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Federal Reserve Bank
of Chicago

To the Member Banks in the Seventh Federal Reserve District:

I take pleasure in submitting the 1959 Annual Report of the Federal Reserve Bank of Chicago. The Report includes the Bank's statement of condition, statement of earnings and expenses, and a review of developments
in business, agriculture and banking in the Seventh Federal Reserve District
in 1959.
The Bank was organized in 1914 and completed its 45th year on November
15, 1959. The Report concludes with a brief summary of the Bank's operations in that period.
During the year 1959, Board appointments and elections were announced
as follows:
Bert R. Prall of Chicago, a Director since 1953 and Chairman and
Federal Reserve Agent since 1956, was reappointed Chairman and
Federal Reserve Agent for 1960.
Robert P. Briggs, Executive Vice President, Consumers Power
Company, Jackson, Michigan, a Director since 1956, was appointed Deputy Chairman for 1960, succeeding J. Stuart Russell,
Farm Editor of the Des Moines Register and Tribune, Des Moines,
William A. Hanley, Director, Eli Lilly and Company, Indianapolis,
Indiana, a Director since 1954, was re-elected for an additional
term of three years.
James H. Hilton, President, Iowa State University, Ames, Iowa,
was appointed Director for a term of three years, succeeding J.
Stuart Russell in that capacity.
Vivian W. Johnson, President, First National Bank, Cedar Falls,
Iowa, a Director since 1945, was re-elected for an additional term
of three years.
C. Lincoln Linderholm, President, Central Bank, Grand Rapids,
Michigan, was appointed Director (Detroit Branch) for a term of

three years, succeeding Ira A. Moore, General Vice President, Old
Kent Bank and Trust Company, Grand Rapids, Michigan.
J. Thomas Smith, President, Dura Corporation, Oak Park, Mich­
igan, a Director (Detroit Branch) since 1956, was reappointed for
an additional term of three years.
Homer J. Livingston, President, The First National Bank of Chi­
cago, member of the Federal Advisory Council from the Seventh
Federal Reserve District since 1956, was reappointed member of
the Council for 1960.
The following official promotions were announced:
Charles J. Scanlon, from Chief Examiner to First Vice President
Laurence H. Jones, from Cashier to Vice President and Cashier
Harry S. Schultz, from Assistant Vice President to Vice President
Carl E. Bierbauer, from Assistant Cashier to Assistant Vice
Richard A. MofTatt, from Assistant Cashier to Assistant Vice
Dick Netzer, from Senior Economist to Assistant Vice President
Joseph J. Srp, from Assistant Cashier to Assistant Vice President
Charles G. Wright, from Special Representative to Assistant Vice
Leland M. Ross, from Assistant Chief Examiner to Chief Examiner
John J. Capouch, from Supervisor to Assistant Cashier
Francis C. Edler, from Assistant Chief to Assistant Cashier
The following officers retired:
Ernest C. Harris, First Vice President, after 17 years of service
Neil B. Dawes, Vice President and Secretary, after 26 years of
Arthur L. Olson, Vice President, after 40 years of service
H. Fred Wilson, Assistant Vice President, after 19 years of service
The following employees, with service records of over 25 years, retired:
Nellie C. Boland
John C. Jones
Vera Bolsis
Anthony J. Kirchen
Arvid P. Carlson
Ann V. Lawless
Cecil M. Casey
Harry C. F. Stake
Roy Christiansen
Mathilde Steinkrauss
Earl I. Curry
Alfred J. Walter
Angela Duffy
Anna Wilk
Christ M. Hansen
Henry Zieger
Agnes J. Henricks
The Bank deeply appreciates the many years of loyal and valuable service
rendered by the retired directors, officers and employees.

The total number of employees of the Bank averaged 2,782 during the
year, of which 464 were employed in Detroit. The corresponding figures
for 1958 were 2,866 for the Bank, of which 490 were in Detroit.


The amount of payments to the United States Treasury in 1959 was $ 167,266,066.40, compared with $95,789,047.75 in 1958, as shown in the
statement of earnings and expenses. In that connection the Board of Gov­
ernors of the Federal Reserve System issued the following statement on
January 6, 1960:
Preliminary figures received from the Federal Reserve Banks indi­
cate that during the year 1959 their current earnings amounted to $886
million, an increase of $144 million compared with 1958. Earnings on
U. S. Government securities were $123 million more than in 1958,
reflecting the combined effect of substantial increases in average yield
and average holdings. Earnings from discounts for member banks were
$28 million, compared with $7 million in 1958.
Current expenses in 1959 were $144 million, $7 million more than
in 1958, leaving current net earnings of $742 million, up $137 million
from 1958. Net additions to current net earnings amounted to $98
million, resulting almost entirely from the discontinuance of certain
reserves for contingencies. With such additions, net earnings were $840
million before dividends and payments to the United States Treasury.
Payments of statutory dividends to member banks amounted to $23
million. Payments to the United States Treasury as interest on Federal
Reserve notes totaled $911 million. These payments consisted of all
net earnings after dividends and after provision for building up sur­
plus to 100 per cent of subscribed capital at those banks where sur­
plus was below that amount, and, in addition, the excess portion of
surplus at those banks where the surplus account exceeded the level of
subscribed capital (which is twice paid-in capital).
The 1959 payments to the Treasury reflect a conclusion reached by
the Board, after consultation with the Federal Reserve Banks, that the
maintenance of a surplus at the level of subscribed capital would be
appropriate in the light of present circumstances. It was therefore de­
cided to change the recent practice of adding approximately 10 per
cent of the annual net earnings of the Federal Reserve Banks to the
surplus accounts, and to pay to the Treasury the amounts by which the
surplus accounts exceeded subscribed capital.
The Directors, Officers and Staff of the Bank are grateful to you, our stock­
holders, for your continued understanding and effective cooperation in
meeting the problems of bank and monetary management with which the
Bank and the Federal Reserve System have been confronted.


