policy Committee11 e„ Subcommittee of the Presidents1 Conference Committee on Legislation 2« Franklin L Parsons a. Agricultural Committee* 3« 0* F, Litterer ao Business Finance Committee* 4» A, MacDonald a* Committee on Current Reporting Series* ♦Subcommittees of System Research Advisory Committee and/or Subcommittee of the Presidents* Conference Committee on Research, The major activities of the library have again been directed along two lines, First* the library has served as a reference arm of the Research Department., In this connection it has made particularly great effort during the l&et few months to augment its receipt cf peuaphlets, periodicals, releases, and other materials which are particularly useful in such of our research work. Second? the library has continued to develop its circulating library program among banks in the districto approximately 20 per cent above 1946c Its circulation in 1947 was In an effort to stimulate this fur ther there has been in preparation a complete catalog of books in the library^ the catalog to be issued early in 1948° Circulation of Research Department Publications Monthly Review - total • foreign Monthly Review Press Release Farm News Library Letters Bank Debits Release Retail Trade Summary 1947 6,538 48 190 4,474 1*487 716 609 1946 5,537 31 237 1,664 1,450 704 660 Library Activity in 1947 New Acquisitions Books Circulated Periodicals Received Books on Shelves 253 2,415 251 4*275 250 2*056 75 4»000 SAFEKEEPING DEPARTMENT Securities held for safekeeping and collateral purposes as of December 31r 1947, were $1,406 million, a decrease of $143 Billion compared with the $1,549 million held a year ago. The decrease in securities held during the year occurred as a result of the termination as of July 1, 1947, of the safekeeping privilege afforded nonmember banks for Treasury bills and Certificates of Indebtedness of the United States, the decrease in the balances in War Loan Deposit accounts of the Treasury releasing War Loan collateral, and the discontinuance of the policy of all Reserve banks buy ing Treasury bills at a fixed rate of 3/8$ per annum under repurchase optionQ The reduction in the national debt also contributed to the decrease men tioned above. 12-31-47 12-31-46 Inc. or Deo, (000 Omitted! Accounts; Gove runout and miscellaneous securities held in safekeeping for members and noneembers $ 937,849 $ 978,991 1 Securities pledged to secure public 226,608 deposits 280,925 Securities held for U* S„ Treasurer and others 3,316 3,215 Securities held for R.F.C. 12,631 8,999 156,646 Collateral to War Loan Deposits 253,093 U« So Depositary Bonds - time deposits 122 131 HO Federal Works Administration 133 Collateral to Rediscounts & Bills Payable -46,132 16,271 Securities held for S. Housing Authority 1,735 1,7a Collateral to Consignment Account 78 U0 So Savings Bonds, Series £ U6 Treasury Bills held under Repurchase 2(>.26l Option ♦1,406,083 $1,549,083 I - a , 142 ♦ 54,317 ♦ 101 3,632 96,447 9 7 29,861 «e> • OB 6 - - - 68 26.264 - 143,000 - The Safekeeping Department received 57*866 pieces of securities! issued 9,152 receipts, and delivered 77f959 pieces in 10,337 transactions, resulting in a net decrease of 20*093 pieces of securities held during the year., During 1947* as in 1946F safekeeping operations were on the decreasef while in the five-year previous period the activity steadily Increased „ This department also made 5,790 transfers of securities from one account to another, and clipped 287,239 coupons from securities held during 1947c The table belcw shows comparative volume figures for 1947 and 1946« Receipts Issued Pieces received Withdrawals handled Pieces delivered Transfers from one account to another Coupons clipped 1947 9,152 57,866 10,387 77,959 1946 12,004 66,139 12,181 85,353 5,790 287,239 6,143 312,785 Ino. - or Deo 2,852 8,273 1,794 7,394 353 - 25,546 In order to permit the rapid and accurate preparation of lists of securities held in safekeeping for audit and examination reconcilements with out interference with operations of other departmentss records of securities held were established on tabulation cards during the early part of the year* The tabulation was used for the preparation of reconcilements for two audits of securities held in safekeeping during the year, the Boardvs examination having been made prior to the establishment of the punch card records0 At the close of the year, ta b u la tio n card records were also established to permit the listing of advices of and credits for maturing coupons and authorisations to clip coupons to vault custodians, which system will be effeotive early In 1948, In order to establish tabulating records for safekeeping operations, it was necessary to key punch approximately 50 thousand cards for outstanding receipts, and a similar number for maturity and income credit purposes.
@FedFRASER