Chicago, Illinois
C h a irm a n a n d Fed e ral Reserve A g e n t

ROBERT P. BRIG G S, Executive Vice President
Consum ers Power Com pany
Jackson, M ichigan
D ep u ty C h a irm a n

J O H N H. C RO CKER, Chairm an of the Board

W IL L IA M A. H ANLEY, Director

and President

Eli Lilly and C om p any

The Citizens N ational Bank of Decatur

Indianapolis, Indiana

Decatur, Illinois
JA M E S H. HILTON, President
Io w a State University
W ALTER J. C U M M IN G S , Chairm an of the

Ames, Io w a

Executive Committee
Continental Illinois National Bank

V IV IA N W. J O H N S O N , President

and Trust C o m p an y of C hicago

First N ational Bank

Chicago, Illinois

C edar Falls, Iow a
G ERA LD F. LA N G E N O H L, Treasurer

W IL L IA M J. GREDE, President

and Assistant Secretary

Grede Foundries, Inc.

Allis-Chalm ers M fg. Co.

Milwaukee, W isconsin

Milw aukee, W isconsin




J O H N A. H A N N A H , President
M ichigan State University
East Lansing, M ichigan
C h a irm a n

C. L IN C O L N LIN D ERH O LM , President


Central Bank
G rand Rapids, Michigan

Citizens Commercial & S a vin gs Bank
Flint, M ichigan

W IL L IA M A. M AYBERRY, Chairm an of the Board

J. T H O M A S SMITH, President

Manufacturers N ational Bank of Detroit

Dura Corporation

Detroit, Michigan

O a k Park, M ichigan

C. V. PATTERSO N, Executive Vice President

D O N A L D F. VALLEY, Chairm an of the Board

Upjohn C om pany

N ational Bank of Detroit

Kalam azoo, Michigan

Detroit, M ichigan





H O M E R J. L IV IN G S T O N , President
The First N ational Bank of Chicago
Chicago, Illinois
January 1, 1960


CARL E. ALLEN, President
CHARLES J. S C A N L O N , First Vice President

ERNEST T. B A U G H M A N , Vice President

LAURENCE H. JO N ES, Vice President and Cashier

W ILFO RD R. DIERCKS, Vice President

CLAR EN CE T. LAIBLY, Vice President

ARTHUR M. G U S T A V S O N , Vice President

G EO R G E W. MITCHELL, Vice President

H UG H J. HELMER, Vice President

H A RO LD J. N E W M A N , Vice President

PAUL C. H O DG E, Vice President,
General Counsel and Secretary

H A RR Y S. SCHULTZ, Vice President

ROBERT C. H O LLAN D, Vice President

RUSSEL A. SW A N E Y , Vice President

CARL E. BIERBAUER, Assistant Vice President

BRUCE L. SMYTH, Assistant Vice President

ED W A R D A. HEATH, Assistant Vice President

JO SEPH J. SRP, Assistant Vice President

and Assistant Secretary
R IC H A R D A. MOFFATT, Assistant Vice President

C. PAUL V A N ZANTE, Assistant Vice President

D IC K NETZER, Assistant Vice President

CHARLES G. W RIGHT, Assistant Vice President

JO H N J. C A P O U C H , Assistant Cashier

FRED H. G R IM M , Assistant Cashier

LE R O Y A. D A V IS, Assistant Cashier

VIC T O R A. H A N SE N , Assistant Cashier

LE R O Y W. D A W S O N , Assistant Cashier

W IL L IA M O. HUME, Assistant Cashier

F R A N C IS C. EDLER, Assistant Cashier

ROBERT E. SORG , Assistant Cashier

LESTER A. GO HR, Assistant Cashier

G EO R G E T. TUCKER, Assistant Cashier

J O H N J. ENDRES, General Auditor

LELAND M. ROSS, Chief Examiner

FRED A. D O N S, Assistant General Auditor

ELBERT O. FULTS, Assistant Chief Examiner

W IL L IA M C. GALLAG H ER, Assistant Counsel and Assistant Secretary



RUSSEL A. SW A N E Y , Vice President

W. G EO R G E R1CKEL, Assistant Cashier

R IC H A R D W. BLO O MFIELD, Assistant Vice President

ARTHUR J. W IE G A N D T , Assistant Cashier

PAUL F. CAREY, Assistant Cashier

G O R D O N W. LAMPHERE, Assistant General Counsel

January 1, 1960

Gold certificates:
Redemption fund for Federal Reserve notes .
Other h o l d i n g s ..................................
Total gold certificates.........................

December 3 1 , 1 9 5 9

1 6 7 ,6 3 3 ,9 8 5


3 ,0 0 0 ,4 5 9 ,8 9 4

3 ,3 2 6 ,2 2 7 ,4 5 3


3 ,1 8 2 ,8 1 6 ,7 1 4

3 ,4 9 3 ,8 6 1 ,4 3 8

3 9 ,9 0 9 ,5 0 0

4 0 ,2 6 7 ,0 0 0

Federal Reserve notes of other banks
Other c a s h .................................................
Total cash

December 3 1 , 1 9 5 8

1 8 2 ,3 5 6 ,8 2 0



5 8 ,7 3 3 ,7 9 9


3 ,5 9 2 ,8 6 2 ,2 3 7

3 ,8 8 5 ,0 0 0

7 4 0 ,0 0 0

Discounts and advances:
Member b a n k s ..................................
O t h e r .................................................
Total discounts and advances .

6 5 ,4 4 7 ,1 7 5
3 ,2 8 8 ,1 7 3 ,3 8 9

4 3 ,6 6 8 ,7 0 9


2 .5 5 9 .7 0 0

4 4 ,4 0 8 ,7 0 9

6 .4 4 4 .7 0 0

U. S. Government s e c u r i t i e s .........................


4 ,6 0 4 ,3 6 5 ,0 0 0

4 ,5 8 5 ,6 1 4 ,0 0 0

Total loans and securities....................


4 ,6 4 8 ,7 7 3 ,7 0 9

4 ,5 9 2 ,0 5 8 ,7 0 0


1 ,0 3 6 ,2 4 6 ,4 9 3

9 0 2 ,9 9 9 ,0 8 3

Cash items in process of collection


Bank p re m ise s............................................

1 5 ,5 9 6 ,6 3 7

1 1 ,8 2 3 ,6 3 5

Other a s s e t s ............................................

4 4 ,8 9 9 ,6 6 6

2 4 ,8 3 9 ,9 0 4


9 ,0 3 3 ,6 8 9 ,8 9 4

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


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

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


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

2 .8 0 9 .5 1 7 .5 5 9

3 9 ,3 2 0 ,5 3 0

4 8 ,6 1 9 ,1 8 5

5 1 ,5 0 4 ,0 0 0

3 3 ,6 0 5 ,0 0 0

Total a s s e t s ..................................
Federal Reserve notes in circulation


Member bank— reserve accounts
U. S. Treasurer— general account
O t h e r .................................................


Total d ep o sits,..................................


6 5 ,5 0 4 ,6 5 3

8 ,4 0 3 ,7 6 8

2 ,7 9 4 ,2 1 8 ,0 0 0

2 ,9 0 0 ,1 4 5 ,5 1 2

Deferred availability cash i t e m s ....................

7 4 7 ,3 1 8 ,5 7 7

7 2 1 ,5 0 8 ,1 6 2

Other l i a b i l i t i e s .......................................

5 ,2 3 6 ,1 0 8

3 ,9 6 7 ,4 6 6

8 ,8 7 1 ,2 1 4 ,4 9 0

8 ,9 2 8 ,3 0 1 ,9 1 0

Total l i a b i l i t i e s .............................


Capital accounts
Capital paid i n .......................................
Surplus (Section 7 ) .......................................
Other capital accounts..................................
Total liabilities and capital accounts

5 3 ,6 6 6 ,9 0 0

4 9 ,6 6 4 ,9 5 0

1 0 7 ,3 3 3 ,8 0 0

1 3 2 ,1 5 8 ,5 3 4


1 ,4 7 4 ,7 0 4

1 4 ,4 5 8 ,1 6 5


9 ,0 3 3 ,6 8 9 ,8 9 4

9 .1 2 4 .5 8 3 .5 5 9




Current earnings:



Discounts and advances
U. S. Government securities
All other



Total current earnings











Deductions from current net earnings
Net earnings






Current expenses:
Retirement contributions
Postage and expressage
Provision and maintenance of facilities
Assessment for expenses of Board of Governors
Cost of Federal Reserve currency
All other
Total .
Less reimbursement for certain
fiscal agency and other expenses
Current net expenses
Current net earnings
Additions to current net earnings:
Profits on sales of U. S. Government securities (net)
Transferred from reserves for contingencies (net) .
All other
Total additions

Paid U.S. Treasury (interest on F. R. notes) .
Transferred to Surplus (Section 7)



Surplus Account (Section 7)
Surplus January 1
Transferred to Surplus--as above
Transferred to Surplus (Section 7) from Surplus (Section 13b) .


121 ,503,625

Surplus December 31

1 07,333,800

1 32,158,534



In business— continued e x p a n sio n ,
interrupted te m p o rarily b y steel strike

jA -lth o u g h all major sectors of business
scored substantial gains in 1959 over the
levels of the previous year, there was a
marked difference between the economic
environment of the first half of the year and
that of the second half. In the first six
months, total industrial output was rising
vigorously on a broad front, continuing the
expansion which had been under way since
the spring of 1958. This advance was par­
ticularly large because of the record output
of steel which reflected, in part, the build-up
of inventories in anticipation of a possible
In the second half, the rise in over-all ac­
tivity was halted temporarily by the steel
strike which closed down 85 per cent of the
nation’s ingot capacity beginning in midJuly and kept workers away from their jobs
for 116 days. The strike was more than
twice as long as any of its predecessors in
the period since World War II. Following
the return to work on November 7, steel
output rose rapidly and, in December,
reached a new high. Over-all, industrial pro­
duction at year end had nearly regained the
pre-strike level.
Until th e strik e — a n u p su rge

By mid-1959, the nation’s annual rate of
output of goods and services had advanced
to 485 billion dollars— a new high— 6 per
cent above the level of the beginning of the
year and 13 per cent above the recession
low reached in the first quarter of 1958.
Consumer expenditures on goods and serv­
ices, by far the largest segment of total


Annual Report, 1959

spending, reached a record rate of 311 bil­
lion dollars as of midyear. This was 4 per
cent higher than at the start of the year and
8 per cent higher than in the spring of 1958.
For durable goods as a group— including
automobiles, appliances, radio-TV and fur­
niture— the comparable increases were 11
and 20 per cent.
The physical volume of industrial produc­
tion also reached a new high by mid-1959,
10 per cent above the level at the beginning
of the year and up 26 per cent from the
1958 low. The hard goods industries, as
usual, had accounted for a larger than pro­
portionate share of the 1957-58 decline in
activity, and in the succeeding 1958-59 rise
these industries were again in the forefront.
Output in the metals and metal products

H ard g o o d s output in forefront
of recession and recovery
per cent, 1957 = 100

lines, which are relatively much
Steel strike has sharper impact than
more important in the Midwest
than in most other areas, had
1 9 5 7 -5 8 recession in Gary-Hammond area
advanced 13 per cent from the
per cent, 1957 =100
beginning of the year to June of
1959 and 31 per cent from the
recession low. All the major Mid­
west hard goods industries ex­
perienced a brisk rise in orders
and output. Among the strongest
lines were steel, industrial ma­
chinery and equipment, farm ma­
million dollars, seasonally adjusted
chinery, construction equipment,
railroad freight cars and locomo­
tives, autos and trucks, house­
hold appliances and furniture.
The rise in employment had
been somewhat sluggish in late
1958. But in the first half of
1959, hirings accelerated and
employment rose by 1
persons. Unemployment, which
had been 6 per cent of the labor
force at the end of 1958 and 7 Vi
per cent in the spring of that
year, dropped to less than 5 per
cent by the spring of 1959. The
accounted for by the shift from inventory
improvement in the employment situation
liquidation to inventory accumulation.
was particularly marked in the Midwest
Other important factors which provided
where one center after another was removed
a strong push to total output were increased
from the list of “substantial labor surplus”
purchases of goods and services by the Fed­
eral Government, principally defense and
In part, the rise in activity in the first
public construction, and a higher level of
half of 1959 represented inventory build­
private residential construction.
ing, with the durable goods lines accounting
The strength of home building during
for most of the increase. Additions to steel
1959 is illustrated by the fact that building
inventories, mentioned earlier, were partic­
permits in the nation rose by more than
ularly important. But inventories of other
one-third in the first half over the same pe­
raw materials, as well as goods-in-process
riod of 1958. The Seventh District saw a
and finished goods, also rose as activity ex­
gain of similar magnitude, although the ex­
panded. About one-third of the total rise in
perience of the major urban centers varied.
activity between the first quarter of 1958
It was apparent that the principal forces
and the second quarter of 1959 was directly


Federal Reserve Bank of Chicago


which had initiated the general business up­
trend and propelled it through the first half
of 1959 were rising less rapidly at midyear.
Even without a major work stoppage, there
was reason to believe that the rate of rise in
total activity would have slowed in the sec­
ond half of the year. Nevertheless, it still ap­
peared that a 500 billion dollar rate of total
output would be achieved before year end.
The reason for this expectation was the con­
tinued and growing strength in demand for
both consumer goods and business plant
and equipment.
The economy remained basically strong
during the second half of 1959. Many ac­
tivities unaffected by the steel strike con­
tinued to move up throughout the period.
As a result, total spending on goods and
services dropped only about 1 per cent dur­
ing the third quarter, and this reduction was
more than accounted for by the change from
inventory accumulation to inventory liqui­
dation in the hard goods industries. Spend­
ing by consumers continued to rise quarter
by quarter through the year. However, be-

Rise in auto output hampered
by steel shortages in late 1959


Annual Report, 1959

tween June and October, total output of
mines and factories dropped 9 per cent. The
impact on the steel-producing and steel-fab­
ricating centers, of course, was much more
severe. In some Midwest centers, princi­
pally the Gary-Hammond area (steel) and
the Detroit and Flint areas (autos), the ef­
fect of the strike was more severe than that
of the 1957-58 recession. Nevertheless, at
year end, activity was at a record level in the
steel centers and was rising rapidly in the
auto centers.
A g o o d y e a r fo r a u to s a n d trucks

It was expected at the start of 1959 that
car and truck production and sales would
expand sharply over the depressed levels of
1958. However, for the first ten months of
1959, production topped expectations of all
but the most optimistic. Output of passenger
cars exceeded that of the same period of the
previous year by 55 per cent, and production
of trucks was up 47 per cent. But in Novem­
ber and December, steel shortages caused
production curtailments.
The popularity of smaller, more econom­
ical cars— the “compact” autos— was wel­
comed by producers located in Kenosha,
Wisconsin, and South Bend, Indiana, where
such autos were in production throughout
the year. One or more compact models was
included in the 1960 lines introduced in the
autumn of 1959 by each of the industry’s
“big three” producers. The wider selection
available to consumers, the apparent favor­
able reception accorded to the 1960 models
and the fact that steel shortages had held
down car inventories in late 1959 indicated
at year end that production of the automo­
bile industry was headed for a strong up­
ward surge.
During 1958, Michigan had been among
those states which were hardest hit by the

Unem ploym ent in Midwest centers declined in 1959
Rate of

M ay 1958

November 1958

M ay 1959

November 1959
Cedar Rapids
Des Moines

K e n o sh a

Cedar Rapids

Cedar Rapids
Des Moines

Under 3 per cent


Quad Cities

K e n o sh a

Quad Cities

Cedar Rapids

Des Moines


Des Moines



Fort W a y n e


3 - 6 per cent



Grand Rapids


K e n o sh a

L a n sin g




L a n sin g

Quad Cities

Quad Cities










S o u th B e n d



Fort W a y n e

D e tro it

Fort W a y n e

6 - 9 per cent


Grand Rapids

Terre Haute


Fort W a y n e


K e n o sh a

L a n sin g

S o u th B e n d



Terre Haute

Terre Haute

Terre Haute

Grand Rapids

Grand Rapids

L a n sin g

9 - 1 2 per cent

S o u th B e n d


O ve r 12 per cent

D e tro it

D e tro it

D e tro it




S o u th B e n d

Note: The District's major automotive centers are in bold type.

Federal Reserve Bank of Chicago


recession. All of the cities primarily con­
cerned with the manufacture of motor vehi­
cles had high rates of unemployment in May
of 1958— ranging up to and beyond 12 per
cent of the labor force. By September of
1959, these centers, with the exception of
Detroit and Flint, had ceased to be “sub­
stantial labor surplus” areas, according to
the classifications of the Department of La­
bor. Even in the latter cities unemploy­
ment had declined substantially, and further
improvement was occurring at year end as
steel flowed in increasing volume.
C a p ita l e x p e n d itu re s m o v e h ig h e r

One of the most interesting aspects of the
early phase of the recovery from the 1958
recession was the upturn in capital expendi­
tures by business firms. This upturn began

A utom otive d e ale rs led
retail sales upsurge
per cent increase, 1959 from 1958
autom otive

building m aterials

drug stores

general merchandise

to tal retail sales

furniture 8 appliances

service stations

eating 8 drinking
establishm ents



Annual Report, 1959


earlier than had been expected in view of
the large increases in capacity in 1956 and
1957. Prior to the dampening effect of the
steel strike, surveys had indicated a 9 per
cent increase in total outlays on new plant
and equipment.
A strong, broadly based upswing in capi­
tal goods spending was in progress as 1959
came to a close. The major difference be­
tween the current movement and the capital
goods expansion in 1955-57 is that the em­
phasis this time is less upon increasing ca­
pacity to produce basic materials and more
upon modernization and finishing capacity
to produce new products and semifinished
goods. Order backlogs for railroad equip­
ment, trucks and trailers, electrical appara­
tus and industrial machinery were rising
during the latter part of 1959. Despite a
slowdown in the road-building program and
in residential construction, the important
Midwest construction machinery industry
was experiencing excellent demand for its
products, partly because of the orders of
foreign buyers who constitute 30 to 40 per
cent of the market.
Prices stab ilize ?

The consumer and wholesale price in­
dexes showed considerable stability after the
spring of 1958. This stability continued
through May 1959 for consumer prices and
through the entire year for wholesale prices.
However, it was a rather uneasy stability,
made up of reductions in farm products and
foods which offset further moderate in­
creases in the prices of finished goods and
Price inflation continued a prominent
matter of public and private concern in
1959. Could the United States economy
continue in a strong expansion without gen­
erating substantial upward price pressures


as in 1956 and 1957? The answer was still
not evident at year end.
However, larger unused resources of men
and facilities than in 1955, increased foreign
competition in many kinds of commodities
and higher interest rates were helping to re­
strain upward pressures on prices. One of the
most promising signs was the fact that the

1960 models of automobiles were intro­
duced in the autumn of 1959 without any
over-all price increase for the first time in
several years. However, there were reports
that many producers were deferring consid­
eration of price hikes until the probable ef­
fects of the wage settlement in the steel in­
dustry were evaluated.

In the farm sector— expe n ditu re s rose alth ou gh income declined

X arm income declined in 1959, largely re­
flecting the effects of lower prices for hogs,
poultry and eggs. Nevertheless, farmers
spent more on purchases of machinery,
equipment and supplies as they expanded
the acreage of crops and continued to en­
large the size and improve the efficiency of
their farms. To finance these purchases,
farmers drew down demand deposits and
increased borrowings. The demand for farm
real estate remained at a high level and land
prices increased further, although at a slow­
ing pace as the year progressed.
Receipts from sales of farm products de­
clined about 2 Vi per cent in the United
States, and realized net farm income was
about 15 per cent below 1958. In each of
the five District states, cash receipts were
below the preceding year and showed a de­
cline of about 5 per cent for the area. Real­
ized net farm income probably declined
more in the District than in the nation.
In the Com Belt, the outstanding feature
of 1959 was the larger volume of hogs mar­
keted and the resulting price declines. Hog
marketings were 15 per cent above 1958,
and prices were down about 29 per cent. At
the end of the year, the price of hogs was
low relative to corn, and farmers had re­
ported plans to reduce production of hogs

in 1960. Income was also reduced by de­
clines in prices of poultry and eggs which
reached their lowest levels since before
World War II.
Prices of fat cattle remained above a year
earlier through most of 1959, reflecting a
small decline in the number of cattle slaugh­
tered. Profits realized from fat cattle sold
during the first half of the year were above
average, though not as high as in 1958. With
increased marketings toward the end of the
year, cattle prices declined. Many Corn Belt
farmers, who had paid relatively high prices
for feeder cattle in the fall of 1958 and the
first half of 1959, realized little or no profit
when these animals were sold for slaughter
in the latter part of the year. Prices of feeder
cattle declined sharply in the autumn, thus
improving the possibility of profitable fat­
tening of cattle purchased at the lower
Smaller cash receipts from livestock and
livestock products in the dairy states more
than offset increased income from crops and
resulted in lower farm income in that area
as well as in the Com Belt. Production of
milk declined in 1959 for the second succes­
sive year, following six years of increase.
The major reason was the continued rigor­
ous culling of dairy herds under the impetus

Federal Reserve Bank of Chicago


of high prices for beef. Purchases of dairy
products by the Commodity Credit Corpor­
ation were substantially reduced in 1959,
and by the end of the year the CCC’s stocks
of butter, cheese and dried milk were largely
liquidated. Even though milk prices climbed
slightly above a year earlier in the spring,
this was not sufficient to offset the effect on
income of the smaller output.
Crop production in 1959 matched the
record output in 1958 and brought further
additions to the surpluses, as reflected in the
inventory and crop loans of the CCC. At
the end of the year, the CCC stockpile

reached a new high and was expected to
total 10 billion dollars in early 1960.
The largest crop of corn ever harvested
was produced in 1959. As a result of changes
in price supports and the soil bank program,
the acreage planted to corn was increased
15 per cent. In Iowa a record acreage was
planted, and in Illinois and Indiana the acre­
ages were the largest in over thirty-five years.
The yield per acre was almost equal to the
previous yield in 1958.
The support price for corn in 1959—
$1.12 a bushel, national average— was six
cents higher than in the previous year for
most farmers. Support
prices on other feed
Corn an d livestock production increased,
grains and on soy­
large price declines for hogs and eggs cut income
beans, a major crop
alternative to corn for
Corn Belt farms, were
received by farmers
reduced and produc­
per cent change, 1959 from 1958
tion of these crops de­
clined. However, total
output of feed grains,
including corn,
climbed 5 per cent
above the previous
record output in 1958.
The high level of feed
grain p r o d u c t i o n ,
combined with large
stocks and a steady
decline in prices since
the early 1950’s, has
provided the basis for
further expansion of
livestock production.
F a r m e r s ’ use o f
credit climbed rapidly
during 1959. In Oc­
tober, “ short-term ”
farm loans outstand­
1 Pigs raised from sow s farrow ing June to M ay.
ing at member banks
2 Num ber of cattle on feed, average, January 1, April 1, July 1 and October 1.



Annual Report, 1959

in the Seventh Fed­
Farm land prices have risen sharply in District states,
eral Reserve District
surpassing the previous record high in 19 2 0
were 29 per cent
average dollar value per acre
above a year ago and
46 per cent above two
30 0 _
farm real estate prices
years ago. These in­
creases were greater
than the comparable
gains of 19 and 36 per
cent reported for the
United States.
Banks in the cattle
feeding areas of Iowa
and Illinois experi­
enced the greatest in­
crease in farm loans:
up 37 per cent in the
past year and 61 per
cent in the last two
years. In large part,
W isconsin
this r e f l e c t s the
sharply higher prices
of feeder cattle, which
in the fall of 1958
years. Agricultural banks in Iowa have had
were nearly 50 per cent above the same
the greatest increase and decline, reflecting
period in 1956. The increase in farm loans
the importance of livestock in determining
in the remainder of the District has been
farm income in that state. Time deposits at
about half as great as in these areas.
agricultural banks, however, have continued
Demand deposits at agricultural banks in
to increase in all areas of the District at
the District declined in 1959 nearly as much
about the same rate as during the preceding
as they increased in 1958. This corres­
three years.
ponded to farm income changes the past two

In b a n k in g — stro n g credit d em an d s from n e a rly all sectors
(C r e d it demands were strong during 1959.
Nearly all sectors of the economy borrowed
aggressively, but demands were exception­
ally heavy in the short-term area where
commercial banks are the predominant sup­
pliers of funds. Business firms required ad­

ditional credit to help finance the rise in
inventories and receivables and the increase
in expenditures for new plant and equip­
ment. Residential mortgages and consumer
credit outstanding rose sharply. Farmers
boosted borrowings to help finance pur­

Federal Reserve Bank of Chicago


chases of feeder cattle, machinery and real
estate. And, despite conditions of general
prosperity, the Treasury incurred a cash defi­
cit in excess of 7 billion dollars for the cal­
endar year. This deficit was about as large as
in 1958, a year which was marked by
The rising trend of business activity, ac­
companied by larger credit demands, stirred
public apprehension that inflationary pres­
sures would be intensified. To minimize
current and prospective upward pressures
on prices, monetary policy was directed to­
ward restraining the growth in bank reserves
and the supply of money. As a result, the
strong over-all demand for credit pushed in­
terest rates to higher levels.
B a n k lo a n s ro se sh a rp ly

During 1959, loans of Seventh District
member banks rose by 1.5 billion dollars, or
about 13 per cent. This increase, the largest
since 1955, compares with a rise of only 1
per cent in 1958 and 5 per cent in 1957.

Funds for additional loans provided
largely from sales of securities
billion dollars


Annual Report, 1959

Despite the substantial growth in loans, total
earning assets of member banks rose by only
1.5 per cent, compared with 7 per cent in the
preceding year. Banks sold Government se­
curities in large volume to accommodate the
growth in loans. During the year, Govern­
ment security portfolios of District member
banks were reduced by 1.3 billion dollars,
or 12 per cent.
Although all major categories of bank
loans rose substantially during 1959, the
over-all increase was dominated by the
growth in loans to businesses. After a grad­
ual rise in the first half, commercial and in­
dustrial loans rose sharply in the third
quarter and, except for the reductions in in­
ventories and receivables and the postpone­
ment of capital outlays as a result of the
steel strike, might well have continued to
increase through the year.
Until the fourth quarter, the metals and
metal products firms had shown the largest
increase in borrowings, although as inven­
tories of steel were “consumed,” these firms
reduced borrowings and acquired sizable
holdings of cash and short-term Govern­
ments. Public utilities, petroleum and chem­
ical producers, and sales finance companies
also used substantially more bank credit in
1959 than in 1958.
Many businesses borrowed at banks in
preference to floating new issues of securi­
ties. Sales of bonds and stocks for new capi­
tal were 15 per cent less than in 1958, when
a considerable amount of bank debt incurred
during the previous boom was refinanced.
The higher interest rates in 1959 probably
caused postponement of some issues of long­
term bonds. Sales of common stock were
substantially higher in 1959 than in the
year earlier but were far less than in 1957.
District banks also supplied additional
amounts of consumer and real estate credit.

A m o n g business borrow ers, b a n k lo an s to
metals and metal products
manufacturers showed largest increase

trade firms increased more than to
other seasonal credit users
million dollars

farm product dealers and processors
were similar to 1958

- 50

-1 0 0


public utilities did not decline as in 1958
when loans were repaid from proceeds
of capital issues
+ 50







-200Li i i I i i i I i i i I i i i i I i i i 1 i 1 i i i i I i i i I i i i 1 i i 1 i 111 i i i 1
1 1

fuel and chemicals producers
increased somewhat

Consumer loans increased rapidly through­
out the year. The rise in real estate loans,
mainly on residential property, reflected the
high level of housing starts and commit­
ments made to builders during the first half
of the year before the availability of credit
tightened further.

form of bills and notes as the 414 per cent
legal ceiling on coupon interest rates on
marketable Governments of more than five
years maturity precluded new issues of long­
term bonds after the spring of the year.
The basic rate charged by large banks to
top credit risks— the “prime” rate on busi­
ness loans— was increased from 4 per cent
at the beginning of the year to
per cent
in May and to 5 per cent in September,
where it remained through the remainder of
the year. In the capital markets, rates ad­
vanced despite reduced placements of new
long-term bonds. Late in the year, seasoned
high-grade corporate issues were yielding


In te re st ra te p re ssu re s

With aggregate credit demands tending to
exceed the supply of funds available, interest
rates rose almost continuously through the
year, with pressures especially strong in the
short- and intermediate-term areas. Most of
the Treasury’s new borrowing was in the

District a re a s vary in asset and deposit changes





percent chonge november 26, 1958-november 25, 1959









Annual Report, 1959



about 33z£-per cent, and tax-exempt munici­
pals over 4 per cent. Many new issues car­
ried yields well in excess of these rates.
The Federal Reserve Banks’ discount rate
charged member banks was raised three
times during 1959 and stood at 4 per cent at
year end. During 1958, the discount rate
had been as low as 1% per cent.
More than 250 member banks, about
one-fourth of the total number in the Seventh
Federal Reserve District, borrowed from the
Federal Reserve Bank of Chicago at some
time during 1959. The average daily volume
of loans and discounts was 145 million dol­
lars, about three times the 1958 level. Banks
in smaller towns accounted for an unusually
large proportion of the number of borrowers,
although a small proportion of total borrow­
ings. Many agricultural banks encountered
deposit declines at the same time that the
demand for loans was at a very high level,
especially in the cattle feeding areas.
The Federal Reserve Act was amended
in July 1959 to give the Board of Gover­
nors the power to allow vault cash to be
included in the legal reserves of member
banks. In late November, the Board an­
nounced that cash in excess of 2 per cent of
net demand deposits at central reserve and
reserve city banks and 4 per cent of net de-

In tere st rates rose further in 1959
per cent per annum

mand deposits at country banks could be
included in reserves. This change recog­
nizes the differing cash needs of individual
member banks. The increase in reserves re­
sulting from the November announcement is
quite small in the aggregate, about 230 mil­
lion dollars for all member banks in the
United States. Because seasonal needs of the
economy always call for the provision of ad­
ditional reserves in the pre-Christmas weeks,
this addition to bank reserves did not rep­
resent any basic change in monetary policy.

Federal Reserve Bank of Chicago



1914 TO 1959
Forty-five y e a rs o f B a n k o p e ratio n s

n November 15, 1959, the Federal Re­
serve Bank of Chicago completed its fortyfifth year. Since the Bank’s organization in
1914, its operations have expanded gradu­
ally in response to the requirements of a
growing economy and rapidly during the
nation’s participation in two major wars and

billion dollars

10 ‘

billion dollars


Annual Report, 1959

the Korean conflict. Cyclical swings in busi­
ness activity have also influenced the vol­
ume of operations. The relative importance
of certain functions has been altered over
the years by changes in the Federal Reserve
Act and in the financial institutions and
practices in the area. Trends in a number of
measures which give
an i n d i c a t i o n of
changes in the Bank’s
operations are shown
in the accompanying
As measured by to­
tal assets, charted at
five-year intervals, the
Bank has grown con­
tinuously. The sharp­
est rise came during
W orld W ar II; assets
more than d o u b l e d
from 1939 to 1944.
Reserve Bank as­
sets now co n sist
mainly of gold certific a t e s an d U n i t e d
States Government se­
curities. In its early
years, however, the
Bank’s principal as­
sets consisted of re­
discounts of member
banks’ com m ercial,
industrial and agricul­
tural paper and ad­
vances collateraled by

such paper. Growth of assets in the 1930’s
was mainly in the form of gold certificates
issued by the Treasury against the large vol­
ume of gold acquired following the Gold
Reserve Act of 1934. The sharp expansion
during World War II and the further in­
creases in subsequent years have come about
largely through the acquisition of Govern­
ment securities. Each Reserve Bank is re­
quired by law to maintain gold certificates
equal to 25 per cent of its note and deposit
liabilities. At the close of 1959, this Bank’s
ratio was 39.2 per cent.
The principal liabilities of a Federal Re­
serve Bank are its notes (currency) out­
standing and the reserve deposits of its
member banks. The amount of reserves is
governed mainly by System policy, but the
amount of Federal Reserve notes reflects
largely the desires of the public as to how
much currency it wishes to hold. Within in­
dividual years, seasonal factors cause sharp
fluctuations in the amount of such currency
held by the public; but over long periods of
time, the volume of notes outstanding tends
to rise gradually with the growth of popula­
tion and business activity.
At the close of 1959, reserve deposits of
District member banks totaled 2.6 billion
dollars. Successive reductions in required
reserves, relative to deposits, from the high
levels of the early Fifties explain the decline
in reserve balances over recent years despite
continued growth in deposits at member
The number of both member and non­
member banks declined sharply in the early
Thirties as the drastic declines in prices of
commodities, securities and real estate re­
sulted in the liquidation of many commer­
cial banks. During the past ten years, the
number of member banks has remained
about constant as mergers and consolida­

tions have offset the formation of new banks.
However, the number of banking offices, in­
cluding branches and branch offices, has
risen. Total assets of member banks now
comprise more than 80 per cent of the as­
sets of all banks in the Seventh Federal Re­
serve District, a somewhat higher propor­
tion than in the mid-Twenties when the
number of members was at a peak.
Employment at the Federal Reserve Bank
of Chicago reached its highest level during
the war years when an unusually large staff
was required to handle the issue and re­
demption of savings bonds and to perform
other tasks as fiscal agent of the Govern­
ment. Most of the Bank’s personnel is en­
gaged directly in activities incident to the
operation of an efficient system for the mak­
ing of financial payments. These activities
include: the par collection of checks; the
receipt, sorting and shipment of currency
and coin; the making of loans to member
banks; the purchase, safekeeping and servic­
ing of member banks’ securities; the wire
transfer of funds and Treasury securities;
and the performance of the services inherent
in the Bank’s role as fiscal agent of the
United States.
C ollections

The Bank’s largest and most rapidly
growing service function is the processing of
checks received from member banks and
other Federal Reserve Banks and branches
for collection. In 1959, a total of approxi­
mately 600 million items with a value of over
200 billion dollars was handled. This repre­
sented an increase of 5 per cent over 1958
and was triple the peak number handled
prior to World War II. The daily average
number of items processed in 1959— about
2 million— was approximately equal to the
total number handled during the entire first

Federal Reserve Bank of Chicago




billion dollars

year of the B a n k ’s
The Bank processes
Treasury checks and
postal money orders
and collects a variety
of noncash items, in­
cluding maturing se­
curities and coupons,
for member banks;
but the bulk of the
collection operation
consists of checks on
c o m m e r c i a l b a nk s .
Each check must go
through at least two
sorting operations be­
fore it is routed to the
bank on which it is
drawn. C h e c k s are
processed continu­
o us ly— twenty-four
hours a day, six days
a week. This activity
accounts for almost
half of the Bank’s to­
tal personnel. Banks
receive credit within
two business days for
checks sent to the Re­
serve Bank for collec­
tion. At the time the
Federal Reserve Sys­
tem was organized,
most checks written
on distant banks were
collected only after
c o n s i d e r a b l e d e l ay
and costly exchange
C a sh o p e ra tio n s

In addition to issu-


Annual Report, 1959

ing the Federal Reserve notes, which com­
prise about 85 per cent of the nation’s
“pocket money,” this Bank supplies to the
Seventh District member banks all the types
of currency and coin needed for their trans­
actions. Cash is constantly being shipped to
some member banks and received from oth­
ers, according to their individual needs. The
currency and coin received at the Reserve
Banks and branches is counted and credited
to the reserve accounts of the remitting
banks. Currency and coin which has been
damaged is withdrawn from circulation and
replaced with new stock received from the
Bureau of Engraving and Printing and the
United States mint. Worn-out Federal Re­
serve notes are sent to the Treasury for de­
struction, but Treasury currency — mostly
one dollar bills— is cancelled and destroyed
at the Reserve Banks.
In 1959, the Federal Reserve Bank of
Chicago received and counted 820 million
pieces of currency, having a value of 5.0
billion dollars. The trend in this operation
has been quite steadily upward for the past
two decades.
Close to 1.5 billion coins were received
and counted in 1959, and almost 2.3 billion
were shipped to member banks. About 90
per cent of all coin shipped was in wrapped
form, a service that has been available to
member banks since 1946. The postwar ex­
pansion in the volume of coin handled re­
flects the growth of the economy, the mak­
ing available of wrapped coin and the wide­
spread use of automatic vending machines,
parking meters and other coin-operated, selfservice devices.
D iscou nts a n d a d v a n c e s

The provision of credit to individual mem­
ber banks to assist them during temporary
periods of unexpected stress has always been

an important function of the Federal Re­
serve Banks. In the early years of the Sys­
tem, discounting of commercial and agri­
cultural paper was the principal means by
which Reserve Bank credit was extended.
Use of the “discount window” was designed
to automatically provide an “elastic” cur­
rency suited to the changing needs of the
In the 1930’s, legislation was enacted to
permit banks to borrow on any satisfactory
asset. But banks had a large volume of ex­
cess reserves during this period and there
was little need to borrow. During and fol­
lowing World War II, banks held large port­
folios of Government securities and com­
mercial banks usually sold securities, rather
than borrowed, to acquire needed reserves.
As the excess liquidity of the early postwar
years was absorbed and support levels for
U. S. securities abandoned, member banks
began to make more extensive use of the
discount window. During 1959, about 3,500
discounts and advances totaling more than
15 billion dollars were made to member
banks in the Seventh Federal Reserve Dis­
trict. In recent years, almost all borrowing
has been done through advances on Govern­
ment securities, although a few member
banks have rediscounted customers’ notes.
S a fe k e e p in g securities

Over 7.2 billion dollars of securities, in­
cluding those pledged as collateral for Treas­
ury deposits at commercial banks, were held
in custody for banks and other owners at
the end of 1959. Coupons on securities in
custody are clipped and redeemed when
payable. The proceeds are normally credited
to the reserve account of the owner-bank or
its correspondent. These totaled 218 million
dollars last year.
Funds may be transferred for banks and

Federal Reserve Bank of Chicago


thousand p•eces


securities received
for safekeeping



0 L-----~--~----------~----------~----~----L_____.

their customers
through a network of
leased wires maintained by the Federal
Reserve System.
Transfers totaling 240
billion dollars in 1959
were three times the
volume of ten years
Fiscal agency

cash received


0 ~--------------------~---------------------------1954

m•l lion p1eces


checks collected


3001 - - - - - -


-----u.s Government-






Annual Report, 1959





Services performed
for the Treasury Department currently account for about 15
per cent of the Bank's
total work force.
Foremost among these
tasks is the servicing
of the United States
Government debt: the
issuance and redemption of savings bonds
and marketable Treasury securities, payment of interest coupons on these
securities, denominational exchanges and
telegraphic transfers
of securities.
This Bank also acts
as fiscal agent for the
Commodity Credit
Corporation, receiving
deposits for the CCC's
account and paying
drafts issued by the
Commodity Stabilization Service offices. In
addition, the Federal

Reserve Bank of Chicago maintains a share
of the Treasurer's General Account and receives and processes Government checks. It
qualifies commercial banks and other corporations in the Seventh District as issuing
agents for Series E savings bonds, supplies
bonds to be issued and approves financial
institutions to redeem savings bonds for
Records are kept of all deposits and withdrawals in Treasury Tax and Loan Accounts
at some 2,000 of the District's banks which
serve as Treasury Tax and Loan depositaries. Payments of withheld taxes and certain
excise taxes and payments for newly issued
Treasury securities are credited to the Treasury's accounts at these depositary banks until they are needed by the Treasury.

The volume of fiscal agency operations,
of course, varies with Government receipts,
expenditures and debt transactions. These
functions constituted a rather small part of
the Bank's operations prior to the huge expansion of debt during World War II. The
largest of these activities currently is the
processing of U.S. savings bonds. In 1959,
almost 18 million savings bonds were issued
and over 16 million were redeemed. The
number of transactions in marketable issues
is much smaller than for savings bonds, although the dollar volume is much larger. In
1959, the activity in marketable Government securities was unusually high as many
individuals, attracted by high yields, placed
investment funds in the so-called "magic 5's"
and other new issues of Treasury notes.


■ i